Table Of ContentTable Of Content

2006 Report on Operations …………………………….. 1 2007 Business Outlook …………………………………... 5 Statement of Management’s Responsibility ………... 6

For Financial Statements Independent Auditors’ Report ……………. ..………... 7 Balance Sheets …………………………………………… 9 Statements of Operations ……………………………… 10 Statement of Changes in Stockholders’ Equity……... 11 Statements of Cash Flows …………………………….… 12 Notes to Financial Statements …………………………. 13 Board of Directors and Officers ………………….……. 39 CIP Management Support Services Group ……..….. 40 Corporate Directory …………………………………..…. 41

CAWC, INC. 2006 Annual Report on Operations STPP, CAWC’s main product, continues to be threatened by stiff competition from imports, resulting in 2006 to be another low performance year for CAWC. Sales volume continued its downward trend, dropping by a significant 64.32%, compared to the sales performance in 2005, generating net sales of only PhP 165.35 million versus PhP 499.34 million in 2005. Net Loss of the Company in 2006, however, was reduced to PhP 74.28 million versus the PhP 141.19 million Net Loss in 2005. As a result of low sales, production throughout 2006 was erratic while the continuous supply of the major raw materials and other production utilities were affected due to strained working capital. There was, however, a major improvement in the area of Company’s expenses. Manufacturing overhead (excluding depreciation) improved by an encouraging 59.86% totaling P 32.37 million compared to the P 80.64 million in 2005. The reduced Manufacturing Overhead in 2006 was mainly due to two reasons: (1) the lower production activity caused by low sales and, (2) the full implementation of a labor cost restructuring program via the completion of the early retirement program initiated in 2005. General and Administrative expenses were also reduced by a significant 15% compared to the year before. Gross contribution to partly cover overhead came mostly from the sales of Phosphoric Acid Food and Technical Grades. Although the year 2006 was expected to be another year of difficulty and struggle, there was general sentiment that market conditions would improve leading to a possible “turn-around” from a depressing performance in 2005. The raised hopes were to come from the initiatives taken towards the end of 2005. These were as follows:

• The Company’s petition with the Department of Trade & Industry (DTI) for a Safeguard Measure to put a stop to the surge and snowballing of STPP importations. Safeguard Measure is a safety net provided by RA 8800 other wise known as “Safeguard Measure Act” and recognized by the WTO Agreement on Safeguards.

• The continuation and the completion of the early retirement program that would

result in lower manpower costs. Additionally, the ensuing work force that will be formed is expected to be better, more efficient, and more cost-effective.

1

Early Retirement Initiative As a consequence of the early retirement program initiated in 2005, the manpower complement in operations went down from a total of 54 people to only 10 by the end of 1st quarter of 2006. The entire workforce was either retrenched or retired. However, the five (5) top managers were retained as consultants to preserve the plant and processes expertise. Another four (4) managers and a technical assistant were retained as regular employees comprising the “interim workforce” currently managing the day-to-day operations of the plant. The successful implementation of the retirement program paved the way to overhaul the existing operations’ manpower profile. The goal is to create a more efficient and cost effective organization. Safeguard Measure Petition DTI finally completed its study and preliminary evaluation of CAWC’s petition for a safeguard measure. In July 2006, DTI came out with a positive ruling granting CAWC a provisional safeguard measure of PhP14.15/kg to be imposed on importations of STPP. The tariff would be in the form of a cash bond due and payable upon release of goods from the Bureau of Customs. The imposition of the provisional safeguard measure on imported STPP was in place for 200 days from July 2006. During this period, the Tariff Commission conducted its formal investigation to finally determine whether definitive general safeguard measure would be justified to be imposed on imports of STPP. The provisional safeguard measure, however, proved to be ineffective in putting a stop to the massive entry of imported STPP and in improving the sales of CAWC. From the data provided by NSO, there were 12,792.6MT of imported STPP which entered the domestic market in 2006, cornering more than 70% of the total Philippine demand for the product not counting the rampant technical smuggling of the product, the effect of which could not be measured through official customs’ documents or publications. Even with the provisional safeguard measure in place, some detergent manufacturing companies still opted to import STPP and pose the bond rather than buy locally. They also found ways of skirting the measure by sourcing STPP from countries that are not covered by the provisional safeguard measure. After securing the provisional safeguard measure from the DTI, CAWC focused its attention to the Tariff Commission’s formal investigation to ensure getting a positive determination that the imposition of a definitive safeguard measure is justified. The long process of public hearings, consultation, and evaluation of voluminous documents and position papers from all parties concerned started in July 2006. Tariff Commission was

2

expected to come out with its findings and recommendations before the 200-day provisional safeguard measure expires in Feb 2007. As update, in January 2007, the Tariff Commission concluded its investigation and favorably recommended that the imposition of a definitive safeguard measure on imported STPP is justified. The Commission, in its report, recommended a definitive safeguard measure of PhP 12.70/kg, slightly lower than the provisional safeguard measure provided by the DTI. Typhoon Milenyo As if the problems to the operations of CAWC were not enough, Typhoon Milenyo that hit the country in September 2006, wreaked havoc on CAWC’s plant manufacturing facilities in Pasig. The typhoon caused significant damages to infrastructure, major machinery & equipment and finished products. SALES & MARKETING STPP Technical Grade In 2006, CAWC’s sales of STPP TG to detergent companies dropped considerably. Sales volume was only 33% of the volume of sales generated in 2005. Entry of imported STPP into the country at depressed prices dominated the supply. Official records on imports, however, show that volume of STPP imports slowed down by 37.4% at 12,792.6 MT in 2006 from the high of 20,439.9 MT in 2005. China remained as the biggest source with 29.6% share. Other sources of imported STPP in 2006 were Spain, Thailand, Vietnam, Russia, Tunisia, and Belgium. Note that to avoid the imposition of the provisional safeguard measure, STPP importers brought in product from countries excluded from the imposition of the safeguard measure such as Tunisia, Korea, and Thailand. As mentioned earlier, STPP imports still captured the majority share of the domestic market at more than 60% share. Prices of imported STPP remained low in 2006, ranging from a low of US$545/MT CFR to a high of US$ 664/MT CFR. Due to the reduced anti-dumping duty imposed on Chinese STPP, imports from China continued to be disturbingly high. Meanwhile, China’s prices continued to be unfairly low. With the disparity against parity prices, CAWC found it difficult to compete against imported STPP. Additionally, technical smuggling, which kept prices of STPP at depressed level, was a perennial occurrence. In 2006, CAWC’s average price of STPP was 7% lower than the average price in 2005.

3

It is important to note that CAWC’s STPP were sold mainly to the Filipino detergent manufacturing companies. Phosphoric Acid Food & Technical Grade Sales volume of Phosphoric Acid Food Grade was 76% higher in 2006 than in 2005. This was brought about by increased sales of Food Grade acid to a multinational soft drink company. CAWC was able to regain the acid supply business of the said multinational company over other international suppliers through an international bidding process conducted by its Atlanta (USA) office in December 2005. The supply was awarded to CAWC in January 2006. Sales in terms of value from Phosphoric Acid Food Grade were 26% better than 2005. On the other hand, sale of Phosphoric Acid Technical Grade did not perform well due to stiff competition coming from imported product from China. STPP / TSPP Food Grade Sale of STPP/TSPP Food Grade was likewise affected by the on and off operation of the plant. CAWC, however, continued to supply the requirements of Purefoods, Jollibee, and the rest of the market despite competition from imported products. The year ended with lower sale of STPP/TSPP Food Grade at only 44.79% of sales in 2005. OPERATION & PRODUCTION HIGHLIGHTS Since the plant was forced to shut down in November 2005, it has not resumed normal activity. The plant operated only when there were specific orders from customers. Finished product phosphoric acid TG imported from China was used throughout the year to produce STPP. This was a shift from a combination of merchant grade phosphoric acid (MGPA) and Yellow Phosphorus (P4) in 2005. As mentioned earlier, production run was managed by the “interim workforce” composed of 4 shift managers, technical assistant and 5 consultants with the support of contract labor from contractual service companies. In October 2006, another research and development breakthrough was accomplished by CAWC. With some modifications in the process, the plant was able to make hydrated STPP, a new variant more acceptable in the production of powder detergents. Commercial quantity was successfully produced and made available to a Filipino-owned detergent producer beginning November 2006.

4

2007 Business Outlook

In view of the positive determination of the Tariff Commission (Commission) and with subsequent recommendation of the Commission to the DTI that the imposition of a definitive safeguard measure is justified, the Management of CAWC remains confident that DTI will issue an Order adopting the Commission’s recommendation. In the meantime, the Company will continue with the on-going negotiations with a major multinational detergent company for a two-year STPP supply agreement. The Company is committed to implement the planned reduction programs contained in the Adjustment Plan submitted by CAWC to the Tariff Commission during the formal investigation of the Safeguard Measure petition. In addition, the Management will continue its efforts to cut down on manufacturing expenses, cost of raw materials, utilities such as fuel usage and general and administrative expenses. Plans are being made to immediately implement the change in fuel and usage, as these are major cost components. With these in place, the Management of CAWC remains hopeful that the company’s performance will dramatically improve in 2007.

5

Statement of Management’s Responsibility for Financial Statement The Management of CAWC, Inc. is responsible for all information and representations contained in the financial statements as of December 31, 2006 and 2005 and for the years ended December 31, 2006 and 2005. The financial statements have been prepared in accordance with Philippine Financial Reporting Standards and reflect amounts that are based on the best estimates and informed judgment of Management with an appropriate consideration to materiality. In this regard, Management maintains a system of accounting and reporting which provides for the necessary internal controls to ensure that transactions are properly authorized and recorded, assets are safeguarded against unauthorized use or disposition, and liabilities are recognized. The Management likewise discloses to the Company’s Audit Committee and to its external auditor: (1) all significant deficiencies in the design or operation of internal controls that could adversely affect its ability to record, process, and report financial data; (2) material weaknesses in the internal controls; and (3) any fraud that involves Management or other employees who exercise significant roles in internal controls. The Board of Directors reviews the financial statements before such statements are approved and submitted to the stockholders of the Company. SyCip, Gorres, Velayo & Co., the independent auditors appointed by the stockholders and the Board of Directors has examined the financial statements of the Company in accordance with Philippine Standards on Auditing and has expressed its opinion on the fairness of the presentation upon completion of such examination, in its report to the Board of Directors and Stockholders. ANA MARIA G. ORDOVEZA JAIME Y. GONZALES President and Chief Executive Officer Treasurer and Chief Financial Officer

JOSE RAUL P. BARREDO General Manager

6

SGV & CO SyCip Gorres Velayo & Co. 6760 Ayala Avenue 1226 Makati City Philippines

Phone: (632) 891-0307 Fax: (632) 819-0872 www.sgv.com.ph BOA/PRC Reg. No. 0001 SEC Accreditation No. 0012-FR-1

INDEPENDENT AUDITORS’ REPORT The Stockholders and the Board of Directors CAWC, Inc. Chemphil Building, 851 A. Arnaiz Avenue Legaspi Village, Makati City We have audited the accompanying financial statements of CAWC, Inc., which comprise the balance sheets as at December 31, 2006 and 2005, and the statements of operations, statements of changes in stockholders’ equity and statements of cash flows for the years then ended, and a summary of significant accounting policies and other explanatory notes.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in accordance with Philippine Financial Reporting Standards. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.

Auditors’ Responsibility

Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with Philippine Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

- 2 - SGV & Co is a member practice of Ernst & Young Global

7

Opinion

In our opinion, the financial statements present fairly, in all material respects, the financial position of CAWC, Inc. as of December 31, 2006 and 2005, and its financial performance and its cash flows for the years then ended in accordance with Philippine Financial Reporting Standards. Without qualifying our opinion, we draw attention to Note 1 in the financial statements which indicates that the Company incurred recurring net loss for the years ended December 31, 2006 and 2005 and, as of those dates, the Company has reported deficit. These conditions, along with other matters discussed in Note 1, indicate the existence of a material uncertainty which may cast significant doubt about the Company’s ability to continue as going concern. SYCIP GORRES VELAYO & CO.

Josephine H. Estomo Partner CPA Certificate No. 46349 SEC Accreditation No. 0078-AR-1 Tax Identification No. 102-086-208 PTR No. 0266550, January 2, 2007, Makati City April 4, 2007

SGV & Co is a member practice of Ernst & Young Global

8

CAWC, INC. BALANCE SHEETS December 31 2006 2005

ASSETS Current Assets Cash P=12,507,792 P=12,148,959Receivables - net (Note 4) 23,418,874 10,450,470Inventories (Note 5) 42,840,254 90,740,716Prepayments and other current assets (Note 6) 12,531,661 10,367,775Due from related parties (Note 11) 25,472 24,415,506Total Current Assets 91,324,053 148,123,426

Noncurrent Assets Property, plant and equipment (Note 7) At cost - net 92,562,627 117,629,376 At revalued amount 238,600,000 238,600,000Other noncurrent assets (Note 8) 18,370,089 20,171,914Total Noncurrent Assets 349,532,716 376,401,290

TOTAL ASSETS P=440,856,769 P=524,524,716

LIABILITIES AND STOCKHOLDERS’ EQUITY Current Liabilities Notes payable (Note 9) P=8,500,000 P=10,500,000Accounts payable and accrued expenses (Note 10) 95,124,969 104,388,509Liabilities under letters of credit and trust receipts (Note 5) 71,908,717 101,096,339Due to related parties (Note 11) 53,758,082 22,543,656Total Current Liabilities 229,291,768 238,528,504

Noncurrent Liabilities Accrued retirement benefits cost (Note 16) – 152,807Deferred income tax liability (Note 17) 64,610,959 64,610,959Total Noncurrent Liabilities 64,610,959 64,763,766

Total Liabilities 293,902,727 303,292,270

Stockholders’ Equity Capital stock - P=1 par value Authorized - 500,000,000 shares Issued - 301,341,929 shares 301,341,929 301,341,929Additional paid-in capital 801,166 801,166Revaluation increment in land (Notes 7 and 15) 58,730,787 58,730,787Deficit (Note 15) (213,919,840) (139,641,436)Total Stockholders’ Equity 146,954,042 221,232,446

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY P=440,856,769 P=524,524,716 See accompanying Notes to Financial Statements.

9

CAWC, INC. STATEMENTS OF OPERATIONS Years Ended December 31 2006 2005

NET SALES P=165,347,173 P=499,336,697

COST OF GOODS SOLD (Note 12) 224,029,360 598,650,136

GROSS LOSS 58,682,187 99,313,439 Operating expenses (Note 13) (30,409,897) (35,726,857)Interest expense (Note 11) (15,344,226) (17,671,492)Recovery from Petrocorp investments (Note 8) 14,356,483 – Recovery of losses from insurance (Note 4) 8,556,496 – Foreign exchange gain - net 4,833,805 1,639,206 Gain on sale of investments (Note 8) 2,015,000 – Scrap sales 864,338 1,341,428 Interest income (Note 11) 747,418 582,937 Income from refund - MERALCO (Note 8) – 6,974,205 Others - net (1,213,364) 270,493 (15,593,947) (42,590,080)

LOSS BEFORE INCOME TAX 74,276,134 141,903,519

PROVISION FOR (BENEFIT FROM) INCOME TAX (Note 17)

Current 2,270 10,620 Deferred – (727,265) 2,270 (716,645)

NET LOSS P=74,278,404 P=141,186,874 See accompanying Notes to Financial Statements.

10

CAWC, INC. STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005 Revaluation Additional Increment Capital Paid-in in Land Deficit Stock Capital (Notes 7 and

15) (Note 15) Total

BALANCES AT DECEMBER 31, 2004 P=301,341,929 P=801,166

P=134,174,669

(P=72,428,505) P=363,889,259

Effect of quasi-reorganization (Note 15) – – (73,973,943) 73,973,943 –

Effect of change in income tax rates – – (1,469,939) – (1,469,939)

Net loss for the year – – – (141,186,874) (141,186,874)

BALANCES AT DECEMBER 31, 2005 301,341,929 801,166 58,730,787 (139,641,436) 221,232,446

Net loss for the year – – – (74,278,404) (74,278,404)

BALANCES AT DECEMBER 31, 2006 P=301,341,929 P=801,166 P=58,730,787 (P=213,919,840) P=146,954,042 See accompanying Notes to Financial Statements.

11

CAWC, INC. STATEMENTS OF CASH FLOWS Years Ended December 31 2006 2005

CASH FLOWS FROM OPERATING ACTIVITIES Loss before income tax (P=74,276,134) (P=141,903,519)Adjustments for: Depreciation and amortization (Note 7) 24,987,954 28,767,503 Interest expense (Note 11) 15,344,226 17,671,492 Gain on sale of investments (2,015,000) – Transfer from property, plant and equipment (Note 7) 97,602 – Unrealized foreign exchange gain - net (4,833,805) (3,111,108) Interest income (Note 11) (747,418) (582,937)Operating loss before working capital changes (41,442,575) (99,158,569)Decrease (increase) in: Receivables (61,941) 58,200,067 Amounts due from related parties 26,496,614 (710,549) Inventories - net 47,900,462 11,639,579 Other current assets 243,242 (2,354,753)Increase (decrease) in: Accounts payable and accrued expenses (17,601,075) (51,892,460) Liabilities under letters of credit and trust receipts (29,187,622) 102,134,278 Amounts due to related parties 28,888,733 4,832,821 Provision for inventory losses – 11,919,914 Write-off of inventories – 7,851,020 Cash generated from operations 15,235,838 42,461,348 Interest paid (15,146,557) (16,112,993)Interest received 880,932 1,221,465 Income taxes paid including creditable withholding taxes and final tax

(2,409,398) (10,620)

Net cash from (used in) operating activities (1,439,185) 27,559,200

CASH FLOWS FROM INVESTING ACTIVITIES Acquisition of property, plant and equipment (Note 7) (18,807) (21,099,975)Proceeds from sale of investments 2,201,000 – Decrease (increase) in other noncurrent assets 1,615,825 (5,193,838)Net cash from (used in) investing activities 3,798,018 (26,293,813)

CASH FLOWS FROM FINANCING ACTIVITY Availments of notes payable 5,150,000 10,500,000 Payment of notes payable (7,150,000) (10,000,000)Net cash from (used in) financing activities (2,000,000) 500,000

NET INCREASE IN CASH 358,833 1,765,387

CASH AT BEGINNING OF YEAR 12,148,959 10,383,572

CASH AT END OF YEAR P=12,507,792 P=12,148,959 See accompanying Notes to Financial Statements.

12

CAWC, INC. NOTES TO FINANCIAL STATEMENTS 1. Corporate Information and Status of Operations CAWC, Inc. (the Company), a 99.67%-owned subsidiary of Chemical Industries of the

Philippines, Inc. (CIP) or the parent company, was incorporated in the Philippines and is primarily engaged in the manufacture and sale of industrial chemicals. The Company’s registered office address is Chemphil Building, 851 A. Arnaiz Avenue, Legaspi Village, Makati City.

On February 19, 2004, the Securities and Exchange Commission (SEC) approved the change in

the Company’s name from Chemphil Albright & Wilson Corporation to CAWC, Inc. The Company incurred recurring net losses of P=74,278,404 and P=141,186,874 for the years ended

December 31, 2006 and 2005, respectively, and, as of those dates, the Company has reported deficit of P=213,919,840 and P=139,641,436, respectively. These conditions indicate the existence of a material uncertainty which may cast significant doubt about the Company’s ability to continue as a going concern.

In October 2005, the Company announced its temporary shutdown, the objective of which is to

stop the massive losses being incurred. The Company was adversely and critically affected by the surge of Sodium Tri-Polyphosphates (STPP) imports from various countries. Moreover, the Company filed its petition for Safeguard Measure with the Department of Trade and Industry (DTI). Safeguard Measure is a remedy and safety net against the injurious effect of the surge in imports enshrined and recognized by the Constitution. The petition for Safeguard Measure was filed in accordance with the provisions of Republic Act (RA) 8800 otherwise known as “Safeguard Measure Act” and the World Trade Organization (WTO) Agreements on Safeguards.

In July 2006, the Company received the order from the DTI providing provisional Safeguard

Measure in the amount of P=14.15 per kg. This amount is imposed on imported STPP on top of the normal import taxes and duties. At the same time, the case was forwarded to the Tariff Commission (Commission), the agency tasked to conduct a formal investigation.

In January 2007, the Commission concluded its formal investigation. The results of the formal

investigation of the Commission affirmed the findings of the DTI and recommended that the imposition of the Safeguard Measure is justified in terms of RA 8800 and the WTO Agreements on Safeguards.

At this time, the Company has not yet attained normal operation. However, the Company

continues to operate intermittently producing small quantities of STPP for a loyal Filipino detergent producer. Additionally, the Company is in the midst of an on-going negotiation with a major multinational company for a two-year supply contract for STPP agreement. In the meantime, the Company is still awaiting the final decision of the DTI on the Company’s petition for the imposition of Safeguard Measure on imported STPP from various countries.

The accompanying financial statements were authorized for issue by the Board of Directors

(BOD) through its Executive Committee on April 4, 2007.

13

- 2 - 2. Summary of Significant Accounting and Financial Reporting Policies

Basis of Preparation and Statement of Compliance

The financial statements of the Company have been prepared on the historical cost basis except for land, which is carried at appraised value and are presented in Philippine peso, which is the Company’s functional currency.

The accompanying financial statements have been prepared in compliance with Philippine Financial Reporting Standards (PFRS).

Changes in Accounting Policies The accounting policies adopted are consistent with those of the previous year, except that the Company has made changes in accounting policies resulting from adoption of the following new and amendment to existing standards and Philippine Interpretation International Financial Reporting Interpretations Committee (IFRIC) effective January 1, 2006:

• Amendments to PAS 19, Employee Benefits, provides additional option to recognize all

actuarial gains and losses immediately outside of profit or loss (i.e., in equity). If the new option is adopted, present actuarial gains and losses in a statement of changes in equity titled ‘Statement of Recognized Income and Expenses’. The Company chose not to apply the new option offered to recognize all actuarial gains and losses immediately outside of the statement of operations.

• Amendments to PAS 39, Financial Instruments: Recognition and Measurement

Amendment for financial guarantee contracts requires financial guarantee contracts that are not considered to be insurance contracts to be recognized initially at fair value and to be remeasured at the higher of the amount determined in accordance with PAS 37, Provisions, Contingent Liabilities and Contingent Assets, and the amount initially recognized less, when appropriate, cumulative amortization recognized in accordance with PAS 18, Revenue. Amendment for hedges of forecast intragroup transactions permits the foreign currency risk of a highly probable intragroup forecast transaction to qualify as the hedged item in a cash flow hedge, provided that the transaction is denominated in a currency other than the functional currency of the entity entering into that transaction and that the foreign currency risk will affect the statement of operations. Amendment for the fair value option restricts the use of the option to designate any financial asset or any financial liability to be measured at fair value through profit or loss.

• Philippine Interpretation IFRIC 4, Determining Whether an Arrangement Contains a Lease, provides guidance in determining whether arrangements contain a lease to which lease accounting must be applied. The adoption of this Philippine interpretation did not have any significant impact on the Company’s financial statements.

Adoption of the revised accounting standards and Philippine Interpretation did not result to the restatement of prior years’ financial statements. Additional disclosures required by the revised standards and Philippine interpretations were included in the financial statements, where applicable.

14

- 3 - Future Changes in Accounting Policies

The Company has not applied the following PFRS and Philippine Interpretations which are not yet effective for the year ended December 31, 2006:

• PFRS 7, Financial Instruments: Disclosures, and the complementary amendment to PAS 1,

Presentation of Financial Statements: Capital Disclosures (effective for annual periods beginning on or after January 1, 2007), introduces new disclosures to improve the information about financial instruments. It requires the disclosure of qualitative and quantitative information about exposure to risks arising from financial instruments, including specified minimum disclosures about credit risk, liquidity risk and market risk, as well as sensitivity analysis to market risk. The amendment to PAS 1 introduces disclosures about the level of an entity’s capital and how it manages capital. It replaces PAS 30, Disclosures in the Financial Statements of Banks and Similar Financial Institutions, and the disclosure requirements of PAS 32, Financial Instruments: Disclosure and Presentation. It is applicable to all entities that report under PFRS. The amendment to PAS 1 introduces disclosures about the level of an entity’s capital.

• PFRS 8, Operating Segments (effective for annual periods beginning on or after January 1,

2009), requires a management approach to reporting segment information. PFRS 8 will replace PAS 14, Segment Reporting, and is required to be adopted only by entities whose debt or equity instruments are publicly traded, or are in the process of filing with the Philippine Securities and Exchange Commission for purposes of issuing any class of instruments in a public market.

• Philippine Interpretation IFRIC 7, Applying the Restatement Approach under PAS 29,

Financial Reporting in Hyperinflationary Economies (effective for annual periods beginning on or after March 1, 2006), provides guidance on how to apply PAS 29 when an economy first becomes hyperinflationary, in particular the accounting for deferred tax.

• Philippine Interpretation IFRIC 8, Scope of PFRS 2 (effective for annual periods beginning on

or after May 1, 2006), requires PFRS 2 to be applied to any arrangements where equity instruments are issued for consideration which appears to be less than fair value.

• Philippine Interpretation IFRIC 9, Reassessment of Embedded Derivatives (effective for

annual periods beginning on or after June 1, 2006), establishes that the date to assess the existence of an embedded derivative is the date an entity first becomes a party to the contract, with reassessment only if there is a change to the contract that significantly modifies the cash flows.

• Philippine Interpretation IFRIC 10, Interim Financial Reporting and Impairment (effective for

annual periods beginning on or after November 1, 2006), prohibits the reversal of impairment losses on goodwill and available-for-sale equity investments recognized in the interim financial reports even if impairment is no longer present at the annual balance sheet date.

• Philippine Interpretation IFRIC 11, PFRS 2 - Group and Treasury Share Transactions

(effective for annual periods beginning on or after March 1, 2007), requires arrangements whereby an employee is granted rights to an entity’s equity instruments to be accounted for as an equity-settled scheme by the entity even if (a) the entity chooses or is required to buy those

15

- 4 - equity instruments (e.g., treasury shares) from another party, or (b) the shareholders of the

entity provide the equity instruments needed. It also provides guidance on how subsidiaries, in their separate financial statements, account for such schemes when the subsidiary’s employees receive rights to the equity instruments of the parent.

• Philippine Interpretation IFRIC 12, Service Concession Arrangements (effective for annual

periods beginning on or after January 1, 2008), covers contractual arrangements arising from private entities providing public services.

The effects and required disclosures of the adoption of these standards and Philippine Interpretations, if any, will be included in the financial statements when these are adopted subsequent to 2006. Cash Cash includes cash on hand and in banks. Financial Assets and LiabilitiesFinancial assets are classified as either financial assets at fair value through profit or loss, loans and receivables, held-to-maturity investments, and available-for-sale financial assets, as appropriate. Financial liabilities, on the other hand, are classified as either financial liabilities at fair value through profit or loss or other liabilities, as appropriate. When financial assets and financial liabilities are recognized initially, they are measured at fair value, plus, in the case of investments not at fair value through profit or loss, directly attributable transaction costs. The Company determines the classification after initial recognition and, where allowed and appropriate, re-evaluates this designation at each balance sheet date. All regular way purchases and sales of financial assets are recognized on settlement date, which is the date that the Company commits to purchase the asset. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the period generally established by regulation or convention in the market place. Financial Assets or Financial Liabilities at Fair Value Through Profit or Loss Financial assets or financial liabilities classified in this category are designated by management on initial recognition when the following criteria are met: • The designation eliminates or significantly reduces the inconsistent treatment that would

otherwise arise from measuring the assets or liabilities or recognizing gains or losses on them on a different basis, or

• The assets and liabilities are part of a group of financial assets or financial liabilities,

respectively, or both financial assets and financial liabilities, which are managed and their performance is evaluated on a fair value basis, in accordance with a documented risk management or investment strategy, or

16

- 5 -

• The financial instrument contains an embedded derivative, unless the embedded derivative does not significantly modify the cash flows or it is clear, with little or no analysis, that it would not be separately recorded.

Financial assets or financial liabilities classified as held for trading are included in the category “Financial assets or financial liabilities at fair value through profit or loss”. Financial assets or financial liabilities are classified as held for trading if they are acquired for the purpose of selling in the near term. Derivatives are also classified as held for trading unless they are designated as effective hedging instruments. Gains or losses on investments held for trading are recognized in the statement of operations. The Company has not designated any financial assets or liabilities as financial assets or liabilities at fair value through profit or loss. Held-to-maturity Investments Non-derivative financial assets with fixed or determinable payments and fixed maturities are classified as held-to-maturity when the Company has the positive intention and ability to hold to maturity. Investments intended to be held for an undefined period are not included in this classification. Other long-term investments that are intended to be held-to-maturity, such as bonds, are subsequently measured at amortized cost. This cost is computed as the amount initially recognized minus principal repayments, plus or minus the cumulative amortization using the effective interest rate method of any difference between the initially recognized amount and the maturity amount less allowance for impairment. This calculation includes all fees and points paid or received between parties to the contract that are an integral part of the effective interest rate, transaction costs and all other premiums and discounts. For investments carried at amortized cost, gains and losses are recognized in the statement of operations when the investments are derecognized or impaired, as well as through the amortization process. Assets under this category are classified as current assets if maturity is within 12 months from the balance sheet date and noncurrent assets if maturity is more than a year. The Company has not designated any financial assets as held-to-maturity investments. Loans and Receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments and fixed maturities that are not quoted in an active market. They arise when the Company provides money, goods or services directly to a debtor with no intention of trading the receivables. Such assets are carried at amortized cost using the effective interest rate method. Gains and losses are recognized in the statement of operations when the loans and receivables are derecognized or impaired, as well as through the amortization process. Loans and receivables are included in current assets if maturity is within 12 months from the balance sheet date. Otherwise, these are classified as noncurrent assets. Classified under loans and receivables are trade receivables, due from related parties and notes payable. Available-for-sale Financial Assets Available-for-sale financial assets are those non-derivative financial assets that are designated as available-for-sale or are not classified in any of the three preceding categories. After initial recognition, available-for-sale financial assets are measured at fair value with gains or losses

17

- 6 - being recognized as a separate component of equity until the investment is derecognized or until the investment is determined to be impaired at which time the cumulative gain or loss previously reported in equity is included in the statement of operations. The Company has not designated any financial assets as available-for-sale financial assets. The fair value of investments that are actively traded in organized financial markets is determined by reference to quoted market bid prices at the close of business on the balance sheet date. For investments where there is no active market, fair value is determined using valuation techniques. Such techniques include using recent arm’s length market transactions; reference to the current market value of another instrument, which is substantially the same; discounted cash flow analysis and option pricing models. Other Financial Liabilities Other financial liabilities pertain to financial liabilities that are not held for trading or not designated as fair value through profit or loss upon the inception of the liability. These include liabilities arising from operations (e.g., payables, accruals). The liabilities are recognized initially at fair value and are subsequently carried at amortized cost, taking into account the impact of applying the effective interest method of amortization (or accretion) for any related premium, discount and any directly attributable transaction costs. Derecognition of Financial Assets and Liabilities Financial Assets A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is derecognized when: • the rights to receive cash flows from the asset have expired; or • the Company 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

• the Company 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 transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

Where the Company has transferred its rights to receive cash flows from an asset and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognized to the extent of the Company’s continuing involvement in the asset. Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Company could be required to repay. Where continuing involvement takes the form of a written and/or purchased option (including a cash-settled option or similar provision) on the transferred asset, the extent of the Company’s continuing involvement is the amount of the transferred asset that the Company may repurchase, except that in the case of a written put option (including a cash-settled option or similar provision) on an asset measured at fair value, the extent of the Company’s continuing involvement is limited to the lower of the fair value of the transferred asset and the option exercise price.

18

- 7 - Financial Liabilities A financial liability is derecognized when the obligation under the liability has been discharged, cancelled or has expired. Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognized in the statement of operations. Impairment of Financial Assets The Company assesses at each balance sheet date whether or not financial asset or a group of financial assets is impaired. Assets Carried at Amortized Cost If there is objective evidence that an impairment loss on loans and receivables carried at amortized cost has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate (i.e. the effective interest rate computed at initial recognition). The carrying amount of the asset shall be reduced either directly or through the use of an allowance account. The amount of the loss shall be recognized in the statement of operations. The Company first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, and individually or collectively for financial assets that are not individually significant. If it is determined that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, the asset is included in a group of financial assets with similar credit risk characteristics and that group of financial assets is collectively assessed for impairment. Assets that are individually assessed for impairment and for which an impairment loss is or continues to be recognized are not included in a collective assessment of impairment. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed. Any subsequent reversal of an impairment loss is recognized in the statement of operations, to the extent that the carrying value of the asset does not exceed its amortized cost at the reversal date. In relation to trade receivables, a provision for impairment is made when there is objective evidence (such as the probability of insolvency or significant financial difficulties of the debtor) that the Company will not be able to collect all of the amounts due under the original terms of the invoice. The carrying amount of the receivable is reduced through use of an allowance account. Impaired debts are derecognised when they are assessed as uncollectible. Assets Carried at Cost If there is objective evidence that an impairment loss on an unquoted equity instrument that is not carried at fair value because its fair value cannot be reliably measured, or on a derivative asset that is linked to and must be settled by delivery of such an unquoted equity instrument has

19

- 8 - occurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the current market rate of return for a similar financial asset. Available-for-Sale Financial Assets If an available-for-sale asset is impaired, an amount comprising the difference between its cost (net of any principal payment and amortization) and its current fair value, less any impairment loss previously recognized in the statements of operations, is transferred from equity to the statement of operations. Reversals in respect of equity instruments classified as available-for-sale are not recognized in the statement of operations. Reversals of impairment losses on debt instruments are reversed through the statement of operations, if the increase in fair value of the instrument can be objectively related to an event occurring after the impairment loss was recognized in the statement of operations. Offsetting of Financial Instruments Financial assets and financial liabilities are offset and the net amount reported in the balance sheet if, and only if, there is a currently enforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis, or to realize the asset and settle the liability simultaneously. This is not generally the case with master netting agreements, and the related assets and liabilities are presented gross in the balance sheet. Inventories

Inventories are valued at the lower of cost and net realizable value. Cost incurred in bringing each item to its present location and condition are accounted for as follows:

Raw materials, spare parts and factory supplies

- purchase cost determined on a moving-average method;

Finished goods - cost includes direct materials and labor and a

proportion of manufacturing overhead costs determined on a moving-average method

Net realizable value of finished goods is the estimated selling price in the ordinary course of

business, less estimated costs of completion, marketing and distribution.

Net realizable value of raw materials is the current replacement cost.

Property, Plant and Equipment Property, plant and equipment are stated at cost less accumulated depreciation and any impairment in

value, except for land which is carried at revalued amount as determined by an independent firm of appraiser.

The net appraisal increment from revaluation is shown as “Revaluation increment in land” account under the Stockholders’ Equity section of the balance sheet.

Upon disposal of revalued property, plant and equipment, the related revaluation increment realized in respect of the latest valuation will be released from the revaluation increment directly to deficit. The initial cost of property, plant and equipment consists of its purchase price, including import duties, taxes, and any directly attributable costs of bringing the asset to its working condition and location for its intended use. Expenditures incurred after the property, plant and equipment have

20

- 9 - been put into operation, such as repairs and maintenance and overhaul costs, are normally charged to operations in the period in which the costs are incurred. In situations where it can be clearly demonstrated that the expenditures have resulted in an increase 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 are capitalized as an additional cost of property, plant and equipment. Revaluation is made with sufficient regularity such that the carrying amount does not differ materially from that which would be determined using fair value at the balance sheet date. For subsequent revaluations, the accumulated depreciation at the date of the revaluation is eliminated against the gross carrying amount of the asset and the net amount restated to the revalued amount of the asset. Any resulting increase in the asset’s carrying amount as a result of the revaluation is credited directly to “Revaluation increment in land,” net of related deferred tax liability. Any resulting decrease is directly charged against any related revaluation increment to the extent that the decrease does not exceed the amount of the revaluation increment in respect of the same asset. Upon disposal of revalued property, plant and equipment, the related revaluation increment realized in respect of the latest valuation will be released from the revaluation increment directly to retained earnings.

Construction in progress is stated at cost. This includes cost of construction, equipment, and other direct costs. Construction in progress is not depreciated until such time that the relevant assets are completed and are made available for use.

Depreciation and amortization commences once the assets are put into operation and are computed on a straight-line basis over the estimated useful life of the asset as follows:

Years Land improvements 10 Buildings and structures 10 Machinery and equipment 10 Transportation equipment 5 Office furniture and fixtures 3

The asset’s residual values, useful lives and depreciation and amortization method are reviewed

periodically to ensure that these are consistent with the expected pattern of economic benefits from items of property, plant and equipment.

When assets are retired or otherwise disposed of, the cost and the related accumulated depreciation

and impairment in value are removed from the accounts, and any resulting gain or loss is credited to or charged against current operations.

Borrowing Costs Borrowing costs are generally expensed as incurred. Borrowing costs are capitalized if they are

directly attributable to the acquisition or construction of a qualifying asset. Capitalization of borrowing costs commences when the activities to prepare the asset are in progress and

21

- 10 - expenditures and borrowing costs are being incurred. Borrowing costs are capitalized until the

assets are substantially ready for their intended use. If the carrying amount of the asset exceeds its recoverable amount, an impairment loss is recorded.

Impairment of Non-financial Assets The carrying values of non-financial assets are reviewed for impairment when events or changes

in circumstances indicate that the carrying values may not be recoverable. If any such indication exists and where the carrying values exceed the estimated recoverable amounts, the assets are written down to their recoverable amounts. An asset’s recoverable amount is the greater of net selling price and value-in-use. In assessing value-in-use, the estimated future cash flows are discounted to their present values using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Any impairment loss is recognized in the statement of operations.

An assessment is made at each balance sheet date as to whether there is any indication that

previously recognized impairment losses may no longer exist or may have decreased. If such indication exists, the recoverable amount is estimated. A previously recognized impairment loss is reversed only if there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognized. If that is the case, the carrying amount of the asset is increased to its recoverable amount. That increased amount cannot exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognized for the asset in prior years. Such reversal is recognized in the statement of operations unless the asset is carried at a revalued amount, in which case the reversal is treated as a revaluation increase. After such a reversal, the depreciation expense is adjusted in future years to allocate the asset’s revised carrying amount, less any residual value, on a systematic basis over its remaining life.

Revenue Revenue is recognized when the significant risks and rewards of ownership of the goods have passed to the buyer and the amount of revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognized: Sales Sales are recognized when the significant risks and rewards of ownership of the goods have passed to the buyer and the amount of revenue can be measured reliably.

Interest Interest income is recognized as the interest accrues, taking into account the effective yield of the asset.

Retirement Benefits Cost

Retirement benefits cost is actuarially computed using the projected unit credit method. This method reflects services rendered by employees up to the date of valuation and incorporates assumptions concerning employees’ projected salaries. Actuarial valuations are conducted with sufficient regularity, with option to accelerate when significant changes in underlying assumptions occur. Retirement benefits cost includes current service cost, interest cost, expected return on any plan assets, actuarial gains and losses, past service cost and the effect of any

22

- 11 -

curtailment or settlement. Actuarial gains and losses are recognized as income or expense when the net cumulative unrecognized actuarial gains and losses of the defined benefit plan at the end of the previous reporting year exceeded 10% of the higher of the defined benefit obligation and the fair value of plan assets on that date. These gains or losses are recognized over the expected average remaining working lives of the employees participating in the defined benefit plan.

The net retirement liability recognized by the Company in respect of the defined benefit plan is the aggregate of the present value of the defined benefit obligation and actuarial gains and losses not recognized reduced by the past service cost not yet recognized and the fair value of plan assets out of which the obligations are to be settled directly. The net retirement asset recognized by the Company in respect of the defined benefit plan is the lower of: (a) the present value of the defined benefit obligation at the balance sheet date less the fair value of the plan assets, together with adjustments for unrecognized actuarial gains or losses and past service costs that shall be recognized in later periods, or (b) the total of any cumulative unrecognized net actuarial losses and past service cost and the present value of any economic benefits available in the form of refunds from the plan or reductions in future contributions to the plan. The defined benefit obligation is calculated annually by an independent actuary using the projected unit credit method. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using risk-free interest rates of government bonds that have terms to maturity approximating the terms of the related pension liability.

Operating LeaseThe determination of whether the arrangement is, or contains a lease is based on the substance of the arrangement at inception date of whether the fulfillment of the arrangement is dependent on the use of a specific asset or assets or the arrangement conveys a right to use the asset. A reassessment is made after inception on the lease only if one of the following applies: (a) there is a change in contractual terms, other than a renewal or extension of the arrangement; (b) a renewal option is exercised or extension granted, unless the term of the renewal or extension was initially included in the lease term; (c) there is a change in the determination of whether fulfillment is dependent on a specified asset; or (d) there is substantial change to the asset. Where a reassessment is made, lease accounting shall commence or cease from the date when the change in circumstances gave rise to reassessment for scenarios (a), (c), or (d) and at the date of renewal or extension period for scenario (b). For arrangements entered prior to January 1, 2005, the date of inception is deemed to be January 1, 2005 in accordance with the transitional requirements of Philippine Interpretation IFRIC 4. Leases where the lessor retains substantially all the risks and benefits of ownership of the asset are classified as operating leases. Operating lease proceeds are recognized as income in the statement of operations on a straight-line basis over the lease term.

23

- 12 - Income Taxes Current Tax Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that have been enacted or substantively enacted at the balance sheet date. Deferred Tax Deferred tax is provided, using the balance sheet liability method, on temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred tax assets are recognized for all deductible temporary differences, carryforward benefits of unused tax credits from the excess of the minimum corporate income tax (MCIT) over the regular corporate income tax and net operating loss carryover (NOLCO) but only to the extent that it is probable that taxable profit will be available against which the deductible temporary differences and the carryforward benefits of unused tax credits from MCIT and NOLCO can be utilized. The carrying amount of the deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilized. Unrecognized deferred tax assets are reassessed at each balance sheet date and are recognized to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realized or the liability is settled based on the tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date.

Deferred tax relating to items recognized directly in equity is recognized in equity and not in the statement of operations. Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to set off deferred tax assets against deferred tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority. Foreign Currency Transactions and Translations Transactions denominated in foreign currencies are recorded in Philippine peso based on the exchange rates prevailing at the transaction dates. Outstanding foreign currency-denominated monetary assets and liabilities are translated to Philippine peso at exchange rates prevailing and the balance sheet date. Foreign exchange differences between the rates at transaction date and settlement date or balance sheet date of foreign currency-denominated monetary assets or liabilities are credited or charged to current operations.

24

- 13 -

Provisions and Contingencies Provisions are recognized when the Company has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required 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 determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessment of the time value of money and, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognized as an interest expense. Contingent liabilities are not recognized in the financial statements. These are disclosed unless the possibility of an outflow of resources embodying economic benefits is remote. Contingent assets are not recognized in the financial statements but disclosed when an inflow of economic benefits is probable. Events After the Balance Sheet Date

Post year-end events up to the date of the approval of the BOD that provide additional information about the Company’s position at balance sheet date (adjusting events) are reflected in the financial statements. Post year-end events that are not adjusting events are disclosed in the notes to the financial statements when material.

3. Significant Accounting Judgments and Estimates

The preparation of the accompanying financial statements in compliance with PFRS requires management to make judgments, estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. The judgments, estimates and assumptions used in the accompanying financial statements are based upon management’s evaluation of relevant facts and circumstances that are believed to be reasonable as of the date of the financial statements. While the Company believes that the assumptions are reasonable and appropriate, differences in the actual experience or changes in the assumptions may materially affect the estimated amounts. Actual results could differ from such estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods. Determination of the Company’s functional currency The Company, based on the relevant economic substance of the underlying circumstances, has determined its functional currency to be the Philippine peso. It is the currency of the primary economic environment in which it operates. Classification of financial instruments The Company classifies a financial instrument, or its components, on initial recognition as a financial liability, a financial asset or an equity instrument in accordance with the substance of the contractual arrangement and the definitions of a financial liability, a financial asset or an equity instrument. The substance of a financial instrument, rather than its legal form, governs its classification in the Company’s balance sheet.

25

- 14 -

The Company determines the classification at initial recognition and, where allowed and appropriate, re-evaluates this classification at every reporting date. The carrying value of financial assets amounted to P=30,682,275 and P=53,839,203 and financial liabilities amounted to P=220,548,435 and P=226,740,740,433 as of December 31, 2006 and 2005, respectively (see Note 19). Operating Lease - the Company as lessee The Company has entered into property leases, where it has determined that the risks and rewards related to those properties are retained by the lessors. As such, these lease agreements are accounted for as operating leases. Estimation of allowance for doubtful accounts Allowance for doubtful accounts is provided for accounts that are specifically identified to be doubtful as to collection. The level of allowance is evaluated by management on the basis of factors that affect the collectibility of the accounts. The Company’s receivables, net of allowance for doubtful accounts, amounted to P=23,418,874 and P=10,456,470 as of December 31, 2006 and 2005, respectively (see Note 4). Estimation of allowance for inventory losses Provisions are made for inventory specifically identified to be obsolete. The level of this allowance is evaluated by management on the basis of factors that affect the realizability of the inventory. The Company’s inventories, net of allowance for inventory losses amounted to P=42,840,254 and P=90,740,716 in December 31, 2006 and 2005, respectively (see Note 5).

Estimation of useful lives and residual values of property, plant and equipment The Company estimates the useful lives and residual values of its property, plant and equipment based on the period over which the assets are expected to be available for use. The Company reviews annually the estimated useful lives and residual values of property, plant and equipment based on factors that include asset utilization, internal technical evaluation, technological changes, environmental and anticipated use of the assets tempered by related industry benchmark information. It is possible that future results of operation could be materially affected by changes in these estimates brought about by changes in the factors mentioned. A reduction in the estimated useful lives of property, plant and equipment would increase depreciation expense and decrease noncurrent assets. The carrying value of property, plant and equipment amounted to P=92,562,627 and P=117,629,376 as of December 31, 2006 and 2005, respectively (see Note 7).

26

- 15 -

Impairment of nonfinancial assets The Company determines whether its nonfinancial assets are impaired, at least on an annual basis. This requires an estimation of the value-in-use of the cash-generating units to which the assets belong. Estimating the value-in-use requires the Company to make an estimate of the expected future cash flows from the cash-generating unit and also to choose a suitable discount rate in order to calculate the present value of those cash flows.

The carrying value of property, plant and equipment amounted to P=92,562,627 and P=117,629,376 as of December 31, 2006 and 2005, respectively (see Note 7).

Recognition of deferred tax assets The Company reviews the carrying amounts at each balance sheet date and adjusts the balance of deferred tax assets to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax assets to be utilized. The Company did not recognize deferred tax assets since management believes that the Company may not have sufficient taxable profit available to allow it to be utilized in the future or prior to expiration.

Retirement benefits The determination of the obligation and cost of retirement benefits is dependent on the selection of

certain assumptions used by actuaries in calculating such amounts. Those assumptions are described in Note 16 to the financial statements and include among others, discount rates, expected returns on plan assets and salary increase rates. Actual results that differ from the Company’s assumptions are accumulated over future periods and therefore, generally affect the recognized expense and recorded obligation in such future periods. While the Company believes that the assumptions are reasonable and appropriate, significant differences in the actual experience or significant changes in the assumptions may materially affect the retirement obligations.

The Company’s accrued retirement benefits payable amounted to P=152,807 as of December 31, 2005. Retirement expense charged to operations amounted to P=887,013 in 2006 and P=1,282,789 in 2005, respectively (see Note 16). Provisions The Company provides for present obligations (legal or constructive) where it is probable that there will be an outflow of resources embodying economic benefits, that will be required to settle said obligations. An estimate of the provision is based on known information at balance sheet date, net of any estimated amount that may be reimbursed to the Company. If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects the risks specific to the liability. The amount of provision is being re-assessed at least on an annual basis to consider new relevant information. There are no provisions recognized as of December 31, 2006 and 2005.

27

- 16 - 4. Receivables

2006 2005 Trade P=12,250,746 P=10,300,533Insurance claim receivable 10,206,172 –Receivable from Meralco - net of deferred interest income (Note 8)

1,182,636 1,075,940

Others (Note 8) 4,337,377 5,559,507 27,976,931 16,935,980Less allowance for doubtful accounts 4,558,057 6,485,510 P=23,418,874 P=10,450,470

Insurance claim receivable pertains to reimbursement for losses suffered by the Company from

typhoon Milenyo in 2006. 5. Inventories

2006 2005 At net realizable value: Finished goods P=10,690,762 P=37,517,055 Raw materials 9,449,841 24,126,637 Spare parts and factory supplies 20,946,884 24,527,106 41,087,487 86,170,798 At cost: Raw materials 1,752,767 4,569,918 P=42,840,254 P=90,740,716

Certain inventories were written down to their net realizable value, and as a result, provision for

(recovery from) inventory losses amounting to (P=717,803) and P=11,919,914 were charged as part of cost of goods sold in 2006 and 2005, respectively. Allowance for inventory losses amounting to P=7,851,020 was written-off in 2005.

Under the terms of agreements covering liabilities under letters of credit and trust receipts, some

inventories amounting to P=10,870,327 as of December 31, 2006, were released to the Company in trust for the banks. The Company is accountable to the banks for the trusteed inventories or their sales proceeds.

6. Prepayments and Other Current Assets

2006 2005 Prepaid taxes P=9,632,414 P=7,225,286Input value added taxes 2,535,062 1,215,962Deposits – 1,200,000Prepaid insurance and others 364,185 726,527 P=12,531,661 P=10,367,775

28

- 17 - 7. Property, Plant and Equipment

2006 Office Buildings Machinery Furniture Land and and Transportation and Construction Improvements Structures Equipment Equipment Fixtures in Progress TotalAt Cost: Cost Beginning balances P=9,102,402 P=45,764,631 P=438,570,912 P=12,789,201 P=11,044,691 P=2,321,361 P=519,593,198Additions – – 18,807 – – – 18,807Reclassifications – – 2,223,759 – – (2,321,361) (97,602)Ending balances 9,102,402 45,764,631 440,813,478 12,789,201 11,044,691 – 519,514,403Accumulated Depreciation

and Amortization Beginning balances 8,903,714 38,878,982 331,982,282 11,362,565 10,836,279 – 401,963,822Depreciation and amortization (Notes 12 and 13)

33,579 1,324,008 23,299,603 202,547

128,217

– 24,987,954Ending balances 8,937,293 40,202,990 355,281,885 11,565,112 10,964,496 – 426,951,776Net Book Values P=165,109 P=5,561,641 P=85,531,593 P=1,224,089 P=80,195 P=– P=92,562,627

2005 Office Buildings Machinery Furniture Land and and Transportation and Construction Improvements Structures Equipment Equipment Fixtures in Progress TotalAt Cost: Cost Beginning balances P=9,102,402 P=45,764,631 P=402,419,408 P=12,789,201 P=10,914,474 P=17,503,107 P=498,493,223Additions – – 475,828 – 130,217 20,493,930 21,099,975Reclassifications – – 35,675,676 – – (35,675,676) –Ending balances 9,102,402 45,764,631 438,570,912 12,789,201 11,044,691 2,321,361 519,593,198

Accumulated Depreciation and Amortization Beginning balances 8,870,136 37,534,147 305,156,358 11,048,338 10,587,340 – 373,196,319Depreciation and amortization (Notes 12 and 13) 33,578 1,344,835

26,825,924 314,227

248,939

– 28,767,503Ending balances 8,903,714 38,878,982 331,982,282 11,362,565 10,836,279 – 401,963,822Net Book Values P=198,688 P=6,885,649 P=106,588,630 P=1,426,636 P=208,412 P=2,321,361 P=117,629,376

2006 2005

Land: At revalued amount P=238,600,000 P=238,600,000Cost 41,284,311 P=41,284,311

8. Other Noncurrent Assets

2006 2005 Receivable from local government P=12,980,706 P=13,411,884Receivable from Manila Electric Company (MERALCO) - net of deferred interest income

4,715,629 5,898,265

Deposits 574,865 574,865Others 98,889 286,900 P=18,370,089 P=20,171,914

Receivable from local government includes local tax credit from the Municipality of San Pascual,

Batangas, amounting to P=12,980,706 and P=13,386,193 in 2006 and 2005, respectively, which will be applied against future real property taxes.

29

- 18 - In 2005, MERALCO informed the Company that in reference to the Meralco Phase IVB of the

refund approved by the Energy Regulatory Board, the Company’s electric service was qualified for refund under Phase IVB.

Under the refund Meralco scheme, the refund may be received through postdated checks or as a

fixed monthly credit to bills with cash option. The Company intends to recover the refund through postdated checks to be collected over 5.25 years, starting in April 2006 up to July 2011.

The Company recognized a receivable from Meralco amounting to P=8,953,214, which consists of

unearned interest income of P=1,979,009 and income from refund of P=6,974,205. The receivable was discounted using an effective interest rate of 11%. Breakdown of the outstanding balances are as follows:

2006 2005 Current

(Note 6) Noncurrent Current (Note 6) Noncurrent

Receivable from Meralco P=1,705,374 P=5,542,466 P=1,705,374 P=7,247,840Deferred interest income 522,738 826,837 629,434 1,349,575

In 2006, portion of investments in Petrochemicals Corporation of Asia-Pacific (Petrocorp)

amounting to P=14,356,483 was recovered by the Company and recognized in the statement of operations. Petrocorp investment was fully impaired in previous years. Also, investments in Manila Polo Club shares with carrying value of P=186,000 were sold for P=2,201,000 resulting to a gain of P=2,015,000 as recognized in the statement of operations.

9. Notes Payable

These consist of unsecured notes payable to a local bank with annual interest rates ranging from

6.84% to 11.25% in 2006 and 12% in 2005. 10. Accounts Payable and Accrued Expenses

2006 2005Trade payables P=86,381,636 P=92,600,438Accrued operating expenses 2,869,020 6,717,691Accrued interest 1,536,959 1,260,270Accrued salaries and employee benefits 246,291 640,992Others 4,091,063 3,169,118 P=95,124,969 P=104,388,509

30

- 19 - 11. Related Party Transactions

The Company has the following significant related party transactions:

a. Service agreement with CIP for the Company’s management support activities. The service

fee consists of management and shared services fees. Management fee amounting to P=3,000,000 both in 2006 and 2005, represents the Company’s share in the general corporate overhead incurred by CIP. The shared services fee is billed using activity-based costing, whereby services rendered are based on man-hours spent or number of items processed or output produced as applicable. Share in common services charged to operating expenses amounted to P=8,347,338 in 2006 and P=11,544,715 in 2005 (Note 13).

b. Facility agreement with LMG Chemicals Corp. (LMG) for the Company’s use of LMG’s truck

scale. The shared services fee is billed using activity-based costing, whereby services are based on the number of times of truck scale weighings. Share in common services charged to cost of goods sold amounted to P=272,198 in 2006 and P=724,253 in 2005 (Note 12).

c. Rental agreement with CIP for the Company’s office space for one year renewable at the

option of both parties. Rent expense charged to operations amounted to P=321,145 in 2006 and P=384,326 in 2005 (Note 13).

d. Vision Insurance Consultants, Inc. (VIC), an affiliate, provided risk management services for

the Company. Amount billed is based on actual time charges. Risk management fees under share in common services charged to cost of goods sold amounted to P=13,695 in 2005 (Note 12).

e. In October 2003, CIP executed a promissory note payable to the Company amounting to

P=15,000,000 with interest equivalent to 3.5% per annum payable annually, included under “Due from related parties” in the balance sheets. Interest income earned amounted to P=104,533 in 2006 and P=529,835 in 2005.

f. Outstanding receivable from exchange of land with LMG, executed in 2000, which amounted

to P=13,815,562 in 2005, was subsequently received in 2006.

g. Extension of noninterest and interest-bearing cash advances and reimbursement of expenses with parent company and affiliates. The interest-bearing cash advances have interest rates ranging from 8% to 12% in 2006 and 8% to 9.75% in 2005. Interest income earned amounted to P=106,633 in 2006 and P=529,835 in 2005. Related interest expense amounted to P=2,325,694 in 2006 and P=944,234 in 2005.

h. Outstanding current receivables from related parties follows:

Advances Interest 2006 2005 2006 2005 2006 2005 Total TotalCIP P=– P=15,363,144 P=– P=21,444 P=– P=15,384,588 LMG – 9,005,446 – – – 9,005,446 Others 25,472 25,472 – – 25,472 25,472 P=25,472 P=24,394,062 P=– P=21,444 P=25,472 P=24,415,506

31

- 20 -

Outstanding payables to related parties follows:

Premiums Advances Loans Interest 2006 2005 2006 2005 2006 2005 2006 2005 2006 2005 Total TotalCurrent: CIP P=– P=– P=– P=– P=23,224,785 P=– P=440,617 P=– P=23,665,402 P=– Kemwater Phil. Corp. – – – 7,213 18,668,348 14,419,403 194,685 437,633 18,863,033 14,864,249 LMG – – 1,018,250 – – – 37,133 – 1,055,383 – Vision Insurance Consultants, Inc.

10,098,870 7,629,562 – – – –

–

– 10,098,870 7,629,562

Chemphil Marketing Corp.

– – 37,735 37,735 – –

–

– 37,735 37,735

Perfumeria Espanola Corp. – – 37,659 12,110 – – – – 37,659 12,110 P=10,098,870 P=7,629,562 P=1,093,644 P=57,058 P=41,893,133 P=14,419,403 P=672,435 P=437,633 P=53,758,082 P=22,543,656

i. Compensation of key management personnel consists of short-term employee benefits and

termination benefits amounting to P=7,616,729 and P=338,323, respectively, in 2006 and P=11,858,886 and P=878,953, respectively, in 2005.

Certain accounts in the 2005 financial statements were reclassified to conform with the 2006

financial statements presentations. 12. Cost of Goods Sold

2006 2005Raw materials used P=116,578,746 P=416,276,859Direct labor (Notes 14 and 16) 5,069,041 21,382,716Manufacturing overhead: Depreciation and amortization 24,765,300 28,277,262 Supplies 18,500,444 74,175,576 Communication, light and water 9,507,255 24,736,244 Outside services 5,456,035 6,642,598 Insurance 4,014,176 6,133,490 Taxes and licenses 3,654,630 9,113,063 Repairs and maintenance 3,297,406 10,977,372 Rent 1,106,903 2,464,768

Share in common services (Note 11) 272,198 724,253 Provision for (recovery from) inventory losses (717,803) 11,919,914 Others (Note 11) 1,059,263 1,053,720Changes in finished goods inventories 31,465,766 (15,227,699) P=224,029,360 P=598,650,136

13. Operating Expenses

2006 2005Personnel expenses (Notes 14 and 16) P=9,441,282 P=15,430,016Share in common services (Note 11) 8,347,338 11,544,715Outside services 3,328,763 984,965Management fee (Note 11) 3,000,000 3,000,000Taxes and licenses 840,805 1,459,392Communication, light and water 471,264 689,844Rent (Note 11) 321,145 384,326

(Forward)

32

- 21 -

2006 2005Transportation and travel P=304,650 P=433,322Depreciation and amortization 222,654 490,241Provision for (recovery from) doubtful accounts – 169,965Others (Note 11) 757,213 1,140,071 P=27,035,114 P=35,726,857

14. Personnel Expenses

2006 2005Salaries and wages P=11,611,548 P=31,983,902Retirement benefits cost (Note 16) 887,013 1,282,789Other employee benefits 2,011,762 3,546,041 P=14,510,323 P=36,812,732

15. Quasi-Reorganization On June 23, 2005, the Board Executive Committee approved the quasi-reorganization of the

Company with the objective of eliminating the Company’s accumulated deficit as of December 31, 2004 amounting to P=73,973,943 by applying the revaluation increment in land as of such date.

On October 10, 2005, the SEC approved the quasi-reorganization. Pursuant to the SEC approval

of the foregoing, the Company was subject to conditions that: (a) the remaining revaluation increment of P=58,730,787 as of December 31, 2005, after applying P=73,973,943 to the Company’s deficit, will not be used to wipe out losses that may be incurred in the future without prior approval of SEC; (b) for purposes of dividend declaration, the retained earnings of the Company shall be restricted to the extent of the deficit wiped out by the appraisal increment in land; and (c) the Company shall disclose in its financial statements for a minimum period of three years the mechanics, purpose and effect of such quasi-reorganization, on the condition of the Company.

16. Retirement Benefits Cost The Company, together with its affiliated companies, has a funded non-contributory defined

benefit plan covering substantially all its regular employees. The benefits are based on the years of service and latest monthly compensation of the employees. The latest actuarial valuation report is as of December 31, 2006.

The following tables summarize the components of retirement benefits cost recognized in the

statements of operations and the funding status and amounts recognized in the balance sheets.

33

- 22 - Retirement benefits cost in 2006 and 2005 follows:

2006 2005Current service cost P=760,879 P=953,826Interest cost 3,809,100 3,326,502Expected return on plan assets (2,875,853) (3,023,186)Net actuarial loss (gain) (807,113) 20,497Net transition obligation recognized in the year – 5,150Retirement benefits cost for the year P=887,013 P=1,282,789Actual return on plan assets P=6,450,484 P=3,023,186

Net retirement liability recognized by the Company in the balance sheets follows:

2006 2005Present value of retirement liabilities P=10,962,163 P=32,001,179Fair value of plan assets 4,100,624 28,758,533Unfunded present value of retirement liability 6,861,539 3,242,646Unrecognized net actuarial loss (10,236,321) (3,100,037)Unrecognized net transition asset – 10,198Asset ceiling limit 3,374,782 –Net retirement liability P=– P=152,807

Changes in the present value of the retirement liabilities follows:

2006 2005Balance at beginning of year P=32,001,179 P=27,720,851Current service cost 760,879 953,826Interest cost 3,809,100 3,326,502Benefits paid (22,622,027) –Actuarial gain for the year (2,986,968) –Balance at end of year P=10,962,163 P=32,001,179

Changes in the fair value of the plan assets are as follows:

2006 2005Balances at beginning of year P=28,758,533 P=25,193,217Expected return on plan assets 2,875,853 3,023,186Actual contributions 4,504,957 542,130Benefits paid (22,622,027) –Actuarial loss (9,416,692) –Balance at end of year P=4,100,624 P=28,758,533

The major categories of net plan assets as of December 31, 2006 of the Company as a percentage

of the fair value of the plan assets are as follows:

Investment in government securities 58% Investment in stocks 12% Other investments 25% Other assets 5%

34

- 23 - The overall expected return on the plan assets is determined based on the market prices prevailing

on the date applicable to the period over which the obligation is to be settled. The principal assumptions used in determining retirement benefits costs for the Company’s plans

are as follows as of January 1 of each year:

2006 2005 Number of employees 13 60 Discount rate per annum 12% 12% Expected annual rate of return on plan assets 12% 12% Future annual increase in salary 6% 6%

As of December 31, 2006, the following are the assumptions: discount rate of 8%, expected annual rate of return on plan assets of 10% and future annual increase in salary of 6%.

Amount for the current and previous years are as follows:

2006 2005Defined benefit obligations P=10,962,163 P=32,001,179Fair value of plan assets 4,100,624 28,758,533Unfunded present value of retirement obligation

6,861,539 3,242,646

Experience adjustment on plan liabilities 1,187,143 –Experience adjustment on plan assets (8,415,966) –

The Company expects to contribute P=2,168,520 to the retirement fund in 2007. 17. Income Taxes a. Provision for income tax - current represents final tax on interest income amounting to P=2,270

in 2006 and P=10,620 in 2005. b. The components of the Company’s deferred tax liability are as follows:

2006 2005Income tax effects of:

Revaluation increment in land P=64,610,959 P=63,141,020Effect of change in tax rate – 1,469,939 P=64,610,959 P=64,610,959

Management, however, believes that it is improbable that any actual income tax liability will

arise from revaluation of land since it is unlikely that the revalued property will be sold, exclusive of the business, in the foreseeable future.

35

- 24 -

c. The Company did not recognize deferred tax assets on the following items since management believes that the Company may not have sufficient taxable profit available to allow all or part of these to be utilized in the future or prior to expiration.

2006 2005NOLCO P=282,905,596 P=219,354,594Allowance for inventory obsolescence 13,913,921 14,631,724Deferred interest income - Meralco 1,349,575 1,979,009Allowance for doubtful accounts 4,558,057 6,485,510Unamortized portion of past service cost 2,417,131 3,402,800Accrued expenses 656,578 –Accrued retirement benefits cost – 152,807MCIT 135,686 387,630

d. The reconciliation of the benefit from income tax computed at the statutory income tax rate to

the provision for income tax as shown in the statements of operations for the years ended December 31, 2006 and 2005 is summarized as follows:

2006 2005Benefit from income tax computed at statutory income tax rate

(P=25,996,647) (P=46,118,644)

Additions to (reductions from) to income tax resulting from:

Unrecognized deferred tax assets 20,684,539 52,604,511 Recovery from Petrocorp investments (5,024,769) – Gain on insurance claims (2,994,774) – Gain on sale of investments (634,725) – Interest income subjected to final tax (1,702) (6,638) Effect of change in income tax rates – (6,487,350) Nondeductible interest expense and others 1,669 (708,524)Expired NOLCO 13,716,735 –Expired MCIT 251,944 –Provision for (benefit from) income tax P=2,270 (P=716,645)

e. As of December 31, 2006, the Company’s NOLCO and MCIT that can be claimed as deduction

from future taxable income and regular corporate income tax due, respectively, are as follows:

NOLCO

Year Incurred

Amount

Tax Effect Expired/Applied

Balance as of December 31, 2006

Available Until

2003 P=39,190,672 P=13,716,735 P=39,190,672 P=– 2006 2004 42,047,900 14,716,765 – 42,047,900 2007 2005 138,216,022 48,375,608 – 138,216,022 2008 2006 102,641,674 35,924,586 – 102,641,674 2009

P=322,096,268 P=112,733,694 P=39,190,672 P=282,905,596 MCIT

2003 P=251,944 P=251,944 P=– 2006 2004 135,686 – 135,686 2007

P=387,630 P=251,944 P=135,686

36- 25 -

e. On May 24, 2005, the new Expanded-Value Added Tax (E-VAT) law was signed as Republic

Act (RA) No. 9337 or the E-VAT Act of 2005. The E-VAT law took effect on November 1, 2005 following the approval on October 19, 2005 of Revenue Regulations (RR) 16-2005 which sets forth the implementing of the rules and regulations of the new E-VAT law. Among the relevant provisions of the new E-VAT law are:

i. change in corporate income tax rate from 32% to 35% for the next three years effective on

November 1, 2005, and 30% starting on January 1, 2009 and thereafter;

ii. a 70% cap on the input VAT that can be claimed against output VAT;

iii. The amount of interest paid or incurred within a taxable year on indebtness in connection with the tax payer’s profession, trade or business shall be allowed as a deduction from gross income, provided that, the taxpayer’s otherwise allowable deduction for interest expense shall be reduced by 42% of the interest income subject to final tax, provided that, effective January 1, 2009, the rate shall be 33%; and

iv. increase in the VAT rate imposed on goods and services from 10% to 12% effective

January 1, 2006 provided that the VAT collection as a percentage of Gross Domestic Product (GDP) of the previous year exceeds 2.8% or the Philippine national government deficit as a percentage of GDP of the previous year exceeds 1.5%.

On January 31, 2006, the President, upon recommendation of the Secretary of Finance,

approved the 2% increase in VAT rate effective on February 1, 2006. On November 21, 2006, the President signed into law RA No. 9361 which amends Section

110 (B) of the Tax Code. This law, which became effective on December 13, 2006, provides that if the input tax, inclusive of the input tax carried over from the previous quarter exceeds the output tax, the excess input tax shall be carried over to the succeeding quarter or quarters. The Department of Finance through the Bureau of Internal Revenue, issued RR No. 2-2007 to implement the provisions of the said law. Based on the regulation, the amendment shall apply to the quarterly VAT returns to be filed after the effectivity of RA No. 9361 except VAT returns covering taxable quarters ending earlier than December 2006.

18. Financial Risk Management Objectives and Policies

The Company’s principal financial instruments consist mainly of cash. The Company has various other financial assets and liabilities such as trade receivables, trade payables, and due to/from related parties which arise directly from its operations.

The main risks arising from the Company’s financial instruments are foreign currency risk, credit risk and liquidity risk. The board reviews and approves policies for managing each of these risks and they are summarized as follows: Foreign Currency Risk The Company has transactional currency exposures. Such exposure arises from purchases in currencies other than the functional currency. Approximately 65% of the Company’s purchases are denominated in currencies other than the functional currency.

37- 26 -

Credit Risk

Credit risks are minimized and monitored by limiting the Company’s associations to business parties with high creditworthiness. Receivables are monitored on an ongoing basis through the Company’s management reporting procedures. The Company does not have any significant exposure to any individual customer or counterparty. With respect to credit risk arising from cash and receivables, the Company’s exposure to credit risk arises from default of the counterparty, with a maximum exposure equal to the carrying amount of these instruments. The Company deals only with financial institutions duly evaluated and approved by the BOD.

Liquidity Risk The Company’s objective is to maintain a balance between continuity of funding and flexibility. The Company avails credit facilities from related parties and maximizes the net cash inflows from operations to finance its working capital requirements.

19. Financial Assets and Liabilities Set out below is a comparison by category of carrying amounts and fair values of all of the Company’s financial instruments that are carried in the financial statements.

Carrying Amount Fair Value 2006 2005 2006 2005Financial assets: Cash P=12,507,792 P=12,148,959 P=12,507,792 P=12,148,959 Trade receivables 12,250,746 10,300,533 12,250,746 10,300,533 Receivable from MERALCO 5,898,265 6,974,205 5,898,265 6,974,205 Due from related parties 25,472 24,415,506 25,472 24,415,506 P=30,682,275 P=53,839,203 P=30,682,275 P=53,839,203Financial liabilities: Trade payables P=86,381,636 P=92,600,438 P=86,381,636 P=92,600,438 Notes payable 8,500,000 10,500,000 8,500,000 10,500,000 Liabilities under letters of credit and trust receipts 71,908,717 101,096,339 71,908,717 101,096,339 Due to related parties 53,758,082 22,543,656 53,758,082 22,543,656 P=220,548,435 P=226,740,433 P=220,548,435 P=226,740,433

The carrying amounts of cash, trade receivables and payables, due to/from related parties, receivable from MERALCO, notes payable and liabilities under letters of credit and trust receipts approximate their fair values either because of their short-term nature or the interest rates that they carry which approximates the interest rate for comparable instruments in the market.

38

Board of DirectorsBoard of Directors

Antonio M. GarciaAntonio M. Garcia

Chairman of the Board

Jaime Y. GonzalesJaime Y. Gonzales Alexandra G. GarciaAlexandra G. Garcia Jesus N. AlcordoJesus N. Alcordo

Ramon M. GarciaRamon M. Garcia Jose Ricardo C. Garcia Jose Ricardo C. Garcia

Jose Ma. L. OrdovezaJose Ma. L. Ordoveza Jose Raul P. BarredoJose Raul P. Barredo

Ana Maria G. OrdovezaAna Maria G. Ordoveza

President &

Chief Executive Officer

Executive OfficersExecutive OfficersAntonio M. GarciaAntonio M. Garcia -- Chairman of the Board Chairman of the Board

Ana Maria G. OrdovezaAna Maria G. Ordoveza -- President & Chief Executive OfficerPresident & Chief Executive Officer

Alexandra G. GarciaAlexandra G. Garcia -- Chief Operating Officer Chief Operating Officer

Jaime Y. Gonzales Jaime Y. Gonzales -- Treasurer & Chief Financial Officer Treasurer & Chief Financial Officer

Jose Raul P. BarredoJose Raul P. Barredo -- General ManagerGeneral Manager

Luis A. Vera CruzLuis A. Vera Cruz -- Corporate Secretary Corporate Secretary

Salvador L. PenaSalvador L. Pena -- Asst. Corporate SecretaryAsst. Corporate Secretary

3939

Support Services GroupSupport Services Group(As of December 31, 2006)(As of December 31, 2006)

CIP ManagementCIP Management

Jaime Y. GonzalesTreasurer & Chief Financial Officer

Corporate Affairs, Marketing Research & Information Services Elenita A. Calar, Vice-President

Financial ServicesMaureen T. Cabanban, Vice-PresidentLeah N. Alfaro, Manager, Disbursement ServicesEden S. Aguirre, Manager, Integrated Disbursement

Credit & Collection Services

Integrated Procurement ServicesIsidora A. Lee, Vice-PresidentBenedicto M. Hernandez, Sr. Manager, Import/Export

Management Control & Information System ServicesMa. Teresa E. Manaog, Manager

Legal and Risk Management ServicesReynaldo C. Rafael, Assistant Vice-PresidentErwin A. Temprosa, Manager

Group Personnel Policy and AdministrativeServices/Industrial Relations and Employee Development (GPPAS/IRED)Hilda M. Del Rosario, Senior Vice-PresidentPearl T. Laurea, Assistant Vice-President, IRED Pasig

StationFe O. Ureta, Manager

Controllership and Internal Audit ServicesDonald M. Sanchez, Senior Manager /Group ControllerAntonio A. Martin, Manager

Company Controller – LMG Chemicals Corp.,Kemwater Phil. Corp.

Medical & Community Services DepartmentLuz D. Pagkalinawan, ConsultantNoel C. Espinosa, Senior Manager, Company Physician

4040

Corporate DirectoryCorporate Directory

HEAD OFFICE Chemphil Building, 851 Antonio S. Arnaiz Avenue Legaspi Village, Makati City Telephone Nos.: 818-8711 to 28 Fax No.: 817-4803 PLANT LOCATION Bo. Kalawaan, Pasig City Telephone Nos.: 641-0891 to 94, 641-9275 to 77 Fax No.: 641-8987 MAILING ADDRESS P.O. Box 1489 Makati Central Post Office WEBSITE www.chemphil.com.ph Email ADDRESS chemphilgroup@chemphil.com.ph Mktg&InfoServices@chemphil.com.ph EXTERNAL AUDITOR SyCip, Gorres, Velayo & Co. SGV Building, 6760 Ayala Avenue Makati City EXTERNAL LEGAL COUNSELS Angara, Abello, Concepcion, Regala & Cruz 5th Floor, ACCRA Building 122 Gamboa Street, Legaspi Village, Makati City Benitez, Parlade, Africa, Herrera, Parlade and Panga Law Offices Ground Floor, Pacific Bank Building 6776 Ayala Avenue, Makati City BANKS Metropolitan Bank & Trust Company Bank of the Philippine Islands Country Rural Bank of Taguig, Inc. .

4141