Stock code: 2374

ABILITY ENTERPRISE CO., LTD.

2018 Annual Report

Search the annual on the website: http://mops.tse.com.tw ABILITY website: http://abilitycorp.com.tw Date of publication: May 25th, 2018

PLEASE READ FOLLOWING NOTICE BEFORE USING THIS REPORT

Readers are advised that the original version of the report is in Chinese. If there is any conflict between these financial statements and the Chinese version or any difference in the interpretation of the two versions, the Chinese-language report shall prevail.

In addition, certain of our financial information have been published in accordance with requirements of the Republic of China Securities and Futures Commission and are presented in conformity with accounting principles generally accepted in the Republic of China. Readers should be cautioned that these accounting principles differ in many material respects from accounting principles generally accepted in other countries.

Except as required by law, we undertake no obligation to update any forward-looking statement, whether as a result of new information, future events, or otherwise.

The materials and information provided on this report have been issued by Ability and are posted solely for informational purposes and is not an offer to buy or sell or a solicitation of an offer to buy or sell any securities issued by us or otherwise.

SPOKESPERSON

Name: Tseng, Ming-Jen Title: Chairman & President Tel: +886-2-85229788 E-mail: [email protected]

DEPUTY SPOKESPERSON

Name: CHENG, KO-JEN Title: Investor Relations Manager Tel: +886-2-85229788 E-mail: [email protected]

COMPANY HEADQUARTERS

Address: No.200, Sec. 3, Zhonghuan Rd., Xinzhuang Dist., New Taipei City 24242, Taiwan Tel: +886-2-85229788

Fax: +886-2-85229789

COMMON SHARES TRANSFER AGENT

Company: China Trust Commercial Bank Corporate Trust Operation and service Department Address: 5F, 83, Sec. 1, Chung-Ching S. Rd. Taipei 100, Taiwan Tel: +886-2-6636-5566 http://www.chinatrust.com.tw

AUDITORS

CPA Firm: PricewaterhouseCoopers Taiwan Name of CPA: Hsu, Sheng-Chung and Audrey Tseng Address: 27F, No. 333, Sec. 1, Keelung Rd., Xinyi Dist., Taipei 11012, Taiwan Tel: +886-2- 27296666

https://www.pwc.tw

ABILITY WEBSITE

http://abilitycorp.com.tw

C o n t e n t s

Letter to Shareholders .................................................................................................................... 1 2. Company Profile .............................................................................................................................. 4 2.1 Date of Incorporation............................................................................................................ 4 2.2 Company History ................................................................................................................... 4 3. Corporate Governance Report ........................................................................................................ 5 3.1 Organization Structure .......................................................................................................... 5 3.2 Board of Directors and Management Team ......................................................................... 6 3.3 Implementation of Corporate Governance ........................................................................ 18 3.4 Audit Fee ............................................................................................................................. 45 3.5 Information on Change of CPA. .......................................................................................... 45 3.6 Audit Independence ............................................................................................................ 45 3.7 Status of Net Change in Shareholding and Shares Pledged ................................................ 46 3.8 Relationship among the Top Ten Shareholders........................................................... ...... 47 3.9 Ownership of Shares in Affiliated Enterprises .................................................................... 48 4. Capital Overview ........................................................................................................................... 49 4.1 Capital and Shares ............................................................................................................... 49 4.2 Bonds ................................................................................................................................... 54 4.3 Preferred Stock ................................................................................................................... 54 4.4 Global Depository Receipts ................................................................................................. 54 4.5 Employee Stock Options ..................................................................................................... 54 4.6 Employee Restricted Stocks ................................................................................................ 55 4.7 Status of New Shares Issuance in Connection with Mergers and Acquisitions .................. 57 4.8 Plans and Implentation of Funds Utilization ....................................................................... 57 5. Business Overview ........................................................................................................................ 59 5.1 Business Activities ............................................................................................................... 59 5.2 Market and Sales Overview ................................................................................................ 67 5.3 Status of Employees ............................................................................................................ 72 5.4 Expenditure on Environmental Protection ......................................................................... 73 5.5 Employee Relations ............................................................................................................. 73 5.6 Important Contracts ............................................................................................................ 76 6. Financial Information .................................................................................................................... 77 6.1 Five-Year Financial Summary .............................................................................................. 77 6.2 Five-Year Financial Analysis ................................................................................................ 81 6.3 Audit Committee’s Review Report .................................................................................... 84 6.4 Consolidated Financial Statements ..................................................................................... 85 6.5 Non-Consolidated Financial Statements ............................................................................. 85 6.6 Financial Difficulties ............................................................................................................ 85 7. Review of Financial Position, Management Performance and Risk Management ....................... 86 7.1 Analysis of Financial Status ................................................................................................. 86 7.2 Analysis of Operating Results .............................................................................................. 87 7.3 Analysis of Cash Flow .......................................................................................................... 88 7.4 Major Capital Expenditure Items and Impact on Finance and Business ............................ 88

7.5 Investment Policy ................................................................................................................ 88 7.6 Analysis of Risk Management ............................................................................................. 89 7.7 Other Major Risks. ............................................................................................................... 92 8. Other Special Notes ...................................................................................................................... 93 8.1 Summary of Affiliated Companies ...................................................................................... 93 8.2 Private Placement of Securities in the Most Recent Years ............................................... 100 8.3 The Shares of the Company Held or Disposed of by the Subsidiaries .............................. 100 8.4 Other Mentionable Items ................................................................................................. 100 9. Any Events in the Most Recent Years and as of the Date of this Annual Report that had Significant Impacts on Shareholders’ Right or Security Prices as Stated in Item 2 Paragraph 2 of Article 36 of Securities and Exchange Law of Taiwan: ................................. 100

1.Letter to Shareholders

Thank you to join Ability’s 2018 Annual Shareholders’ Meeting. Deeply appreciate your support. Hereby, Ability Business Report of 2017 and our future plan shall be presented as following:

Recently, the booming development of smart phone and various personal mobile devices drives the drastically speedy growth of image industry in diversified application. It satisfies the amusement of visual image application of audio and video in everybody’s daily life, from which derivative business chances are created, such as image taken and then be shared in social media, transformation of real scene to virtual reality, flat image upgraded to three dimension image, and upload video to live broadcasting. The application trend indicates Optical science is not limited in image taken; it already creates the value, analysis and application of image data. Ability has been continually developing the optical images technique with our research sources and resulted in the products of digital camera, sports cam, 360 degree cam, supervision cam, wearing cam.

In 2017, our consolidated revenue is of NT$11,201,600,000 which is 1.78% growth in comparing with 2017 revenue. Profit after tax is NT$217,663,000 with EPS 0.77 per common share.

In order to earn profit for shareholders and employees, Ability aggressively optimizes our management & cost structure and transform business field. Accordingly, with the strong support of our integration on optical, mechanical & electronic technique and our image resolution technique, Ability continuously expand the product application, build the competitive component supply chain, diversify product range, enforce our core value, and create new business models.

1.1 2017 BUSINESS REPORT

1.1.1 Business performance

Unit: NT$ thousands

	Unit: NT$ thousands	Unit: NT$ thousands
Item	2017
	Consolidated	Non-Consolidated
Sales revenues	11,201,600	9,959,455
Net operatingmargin	1,416,172	1,059,880
Operatingexpenses	1,351,319	1,045,973
Net OperatingIncome	64,853	13,907
Income before Tax	228,281	220,793

1.1.2 Analysis of Financial Income and Profitability `：`

Unit: NT$ thousands

			Unit: NT$ thousands	Unit: NT$ thousands
Item	Year		2017
			Consolidated	Non-Consolidated
Financial Income and Expenses	Sales revenues		11,201,600	9,959,455
	Net operatingmargin		1,416,172	1,059,880
	Net income		206,938	217,663
Profitability	Return on total assets(%)		1.63	1.77
	Return on stockholders' equity (%)		2.40	2.59
	Ration on capital(%)	OperatingIncome	2.30	0.49
		Income before Tax	8.08	7.82
	Netprofit margin(%)		1.84	2.19
	Earningsper Share(NT$)		0.77	0.77

1.1.3 Research Development

The mobile devices development is fast and new. In realizing the arisen competition, Ability’s product plan and RD policy shall fit the various market demanding. Except the basic term of high resolution image, high ratio optical zoom, motion image quality, and high speed of image processing, Ability has input certain resources on the development of lens image taken on cam module, hardware and image algorithm for software & APP. New application and features of wireless sharing & live broadcasting result in our products of 360 degree cam, VR and AR. In future, you will see we utilize the advantage in the vertical integration on optical lens development, wireless communication technique and cooperation of supply chain to develop the products of security, auto and mechanical vision. More than that, we shall invest more resources to research and develop the techniques of system application requiring image modules.

1.2 2018 BUSINESS DEVELOPMENT PLAN

Ability aggressively upgrades the features of digital camera in high ratio zoom and 4K high motion image to match the transformation demanding from our major DSC customers who are facing the industry decline of digital camera. Also our effort on VR, AR and 360 degrees cam has successfully help us to attract more customers in various territories.

We plan to devote our resources on image taken module to target on image solution for different application on modern manufacture and daily life to cooperate with various partners in each individual business. Wish Ability is the chosen supplier and cooperate partner on the image devices whichever it is to all companies who require image device in their products or business models.

Internally, Ability will continue to control cost and expense and the management team will flexibly drive the organization to improve the sales performance and win profit.

1.3 GREEN PRODUCT, ENVIROMENT PROTECTION, INFORMATION PROTECTION

The system of production, environment protection, information protection and security which meet the regulation of EU RoHS/WEEE/ErP has been properly merged into Ability management. This assists us to win the auditing certificate of green product from our customers. Ability execute the green product design, carbon footprint inventory, information protection, communication with our suppliers on the same global green environment protection. Wish our effort will help us to have a evergreen and long lasting world.

Deeply appreciate the strong and sincere support from all the shareholders during Ability’s transformation.

Wish all shareholders luck and healthy!

Chairman & CEO : Tseng, Ming-Jen

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2. Company Profile

2.1 Date of Incorporation: May 21, 1965

2.2 Company History

In 1965,Mr. C. H. Tong, CEO of ABICO GROUP, got the agent right of Canon electronic calculator in the territory of Taiwan; since then, Ability’s Channel. Business started. Ability not only successfully grow into a business group but also assisted many cooperated companies in their relative business fields.

Ability created a tremendous sales performance of copy machine in 1977 and was the leading company in comparison with the other brands copy machine agent. During the next decade, Ability introduced many office business equipment, such as electronic typewriter, microfilm, printer, digital telephone system, color copier,…etc.. Ability was an outstanding company in the field of office business machines.

In 1991, Ability restructured the management to be Business Unit to face the trend of business; Canon Inc. became the shareholder of Ability in 1993. And, Ability went to public on Jan. 16, 1995. From now on, Ability steps onto another milestone of company management.

Viewquest Technologies Inc. (Viewquest), who was the largest webcam manufacturer and has started to develop digital camera, was merged into Ability on Jan. 1, 2003. From this turning point, Ability marches into the era of manufacture. Accordingly, the company management has been diversified to be Channel Business Unit, Optic Business Unit and Investment Business Unit. The specialized management team ran the manufacture business and the original owner family ran the distributor channel business. All three business units well cooperated and devoted to create profit for the company.

Asustek Computer Inc. (Asus), one of the largest computer manufactures, swap shares with ABICO Group in Sep. of 2007. This strategic alliance would like to utilize the mutual resources to expand the market scheme of other optical products and makes more development chance for Ability in the field of digital image product and other upstream components.

In Aug., 2007, the company ceded the rental and distribution business unit to its affiliated company-Ability International Co., Ltd. and in Nov., 2007, the company split Ability International Co., Ltd out and sold it to ABICO INVESTMENT GROUP.

To look back each important event- to merge Viewquest in 1993 and to sell the Copy machine channel business to the original family owner-ABICO GROUP, you will find Ability has transformed from family enterprise to be big ODM/OEM manufacturer run by the specialized management team in the ways of business model, product strategy, management policy, and shareholders structure. To execute the company philosophy of concentrating on core tech and business, Ability has been specializing in DMS manufacturer of digital image product and takes an role of DSC design in the world.

3. Corporate Governance Report

3.1 Organization Structure

3.1.1 Organization Chart

3.1 Organization Structure 3.1.1 Organization Chart	3.1 Organization Structure 3.1.1 Organization Chart	3.1 Organization Structure 3.1.1 Organization Chart	3.1 Organization Structure 3.1.1 Organization Chart	3.1 Organization Structure 3.1.1 Organization Chart
Audit Committee Compensation Committee					Chairman Audit Office President Shareholders’ Meeting Board of Directors

Optical Design Center	Operation Center	Imaging Systems Unit		Consumer Imaging Business unit		Research & Development Center	Imaging Module Business Unit	Manufacturing Center	Quality Center	Finance & Accounting Div	Information Technology. Div.
3.1.2 Major business of each Div.
Div. Name			Major Business
Optical Design Center			Strategy plan and execution of Optic Lens and technique
Operation Center			Consolidation of manufacture, sale and management. Material procurement,cost control, personnel,administration arrangement.
Imaging System Business Unit			Marketing & Sales of Digital Imaging Product
Consumer Imaging Business Unit			Marketing and Sales of DSC and other relative products
Research and Development Center			Research and development on the brand new technique & advanced product and to support all business units onproduct development.
Imaging Module Business Unit			RD, Product planning and marketing of optic module and component
Manufacturing Center			Manage the manufacturing process, planning and its relative matters
Quality Center			Quality assurance & maintenance on product development, manufacture and customers after sales.
Finance & AccountingDiv			Planning and execution on company finance and accounting
Information Tech Div			Information development & strategy, computer system development & setup & the relative management; promotion & maintenance on data security.

3.2.Board of Directors and Management Team

3.2.1 Introduction of Board of Directors

						As of 04/13/2018	As of 04/13/2018	As of 04/13/2018	As of 04/13/2018	As of 04/13/2018	As of 04/13/2018	As of 04/13/2018	As of 04/13/2018	As of 04/13/2018	As of 04/13/2018
Title Name	Nationality	Gender	Date Elected	Term (Years)	Date First Elected	Shareholding when Elected		Current Shareholding		Current Shareholding of Spouse or Minor Children		Shareholding by Nominee Arrangement		Experience (Education)	Selected Current Positions
						Shares	%	Shares	%	Shares	%	Shares	%
Chairman Tseng, Ming-Jen	R.O.C.	Male	06/29/2016	3	10/03/2007	1,029,129	0.36	1,209,093	0.43	249,524	0.09	0	0.00	.CHARIMAN & CEO ABILITY ENT. CO., LTD. .MBA -TamKang University .EE Dept.,National Taiwan University.	.Chairman`：`ABILITY INTERNATIONAL INVESTMENT CO., LTD.`、`ABILITY ENTERPRISE (BVI) CO.,LTD.`、`VIEWQUEST TECH. (BVI) INC.`、`ACTION PIONEER INTL`、`Ability Tech. (Dongguan) Co., Ltd`、`JIUJIANG VIEWQUEST ELECTRONICS INC.`、`VIEWQUEST TECHNOLOGIES (DONGGUAN) CO., LTD`、`E-PIN OPTICAL INDUSRY CO.,LTD.`、`VIEWQUEST INVESTMENT Co. Ltd. .Director`：`VIEWQUEST TECHNOLOGIES INTERNATIONAL INC`、`ABILITY I VENTURE CAPITAL CORPORATION .Supervisor`：` Flytech TechnologyCo.,Ltd
Director VIEWQUEST Investment Co. Ltd. Rep. : Tsay, Wen-Bin	R.O.C.	─	06/29/2016	3	06/29/2016	225,000	0.08	1,650,000	0.58	0	0.00	0	0.00	None	None
		Male	06/29/2016	3	10/03/2007	60,543	0.02	150,523	0.05	179	0.00	0	0.00	.VICE PRESIDENT ABILITY ENTERPRISE CO., LTD.IMAGING SYSTEM BUSINESS UNIT,CONSUMER IMAGING BUSINESS UNIT .Master EE, State University of New York .Bachelor EE, National Taiwan University	.Director`：` VIEWQUEST TECHNOLOGIES INTERNATIONAL INC`、`JIUJIANG VIEWQUEST ELECTRONICS INC.`、` VIEWQUEST TECHNOLOGIES(DONGGUAN)CO., LTD .Supervisor`：` Flytech Technology Co.,Ltd

Title Name	Nationality	Gender	Date Elected	Term (Years)	Date First Elected	Shareholding when Elected	Shareholding when Elected	Current Shareholding	Current Shareholding	Current Shareholding of Spouse or Minor Children	Current Shareholding of Spouse or Minor Children	Shareholding by Nominee Arrangement	Shareholding by Nominee Arrangement	Experience (Education)	Selected Current Positions
						Shares	%	Shares	%	Shares	%	Shares	%
Director VIEWQUEST Investment Co. Ltd. Rep. : Chou, Cheng-Wei	R.O.C.	─	06/29/2016	3	06/29/2016	225,000	0.08	1,650,000	0.58	0	0.00	0	0.00	None	None
		Male	06/29/2016	3	06/29/2016	147,189	0.05	291,159	0.10	0	0.00	0	0.00	.Vice President/R&D Center Ability Ent. Co., Ltd .Master /Information Engineering Dept., National Taiwan University	None
Director AVY Precision Tech. Inc Rep.:Tong, Chun-Jen	R.O.C.	─	06/29/2016	3	06/29/2016	288,544	0.10	4,138,544	1.47	0	0.00	0	0.00	None	None
		Male	06/29/2016	3	05/29/1998	548	0.00	548	0.00	88,548	0.03	0	0.00	.Chairman Avy Precision Tech. Inc. .Master New Jersey Institute of Technology. Information Dept.	.Chairman`：` Avy Precision Tech. Inc.`、`Avy Co., Ltd.`、` Abico Plus Entertainment Ltd.`、`1 Production Film.Co. ARES Office Co., Ltd. . Vice Chairman`：` Abico NetCom Co., Ltd. .Director`：` Ability International Tenancy Co., Ltd`、` Taishiba International Co., Ltd.`、`Taiwan Sanyo Electric Co., Ltd.`、`JaBon International Co., Ltd.`、`Seinoh Optical Co., Ltd.`、`Ability Venture Capital Corp.`、` Jentech PrecisionIndustrial Co., Ltd. .Supervisor`：`Sojean Intl.Co. .Remuneration Committee`：` Taisun Ent.,Ltd.
Director AVY Precision Tech. Inc Rep.: Huang, Li- An	R.O.C.	─	06/29/2016	3	06/29/2016	288,544	0.10	4,138,544	1.47	0	0.00	0	0.00	None	None
		Male	06/29/2016	3	06/29/2016	9,996	0.00	9,996	0.00	529	0.00	0	0.00	.MBA, IESE Business School	.Director`：`iCatch Technology, Inc.`、`ABICO NetCom Co, Ltd

Title Name	Nationality	Gender	Date Elected	Term (Years)	Date First Elected	Shareholding when Elected	Shareholding when Elected	Current Shareholding	Current Shareholding	Current Shareholding of Spouse or Minor Children	Current Shareholding of Spouse or Minor Children	Shareholding by Nominee Arrangement	Shareholding by Nominee Arrangement	Experience (Education)	Selected Current Positions
						Shares	%	Shares	%	Shares	%	Shares	%
Director Lin Shih Investment Co., Ltd. Rep.: Chan,Wen- Hsiung	R.O.C.	─	06/29/2016	3	06/17/2010	3,163,799	1.12	5,433,757	1.92	0	0.00	0	0.00	None	.Director`：` iCatch Technology, Inc. .Supervisor`：`Sunplus mMobile Inc.
		Male	06/29/2016	3	06/17/2010	0	0.00	0	0.00	0	0.00	0	0.00	.MBA - National Taiwan University, .Department of Aeronautics and Astronautics , National Cheng Kung University	.Chairman`：` iCatch Technology, Inc.`、`(eChem Solutions Corp. .Director :UNPLUS TECHNOLOGY CO.,LTD.`、`UNEXT TECHNOLOGY CO.,LTD.`、`ABILITY ENTERPRISE CO., LTD.`、`PANJIT International Inc.`、`VEMAR CO., LTD.`、`Taiwan Laf’e Co., Ltd .Independent Director`：`Ko Ja (Cayman) Co., Ltd.`、`BIOSTAR MICROTECH INTERNATIONAL CORP. .Supervisor`：`Epileds Technologies, Inc.`、` MILDEX OPTICAL INC.`、`Hiyes International Co., Ltd.`、`E-Pin Optical IndustryCo. Ltd.
Independent Director Lam,Tai-Seng	R.O.C.	Male	06/29/2016	3	06/29/2016	0	0.00	0	0.00	0	0.00	0	0.00	.EMBA Guanghua School of Management,Peking University .EMBA of National Chengchi University .Department of electronic engineering, National Taiwan University .Assistant manager of Hai Tong computer Co.,Ltd	Chairman of Flytech Technology Co.,Ltd

Title Name	Nationality	Gender	Date Elected	Term (Years)	Date First Elected	Shareholding when Elected	Shareholding when Elected	Current Shareholding	Current Shareholding	Current Shareholding of Spouse or Minor Children	Current Shareholding of Spouse or Minor Children	Shareholding by Nominee Arrangement	Shareholding by Nominee Arrangement	Experience (Education)	Selected Current Positions
						Shares	%	Shares	%	Shares	%	Shares	%
Independent Director Chen, Kuo-Hong	R.O.C.	Male	06/29/2016	3	06/29/2016	0	0.00	0	0.00	0	0.00	0	0.00	.Vice Chairman & CSO - Stark Technology Inc. .Chairman - Chaintel Technology Co., Ltd. .Chairman - Howteh Technology Co., Ltd. .Director -Tailyn Techonlogies, Inc. .Department of Electrical Engineering, National Taiwan University	.Vice Chairman & CSO- Stark Technology Inc. .Chairman- Chaintel Technology Co., Ltd. .Chairman- Howteh Technology Co., Ltd. .Director-Tailyn Techonlogies, Inc. .Independent Director-Flytech Technology Co., Ltd
Independent Director Lu,Chien-Min	R.O.C.	Male	06/29/2016	3	06/29/2016	0	0.00	0	0.00	0	0.00	0	0.00	.CFO, Sintronic Technology Co., Ltd.`、`CFO, Sintronic Technology Co., Ltd.`、` Financial Manager,`、` United Microelectronics Co. Financial Manager, Chiao Tung Bank Co., Singapore Branch`、` .Supervisor: Hi-Light Tek Co., Ltd.`、` Giantplus Technology Co., Ltd. .MBA, California State University`、` .Department of Finance, National Chengchi University	.Chairman: Service & Quality Technology Co., Ltd.

a. Major shareholders of the institutional shareholders (top 10 shareholders and its shareholding percentages)

Name of Institutional Shareholders	Major Shareholders of the Institutional Shareholders	(%)
	Tseng,Ming-Jen	20.00
VIEWQUEST Investment Co.
	TSENG,FANG-HSUAN	60.00
Ltd.
	LIN,HUI-FEN	20.00
AVY Precision Technology Inc.	AbilityInvestment co.,Ltd.	22.23
	ABILITY ENTERPRISE CO.,LTD.	12.88
	TAISHIBA INTERNATIONAL CO.,LTD.	1.13
	AVY COMPANY LIMITED	0.73
	YEH,YUNG-HSIUNG	0.72
	KUO,CHING-SUNG	0.71
	CHE AN integrated marketingCo.,Ltd.	0.71
	Taipeifubon Bank as trustee for HUNG YEN COMPANY investment account	0.60
	HSBC as trustee for AG Singapore	0.54
	HSBC as trustee for Merrill Lynch International	0.52
Lin Shih Investment Co.,Ltd.	SUNPLUS TECHNOLOGY CO.,LTD.	100.00

b. Major shareholders of major corporate shareholders listed above

Name of Institutional Shareholders	Major Shareholders of the Institutional Shareholders	(%)
Ability Investment co., Ltd.	HENG NENG INVESTMENT CO.,LTD.	19.92
	CHIA NAI INVESTMENT CO.,LTD.	19.27
	TUNG,I-NAI	7.64
	CHIA MEI INVESTMENT CO.,LTD.	7.18
	TUNG,TENG-CHI-TZU	6.18
	TUNG,I-CHIA	4.80
	CHIEH SHIH EN INVESTMENT CO.,LTD.	3.87
	TUNG,CHUN-I	3.23
	KAI HIS INVESTMENT CO.,LTD.	2.92
	TUNG,CHIUNG-HSIN	2.58
AVY COMPANY LIMITED	AVY Precision TechnologyInc.	100.00

Name of Institutional Shareholders	Major Shareholders of the Institutional Shareholders	(%)
	Huang,Chou-Chye	15.67
	LIU,TE-CHUNG	2.20
	Global View Co.,Ltd.	1.70
	Standard chartered in custody for Vanguard EmergingMarkets Stock Index Fund	1.58
	KUNG,CHIH-HAO	1.37
SUNPLUS TECHNOLOGY CO.,LTD.	Citibank (Taiwan) Commercial Bank is entrusted to custody of the Norwegian central bank	1.27
	Citibank (Taiwan) Commercial Bank is entrusted to custody of the Emerging Markets Fund	1.25
	LI,WEN-CHIN	1.18
	HSBC as trustee for the Emerging Market Small Capital stock Fund	1.02
	Citibank (Taiwan) Commercial Bank entrusted custody of the emerging market assessment fund investment account	1.01

c. Professional Qualifications and Independence Analysis of the Board Directors

As of 04/30/2018

Criteria Name	Meet One of the Following Professional Qualification Requirements, Together with at Least Five Years Work Experience	Meet One of the Following Professional Qualification Requirements, Together with at Least Five Years Work Experience	Meet One of the Following Professional Qualification Requirements, Together with at Least Five Years Work Experience	Independence Criteria (Note 1)	Independence Criteria (Note 1)	Independence Criteria (Note 1)	Independence Criteria (Note 1)	Independence Criteria (Note 1)	Independence Criteria (Note 1)	Independence Criteria (Note 1)	Independence Criteria (Note 1)	Independence Criteria (Note 1)	Independence Criteria (Note 1)	Number of Other Public Companies in Which the Individual is Concurrently Serving as an Independent Director
	An Instructor or Higher Position in a Department of Commerce, Law, Finance, Accounting, or Other Academic Department Related to the Business Needs of the Company in a Public or Private Junior College, College or University	A Judge, Public Prosecutor, Attorney, Certified Public Accountant, or Other Professional or Technical Specialist Who Has Passed a National Examination and Been Awarded a Certificate in a Profession Necessary for the Business of the Company	Have Work Experience in the Areas of Commerce, Law, Finance, or Accounting, or Otherwise Necessary for the Business of the Company	1	2	3	4	5	6	7	8	9	10
Tseng, Ming-Jen	N	N	Y			ˇ	ˇ	ˇ	ˇ	ˇ	ˇ	ˇ	ˇ	0
Tsay,Wen-Bin	N	N	Y			ˇ	ˇ	ˇ	ˇ	ˇ	ˇ	ˇ		0
Chou, Cheng-Wei	N	N	Y			ˇ	ˇ	ˇ	ˇ	ˇ	ˇ	ˇ		0
Tong, Chun-Jen	N	N	Y	ˇ	ˇ	ˇ	ˇ		ˇ	ˇ	ˇ	ˇ		0
Huang,Li-An	N	N	Y	ˇ	ˇ	ˇ	ˇ	ˇ	ˇ	ˇ	ˇ	ˇ		0
Chan,Wen-Hsiung	N	N	Y	ˇ	ˇ	ˇ	ˇ	ˇ	ˇ	ˇ	ˇ	ˇ		2
Lam,Tai-Seng	N	N	Y	ˇ	ˇ	ˇ	ˇ	ˇ	ˇ	ˇ	ˇ	ˇ	ˇ	0
Chen, Kuo-Hong	N	N	Y	ˇ	ˇ	ˇ	ˇ	ˇ	ˇ	ˇ	ˇ	ˇ	ˇ	1
Lu,Chien-Min	N	N	Y	ˇ	ˇ	ˇ	ˇ	ˇ	ˇ	ˇ	ˇ	ˇ	ˇ	0

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.

Not an employee of the Company or any of its affiliates.
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.
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.
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.
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.
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.
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”.
Not having a marital relationship, or a relative within the second degree of kinship to any other director of the Company.
Not been a person of any conditions defined in Article 30 of the Company Act.
Not a governmental, juridical person or its representative as defined in Article 27 of the Company Act.

3.2.2 Introduction of the Management Team

											As of 04/13/2018 Selected Current Positions Refer to Introduction of Board of Directors Refer to Introduction of Board of Directors Refer to Introduction of Board of Directors None Ability Tech. (Dongguan) Co., Ltd`、` VIEWQUEST TECHNOLOGIES (DONGGUAN) CO.`、`JIUJIANG VIEWQUEST ELECTRONICS INC. Supervisor`：`ABILITY INTERNATIONAL INVESTMENT CO., LTD.
Title Name	Nationality	Gender	Date First Elected	Current Shareholding		Spouse or Minor Children		Shareholding by Nominee Arrangement		Experience (Education)	Selected Current Positions
				Shares	%	Shares	%	Shares	%
Chairman and CEO Tseng, Ming-Jen	R.O.C.	Male	92.01	1,209,093	0.43	249,524	0.09	0	0.00	.CHARIMAN & CEO ABILITY ENT. CO., LTD. .MBA -TamKang University .EE Dept.,National Taiwan University.	Refer to Introduction of Board of Directors
Vice President Chou, Cheng-Wei	R.O.C.	Male	101.01	291,159	0.10	0	0.00	0	0.00	.Vice President/R&D Center Ability Ent. Co., Ltd .Master /Information Engineering Dept.,National Taiwan University	Refer to Introduction of Board of Directors
Vice President Tsay, Wen-Bin (Note)	R.O.C.	Male	98.12	150,523	0.05	179	0.00	0	0.00	.VICE PRESIDENT ABILITY ENTERPRISE CO., LTD. IMAGING SYSTEM BUSINESS UNIT,CONSUMER IMAGING BUSINESS UNIT .Master EE, State University of New York .Bachelor EE, National Taiwan University	Refer to Introduction of Board of Directors
Assistant Vice President Tommy Lee	R.O.C.	Male	92.08	0	0.00	0	0.00	0	0.00	. Assistant Vice President/R&D Center Ability Ent. Co., Ltd. .Dept. of EC,Taiwan Tech	None
Assistant Vice President Adams Chen	R.O.C.	Male	104.06	74,354	0.03	0	0.00	0	0.00	.Assistant Vice President/MFG Center Ability Ent. Co., Ltd .Dept. of EC,TPCU	Ability Tech. (Dongguan) Co., Ltd`、` VIEWQUEST TECHNOLOGIES (DONGGUAN) CO.`、`JIUJIANG VIEWQUEST ELECTRONICS INC.
Chief Financial Officer Lin, Hung-Tien	R.O.C.	Male	97.10	59,987	0.02	0	0.00	0	0.00	.CFO, Ability Ent. Co., Ltd`、` .Assistant manager of Deloitte Audit Servcies Dept. of Accounting,CYUT	Supervisor`：`ABILITY INTERNATIONAL INVESTMENT CO., LTD.

Note ： Tsay, Wen-Bin, Vice President of the Company, Retired on June 30, 2017.

3.2.3 Remuneration and Compensation Paid to Directors, the President, and Vice President

3.2.3.1 Remuneration Paid to Directors

As of 12/31/2017; Unit: NT$ thousands

Title Name									Total remuneration (A+B+C+D) as a % of net income	Total remuneration (A+B+C+D) as a % of net income	Compensation Earned by a Director Who is an Employee of Pegatron or its Consolidated Entities	Compensation Earned by a Director Who is an Employee of Pegatron or its Consolidated Entities	Compensation Earned by a Director Who is an Employee of Pegatron or its Consolidated Entities	Compensation Earned by a Director Who is an Employee of Pegatron or its Consolidated Entities	Compensation Earned by a Director Who is an Employee of Pegatron or its Consolidated Entities	Compensation Earned by a Director Who is an Employee of Pegatron or its Consolidated Entities	Compensation Earned by a Director Who is an Employee of Pegatron or its Consolidated Entities	Compensation Earned by a Director Who is an Employee of Pegatron or its Consolidated Entities	Total remuneration (A+B+C+D+E+F+G) as a % of net income	Total remuneration (A+B+C+D+E+F+G) as a % of net income	Compensation paid to directors from non- consolidated affiliates
	Base Compensation (A)		Severance Pay (B)		Bonus to Directors (C) (Note 1,3)		Allowances (D)				Base Compensation, Bonuses, and Allowances(E)		Severance Pay and Pensions (F) (Note 2)		Employee Compensation (G) (Note3)
	The Company	From all consolidated entities	The Company	From all consolidated entities	The Company	From all consolidated entities	The Company	From all consolidated entities	The Company	From all consolidated entities	The Company	From all consolidated entities	The Company	From all consolidated entities	From all consolidated entities		From all consolidated entities		The Company	From all consolidated entities
															Cash	Stock	Cash	Stock
Chairman Tseng, Ming-Jen	-	-	-	-	3,659	3,659	310	325	1.82%	1.83%	13,909	13,909	273	273	2,10 0	-	2,100	-	9.30%	9.31%	None
Director VIEWQUEST Investment Co. Ltd. Rep. : Tsay,Wen-Bin
Director VIEWQUEST Investment Co. Ltd. Rep. :Chou,Cheng-Wei
Director AVY Precision Technology Inc. Rep. : Tong,Chun-Jen
Director AVY Precision Technology Inc. Rep. : Huang, Li-An
Director Lin Shih Investment Co., Ltd. Rep. : Chan,Wen-Hsiung
Independent Director Lam,Tai-Seng
Independent Director Chen,Kuo-Hong
Independent Director Lu,Chien-Min

Range of Remuneration

Range of Remuneration
Bracket	Name of Directors
	Total of(A+B+C+D)		Total of(A+B+C+D+E+F+G)
	The Company	Companies in the financial report	The Company	Companies in the financial report
Below NT$ 2,000,000	Lin Shih Investment Co., Ltd. VIEWQUEST Investment Co. Ltd. AVY Precision Technology Inc. Tseng, Ming-Jen Tsay, Wen-Bin Chou, Cheng-Wei Tong, Chun-Jen Huang, Li-An Chan,Wen-Hsiung Lam,Tai-Seng Chen, Kuo-Hong Lu,Chien-Min	Lin Shih Investment Co., Ltd. VIEWQUEST Investment Co. Ltd. AVY Precision Technology Inc. Tseng, Ming-Jen Tsay, Wen-Bin Chou, Cheng-Wei Tong, Chun-Jen Huang, Li-An Chan,Wen-Hsiung Lam,Tai-Seng Chen, Kuo-Hong Lu,Chien-Min	Lin Shih Investment Co., Ltd. VIEWQUEST Investment Co. Ltd. AVY Precision Technology Inc. Tong, Chun-Jen Huang, Li-An Chan,Wen-Hsiung Lam,Tai-Seng Chen, Kuo-Hong Lu,Chien-Min	Lin Shih Investment Co., Ltd. VIEWQUEST Investment Co. Ltd. AVY Precision Technology Inc. Tong, Chun-Jen Huang, Li-An Chan,Wen-Hsiung Lam,Tai-Seng Chen, Kuo-Hong Lu,Chien-Min
NT$2,000,000(Included)~ NT$5,000,000(Excluded)	`－`	`－`	Tsay,Wen-Bin	Tsay,Wen-Bin
NT$5,000,000 (Included)~ NT$10,000,000(Excluded)			Tseng, Ming-Jen Chou,Cheng-Wei	Tseng, Ming-Jen Chou,Cheng-Wei
NT$10,000,000(Included)~ NT$15,000,000(Excluded)	`－`	`－`	`－`	`－`
NT$15,000,000(Included)~ NT$30,000,000(Excluded)	`－`	`－`	`－`	`－`
NT$30,000,000(Included)~ NT$50,000,000(Excluded)	`－`	`－`	`－`	`－`
NT$50,000,000(Included)~ NT$100,000,000(Excluded)	`－`	`－`	`－`	`－`
Over NT$100,000,000	`－`	`－`	`－`	`－`
Total	12	12	12	12

Note 1. Remunerations paid on earnings distribution of directors are appropriated to unincorporated representatives of corporate juridical person. Note 2. Actual payments of pensions for the most recent years: Nil; appropriated amounts of pensions expense for the most recent years: NT$273 thousand. Note 3. Remunerations for directors and remunerations for employees of the company in 2017 were amounts duly passed by the Board of Directors.

3.2.3.2 Compensation Paid to President and Vice President

As of 12/31/2017; Unit: NT$ thousands

Title	Name	Salary(A)	Salary(A)	Severance Pay and Pensions (B) (Note 1)	Severance Pay and Pensions (B) (Note 1)	Bonuses and Allowances (C)	Bonuses and Allowances (C)	Employee Compensation (D) (Note 2)	Employee Compensation (D) (Note 2)	Employee Compensation (D) (Note 2)	Employee Compensation (D) (Note 2)	Total remuneration (A+B+C+D) as a % of net income	Total remuneration (A+B+C+D) as a % of net income	Compensation paid to directors from nonconsolidat ed affiliates
		The Company	From all consolidated entities	The Company	From all consolidated entities	The Company	From all consolidated entities	The Company		From all consolidated entities		The Company	From all consolidated entities
								Cash	Stock	Cash	Stock
President	Tseng, Ming-Jen	6,922	6,922	273	273	6,987	6,987	2,100	0	2,100	0	7.48%	7.48%	None
Vice President	Chou, Cheng-Wei
Vice President	Tsay, Wen-Bin (Note 3)

Range of Remuneration

Range of Remuneration
Bracket	Name of President and Vice President
	The company	Companies in the financial report
Below NT$ 2,000,000	`－`	`－`
NT$2,000,000(Included)~ NT$5,000,000(Excluded)	Tsay,Wen-Bin	Tsay,Wen-Bin
NT$5,000,000 (Included)~ NT$10,000,000(Excluded)	Tseng, Ming-Jen Chou,Cheng-Wei	Tseng, Ming-Jen Chou,Cheng-Wei
NT$10,000,000(Included)~ NT$15,000,000(Excluded)	`－`	`－`
NT$15,000,000(Included)~ NT$30,000,000(Excluded)	`－`	`－`
NT$30,000,000(Included)~ NT$50,000,000(Excluded)	`－`	`－`
NT$50,000,000(Included)~ NT$100,000,000(Excluded)	`－`	`－`
Over NT$100,000,000	`－`	`－`
Total	3	3

Note 1: Actual payments of pensions for the most recent years: Nil; appropriated amounts of pensions expense for the most recent years: NT$273 thousand. Note 2: Remunerations for employees of the company in 2017 were amounts duly passed by the Board of Directors. Note 3: Tsay, Wen-Bin, Vice President of the Company, retired on June 30, 2017.

3.2.3.3 Employee Profit Sharing Granted to Management Team

Unit: NT$ thousands

					Unit: NT$ thousands
Title	Name	Stock (Fair Market Value) (Note 1)	Cash (Note 1)	Total	Ratio of Total Amount to Net Income(%)
President	Tseng,Ming-Jen	0	3,100	3,100	1.42%
Vice President	Chou, Cheng-Wei
Assistant Vice President	Tommy Lee
Assistant Vice President	Adams Chen
Chief Financial Officer	Lin, Hung-Tien

Note 1: Remunerations for employees of the company in 2017 were amounts duly passed by the Board of Directors.
3.2.4 Compare and state the ratio of total remuneration paid to the Company’s Directors, President and Vice Presidents by the company and the companies in the consolidated financial statements to net income in the past two years. Please also describe the policy, criteria, packages and rules relating to the remuneration, as well as its relation to business performance and future risks.
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, supervisors, presidents and vice presidents of the Company, to the net income ：

	Unit: NT$ thousands 2017 2016 Amount Companies in the Consolidated Financial Statements(%) Amount Companies in the Consolidated Financial Statements(%) 3,659 1.68 6,762 1.75 - - 651 0.17 16,282 7.48 17,413 4.51	Unit: NT$ thousands 2017 2016 Amount Companies in the Consolidated Financial Statements(%) Amount Companies in the Consolidated Financial Statements(%) 3,659 1.68 6,762 1.75 - - 651 0.17 16,282 7.48 17,413 4.51	Unit: NT$ thousands 2017 2016 Amount Companies in the Consolidated Financial Statements(%) Amount Companies in the Consolidated Financial Statements(%) 3,659 1.68 6,762 1.75 - - 651 0.17 16,282 7.48 17,413 4.51	Unit: NT$ thousands 2017 2016 Amount Companies in the Consolidated Financial Statements(%) Amount Companies in the Consolidated Financial Statements(%) 3,659 1.68 6,762 1.75 - - 651 0.17 16,282 7.48 17,413 4.51
Item position	2017		2016
	Amount	Companies in the Consolidated Financial Statements(%)	Amount	Companies in the Consolidated Financial Statements(%)
directors	3,659	1.68	6,762	1.75
Supervisors(Note 1)	-	-	651	0.17
presidents and vice presidents(Note 1)	16,282	7.48	17,413	4.51

Note 1: Directors (including independent directors) were re-elected and the audit

committee was restructured at the annual shareholders’ meeting held on June 29, 2016. No supervisors’ remuneration was paid in 2017.

b. Descriptions of remuneration policies, criteria, packages, rules relating to the remuneration, as well as its relation to business performance and future risks.

Remuneration of directors and supervisors, as well as salaries and remuneration of presidents and vice presidents are considered by the remuneration committee and presented to the Board of Directors for approval in accordance with relevant laws and regulations. The determination of remuneration of directors and supervisors is stipulated in the Articles of Incorporation of the company; the salaries and remuneration of presidents and vice presidents is paid based on the normal level in the industry.

3.3 Implementation of Corporate Governance

3.3.1 Board of Directors

A total of 8 (A) meetings of the Board of Directors were held in 2017. The directors’ attendance status is as follows:

Title	Name	Attendance in person (B)	By Proxy	Attendance rate (%) `【Ｂ`/`Ａ】`	Remarks
Chairman	Tseng, Ming-Jen	8	0	100%	06/29/2016 Newlyelected
Director	VIEWQUEST Investment Co. Ltd. Rep.:Tsay,Wen-Bin	7	0	88%	06/29/2016 Newlyelected
Director	VIEWQUEST Investment Co. Ltd. Rep.:Chou,Cheng-Wei	7	0	88%	06/29/2016 Newlyelected
Director	AVY Precision Technology Inc. Rep.:Tong,Chun-Jen	8	0	100%	06/29/2016 Newlyelected
Director	AVY Precision Technology Inc. Rep.:Huang,Li-An	5	2	62%	06/29/2016 Newlyelected
Director	Lin Shih Investment Co., Ltd. Rep.: Chan,Wen-Hsiung	4	2	50%	06/29/2016 Re-elected
Independent Director	Lam,Tai-Seng	7	1	88%	06/29/2016 Newly elected
Independent Director	Chen, Kuo-Hong	8	0	100%	06/29/2016 Newly elected
Independent Director	Lu,Chien-Min	8	0	100%	06/29/2016 Newly elected

Other remarks:

In the event of either of the following situations, dates, sessions, contents of resolutions of the Board meetings, opinions from all independent directors, and how the company has responded to such opinion shall be noted:
(1) Conditions described in Article 14-3 of the Securities and Exchange Act.

Other remarks: 1. In the event of either of the following situations, dates, sessions, contents of resolutions of the Board meetings, opinions from all independent directors, and how the company has responded to such opinion shall be noted: (1) Conditions described in Article 14-3 of the Securities and Exchange Act.	Other remarks: 1. In the event of either of the following situations, dates, sessions, contents of resolutions of the Board meetings, opinions from all independent directors, and how the company has responded to such opinion shall be noted: (1) Conditions described in Article 14-3 of the Securities and Exchange Act.	Other remarks: 1. In the event of either of the following situations, dates, sessions, contents of resolutions of the Board meetings, opinions from all independent directors, and how the company has responded to such opinion shall be noted: (1) Conditions described in Article 14-3 of the Securities and Exchange Act.
Date	Contents of resolutions	Opinions from all independent directors and how the company has responded to such opinions
2017.3.24	1.The Company’s 2016 financial statements. 2.Evaluation of the CPA’s independence of the Company. 3.Amendments to the Company’s “Audit Committee Foundation Principles”. 4.Amendments to the Company’s “Corporate Governance Principles”. 5.“2016 Management's Reports on Internal Control System”.	Passed unanimously by all independent directors in attendance.
2017.5.12	1.Amendments to the Company's "Articles of Incorporation". 2.Amendments to the Company's "Procedures for the Acquisition and Disposal of Assets" 3.Endorsements/guarantees for ACTION, a subsidiary of the Company, regarding the procurement payment to the supplier Giantplus Technology Co., Ltd. 4.Proposed capital reduction plan to offset deficit and capital increase by E-Pin Optical Industry Co., Ltd., a subsidiary of the Company. 5.The Company’s proposed investment in Apostera GmbH. 6.Disposal of the Company’s factoryat Wugu.	Passed unanimously by all independent directors in attendance.
2017.6.23	1.Amendments to the Company’s proposed investment in Apostera GmbH.	Passed unanimously by all independent directors in attendance.
2017.8.10	1.The Company’s appointment of the chief audit executive.	Passed unanimously by all independent directors in attendance.
2017.11.13	1.The Company's “2018 internal audit plan”. 2.Amendments to the Company’s “Audit Committee Foundation Principles” 3.Amendments to the Company’s “Regulations Governing Procedure for Board of Directors Meetings”. 4.Amendments to the Company’s “Corporate Governance Principles”.	Passed unanimously by all independent directors in attendance.
2017.12.22	1.The Company’s 2018 operation plans. 2.The Company’s investment in REVL Inc. through ABILITY ENTERPRISE (BVI)CO., LTD., a subsidiary of the Company. 3.Endorsements/guarantees for VIEWQUEST (BVI), a subsidiary of the Company, regarding the procurement payment to the supplier Giantplus TechnologyCo.,Ltd.	Passed unanimously by all independent directors in attendance.
2018.03.16	1.Endorsements/guarantees for ACTION, a subsidiary of the Company, regarding the procurement payment to the supplier Giantplus Technology Co., Ltd. 2.Endorsements/guarantees for VIEWQUEST (BVI), a subsidiary of the Company, regarding the procurement payment to the supplier CoAsia Microelectronics Corp. 3.“2017 Management's Reports on Internal Control System”.	Passed unanimously by all independent directors in attendance.

2018.5.8 1.The Company’s appointment of the CPA and its fee for the year. 2.Endorsements/guarantees for ACTION, a subsidiary of the Company, regarding the procurement payment to the supplier Calin Technology Co. Ltd. 3.Endorsements/guarantees for VIEWQUEST (BVI), a subsidiary of the Company, regarding the procurement payment to the supplier Calin TechnologyCo. Ltd. Passed unanimously by all independent directors in attendance. (2) Other issues opposed by independent directors or about which said directors have qualified opinions shall be recorded in writing in the meeting minutes of the Board: None 2. Should a director recuse himself or herself from a resolution about which he or she has a conflict of interest, the name of the director, contents of the resolution, reasons for recusal, and the results of the vote shall be noted:	2018.5.8 1.The Company’s appointment of the CPA and its fee for the year. 2.Endorsements/guarantees for ACTION, a subsidiary of the Company, regarding the procurement payment to the supplier Calin Technology Co. Ltd. 3.Endorsements/guarantees for VIEWQUEST (BVI), a subsidiary of the Company, regarding the procurement payment to the supplier Calin TechnologyCo. Ltd. Passed unanimously by all independent directors in attendance. (2) Other issues opposed by independent directors or about which said directors have qualified opinions shall be recorded in writing in the meeting minutes of the Board: None 2. Should a director recuse himself or herself from a resolution about which he or she has a conflict of interest, the name of the director, contents of the resolution, reasons for recusal, and the results of the vote shall be noted:	2018.5.8 1.The Company’s appointment of the CPA and its fee for the year. 2.Endorsements/guarantees for ACTION, a subsidiary of the Company, regarding the procurement payment to the supplier Calin Technology Co. Ltd. 3.Endorsements/guarantees for VIEWQUEST (BVI), a subsidiary of the Company, regarding the procurement payment to the supplier Calin TechnologyCo. Ltd. Passed unanimously by all independent directors in attendance. (2) Other issues opposed by independent directors or about which said directors have qualified opinions shall be recorded in writing in the meeting minutes of the Board: None 2. Should a director recuse himself or herself from a resolution about which he or she has a conflict of interest, the name of the director, contents of the resolution, reasons for recusal, and the results of the vote shall be noted:	2018.5.8 1.The Company’s appointment of the CPA and its fee for the year. 2.Endorsements/guarantees for ACTION, a subsidiary of the Company, regarding the procurement payment to the supplier Calin Technology Co. Ltd. 3.Endorsements/guarantees for VIEWQUEST (BVI), a subsidiary of the Company, regarding the procurement payment to the supplier Calin TechnologyCo. Ltd. Passed unanimously by all independent directors in attendance. (2) Other issues opposed by independent directors or about which said directors have qualified opinions shall be recorded in writing in the meeting minutes of the Board: None 2. Should a director recuse himself or herself from a resolution about which he or she has a conflict of interest, the name of the director, contents of the resolution, reasons for recusal, and the results of the vote shall be noted:
Date	Resolution	Recused person	Implementation
2018.5.8	Bonus distribution plan for managers and employees of the company in 2017	Tseng, Ming-Jen Chou, Cheng-Wei Lin, Hung-Tien	Other than the chairman Tseng, Ming-Jen, the director Chou, Cheng-Wei and financial manager Lin, Hung-Tien who recused themselves from the resolution due to conflicting interest, remaining directors (including independent directors) in attendance passed the resolution unanimously.
3. Enhancements to the functions of the Board of Directors in the current and the most recent year (e.g., establishment of an audit committee, improvement of information transparency etc.), and the progress of such enhancements: (1)An audit committee was established on June 29, 2016 to perform its duty as a supervisor as required by relevant laws and regulations. (2)The company assigned a dedicated person to be responsible for monthly revenue and material information disclosure, and input information into the Market Observation Post System in accordance with relevant rules. (3)The company assigned a spokesperson and a deputy spokesperson to serve as communication channels for stakeholders. (4)The company formulated “Rules and Procedures of the Board Meeting” to enhance the functions of the Board of Directors and facilitate healthy development of the Board’s participation in decision-making. (5)To strengthen professional expertise, directors of the company continue to pursue advanced studies every year, the total hours of which meet relevant requirements imposed by competent authorities. Members of the Board are also encouraged to attend respective professional courses to keep acquiring up-to-date knowledge with an aim to maintain its professional advantages and capabilities.

3.3.2 Audit Committee

A total of 6 (A) meetings of the audit committee were held in 2017. The independent directors’ attendance status is as follows:

Title	Name	Name	Attendance in person (B)	By Proxy	Attendance rate (%) `【Ｂ`/`Ａ】`	Attendance rate (%) `【Ｂ`/`Ａ】`	Remarks
Independent Director	Lam,Tai-Seng		5	1	83%		06/29/2016 Newlyelected
Independent Director	Chen, Kuo- Hong		6	0	100%		06/29/2016 Newlyelected
Independent Director	Lu,Chien-Min		6	0	100%		06/29/2016 Newlyelected
Other remarks: 1. In the event of either of the following situations, dates, sessions, contents of resolutions of the Board meetings, opinions from audit committee's resolutions, and how the company has responded to audit committee's opinions shall be noted: (1)Conditions described in Article 14-5 of the Securities and Exchange Act: Date Contents of resolutions Opinions from audit committee's resolutions and how the company has responded to audit committee's opinions 2017.3.24 1.The Company’s 2016 financial statements. 2.Evaluation of the CPA’s independence of the Company. 3.Amendments to the company’s “Audit Committee Foundation Principles”. 4.Amendments to the Company’s “Corporate Governance Principles”. 5.“2016 Management's Reports on Internal Control system”. Passed unanimously by members in attendance. 2017.5.12 1.The Company’s 2016 business report. 2.The Company’s 2016 earnings distribution. 3.Amendments to the Company's "Procedures for the Acquisition and Disposal of Assets" 4.Proposed capital reduction plan to offset deficit and capital increase by E-Pin Optical Industry Co., Ltd., a subsidiary of the Company. 5.The Company’s proposed investment in Apostera GmbH. Passed unanimously by members in attendance. 2017.8.10 1.The Company’s second quarter consolidated financial report in 2017. 2.The Company’s appointment of the chief audit executive. Passed unanimously by members in attendance. 2017.11.13 1.The Company's “2018 internal audit plan”. 2.Amendments to the Company’s “Audit Committee Foundation Principles”. 3.Amendments to the Company’s “Corporate Governance Principles”. Passed unanimously by members in attendance. 2018.3.16 1.The Company’s 2017 financial statements. 2.The Company’s 2017 business report. 3.The Company’s 2017 earnings distribution. 4.Evaluation of the CPA’s independence of the company. 5.“2017 Management's Reports on Internal Control system”. Passed unanimously by members in attendance.
Date		Contents of resolutions				Opinions from audit committee's resolutions and how the company has responded to audit committee's opinions
2017.3.24		1.The Company’s 2016 financial statements. 2.Evaluation of the CPA’s independence of the Company. 3.Amendments to the company’s “Audit Committee Foundation Principles”. 4.Amendments to the Company’s “Corporate Governance Principles”. 5.“2016 Management's Reports on Internal Control system”.				Passed unanimously by members in attendance.
2017.5.12		1.The Company’s 2016 business report. 2.The Company’s 2016 earnings distribution. 3.Amendments to the Company's "Procedures for the Acquisition and Disposal of Assets" 4.Proposed capital reduction plan to offset deficit and capital increase by E-Pin Optical Industry Co., Ltd., a subsidiary of the Company. 5.The Company’s proposed investment in Apostera GmbH.				Passed unanimously by members in attendance.
2017.8.10		1.The Company’s second quarter consolidated financial report in 2017. 2.The Company’s appointment of the chief audit executive.				Passed unanimously by members in attendance.
2017.11.13		1.The Company's “2018 internal audit plan”. 2.Amendments to the Company’s “Audit Committee Foundation Principles”. 3.Amendments to the Company’s “Corporate Governance Principles”.				Passed unanimously by members in attendance.
2018.3.16		1.The Company’s 2017 financial statements. 2.The Company’s 2017 business report. 3.The Company’s 2017 earnings distribution. 4.Evaluation of the CPA’s independence of the company. 5.“2017 Management's Reports on Internal Control system”.				Passed unanimously by members in attendance.

2018.5.08	2018.5.08	2018.5.08	1.The Company’s first quarter consolidated financial report in 2018. 2.The Company’s appointment of the CPA and its fee for theyear.	1.The Company’s first quarter consolidated financial report in 2018. 2.The Company’s appointment of the CPA and its fee for theyear.	Passed unanimously by members in attendance.

Date		Forms	Issues		Results
106.11.13		Meeting	Audit plan reports regarding overseas factories in 2017 and 2018.		No material issues that required rectification.
106.11.13		Meeting	Discussions on the 2018 audit plan.		No material issues that required rectification.
107.3.16		Meeting	“2017 Management's Reports on Internal Control system” resolution.		No material issues that required rectification.
(2) Communication between independent directors and accountants: Independent directors of the Company are responsible for overseeing financial reporting process in accordance with relevant laws and regulations, maintaining good mutual communication with the CPA of the company and communicating with the CPA matters in respect of the auditplan of 2017 financial statements as follows:
Date	Forms			Issues	Results
2017.12.23	Documents in writing			Annual audit plan -The role and responsibility of the chief accountant -Audit plan -Preliminary opinions on key audit matters -The independence of the CPA	1. Noted without other opinions and has replied to the accounting firm. 2. If there are any suggestions and material findings, the chief accountant and the manager shall be promptly notified to arrange further meeting.
2018.3.16	Documents in writing and meetings			Conclusion of the annual audit - Draft of the financial statements - Major findings of the auditing - Draft of the auditing reports (including key audit matters) - The independence of the CPA	1. Noted without other opinions and has replied to the accounting firm. 2. On March 16, 2018, the CPA and the manager had discussions and explanations on major issues prior to the audit committee’s meeting and the Board’s meeting.

3.3.3 Corporate Governance Implementation Status and Deviations from “the Corporate Governance Best-Practice Principles for TWSE/TPEx Listed Companies”

TWSE/TPEx Listed Companies”
Assessment Item			Implementation Status	Non-implementation and its reason(s)
	Y	N	Explanation
1. If the Company established and disclosed Corporate Governance Principles in accordance with Corporate Governance Best-Practice Principles for TWSE/GTSM Listed Companies?		V	The Company formulated the “Corporate Governance Principles” as disclosed on the Market Observation Post System and the company’s website.	No major deviation
2. Shareholding Structure & Shareholders’ Rights				No major deviation
(1) If the Company established internal procedures to handle shareholder suggestions, proposals, complaints and litigation and execute accordingly?	V		(1) The Company assigned spokesperson, investor relations contact, dedicated personnel for registrar and legal-related matters to address issues in relation to shareholders’ suggestions and disputes.
(2) If the Company maintained of a list of major shareholders and a list of ultimate owners of these major shareholders?	V		(2) The Company assigned dedicated personnel for registrar to keep abreast with the actual shareholdings of directors, managers and major shareholders holding 10% of the shares in the company.
(3) If risk management mechanism and “firewall” between the Company and its affiliates are in place?	V		(3) The Company formulated “Administrative Measures on the Operation of a Subsidiary”, “Procedures for Loans to Others”, "Endorsement and Guarantee Procedures", “Procedures for the Acquisition and Disposal of Assets” and other internal management measures to establish proper risk control mechanism and firewall.
(4) If the Company established internal policies that forbid insiders from trading based on non-disclosed information?	V		(4) The Company formulated control measures of “Insider Trading Prevention” to regulate behavior and commence risk control.

Assessment Item			Implementation Status	Non-implementation and its reason(s)
	Y	N	Explanation
3. Structure of Board of Directors and its responsibility
(1) If the Board consisted of members from diverse background?		V	(1) Appoint three independent directors in accordance with the company’s “Corporate Governance Principles” to enhance the Board’s functions. The composition of the Board of Directors shall be determined by taking diversity into consideration. The criteria for directors’ elections of the company is based on the company's business operations, operating dynamics and development needs, including but not limited to the following two major aspects: 1. Basic conditions and value: gender, age, nationality and cultural background, etc. 2. Professional expertise and skills: professional background (including laws, accounting, industry, finance, marketing or technology), skills, and industry experience. Directors of this session of the company are elected in accordance with the two major aspects listed above. Elected directors are equipped with professional expertise and experience covering finance, technology, industry and marketing.	No major deviation

Assessment Item			Implementation Status	Non-implementation and its reason(s)
	Y	N	Explanation
(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?		V V	(2) The Company established the remuneration committee and assembled the audit committee at its discretion, while other functional committees are not yet established. (3) The auditing office commenced auditing in accordance with the Company’s “Rules of Procedure for Board Meetings” of the company and prevailing regulations of the “Regulations Governing Procedure for Board of Directors Meetings of Public Companies”. It is known that currently the Company does not formulate relevant measures on performance evaluation of the Board of Directors.	The Company shall carry out prudent evaluation based on its internal development needs in the future. The Company shall carry out prudent evaluation based on its internal development needs in the future.
(4) If the Company assess the independence of CPA periodically?	V		(4) According to the Article 29 of the Company’s “Corporate Governance Principles”, it is required to assess CPA’s independence and capacity regularly (at least once per year). After internal self-assessment on the independence and capacity of the CPA, there was no matters that might have a possible impact on the independence of PwC Taiwan's CPA, Audrey Tseng and Hsu Sheng-Chung. It is also required that the CPA shall issue a declaration of independence; the resolution was considered and passed by the audit committee and the Board of Directors of the companyon March 16,2018.(Note)	No major deviation

Assessment Item			Implementation Status	Non-implementation and its reason(s)
	Y	N	Explanation
4. If the Company established a unit or assigned a personnel to handle corporate governance related issues (including but not limited to providing assistance to board members and handling all tasks ass	V		The Company’s dedicated person for registrar is responsible for relevant matters concerning corporate governance, discussion and formulation of the Board’s meeting agenda and provision of sufficient information to enable directors to have a better understanding of relevant contents to be proposed at the meeting. The dedicated person shall convene shareholders’ meetings every year during the specific period required by laws and regulations, upload the notice of the meeting, the meeting agenda and the shareholders’ meeting’s minutes to the Market Observation Post System prior to the period as specified in the announcement and conduct registration and changes upon amendments to the Articles of Incorporation and re-election of directors.	No major deviation
5. If the Company established communication channel with stakeholders (including but not limited to shareholders, employee, customers, suppliers, etc.) and disclosed key corporate social responsibility issues frequently enquired by stakeholders on the designated area of the corporate website?	V		The Company established the public relation, registrar and legal departments depending on different situations to address issues and communicate with stakeholder. The Company also created company information, corporate governance, corporate social responsibility and stakeholders’ sections on the company’s website and provided contact information of the spokesperson so that stakeholders may be informed of latest issues on a timely basis.	No major deviation
6. If the Company engaged professional transfer agent to host annual general shareholders’ meeting?	V		The Company engaged the registrar agency department of CTBC Bank Co., Ltd. to handle shareholder meeting affairs	No major deviation
7 Information Disclosure				No major deviation

Assessment Item	Implementation Status	Implementation Status	Implementation Status	Non-implementation and its reason(s)
	Y	N	Explanation
(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)?	V V		(1) The Company promptly discloses relevant information on its corporate website (http://www.abilitycorp.com.tw). (2) The collection and disclosure of investor relations, registrar and legal departments-related information. The Company builds website in both Chinese and English languages to regularly disclose information relating to the company’s finance, shares, product information and social engagement. The Company assigns a spokesman in accordance with regulations. Live broadcast of the Company’s investor seminars is available on its website (http://www.abilitycorp.com.tw).

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 supervisors)?	V		(1) Employee rights: The Company convenes labor- management disputes meeting on an irregular basis and establishes mailbox for employee complaints. (2) Employee care: The company establishes employee welfare committee to handle matters including employee welfare and group insurance. (3) Investor relations: The Company provides investors with transparent information as disclosed on the Company’s website with material issues published on the Market Observation Post System. (4) Supplier relations: The Company formulates measures governing supplier relations and the code of conduct for personnel who contact with outside firms to maintain fair trading with suppliers. (5) Rights of stakeholders: Both the Company and stakeholders perform respective rights and obligations in compliance with contracts or relevant operating procedures. (6) Directors’ training records. (7) Risk management policies and risk evaluation measures: The company commences internal control assessment for each department on regular basis to carry out preventive control. The audit unit assists members from the audit committee in supervising the Company’s business and the implementation of the internal control systems. Where possible malpractice is found, the Company shall promptly activate proper measures with an aim to lower operational risks.	No major deviation

9. Any improvement made in accordance with the result of the most recent corporate governance evaluation conducted by TWSE? Any measures to be taken on the outstandingitems?	V		(8) Implementation of customer relations policies: (9) Purchasing insurance for directors: the Company has purchased liability insurance for directors. The Company conducts self-assessment in accordance with corporate governance evaluation items and considers viability for evaluated items that does not meet the criteria based on actual operation of the Company.	No major deviation

Note: The Company evaluates the independence of CPA based on items stated in Article 46 & 47 of Certified Public Accountant Act. The Evaluation Criteria are as below:

Evaluation Criteria are as below:
Items Evaluated	Evaluation Finding	Independence
1. Does the CPA have direct or material indirect financial interest in the Company?	No	Yes
2. Does the CPA have loans or guarantees with the Company or directors of the Company?	No	Yes
3. Does the CPA have a close business relationship or a potential employment relationship with the Company?	No	Yes
4.Have the CPA and a member of the audit team been a director, a manager of the Company or been employed by the Company within the last two years in a position to exert significant influence over the subject matter of the engagement?	No	Yes
5. Does the CPA provide any non-audit services which if performed for the Company would affect directlya material item of the audit engagement?	No	Yes
6. Does the CPA promote or broker shares for the Company or other securities issued by the company.	No	Yes
7. Does the CPA serve as an advocate or representative for the company with third parties in the event of conflict.	No	Yes
8. Does the CPA have family ties with anyone who is a director, manager, or officer of with the company or any personnel who is in a position to exert significant influence over the subject matter of the engagement.	No	Yes
9. Is the CPA capable of performing its duties with its educational background and relevant experience.	Yes	Yes

3.3.4 Status of Compensation Committee:

3.3.4.1 Professional Qualifications and Independence Analysis of Remuneration Committee Members

Title	Criteria Name	Meet One of the Following Professional Qualification Requirements, Together with at Least Five Years’ Work Experience	Meet One of the Following Professional Qualification Requirements, Together with at Least Five Years’ Work Experience	Meet One of the Following Professional Qualification Requirements, Together with at Least Five Years’ Work Experience		Independence Criteria (Note 1)	Independence Criteria (Note 1)	Independence Criteria (Note 1)	Independence Criteria (Note 1)	Independence Criteria (Note 1)	Independence Criteria (Note 1)	Independence Criteria (Note 1)	Number of Other Public Companies in Which the Individual is Concurrently Serving as a Remuneration Committee Member	Remark
		An Instructor or Higher Position in a Department of Commerce, Law, Finance,Accounting, or Other Academic Department Related to the Business Needs of the Company in a Public or Private Junior College, College or University	A Judge, Public Prosecutor, Attorney, Certified Public Accountant, or Other Professional or Technical Specialist Who Has Passed a National Examination and Been Awarded a Certificate in a Profession Necessary for the Business of the Company	Have Work Experience in the Areas of Commerce, Law, Finance, or Accounting, or Otherwise Necessary for the Business of the Company	1	2	3	4	5	6	7	8
Independent Director	Lam,Tai-Seng	-	-	V	V	V	V	V	V	V	V	V	0	None
Independent Director	Chen, Kuo-Hong	-	-	V	V	V	V	V	V	V	V	V	0	None
Independent Director	Lu,Chien-Min	-	-	V	V	V	V	V	V	V	V	V	0	None

Note 1: 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 set up in accordance with the act or local laws.
(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 27 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 Act.

3.3.4.2 Attendance of Members at Remuneration Committee Meetings
(1) There are 3 members in the Remuneration Committee.
(2) Tenure of the third session of Compensation committee is from 29st June, 2016 to 28th
- June, 2019. A total of 2 (A) meetings of the Compensation Committee were held in 2017. The status of attendance is as follows:

Title	Name	Attendance in person (B)	By Proxy	Attendance rate (%) B/A	Remarks
Chairman	Lam,Tai-Seng	2	0	100%	06/29/2016 Newlyelected
Member	Chen, Kuo-Hong	2	0	100%	06/29/2016 Newlyelected
Member	Lu,Chien-Min	2	0	100%	06/29/2016 Newlyelected
Other Information to be disclosed: 1.If Board of Directors did not adopt or revise the proposal made by the Compensation Committee, please specify the date, session, agendas and resolutions of the Board of Directors meeting and how the Company handled the proposal made by the Compensation Committee (If amount of the compensation approved by the Board of Directors is higher than that proposed by the Compensation Committee, please specify the reasons and differences in proposals.): None. 2.If any members of the Compensation Committee were against or reserved their opinions towards the resolutions, please specify the date, session, agendas, opinions of all members and how the opinions were handled: None.

3.3.5 Social Responsibility Implementation Status as Required by the Taiwan Financial Supervisory Commission

.5 Social ResponsibilityImplementation Status as	Required bythe Taiwan Financial SupervisoryCommission	Required bythe Taiwan Financial SupervisoryCommission	Required bythe Taiwan Financial SupervisoryCommission
Assessment Item	Implementation Status			Non-implementation and its reason(s)
	Y	N	Explanation
1. Implementation of Corporate Governance
(1) Does the Company have a corporate social responsibility policy and evaluate its implementation?	V		(1) The Company established a corporate social responsibility policy and the code of conduct, information of which is disclosed on the company’s website (http://www.abilitycorp.com.tw).	No major deviation
(2) Does the Company hold regular CSR training?	V		(2) The Company organized trainings for new employees, education training on CSR responsibilities and education on relevant matters.	No major deviation
(3) Does the Company have a dedicated (or ad-hoc) CSR organization with Board of Directors authorization for senior management, which reports to the Board of Directors?		V	(3) The Company assembled the CSR organization, and disclosed the organization chart on the company’s website (http://www.abilitycorp.com.tw); the management representative is responsible for the organization and effectiveness of the environmental protection, safety and health management system, green product management system, greenhouse gas management system, and supervise the implementation and planning of each department.	Handle issues on a timely manner according to the Company’s actual needs.
(4) Does the Company set a reasonable compensation policy, integrate employee appraisal with CSR policy, and set clear and effective incentive and disciplinary policies?	V		(4) Other than the disclosure of the CSR code of conducts on the Company’s website (http://www.abilitycorp.com.tw), the Company also requires its employees to observe laws and regulation and the human resources management system. Mutual communication is carried out through performance appraisal. Fair and reasonable performance evaluation procedures becomes the basis for promotion, remuneration and training development for employees.	No major deviation

Assessment Item			Implementation Status	Non-implementation and its reason(s)
	Y	N	Explanation
2. Environmentally Sustainable Development
(1) Is the Company committed to improving resource efficiency and to the use of renewable materials with low environmental impact? (2) Has the Company set an Environmental management system designed from its industry characteristics?	V V		(1) The Company is committed to promoting clean production and energy conservation, aiming to reduce expenses and lower operating costs, create profits as well as enhance overall competitiveness and operating results of the enterprise. Energy conservation is implemented based on aspects covering the management and technology, primarily including three major items of air-conditioners conservation, energy conservation and water conservation. The Company’s products are designed according to the concepts concerning high recoverability, high added values, low pollution and energy conservation, aiming to control resources utilization rate from the source of production. (2) The Company established ISO14001 environmental management system and IECQ QC080000 hazardous substance free product management system and obtained verification certificate from the thirdparty.	No major deviation No major deviation

Assessment Item	Implementation Status	Implementation Status	Implementation Status	Non-implementation and its reason(s)
	Y	N	Explanation
(3) Does the Company track the impact of climate change on operations, carry out greenhouse gas inventories, and set energy conservation and greenhouse gas reduction strategy	V		(3) Climate change has an increasingly substantial impact on the global environment. As a citizen of the global community, Ability strives to accomplish following matters in an attempt to fulfill its corporate social responsibility: a. The Company is committed to the greenhouse gas checking to ensure overall emissions of the greenhouse gas from all factories. b. The Company continues to promote energy conservation and carbon reduction measures together with sustainable development so as to fulfill its corporate social responsibility. c. The Company complies with laws and regulations relating to environmental protection and satisfy its customer requirements. d. The Company initiate relevant plans regarding voluntary reduction of greenhouse gas emissions based on current economic condition and technology according to the checking results. The Company classifies the climate change as a corporate- level risk and exert efforts to control relevant risks. The policies include: a.Pay close attention to the trend of greenhouse gas-related issues around the world. b. Take care of green manufacturing, green products and green supply chain management. c. Carry out greenhouse gas measurement and carbon footprint measurement. The Company’s objectives and measures concerning energy conservation and environmental protection are disclosed on the Company’s website (http://www.abilitycorp.com.tw).	No major deviation

Assessment Item			Implementation Status	Non-implementation and its reason(s)
	Y	N	Explanation
3. Promotion of Social Welfare
(1) Does the Company set policies and procedures in compliance with regulations and internationally recognized human rights principles? (2)Has the Company established appropriately managed employee appeal procedures?	V V		(1) With an aim to comply with relevant labor laws and regulations and safeguard employees’ legal rights, the Company formulated the “Administrative Measures Governing Leave Application”, “Administrative Measures Governing Holiday Application”, “Administrative Measures Governing Worker’s Compensation and Indemnity”, “Administrative Measures Governing Benefit Plan” and “Administrative Measures Governing Retirement”. (2) The Company established various complaint channels. Employees may raise complaints at any time when their rights are infringed or improperly handled. The Company formulated “Measures Governing Employee Complaints”, promoted sexual harassment prevention and provided employees with clear complaint channels to ensure employees’ rights are safeguarded. The Company irregularly convenes employees meeting and relevant forums to create a channel for employees to communicate directlyand express their opinions.	No major deviation No major deviation
(3) Does the Company provide employees with a safe and healthy working environment, with regular safety and health training?	V		(3) According to the labor safety law, it is required to inspect operating environment and ensure employee health checkups; special health checkups shall be arranged for employees working under special environment conditions. Please refer to 5. Labor Relations under the Operational Highlights as set out in the Annual Report for details regardingthe labor safety.
(4) Has the Company established a mechanism for regular communication with employees and use reasonable measures to notify employees of operational changes which may cause significant impact to employees?	V		(4) The Company irregularly convened employees meeting and carry out survey concerning employees’ satisfaction to enable all employees to have a better understanding of the company’s operation and future plans.

Assessment Item			Implementation Status	Non-implementation and its reason(s)
	Y	N	Explanation
(5) Has the Company established effective career development training plans?	V		(5) The Company established an effective career development training plan for its employees with an aim to enhance their career development capabilities. A comprehensive training system targeting employee cultivation is in place. Through e-training and management, the system provided training step-by-step, including pre-employment training for new employees andprofessional training.
(6) Has the Company set polices and consumer appeal procedures in its R&D, purchasing, production, operations, and service processes?	V		(6) The Company does not sell products directly to consumers; in terms of client-side, the company handles complaints in accordance with its existing internal procedures.
(7) Does the Company follow regulations and international standards in the marketing and labelling of its products and services?	V		(7) The Company complies with relevant laws and regulations as well as international guidelines.
(8) Does the company evaluate environmental and social track records before engaging with potential suppliers? (9) Does the Company’s contracts with major suppliers include termination clauses if they violate CSR policy and cause significant environmental and social impact?	V V		(8) The Company promotes its green product policy, green procurement requirements and the CSR through supplier meetings, green electronic information platform website and other measures. Suppliers are also required to accept Ability’s green supplier verification with an aim to make concerted efforts to facilitate the fulfillment of the corporate social responsibility. (9) According to procurement contracts entered into between the company and its suppliers, there is no specific provision governing the public welfare. The company requires suppliers to complete a questionnaire regarding the CSR and new suppliers are required to return a questionnaire. The questionnaire does not have any binding effect.	No major deviation

Assessment Item	Implementation Status	Implementation Status	Implementation Status	Non-implementation and its reason(s)
	Y	N	Explanation
4. Enhanced Information Disclosure (1) Does the Company disclose relevant and reliable CSR information on its website and the Taiwan Stock Exchange website?	V		(1) Relevant information in respect of the CSR is disclosed on the Company’s website (http://www.abilitycorp.com.tw) and the Market Observation Post System (http://mops.twse.com.tw).	No major deviation
5. If the company has established its corporate social responsibility code of practice according to “Listed Companies Corporate Social Responsibility Code of Practice,” please describe the operational status and differences. The Company formulated its “Corporate Social Responsibility Code of Practice” in accordance with the “Listed Companies Corporate Social Responsibility Code of Practice” and disclosed relevant information on the Company’s website (http://www.abilitycorp.com.tw). The Company’s internal operation and products are in compliance with requirements set out in the Corporate Social Responsibility Code of Practice.
6. Other important information to facilitate better understanding of the company’s implementation of corporate social responsibility: The Company attaches great importance to environmental protection, social welfare and safety and health with a view to fulfil its social responsibility. Please refer to the Company’s website (http://www.abilitycorp.com.tw) for relevant information.
7. Other information regarding “Corporate Responsibility Report ” which is verified by certifying bodies: The Company has obtained the following certification: The Company formulated the “Corporate Social Responsibility Report”, which had not been verified by third party external verification institution. The Company passed the “ISO14001 environmental management system” and the “OHSAS18001 occupational safety and health management system”.

3.3.6 Implementation of Ethical Corporate Management Best Practice Principles:

Assessment Item			Implementation Status	Non-implementation and its reason(s)
	Y	N	Explanation
1. Establishment of Corporate Conduct and Ethics Policyand Implementation Measures				No specific deviation
(1) Does the company have bylaws and publicly available documents addressing its corporate conduct and ethics policy and measures, and the commitment regarding implementation of such policy from the Board of Directors and the management team?	V		(1) The Company formulated the “Ethical Corporate Management Best Practice Principles” and disclosed relevant information on the Company’s website (http://www.abilitycorp.com.tw); the members of the Board of the company and the management exercise due care of prudent administrators when performing duties and exercise its functions and powers with prudent attitude.
(2) Does the company establish relevant policies which are duly enforced to prevent unethical conduct and provide implementation procedures, guidelines, consequence of violation and complaint procedures in such policies?	V		(2) The Company’s “Employee Handbook”, “Working Rules”, “Management and Control Procedures Regarding Insider Trading Prevention” and respective internal management system stipulate guidelines and regulations concerning related behavior of an employee. All violations, rewards, penalties and complaints will be implemented in accordance with respectiveprocedures.
(3) Does the company establish appropriate compliance measures for the business activities prescribed in paragraph 2, article 7 of the Ethical Corporate Management Best Practice Principles for TWSE/GTSM Listed Companies and any other such activities associated with high risk of unethical conduct?	V		(3) The Company formulated procedures for legal department review contract and control contract to prevent any violation of laws. For employees who may engage in business activities that exhibit high integrity risks within the scope of business, the rules stipulate that the employees shall not receive and require any illegal benefit from suppliers, connected party or designated person or sign a contract with them.

Assessment Item			Implementation Status	Non-implementation and its reason(s)
	Y	N	Explanation
2. Ethic Management Practice (1) Does the company assess the ethics records of whom it has business relationship with and include business conduct and ethics related clauses in the business contracts? (2) Does the company set up a unit which is dedicated to or tasked with promoting the company’s ethical standards and reports directly to the Board of Directors with periodical updates on relevant matters?	V	V	(1) The Company shall consider the legality and evaluate the ethical record of its business partner prior to any business relationship with them and avoid any trading with a partner with dishonest history. (2) The Company has not set up a unit, whether part-time or full-time, to promote the company’s ethical standards in business operation. The unit may be established in the future based on the governance.	No specific deviation
(3) Does the company establish policies to prevent conflict of interests, provide appropriate communication and complaint channels and implement such policies properly? (4) To implement relevant policies on ethical conducts, does the company establish effective accounting and internal control systems that are audited by internal auditors or CPA periodically?	V V		(3) The Company’s “Rules and Procedures of the Board Meeting” stipulates the principle of conflicting interests. Directors may express opinions and answer queries but are not allowed to participate in the discussion and voting and shall recuse from any discussions and voting on any resolution that presents a conflict against their own interests or interests of the corporate entities they represent to the extent that is likely to compromise the Company's interests, and shall not exercise their voting rights on behalf of other directors. (4) To ensure the implementation of ethical conducts, the company established effective accounting system and internal control system. The internal audit personnel also verify compliance of each procedure on both regular and irregular basis.	No specific deviation

Assessment Item			Implementation Status	Non-implementation and its reason(s)
	Y	N	Explanation
(5) Does the company provide internal and external ethical conduct training programs on a regular basis?	V		(5) The Company organized training for new employees, external education training regarding the compliance with relevant laws and regulations as well as courses covering control and ethical conducts.
3. Implementation of Complaint Procedures				No specific deviation
(1) Does the company establish specific complaint and reward procedures, set up conveniently accessible complaint channels, and designate responsible individuals to handle the complaint received? (2)Does the company establish standard operation procedures for investigating the complaints received and ensuring such complaints are handled in a confidential manner?		V V	(1) The Company attaches significant importance to ethical mindset and encourages employees to report to the chief audit executive or other relevant personnel when suspected violations or violations of regulations or the rules of the company are found. (2) The Company established a complaints mailbox and carry out relevant procedures in relation to respective complaints. Information confidentiality is implemented in accordance with personal information confidentiality and information security policies.
(3)Does the company adopt proper measures to prevent a complainant from retaliation for his/her filing a complaint?	V		(3) The complaint window shall be in strict compliance with the confidentiality principle. Any disclosure of complaint issues without the consent of the person who lodges the complaint shall undergo disciplinary action in accordance with the company’s rules.

Assessment Item	Implementation Status	Implementation Status	Implementation Status	Non-implementation and its reason(s)
	Y	N	Explanation
4. Information Disclosure				No specific deviation
(1) Does the company disclose its guidelines on business ethics as well as information about implementation of such guidelines on its website and Market Observation Post System (“MOPS”)?	V		(1) The “Ethical Corporate Management Best Practice Principles” formulated by the company are disclosed on the Company’s website(http://www.abilitycorp.com.tw); relevant information of which is disclosed on complete, appropriate, timely and accurate basis.
5. If the company has established corporate governance policies based on TSE Corporate Conduct and Ethics Best Practice Principles, please describe any discrepancy between the policies and their implementation: The Company established its “Ethical Corporate Management Best Practice Principles” in accordance with the “Ethical Corporate Management Best Practice Principles for TWSE/TPEx Listed Companies", information of which is disclosed on the company’s website (http://www.abilitycorp.com.tw). The Company’s internal operation and products are in compliance with requirements set out in the ethical corporate management requirements of the CSR.
6. Other important information to facilitate better understanding of the company’s corporate conduct and ethics compliance practices: The Company has upheld the principle of ethical business operation and pay attention to stakeholders’ needs, which are widely recognized by suppliers and consumers, thus, ensuring sustainable business operation.

If the company has established corporate governance policies based on TSE Corporate Conduct and Ethics Best Practice Principles, please describe any discrepancy between the policies and their implementation:
The Company established its “Ethical Corporate Management Best Practice Principles” in accordance with the “Ethical Corporate Management Best Practice Principles for TWSE/TPEx Listed Companies", information of which is disclosed on the company’s website (http://www.abilitycorp.com.tw). The Company’s internal operation and products are in compliance with requirements set out in the ethical corporate management requirements of the CSR.
Other important information to facilitate better understanding of the company’s corporate conduct and ethics compliance practices: The Company has upheld the principle of ethical business operation and pay attention to stakeholders’ needs, which are widely recognized by suppliers and consumers, thus, ensuring sustainable business operation.

3.3.7 Corporate Governance Guideline and Regulations:

Please refer to the Company’s website http://www.abilitycorp.com.tw for further details.

3.3.8 Other Important Information Regarding Corporate Governance:

Please refer to the “Item 8 under 3.3 Corporate Governance Implementation Status and Deviations from the Corporate Governance BestPractice Principles for TWSE/TPEx Listed Companies and its explanation” as set out in the annual report

3.3.9 Internal Control Systems

ABILITY ENTERPRISE CO., LTD.

Statement of Internal Control System

Date: March 16, 2018

Based on the findings of self-assessment, ABILITY ENTERPRISE CO., LTD. (ABILITY) states the following with regard to its internal control system in 2017:

ABILITY is fully aware that establishing, operating and maintaining an internal control system are the responsibilities of its Board of Directors and management. The aim of the internal control system is to provide reasonable assurance to effectiveness and efficiency of operations (including profitability, performance and safeguarding of assets), reliability, timeliness, transparency and regulatory compliance of financial reporting and compliance with of applicable laws, regulations and bylaws.
An internal control system has inherent limitations. No matter how perfectly designed, an effective internal control system can only provide reasonable assurance of accomplishing the aforementioned three objectives. Moreover, the effectiveness of an internal control system may be subject to changes of environmental or circumstances. Nevertheless, the internal control system of ABILITY contains self-monitoring mechanism and ABILITY takes corrective actions whenever a deficiency is identified.
Ability evaluates the design and operating effectiveness of its internal control system based on the criteria provided in the Regulations Governing the Establishment of Internal Control System by Public Companies (herein below, the “Regulations”). The criteria adopted by the Regulations identify five constituent elements of internal control based on the process of management control: (1) control environment, (2) risk assessment, (3) control activities, (4) information and communications, and (5) monitoring activities. Each component further contains several items. Please refer to the Regulations for details.
ABILITY has evaluated the design and operating effectiveness of its internal control system according to the aforesaid criteria.
Based on the findings of the self-assessment mentioned in the preceding paragraph, ABILITY believes that, as of December 31, 2017, its internal control system (including its supervision and management of subsidiaries), as well as understanding the degree of achievement of its objectives concerning operational effectiveness and efficiency, reliability, timeliness, transparency and regulatory compliance of financial reporting, and compliance with the applicable laws, regulations and bylaws, were effective in design and operation, and reasonably assured the achievement of the above-stated objectives.
This Statement will be integral part of ABILITY’s Annual Report for the year 2017 and Prospectus, and will be made public. Any falsehood, concealment, or other illegality in the content made public will entail legal liability under Articles 20, 32, 171 and 174 of the Securities and Exchange Law.
This Statement has been passed by the Board of Directors in their meeting held on March 16, 2018 with none of the nine attending directors expressing dissenting opinions, and the remainder all affirming the content of this Statement.

ABILITY ENTERPRISE CO., LTD.

Tseng, Ming-Jen Chairman

Tseng, Ming-Jen President and Chief Executive Officer

3.3.9.1 If the Company is requested by the SEC to retain CPA’s service for examining internal control system, the Independent Auditor’s Report must be disclosed: None
3.3.10 The penalties delivered to the Company and the staffs of the Company, or the penalties delivered by the Company to the staffs for violations of internal control system, the major nonconformity, and the corrective action in the most recent years and up to the date of the annual report: None

3.3.11 Major Resolutions of Shareholders’ Meeting and Board Meetings

Date/ Decision Maker	Major resolutions (extracts)	Implementation
2017.6.23 Shareholders’ meetings	1.Approved the Company’s 2016 business report and financial statements. 2.Approved The Company’s 2016 earnings distribution. 3.Passed amendments to the Company's "Articles of Incorporation". 4.Passed amendments to the Company's "Procedures for the Acquisition and Disposal of Assets"	To determine that the ex-dividend day shall be on August 28, 2017 and the cash dividend release day shall be on September 20, 2017. (cash dividend of NT$0.90014811 per share.)
2017.6.23 Board meetings	The Company’s proposed investment in Apostera GmbH.
2017.8.10 Board meetings	1.The Company’s appointment of the chief audit executive. 2.Change of the Company’s location. 3.The Company’s renewal of a credit contract with the bank. 4.Employee restricted new share cancellation and reduction and determination of the record date of the reduction in the secondquarter of 2017.
2017.11.13 Board meetings	1.The Company's “2018 internal audit plan”. 2.Bonus distribution plan for managers and employees of the Company in 2017 3.Amendments to the Company’s “Audit Committee Foundation Principles”. 4.Amendments to the Company’s “Regulations Governing Procedure for Board of Directors Meetings”. 5.Amendments to the Company’s “Corporate Governance Principles”. 6.The Company’s renewal of a credit contract with the bank. 7.Employee restricted new share cancellation and reduction and determination of the record date of the reduction in the third quarter of 2017.	2. Other than the chairman Tseng, Ming- Jen, the director and financial manager Lin, Hung-Tien who recused themselves from the resolution due to conflicting interest, remaining directors (including independent directors) in attendance passed the resolution unanimously.
2017.12.22 Board meetings	1.The Company’s 2018 operation plans. 2.The Company’s investment in REVL Inc. through ABILITY ENTERPRISE (BVI)CO., LTD., a subsidiary of the company. 3.Endorsements/guarantees for VIEWQUEST (BVI), a subsidiary of the company, regarding the procurement payment to the supplier Giantplus TechnologyCo.,Ltd.

Date/ Decision Maker	Major resolutions (extracts)	Implementation
2018.03.16 Board meetings	1.The Company’s 2017 financial statements. 2.The Company’s 2017 business report. 3.The Company’s 2017 earnings distribution. 4.Evaluation of the CPA’s independence of the company. 5.The date, time and venue for 2018 annual shareholders’ meeting. 6.The venue and period for handling shareholders’ resolutions at the 2018 annual shareholders’ meeting. 7.Endorsements/guarantees for ACTION, a subsidiary of the Company, regarding the procurement payment to the supplier Giantplus Technology Co., Ltd. 8.Endorsements/guarantees for VIEWQUEST (BVI), a subsidiary of the Company, regarding the procurement payment to the supplier CoAsia Microelectronics Corp. 9.“2017 Management's Reports on Internal Control system”.	Shall be implemented after passed at the annual shareholders’ meeting held on June 11, 2018.
2018.5.8 Board meetings	1.The Company’s appointment of the CPA and its fee for the year. 2.The Company’s 2017 directors’ remuneration plan. 3.The Company’s 2017 directors’ remuneration distribution plan. 4.The Company’s 2017 employees’ remuneration plan. 5.Bonus distribution plan for managers and employees of the Company in 2017. 6.Endorsements/guarantees for ACTION, a subsidiary of the Company, regarding the procurement payment to the supplier Calin Technology Co. Ltd. 7.Endorsements/guarantees for VIEWQUEST (BVI), a subsidiary of the Company, regarding the procurement payment to the supplier Calin Technology Co. Ltd. 8.The Cmpany’s renewal of a credit contract with the bank.	Resolution 5: Other than the chairman Tseng, Ming-Jen, the director Chou, Cheng- Wei and financial manager Lin, Hung- Tien who recused themselves from the resolution due to conflicting interest, remaining directors (including independent directors) in attendance passed the resolution unanimously.

3.3.12 Major Issues of Record or Written Statement Made by Any Director Dissenting to Important Resolutions Passed by the Board of Directors in 2017 and to the date of the annual report: None.
3.3.13 Resignation or Dismissal of Personnel Involved in the Company :

				As of 05/08/2017
Position	Name	Date of Appointment	Date of Termination	Reasons for Resignation
chief audit executive	Eason Chiu	98.12.1	106.06.14	Personal career planning

3.4 CPA Fees

CPA Firm	CPA	CPA	Auditing Period	Note
PWC	Hsu, Sheng-Chung	Audrey Tseng	Jan 1, 2017 ~ Dec 31, 2017

Unit: NT$ thousand

CPA Firm	CPA	Auditing Fees	Non-AuditingFees	Non-AuditingFees	Non-AuditingFees	Non-AuditingFees	Non-AuditingFees	Auditing Period
			System Design	Company Registration	Human Resources	Others (Note)	Subtotal
PWC	Hsu, Sheng- Chung	3,320	-	140	-	950	1,090	1/1/2017 ~ 12/31/2017
	Audrey Tseng

Note ： Transfer pricing report.

3.4.1 Change of accounting firm and the audit fee paid is less than previous year before the change of accounting firm: None
3.4.2 Audit fee is 15% or more less than the previous year: None

3.5 Information on Change of CPA: None

3.6 If the chairman, president, and financial or accounting manager of the Company who had worked for the independent auditor or the related party in the most recent year, the name, title, and the term with the independent auditor or the related party must be disclosed: None.

3.7 Information on Net Change in Shareholding and Net Change in Shares Pledged by Directors, Department Heads and Shareholders of 10% Shareholding or More:

3.7.1 Information on Net Change in Shareholding

Unit: Share

Title	Name	2017	2017	1/1/2018 ~ 4/13/2018	1/1/2018 ~ 4/13/2018
		Holding Increase (Decrease)	Pledged Holding Increase (Decrease)	Holding Increase (Decrease)	Pledged Holding Increase (Decrease)
Chairman and President	Tseng, Ming-Jen	89,982	-	-	-
Director	VIEWQUEST Investment Co. Ltd. Rep.:Tsay,Wen-Bin	-	-	-	-
Director	VIEWQUEST Investment Co. Ltd. Rep.: Chou,Cheng-Wei	-	-	-	-
Director	AVY Precision Technology Inc. Rep.:Tong,Chun-Jen	-	-	-	-
Director	AVY Precision Technology Inc. Rep.:Huang,Li-An	-	-	-	-
Director	Lin Shih Investment Co., Ltd. Rep.: Chan,Wen-Hsiung	-	-	-	-
Independent Director	Lam,Tai-Seng	-	-	-	-
Independent Director	Chen, Kuo-Hong	-	-	-	-
Independent Director	Lu,Chien-Min	-	-	-	-
Vice President	Chou, Cheng-Wei	71,985	-	-	-
Assistant Vice President	Tommy Lee	39,591 (39,591)	-	-	-
Assistant Vice President	Adams Chen	43,191 (10,000)	-	-	-
Chief Financial Officer	Lin, Hung-Tien	12,597	-	-	-
major stockholder	Pegatron Corporation	-	-	-	-
Vice President	Tsay, Wen-Bin (retired on 06/30/2017)	44,990	-	-	-

3.7.2 Information of Shares Transferred: None

3.7.3 Information of Equity Pledged: None

3.8 The Relations of the Top Ten Shareholders as Defined in the Finance Standard Article 6:

As of 04/13/2018

Name	Current Shareholding	Current Shareholding	Spouse or Minor Children	Spouse or Minor Children	Shareholding by Nominee Arrangement	Shareholding by Nominee Arrangement	Name and Relationship between the Company’s Top Ten Shareholders, or Spouses or Relatives within Two Degrees	Name and Relationship between the Company’s Top Ten Shareholders, or Spouses or Relatives within Two Degrees
	Shares	%	Shares	%	Shares	%	Name	Relationship
Pegatron Corporation Rep.: T.H. Tung	33,135,300	11.73	`－`	`－`	`－`	`－`	`－`	`－`
	`－`	`－`	`－`	`－`	`－`	`－`	`－`	`－`
CHIA NAI INVESTMENT CO., LTD. Rep.: TUNG,I-CHIA	8,831,767	3.13	`－`	`－`	`－`	`－`	`－`	`－`
	529	0.00	9,996	0.00	`－`	`－`	`－`	`－`
Lin Shih Investment Co., Ltd. Rep.: Huang ,Chou-Chye	5,433,757	1.92	`－`	`－`	`－`	`－`	`－`	`－`
	`－`	`－`	`－`	`－`	`－`	`－`	`－`	`－`
AVY Precision Technology Inc. Rep.: Tong, Chun-Jen	4,138,544	1.47	`－`	`－`	`－`	`－`	Lik Tin Century Investment Limited	Brother of Tong, Chun- Jen
	548	0.00	88,548	0.03
Vanguard Emerging Markets Stock Index Fund	3,587,491	1.27	`－`	`－`	`－`	`－`	`－`	`－`
Lik Tin Century Investment Limited Rep.:TUNG,CHUN-I	3,514,000	1.24	`－`	`－`	`－`	`－`	AVY Precision Technology Corporation	Brother of Tong, Chun-Jen
	24,232	0.01	1,489	0.00
JPMorgan Chase Bank N.A. Taipei Branch in Custody for Vanguard Total International Stock Index Fund, a series of Vanguard Star Funds	2,715,249	0.96	`－`	`－`	`－`	`－`	`－`	`－`
Citibank Taipei Branch in custody for Emerging Market Evaluation Fund	2,642,330	0.94	`－`	`－`	`－`	`－`	`－`	`－`
Citibank Taiwan in custody for DFA Investments Group’s Emerging Market Core Securities Portfolio Funds	2,490,974	0.88	`－`	`－`	`－`	`－`	`－`	`－`
JPMorgan Chase Bank N.A. Taipei Branch in custody for Norges Bank	2,403,215	0.85	`－`	`－`	`－`	`－`	`－`	`－`

Note 1: All top 10 shareholders have been listed. For corporate shareholders, the name of the corporate entity and the name of the representative are shown separately.
Note 2: The percentages of shares held under own name, spouse's name, underage children's names, or in the names of others are calculated separately.
Note 3: Relations among the abovementioned shareholders (including corporate and natural-person shareholders) have been disclosed in accordance with the relationships defined in Regulations Governing the Preparation of Financial Reports by Securities Issuers.

3.9 Long-Term Investment Ownership

3.9 Long-Term Investment Ownership
	Unit: shares;%;As of 12/31/2017
Long-Term Investment	Ownership by the Company (1)		Direct or Indirect Ownership by Directors, Supervisors, Managers (2)		Total Ownership (1)+(2)
	Shares	%	Shares	%	Shares	%
ABILITY ENTERPRISE(BVI)CO.,LTD.	-	100	-	-	-	100
ACTION PIONEER INTERNATIONAL LTD.	-	100	-	-	-	100
VIEWQUEST TECHNOLOGIES INTERNATIONAL INC.	-	100	-	-	-	100
VIEWQUEST TECHNOLOGIES(BVI)INC.	-	100	-	-	-	100
ABILITY INTERNATIONAL INVESTMENT CO., LTD	1,300,000	100	-	-	1,300,000	100
E-PIN OPTICAL INDUSTRY CO.,LTD.	28,626,318	53.01	-	-	28,626,318	53.01
CHIA PING INVESTMENT CO.,LTD.	-	-	150,000	100	150,000	100
JIUJIANG VIEWQUEST ELECTRONICS INC.	-	-	-	100	-	100
ABILITY TECHNOLOGY (DONGGUAN)CO., LTD.	-	-	-	100	-	100
VIEWQUEST TECHNOLOGIES (DONGGUAN)CO., LTD	-	-	-	100	-	100
ALL VISION HOLDING LTD.	-	-	15,236,910	100	15,236,910	100
E-PIN OPTICAL INDUSTRY CO., LTD.	-	-	150,000	100	150,000	100
E-PIN OPTICAL INDUSTRY(M.) SDN. BHD.	-	-	5,000,000	100	5,000,000	100
ALL VISION TECHNOLOGY SDN. BHD.	-	-	72,243,894	100	72,243,893	100
EVERLIGHT DEVELOPMENT CORPORATION	-	-	58,494	100	58,494	100
E-SKY HOLDING LTD.	-	-	10,472,879	73.04	10,472,879	73.04
NANJING EVERLIGHT PHOTONICS TECHNOLOGY CO. LTD.	-	-	-	55.45	-	55.45
ZHONGSHAN SHANXIN ACCURATE INDUSTRY CO. LTD.	-	-	-	100	-	100
NANJING E-PIN OPTICAL CO.,LTD.	-	-	-	72.22	-	72.22

4. Capital and Shares

4.1 Capital and Shares

4.1.1 Source of Capital

Unit: Share; NT$

												Unit: Share;NT$	Unit: Share;NT$	Unit: Share;NT$	Unit: Share;NT$	Unit: Share;NT$	Unit: Share;NT$
Month/ Year	Par Value	Authorized Capital					Paid-in Capital					Remark
		Shares			Amount		Shares			Amount		Source of Capital		Capital Increased by Assets Other than Cash			Other
04/2017	10	540,000,000			5,400,000,000		282,458,415			2,824,584,150		Cancellation of Issued RSA NT$694,670		None
06/2017	10	540,000,000			5,400,000,000		282,412,307			2,824,123,070		Cancellation of Issued RSA NT$461,080		None
09/2017	10	540,000,000			5,400,000,000		282,375,555			2,823,755,550		Cancellation of Issued RSA NT$367,520		None
12/2017	10	540,000,000			5,400,000,000		282,364,972			2,823,649,720		105,830`元` Cancellation of Issued RSA NT$105,830		None
				As of 04/13/2018
Type of Share				Authorized Capital											Remark
				Issued Shares				Un-issued Shares				Total Shares
Common shares				282,364,972				257,635,028				540,000,000			Listed stock
4.1.2 Status of Shareholders						As of 04/13/2018;Units: share
Item Shares			Government Agencies			Financial Institutions			Other Juridical Persons		Foreign nstitutions & Natural Persons		Domestic Natural Persons	Treasury stocks		Total
Number of Shareholders			-			5			96		165		49,244	-		49,510
Shareholding (shares)			-			366,627			64,550,732		43,190,859		174,256,754	-		282,364,972
Percentage			-			0.13%			22.86%		15.30%		61.71%	-		100.00%

4.1.3 Shareholding Distribution Status Common Share

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Class of Shareholding (Unit : Share)	Number of Shareholders	Shareholding (Shares)	Percentage
1-999	25,191	5,792,640	2.05%
1,000-5,000	17,641	38,665,746	13.69%
5,001-10,000	3,660	27,013,953	9.57%
10,001-15,000	1,060	13,179,100	4.67%
15,001-20,000	583	10,656,114	3.77%
20,001-30,000	491	12,543,987	4.44%
30,001-40,000	225	7,989,851	2.83%
40,001-50,000	174	8,007,705	2.84%
50,001-100,000	262	18,504,870	6.55%
100,001-200,000	108	15,559,208	5.51%
200,001-400,000	68	18,952,262	6.71%
400,001-600,000	9	4,382,561	1.55%
600,001-800,000	10	6,704,628	2.37%
800,001-1,000,000	3	2,486,006	0.88%
Over 1,000,001	25	91,926,341	32.57%
Total	49,510	282,364,972	100.00%

4.1.4 List of Major Shareholder

.1.4 List of Major Shareholder	.1.4 List of Major Shareholder	.1.4 List of Major Shareholder
As of 04/13/2018
Shares Shareholder's Name	Shareholding (Shares)	%
Pegatron Corporation	33,135,300	11.73%
CHIA NAI INVESTMENT CO., LTD.	8,831,767	3.13%
Lin Shih Investment Co., Ltd.	5,433,757	1.92%
AVY Precision Technology Inc.	4,138,544	1.47%
Vanguard Emerging Markets Stock Index Fund	3,587,491	1.27%
Lik Tin Century Investment Limited	3,514,000	1.24%
JPMorgan Chase Bank N.A. Taipei Branch in Custody for Vanguard Total International Stock Index Fund,a series of Vanguard Star Funds	2,715,249	0.96%
Citibank Taipei Branch in custody for Emerging Market Evaluation Fund	2,642,330	0.94%
Citibank Taiwan in custody for DFA Investments Group’s Emerging Market Core Securities Portfolio Funds	2,490,974	0.88%
JPMorgan Chase Bank N.A. Taipei Branch in custody for Norges Bank	2,403,215	0.85%

4.1.5 Market Price, Net Worth, Earnings and Dividends Per Common Share

Unit: NT$, except for weighted average shares and return on investment ratios

	As of 04/13/2018; Units: 1,000 share	As of 04/13/2018; Units: 1,000 share	As of 04/13/2018; Units: 1,000 share	As of 04/13/2018; Units: 1,000 share	As of 04/13/2018; Units: 1,000 share	As of 04/13/2018; Units: 1,000 share	As of 04/13/2018; Units: 1,000 share
Item	Year			2016 (Note 5)	2017 (Note 5)	01/01/2017~ 05/08/2017
Market Price per Share	Highest			22.95	26.50	20.45
	Lowest			14.50	16.35	19.20
	Average			17.68	19.81	22.80
Net Worth per Share	Before Distribution			29.36	30.16	28.94	Note 1
	After Distribution			-	-	-
Earnings per Share	Weighted Average Shares (thousand shares)			277,952	281,061	282,322	Note 1
	EPS	Before adjustment (Note 6)		1.39	0.77	(0.44)	Note 1
		After adjustment (Note 6)		1.39	0.77	(0.44)	Note 1
Dividends per Share	Cash Dividends			0.90	0.8(Note 6)	-
	Stock Dividend		Dividends from Retained Earnings	-	-	-
			Dividends from Capital Surplus	-	-	-
	Accumulated Undistributed Dividends			-	-	-
Return on Investment	Price/Earnings Ratio			12.72	25.73	-	Note 2
	Price/Dividend Ratio			19.64	27.76(Note 6)	-	Note 3
	Cash Dividend Yield Rate			5.09%	4.04(Note 6)	-	Note 4

Note 1: For net worth per share and earnings per share, data audited (approved) by CPA from the last quarter up to the printing date of the annual report should be listed. For other columns, data from the current year up to the printing date of the annual report should be listed.

Note 1: Listed the highest and the lowest market price per share in every year and the average market price were calculated based on the trading amount and volume.

Note 2: Price / Earnings Ratio = Average Market Price / Earnings per Share Note 3: Price / Dividend Ratio = Average Market Price / Cash Dividends per Share Note 4: Cash Dividend Yield Rate = Cash Dividends per Share / Average Market Price Note 5: The year stated above is the year when dividends are yielded. Note 6:Until the printing date of the annual report, the proposal of 2017 earnings distribution has not yet been resolved in Shareholders’ Meeting.

4.1.6 Dividend Policy and Implementation

4.1.6.1 The dividend policy stipulated by the Company’s Articles of Incorporation is as follows:

The amendment to the dividend policy in the Articles of Incorporation passed by the Company’s Shareholders’ Meeting as of June 29, 2016 is as follows:

Article 29

If the Company's general annual report has surpluses, in addition to paying taxes in accordance with the law, shall make up for past losses and allocate 10% of statutory surplus reserves based on the balance. However, if statutory surplus reserves have reached the total capital, this limit does not apply. If necessary, after the allocation or turnaround special surplus reserve according to the regulations, the rest incorporates initial undistributed earnings as shareholders' cumulative distributed earnings.The Board of Directors may propose earnings allocation motion and report it to shareholders' meeting for resolution.

Article 29-1

The implementation of the Company's dividend policy requires consideration of the Company's future capital budget planning, meeting the needs of shareholders for cash inflow, and ensuring market competitiveness, etc., in which the cash dividends should be no less than 10% of the total of shareholders' dividends. Its method of distribution is handled according to Article 29.

4.1.6.2 Based on the dividend distribution policy implemented in the past 10 years except for the year when cash was distributed through capital reduction, at least 50% has been allocated annually for shareholders’ dividends. In the future, if the Company makes profit, the dividend distribution policy implemented in the past will be continued to allocate at least 50% for shareholders’ dividends, in which cash dividends will be no less than 50% of the total dividends.

4.1.6.3 The dividend distribution proposed at the Shareholder’s Meeting:

  - The 2017 Shareholders’ Meeting proposed to distribute cash dividends of NT$0.80 per share.

4.1.7 Influence from free allocation of shares on the Company's business performance and earnings per share: Not applicable due to the fact that the Company does not issue bonus shares this year.
4.1.8 Employees’ and Directors’ Remuneration Distribution
4.1.8.1 Percentage or range of employees’ and directors’ remuneration stipulated by the Company’s Articles of Incorporation

Articles regarding the percentage of employees’ and directors’ remuneration in the Company’s Articles of Incorporation is as follows:

Article 28-1

If the Company's final accounting of revenue and expenditure is profitable, the remunerations of employees, directors shall be allocated as follows. However, if the Company still has accumulated losses, it shall reserve the profits in advance and make up for the losses, and then allocate:

(1)The employees' compensation is not less than 8% and not more than 15%. The objects offered employees' compensation in cash or shares have to meet certain requirements of subsidiaries. The relevant measures are authorized to the Board of Directors to regulate.
(2)The directors' remuneration is not more than 1.5%.

The aforementioned profits refer to the profits before that pre-tax profit deducts the remuneration distributed to employees and directors.

4.1.8.2 Calculation basis for estimated employees’ and directors’ remuneration and for numbers of shares distributed as employees’ remuneration as well as accounting measures against the discrepancy between actual distribution and estimates:

The estimated employees’ and directors’ remuneration is based on the pretax income up to the current period. Within the percentage regulated by the Company’s Articles of Incorporation, 8% and 1.5% are respectively listed as estimated operating expense. When discrepancy between actual distribution and estimates occurs later, it will be regarded as a change in accounting estimates and counted as profit and loss of the year of actual distribution.

4.1.8.3 The employees’ and directors’ remuneration distribution passed by the Board of Directors for the year of 2017:
(1) Amount of employees’ and directors’ remuneration:

The proposal for 2017 profit distribution of the Company was resolved by the Board of Directors as of March 16, 2018. The Board of Directors further resolved as of May 8, 2018 to distribute NT$19,517,626 in cash as employees’ compensation and NT$3,659,555 as directors’ remuneration. The aforementioned distribution amount is the same as the estimates for 2017.

(2) Proposed amount of share bonus for employees and the ratio accounted for in the sum of net profit of the current period and total amount of employee dividends: Not applicable due to the fact that the Company does not issue bonus shares for this period.
(3) Estimated earnings per share after the proposed employees’ and directors’ remuneration distribution: Not applicable due to the expensing of employees’ and directors’ remuneration.
4.1.8.4 The actual remuneration distribution for employees and directors for 2016 and the discrepancy between which and the recognized amount as well as exact amount of difference, causes and responses:
(1) The 2016 employees’ and directors’ remuneration distribution:

  - a. Employees’ remuneration: NT$38,225,148.

  - b. Directors’ remuneration: NT$7,167,216.

(2) Discrepancy between the abovementioned amount and the recognized amount as well as exact amount of difference, causes and responses:
- a. The employees’ remuneration amount recognized in the financial statements of 2016 was NT$38,225,148, which was the same as the numbers resolved by the Board of Directors.
- b. The directors’ remuneration amount recognized in the financial statements of 2016 was NT$7,167,216, which was the same as the numbers resolved by the Board of Directors.
4.2 Issuance of Corporate Bond: None.
4.3 Preferred Stock: None.
4.4 Global Depository Receipts: None.
4.5 Employee Stock Options: None.

As of 05/08/2018

4.6 Employee Restricted Stocks

4.6.1 Issuance of Employee Restricted Stocks

	As of 05/08/2018
Type of Restricted Shares	Grant of 2013
Approval Date bythe Authority	2013/07/01
Grant Date	2014/06/03
Number of Employee Restricted Stock Granted	22,000,000
Price of Issuance	NT$10
Percentage of Employee Restricted Stocks to Outstanding Common Shares	4.65%
Conditions for Exercise of Employee Restricted Stocks	If employees remain employed for particular years from the issuance date, the following percentage of stocks will be granted accordingly: 1. One year: 40%. 2. Two years: 30%. 3. Threeyears: 30%.
Custody of Employee Restricted Stocks	A total of 22,000,000 shares delivered to the Trust
Procedures for Non-Compliance of the Conditions	The Company can buy back and cancel all restricted stocks from any employee whom received restricted stocks but fail to complywith the conditions.
Number of Employee Restricted Stocks Bought Back	2,673,277
Number of Employee Restricted Stocks Free from Custody	14,682,618
Number of Employee Restricted Stocks under Custody	27,716
Number of Employee Restricted Stocks under Custody to OutstandingCommon Shares(%)	0.01%
Impact on Shareholders’Equity	1.Possible expensing amount for three years is estimated to be NT$300,000 thousand. 2.Average possible impact on EPS per year is NT$0.22 Yet, it is overall estimated that dilution to EPS for future years will be limited, thus causing no significant impact on the equity of current shareholders.

Note 1: Announced numbers of buyback shares from employees.

Note 2: The number of restricted new restricted employee shares is the number of shares after cash capital reduction.

4.6.2 Information on Name of Managers and Top 10 Employees obtaining Employee Restricted Stocks

										As of 05/08/2018	As of 05/08/2018	As of 05/08/2018
	Title	Name	Number of New Restricted Shares	New Restricted Shares as a Percentage of Shares Issued		Released				Unreleased
					Number of Shares	Issed Price (NT$)	Amount (NT$ Thousands)	Released Restricted Shares as a Percentage of Shares Issued	Number of Shares	Issed Price (NT$)	Amount (NT$ Thousands)	Released Restricted Shares as a Percentage of Shares Issued
Manager	CEO	Tseng, Ming-Jen	940,000 (Note 5)	0.33%	940,000 (Note 5)	10	9,400,000	0.33%	-	10	-	0.00%
	Vice President	Tsay, Wen-Bin(Note 4)
	Vice President	Chou, Cheng-Wei
	Vice President	F.J. Chiang (Note 1)
	Assistant Vice President	Tommy Lee
	Assistant Vice President	Y.C. Chou(Note 2)	845,820 (Note 6)	0.30%	845,820 (Note 6)	10	8,458,200	0.30%
	Assistant Vice President	Adams Chen
	Chief Financial Officer	PC Chen (Note 3)
	Chief Financial Officer	Lin, Hung-Tien
Employee	Senior Director	Jason Yeh	969,240 (Note 5)	0.34%	969,240 (Note 5)	10	9,692,400	0.34%	-	10	-	0.00%
	Senior Director	Roger Chiang
	Director	Terence Chang
	Director	JE Chang
	Director	Jonny Wu
	Director	Mike Leu
			872,128 (Note 6)	0.31%	872,128 (Note 6)	10	8,721,280	0.31%
	Director	KK Lin
	Vice Director	Sean Chao
	Special Assistant	C. K. Wang
	Special Assistant	Nicole Lee

Note 1: Vice President F.J. Chiang retired on May 30, 2016. Note 2: Assistant Vice President Y.C. Chou retired on April 28, 2016.

Note 3: CFO PC Chen resigned on September 30, 2016. Note 4: Vice President Tsay, Wen-Bin retired on June 30, 2017.

Note 5: The number of restricted new restricted employee shares obtained and the number of unrestricted shares are the number of shares after cash capital reduction. Note 6: The number of restricted new restricted employee shares obtained and the number of unrestricted shares are the number of shares after cash capital reduction.

4.7 Status of New Share Issuance in Connection with Mergers and Acquisitions
4.7.1 New share issuance in connection with mergers and acquisitions that has been complete during the current year up to the printing date of this annual report: None.
4.7.2 New share issuance in connection with mergers and acquisitions that has been adopted as a resolution during the current year up to the printing date of this annual report: None.

4.8 Plans and Implentation of Funds Utilization

4.8.1 Plans for Convertible Bond Issuance (Before Changes of Plans)
4.8.1.1 Total capital amount required by the plans: NT$1,515,000 thousand.
4.8.1.2 Sources of the capital: The Company issued 15,000 five-year domestic unsecured convertible bonds for the first time, with par value of NT$100 thousand and coupon of 0%. The offereing price of each bond was 100.2% of its par value, which raised a fund of NT$1,503,000 thousand. The remaining NT$12,000 thousand was obtained from banks through loans.
4.8.1.3 Estimated Progress and Potential Benefits of Funds Utilization:
- (1) Estimated Progress of Funds Utilization

Estimated Progress of Funds Utilization	Estimated Progress of Funds Utilization	Estimated Progress of Funds Utilization	Estimated Progress of Funds Utilization
Unit: NT$thousands
Project	Estimated Completion Date	Required Amount	2010
			Q2
Administrative BuildingPurchasing	99.05.30	1,100,000	1,100,000
Working Capital Financing	99.05.30	415,000	415,000
Total		1,515,000	1,515,000

The Company filed its first issuance of domestic unsecured convertible bond with the Financial Supervisory Commision of Taiwan in December 2009, being underwriiten through simultaneous book building and public subscription. The fundraising was complete in February 2010. The Company estimated that its revenue scale will continue to increase in the future, the abovementioned funds will therefore be used for financing the working capital and purchasing the administrative building.

(2) Estimated Potential Benifits
a. Administrative Building Purchasing

In this project, NT$1.1 billion was allocated to purchase the administrative building. Based on the monthly rental of NT$1,695 thousand for the office spaces currently, the project will save NT$20,340 thousand annually.

b. Working Capital Financing

In this project, NT$4.15 billion was allocated to finance the working capital, which was mainly required by future business growth. Based on the average 2% interest rate of loans in the current financing market, NT$8,300 thousand of (415,000 thousand × 2%) expense incurred by refinancing interests will be saved starting from the year of 2000.

4.8.2 Plans for Convertible Bond Issuance (After Changes of Plans)
4.8.2.1 The Company’s first issuance of domestic unsecured convertible bond was filed with and approved by the Financial Supervisory Commision of Taiwan through

letter No. 0980070053 on January 11, 2010. The Board of Directors resolved to make changes to the plan on September 15, 2014.

4.8.2.2 Changes to The Company’s First Issuance of Domestic Unsecured Convertible Bond:
(1) Causes for changes: Because some landlords were reluctant to sell the buildings and certain building spaces and numbers of parking lots did not meet the Company’s requirement, the plan was changed to purchase land to build the administrative building in need.
(2) Plans before and after Changes:

Unit: NT$ thousands

Brfore Changes	Brfore Changes	Brfore Changes	After Changes	After Changes	After Changes
Project	Estimated Completion Date	Project	Estimated Completion Date	Project	Estimated Completion Date
Administrative Building Constructing	99.05.30	1,100,000	Administrative Building Constructing	105.09.30	824,775
Working Capital Financing	99.05.30	415,000	Working Capital Financing	103.12.31	678,225
Total		1,515,000	Total		1,503,000

4.8.2.3 In the changes of plans, purchasing administrative building was changed to constructing administrative building. In which, the required amount was reduced from NT$1,100,000 thousand to NT$824,775 thousand while the surplus was used to finance working capital. In conclusion, constructing administrative building will result in savings in rentals and financing working capital will lower the expense incurred by interests and improve financial structure.
4.8.2.4. Implementation of Plans after Changes

Unit: NT$ thousands

				Unit: NT$thousands
Project	Progress		Up to Q4 2017 (Accumulated)	Causes for Rate of Progress and Improvements
Administrative Building Constructing	Expense	Scheduled	824,775	The expense arised from the administrative building co_n_struction was NT$850,048 thousand,the discrepancy was covered by the Company’s own capital in the 4thquarter of 2017.
		Actual	850,048
	Implementation (%)	Scheduled	100`％`
		Actual	103.06`％`
Working Capital Financing	Expense	Scheduled	678,225	NT$415,000 thousand of the financing amount was arranged at the end of June 2010. The remainder of the financing amount of NT$263,225 thousand was provided in the Q4 of 2014.
		Actual	678,225
	Expense	Scheduled	100`％`
		Actual	100`％`

5. Business Overview

5.1. Business Activities

5.1.1 Business Scope
Main content of the business
- (1) Design, production and sale of digital cameras and video cameras.
- (2) Design, production and sale of other digital image capture devices.
- (3) Undertake the professional design and OEM manufacturing business commissioned by international digital camera manufacturers.
5.1.1.2 Breakdown of Sales by Major Products

Breakdown of Sales by Major Products	Breakdown of Sales by Major Products	Breakdown of Sales by Major Products
Unit: NT$thousands
2017
Major Products	amount	%
Opticproducts	11,201,600	100%

Current Company Products (Services)

The manufacturing and sale of DSC(Digital Still Camera), DV(Digital Video Camcorder), digital surveillance cameras and camera modules.

Planned Development of New Products (Services)
(1) High-resolution, small-scale, professional digital cameras equipped with larger photosensitive elements and large aperture lenses.
(2) Multi-lens 360-degree panoramic camera.
(3) Wearable camera combined with mobile application platform, 4k2k animation product with live broadcasting function.
(4) Professional surveillance security cameras and NAS (Network Attached Storage).
(5) Miniaturized lens image module.
(6) Home video cameras combined with smart home applications.
(7) Unmanned aerial camera equipped with an image module and a camera.
(8) Camera equipped with a 4G module.
(9) High-power zoom Bridge Cameras.
(10) >10m waterproof, shockproof and weatherproof camera.
(11) Auto-assisted driving system camera module.
(12) Image software with added value.

5.1.2 Industry Overview

5.1.2.1 Current Status and Development of the Industry

In 2017, the camera specifications of smartphones continued to improve. One of the most compelling products was Apple's iPhone X with 3D facial recognition technology, which aroused tremendous market attention. In addition, mobile phones of various brands eagerly tried to appeal to the high demand of camera and video functions on mobile phones, as well as providing simpler and more convenient sharing functions for consumers. These demands have a great impact on the traditional non-exchange lens digital camera.

The sales of traditional digital cameras continued to decline slightly in 2017 and are expected to keep declining in 2018. The camera functions of smart phones continue to improve. For example, lens quality and 3D imaging technology may further reduce the traditional camera market. As in the past few years, traditional digital cameras will continue to shrink in number if goods in progress cannot have breakthrough technologies. Main sales will continue to be dominated by the product segmentation with better optical functions that can be differentiated from smart phones, such as high magnification ratios, large photosensitive elements and submersible cameras. These types of functional product can still have a stable sales volume, so it is estimated that the market can still maintain a bottom line demand quantity in the next few years.

The digital camera industry has clearly entered recession since several years ago, and the overall market has clearly seen the huge decline in industry participation and some industry players have even dropped out. There are only a few suppliers and brands struggling to survive in the market. Even some brands or suppliers whose scale is not large enough will gradually exit the center of the market, and turn to a small number of highly differentiated innovative products, or shift the industry focus to other product areas that continue to grow.

Looking at the sluggish performance of the handheld digital imaging product market in 2017, new technologies and applications are still unclear, and the sports video cameras that were booming in the past few years have also begun to experience a significant decline in sales performance with market saturation. Diversified wearable cameras have not grown as expected due to unclear positioning, but their application market is gradually being penetrated by the consumer personal market into the professional application market of producers. The 360-degree panoramic camera with internet live broadcasting function has a great market potential, but based on its growth in the past year, this type of products are still relatively unknown to the clients and the application and understanding of such products needs to be further strengthened.

In short, the digital imaging product market is currently in a period that lacks mainstream technologies and applications. Only new technologies and applications will enable the market to rise again. The hope is that with the development of Internet of Things (IoT), big data or human-machine interface, the demand for artificial intelligence and machine vision will increase year by year. The industry will also develop in these directions. Cameras with AI function will slowly appear, and these smart cameras will be the future growth momentum of the industry.

5.1.2.2 The correlation among industry upstream, midstream and downstream sectors

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5.1.2.3 Various product development trends

Under the current state of industrial development described as above, product development trends can be described in several directions.

In terms of traditional non-exchangeable lens digital cameras, almost all plants are not investing in new models, and most of them are updating their local functions, or continuing the sales of existing product lines. They expect to use the lowest manufacturing costs to maintain the visibility of their brands in the market. Therefore, it is foreseeable that more and more brands will withdraw from this market and the mutual merger effect will continue.

In terms of the technology development of goods in progress, instant sharing has become an indispensable requirement for current consumers. Therefore, wireless networks and even cameras equipped with 4G communication capabilities have been mentioned more and more. Last year, social media such as Facebook and Twitter even launched the 360-degree panoramic live broadcasting feature, and therefore the adoption of a camera that supports live broadcasting has gradually become a mainstream development technology.

Smartphones are constantly improving but inherent limitations such as lightness and small size are also required. Most smartphones carry ultra-thin cameras with fixedfocus lenses. However, such cameras have inherent limitations that make it impossible to clearly photograph distant objects or people. Therefore, thin and light high-power zoom digital cameras or commonly known as Bridge Cameras will likely become the second priority for consumers other than mobile phone cameras. The zoom for such cameras is more than 20 times, at the same time, they are lightweight

and easy to carry. They have strong optical performance for long-distance shooting and optical image stabilization performance. Its appearance is closer to the light and small entry product DSLR single lens reflex camera. The waterproof and shockproof digital camera will use 4 to 5 times zoom, and waterproof >10 meters. These two types of camera products form special categories, and can be differentiated from smart phones in terms of functional segmentation. Their special types and functions cannot be replaced by smart phones, so their demand will continue to exist in the market.

The 360 product was a hot topic in the market in 2017, but the consumer market faced a slight stagnation due to consumer unfamiliarity in terms of its application. However, the professional 3D 360 product still has a steady growth in the market. These types of cameras has high unit price and high quality, and it is mainly used in professional live broadcasting or commercial applications. Although the number of such cameras is not as high as the consumer type, they have stable customer demands. Furthermore, it also requires special image mosaic software, so there is more potential to make profit for both the brands and the manufacturers.

The sales performance of sports video camera GoPro in 2017 is still worse than expected. Although it is still the largest brand in the market, competition from Chinese low-cost brands also forces it to launch low-price product retailing at US$199 to maintain its market position. However, the replacement cycle of such products is much longer than that of ordinary consumer products. It remains to be seen whether reducing the selling price is the winning strategy. They should also pay close attention to whether this kind of focused products can survive in the market for the long run.

The drone camera market has experienced great ups and downs in the past two years. Many drone companies have ended their operations successively last year. Currently, it is almost certain that the Chinese brand DJI dominates the market. Although there are still a few companies with their own special technologies or specific commercial applications trying to find a place in the market, general consumer drones will be further squeezed out. In current drone camera market, most drone manufacturers develop their own shockproof camera modules carried by the aircraft, so it is difficult for traditional digital camera manufacturers to enter this market, and they only play the role of the lens module suppliers.

In addition, with the rise of dual-lens mobile phone cameras, 3D cameras are also a possible development direction for the market. Using components equipped with ranging functions will make images no longer just 2D. Such products are also expected to be in demand in the mobile phone market.

Finally, it is worth mentioning that many large manufacturers are now trying to import AI into cameras, mainly for security monitoring or smart home imaging

applications. Creating artificial intelligence imaging products through the analysis of big data, such as the impressive PIXEL from Google. In addition, the smart home system created by the combination of AI and big data analysis in home monitoring or entertainment imaging demands has also been a highly competitive market sector in the past two years. Such products will no longer be dominated by hardware, but will require a series of algorithms including cloud computing and big data analysis. This will be an opportunity for future development.

5.1.2.4 Competition

Under the above mentioned industry situation and product trends, the competition faced by each factory can be divided into the following aspects.

As for brand factory, it is difficult to support many existing brands in the current market due to the rapid decline in market size, so it is foreseeable that brand factories cannot rely on the existing digital camera market alone to maintain business operations. Therefore, the consolidation within the company and the search for new products and technology opportunities become a top priority. The former brand factory with a high market share was able to obtain more market share due to the withdrawal of other brands to maintain basic operations and actively seek the development opportunities for new technologies. Brands with smaller market share tends to turn to special product positioning to avoid direct price competition, or shift their business focus to non-digital camera fields. Japanese brand factories will also face further pressure from new overseas products, challenging its ability to introduce new products.

The ODM plant, together with the supply chain of various plants, is currently facing the problem of insufficient economic scale and rising costs. Therefore, it also face the situation that plants with higher-ranking scale are more likely to maintain its business. In order to survive, all manufacturers must continue to invest and innovate in addition to the original product market. Therefore, they need to deal with the decision to invest, and test the firm's confidence in the industry. In addition, the appreciation of New Taiwan dollar, raw material costs, continuous rising labor costs in mainland China, and other unfavorable conditions for ODM is not easy to lift at the moment. ODM is paying a relatively high price, facing the competition of the brand factory, ODM factories will face greater pressure.

In terms of traditional small and thin digital cameras, high-power zoom digital cameras and waterproof and shock resistant digital cameras, the niche is less obvious, and its success relies highly on the scale of production. Most Japanese brand-based client will give up on their own design and development, which will increase ODM opportunities and will still be competed and pursued by ODM factories. ODM factories with larger scale of camera-related operations is more likely to succeed.

With respect to high specification compact digital cameras, ODM factories face competition from internal resources of Japanese brand clients. Unless ODM offered

price are attractive and ODM factories have solid technical capabilities, otherwise fighting for ODM opportunities will be very difficult.

The competitive situation of sports video cameras is mainly GoPro and its supplier camps. Currently, the market is in the same declining tendency as digital cameras. The future depends on whether new breakthrough technologies or applications will emerge to drive replacements. Otherwise, the market will maintain the current situation, with high-priced GoPro facing the competition of the low-priced mainland China brands.

360 cameras are still emerging markets, and competition is still uncertain. In the future, such products should be combined with 4G or WiFi to provide live broadcasting functions to meet the needs of the young consumer group's real-time sharing habits. Live broadcasting platform combined with Internet companies should have a certain market potential.

SMART CAMERA with AI computing is currently in the ascendant, its functions and specifications are yet to be integrated. However, early market investment and joined venture with strong and influential alliances will bring winning opportunities once the market starts to rise.

5.1.3 Research and Development

5.1.3.1 Research and Development Expense in Recent Year

Unit: NT$ thousands

		Unit: NT$thousands
Year Item	2017	1/1/2018 ~ 3/31/2018
R&D Expense (A)	706,702	166,317
Net Revenue(B)	11,201,600	1,904,479
(A)/(B)	6.31%	8.73%

Source: Consolidated financial reports reviewed by CPA as of March 31, 2018.

5.1.3.2 Successfully developed technologies or products in the most recent fiscal year up to the publication date of this annual report

The company R&D area extends from the early CCD VGA type of computer camera to CMOS and CCD digital camera products, continuing the knowledge and accumulated experience acquired from the cooperation with renowned international manufacturers, along with excellent production management and cost advantages, sparing no effort in the strengthening of technology.

The research and development direction is based on the integration of optical, mechanical and electrical technologies in the optical lens and electronic ASICs. Effectively integrate vertically and control specifications, and develop in cooperation with upstream major component manufacturers, and reduce design costs and increase elastic competitiveness through design-in. Canon has the ability to synchronize with the global digital camera development technology, providing solution for 3A image quality and the optical zoom function and control ability that is difficult to breakthrough, and received accreditation from international manufacturers. Offering miniature models, ultra-thin models, MPEG4

and H. 264 models with video recording functions. The connection between wireless communications and smart phones has become increasingly important. Bluetooth and NFC have significantly improved the speed and convenience of operation and connection. In view of the market demand for sporty and wearable cameras and the use of self-made lenses for integrated opto-mechanics in the use of related imaging products.

The company is committed to the application of research and development product patent, and promote the effective application of intellectual property to products, increase financial intelligence to strengthen the professional capabilities of research and development, and R&D of the imaging industry.

With regard to the product development of vehicle camera modules, the follow-up has been actively investing more resources in the development of a wider range of automotive camera modules. Its applicable areas include ADAS, surveillance camera, driver fatigue monitoring, electronic rear view mirror and so on. Focusing on the future, we hope to create higher added value and gross profit, and expand the product line with longer lifespan.

5.1.3.3 Future Research and Development Plans and Estimated Expenses

In addition to the input and development of existing products, future investment in R&D projects and resources will be gradually adjusted according to the industrial development trend.

The Specific Research and Development Future Plans and Progress are as follows:

Unit: NT$thousands Research and Development Project Current Progress The R&D funding that should be further invested Time expected to complete mass- production Main factors affecting the success of R&D in the future Lens module 95% 10,000~15,000 First half of 2018 Comply with the diversified product development demands of clients Virtual Reality (VR) -360 degree automobile driving recorder -360 degree panoramic camera -Android/iPhone dedicated 360 degree panoramic camera 60% 30,000~40,000 First half of 2018 Customer product specification alteration, authentication time and cost structure Artificial Intelligence (AI) -visual image -camera self-learning -smart learning 70% 30,000~35,000 First half of 2018 Satisfy the needs of customers in terms of camera diversity Automobile camera module -Advanced Driver Assistance System (ADAS) 40% 35,000~40,000 The first half of 2019 Customer needs, changes in customer specifications, long authentication time	Unit: NT$thousands Research and Development Project Current Progress The R&D funding that should be further invested Time expected to complete mass- production Main factors affecting the success of R&D in the future Lens module 95% 10,000~15,000 First half of 2018 Comply with the diversified product development demands of clients Virtual Reality (VR) -360 degree automobile driving recorder -360 degree panoramic camera -Android/iPhone dedicated 360 degree panoramic camera 60% 30,000~40,000 First half of 2018 Customer product specification alteration, authentication time and cost structure Artificial Intelligence (AI) -visual image -camera self-learning -smart learning 70% 30,000~35,000 First half of 2018 Satisfy the needs of customers in terms of camera diversity Automobile camera module -Advanced Driver Assistance System (ADAS) 40% 35,000~40,000 The first half of 2019 Customer needs, changes in customer specifications, long authentication time	Unit: NT$thousands Research and Development Project Current Progress The R&D funding that should be further invested Time expected to complete mass- production Main factors affecting the success of R&D in the future Lens module 95% 10,000~15,000 First half of 2018 Comply with the diversified product development demands of clients Virtual Reality (VR) -360 degree automobile driving recorder -360 degree panoramic camera -Android/iPhone dedicated 360 degree panoramic camera 60% 30,000~40,000 First half of 2018 Customer product specification alteration, authentication time and cost structure Artificial Intelligence (AI) -visual image -camera self-learning -smart learning 70% 30,000~35,000 First half of 2018 Satisfy the needs of customers in terms of camera diversity Automobile camera module -Advanced Driver Assistance System (ADAS) 40% 35,000~40,000 The first half of 2019 Customer needs, changes in customer specifications, long authentication time	Unit: NT$thousands Research and Development Project Current Progress The R&D funding that should be further invested Time expected to complete mass- production Main factors affecting the success of R&D in the future Lens module 95% 10,000~15,000 First half of 2018 Comply with the diversified product development demands of clients Virtual Reality (VR) -360 degree automobile driving recorder -360 degree panoramic camera -Android/iPhone dedicated 360 degree panoramic camera 60% 30,000~40,000 First half of 2018 Customer product specification alteration, authentication time and cost structure Artificial Intelligence (AI) -visual image -camera self-learning -smart learning 70% 30,000~35,000 First half of 2018 Satisfy the needs of customers in terms of camera diversity Automobile camera module -Advanced Driver Assistance System (ADAS) 40% 35,000~40,000 The first half of 2019 Customer needs, changes in customer specifications, long authentication time	Unit: NT$thousands Research and Development Project Current Progress The R&D funding that should be further invested Time expected to complete mass- production Main factors affecting the success of R&D in the future Lens module 95% 10,000~15,000 First half of 2018 Comply with the diversified product development demands of clients Virtual Reality (VR) -360 degree automobile driving recorder -360 degree panoramic camera -Android/iPhone dedicated 360 degree panoramic camera 60% 30,000~40,000 First half of 2018 Customer product specification alteration, authentication time and cost structure Artificial Intelligence (AI) -visual image -camera self-learning -smart learning 70% 30,000~35,000 First half of 2018 Satisfy the needs of customers in terms of camera diversity Automobile camera module -Advanced Driver Assistance System (ADAS) 40% 35,000~40,000 The first half of 2019 Customer needs, changes in customer specifications, long authentication time
Research and Development Project	Current Progress	The R&D funding that should be further invested	Time expected to complete mass- production	Main factors affecting the success of R&D in the future
Lens module	95%	10,000~15,000	First half of 2018	Comply with the diversified product development demands of clients
Virtual Reality (VR) -360 degree automobile driving recorder -360 degree panoramic camera -Android/iPhone dedicated 360 degree panoramic camera	60%	30,000~40,000	First half of 2018	Customer product specification alteration, authentication time and cost structure
Artificial Intelligence (AI) -visual image -camera self-learning -smart learning	70%	30,000~35,000	First half of 2018	Satisfy the needs of customers in terms of camera diversity
Automobile camera module -Advanced Driver Assistance System (ADAS)	40%	35,000~40,000	The first half of 2019	Customer needs, changes in customer specifications, long authentication time

Research and Development Project	Current Progress	The R&D funding that should be further invested	Time expected to complete mass- production	Main factors affecting the success of R&D in the future
- Surveillance Camera - Driver Fatigue Monitoring
Internet of Things (IoT) at home -HOME CAM -IP CAM -IoT CAM	70%	60,000~75,000	First half of 2018	Customer product specification alteration, authentication time and cost structure
Pocket Printer	50%	9,000~12,000	Second half of 2018	Customer Demand
Polaroid	50%	8,000~10,000	Second half of 2018	Customer Demand

5.1.4 Long-term and Short-term Business Development Plans

5.1.4.1 Short-term business development plans:

In view of the aforementioned industry overview, the decline in industrial scale and industrial centralization is an irreversible trend. The short-term business development will focus on the maintenance of the original consumer camera scale, adhere to customer relationships, implement the customer project one by one, in order to achieve effective merger and solidify the supplier partners, and pursue higher market share to stabilize the foundation.

Based on this foundation, we aim to further diversify the image application products in different industries, providing customized services, and establishing a small variety of high gross margin and high adhesion customer base, in order to create new sources of stable profitability and disperse the risk of adhering to the original market. Specifically, breakthroughs will be sought in the following product areas:

(1)High specification, small scale, professional digital cameras equipped with larger photosensitive elements and large aperture lenses.
(2)Multi-lens 360-degree panoramic camera.
(3)Wearable camera combined with mobile application platform, 4k2k animation product with live broadcasting function.
(4)Professional surveillance security cameras and NAS(Network Attached Storage).
(5)Miniaturized lens image module.
(6)Home video cameras combined with smart home applications.

(7)Unmanned aerial camera equipped with an image module and a camera.

(8) SMART CAMERA with AI operation.

At the same time, enhancing the technical strength in the following sectors to maintain competitive advantage:

(1)Integrate low energy consumption machine photoelectric technology and new material mechanism design to achieve a compact and lightweight design.
(2)Invest in the optical design industry and provide customized optical technology services.
(3)Combine 4G LTE with wireless communication hardware and software design.
(4)Video streaming technology provides customers with instant sharing function.
(5)Continue to invest in open platforms such as embedded Linux to facilitate streaming with the outside world.
(6)Instant cloud image system design and services.
(7)Automotive image system design and services.
(8)Design cost control and automated production.

In terms of marketing, in addition to the cooperation with traditional camera brand factories, actively develop the opportunity of cooperation with leading enterprises of different industrial imaging products, in order to develop non-consumer electronic customer base. In addition, it will also actively cooperate with the mobile phone and internet companies in mainland China in order to improve the current customer structure based on Japanese customers, and create a long-term stable operation of the company through a diversified and stable customer base.

5.1.4.2 Long-term business development plans

Continuously deepen the investment and mastery of key technologies, focusing mainly on optics, image processing, software development, wireless communication, live broadcasting, and production automation, to provide customers with professional and customized services with technical value. In conjunction with external partners, we actively join the ecological chain of the industry, jointly expand the market and participate in the early technical discussions and formulation, in order to stand at the commanding heights of technology and industry.

5.2 Market and Sales Overview

5.2.1 Market Analysis

5.2.1.1 Sale of major commodities (services) in provided areas.

The company's customers are mainly famous digital camera and surveillance security product selling brands in Japan, Europe, the United States, and Asia, with professional ODMs and OEMs as our core business.

5.2.1.2 Market Overview

According to data provided by market analysis company, the shipment of global digital cameras (including interchangeable lenses and non interchangeable lenses) have fallen below 20 million units in 2016, and the shipment number in 2017 is expected to fall continuously.

The non-handheld sports camera gradually replacing the digital video recorder has seen the slow down of its shipment growth in 2016. This market is still dominated by GoPro but recently there are other Japanese and Chinese brands joining the market fray. Price competition intensifies. It is still expected to grow but at a slower pace and gross margin will be affected due to falling prices. Since the beginning of 2015, the 360 panoramic camera that has emerged with VR have sprung up like mushrooms. Customer demand for live broadcasting function is brewing. The professional 3D 360 cameras used in various industries are also invested by many companies, but whether they can drive a large market demand is yet to be observed.

5.2.1.3 Future supply and demand of the market and its growth

As mentioned in the previous paragraph, the demand for traditional forms of non interchangeable lens digital cameras has been reduced, but the market still has a basic needs that is estimated to maintain a bottom line demand for the next three years. In terms of market supply, there are only a few remaining OEMs still working on digital cameras, and Canon is one of the largest professional foundries. It is expected that there will still be manufacturers in several remaining foundries who will stopped their investment due to lack of profit, or shifting their business focus to products other than digital cameras. The reduction of the supply side result in the balance between supply and demand, under this circumstances, the company operation will no longer be quantity oriented. Instead, the focus will be shifted to mid-to-high end compact digital cameras, and image solutions commercial applications. Through providing customer with customized services to achieve market differentiation and qualitative growth.

The market growth of sports camera that tie-in with Japanese customers clearly slowed down and price competition intensifies. Creating technology and market differentiation is the only way to survive in the market. The emerging 360 degree panoramic camera is an imaging product worthy of attention in the future. Focusing on this aspect, the company has also invested resources in this production project. We have also started cooperation with mobile phone plants other than non traditional Japanese camera companies and European and American consumer products brands, including consumer and professional panoramic cameras. It is expected that the company will have the opportunity to occupy a place in this market.

5.2.1.4 Competitive Niche

Our current competitive niche mainly lies in:

(1) The established mutual interdependence structure with our current clients as well as the relative procurement scale. Most of the competitors in the industry is no longer focused on the digital camera industry. Therefore, Canon has the most competitive advantage in this industry.
(2) Our long term focus on the accumulation of experience in integrated photoelectric software and firmware technologies allows us to cope with the market demand in diversified imaging products technology and mass production. Our long term cooperation with a number of brands enables us to be familiar with the needs of major manufacturers, and therefore is more competitive in terms of technology.
(3) Long-term and stable supplier partnerships.
(4) Long-term investment in imaging and optics related technologies The establishment of specialized image tuning techniques for optical modules has been incompatible with other competitors and can be widely applied to the needs of various imaging and optical products.
5.2.1.5Favorable and Unfavorable Factors of Development Prospect and Strategies
(1)Favorable Factors
- a.Digital imaging plays an important role in the networking and smart home environment. With the development of an open internet environment, the demand for digital imaging will continue to grow.
- b.After several digital cameras such as decentralized and customized products produced by a small number of diversified applications have entered the plateau period, most brand manufacturers or start-up companies cannot afford to invest in developing resources. ODM manufacturers with mature technologies have become important partners for customers.
- c.Limitations of mobile camera fail to meet consumer market demand for image quality, performance, and applications. The increasing demand for differentiated products is an opportunity for ODMs.
- d. Social media sharing, webcasting, and online economics will drive the demand for new types of cameras.

(2)Unfavorable Factors

a.The traditional non interchangeable lens digital camera industry has entered recession.
b.Continued currency depreciation in various countries.

c.Rapidly rising labor costs and slower economic growth in mainland China.

d.The new type digital camera products alternate rapidly.

(3)Response measures
a.On the basis of the current digital cameras business scale, we will actively explore new markets for personal cameras, industrial cameras, security, automotive, and panoramic products, strengthen innovative product capabilities, and actively create new imaging product needs.
b.Actively join in various types of imaging product ecological chain such as smart homes, automatic application of machine vision industry, and other related imaging products, as well as early participation in product and specification development.
c.To develop diversified customer groups and deepen cooperation with Japanese brand factories, and actively expand the development of the Chinese market and emerging market customers around the world.
d.Adjust and simplify the manufacturing system and supply chain, and accelerate the automation of production lines.
e.Simplify the development process of new products based on the existing technology, and shorten the product development cycle to respond to rapidly changing industrial needs.

5.2.2 Major Uses and Production Process of Major Products

5.2.2.1 Important use: The digital camera sold by our company is a consumer electronics product for shooting and storing images.
5.2.2.2 Production process: The company product manufacture is carried out by subsidiaries.

5.2.3 Supply of Major Raw Materials

Various applications of the imaging industry in the new technology and new environment have contributed to the innovation of various types of imaging products. Canon has also added many products different from the traditional DSC in the transition, and the supply chain team has also actively developed new products. Different types of main raw material suppliers to strengthen the competitiveness of new products.

Due to the improvement in the quality of smart phone camera specifications and the continued expansion of applications, consumer digital cameras, mirrorless interchangeable lenses, and digital single lens reflex cameras have all shown a downward trend in recent years. In the face of the pressure of the expected overall downfall of the market demand for digital cameras in 2016, some of supply side suppliers of the main raw materials will announce their withdrawal from the market. The Kumamoto earthquake in Japan resulted in a crisis in the supply of important photosensitive components, and this caused the company to face partially material shortages, or the urgent change of raw materials . However, with the cooperation of all employees, the

impact can still be reduced to the minimum damage level, and the entire supply chain was able to maintain operation and complete the shipping demand. The corporate strategy was used wisely to get through the crisis, and was deeply recognized and appreciated by the major customers. Although the company declined in the DSC business sector, it continued to make efforts and improvements in terms of product diversification, gross profit margin and net profit rate.

The supply chain management team provide complete support to the adjustment of the product assortment, increasing the percentage of high-end products, sports and wearable products, 360 panoramic cameras, security control and automotive products. In terms of new suppliers and new regulatory parts, 4p (waterproof, dustproof, cold resistant, shockproof) and other application components are developed. Such as the high power optical zoom lenses for high-end products, high-resolution LCD/OLED, wireless connection device components and so on have all been deployed. It is expected that under the lead of the leadership team, the company will be able to create perfect product and quality service with the combination of optical, electronic, and mechanical expertise, using this edge to create a win-win situation with customers.

5.2.4 Major Customers with over 10% Net Sales and Suppliers with over 10% Net Purchases of the Last Two Fiscal Years

5.2.4.1 Major Suppliers of the Last Two Fiscal Years

NT$ thousands

									NT$thousands	NT$thousands	NT$thousands	NT$thousands
Item	2016				2017				As of 2018 Q1
	Company Name (note 3)	Amount	%	Relation with Issuer	Company Name (note 3)	Amount	%	Relation with Issuer	Company Name (note 3)	Amount	%	Relation with Issuer
1	Supplier A	991,327	10.51%	None	Supplier A	894,992	9.15%	None	Supplier B	96,415	5.63%	None
2	Others	8,445,346	89.49%	-	Others	8,890,436	90.85%	-	Others	1,615,839	94.37%	-
	Net Total Purchases	9,436,673	100.00%	-	Net Total Purchases	9,785,428	100.00%	-	Net Total Purchases	1,712,254	100.00%	-

Note 1: Consolidated base with IFRS

Note 2: List of suppliers who account for more than ten percent of the total purchases of goods and the amount and proportion of its purchased goods in the recent two fiscal years. However, the contract stipulates that the client's name shall not be disclosed. If the transaction object is an individual and non-affiliate, code-name can be applied.

5.2.4.2 Major Customers of the Last Two Fiscal Years

NT$ thousands

									NT$thousands	NT$thousands	NT$thousands	NT$thousands
Item	2016				2017				As of 2018Q1
	Company Name (note 3)	Amount	%	Relation with Issuer	Company Name (note 3)	Amount	%	Relation with Issuer	Company Name (note 3)	Amount	%	Relation with Issuer
1	R	3,581,742	32.54%	None	R	3,112,257	27.78%	None	AA	322,119	16.92%	None
2	EE	1,995,707	18.13%	None	EE	2,305,586	20.58%	None	R	312,974	16.43%	None
3	A	1,784,027	16.21%	None	A	1,678,065	14.98%	None	EE	241,034	12.66%	None
4	AA	1,399,645	12.72%	None	AA	1,374,102	12.27%	None	A	237,745	12.48%	None
	Others	2,244,703	20.40%	`－`	Others	2,731,590	24.39%	`－`	Others	790,607	41.51%	`－`
	Net Total Sales	11,005,824	100.00%	`－`	Net Total Sales	11,201,60 0	100.00%	`－`	Net Total Sales	1,904,479	100.00%	`－`

Note 1: Consolidated base with IFRS

Note 2: Reasons for the increase and decrease: Individual customers' adjustment of inventory and sales strategy resulted in the increase of decrease of sales.

Note 3: The confidentiality agreement between the company and the customer.

5.2.5 Production/Sales Quantities and Value over the Past Two Years

Unit: thousands; NT$ thousands

			Unit: thousands; NT$ thousands	Unit: thousands; NT$ thousands
Year output Major Products	2017		2016
	Quantity	Amount	Quantity	Amount
Optic products	8,604	9,174,950	7,719	8,819,629
Optic parts	102,583	610,478	158,200	617,044

==> picture [198 x 16] intentionally omitted <==

Note: Consolidated base with IFRS.

5.2.6 Sales Quantities and Value of the Last Two Years

Unit: thousands; NT$ thousands

					Unit: thousands; NT$ thousands	Unit: thousands; NT$ thousands	Unit: thousands; NT$ thousands	Unit: thousands; NT$ thousands
Year Shipments & sales Major Products	2017				2016
	Domestic		Export		Domestic		Export
	Quantity	Amount	Quantity	Amount	Quantity	Amount	Quantity	Amount
Optic products	1	2,740	8,546	10,386,544	2	2,680	7,966	10,088,172
Optic parts	216	18,676	98,498	793,640	216	6,366	158,208	908,606

Note: Consolidated base with IFRS.

5.3 Status of Employees

Status of employees over the past two years and up to the date of the report

	Year	2016	2017	As of 2018.5.8
Number of Employees	Others	257	252	248
	R&D	371	349	342
	Operator	46	42	43
	Total	674	643	633
Average Age		35.9	39.86	39.98
Average Years of Service		6.5	8.68	8.89
Education	Ph.D.	0.30%	0.31%	0.32%
	Masters	32.05%	33.59%	33.02%
	Bachelor’s Degree	63.50%	62.21%	62.56%
	Senior High School	3.70%	3.42%	3.63%
	Below Senior High School	0.44%	0.47%	0.47%

Note: Based on ABILITY ENTERPRISE CO., LTD. only.

5.4 Expenditure on Environmental Protection

In the most recent year and as of the date of publication of the annual report, the company did not suffer any loss (including indemnity) or punishment due to environmental pollution.

5.5 Employee Relations

5.5.1 Employee’s Welfare and Benefit

5.5.1 Various employee benefits measures, further education, training, retire system and the status of implementation, as well as agreements between the employer and employees and measures for protecting employee entity and interests:

5.5.1.1 Employee Benefits Programs:

(1)Insurance: In addition to statutory labor and health insurance, the company also insured group insurance (life insurance, accident insurance, inpatient medical insurance).
(2)Health and Safety: The company provides the following benefits
a.Annual Professional Charge Health Checkup
b.Psychological Counseling
c.Blind Massage
d.Health Seminars
e.Health Promotion Activities
f.AED and oxygen cylinder installed
g.Fire Prevention/Disaster Prevention Team
h.Nursery Room
i.Monthly doctor visit service

j.Set up sports and leisure facilities

(3)In terms of tourism: the staff welfare committee of the company provides each employee with travel allowance every year.
(4)In terms of company association: the company encourages colleagues to organize various types of social and physical health associations, and provides grant-in-aid for each employee's participation in up to two different associations. Each year, the company allocates budgets for associations to organize various types of sports activities to enhance interaction among colleagues and achieve physical and mental relaxation, as well as to foster teamwork spirit and build consensus.
(5)In terms of leave: the company provides annual leave in accordance with the requirements of the Labor Standards Act to assist colleagues in achieving a balance between work and life.
(6)Employee assistance: In addition to the cooperation with professional psychological consultancy companies, the company also provides scholarships to low-income households with children who are still in school; and according to individual conditions, the company provides emergency relief funds and emergency concessional loans.
(7)Birthdays, weddings, funerals and festive celebrations: the company holds company-wide birthday celebrations every season and gives out birthday coupons. In case of weddings and funerals, or if major injuries should occur, the company provides grants in various amount.

(8)Advanced Language Learning: The company provides every colleague with English or Japanese advance learning subsidization in order to allow colleagues to improve their language skills.
(9)Others: In addition to the employee benefits mentioned above, the company also provides four free movie tickets for each colleague each year. Colleagues can select the movies for themselves. In order to allow colleagues to develop a habit of continuous learning, the company has a special library, with a collection of professional books and various types of books that are purchased on irregular bases, so that colleagues can use their free time to achieve self-learning and selfgrowth.
(10)The total company related benefits in fiscal year 2017 amounted to NT$21,896 thousand. Other benefits includes company travel, community activities, subsidization, birthdays and other employee benefits of the company, with a total amount of NT$17,954 thousand.

Unit: NT$ thousands

unt of NT$17,954 thousand.	Unit: NT$thousand
Item	Amount
Health CheckupFee	1,553
GroupInsurance	2,215
Lifeline ConsultingFee	109
NetworkingFee	65
Other Benefits	17,954
Total Amount	21,896

5.5.1.2. Employee Advanced Study and Training:

The company promise to value employee growth and satisfaction as the core concept of sustainable management. Employees are the core assets of the company. The company's growth is closely related to the development of its employees.

Canon Enterprises upholds the concept that talents are the foundation of our enterprise, providing employees with diverse and flexible learning channels and information, and assists employee development and enhance employee competitiveness through on-job, off-job, e-Learning education and training systems, library reading rooms, and e-book/magazine resources. Under the concept of “continuous learning” and “pursuit of excellence”, integrate internal and external resources to provide employees with the best quality and most effective learning and growth opportunities, with a view to enabling mutual growth of the employees and the companies.

Canon Enterprises systematically provides employees with comprehensive learning and development methods according to different positions, including on-the-job training, classroom training, online learning, work guidance and senior employee mentoring system. The company not only invites external experts as training tutors, but also actively cultivates internal lecturers in order to deepen Canon’s Values and abilities, as well as the long-term accumulation of professional and technical skills.

(1)Education and Training System:

a.Orientation Training: The company organizes progressive curriculum to assist new employees in understanding the company history, management systems, products, technology and human resources development issues, supplemented

by the “New Employee Stability Program," where senior employees in various departments provide assistance to new employees in order for them to adapt to the company culture and work content as soon as possible.

b.Managerial Training: Planning of practical management courses based on the managerial functions required by supervisors at all levels. Divided into junior/first-time supervisor training, middle-level manager training and senior manager training.
c.Professional Training: The lineup of lecturers made up of senior executives, external experts, and professional suppliers, in conjunction with the department initiated seminars or through the training courses of industrial management companies, so that the professional learning of various departments will continue to move forward to prevent stagnation. Including new technologies, new materials, case studies, new processes, information, regulations, quality, etc. In addition to internal training, colleagues may apply for professionally related courses organized by external training institutions according to their job requirements. The company will also provide appropriate subsidization.
d.Labor Health and Safety Training: It is important to provide employees with a safe and secure workplace. We regularly conduct fire drills, first-aid skill courses, etc.
e.Language Training: In order to enhance and strengthen the international language ability of all employees, the company provides partial subsidization and bonus, allowing employees to further enhance their language skills through self-studying.
f.Self-growth: All kinds of lectures are held to provide colleagues with off-the-job learning to achieve physical and spiritual elevation. Including health lectures, interpersonal communication lectures, sports lectures and travel lectures.
(2)The total training hour in 2017 reached 4,167.1 hours. The total training attendance reached 537 persons. The total training cost was NT$610 thousand.

Unit: NT$ thousands

Projects in 2017	Person-Time	Traininghours	Trainingcost
Professional Skills Training	143	1,597.0	610
Managerial Training	8	38.5
General Skills Training	96	107.7
Labor Health and Safety Training	33	219.0
Quality Management Training	130	479.3
Language Training	43	1,436.7
Orientation Training	84	288.9
Total Amount	537	4,167.1

5.5.1.3. Employee Retirement Plan

The employee retirement system of the company sets the labor retirement management measures according to relevant laws and regulations:

(1)Since July 1, 2005, new employees and employees who have chosen to apply the

new "Labor Pension Regulations" are required to pay 6% of their wages each month to raise their labor pensions to the employees' personal accounts of the Labor Insurance Bureau.

(2)Employees who have been employed prior to the implementation of the "Labor Pension Regulations" before July 1, 2005, and who choose to continue to apply the "Labor Standards Act" after the implementation of the "Labor Pension Regulations" shall apply the Labor Retirement Management Measures of the Company.
5.5.2 Any current or potential loss resulting from labor disputes and prevention actions for the past two years and as of the date of this annual report: None

5.6 Important Contracts

The major contracts of the company that remain valid as of the date of printing of the annual report and the expiration date of the most recent year are as follows:

Agreement	Counterparty	Period	Major Contents	Restrictions
Loan Agreement	Bank Sinopac	2017.07.01-2018.06.30	Short-term credit	None
Loan Agreement	Taishin bank	2017.07.01-2018.06.30	Short-term credit	None
Loan Agreement	CTBC bank	2017.05.01-2018.04.30	Short-term credit	None
Loan Agreement	Mega bank	2017.12.06-2018.12.05	Short-term credit	None
Loan Agreement	E.SUN bank	2017.12.05-2018.12.05	Short-term credit	None
Loan Agreement	DBS bank	2017.05.27-2018.05.27	Short-term credit	None

The other company key accounts, the letter of intent signed among the company and our vendors, and the bailment manufacturing contract or purchase contract are subject to confidentiality terms. Due to considerations such as business confidentiality and industrial characteristics, the company will make no disclosure.

6. Financial Information

6.1 Five-Year Financial Summary

6.1.1 Condensed Consolidated Balance Sheet – Based on IFRS

Unit: NT$ thousands

Year Item	Year Item	2013	2014	2015	2016	2017	2018.3.31 `（`Note 2`）`
Current assets		10,547,309	10,987,220	8,795,084	7,529,693	6,859,863	6,125,889
Property, plant and equipment		4,018,603	3,785,922	3,512,182	3,934,683	3,989,763	3,951,842
Intangible assets		10,188	12,589	13,678	2,927	5,606	8,950
Other assets		1,934,658	2,080,014	1,696,459	1,555,376	1,951,179	1,782,772
Total assets		16,510,758	16,865,745	14,017,403	13,022,679	12,806,411	11,869,453
Current liabilities	Before Distribution	6,340,142	6,752,002	5,180,123	4,435,902	4,017,477	3,419,559
	After Distribution	7,332,539	6,752,002	5,604,019	4,690,073	(Note 3)	(Note 3)
Non-current liabilities		390,059	253,420	102,557	91,976	82,991	83,004
Total liabilities	Before Distribution	6,730,201	7,005,422	5,282,680	4,527,878	4,100,468	3,502,563
	After Distribution	7,722,598	7,005,422	5,706,576	4,782,049	(Note 3)	(Note 3)
Equity Attributable to owners of the Parent		9,802,355	9,859,389	8,566,141	8,292,078	8,517,342	8,171,312
Share capital		4,504,684	4,731,168	2,828,310	2,825,279	2,823,650	2,823,650
Capital surplus		1,435,842	1,559,995	1,558,449	1,560,123	1,563,069	1,563,196
Retained earnings	Before Distribution	4,152,408	3,335,072	4,041,792	4,011,904	3,978,672	3,866,569
	After Distribution	3,160,011	3,335,072	3,617,896	3,757,733	(Note 3)	(Note 3)
Other equity interest		(290,579)	236,037	139,123	(104,533)	151,951	(82,103)
Treasury stock		`－`	(2,883)	(1,533)	(695)	`－`	`－`
Non-controlling interests		(21,798)	934	168,582	202,723	188,601	195,578
Total Equity	Before Distribution	9,780,557	9,860,323	8,734,723	8,494,801	8,705,943	8,366,890
	After Distribution	8,788,160	9,860,323	8,310,827	8,240,630	(Note 3)	(Note 3)

Note 1: Financial report of each year has been audited by CPA firm. Note 2: Financial report of Q1 has been reviewed by CPA firm

Note 3:Until the printing date of this annual report, the 2017 earnings distribution proposal has not yet approved by the shareholders in the Shareholders’ Meeting.

6.1.2 Condensed Consolidated Statement of Comprehensive Income – Based on IFRS

	Unit: NT$thousands	Unit: NT$thousands	Unit: NT$thousands	Unit: NT$thousands	Unit: NT$thousands	Unit: NT$thousands
Year Item	2013	2014	2015	2016	2017	1/1/2018 ~3/31/2018 `（`Note 2`）`
Sales revenues	26,711,038	24,180,166	19,254,208	11,005,824	11,201,600	1,904,479
Net operating margin	2,368,786	2,128,709	2,303,653	1,569,151	1,416,172	192,225
Net Operating Income (Loss)	374,949	105,510	609,392	85,146	64,853	(126,215)
Non-operating Income and Expense	138,173	109,113	419,132	409,980	163,428	(12,999)
Income (Loss) before Tax	513,122	214,623	1,028,524	495,126	228,281	(139,214)
Income (Loss) for Continued Operations	413,908	170,989	867,444	435,921	206,398	(121,416)
Income (Loss) from Discontinued Operations	`－`	`－`	`－`	`－`	`－`	`－`
Net Income (Loss)	413,908	170,989	867,444	435,921	206,398	(121,416)
Other Comprehensive Income(Loss)	138,050	625,124	(150,734)	(270,422)	254,173	(210,150)
Total Comprehensive Income(Loss)	551,958	796,113	716,710	165,499	460,571	(331,566)
Net Income Attributable to Owners of the Parent	484,477	154,814	697,314	386,250	217,663	(125,139)
Net Income (Loss) Attributable to Non- controllingInterests	(70,569)	16,175	170,130	49,671	(11,265)	3,723
Comprehensive Income (Loss) Attributable to Owners of the Parent	620,777	773,381	549,062	131,358	474,693	(338,543)
Comprehensive Income (Loss) Attributable to Non-controllingInterests	(68,819)	22,732	167,648	34,141	(14,122)	6,977
Earnings (Loss) per Share`（`Note 3`）`	1.08	0.33	1.71	1.39	0.77	(0.44)

Note 1: Financial report of each year has been audited by CPA firm. Note 2: Financial report of Q1 has been reviewed by CPA firm Note 3: Unit: NT$.

6.1.3 Condensed Individual Balance Sheet – Based on GAAP

Unit: NT$ thousands

Year Item	Year Item	2013	2014	2015	2016	2017
Current assets		5,731,021	6,402,814	4,858,409	3,439,474	2,369,138
Property, plant and equipment		1,460,205	1,562,081	1,774,303	2,495,798	2,756,242
Intangible assets		8,679	11,751	12,935	2,416	4,682
Other assets		6,868,497	6,741,706	6,671,332	6,535,432	6,929,791
Total assets		14,068,402	14,718,352	13,316,979	12,473,120	12,059,853
Current liabilities	Before Distribution	4,162,091	4,775,795	4,676,395	4,114,293	3,481,082
	After Distribution	5,154,488	4,775,795	5,100,291	4,368,464	(Note 2)
Non-current liabilities			83,168	74,443	66,749	61,429
Total liabilities	Before Distribution	4,266,047	4,858,963	4,750,838	4,181,042	3,542,511
	After Distribution	5,258,444	4,858,963	5,174,734	4,435,213	(Note 2)
Share Capital		4,504,684	4,731,168	2,828,310	2,825,279	2,823,650
Capital surplus		1,435,842	1,559,995	1,558,449	1,560,123	1,563,069
Retained earnings	Before Distribution	4,152,408	3,335,072	4,041,792	4,011,904	3,978,672
	After Distribution	3,160,011	3,335,072	3,617,896	3,757,733	(Note 2)
Other equity interest		(290,579)	236,037	139,123	(104,533)	151,951
Treasury stock		`－`	(2,883)	(1,533)	(695)	`－`
Total Equity	Before Distribution	9,802,355	9,859,389	8,566,141	8,292,078	8,517,342
	After Distribution	8,809,958	9,859,389	8,142,245	8,037,907	(Note 2)

Note 1: Financial report of each year has been audited by CPA firm. Note 2:Until the printing date of this annual report, the 2017 earnings distribution proposal has not yet approved by the shareholders in the Shareholders’ Meeting.

6.1.4 Condensed IndividualStatement of Comprehensive Income – Based on GAAP

Unit: NT$ thousands

Year Item	2013	2014	2015	2016	2017
Sales revenues	25,593,929	23,112,752	18,407,042	9,998,630	9,959,455
Net operating margin	2,071,779	1,627,120	1,837,703	1,053,867	1,059,880
Net Operating Income (Loss)	552,418	72,181	528,261	(77,533)	13,907
Non-operating Income and Expense	34,126	113,682	304,867	509,955	206,886
Income(Loss)before Tax	586,544	185,863	833,128	432,422	220,793
Income (Loss) for Continued Operations	484,477	154,814	697,314	386,250	217,663
Income (Loss) from Discontinued Operations	`－`	`－`	`－`	`－`	`－`
Net Income (Loss)	484,477	154,814	697,314	386,250	217,663
Other Comprehensive Income(Loss)	136,300	618,567	(148,252)	(254,892)	257,030
Total Comprehensive Income(Loss)	620,777	773,381	549,062	131,358	474,693
Earnings per Share `（`Note 2`）`	1.08	0.33	1.71	1.39	0.77

Note 1: Financial report of each year has been audited by CPA firm.

Note 2: Unit: NT$.

6.1.5 Five-Year Auditing Opinion by CPA

Year	CPA Firm	CPA's Name	AuditingOpinion
2013	PWC	Audrey Tseng Wu,Han-chi	Modified Unqualified
2014	PWC	Hsu, Sheng-Chung Wu,Han-chi	Modified Unqualified
2015	PWC	Hsu, Sheng-Chung Wu,Han-chi	Modified Unqualified
2016	PWC	Hsu, Sheng-Chung AudreyTseng	Unqualified
2017	PWC	Hsu, Sheng-Chung AudreyTseng	Unqualified

6.2 Five-Year Financial Analysis

6.2.1 Consolidated Financial Analysis – Based on IFRS

Item`（`Note	Year 4`）`	2013	2014	2015	2016	2017	2018.3.31 `（`Note 2`）`	Remake
Capital structure (%)	Debt ratio	40.76	41.54	37.69	34.77	32.02	29.51
	Ratio of long-term capital to property, plant and equipment	250.35	264.67	248.70	215.90	218.21	211.72
Solvency	Current ratio (%)	166.36	162.73	169.79	169.74	170.75	179.14
	Quick ratio (%)	136.42	128.77	139.22	133.67	131.39	131.51
	Times interest earned (Times)	28.70	13.77	122.30	87.64	42.07	(81.77)	(1)
Operating ability	Accounts receivable turnover (Times)	6.17	7.53	6.79	4.88	5.78	5.01
	Average collection period	58.03	48.47	53.75	74.79	63.14	72.85
	Inventory turnover (Times)	8.43	9.90	8.15	5.66	5.84	3.81
	Accounts payable turnover (Times)	4.89	5.21	4.44	3.28	3.93	3.24
	Average days in sales	43.31	36.86	44.78	64.49	62.50	95.76
	Property, plant, and equipment turnover(Times)	6.54	6.20	5.28	2.96	2.83	1.92
	Total assets turnover (Times)	1.45	1.45	1.25	0.81	0.87	0.62
Profitability	Return on total assets (%)	2.33	1.11	5.66	3.26	1.63	(0.97)	(1)
	Return on stockholders' equity (%)	4.15	1.74	9.33	5.06	2.40	(1.42)	(1)
	Pretax profit to paid-in capital (%)	11.39	4.54	36.37	17.52	8.08	(4.93)	(1)
	Net profit margin (%)	1.55	0.71	4.51	3.96	1.84	(6.38)	(1)
	Basic earnings per share ($) (Note 3)	1.08	0.33	1.71	1.39	0.77	(0.44)	(1)
Cash flow	Cash flow ratio (%)	55.63	31.00	24.89	10.38	7.59	(0.09)	(1)
	Cash flow adequacy ratio (%)	88.62	91.92	130.58	119.32	126.45	92.48
	Cash reinvestment ratio (%)	15.59	6.98	9.01	0.26	0.35	(0.02)	(1)
Leverage	Operating leverage	8.07	24.78	4.23	21.06	26.04	(1.76)	(1)
	Financial leverage	1.05	1.19	1.01	1.07	1.09	0.99
	Analysis of financial ratio change in the last two years`：` (1) The global market of digital cameras continues to shrink mainly because of the crowd-out effect of the smartphone market. The operating income and cost this year decrease compared to last year; as a result, operating profit, profit before tax, and net cash flow of business activities become less thisyear.

6.2.2 Individual Financial Analysis – Based on IFRS

Item`（`Note	Year 4`）`	2013	2014	2015	2016	2017	Remake
Capital structure (%)	Debt ratio	30.32	33.01	35.68	33.52	29.37
	Ratio of long-term capital to property, plant and equipment	671.30	631.17	482.79	332.24	309.02
Solvency	Current ratio (%)	137.70	134.07	103.89	83.60	68.06
	Quick ratio (%)	137.03	133.81	103.65	83.44	67.96
	Times interest earned (Times)	702.61	569.39	11109.37	4,325.22	3,562.18
Operating ability	Accounts receivable turnover (Times)	6.17	7.48	7.09	5.02	6.36	(1)
	Average collection period	59.16	48.80	51.48	72.71	57.39	(1)
	Inventory turnover (Times)	21442.25	9919.50	4157.41	2,055.32	2,584.08	(1)
	Accounts payable turnover (Times)	7.52	6.23	4.36	2.60	3.07
	Average days in sales	0.02	0.04	0.09	0.18	0.14	(1)
	Property, plant, and equipment turnover(Times)	17.80	15.29	11.03	4.68	3.79
	Total assets turnover (Times)	1.70	1.61	1.31	0.78	0.81
Profitability	Return on total assets (%)	3.23	1.08	4.97	3.00	1.77	(1)
	Return on stockholders' equity (%)	4.86	1.57	7.57	4.58	2.59	(1)
	Pretax profit to paid-in capital (%)	13.02	3.93	29.46	15.31	7.82	(1)
	Net profit margin (%)	1.89	0.67	3.79	3.86	2.19	(1)
	Basic earnings per share ($) (Note 3)	1.08	0.33	1.71	1.39	0.77	(1)
Cash flow	Cash flow ratio (%)	69.52	47.43	25.73	2.54	0.00	(1)
	Cash flow adequacy ratio (%)	110.01	108.37	155.06	135.74	128.88
	Cash reinvestment ratio (%)	10.73	7.22	7.37	0.00	0.00
Leverage	Operating leverage	3.96	24.94	3.48	(13.69)	75.72	(1)
	Financial leverage	1.00	1.00	1.00	1.00	1.00
	Analysis of financial ratio change in the last two years`：` (1) The global market of digital cameras continues to shrink mainly because of the crowd-out effect of the smartphone market. The operating income and cost this year decrease compared to last year; as a result, operating profit, profit before tax, and net cash flow of business activities become less thisyear.

Note 1: Financial report of each year has been audited by CPA firm.

Note 2: Financial report of Q1 has been reviewed by CPA firm.

Note 3: Based on weighted average shares outstanding in each year.

Note 4: Equations:

Capital Structure
(1) Debt ratio = Total liability / Total assets
(2) Ratio of long-term capital to property, plant and equipment = (Net shareholders’ equity + Long-term liability) / Net property, plant and equipment
Solvency
(1) Current ratio: Current assets / current liability
(2) Quick ratio = (Current assets – Inventory – Prepaid expense) / current liability
(3) Times interest earned = Net income before tax and interest expense / Interest expense of the year
Operating ability
(1) Account receivable turnover (including accounts receivable and notes receivable derived from business operations) = Net sales / Average accounts receivable (including accounts receivable and notes receivable derived from business operation)
(2) Days sales in accounts receivable = 365 / Account receivable turnover
(3) Inventory turnover = Cost of goods sold / Average inventory amount
(4)Account payable turnover (including accounts payable and notes payable derived from business operation) = Cost of goods sold / Average accounts payable (including accounts payable and notes payable derived from business operation)
(5) Average days in sales = 365 / Inventory turnover
(6) Fixed assets turnover = Net sales / Net fixed assets
(7) Total assets turnover = Net sales / Total assets
Profitability
(1) Return on assets = (Net income (loss) + interest expense x (1-tax rate)) / Average total assets
(2) Return on shareholders’ equity = Net income (loss) / Net average shareholders’ equity
(3) Return to issued capital stock = Net income before tax / Issued capital stock
(4) Profit ratio = Net income (loss) / Net sales
(5) Basic earnings per share = (Net income – preferred stock dividend) / Weighted average stock shares issued
Cash flow
(1) Cash flow ratio = Bet cash flow from operating activity / Current liability
(2) Cash flow adequacy ratio = Net cash flow from operating activity in the past 5 years / (Capital expenditure + Inventory interest + Cash dividend) in the past 5 years
(3) Cash + reinvestment ratio = (Net cash flow from operating activity – Cash dividend) / (Fixed assets + Long term investment + Other assets + Working capital)
Leverage
(1) Degree of operating leverage = (Net operating income – Variable operating cost and expense) / Operating income
(2) Degree of financial leverage = Operating income / (Operating income – interest expense)

6.3 Audit Committee’s Report in the Most Recent Year

ABILITY ENTERPRISE CO., LTD. Audit Committee’s Review Report

The Board of Directors has prepared ABILITY ENTERPRISE CO., LTD.’s “(the Company)” 2017 Business Report, Financial Statements, and proposal for allocation of earnings. The CPA firm of PWC was retained to audit the Company’s Financial Statements and has issued an audit report relating to the Financial Statements. The Business Report, Financial Statements, and earnings allocation proposal have been reviewed and determined to be correct and accurate by the Audit Committee members of ABILITY ENTERPRISE CO., LTD. According to Article 14-4 of Securities and Exchange Act and Article 219 of the Company Law, we hereby submit this report.

ABILITY ENTERPRISE CO., LTD.

Chairman of the Audit Committee: Lam, Tai-Seng March 16, 2018

6.4 Consolidated Financial Statements of the Parent Company and Subsidiary in the Most Recent Year:

Please refer Attachment I.

6.5 Non-Consolidated Financial Statements of the Most Recent Year:

Please refer Attachment II.

6.6 Financial Difficulties Encountered By the Company and the Related Party in the Most Recent Year and Up to the Date of the Annual Report: None.

Review of Financial Position, Management Performance and Risk Management

7.1 Analysis of Financial Status – Consolidated

Unit: NT$ thousands;

			Unit: NT$thousands;	Unit: NT$thousands;
Year Item	2017	2016	Difference
			Amount	%
Current Asset	6,859,863	7,529,693	(669,830)	(8.90)%
Property, plant and equipment	3,989,763	3,934,683	55,080	1.40%
Intangible Assets	5,606	2,927	2,679	91.53%
Other Assets	1,951,179	1,555,376	395,803	25.45%
Total Assets	12,806,411	13,022,679	(216,268)	(1.66)%
Current Liabilities	4,017,477	4,435,902	(418,425)	(9.43)%
Non-current liabilities	82,991	91,976	(8,985)	(9.77)%
Total Liabilities	4,100,468	4,527,878	(427,410)	(9.44)%
Equity Attributable to owners of the Parent	8,517,342	8,292,078	225,264	2.72%
Share capital	2,823,650	2,825,279	(1,629)	(0.06)%
Capital surplus	1,563,069	1,560,123	2,946	0.19%
Retained earnings	3,978,672	4,011,904	(33,232)	(0.83)%
Other equity interest	151,951	(104,533)	256,484	245.36%
Non-controlling interests	188,601	202,723	(14,122)	(6.97)%
Total Equity	8,705,943	8,494,801	211,142	2.49%
Analysis of changes in financial ratios: (1) Other equity interest increase is due to the increase in available-for-sale financial assets valuation adjustment`。`

7.2 Analysis of Operating Results - Consolidated

7.2.1 Analysis of Operating Results

Unit: NT$ thousands

Year Item	2017	2016	Difference amount	Difference %
Net Sales	11,201,600	11,005,824	195,776	1.78%
Cost of Sales	9,785,428	9,436,673	348,755	3.70%
Gross Profit	1,416,172	1,569,151	(152,979)	(9.75)%
OperatingExpense	1,351,319	1,484,005	(132,686)	(8.94)%
Net Operating Income (Loss)	64,853	85,146	(20,293)	(23.83)%
Non-operating Income and Expenses	163,428	409,980	(246,552)	(60.14)%
Profit Before Tax	228,281	495,126	(266,845)	(53.89)%
Income Tax Expense	21,883	59,205	(37,322)	(63.04)%
Profit After Tax	206,398	435,921	(229,523)	(52.65)%
Analysis of changes in financial ratios over 20%: (1) The decrease of the operating income is largely due to the shrinking of the global digital camera market. (2) Non-operating Income and Expense is mainly resulted from the fact that there are no subsidies of property lease, purchase, or ownership transfer, granted by the government in 2017. (3) The amounts of Net Income (Loss) for Continued Operations and Income Tax Expense decrease mainly becasue the Operating Income and Non-operating Income become less.

7.2.2 Analysis of changes in the operating profit margin: the decline of the operating profit margin is due to the shrinking of the digital camera market globally.

7.3 Analysis of Cash Flow

7.3.1 Cash Flow Analysis for the Current Year – Consolidated

Unit: NT$ thousand

				Unit: NT$thousand	Unit: NT$thousand
Cash Balance 12/31/2016	Net Cash Provided by Operating Activities in 2017	Net Cash Used in Investing and Financing Activities in 2017	Cash Balance 12/31/2017	Supplement measures for insufficient cash
				Investmen t planning	Financial planning
3,021,139	305,035	(1,081,050)	2,245,124	None	None

Cash flows from operating activities 305,035: mainly from net income and depreciation and amortization expenses.
Cash flows used in investing activities 562,936 ： primarily for acquisition of financial assets and equipment.
Cash flows used in financing activities 518,114 仟元： primarily for cash dividend payment, effect of exchange rate changes on cash.

7.3.2 Remedy for Cash Deficit and Liquidity Analysis:

In light of positive cash flows, remedial actions are not required.

7.3.3 Cash Flow Analysis for the Coming Year: Not applicable.

7.4 Major Capital Expenditure Items: None.

7.5 Investment Policy in Last year, Main Causes for Profits or Losses, Improvement Plans and the investment Plans for the Coming Year

The bussinesses that the company has invested strategically are long-term investment. Profits from investment shown in the equity-method based consoidated financial report in 2017 are NT$954 thousand, NT$2,817 thousand less compared to the previous year, partly because the busineses that the company has invested in has enjoyed revenue growth, controlled the expesenses adequately and therefore made profits. However, as the company's general principle, the company will still make long-term strategic investment in the future, take financial risks and ROI into consideration, and evaluate the investment cautiously to bring the maximum values to the company.

7.6 Analysis of Risk Management

7.6.1 Effects of Changes in Interest Rates, Foreign Exchange Rates and Inflation of Corporate Finance, and Future Response Measures

1. Interest Rate `：`

The Group’s interest rate risk arises from long-term borrowings. Borrowings issued at variable rates expose the Group to cash flow interest rate risk which is partially offset by cash and cash equivalents held at variable rates. Borrowings issued at fixed rates expose the Group to fair value interest rate risk. In order to reduce the risks of interest rates, especially relating to bank loans, the Company contacts banks on the regular basis, studies the trend of interest rate and negotiates for the best interest rate for the Company.

2. Foreign Exchange Rate:

The Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the USD, RMB and MYR. Foreign exchange risk arises from future commercial transactions, recognised assets and liabilities and net investments in foreign operations. Management has set up a policy to require group companies to manage their foreign exchange risk against their functional currency. The group companies are required to hedge their entire foreign exchange risk exposure with the Group treasury. To manage their foreign exchange risk arising from future commercial transactions and recognised assets and liabilities, entities in the Group use forward foreign exchange contracts, transacted with Group treasury. Foreign exchange risk arises when future commercial transactions or recognised assets or liabilities are denominated in a currency that is not the entity’s functional currency.

3. Inflation:

According to the statistics released by the Directorate-General of Budget, Accounting and Statistics, Executive Yuan, the consumer price index and wholesale price index increased by 0.62% and 0.9% respectively in 2017, which represented a minor inflation and did not have material impact on the Company’s financial conditions in 2017.

7.6.2 Policies, Main Causes of Gain or Loss and Future Response Measures with Respect to High-Risk, High-Leverage Investment, Loaning or Endorsement Guarantees and Derivatives Transactions
Loans provided by the Company to other entities: None.
Endorsement and guarantees provided by the Company to other entities:

			As of 12/31/ 2017 ;Unit: NT$ thousands,	As of 12/31/ 2017 ;Unit: NT$ thousands,	As of 12/31/ 2017 ;Unit: NT$ thousands,	As of 12/31/ 2017 ;Unit: NT$ thousands,	As of 12/31/ 2017 ;Unit: NT$ thousands,	As of 12/31/ 2017 ;Unit: NT$ thousands,
Endorsement/ Guarantee Provider	Guaranteed Party		Limits on Endorsement/ Guarantee Amount Provided to Each Guaranteed Party (Notes)	Maximum Balance for the Period (US$ in Thousands) (Note )	Ending Balance (US$ in Thousands) (Note )	Amount of Endorsement / Guarantee Collateralize d by Properties	Ratio of Accumulated Endorsement/ Guarantee to Net Equity per Latest Financial Statements	Maximum Endorseme nt/ Guarantee Amount Allowable (Note )
	Name	Nature of Relationship
ABILITY ENTERPRISE CO., LTD.	VIEWQUEST TECHNOLOGIES (BVI) INC	Subsidiary	4,258,671	647,850	647,850	-	7.61%	4,258,671
ABILITY ENTERPRISE CO., LTD.	ACTION PIONEER INTERNATIONAL LTD.	Subsidiary	4,258,671	117,302	115,256	-	1.35%
E-PIN OPTICAL INDUSTRY CO.,LTD	ZHONGSHAN SHANXIN ACCURATE INDUSTRY CO. LTD.	Subsidiary	69,988	22,773	22,773	-	16.27%	69,988

In recent years, the Company has not been involved in any activities that are highly risky or of high leverage. The Company's policy of and profit and loss from tradings of derivatives are as follow:

The derivatives that the Company has been involved in are hedge products. Profits and loss caused by volatility in the exhcange rates would be written off by the profits and loss of the hedged items. In addition, the USD currency assets generated from the company's business operations could cope with the cash flow of this type of tradings. As a result, the risk of market prices is not significant.

7.6.3 Future Research & Development Projects and Corresponding Budget

Future Research & Development Plan

We will focus our R&D resources on maintaining film speed, sensitivity, Signal to Noise Ratio (SNR), color staturation, etc., and will strive for enhancing the quality of product images. In terms of product development, our focus will be optical zoom, automiatic zoom, development of lens sets with optical zoom features, and to enhance three-axis stabilization. Moreover, we are devoted to improve and develop areas such as electronic screen stabilizers, adding EIS functionalities, face recogniztion, 4K animation cameras, wearable cameras, applications of high-speed image sensors, technologies of large-scale image sensors, HDR video recorders, low-light technologies, wireless communication, and Full HD 4K high-res image decoding, etc.

We take proactive appraches when it comes to development. We endeavor to make distintive progress in product specifications in order to take part in contests of product specificatoins. In addition, with the key components, we make the development of images integrated with technologies of optics, mechanics, and electronics compreshensive. We also invest resources in the development of applications in order

to have unique products and move toward the arenas of webcams and medical devices. In contrast with Ability Enterprise's focus on digital cameras in the past, its vision is to move towards new products in new business areas in order to make up the shortage in the business of digital cameras due to market competitiveness.

In terms of R&D in automotive camera modules, in response to the trend where major car manufacturers worldwide have gradually inceased the use of automotive camera modules and Advanced Driver Assistance Systems (ADAS) widely and have even developed semi automatic or fully automatic cars, we have invested resources and personnel in working with Tier 1 suppliers of automobile manufacturers, and will develop camera modules that meet these suppliers' specific product requirements in the next three to four years.

Estimated R&D Expenditure

The R&D expenditure in 2017 that the company has invested in is NT$706,702 thousand, accounting for 6.31% of the revenue. In 2018, an additional amount of NT$655,000 thousand is esimated to be invested in R&D in 2018.

7.6.4 Effects of and Response to Changes in Policies and Regulations Relating to Corporate Finance and Sales: None 。
7.6.5 Effects of and Response to Changes in Technology and in Industry Relating to Corporate Finance and Sales: None.
7.6.6 The Impact of Changes in Corporate Image on Corporate Risk Management, and the Company’s Response Measures: None.
7.6.7 Expected Benefits and Risks Relating to and Response to Merger and Acquisition Plans: None.
7.6.8 Expected Benefits and Risks Relating to and Response to Factory Expansion Plans

The Company has set up two production plants in China, achieving the goals of expanding the production capacity, and reducing the risk of labour shortage in the South China region and the production costs.

7.6.9 Risks Relating to and Response to Excessive Concentration of Purchasing Sources and Excessive Customer Concentration
Risks faced due to centralized control of inventory replenishment:

Risk in shortage of raw material: Caused by cases such as insufficient production capacity, accidents at the manufacturing plant, force majeure, etc.

Risk Management: The company has maintained amicable business relationships with suppliers of major raw materials. In addition to suppliers with amicable relationships in the long term, the company has also been developing new suppliers, to avoid and lower risks in the shortage of raw material supply.

Risks faced in central salese management:

We have built long-long stable partnerships with multiple world-class clients. The joint competitive advantages of both these clients and us will ensure our stable growth in the long run; we have taken the apporach of diverting the sources of clients and incorporating diverse product roadmaps, in order to diverse and reduce the risks of significant impacts from single or few clients on us.

7.6.10 Effects of Risks Relating to and Response to Large Share Transfer or Changes in Shareholdings by Directors, Supervisors, or Shareholders with Shareholding of over 10%: None.
7.6.11 Effects of Risks Relating to and Response to Changes in Control over the Company:None.
7.6.12 Litigation or Non-litigation Matters ：

In 2017 and as of the date of this annual report, the Company did not engage in litigation or non-litigation matters that had significant impacts on shareholders’ right or security prices.

7.6.13.Other significant risk and mitigation measures being or to be taken: No other significant risks.
7.7 Other Major Risks: None.

8. Other Special Notes

8.1 Summary of Affiliated Companies

8.1.1 Affiliated Companies Chart

100% 100% VIEWQUEST TECHNOLOGIES (BVI) INC.	100% 100% VIEWQUEST TECHNOLOGIES (BVI) INC.			ABILITY ENTERPRISE CO., LTD.	ABILITY ENTERPRISE CO., LTD.	ABILITY ENTERPRISE CO., LTD.	ABILITY ENTERPRISE CO., LTD.	ABILITY ENTERPRISE CO., LTD.	ABILITY ENTERPRISE CO., LTD.	ABILITY ENTERPRISE CO., LTD.	ABILITY ENTERPRISE CO., LTD.	ABILITY ENTERPRISE CO., LTD.	ABILITY ENTERPRISE CO., LTD.	ABILITY ENTERPRISE CO., LTD.
		100%
	VIEWQUEST TECHNOLOGIES (BVI) INC.			ABILITY ENTERPRISE (BVI) CO.,LTD.		ABILITY INTERNATIONAL INVESTMENT CO., LTD.		I	VIEWQUEST TECHNOLOGIES NTERNATIONAL INC.		ACTION PIONEER INTERNATIONAL LTD.		E-PIN OPTICAL INDUSTRY CO.,LTD.

				100% 100%
VIEWQUEST TECHNOLOGIES (DONGGUAN)CO. , LTD			ABILITY TECHNOLOGY (DONGGUAN)CO. , LTD.		JIUJIANG VIEWQUEST ELECTRONICS INC.		E-PIN OPTICAL INDUSTRY(M.) SDN. BHD.			ALL VISION HOLDING LTD.		E-PIN OPTICAL INDUSTRY CO., LTD.		ALL VISION TECHNOLOGY SDN. BHD.

8.1.2 Affiliated Companies

As of 12/31/2017; Unit: NT$ thousands, except foreign currency

Company	Date of Incorporation	Place of Registration	Capital Stock	Business Activities
ABILITY INTERNATIONAL INVESTMENT CO.,LTD.	1997.08.15	New Taipei City,Taiwan(R.O.C.)	NTD13,000	Investments
ABILITY ENTERPRISE(BVI)CO.,LTD.	2000.02.23	British Virgin Islands	USD25,635,000	Holdingcompany
VIEWQUEST TECHNOLOGIES INTERNATIONAL INC.	1999.01.23	U.S.A.	USD1,500,000	Sales of computer accessories, photography equipment and electronic components
VIEWQUEST TECHNOLOGIES (BVI) INC.	1999.10.22	British Virgin Islands	USD38,759,290	Manufacturing and trading of computer accessories, photography equipment and electronic
ACTION PIONEER INTERNATIONAL LTD.	2003.09.09	Republic of Mauritius	USD100,000	Tradingservice
E-PIN OPTICAL INDUSTRY CO.,LTD.	1979.04.18	Taipei City, Taiwan (R.O.C.)	NTD540,000	Sales of optical products and electronic components
CHIA PING INVESTMENT CO.,LTD.	2017.03.22	Taipei City,Taiwan(R.O.C.)	NTD1,500	Investments
ABILITY TECHNOLOGY(DONGGUAN)CO.,LTD.	2003.12.29	Dongguan,China	RMB274,857,854	Sales of digital still cameras
JIUJIANG VIEWQUEST ELECTRONICS INC.	2010.05.12	Jiujiang ,China	RMB64,867,330	Sales of digital still cameras
VIEWQUEST TECHNOLOGIES(DONGGUAN)CO., LTD	2011.02.28	Dongguan , China	RMB141,055,552	Sales of digital still cameras
ALL VISION HOLDING LTD.	1991.01.19	Independent State of Samoa	USD15,236,910	Holding company
E-PIN OPTICAL INDUSTRY CO., LTD.	1991.04.22	Republic of Mauritius	USD150,000	Trading service
E-PIN OPTICAL INDUSTRY(M.) SDN. BHD.	1987.09.25	Malaysia	MYR5,000,000	Manufacturing of precision lens
ALL VISION TECHNOLOGY SDN. BHD.	1992.06.28	Malaysia	MYR72,243,893	Manufacturing of precision lens
EVERLIGHT DEVELOPMENT CORPORATION	1987.01.19	Panama	USD5,849,393	Holding company
E-SKY HOLDING LTD.	1990.04.05	Republic of Mauritius	USD14,338,918	Holding company
NANJING EVERLIGHT PHOTONICS TECHNOLOGY CO. LTD.	1981.12.14	Nanjing, China	RMB76,784,121	Development and manufacturing of various types of precision lens
ZHONGSHAN SHANXIN ACCURATE INDUSTRY CO. LTD.	1984.08.11	Zhongshan, China	RMB75,542,969	Development and manufacturing of various types of precision lens
NANJING E-PIN OPTICAL CO.,LTD.	1994.05.24	Nanjing, China	RMB53,163,552	Development and manufacturing of various types ofprecision lens

8.1.3 The Same Shareholders of Companies Controlled by or Subordinate to the Company: None.

8.1.4 Industrial Classification in Inventec Corporation Subsidiaries `：`

8.1.4 Industrial Classification in Inventec Corporation S	ubsidiaries`：`
Company	Industrial Classification	Relationships to Related Party
ABILITY ENTERPRISE CO.,LTD.	Informationproducts`、`digital still cameras	None
ABILITY INTERNATIONAL INVESTMENT CO.,LTD.	Investments	None
ABILITY ENTERPRISE(BVI)CO.,LTD.	Holdingcompany	Investment activities in China
VIEWQUEST TECHNOLOGIES INTERNATIONAL INC.	Sales of computer accessories, photography equipment and electronic components	None
VIEWQUEST TECHNOLOGIES (BVI) INC.	Manufacturing and trading of computer accessories, photography equipment and electronic	After manufacture,sell the product to Ability. For OEM business
ACTION PIONEER INTERNATIONAL LTD.	Tradingservice	None
E-PIN OPTICAL INDUSTRY CO.,LTD.	Sales of opticalproducts and electronic components	None
CHIA PING INVESTMENT CO.,LTD.	Investments	None
JIUJIANG VIEWQUEST ELECTRONICS INC.	Sales of digital still cameras	None
ABILITY TECHNOLOGY(DONGGUAN)CO.,LTD.	Sales of digital still cameras	None
VIEWQUEST TECHNOLOGIES(DONGGUAN)CO.,LTD	Sales of digital still cameras	None
ALL VISION HOLDING LTD.	Holding company	None
E-PIN OPTICAL INDUSTRY CO., LTD.	Trading service	None
E-PIN OPTICAL INDUSTRY(M.) SDN. BHD.	Manufacturing of precision lens	None
ALL VISION TECHNOLOGY SDN. BHD.	Manufacturing of precision lens	None
EVERLIGHT DEVELOPMENT CORPORATION	Holding company	Investment activities in China
E-SKY HOLDING LTD.	Holding company	Investment activities in China
NANJING EVERLIGHT PHOTONICS TECHNOLOGY CO. LTD.	Development and manufacturingof various types ofprecision lens	None
ZHONGSHAN SHANXIN ACCURATE INDUSTRY CO. LTD.	Development and manufacturingof various types ofprecision lens	None
NANJING E-PIN OPTICAL CO.,LTD.	Development and manufacturing of various types of precision lens	None

8.1.5 Directors, Supervisors and Presidents of Affiliated Companies

8.1.5 Directors, Supervisors and Presidents of Affiliated Companies	8.1.5 Directors, Supervisors and Presidents of Affiliated Companies	8.1.5 Directors, Supervisors and Presidents of Affiliated Companies	8.1.5 Directors, Supervisors and Presidents of Affiliated Companies	8.1.5 Directors, Supervisors and Presidents of Affiliated Companies
Unit: NT$,except shareholding
Company	Title	Name or Representative	Shareholding
			Number of Shares	Shareholding Ratio
ABILITY INTERNATIONAL INVESTMENT CO., LTD.	Chairman Director Director Supervisor	ABILITY ENTERPRISE-Tseng, Ming-Jen ABILITY ENTERPRISE-Roger Chiang ABILITY ENTERPRISE-Jonny Wu ABILITY ENTERPRISE-Lin, Hung-Tien	1,300,000 1,300,000 1,300,000 1,300,000	100.00 100.00 100.00 100.00
ABILITY ENTERPRISE (BVI) CO., LTD.	Chairman	ABILITY ENTERPRISE-Tseng, Ming-Jen	─	100.00
VIEWQUEST TECHNOLOGIES INTERNATIONAL INC.	Director Director Director	ABILITY ENTERPRISE-Wen, Sheng-Tai ABILITY ENTERPRISE-Tseng, Ming-Jen ABILITY ENTERPRISE-Tsay, Wen-Bin	─ ─ ─	100.00 100.00 100.00
VIEWQUEST TECHNOLOGIES (BVI) INC.	Chairman	ABILITY ENTERPRISE-Tseng, Ming-Jen	─	100.00
ACTION PIONEER INTERNATIONAL LTD.	Chairman	ABILITY ENTERPRISE-Tseng, Ming-Jen	─	100.00
E-PIN OPTICAL INDUSTRY CO.,LTD.	Chairman Director Director Director Director Supervisor Supervisor	ABILITY ENTERPRISE-Tseng, Ming-Jen ABILITY ENTERPRISE-Ju, Ming-Jang ABILITY ENTERPRISE-Wen, Sheng-Tai ABILITY ENTERPRISE-Lu, Chien-Hsun ABILITY ENTERPRISE-Hsu, Cheng-Chiang JUI HSIN INVESTMENT LIMITED- Chan, Wen- Hsiung Huang, Ching-Chuan	28,626,318 28,626,318 28,626,318 28,626,318 28,626,318 1,135,460 778,447	53.01 53.01 53.01 53.01 53.01 2.10 1.44
CHIA PING INVESTMENT CO., LTD.	Chairman Director Director Supervisor	E-PIN OPTICAL-Ju, Ming-Jang E-PIN OPTICAL-Chou, Hsiang-Ho E-PIN OPTICAL-Pan, Ching-Hsiang E-PIN OPTICAL-Shen,Tsui-Li	150,000 150,000 150,000 150,000	100.00 100.00 100.00 100.00
ABILITY TECHNOLOGY (DONGGUAN)CO., LTD.	Chairman Director Director	ABILITY (BVI) - Tseng, Ming-Jen ABILITY (BVI) –Adams Chen ABILITY(BVI)- Alson Hsu	─ ─ ─	100.00 100.00 100.00
JIUJIANG VIEWQUEST ELECTRONICS INC.	Chairman Director Director Director Director Supervisor	ABILITY (BVI) - Tseng, Ming-Jen ABILITY (BVI) - Tong, Ching-Hsi ABILITY (BVI) - Tsay, Wen-Bin ABILITY (BVI) - Adams Chen ABILITY (BVI) - Ted Lin ABILITY(BVI)- Susie Wang	─ ─ ─ ─ ─ ─	100.00 100.00 100.00 100.00 100.00 100.00
VIEWQUEST TECHNOLOGIES (DONGGUAN)CO., LTD	Chairman Director Director Supervisor	VIEWQUEST (BVI) -Tseng, Ming-Jen VIEWQUEST (BVI) - Adams Chen VIEWQUEST (BVI) -Alson Hsu VIEWQUEST (BVI) -Susie Wang	─ ─ ─ ─	100.00 100.00 100.00 100.00
ALL VISION HOLDING LTD.	Director	Ju, Ming-Jang	─	─
E-PIN OPTICAL INDUSTRY CO., LTD.	Director	E-PIN OPTICAL-Ju, Ming-Jang	150,000	100
E-PIN OPTICAL INDUSTRY(M.) SDN. BHD.	Director Director	Ju, Ming-Jang Pan, Ching-Hsiang	─ ─	─ ─
ALL VISION TECHNOLOGY SDN. BHD.	Director Director	Ju, Ming-Jang Pan, Ching-Hsiang	─ ─	─ ─

Company	Title	Name or Representative	Shareholding	Shareholding
			Number of Shares	Shareholding Ratio
EVERLIGHT DEVELOPMENT CORPORATION	Director Director Director	Ju, Ming-Jang ALL VISION HOLDING LTD- Pan, Ching-Hsiang Shin, Yu-Hsiang	58,494	100
E-SKY HOLDING LTD.	Director Director Director Director	ALL VISION HOLDING LTD- Pan, Ching-Hsiang Ju, Ming-Jang Shin, Yu-Hsiang Hsu, San-Wei	10,472,879 ─ ─ ─	73.04 ─ ─ ─
NANJING EVERLIGHT PHOTONICS TECHNOLOGY CO. LTD.	Chairman Director Director Director Vice Chairman Director Director Supervisor	EVERLIGHT DEVELOPMENT CORP. -Pan, Ching-Hsiang EVERLIGHT DEVELOPMENT CORP. -Ju, Ming-Jang EVERLIGHT DEVELOPMENT CORP. -Wang, Shang-Li EVERLIGHT DEVELOPMENT CORP. -Chou, Hsiang-Ho NANJING NEW INDUSTRY INVESTMENT GROUP CO.,LTD -Shin, Chien-Hua NANJING NEW INDUSTRY INVESTMENT GROUP CO.,LTD -Wang, Hsin-Yu Nanjing Zijin Asset Management Co. Ltd. -Wang, Jui NANJING NEW INDUSTRY INVESTMENT GROUP CO.,LTD -Huang, Wei-Min	─ ─ ─ ─ ─ ─ ─ ─	55.45 55.45 55.45 55.45 38.74 38.74 5.81 38.74
ZHONGSHAN SHANXIN ACCURATE INDUSTRY CO. LTD.	Chairman Director Director Director	E-SKY HOLDING LTD.-Pan,Ching-Hsiang E-SKY HOLDING LTD.-Ju, Ming-Jang E-SKY HOLDING LTD.-Tseng,Tsung-Yueh E-SKY HOLDING LTD.-Chou,Hsiang-Ho	─ ─ ─ ─	100 100 100 100
NANJING E-PIN OPTICAL CO.,LTD.	Director Supervisor	E-SKY HOLDING LTD.-Chou, Hsiang-Ho E-SKY HOLDING LTD.-Pan, Ching-Hsiang	─ ─	72.22 72.22

8.1.6 Operation of Affiliated Companies

8.1.6 Operation of Affiliated Companies	8.1.6 Operation of Affiliated Companies	8.1.6 Operation of Affiliated Companies	8.1.6 Operation of Affiliated Companies	8.1.6 Operation of Affiliated Companies
As of 12/31/2017`；`Unit: NT$ thousands Company Capital Stock Assets Liabilities Net Worth ABILITY ENTERPRISE CO., LTD. 2,823,650 12,059,853 3,542,511 8,517,342 ABILITY ENTERPRISE (BVI) CO., LTD. 762,898 3,143,602 - 3,143,602 ACTION PIONEER INTERNATIONAL LTD. 2,976 362,662 361,148 1,514 VIEWQUEST TECHNOLOGIES (BVI) INC. 1,153,476 3,803,707 1,967,936 1,835,771 VIEWQUEST TECHNOLOGIES INTERNATIONAL INC. 44,640 676 - 676 ABILITY INTERNATIONAL INVESTMENT CO., LTD. 13,000 43,363 6,463 36,900 E-PIN OPTICAL INDUSTRY CO.,LTD. 540,000 719,464 579,488 139,976 CHIA PING INVESTMENT CO., LTD. 1,500 1,284 38 1,246 ABILITY TECHNOLOGY (DONGGUAN)CO., LTD. 1,086,240 1,746,142 430,738 1,315,404 JIUJIANG VIEWQUEST ELECTRONICS INC. 282,720 600,888 233,512 367,376 VIEWQUEST TECHNOLOGIES (DONGGUAN)CO., LTD 654,720 567,526 117,149 450,377 ALL VISION HOLDING LTD. 516,528 (15,417) - (15,417) E-PIN OPTICAL INDUSTRY CO., LTD. 5,167 42,875 84,172 (41,297) E-PIN OPTICAL INDUSTRY(M.) SDN. BHD. 45,700 11,003 9,473 1,530 ALL VISION TECHNOLOGY SDN. BHD. 659,334 20,925 16,599 4,326 EVERLIGHT DEVELOPMENT CORPORATION 174,078 178,354 - 178,354 E-SKY HOLDING LTD. 311,681 (193,778) - (193,778) NANJING EVERLIGHT PHOTONICS TECHNOLOGY CO. LTD. 349,713 401,489 80,334 321,155 ZHONGSHAN SHANXIN ACCURATE INDUSTRY CO. LTD. 350,729 159,412 305,010 (145,598) NANJING E-PIN OPTICAL CO.,LTD. 242,142 3,487 51,674 (48,187)
Company	Capital Stock	Assets	Liabilities	Net Worth
ABILITY ENTERPRISE CO., LTD.	2,823,650	12,059,853	3,542,511	8,517,342
ABILITY ENTERPRISE (BVI) CO., LTD.	762,898	3,143,602	-	3,143,602
ACTION PIONEER INTERNATIONAL LTD.	2,976	362,662	361,148	1,514
VIEWQUEST TECHNOLOGIES (BVI) INC.	1,153,476	3,803,707	1,967,936	1,835,771
VIEWQUEST TECHNOLOGIES INTERNATIONAL INC.	44,640	676	-	676
ABILITY INTERNATIONAL INVESTMENT CO., LTD.	13,000	43,363	6,463	36,900
E-PIN OPTICAL INDUSTRY CO.,LTD.	540,000	719,464	579,488	139,976
CHIA PING INVESTMENT CO., LTD.	1,500	1,284	38	1,246
ABILITY TECHNOLOGY (DONGGUAN)CO., LTD.	1,086,240	1,746,142	430,738	1,315,404
JIUJIANG VIEWQUEST ELECTRONICS INC.	282,720	600,888	233,512	367,376
VIEWQUEST TECHNOLOGIES (DONGGUAN)CO., LTD	654,720	567,526	117,149	450,377
ALL VISION HOLDING LTD.	516,528	(15,417)	-	(15,417)
E-PIN OPTICAL INDUSTRY CO., LTD.	5,167	42,875	84,172	(41,297)
E-PIN OPTICAL INDUSTRY(M.) SDN. BHD.	45,700	11,003	9,473	1,530
ALL VISION TECHNOLOGY SDN. BHD.	659,334	20,925	16,599	4,326
EVERLIGHT DEVELOPMENT CORPORATION	174,078	178,354	-	178,354
E-SKY HOLDING LTD.	311,681	(193,778)	-	(193,778)
NANJING EVERLIGHT PHOTONICS TECHNOLOGY CO. LTD.	349,713	401,489	80,334	321,155
ZHONGSHAN SHANXIN ACCURATE INDUSTRY CO. LTD.	350,729	159,412	305,010	(145,598)
NANJING E-PIN OPTICAL CO.,LTD.	242,142	3,487	51,674	(48,187)

8.1.7 Affiliation Report

The Company is not the affiliated company of other companies as stipulated in “Chapter VI-I Affiliated Enterprises” of the Company Act, so no affiliation report is compiled.

REPRESENTATION LETTER

The entities that are required to be included in the combined financial statements of ABILITY ENTERPRISE CO., LTD. as of and for the year ended December 31, 2017, under the Criteria Governing the Preparation of Affiliation Reports, Consolidated Business Reports and Consolidated Financial Statements of Affiliated Enterprises are the same as those included in the consolidated financial statements prepared in conformity with the International Financial Reporting Standard 10, “Consolidated Financial Statements.” In addition, the information required to be disclosed in the combined financial statements is included in the consolidated financial statements. Consequently, ABILITY ENTERPRISE CO., LTD. and Subsidiaries do not prepare a separate set of combined financial statements. Very truly yours,

ABILITY ENTERPRISE CO., LTD.

CEO : Tseng, Ming-Jen March 16, 2018

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8.2 Private Placement of Securities in the Most Recent Years: None.
8.3 Shares in the Company Held or Disposed of by Subsidiaries in the Most Recent Years: None.
8.4 Other Mentionable Items: None.
Any Events in the Most Recent year and as of the Date of this Annual Report that had Significant Impacts on Shareholders’ Right or Security Prices as Stated in Item 2 Paragraph 2 of Article 36 of Securities and Exchange Law of Taiwan: None.

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Attachment I

ABILITY ENTERPRISE CO., LTD. AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS AND

REPORT OF INDEPENDENT ACCOUNTANTS

DECEMBER 31, 2017 AND 2016

For the convenience of readers and for information purpose only, the auditors’ report and the accompanying financial statements have been translated into English from the original Chinese version prepared and used in the Republic of China. In the event of any discrepancy between the English version and the original Chinese version or any differences in the interpretation of the two versions, the Chinese-language auditors’ report and financial statements shall prevail.

REPORT OF INDEPENDENT ACCOUNTANTS TRANSLATED FROM CHINESE

PWCR17000378 To the Board of Directors and Shareholders of Ability Enterprise Co., Ltd. and subsidiaries

Opinion

We have audited the accompanying consolidated balance sheets of Ability Enterprise Co., Ltd. and subsidiaries (the “Group”) as at December 31, 2017 and 2016, and the related consolidated statements of comprehensive income, of changes in equity and of cash flows for the years then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies.

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as at December 31, 2017 and 2016, and its consolidated financial performance and its consolidated cash flows for the years then ended in accordance with the “Regulations Governing the Preparation of Financial Reports by Securities Issuers” and the International Financial Reporting Standards, International Accounting Standards, IFRIC Interpretations, and SIC Interpretations as endorsed by the Financial Supervisory Commission.

Basis for opinion

We conducted our audits in accordance with the “Regulations Governing Auditing and Attestation of Financial Statements by Certified Public Accountants” and generally accepted auditing standards in the Republic of China (ROC GAAS). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Group in accordance with the Code of Professional Ethics for Certified Public Accountants in the Republic of China (the “Code”), and we have fulfilled our other ethical responsibilities in accordance with the Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

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 of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole and, in forming our opinion

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thereon, we do not provide a separate opinion on these matters.

Assessment of inventory valuation

Description

Refer to Note 4(12) for accounting policies on inventory valuation, Note 5(2) for the uncertainty of accounting estimates and assumptions applied on inventory valuation, and Note 6(6) for details of inventory. As of December 31, 2017, the balances of inventory and allowance for inventory valuation loss were NT$1,744,310 thousand and NT$242,916 thousand, respectively.

The Group is primarily engaged in the manufacture and sales of digital camera, optical products and other related parts and components. As technology changes rapidly, the life cycles of electronic products are short, and prices are easily influenced by fluctuation in market price, there is higher risk of incurring inventory valuation losses or obsolescence. For regular inventories, the Company recognises inventories at the lower of cost and net realisable value; for inventories which were separately identified as obsolete and damaged, the Company recognises loss through net realisable value; for inventories age over a certain period, the Company recognises loss for obsolete and slow-moving inventories. An allowance for inventory valuation loss mainly arise from inventories aged over a certain period and separately identified obsolete inventory. As the amount of inventory is material, inventory items are numerous, and the net realisable value of obsolete and damaged inventories is subject to management judgement, we consider the assessment of the allowance for inventory valuation loss a key audit matter.

How our audit addressed the matter

We performed the following audit procedures on the above key audit matter:

Ascertained whether the policies on allowance for inventory valuation losses were reasonable and consistently applied in all the periods.
Checked the appropriateness of the logic of inventory aging report system which was used by management to ensure whether the inventories age over a certain period had been included in the report.
Obtained an understanding on the classification rules of aging range in the inventory aging report. Sample tested inventories in order to confirm whether the aging of inventories was classified appropriately.
Discussed with management the estimated net realisable value of separately identified obsolete and damaged inventories, obtained and corroborated against supporting documents and

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recalculated the allowance provision.

Impairment assessment of property, plant and equipment

Description

Refer to Note 4(14) for accounting policies on property, plant and equipment, Note 5(2) for the uncertainty of accounting estimates and assumptions applied on property, plant and equipment impairment, and Note 6(9) for details of property, plant and equipment. As of December 31, 2017, the balance of property, plant and equipment was NT$3,989,763 thousand.

The Group has purchased molds and machinery equipment to manufacture digital camera, optical products and other related parts and components. Due to the changes in market demand and the enhancement of smartphone function, the retirement rate for certain products would accelerate which would result to the decrease in the future cash flow and recoverable amount. As the amount of property, plant and equipment is material, and the assumptions used for impairment assessment are complex, easily affected by market fluctuation, and subject to management judgment, we consider the impairment assessment of property, plant and equipment a key audit matter.

How our audit addressed the matter

We performed the following audit procedures on the impairment assessment of property, plant and equipment:

Assessed the appropriateness of property, plant and equipment impairment calculation logic to check whether the calculation was appropriate.
Checked the reasonableness of assumptions used with respect to revenue growth rate and discount rate to ensure whether those were consistent with economic and industry forecasts.

Other matter – Scope of the audit

We did not audit the financial statements of a wholly-owned consolidated subsidiary and investments accounted for using equity method that are included in the financial statements, which statements reflect total assets (including investments accounted for using equity method) of NT$4,020 thousand and NT$3,066 thousand, constituting 0.03% and 0.02% of consolidated total assets as of December 31, 2017 and 2016, respectively, and the related share of profit (loss) of association and joint ventures accounted for under equity method was NT$954 thousand and (NT$2,817) thousand, constituting 0.21% and 1.70% of consolidated total comprehensive income (loss) for the years then ended,

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respectively. Those financial statements were audited by other independent accountants whose reports thereon have been furnished to us, and our opinion expressed herein is based solely on the audit reports of the other independent accountants.

Other matter – Parent company only financial reports

We have audited and expressed an unmodified opinion on the parent company only financial statements of Ability Enterprise Co., Ltd. and subsidiaries as at and for the years ended December 31, 2017 and 2016.

Responsibilities of management and those charged with governance for the consolidated financial statements

Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with the “Regulations Governing the Preparation of Financial Reports by Securities Issuers” and the International Financial Reporting Standards, International Accounting Standards, IFRIC Interpretations, and SIC Interpretations as endorsed by the Financial Supervisory Commission, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

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 audit committee, are responsible for overseeing the Group’s financial reporting process.

Auditor’s responsibilities for the audit of the consolidated financial statements

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ROC GAAS will always detect a material

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misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.

As part of an audit in accordance with ROC GAAS, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

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.
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.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.
Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern.
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.
Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.

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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 of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

Hsu, Sheng-Chung Audrey Tseng

For and on behalf of PricewaterhouseCoopers, Taiwan

March 16, 2018

------------------------------------------------------------------------------------------------------------------------------------------------The accompanying consolidated financial statements are not intended to present the financial position and results of operations and cash flows in accordance with accounting principles generally accepted in countries and jurisdictions other than the Republic of China. The standards, procedures and practices in the Republic of China governing the audit of such financial statements may differ from those generally accepted in countries and jurisdictions other than the Republic of China. Accordingly, the accompanying consolidated financial statements and report of independent accountants are not intended for use by those who are not informed about the accounting principles or auditing standards generally accepted in the Republic of China, and their applications in practice.

As the financial statements are the responsibility of the management, PricewaterhouseCoopers cannot accept any liability for the use of, or reliance on, the English translation or for any errors or misunderstandings that may derive from the translation.

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