2nd Floor Multinational Bancorporation Centre

BOA/PRC Reg. No. 0005, 6805 Ayala Avenue, Makati City 1226 Philippines
December 13, 2018, valid until July 20, 2021 www.bdo-roxascruztagle.ph
SEC Accreditation No. 0005-SEC, Tel: + (632) 8844 2016
April 13, 2021, valid until April 12, 2024 Fax: + (632) 8844 2045

INDEPENDENT AUDITOR’S REPORT TO ACCOMPANY INCOME TAX RETURN

The Shareholders and the Board of Directors

Newspaper Paraphernalia, Inc.
(A subsidiary of Pinnacle Printers Corporation)
Print Town Complex, Lot 2532-C-1-28
Mamplasan, Biñan City, Laguna
Philippines

We have audited the financial statements of Newspaper Paraphernalia, Inc. (“the Company”), as at
and for the year ended December 31, 2020, on which we have rendered the attached report dated
April 26, 2021.

In compliance with Revenue Regulations No. V-20, we are stating that no partner of our Firm
is related by consanguinity or affinity to the president, manager or principal shareholders of the
Company.

ROXAS CRUZ TAGLE AND CO.

Warren M. Urriza
Partner
CPA Certificate No. 0106419
Tax Identification No. 246-618-368
SEC Accreditation No. 106419-SEC, Group A, issued on March 24, 2020,
effective until March 23, 2023
BIR Accreditation No. 08-001682-017-2019, issued on February 8, 2019,
effective until February 7, 2022
PTR No. 8531368, issued on January 5, 2021, Makati City

April 26, 2021

Makati City

*RCTMNLFS0566*
Roxas Cruz Tagle and Co., a Philippine professional partnership, is a member of BDO International Limited, a UK Company Limited by guarantee.
BDO is the brand name for the BDO network and for each of the BDO member firms.
 2nd Floor Multinational Bancorporation Centre
BOA/PRC Reg. No. 0005, 6805 Ayala Avenue, Makati City 1226 Philippines
December 13, 2018, valid until July 20, 2021 www.bdo-roxascruztagle.ph
SEC Accreditation No. 0005-SEC, Tel: + (632) 8844 2016
April 13, 2021, valid until April 12, 2024 Fax: + (632) 8844 2045

INDEPENDENT AUDITOR’S REPORT

The Shareholders and the Board of Directors

Newspaper Paraphernalia, Inc.
(A subsidiary of Pinnacle Printers Corporation)
Print Town Complex, Lot 2532-C-1-28
Mamplasan, Biñan City, Laguna
Philippines

Report on the Audit of the Financial Statements

Opinion

We have audited the financial statements of Newspaper Paraphernalia, Inc. (“the Company”), which
comprise the statements of financial position as at December 31, 2020 and 2019, and the statements
of income, statements of comprehensive income, statements of changes in equity and statements of
cash flows for the years then ended, and notes to the financial statements, including a summary of
significant accounting policies.

In our opinion, the accompanying financial statements present fairly, in all material respects, the
financial position of the Company as at December 31, 2020 and 2019, and its financial performance
and its cash flows for the years then ended in accordance with Philippine Financial Reporting
Standards (PFRS).

Basis for Opinion

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

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

Management is responsible for the preparation and fair presentation of the financial statements in
accordance with PFRS, and for such internal control as management determines is necessary to enable
the preparation of financial statements that are free from material misstatement, whether due to
fraud or error.

In preparing the financial statements, management is responsible for assessing the Company’s ability
to continue as a going concern, disclosing, as applicable, matters related to going concern and using
the going concern basis of accounting unless management either intends to liquidate the Company or
to cease operations, or has no realistic alternative but to do so.

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

*RCTMNLFS0566*
Roxas Cruz Tagle and Co., a Philippine professional partnership, is a member of BDO International Limited, a UK Company Limited by guarantee.
BDO is the brand name for the BDO network and for each of the BDO member firms.
 -2-

Auditor’s Responsibilities for the Audit of the Financial Statements

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

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

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

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

 Evaluate the appropriateness of accounting policies used and the reasonableness of

accounting estimates and related disclosures made by management.

 Conclude on the appropriateness of management’s use of the going concern basis of

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

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

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

*RCTMNLFS0566*
Roxas Cruz Tagle and Co., a Philippine professional partnership, is a member of BDO International Limited, a UK Company Limited by guarantee.
BDO is the brand name for the BDO network and for each of the BDO member firms.
 -3-

Report on the Supplementary Information Required by the Bureau of Internal Revenue (BIR)

Our audits were conducted for the purpose of forming an opinion on the basic financial statements
taken as a whole. The supplementary information as disclosed in Note 23 to the financial statements
is presented for purposes of filing with the BIR and is not a required part of the basic financial
statements. Such information is the responsibility of management. The information has been
subjected to the auditing procedures applied in our audits of the basic financial statements. In our
opinion, the information is fairly stated in all material respects in relation to the basic financial
statements taken as a whole.

ROXAS CRUZ TAGLE AND CO.

Warren M. Urriza
Partner
CPA Certificate No. 0106419
Tax Identification No. 246-618-368
SEC Accreditation No. 106419-SEC, Group A, issued on March 24, 2020,
effective until March 23, 2023
BIR Accreditation No. 08-001682-017-2019, issued on February 8, 2019,
effective until February 7, 2022
PTR No. 8531368, issued on January 5, 2021, Makati City

April 26, 2021

Makati City

*RCTMNLFS0566*
Roxas Cruz Tagle and Co., a Philippine professional partnership, is a member of BDO International Limited, a UK Company Limited by guarantee.
BDO is the brand name for the BDO network and for each of the BDO member firms.
 NEWSPAPER PARAPHERNALIA, INC.
(A subsidiary of Pinnacle Printers Corporation)

STATEMENTS OF FINANCIAL POSITION

DECEMBER 31, 2020 AND 2019

Note 2020 2019

ASSETS
Current Assets
Cash and cash equivalents 5 =46,468,732
P P
=50,010,106
Trade and other receivables 6 3,050,183 6,038,834
Inventories 7 18,914,659 20,471,497
Other current assets 8 15,332,139 15,419,351
Total Current Assets 83,765,713 91,939,788
Noncurrent Assets
Property and equipment, net 9 1,823,636 1,790,670
Right-of-use asset 19 - 919,131
Retirement Asset 16 1,184,313 752,366
Deferred tax assets 17 6,592,393 5,731,005
Total Noncurrent Assets 9,600,342 9,193,172
=93,366,055
P P
=101,132,960

LIABILITIES AND EQUITY

Current Liabilities
Trade and other payables 10 =4,670,331
P P
=9,140,931
Lease liability 19 - 1,130,251
Total Liabilities 4,670,331 10,271,182
Equity
Share capital 11 100,000,000 100,000,000
Deficit (11,526,461) (9,437,903)
Remeasurement gain on retirement benefits 16 222,185 299,681
Total Equity 88,695,724 90,861,778
=93,366,055
P P
=101,132,960

See Notes to the Financial Statements.

*RCTMNLFS0566*
 NEWSPAPER PARAPHERNALIA, INC.
(A subsidiary of Pinnacle Printers Corporation)

STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019

Note 2020 2019

REVENUES 12 =20,356,250
P P
=40,389,811
COST OF SALES 13 (20,333,024) (40,267,812)
GROSS INCOME 23,226 121,999
GENERAL AND ADMINISTRATIVE EXPENSES 14 (3,882,684) (5,807,336)
FINANCE INCOME 5 455,126 1,231,264
FINANCE COST 19 (9,966) (99,266)
OTHER INCOME, NET 15 503,157 27,932
LOSS BEFORE INCOME TAX (2,911,141) (4,525,407)
INCOME TAX BENEFIT 17 822,583 361,793
NET LOSS (P
=2,088,558) (P
=4,163,614)

See Notes to the Financial Statements.

*RCTMNLFS0566*
 NEWSPAPER PARAPHERNALIA, INC.
(A subsidiary of Pinnacle Printers Corporation)

STATEMENTS OF COMPREHENSIVE INCOME

FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019

Note 2020 2019

NET LOSS (P
=2,088,558) (P
=4,163,614)
OTHER COMPREHENSIVE INCOME (LOSS)
Item that may not be reclassified to profit or loss
Remeasurement gain (loss) on retirement benefits 16 (110,709) 236,536
Deferred tax benefit (expense) 33,213 (70,961)
(77,496) 165,575
TOTAL COMPREHENSIVE LOSS - Net of tax (P
=2,166,054) (P
=3,998,039)

See Notes to the Financial Statements.

*RCTMNLFS0566*
 NEWSPAPER PARAPHERNALIA, INC.
(A subsidiary of Pinnacle Printers Corporation)

STATEMENTS OF CHANGES IN EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019

Note 2020 2019

SHARE CAPITAL 11 =100,000,000
P P
=100,000,000
RETAINED EARNINGS
Balance at beginning of year (9,437,903) (5,274,289)
Net loss (2,088,558) (4,163,614)
Balance at end of year (11,526,461) (9,437,903)
OTHER COMPREHENSIVE INCOME 16
Balance at beginning of year 299,681 134,106
Remeasurement gain (loss) for the year, net of tax (77,496) 165,575
Balance at end of year 222,185 299,681
=88,695,724
P P
=90,861,778

See Notes to the Financial Statements.

*RCTMNLFS0566*
 NEWSPAPER PARAPHERNALIA, INC.
(A subsidiary of Pinnacle Printers Corporation)

STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019

Note 2020 2019

CASH FLOWS FROM OPERATING ACTIVITIES
Loss before income tax (P
=2,911,141) (P
=4,525,407)
Adjustments for:
Depreciation and amortization 9 1,287,416 3,037,716
Provisions for (recovery of):
Decline in value of inventories 7 468,642 (1,412,165)
Retirement benefits 16 127,376 249,447
Finance cost 19 9,966 99,266
Expected credit loss on trade and other receivables 6 (133,819) (549,290)
Finance income 5 (455,126) (1,231,264)
Other income related to lease 15 (503,288) -
Operating loss before working capital changes (2,109,974) (4,331,696)
Decrease (increase) in:
Trade and other receivables 3,014,469 1,634,766
Inventories 1,088,196 2,362,988
Other current assets 81,620 (537,152)
Other noncurrent asset - 105,754
Increase (decrease) in trade and other payables (5,094,922) 3,284,977
Cash generated from (used in) operations (3,020,611) 2,519,637
Finance income received 5 455,126 1,231,264
Contribution to plan assets 16 (45,710) (309,412)
Income taxes paid - (13,843)
Net cash flows provided by (used in) operating activities (2,611,195) 3,427,646
CASH FLOWS FROM AN INVESTING ACTIVITY
Acquisition of property and equipment 9 (293,250) (250,000)
CASH FLOWS FROM A FINANCING ACTIVITY
Payment of lease liabilities 19 (636,929) (2,457,625)
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (3,541,374) 720,021
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 50,010,106 49,290,085
CASH AND CASH EQUIVALENTS AT END OF YEAR 5 =46,468,732
P P
=50,010,106

See Notes to the Financial Statements.

*RCTMNLFS0566*
 NEWSPAPER PARAPHERNALIA, INC.
(A subsidiary of Pinnacle Printers Corporation)

NOTES TO THE FINANCIAL STATEMENTS

AS AT AND FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019

1. Reporting Entity

Newspaper Paraphernalia, Inc. (the “Company”) was incorporated and registered with the
Philippine Securities and Exchange Commission (SEC) on September 29, 1997. The Company is
engaged in the business of trading goods such as newspapers, printing supplies and other
merchandise on a wholesale and retail basis as well as to manufacture and distribute ink paste
and other printing products.

The Company is a 55%-owned subsidiary of Pinnacle Printers Corporation, a corporation registered

with SEC and domiciled in the Philippines. The Company’s ultimate Parent Company is
Pentap Equities and Holdings Corporation, a corporation registered with SEC and domiciled in the
Philippines and is a holding company.

On April 20, 2018, the Board of Directors (BOD) and stockholders of the Company approved the
merger of the Company, Print Town, Inc. (PTI), Newspaper Paraphernalia, Inc. (NPI) and Lexmedia
Digital Corporation (LDC) with and unto Alliance Media Printing, Inc. (AMPI), related entities, to
improve efficiency of operations and to use productively the parties’ sales network. Under the
terms of the merger, AMPI will issue 69,048,734 shares of stock with par value of P =10 per share
to the respective stockholders of the Company, NPI and LDC in exchange for the net assets
acquired.

As at April 26, 2021, the parties are awaiting the approval of the merger by the SEC.

The Company’s registered address and principal place of business is at Print Town Complex,
Lot 2532-C-1-28, Mamplasan, Biñan City, Laguna, Philippines.

2. Basis of Preparation

Statement of Compliance
The accompanying financial statements have been prepared in compliance with Philippine
Financial Reporting Standards (PFRS). PFRS are based on International Financial Reporting
Standards issued by the International Accounting Standards Board (IASB). PFRS consist of PFRS,
Philippine Accounting Standards (PAS) and Philippine Interpretations issued by the Philippine
Financial Reporting Standards Council (FRSC).

The financial statements were approved and authorized for issue in accordance with a
resolution by the Board of Directors (BOD) on April 26, 2021.

Basis of Measurement
The financial statements of the Company have been prepared on the historical cost basis.

Functional and Presentation Currency

The financial statements are presented in Philippine peso, which is the functional currency of the
Company. All values are rounded off to the nearest Peso (P =), except when otherwise indicated.

*RCTMNLFS0566*
3. Significant Accounting Policies

Adoption of New and Amended PFRS

The accounting policies adopted are consistent with those of the previous financial year, except
for the adoption of the following new and amended PFRS which the Company adopted effective
for annual periods beginning on or after January 1, 2020:

 Amendments to PAS 1, Presentation of Financial Statements, and PAS 8, Accounting Policies,

Changes in Accounting Estimates and Errors, Definition of Material. The amendments address
the definition of material if omitting, misstating or obscuring it could reasonably be expected
to influence decisions that the primary users of general purpose financial statements make
on the basis of those financial statements, which provide financial information about a
specific reporting entity.

These amendments had no impact on the financial statements of the Company.

 Amendments to PFRS 3, Business Combinations, Definition of Business. The amendments to

PFRS 3 clarifies that to be considered a business, an acquired set of activities and assets must
include, at a minimum, an input and a substantive process that together significantly
contribute to the ability to create outputs. The clarification stated that a business can exist
without including all of the inputs and processes needed to create outputs.

These amendments had no impact on the financial statements of the Company.

 Conceptual Framework for Financial Reporting (Revised). The IASB issued the revised
Conceptual Framework for Financial Reporting (Conceptual Framework), a comprehensive set
of concepts for financial reporting, in March 2018.

It sets out:
o the objective of financial reporting
o the qualitative characteristics of useful financial information
o a description of the reporting entity and its boundary
o definitions of an asset, a liability, equity, income and expenses
o criteria for including assets and liabilities in financial statements (recognition) and
guidance on when to remove them (derecognition)
o measurement bases and guidance on when to use them
o concepts and guidance on presentation and disclosure

The purpose of the Conceptual Framework is to assist the IASB to develop financial reporting
standards (Standards) based on consistent concepts, resulting in financial information that is
useful to investors, lenders and other creditors. It also assists preparers to develop consistent
accounting policies for transactions or other events when no Standard applies, or a Standard
allows a choice of accounting policies. The Conceptual Framework is not a Standard and does
not override any Standard or any requirement in a Standard.

 Amendments to PFRS 7, Financial Instruments: Disclosures and PFRS 9, Financial Instruments,

Interest Rate Benchmark Reform. The amendments to PFRS 9 and PAS 39 Financial
Instruments: Recognition and Measurement and PAS 7 Financial Instruments: Disclosures
include a number of reliefs, which apply to all hedging relationships that are directly affected
by the interest rate benchmark reform. A hedging relationship is affected if the reform gives
rise to uncertainties about the timing and/or amount of benchmark-based cash flows of the
hedged item or the hedging instrument.

*RCTMNLFS0566*
 The mandatory reliefs provided in the Standard are as follows:

 The assessment of whether a forecast transaction (or component thereof) is highly

probable.
 Assessing when to reclassify the amount in the cash flow hedge reserve to profit and loss.
 The assessment of the economic relationship between the hedged item and the hedging
instrument.
 For a benchmark component of interest rate risk that is affected by IBOR reform, the
requirement that the risk component is separately identifiable need be met only at the
inception of the hedging relationship.

These amendments had no impact on the financial statements of the Company as it does not
have any interest rate hedge relationships.

 Amendment to PFRS 16, COVID-19 Related Rent Concession. The amendment to PFRS 16 will
provide relief to lessees for accounting for rent concessions from lessors specifically arising
from covid-19 pandemic. While lessees that elect to apply the practical expedient do not
need to assess whether a concession constitutes a modification, lessees still need to evaluate
the appropriate accounting for each concession as the terms of the concession granted may
vary.

Lessees will apply the practical expedient retrospectively, recognizing the cumulative effect
of initially applying the amendment as an adjustment to the opening balance of retained
earnings at the beginning of the annual reporting period in which the amendment first
applied.

These amendments had no impact on the financial statements of the Company.

New and Amended PFRS Issued But Not Yet Effective

Relevant new and amended PFRS which are not yet effective for the year ended
December 31, 2020 and have not been applied in preparing the financial statements are
summarized below.

Effective for annual periods beginning on or after January 1, 2021:

 Annual Improvements to IFRS: 2018-2020 Cycle

o IFRS 1, First-time Adoption of IFRS - Subsidiary as a first-time adopter. The amendment

permits a subsidiary that applies paragraph D16(a) of IFRS 1 to measure cumulative
translation differences using the amounts reported by its parent, based on the parent’s
date of transition to IFRSs.

o IFRS 9, Financial Instruments - Fees in the ‘10 percent’ test for derecognition of financial
liabilities. The amendment clarifies which fees an entity includes when it applies the ‘10
percent’ test in paragraph B3.3.6 of IFRS 9 in assessing whether to derecognise a financial
liability. An entity includes only fees paid or received between the entity (the borrower)
and the lender, including fees paid or received by either the entity or the lender on the
other’s behalf.

o IFRS 16, Leases – Lease incentives. The amendment to Illustrative Example 13

accompanying IFRS 16 removes from the example the illustration of the reimbursement
of leasehold improvements by the lessor in order to resolve any potential confusion
regarding the treatment of lease incentives that might arise because of how lease
incentives are illustrated in that example.

*RCTMNLFS0566*
 o IAS 41, Agriculture – Taxation in fair value measurements. The amendment removes the
requirement in paragraph 22 of IAS 41 for entities to exclude taxation cash flows when
measuring the fair value of a biological asset using a present value technique. This will
ensure consistency with the requirements in IFRS 13.

 Amendments to PFRS 3, Business Combinations – Reference to the Conceptual Framework –

The amendments add an exception to the recognition principle of PFRS 3 to avoid the issue
of potential “day 2” gains or losses arising from liabilities and contingent liabilities that would
be within the scope of PAS 37, Provisions, Contingent Liabilities and Contingent Assets or
IFRIC 21, Levies, if incurred separately. It also clarifies that contingent assets do not qualify
recognition at the acquisition date. The amendments are effective for annual periods
beginning on or after January 1, 2022.

 Amendments to PAS 37, Provisions, Contingent Liabilities and Contingent Assets: Onerous
Contracts – Costs of Fulfilling a Contract – The amendments specify the costs a Company
includes when assessing whether a contract will be loss-making and is therefore recognized
as an onerous contract. The amendments apply a “directly related approach”. The costs that
relate directly to a contract to provide goods or services include both incremental costs and
an allocation of costs directly related to contract activities.

 Amendments to PAS 16, Property, Plant and Equipment: Proceeds before Intended Use – The
amendments prohibit the entities from deducting from the cost of an item of property, plant
and equipment, any proceeds of the sale items produced while bringing that asset to the
location and condition necessary for it to be capable of operating in the manner intended by
the Management. Instead, the entity recognizes such sales proceeds and any related costs in
the profit or loss.

 PFRS 17, Insurance Contracts – This standard will replace PFRS 4, Insurance Contracts. It
requires insurance liabilities to be measured at current fulfillment value and provides a more
uniform measurement and presentation approach to achieve consistent, principle-based
accounting for all insurance contracts. It also requires similar principles to be applied to
reinsurance contracts held and investment contracts with discretionary participation features
issued. In June 2020, the IASB issued amendments to the standard, including a deferral of its
effective date to 1 January 2023.

 Amendments to PAS 1, Presentation of Financial Statements - The amendments to PAS 1

specify the requirements for classifying current and noncurrent liabilities. The amendments
will clarify that a right to defer must exist at the end of reporting period and the classification
is unaffected by the likelihood that an entity will exercise its deferral right. The issuance of
amendments was deferred until January 1, 2023 as a result of COVID-19 pandemic.

Deferred effectivity -

 Amendments to PFRS 10, Consolidated Financial Statements and PAS 28, Investments in
Associates and Joint Ventures - Sale or Contribution of Assets Between an Investor and its
Associate or Joint Venture – The amendments address a current conflict between the two
standards and clarify that a gain or loss should be recognized fully when the transaction
involves a business, and partially if it involves assets that do not constitute a business. The
effective date of the amendments, initially set for annual periods beginning on or after
January 1, 2016, was deferred indefinitely in December 2015 but earlier application is still
permitted.

Under prevailing circumstances, the adoption of the foregoing new and amended PFRS is not
expected to have any material effect on the financial statements of the Company.

*RCTMNLFS0566*
Current versus Noncurrent Classification
The Company presents assets and liabilities in the statements of financial position based on
current and noncurrent classification. An asset is current when it is: (a) expected to be realized
or intended to be sold or consumed in the normal operating cycle; (b) held primarily for the
purpose of trading; (c) expected to be realized within 12 months after the reporting period; or
(d) cash or cash equivalent unless restricted from being exchanged or used to settle a liability for
at least 12 months after the reporting period.

A liability is current when it is: (a) expected to be settled in the normal operating cycle;
(b) held primarily for trading; (c) due to be settled within 12 months after the reporting period;
or (d) there is no unconditional right to defer the settlement of the liability for at least 12 months
after the reporting period.

The Company classifies all other assets and liabilities as noncurrent. Deferred tax assets and
liabilities are classified as noncurrent.

Financial Assets and Financial Liabilities

Date of Recognition. The Company recognizes a financial asset or a financial liability in the
statements of financial position when it becomes a party to the contractual provisions of a
financial instrument. In the case of a regular way purchase or sale of financial assets, recognition
and derecognition, as applicable, is done using settlement date accounting.

Initial Recognition and Measurement. Financial instruments are recognized initially at fair value,
which is the fair value of the consideration given (in case of an asset) or received (in case of a
liability). The initial measurement of financial instruments, except for those designated at fair
value through profit and loss (FVPL), includes transaction cost.

“Day 1” Difference. Where the transaction in a non-active market is different from the fair value
of other observable current market transactions in the same instrument or based on a valuation
technique whose variables include only data from observable market, the Company recognizes
the difference between the transaction price and fair value (a “Day 1” difference) in profit or
loss. In cases where there is no observable data on inception, the Company deems the transaction
price as the best estimate of fair value and recognizes “Day 1” difference in profit or loss when
the inputs become observable or when the instrument is derecognized. For each transaction, the
Company determines the appropriate method of recognizing the “Day 1” difference.

Classification. The Company classifies its financial assets at initial recognition under the
following categories: (a) financial assets at FVPL, (b) financial assets at amortized cost and
(c) financial assets at fair value through other comprehensive income (FVOCI). Financial
liabilities, on the other hand, are classified as either financial liabilities at FVPL or financial
liabilities at amortized cost. The classification of a financial instrument largely depends on the
Company’s business model and its contractual cash flow characteristics.

Financial Assets and Liabilities at FVPL. Financial assets and liabilities at FVPL are either classified
as held for trading or designated at FVPL. A financial instrument is classified as held for trading if
it meets either of the following conditions:

• it is acquired or incurred principally for the purpose of selling or repurchasing it in the near
term;

• on initial recognition, it is part of a portfolio of identified financial instruments that are

managed together and for which there is evidence of a recent actual pattern of short-term
profit-taking; or

*RCTMNLFS0566*
• it is a derivative (except for a derivative that is a financial guarantee contract or a designated
and effective hedging instrument).

This category includes equity instruments which the Company had not irrevocably elected to classify
at FVOCI at initial recognition. This category includes debt instruments whose cash flows are not
“solely for payment of principal and interest” assessed at initial recognition of the assets, or which
are not held within a business model whose objective is either to collect contractual cash flows, or
to both collect contractual cash flows and sell.

The Company may, at initial recognition, designate a financial asset or financial liability meeting
the criteria to be classified at amortized cost or at FVOCI, as a financial asset or financial liability
at FVPL, if doing so eliminates or significantly reduces accounting mismatch that would arise from
measuring these assets or liabilities.

After initial recognition, financial assets at FVPL and held for trading financial liabilities are
subsequently measured at fair value. Unrealized gains or losses arising from the fair valuation of
financial assets at FVPL and held for trading financial liabilities are recognized in profit or loss.

For financial liabilities designated at FVPL under the fair value option, the amount of change in fair
value that is attributable to changes in the credit risk of that liability is recognized in other
comprehensive income (rather than in profit or loss), unless this creates an accounting mismatch.
Amounts presented in other comprehensive income are not subsequently transferred to profit or
loss.

As at December 31, 2020 and 2019, the Company does not have financial assets and liabilities at
FVPL.

Financial Assets at Amortized Cost. Financial assets shall be measured at amortized cost if both of
the following conditions are met:

 the financial asset is held within a business model whose objective is to hold financial assets in
order to collect contractual cash flows; and

 the contractual terms of the financial asset give rise, on specified dates, to cash flows that are
solely payments of principal and interest on the principal amount outstanding.

After initial recognition, financial assets at amortized cost are subsequently measured at amortized
cost using the effective interest method, less allowance for impairment, if any. Amortized cost is
calculated by taking into account any discount or premium on acquisition and fees that are an
integral part of the effective interest rate. Gains and losses are recognized in profit or loss when
the financial assets are derecognized and through amortization process. Financial assets at
amortized cost are included under current assets if realizability or collectability is within 12 months
after the reporting period. Otherwise, these are classified as noncurrent assets.

As at December 31, 2020 and 2019, the Company’s cash and cash equivalents and trade and other
receivables are included under this category (see Notes 5 and 6).

Financial Assets at FVOCI. For debt instruments that meet the contractual cash flow characteristic
and are not designated at FVPL under the fair value option, the financial assets shall be measured
at FVOCI if both of the following conditions are met:

 the financial asset is held within a business model whose objective is to hold financial assets in
order to collect contractual cash flows and selling the financial assets; and

 the contractual terms of the financial asset give rise, on specified dates, to cash flows that are
solely payments of principal and interest on the principal amount outstanding.

*RCTMNLFS0566*
For equity instruments, the Company may irrevocably designate the financial asset to be measured
at FVOCI in case the above conditions are not met.

Financial assets at FVOCI are initially measured at fair value plus transaction costs. After initial
recognition, interest income (calculated using the effective interest rate method), foreign
currency gains or losses and impairment losses of debt instruments measured at FVOCI are
recognized directly in profit or loss. When the financial asset is derecognized, the cumulative
gains or losses previously recognized in OCI are reclassified from equity to profit or loss as a
reclassification adjustment.

Dividends from equity instruments held at FVOCI are recognized in profit or loss when the right
to receive payment is established, unless the dividend clearly represents a recovery of part of
the cost of the investment. Foreign currency gains or losses and unrealized gains or losses from
equity instruments are recognized in OCI and presented in the equity section of the statements
of financial position. These fair value changes are recognized in equity and are not reclassified
to profit or loss in subsequent periods.

As at December 31, 2020 and 2019, the Company does not have financial assets at FVOCI.

Financial Liabilities at Amortized Cost. Financial liabilities are categorized as financial liabilities
at amortized cost when the substance of the contractual arrangement results in the Company
having an obligation either to deliver cash or another financial asset to the holder, or to settle
the obligation other than by the exchange of a fixed amount of cash or another financial asset for
a fixed number of its own equity instruments.

These financial liabilities are initially recognized at fair value less any directly attributable
transaction costs. After initial recognition, these financial liabilities are subsequently measured
at amortized cost using the effective interest method. Amortized cost is calculated by taking
into account any discount or premium on the issue and fees that are an integral part of the
effective interest rate. Gains and losses are recognized in profit or loss when the liabilities are
derecognized or through the amortization process.

As at December 31, 2020 and 2019, the Company’s liabilities arising from its trade and other
payables, excluding statutory liabilities, are included under this category (see Note 10).

Reclassification
The Company reclassifies its financial assets when, and only when, it changes its business model
for managing those financial assets. The reclassification is applied prospectively from the first
day of the first reporting period following the change in the business model (reclassification date).

For a financial asset reclassified out of the financial assets at amortized cost category to financial
assets at FVPL, any gain or loss arising from the difference between the previous amortized cost
of the financial asset and fair value is recognized in profit or loss.

For a financial asset reclassified out of the financial assets at amortized cost category to financial
assets at FVOCI, any gain or loss arising from a difference between the previous amortized cost
of the financial asset and fair value is recognized in OCI.

For a financial asset reclassified out of the financial assets at FVPL category to financial assets at
amortized cost, its fair value at the reclassification date becomes its new gross carrying amount.

*RCTMNLFS0566*
For a financial asset reclassified out of the financial assets at FVOCI category to financial assets
at amortized cost, any gain or loss previously recognized in OCI, and any difference between the
new amortized cost and maturity amount, are amortized to profit or loss over the remaining life
of the investment using the effective interest method. If the financial asset is subsequently
impaired, any gain or loss that has been recognized in OCI is reclassified from equity to profit or
loss.

In the case of a financial asset that does not have a fixed maturity, the gain or loss shall be
recognized in profit or loss when the financial asset is sold or disposed. If the financial asset is
subsequently impaired, any previous gain or loss that has been recognized in OCI is reclassified from
equity to profit or loss.

For a financial asset reclassified out of the financial assets at FVPL category to financial assets at
FVOCI, its fair value at the reclassification date becomes its new gross carrying amount. Meanwhile,
for a financial asset reclassified out of the financial assets at FVOCI category to financial assets at
FVPL, the cumulative gain or loss previously recognized in other comprehensive income is
reclassified from equity to profit or loss as a reclassification adjustment at the reclassification date.

Impairment of Financial Assets at Amortized Cost and FVOCI

The Company records an allowance for “expected credit loss” (ECL). ECL is based on the difference
between the contractual cash flows due in accordance with the contract and all the cash flows that
the Company expects to receive. The difference is then discounted at an approximation to the
asset’s original effective interest rate.

For trade receivables, the Company has applied the simplified approach and has calculated ECLs
based on the lifetime expected credit losses. The Company has established a provision matrix that
is based on its historical credit loss experience, adjusted for forward-looking factors specific to the
debtors and the economic environment.

For debt instruments measured at amortized cost and FVOCI, the ECL is based on the 12-month ECL,
which pertains to the portion of lifetime ECLs that result from default events on a financial
instrument that are possible within 12 months after the reporting date. However, when there has
been a significant increase in credit risk since initial recognition, the allowance will be based on
the lifetime ECL. When determining whether the credit risk of a financial asset has increased
significantly since initial recognition, the Company compares the risk of a default occurring on the
financial instrument as at the reporting date with the risk of a default occurring on the financial
instrument as at the date of initial recognition and consider reasonable and supportable
information, that is available without undue cost or effort, that is indicative of significant increases
in credit risk since initial recognition.

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 right to receive cash flows from the asset has expired;

 the Company retains the right to receive cash flows from the financial 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 right to receive cash flows from the financial 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.

*RCTMNLFS0566*
When the Company has transferred its right to receive cash flows from a financial asset or has
entered into a pass-through arrangement and has neither transferred nor retained substantially
all the risks and rewards of ownership of the financial asset nor transferred control of the financial
asset, the financial asset is recognized to the extent of the Company’s continuing involvement in
the financial asset. Continuing involvement that takes the form of a guarantee over the
transferred financial asset is measured at the lower of the original carrying amount of the
financial asset and the maximum amount of consideration that the Company could be required to
repay.

Financial Liabilities. A financial liability is derecognized when the obligation under the liability
is discharged, cancelled or has expired. When 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 statements of comprehensive income.

A modification is considered substantial if the present value of the cash flows under the new
terms, including net fees paid or received and discounted using the original effective interest
rate, is different by at least 10% from the discounted present value of remaining cash flows of
the original liability.

The fair value of the modified financial liability is determined based on its expected cash flows,
discounted using the interest rate at which the Company could raise debt with similar terms and
conditions in the market. The difference between the carrying value of the original liability and
fair value of the new liability is recognized in the statements of comprehensive income.

On the other hand, if the difference does not meet the 10% threshold, the original debt is not
extinguished but merely modified. In such case, the carrying amount is adjusted by the costs or
fees paid or received in the restructuring.

Offsetting of Financial Assets and Liabilities

Financial assets and financial liabilities are offset and the net amount reported in the statements
of financial position if, and only if, there is a currently enforceable legal right to offset the
recognized amounts and there is 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 statements of financial position.

Classification of Financial Instrument between Liability and Equity

A financial instrument is classified as liability if it provides for a contractual obligation to:

 Deliver cash or another financial asset to another entity;

 Exchange financial assets or financial liabilities with another entity under conditions that are
potentially unfavorable to the Company; or

 Satisfy the obligation other than by the exchange of a fixed amount of cash or another
financial asset for a fixed number of own equity shares.

If the Company does not have an unconditional right to avoid delivering cash or another financial
asset to settle its contractual obligation, the obligation meets the definition of a financial
liability.

*RCTMNLFS0566*
Inventories
The Company recognizes inventories when the risk and rewards are transferred to the Company
usually upon receipt from suppliers.

Raw Materials. All costs directly attributable to acquisition such as the purchase price and other
taxes that are not subsequently recoverable from taxing authorities are included as part of costs
of these inventories.

Inventories are valued at the lower of cost and net realizable value (NRV). NRV of raw materials
and supplies is the current replacement cost.

Other Current Assets

Other current assets consist of creditable withholding tax (CWT), tools and spare parts, input
value added tax (VAT) and prepaid expenses.

CWT. CWT represents the amount withheld by the Company’s customers in relation to its income.
CWT can be utilized as payment for income taxes provided that these are properly supported by
certificates of creditable tax withheld at source subject to the rules on Philippine income
taxation.

Tools and Spare Parts – First-In, First-Out Method. All costs directly attributable to acquisition
of tools and spare parts are included as part of costs. Tools and spare parts are valued at the
lower of cost and NRV. NRV of tools and spare parts is the current replacement cost.

Prepaid expenses. Prepaid expenses are expenses paid in advance and recorded as asset before
these are utilized. Prepaid expenses are apportioned over the period covered by the payment
and charged to appropriate expense accounts in profit or loss when incurred. Prepaid expenses
that are expected to be realized for no more than 12 months after the financial reporting year
are classified as current assets. Otherwise, these are classified as noncurrent assets.

Property and Equipment

Property and equipment are stated at cost less accumulated depreciation and any accumulated
impairment in value. Such cost includes the cost of replacing part of the property and equipment
at the time the cost is incurred, if the recognition criteria are met, and excludes the costs of day-
to-day servicing.

The initial cost of property and equipment comprises its construction cost or purchase price,
including import duties, taxes and any directly attributable costs in bringing the asset to its
working condition and location for its intended use. Cost also includes any related asset
retirement obligation (ARO). Expenditures incurred after the asset has been put into operation,
such as repairs, maintenance and overhaul costs, are normally recognized as expense in the period
the costs are incurred. Major repairs are capitalized as part of property and equipment only when
it is probable that future economic benefits associated with the items will flow to the Company
and the cost of the items can be measured reliably.

Depreciation or amortization, which commences when the assets are available for their intended
use, is computed using the straight-line method over the following estimated useful lives of the
assets:

Number of Years
Machinery and equipment 5-10
Leasehold improvements 10
Transportation equipment 5
Office equipment 3
Computer software 3

10

*RCTMNLFS0566*
The remaining useful lives, residual values and depreciation method are reviewed and adjusted
periodically, if appropriate, to ensure that such periods and method of depreciation are consistent
with the expected pattern of economic benefits from the items of property and equipment.

The carrying amounts of property and equipment are reviewed for impairment when events or
changes in circumstances indicate that the carrying amounts may not be recoverable.

Fully depreciated assets are retained in the accounts until they are no longer in use.

An item of property and equipment is derecognized when either it has been disposed of or when
it is permanently withdrawn from use and no future economic benefits are expected from its use
or disposal. Any gain or loss arising from the retirement and disposal of an item of property and
equipment (calculated as the difference between the net disposal proceeds and the carrying
amount of the asset) is recognized in the statements of comprehensive income in the period of
retirement and disposal.

Leases
At the inception of a contract, the Company assesses whether a contract is, or contains, a lease.
A contract is, or contains, a lease if the contract conveys the right to control the use of an
identified asset for a period of time in exchange for consideration. To assess whether a contract
conveys the right to control the use of an identified asset, the Company assesses whether:

• the contract involves an identified asset – this may be specified explicitly or implicitly
and should be physically distinct or represent substantially all of the capacity of a
physically distinct asset. If the supplier has a substantive substitution right, then the asset
is not identified;
• the Company has the right to obtain substantially all of the economic benefits from use
of the asset throughout the period of use; and
• the Company has the right to direct the use of the asset. The Company when it has the
decision-making rights that are most relevant to changing how and for what purpose the
asset is used. The Company has the right to direct the use of the asset of either:
- the Company has the right to operate the asset; or
- the Company designed the asset in a way that predetermines how and for what
purpose it will be used.

For contracts entered into before January 1, 2019, the Company determines whether an
arrangement is or contains a lease based on whether of:

• fulfillment of the arrangement was dependent on the use of a specific asset or assets;
• the arrangement had conveyed a right to use the asset. An arrangement conveyed the
right to use the asset if one of the following was met;
• the purchaser had the ability or right to operate the asset while obtaining or controlling
more than an insignificant amount of output;
• the purchaser had the ability or right to control physical access to the asset while
obtaining or controlling more than an insignificant amount of the output; or
• facts and circumstances indicated that it was remote that other parties would take more
than an insignificant amount of output.

Company as a lessee. The Company recognizes a right-of-use asset and lease liability at the date
of initial application for leases previously classified as an operating lease under PAS 17.

The right-of-use asset is initially measured as if the standard had been applied since the
commencement date but discounted using the lessee’s incremental borrowing rate at the date of
initial application.

11

*RCTMNLFS0566*
The right-of-use asset is subsequently depreciated using the straight-line method over the shorter
of the estimated useful life of the asset or the lease term.

In addition, the right-of-use is periodically reduced by impairment losses, if any, and adjusted for
certain remeasurements of the lease liability.

The lease liability is initially measured at the present value of the lease payments that are not
paid at the commencement date, discounted using the interest rate implicit in the lease or, if
that rate cannot be readily determined, the Company’s incremental borrowing rate. Generally,
the Company uses its incremental borrowing rate as the discount rate.

Lease payments included in the measurement of the lease liability comprise of the following:

 fixed payments, including in-substance fixed payments;

 variable lease payments that depend on an index rate, initially measured using the index
or rate as at the commencement date;
 amounts expected to be payable under residual value guarantee; and
 the exercise price under a purchase option that the Company is reasonably certain to
exercise, lease payments option renewal period if the Company is reasonably to exercise
an extension option, and penalties for early termination of a lease unless the Company is
reasonably certain not to terminate early.

Subsequent to initial measurement lease liabilities increase as a result of interest charged at a

constant rate on the balance outstanding and are reduced for lease payments made. It is
remeasured when there is a change in future lease payments or rate, if there is a change in the
Company’s estimate of the amount expected to be payable under a residual value guarantee, or
if the Company changes its assessment of whether it will exercise a purchase, extension or
termination option.

When the lease liability is remeasured in this way, a corresponding adjustment is made to the
carrying amount of the right-of-use asset or is recognized in profit or loss if the carrying amount
of the right-of-use asset has been reduced to zero.

Short-term leases and leases of low-value assets. The Company applies the short-term lease
recognition exemption to its short-term leases of machinery and equipment (i.e., those leases
that have a lease term of 12 months or less from the commencement date and do not contain a
purchase option). It also applies the lease of low-value assets recognition exemption to leases of
office equipment that are considered to be low value. Lease payments on short-term leases and
leases of low-value assets are recognized as expense on a straight-line basis over the lease term.

The Company as a lessor. Leases where the Company does not transfer substantially all the risks
and rewards of ownership of the assets are classified as operating leases. Rent income from
operating leases is recognized as income on a straight-line basis over the lease term.

Impairment of Non-financial Assets

The carrying amounts of property and equipment and right-of-use of assets are reviewed for
impairment when events or changes in circumstances indicate that the carrying amount may not
be recoverable. The recoverable amount of the asset is the greater of fair value less costs to sell
and value in use. The fair value less costs to sell is the amount obtainable from the sale of an
asset in an arm’s length transaction between knowledgeable, willing parties, less costs of
disposal. Value in use is the present value of estimated future cash flows expected to arise from
the continuing use of an asset and from its disposal at the end of its useful life.

12

*RCTMNLFS0566*
In assessing value in use, the estimated future cash flows are discounted to their present value
using a pre-tax discount rate that reflects current market assessments of the time value of money
and the risks specific to the asset. For an asset that does not generate largely independent cash
inflows, the recoverable amount is determined for the cash-generating unit to which the asset
belongs. Impairment losses are recognized in the statements of comprehensive income in those
expense categories consistent with the function of the impaired asset.

An assessment is made at each reporting 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 statements of
comprehensive income. After such a reversal, the depreciation charge is adjusted in future
periods to allocate the asset’s revised carrying amount, less any residual value, on a systematic
basis over its remaining useful life.

Fair Value Measurements

The Company measures a number of financial and non-financial assets and liabilities at fair value
at each reporting date.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement date. The fair value
measurement is based on the presumption that the transaction to sell the asset or transfer the
liability takes place either: (a) in the principal market for the asset or liability; or
(b) in the absence of a principal market, in the most advantageous market for the asset or liability.
The principal or most advantageous market must be accessible to the Company.

The fair value of an asset or liability is measured using the assumptions that market participants
would use when pricing the asset or liability, assuming that market participants act in their best
economic interest.

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

All assets and liabilities for which fair value is measured or disclosed in the financial statements
are categorized within the fair value hierarchy, described as follows, based on the lowest level
input that is significant to the fair value measurement as a whole:

 Level 1: quoted prices (unadjusted) in active market for identical assets or liabilities;
 Level 2: inputs other than quoted prices included within Level 1 that are observable for the
asset or liability, either directly or indirectly; and
 Level 3: inputs for the asset or liability that are not based on observable market data.

For assets and liabilities that are recognized in the financial statements on a recurring basis, the
Company determines whether transfers have occurred between levels in the hierarchy by re-
assessing the categorization at the end of each reporting period.

For the purpose of fair value disclosures, the Company has determined classes of assets and
liabilities on the basis of the nature, characteristics and risks of the asset or liability and the level
of the fair value hierarchy.

13

*RCTMNLFS0566*
Provisions
Provisions are recognized when: (a) the Company has a present obligation (legal or constructive)
as a result of past events; (b) it is probable (i.e., more likely than not) that an outflow of resources
embodying economic benefits will be required to settle the obligation; and (c) a reliable estimate
of the amount of the obligation can be made. Where some or all of the expenditure required to
settle a provision is expected to be reimbursed by another party, the reimbursement is recognized
as a separate asset only when it is virtually certain that reimbursement will be received. The
amount recognized for the reimbursement shall not exceed the amount of the provision.
Provisions are reviewed at each reporting date and adjusted to reflect the current best estimate.

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 the risks specific to the liability. Where discounting is used, the increase in
the provision due to the passage of time is recognized as interest expense.

Capital Stock and Additional Paid-in Capital

Common Shares
Common shares are classified as equity. Incremental costs directly attributable to the issue of
common shares are recognized as a deduction from equity, net of any tax effects.

Additional Paid-in Capital

When the shares are sold at premium, the difference between the proceeds and the par value is
credited to the “Additional paid-in capital” account. When shares are issued for a consideration
other than cash, the proceeds are measured by the fair value of the consideration received. In
case the shares are issued to extinguish or settle the liability of the Company, the shares are
measured either at the fair value of the shares issued or fair value of the liability settled,
whichever is more reliably determinable.

Retained Earnings (Deficit)

Retained earnings (deficit) represent the accumulated net income or losses, net of any dividend
distributions and other capital adjustments. Appropriated retained earnings represent that
portion which is restricted and therefore not available for any dividend declaration.

Other Comprehensive Income (Loss)

Other comprehensive income (loss) comprises items of income and expense, including items
previously presented under the statements of changes in equity, that are not recognized in profit
or loss for the year. Other comprehensive income (loss) of the Company pertains to
remeasurement gain (loss) on retirement liability.

Revenue Recognition
Revenue from contract with customers is recognized when the performance obligation in the
contract has been satisfied, either at a point in time or over time. Revenue is recognized over
time if one of the following criteria is met: (a) the customer simultaneously receives and
consumes the benefits as the Company perform its obligations; (b) the Company’s performance
creates or enhances an asset that the customer controls as the asset is created or enhanced; or
(c) the Company’s performance does not create an asset with an alternative use to the Company
and the Company has an enforceable right to payment for performance completed to date.
Otherwise, revenue is recognized at a point in time.

The Company also assesses its revenue arrangements to determine if it is acting as a principal or
as an agent. The Company has assessed that it acts as a principal in all of its revenue sources.

The following specific recognition criteria must also be met before revenue is recognized.

14

*RCTMNLFS0566*
Sale of goods. Revenue from sale of goods is recognized at the point in time when control of the
asset is transferred to the customer, generally on delivery of goods.
The Company considers whether there are other promises in the contract that are separate
performance obligations to which a portion of the transaction price needs to be allocated. In
determining the transaction price for the sale of goods, the Company considers the effects of
variable consideration and consideration payable to the customer (if any).

Interest. Revenue is recognized as the interest accrues, taking into account the effective yield
on the asset.

Others. Revenue is recognized when earned.

Costs and Expenses

Costs and expenses are decreases in economic benefits during the accounting period in the form
of outflows or decrease of assets or incurrence of liabilities that result in decreases in equity,
other than those relating to distributions to equity participants. Expenses are recognized when
incurred.

Retirement Benefits
The retirement benefits cost is determined using the projected unit credit method which reflects
services rendered by employees to the date of valuation and incorporates assumptions concerning
employees’ projected salaries.

The Company recognizes service costs, comprising of current service costs, past service costs,
gains and losses on curtailments and non-routine settlements; and net interest expense or income
in profit or loss. Net interest is calculated by applying the discount rate to the net retirement
liability or asset.

Past service costs are recognized in profit or loss on the earlier of the date of the plan amendment
or curtailment; and the date that the Company recognizes restructuring-related costs.

Remeasurements comprising actuarial gains and losses, return on plan assets and any change in
the effect of the asset ceiling (excluding net interest on retirement liability or asset) are
recognized immediately in other comprehensive income (OCI) in the period in which they arise.
Remeasurements are not reclassified to profit or loss in subsequent periods.

The net retirement liability or asset is the aggregate of the present value of the retirement
liability and the fair value of plan assets on which the obligations are to be settled directly. The
present value of the retirement liability is determined by discounting the estimated future cash
outflows using interest rate on government bonds that have terms to maturity approximating the
terms of the related retirement liability.

Actuarial valuations are made with sufficient regularity so that the amounts recognized in the
financial statements do not differ materially from the amounts that would be determined at the
reporting date.

Foreign Exchange Transactions

Transactions in foreign currencies are recorded in Philippine peso based on the exchange rates
prevailing at the date in which the transaction took place. Foreign currency denominated
monetary assets and liabilities of the Company are translated using the prevailing exchange rate
as of financial reporting date. Gains or losses arising from these transactions and translation are
credited or charged to profit or loss.

Taxes
Current Tax. Current tax is the expected tax payable or receivable on the taxable income or loss
for the year, using tax rates enacted or substantively enacted at the reporting date, and any
adjustment to tax payable in respect of previous years.

15

*RCTMNLFS0566*
Current tax relating to items recognized directly in equity is recognized in equity and not in the
statements of comprehensive income. The Company periodically evaluates positions taken in the
tax returns with respect to situations in which applicable tax regulations are subject to
interpretations and establishes provisions where appropriate.

Deferred Tax. Deferred tax is recognized using the liability method in respect of temporary
differences between the carrying amounts of assets and liabilities for financial reporting purposes
and the amounts used for taxation purposes.

Deferred tax liabilities are recognized using the liability method for all taxable temporary
differences, except:

 where the deferred tax liability arises from the initial recognition of goodwill or of an
asset or liability in a transaction that is not a business combination and, at the time of
the transaction, affects neither the accounting profit nor taxable profit or loss; and
 with respect to taxable temporary differences associated with investments in shares of
stock of subsidiaries, where the timing of the reversal of the temporary differences can
be controlled and it is probable that the temporary differences will not reverse in the
foreseeable future.

Deferred tax assets are recognized for all deductible temporary differences, carryforward
benefits of unused tax credits - Minimum Corporate Income Tax (MCIT) and unused tax losses -
Net Operating Loss Carry Over (NOLCO), to the extent that it is probable that taxable profit will
be available against which the deductible temporary differences, and the carryforward benefits
of MCIT and NOLCO can be utilized, except:

 where the deferred tax asset relating to the deductible temporary difference arises from
the initial recognition of an asset or liability in a transaction that is not a business
combination and, at the time of the transaction, affects neither the accounting profit nor
taxable profit or loss; and

 with respect to deductible temporary differences associated with investments in shares

of stock of subsidiaries, deferred tax assets are recognized only to the extent that it is
probable that the temporary differences will reverse in the foreseeable future and
taxable profit will be available against which the temporary differences can be utilized.

The carrying amount of deferred tax assets is reviewed at each reporting 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 reporting 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.

The measurement of deferred tax reflects the tax consequences that would follow the manner in
which the Company expects, at the end of the reporting period, to recover or settle the carrying
amount of its assets and liabilities.

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 tax rates (and tax laws) that
have been enacted or substantively enacted at the reporting date.

Current tax and deferred tax are recognized in the statements of comprehensive income, except
to the extent that it relates to a business combination, or items recognized directly in equity or
in other comprehensive income.

Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to
set off current tax assets against current tax liabilities and the deferred taxes relate to the same
taxable entity and the same taxation authority.

16

*RCTMNLFS0566*
 Value-added Tax (VAT). Revenues, expenses and assets are recognized net of the amount of VAT,
except:
 where the tax incurred on a purchase of assets or services is not recoverable from the
taxation authority, in which case the tax is recognized as part of the cost of acquisition
of the asset or as part of the expense item as applicable; and
 receivables and payables that are stated with the amount of tax included.

The net amount of tax recoverable from, or payable to, the taxation authority is included as part
of “Other current assets” or “Trade and other payables” accounts in the statements of financial
position.

Related Parties
Parties are considered to be related if one party has the ability, directly or indirectly, to control
the other party or exercise significant influence over the other party in making financial and
operating decisions. Parties are also considered to be related if they are subject to common
control and significant influence. Related parties may be individuals or corporate entities.

Contingencies
Contingent liabilities are not recognized in the financial statements. They are disclosed in the
notes to the financial statements unless the possibility of an outflow of resources embodying
economic benefits is remote. Contingent assets are not recognized in the financial statements
but are disclosed in the notes to the financial statements when an inflow of economic benefits is
probable.

Events After the Reporting Date

Post year-end events that provide additional information about the Company’s financial position
at the reporting 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.

4. Use of Judgements, Estimates and Assumptions

The preparation of the financial statements in accordance with PFRS requires management to
make judgments, estimates and assumptions that affect the application of accounting policies
and the amounts of assets, liabilities, income and expenses reported in the financial statements
at the reporting date. However, uncertainty about these judgments, estimates and assumptions
could result in an outcome that could require a material adjustment to the carrying amount of
the affected asset or liability in the future.

Judgments and estimates are continually evaluated and are based on historical experience and
other factors, including expectations of future events that are believed to be reasonable under
the circumstances. Revisions are recognized in the period in which the judgments and estimates
are revised and in any future period affected.

Judgments
In the process of applying the accounting policies, the Company has made the following
judgments, apart from those involving estimations, which have an effect on the amounts
recognized in the financial statements:

Determination Whether an Arrangement Contains a Lease. The Company assesses whether an

arrangement contains a lease based on PFRS 16, as disclosed in Note 3. On adoption of PFRS 16,
the Company elected to apply the practical expedient to grandfather the assessment of which
transactions are leases. It applied PFRS 16 only to contracts that were previously identified as
leases. Contracts that were not identified as leases under PAS 17 and IFRC 4 were not reassessed
for whether there is a lease. Therefore, the definition of lease under PFRS 16 was applied only to
contracts entered into or changed on or after January 1, 2019.
The details of these lease agreements are disclosed in Note 19.

17

*RCTMNLFS0566*
Company as lessee. The Company has entered into lease agreements as a lessee. Depreciation of
right-of-use of asset and interest expense on lease liability recognized in profit or loss are
disclosed in Notes 19.

Determining the Lease Term of Contracts with Renewal and Termination Options – Company as
lessee. The Company determines the lease term as the non-cancellable term of the lease,
together with any periods covered by an option to extend the lease if it is reasonably certain to
be exercised, or any periods covered by an option to terminate the lease, if it is reasonably certain
not to be exercised.

The Company has lease contracts that include extension and termination options. The Company
applies judgement in evaluating whether it is reasonably certain whether or not to exercise the
option to renew or terminate the lease. That is, it considers all relevant factors that create an
economic incentive for it to exercise either the renewal or termination. After the commencement
date, the Company reassesses the lease term if there is a significant event or change in
circumstances that is within its control and affects its ability to exercise or not to exercise the
option to renew or to terminate (e.g., construction of significant leasehold improvements or
significant customization to the leased asset).

The Company included the renewal period as part of the lease term for leases of warehouses with
shorter non-cancellable period. The Company typically exercises its option to renew for these
leases because there will be a significant negative effect on production if a replacement asset is
not readily available. The renewal periods for leases of warehouses with longer non-cancellable
periods are not included as part of the lease term as these are not reasonably certain to be
exercised. Furthermore, the periods covered by termination options are included as part of the
lease term only when they are reasonably certain not to be exercised.

Classifying Financial Instruments. The Company exercises judgments in classifying a financial

instrument, or its component parts, on initial recognition as a financial asset, a financial liability,
or an equity instrument in accordance with the substance of the contractual arrangement and the
definitions of a financial asset or liability. The substance of a financial instrument, rather than
its legal form, governs its classification in the statements of financial position.

Evaluating Deferred Tax. In determining the amount of current and deferred tax, the Company
takes into account the impact of uncertain tax positions and whether additional taxes and interest
may be due. The Company believes that its accruals for tax liabilities are adequate for all open
tax years based on its assessment of many factors, including interpretation of tax laws and prior
experience. This assessment relies on estimates and assumptions and may involve a series of
judgments about future events. New information may become available that causes the Company
to change its judgment regarding the adequacy of existing tax liabilities; such changes to tax
liabilities will impact tax expense in the period that such a determination is made.

Assessing Going Concern Assumption. The Company’s management has made an assessment on
the Company’s ability to continue as a going concern and is satisfied that the Company has the
resources to continue their business for the foreseeable future. Furthermore, management is not
aware of any material uncertainties that may cast significant doubt upon the Company’s ability
to continue as a going concern.

Estimates and Assumptions

The key estimates and assumptions used in the financial statements are based upon the
Company’s evaluation of relevant facts and circumstances as at the date of the separate financial
statements. Actual results could differ from such estimates.

18

*RCTMNLFS0566*
Leases - Estimating the Incremental Borrowing Rate - The Company cannot readily determine the
interest rate implicit in the lease, therefore, it uses its incremental borrowing rate (IBR) to
measure lease liabilities. The IBR is the rate of interest that the Company would have to pay to
borrow over a similar term, and with a similar security, the funds necessary to obtain an asset of
a similar value to the right-of-use asset in a similar economic environment. The IBR therefore
reflects what the Company ‘would have to pay’, which requires estimation when no observable
rates are available or when they need to be adjusted to reflect the terms and conditions of the
lease. The Company estimates the IBR using observable inputs (such as market interest rates)
when available and is required to make certain entity-specific estimates (such as the Company’s
stand-alone credit rating).

Estimating Allowance for Expected Credit Losses on Receivables. The Company uses a provision
matrix to calculate ECLs for trade receivables. The provision rates are based on days past due for
groupings of various customer that have similar loss patterns.

The provision matrix is initially based on the Company’s historical observed default rates. The
Company will calibrate the matrix to adjust the historical credit loss experience with
forward-looking information. At every reporting date, the historical observed default rates are
updated and changes in the forward-looking estimates are analysed.

The Company evaluates the impairment on the basis of factors that affect the collectability of
the accounts. These factors include, but are not limited to, the length of the Company’s
relationship with the counterparties, the current credit status based on third party credit reports
and known market forces, average age of accounts, collection experience and historical loss
experience. The amount and timing of the recorded expenses for any period would differ if the
Company made different judgments or utilized different methodologies.

Net reversal of expected credit losses amounted to P

=0.1 million and P
=0.5 million in 2020 and 2019,
respectively. Allowance for expected credit losses amounted to P =2.7 million and =P2.9 million as
at December 31, 2020 and 2019, respectively (see Note 6).

The carrying amounts of trade and other receivables amounted to P

=3.1 million and P
=6.0 million
as at December 31, 2020 and 2019, respectively (see Note 6).

Assessing Net Realizable Value of Inventories. The Company recognizes impairment losses on
inventories whenever its net realizable value becomes lower than cost due to damage, physical
deterioration, obsolescence, changes in price levels or other causes.

Estimates of selling price less cost to complete and sell are based on the most reliable evidence
available at the time the estimates are made of the amount the inventories are expected to be
realized. These estimates take into consideration fluctuations of price or cost directly relating
to events occurring after reporting date to the extent that such events confirm conditions existing
at reporting date. The allowance account is reviewed periodically to reflect the accurate
valuation in the financial records.

Allowance for decline in value of inventories amounted to P =1.7 million and P

=2.2 million as at
December 31, 2020 and 2019, respectively. The carrying value of inventories amounted to
P
=18.9 million and P
=20.5 million as at December 31, 2020 and 2019, respectively (see Note 7).

Estimating Useful Lives of Property and Equipment and Right of Use Asset. The Company
estimates the useful lives of property and equipment and right of use asset based on the period
over which the assets are expected to be available for use. The estimated useful lives of property
and equipment are reviewed periodically and are updated if expectations differ from previous
estimates due to physical wear and tear, technical or commercial obsolescence and legal or other
limits on the use of the assets.

19

*RCTMNLFS0566*
In addition, estimation of the useful lives of property and equipment is based on collective
assessment of industry practice, internal technical evaluation and experience with similar assets.
It is possible, however, that future financial performance could be materially affected by changes
in estimates brought about by changes in factors mentioned above. The amounts and timing of
recorded expenses for any period would be affected by changes in these factors and
circumstances. A reduction in the estimated useful lives of property and equipment and
investment property would increase the recorded costs and expenses and decrease noncurrent
assets.

There were no changes in the estimated useful lives of property and equipment and right of use
asset in 2020 and 2019.

The carrying value of depreciable property and equipment amounted to = P1.7 million and
P
=1.8 million at December 31, 2020 and 2019, respectively (see Note 9).

The carrying value of right of use asset amounted to nil and P

=0.9 million as at December 31, 2020
and 2019, respectively (see Note 19).

Assessing Impairment of Non-financial Assets. PFRS requires that an impairment review be

performed on property and equipment and right of use asset when events or changes in
circumstances indicate that the carrying amount may not be recoverable. Determining the
recoverable amounts of these assets requires the estimation of cash flows expected to be
generated from the continued use and ultimate disposition of such assets. While it is believed
that the assumptions used in the estimation of fair values reflected in the financial statements
are appropriate and reasonable, significant changes in these assumptions may materially affect
the assessment of recoverable amounts and any resulting impairment loss could have a material
adverse impact on the financial performance.

The Company assessed that its property and equipment with the carrying amounts P =1.7 million
and P
=1.8 million at December 31, 2020 and 2019, respectively, are not impaired (see Note 9).

The Company assessed that its right of use asset with the carrying amount of nil and P
=0.9 million
as at December 31, 2020 and 2019, respectively, are not impaired (see Note 19).

Assessing Realizability of Deferred Tax Assets. The Company reviews its deferred tax assets at
each reporting date and reduces the carrying amount 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’s assessment on the recognition of deferred tax assets on deductible
temporary differences and carryforward benefits of MCIT and NOLCO is based on the projected
taxable income in the following periods. Unrecognized deferred tax assets are reassessed at each
reporting date and are recognized to the extent that it has become probable that future taxable
profit will allow the deferred tax assets to be recovered.

The deferred tax assets amounted to =

P6.9 million and P
=5.9 million as at December 31, 2020 and
2019, respectively (see Note 17).

Determining Retirement Liability. The determination of the obligation and cost of retirement
benefits is dependent on the assumptions determined by management and used by the actuary in
calculating such amounts. These assumptions are described in Note 15 to financial statements
and include, among others, discount rate and salary increase rate. Actual results that differ from
the Company’s assumptions are accumulated and recognized in other comprehensive income,
therefore, generally affect the recognized expense and recorded obligation in such future years.

Net retirement asset amounted to =P1.2 million and P

=0.8 million as at December 31, 2020 and
2019, respectively (see Note 16).

20

*RCTMNLFS0566*
5. Cash and Cash Equivalents

This account consists of:

2020 2019
Cash on hand =10,000
P P
=6,000
Cash in banks 11,458,732 15,258,365
Cash equivalents 35,000,000 34,745,741
=46,468,732
P P
=50,010,106

Cash in banks and cash equivalents earn interest at bank deposit rates. Interest income earned
amounted to P=0.5 million and P
=1.2 million in 2020 and 2019, respectively.

6. Trade and Other Receivables

This account consists of:

Note 2020 2019

Trade receivables 18 =5,712,551
P P
=8,622,597
Advances to suppliers - 82,550
Others 84,624 214,498
5,797,175 8,919,645
Less: allowance for expected credit losses (2,746,992) (2,880,811)
=3,050,183
P P
=6,038,834

Trade receivables with related parties and third parties are unsecured, non-interest bearing and
has normal credit terms of 30 to 60 days.

Advances to suppliers includes down payments in importation and contractors which will be
applied against subsequent billings.

Other receivables such as advances to officers and employees consist of emergency loan and
communication advances which are collectible within one year.

Majority of the receivables pertain to related party accounts that were not impaired, and are
collectible based on historical payment behavior and analyses of the underlying counterparty
credit ratings. There are no significant changes in the credit quality of the counterparties.

Movements of allowance for impairment loss on trade and other receivables follows:

Note 2020 2019

Beginning balance =2,880,811
P P
=3,430,101
Reversal, net 14 (153,819) (654,219)
Recovery of written-off accounts 20,000 104,929
Ending balance =2,746,992
P P
=2,880,811

21

*RCTMNLFS0566*
7. Inventories

This account consists of:

2020 2019
Raw materials =20,642,865
P P
=22,668,345
Allowance for decline in value (1,728,206) (2,196,848)
=18,914,659
P P
=20,471,497

The cost of inventories used amounted to =

P14.8 million and P
=29.7 million in 2020 and 2019,
respectively (see Note 13).

There were neither restrictions on title, contractual commitments nor inventories pledged as
security for liabilities as at December 31, 2020 and 2019.

Movements of allowance for decline in value of inventories follows:

Note 2020 2019

Beginning balance (P
=2,196,848) (P
=784,683)
Reversal (provision) for the year 14 468,642 (1,412,165)
Ending balance (P
=1,728,206) (P
=2,196,848)

8. Other Current Assets

This account consists of:

Note 2020 2019

Creditable withholding tax =13,961,871
P P
=13,798,692
Tools and spare parts 737,727 728,944
Input VAT 200,884 754,518
Refundable security deposit 19 105,754 105,754
Prepaid expenses 3,843 4,218
Others 322,060 27,225
=15,332,139
P P
=15,419,351

Tools and spare parts consist of electrical, mechanical and tools & calibrating equipment for the
maintenance of printing machines.

Prepaid expenses pertain to prepaid health card HMO and prepaid insurance auto & truck which
are amortized over one year.

22

*RCTMNLFS0566*
9. Property and Equipment, Net

Composition and movement of this account follow:

Leasehold Machinery & Office Transportation Computer

improvements equipment equipment equipment software Total
Cost
At December 31, 2018 P
=7,832,392 P
=95,288,286 P
=6,618,064 P
=165,000 P
=746,983 P
=110,650,725
Additions - - - - 250,000 250,000
At December 31, 2019 7,832,392 95,288,286 6,618,064 165,000 996,983 110,900,725
Additions 108,000 - - - 293,250 401,250
At December 31, 2020 7,940,392 95,288,286 6,618,064 165,000 1,290,233 111,301,975
Accumulated depreciation
and amortization
At December 31, 2018 7,732,405 93,379,562 6,617,876 165,000 746,974 108,641,817
Depreciation and
amortization 72,818 395,419 - - - 468,237
At December 31, 2019 7,805,223 93,774,981 6,617,876 165,000 746,974 109,110,054
Depreciation and
amortization 27,125 341,160 - - - 368,285
At December 31, 2020 7,832,348 94,116,141 6,617,876 165,000 746,974 109,478,339
Carrying value
At December 31, 2019 P
=27,169 P
=1,513,305 P
=188 P
=- P
=250,009 P
=1,790,671
At December 31, 2020 =108,044
P =1,172,145
P =188
P =-
P =543,259
P =1,823,636
P

Depreciation and amortization is composed of the following:

Note 2020 2019

Property and equipment =368,285
P 468,237
Right of use asset 19 919,131 2,569,479
13 =1,287,416
P P
=3,037,716

The costs of fully depreciated assets that are still in use amounted to 107.1 million and
P
=77.0 million as at December 31, 2020 and 2019, respectively.

There were neither restrictions on title, contractual commitments nor property and equipment
pledged as security for liabilities as at December 31, 2020 and December 31, 2019, respectively.

Management has reviewed the carrying value of its property and equipment as at
December 31, 2020 and 2019 for any impairment. Based on its evaluation, there were no
indications that these assets are impaired.

23

*RCTMNLFS0566*
10. Trade and Other Payables

This account consists of:

Note 2020 2019

Trade payables 18 =3,544,316
P P
=8,459,227
Accrued expenses 837,381 252,211
Statutory liabilities 288,634 429,493
=4,670,331
P P
=9,140,931

Trade payables represent purchases from local suppliers and importations of goods for trading
materials. These are non-interest bearing and has normal credit terms of 30 to 60 days.

Accrued expenses consist of transport costs, legal and professional fees, communication
expenses, outsourced services and other expenses which are normally settled within one year.

11. Equity

Details of share capital follows as at December 31, 2020 and 2019 follows:

Shares Amount
Authorized, issued and outstanding - P
=10 par value 10,000,000 P
=100,000,000

12. Revenue

The account consists of:

2020 2019
Paint =12,105,330
P P
=21,055,038
Printing supplies 7,207,768 18,537,121
Other printing supplies 112,592 173,050
Compress paper 20,857 180,764
Packaging materials - 443,838
Others 909,703 -
=20,356,250
P P
=40,389,811

24

*RCTMNLFS0566*
13. Costs of Sales

This account consists of:

Note 2020 2019

Raw materials used =14,805,898
P P
=29,739,292
Direct labor 797,262 875,976
Factory overhead:
Depreciation and amortization 9 1,287,415 3,037,716
Indirect labor 1,754,484 2,367,688
Utilities 649,235 901,805
Taxes and licenses 167,719 258,090
Retirement benefits 16 76,898 153,748
Outsourced services 57,489 197,400
Freight in 11,557 130,434
Others 725,067 2,605,663
=20,333,024
P P
=40,267,812

14. General and Administrative Expenses

This account consists of:

Note 2020 2019

Rent 19 =1,370,729
P P
=-
Salaries and wages 834,753 2,776,678
Taxes and licenses 532,255 599,591
Communication, light and water 292,720 278,606
Professional fees 264,061 305,266
Advertising and promotion 211,010 309,773
Transportation and travel 141,401 317,017
Repairs and maintenance 120,400 100,576
Provision for (reversal of) decline in value of
inventories 7 92,961 1,412,165
Others 80,215 157,181
Retirement benefits 16 50,478 95,699
Outsourced services 32,054 44,219
Supplies 9,739 64,784
Commission 3,727 -
Reversal of allowance for ECL 6 (153,819) (654,219)
=3,882,684
P P
=5,807,336

15. Other Income, Net

The other operating income account consists of:

2020 2019
Other income =505,064
P P
=28,878
Scrap sales - 122,938
Unrealized foreign exchange loss, net (1,907) (123,884)
=503,157
P P
=27,932

Other income includes income from rent concession amounting to =

P503,288.

25

*RCTMNLFS0566*
16. Retirement Benefits

The Company is a participant in a trusted, funded, non-contributory retirement plan providing for
retirement, death, disability and separation benefits to all regular and full-time employees of the
participating affiliated companies. The latest actuarial valuation report is as at
December 31, 2020.

Retirement benefits expense follow:

2020 2019
Current service cost =197,586
P P
=299,230
Interest expense 92,576 304,809
Interest income (162,786) (339,692)
Transferred liability - (14,900)
=127,376
P P
=249,447

Retirement benefits expense is charge to the following:

Note 2020 2019

Cost of sales 13 =76,898
P P
=153,748
General and administrative expenses 14 50,478 95,699
=127,376
P P
=249,447

Movements in the retirement asset (liability) follow:

Present value Fair value

of obligation of plan assets Total
At December 31, 2019 (P
=2,439,521) P
=3,191,887 P
=752,366
Movements during the year:
Current service cost (197,586) - (197,586)
Interest (expense) income (92,576) 162,786 70,210
Remeasurement gain (loss) (143,434) (761,667) (905,101)
Transferred liability, Out 624,322 - 624,322
Contributions to the fund - 840,102 840,102
Benefits paid 151,347 (151,347) -
342,073 89,874 431,947
At December 31, 2020 (P
=2,097,448) =3,281,761
P =1,184,313
P

Present value Fair value

of obligation of plan assets Total
At December 31, 2018 (P
=4,073,357) P
=4,529,222 P
=455,865
Movements during the year:
Current service cost (299,230) - (299,230)
Interest (expense) income (304,809) 339,692 34,883
Remeasurement gain (loss) 239,334 (2,798) 236,536
Transferred liability, Out 14,900 - 14,900
Contributions to the fund - 309,412 309,412
Benefits paid 1,983,641 (1,983,641) -
1,633,836 (1,337,335) 296,501
At December 31, 2019 (P
=2,439,521) P
=3,191,887 P
=752,366

26

*RCTMNLFS0566*
Net retirement benefits asset is broken down as follows:

2020 2019
Present value of the obligation (P
=2,097,448) (P
=2,439,521)
Fair value of plan assets 3,281,761 3,191,887
Retirement benefits asset =1,184,313
P P
=752,366

Cumulative remeasurement gains (losses) recognized in other comprehensive income follow:

Cumulative Deferred Tax

Remeasurement Asset (Liability)
Gain (Loss) (see Note 17) Net
At December 31, 2018 P
=191,579 (P
=57,473) P
=134,106
Remeasurement gain 236,536 (70,961) 165,575
At December 31, 2019 428,115 (128,434) 299,681
Remeasurement loss (110,709) 33,213 (77,496)
At December 31, 2020 =317,406
P (P
=95,221) =222,185
P

Categories of the plan assets as follow:

2020 2019
Cash and cash equivalents =82,177
P P
=823,156
Unit investment trust fund 686,643 535,239
Debt securities – Government securities 2,659,669 1,801,926
Others (144,112) 32,591
Trust fees payables (2,616) (1,025)
=3,281,761
P P
=3,191,887

The significant actuarial assumptions were as follows:

2020 2019
Discount rate 3.60% 5.10%
Salary increase rate 5.00% 5.00%

The sensitivity analysis below has been determined based on a reasonably possible change of each
significant assumption on the defined benefit obligation as at the December 31, with all other
variables held constant:

Rate 2020 2019

Discount rate +100 bps =1,923,126
P (P
=2,221,247)
-100 bps 2,300,730 2,696,422
Salary increase rate +100 bps 2,295,764 2,694,055
-100 bps 1,923,748 (2,219,118)

Shown below is the maturity analysis of the undiscounted benefit payments

2020 2019
Less than 1 year P72,088
= P
=282,701
Between 2 to 5 years 1,155,001 1,297,676
Between 6 to 10 years 730,553 848,703
More than 10 years 5,768,772 9,415,404

27

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17. Income Taxes

The components of income tax benefit are shown below:

2020 2019
Current =5,592
P P
=10,128
Deferred (828,175) (371,921)
(P
=822,583) (P
=361,793)

The current provision for corporate income tax in 2020 and 2019 represents MCIT.

The reconciliation between the statutory income tax rate on income before income tax and the
Company’s effective income tax rate is as follows:

2020 2019
Benefit from tax computed at
30% statutory tax rate (P
=873,342) (P
=1,357,622)
Tax effects of:
Transfer of retirement liability 187,296 -
Income subjected to final tax (136,537) (369,379)
Expired NOLCO - 1,354,749
Non-deductible expenses - 10,459
Effective income tax rates (P
=822,583) (P
=361,793)

The Company’s deferred tax asset and liabilities as at December 31 arise from the following:

2020 2019
Deferred tax asset:
NOLCO =5,030,661
P P
=3,684,959
Allowance for expected credit losses 821,749 861,894
Unamortized past service cost 507,304 587,754
Allowance for decline in value of inventories 519,258 659,055
Impact of PFRS 16 - 63,337
MCIT 68,142 62,550
Unrealized foreign exchange loss 572 37,165
6,947,686 5,956,714
Deferred tax liabilities:
Retirement asset (355,293) (225,709)
=6,592,393
P P
=5,731,005

Deferred tax asset and liabilities are presented as follows:

Note 2020 2019

Through profit or loss =6,440,382
P P
=5,859,439
Through other comprehensive income 16 152,011 (128,434)
=6,592,393
P P
=5,731,005

28

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 The details of the Company’s NOLCO and MCIT are as follows:

Beginning Incurred Expired/ Ending

Year incurred Balance this year Applied Balance Expiry year
NOLCO
2018 7,774,038 - - 7,774,038 2021
2019 - 4,509,161 - 4,509,161 2022
2020 - 4,485,673 - 4,485,673 2025
P
=7,774,038 P
=8,994,834 P
=- P
=16,768,872

MCIT
2019 - 62,550 - 62,550 2022
2020 - 5,592 - 5,592 2023

P
=- P
=68,142 P
=68,142

18. Related Party Disclosures

The Company, in the normal course of business, has various transactions with its related parties,
as described below.

Trade Trade
Transactions Receivables Payables
Related Party Nature of Transactions Year during the Year (see Note 6) (see Note 10)
Sales of goods 2020 =4,766,472
P P104,226
= P-
=
Entities under Common 2019 P
=13,302,436 P
=714,050 P
=-
Control Purchases of goods and services 2020 2,039,413 - 323,738
2019 2,527,216 - 385,519
2020 =6,805,885
P 104,226 =-323,738
P

2019 P
=15,829,652 P
=714,050 P
=385,519

Transactions with related parties include:

a. Purchase and sale of goods and services with the Intermediate Parent Company and entities
under common control.

b. Lease agreements with the Intermediate Parent Company and entities under common control
for the use of office and warehouse for a period of five to seven and half years (Note 19).

Outstanding balance of due from Intermediate Parent Company is unsecured, noninterest-bearing

and settlements are made in cash.

Outstanding balance of trade receivables and payables, rent and nontrade payables are generally
settled in varying periods, normally within 30 to 90 days depending on arrangement with related
parties.

Details of compensation of key management are as follows:

2020 2019
Short term =-
P P
=319,181
Long term - -

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19. Leases

Company as a Lessee

The Company has lease agreement with its Parent Company for the lease of office spaces and
various warehouses. The leases are for a period of one year and are renewable based on the
mutual agreement by the parties.

Refundable security deposit amounted to P

=105,754 as at December 31, 2020 and 2019 (see Note 8).

Maturity analysis - contractual undiscounted cash flows:

2020 2019
Within one year =-
P P
=1,352,737
After one year but not more than five years - -
=-
P P
=1,352,737

Set out below are the carrying amounts of lease liabilities and the movements during 2020:

2020 2019
As at January 1 =1,130,251
P P
=3,488,610
Additions - -
Accretion of interest 9,966 99,266
Reduction of Payment (470,368) -
Termination (32,920) -
Payments (636,929) (2,457,625)
As at December 31 =-
P P
=1,130,251

2020 2019
Current =-
P P
=1,130,251
Non-current -
=-
P P
=1,130,251

Right-of-use assets

2020 2019
Balance at January 1 =919,131
P 3,488,610
Amortization (919,131) (2,569,479)
Balance at December 31 =-
P P
=919,131

Short-term and leases of low-value assets

In 2020, rent expense of P

=1.4 million pertains to payments classified as operating leases
(see Note 14).

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20. Financial Risk and Capital Management Objectives and Policies

Objectives and Policies

The Company has significant exposure to the following financial risks primarily from its use of
financial instruments:

 Liquidity Risk
 Credit Risk

This note presents information about the exposure to each of the foregoing risks, the objectives,
policies and processes for measuring and managing these risks, and for management of capital.

The principal non-trade related financial instruments of the Company include cash. This financial
instrument is used mainly for working capital management purposes. The trade-related financial
assets and financial liabilities of the Company such as receivables and accounts payable and other
current liabilities, excluding statutory liabilities, arise directly from and are used to facilitate its
daily operations.

The BOD has the overall responsibility for the establishment and oversight of the risk management
framework of the Company.

The risk management policies of the Company are established to identify and analyze the risks
faced by the Company, to set appropriate risk limits and controls, and to monitor risks and
adherence to limits. Risk management policies and systems are reviewed regularly to reflect
changes in market conditions and activities. The Company, through its training and management
standards and procedures, aims to develop a disciplined and constructive control environment in
which all employees understand their roles and obligations.

Liquidity Risk
Liquidity risk pertains to the risk that the Company will encounter difficulty to meet payment
obligations when they fall due under normal and stress circumstances.

The Company’s objectives to manage its liquidity risk are as follows: (a) to ensure that adequate
funding is available at all times; (b) to meet commitments as they arise without incurring
unnecessary costs; (c) to be able to access funding when needed at the least possible cost; and
(d) to maintain an adequate time spread of refinancing maturities.

The Company constantly monitors and manages its liquidity position, liquidity gaps and surplus on
a daily basis. A committed stand-by credit facility from several local banks is also available to
ensure availability of funds when necessary.

The table below summarizes the maturity profile of the Company’s financial assets and financial
liabilities based on contractual undiscounted receipts and payments used for liquidity
management.

Over one year

Carrying Contractual Less than but less than
2020 Amount Cash Flow 1 Year 5 Years
Financial Assets
Cash =46,468,732
P =46,468,732
P =46,468,732
P P-
=
Trade and other receivables - net* 2,965,559 2,965,559 2,965,559 -
Refundable deposit 105,754 105,754 105,754 -
Financial Liabilities
Trade and other payables** 4,381,697 4,381,697 4,381,697 -
*Exclusive of advances to suppliers and other receivables.
**Exclusive of statutory liabilities

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 Over one year
Carrying Contractual Less than but less than
2019 Amount Cash Flow 1 Year 5 Years
Financial Assets
Cash P
=50,010,106 P
=50,010,106 P
=50,010,106 P
=-
Trade and other receivables - net* 5,741,786 5,741,786 5,741,786 -
Refundable deposit 105,754 105,754 105,754 -
Financial Liabilities
Trade and other payables** 8,711,439 8,697,709 8,697,709 -
Lease liabilities (including interest) 1,130,251 1,331,594 1,331,594 -
*Exclusive of advances to suppliers and other receivables.
**Exclusive of statutory liabilities

Credit Risk
Credit risk is the risk of financial loss to the Company when a customer or counterparty to a
financial instrument fails to meet its contractual obligations, and arises principally from
receivables. The Company manages its credit risk mainly through the application of transaction
limits and close risk monitoring. It is the Company’s policy to enter into transactions with a wide
diversity of creditworthy counterparties to mitigate any significant concentration of credit risk.

The Company has regular internal control reviews to monitor the granting of credit and
management of credit exposures.

Receivables
The Company’s exposure to credit risk is influenced mainly by the individual characteristics of
each customer. However, management also considers the factors that may influence the credit
risk of its customer base, including the default of the industry in which the customer operates.

Outstanding customer receivables are regularly monitored and an impairment analysis is

performed at each reporting date on individual basis for major clients. Minor receivables are
grouped into homogeneous groups and assessed for impairment collectively.

Cash in banks and cash equivalents

Credit risk from balances with banks and financial institutions is managed in accordance with the
Company’s policy. The Company manages the risk by ensuring that the Company’s arrangements
are with reputable and financially sound counterparties.

The following table provides information regarding the maximum credit risk exposure of the
Company arising from its principal financial assets as at December 31, 2020 and 2019 at gross
amounts:

2020 2019
Financial assets at amortized cost
Cash in banks and cash equivalents =46,468,732
P P
=50,010,106
Trade and other receivables* 2,965,559 5,741,786
Refundable deposit 105,754 105,754
=49,540,045
P P
=55,857,646
*Exclusive of advances to suppliers and other receivables.

The Company does not have major concentration of credit risk.

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The following table provides information regarding the credit risk exposure of the Company by
classifying assets according to the Company’s credit ratings of debtors:

At December 31, 2020

Cash in
banks and cash Trade and other Refundable
equivalents receivables* Deposit Total
Neither past due nor impaired =46,468,732
P =1,916,298
P =105,745
P =48,490,775
P
Past due but not impaired
1-30 days - 767,175 - 767,175
31-60 days - 149,327 - 149,327
61-90 days - - - -
Over 91 days - 132,759 - 132,759
Impaired - 2,746,992 - 2,746,992

=46,468,732
P =5,712,551
P =105,754
P =52,287,028
P
*Exclusive of advances to suppliers and other receivables subject to liquidation

At December 31, 2019

Cash in
banks and Trade and other Refundable
cash equivalents receivables* Deposit Total
Neither past due nor impaired P
=50,010,106 P
=2,486,555 P
=105,754 P
=52,602,415
Past due but not impaired
1-30 days - 2,393,666 - 2,393,666
31-60 days - 837,265 - 837,265
61-90 days - 24,300 - 24,300
Over 91 days - - - -
Impaired - 2,880,811 - 2,880,811

P
=50,010,106 P
=8,622,597 P
=105,754 P
=58,738,457
*Exclusive of advances to suppliers and other receivables subject to liquidation

The Company does not hold any collateral as security or other credit enhancements attached to
its financial assets.

Credit quality per class of financial assets

The Company’s bases in grading its financial assets are as follows:

High grade - These are receivables which have a high probability of collection
(the counterparty has the apparent ability to satisfy its obligation and the security on the
receivables are readily enforceable).

Standard grade - These are receivables where collections are probable due to the reputation and
the financial ability of the counterparty to pay but have been outstanding for a certain period of
time.

Substandard grade - These are receivables that can be collected provided the Company makes
persistent effort to collect them.

The table below shows the credit quality by class of financial assets (gross of allowance for credit
losses) of the Company that are neither past due nor impaired based on their historical experience
with the counterparties:

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 At December 31, 2020
Cash in Trade and
banks and cash other Refundable
equivalents receivables* Deposit Total
Neither past due nor impaired
High grade =46,468,732
P =1,916,298
P =105,745
P =48,490,775
P
Standard - 1,049,261 - 1,049,261

=46,468,732
P =2,965,559
P =105,745
P =49,540,036
P
*Exclusive of advances subject for liquidation and other receivables

At December 31, 2019

Cash in Trade and
banks and cash other Refundable
equivalents receivables* Deposit Total
Neither past due nor impaired
High grade P
=50,010,106 P
=2,486,555 P
=105,754 P
=52,602,415
Standard - - - -

P
=50,010,106 P
=2,486,555 P
=105,754 P
=52,602,415
*Exclusive of advances subject for liquidation and other receivables

Trade receivables that were past due but not impaired relate to customers without recent history
of default. The Company does not hold any collateral in relation to these receivables.

The credit quality of the Company’s financial assets is evaluated using internal credit rating.
Financial assets are considered as high grade if the counterparties are not expected to default in
settling their obligations, thus credit risk exposure is minimal. These counterparties include
banks, customers and related parties who are capable of settling their obligations to the
Company.

The Company has no financial assets whose terms have been renegotiated.

Capital Management
The Company maintains a sound capital base to ensure its ability to continue as a going concern,
thereby continue to provide returns to stockholders and benefits to other stakeholders and to
maintain an optimal capital structure to reduce cost of capital.

The Company manages its capital structure and makes adjustments, in the light of changes in
economic conditions. To maintain or adjust the capital structure, the Company may adjust the
dividend payment to shareholders, pay-off existing debt, return capital to shareholders or issue
new shares.

The Company defines capital as paid-in capital stock, additional paid-in capital and retained
earnings. Other components of equity such as treasury stock and equity reserves are excluded
from capital for purposes of capital management.

The BOD has overall responsibility for monitoring capital in proportion to risk. Profiles for capital
ratios are set in the light of changes in the external environment and the risks underlying the
Company’s business, operation and industry.

The Company monitors capital on the basis of debt-to-equity ratio, which is calculated as total
debt divided by total equity. Total debt is defined as total current liabilities and total noncurrent
liabilities, while equity is total equity as shown in the separate statements of financial position.

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

34

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21. Financial Assets and Financial Liabilities

The table below presents a comparison by category of carrying amounts and fair values of the
Company’s financial instruments as at December 31, 2020 and 2019:

2020 2019
Carrying Carrying
Amount Fair Value Amount Fair Value
Financial Assets
Cash =46,468,732
P =46,468,732
P P
=50,010,106 P
=50,010,106
Trade and other receivables - net 2,965,559 2,965,559 6,038,834 6,038,834
Refundable deposit 105,754 105,754 105,754 105,754
Financial Liabilities
Trade and other payables
(excluding statutory liabilities) 4,381,697 4,381,697 8,711,439 8,697,709
Lease liability (including interest) - - 1,130,251 1,331,594

The following methods and assumptions are used to estimate the fair value of each class of
financial instruments:

Cash, Receivables and Refundable Deposit. The carrying amounts of cash and cash equivalents,
receivables and refundable deposit approximate fair values primarily due to the relatively short-
term maturities of these financial instruments.

Trade and Other Payables. The carrying amount of accounts payable and other current liabilities
approximates fair value due to the relatively short-term maturity of this financial instrument.

Lease Liabilities. The carrying amount of finance lease liabilities was determined based on the
Company’s incremental borrowing rate. This is categorized as Level 2.

22. Subsequent Events

Continuing Effects of COVID-19 Pandemic

On March 11, 2020, the World Health Organization assessed that the novel coronavirus of 2019
(COVID-19) has become a pandemic. In an effort to contain the spread of COVID-19 in the
Philippines, the Government issued Presidential Proclamation No. 929 on March 16, 2020. The
Proclamation declared a State of Calamity throughout the Philippines for a period of six months
and imposed enhanced community quarantine (ECQ), among others. Subsequently, as measure to
limit the spread of COVID-19 in the Philippines, community quarantines of varying strictness were
imposed in numerous parts of the country.

In March 2021, following spike in the number of new COVID-19 cases, the Philippine Government
has placed Metro Manila and other risk areas back to ECQ from March 29 to April 4, 2021 which
was later extended to April 11, 2021.

In April 12, 2021, the Philippine Government has announced and shifted Metro Manila and other
risk areas from ECQ to MECQ starting April 12 to April 30, 2021.

These measures affected economic activities and business operations of the Company.

The scale and duration of these developments remain uncertain as of the report date. Considering
the evolving nature of the pandemic, the Company will continue to monitor the situation.

35

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Corporate Recovery and Tax Incentives for Enterprises or “CREATE” Act
On February 1, 2021, the Bicameral Conference Committee, under the 18th Congress of the
Philippines, ratified the Corporate Recovery and Tax Incentives for Enterprises (the CREATE bill).
The CREATE bill seeks to reform corporate income taxes and rationalize fiscal incentives in the
country by implementing certain changes to the current tax regulations. Under the bill, some
changes will be implemented for periods beginning July 1, 2020.

On February 24, 2021, the final version of the CREATE bill was transmitted to the Office of the
President for signing or approval into law. On March 26, 2021, the Office of the President approved
the bill, now called Republic Act No. 11534 or CREATE Act. The CREATE Act will become effective
15 days after complete publication in the Official Gazette or any newspaper of general circulation
in the Philippines.

The CREATE Act resulted to the reduction of the Company’s tax rate from 30% to 27.5% effective
July 1, 2020. The impact is as follows:

Previous Rate CREATE Rate Difference

Deferred tax assets P
=6,592,392 P
=6,043,026 P
=549,366
Excess of tax credit 13,956,279 13,959,075 (2,796)
Provision for current income tax 5,592 4,194 1,398

36

*RCTMNLFS0566*
23. Supplementary Information Required under Revenue Regulations (RR) No. 15-2010

A. Revenue Regulations No. 15-2010

a. Output VAT and Input VAT

The Company declared output VAT for the year ended December 31, 2019 as shown below:

Gross amount Output VAT

Taxable sales P
=19,819,396 P
=2,378,328
Zero Rated 597,311 -
P
=20,416,707 P
=2,378,328

The movement in input VAT for the year ended December 31, 2020 is summarized below:

Beginning balance P
=754,518
Current purchases and payments for:
Goods for resale or manufacture 1,444,203
Services lodged under cost of goods sold 310,321
Claims for tax credit/refund and other adjustments (2,308,158)
P
=200,884

b. The landed costs of imports and the amount of custom duties and tariff fees were paid or
accrued. The landed cost of the Company's information amounted to P 558,625 for the
year, with paid or accrued amount of P 67,035 for tariff fees.

c. The amounts of withholding taxes paid for the year

Creditable withholding taxes P

=261,064
Tax on compensation and benefits 73,202
P
=334,266

d. Taxes and licenses

a. Local
Business Tax P
=405,196
Real Property Tax 134,129
Mayor’s Permit 53,744
Other taxes 106,405
b. National
BIR annual registration 500
P
=699,974

e. Deficiency tax assessments and tax cases

The Company has no outstanding deficiency tax assessments and tax cases as at
December 31, 2020.

37

*RCTMNLFS0566*
B. Revenue Regulation (RR) No. 34-2020

BIR issued Revenue Regulations (RR) No. 34-2020, Prescribing the Guidelines and Procedures
for the Submission of BIR Form No. 1709, Transfer Pricing Documentation (TPD) and other
Supporting Documents, Amending for this Purpose the Pertinent Provisions of RR Nos. 19-2020
and 21-2002, as amended by RR No. 15-2010, to streamline the guidelines and procedures for
the submission of BIR Form No. 1709, TPD and other supporting documents. Section 2 of the
RR enumerated the taxpayers required to file and submit the RPT Form, together with the
Annual Income Tax Return.

The Company is covered under Section 2 of the RR 34-2020, hence, required to file the BIR
Form No. 1709.

38

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