Cal-Comp Technology (Philippines), Inc. and Subsidiary€¦ · Cal-Comp Technology (Philippines),...

Cal-Comp Technology (Philippines),Inc. and Subsidiary

Consolidated Financial StatementsAs of and for the years ended December 31,2018, 2017 and 2016

and

Independent Auditor’s Report

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INDEPENDENT AUDITOR’S REPORT

The Stockholders and the Board of DirectorsCal-Comp Technology (Philippines), Inc. and Subsidiary

Opinion

We have audited the consolidated financial statements of Cal-Comp Technology (Philippines), Inc.and its subsidiary (the Group), which comprise the consolidated statements of financial position as ofDecember 31, 2018, 2017, 2016, and the consolidated statements of comprehensive income,consolidated statements of changes in equity and consolidated statements of cash flows for the years thenended, and consolidated notes to the financial statements, including a summary of significant accountingpolicies.

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects,the financial position of the Group as of December 31, 2018, 2017, 2016, and their consolidated financialperformance and their consolidated cash flows for the years then ended in accordance with PhilippineFinancial Reporting Standards (PFRSs).

Basis for Opinion

We conducted our audits in accordance with Philippine Standards on Auditing (PSAs). Ourresponsibilities under those standards are further described in the Auditor’s Responsibilities for the Auditof the Financial Statements section of our report. We are independent of the Group in accordance withthe Code of Ethics for Professional Accountants in the Philippines (Code of Ethics) together with theethical requirements that are relevant to our audit of the consolidated financial statements in thePhilippines, and we have fulfilled our other ethical responsibilities in accordance with these requirementsand the Code of Ethics. We believe that the audit evidence we have obtained is sufficient andappropriate to provide a basis for our opinion.

Responsibilities of Management and Those Charged with Governance for the ConsolidatedFinancial Statements

Management is responsible for the preparation and fair presentation of the consolidated financialstatements in accordance with PFRSs, and for such internal control as management determines isnecessary to enable the preparation of consolidated financial statements that are free from materialmisstatement, whether due to fraud or error.

SyCip Gorres Velayo & Co.6760 Ayala Avenue1226 Makati CityPhilippines

Tel: (632) 891 0307Fax: (632) 819 0872ey.com/ph

BOA/PRC Reg. No. 0001, October 4, 2018, valid until August 24, 2021SEC Accreditation No. 0012-FR-5 (Group A), November 6, 2018, valid until November 5, 2021

A member firm of Ernst & Young Global Limited

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In preparing the consolidated financial statements, management is responsible for assessing the Group’sability to continue as a going concern, disclosing, as applicable, matters related to going concern andusing the going concern basis of accounting unless management either intends to liquidate the Group or tocease operations, or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Group’s financial reporting process.

Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as awhole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s reportthat includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee thatan audit conducted in accordance with PSAs will always detect a material misstatement when it exists.Misstatements can arise from fraud or error and are considered material if, individually or in theaggregate, they could reasonably be expected to influence the economic decisions of users taken on thebasis of these consolidated financial statements.

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

ƒ Identify and assess the risks of material misstatement of the consolidated financial statements,whether due to fraud or error, design and perform audit procedures responsive to those risks, andobtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk ofnot detecting a material misstatement resulting from fraud is higher than for one resulting from error,as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override ofinternal control.

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

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

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

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


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ƒ Obtain sufficient appropriate audit evidence regarding the financial information of the entities orbusiness activities within the Group to express an opinion on the consolidated financial statements.We are responsible for the direction, supervision and performance of the audit. We remain solelyresponsible for our audit opinion.

We communicate with those charged with governance regarding, among other matters, the planned scopeand timing of the audit and significant audit findings, including any significant deficiencies in internalcontrol that we identify during our audit.

SYCIP GORRES VELAYO & CO.

Ma. Genalin Q. ArevaloPartnerCPA Certificate No. 108517SEC Accreditation No. 1613-A (Group A), March 2, 2017, valid until March 1, 2020Tax Identification No. 224-024-926BIR Accreditation No. 08-001998-123-2017, February 9, 2017, valid until February 8, 2020PTR No. 7332522, January 3, 2019, Makati City

February 22, 2019


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CAL-COMP TECHNOLOGY (PHILIPPINES), INC. AND SUBSIDIARYCONSOLIDATED STATEMENTS OF FINANCIAL POSITION

December 312018 2017 2016

ASSETS

Current AssetsCash (Note 4) $25,146,366 $26,403,834 $10,675,169Trade and other receivables (Notes 5 and 12) 94,899,293 52,051,146 10,571,326Inventories (Note 6) 80,132,090 52,446,803 29,880,224Other current assets 1,886,797 2,388,712 1,891,917Total Current Assets 202,064,546 133,290,495 53,018,636

Noncurrent AssetsProperty, plant and equipment (Note 7) 89,114,361 81,642,111 73,009,183Investment property (Note 8) 28,757,841 16,475,977 14,209,278Intangible assets (Note 9) 21,117,050 22,921,590 22,563,470Other noncurrent assets 2,147,113 3,478,946 3,185,731Total Noncurrent Assets 141,136,365 124,518,624 112,967,662

TOTAL ASSETS $343,200,911 $257,809,119 $165,986,298

LIABILITIES AND EQUITY

Current LiabilitiesLoans payable (Note 11) $104,000,000 $69,053,647 $10,000,000Trade and other payables (Note 10) 61,390,832 49,231,355 30,199,762Due to related parties (Note 12) 14,193,641 7,190,522 756,740Income tax payable 56,401 84,204 16,741Total Current Liabilities 179,640,874 125,559,728 40,973,243

Noncurrent LiabilitiesRetirement benefit obligation (Note 20) 101,522 247,596 131,013Deferred income tax liability - net (Note 22) 557,127 450,355 532,366Total Noncurrent Liabilities 658,649 697,951 663,379Total Liabilities 180,299,523 126,257,679 41,636,622

Equity (Note 21)Capital stock 22,658,478 5,000,000 5,000,000Additional paid-in capital 81,970,043 – –Retained earnings 50,016,597 18,599,033 11,357,506Equity reserve 8,000,000 108,000,000 108,000,000Remeasurement of employee benefits (Note 20) 256,270 (47,593) (7,830)Total Equity 162,901,388 131,551,440 124,349,676

TOTAL LIABILITIES AND EQUITY $343,200,911 $257,809,119 $165,986,298

See accompanying Notes to Consolidated Financial Statements.

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CAL-COMP TECHNOLOGY (PHILIPPINES), INC. AND SUBSIDIARYCONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Years Ended December 312018 2017 2016

REVENUESSale of goods (Notes 12 and 13) $412,652,466 $207,847,580 $122,532,728Rental revenue (Notes 8 and 19) 2,579,238 2,752,324 1,075,478

415,231,704 210,599,904 123,608,206

COSTS (Note 14)Cost of goods sold 367,178,974 191,847,845 113,658,805Cost of rent 2,022,897 1,397,951 865,904

369,201,871 193,245,796 114,524,709

GROSS PROFIT 46,029,833 17,354,108 9,083,497

GENERAL AND ADMINISTRATIVEEXPENSES (Note 15) 12,373,108 7,442,357 6,390,440

OTHER INCOME (CHARGES) - NetInterest expense (Notes 11 and 12) (2,640,750) (1,257,307) (474,900)Net foreign exchange gains (losses) 785,838 (1,387,081) (1,400,159)Scrap sales 197,971 84,285 61,375Interest income (Note 4) 14,926 11,439 7,327Other charges (Note 18) (207,776) (49,586) (10,684)

(1,849,791) (2,598,250) (1,817,041)

INCOME BEFORE INCOME TAX 31,806,934 7,313,501 876,016

PROVISION FOR (BENEFIT FROM) INCOMETAX (Note 22)

Current 282,598 153,985 44,545Deferred 106,772 (82,011) 326,351

389,370 71,974 370,896

NET INCOME 31,417,564 7,241,527 505,120

OTHER COMPREHENSIVE INCOME (LOSS)Item not to be reclassified to profit or loss in

subsequent periods:Remeasurement of employee benefits (Note 20) 303,863 (39,763) 9,896

TOTAL COMPREHENSIVE INCOME $31,721,427 $7,201,764 $515,016

EARNINGS PER SHARE (Note 27) $0.0283 $0.0065 $0.0005


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CAL-COMP TECHNOLOGY (PHILIPPINES), INC. AND SUBSIDIARYCONSOLIDATED STATEMENTS OF CHANGES IN EQUITYYEARS ENDED DECEMBER 31, 2018, 2017 AND 2016

Capital Stock(Note 21)

Additional Paid-in Capital

(Note 21)

RetainedEarnings(Note 21)

Equity Reserve(Notes 2 and 21)

Remeasurement ofEmployee Benefits

(Note 20) TotalBalances at January 1, 2018 $5,000,000 $− $18,599,033 $108,000,000 ($47,593) $131,551,440Issuance of shares 17,658,478 82,341,528 − − − 100,000,006Share issue costs − (371,485) − − − (371,485)Adjustment for the acquisition of KPPH − − − (100,000,000) − (100,000,000)Net income − − 31,417,564 − − 31,417,564Other comprehensive income − − − − 303,863 303,863Total comprehensive income − − 31,417,564 − 303,863 31,721,427Balances at December 31, 2018 $22,658,478 $81,970,043 $50,016,597 $8,000,000 $256,270 $162,901,388

Balances at January 1, 2017 $5,000,000 $− $11,357,506 $108,000,000 ($7,830) $124,349,676Net income − − 7,241,527 − − 7,241,527Other comprehensive loss − − − − (39,763) (39,763)

− − 7,241,527 − (39,763) 7,201,764Balances at December 31, 2017 $5,000,000 $− $18,599,033 $108,000,000 ($47,593) $131,551,440

Balances at January 1, 2016 $5,000,000 $− $10,852,386 $15,375,854 ($17,726) $31,210,514Issuance of KPPH shares − − − 92,624,146 − 92,624,146Net income − − 505,120 − − 505,120Other comprehensive income − − − − 9,896 9,896

− − 505,120 − 9,896 515,016Balances at December 31, 2016 $5,000,000 $− $11,357,506 $108,000,000 ($7,830) $124,349,676See accompanying Notes to Consolidated Financial Statements.

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CAL-COMP TECHNOLOGY (PHILIPPINES), INC. AND SUBSIDIARYCONSOLIDATED STATEMENTS OF CASH FLOWS


CASH FLOWS FROM OPERATING ACTIVITIESIncome before income tax $31,806,934 $7,313,501 $876,016Adjustments for:

Depreciation and amortization (Notes 14,15 and 16) 9,019,301 6,666,601 5,685,946Interest expense (Notes 11 and 12) 2,640,750 1,257,307 474,900Net unrealized foreign exchange losses (gains) (35,303) 299,760 19,753Interest income (Note 4) (14,926) (11,439) (7,327)Retirement benefit expense (Note 20) 172,357 76,112 73,611Loss (gain) on retirement and disposal of machinery and

equipment (5,673) 37,701 (928)Operating income before working capital changes 43,583,440 15,639,543 7,121,971Decrease (increase) in:

Trade and other receivables (42,076,085) (40,508,127) (1,774,993)Inventories (27,685,287) (22,566,579) (373,419)Other current assets 501,915 (974,866) 75,758

Increase (decrease) in:Trade and other payables 9,592,368 19,069,482 5,512,685Due to related parties 5,573,163 5,350,562 (2,622,606)

Net cash generated from (used in) operations (10,510,486) (23,989,985) 7,939,396Interest paid (2,493,137) (1,191,452) (469,360)Interest received 14,926 11,439 7,327Income taxes paid (310,951) (35,708) (11,325)Net cash flows provided by (used in) operating activities (13,299,648) (25,205,706) 7,466,038

CASH FLOWS FROM INVESTING ACTIVITIESAdditions to:

Property, plant and equipment (Note 7) (20,819,282) (13,984,815) (28,340,643)Investment property (Note 8) (1,156,593) (1,763,733) −Intangible assets (Note 9) (565,023) (818,100) (177,939)Other noncurrent assets − (1,307,386) (1,582,316)

Proceeds from disposal of machinery and equipment − 9,935 555,934Net cash flows used in investing activities (22,540,898) (17,864,099) (29,544,964)

CASH FLOWS FROM FINANCING ACTIVITIESProceeds from:

Issuance of shares (Note 21) 100,000,006 − 50,000,000Loans 121,000,000 153,363,293 10,000,000

Payments for:Acquisition of KPPH (Note 21) (100,000,000) − −Loans (86,053,647) (94,553,811) (37,090,000)Share issue costs (Note 21) (371,485) − −

Net cash flows from financing activities 34,574,874 58,809,482 22,910,000

(Forward)

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EFFECT OF EXCHANGE RATE CHANGES ONCASH $8,204 ($11,012) ($93,334)

NET INCREASE (DECREASE) IN CASH (1,257,468) 15,728,665 737,740

CASH AT BEGINNING OF YEAR 26,403,834 10,675,169 9,937,429

CASH AT END OF YEAR (Note 4) $25,146,366 $26,403,834 $10,675,169


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CAL-COMP TECHNOLOGY (PHILIPPINES), INC. AND SUBSIDIARYNOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Corporate Information

Cal-Comp Technology (Philippines), Inc. (the Parent Company) was registered with the PhilippineSecurities and Exchange Commission (SEC) on June 1, 2012 primarily to engage in the importationof raw materials, experimentation, testing and manufacturing of electronic equipment of every kind aswell as their spare parts; the calibration of testing tools and equipment in support of themanufacturing processes; and to engage in the marketing, sale and distribution for wholesale of themanufactured electronic equipment in the Philippines and for export thereof.

On June 25, 2012, the Parent Company was registered with the Philippine Economic Zone Authority(PEZA) pursuant to the provisions of Presidential Decree No. 66, as amended, under Republic ActNo. 7916 “The Special Economic Zone Act of 1995” to engage in the manufacture of electronicproducts, computer peripherals and telecommunications products.

Under the terms and conditions of the registration, the Parent Company is subject to certainrequirements primarily related to the monitoring of its registered activities. As a non-pioneerregistered enterprise, the Parent Company is entitled to certain tax and non-tax incentives including,among others, income tax holiday (ITH) for four (4) years. Tax incentives can be extended foranother two years provided certain conditions are met. On April 17, 2017, PEZA approved theParent Company’s application for one (1) year extension of its ITH covering the period fromOctober 1, 2016 to September 30, 2017 based on the net foreign exchange earnings criterion.Effective October 1, 2017, the Parent Company already applies the 5% preferential tax on the grossincome from sale of electronic products.

On March 11, 2016, the Parent Company registered with PEZA another income generating activitypertaining to their leasing facility in Calamba, Laguna. Income generated from this activity is taxedat 5% on the gross income for such activity. Pursuant to Bureau of Internal Revenue (BIR) RevenueRegulations No. 14-2002, income payments to PEZA registered enterprises under the ITH and 5%GIT incentives are exempted from expanded withholding tax.

All income derived from non-PEZA registered activities shall be subject to the regular corporateincome tax rate of 30%.

On January 22, 2018, Kinpo International (Singapore) Pte. Ltd. (KPSG), a corporation organizedunder the existing laws of Singapore, subscribed to 895,637,700 new shares of the Parent Companyfor $100.0 million representing 80.81% of the outstanding capital stock of the Parent Company,effectively making KPSG as the Parent Company’s immediate parent. Prior to January 22, 2018, theParent Company is a wholly owned subsidiary of Cal-Comp Electronics (Thailand) Public CompanyLimited (CCET), a corporation organized under the existing laws of Thailand. KPSG and CCET aresubsidiaries of Kinpo Electronics, Inc. (KPO), a corporation organized under the existing laws ofTaiwan, which is the Parent Company’s ultimate parent company.

On January 27, 2018, the Parent Company entered into a Deed of Assignment of Shares with KPSG.KPSG legally and beneficially transfers 99.99% of Kinpo Electronics (Philippines), Inc. (KPPH)subscribed capital stock to the Parent Company for and in consideration amounting toP=5,072,000,000 (or $100.0 million), effectively making KPPH as a wholly owned subsidiary of theParent Company. As the Parent Company and its subsidiary, KPPH, are entities under the commoncontrol of KPO before and after the business combination, the business acquisition was accounted forusing the pooling-of-interest method (see Note 2).

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KPPH was incorporated and registered with SEC on January 16, 2014 to engage in the manufactureof electronic products, computer peripherals and telecommunications products. KPPH also leasesout its warehouse facility to PEZA-registered enterprises.

The consolidated financial statements comprise the financial statements of the Parent Company andits subsidiary (collectively called as the “Group”).

The registered office address of the Parent Company is Block 7, Lot 1, Main Boulevard, LimaTechnology Center - SEZ, Lipa City, Batangas.

The accompanying consolidated financial statements of the Group were approved and authorized forissue by the Parent Company’s Board of Directors (BOD) on February 22, 2019.

2. Summary of Significant Accounting Policies

Basis of PreparationThe Group’s consolidated financial statements have been prepared under the historical cost basis andare presented in United States dollar ($), which is the Group’s functional currency. Amounts arerounded to the nearest dollar unless otherwise indicated. The Parent Company submitted itsAmended Registration Statement to the SEC on August 13, 2018 for its planned initial public offering(IPO) and received pre-effective clearance on August 30, 2018. The Company voluntarily presents athree-year period financial statements in anticipation of reviving its planned IPO in 2019.

Statement of ComplianceThe Group’s consolidated financial statements have been prepared in accordance with the PhilippineFinancial Reporting Standards (PFRSs).

Basis of ConsolidationThe Parent Company and its subsidiary, KPPH, are entities under the common control of KPO beforeand after the business combination. Accordingly, the acquisition of KPPH from KPSG wasaccounted for using the pooling-of-interest method. The consolidated financial statements includethat of the Parent Company and of KPPH even for the periods prior to January 27, 2018, the date ofthe business combination, as if the business combination had taken place on January 1, 2016, thebeginning of the earliest comparative period presented (see Note 1).

The Group controls an investee if and only if the Group has:ƒ Power over the investee (i.e. existing rights that give it the current ability to direct the relevant

activities of the investee);ƒ Exposure, or rights, to variable returns from its involvement with the investee; and,ƒ The ability to use its power over the investee to affect its returns.

All intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactionsbetween members of the Group are eliminated in full on consolidation.

The consolidated financial statements of the subsidiary are prepared for the same reporting year as theParent Company using consistent accounting policies.

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Common Control Business CombinationsBusiness combinations involving entities or businesses under common control are businesscombinations in which all of the combining entities or businesses are ultimately controlled by thesame party or parties both before and after the business combination, and that control is not transitory.Business combinations under common control are accounted for similar to pooling-of-interestmethod.

Under the pooling-of-interest method:ƒ The assets, liabilities and equity of the acquired companies for the reporting period in which the

common control business combinations occur and for the comparative periods presented, areincluded in the consolidated financial statements at their carrying amounts as if thecombinations had occurred from the beginning of the earliest period presented in theconsolidated financial statements, regardless of the actual date of the combination;

ƒ No adjustments are made to reflect the fair values, or recognize any new assets or liabilities at thedate of the combination. The only adjustments would be to harmonize accounting policiesbetween the combining entities;

ƒ No ‘new’ goodwill is recognized as a result of the business combination;

ƒ Retained earnings reflect the accumulated earnings of the Parent Company and the earnings ofKPPH as if the entities had always been combined;

ƒ Prior to the acquisition of KPPH in 2018, equity reserve pertains to the total legal capital ofKPPH. On the date of acquisition, the total consideration for the acquisition of KPPH wasadjusted against equity reserve. As of December 31, 2018, equity reserve pertains to thedifference between the consideration for the acquisition and the legal capital of KPPH which isseparately presented in the equity section of the consolidated statement of financial position; and,

ƒ The consolidated statements of comprehensive income and consolidated statements of cash flowsreflect the results of the Parent Company and KPPH, irrespective of when the combination tookplace.

Changes in Accounting PoliciesThe accounting policies adopted are consistent with those of the previous financial year, except thatthe Group has adopted the following new accounting pronouncements starting January 1, 2018.

ƒ Amendments to PFRS 2, Share-based Payment, Classification and Measurement of Share-basedPayment Transactions

The amendments to PFRS 2 address three main areas: the effects of vesting conditions on themeasurement of a cash-settled share-based payment transaction; the classification of a share-based payment transaction with net settlement features for withholding tax obligations; and theaccounting where a modification to the terms and conditions of a share-based paymenttransaction changes its classification from cash settled to equity settled.

On adoption, entities are required to apply the amendments without restating prior periods, butretrospective application is permitted if elected for all three amendments and if other criteria aremet. Early application of the amendments is permitted.

Adoption of these amendments did not have any impact on the consolidated financial statementsas the Group has no share-based payment transaction.

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ƒ PFRS 9, Financial Instruments

PFRS 9 reflects all phases of the financial instruments project and replaces PAS 39, FinancialInstruments: Recognition and Measurement, and all previous versions of PFRS 9 for annualperiods beginning on or after 1 January 2018, bringing together all three aspects of the accountingfor financial instruments: classification and measurement; impairment; and hedge accounting.Retrospective application is required but providing comparative information is not compulsory.For hedge accounting, the requirements are generally applied prospectively, with some limitedexceptions.

Classification and measurementPFRS 9 requires debt instruments to be classified either at amortized cost, fair value throughother comprehensive income (FVOCI) or fair value through profit or loss (FVPL). Theclassification is based on two criteria: the Group’s business model for managing the assets; andwhether the instruments’ contractual cash flows represent ‘solely payments of principal andinterest (SPPI). An entity’s business model is how an entity manages its financial assets in orderto generate cash flows and create value for the entity either from collecting contractual cashflows, selling financial assets or both. If a debt instrument is held to collect contractual cashflows, it is classified as amortized cost if it also meets the SPPI requirement. Debt instrumentsthat meet the SPPI requirement that are held both to collect the assets’ contractual cash flows andto sell the assets are classified as FVOCI. Under the new model, FVPL is the residual category–financial assets should therefore be classified as FVPL if they do not meet the criteria of FVOCIor amortized cost. Regardless of the business model assessment, an entity can elect to classify afinancial asset at FVPL if doing so eliminates or significantly reduces a measurement orrecognition inconsistency.

The assessment of the Group’s business model was made as of the date of initial application,January 1, 2018. The assessment of whether contractual cash flows on debt instruments aresolely comprised of principal and interest was made based on the facts and circumstances as atthe initial recognition of the assets.

The Group’s debts instruments which consist of trade and other receivables have contractual cashflows that are solely payments of principal and interest and accordingly measured at amortizedcost under PFRS 9.

PFRS 9 requires all equity instruments to be carried at fair value through profit or loss, unless anentity chooses, on an instrument-by-instrument basis on initial recognition, to present fair valuechanges in other comprehensive income.

The Group has assessed which business model apply to the financial assets held by the Group atthe date of initial application of PFRS 9 and has classified its financial instruments into theappropriate PFRS 9 categories.

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Summarized below is the effect of adoption of PFRS 9 in the classification of the Group’sfinancial assets at January 1, 2018:

Financial InstrumentsBalance as of

January 1, 2018Classification and Measurement

Under PAS 39 Under PFRS 9Financial AssetsCash $26,403,834 Loans and receivables

(measured atamortized cost)

Financial assetsmeasured at amortizedcost

Trade and otherreceivables

52,051,146 Loans and receivables(measured atamortized cost)


Refundable guaranteedeposit

53,038 Loans and receivables(measured atamortized cost)


Financial LiabilitiesTrade and other payables 49,218,675 Financial liabilities

measured at amortizedcost

Financial liabilities atamortized cost

Loans payable 69,053,647 Financial liabilitiesmeasured at amortizedcost


Due to related parties 7,190,522 Financial liabilitiesmeasured at amortizedcost


The initial application of PFRS 9 does not have significant effect in the classification andmeasurement of the Group’s consolidated financial assets.

ImpairmentThe new impairment model for financial assets requires the recognition of allowance ofimpairment losses on financial assets based on expected credit losses, rather than only incurredcredit losses under PAS 39. The main impact for the Group relates to trade receivables that donot contain a significant financing component, and as allowed by PFRSs, the Group uses asimplified approach whereby the loss allowance will be measured at the initial recognition at anamount equal to its lifetime expected credit losses. In calculating the expected credit loss rates,the Group considers the customers’ ability to fulfil their obligations based on historicalperformance, current condition and credit evaluations, and adjusted for forward-looking factorsspecific to the debtors and the economic environment.

The adoption of new impairment model under PFRS 9 did not have a significant effect on theGroup’s consolidated financial statements.

In conclusion, the adoption of PFRS 9 has no material impact on the Group’s consolidatedfinancial statements. Changes in accounting policies resulting from the adoption of PFRS 9 havebeen applied using the modified retrospective approach, hence, the comparative periods have notbeen restated. Thus, the information presented as of and for the years ended December 31, 2017,and 2016 do generally reflect the requirements of PFRS 9 and therefore is comparable to theinformation presented as of December 31, 2018 under PFRS 9.

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ƒ Amendments to PFRS 4, Insurance Contracts, Applying PFRS 9 with PFRS 4

The amendments address concerns arising from implementing PFRS 9, the new financialinstruments standard before implementing the new insurance contracts standard. Theamendments introduce two options for entities issuing insurance contracts: a temporaryexemption from applying PFRS 9 and an overlay approach. The temporary exemption is firstapplied for reporting periods beginning on or after January 1, 2018. An entity may elect theoverlay approach when it first applies PFRS 9 and apply that approach retrospectively to financialassets designated on transition to PFRS 9. The entity restates comparative information reflectingthe overlay approach if, and only if, the entity restates comparative information when applyingPFRS 9.

The amendments are not applicable to the Group since it is not engaged in the insurance business.

ƒ PFRS 15, Revenue from Contracts with Customers

PFRS 15 establishes a new five-step model that will apply to revenue arising from contracts withcustomers. Under PFRS 15, revenue is recognized at an amount that reflects the consideration towhich an entity expects to be entitled in exchange for transferring goods or services to acustomer. The principles in PFRS 15 provide a more structured approach to measuring andrecognizing revenue.

While the Group elected to apply the modified retrospective approach in the adoption ofPFRS 15, it did not result in a cumulative adjustment in the retained earnings as atJanuary 1, 2018 based on the Group’s evaluation.

The first step was to evaluate whether the existing contracts meet the definition of contracts withcustomers as per PFRS 15. The relevant attributes of contracts under PFRS 15 are: approval ofthe contracts by the parties to the contract, ability to identify each party’s rights regarding thegoods to be transferred, clear payment terms, commercial substance of the contract andexpectation that the consideration can be collected from the customer. The Group’s customercontracts can be clearly identified based on the customer orders with clear terms and individualpricing and thus no significant changes in the identification of contracts compared to existingrevenue recognition practices were noted.

The second step was to identify the performance obligations included in sales contracts. TheGroup’s sales mainly comprise sale of electronic equipment, where control transfers to customersand performance obligations are satisfied at the time of receipt of the products by the customer.No additional separate performance obligations have been identified in the contracts withcustomers that would materially impact the revenue recognition under PFRS 15 standardcompared to the prior revenue recognition practices. No contracts were identified where theGroup would act as an agent on behalf of another party. The adoption of PFRS 15 did notsignificantly change the timing or amount of revenue recognized under these arrangements.

The third and fourth steps relate to determining and allocating the transaction price. Transactionprice is the amount the Group expects to receive in exchange for a fulfilled performanceobligation. The prices received by the Group are fixed and do not include significant financingcomponents. The contracts signed have no multiple performance obligations and there is novariable consideration over time. Accordingly, PFRS 15 does not materially change theprinciples applied by the Group regarding the determination and allocation of the transactionprice.

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The fifth step is about recognizing revenue in the period during which the control of goods orservices transfers to the customers. The delivery terms applied by the Group in its sales contractsdetermine the point of time, at which the control of goods is transferred to the customer. Assuch, the revenue recognition principles did not change the timing or amount of revenuerecognized. In addition, the timing of revenue recognition does not result in any contract assetsor liabilities and there are no unfulfilled performance obligations at any point in time.

In conclusion, the adoption had no significant impact on the substance of the principles applied bythe Group to the amount and timing of revenue recognition.

ƒ Amendments to PAS 28, Measuring an Associate or Joint Venture at Fair Value (Part of AnnualImprovements to PFRSs 2014–2016 Cycle)

The amendments clarify that an entity that is a venture capital organization, or other qualifyingentity, may elect, at initial recognition on an investment-by-investment basis, to measure itsinvestments in associates and joint ventures at fair value through profit or loss. They also clarifythat if an entity that is not itself an investment entity has an interest in an associate or jointventure that is an investment entity, the entity may, when applying the equity method, elect toretain the fair value measurement applied by that investment entity associate or joint venture tothe investment entity associate’s or joint venture’s interests in subsidiaries. This election ismade separately for each investment entity associate or joint venture, at the later of the date onwhich (a) the investment entity associate or joint venture is initially recognized; (b) the associateor joint venture becomes an investment entity; and (c) the investment entity associate or jointventure first becomes a parent. The amendments should be applied retrospectively, with earlierapplication permitted.

Adoption of these amendments did not have any impact on the consolidated financial statementsas the Group does not have investment in associate and joint venture.

ƒ Amendments to PAS 40, Investment Property, Transfers of Investment Property

The amendments clarify when an entity should transfer property, including property underconstruction or development into, or out of investment property. The amendments state that achange in use occurs when the property meets, or ceases to meet, the definition of investmentproperty and there is evidence of the change in use. A mere change in management’s intentionsfor the use of a property does not provide evidence of a change in use. The amendments shouldbe applied prospectively to changes in use that occur on or after the beginning of the annualreporting period in which the entity first applies the amendments. Retrospective application isonly permitted if this is possible without the use of hindsight.

Adoption of these amendments did not have material impact on the consolidated financialstatements.

ƒ Philippine Interpretation International Financial Reporting Interpretations Committee (IFRIC) 22,Foreign Currency Transactions and Advance Consideration

The interpretation clarifies that, in determining the spot exchange rate to use on initial recognitionof the related asset, expense or income (or part of it) on the derecognition of a non-monetary assetor non-monetary liability relating to advance consideration, the date of the transaction is the dateon which an entity initially recognizes the nonmonetary asset or non-monetary liability arisingfrom the advance consideration.

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If there are multiple payments or receipts in advance, then the entity must determine a date of thetransactions for each payment or receipt of advance consideration. Entities may apply theamendments on a fully retrospective basis.

Alternatively, an entity may apply the interpretation prospectively to all assets, expenses andincome in its scope that are initially recognized on or after the beginning of the reporting periodin which the entity first applies the interpretation or the beginning of a prior reporting periodpresented as comparative information in the financial statements of the reporting period in whichthe entity first applies the interpretation.

Adoption of this interpretation did not have a significant impact on the consolidated financialstatements.

New Standards and Interpretation Issued and Effective after December 31, 2018The Group will adopt the pronouncements enumerated below when these become effective. Exceptas otherwise indicated, the Group does not expect the future adoption of the said pronouncements willhave a significant impact on its consolidated financial statements.

Effective beginning on or after January 1, 2019

ƒ Amendments to PFRS 9, Prepayment Features with Negative Compensation

The amendments to PFRS 9 allow debt instruments with negative compensation prepaymentfeatures to be measured at amortized cost or fair value through other comprehensive income(OCI). An entity shall apply these amendments for annual reporting periods beginning on orafter January 1, 2019. Earlier application is permitted.

The amendments do not have any impact on the Group’s consolidated financial statements as itdoes not have debt instruments with negative compensation prepayment features.

ƒ PFRS 16, Leases

PFRS 16 sets out the principles for the recognition, measurement, presentation and disclosure ofleases and requires lessees to account for all leases under a single on-balance sheet model similarto the accounting for finance leases under PAS 17, Leases. The standard includes tworecognition exemptions for lessees - leases of ’low-value’ assets (e.g., personal computers) andshort-term leases (i.e., leases with a lease term of 12 months or less). At the commencement dateof a lease, a lessee will recognize a liability to make lease payments (i.e., the lease liability) andan asset representing the right to use the underlying asset during the lease term (i.e., the right-of-use asset). Lessees will be required to separately recognize the interest expense on the leaseliability and the depreciation expense on the right-of-use asset.

Lessees will be also required to remeasure the lease liability upon the occurrence of certain events(e.g., a change in the lease term, a change in future lease payments resulting from a change in anindex or rate used to determine those payments). The lessee will generally recognize the amountof the remeasurement of the lease liability as an adjustment to the right-of-use asset.

Lessor accounting under PFRS 16 is substantially unchanged from today’s accounting underPAS 17. Lessors will continue to classify all leases using the same classification principle as inPAS 17 and distinguish between two types of leases: operating and finance leases.

PFRS 16 also requires lessees and lessors to make more extensive disclosures than under PAS 17.

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Early application is permitted, but not before an entity applies PFRS 15. A lessee can choose toapply the standard using either a full retrospective or a modified retrospective approach. Thestandard’s transition provisions permit certain reliefs.

The Group is currently assessing the impact of adopting this standard.

ƒ Amendments to PAS 19, Employee Benefits, Plan Amendment, Curtailment or Settlement

The amendments to PAS 19 address the accounting when a plan amendment, curtailment orsettlement occurs during a reporting period. The amendments specify that when a planamendment, curtailment or settlement occurs during the annual reporting period, an entity isrequired to:

• Determine current service cost for the remainder of the period after the plan amendment,curtailment or settlement, using the actuarial assumptions used to remeasure the net definedbenefit liability (asset) reflecting the benefits offered under the plan and the plan assets afterthat event

• Determine net interest for the remainder of the period after the plan amendment, curtailmentor settlement using: the net defined benefit liability (asset) reflecting the benefits offeredunder the plan and the plan assets after that event; and the discount rate used to remeasurethat net defined benefit liability (asset).

The amendments also clarify that an entity first determines any past service cost, or a gain or losson settlement, without considering the effect of the asset ceiling. This amount is recognized inprofit or loss. An entity then determines the effect of the asset ceiling after the plan amendment,curtailment or settlement. Any change in that effect, excluding amounts included in the netinterest, is recognized in other comprehensive income.

These amendments are not expected to have any significant impact on the Group’s consolidatedfinancial statements.

ƒ Amendments to PAS 28, Long-term Interests in Associates and Joint Ventures

The amendments to PAS 28 clarify that entities should account for long-term interests in anassociate or joint venture to which the equity method is not applied using PFRS 9. An entityshall apply these amendments for annual reporting periods beginning on or after January 1, 2019.Earlier application is permitted.


ƒ Philippine Interpretation IFRIC 23, Uncertainty over Income Tax Treatments

The interpretation addresses the accounting for income taxes when tax treatments involveuncertainty that affects the application of PAS 12 and does not apply to taxes or levies outside thescope of PAS 12, nor does it specifically include requirements relating to interest and penaltiesassociated with uncertain tax treatments.

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The interpretation specifically addresses the following:

• Whether an entity considers uncertain tax treatments separately• The assumptions an entity makes about the examination of tax treatments by taxation

authorities• How an entity determines taxable profit (tax loss), tax bases, unused tax losses, unused tax

credits and tax rates• How an entity considers changes in facts and circumstances

An entity must determine whether to consider each uncertain tax treatment separately or togetherwith one or more other uncertain tax treatments. The approach that better predicts the resolutionof the uncertainty should be followed.

The Group is currently assessing the impact of adopting this interpretation.

ƒ Annual Improvements to PFRSs 2015–2017 Cycle

• Amendments to PFRS 3, Business Combinations, and PFRS 11, Joint Arrangements,Previously Held Interest in a Joint Operation

The amendments clarify that, when an entity obtains control of a business that is a jointoperation, it applies the requirements for a business combination achieved in stages,including remeasuring previously held interests in the assets and liabilities of the jointoperation at fair value. In doing so, the acquirer remeasures its entire previously held interestin the joint operation.

A party that participates in, but does not have joint control of, a joint operation might obtainjoint control of the joint operation in which the activity of the joint operation constitutes abusiness as defined in PFRS 3. The amendments clarify that the previously held interests inthat joint operation are not remeasured.

These amendments are not expected to have any significant impact on the Group’sconsolidated financial statements.

• Amendments to PAS 12, Income Tax Consequences of Payments on Financial InstrumentsClassified as Equity

The amendments clarify that the income tax consequences of dividends are linked moredirectly to past transactions or events that generated distributable profits than to distributionsto owners. Therefore, an entity recognizes the income tax consequences of dividends in profitor loss, other comprehensive income or equity according to where the entity originallyrecognized those past transactions or events.

The Group is currently assessing the impact of adopting this interpretation.

• Amendments to PAS 23, Borrowing Costs, Borrowing Costs Eligible for Capitalization

The amendments clarify that an entity treats as part of general borrowings any borrowingoriginally made to develop a qualifying asset when substantially all of the activities necessaryto prepare that asset for its intended use or sale are complete.

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An entity applies those amendments to borrowing costs incurred on or after the beginning ofthe annual reporting period in which the entity first applies those amendments. An entityapplies those amendments for annual reporting periods beginning on or after January 1, 2019,with early application permitted.

Since the Group’s current practice is in line with these amendments, the Group does notexpect any effect on its consolidated financial statements upon adoption.


ƒ Amendments to PFRS 3, Definition of a Business

The amendments to PFRS 3 clarify the minimum requirements to be a business, remove theassessment of a market participant’s ability to replace missing elements, and narrow thedefinition of outputs. The amendments also add guidance to assess whether an acquired processis substantive and add illustrative examples. An optional fair value concentration test isintroduced which permits a simplified assessment of whether an acquired set of activities andassets is not a business.

An entity applies those amendments prospectively for annual reporting periods beginning on orafter January 1, 2020, with earlier application permitted.

These amendments will apply on future business combinations of the Group.

ƒ Amendments to PAS 1, Presentation of Financial Statements, and PAS 8, Accounting Policies,Changes in Accounting Estimates and Errors, Definition of Material

The amendments refine the definition of material in PAS 1 and align the definitions used acrossPFRSs and other pronouncements. They are intended to improve the understanding of theexisting requirements rather than to significantly impact an entity’s materiality judgements.

An entity applies those amendments prospectively for annual reporting periods beginning on orafter January 1, 2020, with earlier application permitted.

The Group is currently assessing the impact of adopting this amendment.


ƒ PFRS 17, Insurance Contracts

PFRS 17 is a comprehensive new accounting standard for insurance contracts coveringrecognition and measurement, presentation and disclosure. Once effective, PFRS 17 will replacePFRS 4, Insurance Contracts. This new standard on insurance contracts applies to all types ofinsurance contracts (i.e., life, non-life, direct insurance and re-insurance), regardless of the type ofentities that issue them, as well as to certain guarantees and financial instruments withdiscretionary participation features. A few scope exceptions will apply.

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The overall objective of PFRS 17 is to provide an accounting model for insurance contracts that ismore useful and consistent for insurers. In contrast to the requirements in PFRS 4, which arelargely based on grandfathering previous local accounting policies, PFRS 17 provides acomprehensive model for insurance contracts, covering all relevant accounting aspects. The coreof PFRS 17 is the general model, supplemented by:• A specific adaptation for contracts with direct participation features (the variable fee

approach)• A simplified approach (the premium allocation approach) mainly for short-duration contracts

PFRS 17 is effective for reporting periods beginning on or after January 1, 2021, withcomparative figures required. Early application is permitted.

The Group is currently assessing the impact of adopting this standard.

Deferred effectivity

ƒ Amendments to PFRS 10 and PAS 28, Sale or Contribution of Assets between an Investor and itsAssociate or Joint Venture

The amendments address the conflict between PFRS 10 and PAS 28 in dealing with the loss ofcontrol of a subsidiary that is sold or contributed to an associate or joint venture. Theamendments clarify that a full gain or loss is recognized when a transfer to an associate or jointventure involves a business as defined in PFRS 3, Business Combinations. Any gain or lossresulting from the sale or contribution of assets that does not constitute a business, however, isrecognized only to the extent of unrelated investors’ interests in the associate or joint venture.

On January 13, 2016, the Financial Reporting Standards Council (FRSC) deferred the originaleffective date of January 1, 2016 of the said amendments until the International AccountingStandards Board completes its broader review of the research project on equity accounting thatmay result in the simplification of accounting for such transactions and of other aspects ofaccounting for associates and joint ventures.


Summary of Significant Accounting PoliciesThe principal accounting and financial reporting policies adopted in preparing the consolidatedfinancial statements are as follows:

Fair Value MeasurementCertain assets and liabilities are required to be measured or disclosed at fair value at each reportingdate. Fair value is the price that would be received to sell an asset or paid to transfer a liability in anorderly transaction between market participants at the measurement date.

The fair value measurement is based on the presumption that the transaction to sell the asset ortransfer the liability takes place either:

ƒ In the principal market for the asset or liability, or,ƒ In the absence of a principal market, in the most advantageous market for the asset or liability.

The principal or the most advantageous market must be accessible to the Group.

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The fair value of an asset or a liability is measured using the assumptions that market participantswould use when pricing the asset or liability, assuming that market participants act in their economicinterest.

A fair value measurement of a nonfinancial asset takes into account a market participant’s ability togenerate economic benefits by using the asset in its highest and best use or by selling it to anothermarket participant that would use the asset in its highest and best use.

The Group uses valuation techniques that are appropriate in the circumstances and for whichsufficient data are available to measure fair value, maximizing the use of relevant observable inputsand minimizing the use of unobservable inputs.

All assets and liabilities for which fair value is measured or disclosed in the Group’s consolidatedfinancial statements are categorized within the fair value hierarchy, described as follows, based on thelowest level input that is significant to the fair value measurement as a whole:ƒ Level 1 - Quoted (unadjusted) market prices in active markets for identical assets or liabilities;ƒ Level 2 - Valuation techniques for which the lowest level input that is significant to the fair value

measurement is directly or indirectly observable; andƒ Level 3 - Valuation techniques for which the lowest level input that is significant to the fair value

measurement is unobservable.

For assets and liabilities that are recognized in the consolidated financial statements on a recurringbasis, the Group determines whether transfers have occurred between Levels in the hierarchy byreassessing categorization (based on the lowest level input that is significant to the fair valuemeasurement as a whole) at the end of each reporting period.

For the purpose of fair value disclosures, the Group has determined classes of assets and liabilities onthe basis of the nature, characteristics and risks of the asset or liability and the level of the fair valuehierarchy as explained above.

Financial Instruments - Initial Recognition and Subsequent Measurement

Date of RecognitionThe Group recognizes a financial asset or a financial liability in the consolidated statement of financialposition when it becomes a party to the contractual provisions of the instrument. Purchases or sales offinancial assets that require delivery of assets within the time frame established by regulation orconvention in the marketplace are recognized on the settlement date.

Initial Recognition of Financial InstrumentsAll financial assets and liabilities are recognized initially at fair value. Except for financial assetsand financial liabilities at fair value through profit or loss (FVPL), the initial measurement includestransaction costs.

Classification and measurementBefore January 1, 2018, under PAS 39, the Group classifies its financial assets in the followingcategories: financial assets at FVPL, loans and receivables, held-to-maturity (HTM) investments andavailable-for-sale (AFS) financial assets. The Group classifies its financial liabilities into financialliabilities at FVPL and other financial liabilities.

The classification depends on the purpose for which the investments were acquired and whether theyare quoted in an active market. The Group determines the classification of its financial instruments

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at initial recognition and, where allowed and appropriate, reevaluates such designation at everyreporting date.

Financial instruments are classified as liabilities or equity in accordance with the substance of thecontractual agreement. Interest, dividends, gains and losses relating to a financial instrument or acomponent that is a financial liability are reported as expense or income. Distributions to holders offinancial instruments classified as equity are charged directly to equity account, net of any relatedincome tax benefits.

As of December 31, 2017 and 2016, the Group’s financial instruments are of the nature of loans andreceivables and other financial liabilities.

Loans and receivables. Loans and receivables are nonderivative financial assets with fixed ordeterminable payments that are not quoted in an active market. They are not entered into with theintention of immediate or short-term resale and are not classified as financial assets at FVPL nordesignated as AFS financial assets or HTM investments.

Receivables are recognized initially at fair value, which normally pertains to the billable amount.After initial recognition, loans and receivables are subsequently measured at amortized cost using theeffective interest rate method, less allowance for impairment losses. Amortized cost is calculated bytaking into account any discount or premium on acquisition and fees that are an integral part of theeffective interest rate. The amortization, if any, is included as interest income in profit or loss. Thelosses arising from impairment of receivables are recognized in profit or loss. The level of allowancefor impairment losses is evaluated by management on the basis of factors that affect the collectabilityof accounts.

Loans and receivables are classified as current when they are expected to be realized within 12months from the reporting date or within the normal operating cycle, whichever is longer.Otherwise, these are classified as noncurrent assets.

Other financial liabilities. Issued financial liabilities or their components, which are not designatedat FVPL are categorized as other financial liabilities, where the substance of the contractualarrangement results in the Group having an obligation either to deliver cash or another financial assetto the holder, or to satisfy the obligation other than by the exchange of a fixed amount of cash oranother financial asset for a fixed number of own equity shares. After initial measurement, otherfinancial liabilities are subsequently measured at amortized cost using the effective interest ratemethod. Amortized cost is calculated by taking into account any discount or premium on the issueand fees that are an integral part of the effective interest rate.

Effective January 1, 2018, under PFRS 9, the Group’s financial assets are classified and subsequentlymeasured at FVPL, amortized cost, or fair value through other comprehensive income (FVOCI) inaccordance with PFRS 9.

The classification of financial assets is based on the following criteria:(a) the Group’s business model for managing the assets; and,(b) whether contractual cash flow represents ‘solely payments of principal and interest’ on the

principal amount outstanding (the ‘SPPI criterion’).

The classification and measurement of the Group’s debt financial assets are as follows:

At amortized cost. Debt financial assets are measured at amortized cost when the Group’s businessmodel is to hold the financial assets to collect contractual cash flows and the contractual terms of the

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financial assets give rise, on specified dates, to cash flows that represent solely payments of principaland interest.

These financial assets are subsequently measured at amortized cost using the effective interest ratemethod, less allowance for impairment losses. Amortized cost is calculated by taking into accountany discount or premium on acquisition and fees that are an integral part of the effective interest rate.The amortization, if any, is included as interest income in profit or loss. The losses arising fromimpairment of receivables are recognized in profit or loss. The level of allowance for impairmentlosses is evaluated by management on the basis of factors that affect the collectability of accounts.

This classification includes the Group’s cash and trade and other receivables.

The Group classifies its financial liabilities into financial liabilities at FVPL and financial liabilitiesmeasured at amortized cost. Financial instruments are classified as liabilities or equity in accordancewith the substance of the contractual agreement. Interest, dividends, gains and losses relating to afinancial instrument or a component that is a financial liability are reported as expense or income.Distributions to holders of financial instruments classified as equity are charged directly to equityaccount, net of any related income tax benefits.

As of December 31, 2018, the Group does not have financial liabilities at FVPL.

Financial liabilities at amortized cost. Issued financial liabilities or their components, which are notdesignated at FVPL are categorized as other financial liabilities, where the substance of thecontractual arrangement results in the Group having an obligation either to deliver cash or anotherfinancial asset to the holder, or to satisfy the obligation other than by the exchange of a fixed amountof cash or another financial asset for a fixed number of own equity shares. After initialmeasurement, other financial liabilities are subsequently measured at amortized cost using theeffective interest rate method. Amortized cost is calculated by taking into account any discount orpremium on the issue and fees that are an integral part of the effective interest rate.

This accounting policy applies primarily to the Group’s trade and other payables excluding statutorypayables, due to related parties and loans payable. Financial liabilities at amortized cost areclassified as current liabilities when these are expected to be settled within twelve months from thereporting date or the Group does not have an unconditional right to defer settlement for at least twelvemonths from the reporting date. Otherwise, these are classified as noncurrent liabilities.

Impairment of Financial AssetsThe Group assesses at each reporting date whether there is objective evidence that a financial asset orgroup of financial assets is impaired.

Before January 1, 2018, under PAS 39, if there is objective evidence that an impairment loss onfinancial assets carried at amortized cost (e.g., trade receivables) has been incurred, the amount of theloss is measured as the difference between the assets’ carrying amount and the present value ofestimated future cash flows discounted at the financial asset’s original effective interest rate. Timevalue is generally not considered when the effect of discounting is not material.

The carrying amount of the asset shall be reduced either directly or through the use of an allowanceaccount. The asset, together with the associated allowance accounts, is written-off when there is norealistic prospect of future recovery. The amount of the impairment loss shall be recognized in profitor loss.

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The Group first assesses whether objective evidence of impairment exists individually for financialassets that are individually significant, and individually or collectively for financial assets that are notindividually significant. If it is determined that no objective evidence of impairment exists for anindividually assessed financial asset, whether significant or not, the asset is included in a group offinancial assets with similar credit risk characteristics and that group of financial assets is collectivelyassessed for impairment. Those characteristics are relevant to the estimation of future cash flows forgroups of such assets by being indicative of the debtor’s ability to pay all amounts due according tothe contractual terms of the assets being evaluated. Assets that are individually assessed forimpairment and for which an impairment loss is or continues to be recognized are not included in acollective assessment of impairment.

In relation to trade receivables, a provision for impairment of receivable is established when there isobjective evidence that the Group will not be able to collect all amounts due according to the originalterms of the receivables. This assessment requires judgment regarding the outcome of any pendingdisputes and the ability of the debtor to pay the amounts owed to the Group.

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can berelated objectively to an event occurring after the impairment was recognized, the previouslyrecognized impairment loss is reversed by adjusting the allowance account. Any subsequent reversalof an impairment loss is recognized in the profit or loss to the extent that the carrying value of theasset at the reversal date does not exceed its amortized cost that would have been determined had noimpairment loss been recognized in the prior years. If a write-off is later recovered, the recovery isrecognized in profit or loss.

Effective January 1, 2018, under PFRS 9, impairment losses on the Group’s financial assets aremeasured following the expected credit loss (ECL) approach. ECLs are based on the differencebetween the contractual cash flows due in accordance with the contract and all the cash flows that theGroup expects to receive. The shortfall is then discounted at an approximation to the asset’s originaleffective interest rate.

For financial assets measured at amortized cost, the Group applies the simplified approach incalculating the allowance for impairment losses on financial assets. Under the simplified approach,tracking of changes in credit risk is not required and impairment losses is based on the lifetimeexpected credit losses on the financial assets. The Group has established a provision matrix that isbased on the Group’s historical credit loss experience, adjusted for forward-looking factors specific tothe debtors and the economic environment. Expected credit losses are recognized in profit or loss.

The Group considers a financial asset to be in default when internal or external information indicatesthat the Group is unlikely to receive the outstanding contractual amounts in full before taking intoaccount any credit enhancements held by the Group.

Offsetting Financial InstrumentsFinancial assets and financial liabilities are offset and the net amount is reported in the consolidatedstatement of financial position if, and only if, the Group has a legally enforceable right to offset therecognized amounts and there is an intention to settle on a net basis, or to realize the asset and settlethe liability simultaneously. The Group assesses that it has a currently enforceable right of offset ifthe right is not contingent on a future event, and is legally enforceable in the normal course ofbusiness, event of default, and event of insolvency or bankruptcy of the Group and all of thecounterparties.

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Derecognition of Financial Instruments

Financial AssetsA financial asset (or, where applicable a part of a financial asset or part of a group of similar financialassets) is derecognized when:ƒ the rights to receive cash flows from the asset have expired;ƒ the Group retains the right to receive cash flows from the asset, but has assumed an obligation to

pay them in full without material delay to a third party under a “pass-through” arrangement; or,ƒ the Group has transferred its rights to receive cash flows from the asset and either

(a) has transferred substantially all the risks and rewards of the asset, or (b) has neither transferrednor retained the risk and rewards of the asset but has transferred the control of the asset.

Where the Group has transferred its rights to receive cash flows from an asset or has entered into apass-through arrangement, and has neither transferred nor retained substantially all the risks andrewards of the asset nor transferred control of the asset, the asset is recognized to the extent of theGroup’s continuing involvement in the asset. Continuing involvement that takes the form of aguarantee over the transferred asset is measured at the lower of the original carrying amount of theasset and the maximum amount of consideration that the Group could be required to repay.

Financial LiabilitiesA financial liability is derecognized when the obligation under the liability is discharged or cancelledor has expired.

Where an existing financial liability is replaced by another from the same lender on substantiallydifferent terms, or the terms of an existing liability are substantially modified, such an exchange ormodification is treated as a derecognition of the original liability and the recognition of a newliability, and the difference in the respective carrying amounts of a financial liability is recognized inconsolidated statement of comprehensive income.

CashCash includes cash in bank and on hand, which are subject to an insignificant risk of change in value.

InventoriesInventories are valued at the lower of cost (weighted average method) and net realizable value(NRV).

Costs incurred in bringing each product to its present location and conditions are accounted for asfollows:

ƒ Raw materials: purchase cost on first in, first out basisƒ Finished goods and work in progress: cost of direct materials and labor and a portion of

manufacturing overheads based on the normal operating capacity, excluding borrowing costs

NRV of finished goods is based on estimated selling price, less estimated costs necessary to make thesale. The NRV for raw materials is the current replacement cost. In determining NRV, the Groupconsiders any adjustment for obsolescence.

Property, Plant and EquipmentProperty, plant and equipment, except for construction in progress, is stated at cost net accumulateddepreciation and accumulated impairment losses, if any.

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The initial cost of property, plant and equipment consists of its purchase price, including importduties, nonrefundable taxes and any directly attributable costs of bringing the property, plant andequipment to its working condition and location for its intended use. Such cost includes the cost ofreplacing part of such property, plant and equipment when that cost is incurred if the recognitioncriteria are met.

Expenditures incurred after the property, plant and equipment have been put into operations, such asrepairs and maintenance, are normally charged to profit or loss in the period in which the costs areincurred. In situations where it can be clearly demonstrated that the expenditures have resulted in anincrease in the future economic benefits expected to be obtained from the use of an item of property,plant and equipment beyond its originally assessed standard of performance, the expenditures arecapitalized as additional costs of property, plant and equipment. Depreciation is computed using thestraight-line method over the estimated useful lives of the assets.

The estimated useful lives of property, plant and equipment are as follows:

Number of YearsBuildings and building improvements 11 to 50Machinery and factory equipment 3 to 15Office furniture and equipment 5 to 11Transportation equipment 5 to 10Miscellaneous equipment 3 to 10Molds 1 to 5

The depreciation method and estimated useful lives are reviewed periodically. Changes in theexpected useful lives or the expected pattern of consumption of future economic benefits embodied inthe items of property, plant and equipment are accounted for by changing the depreciation methodand useful lives, as appropriate, and treated as a change in accounting estimates. The depreciationexpense on the items of property, plant and equipment is recognized in consolidated statement ofcomprehensive income.

When property, plant and equipment are retired or otherwise disposed of, their cost, accumulateddepreciation and any allowance for impairment in value are eliminated from the accounts and anyresulting gain or loss is credited to or charged to current operations. Fully depreciated property, plantand equipment are retained in the accounts until these are no longer in use.

Construction in progress, included in property, plant and equipment, is stated at cost. This includescost of construction, property and equipment and other direct costs. Construction in progress is notdepreciated until such time when the relevant assets are completed and put into operational use.

Investment PropertyInvestment property is measured initially at cost, including transaction costs.

Initial cost consists of purchase price of the purchased investment property or construction cost forself-constructed investment property and any directly attributable expenditure such as professionalfees for legal services, borrowing costs during construction, property transfer taxes and othertransaction costs, in bringing the asset to its working condition for its intended use.

Subsequent to initial recognition, investment property is stated at cost less any impairment in value.

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The building and building improvement included in investment property of the Group are depreciatedon a straight-line basis over the estimated useful life of 41 and 11 years, respectively.

Investment property is derecognized when either it has been disposed of or when the investmentproperty is permanently withdrawn from use and no future economic benefit is expected from itsdisposal. Any gains or losses on the retirement or disposal of an investment property are recognizedin the consolidated statement of comprehensive income in the year of derecognition.

Expenditures incurred after the investment property have been put into operations are normallycharged to profit or loss in the period in which the costs are incurred.

Transfers are made to investment property when, and only when, there is a change in use, evidencedby the end of owner occupation, commencement of an operating lease to another party or completionof construction or development. Transfers are made from investment property when, and only when,there is a change in use, evidenced by commencement of owner occupation or commencement ofdevelopment with a view to sale.

For transfers from investment property to owner-occupied property, the deemed cost of property forsubsequent accounting is its carrying amount at the time of transfer. If the property occupied by theGroup as an owner-occupied property becomes an investment property, the Group accounts for suchproperty in accordance with the policy stated under “Property, plant and equipment” up to the date ofchange in use.

Intangible AssetsIntangible assets acquired separately are measured on initial recognition at cost. Following initialrecognition, intangible assets are carried at cost less any accumulated amortization and anyaccumulated impairment losses. Internally generated intangible assets, excluding capitalizeddevelopment costs, are not capitalized and expenditure is reflected in the consolidated statement ofcomprehensive income in the year in which the expenditure is incurred.

Computer software licenseComputer software license is initially recognized at cost. Following initial recognition, the computersoftware license cost is carried at cost less accumulated amortization and any accumulatedimpairment in value.

The computer software license is amortized on a straight-line basis over its estimated useful economiclife of 3 to 5 years and assessed for impairment whenever there is an indication that the intangibleasset may be impaired. The amortization commences when the computer software license isavailable for use. The amortization period and the amortization method for the license are reviewedat each financial year end. Changes in the estimated useful life is accounted for by changing theamortization period or method, as appropriate, and treated as changes in accounting estimates. Theamortization expense is recognized in the consolidated statement of comprehensive income in theexpense category consistent with the function of the computer software license.

Gains or losses arising from derecognition of an intangible asset are measured as the differencebetween the net disposal proceeds and the carrying amount of the asset and are recognized in theconsolidated statement of comprehensive income when the asset is derecognized.

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Land-use rightsLand-use rights, included under “Investment Property” and “Intangible Assets” account, representsthe exclusive right to use the land where the Group’s buildings are situated is stated at cost lessaccumulated amortization and any impairment in value. The cost of the land-use rights representspayment made for the whole term of the contract. Amortization is computed using the straight-linemethod over 50 to 75 years based on the contract period for the exclusive right to use the land.

The amortization method and estimated useful lives for land-use rights are reviewed periodically.Changes in the expected useful life or the expected pattern of consumption of future economicbenefits embodied in the land-use rights are accounted for by changing the amortization method anduseful life, as appropriate, and treated as a change in accounting estimates. The amortizationexpense on land-use rights is recognized in the consolidated statement of comprehensive income.

Impairment of Nonfinancial AssetsThe Group assesses at each reporting date whether there is an indication that these nonfinancial assetsmay be impaired. If any such indication exists, or when annual impairment testing for an asset isrequired, the Group estimates these nonfinancial assets’ recoverable amount. An asset’s recoverableamount is the higher of an asset’s or cash-generating unit’s (CGU) fair value less costs to sell and itsvalue in use and is determined for an individual asset, unless the asset does not generate cash inflowsthat are largely independent of those from other assets or groups of assets. Where the carryingamount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and iswritten down to its recoverable amount. In assessing value in use, the estimated future cash flows arediscounted to their present value using a discount rate that reflects current market assessments of thetime value of money and the risks specific to the asset. In determining fair value less costs to sell, anappropriate valuation model is used.

These calculations are corroborated by valuation multiples or other available fair value indicators.Impairment losses from continuing operations are recognized in the consolidated statement ofcomprehensive income.

An assessment is made at each reporting date to determine whether there is any indication thatpreviously recognized impairment losses may no longer exist or may have decreased. If suchindication exists, the Group makes an estimate of recoverable amount. Any previously recognizedimpairment loss is reversed only if there has been a change in the estimates used to determine theasset’s recoverable amount since the last impairment loss was recognized. If that is the case, thecarrying amount of the asset is increased to its recoverable amount. That increased amount cannotexceed the carrying amount that would have been determined, net of depreciation and amortization,had no impairment loss been recognized for the asset in prior years. Such reversal is recognized inthe consolidated statement of comprehensive income.

ProvisionsProvisions are recognized when the Group has a present obligation (legal or constructive) as a resultof a past event, it is probable that an outflow of resources embodying economic benefits will berequired to settle the obligation and a reliable estimate can be made of the amount of the obligation.If the effect of the time value of money is material, provisions are made by discounting the expectedfuture cash flows at a pre-tax rate that reflects current market assessments of the time value of moneyand, where appropriate, the risks specific to the liability. Where discounting is used, the increase inthe provision due to the passage of time is recognized as an interest expense.

Where the Group expects some or all of a provision to be reimbursed, the reimbursement isrecognized as a separate asset but only when the reimbursement is virtually certain. The expense

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relating to any provision is presented in the consolidated statement of comprehensive income, net ofany reimbursement.

Income TaxesCurrent Income TaxCurrent income tax liabilities for the current and prior periods are measured at the amount expected tobe recovered from or paid to the tax authority. The tax rates and tax laws used to compute theamount are those that have been enacted or substantively enacted at the reporting date.

Deferred Income TaxDeferred income tax is provided, using the balance sheet liability method, on all temporarydifferences at the reporting date between the tax bases of assets and liabilities and their carryingamounts for financial reporting purposes.

Deferred income tax liabilities are recognized for all taxable temporary differences. Deferred incometax assets are recognized for all deductible temporary differences to the extent that it is probable thattaxable profit will be available against which the deductible temporary differences and carryforwardof unused tax credits can be utilized.

The carrying amount of deferred income tax assets is reviewed at each reporting date and reduced tothe extent that it is no longer probable that sufficient taxable profit will be available to allow all orpart of the deferred income tax assets to be utilized. Unrecognized deferred income tax assets arereassessed at each reporting date and are recognized to the extent that it has become probable thatfuture taxable profit will allow the deferred income tax assets to be recovered.

Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply tothe period when the asset is realized or the liability is settled, based on tax rates (and tax laws) thathave been enacted or substantively enacted at the reporting date.

Capital StockThe Group has issued capital stock that is classified as equity. Capital recognized as issued whenthe stock is paid for or subscribed under a binding subscribing agreement and is measured at par valuefor all issued shares.

Additional Paid-in Capital (APIC)Consideration received in excess of par value are recognized as APIC, net of incremental costs thatare directly attributable to the issuance of new shares.

Retained EarningsRetained earnings include accumulated profits and losses attributable to the Group’s equity holders.Dividends, if any, are recognized as a liability and deducted from equity when they are declared.Dividends for the year that are approved after the reporting date are dealt with as an event after thereporting date. Retained earnings may also include effect of changes in accounting policy as may berequired by the standard’s transitional provisions.

Equity ReserveEquity reserve pertains to the legal capital of acquired entity under common control prior to theParent Company’s actual purchase of shares and obtaining control. Subsequent to the acquisition,equity reserve pertains to the excess of consideration over the legal capital of the acquired entity.

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Revenue RecognitionPrior to adoption of PFRS 15, revenue is recognized to the extent that it is probable that the economicbenefits associated with the transactions will flow to the Group and the amount of revenue can bereliably measured. Revenue is recognized when the title passes to the buyer and the amount ofrevenue can be measured reliably.

Upon adoption of PFRS 15, revenue is measured based on the consideration to which the Groupexpects to be entitled in exchange for transferring promised goods or services to a customer,excluding amounts collected on behalf of third parties.

Revenue is recognized when the Group satisfies a performance obligation by transferring a promisedgood or service to the customer, which is when the customer obtains control of the good or service. Aperformance obligation may be satisfied at a point in time or over time. The amount of revenuerecognized is the amount allocated to the satisfied performance obligation.

Sale of GoodsRevenue is recognized when the goods are delivered to the customer and all criteria for acceptancehave been satisfied. The amount of revenue recognized is based on the contractual price.

For the years ended December 31, 2018, 2017 and 2016, the Group has no variable consideration andthe timing of revenue recognition currently does not result in any contract assets or liabilities andthere are no unfulfilled performance obligations at any point in time.

Rental RevenueRental income arising from operating leases on investment property is accounted for on a straight-linebasis over the lease term.

Interest IncomeInterest income is recognized as it accrues using the effective interest rate method.

Other IncomeOther income is recognized when there is an incidental economic benefit, other than the usualbusiness operations, that will flow to the Group through increase in asset or decrease in liability.

Costs and ExpensesExpenses are decreases in economic benefits during the accounting period in the form of outflows ordepletions of assets or incurrence of liabilities that result in decreases in equity, other than thoserelating to distributions to equity participants. Costs and expenses are generally recognized when theservices are used or the expenses arise.

Costs of Goods SoldCosts of goods sold include direct material costs, personnel expenses, utilities and othermanufacturing costs. This is recognized when the inventories are sold and title is transferred to thebuyer.

Costs of RentCosts of rent include depreciation expense, repairs and maintenance and taxes and licenses. This isrecognized when incurred.

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General and Administrative ExpensesGeneral and administrative expenses are incurred in the direction and general administration of day-to-day operations of the Group. General and administrative expenses are generally recognized whenthe services are used or the expenses arise.

Retirement BenefitsThe Group does not have an established retirement plan and only conforms to the minimumregulatory benefit under the Retirement Pay Law [Republic Act. (RA) No. 7641] which is of thedefined benefit type. Since the Group does not have formal retirement plan, benefit claims under theretirement obligation are paid directly by the Group when they become due.

The defined benefit obligation is the aggregate of the present value of the defined benefit obligation atthe end of the reporting period. The cost of providing benefits under the defined benefit plan isactuarially determined by an independent qualified actuary using the projected unit credit method.

Defined benefit costs comprise the following:ƒ Service costƒ Interest expense on the defined benefit obligationƒ Remeasurements of defined benefit obligation

Service costs which include current service costs, past service costs and gains or losses on non-routinesettlements are recognized as expense in the consolidated statement of comprehensive income. Pastservice costs are recognized when plan amendment occurs.

Interest expense on the defined benefit obligation is the change during the period in the definedbenefit obligation that arises from the passage of time which is determined by applying thediscount rate based on government bonds to the defined benefit obligation. Interest expense on thedefined benefit obligation is recognized as expense in the consolidated statement of comprehensiveincome.

Remeasurements comprising actuarial gains and losses (excluding interest expense on defined benefitobligation) are recognized immediately in Other Comprehensive Income (OCI) in the period in whichthey arise. Remeasurements are not reclassified to profit or loss in subsequent periods.

Operating LeasesOperating Lease Commitments - Group as Lessor. Leases where the Group does not transfersubstantially all the risk and benefits of ownership of the assets are classified as operating leases.Lease payments received are recognized as income when received.

Operating Lease Commitments - Group as Lessee. Leases where the lessor retains substantially allthe risks and benefits of ownership of the asset are classified as operating leases. Operating leasepayments on cancellable leases are recognized as expense in the consolidated statement ofcomprehensive income based on the terms of the lease.

Borrowing CostsBorrowing costs directly attributable to the acquisition, construction or production of an asset thatnecessarily takes a substantial period of time to get ready for its intended use are capitalized as part ofthe cost of the asset. All other borrowing costs are expensed in the period in which they occur.

Borrowing costs consists of interest and other costs that an entity incurs in connection with theborrowing of funds.

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Foreign Currency TransactionsTransactions in foreign currencies are recorded using the exchange rate at the date of the transaction.Monetary assets and liabilities denominated in foreign currencies are retranslated using the closingexchange rate at the reporting date. Foreign exchange differences between the rates at transactiondate and settlement date or reporting date are recognized in the consolidated statement ofcomprehensive income. Nonmonetary items that are measured in terms of historical cost in foreigncurrency are translated using the exchange rates at the dates of the initial transactions.

Earnings Per Share (EPS)Basic earnings per share is calculated by dividing profit for the year attributable to equity holders ofthe Parent Company (excluding other comprehensive income) by the weighted average number ofordinary shares in issue during the year.

Diluted earnings per share is calculated by dividing profit for the year attributable to equity holders ofthe Parent Company (excluding other comprehensive income) by the weighted average number ofordinary shares in issue during the year plus the weighted average number of ordinary shares whichwould need to be issued to convert all dilutive potential ordinary shares into ordinary shares. Thecalculation assumes that the conversion took place either at the beginning of the year or on the datethe potential ordinary shares were issued.

Segment ReportingThe Group’s operating businesses are organized and managed separately according to the nature ofthe products and services provided, with each segment representing a strategic business unit thatoffers different products and serves different markets.

The Group’s only reportable segment is the sale of electronic equipment. Financial information onGroup’s reportable segment is presented in Note 26 to the consolidated financial statements.

ContingenciesContingent liabilities are not recognized in the consolidated financial statements. These aredisclosed unless the possibility of an outflow of resources embodying economic benefits is remote.Contingent assets are not recognized in the consolidated financial statements but disclosed in thenotes to consolidated financial statements when an inflow of economic benefits is probable.

Events after the Reporting DatePost year-end events that provide additional information about the Group’s position at the reportingdate (adjusting events) are reflected in the consolidated financial statements. Post year-end eventsthat are not adjusting events are disclosed in the notes to the consolidated financial statements whenmaterial.

3. Significant Accounting Judgments and Estimate

The Group’s consolidated financial statements, prepared in compliance with PFRSs, require theGroup to make judgments and estimates that affect amounts reported in the Group’s consolidatedfinancial statements and related notes. In preparing these consolidated financial statements, theGroup made its best judgments and estimates of certain amounts, giving due consideration tomateriality. The Group believes that the following represent a summary of these significantaccounting judgments and estimates and related impact and associated risks in the Group’sconsolidated financial statements.

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Judgments and estimates are continually evaluated and are based on historical experiences and otherfactors, including expectations of future events that are believed to be reasonable under thecircumstances.

Judgments

Determining Functional CurrencyBased on the economic substance of the underlying circumstances relevant to the Group, thefunctional currency of the Group has been determined to be the US dollar since the Group’s revenueand expenses are denominated mostly in US dollar. It is the currency that best reflects the economicsubstance of the underlying events and circumstances relevant to the Group.

Determining Useful Lives of Property, Plant and Equipment, Investment Property and IntangibleAssets

The Group estimates the useful lives of property, plant and equipment, investment property andintangible assets based on the period over which these assets are expected to be available for use.The estimated useful lives are reviewed periodically and are updated if expectations differ fromprevious estimates due to physical wear and tear, technical or commercial obsolescence and legal orother limits on the use of these assets. In addition, estimation of the useful lives is based oncollective assessment of industry practice, internal technical evaluation and experience with similarassets. It is possible that future results of operations could be materially affected by changes in theseestimates brought about by changes in the factors mentioned. The amounts and timing of recordedexpenses for any period would be affected by changes in these factors and circumstances.

Distinction between Property, Plant and Equipment, Investment Property and Land-Use RightsThe Group determines whether a property and land-use right qualifies as investment property. Inmaking its judgment, the Group considers whether the property and land-use right is not occupiedsubstantially for use by, or in operations of the Group, not for sale in the ordinary course of business,but are held primarily to earn rental income and capital appreciation. Owner-occupied propertiesgenerate cash flows that are attributable not only to property but also to the other assets used in theproduction or supply process.

Some properties and land-use rights comprise a portion that is held to earn rentals or for capitalappreciation and another portion that is held for use in the production or supply of goods or servicesor for administrative purposes. If these portions cannot be sold separately as of reporting date, theproperty is accounted for as investment property only if an insignificant portion is held for use in theproduction or supply of goods or services or for administrative purposes. Judgment is applied indetermining whether ancillary services are so significant that a property does not qualify asinvestment property. The Group considers each property and land-use right separately in making itsjudgment.

Transfers are made to investment property when, and only when, there is a change in use, evidencedby the end of owner occupation, commencement of an operating lease to another party or completionof construction or development. Transfers are made from investment property when, and only when,there is a change in use, evidenced by commencement of owner occupation or commencement ofdevelopment with a view to sale.

Estimate

Estimating Retirement BenefitsThe cost of the defined benefit pension plan and other post-employment and the present value of thepension obligation are determined using actuarial valuations. An actuarial valuation involves

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making various assumptions that may differ from actual developments in the future. These includethe determination of the discount rate, future salary increases, mortality rates and future pensionincreases. Due to the complexities involved in the valuation and its long-term nature, a definedbenefit obligation is highly sensitive to changes in these assumptions. All assumptions are reviewedat each reporting date.

The discount rate assumption is based on the theoretical spot yield curve calculated from the BankersAssociation of the Philippines (BVAL Rate) market yields by stripping the coupons from governmentbonds to create virtual zero coupon bonds as of valuation date and considering the average years ofremaining working life of the employees as the estimated term of the benefit obligation.

The mortality rate is based on publicly available mortality tables and is modified accordingly withestimates of mortality improvements. Future salary increases are based on expected inflation rates.

Further details about assumptions used are provided in Note 20.

Retirement benefit expense recognized in the consolidated statements of comprehensive incomeamounted to $172,357, $76,112, and $73,611 for the years ended December 31, 2018, 2017 and 2016,respectively. The retirement benefit obligation amounted to $0.1 million, $0.2 million and$0.1 million as of December 31, 2018, 2017 and 2016, respectively (see Note 20).

4. Cash

2018 2017 2016Cash on hand $11,146 $20,565 $6,112Cash in banks 25,135,220 26,383,269 10,669,057

$25,146,366 $26,403,834 $10,675,169

Cash in banks earn interest at the respective bank deposit rates. Interest income earned from cash inbanks amounted to $14,926, $11,439 and $7,327 for the years ended December 31, 2018, 2017 and2016, respectively.

5. Trade and Other Receivables

2018 2017 2016Trade receivables:

Third parties $85,625,869 $42,254,559 $4,619,868Related parties (see Note 12) 7,287,325 7,200,020 5,614,454

Others:Third parties 611,877 1,707,900 138,603Related parties (see Note 12) 1,374,222 888,667 198,401

$94,899,293 $52,051,146 $10,571,326

Trade receivables from third parties are noninterest-bearing and generally have credit terms rangingfrom 45 to 91 days.

Related party receivables are noninterest-bearing and are expected to be collected within a period ofthree months.

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Other receivables from third parties include receivable from lessees representing utilities expense andother recharges to customers.

No impairment loss was recognized on trade and other receivables for the years endedDecember 31, 2018, 2017 and 2016 as a result of the Group’s assessment.

6. Inventories

2018 2017 2016At cost:

Raw materials $61,163,741 $36,314,002 $22,582,425Work in progress 8,834,104 2,683,980 1,837,331Finished goods 4,967,738 4,969,800 2,725,153

74,965,583 43,967,782 27,144,909At NRV:Raw materials - net of allowance for

inventory write-down 1,626,571 450,933 −Work in progress - net of allowance for

inventory write-down 187,691 5,468,760 1,179,684Finished goods - net of allowance for

inventory write-down 3,352,245 2,559,328 1,555,6315,166,507 8,479,021 2,735,315

$80,132,090 $52,446,803 $29,880,224

Movement in the allowance for inventory write-down is as follows:

2018 2017 2016Balances at beginning of year $102,944 $145,599 $2,382Provision − − 143,217Reversal (37,023) (42,655) −Balances at end of year $65,921 $102,944 $145,599

Inventories charged to costs of goods sold amounted to $332.5 million, $165.2 million and $97.2million for years ended December 31, 2018, 2017 and 2016, respectively (see Note 14).

Reversal of inventory write-down for the years ended December 31, 2018, 2017 and 2016 amountingto $37,023, $42,655, and nil, respectively, arose from the change in net realizable value due toincrease in market selling price.

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7. Property, Plant and Equipment

December 31, 2018

Buildings andBuilding

Improvements

Machineryand FactoryEquipment

TransportationEquipment

OfficeFurniture

andEquipment

MiscellaneousEquipment

ConstructionIn-Progress Molds Total

CostBalances at beginning of year $30,419,511 $20,854,480 $433,281 $1,266,734 $8,105,110 $32,580,580 $1,564,329 $95,224,025Additions 25,029 7,767,456 − 3,378 3,507,609 13,550,743 1,174,355 26,028,570Disposals − (807,535) (77,618) (89,443) − − (46,032) (1,020,628)Reclassifications 29,114,928 − − − 31,272 (29,114,928) (31,272) −Transfer to investment

property (see Note 8) (10,488,833) − − − − − − (10,488,833)Balances at end of year 49,070,635 27,814,401 355,663 1,180,669 11,643,991 17,016,395 2,661,380 109,743,134

Accumulated depreciationBalances at beginning of year 1,774,169 7,705,383 213,330 762,640 2,098,141 – 1,028,251 13,581,914Depreciation for the year

(see Notes 14, 15 and 16) 1,183,574 3,740,803 60,747 92,634 1,459,477 – 748,941 7,286,176Disposals − (66,405) (62,921) (86,736) – – (23,255) (239,317)Reclassifications − − − − 23,981 – (23,981) –Balances at end of the year 2,957,743 11,379,781 211,156 768,538 3,581,599 – 1,729,956 20,628,773Net book value $46,112,892 $16,434,620 $144,507 $412,131 $8,062,392 $17,016,395 $931,424 $89,114,361

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December 31, 2017


Improvements



OfficeFurniture

andEquipment



CostBalances at beginning of year $29,808,540 $16,289,230 $433,281 $1,240,197 $6,822,205 $25,065,335 $2,368,454 $82,027,242Additions 70,064 4,621,266 − 43,816 1,282,905 8,056,152 337,743 14,411,946Disposals − (56,016) − (17,279) − − (1,141,868) (1,215,163)Reclassifications 540,907 − − − − (540,907) − −Balances at end of year 30,419,511 20,854,480 433,281 1,266,734 8,105,110 32,580,580 1,564,329 95,224,025

Accumulated depreciationBalances at beginning of year 1,015,969 4,761,629 149,987 615,998 1,073,324 − 1,401,152 9,018,059Depreciation for the year

(see Notes 14, 15 and 16) 758,200 2,961,938 63,343 153,318 1,024,817 − 759,032 5,720,648Disposals − (18,184) − (6,676) − − (1,131,933) (1,156,793)Balances at end of year 1,774,169 7,705,383 213,330 762,640 2,098,141 − 1,028,251 13,581,914Net book value $28,645,342 $13,149,097 $219,951 $504,094 $6,006,969 $32,580,580 $536,078 $81,642,111

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December 31, 2016


Improvements



OfficeFurniture

andEquipment



CostBalances at beginning of year $38,198,176 $14,939,336 $350,076 $1,305,393 $3,846,759 $7,073,555 $1,589,628 $67,302,923Additions − 2,040,449 113,336 34,448 2,975,446 22,321,197 778,826 28,263,702Disposals − (690,555) (30,131) (99,644) – – – (820,330)Reclassifications 4,329,417 – – – – (4,329,417) – –Transfer to investment

property (see Note 8) (12,719,053) – – – – – – (12,719,053)Balances at end of year 29,808,540 16,289,230 433,281 1,240,197 6,822,205 25,065,335 2,368,454 82,027,242

Accumulated depreciationBalances at beginning of year 624,306 2,528,019 74,680 495,055 416,861 – 557,790 4,696,711Depreciation for the year

(see Notes 14, 15 and 16) 1,035,699 2,438,495 88,699 167,990 656,463 – 843,362 5,230,708Disposals – (204,885) (13,392) (47,047) – – – (265,324)Transfer to investment

property (see Note 8) (644,036) – – – – – – (644,036)Balances at end of year 1,015,969 4,761,629 149,987 615,998 1,073,324 – 1,401,152 9,018,059Net book value $28,792,571 $11,527,601 $283,294 $624,199 $5,748,881 $25,065,335 $967,302 $73,009,183

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Construction in progress pertains to the costs incurred for the construction of factory buildings ofKPPH located in Lipa City and Sto. Tomas, Batangas that is expected to be completed in 2019.

In 2016, the Group leased out its buildings and building improvements located in Calamba City,Laguna and Lipa City, Batangas. In line with this, the carrying value of buildings and buildingimprovements amounting to $12.1 million was reclassified to “Investment Property” (see Note 8).

In 2018, the Group leased out one of its building and building improvements located in Sto. Tomas,Batangas. In line with this, the carrying value of building and building improvements amounting to$10.5 million was reclassified to “Investment Property” (see Note 8).

The Group capitalized borrowing costs amounting to $336,610, $84,418, and $43,932 for the yearsended December 31, 2018, 2017 and 2016, respectively. The rate used to determine the amount ofborrowing costs eligible for capitalization ranges from 1.90% to 3.33%.

The cost of fully depreciated molds and office furniture and equipment still used in operationsamounted to $1.7 million, $0.8 million and $0.1 million as of December 31, 2018, 2017 and 2016,respectively.

8. Investment Property

December 31, 2018

Building andBuilding

ImprovementsLand-use

Rights TotalCostBalances at beginning of year $15,471,725 $2,340,964 $17,812,689Additions 1,156,593 – 1,156,593Transfer from property, plant and

equipment (see Note 7) 10,488,833 – 10,488,833Transfer from intangible assets (see Note 9) – 1,786,087 1,786,087Balances at end of year 27,117,151 4,127,051 31,244,202Accumulated depreciation and

amortizationBalances at beginning of year 1,214,736 121,976 1,336,712Transfer from intangible assets (see Note 9) – 49,055 49,055Depreciation and amortization for the year

(see Notes 14, 15 and 16) 1,043,590 57,004 1,100,594Balances at end of year 2,258,326 228,035 2,486,361Net book value $24,858,825 $3,899,016 $28,757,841

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December 31, 2017



Rights TotalCostBalances at beginning of year $12,719,053 $2,305,849 $15,024,902Additions 1,763,733 − 1,763,733Transfer from other current assets 521,940 − 521,940Transfer from other noncurrent assets 466,999 − 466,999Transfer from intangible assets (see Note 9) − 35,115 35,115Balances at end of year 15,471,725 2,340,964 17,812,689Accumulated depreciation and

amortizationBalances at beginning of year 725,669 89,955 815,624Depreciation and amortization

(see Notes 14, 15 and 16) 489,067 29,070 518,137Transfer from intangible assets (see Note 9) − 2,951 2,951Balances at end of year 1,214,736 121,976 1,336,712Net book value $14,256,989 $2,218,988 $16,475,977

December 31, 2016



Rights TotalCostBalances at beginning of year $− $− $−Transfer from property plant and equipment

(see Note 7) 12,719,053 − 12,719,053Transfer from intangible assets (see Note 9) − 2,305,849 2,305,849Balances at end of year 12,719,053 2,305,849 15,024,902Accumulated depreciation and

amortizationBalances at beginning of year − − −Transfer from property plant and equipment

(see Note 7) 644,036 − 644,036Transfer from intangible assets (see Note 9) − 77,343 77,343Depreciation and amortization (see

Notes 14, 15 and 16) 81,633 12,612 94,245Balances at end of year 725,669 89,955 815,624Net book value $11,993,384 $2,215,894 $14,209,278

Investment property consists of buildings, building improvements and land-use rights which areleased out to third parties and Cal-Comp Precision (Philippines), Inc., a related party.

In 2016 and 2018, portion of buildings, building improvements and land-use rights that are beingleased out to the lessees were transferred from property, plant and equipment and intangible assets toinvestment property. Investment properties are carried at cost on the date of the transfer and aremeasured subsequently at cost less accumulated depreciation and amortization.

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On May 24, 2016, the Parent Company entered into a construction contract for the renovation of itsinvestment property in Calamba City, Laguna. In accordance with the lease agreement, the ParentCompany shall initially pay for the cost of building improvements and will only be reimbursed by thelessee. As of December 31, 2016, the Parent Company recognized receivable from the lesseeamounting to $0.5 million presented under “Other current assets” and $0.5 million presented under“Other noncurrent assets” representing the reimbursable cost of renovation.

On March 24, 2017, a supplemental agreement to the lease agreement was executed by the ParentCompany and the lessee which provides that the cost of building improvements shall be for theaccount of the Parent Company and further provides for an increase in monthly rental (see Note 19).In line with this, the Parent Company’s receivable from the lessee amounting to $1.0 million wastransferred to “Investment property” at the date of the supplemental agreement.

The fair value of investment properties amounted to $30.35 million, $17.5 million and $15.2 millionas of December 31, 2018, 2017 and 2016, respectively. The fair value has been determined based onvaluations performed by an independent appraiser using market data, income and cost approach. Thevaluation techniques used are categorized within level 3 of the fair value hierarchy (see Note 25).

The Group capitalized borrowing costs amounting to $4,499, $5,664 and $85,704 for the years endedDecember 31, 2018, 2017 and 2016, respectively. The rates used to determine the amount ofborrowing costs eligible for capitalization range from 1.90% to 3.33%.

Rental revenue from the investment property amounted to $2.6 million $2.8 million, and $1.1 millionfor the years ended December 31, 2018, 2017, and 2016, respectively (see Note 19). Direct expensesrelated to leasing of the investment property amounted to $2.0 million, $1.4 million, and $0.9 millionfor the years ended December 31, 2018, 2017, and 2016, respectively (see Note 14).

9. Intangible Assets

December 31, 2018

Land-useRights

ComputerSoftware Total

CostBalances at beginning of year $23,225,214 $650,557 $23,875,771Additions 319,568 245,455 565,023Transfer to investment property (see Note 8) (1,786,087) – (1,786,087)Balances at end of year 21,758,695 896,012 22,654,707

Accumulated amortizationBalances at beginning of year 814,258 139,923 954,181Amortization (see Notes 14, 15 and 16) 348,989 283,542 632,531Transfer to investment property (see Note 8) (49,055) – (49,055)Balances at end of year 1,114,192 423,465 1,537,657Net book value $20,644,503 $472,547 $21,117,050

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December 31, 2017

Land-useRights


CostBalances at beginning of year $22,914,847 $177,939 $23,092,786Additions 345,482 472,618 818,100Transfer to investment property (see Note 8) (35,115) – (35,115)Balances at end of year 23,225,214 650,557 23,875,771

Accumulated amortizationBalances at beginning of year 502,514 26,802 529,316Amortization (see Notes 14, 15 and 16) 314,695 113,121 427,816Transfer to investment property (see Note 8) (2,951) – (2,951)Balances at end of year 814,258 139,923 954,181Net book value $22,410,956 $510,634 $22,921,590

December 31, 2016

Land-useRights


CostBalances at beginning of year $25,220,696 $– $25,220,696Additions – 177,939 177,939Transfer to investment property (see Note 8) (2,305,849) – (2,305,849)Balances at end of year 22,914,847 177,939 23,092,786

Accumulated amortizationBalances at beginning of year 245,666 – 245,666Amortization (see Notes 14, 15 and 16) 334,191 26,802 360,993Transfer to investment property (see Note 8) (77,343) – (77,343)Balances at end of year 502,514 26,802 529,316Net book value $22,412,333 $151,137 $22,563,470

10. Trade and Other Payables

2018 2017 2016Trade $54,648,836 $44,454,429 $26,156,898Accruals:

Retention fees 2,147,310 1,530,067 62,425Utilities 1,081,092 297,647 519,000Payroll 1,078,310 1,101,237 438,520Personnel expense 439,644 447,642 1,436,783Interest (see Notes 11 and 12) 234,593 86,980 −Professional fees 126,234 238,233 102,107Outside services 90,570 82,248 103,176Transportation and travel 32,711 48,345 231,889

Others 1,511,532 944,527 1,148,964$61,390,832 $49,231,355 $30,199,762

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Trade payables are noninterest-bearing and are generally on a 30-day credit term.

Accrued expenses are normally settled within a year.

Other payables consist mainly of statutory payables such as withholding taxes, SSS premium, healthinsurance and other liabilities to the government. Other payables are noninterest-bearing and arenormally settled within 30 days.

11. Loans Payable

2018 2017 2016Bank loans $104,000,000 $69,053,647 $–Loans from related parties – – 10,000,000

$104,000,000 $69,053,647 $10,000,000

KPPH obtained short-term loans from different banks and from a related party as follows:

December 31, 2018

Banks Credit Line Drawdown Interest ratesOutstanding

balanceCTBC Bank (Philippines) Corporation $30,000,000 $27,000,000 2.85%-3.60% $27,000,000BDO Unibank Inc. 20,000,000 15,000,000 3.75%-4.00% 15,000,000Cathay United Bank Co., Ltd. 24,000,000 14,000,000 3.92%-3.97% 14,000,000Mega International Commercial Bank 20,000,000 10,000,000 3.56%-3.79% 15,000,000Taiwan Cooperative Bank 15,000,000 13,000,000 4.18% 3,000,000Metropolitan Bank and Trust Company 13,000,000 13,000,000 4.00% 13,000,000First Commercial Bank Ltd, Manila Branch 10,000,000 14,000,000 2.35%-3.20% 8,000,000Australia and New Zealand Banking Group

Limited 10,000,000 1,000,000 3.56%-3.79% –Bank of the Philippine Islands 10,000,000 9,000,000 4.55% 9,000,000Standard Chartered Bank 5,000,000 5,000,000 3.95% –

$157,000,000 $121,000,000 $104,000,000

December 31, 2017

Credit Line Drawdown Interest ratesOutstanding

balanceMega International Commercial Bank $20,000,000 $28,240,000 2.49%–2.83% $19,120,000CTBC Bank (Philippines) Corporation 20,000,000 32,900,000 2.35%–2.75% 17,900,000Metropolitan Bank and Trust Company 33,837,880 49,475,064 2.80%–3.10% 14,019,627BDO Unibank Inc. 15,000,000 19,748,229 2.90%–3.00% 10,014,020Taiwan Cooperative Bank 15,000,000 8,000,000 2.88% 8,000,000KPO None 15,000,000 2.20% –

$103,837,880 $153,363,293 $69,053,647

December 31, 2016

Credit Line Drawdown Interest ratesOutstanding

balanceKPO None $23,000,000 1.15%–1.95% $10,000,000

ƒ The loans from CTBC Bank (Philippines) Corporation, Mega International Commercial Bank,Taiwan Cooperative Bank, Metropolitan Bank and Trust Company (Metrobank), BDO UnibankInc., Cathay United Bank Co., Ltd., First Commercial Bank, Ltd., Manila Branch, Australia and

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New Zealand Banking Group Limited, Bank of the Philippine Islands, and Standard CharteredBank are secured by a Letter of Support from KPO. Loan drawdowns made were consideredshort-term with a term not exceeding 180 days.

ƒ In October 2018, the KPPH entered into a credit line agreement with Taiwan Cooperative BankManila Offshore Banking Branch amounting to $15,000,000. The loan was considered short-term with a term of not exceeding 180 days at 4.18% per annum.

ƒ In September 2018, KPPH entered into a credit line agreement with Cathay United Bankamounting to $24,000,000. Amount of drawdown in 2018 has a term of not exceeding 180 daysand bears interest at 3.92%-3.97% per annum.

ƒ In August 2018, KPPH entered into credit line agreements with CTBC Bank (Philippines), Corp.and BDO Unibank, Inc. amounting to $30,000,000 and $20,000,000, respectively, with a term ofnot exceeding 180 days and bear interest at 2.85%-3.60% and 3.75%-4.00% per annum,respectively.

ƒ In April 2018, KPPH entered into a credit line agreement with Bank of the Philippine Islandsamounting to $10,000,000. Amount of drawdown in 2018 has a term of not exceeding 180 daysand bears interest at 3.95%-4.55% per annum.

ƒ In April 2018, KPPH entered into a credit line agreement with Metrobank amounting to$13,000,000 with a term of not exceeding 90 days and bears interest of 4.00% per annum.

ƒ In March 2018, KPPH entered into a credit line agreement with Standard Chartered Bankamounting to $5,000,000 with a term not exceeding 90 days at 3.43%-3.95% per annum.

ƒ In January 2018, KPPH entered into a credit line agreement with Australia and New ZealandBanking Group amounting to $10,000,000. First drawdown was made in 2018 with a term ofnot exceeding 180 days and bears interest at 3.56%-3.79% per annum.

ƒ In December 2017, KPPH entered into a credit line agreement with Mega InternationalCommercial Bank Co. Ltd. amounting to $20,000,000. Amount of drawdown in 2018 has a termof not exceeding 180 days and bears interest at 3.56%-3.79% per annum.

ƒ In November 2017, KPPH entered into a credit line agreement with First Commercial Bank, Ltd.,Manila Branch amounting to $10,000,000. First drawdown was made in 2018 with a term of notexceeding 180 days and bears interest at 2.35%-3.20% per annum.

ƒ In January 2017, KPPH entered into a loan agreement with KPO amounting to $15,000,000.The loan bears interest at 2.20% per annum. The principal amount and interest was paid inNovember 2017.

ƒ In November 2016, KPPH entered into a loan agreement with KPO amounting to $10,000,000.The loan bears interest at 1.95% per annum. The principal amount and interest was paid inAugust 2017.

ƒ In January 2016, KPPH entered into a loan agreement with KPO amounting to $13,000,000. Theloan bears interest at 1.15% per annum. The principal amount and interest was paid inNovember 2016.

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The loans are unsecured. Interest expense incurred, excluding capitalized borrowing costs, amountedto $2.64 million, $1.3 million and $0.5 million for 2018, 2017, and 2016, respectively. Accruedinterest amounted to $234,593, $86,980 and nil as of December 31, 2018, 2017 and 2016, respectively(see Notes 10 and 12).

12. Related Party Transactions

Parties are considered to be related if one party has the ability, directly or indirectly, to control theother party or exercise significant influence over the other party in making financial and operatingdecisions. Parties are also considered to be related if they are subject to common control or commonsignificant influence. The Group, in its regular course of business, has entered into transactions withrelated parties at terms and conditions agreed upon by the parties.

The significant transactions with related parties follow:As of and for the Year Ended December 31, 2018

Transactions duringthe year

OutstandingBalance

Receivable(Payable) Terms Conditions

KPO (Ultimate Parent)Sale of goods $114,009,055 $6,038,953 60 days;

Noninterest-bearingUnsecured;

No impairmentOther recharges 27,641 27,641 30 days;


No impairmentStockholderCCET

Sales of machinery and equipment 726,784 726,784 90 daysNoninterest-bearing

Unsecured;No impairment

Acquisition of property andequipment

83,334 (662,004) 90 daysNoninterest-bearing

Unsecured

Purchase of raw materials 30,262 (10,691) 90 daysNoninterest-bearing

Unsecured

Sale of goods 169 − 90 daysNoninterest-bearing


Entities under common controlKinpo International Ltd.


1,392,251 (1,392,251) 90 days;Noninterest-bearing


Purchase of raw materials 339,355 (217,739) 90 days;Noninterest-bearing


Sale of goods 36,586 1,838 30 days;Noninterest-bearing

Unsecured

Cal-Comp Precision (Philippines), Inc.Purchase of raw materials 38,093,689 (11,908,181) 30 days;

Noninterest-bearing Unsecured

Rental Revenue 672,436 1,123,738 On demand;Noninterest-bearing


Other receivables - rent related − 595,456 On demand;Noninterest-bearing


Cal-Comp Big Data, Inc.Sale of goods 104,642 104,642 On demand;


No impairmentCrownpo Technology, Inc.


Unsecured

XYZ Life Philippines, Inc.Sale of goods 16,228 18,154 90 days;


No impairmentOther recharges 23,388 23,067 90 days;


No impairmentCal-Comp Electronics &

Communications Co., LtdAcquisition of property and

equipment59,685 − 90 days;

Noninterest-bearingUnsecured

Logistar Holdings, Co.,Ltd.Sale of Materials/Supplies 1,274 1,274 90 days;


$8,661,547($14,193,641)

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As of and for the Year Ended December 31, 2017

Transactionsduring the

year

OutstandingBalance


KPO (Ultimate Parent)Sale of goods $97,480,397 $6,903,960 60 days;


No impairmentOther trade receivables 498,705 201,103 60 days;


No impairmentShort-term loans (see Note 11) 15,000,000 – 90 days;


Interest payable 403,767 – 90 days;Noninterest-bearing

Unsecured

StockholderCCET

Acquisitions of property andequipment

684,926 (600,981) 90 daysNoninterest-bearing

Unsecured

Purchase of raw materials and spareparts

17,149 (930) 90 daysNoninterest-bearing

Unsecured

Repairs and maintenance 36,576 (945) 90 daysNoninterest-bearing

Unsecured

Sale of machinery and otherequipment

9,935 – 90 daysNoninterest-bearing


Sale of goods 5,533 – 90 daysNoninterest-bearing


Entities under common controlCal-Comp Precision (Philippines), Inc.

Purchase of raw materials 14,347,368 (6,288,429) 30 days;Noninterest-bearing

Unsecured

Other receivables - rent related 1,750,398 507,319 On demand;Noninterest-bearing


Rental revenue 438,160 474,870 On demand;Noninterest-bearing


Other recharges 1,749 – 90 daysNoninterest-bearing


Kinpo International Ltd.Purchase of raw materials 122,080 (272,730) 60 days;


Sale of goods 1,435 1,435 90 days;Noninterest-bearing



572,340 – 90 days;Noninterest-bearing

Unsecured

Repairs and maintenance 260 – 90 days;Noninterest-bearing

Unsecured

Cal-Comp Electronics andCommunications (Suzhou) Co. Ltd.Acquisition of property and

equipment20,481 (20,481) 90 days


Repairs and maintenance 700 (700) 90 days;Noninterest-bearing

Unsecured

Crownpo Technology, Inc.Purchase of raw materials 10,613 (5,326) 90 days; Noninterest-

bearingUnsecured

AcBel Polytech Inc.Purchase of raw materials 70,598 – On demand; Noninterest-

bearing Unsecured

XYZ Printing, Inc.Acquisition of property andequipment

1,301 – 90 daysNoninterest-bearing

Unsecured

$8,088,687($7,190,522)

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As of and for the Year Ended December 31, 2016

Transactionsduring the

year

OutstandingBalance


KPO (Ultimate Parent)Short-term loans (see Note 11) $10,000,000 ($10,000,000) 90 days;


Sale of goods 105,565,902 5,581,690 60 days;Noninterest-bearing


Interest payable 295,450 (21,125) 90 days;Noninterest-bearing

Unsecured

Other trade receivables 64,810 61,886 60 days;Noninterest-bearing


Other trade payables 1,205 (1,150) 90 days;Noninterest-bearing

Unsecured

StockholderCCET

Purchase of raw materials and spareparts

66,122 (3,693) 90 days; Noninterest-bearing

Unsecured

Acquisitions of property andequipment

683,817 – 90 days; Noninterest-bearing

Unsecured

Entities under common controlCal-Comp Precision (Philippines), Inc.


Unsecured

Other receivables - rent related 345,485 136,515 On demand;Noninterest-bearing


Rental revenue 35,482 32,187 On demand;Noninterest-bearing


Kinpo International Ltd.Acquisition of property and

equipment 361,796 (180,870) 90 days;



Unsecured

Sale of goods 6,829 577 90 days;Noninterest-bearing


Crownpo Technology, Inc. (CRV)Purchase of machinery and equipment 2,492 (2,493) 90 days;


Purchase of raw materials 9,481 – 90 days;Noninterest-bearing

Unsecured

Cal Comp Optical Electronics (Suzhou)Co., Ltd.Purchase of machinery and equipment 129,013 – 90 days;


Purchase of raw materials 4,135 – 90 days;Noninterest-bearing

Unsecured

Cal Comp Precision (Dongguan) LimitedPurchase of raw materials 4,407 – 90 days;


$5,812,855($10,756,740)

Outstanding balances with related parties are generally settled in cash.

Compensation of Key Management Personnel of the GroupThe compensation of the Group’s key management personnel by benefit type as follows:

2018 2017 2016Short-term employee benefits $52,367 $163,060 $86,061Post-employment pension benefits 4,756 1,091 988

$57,123 $164,151 $87,049

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13. Revenue from Contracts with Customers

Set out below is the disaggregation of the Group’s revenue from contracts with customers:

Type of Goods or ServiceRevenue recognized by the Group from sale of electronic equipment amounted to $412,652,466,$207,847,580, and $122,532,728 for the period December 31, 2018, 2017, and 2016, respectively.

Geographical Market

2018 2017 2016Sale of electronic equipment

Philippines* $297,028,869 $101,580,351 $15,627,234Taiwan 114,155,875 106,252,904 105,549,678Malaysia 1,449,794 − −British Virgin Islands 8,233 1,435 6,829Thailand 6,797 5,533 −Hong Kong 2,898 7,357 1,282,267China − − 66,720

$412,652,466 $207,847,580 $122,532,728*Sales in Philippines pertain to sales to PEZA-registered entities

Timing of Revenue RecognitionRevenue recognized when goods were transferred at a point in time amounted to $412,652,466,$207,847,580, and $122,532,728 for the period December 31, 2018, 2017, and 2016, respectively.

No provision for impairment losses on receivables arising from contracts with customers isrecognized for the years ended December 31, 2018, 2017 and 2016.

The timing of revenue recognition did not result in any contract assets or liabilities as there are nounfulfilled performance obligations as of January 1, 2018 and December 31, 2018.

14. Costs

2018 2017 2016Cost of goods soldDirect materials (see Note 6) $332,451,358 $165,209,812 $97,176,829Salaries, wages and benefits (see Note 17) 20,656,636 15,278,407 7,651,600Depreciation and amortization

(see Notes 7, 8, 9 and 16) 5,845,775 4,676,605 4,743,836Light and water 2,778,257 2,097,426 1,630,824Supplies 1,723,335 2,253,853 479,035Transportation and travel 1,337,858 900,188 299,629Outside services 967,151 720,949 703,849Rental 324,076 91,104 46,727Repairs and maintenance 222,358 260,254 222,532Taxes and licenses 128,780 53,496 399,079Retirement benefit expense (see Notes 17 and 20) 118,019 51,310 36,432

(Forward)

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2018 2017 2016Meals $89,345 $135,194 $54,035Insurance 46,635 46,080 76,015Communication 5,602 16,623 23,538Others 483,789 56,544 114,845

367,178,974 191,847,845 113,658,805Cost of rentDepreciation and amortization

(see Notes 7, 8, 9 and 16) 1,366,967 793,536 194,916Taxes and licenses 169,031 153,331 172,779Personnel expense (see Note 17) 151,051 97,435 −Supplies 96,635 108,043 56,766Professional fees 68,207 77,192 17,238Rental 58,750 47,427 −Transportation 37,699 29,283 10,000Facilities 26,613 34,373 20,340Insurance 14,620 11,158 12,417Repairs and maintenance 7,438 4,604 35,469Others 25,886 41,569 345,979

2,022,897 1,397,951 865,904$369,201,871 $193,245,796 $114,524,709

Others under “Cost of goods sold” mainly pertain to training expenses and handling charges whileothers expenses under “Cost of rent” pertain to security services, meal expenses, buildingmaintenance expenses and other miscellaneous expenses.

15. General and Administrative Expenses

2018 2017 2016Transportation and freight $5,646,222 $2,455,722 $1,064,489Salaries, wages and benefits (see Note 17) 2,254,495 1,922,418 2,001,920Depreciation and amortization

(see Notes 7, 8, 9 and 16) 1,806,559 1,196,460 747,194Taxes and licenses 775,656 703,140 864,882Professional fees 561,113 137,668 158,972Supplies 210,508 250,551 760,535Insurance 188,996 177,578 132,294Light and water 143,582 151,502 288,566Repairs and maintenance 87,506 85,447 23,509Meals 81,965 128,472 123,218Retirement benefit expense (see Notes 17 and 20) 54,338 24,802 37,179Communication 20,408 24,018 23,397Handling charges 1,688 1,495 17,967Others 540,072 183,084 146,318

$12,373,108 $7,442,357 $6,390,440

Others mainly pertain to rental expenses, security services, facilities expense and Group partyexpenses.

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16. Depreciation and Amortization

Depreciation and amortization are distributed as follows:

2018 2017 2016Cost of salesProperty, plant and equipment (see Note 7) $5,718,032 $4,424,591 $4,406,784Investment properties (see Note 8) 2,974 2,974 80,920Intangible assets (see Note 9) 124,769 249,040 256,132

5,845,775 4,676,605 4,743,836Cost of rentProperty, plant and equipment (see Note 7) 201,775 225,298 105,113Investment properties (see Note 8) 1,145,810 517,249 89,803Intangible assets (see Note 9) 19,382 50,989 −

1,366,967 793,536 194,916General and administrative expenseProperty, plant and equipment (see Note 7) 1,366,369 1,070,759 718,811Investment properties (see Note 8) 865 865 865Intangible assets (see Note 9) 439,325 124,836 27,518

1,806,559 1,196,460 747,194$9,019,301 $6,666,601 $5,685,946

17. Personnel Expenses

Personnel expenses consist of:

2018 2017 2016Salaries and wages (see Notes 14 and 15) $21,668,908 $16,260,918 $9,045,381Other employment benefits (see Notes 14 and 15) 1,393,274 1,037,342 608,139Pension expense (see Notes 14, 15 and 20) 172,357 76,112 73,611

$23,234,539 $17,374,372 $9,727,131

18. Other Charges

Other charges consist of:2018 2017 2016

Provision for impairment of input VAT ($134,810) $‒ $‒Write-off of tax overpayments (43,118) ‒ (13,495)Gain (loss) on disposal of fixed assets (22,797) (37,701) 928Others (7,051) (11,885) 1,883

($207,776) ($49,586) $10,684

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19. Contract and Commitments

The Group, as a lessor, has entered into various lease agreements as follows:

a. On October 1, 2015, KPPH entered into a contract of lease with Yiking Plastic Production, Inc.,Fong Shann Printing Philippines Inc. and Voion Packaging Philippines Inc. for the use of itsfactory building for a period of five (5) years commencing on October 1, 2015 to September 30,2020, renewable upon mutual agreement of the parties.

b. On November 1, 2015, KPPH entered into a contract of lease with Bo Cheng Rubber Philippines,Inc. for the use of its factory building for a period of five (5) years commencing on November 1,2015 to October 31, 2020, renewable upon mutual agreement of the parties.

c. On May 24, 2016, the Parent Company entered into a lease contract with a lessee for the use of itsland and factory building for a period of three (3) years commencing on June 1, 2016 toMay 31, 2019, renewable for another 3 years.

On March 24, 2017, the Parent Company and the lessee executed a supplemental agreement to theoriginal lease contract which provides that the costs of improvements on leased property shall befor the account of the Parent Company (see Note 8). The supplemental agreement then providesadditional monthly rental amounting to $54,628 with effective date retroactive to June 1, 2016.

d. On November 1, 2016, KPPH entered into a contract of lease with Cal-Comp Precision(Philippines), Inc. (CPPH) for the use of its parcel of land for a period of one (1) year and two (2)months commencing on November 1, 2016 to December 31, 2017, renewable upon mutualagreement of the parties. In May 2018, KPPH renewed the contract of lease with CPPHincreasing its leased space from 18,310 sq.m to 29,296.80 sq.m at a rate of $2.19/sq.m.

The rental revenue earned from the lease agreement amounted to $2.6 million, $2.8 million and$1.1 million for the years ended December 31, 2018, 2017 and 2016, respectively.

The future minimum lease receivable as of December 31, 2018, December 31, 2017 and 2016 for theabove lease is as follows:

2018 2017 2016Within one year $1,877,497 $1,973,112 $1,452,436After one year but not more than five years 417,913 1,681,181 2,791,706

$2,295,410 $3,654,293 $4,244,142

KPPH, as a lessee, has entered into a lease agreement on December 7, 2017 with FPIP PropertyDevelopers and Management Corporation for the rental of warehouse for a period of five (5) yearscommencing on December 9, 2017 to December 8, 2022, renewable upon mutual agreement of theparties. On June 18, 2018, KPPH entered into another contract of lease with FPIP PropertyDevelopers and Management Corporation for the rental of warehouse for a period of five (5) yearscommencing on June 29, 2018 and expiring on June 28, 2023. Rent expense charged to “Cost ofgoods sold” amounted to $0.7 million for the year ended December 31, 2018.

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The future minimum lease payable as of December 31, 2018, 2017, and 2016 for the above lease is asfollows:

2018 2017 2016Within one year $304,192 $192,077 $−After one year but not more than five years 1,008,889 809,178 −

$1,313,081 $1,001,255 $−

20. Retirement Benefits

The Group has an unfunded noncontributory defined benefit plan covering substantially all itsqualified employees.

Under the existing regulatory framework, Republic Act No. 7641, Retirement Pay Law, requires aprovision for retirement pay to qualified private sector employees in the absence of any retirementplan in the entity, provided however that the employee’s retirement benefits under any collectivebargaining and other agreements shall not be less than those provided under the law. The law doesnot require minimum funding of the plan.

Movements in present value of the defined benefit obligation as of December 31, 2018, 2017 and2016 are as follows:

2018 2017 2016Balances at beginning of year $247,596 $131,013 $71,986Retirement benefit expense recognized in

profit or loss:Current service cost 158,928 68,538 70,196Interest cost 13,429 7,574 3,415

172,357 76,112 73,611Remeasurement loss (gain) in other

comprehensive income:Change in demographic assumptions (302,648) (8,867) −Change in financial assumptions (38,196) 11,531 (36,664)Experience adjustments 36,981 37,099 26,768

(303,863) 39,763 (9,896)Translation adjustments (14,568) 708 (4,688)Balance at end of year $101,522 $247,596 $131,013

The principal actuarial assumptions used in determining the projected benefit obligation of the Groupas of December 31, 2018, 2017 and 2016 are as follows:

2018 2017 2016Discount rate 7.61% to 7.72% 5.62% to 5.77% 5.95% to 5.96%Salary increase rate 5.00% 5.00% 5.00%Retirement age Age 60 Age 60 Age 60

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The sensitivity analysis below has been determined based on reasonably possible changes of eachsignificant assumption on the defined benefit obligation as of December 31, 2018, 2017 and 2016assuming all other assumptions were held constant. There were no changes in the methods andassumptions used in preparing the sensitivity analysis.

Increase (decrease)in basis points

Increase (decrease) in defined benefit obligation2018 2017 2016

Discount rate +1.00% ($14,603) ($52,199) ($29,512)- 1.00% 17,646 68,647 38,989

Salary increase rate +1.00% $17,956 $65,530 $37,273- 1.00% (15,064) (51,138) (28,952)

The average duration of the defined benefit obligation as of December 31, 2018, 2017 and 2016 is15.3 to 17.6 years, 20.4 to 25.20 years, and 26.2 to 29 years, respectively.

21. Equity

Capital StockDetails of the Parent Company’s authorized, issued and outstanding common shares as ofDecember 31, 2018, 2017 and 2016 are as follows:

Shares Amount in Philippine Pesos (P=) Amount in US Dollars ($)2018 2016-2017 2018 2016-2017 2018 2016-2017

Authorized capital stock - P=1 ($0.02)par value in 2018 and P=100($2.35) par value in 2017, 2016 1,700,000,000 2,150,000 P=1,700,000,000 P=215,000,000 $34,753,834 $5,053,782

Issued and outstanding:Balance at beginning of year 2,127,120 2,127,120 212,712,000 212,712,000 5,000,000 5,000,000Issuance of additional shares

to existing shareholders dueto change in par value 210,584,880 – – – – –

Issuance of additional shares 895,638,000 – 895,638,000 – 17,658,478 –1,108,350,000 2,127,120 P=1,108,350,000 P=212,712,000 $22,658,478 $5,000,000

On January 10, 2018, the BOD and the stockholders resolved to approve the proposed increase inauthorized capital stock of the Parent Company from P=215,000,000 representing 2,150,000 shareswith a par value of P=100.00 per share to P=1,700,000,000 representing 1,700,000,000 shares with apar value of P=1.00 per share. Amended articles of incorporation of the Parent Company wasapproved by the Philippine SEC on March 2, 2018.

On January 22, 2018, the Parent Company executed a subscription agreement with KPSG in whichKPSG agrees to subscribe 895,637,700 common shares of the Parent Company at par value ofP=1.00 per share amounting to P=895.6 million or $17.7 million, representing 80.81% of the increasedoutstanding capital stock of the Company for a consideration of $100.0 million. The excess over parof $82.3 million (P=4.2 billion) was credited to APIC.

Legal fees and other costs incurred related to the application for increase in authorized shares andsubsequent issuance of shares amounting to $0.4 million was presented as deduction from theadditional paid-in capital.

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Retained EarningsThe consolidated retained earnings include the accumulated earnings (deficit) of the subsidiaryamounting to $29.5 million, $0.4 million, and ($2.2 million) as of December 31, 2018, 2017 and2016, respectively. These are not available for dividends until declared by the subsidiary.

Equity ReservePrior to the acquisition of KPPH in 2018, equity reserve pertains to the total legal capital of KPPH(see Note 1). As of December 31, 2018, the amount retained in the ‘Equity reserve’ account pertainsto the difference between the consideration for the acquisition and the legal capital of KPPH which isseparately presented in the equity section of the consolidated financial statements.

22. Income Taxes

The current provision for income tax for the year ended December 31, 2018, 2017, and 2016represents regular corporate income tax arising from income on non-PEZA registered activities and5% tax on gross income from the sale of electronic products for the period October 1, 2017 toDecember 31, 2018 and from rental revenue of the Parent Company.

The reconciliation of the provision for income tax computed at the statutory tax rate to actualprovision for income tax shown in the consolidated statements of comprehensive income is asfollows:

2018 2017 2016Tax at 5% $2,301,492 $867,705 $454,175Adjustments to income tax resulting from:

Income from ITH registered activities (2,118,004) (739,818) (440,154)Tax effect of the difference between

the accounting and tax base of non-monetary assets 106,772 (82,011) 326,351

Income from non-PEZA registeredactivities 69,804 25,985 30,524

Nondeductible expense and others 29,306 113 −$389,370 $71,974 $370,896

The components of the net deferred income tax liability are as follows:

2018 2017 2016Deferred income tax asset (liability) recognized

in profit or loss:Difference between the accounting and tax

base of nonmonetary assets ($557,127) ($451,384) ($532,366)Deferred rent revenue − 1,029 −

($557,127) ($450,355) ($532,366)

Tax Reform for Acceleration and InclusionTax Reform for Acceleration and Inclusion Act (TRAIN) was signed into law on December 19, 2017and took effect January 1, 2018, making the new tax law enacted as of the reporting date. Althoughthe TRAIN changes existing tax law and includes several provisions that generally affect businesseson a prospective basis, the management assessed that the same did not have any significant impact onthe consolidated financial statement balances as of the reporting date.

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23. Financial Instruments

Financial Risk Management Objectives and PoliciesThe Group’s principal financial instruments comprise cash, trade and other receivables, trade andother payables, due to related parties and loans payable. The main purpose of these financialinstruments is to finance for the Group’s operations.

The BOD has overall responsibility for the establishment and oversight of the Group’s riskmanagement framework. The Group’s risk management policies are established to identify andmanage the Group’s exposure to financial risks, to set appropriate transaction limits and controls, andto monitor and assess risks and compliance to internal control policies. Risk management policiesand structure are reviewed regularly to reflect changes in market conditions and the Group’sactivities.

The Group has exposure to liquidity risk, credit risk, foreign currency risk and interest rate risk fromthe use of its financial instruments. The BOD reviews and approves the policies for managing eachof these risks and they are summarized below.

Liquidity RiskLiquidity risk is the risk that the Group will not be able to meet its financial obligations as they falldue. The Group’s objectives to managing liquidity risk is to ensure, as far as possible, that it willalways have sufficient liquidity to meet its liabilities when due, under both normal and stressedconditions, without incurring unacceptable losses or risking adverse effect to the Group’s creditstanding.

The Group monitors its cash flow position, debt maturity profile and overall liquidity position inassessing its exposure to liquidity risk. The Group maintains a level of cash deemed sufficient tofinance operations and to mitigate the effects of fluctuation in cash flows. Accordingly, its loanmaturity profile is regularly reviewed to ensure availability of funding through an adequate amount ofcredit facilities with financial institutions.

Overall, the Group’s funding arrangements are designed to keep an appropriate balance betweenequity and debt, to give financing flexibility while continuously enhancing the Group’s operations.

The tables below summarize the maturity profile of the Group’s financial assets and liabilities atbased on contractual undiscounted payments:

As of December 31, 2018Total On demand 1 to 30 Days Over 30 Days

Financial AssetsCash $25,146,366 $25,146,366 $− $−Trade and other receivables:

Third parties 86,237,746 1,100,534 − 85,137,212Related parties 8,661,547 4,955,940 − 3,705,607

Refundable guarantee deposit(included under “Other noncurrentassets”) 216,986 − − 216,986

120,262,645 30,601,467 − 89,661,178Financial LiabilitiesTrade and other payables:

Trade 54,648,836 15,168,758 29,591,302 9,888,776Accruals 5,230,464 3,012,606 2,011,899 205,959Others* 1,383,812 944,819 370,581 68,412

(Forward)

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Loans payable** $104,732,371 $− $− $104,732,371Due to related parties 14,193,641 5,997,147 8,173,864 22,630

180,189,124 25,123,330 40,147,646 114,918,148Net Financial Assets (Liabilities) ($59,926,479) $5,478,137 ($40,147,646) ($25,256,970)*Excluding statutory payables**Including interest to maturity



Third parties 43,962,459 243,256 13,348,484 30,370,719Related parties 8,088,687 1,541,678 578,495 5,968,514


78,508,018 28,188,768 13,926,979 36,392,271Financial Liabilities

Trade and other payables:Trade 44,454,429 12,596,783 22,567,613 9,290,033Accruals 3,832,399 2,129,123 1,703,276 −Others* 931,847 877,856 53,991 −

Loans payable** 69,195,519 − 5,120,000 64,075,519Due to related parties 7,190,522 10,195 6,298,423 881,904

125,604,716 15,613,957 35,743,303 74,247,456Net Financial Assets (Liabilities) ($47,096,698) $12,574,811 ($21,816,324) ($37,855,185)*Excluding statutory payables**Including interest to maturity



Third parties 4,758,471 156,348 1,509,750 3,092,373Related parties 5,812,855 93,963 859,772 4,859,120


21,736,977 10,925,480 2,369,522 8,441,975Financial Liabilities

Trade and other payables:Trade 26,156,898 11,322,815 13,642,668 1,191,415Accrued expenses 2,893,900 1,590,350 601,318 702,232Others* 1,089,121 845,090 244,031 −

Loans payable** 10,028,708 − − 10,028,708Due to related parties 756,740 − 453,489 303,251

40,925,367 13,758,255 14,941,506 12,225,606Net Financial Liabilities ($19,188,390) ($2,832,775) ($12,571,984) ($3,783,631)*Excluding statutory payables**Including interest to maturity

Credit RiskThe Group’s exposure to credit risk on loans and receivables arise from default of the counterparty,with a maximum exposure equal to the carrying amounts of these receivables. Credit risk from cashis mitigated by transacting only with reputable banks duly approved by management.

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Concentration of credit risk arises from exposure to the Group’s dependence on three majorcustomers. The Group manages the risk by adopting appropriate credit control policies andprocedures and therefore does not expect to incur material financial losses.

The ability of the customers to meet its obligation can be adversely affected by changes in economiccondition and changes in the manufacturing industry.

Trade receivables are generally on a 45 to 91 days term. As of December 31, 2018, 2017, and 2016,the Group assessed that its debtor has good credit standing and trade receivables are collectible.

The tables below summarize the credit quality of the Group’s neither past due nor impaired financialassets and aging of the past due but not impaired financial assets as of:

December 31, 2018

Neitherpast due nor

impaired

Past due but not impairedLess than 30

Days31 to 60

Days61 to 90

Days91 to 120

DaysOver 120

Days TotalCash* $25,135,220 $− $− $− $− $− $25,135,220Trade and other

receivables:Third parties 85,137,212 111,115 134,273 393,106 6,794 455,246 86,237,746Related parties 3,705,607 3,503,638 374,680 160,191 64,383 853,048 8,661,547

Refundable guaranteedeposit** 216,986 − − − − − 216,986

$114,189,798 $3,553,249 $503,869 $553,297 $71,177 $1,380,109 $120,251,499*Excluding cash on hand**Included under “Other noncurrent assets”

December 31, 2017

Neitherpast due nor

impaired


Days31 to 60

Days61 to 90

Days91 to 120

DaysOver 120

Days TotalCash* $26,383,269 $– $– $– $– $– $26,383,269Trade and other

receivables:Third parties 43,719,203 36,483 31,664 18,088 41,294 115,727 43,962,459Related parties 7,344,473 89,233 25,247 244,004 38,890 346,840 8,088,687

Refundableguarantee deposit** 53,038 – – – – – 53,038

$77,499,983 $125,716 $56,911 $262,092 $80,184 $462,567 $78,487,453*Excluding cash on hand**Included under “Other noncurrent assets”

December 31, 2016

Neitherpast due nor

impaired


Days31 to 60

Days61 to 90

Days91 to 120

DaysOver 120

Days TotalCash* $10,669,057 $– $– $– $– $– $10,669,057Trade and other

receivables:Third parties 4,602,123 – 66,720 – 89,628 – 4,758,471Related parties 5,718,891 – – 93,964 – – 5,812,855

Refundableguarantee deposit** 490,482 – – – – – 490,482

$21,480,553 $– $66,720 $93,964 $89,628 $– $21,730,865*Excluding cash on hand**Included under “Other noncurrent assets”

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The adoption of new impairment model under PFRS 9 did not have a significant effect on the Group’sconsolidated financial statements.

The credit quality of the financial assets was determined as follows:

ƒ Cash in banks. These are of high quality as the amounts are deposited in reputable banks.

ƒ Trade and other receivables. These are high grade since these pertain to receivables fromcustomers or related parties who have established good credit standing with the Group.

ƒ Refundable guarantee deposit. These are standard grade since the counterparties have a veryremote likelihood of default and have consistently exhibited good paying habits.

Foreign Currency RiskForeign exchange risk is the risk that the value of a financial instrument will fluctuate because ofchanges in foreign exchange rates. The Group is exposed to both transactional and translationalfluctuations in the value of financial instruments due to exchange rate movements of foreigncurrencies. These exposures arise mainly from the purchase of goods and services in the ordinarycourse of business. Transactional exposure arises from income earned and expenses paid incurrencies other than USD, the Group’s functional currency. Translational exposure arises on theconversion of the foreign-currency-denominated monetary assets and liabilities into its USDequivalent.

In the normal course of business, the Group transacts with certain companies based outside thePhilippines, with these transactions being settled in Philippine Peso (PHP), Euro (“EUR”) andJapanese Yen (JPY). The Group follows a policy to manage its currency risk by closely monitoringits cash flow position and by providing forecasts on all other exposures in currencies other than theUS dollar.

The Group’s foreign currency-denominated monetary assets and liabilities and their US Dollarequivalent follow:

As of December 31, 2018

PHP EUR JPYUS Dollar

Equivalent

Financial AssetsCash P=226,474,233 €− ¥− $4,307,231Trade and other receivables 78,231,722 − – 1,487,861

304,705,955 – – 5,795,092Financial LiabilityTrade and other payables 231,483,378 422,410 – 4,885,693Net Foreign Currency-Denominated Assets

(Liabilities) P=73,222,577 (€422,410) ¥− $909,399


PHP EUR JPYUS DollarEquivalent

Financial AssetsCash P=186,795,120 €– ¥– $3,741,140Trade and other receivables 56,976,204 – – 1,141,122

243,771,324 – – 4,882,262Financial LiabilityTrade and other payables 243,331,637 325,537 23,800 5,262,390Loan payable 1,200,000,000 – – 24,033,647

1,443,331,637 325,537 23,800 29,296,037Net Foreign Currency-Denominated Liabilities (P=1,199,560,313) (€325,537) (¥23,800) ($24,413,775)

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PHP EUR JPYUS DollarEquivalent

Financial AssetsCash P=104,416,024 €– ¥– $2,100,081

104,416,024 – – 2,100,081Financial LiabilitiesTrade and other payables 423,166,506 3,885 – 8,515,035Net Foreign Currency-Denominated Liabilities (P=318,750,482) (€3,885) ¥– ($6,414,954)

The exchange rates used follow:

2018 2017 2016Philippine Peso (PHP) $0.02 to P=1 $0.02 to P=1 $0.02 to P=1Euro (EUR) $1.14 to €1 $1.19 to €1 $1.04 to €1Japanese Yen (JPY) $0.01 to ¥1 $0.01 to ¥1 $0.01 to ¥1

The table below demonstrates the sensitivity to a reasonably possible change in exchange rates, withall other variables held constant, of the Group’s income before income tax. There is no other impacton the Group’s equity other than those already affecting profit or loss.

Change in US Dollar to Philippine Peso5% appreciation of P=

against $5% depreciation of P=

against $Effect in income before income tax:

2018 $69,630 ($69,630)2017 (1,201,242) 1,201,2422016 (320,545) 320,545

Change in US Dollar to Euro5% appreciation of €

against $5% depreciation of €


2018 ($24,160) $24,1602017 (19,436) 19,4362016 (202) 202

Change in US Dollar to Japanese Yen5% appreciation of ¥

against $5% depreciation of ¥


2018 $– $–2017 (11) 112016 – –

In calculating the sensitivity analysis, it is assumed that foreign exchange rate sensitivity has asymmetric impact on the Group’s results, that is, an increase in rates results in the same amount ofmovement as a decrease in rates.

There is no change in the methods and assumptions used in preparing the sensitivity analysis duringthe years ended December 31, 2018, 2017 and 2016.

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Interest Rate RiskInterest rate risk is the risk that the fair value or future cash flows of a financial instrument willfluctuate because of changes in market interest rates. The Group’s exposure to the risk of changes inmarket interest rates relates primarily to the Group’s short-term debt obligations with floating interestrates.

The following table demonstrates the sensitivity to a reasonably possible change in interest rates, withall variables held constant, of the Group’s income before income tax (through the impact on floating-rate borrowings). There is no other impact on the Group’s equity except those already affectingprofit or loss.

Change in basis pointsIncrease in

basis pointsDecrease inbasis points

Increase (decrease) in income before income tax: 2018 at 5 basis points ($36,619) $36,619

2017 at 5 basis points (24,842) 24,8422016 at 5 basis points (2,675) 2,675

Capital ManagementThe Group considers the equity presented in the statement of financial position as its core capital.The primary objective of the Group’s capital management is to ensure that the Group has sufficientfunds in order to support its business, pay existing obligations and maximize shareholder value.

The Group manages its capital structure and makes adjustments to it, in light of changes in economicconditions. To maintain or adjust the capital structure, the Group may obtain additional advancesfrom stockholders or issue new shares. The Group is not subject to externally imposed capital ratios.No changes were made in the objectives, policies or processes during the years ended December 31,2018, 2017 and 2016.

24. Notes to Statement of Cash Flows

Noncash investing activityNoncash investing activity pertains to the acquisition of property, plant and equipment on accountamounting to $5,830,750, $621,462 and $194,331 for the years ended December 31, 2018, 2017 and2016, respectively (see Note 7).

Changes in liabilities arising from financing activities

January 1, 2018 Drawdowns RepaymentsForeign exchange

movement December 31, 2018Bank loans - net (see Note 11) $69,053,647 $121,000,000 ($86,053,647) $– $104,000,000

January 1, 2017 Drawdowns RepaymentsForeign exchange

movement December 31, 2017Bank loans - net (see Note 11) $– $153,363,293 ($84,553,811) $244,165 $69,053,647Loans from related party

(see Notes 11 and 12) 10,000,000 – (10,000,000) – –Total liabilities from financing

activities $10,000,000 $153,363,293 ($94,553,811) $244,165 $69,053,647

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25. Fair Value Measurement

The carrying amounts of the Group’s financial assets and liabilities are equal or approximate their fairvalues as these have short-term maturities.

The fair value measurement of investment properties is classified under Level 3 of the fair valuehierarchy in which fair value is required to be disclosed. The fair value has been determined basedon valuations performed by an independent appraiser using market data, income and cost approach(see Note 8). The key unobservable inputs used in the fair value measurement include price persquare meter, external factor (adjustment to the price per square meter), location size, reproductioncost and remaining economic life.

There were no transfers between Level 1 and Level 2 fair value measurements, and no transfers intoand out of Level 3 fair value measurements.

26. Segment Information

The Group is currently organized into two operating segments: (1) sale of electronic equipment,including computer peripherals and telecommunications products and (2) lease of manufacturingfacility. These operating segments are consistent with those reported to the BOD, the Group’s chiefoperating decision maker.

Only the sale of electronic equipment operating segment has been aggregated to form the abovereportable operating segment. The chief operating decision maker monitors the operating results ofthe business units separately for the purpose of making decisions about resource allocation andassessing performance. Segment performance is measured based on operating profit or loss and totalassets on a basis consistent with that used to measure operating profit or loss and total assets in theconsolidated financial statements.

The Group operates only in the Philippines (i.e., one geographical location). Thus, geographicalsegment information is not presented.

No inter-segment revenues are earned within the Group in 2018, 2017, and 2016.

For the Year Ended December 31, 2018Sale of electronic

products Rental Eliminations ConsolidatedRevenues from external customers $298,643,242 $2,004,682 $– $300,647,924Revenue from affiliates 114,009,224 688,664 (114,108) 114,583,780

412,652,466 2,693,346 (114,108) 415,231,704Income from operations 32,986,286 670,449 (10) 33,656,725Interest expense (2,640,750) – – (2,640,750)Net foreign exchange losses 788,414 – (2,576) 785,838Scrap sales 197,971 – – 197,971Interest income 14,926 – – 14,926Others (204,098) – (3,678) (207,776)Income before income tax 31,142,749 670,449 (6,264) 31,806,934Income tax expense (365,474) (23,896) – (389,370)Net income $30,777,275 $646,553 ($6,264) $31,417,564

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products Rental Eliminations ConsolidatedRevenues from external customers $110,360,215 $2,314,164 $– $112,674,379Revenue from affiliates 97,487,365 556,906 (118,746) 97,925,525

207,847,580 2,871,070 (118,746) 210,599,904Income from operations 8,438,632 1,473,119 – 9,911,751Net foreign exchange losses (1,391,101) – 4,020 (1,387,081)Interest expense (1,257,307) – – (1,257,307)Interest income 11,439 – – 11,439Scrap sales 84,285 – – 84,285Others (49,586) – – (49,586)Income before income tax 5,836,362 1,473,119 4,020 7,313,501Income tax benefit (expense) 2,502 (74,476) – (71,974)Net income $5,838,864 $1,398,643 $4,020 $7,241,527


products Rental Eliminations ConsolidatedRevenues from external customers $16,959,997 $ 1,039,996 $– $17,999,993Revenue from affiliates 105,572,731 146,100 (110,618) 105,608,213

122,532,728 1,186,096 (110,618) 123,608,206Income from operations 2,372,865 320,192 – 2,693,057Net foreign exchange losses (1,400,159) – – (1,400,159)Interest expense (474,900) – – (474,900)Interest income 7,327 – – 7,327Scrap sales 61,375 – – 61,375Others (16,568) – 5,884 (10,684)Income before income tax 549,940 320,192 5,884 876,016Income tax expense (343,867) (27,029) – (370,896)Net income $206,073 $293,163 $5,884 $505,120

27. Earnings Per Share

The following presents the information necessary to calculate earnings per share attributable to equityholders of the Parent Company:

For the years ended December 312018 2017 2016

Net income $31,417,564 $7,241,527 $505,120Weighted average number of shares issued

and outstanding 1,108,349,875 1,108,349,700 1,108,349,700

Basic/Diluted earnings per share $0.0283 $0.0065 $0.0005

There are no potentially dilutive shares issued as of December 31, 2018, 2017 and 2016.

The basic and diluted EPS for the years ended December 31, 2017 and 2016 have been retroactivelyadjusted to take into consideration the effect of applying pooling-of-interest method in accounting forthe acquisition of KPPH (see Note 2). For purposes of EPS calculation, the issuance of shares to theexisting shareholders due to the change in par value and the issuance of new shares by the ParentCompany to KPSG was accounted for as if the issuance has taken place on January 1, 2016, thebeginning of the earliest comparative period presented.

*SGVFS031260*

INDEPENDENT AUDITOR’S REPORTON SUPPLEMENTARY SCHEDULES

The Stockholders and the Board of DirectorsCal-Comp Technology (Philippines), Inc. and SubsidiaryBlock 7, Lot 1, Main BoulevardLima Technology Center-SEZLipa City, Batangas

We have audited in accordance with Philippine Standards on Auditing, the consolidated financialstatements of Cal-Comp Technology (Philippines), Inc. and its subsidiary (the Group) as of and for theyears ended December 31, 2018, 2017 and 2016 and have issued our report thereon dated February 22,2019. Our audits were made for the purpose of forming an opinion on the basic financial statementstaken as a whole. The schedules listed in the Index to the Consolidated Financial Statements andSupplementary Schedules are the responsibility of the Group’s management. These schedules arepresented for purposes of complying with the Securities Regulation Code Rule 68, As Amended (2011)and are not part of the basic financial statements. These schedules have been subjected to the auditingprocedures applied in the audit of the basic financial statements and, in our opinion, fairly state, in allmaterial respects, the information required to be set forth therein in relation to the basic financialstatements taken as a whole.

SYCIP GORRES VELAYO & CO.

Ma. Genalin Q. ArevaloPartnerCPA Certificate No. 108517SEC Accreditation No. 1613-A (Group A), March 2, 2017, valid until March 1, 2020Tax Identification No. 224-024-926BIR Accreditation No. 08-001998-123-2017, February 9, 2017, valid until February 8, 2020PTR No. 7332522, January 3, 2019, Makati City

February 22, 2019

SyCip Gorres Velayo & Co.6760 Ayala Avenue1226 Makati CityPhilippines

Tel: (632) 891 0307Fax: (632) 819 0872ey.com/ph

BOA/PRC Reg. No. 0001, October 4, 2018, valid until August 24, 2021SEC Accreditation No. 0012-FR-5 (Group A), November 6, 2018, valid until November 5, 2021


CAL-COMP TECHNOLOGY (PHILIPPINES), INC. AND SUBSIDIARY INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS

AND SUPPLEMENTARY SCHEDULES

SUPPLEMENTARY SCHEDULES Independent Auditor’s Report on Supplementary Schedules: A. Financial Assets B. Amounts Receivable from Directors, Officers, Employees, Related Parties, and

Principal Stockholders (Other than Related parties) C. Amounts Receivable from Related Parties which are Eliminated during the

Consolidation of Financial Statements D. Intangible Assets - Other Assets E. Long-Term Debt F. Indebtedness to Related Parties G. Guarantees of Securities of Other Issuers H. Capital Stock Schedule of All the Effective Standards and Interpretations under Philippine Financial

Reporting Standards as of December 31, 2018 Map of the Relationships of the Companies within the Group

CAL-COMP TECHNOLOGY (PHILIPPINES), INC. AND SUBSIDIARY SCHEDULE A - FINANCIAL ASSETS DECEMBER 31, 2018

Name of Issuing Entity and Description of Each Issue

Number of Shares or Principal Amount of Bonds and Notes

Amount Shown in the Balance

Sheet/Notes

Value Based on Market

Quotations at Balance

Sheet Date

Income Received

and Accrued

Financial assets measured at amortized cost:: Cash – $25,146,366 $25,146,366 $14,926 Trade and other receivables:

Third parties – 86,237,746 86,237,746 – Related parties – 8,661,547 8,661,547 – – 94,899,293 94,899,293 –

Refundable guarantee deposit (included under “Other noncurrent assets”) – 216,986 216,986 –

Total financial assets – $120,262,645 $120,262,645 $14,926

CAL-COMP TECHNOLOGY (PHILIPPINES), INC. AND SUBSIDIARY SCHEDULE B - AMOUNTS RECEIVABLE FROM DIRECTORS, OFFICERS, EMPLOYEES, RELATED PARTIES, AND PRINCIPAL STOCKHOLDERS (OTHER THAN RELATED PARTIES) DECEMBER 31, 2018

Balance at

Beginning of Period

Balance at End of Period Name and Designation of Debtor Additions Collections Write Offs Current Noncurrent Total – Not applicable –

CAL-COMP TECHNOLOGY (PHILIPPINES), INC. AND SUBSIDIARY SCHEDULE C - AMOUNTS RECEIVABLE FROM RELATED PARTIES WHICH ARE ELIMINATED DURING THE CONSOLIDATION OF FINANCIAL STATEMENTS DECEMBER 31, 2018

Balance at

Beginning of Period

Balance at End of Period Name and Designation of Debtor Additions Collections Write Offs Revaluation Current Noncurrent Total Kinpo Electronics (Philippines), Inc. $98,535 $9,403 ($19,466) $– ($3,179) $85,293 $– $85,293

CAL-COMP TECHNOLOGY (PHILIPPINES), INC. AND SUBSIDIARY SCHEDULE D - INTANGIBLE ASSETS - OTHER ASSETS DECEMBER 31, 2018

Description Beginning

Balance Additions

at Cost Charged to Cost

and Expenses

Charged to

Other Accounts

Other changes Additions

(Deductions) Ending Balance Land-use rights $22,410,956 $319,568 ($348,989) ($1,737,032) $– $20,644,503 Computer software 510,634 245,455 (283,542) – – 472,547 $22,921,590 $565,023 ($632,531) ($1,737,032) $– $21,117,050

See Note 9 of the Consolidated Financial Statements.

CAL-COMP TECHNOLOGY (PHILIPPINES), INC. AND SUBSIDIARY SCHEDULE E - LONG-TERM DEBT DECEMBER 31, 2018 Title of Issue and Type of Obligation

Amount Authorized

by Indenture

Current Portion of

Long-term Debt

Long-term Debt – Not applicable –


CAL-COMP TECHNOLOGY (PHILIPPINES), INC. AND SUBSIDIARY SCHEDULE F - INDEBTEDNESS TO RELATED PARTIES (LONG-TERM LOANS FROM RELATED COMPANIES) DECEMBER 31, 2018 Name of Related Party Balance at Beginning of Period Balance at End of Period – Not applicable –

CAL-COMP TECHNOLOGY (PHILIPPINES), INC. AND SUBSIDIARY SCHEDULE G - GUARANTEES OF SECURITIES OF OTHER ISSUERS DECEMBER 31, 2018 Name of Issuing Entity of Securities Guaranteed by theCompany for which this Statement is Filed

Title of Issue of Each Class of Securities Guaranteed

Total Amount Guaranteed and Outstanding

Amount Owned by Person for which Statement is Filed Nature of Guarantee

– Not applicable –

CAL-COMP TECHNOLOGY (PHILIPPINES), INC. AND SUBSIDIARY SCHEDULE H - CAPITAL STOCK DECEMBER 31, 2018

Title of Issue

Number of Shares

Authorized

Number of Shares Issued

and Outstanding as Shown under

Related Consolidated Statement of

Financial Position Caption

Number of Shares Reserved

for Options, Warrants,

Conversion and Other Rights Affiliates

Directors and

Officers Others Capital stock 1,700,000,000 1,108,350,000 – 1,108,349,200 500 300


CAL-COMP TECHNOLOGY (PHILIPPINES), INC. AND SUBSIDIARY MAP OF THE RELATIONSHIPS OF THE COMPANIES WITHIN THE GROUP DECEMBER 31, 2018

Cal-Comp Technology (Philippines), Inc. and Subsidiary€¦ · Cal-Comp Technology (Philippines),...

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