HTC — Interim / Quarterly Report 2017

Nov 9, 2017

HTC Corporation and Subsidiaries

Consolidated Financial Statements for the Three Months Ended March 31, 2017 and 2016 and Independent Auditors’ Review Report

INDEPENDENT AUDITORS’ REVIEW REPORT

The Board of Directors and Shareholders HTC Corporation

We have reviewed the accompanying consolidated balance sheets of HTC Corporation and its subsidiaries (collectively, the “Company”) as of March 31, 2017 and 2016, and the related consolidated statements of comprehensive income, changes in equity and cash flows for the three months ended March 31, 2017 and 2016. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to issue a report on these consolidated financial statements based on our reviews.

We conducted our reviews in accordance with Statement of Auditing Standards No. 36 - “Engagements to Review of Financial Statements” issued by the Auditing Standards Committee of the Accounting Research and Development Foundation of the Republic of China. A review consists principally of applying analytical procedures to financial data and of making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with auditing standards generally accepted in the Republic of China, the objective of which is the expression of an opinion regarding the consolidated financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our reviews, we are not aware of any material modifications that should be made to the consolidated financial statements referred to in the first paragraph for them to be in conformity with the Regulations Governing the Preparation of Financial Reports by Securities Issuers and International Accounting Standard 34 “Interim Financial Reporting” endorsed and issued into effect by the Financial Supervisory Commission of the Republic of China.

Deloitte & Touche Taipei, Taiwan Republic of China

May 5, 2017

Notice to Readers

The accompanying consolidated financial statements are intended only to present the consolidated financial position, financial performance and cash flows in accordance with accounting principles and practices generally applied in the Republic of China and not those of any other jurisdictions. The standards, procedures and practices to review such consolidated financial statements are those generally applied in the Republic of China.

For the convenience of readers, the independent auditors’ review report and the accompanying consolidated financial statements have been translated into English from the original Chinese version prepared and used in the Republic of China. If there is any conflict between the English version and the original Chinese version or any difference in the interpretation of the two versions, the Chinese-language independent accountants’ review report and consolidated financial statements shall prevail. Also, as stated in Note 4 to the consolidated financial statements, the additional footnote disclosures that are not required under accounting principles and practices generally applied in the Republic of China were not translated into English.

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HTC CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In Thousands of New Taiwan Dollars)

ASSETS CURRENT ASSETS Cash and cash equivalents (Note 6) Financial assets at fair value through profit or loss - current (Notes 7 and 31) Available-for-sale financial assets - current (Note 31) Derivative financial assets for hedging - current (Notes 8 and 31) Debt investments with no active market - current (Note 31) Trade receivables, net (Notes 11 and 32) Other receivables (Note 11) Current tax assets Inventories (Note 12) Prepayments (Note 13) Non-current assets held for sale (Note 14) Other current financial assets (Notes 10 and 33) Other current assets Total current assets NON-CURRENT ASSETS Available-for-sale financial assets - non-current (Note 31) Financial assets measured at cost - non-current (Notes 9 and 31) Debt investments with no active market (Note 31) Investments accounted for using equity method (Note 16) Property, plant and equipment (Note 17) Investment properties, net (Note 18) Intangible assets (Note 19) Deferred tax assets Refundable deposits (Note 31) Long-term receivables (Note 11) Net defined benefit asset - non-current Other non-current assets (Note 13) Total non-current assets TOTAL LIABILITIES AND EQUITY CURRENT LIABILITIES Short-term borrowings (Note 20) Financial liabilities at fair value through profit or loss - current (Notes 7 and 31) Derivative financial liability for hedging - current (Notes 8 and 31) Note and trade payables (Notes 21 and 32) Other payables (Notes 22 and 32) Current tax liabilities Provisions - current (Note 23) Other current liabilities (Notes 14 and 22) Total current liabilities NON-CURRENT LIABILITIES Deferred tax liabilities Guarantee deposits received (Note 31) Other non-current liabilities (Notes 14 and 22) Total non-current liabilities Total liabilities EQUITY (Note 24) Share capital - ordinary shares Capital surplus Retained earnings Legal reserve Unappropriated earnings Other equity Total equity TOTAL		March 31, 2017 (Reviewed) Amount % $ 26,565,598 29 77,332 - 236,144 - - - 7,582 - 9,046,951 10 231,759 - 137,458 - 14,923,347 16 1,593,590 2 1,563,732 2 6,576,255 7 70,367 - 61,030,115 66 96 - 3,266,107 3 29,570 - 466,341 - 11,712,682 13 - - 3,316,074 4 8,996,321 10 1,360,583 1 - - 45,231 - 2,568,848 3 31,761,853 34 $ 92,791,968 100 $ 2,756,560 3 194,631 - 12,110 - 21,109,467 23 13,569,654 15 143,595 - 3,143,478 3 3,747,735 4 44,677,230 48 85,823 - 6,289 - - - 92,112 - 44,769,342 48 8,219,042 9 15,626,493 17 18,297,655 20 8,808,880 9 (2,929,444) (3) 48,022,626 52 $ 92,791,968 100		December 31, 2016 (Audited) Amount % $ 30,080,217 29 143,642 - 199,344 - - - 8,067 - 15,961,835 15 168,526 - 184,817 - 14,163,571 14 1,833,499 2 - - 5,750,450 6 68,414 - 68,562,382 66 86 - 3,363,736 3 25,009 - 531,445 1 12,025,496 12 1,527,001 1 3,878,356 4 8,957,876 9 1,501,480 1 - - 40,439 - 2,735,876 3 34,586,800 34 $ 103,149,182 100 $ - - 133,420 - - - 26,247,728 26 18,348,734 18 155,651 - 3,384,311 3 3,004,432 3 51,274,276 50 81,294 - 22,106 - - - 103,400 - 51,377,676 50 8,220,087 8 15,614,641 15 18,297,655 18 10,841,425 10 (1,202,302) (1) 51,771,506 50 $ 103,149,182 100		March 31, 2016 (Reviewed)
						Amount % $ 39,031,628 33 127,521 - 249,575 - 1,100 - 8,069 - 11,525,883 10 645,546 1 172,703 - 19,210,735 16 3,726,028 3 - - 2,684,493 2 76,504 - 77,459,785 65 86 - 3,330,763 3 - - 211,122 - 14,943,270 13 1,680,709 2 5,022,059 4 8,735,824 7 1,617,463 1 1,472,529 1 81,201 - 4,623,867 4 41,718,893 35 $ 119,178,678 100 $ - - 264,718 - 3,309 - 25,778,172 22 21,597,135 18 136,316 - 5,298,140 4 3,032,395 3 56,110,185 47 79,057 - 27,613 - 1,210,369 1 1,317,039 1 57,427,224 48 8,276,415 7 15,487,941 13 18,297,655 15 19,077,139 16 612,304 1 61,751,454 52 $ 119,178,678 100

The accompanying notes are an integral part of the consolidated financial statements.

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HTC CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In Thousands of New Taiwan Dollars, Except Loss Per Share) (Reviewed, Not Audited)

OPERATING REVENUES (Notes 25 and 32) OPERATING COST (Notes 12, 26 and 32) GROSS PROFIT OPERATING EXPENSES (Notes 26 and 32) Selling and marketing General and administrative Research and development Total operating expenses OPERATING LOSS NON-OPERATING INCOME AND EXPENSES Other income (Note 26) Other gains and losses (Notes 8, 14 and 26) Finance costs Share of the profit or loss of associate and joint venture (Note 16) Total non-operating income and expenses LOSS BEFORE INCOME TAX INCOME TAX BENEFIT (EXPENSE) (Note 27) LOSS FOR THE PERIOD		**For the Three Months Ended March 31 **	**For the Three Months Ended March 31 **	**For the Three Months Ended March 31 **
		2017 Amount % $ 14,530,823 100 12,167,637 84 2,363,186 16 1,271,023 9 875,376 6 2,574,388 17 4,720,787 32 (2,357,601) (16) 272,189 2 81,531 - (2,467) - (34,392) - 316,861 2 (2,040,740) (14) 8,195 - (2,032,545) (14)		2016
				Amount % $ 14,820,982 100 13,433,886 90 1,387,096 10 1,984,328 13 1,248,618 9 2,957,261 20 6,190,207 42 (4,803,111) (32) 237,979 1 2,101,768 14 (4,235) - (28,362) - 2,307,150 15 (2,495,961) (17) (120,486) (1) (2,616,447) (18) (Continued)

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HTC CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In Thousands of New Taiwan Dollars, Except Loss Per Share) (Reviewed, Not Audited)

OTHER COMPREHENSIVE LOSS, NET OF INCOME TAX Items that may be reclassified subsequently to profit or loss: Exchange differences on translating foreign operations Unrealized gain (loss) on available-for-sale financial assets Cash flow hedge Other comprehensive loss for the period, net of income tax TOTAL COMPREHENSIVE LOSS FOR THE PERIOD NET LOSS ATTRIBUTABLE TO Owners of the parent TOTAL COMPREHENSIVE LOSS ATTRIBUTABLE TO Owners of the parent LOSS PER SHARE (Note 28) Basic		**For the Three Months Ended March 31 **	**For the Three Months Ended March 31 **	**For the Three Months Ended March 31 **
		2017 Amount % $ (1,805,815) (12) 50,044 - (12,882) - (1,768,653) (12) $ (3,801,198) (26) $ (2,032,545) (14) $ (3,801,198) (26) $ (2.47)		2016
				Amount % $ (434,730) (3) (103,724) - (2,627) - (541,081) (3) $ (3,157,528) (21) $ (2,616,447) (18) $ (3,157,528) (21) $ (3.16)

The accompanying notes are an integral part of the consolidated financial statements.

(Concluded)

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HTC CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (In Thousands of New Taiwan Dollars) (Reviewed, Not Audited)

BALANCE, JANUARY 1, 2016 Net loss for the three months ended March 31, 2016 Other comprehensive income and loss for the three months ended March 31, 2016 Retirement of treasury shares Share-based payments BALANCE, MARCH 31, 2016 BALANCE, JANUARY 1, 2017 Net loss for the three months ended March 31, 2017 Other comprehensive income and loss for the three months ended March 31, 2017 Share-based payments BALANCE, MARCH 31, 2017		Share Capital Ordinary Shares Capital Surplus $ 8,318,695 $ 15,505,853 - - - - (41,100) (71,009) (1,180) 53,097 $ 8,276,415 $ 15,487,941 $ 8,220,087 $ 15,614,641 - - - - (1,045) 11,852 $ 8,219,042 $ 15,626,493		Retained Earnings Unappropriated Legal Reserve Earnings $ 18,297,655 $ 21,782,432 - (2,616,447) - - - (88,846) - - $ 18,297,655 $ 19,077,139 $ 18,297,655 $ 10,841,425 - (2,032,545) - - - - $ 18,297,655 $ 8,808,880		Other Equity	Other Equity	Unearned Employee Benefit $ (371,369) - - - 64,970 $ (306,399) $ (253,922) - - 41,511 $ (212,411)	Treasury Shares $ (200,955) - - 200,955 - $ - $ - - - - $ -	Total Equity $ 64,792,095 (2,616,447) (541,081) - 116,887 $ 61,751,454 $ 51,771,506 (2,032,545) (1,768,653) 52,318 $ 48,022,626
					Exchange Differences on Translating Foreign Operations $ 1,473,417 - (434,730) - - $ 1,038,687 $ (781,298) - (1,805,815) - $ (2,587,113)	Unrealized Losses on Available-for- sale Financial Assets $ (13,633) - (103,724) - - $ (117,357) $ (167,082) - 50,044 - $ (117,038)	Cash Flow Hedge $ - - (2,627) - - $ (2,627) $ - - (12,882) - $ (12,882)

The accompanying notes are an integral part of the consolidated financial statements.

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HTC CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands of New Taiwan Dollars) (Reviewed, Not Audited)

CASH FLOWS FROM OPERATING ACTIVITIES Loss before income tax Adjustments for: Depreciation expense Amortization expense Finance costs Interests income Dividend income Compensation cost of employee share-based payments Share of the loss of associate and joint venture Net loss (gain) on disposal of property, plant and equipment Impairment loss on non-financial assets Ineffective portion of cash flow hedges Changes in operating assets and liabilities Decrease in financial instruments held for trading Decrease in trade receivables Increase in other receivables Increase in inventories Decrease in prepayments (Increase) decrease in other current assets Decrease in other non-current assets Decrease in note and trade payables Decrease in other payables Decrease in provisions Decrease in other current liabilities Increase in other operating liabilities Cash used in operations Interest received Interest paid Income tax paid Net cash used in operating activities CASH FLOWS FROM INVESTING ACTIVITIES Payments to acquire debt investment with no active market Payments to acquire financial assets measured at cost Proceeds from disposal of non-current assets held for sale Payments for property, plant and equipment Proceeds from disposal of property, plant and equipment Increase in advance receipts - disposal of property Increase in refundable deposits Decrease in refundable deposits		For the Three Months Ended March 31	For the Three Months Ended March 31
		2017 $ (2,040,740) 275,763 355,370 2,467 (75,181) (7,420) 52,318 34,392 129 1,385,920 (772) 127,521 6,914,884 (59,561) (2,145,696) 239,909 (1,953) 43,312 (5,138,261) (4,767,172) (240,833) (644,940) - (5,690,544) 71,509 (2,467) (12,612) (5,634,114) (6,139) (68,372) - (30,705) 1,384 1,388,243 - 140,897	2016 $ (2,495,961) 520,531 505,104 4,235 (123,227) (78,453) 116,887 28,362 (2,089,417) 471,594 (418) 196,146 6,993,065 (171,290) (558,692) 674,940 18,107 132,152 (3,820,213) (3,560,887) (694,118) (657,368) 1,210,369 (3,378,552) 100,982 (4,235) (174,064) (3,455,869) - - 6,060,000 (125,449) 28,095 - (37,121) - (Continued)

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HTC CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands of New Taiwan Dollars) (Reviewed, Not Audited)

Payments for intangible assets (Increase) decrease in other current financial assets Dividends received Net cash generated from investing activities CASH FLOWS FROM FINANCING ACTIVITIES Increase in short-term borrowings Refund of guarantee deposits received Net cash generated from (used in) financing activities EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD CASH AND CASH EQUIVALENTS, END OF PERIOD		For the Three Months Ended March 31	For the Three Months Ended March 31
		2017 $ - (825,805) 7,420 606,923 2,756,560 (15,817) 2,740,743 (1,228,171) (3,514,619) 30,080,217 $ 26,565,598	2016 $ (72,763) 1,415,797 23,537 7,292,096 - (2,546) (2,546) (148,852) 3,684,829 35,346,799 $ 39,031,628

The accompanying notes are an integral part of the consolidated financial statements.

(Concluded)

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HTC CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 2017 AND 2016 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise) (Reviewed, Not Audited)

1. ORGANIZATION AND OPERATIONS

HTC Corporation (HTC) was incorporated on May 15, 1997 under the Company Law of Taiwan, the Republic of China. HTC and its subsidiaries (the “Company”) are engaged in design, manufacture, assemble, process, and sell smart mobile devices and provide after-sales service.

In March 2002, HTC had its stock listed on the Taiwan Stock Exchange. On November 19, 2003, HTC listed some of its shares of stock on the Luxembourg Stock Exchange in the form of global depositary receipts.

The functional currency of HTC is New Taiwan dollars. The consolidated financial statements are presented in New Taiwan dollars since HTC is the ultimate parent of the Company.

2. APPROVAL OF FINANCIAL STATEMENTS

The consolidated financial statements were approved by HTC’s Board of Directors and authorized for issue on May 5, 2017.

3. APPLICATION OF NEW, AMENDED AND REVISED STANDARDS AND INTERPRETATIONS

• a. Initial application of the amendments to the Regulations Governing the Preparation of Financial Reports by Securities Issuers and the International Financial Reporting Standards (IFRS), International Accounting Standards (IAS), Interpretations of IFRS (IFRIC), and Interpretations of IAS (SIC) endorsed and issued into effect by the FSC for application starting from 2017

The initial application in 2017 of the above IFRSs and related amendments to the Regulations Governing the Preparation of Financial Reports by Securities Issuers would not have any material impact on the Company’s accounting policies, except for the following:

Amendments to the Regulations Governing the Preparation of Financial Reports by Securities Issuers

The amendments include additions of several accounting items and requirements for disclosures of impairment of non-financial assets as a consequence of the IFRSs endorsed by the FSC for application starting from 2017. In addition, as a result of the post implementation review of IFRSs in Taiwan, the amendments also include emphasis on certain recognition and measurement considerations and add requirements for disclosures of related party transactions and goodwill.

The amendments stipulate that other companies or institutions of which the chairman of the Board of Directors or president serves as the chairman of the Board of Directors or the president, or is the spouse or second immediate family of the chairman of the Board of Directors or president of the Company are deemed to have a substantive related party relationship, unless it can be demonstrated that no control, joint control, or significant influence exists. Furthermore, the amendments require the disclosure of the names of the related parties and the relationship with whom the Company has significant transaction. If the transaction or balance with a specific related party is 10% or more of the Company’s respective total transaction or balance, such transaction should be separately disclosed by the name of each related party.

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The amendments also require additional disclosure if there is a significant difference between the actual operation after business combination and the expected benefit on acquisition date.

The disclosures of related party transactions will be enhanced when the above amendments are retrospectively applied in 2017.

• b. New IFRSs in issue but not yet endorsed by FSC

The Company has not applied the following IFRSs issued by the IASB but not yet endorsed by the FSC.

The FSC announced that amendments to IFRS 9 and IFRS 15 will take effect starting January 1, 2018. As of the date the consolidated financial statements were authorized for issue, the FSC has not announced the effective dates of other new IFRSs.

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

Effective Date Announced by IASB (Note 1)

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

• Note 1: Unless stated otherwise, the above New IFRSs are effective for annual periods beginning on or after their respective effective dates.

• Note 2: The amendment to IFRS 12 is retrospectively applied for annual periods beginning on or after January 1, 2017; the amendment to IAS 28 is retrospectively applied for annual periods beginning on or after January 1, 2018.

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The initial application of the above New IFRSs, whenever applied, would not have any material impact on the Company’s accounting policies, except for the following:

• 1) IFRS 9 “Financial Instruments”

Recognition and measurement of financial assets

With regards to financial assets, all recognized financial assets that are within the scope of IAS 39 “Financial Instruments: Recognition and Measurement” are subsequently measured at amortized cost or fair value. Under IFRS 9, the requirement for the classification of financial assets is stated below.

For the Company’s debt instruments that have contractual cash flows that are solely payments of principal and interest on the principal amount outstanding, their classification and measurement are as follows:

• a) For debt instruments, if they are held within a business model whose objective is to collect the contractual cash flows, the financial assets are measured at amortized cost and are assessed for impairment continuously with impairment loss recognized in profit or loss, if any. Interest revenue is recognized in profit or loss by using the effective interest method;

• b) For debt instruments, if they are held within a business model whose objective is achieved by both the collecting of contractual cash flows and the selling of financial assets, the financial assets are measured at fair value through other comprehensive income (FVTOCI) and are assessed for impairment. Interest revenue is recognized in profit or loss by using the effective interest method, and other gain or loss shall be recognized in other comprehensive income, except for impairment gains or losses and foreign exchange gains and losses. When the debt instruments are derecognized or reclassified, the cumulative gain or loss previously recognized in other comprehensive income is reclassified from equity to profit or loss.

Except for above, all other financial assets are measured at fair value through profit or loss. However, the Company may make an irrevocable election to present subsequent changes in the fair value of an equity investment (that is not held for trading) in other comprehensive income, with only dividend income generally recognized in profit or loss. No subsequent impairment assessment is required, and the cumulative gain or loss previously recognized in other comprehensive income cannot be reclassified from equity to profit or loss.

The impairment of financial assets

IFRS 9 requires that impairment loss on financial assets is recognized by using the “Expected Credit Losses Model”. The credit loss allowance is required for financial assets measured at amortized cost, financial assets mandatorily measured at FVTOCI, lease receivables, contract assets arising from IFRS 15 “Revenue from Contracts with Customers”, certain written loan commitments and financial guarantee contracts. A loss allowance for the 12-month expected credit losses is required for a financial asset if its credit risk has not increased significantly since initial recognition. A loss allowance for full lifetime expected credit losses is required for a financial asset if its credit risk has increased significantly since initial recognition and is not low. However, a loss allowance for full lifetime expected credit losses is required for trade receivables that do not constitute a financing transaction.

For purchased or originated credit-impaired financial assets, the Company takes into account the expected credit losses on initial recognition in calculating the credit-adjusted effective interest rate. Subsequently, any changes in expected losses are recognized as a loss allowance with a corresponding gain or loss recognized in profit or loss.

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Hedge accounting

The main changes in hedge accounting amended the application requirements for hedge accounting to better reflect the entity’s risk management activities. Compared with IAS 39, the main changes include: (1) enhancing types of transactions eligible for hedge accounting, specifically broadening the risk eligible for hedge accounting of non-financial items; (2) changing the way hedging derivative instruments are accounted for to reduce profit or loss volatility; and (3) replacing retrospective effectiveness assessment with the principle of economic relationship between the hedging instrument and the hedged item.

Transition

Financial instruments that have been derecognized prior to the effective date of IFRS 9 cannot be reversed to apply IFRS 9 when it becomes effective. Under IFRS 9, the requirements for classification, measurement and impairment of financial assets are applied retrospectively with the difference between the previous carrying amount and the carrying amount at the date of initial application recognized in the current period and restatement of prior periods is not required. The requirements for general hedge accounting shall be applied prospectively and the accounting for hedging options shall be applied retrospectively.

• 2) IFRS 15 “Revenue from Contracts with Customers” and related amendment

IFRS 15 establishes principles for recognizing revenue that apply to all contracts with customers, and will supersedes IAS 18 “Revenue”, IAS 11 “Construction Contracts” and a number of revenue-related interpretations from January 1, 2018.

When applying IFRS 15, an entity shall recognize revenue by applying the following steps:

• Identify the contract with the customer;

• Identify the performance obligations in the contract;

• Determine the transaction price;

• Allocate the transaction price to the performance obligations in the contract; and

• Recognize revenue when the entity satisfies a performance obligation.

When IFRS 15 and related amendment are effective, an entity may elect to apply this Standard either retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying this Standard recognized at the date of initial application.

3) IFRS 16 “Leases”

IFRS 16 sets out the accounting standards for leases that will supersede IAS 17 and a number of related interpretations.

Under IFRS 16, if the Company is a lessee, it shall recognize right-of-use assets and lease liabilities for all leases on the consolidated balance sheets except for low-value and short-term leases. The Company may elect to apply the accounting method similar to the accounting for operating lease under IAS 17 to the low-value and short-term leases. On the consolidated statements of comprehensive income, the Company should present the depreciation expense charged on the right-of-use asset separately from interest expense accrued on the lease liability; interest is computed by using effective interest method. On the consolidated statements of cash flows, cash payments for the principal portion of the lease liability are classified within financing activities; cash payments for interest portion are classified within operating activities.

The application of IFRS 16 is not expected to have a material impact on the accounting of the Company as lessor.

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When IFRS 16 becomes effective, the Company may elect to apply this Standard either retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of the initial application of this Standard recognized at the date of initial application.

4) IFRIC 22 “Foreign Currency Transactions and Advance Consideration”

IAS 21 stipulated that a foreign currency transaction shall be recorded on initial recognition in the functional currency by applying to the foreign currency amount the spot exchange rate between the functional currency and the foreign currency at the date of the transaction. IFRIC 22 further explains that the date of the transaction is the date on which an entity recognizes a non-monetary asset or non-monetary liability from payment or receipt of advance consideration. If there are multiple payments or receipts in advance, the entity shall determine the date of the transaction for each payment or receipt of advance consideration.

The Company shall apply IFRIC 22 either retrospectively or prospectively to all assets, expenses and income in the scope of the Interpretation initially recognized on or after (a) the beginning of the reporting period in which the entity first applies IFRIC 22, or (b) the beginning of a prior reporting period presented as comparative information in the financial statements of the reporting period in which the entity first applies IFRIC 22.

Except for the above impact, as of the date the consolidated financial statements were authorized for issue, the Company is continuously assessing the possible impact that the application of other standards and interpretations will have on the Company’s financial position and financial performance, and will disclose the relevant impact when the assessment is completed.

4. SIGNIFICANT ACCOUNTING POLICIES

Statement of Compliance

These interim consolidated financial statements have been prepared in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers and IAS 34 “Interim Financial Reporting” as endorsed and issued into effect by the FSC. Disclosure information included in these interim consolidated financial statements is less than the disclosure information required in a complete set of annual financial statements.

For readers’ convenience, the accompanying consolidated financial statements have been translated into English from the original Chinese version prepared and used in the Republic of China. If inconsistencies arise between the English version and the Chinese version or if differences arise in the interpretations between the two versions, the Chinese version of the consolidated financial statements shall prevail. However, the accompanying consolidated financial statements do not include the English translation of the additional footnote disclosures that are not required under accounting principles and practices generally applied in the Republic of China but are required by the Securities and Futures Bureau for their oversight purposes.

Basis of Consolidation

See Note 15 for the detailed information of subsidiaries (including the percentage of ownership and main business).

Other Significant Accounting Policies

Except for the following, the accounting policies applied in these consolidated financial statements are consistent with those applied in the consolidated financial statements for the year ended December 31, 2016. For the summary of other significant accounting policies, please refer to the consolidated financial statements for the year ended December 31, 2016.

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a. Retirement benefits

Pension cost for an interim period is calculated on a year-to-date basis by using the actuarially determined pension cost rate at the end of the prior financial year, adjusted for significant market fluctuations since that time and for significant plan amendments, settlements, or other significant one-off events.

• b. Taxation

Income tax expense represents the sum of the tax currently payable and deferred tax. Interim period income taxes are assessed on an annual basis and calculated by applying to an interim period's pre-tax income the tax rate that would be applicable to expected total annual earnings.

5. CRITICAL ACCOUNTING JUDGMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY

In the application of the Company’s accounting policies, management is required to make judgments, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered relevant. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods.

• a. Accrued marketing and advertising expenses

The Company recognizes sale of goods as the conditions are met. The related marketing and advertising expenses recognized as reduction of sales amount or as current expenses are estimated on the basis of agreement, past experience and any known factors. The Company reviews the reasonableness of the estimation periodically.

As of March 31, 2017, December 31, 2016 and March 31, 2016, the carrying amounts of accrued marketing and advertising expenses were NT$7,904,672 thousand, NT$9,791,579 thousand and NT$12,985,278 thousand, respectively.

b. Allowances for doubtful debts

Receivables are assessed for impairment at the end of each reporting period and considered impaired when there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the receivables, the estimated future cash flows of the asset have been affected.

As of March 31, 2017, December 31, 2016 and March 31, 2016, the carrying amounts of allowances for doubtful debts were NT$4,123,459 thousand, NT$4,187,999 thousand and NT$3,012,869 thousand, respectively.

• c. Impairment of tangible and intangible assets other than goodwill

The Company measures the useful life of individual assets and the probable future economic benefits in a specific asset group, which depends on subjective judgment, asset characteristics and industry, during the impairment testing process. Any change in accounting estimates due to economic circumstances and business strategies might cause material impairment in the future.

• 13 -

d. Valuation of inventories

Inventories are measured at the lower of cost or net realizable value. Judgment and estimation are applied in the determination of net realizable value at the end of reporting period.

Inventories are usually written down to net realizable value item by item if those inventories are damaged, have become wholly or partially obsolete, or if their selling prices have declined.

As of March 31, 2017, December 31, 2016 and March 31, 2016, the carrying amounts of inventories were NT$14,923,347 thousand, NT$14,163,571 thousand and NT$19,210,735 thousand, respectively.

• e. Realization of deferred tax assets

Deferred tax assets should be recognized only to the extent that the entity has sufficient taxable temporary differences or there is convincing other evidence that sufficient taxable profit will be available. The management applies judgment and accounting estimates to evaluate the realization of deferred tax assets. The management takes expected sales growth, profit rate, duration of exemption, tax credits, tax planning and etc. into account to make judgment and estimates. Any change in global economy, industry environment and regulations might cause material adjustments to deferred tax assets.

As of March 31, 2017, December 31, 2016 and March 31, 2016, the carrying amounts of deferred tax assets were NT$8,996,321 thousand, NT$8,957,876 thousand and NT$8,735,824 thousand, respectively.

• f. Estimates of warranty provision

The Company estimates cost of product warranties at the time the revenue is recognized.

The estimates of warranty provision are on the basis of sold products and the amount of expenditure required for settlement of present obligation at the end of the reporting period.

The Company might recognize additional provisions because of the possible complex intellectual product malfunctions and the change of local regulations, articles and industry environment.

As of March 31, 2017, December 31, 2016 and March 31, 2016, the carrying amounts of warranty provision were NT$2,812,565 thousand, NT$3,010,969 thousand and NT$4,683,241 thousand, respectively.

6. CASH AND CASH EQUIVALENTS

Cash on hand Checking accounts and demand deposits Time deposits (with original maturities less than three months)	March 31, 2017 $ 1,613 21,351,630 5,212,355 $ 26,565,598	December 31, 2016 $ 1,811 24,722,314 5,356,092 $ 30,080,217	March 31, 2016 $ 2,134 29,989,035 9,040,459 $ 39,031,628

• 14 -

7. FINANCIAL INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS

Financial assets held for trading Derivatives financial assets (not under hedge accounting) Foreign exchange contracts Financial liabilities held for trading Derivatives financial liabilities (not under hedge accounting) Foreign exchange contracts	March 31, 2017 December 31, 2016 $ 77,332 $ 143,642 $ 194,631 $ 133,420	March 31, 2016 $ 127,521 $ 264,718

The Company entered into forward exchange contracts to manage exposures due to exchange rate fluctuations of foreign currency denominated assets and liabilities. At the end of the reporting period, outstanding forward exchange contracts not under hedge accounting were as follows:

Forward Exchange Contracts

				Notional Amount	Notional Amount
	Buy/Sell	Currency	Maturity Date	(In Thousands)
March 31, 2017
Foreign exchange contracts	Sell	USD/NTD	2017.04.12-2017.05.17	USD	75,000
Foreign exchange contracts	Sell	JPY/USD	2017.04.12-2017.05.10	JPY 4,450,000
Foreign exchange contracts	Sell	GBP/USD	2017.04.19	GBP	2,000
Foreign exchange contracts	Sell	AUD/USD	2017.04.26	AUD	2,500
Foreign exchange contracts	Buy	RMB/USD	2017.04.12-2017.05.10	RMB	735,640
Foreign exchange contracts	Buy	USD/NTD	2017.04.12-2017.05.17	USD	433,500
Foreign exchange contracts	Buy	SGD/USD	2017.04.12-2017.05.12	SGD	252,579
December 31, 2016
Foreign exchange contracts	Sell	USD/NTD	2017.01.06-2017.01.25	USD	120,000
Foreign exchange contracts	Sell	EUR/USD	2017.01.06	EUR	40,000
Foreign exchange contracts	Sell	JPY/USD	2017.01.06-2017.01.25	JPY 5,085,622
Foreign exchange contracts	Sell	GBP/USD	2017.01.06-2017.01.20	GBP	6,000
Foreign exchange contracts	Buy	RMB/USD	2017.01.06-2017.01.25	RMB	926,817
Foreign exchange contracts	Buy	CAD/USD	2017.01.11-2017.01.25	CAD	5,000
Foreign exchange contracts	Buy	USD/NTD	2017.01.06-2017.02.02	USD	387,500
Foreign exchange contracts	Buy	SGD/USD	2017.01.06-2017.01.25	SGD	252,579
Foreign exchange contracts	Buy	AUD/USD	2017.01.06-2017.01.11	AUD	4,700
March 31, 2016
Foreign exchange contracts	Sell	SGD/USD	2016.04.29	SGD	5,336
Foreign exchange contracts	Sell	JPY/USD	2016.04.13	JPY	150,000
Foreign exchange contracts	Sell	GBP/USD	2016.04.13-2016.04.29	GBP	5,500
Foreign exchange contracts	Sell	USD/NTD	2016.04.06	USD	10,000
Foreign exchange contracts	Buy	RMB/USD	2016.04.08	RMB	85,000
Foreign exchange contracts	Buy	USD/NTD	2016.04.01-2016.06.15	USD	326,071
Foreign exchange contracts	Buy	SGD/USD	2016.04.29-2016.06.29	SGD	200,790

• 15 -

8. DERIVATIVE FINANCIAL INSTRUMENTS FOR HEDGING

	March 31,	March 31,	December	December	31,	March 31,	March 31,
		2017		2016			2016
Derivative financial assets under hedge
accounting
Cash flow hedges - foreign exchange forward
contracts	$	-	$		-	$	1,100
Derivative financial liabilities under hedge
accounting
Cash flow hedges - foreign exchange forward
contracts	$	12,110	$		-	$	3,309

The Company’s foreign-currency cash flows derived from the highly probable forecast transaction may lead to risks on foreign-currency financial assets and liabilities and estimated future cash flows due to the exchange rate fluctuations. The Company assesses the risks may be significant; thus, the Company entered into derivative contracts to hedge against foreign-currency exchange risks.

The terms of the foreign exchange forward contracts were negotiated to match the terms of the respective designated hedged items. The outstanding foreign exchange forward contract at the end of the reporting period was as follows:

				Notional Amount
	Buy/Sell	Currency	Settlement Period/Date	(In Thousands)
March 31, 2017
Forward exchange contracts	Sell	JPY/USD	2017.07.21	JPY 2,500,000
March 31, 2016
Forward exchange contracts	Sell	JPY/USD	2016.06.30-2016.07.29	JPY 2,556,023

The Company supplied products to clients in Japan and signed forward exchange contracts to avoid its exchange rate exposure due to the forecast sales. Those forward exchange contracts were designated as cash flow hedges.

Gains and losses of hedging instruments were included in the following line items in the consolidated statements of comprehensive income:

Revenues Other gains and losses	For the Three Months Ended March 31	For the Three Months Ended March 31	For the Three Months Ended March 31
		2017 $ - 772 $ 772	2016 $ - 418 $ 418

• 16 -

9. FINANCIAL ASSETS MEASURED AT COST

Domestic unlisted equity investment Overseas unlisted equity investment Overseas unlisted mutual funds Classified according to financial asset measurement categories Available-for-sale financial assets	March 31, 2017 December 31, 2016 $ 643,961 $ 643,961 1,946,550 2,013,101 675,596 706,674 $ 3,266,107 $ 3,363,736 $ 3,266,107 $ 3,363,736	March 31, 2016 $ 643,961 2,005,503 681,299 $ 3,330,763 $ 3,330,763

Management believed that the above unlisted equity investments and mutual funds held by the Company, whose fair value cannot be reliably measured due to the range of reasonable fair value estimates was so significant; therefore, they were measured at cost less impairment at the end of reporting period.

10. OTHER CURRENT FINANCIAL ASSETS

March 31, 2017 Time deposits with original maturities more than three months $ 6,576,255 For details of pledged other current financial assets, please see Note 33. TRADE RECEIVABLES AND OTHER RECEIVABLES March 31, 2017 Trade and overdue receivables Trade receivables $ 9,918,868 Trade and overdue receivables Trade receivables - related parties 5 Overdue receivables 1,840,947 Less: Allowances for impairment loss - trade receivables (871,922) Less: Allowances for impairment loss - overdue receivables (1,840,947) $ 9,046,951 Current $ 9,046,951 Non-current - $ 9,046,951	December 31, 2016 $ 5,750,450 December 31, 2016 $ 16,818,037 15,720 1,840,947 (871,922) (1,840,947) $ 15,961,835 $ 15,961,835 - $ 15,961,835	March 31, 2016 $ 2,684,493 March 31, 2016 $ 12,697,789 16 1,840,947 (1,171,922) (1,840,947) $ 11,525,883 $ 11,525,883 - $ 11,525,883

11. TRADE RECEIVABLES AND OTHER RECEIVABLES

(Continued)

• 17 -

Other receivables Receivables from disposal of investments Interest receivables VAT refund receivables Others Less: Allowances for impairment loss Current Non-current	March 31, 2017 $ 1,205,633 228,649 160,955 47,112 (1,410,590) $ 231,759 $ 231,759 - $ 231,759	December 31, 2016 $ 1,260,795 234,355 113,839 34,667 (1,475,130) $ 168,526 $ 168,526 - $ 168,526	March 31, 2016 $ 1,274,917 210,676 142,134 490,348 - $ 2,118,075 $ 645,546 1,472,529 $ 2,118,075 (Concluded)

Trade Receivables

The credit period on sales of goods is 30-75 days. No interest is charged on trade receivables before the due date. Thereafter, interest is charged at 1-18% per annum on the outstanding balance, which is considered to be non-controversial, to some of customers. In determining the recoverability of a trade receivable, the Company considered any change in the credit quality of the trade receivable since the date credit was initially granted to the end of the reporting period. For customers with low credit risk, the Company has recognized an allowance for doubtful debts of 1-5% against receivables past due beyond 31-90 days and of 5-100% against receivables past due beyond 91 days. For customers with high credit risk, the Company has recognized an allowance for impairment loss of 10-100% against receivables past due more than 31 days.

Before accepting any new customer, the Company’s Department of Financial and Accounting evaluates the potential customer’s credit quality and defines credit limits and scorings by customer. The factor of overdue attributed to customers are reviewed once a week and the Company evaluates the financial performance periodically for the adjustment of credit limits.

The concentration of credit risk is limited due to the fact that the customer base is diverse.

As of the reporting date, the Company had no receivables that are past due but not impaired.

Trade receivables aged over one year were reclassified as overdue receivables which was recognized as long-term receivables.

Aging of trade receivables

1-90 days 91-180 days Over 181 days	March 31, 2017 December 31, 2016 $ 257,735 $ 2,120,237 276,284 445,727 511,779 323,945 $ 1,045,798 $ 2,889,909	March 31, 2016 $ 758,338 120,104 886,566 $ 1,765,008

• 18 -

The above aging schedule was based on the past due date.

Aging of impaired trade receivables

1-90 days 91-180 days Over 181 days	March 31, 2017 December 31, 2016 $ 173,876 $ 1,887,581 - 130,406 - - $ 173,876 $ 2,017,987	March 31, 2016 $ 593,086 - - $ 593,086

The above aging of trade receivables after deducting the allowance for impairment loss were presented based on the past due date.

The movements of the allowance for doubtful trade receivables and overdue receivables were as follows:

Balance, beginning of period Less: Amounts written off during the period as uncollectible Add: Effect of foreign currency exchange differences Balance, end of period		For the Three Months Ended March 31	For the Three Months Ended March 31
		2017 $ 2,712,869 - - $ 2,712,869	2016 $ 3,016,914 (4,077) 32 $ 3,012,869

Other Receivables

Receivable from disposal of investments is derived from sale of shares of Saffron Media Group Ltd. in 2013. According to the agreement, the principle and interest will be received in full in September 2018 and could be repaid by the buyer in whole or in part, at any time.

Others were primarily prepayments on behalf of vendors or customers and grants from suppliers.

The movements of the allowance for doubtful other receivables were as follows:

Balance, beginning of period Less: Effect of foreign currency exchange differences Balance, end of period		For the Three Months Ended March 31	For the Three Months Ended March 31
		2017 $ 1,475,130 (64,540) $ 1,410,590	2016 $ - - $ -

• 19 -

12. INVENTORIES

Finished goods Work-in-process Semi-finished goods Raw materials Inventory in transit	March 31, 2017 $ 3,404,007 829,257 2,191,319 8,182,417 316,347 $ 14,923,347	December 31, 2016 $ 2,468,223 233,952 2,168,606 9,125,604 167,186 $ 14,163,571	March 31, 2016 $ 3,267,187 1,297,932 2,969,821 11,317,782 358,013
			$ 19,210,735

The cost of inventories recognized as operating costs for the three months ended March 31, 2017 and 2016 included inventory write-downs of NT$1,385,920 thousand and NT$471,594 thousand, respectively.

13. PREPAYMENTS

Royalty Net input VAT Prepaid equipment Prepayments to suppliers Land use right Others Current Non-current	March 31, 2017 December 31, 2016 $ 3,002,602 $ 3,109,677 508,468 727,750 62,182 75,954 11,861 17,431 - 107,732 577,325 530,831 $ 4,162,438 $ 4,569,375 $ 1,593,590 $ 1,833,499 2,568,848 2,735,876 $ 4,162,438 $ 4,569,375	March 31, 2016 $ 6,357,998 1,045,669 89,206 156,221 118,359 582,442
		$ 8,349,895
		$ 3,726,028 4,623,867
		$ 8,349,895

Prepayments for royalty were primarily for getting royalty right and were classified as current or non-current in accordance with their nature. For details of content of contracts, please see Note 36.

The land use right was reclassified as non-current assets held for sale in March 2017. For the detail, please see Note 14.

14. NON-CURRENT ASSETS HELD FOR SALE

Land and buildings held for sale	March 31, 2017 December 31, 2016 $ 1,563,732 $ -	March 31, 2016 $ -

On December 29, 2015, the HTC’s Board of Directors resolved to sell a plot of land and buildings to Inventec Corporation for a total amount of NT$6,060,000 thousand. The Company had completed the disposal and transferred its controlling right over the subject properties to the acquirer in February 2016. For the amount of gains and losses for disposal NT$2,091,594 thousand, see Note 26 for details.

• 20 -

On March 15, 2017, HTC’ Board of Directors passed a resolution to sell land and factory in Shanghai to Shanghai Xingbao Information Technology Co., Ltd. with the amount of RMB630,000 thousand. The trading amount of RMB315,000 thousand (NT$1,388,243 thousand) has been collected and recognized as advance receipts. While the transferring process has not yet been completed, the assets was recognized as non-current assets held for sale without impairment loss valuated as of March 31, 2017.

15. SUBSIDIARIES

a. Subsidiary included in consolidated financial statements

The consolidated entities as of March 31, 2017, December 31, 2016 and March 31, 2016 were as follows:

Investor Investee Main Businesses HTC Corporation H.T.C. (B.V.I.) Corp. International holding company and general investing activities Communication Global Certification Inc. Import of controlled telecommunications radio-frequency devices and software services High Tech Computer Asia Pacific Pte. Ltd. International holding company; marketing, repair and after-sales services HTC Investment Corporation General investing activities PT. High Tech Computer Indonesia Marketing, repair and after-sales services HTC I Investment Corporation General investing activities HTC Holding Cooperatief U.A. International holding company HTC Investment One (BVI) Corporation Holding S3 Graphics Co., Ltd. and general investing activities HTC Investment (BVI) Corporation General investing activities HTC VIVE Holding (BVI) Corp. International holding company HTC VIVE Investment (BVI) Corp. General investing activities DeepQ Holding (BVI) Corp. International holding company H.T.C. (B.V.I.) Corp. High Tech Computer Corp. (Suzhou) Manufacture and sale of smart mobile devices High Tech Computer Asia Pacific Pte. HTC (Australia and New Zealand) PTY. Ltd. Marketing, repair and after-sales services Ltd. HTC Philippines Corporation 〃 PT. High Tech Computer Indonesia 〃 HTC (Thailand) Limited 〃 High Tech Computer Asia Pacific Pte. HTC India Private Ltd. Marketing, repair and after-sales services Ltd. HTC Malaysia Sdn. Bhd. 〃 HTC Communication Co., Ltd. Manufacture and sale of smart mobile devices and after-sales services HTC HK, Limited International holding company; marketing, repair and after-sales services HTC Holding Cooperatief U.A. International holding company HTC Communication Technologies (SH) Design, research and development of application software HTC Vietnam Services One Member Limited Liability Company Marketing, repair and after-sales services HTC Myanmar Company Limited 〃 HTC Investment Corporation Yoda Co., Ltd. Operation of restaurant business, parking lot and building cleaning services HTC Investment One (BVI) Corporation S3 Graphics Co., Ltd. Design, research and development of graphics technology

% of Ownership March 31, 2017 December 31, 2016 March 31, 2016 Remark 100.00 100.00 100.00 - 100.00 100.00 100.00 - 100.00 100.00 100.00 - 100.00 100.00 100.00 - 1.00 1.00 1.00 - 100.00 100.00 100.00 - 0.01 0.01 0.01 - 100.00 100.00 100.00 - 100.00 100.00 100.00 - 100.00 100.00 100.00 - 100.00 100.00 - 1) 100.00 - - 2) 100.00 100.00 100.00 - 100.00 100.00 100.00 - 99.99 99.99 99.99 - 99.00 99.00 99.00 - 100.00 100.00 100.00 - 99.00 99.00 99.00 - 100.00 100.00 100.00 - 100.00 100.00 100.00 - 100.00 100.00 100.00 - 99.99 99.99 99.99 - 100.00 100.00 100.00 - 100.00 100.00 100.00 - 99.00 99.00 99.00 - 100.00 100.00 100.00 - 100.00 100.00 100.00 - (Continued)

• 21 -

Investor Investee Main Businesses HTC Communication Technologies (SH) HTC Communication (BJ) Tech Co. Design, research and development of application software HTC HK, Limited HTC Corporation (Shanghai WGQ) Smart mobile devices examination and after-sale services and technique consultations HTC Electronics (Shanghai) Co., Ltd. Manufacture and sale of smart mobile devices HTC Myanmar Company Limited Marketing, repair and after-sales services HTC Holding Cooperatief U.A. HTC Netherlands B.V. International holding company; marketing, repair and after-sales services HTC India Private Ltd. Marketing, repair and after-sales services HTC South Eastern Europe Limited Liability Company 〃 HTC Communication Solutions Mexico, S.A DE C.V. 〃 HTC Servicios DE Operacion Mexico, S.A DE C.V. Human resources management HTC Netherlands B.V. HTC EUROPE CO., LTD. International holding company Marketing, repair and after-sales services HTC BRASIL Marketing, repair and after-sales services HTC Belgium BVBA/SPRL 〃 HTC NIPPON Corporation Sale of smart mobile devices HTC FRANCE CORPORATION International holding company; marketing, repair and after-sales services HTC South Eastern Europe Limited liability Company Marketing, repair and after-sales services HTC Nordic ApS. 〃 HTC Italia SRL 〃 HTC Germany GmbH 〃 HTC Iberia, S.L. 〃 HTC Poland sp. z.o.o. 〃 HTC Communication Canada, Ltd. 〃 HTC Communication Sweden AB 〃 HTC Luxembourg S.a.r.l. Online/download media services HTC Middle East FZ-LLC Marketing, repair and after-sales services HTC Communication Solutions Mexico, S.A DE C.V. 〃 HTC Netherlands B.V. HTC Servicios DE Operacion Mexico, S.A DE C.V. Human resources management HTC Czech RC s.r.o. Smart mobile devices examination and after-sale services and technique consultations HTC EUROPE CO., LTD. HTC America Holding Inc. International holding company HTC America Holding HTC America Inc. Sale of smart mobile devices Inc. One & Company Design, Inc. Design, research and development of application software HTC America Innovation Inc. 〃 HTC America Content Services, Inc. Online/download media services Dashwire, Inc. Design and management of cloud synchronization technology Inquisitive Minds, Inc. Development and sale of digital education platform HTC VIVE Holding (BVI) Corp. HTC VIVE TECH (BVI) Corp. International holding company HTC VIVE TECH (BVI) Corp. HTC VIVE TECH Corp. Research, development and sale of virtual reality devices DeepQ Holding (BVI) Corp. DeepQ (BVI) Corp. International holding company

% of Ownership March 31, 2017 December 31, 2016 March 31, 2016 Remark 100.00 100.00 100.00 - 100.00 100.00 100.00 - 100.00 100.00 100.00 - 1.00 1.00 1.00 - 100.00 100.00 100.00 - 1.00 1.00 1.00 - 0.67 0.67 0.67 - 1.00 1.00 1.00 - 1.00 1.00 1.00 - 100.00 100.00 100.00 - 99.99 99.99 99.99 - 100.00 100.00 100.00 - 100.00 100.00 100.00 - 100.00 100.00 100.00 - 99.33 99.33 99.33 - 100.00 100.00 100.00 - 100.00 100.00 100.00 - 100.00 100.00 100.00 - 100.00 100.00 100.00 - 100.00 100.00 100.00 - 100.00 100.00 100.00 - 100.00 100.00 100.00 - 100.00 100.00 100.00 - 100.00 100.00 100.00 - 99.00 99.00 99.00 - 99.00 99.00 99.00 - 100.00 100.00 100.00 - 100.00 100.00 100.00 - 100.00 100.00 100.00 - 100.00 100.00 100.00 - 100.00 100.00 100.00 - 100.00 100.00 100.00 - 100.00 100.00 100.00 - 100.00 100.00 100.00 - 100.00 100.00 100.00 - 100.00 100.00 100.00 - 100.00 - - 2) (Concluded)

• 22 -

Remark:

• 1) HTC VIVE Investment (BVI) Corp. was incorporated in September 2016.

• 2) DeepQ Holding (BVI) Corp. and DeepQ (BVI) Corp. were incorporated in March 2017.

• b. Subsidiary excluded from consolidated financial statements: None.

16. INVESTMENTS ACCOUNTED FOR USING EQUITY METHOD

Investment in associates Investment in joint ventures Investments in Associate Unlisted equity investment East West Artists, LLC Steel Wool Games, Inc. Surgical Theater, LLC Gui Zhou Wei Ai Educational Technology Co., Ltd.	March 31, 2017 December 31, 2016 $ 466,341 $ 531,445 - - $ 466,341 $ 531,445 March 31, 2017 December 31, 2016 $ 24,284 $ 25,532 128,860 150,282 302,465 344,080 10,732 11,551 $ 466,341 $ 531,445	March 31, 2016 $ 28,415 182,707 $ 211,122 March 31, 2016 $ 28,415 - - - $ 28,415

As the end of the reporting periods, the percentage of ownership and voting rights in associates held by the Company were as follows:

	March 31,	December 31,	March 31,
Name of Associate	2017	2016	2016
East West Artists, LLC	25.00%	25.00%	25.00%
Steel Wool Games, Inc.	49.00%	49.00%	-
Surgical Theater, LLC	20.51%	21.09%	-
Gui Zhou Wei Ai Educational Technology Co.,
Ltd.	25.00%	25.00%	-

The Company acquired 12.5% equity interest in East West Artists, LLC for US$500 thousand in December 2014, and further acquired additional 12.5% equity interest for US$500 thousand in December 2015, with a total 25% equity interest held and accounted for under the equity method.

In July 2015, the Company acquired 11.25% equity interest in Steel Wool Games, Inc. for US$300 thousand and such equity investment was recognized as financial assets measured at cost - non-current. In June 2016, the equity interest was increased to 49% after the Company’s making an additional investment of US$5,000 thousand. The Company’s management evaluates that the Company does exercise significant influence over Steel Wool Games, Inc. and therefore the subject equity investments are classified as an associate of the Company.

• 23 -

In September 2015, the Company acquired 12.30% equity interest in Surgical Theater, LLC for US$5,000 thousand and such equity investment was recognized as financial assets measured at cost - non-current. In August 2016, the equity interest was increased to 21.09% after the Company’s making an additional investment of US$6,000 thousand. Thereafter, the subject equity investments are accounted for under the equity method.

In November 2016, the Company acquired 25% equity interest in Gui Zhou Wei Ai Educational Technology Co., Ltd. for RMB2,500 thousand with a total 25% equity interest that are accounted for under the equity method.

Aggregate information of associates that are not individually material:

The Company’s share of: Loss from continuing operations Other comprehensive income Total comprehensive income for the period	For the Three Months Ended March 31	For the Three Months Ended March 31	For the Three Months Ended March 31
		2017 $ (34,392) - $ (34,392)	2016 $ (2,757) - $ (2,757)

Investments accounted for by the equity method and the share of profit or loss and other comprehensive income of those investments were calculated based on the financial statements that have not been reviewed. The Company’s management believes there is no material impact arising from applying the equity method accounting or the calculation of the share of profit or loss and other comprehensive income, due to the investee entities’ financial statement were not been reviewed.

Investments in Joint Venture

Unlisted equity investments Huada Digital Corporation	March 31, 2017 December 31, 2016 $ - $ -	March 31, 2016 $ 182,707

At the end of the reporting period, the proportion of ownership and voting rights in joint venture held by the Company were as follows:

	March 31,	December 31,	March 31,
Name of Joint Venture	2017	2016	2016
Huada Digital Corporation	-	-	50.00%

The Company set up a subsidiary Huada Digital Corporation (“Huada”), whose main business is to provide software services, in December 2009. In October 2011, Chunghwa Telecom Co., Ltd. invested in Huada. In March 2012, Huada held a shareholders’ meeting and re-elected its directors and supervisors. As a result, the investment type was changed to joint venture and the Company continued to account for the subject equity investment under the equity method. The dissolution of Huada was approved in its shareholders’ meeting held in March 2016 and the date of dissolution was set on March 31, 2016. The liquidation process had been completed on July 31, 2016.

• 24 -

Aggregate information of joint venture that are not individually material:

The Company’s share of: Loss from continuing operations Other comprehensive income Total comprehensive losses for the period	For the Three Months Ended March 31	For the Three Months Ended March 31	For the Three Months Ended March 31
		2017 $ - - $ -	2016 $ (25,605) - $ (25,605)

Investments in joint venture accounted for by the equity method and the share of profit or loss and other comprehensive income of those investments were calculated based on the financial statements that have not been reviewed. The Company’s management believes there is no material impact arising from applying the equity method accounting or the calculation of the share of profit or loss and other comprehensive income, due to the investee entities’ financial statements were not been reviewed.

17. PROPERTY, PLANT AND EQUIPMENT

Carrying amounts Land Buildings Machinery and equipment Other equipment	March 31, 2017 $ 4,668,951 5,395,157 1,098,110 550,464 $ 11,712,682	December 31, 2016 $ 4,674,792 5,473,812 1,267,842 609,050 $ 12,025,496	March 31, 2016 $ 6,468,188 5,688,330 1,994,320 792,432 $ 14,943,270

Movement of property, plant and equipment for the three months ended March 31, 2017 and 2016 were as follows:

Cost Balance, beginning of period Additions Disposals Reclassification Effect of foreign currency exchange differences Balance, end of period Accumulated depreciation Balance, beginning of period Depreciation expenses Disposals Reclassification Effect of foreign currency exchange differences Balance, end of period			2017
		Land $ 4,674,792 - - - (5,841) 4,668,951 - - - - - -	Buildings Machinery and Equipment $ 7,321,116 $ 13,614,889 8,393 12,767 - (101,613) - (39,865) (21,265) (131,735) 7,308,244 13,354,443 1,847,304 11,816,261 68,354 149,882 - (101,613) - (21,013) (2,571) (109,859) 1,913,087 11,733,658	Other Equipment $ 2,301,452 11,409 (11,003) - (48,866) 2,252,992 1,686,963 51,591 (9,490) - (31,876) 1,697,188	Total $ 27,912,249 32,569 (112,616) (39,865) (207,707) 27,584,630 15,350,528 269,827 (111,103) (21,013) (144,306) 15,343,933 (Continued)

• 25 -

Accumulated impairment Balance, beginning of period Impairment losses Reclassification Effect of foreign currency exchange differences Balance, end of period Net book value, end of period Cost Balance, beginning of period Additions Disposals Reclassification Effect of foreign currency exchange differences Balance, end of period Accumulated depreciation Balance, beginning of period Depreciation expenses Disposals Reclassification Effect of foreign currency exchange differences Balance, end of period Accumulated impairment Balance, beginning of period Impairment losses Balance, end of period Net book value, end of period			2017
		Land $ - - - - - $ 4,668,951	Buildings Machinery and Equipment $ - $ 530,786 - - - (7,868) - (243) - 522,675 $ 5,395,157 $ 1,098,110 2016	Other Equipment $ 5,439 - - (99) 5,340 $ 550,464	Total $ 536,225 - (7,868) (342) 528,015 $ 11,712,682 (Concluded)
		Land $ 6,470,507 - - 6,587 (8,906) 6,468,188 - - - - - - - - - $ 6,468,188	Buildings Machinery and Equipment $ 7,361,368 $ 13,754,405 214,049 33,186 - (2,492) (201,433) (11,100) (32,338) (29,227) 7,341,646 13,744,772 1,590,155 10,912,770 66,452 349,022 - (2,492) - (6,443) (3,291) (23,368) 1,653,316 11,229,489 - 520,963 - - - 520,963 $ 5,688,330 $ 1,994,320	Other Equipment $ 2,507,338 52,456 (118,543) (1,173) (16,485) 2,423,593 1,634,316 92,609 (88,271) (547) (10,230) 1,627,877 3,284 - 3,284 $ 792,432	Total $ 30,093,618 299,691 (121,035) (207,119) (86,956) 29,978,199 14,137,241 508,083 (90,763) (6,990) (36,889) 14,510,682 524,247 - 524,247 $ 14,943,270

The above items of property, plant and equipment were depreciated on a straight-line basis over the estimated useful lives as follows:

Buildings 5-50 years Machinery and equipment 3-6 years Other equipment 3-5 years

The major component parts of the buildings held by the Company included plants, electro-powering machinery and engineering systems, etc., which were depreciated over their estimated useful lives of 40 to 50 years, 20 years and 5 to 10 years, respectively.

There were no capitalized interests for the three months ended March 31, 2017 and 2016.

• 26 -

18. INVESTMENT PROPERTIES, NET

Movement of investment properties, net for the three months ended March 31, 2017 and 2016 were as follows:

		2017		2016
Cost
Balance, beginning of period	$	1,829,827	$	1,992,798
Eliminations		(1,504)		-
Reclassification		(1,791,715)		-
Effect of foreign currency exchange differences		(36,608)		(18,150)
Balance, end of period		-		1,974,648
Accumulated depreciation
Balance, beginning of period		302,826		284,309
Depreciation expense		5,936		12,448
Eliminations		(1,504)		-
Reclassification		(301,200)		-
Effect of foreign currency exchange differences		(6,058)		(2,818)
Balance, end of period		-		293,939
Net book value, end of period	$	-	$	1,680,709
The investment properties were depreciated using the straight-line method		over their estimated useful lives
as follows:
Main buildings				50 years
Air-conditioning				5-10 years
Others				3-5 years

The investment properties were depreciated using the straight-line method over their estimated useful lives as follows:

The Company passed a resolution to dispose investment properties in March 2017. As of March 31, 2017, the investment properties were reclassified as non-current assets held for sale since the transferring process has not yet been completed. For the detail, please refer to Note 14.

19. INTANGIBLE ASSETS

Carrying amounts Patents Other intangible assets	March 31, 2017 December 31, 2016 $ 3,047,037 $ 3,547,151 269,037 331,205 $ 3,316,074 $ 3,878,356	March 31, 2016 $ 4,458,149 563,910 $ 5,022,059

• 27 -

Movements of intangible assets for the three months ended March 31, 2017 and 2016 were as follows:

Cost Balance, beginning of period Eliminations Effect of foreign currency exchange differences Balance, end of period Accumulated amortization Balance, beginning of period Amortization expenses Eliminations Effect of foreign currency exchange differences Balance, end of period Accumulated impairment Balance, beginning of period Effect of foreign currency exchange differences Balance, end of period Net book value, end of period Cost Balance, beginning of period Additions Effect of foreign currency exchange differences Balance, end of period Accumulated amortization Balance, beginning of period Amortization expenses Effect of foreign currency exchange differences Balance, end of period			2017	2017
		Patents $ 12,197,140 - (582,450) 11,614,690 8,538,904 294,986 - (377,322) 8,456,568 111,085 - 111,085 $ 3,047,037	Goodwill Other Intangible Assets $ 684,668 $ 1,840,154 - (7,093) (30,709) (36,383) 653,959 1,796,678 - 1,333,403 - 60,384 - (7,093) - (24,037) - 1,362,657 684,668 175,546 (30,709) (10,562) 653,959 164,984 $ - $ 269,037 2016		Total $ 14,721,962 (7,093) (649,542) 14,065,327 9,872,307 355,370 (7,093) (401,359) 9,819,225 971,299 (41,271) 930,028 $ 3,316,074
		Patents $ 12,434,890 - (235,650) 12,199,240 7,336,883 423,224 (130,101) 7,630,006	Goodwill $ 697,203 - (12,424) 684,779 - - - -	Other Intangible Assets $ 1,785,537 72,763 (14,093) 1,844,207 1,031,158 81,880 (8,325) 1,104,713	Total $ 14,917,630 72,763 (262,167) 14,728,226 8,368,041 505,104 (138,426) 8,734,719 (Continued)

• 28 -

Accumulated impairment Balance, beginning of period Effect of foreign currency exchange differences Balance, end of period Net book value, end of period			2016	2016
		Patents $ 111,085 - 111,085 $ 4,458,149	Goodwill $ 697,203 (12,424) 684,779 $ -	Other Intangible Assets $ 179,857 (4,273) 175,584 $ 563,910	Total $ 988,145 (16,697) 971,448 $ 5,022,059 (Concluded)

The Company owns patents of graphics technologies. As of March 31, 2017, December 31, 2016 and March 31, 2016, the carrying amounts of such patents were NT$3,032,800 thousand, NT$3,529,477 thousand and NT$4,438,019 thousand, respectively. The patents will be fully amortized over their remaining economic lives.

20. SHORT-TERM BORROWINGS

Unsecured borrowings Line of credit borrowings	March 31, 2017 December 31, 2016 $ 2,756,560 $ -	March 31, 2016 $ -

As of March 31, 2017, the interest rate was 0.96%-1.51% per annum.

21. NOTE AND TRADE PAYABLES

Notes payable Trade payables	March 31, 2017 $ 603 21,108,864 $ 21,109,467	December 31, 2016 $ 580 26,247,148 $ 26,247,728	March 31, 2016 $ 545 25,777,627
			$ 25,778,172

The average term of payment is two to four months. The Company has financial risk management policies in place to ensure that all payables are paid within the pre-agreed credit terms. According to the payment obligation adjusted by periodical negotiation with suppliers, it was recognized as an adjustment to operating costs or expenses by its nature.

• 29 -

22. OTHER LIABILITIES

Other payables Accrued expenses Payables for purchase of equipment Other liabilities Advance receipts (Note 14) Agency receipts Others Current Non-current Accrued Expenses Marketing Materials and molding expenses Services Salaries and bonuses Import, export and freight Insurance Repairs, maintenance and sundry purchase Others	March 31, 2017 $ 13,487,733 81,921 $ 13,569,654 $ 3,422,940 138,520 186,275 $ 3,747,735 $ 3,747,735 - $ 3,747,735 March 31, 2017 $ 7,904,672 2,136,570 1,182,618 1,085,165 272,764 118,758 118,681 668,505 $ 13,487,733	December 31, 2016 $ 18,254,905 93,829 $ 18,348,734 $ 2,397,707 434,266 172,459 $ 3,004,432 $ 3,004,432 - $ 3,004,432 December 31, 2016 $ 9,791,579 3,077,500 1,196,062 2,029,695 651,893 137,183 98,773 1,272,220 $ 18,254,905	March 31, 2016 $ 21,268,423 328,712
			$ 21,597,135
			$ 3,813,661 291,317 137,786
			$ 4,242,764
			$ 3,032,395 1,210,369
			$ 4,242,764
			March 31, 2016 $ 12,985,278 3,283,647 1,340,041 1,917,483 589,605 217,227 124,643 810,499
			$ 21,268,423

The Company accrued marketing expenses on the basis of related agreements and other factors that would significantly affect the accruals.

23. PROVISIONS

Warranties Provisions for contingent loss on purchase orders	March 31, 2017 December 31, 2016 $ 2,812,565 $ 3,010,969 330,913 373,342 $ 3,143,478 $ 3,384,311	March 31, 2016 $ 4,683,241 614,899 $ 5,298,140

• 30 -

Movement of provisions for the three months ended March 31, 2017 and 2016 were as follows:

Balance, beginning of period Provisions recognized (reversed) Usage Effect of foreign currency exchange differences Balance, end of period Balance, beginning of period Provisions recognized (reversed) Usage Effect of foreign currency exchange differences Balance, end of period		2017
		Warranty Provision Provisions for Contingent Loss on Purchase Orders $ 3,010,969 $ 373,342 605,968 (13,441) (784,487) (28,988) (19,885) - $ 2,812,565 $ 330,913 2016	Total $ 3,384,311 592,527 (813,475) (19,885) $ 3,143,478
		Warranty Provision Provisions for Contingent Loss on Purchase Orders $ 5,314,365 $ 677,893 956,715 (50,663) (1,583,849) (12,331) (3,990) - $ 4,683,241 $ 614,899	Total $ 5,992,258 906,052 (1,596,180) (3,990) $ 5,298,140

The Company provides warranty service for its customers. The warranty period varies by product and is generally one year to two years. The warranties are estimated on the basis of evaluation of the products under warranty, historical warranty trends, and pertinent factors.

The provision for contingent loss on purchase orders is estimated after taking into account the effects of changes in the product market, evaluating the foregoing effects on inventory management and adjusting the Company’s purchases.

24. EQUITY

Share Capital

• a. Ordinary shares

Numbers of shares authorized (in thousands of shares) Shares authorized Number of shares issued and fully paid (in thousands of shares) Shares issued	March 31, 2017 1,000,000 $ 10,000,000 821,904 $ 8,219,042	December 31, 2016 1,000,000 $ 10,000,000 822,009 $ 8,220,087	March 31, 2016 1,000,000 $ 10,000,000 827,642 $ 8,276,415

• 31 -

In February 2016, HTC retired 118 thousand restricted shares for employees, totaling NT$1,180 thousand and retired 4,110 thousand treasury shares, totaling NT$41,100 thousand. As a result, HTC’s issued and outstanding common stock as of March 31, 2016 decreased to NT$8,276,415 thousand, divided into 827,642 thousand ordinary shares at NT$10 par value. Every ordinary share carries one vote per share and a right to dividends.

In March 2017, HTC retired 105 thousand restricted shares for employees, totaling NT$1,045 thousand. As a result, HTC’s issued and outstanding common stock as of March 31, 2017 decreased to NT$8,219,042 thousand, divided into 821,904 thousand ordinary shares at NT$10 par value. Every ordinary share carries one vote per share and a right to dividends.

80,000 thousand shares of HTC’s common shares authorized were reserved for the issuance of employee share options.

b. Global depositary receipts

In November 2003, HTC issued 14,400 thousand ordinary shares corresponding to 3,600 thousand units of Global Depositary Receipts (“GDRs”). For this GDR issuance, HTC’s stockholders, including Via Technologies, Inc., also issued 12,878.4 thousand ordinary shares, corresponding to 3,219.6 thousand GDR units. Thus, the entire offering consisted of 6,819.6 thousand GDR units. Taking into account the effect of stock dividends, the GDRs increased to 8,782.1 thousand units (36,060.5 thousand shares). The holders of these GDRs requested HTC to redeem the GDRs to get HTC’s ordinary shares. As of March 31, 2017, there were 5,735 thousand units of GDRs redeemed, representing 22,942 thousand ordinary shares, and the outstanding GDRs represented 13,119 thousand ordinary shares or 1.60 % of HTC’s outstanding ordinary shares.

Capital Surplus

May be used to offset a deficit, distributed as cash dividends, or transferred to share capital Arising from issuance of ordinary shares Arising from consolidation excess Arising from expired stock options May not be used for any purpose Arising from employee share options Arising from employee restricted shares	March 31, 2017 $ 14,121,223 23,288 96,696 643,684 741,602 $ 15,626,493	December 31, 2016 $ 14,121,223 23,288 84,462 645,111 740,557 $ 15,614,641	March 31, 2016 $ 14,242,211 23,487 43,896 587,756 590,591 $ 15,487,941

The capital surplus arising from shares issued in excess of par (including share premium from issuance of ordinary shares, treasury share transactions, consolidation excess and expired stock options) and donations may be used to offset a deficit; in addition, when the Company has no deficit, such capital surplus may be distributed as cash dividends or transferred to share capital (limited to a certain percentage of the Company’s capital surplus and once a year).

In February 2016, the retirement of treasury shares caused a decrease of NT$70,715 thousand in additional paid-in capital - issuance of ordinary shares, NT$117 thousand in capital surplus - consolidation excess and NT$177 thousand in capital surplus - expired stock options, respectively. The excess of the carrying value of treasury shares retired over the sum of its par value and premium from issuance of ordinary share was offset against unappropriated earnings, totaling NT$88,846 thousand.

• 32 -

For details of capital surplus - employee share options and employee restricted shares, please see Note 29.

Retained Earnings and Dividend Policy

Under HTC’s Articles of Incorporation, HTC should make appropriations from its net income in the following order:

• a. To pay taxes.

• b. To cover accumulated losses, if any.

• c. To appropriate 10% legal reserve unless the total legal reserve accumulated has already reached the amount of HTC’s authorized capital.

• d. To recognize or reverse special reserve return earnings.

• e. The Board of Directors shall propose allocation ratios for any remainder profit after withholding the amounts under subparagraphs 1 to 4 above plus any unappropriated retained earnings of previous years based on the dividend policy set forth in the Article and propose such allocation ratio at the shareholders’ meeting.

As part of a high-technology industry, HTC considers its operating environment, industry developments, and long-term interests of shareholders as well as its programs to maintain operating efficiency and meet its capital expenditure budget and financial goals when determining the stock or cash dividends to be paid. HTC’s dividend policy stipulates that at least 50% of total dividends may be distributed as cash dividends.

In accordance with the amendments to the Company Act in May 2015, the recipients of dividends and bonuses are limited to shareholders and do not include employees. HTC has amended the policy of its earnings distribution as stipulated in its Articles of Incorporation in order to comply with the aforementioned law amendments with an approval from the resolution of the shareholders’ meeting, and stipulated an additional policy of employees’ compensation on June 24, 2016. For information about the accrual basis of the employees’ compensation and remuneration to directors and supervisors and the actual appropriations, see employee benefits expense section as stated in Note 26.

Appropriation of earnings to legal reserve shall be made until the legal reserve equals the HTC’s capital. Legal reserve may be used to offset deficit. If HTC has no accumulated deficit and the legal reserve has exceeded 25% of its issued and outstanding capital stock, the excess may be transferred to capital stock or distributed in cash.

The loss off-setting for 2015 had been resolved in the shareholders’ meeting on June 24, 2016, and the loss off-setting for 2016 had been proposed in the Board of Directors’ meeting on March 6, 2017. The loss off-setting for 2016 are subject to the resolution of the shareholders’ meeting to be held on June 15, 2017.

Information on the earnings appropriation proposed by the HTC’s Board of Directors and approved by the HTC’s shareholders is available on the Market Observation Post System website of the Taiwan Stock Exchange.

• 33 -

Other Equity

Exchange differences on translating foreign operations Unrealized losses on available-for-sale financial assets Effective portion of gains and losses on hedging instruments in a cash flow hedge Unearned employee benefit	March 31, 2017 December 31, 2016 $ (2,587,113) $ (781,298) (117,038) (167,082) (12,882) - (212,411) (253,922) $ (2,929,444) $ (1,202,302)	March 31, 2016 $ 1,038,687 (117,357) (2,627) (306,399) $ 612,304

a. Exchange differences on translating foreign operations

Exchange differences relating to the translation of the results and net assets of the Company’s foreign operations from their functional currencies to the Company’s presentation currency (New Taiwan dollars) were recognized directly in other comprehensive income and accumulated in the foreign currency translation reserve. Exchange differences previously accumulated in the foreign currency translation reserve were reclassified to profit or loss on the disposal of the foreign operation.

b. Unrealized losses on available-for-sale financial assets

Unrealized gains or losses on available-for-sale financial assets represents the cumulative gains and losses arising on the revaluation of AFS financial assets that have been recognized in other comprehensive income, net of amounts reclassified to profit or loss when those assets have been disposed of or are determined to be impaired.

c. Cash flow hedge

The cash flow hedging reserve represents the cumulative effective portion of gains or losses arising on changes in fair value of hedging instruments entered into for cash flow hedges. The cumulative gain or loss arising on changes in fair value of the hedging instruments that are recognized and accumulated under the heading of cash flow hedging reserve will be transferred to profit or loss only when the hedged transaction affects the profit or loss, or included as a basis adjustment to the non-financial hedged item.

• d. Unearned employee benefit

In the meeting of shareholders on June 2, 2015 and June 19, 2014, the shareholders approved a restricted stock plan for employees. See Note 29 for the information of restricted shares issued.

Balance, beginning of period Share-based payment expenses recognized Balance, end of period	For the Three Months Ended **March 31 **	For the Three Months Ended **March 31 **	For the Three Months Ended **March 31 **
		2017 $ (253,922) 41,511 $ (212,411)	2016 $ (371,369) 64,970 $ (306,399)

• 34 -

Treasury Shares

On August 24, 2015, HTC’s Board of Directors passed a resolution to buy back 50,000 thousand common shares from the open market. The repurchase period was between August 25, 2015 and October 24, 2015, and the repurchase price ranged from NT$35 to NT$60 per share. If HTC’s share price was lower than this price range, HTC might continue to buy back its shares. HTC had bought back 4,110 thousand shares for NT$200,955 thousand during the repurchase period, which were retired by HTC’s Board of Directors on February 29, 2016, and such retired shares had been properly deregistered subsequently. The related information on the treasury share transactions were as follows:

(In Thousands of Shares)

	Number of
	Shares,	Addition	Reduction	Number of
	Beginning of	During the	During the	Shares, End of
Reason to Reacquire	Period	Period	Period	Period
For the three months ended
March 31, 2016
To maintain the Company’s
credibility and stockholders’
interest	4,110	-	4,110	-

Based on the Securities and Exchange Act of the ROC, the number of reacquired shares should not exceed 10% of a company’s issued and outstanding shares, and the total purchase amount should not exceed the sum of the retained earnings, additional paid-in capital in excess of par and realized capital surplus.

Under the Securities and Exchange Act, HTC shall neither pledge treasury shares nor exercise shareholders’ rights on these shares, such as rights to dividends and to vote.

25. OPERATING REVENUES

Sale of goods Other operating income		For the Three Months Ended **March 31 **	For the Three Months Ended **March 31 **
		2017 $ 14,267,438 263,385 $ 14,530,823	2016 $ 14,322,042 498,940 $ 14,820,982

• 35 -

26. NET LOSS FROM CONTINUING OPERATIONS AND OTHER COMPREHENSIVE INCOME AND LOSS

a. Other income

Interest income Bank deposits Other receivables Others Dividends Others	For the Three Months Ended **March 31 **	For the Three Months Ended **March 31 **	For the Three Months Ended **March 31 **
		2017 $ 61,028 - 14,153 75,181 7,420 189,588 $ 272,189	2016 $ 63,771 19,678 39,778 123,227 78,453 36,299 $ 237,979

• b. Other gains and losses

Net gain on disposal of non-current assets held for sale (Note 14) Net loss on the disposal of property, plant and equipment Net foreign exchange gain Net loss arising from financial instruments classified as held for trading Ineffective portion of cash flow hedge (Note 8) Other loss		For the Three Months Ended **March 31 **	For the Three Months Ended **March 31 **
		2017 $ - (129) 205,271 (117,299) 772 (7,084) $ 81,531	2016 $ 2,091,594 (2,177) 176,346 (137,197) 418 (27,216) $ 2,101,768

Gain or loss on financial assets and liabilities held for trading was derived from forward exchange transactions. The Company entered into forward exchange transactions to manage exposures related to exchange rate fluctuations of foreign currency denominated assets and liabilities.

• c. Depreciation and amortization

Property, plant and equipment Investment properties Intangible assets		For the Three Months Ended **March 31 **	For the Three Months Ended **March 31 **
		2017 $ 269,827 5,936 355,370 $ 631,133	2016 $ 508,083 12,448 505,104 $ 1,025,635 (Continued)

• 36 -

An analysis of depreciation - by function Operating costs Operating expenses Other losses An analysis of depreciation - by function An analysis of amortization - by function Operating costs Operating expenses d. Employee benefits expense		For the Three Months Ended March 31	For the Three Months Ended March 31
		2017 $ 73,756 196,071 5,936 $ 275,763 $ 689 354,681 $ 355,370	2016 $ 240,814 267,269 12,448 $ 520,531 $ 773 504,331 $ 505,104 (Concluded)

Short-term benefits Post-employment benefits Defined contribution plans Defined benefit plans Share-based payments (Note 29) Equity-settled share-based payments Total employee benefits expense An analysis of employee benefits expense - by function Operating costs Operating expenses		For the Three Months Ended March 31	For the Three Months Ended March 31
		2017 $ 2,847,457 109,236 1,814 111,050 52,318 $ 3,010,825 $ 684,094 2,326,731 $ 3,010,825	2016 $ 2,996,434 125,230 1,812 127,042 116,887 $ 3,240,363 $ 709,885 2,530,478 $ 3,240,363

In compliance with the Company Act as amended in May 2015, the shareholders held their meeting and resolved amendments to HTC’s Articles of Incorporation on June 24, 2016; the amendments stipulate distribution of employees’ compensation and remuneration to directors and supervisors at the rates no less than 4% and no higher than 0.25%, respectively, of net profit before income tax, employees’ compensation, and remuneration to directors and supervisors. No employee’s compensation and remuneration to directors and supervisors were estimated as the Company reported net losses for the three months ended March 31, 2017 and 2016.

If there is a change in the proposed amounts after the annual consolidated financial statements were authorized for issue, the differences are recorded as a change in accounting estimate in the subsequent year.

For any further information of the employees’ compensation and remuneration to directors and supervisors approved in the meeting of Board of Directors in 2017 and 2016, see disclosures in the “Market Observation Post System”.

• 37 -

• e. Impairment loss on non-financial assets

Inventories (included in operating costs)		For the Three Months Ended **March 31 **	For the Three Months Ended **March 31 **
		2017 $ 1,385,920	2016 $ 471,594

f. Gain or loss on foreign currency exchange

Foreign exchange gain Foreign exchange loss Valuation loss arising from financial instruments classified as held for trading Ineffective portion of cash flow hedge		For the Three Months Ended **March 31 **	For the Three Months Ended **March 31 **
		2017 $ 319,738 (114,467) (117,299) 772 $ 88,744	2016 $ 1,074,298 (897,952) (137,197) 418 $ 39,567

27. INCOME TAXES RELATING TO CONTINUING OPERATIONS

• a. Income tax (benefit) expense recognized in profit or loss

Current tax In respect of the current period Land value increment Deferred tax In respect of the current period Income tax (benefit) expense recognized in profit or loss	For the Three Months Ended **March 31 **	For the Three Months Ended **March 31 **	For the Three Months Ended **March 31 **
		2017 $ 47,915 - 47,915 (56,110) $ (8,195)	2016 $ 67,116 119,342 186,458 (65,972) $ 120,486

b. Integrated income tax

The imputation credit account (“ICA”) information as of March 31, 2017, December 31, 2016 and March 31, 2016, were as follows:

Unappropriated earnings generated on and after January 1, 1998 Balance of ICA	March 31, 2017 $ 8,808,880 $ 8,196,519	December 31, 2016 $ 10,841,425 $ 8,196,519	March 31, 2016 $ 19,077,139 $ 8,196,056

• 38 -

Under the Income Tax Law of ROC, for distribution of earnings generated after January 1, 1998, the imputation credits allocated to ROC resident shareholders of HTC was calculated based on the creditable ratio as of the date of dividend distribution. The actual imputation credits allocated to shareholders of HTC was based on the balance of the ICA as of the date of dividend distribution. Therefore, the expected creditable ratio for the earnings may differ from the actual creditable ratio to be used in allocating imputation credits to the shareholders.

c. Income tax assessments

HTC’s tax returns through 2014 had been assessed by the tax authorities. HTC disagreed with the tax authorities’ assessment of its 2014 tax return and applied for a re-examination. Nevertheless, to be conservative, HTC had accrued for the income tax assessed by the tax authorities.

The income tax returns of Yoda Co., Ltd. for the years through 2014 had been examined and approved by the tax authorities. The income tax returns of Communication Global Certification Inc., HTC Investment Corporation and HTC I Investment Corporation for the years through 2015 have been examined and approved by the tax authorities.

28. LOSS PER SHARE

Basic loss per share	Unit: NT$ Per Share For the Three Months Ended March 31	Unit: NT$ Per Share For the Three Months Ended March 31	Unit: NT$ Per Share For the Three Months Ended March 31
		2017 $ (2.47)	2016 $ (3.16)

The loss and weighted average number of ordinary shares outstanding for the computation of loss per share were as follows:

Net Loss for the Period

Loss for the period attributable to owners of the parent		For the Three Months Ended **March 31 **	For the Three Months Ended **March 31 **
		2017 $ (2,032,545)	2016 $ (2,616,447)

Shares

Unit: In Thousands of Shares

Weighted average number of ordinary shares in computation of basic loss per share	For the Three Months Ended March 31	For the Three Months Ended March 31	For the Three Months Ended March 31
		2017 821,941	2016 827,667

Since the exercise price of the employee share options issued by the Company exceeded the average market price of the shares for the three months ended March 31, 2017 and 2016, respectively, they were anti-dilutive and excluded from the computation of diluted earnings per share.

• 39 -

29. SHARE-BASED PAYMENT ARRANGEMENTS

Employee Share Option Plan of the Company

Qualified employees of HTC and its subsidiaries were granted 15,000 thousand options in November 2013. Each option entitles the holder to subscribe for one ordinary share of HTC. The options granted are valid for 7 years and exercisable at certain percentages after the second anniversary from the grant date.

Qualified employees of HTC and its subsidiaries were granted 19,000 thousand options in October 2014. Each option entitles the holder to subscribe for one ordinary share of HTC. The options granted are valid for 10 years and exercisable at certain percentages after the second anniversary from the grant date.

Qualified employees of HTC and its subsidiaries were granted 1,000 thousand options in August 2015. Each option entitles the holder to subscribe for one ordinary share of HTC. The options granted are valid for 10 years and exercisable at certain percentages after the second anniversary from the grant date.

The exercise price equals to the closing price of HTC’s ordinary shares on the grant date. For any subsequent changes in the HTC’s ordinary shares, the exercise price is adjusted accordingly.

Information on employee share options were as follows:

Balance, beginning of period Options forfeited Balance, end of period Options exercisable, end of period	**For the Three Months Ended March 31 **	**For the Three Months Ended March 31 **
	2017 Number of Options (In Thousands) Weighted- average Exercise Price (NT$) 20,072 $136.65 (476) 19,596 136.81 14,318	2016
		Number of Options (In Thousands) Weighted- average Exercise Price (NT$) 24,964 $137.20 (1,050) 23,914 137.23 5,789

Information about outstanding options as of the reporting date were as follows:

	March 31,	December 31,	March 31,
	2017	2016	2016
Range of exercise price (NT$)	$54.5 -$149	$54.5 -$149	$54.5-$149
Weighted-average remaining contractual life
(years)	6.05 years	6.30 years	7.00 years

Options granted in August 2015, October 2014 and November 2013 were priced using the trinomial option pricing model and the inputs to the model were as follows:

	August 2015	October 2014	November 2013
Grant-date share price (NT$)	$54.50	$134.50	$149.00
Exercise price (NT$)	$54.50	$134.50	$149.00
Expected volatility	39.26%	33.46%	45.83%
Expected life (years)	10 years	10 years	7 years
Expected dividend yield	4.04%	4.40%	5.00%
Risk-free interest rate	1.3965%	1.7021%	1.63%

• 40 -

Expected volatility was based on the historical share price volatility over the past 1 year. The Company assumed that employees would exercise their options after the vesting date when the share price was 1.63 times the exercise price.

Employee Restricted Shares

In the shareholder meeting on June 19, 2014 and June 2, 2015, the shareholders approved a restricted stock plan for employees with a total amount of $50,000 thousand and $75,000 thousand, consisting of 5,000 thousand and 7,500 thousand shares, respectively. In 2014 and 2015 HTC’s Board of Directors passed a resolution to issue 5,000 thousand and 7,500 thousand shares, respectively.

The restrictions on the rights of the employees who acquire the restricted shares but have not met the vesting conditions are as follows:

• a. The employees cannot sell, pledge, transfer, donate or in any other way dispose of these shares.

• b. The employees holding these shares are entitled to receive cash and dividends in share.

• c. The employees holding these shares have no voting rights.

If an employee fails to meet the vesting conditions, HTC will recall or buy back and cancel the restricted shares. In 2016 and March 2017, HTC retired 1,358 thousand and 105 thousand restricted shares for employees amounting to NT$13,578 thousand and NT$1,045 thousand, respectively. As a result, the numbers of the HTC’s issued and outstanding employee restricted shares as of March 31, 2017 was 6,441 thousand shares. The related information was as follows:

Grant-date	July 18, 2016	December 23, 2015	August 10, 2015	November 2, 2014
Grant-date fair value (NT$)	$96.90	$76.20	$57.50	$134.50
Exercise price	Gratuitous	Gratuitous	Gratuitous	Gratuitous
Numbers of shares	2,657	4,006	400	4,600
(thousand shares)
Vesting period (years)	1-4 years	1-3 years	1-3 years	1-3 years

Compensation Cost of Share-based Payment Arrangements

Compensation cost of share-based payment arrangement recognized was NT$52,318 thousand and NT$116,887 thousand for the three months ended March 31, 2017 and 2016, respectively.

30. CAPITAL RISK MANAGEMENT

The Company manages its capital to ensure its ability to continue as a going concern while maximizing the returns to shareholders. The Company periodically reviews its capital structure by taking into consideration macroeconomic conditions, prevailing interest rate, and adequacy of cash flows generated from operations; as the situation would allow, the Company pays dividends, issues new shares, repurchases shares, issues new debt, and redeems debt.

The Company is not subject to any externally imposed capital requirements.

31. FINANCIAL INSTRUMENTS

Fair Value of Financial Instruments That Are Not Measured at Fair Value

Financial instruments not carried at fair value held by the Company include financial assets measured at cost and debt investments with no active market. The management considers that the carrying amounts of financial assets and financial liabilities not carried at fair value approximate their fair value or the fair value are not measured reliably.

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Fair Value of Financial Instruments That Are Measured at Fair Value on a Recurring Basis

a. Fair value hierarchy

March 31, 2017

Financial assets at FVTPL Derivative financial instruments Available-for-sale financial assets Domestic listed stocks - equity investments Overseas listed stocks - equity investments Financial liabilities at FVTPL Derivative financial instruments Hedging derivative liabilities Derivative financial instruments December 31, 2016 Financial assets at FVTPL Derivative financial instruments Available-for-sale financial assets Domestic listed stocks - equity investments Overseas listed stocks - equity investments Financial liabilities at FVTPL Derivative financial instruments March 31, 2016 Financial assets at FVTPL Derivative financial instruments Hedging derivative assets Derivative financial instruments	Level 1 $ - $ 96 236,144 $ 236,240 $ - $ - Level 1 $ - $ 86 199,344 $ 199,430 $ - Level 1 $ - $ -	Level 2 $ 77,332 $ - - $ - $ 194,631 $ 12,110 Level 2 $ 143,642 $ - - $ - $ 133,420 Level 2 $ 127,521 $ 1,100	Level 3 $ - $ - - $ - $ - $ - Level 3 $ - $ - - $ - $ - Level 3 $ - $ -	Total $ 77,332 $ 96 236,144 $ 236,240 $ 194,631 $ 12,110 Total $ 143,642 $ 86 199,344 $ 199,430 $ 133,420 Total $ 127,521 $ 1,100 (Continued)

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Available-for-sale financial assets Domestic listed stocks - equity investments Overseas listed stocks - equity investments Financial liabilities at FVTPL Derivative financial instruments Hedging derivative liabilities Derivative financial instruments	Level 1 $ 86 249,575 $ 249,661 $ - $ -	Level 2 $ - - $ - $ 264,718 $ 3,309	Level 3 $ - - $ - $ - $ -	Total $ 86 249,575 $ 249,661 $ 264,718 $ 3,309 (Concluded)

There were no transfers between Levels 1 and 2 for the three months ended March 31, 2017 and 2016.

b. Valuation techniques and inputs applied for the purpose of measuring Level 2 fair value measurement

Financial Instruments Valuation Techniques and Inputs Derivatives - foreign currency Discounted cash flow: Future cash flows are estimated based contracts on observable forward exchange rates at the end of the reporting period and contract forward rates, discounted at a rate that reflects the credit risk of various counterparties.

Categories of Financial Instruments

		March 31,	December	December	31,	March 31,
		2017		2016		2016
Financial assets
FVTPL
Held for trading	$	77,332	$	143,642 $		127,521
Derivative instruments in designated hedge
accounting relationships		-			-	1,100
Loans and receivables (Note 1)		43,818,298		53,495,584		56,985,611
Available-for-sale financial assets (Note 2)		3,502,347		3,563,166		3,580,424
Financial liabilities
FVTPL
Held for trading		194,631		133,420		264,718
Derivative instruments in designated hedge
accounting relationships		12,110			-	3,309
Amortized cost (Note 3)		37,580,490		45,052,834		47,694,237

Note 1: The balances included loans and receivables measured at amortized cost, which comprise cash and cash equivalents, debt investments with no active market, other financial assets, trade receivables, other receivables and refundable deposits.

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• Note 2: The balances included available-for-sale financial assets and the carrying amount of available-for-sale financial assets measured at cost.

• Note 3: The balances included financial liabilities measured at amortized cost, which comprise short-term borrowings, note and trade payables, other payables, agency receipts and guarantee deposits received.

Financial Risk Management Objectives and Policies

The Company’s major financial instruments include equity and debt investments, trade receivables, other receivables, trade payables and other payables. The Company’s Corporate Treasury function provides services to the business, coordinates access to domestic and international financial markets, monitors and manages the financial risks relating to the operations of the Company through internal risk reports which analyze the exposures by degree and magnitude of risks. These risks include market risk, credit risk and liquidity risk.

The Company sought to minimize the effects of these risks by using derivative financial instruments and non-derivative financial instruments to hedge risk exposures. The use of financial derivatives was governed by the Company’s policies approved by the Board of Directors, which provide written principles on foreign exchange risk, interest rate risk, credit risk, the use of financial derivatives and non-derivative financial instruments, and the investment of excess liquidity. Compliance with policies was reviewed by the internal auditors on a continuous basis. The Company did not enter into or trade financial instruments, including derivative financial instruments, for speculative purposes.

The Corporate Treasury function reports quarterly to the Company’s supervisory and Board of Directors for monitoring risks and policies implemented to mitigate risk exposures.

• a. Market risk

The Company’s activities exposed it primarily to the financial risks of changes in foreign currency exchange rates. The Company entered into a variety of derivative financial instruments to manage its exposure to foreign currency risk.

There had been no change to the Company’s exposure to market risks or the manner in which these risks were managed and measured.

Foreign currency risk

The Company undertook transactions denominated in foreign currencies; consequently, exposures to exchange rate fluctuations arose. Exchange rate exposures were managed within approved policy parameters utilizing forward foreign exchange contracts.

The carrying amounts of the Company’s foreign currency denominated monetary assets and monetary liabilities and of the derivatives exposing to foreign currency risk at the end of the reporting period are set out in Note 35.

Sensitivity analysis

The Company was mainly exposed to the currency United Stated dollars (“USD”), currency Euro (“EUR”), currency Renminbi (“RMB”) and currency Japanese yen (“JPY”).

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The following table details the Company’s sensitivity to a 1% increase and decrease in the New Taiwan dollars (“NTD”, the functional currency) against the relevant foreign currencies. The sensitivity analysis included only outstanding foreign currency denominated monetary items and foreign currency forward contracts designated as cash flow hedges. A positive number below indicates an increase in pre-tax profit (loss) or equity associated with the NTD strengthens 1% against the relevant currency. For a 1% weakening of the NTD against the relevant currency, there would be an equal and opposite impact on pre-tax profit (loss) or equity, and the balances below would be negative.

	Profit or Loss	Equity
For the three months ended March 31, 2017
USD	$ 23,613	$ (155,158)
EUR	1,587	(18,482)
RMB	(17,794)	(105,997)
JPY	7,597	(1,288)
For the three months ended March 31, 2016
USD	32,514	(163,353)
EUR	(12,489)	(19,480)
RMB	(16,456)	(139,400)
JPY	(1,012)	(1,232)

b. Credit risk

Credit risk refers to the risk that counterparty will default on its contractual obligations resulting in financial loss to the Company. As at the end of reporting period, the Company’s maximum exposure to credit risk which will cause a financial loss to the Company due to failure of counterparties to discharge an obligation and financial guarantees provided by the Company could arise from the carrying amount of the respective recognized financial assets as stated in the balance sheets. The Company does not issue any financial guarantee involving credit risk.

The Company adopted a policy of only dealing with creditworthy counterparties and obtaining sufficient collateral, where appropriate, as a means of mitigating the risk of financial loss from defaults.

The credit risk information of trade receivables are disclosed in the Note 11.

• c. Liquidity risk

The Company manages liquidity risk to ensure that the Company possesses sufficient financial flexibility by maintaining adequate reserves of cash and cash equivalents and reserve financing facilities, and also monitor liquidity risk of shortage of funds by the maturity date of financial instruments and financial assets.

• 1) Liquidity risk rate tables for non-derivative financial liabilities

The following table details the Company’s remaining contractual maturity for its non-derivative financial liabilities with agreed repayment periods. The tables had been drawn up based on the undiscounted cash flows of financial liabilities from the earliest date on which the Company can be required to pay.

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March 31, 2017

Non-derivative financial liabilities Short-term borrowings Note and trade payables Other payables Other current liabilities Guarantee deposits received December 31, 2016 Non-derivative financial liabilities Note and trade payables Other payables Other current liabilities Guarantee deposits received March 31, 2016 Non-derivative financial liabilities Note and trade payables Other payables Other current liabilities Guarantee deposits received	Less Than 3 Months $ 2,756,560 11,585,202 7,184,273 106,929 - $ 21,632,964 Less Than 3 Months $ 10,641,728 10,341,957 371,910 - $ 21,355,595 Less Than 3 Months $ 7,803,766 11,114,149 228,961 - $ 19,146,876	3 Months to 1 Year $ - 9,524,265 6,385,381 31,591 - $ 15,941,237 3 Months to 1 Year $ 15,606,000 8,006,777 62,356 - $ 23,675,133 3 Months to 1 Year $ 17,974,406 10,482,986 62,356 - $ 28,519,748	Over 1 Year $ - - - - 6,289 $ 6,289 Over 1 Year $ - - - 22,106 $ 22,106 Over 1 Year $ - - - 27,613 $ 27,613

• 2) Liquidity risk rate tables for derivative financial instruments

The following table detailed the Company’s liquidity analysis for its derivative financial instruments. The table was based on the undiscounted contractual net cash inflows and outflows on derivative instruments that settle on a net basis, and the undiscounted gross inflows and outflows on those derivatives that require gross settlement.

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March 31, 2017

Net settled Foreign exchange contracts Gross settled Foreign exchange contracts Inflows Outflows December 31, 2016 Net settled Foreign exchange contracts Gross settled Foreign exchange contracts Inflows Outflows March 31, 2016 Net settled Foreign exchange contracts Gross settled Foreign exchange contracts Inflows Outflows	Less Than 3 Months $ (35,277) $ 11,966,365 (12,029,129) $ (62,764) Less Than 3 Months $ 73,323 $ 15,227,772 (15,250,504) $ (22,732) Less Than 3 Months $ (6,322) $ 4,030,304 (4,076,216) $ (45,912)	3 Months to 1 Year $ - $ 669,121 (678,200) $ (9,079) 3 Months to 1 Year $ - $ - - $ - 3 Months to 1 Year $ - $ 11,326,123 (11,384,975) $ (58,852)	Over 1 Year $ - $ - - $ - Over 1 Year $ - $ - - $ - Over 1 Year $ - $ - - $ -

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3) Bank credit limit

Unsecured bank general credit limit Amount used Amount unused	March 31, 2017 $ 3,384,356 18,032,724 $ 21,417,080	December 31, 2016 $ 710,857 22,227,369 $ 22,938,226	March 31, 2016 $ 1,539,731 30,538,021 $ 32,077,752

Amount used was included short-term borrowings, guarantee for customs duties and for patent litigation.

32. RELATED-PARTY TRANSACTIONS

Balance, transactions, revenue and expenses between HTC and its subsidiaries, which are related parties of HTC, have been eliminated on consolidation and are not disclosed in this note. Besides as disclosed elsewhere in other notes, details of transactions between the Company and other related parties are disclosed below.

The Names and Relationships of Related-Parties

Related-Party Relationship with the Company

VIA Technologies Inc. VIA Labs, Inc. Way Chih Investment Co., Ltd. HTC Education Foundation TVBS Media Inc. Hung-Mao Investment Co., Ltd.

Employees’ Welfare Committee Huada Digital Corporation

Its chairman in substance is HTC’s director Its chairman in substance is HTC’s director HTC’s supervisor

Its chairman in substance is HTC’s director Same director as HTC’s

Its significant shareholder in substance is HTC’s chairwoman

Employees’ Welfare Committee of HTC Joint Venture

Operating Sales

Joint venture Employees’ Welfare Committee Other related parties	For the Three Months Ended March 31	For the Three Months Ended March 31	For the Three Months Ended March 31
		2017 $ - - 4,815 $ 4,815	2016 $ 28,955 195 3,262 $ 32,412

The following balances of trade receivables from related parties were outstanding at the end of the reporting period:

	March 31,	March 31,	December 31,	December 31,	March 31,	March 31,
		2017		2016		2016
Other related parties	$	5	$	15,720	$	16

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The selling prices for products sold to related parties were lower than those sold to third parties, except some related parties have no comparison with those sold to third parties. No guarantees had been given or received for trade receivables from related parties. No bad debt expense had been recognized for the three months ended March 31, 2017 and 2016 for the amounts owed by related parties.

Purchase

Other related parties	For the Three Months Ended **March 31 **	For the Three Months Ended **March 31 **	For the Three Months Ended **March 31 **
		2017 $ 2,276	2016 $ -

Purchase prices for related parties and third parties were similar.

The following balances of trade payables from related parties were outstanding at the end of the reporting period:

	March 31,	March 31,	December 31,	December 31,	March 31,	March 31,
		2017		2016		2016
Other related parties	$	2,454	$	1,866	$	-

The outstanding balance of trade payables to related parties are unsecured and will be settled in cash.

Compensation of Key Management Personnel

Short-term benefits Post-employment benefits Termination benefits Share-based payments	For the Three Months Ended **March 31 **	For the Three Months Ended **March 31 **	For the Three Months Ended **March 31 **
		2017 $ 21,791 428 - 12,575 $ 34,794	2016 $ 129,225 413 17,583 19,614 $ 166,835

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

Other Related-party Transactions

• a. The Company leased meeting room owned by a related party under an operating lease agreement. The rental payment is determined at the prevailing rates in the surrounding area. The Company recognized and paid rental expenses amounting to NT$1,195 thousand for the three months ended March 31, 2017.

• b. Other related parties provide selling and marketing service to the Company. The selling and marketing service expenses was NT$1,000 and NT$2,345 thousand for the three months ended March 31, 2017 and 2016, respectively. As of March 31, 2017 and 2016, the unpaid selling and marketing service expenses was NT$1,050 thousand and NT$2,462 thousand, respectively.

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33. PLEDGED ASSETS

As of March 31, 2017, December 31, 2016 and March 31, 2016, the time of deposits amounting to NT$106,707 thousand, NT$113,528 thousand and NT$632 thousand and were classified as other current financial assets were provided respectively as collateral for rental deposits and litigation.

34. COMMITMENTS, CONTINGENCIES AND SIGNIFICANT CONTRACTS

• a. In April 2008, IPCom GMBH & CO., KG (“IPCom”) filed a multi-claim lawsuit against the Company with the District Court of Mannheim, Germany, alleging that the Company infringed IPCom’s patents. In November 2008, the Company filed declaratory judgment action for non-infringement and invalidity against three of IPCom’s patents with the Washington Court, District of Columbia.

In October 2010, IPCom filed a new complaint against the Company alleging patent infringement of patent owned by IPCom in District Court of Dusseldorf, Germany.

In June 2011, IPCom filed a new complaint against the Company alleging patent infringement of patent owned by IPCom with the High Court in London, the United Kingdom. In September 2011, the Company filed declaratory judgment action for non-infringement and invalidity in Milan, Italy. Legal proceedings in above-mentioned courts in Germany and the United Kingdom are still ongoing. The Company implemented the alternative solution since 2012. The Company evaluated the lawsuits and considered the risk of patents-in-suits are low. Also, preliminary injunction and summary judgment against the alternative solution of the Company are very unlikely.

In March 2012, Washington Court granted on the Company’s summary judgment motion and ruled on non-infringement of two of patents-in-suit. As for the third patents-in-suit, the Washington Court has granted a stay on case pending appeal decision. In January 2014, the Court of Appeal for the Federal Circuit affirmed the Washington Court’s decision.

In February 2017, the court of appeal of the United Kingdom found the alternative solution of the Company did not infringed and only some old products without the alternative solution infringed one of patents-in-suit. An appeal of this decision has been started with a hearing due to be held on July 18, 2017.

As of the date that the Board of Directors approved and authorized for issuing consolidated financial statements, there had been no critical court decision been made, except for the above.

• b. In December 2015, Koninklijke Philips N.V. (Philips) filed a lawsuit against the Company in the District Court of Mannheim, Germany, alleging that the Company infringed four patents relating to portable/mobile device features and four patents relating to telecommunication standards. In October 2016, the Mannheim Court found that certain smartphone products sold by Company in Germany infringed the German part of European patent No. 0888687 (EP ‘687 patent), which relates to device user interface, and granted an injunction against the Company. However, Philips has not enforced the injunction. The litigations between the Company and Philips are ongoing. In order to protect the interests of the Company, and its customers, the Company has appealed to the court.

As of the date that the Board of Directors approved and authorized for issuing consolidated financial statements, no other court decisions were issued with respect to the EP ‘687 patent.

• c. On the basis of its past experience and consultations with its legal counsel, the Company has measured the possible effects of the contingent lawsuits on its business and financial condition.

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35. SIGNIFICANT ASSETS AND LIABILITIES DENOMINATED IN FOREIGN CURRENCIES

The following information was aggregated by the foreign currencies other than functional currencies of the Company entities and the exchange rates between foreign currencies and respective functional currencies were disclosed. The significant assets and liabilities denominated in foreign currencies were as follows:

Financial assets Monetary items USD EUR JPY RMB Non-monetary items USD RMB Investments accounted for by the equity method USD RMB Financial liabilities Monetary items USD EUR JPY RMB	March 31, 2017 Foreign Currencies Exchange Rate $ 1,640,022 30.33 62,984 32.42 2,657,176 0.2713 886,658 4.41 86,562 30.33 669 4.41 15,023 30.33 2,435 4.41 1,231,452 30.33 52,670 32.42 7,559,939 0.2713 163,445 4.41	December 31, 2016 Foreign Currencies Exchange Rate $ 1,914,574 32.27 101,434 33.91 2,711,104 0.2756 1,208,051 4.62 84,259 32.27 167 4.62 16,111 32.27 2,500 4.62 1,445,356 32.27 93,533 33.91 6,745,333 0.2756 212,669 4.62	March 31, 2016
			Foreign Currencies Exchange Rate $ 1,553,535 32.28 132,417 36.61 2,230,762 0.2871 1,036,153 4.99 83,243 32.28 - - 880 32.28 - - 1,162,295 32.28 81,450 36.61 1,410,764 0.2871 321,477 4.99

For the three months ended March 31, 2017 and 2016, realized and unrealized net foreign exchange gains were NT$88,744 thousand and NT$39,567 thousand, respectively. It is impractical to disclose net foreign exchange gains or losses by each significant foreign currency due to the variety of the foreign currency transactions and functional currencies of the group entities.

36. SIGNIFICANT CONTRACTS

The Company specializes in the research, design, manufacture and sale of smart mobile devices. To enhance the quality of its products and manufacturing technologies, the Company has patent agreements, as follows:

**Contractor **	Term January 1, 2015 - December 31, 2017	**Description **
Apple, Inc.		The scope of this license covers both the current and future patents held by the parties as agreed upon and specifically set forth in the agreement, with payment based on the agreement. (Continued)

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Contractor Qualcomm Incorporated. Nokia Corporation InterDigital Technology Corporation Koninklijke Philips Electronics N.V. MOTOROLA, Inc. Siemens Aktiengesellschaft IV International Licensing Netherlands, B.V.	Term December 20, 2000 to the following dates: a. If the Company materially breaches any agreement terms and fails to take remedial action within 30 days after Qualcomm’s issuance of a written notice, the Company will be prohibited from using Qualcomm’s property or patents. b. Any time when the Company is not using any of Qualcomm’s intellectual property, the Company may terminate this agreement upon 60 days’ prior written notice to Qualcomm. January 1, 2014 - December 31, 2018 December 31, 2003 to the expiry dates of these patents stated in the agreement. January 5, 2004 to the expiry dates of these patents stated in the agreement. December 23, 2003 to the latest of the following dates: a. Expiry dates of patents stated in the agreement. b. Any time when the Company is not using any of Motorola’s intellectual properties. July 2004 to the expiry dates of these patents stated in the agreement. November 2010 - June 2020	**Description **
		Authorization to use CDMA technology to manufacture and sell units, royalty payment based on agreement. Patent and technology collaboration; payment for use of implementation patents based on agreement. Authorization to use TDMA and CDMA technologies; royalty payment based on agreement. GSM/DCS 1800/1900 patent license; royalty payment based on agreement. TDMA, NARROWBAND CDMA, WIDEBAND CDMA or TD/CDMA standards patent license or technology; royalty payment based on agreement. Authorization to use GSM, GPRS or EDGE patent license or technology; royalty payment based on agreement. Authorization to use wireless technology; royalty payment based on agreement. (Concluded)

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37. SEGMENT INFORMATION

The Company is organized and managed as a single reportable business segment. The Company’s operations are mainly in the research, design, manufacture and sale of smart mobile devices and the operating revenue is more than 90 percent of the total revenue.

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