16 April 2013 MS. JANET A. ENCARNACION Head, Disclosure

Main Office: Maharlika Hi-Way, Banga 1stPlaridel, Bulacan

Manila Office: Level 5, Tower 2, The Enterprise Center, 6766 Ayala Avenue Corner Paseo de Roxas, Makati City Telephone: (044) 670-1492 / 670-0693 / 795-0136 Fax: (044) 795-1979 Website: www.calatacorp.com

16 April 2013 MS. JANET A. ENCARNACION Head, Disclosure Department Philippine Stock Exchange, Philippine Stock Exchange Plaza Ayala Triangle, Ayala Avenue, Makati City

RE: CALATA CORPORATION 2012 ANNUAL REPORT

Dear Ms. Encarnacion, Pursuant to the Revised Disclosure Rules of the Philippine Stock Exchange (the “Exchange”), please find attached Annual Report of Calata Corporation for the year ending 31 December 2012. Very truly yours,

Atty. Jose Marie E. Fabella

Corporate Secretary / Corporate Information Officer / Compliance Officer

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1 9 9 9 1 1 6 6 6 SEC Registration Number

C A L A T A C O R P O R A T I O N

(Company’s Full Name)

(Business Address: No. Street City/Town/Province)

Benison Paul B. De Torres 044-795-1979

(Contact Person) (Company Telephone Number)

1 2 3 1 1 7 - A Month Day (Form Type) Month Day

(Fiscal Year) (Annual Meeting)

(Secondary License Type, If Applicable)

Dept. Requiring this Doc. Amended Articles Number/Section Total Amount of Borrowings

Total No. of Stockholders Domestic Foreign

To be accomplished by SEC Personnel concerned

File Number LCU

Document ID Cashier

S T A M P S Remarks: Please use BLACK ink for scanning purposes.

M C A R T H U R H I - W A Y B A N G A 1 S T P L A R I D E L B U L A C A N

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SECURITIES AND EXCHANGE COMMISSION

SEC FORM 17-A

ANNUAL REPORT PURSUANT TO SECTION 17 OF THE SECURITIES REGULATION CODE AND SECTION 141

OF THE CORPORATION CODE OF THE PHILIPPINES 1. For the fiscal year ended December 31, 2012

2. Commission Identification Number A19991166 3. BIR Tax Identification No. 005- 712-797-000 4. Exact name of issuer as specified in its charter Calata Corporation 5. Province, Country or other jurisdiction of incorporation or organization Philippines 6. Industry Classification Code: (SEC Use Only) .......................................................................................................................................... 7. Address of principal office Postal Code McArthur Highway, Banga 1st, Plaridel, Bulacan 3004 8. Issuer's telephone number, including area code (044) 795 - 0136 9. Former name, former address, and former fiscal year, if changed since last report. Not applicable 10. Securities registered pursuant to Sections 8 and 12 of the SRC, or Sec. 4 and 8 of

the RSA Title of Each Class Number of Shares of Common Stock

Outstanding and Amount of Debt Outstanding

Common Shares 360,112,000 shares 11. Are any or all of these securities listed on a Stock Exchange. Yes [ / ] No [ ]

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If yes, state the name of such stock exchange and the classes of securities listed therein: Philippine Stock Exchange Common Shares 12. Check whether the issuer: (a) has filed all reports required to be filed by Section 17 of the SRC and SRC Rule

17.1 thereunder or Section 11 of the RSA and RSA Rule 11(a)-1 thereunder, and Sections 26 and 141 of The Corporation Code of the Philippines during the preceding twelve (12) months (or for such shorter period that the registrant was required to file such reports);

Yes [ / ] No [ ] (b) has been subject to such filing requirements for the past ninety (90) days. Yes [ / ] No [ ] 13. State the aggregate market value of the voting stock held by non-affiliates of the

registrant. The aggregate market value shall be computed by reference to the price at which the stock was sold, or the average bid and asked prices of such stock, as of a specified date within sixty (60) days prior to the date of filing. If a determination as to whether a particular person or entity is an affiliate cannot be made without involving unreasonable effort and expense, the aggregate market value of the common stock held by non-affiliates may be calculated on the basis of assumptions reasonable under the circumstances, provided the assumptions are set forth in this Form. (See definition of "affiliate" in “Annex B”).

DOCUMENTS INCORPORATED BY REFERENCE 15. If any of the following documents are incorporated by reference, briefly describe them and identify the part of SEC Form 17-A into which the document is incorporated: (a) Any annual report to security holders; Not Applicable (b) Any information statement filed pursuant to SRC Rule 20; Not Applicable

(c) Any prospectus filed pursuant to SRC Rule 8.1.

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PART I - BUSINESS AND GENERAL INFORMATION Item 1. Business HISTORY Formerly known as Planters Choice Agro Products, Inc., the Company was incorporated in July 23, 1999. The Company’s initial authorized capital stock of PhP1,000,000.00 divided into 10,000 common shares with a par value of PhP100.00. Combining good business sense with hard work, quality service, and a mission to give back to the community, the store grew into one of the largest agricultural products distribution company in Bulacan. On February 22, 2010, the Company obtained approval from the SEC for the change in its corporate name to Calata Corporation. In August 17, 2011, the SEC approved the Company’s application for increase in its authorized capital stock from PhP1,000,000.00 divided into 10,000 common shares with a par value of PhP100.00 per share to PhP345,400,000.00 divided into 345,400,000 shares with a par value of PhP1.00 per share. Thereafter, in August 25, 2011, the SEC approved a further increase in the Company’s authorized capital stock to PhP845,400,000.00 divided into 845,400,000 shares with a par value of PhP1.00 per share. On February 6, 2012, the Company amended its primary purpose as a prelude to its plans to create a subsidiary to handle its retail business. On March 23, 2012, the Company made history by being the first agricultural company to conduct an initial public offering (IPO) in the Philippine Stock Exchange. Out of the said IPO, the Company was able to raise P242,412,808.76 to support the rapid growth of its current operations as well as the development of its prospective businesses. In the Philippines, the Company carries the distinction of being the leading and most complete distributor for all products available in the agricultural industry. It is the country’s largest combined distributor of agro-chemicals, feeds, fertilizers, veterinary medicines and other agricultural products coming from manufacturers or “business partners,” such as San Miguel Corporation for B-Meg Feeds and veterinary products; Syngenta, Bayer, Jardine, Dupont, Sinochem,, for agro-chemicals;; East West Seeds, Monsanto, Planters Products for agricultural seeds; and Swire, Viking for fertilizers. The Company is an emerging leader in the Philippine Agricultural Industry utilizing effective marketing strategies, strong business partnerships, as well as modern technology to accurately monitor sales and client records. The Company has increased its annual revenues from roughly PhP200 Million in 2003 to more than PhP1.8 Billion in 2010 equivalent to an 800% increase in revenues for the past 7 years of operation. In 2012, the Company recorded its highest profit in the history of its operations.

The Company has identified three (3) operating segments namely, distribution, retail and farming. CURRENT OPERATIONS Distribution: The Company currently distributes the following types of products:

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1. Animal feeds - The Company has an exclusive distribution agreement with San Miguel Foods Inc.'s BMEG. The areas covered are the whole of Nueva Ecija, almost all of Bulacan, a third of Pampanga, and a third of Pangasinan. The feeds distribution business accounted for about 44% of the Company's total sales for 2012.

2. Fertilizers - The Company distributes almost all brands of fertilizers in the market. The two top grossing are the Swire and Viking brands. The Company distributes fertlizers in Central Luzon mainly in Bulacan, Pampanga, and Nueva Ecija. The Company closely monitors its fertilizer business because of the relatively volatile prices of fertilizers. The fertilizer distribution business accounted for about 34% of total sales in 2012.

3. Agro-chemicals - The Company distributes almost all brands of agro-chemicals in the market. The biggest contributors to the Company are the products from Syngenta Philippines with whom the Company has an exclusive distributorship agreement similar to that with BMEG. The Syngenta agreement covers the entire Central Luzon composed of the provinces of Bulacan, Pampanga, Tarlac, Nueva Ecija, Zambales, and Bataan. The Company's distribution area of Agro chemicals is the widest among all of the product lines. Sales are mainly centered on Central Luzon but also reaches Isabela, Pangasinan, Baguio and Banaue in Northern Luzon as well as Mindoro, Quezon and Bicol in Southern Luzon. The Agro-chemical distribution business accounted for about 21% of total sales in 2012.

4. Seeds, others - This segment business accounted for about 4% of total sales in 2012. Farms: The Company is currently constructing several large scale farms with an estimated total project cost of approximately P500M. The funding is sourced from internally generated funds of the Company and such other bank credit facilities. The following are the projects under construction:

1. Magnolia Broiler Breeder Farm - Total project cost is P112.98M. The project will produce eggs intended to be chicks to be grown as broilers and then sold by Magnolia to fast foods and supermarkets under the Magnolia brand name. The project will produce a total of 9.36M eggs a year.

2. Monterey Hog Breeder Farm - Total project cost is P138.47M.The project will produce piglets to be grown in hog growing farms. The project will have a total of 1,100 Sows producing the piglets. An estimated 26,460 piglets will be produced per year.

3. Magnolia Broiler Growing Farm - Total project cost is P324.86M. The project will have a capacity to grow 450,000 broiler heads at 8 growing cycles a year or a total of 3.60M broiler heads per year.

4. Monterey Hog Growing Farm - Total project cost is P56.80M. The project will have the capacity to grow 3,000 hogs at 3 cycles per year or a total of 9,000 hogs per year.

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DEVELOPMENTAL ACTIVITIES

PROJECT NAME

LOCATION/S TOTAL PRODUCTION

TOTAL PROJECT COST

AMOUNT ALREADY SPENT

Monterey Hog Breeder

Bgy. Naganacan, Sta. Maria, Isabela

1100 Sows; 26,460 piglets

125,802,920.00

125,313,342.00

Monterey Hog Growing

Bgy. Ula, Tugbok District, Davao City

3,000 Hogs 49,879,461.00

11,522,114.00

Magnolia Broiler Breeder

Bgy. Fuyo, Ilagan, Isabela

9357660 Eggs; 48000 Breeders

55,165,738.00

55,165,738.00

Magnolia Broiler Growing

Bgy. Kinawe, Libona, Bukidnon

150,000 Birds 91,845,097.00

49,840,255.00

Bgy. Matina, Tugbok District, Davao

150,000 Birds 93,601,823.00

12,088,933.00

Bgy. Nangka, libona, Bukidnon

150,000 Birds 103,310,706.65

9,890,575.00

Retail The Company’s retail operation is carried out through Agri Phil Corporation, a wholly-owned subsidiary. Agri Phil Corporation is engaged in retail trade of feeds, agrochemicals, veterinary medicine, fertilizers and seeds. All its retail distribution products are sourced from the Company at wholesale. All sales are made within the Philippines. The retail distribution products are sold through Agri retail stores which are situated in different areas of Luzon. The products sold have been available in the market for several years. Agri Phil Corporation retail stores compete with typical poultry and agrochemical supply stores located within its distribution area.

Currently, the Company, has 116 retail outlets situated in 16 provinces in the Philippines (Region I, II, III and IV-A) as follows:

Regions Provinces No. of Stores

Ilocos Region

Ilocos Norte 7

Ilocos Sur 4 La Union 6 Pangasinan 20

Cagayan Valley

Cagayan 6 Isabela 7

Nueva Vizcaya 3

Central Luzon

Bataan 4 Bulacan 10 Nueva Ecija 13

Pampanga 6

7

Tarlac 6

CALABARZON

Cavite 3 Laguna 8 Batangas 7 Quezon 6

Total Number of Stores 116

Based on its Audited Financial Statement as of December 31, 2012, the Company’s Sales according to its operating segments are as follows:

Distribution Retail Farming

2012 2012 2012

Sales P1,467,475 P738,527 P- Cost of sales (1,276,558) (671,805) - Other operating income 29,218 - - Operating expenses (20,010) (59,122) - Finance income 10,404 98 - Finance costs - - - Provision for income tax (44,858) (2,280) -

Profit (loss) for the year 165,671 5,418 - Interest - - Taxes 44,858 2,280 - Depreciation and amortization 8,901 4,675 -

EBITDA P219,,430 P12,373 P-

Distribution For its Distribution segment, the breakdown of the Company’s sales as reported in the Audited Financial Statements are as follows:

December 31, 2012 % of the total sales Feeds P957,129,439 43.39 Fertilizers 728,468,890 33.02 Chemicals 448,392,575 20.33 Seeds 72,011,003 3.26 TOTAL P2,206,001,907 100.00

DISTRIBUTION PRODUCTS OF CALATA CORPORATION AS OF 31 DECEMBER 2012

FEEDS A. HOGS

FEED TYPE

DESCRIPTION

BRAND

PIGLET BOOSTER This is a supplement or milk replacer if the milk supply of the

B-meg Premium Baby Pig Booster

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sow is inadequate to feed the piglets, given to piglets from 5 to 20 days of age.

PRE- STARTER

This feed type is given to pigs from 21 to 50 days of age and weighing about 5 to 12 kilograms.

B-meg Premium Hog Pre-Starter Pellet

B-meg Dynamix Hog Pre-Starter Pellet

STARTER Given to pigs weighing about 12 to 25 kilograms and 51 to 80 days of age

B-meg Premium Hog Starter Pellet

B-meg Dynamix Hog Starter Pellet

B-meg Expert Hog Starter Crumble

B-meg Expert Hog Starter Mash

B-meg Jumbo Hog Starter Mash

GROWER

Next given to pigs when they are about 25 to 60 kilograms and 81 to 120 days of age

B-meg Bonanza Hog Grower Pellet

B-meg Dynamix Hog Grower Pellet1

B-meg Dynamix Hog Grower Pellet3

B-meg Expert Hog Grower Pellet / Mash

B-meg Jumbo Hog Grower Mash

B-meg Premium Hog Grower Pellet

FINISHER

Given when pigs reach 60 to 80 kilograms or about 121 to 145 days of age.

B-meg Bonanza Finisher Pellet

B-meg Expert Finisher Pellet

B-meg Premium Finisher Pellet

GESTATION/BREEDER

Feed type given to gilt/sow from 1 to 100 days of conception

B-meg Bonanza Hog Gestating Pellet

B-meg Bonanza Hog Breeder Pellet

B-meg Dynamix Hog Gestating Pellet1

B-meg Dynamix Hog Gestating Pellet2

B-meg Expert Brood Sow Pellet1

B-meg Expert Brood Sow Mash

B-meg Jumbo Hog Brood Sow Mash

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B-meg Jumbo Hog Gestating Mash

B-meg Premium Hog Gestating Pellet

LACTATION

Given to sow from 101 days of conception to farrowing and from the start of suckling period to weaning

B-meg Expert Brood Sow Pellet2

B-meg Jumbo Hog Lactating Mash

B-meg Premium Hog Lactating Pellet

B. BROILERS

FEED TYPE

DESCRIPTION

BRAND

CHICK BOOSTER 1-10 days old B-Meg BroilerCom Chick Booster

Pureblend Premium Chick Booster Crumble

Pureblend Essential Chick Booster Crumble

B-Meg Integra 1000

STARTER 11-22 days old B-Meg BroilerComStarterCrumble

B-Meg BroilerComStarterMash

Pureblend Premium Broiler Starter Crumble

Pureblend Essential Broiler Starter Crumble

B-Meg Integra 2000

FINISHER 23-30 days old B-Meg BroilerComFinisherCrumble

Pureblend Premium Broiler Finisher Crumble/Pellet

Pureblend Essential Broiler Finisher Crumble/Pellet

B-Meg Integra 3000

C. PULLETS AND LAYERS

FEED TYPE

DESCRIPTION

BRAND

STARTER 0-18 weeks old B-meg Chicken Layer Starter Mash

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LAYER 19 weeks old B-Meg Chicken Layer

Crumble B-meg Chicken Layer

Mash B-Meg Chicken Layer

Pellet Pureblend Chicken Layer

Crumble Pureblend Chicken Layer

Mash

D. FIGHTING COCKS

FEED TYPE

DESCRIPTION

BRAND

CHICK BOOSTER 0-15 days B-Meg Derby Ace Chick Booster Crumble

STARTER 16 days- 3 months B-Meg Derby Ace Junior Starter Crumble

DEVELOPER 3-5 months B-Meg Derby Ace Stag Developer Pellet

CONDITIONER Pre-fight B-Meg Derby Ace Power Conditioner Pellet

BREEDER LAYER Brood Hens B-Meg Derby Ace Breeder Layer Pellet

PRE CONDITIONER Maintenance B-Meg Derby Ace Pre-Con-50kg

E. OTHER FEEDS

Pureblend Premium Duck Layer Pellet Pureblend Regular Duck Layer Pellet Pureblend Quail Layer Mash B-Meg Pigeon Pellet

AGRO CHEMICALS MOLLUSCICIDES An agent used in controlling golden apple snail, popularly known as “golden kuhol”, which is one of the major pest problems in rice production. Newly transplanted rice seedlings are vulnerable to golden kuhol up to 15 days after transplanting. Product List:

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Aquadin Kuhol Kill Primalex Sure Bayluscide Maso RiceSaver 25SC Surekill Bayonet Metabait Sakuhol Trap Doblado Niclomax SnailKill Exos Niclos Stop Hit Porsnail SuperKill

HERBICIDES A chemical pesticide designed to control or destroy plants, weeds, or grasses. Herbicides tend to have wide-ranging effects on non-target species (other than those the pesticide is meant to control or kill). Product List: Advance EC Grassedge Rainbow Tornado Round-up Agroxone Grastop 70EC RiceBro Triple 2,4-D Amine Sencor Almix Red Hedonal RiceStar Xtra Vast 2,4-D Ester Sharpshooter Amine 2, 4-D Klick Rogue EC Axle SL160 Slash Advice Londax Ronstar Clear Out Stand-Out Clincher Hedonal Sofit Demolition 16SL Touchdown Devast Machete EC Sonic Gramoxone Weed Blaster (R) Direk 800 Nominee Super 2,4D Ester Lebron 160SL Weedban Ester 24-D Onecide Super Herbicide Massive Exceed Post Herb 10%SC Tiara SC50 Mower EC Gallant Pyanchor 5EC TopShot Power INSECTICIDES A chemical used specifically to kill or control the growth of insects. Farmers spray insecticides like Dichlorovas, Carbofuran, Cypermethrin, Chlorpyrifos and Lambda- Cyhalothrin to insects such as stem borers, sap feeders, defoliators and grain/root feeders. Product List: Actara Cymbush Mesurol SuperLambda 25 EC Agri-Mek 1.8EC Cypex liter + Mighty Crop Nurelle Superquick Alika Dantop Oshin 20SG Tango Applaud Decis 2.5 Padan Tamaron Arnis Dichlorvos Panlaban Top Rank 50SP Ascend Etrofolan Parapest Trebon Attack Extreme Pegasus Trigard Baythroid 050 Fenos Pennant Tsunami Bida Flash Perfecthion Vapona Bigathrin Fuerza Prevathon Vasthrin 5EC Bigboss Furadan ULTRA Pro Axis Vectron 10EW Blizzard 50SP Hercules Provado Supra Victor 20WP Boxer Hopcin Rampage Vindex Boltrin Hytox Rimon Voliam Flexi Breaker 31.5 EC Ingram 50 SP Selecron Wave 2.5EC Brodan Karate EC Sevin Wildkid

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Bug Buster Lakas 5 EC Siga WokTap Bulldock Lannate Slam! 2.5EC Xentari Bushwack Lanus Smash Zorro Carbomax 3G Larvin Solomon Cardinal Lebaycid Starkle Cartap ES Legend Steward Chess 50- WG Lorsban Sumicidin Chix Magnum Sumithion Confidor Malathion Super Cartap Cruiser 350 FS Marshall 200SC Super Insecticide Cyclone Matador Super Seven FUNGICIDES A fungicide is a chemical pesticide compound that kills or inhibits the growth of fungi1. () In agriculture, fungicide is used to control fungi that threaten to destroy or compromise crops. Product List: Aliette Curzate Goldazim Ridomil Gold Amistar Daconil Ivazeb Score Antracol WP70 Dithane Kocide Sundazim Anvil 5 SC Folicur WP25 Manager Venom Armure Fundazol 50WP. Marthseb 80 WP Vondozeb Armor Fungitox Micron Benomyl Fungufree 80WP Previcur N Benophyl Funguran Revus 250 SC Benostar 50 WP Gardenil Rovral FOLIARS AND GROWTH STIMULANTS Products used to create a synergistic effect to dramatically speed up vegetative growth and increase root mass for a healthier plant and root system. Product List: Agrowell GNSO Hoestick Siam Bloom Anaa-1000ml Golden Mango Set Humus WSG 56.9 Siam Grower Algafer - 1000 GreenBee All Purpose Kasunod Foliar Star Foliar Orange Atonik Stimulant Grobest Maxigrain Star Foliar Yellow Bayfolan Growmax Pink Mega Booster Steady 10 WP Berelex - Tablet Growmax Orange Mega F21 Stimulate Cal-Guard r Haifa Grow MegaBoom Stoller CaB Crop Giant Orange Harvest More - 20-20-20 Nevirol Wokozim Crop Giant Yellow Harvest More 20-5-30 Orgamin Xemas Cultar Harvest More 30-10-10 Peters - 20-20-20 Yield Master 15-15-30 DeltaSpray 20-20-20 Harvest More 5-5-45 Peters - 9-45-15 Zinc Metalate Ethrel 24 X 500ml Harvest More 04-00-48 Peters 15-10-30 X-Rice (X-Factor) FG Power Foliar Harvest More 15-15-30 Peters 30-10-10 Flower Power Harvest Richer Root Feed Fruit Power Hormex Stand

1Definition taken from http://www.wisegeek.com/what-are-fungi.htm

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RODENTICIDES These are chemical substance used to kill rats, mice, and other rodent pests. Product List: Klerat+Bitrex Racumin Ratkill Zinc Phosphide TERMITICIDE A chemical substance used as an effective form of termite control for residential, commercial, and industrial use. Product List: Biflex Hometrek Leadrex Lentrek Termex

FERTILIZERS

A fertilizer is a substance containing one or more recognized plant nutrients that is used for its plant nutrient content or that is designated for use, or claims to have value, in promoting plant growth. Fertilizers enhance the natural fertility of the soil or replace the chemical elements taken from the soil by previous crops. Recognized plant nutrients include: 1. Primary nutrients

Nitrogen Phosphorous Potassium

2. Secondary nutrients

Calcium Magnesium Sulfur

3. Micronutrients

Boron Manganese Chlorine Molybdenum Cobalt

Sodium Copper Zinc Iron

FERTILIZER GRADES

UREA (46-0-0) Markang Bulaklak 46-0-0 Swire 46-0-0 Universal Harvester 46-0-0 Viking 46-0-0 Sinochem 46-0-0

AMMONIUM SULFATE (21-0-0)

Markang Bulaklak 21-0-0 Sunrise 21-0-0 Swire 21-0-0 Universal Harvester 21-0-0

AMMONIUM PHOSPHATE (16-20-0)

Philphos 16-20-0 Swire 16-20-0 Universal Harvester 16-20-0

POTASH (0-0-60)

Atlas 0-0-60

OTHERS

Atlas 14-14-14 – Zircon Philphos 14-14-14 Swire 14-14-14 – Zircon UH 14-14-14 –Zircon Atlas 17-0-17 50 kgs. Viking 16-16-16 - Zircon Bulaklak 25-0-0

SEEDS Product List: Bitter Gourd Hot Pepper Pumpkin Sweet Pepper Cabbage Pechay Ridge Gourd Tomato Cauliflower Mustaza Patola Watermelon Radish Onion Bottle Gourd Sweet Corn Cucumber Papaya Sitao DK818RRC2/YG Eggplant Carrot Snap Beans DK9132RRC2/YG Glutinous Corn Okra Cow Pea

As of December 31, 2012, the Company does not have income derived from foreign sales nor has it developed a new product.

FEEDS DISTRIBUTION BUSINESS FLOWCHART B-MEG

AGRO CHEMICALS, FERTILIZERS, SEEDS DISTRIBUTION FLOWCHART

FEEDS SMFI, INC.

CALATA

Bulacan Pampanga Pangasinan Nueva Ecija North

Nueva Ecija South

DEALERS

Bulacan Pampanga Pangasinan

Nueva Ecija – North Nueva Ecija – South

AGRI PHIL CORP

INDUSTRY OVERVIEW

The Philippine economy is highly dependent on agriculture. Two thirds of its current population of 75.3 million and three fourths of the poor depend on agriculture for their livelihood. While only a fifth of all the goods and services the country produces and a third of its exports come from the sector, it employs about half of the total workforce. Agriculture and fisheries registered an overall growth rate of 4.01% in 2001,

CHEMICALS SYNGENTA Bayer CB Andrew Asia, Inc. Jardine Distribution, Inc. Leads Agricultural Products Corp Planters Products, Inc Sinochem Crop Protection (Phil), Inc.

FERTILIZERS

Yara International ASA, et al.

OTHERS

MONSANTO PHILIPPINES, INC.

East West Seeds, et al.

CALATA CORPORATION

BULACAN

DEALERS

AGRI PHIL CORPORATION

which was mainly contributed by: crops (2.58%), livestock (2.87%), poultry (7.80%), and fisheries (6.05%). Of the crops, the major contributors were rice (4.56%), coconut (1.69%), and banana (2.66%). In terms of area, about a third of the country's 30 million hectares is agricultural. Traditional and current uses of the agricultural land consist of:

Food crops - 52% (coconut, sugar cane, industrial crops, fruits,

vegetables, root crops) Food grains - 31% (rice and other grain crops) Non-food - 17 per cent (pasture and cut flowers)

Low productivity and low incomes from agriculture and fisheries are consistent with the prevalence of rural poverty. The situation is further aggravated by low farm gate prices of produce and high retail prices of food, which are among the highest in the region.

Location: Southeastern Asia, archipelago between the Philippine Sea and the South China Sea, east of Vietnam

Area: total: 300,000 square kilometers

land: 298,170 square kilometers

water: 1,830 square kilometers

Agricultural land area: 9.560 million hectares (2002 CAF)

arable land: 4.858 million hectares

permanent cropland: 4.193 million hectares

permanent meadows/pastures: 0.129 million hectares

forest land: 0.074 million hectares

other lands: 0.307 million hectares

About 32% of the country's total land area constitutes the agricultural land. Of this, 51% and 44% were arable and permanent croplands, respectively. (Bureau of Agricultural Statistics, 2010)

Agriculture grew by 2.92 percent in 2012. Production in the crops, livestock and poultry subsectors put up a combined growth rate of 3.60 percent. This was pulled down by the fisheries subsector which output dropped by 0.04 percent. Overall, agriculture output grew by 2.92 percent. At current prices, value of agricultural production amounted to P1.4 trillion, higher by 1.17 percent from the 2011 level.

Crop production which accounted for 51.46 percent of total agricultural output increased

by 4.14 percent during the year. The main sources of growth were palay and corn where outputs went up by 8.08 percent and 6.25 percent, respectively. At current prices, the subsector grossed P797.7 billion or 0.80 percent lower from the 2011 earnings.

Livestock production inched up by 1.10 percent. The subsector shared 16.07 percent in

the total agricultural production. Hog production grew by 1.71 percent. Carabao, cattle and goat

recorded lower production during the year. The subsector grossed P214.3 billion at current prices, up by 0.94 percent from last year’s level.

The poultry subsector posted a 4.53 percent increase in output. It accounted for 14.27 percent of the total agricultural production in 2012. Chicken was the main source of growth with its 4.61 percent output increment. Gross value of poultry production amounted to P167.1 billion at current prices. This was higher by 5.24 percent from last year’s record.

On the average, farmgate prices declined by 1.70 percent this year. The crops subsector had an average price reduction of 4.74 percent. Prices in the livestock subsector were down by an average of 0.16 percent. An average price increase of 0.68 percent in the poultry subsector was noted during the year. The fisheries subsector recorded an average price increment of 5.59 percent.

The Company’s Distribution covers Regions I, II, III and IV-A of the Philippines depending on the types of products:

1. Animal feeds - The areas covered are the whole of Nueva Ecija, almost all of Bulacan, a third of Pampanga, and a third of Pangasinan.

2. Fertilizers - The Company distributes fertlizers in Central Luzon mainly in Bulacan, Pampanga, and Nueva Ecija.

3. Agro-chemicals - The Company distributes almost all brands of agro-chemicals in the market. It covers the entire Central Luzon composed of the provinces of Bulacan, Pampanga, Tarlac, Nueva Ecija, Zambales, and Bataan. The Company's distribution area of Agro chemicals is the widest among all of the product lines. Sales are mainly centered on Central Luzon but also reaches Isabela, Pangasinan, Baguio and Banaue in Northern Luzon as well as Mindoro, Quezon and Bicol in Southern Luzon.

4. Seeds, others - Regions I, II, III and IV-A of the Philippines.

COMPETITION In the feeds distribution business, the Company is an exclusive distributor of B-Meg Feeds in the following areas: Nueva Ecija North and South

NUEVA ECIJA NE- South NE-North # of Dealers 1 Aliaga 8 8 2 Bongabon 2 2 3 Cabanatuan 14 14 4 Cabiao 5 5 5 Carranglan 5 5 6 Cuyapo 4 4 7 Gabaldon 5 5 8 Gapan 8 8 9 Gen. Tinio 9 9

10 Gen. Natividad 3 3

11 Guimba 9 9 12 Jaen 4 4 13 Laur 3 3 14 Licab 8 8 15 Llanera 3 3 16 Lupao 11 11 17 Muñoz 1 13 14 18 Palayan 2 2 19 Pantabangan 3 3 20 Peñaranda 2 2 21 Quezon 8 22 Rizal 11 23 San antonio 2 2 24 San Isidro 2 2 25 San Jose 3 10 13

26 San Leonardo 1 1

27 Sta. Rosa 6 6

28 Sto. Domingo 13 13

29 Talavera 16 16 30 Zaragosa 2 2

Bulacan

BULACAN # of Dealers 1 Angat 16 2 Balagtas 4 3 Bustos 10 4 Bulacan 7 5 Baliuag 36 6 Bocaue 3 7 Calumpit 13 8 Guiguinto 8 9 Hagonoy 10 10 Malolos 10 11 Marilao 4 12 Norzagaray 8 13 Pandi 10 14 Paombong 3 15 Plaridel 19 16 Pulilan 31

17 San Rafael 18

18 Sta. Maria 38

TOTAL 248

TOTAL 71 125 177

East Pangasinan

EAST PANG # of Dealers 1 Asingan 9 2 Alcala 5 3 Balungao 3 4 Bautista 1 5 Bayambang 6 6 Natividan 5 7 Rosales 2 8 San Nicolas 3 9 San Quintin 1

10 Santa Maria 6

11 Santo Tomas 1

12 Tayug 10 13 Umingan 9 14 Villasis 4 TOTAL 65

Pampanga

PAMPANGA # of Dealers

1 Angeles

6 2 Arayat 8 3 Candaba 4 Mabalacat 5 5 Macabebe 6 Magalang 17 7 Masantol 1 8 Mexico 16 9 Minalin 3

10

San Fernando City 7

11 Santa Ana 3

12 Santo Tomas

TOTAL 66 There are at least twenty seven (27) major feed brands competing with B-Meg in the aforementioned areas, namely: Goldmix, Highgrade, Pigrolac, Phimico, Altlas, Robina, Feed Pro, GMP, CJ, I Feeds, Denka, Premijum Valiant, Sunjin, Hover, Purina, Danway, New Hope, Excel, Ace, Global, Vitarich, Amigo, Mulitive, Viking, Monarch, Master Gain and Legend. Based on survey from gathered field data on the sale of feeds, the Company, through the sale of its B-meg Feeds, leads other brands being sold in its respective areas of operations.

http://www.pinas.ph/Region-03/Pampanga/Arayat.aspx

http://www.pinas.ph/Region-03/Pampanga/Candaba.aspx

http://www.pinas.ph/Region-03/Pampanga/Mabalacat.aspx

http://www.pinas.ph/Region-03/Pampanga/Macabebe.aspx

http://www.pinas.ph/Region-03/Pampanga/Magalang.aspx

http://www.pinas.ph/Region-03/Pampanga/Masantol.aspx

http://www.pinas.ph/Region-03/Pampanga/Mexico.aspx

http://www.pinas.ph/Region-03/Pampanga/Minalin.aspx

http://www.pinas.ph/Region-03/Pampanga/San-Fernando.aspx



http://www.pinas.ph/Region-03/Pampanga/Santa-Ana.aspx

http://www.pinas.ph/Region-03/Pampanga/Santo-Tomas.aspx

http://www.pinas.ph/Region-03/Pampanga/Santo-Tomas.aspx

Brand Bulacan Nueva Ecija

North Nueva Ecija

South Pampanga Pangasinan

B-MEG 37% 24%-25% 18%-20% 10%-15% 30%-35% Pigrolac 17% 24%-25% 18%-20% 10%-15% 30%-35% Philmico

46%

50%-51% 12% 10%-15%

30%-40% Others (in the aggregate)

50%-52% 55%-70%

TOTAL 100% 100% 100% 100% 100% The Company has aggressive distribution strategies that outstands the other distributors. Calata’s computerized system contains an extensive customer database that is used to identify the buying patterns and needs of each of its customers and to guarantee the implementation of “Next Day Delivery Policy” of the Company. The Company is also engaged in distributing other agricultural products which it has no exclusivity arrangements. In ensuring Calata’s visibility in the market, the Company posts ads in public utility vehicles and public places. The Company also sponsors local government festivities such as fiesta events and improvement of its existing dealers’ stores. The Company has taken initial steps to fortify its market share in the business of feeds, agrochemical, fertilizer and seed distribution through its acquisition of Agri Phil Corporation which currently has 116 retail stores. PLANS FOR 2013 TO 2014 Distribution

1. Animal feeds - The Company will prioritize the strengthening of its existing areas of distribution. For areas outside its distribution the Company will focus on the strategy of penetration by establishing a new chain of Calata Corporation Retail Stores.

2. Fertilizers - The Company plans to be aggressive in the fertilizer business. The Company will closely monitor the price movement of fertilizers in the market and if we deem that the conditions are favorable, we will invest heavily in the business.

3. Agro-chemicals - The Company plans to be more aggressive in the agro-chemical industry compared to last year. Last year the El Nino phenomenon affected the sales of the Company in this segment. The Company plans to take advantage of more supplier deals to take advantage of incentives and lower prices.

4. Seeds, others - The Company plans to increase this business thru increased sales and profit under its retail subsidiary, Agri Phil Corporation.

CALATA CORPORATION SUPPLIERS WITH EXISTING SUPPLY CONTRACTS

SUPPLY CONTRACTS TERM / LENGTH OF

CONTRACT

FEEDS

San Miguel Foods, Inc. (B-Meg Feeds) Annual Renewal

CHEMICALS Annual Renewal

Syngenta

Bayer CropScience

Sinochem Crop Protection (Phil) Inc.

Jardine Distribution, Inc. (Chemical)

Asia Gold Trading

Leads Agricultural Product Corporation

CropChem Corporation(Biostadt Philippines Inc.)

Cropking chemical Inc.

Bongabon Farmers Trading (Sole Proprietor)

Aldiz, Inc.

Planters Products, Incorporated

United Linkage Marketing (Sole Proprietor)

Leads Environmental Health

International Veterinary & Agrochemical Inc.

Vast Agro Solutions, Inc.

JAT Agrifarm Enterprises, Inc.

Integrated Crop Trading Corporation

Pest Master (St. Anne Agro Trading)

C.B. Andrew Asia, Inc. (Pro-Chem Agritech, Inc.)

Samson Agricultural Supply (Sole Proprietor)

Global

Stoller Philippines, Inc

Igpami Mktg., Corp.

Tillermate Enterprises

SRB Commercial (Sole Proprietor)

PHILOR

Marthdave Co., Ltd.

Zagro Corporation

FERTILIZERS

Yara International ASA Annual Renewal

Aurey Wy (Sole Proprietor)

AgroTech Agricultural Products

C & T Poultry and Agricultural Supply (Sole Proprietor)

MVT Fertilizer Traders Company, Inc.

VETERINARIES

San Miguel Foods, Inc. Annual Renewal

Adrem Distribution Specialist, Inc.

JFL Agri-Ventures (Sole Proprietor)

Meditech Veterinaries

SEEDS

Monsanto Philippines, Inc.

East West Seed Company, Inc. Annual Renewal

Jenny Perez (Sole Proprietorship)

Jardine Distribution, Inc. (Seeds)

Pioneer Hi Bred Philippines Incorporated

OTHERS

Progressive Poultry Supply Corp

Tambo (Cracked Corn & Corn Grits) Annual Renewal Randy Rosario (Sprayer & Sprayer Parts)(Sole Proprietor)

SUPPLY AND DISTRIBUTION AGREEMENTS In general, all supply and distribution agreements are renewed on a yearly basis. Renewal may be express when parties opt to execute a written agreement or implied when parties continue to do business dealings with each other such as taking of orders of supplies. Except for its exclusive distribution agreement with San Miguel Foods, Inc. (Feeds), Syngenta Philippines, Inc. (Agro Chemicals) and Monsanto Philippines, Inc. (Seeds), the Company does not usually have duly executed distribution agreements with the rest of its suppliers of agro chemicals, fertilizers and seeds. Furthermore, based on industry practice, actual exclusive distribution agreements are not issued on a yearly basis. In the case of non-exclusive distribution agreements no formal agreement is executed except for some. Instead, certifications are issued to attest that the Company is a distributor of the pertinent supplier products indicating therein exclusivity or non-exclusivity. However, for other non-exclusive suppliers, certifications are not even given since supply of the products continues for so long as the Company places an order. Nevertheless, to substitute the absence of supply and distribution agreements, the Company strictly enforces proper documentation of transactions with suppliers. The Company religiously fills up Purchase Orders which upon acknowledgment by the supplier, a Sales Invoice is issued. Hence, the Purchase Order and the Sales Invoice signifies the contract / agreement between the Company and the supplier.

DEPENDENCE UPON A SINGLE CUSTOMER The Company is not dependent upon a single or a few customers, the loss of any or more of which would have a material adverse effect on the Company. There is no customer that accounts for five percent (5%) or more or the registrant’s sales. As a distributor for a considerable number of towns in several provinces, the sales of the Company are widely distributed per dealer/customer in its area of operation. While it is true that the Company has a retail subsidiary, the Company takes steps to ensure that existing dealer-customers’ sales would not be affected by carefully locating its retail stores to an area which is beyond the reach of its existing dealer-customers. If despite the fact that the location of the Company’s retail store does not encroach upon the area of its existing dealer-customers, the Company feels that said dealer-customer concerned will, in one way or the other be affected, the Company shall provide said dealer-customer additional incentive schemes, rebates and other forms of assistance to ensure that its profit will not be affected.

INTELLECTUAL PROPERTIES

Application for Registration of Trade Mark On, December 29, 2011, the Company was issued a Certificate of Registration for the trade mark “Calata Corporation and Logo” by the Intellectual Property Office of the Philippines with a term of 10 years or until December 29, 2021 subject to renewal. The description of the mark is as follows: “The mark consists of two wave-like lines of different length. The upper wave-like line is the longest of the two lines and is colored blue, while the lower wave-like line is colored red. Below the said waved-like lines is the word “CALATA”, which are all capitalized. Underneath the aforesaid word is the word “CORPORATION”, which are all capitalized but of smaller font size.” The mark shall extend to the following: chemicals used in agriculture (pesticides, fertilizer), agricultural implements, machineries and equipment, agricultural grains, seeds, foodstuffs for animals and accessories, and for business management. GOVERNMENT APPROVALS AND PERMITS The table below lists the Company’s regulatory permits:

GOVERNMENT AGENCY DESCRIPTION EXPIRY DATE

Fertilizer and Pesticide Authority License No. 02-0511-014 to operate as Area Distributor of Agricultural Pesticides

May 16, 2013

Fertilizer and Pesticide Authority License No. 013 to operate as Area Distributor of Fertilizer

May 16, 2013

Bureau of Animal Industry Registration No. D-10-443-Feed Establishment Registration Certificate

July 26, 2013

Fertilizer and Pesticide Authority Warehouse of Fertilizer and agricultural pesticides

May 16, 2013

In addition to the above-mentioned permits, the Company has secured all statutory permits material to its operations. These permits include the Mayor’s Permit, Certificate of Registration with the Bureau of Internal Revenue, Registration with the Social Security System, Philippine Health Insurance Corporation and the Home Mutual Development Fund.

Effect on existing or probable governmental regulations on the business Existing or prospective legislation on government regulation to business enterprises benefit both the business and its customers. Certificates issued by the appropriate government agencies (Bureau of Animal Industry, Fertilizer and Pesticide Authority) signify an imprimatur from government that the business in whose favor the certificates were issued has complied with all necessary requirements to safeguard the buying public without compromising the interest of the business. Likewise, this

certification, among others, becomes a source of credibility to customers, hence, can be used as a yardstick for an acceptable prospect for business transactions. While the Company has exclusive distributorship agreement with its major suppliers, it remains confident that in the highly unlikely event that it is unable to retain its exclusive distribution agreements, its proven credibility and success in the distribution business will be able to create for it alternative business opportunities. RESEARCH AND DEVELOPMENT The Company is engaged in the business of distribution of agro-chemicals, feeds, fertilizers, veterinary medicines and other agricultural products. Product research and development is conducted primarily by its key suppliers and business partners. ENVIRONMENTAL COMPLIANCE CERTIFICATES

PROJECT NAME LOCATION STATUS DATE OF ISSUANCE Monterey Hog Growing Farm


Approved November 8, 2011

Magnolia Broiler Growing Farm

Bgy. Kinawe, Libona, Isabela

Approved December 16, 2011



Bgy. Nangka, Libona, Bukidnon


Monterey Hog Breeder Farm


Approved October 13, 2011

Magnolia Broiler Breeder Farm


Approved August 3, 2011

Cost and effects of compliance with environmental laws There is no material cost incurred in securing the Environmental Compliance Certificate (ECC) from the Department of Natural Resources (DENR). Compliance with the requirements of the DENR enables the Company to proceed with its projects subject to certain conditions and restrictions provided in said ECC.

EMPLOYEES As of December 31, 2012, the Company has one hundred six (134) employees broken down as follows: President and CEO (1), Chief Financial Officer and Chief Operations Officer (1), 31 managerial and 101 rank and file employees. Provided hereunder is a breakdown of the managerial and rank and file employees: General Manager (1), Treasury Head (1), Collection Head (1), Accounting Head (1), Human Resources Head (1), Purchasing Head (1), Inventory Control Head (1), Warehouse Head (1), Sales Manager – Feeds (1), Sales Manager – Chemicals (1), Logistics Head (1), Special Project Manager (4), MIS Head (1), Sales Coordinator (1), Operations Manager (2), Sales Supervisor (4), Executive Assistant – Makati (1), Executive Assistant – Bulacan (1), Legal (2), CPA (2), Internal Audit Head (1), Project Manager (1), Administrative Staff (3), Accounting Staff (7), Cashier (1), Checker (8), Collection Staff (4), Collector (6), Distributor’s Sales Representative - Bulacan (16), Distributor’s Sales Personnel – Farm Aide Technician (5), Document Controller (1), Driver (21), HR Staff (2), Inventory Audit (7), Inventory Clerk (2),

Maintenance and Mechanic (4), , Messenger – Bulacan (2), Messenger – Makati (2), MIS Assistant (2), Sales and Marketing (6), Security (1), Warehouse Assistant (1). Collective Bargaining Agreements The Company has no collective bargaining agreements with its employees and there are no organized labor organizations in the Company. The Company complies with the minimum compensation and benefits standards pursuant to Philippine law. The Company has not experienced any disruptive labor disputes, strikes or threats of strikes and the Company believes that its relationship with its employees in general is satisfactory.

RISKS RELATING TO THE COMPANY AND ITS BUSINESS The Company’s business may be affected by any program developed or supported by the Department of Agriculture of the Philippines. The Company’s revenue comes primarily from the sale of agricultural products. Any agricultural program that the Department of Agriculture develops for the farmers of the country may affect the Company’s. In the event that the government is unable to effectively implement its programs, this might result in a slowdown of the Company’s business as farmers might not have the required resources to purchase the Company’s products. There is no guarantee that the Philippine government will not change or prioritize programs for agriculture in the coming years. To mitigate this risk, the Company updates itself regularly with the Department of Agriculture’s policies or programs developed for the agricultural product industry. This allows the Company to react quickly to government programs relating to agricultural products. It also enables the Company to plan ahead to meet the Department of Agriculture’s ongoing or future policies or programs. The Company also conducts its own marketing activities to promote the use or consumption of its product. The Company intends to strengthen its marketing efforts nationwide. The Company’s business and operations may be affected by any changes in the preferences or purchasing power of consumers. The Company’s ability to increase or maintain sales is dependent on the public’s continued acceptance of its products. Changes in demographic, social or health proclivity may alter the demand for the Company’s products. Any adverse downturn in the economy of the Philippines may cause consumers to opt for cheaper or more affordable products. Cheaper alternatives are supplied by the government and the private sector, both of which are readily available in the market. To mitigate this risk, the Company, through its comprehensive line of products, provides options and alternatives to its customers, which may attract a loyal following from certain niche markets. Furthermore, the Company participates in the subsidies provided by the national government and passes the savings on to its customers and consumers. The Company may not efficiently execute its strategy to increase sales volume due to the traditional mindset of the Filipino farmer. The Company intends to grow its sales through expansion of related business activities, additional tie-ups, and aggressive marketing strategies. The success of these strategies cannot be guaranteed because farmers in the Philippines are used to traditional methods of agriculture. Thus they may not be susceptible to the innovations the Company’s products may bring. Failure to change the mindset of its target market may hinder the Company’s growth.

To mitigate this risk, the Company employs innovative marketing and sales activities in order to encourage the use and loyalty of customers. The Company provides information campaigns in the form of trainings and seminars. In addition, the Company provides initiatives such as promos, sampling, and boothing. To ensure its continuous growth and strength in sales, the Company intends to hire additional manpower for its sales and marketing team. Details on the Company’s marketing, sales, and distribution may be found in the “Information with Respect to the Company” beginning page Error! Bookmark not defined.. In terms of exclusivity of supplier contracts and their duration, the Company does not have exclusive distribution agreements with most of its suppliers. The distribution agreements are automatically renewed yearly upon the option of both parties and under terms and conditions agreed upon. Except for its exclusive distribution agreement with San Miguel Foods, Inc. (Feeds), Syngenta Philippines, Inc. (Agro Chemicals) and Monsanto Philippines, Inc. (Seeds), the Company does not have exclusive distribution agreements with the rest of its suppliers of agro chemicals, fertilizers and seeds. This means that other suppliers of the company may, without any legal impediment, enter into distribution agreements with other distributors, hence, decrease in one way or the other, supply of distribution products to the Company and consequently decrease in the sales derived from their products. In general, all supply and distribution agreements are renewed on a yearly basis. Renewal may be express when parties opt to execute a written agreement or implied when parties continue to do business dealings with each other such as taking of orders of supplies. The Company does not usually have duly executed distribution agreements with the rest of its suppliers of agro chemicals, fertilizers and seeds. Furthermore, based on industry practice, actual exclusive distribution agreements are not issued on a yearly basis. In the case of non-exclusive distribution agreements, no formal agreement is executed except for some. Instead, certifications are issued to attest that the Company is a distributor of the pertinent supplier products indicating therein exclusivity or non-exclusivity. However, for other non-exclusive suppliers, certifications are not even given since supply of the products continues for so long as the Company places an order. Nevertheless, to substitute the absence of supply and distribution agreements, the Company strictly enforces proper documentation of transactions with suppliers. The Company religiously fills up Purchase Orders which, upon acknowledgment by the supplier, a Sales Invoice is issued. Hence, the Purchase Order and the Sales Invoice signify the contract / agreement between the Company and the supplier. Considering this, the Company strictly complies with its obligation to these suppliers by implementing a strategic marketing strategy and exerting all efforts necessary in meeting targets and delivering mutually agreed upon results from sales to ensure continuity of exclusivity in the distribution of their products. This approach is likewise being implemented for suppliers with whom the Company does not have exclusive distribution agreements with. Compliance with all of the Company’s obligations with suppliers whether grantors of exclusive or non-exclusive distribution agreements shall greatly contribute in ensuring the annual renewal of the agreements with its suppliers. Apart from being a distributor of feeds, agrochemicals, fertilizers and seeds, with the Company venturing into retailing of its distribution products, competition will be expected from existing retailers. However, in order to likewise be competitive, the Company intends to take advantage of the quality of its products, especially those with which it has exclusive distribution agreements as well as its competitive pricing system. The Company likewise plans to provide rebates and incentive schemes for loyal customers of its planned retail stores and establish an effective after sales service system. Regulatory Risk

The Company’s business is subject to regulatory approvals, such as the issuance of permits for distribution and importation licenses. The products sold by the Company, such as, veterinary medicines, agrochemicals, fertilizer, pesticide and feeds must be registered with the proper government agency prior to sale or distribution. The cancellation of their registrations will adversely affect the Company’s business. The Company ensures that it secures all necessary regulatory approvals. Risk of Natural Calamities and Effects of Pestilence The Company’s revenues are highly dependent on the weather conditions in the Philippines. Severe drought or flooding in a certain agricultural region will significantly affect the productivity of the farmer. This will highly affect the demand for fertilizers, pesticides and other agricultural chemicals. Furthermore, the effects of pestilence on agricultural crops can have a significant effect on the demand for the distribution products used in growing them. Crop farmers may be unable to engage in their farming and growing activities since the agricultural land may not be fit for planting. To mitigate this risk related to natural calamities, the Company, in partnership with its key suppliers, would distribute new products manufactured through the use of modern technology to withstand if not totally resist the devastating effects forces of nature bring. The Company likewise distributes other agricultural products which are unaffected by natural calamities such as animal feeds for poultry, hogs and ducks. Lastly, to mitigate the effects of pestilence, apart from the distribution of superior quality agricultural products which can help in strengthening the immunity of plants to any damage caused, the Company designates its farm aid technicians to provide an information campaign to educate farmers on how to combat pestilence through proper farming practices as well as the introduction and proper utilization of modern farming technology. Risk of Outbreak of Animal Diseases The Company’s revenues may be affected by the outbreak of swine and poultry diseases because the demand for animal feeds will decrease. To mitigate this risk the Company in partnership with its key suppliers currently deploys farm assistant technicians in the field to prevent and/or treat the disease. In addition, the Company distributes veterinary medicines that help prevent or treat the disease. Exposure to Liquidity Risk This represents the risk or difficulty in raising funds to meet the Company’s commitment associated with financial obligation and daily cash flow requirement. The Company is exposed to the possibility that adverse exchanges in the business environment and/or its operations would result to substantially higher working capital requirements and the subsequent difficulty in financing additional working capital. The Company addresses liquidity concerns primarily through cash flows from operations and short-term borrowings, if necessary. The Company likewise regularly evaluates other financing instruments to broaden the Company’s range of financing sources. Credit Risk It is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss. In order to minimize exposure to this risk, the receivable balances are monitored on an ongoing basis with the result that the Company’s exposure to impairment is not significant. The Company deals only with creditworthy counterparty duly approved by the Board of Directors.

The Company depends on its competent sales team, the loss of which could adversely affect its business and growth. The Company’s future growth is largely anchored on the continuous expansion of its product distribution. For this, its sales team plays a vital role in the attainment of the Company’s objectives. The Company currently has provided an attractive compensation and incentive scheme to prevent senior members of the sales team from joining competitor firms in the future. The Company’s reputation, business, and financial condition will be affected if the products do not meet customer’s requirements pursuant to the Company’s contracts / business arrangement with customers. The business of the Company is reliant on the quality of the products of its suppliers. Product defects will not only cause product returns but also affect the Company’s reputation as a distributor of quality products. Business dealings with customers of the Company are not accompanied by individualized and comprehensive contracts. The Company’s business practice involves issuances of invoices for orders of customers. Initially, it will appear that the absence of such individual contracts may cause problems with the Company as customers’ complaints will have no parameters and hence without limit. However, because of the confidence and commitment of the Company to satisfy customers, it has shown its willingness to address customers’ concerns. Specifically, in order to mitigate this risk, the Company carefully selects business partners who are established institutions in their field both locally and internationally. In addition, the issued invoices set out specific guidelines of reimbursement and/or product replacement whereby the Company fully reimburses the customer by replacing the defective products. Risk of loss due to returns are not borne by the Company as the costs of replacing these products are borne by the Company’s suppliers. Work Stoppage The Company is in the distribution business and the partial or total stoppage of work will significantly affect its operations. Coordination among employees is vital as each personnel in charge of a respective aspect of the distribution business is given the responsibility to ensure that the function required to be performed is in sync with the overall flow of business operations of the Company. Employee morale is likewise a key to having a dynamic and dependable workforce. The Company recognizes the importance of the workforce and ensures that all their entitlements under the law are given. In addition to that, the Company regularly holds team building activities to re-establish harmonious relationship between management and employees. Furthermore, in order not to hamper operations in the event that an employee is unable to report for work, the Company has adequately trained its employees to temporarily replace vacated responsibilities. Risk of not effectively implementing the business/expansion plan The establishment of at least one hundred (100) retail outlets under a created subsidiary is not a simple undertaking. Careful selection of strategic locations and negotiation of lease terms are important consideration, among others. Selection of trust worthy and efficient employees to operate the retail stores is also an important factor. Should the company fail in these aspects, the expansion plan may prove to be futile as the retail outlets would not be profitable. To mitigate this risk, the Company has appointed highly trained and competent personnel within its workforce to spearhead the establishment of the retail outlets. Furthermore, as supplier to the retail outlets, the Company shall provide any necessary assistance to ensure profitability such as but not

limited to lower mark ups, assistance in training of outlet personnel and assistance in the marketing of the outlet as well as its products. RISKS RELATING TO THE COMPANY’S COMMON SHARES There may be no liquidity in the market for the Offer Shares and the price of the Offer Shares may fall. The Shares listed on the PSE where trading volumes have historically been significantly smaller than on major securities markets in more developed countries and have also been highly volatile. There can be no assurance that an active market for the Offer Shares will develop following the Offer or, if developed, that such market will be sustained. The Offer Price will be determined after taking into consideration a number of factors including, but not limited to, the Company’s prospects, the market prices for shares of comparable companies and prevailing market conditions. The price at which the Shares will trade on the PSE at any point in time after the Offer may vary significantly from the Offer Price. GENERAL RISKS A slowdown in the Philippine economy could adversely affect the Company. Results of operations of the Company have generally been influenced, and will continue to be influenced by the performance of the Philippine economy. Consequently, the Company’s income and results of operations depend, to a significant extent, on the performance of the Philippine economy. The Philippine economy was adversely affected by the 1997 Asian financial crisis which caused a significant depreciation of the Philippine peso, rise in interest rates and downgrading of the Philippine local currency rating and the ratings outlook for the Philippine banking sector. While the Philippine economy has recovered from this crisis and has registered respectable positive economic growth starting 1999, it continues to be at risk from its significant budget deficit, volatile peso exchange rate and relatively weak banking sector. Any deterioration in economic conditions in the Philippines as a result of these or other risk factors, may materially adversely affect the Company’s financial condition and results of operations. There can also be no assurance that the current or future Governments will adopt economic policies conducive to sustaining economic growth. This risk is beyond the control of the Company. Political or social instability could adversely affect the financial results of the Company. The Philippines has from time to time experienced political, social and military instability and no assurance can be given that the future political environment in the Philippines will be stable. Political instability in the Philippines occurred in the late 1980’s when Presidents Ferdinand Marcos and Corazon Aquino held office. In 2000, former President Joseph Estrada resigned from office after allegations of corruption led to impeachment proceedings, mass public protests and withdrawal of support of the military. In February 2006, President Gloria Arroyo issued Proclamation 1017 which declared a state of national emergency in response to reports of an alleged attempted coup d’etat. The state of national emergency was lifted in March 2006. The country has also been subject to sporadic terrorist attacks in the past several years. The Philippine army has been in conflict with the Abu Sayyaf organization, a group alleged to have ties with the Al-Qaeda terrorist network, and identified as being responsible for kidnapping and terrorist activities.

On June 30, 2010, Benigno Aquino III was sworn in as the 15th and current president of the Republic of the Philippines. There is no assurance that the policies under the new administration will either improve or worsen the political and economic situation. Political instability in the Philippines could negatively affect the general economic conditions and operating environment in the Philippines, which could have a material impact on the Company’s business, financial condition and results of operation. This risk is beyond the control of the Company. Item 2. Properties REAL PROPERTIES The Company is currently leasing the following real properties as storage warehouses for its distribution products:

Details of the Lease Agreements Except for the Main Office which is used for administrative purposes, the Lease Agreements principally provide for the use of the specified premises as storage of the Company’s distribution products. Unless, otherwise agreed upon by the parties, all lease agreements are renewed annually upon the mutual consent of both parties and upon similar terms and conditions except for minimal increases in the lease payments on leased premises located in N.E. North Warehouse, Pampanga Warehouse and Pangasinan. The Company is leasing the Main Office, Bulacan Warehouse and N.E. South Warehouse free of rent. The Main Office and Bulacan Warehouse is owned by Avestha Holding Corporation, an affiliate, the stockholders of which are also stockholders in the Company while the N.E. South warehouse is owned by a businesswoman who has very close ties with the Calata family. Meanwhile, operating leases were entered into by the Company with the warehouse owners of N.E. North Warehouse, Pampanga Warehouse and Pangasinan Warehouse whereby the Company is paying an agreed monthly rental for the use of said warehouses.

On August 1, 2012, the Group entered into a lease agreement with KSA Realty Corporation for the lease of its office premises in Makati. The terms of the lease is for three (3) years and is subject to annual escalation rate of ten (10) percent. The lease agreement has a renewal potion. The details of the security deposit and advanced rental on this lease agreement are as follows:

Terms and conditions 2012 2011

Refundable security

deposit

Equivalent to three (3) months’ lease payment and refundable at P1,652,566 P-

DESCRIPTION ADDRESS AREA

Main Office Banga 1st, Plaridel, Bulacan 924 sqm

Warehouse (Bulacan) Banga 1st, Plaridel, Bulacan 5471 sqm

N.E. South Warehouse San Antonio, San Leonardo, Nueva Ecija

500 sqm.

N.E. North Warehouse Sto. Domingo, Nueva Ecija 300 sqm.

Pangasinan Warehouse Carriedo, Tayug, Pangasinan 1,300 sqm.

Pampanga Warehouse Lagundi, Mexico,Pampanga 406 sqm.

the end of the lease term

Advanced rental Equivalent to three (3) months’ lease payment and to be applied on the last three months of the lease term 1,652,566 -

P3,305,132 P-

The refundable security deposit and the advanced rental are recognized in the consolidated statements of financial position under other non-current assets. There were no restrictions imposed by these lease arrangements such as those concerning dividends, additional debt and further leasing. The rent expense charged to operations for the years ended December 31, 2012 and 2011 amounted to P9,888,600 and P1,206,440, respectively. Future minimum annual rentals are as follows:

2012 2011

Not later than one year P11,241,198

P1,206,440 More than one year but not later than five years 16,531,239 - P27,772,437 P1,206,440

The rent expense charged to operations for the years ended December 31, 2012, 2011 and 2010 amounted to P9,888,600, P1,206,440 and P1,229,050 respectively. The Company has likewise acquired real properties free from liens and other encumbrance, for its hog and broiler growing and breeding projects as follows:

PROJECT NAME LOCATION AREA (sq m)

TCT NO.

Monterey Hog Growing Farm


30,114 TCT No. 146-2011014078

Magnolia Broiler Growing Farm

Bgy. Kinawe, Libona, Bukidnon

18,780 TCT No. 81936 6,281 TCT No. 81789


25,000 T-146-2011013915 20,000 T-146-2011013914 5,000 T-146-2011014631

Bgy. Nangka, Libona, Bukidnon

30,977 T-81699

Monterey Hog Breeder Farm


67,989 TCT No. 382740

Magnolia Broiler Breeder Farm


28,865 TCT No. 383241 28,345 TCT No. 383243

TRANSPORTATION EQUIPMENT

As reported in its Audited Financial Statements as of 31 December 2012, the Company owns transportation equipment worth Thirty Eight Million Four Hundred Sixty Eight Two Hundred Eighty Nine Pesos (Php 38,468,289). This is composed of cars, motorcycles and delivery trucks. These transportation vehicles are used by the Company for the official use of its farm aid technicians, sales personnel, delivery personnel and other employees for the purpose of carrying out the business of the Company. Item 3. Legal Proceedings As of the date of this Prospectus, to the best of the Company’s knowledge, there is no material pending legal proceedings to which the Company, its directors, shareholders, related parties or any of its affiliates is a party or of which any of their property is subject. Item 4. Submission of Matters to a Vote of Security Holders There were no matters during the fourth quarter of the fiscal year covered by this report that were submitted to a vote of security holders.

PART II - OPERATIONAL AND FINANCIAL INFORMATION Item 5. Market for Issuer's Common Equity and Related Stockholder Matters Market Information The Company’s common equity is traded on the Philippine Stock Exchange. The following is the summary of the trading prices at the PSE for each of the quarterly period beginning May 2012, which is the listing date of the Company in said exchange.

2012 Q2 Q3 Q4 High 24.00 10.50 7.78 Low 6.66 5.20 3.65

Holders As of December 31, 2012, the Company had five (5) stockholders as per its stock and transfer agent, BDO-UNIBANK, INC. – Transfer Agent. This is because all the shares have been electronically lodged with the PDTC, none of which have been uplifted. The list of shareholders reported by the Stock and Transfer Agent were as follows:

Shareholder No. of Shares Percentage 1 PCD Nominee Corp. (Filipino) 37,080,800 99.158 2 PCD Nominee Corp. (Foreign) 3,030,000 0.841 3 Cesar E. Cruz 1,000 0.000 4 Guillermo F. Gili, Jr. 100 0.000 5 Jose J. Leonardo &/or Teresita A.

Leonardo 100 0.000

360,112,000 100.00 Background of Major Shareholders (1) PHILIPPINE CENTRAL DEPOSITORY, INC. (PCD). Regulated by the Securities and Exchange

Commission (SEC), PCD is owned by major capital market players in the Philippines, namely: Philippine Stock Exchange (31.75%), Bankers Association of the Philippines (31.75%), Financial Executives Institute of the Philippines (10%), Development Bank of the Philippines (10%), Investment House Association of the Philippines (6.5%), Social Security System (5%) and Citibank N.A. (5%).

The PCD Nominee Corporation is a wholly-owned subsidiary of the Philippine Depository and Trust Corporation, Inc. (PDTC) and is the registered owner of the shares in the books of the Registrant’s stock transfer agent. The beneficial owner of such shares entitled to vote the same are PDTC’s participants, who hold the shares either in their own behalf or on behalf of their clients. The following PDTC participants hold more than 5% of the Registrant’s voting securities: a) PCIB Securities, Inc. – 60.50%; b) JAKA Securities Corp. – 11.17% and c) COL Financial Group, Inc. – 8.06%

All PSE- member brokers are Participants of PCD. Other Participants include custodian banks, institutional investors and other corporations or institutions that are active players in the Philippine equities market.

Dividends In a meeting held on November 18, 2011, the BOD unanimously approved the declaration of cash dividends in the amount of Twenty Five Million Pesos (P 25,00,000) to stockholders of record as of November 8, 2011, subject to the condition on the availability of unrestricted retained earnings to cover said dividend declaration. These dividends were paid in 2012 through offsetting of its advances to its shareholders. The dividend per share is Php 0.07. Furthermore, in a meeting held on April 16, 2012 the BOD unanimously approved the declaration of cash dividends equivalent to 25% of the issued and outstanding shares of record as of May 17, 2012, subject to the condition on the availability of unrestricted retained earnings to cover said dividend declaration. Recent Sales of Unregistered or Exempt Securities, Including Recent Issuance of Securities Constituting an Exempt Transaction No recent sales of unregistered or exempt securities, including recent issuance of securities constituting an exempt transaction Stock Option During the Annual Stockholder’s Meeting held on August 31, 2012, the issuance of a Stock Option Plan covering Fifty Million (50,000,000) Common Shares was approved, under such terms and conditions as may be subsequently determined by the Board of Directors. As of the date of this report, said terms and conditions are still being finalized. Securities Subject to Redemption or Call No securities subject to redemption or call exist or are planned.

Warrants No warrant exist are outstanding. Market Information for Securities Other Than Common Equity None Item 6. Management's Discussion and Analysis.

MANAGEMENT’S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION The following management's discussion and analysis of the Company's financial condition and results of operations should be read in conjunction with the Company's audited and unaudited financial statements, including the related notes, contained in this Prospectus. This Prospectus contains forward-looking statements that involve risks and uncertainties. The Company cautions investors that its business and financial performance is subject to substantive risks and uncertainties. The Company's actual results may differ materially from those discussed in the forward-looking statements as a result of various factors, including, without limitation, those set out in "Risk Factors." In evaluating the Company's business, investors should carefully consider all of the information contained in "Risk Factors." Overview The Company saw record-breaking revenues and net income in the year 2012. Both revenues and net income in 2012 were the highest in the Company’s history. Revenues in 2012 amounted to P2.20 Billion compared to P2.00 Billion in 2011. This is an increase of P204.00 Million or 10%. The Company has been recording significant revenue growths and has not been negatively affected by the economic crisis that hit the global economy hard in 2008. In fact the Company recorded the biggest jump in its revenues in 2008 when the global economic crisis was at its strongest. The Company recorded PhP1.61 Billion in revenues in 2008 against PhP1.08 Billion in 2007 or an increase of PhP530 Million or an increase of 33%. RESULTS OF OPERATIONS Audited results for the fiscal year ended December 31, 2012 compared to Audited results for the fiscal year ended December 31, 2012 Sales for the year ended December 2012 amounted to P2.20 Billion which is the highest that the Company has achieved in its history. This represents an increase of P204.00 Million or 10% compared to the 2011 sales. The increase in sales is mainly brought about by the sales contribution of the Company’s wholly owned chain of stores under Agri Phil Corporation. The retail store chain allowed the Company to sell its products on a significantly larger area than it has previously access to. Gross Profit increased by increased by P42.38 Million or 20% compared to 2011. Besides the increase in sales, the gross profit increased because of the increase in margins enjoyed by the Company in its sales direct to end users thru its retail stores. Operating expenses increased significantly. The increase amounted to P48.03 Million or 82%. The increase is mainly due to increased expenses incurred from retail operations, which began its first full year of operations in 2012. The Company aggressively competed for market share for its retail shares thru extensive marketing activities in its area of operations. The operations of the retail stores incurred

large amounts of expenditures most notably salaries due to the large number of the Company’s stores that require a large number of people needed to operate. Other operating income increased by P19.59 Million or 203%. This is mainly due to the P8.21 Million recorded as gain from the purchase of Agri Phil Corporation. The Company also recorded a gain from a liability that was forgiven by an affiliate which amounted to P5.28 Million. Finance income increased by P6.67 Million or 174%. This is mainly due to the P7.97 Million interest from loans receivables recorded in 2011. Finance costs increased by P5.96 Million or 22%. This is mainly due to the increase in loans payable balances mainly to fund the increased operations as well as for the construction of the Company’s farms which resulted in a big increase in the Company’s property and equipment. Audited results for the fiscal year ended December 31, 2011 compared to Audited results for the fiscal year ended December 31, 2010 The year 2011 saw the highest recorded revenues and net income in the Company’s history. The Revenues amounted to P2.00 Billion in 2011 from P1.80 Billion in 2010 or an increase of P203.65 Million or 11%. The net income amounted to P100.17 Million in 2011 from P33.84 Million in 2010 or an increase of P66.34 Million or 196%. The increase in sales is mainly attributed to increased market penetration primarily through the affiliate “AGRI” retail store chain which allowed to Company to sell in markets not previously accessible. The fertilizer business also had a bigger contribution this year compared to the previous years as the Company saw favorable price movements in fertilizer products. The increase in net income is aside from the increased revenues, mainly due to the increase in the Company’s margins. The Company’s gross profit amounted to P227.31 Million and P142.65 Million in 2011 and 2010 respectively, or an increase of P84.66 Million or 59%. The Company’s operating expenses decreased, for 2011 it amounted to P63.30 Million from P67.33 Million in 2010. The decrease amounted to P4.53 Million or 7%. The decrease is mainly due to the Company’s austerity measures which has resulted in decreasing expenses for the past several years. The Company recorded finance income amounting to P3.83 Million in 2011. This is the interest from the loans receivable of the Company. The Company’s finance cost had no significant movement. FINANCIAL POSITION Audited financial position as of December 31, 2012 compared to December 31, 2011 including discussion on Material Changes to the Company’s Audited Balance Sheet as of Fiscal year ended December 31, 2012 compared to Audited Balance Sheet as of Fiscal year ended December 31, 2011 (increase/decrease of 5% or more) Total assets increased by P443.72 Million or 42%. This is mainly due to the increase of P272.68 Million in the Property and equipment of the Company which increased bue to the Construction of the Company’s farming projects. The cash balance also increased by P190.71 Million mainly due to the Company’s Initial Public Offering last year.

Trade receivables decreased by P10.38 Million or 4%. This is mainly due to the lower amount of credit sales for the year by the Company which is a result of the significant sales recorded by the Company’s retail operations. Current loans receivables decreased by P5.35 Million or 36%. This is mainly due to the payment received by the Company. Advances to related parties P24.93 Million or 37%. This is mainly due to payment received from related parties. Inventories increased by P40.65 Million or 23%. The inventories increased due to the amount of inventories stocked on the Company’s retails stores. Other current assets decreased by P2.41 Million or 43%. This is mainly due to the collection of other current receivables from different sources. Loans receivable is unchanged at P120.00 Million. This loan earns a 6% interest rate per annum. This is fully secured by the borrower’s various real estate properties independently valued by Cuervo Appraisers, Inc. at P166,549,000. Investment properties decreased by P21.29 Million or 16%. The decrease is mainly due to the change in classification of some of the properties into the property and equipment account. Property and equipment increased by P272.68 Million or 375%. The increase is mainly due to the construction of the Company’s farms. The Company’s farms total project cost is projected to be over P500 Million. Other current assets amounted to P3.31 Million. There was no amount recorded in this account last year. This account consists of the security and rental deposits to the Company’s numerous leased retail stores. Trade and other payables increased by P52.23 Million or 39%. The increase is mainly due to the increased inventory requirements of the Company in order to support the inventory requirement of the Company’s retail stores. Current Loans payables increased by P109.64 Mllion or 28%. The increase is used mainly to fund the increased operations. Advances from related parties decreased by P50.39 Million or 96%. The increase is mainly due to the payments made to the Company’s related parties. Dividends payable decreased by P25.00 Million. There is no balance in this account as of the end of 2012. The dividends recorded last year has already been paid in full. Non-current loans payables increased by P6.02 Million. This account is for the loans for vehicles acquired by the Company. Retirement benefit liability increased by P1.12 Million or 61%. This is due to the increased provision for the year mainly due to the increased number of employees to be covered by provision for retirement benefits. Share capital increased by P36.01 Million or 11%. This is due to the capital raised from the Company’s Initial Public Offering last year. Share premium increased by P209.16 Million. This is due to the capital raised from the Company’s Initial Public Offering last year.

Audited financial position as of December 31, 2011 compared to December 31, 2010 including discussion on Material Changes to the Company’s Audited Balance Sheet as of Fiscal year ended December 31, 2011 compared to Audited Balance Sheet as of Fiscal year ended December 31, 2010 (increase/decrease of 5% or more) Total assets increased by P391.74 Million or 59%. Recorded amounts were P1.05 Billion and P661.31 Million as of year end 2011 and 2010 respectively. The increase in assets is primarily due to the Company’s income from operations and the infusion of P323.10 Million additional capital by stockholders during the year. The infused capital shall be used for general corporate purposes and expansion of the business such as but not limited to contract growing and breeding of hogs and poultry. These aforementioned projects, however, is not the target for the use of proceeds of the Company’s application for listing and initial public offering of its shares to the public. Total liabilities had no significant movement, it only decreased by P6.54 Million or 1%. There was no significant movement because the reduction in the amounts of trade payables and short term loans were offset by the increase in amounts owed to stockholders and the increased provision for income tax. Cash increased by P185.68 Million or 972%. It amounted to P204.79 Million in 2011 up from P19.11 Million in 2010. This is primarily due to the additional cash invested by the stockholders. Trade receivables decreased by P88.36 Million or 26%. It amounted to P252.53 Million in 2011 down from P340.86 Million in 2010. The decrease is mainly due to the normalization of our terms, the 2010 balance is high because we extended terms to our dealers to encourage them to book their orders. We did this in 2010 because of the effects of the El Nino phenomenon on our sales. In year end 2011, we no longer offered the extended terms. The advances to related parties increased by P31.62 Million or 91%. It amounted to P66.50 Million in 2011 up from P34.87 Million in 2010. This is due to the expansion of operations of affiliates which necessitated the increase in funds needed for investment and operations. Inventories decreased by P44.41 Million or 20%. It amounted to P179.84 Million in 2011 down from P224.44 Million in 2010. This is mainly due to the favorable weather and market conditions for our products in 2011. Our products were fast moving especially in the year-end which is our peak season. This contrasts to the situation in 2010 when the El Nino phenomenon affected the sales of our products which resulted in higher than anticipated levels of inventory in year-end 2010. Loans receivable amounted to P120.00 Million in 2011, there was no amount recorded in 2010. This account represents the amount loaned to Avestha Holding Corporation, which is an affiliate of the Company. The loan is intended as an advance for the planned purchase of the Company of Avestha’s properties. The loan is provided with a market rate of interest set at 6%, so as to compensate the Company for the loan until the purchase of the properties is finalized. Investment properties amounted to P134.15 Million in 2011, there was no amount recorded in 2010. These are the properties purchased by the Company, which are being used as collateral by the Company for loans. Property and equipment increased by P47.55 Million or 189%. It amounted to P72.77 Million in 2011 up from P25.22 Million in 2010. The increase represents amounts spent for the Company’s construction of Hog and Broiler farms. Trade payables decreased by P34.66 Million or 20%. It amounted to P134.70 Million in 2011 down from P169.36 Million in 2010. The decrease is mainly due to the fact that the Company takes advantage of cash discounts as much as possible. Loans payable decreased by P77.00 Million or 16%. The decrease is mainly due to the increased cash infusion from stockholders and also from cash internally generated from operations which has allowed

the Company to lower its debt levels, while at the same time having enough funds for current operations and also pursue its expansion programs in Hog and Broiler farms. To clarify, the intended target expansion program for part of the additional cash infusion is the Hog and Broiler Farms. On the other hand, the expansion program relating to the establishment of a chain of Calata Retail Stores will be funded by the net proceeds of the Initial Public Offering. Advances from related parties amounted to P52.46 Million in 2011, there was no amount recorded in 2010. This represents the amount loaned from stockholders which is intended to offset the amounts advanced by the Company to its affiliates with the intention that the Company’s funds are intact for its own operations and expansion programs. Dividends payable amounted to P25.00 Million, there was no amount recorded in 2010. This is the accrual of the dividend declared by the Company’s board of directors from the Company’s unrestricted retained earnings. Capital stock increased by P323.10 Million or 32,310%. The increase is due to the additional investment in the Company from the stockholders. As previously explained said capital infusion was useful in decreasing the loans payable by 16% and partially funding the Hog and Broiler Farm construction. Debt to equity decreased from 271.25 in 2010 to 0.98 in 2011 or a decrease of 270.27 or 27,579%. The increase is mainly due to the increase in stockholders’ equity from P1.73 Million in 2010 to P400.00 Million in 2011. The increase in stockholders’ equity came from the additional investment infused by stockholders amounting to P323.10 Million which increased the paid up capital stock to P324.10 Million from only P1.00 Million the year before. The stockholders’ equity also increased due to the increase in retained earnings brought about by the net income earned by the Company during the year which amounted to P100.17 Million after taxes. The increase in retained earnings from the net income was partially offset by the declaration of dividend in 2011 amounting to P2.00 Million. Discussion and Representation on both Interim and Year End Audited Financial Statements There are no known trends or demands, commitments, events or uncertainties that will result in or that are reasonably likely to result in increasing or decreasing the Company’s liquidity in any material way. The Company does not anticipate having any cash flow or liquidity problems within the next twelve (12) months. The Company is not in default or breach of any note, loan, lease or other indebtedness or financing arrangement requiring it to make payments. No significant amount of the Company’s trade payables have not been paid within the stated trade terms. The Company does not foresee any event that will trigger direct or contingent financial obligation that is material to it, including any default or acceleration of an obligation. There are no material commitments for capital expenditures, events or uncertainties that have had or that are reasonably expected to have a material impact on the continuing operations of the Company. There are no known trends, events or uncertainties that have had or that are reasonably expected to have a material favorable or unfavorable impact on net sales or revenues or income from continuing operations. No significant elements of income or loss had arisen from the Company’scontinuing operations. There are no other material changes in the Company’ financial position (5%) or more and condition that will warrant a more detailed discussion. Further, there are no material events and uncertainties known to management that would impact or change reported financial information and condition of the Company.

There were no seasonal aspects that had a material effect on the financial condition or results of operations of the Company. LIQUIDITY AND CAPITAL RESOURCES In the years 2009, 2010, 2011, and 2012, the Company’s primary source of liquidity was proceeds from sales and bank financing activities and also the proceeds of the Company’s IPO. Net cash from operating and financing activities were sufficient to cover the Company’s working capital and capital expenditure requirements in the years 2009, 2010, 2011 and 2012. The Company has credit lines with several of the top banks of the Philippines which gives it financial flexibility in its operations. The Company’s cash position as of December 31, 2012 amounted to P395.50 Million, this is an increase of 93% from the December 31, 2011 recorded amount. The Company’s cash position has been steadily increasing since 2009. From only PhP20.21 Million in December 31, 2009 to PhP395.50 Million in Dec. 31, 2012, an increase of PhP184.58 Million or 1,857%. The increase is primarily due to earnings from the Company’s operations and the additional capital infusion from stockholders in 2011 and the Company’s Initial Public Offering in 2012. The following table sets forth information from the Company’s pro forma statements of cash flows for the periods indicated: Cash Flows Dec. 31, 2012 Dec. 31, 2011 Dec. 31, 2010 Dec. 31, 2009 Net cash provided by (used in) operating activities

127,225,605 302,478,444 (73,335,053) 8,414,870

Net cash provided by (used in) investing activities

(257,813,354) (335,961,664) (29,032,075) (816,542)

Net cash provided by (used in) financing activities

321,302,708 219,165,977 101,262,787 (3,542,629)

Beginning Cash 204,788,818 19,106,061 20,210,402 16,154,703 Ending Cash 395,503,777 204,788,818 19,106,061 20,210,402

Indebtedness The Company has no long-term loans. All of the Company’s bank financing are short term loans with average terms of 90 to 120 days with the exception of P6.02 Million long term loans for the acquisition of Company vehicles. The Company’s loan balance as of Dec. 31, 2012 is P502.14 Million.2 To date, the Company has never been in default in making principal and interest payments. KEY PERFORMANCE INDICATORS

The Company’ top five (5) key performance indicators are listed below:

Dec. 31,

2012 Dec. 31,

2011 Dec. 31,

2010 Dec. 31,

2009 Audited Audited Audited Audited

Current Ratio 1 1.24 1.11 0.91 1.02 Debt to Equity Ratio2

0.67 0.98 271.25 22.93

Earnings per Share3 0.32 0.31 33.84 7.50 Earnings before Interest and Taxes4

190,408,476 169,794,248 75,015,214 31,566,350

Return on Equity5 19% 50% 407% 67%

1 Current Assets / Current Liabilities 2 Bank Loans/Stockholders’ Equity 3 Net Income/Outstanding Shares 4 Net Income plus Interest Expenses and Provision for Income Tax 5 Net Income / Average Stockholders’ Equity

These key indicators were chosen to provide Management with a measure of the Company’s financial strength (i.e., Current Ratio, Debt to Equity Ratio, and Earnings before Interest and Taxes) and the Company’s ability to maximize the value of its stockholders’ investment in the Company (i.e., Return on Equity, Earnings per Share). Current ratio shows the liquidity of the Company by measuring how much current assets it has over its current liabilities. The Debt to Equity Ratio indicates how much debt the Company has incurred for each amount of equity in the Company. A higher ratio means that the Company is more aggressive in its use of capital. Earnings per share show how much the Company is earning for each share that is currently issued and outstanding. Earnings before interest and taxes indicate how much income the Company is generating from its entire operations before interest charges. Item 7. Financial Statements A copy of the Company’s Audited Financial Statements for the year ended December 31, 2012 is attached hereto as Annex “A”.. Item 8. Changes in and Disagreements With Accountants on Accounting and Financial

Disclosure The Company, upon approval of the Board of Directors and the stockholder obtained during the last Annual Stockholders’ Meeting held on August 31, 2012, appointed Alba Romeo & Co. as its external auditor with Michael D. Roxas named as principal accountant. The external auditor examined, verified and reported on the earnings and expenses of the Company. During the two (2) most recent fiscal years or any subsequent interim period, there has been no resignation by, dismissal of or cessation of the performance of services by the Company’s independent accountant/external auditor. The Company’s Principal Account has been engaged for the audit of its books beginning 2008 up to the present, and the Company has had no disagreements with Alba Romeo and Co. on either accounting matters or Financial Disclosures.

PART III - CONTROL AND COMPENSATION INFORMATION Item 9. Directors and Executive Officers of the Issuer As of December 31, 2012, the Board of Directors is composed of seven (7) individuals: Name Position Nationality Age Term of Office Period Served Joseph H. Calata Chairman

/Director Filipino 32 One year 1999 to present

Benison Paul B. De Torres Director Filipino 33 One year Nov 25, 2011 to present

Jose A. Zaide Director Filipino 68 One year Nov 25, 2011 to March 27, 2013

Mr. Salcedo T. Foronda Sr. Director Filipino 61 Remainder of one year term

Dec 28, 2012 to present

Jose Marie E. Fabella Director Filipino 37 Remainder of one year term

Dec 28, 2012 to present

George A. Nava* Director Filipino 73 One year Nov 25, 2011 to March 27, 2013

Condrado C. Zablan* Director Filipino 48 Remainder of one year term

Aug 31, 2011 to present

* Independent Director On August 31, 2012, the Company elected a new set of Directors to serve for the term of one year. JOSEPH HERNANDEZ CALATA, 32, Filipino. Mr. Calata is the Chairman/President and Chief Executive Officer of Calata Corporation. Mr. Calata has served as Member of the Board of Directors from 1999 up to the present and has been Chairman of the Board from 2009 – present. Mr. Calata shall serve as Chairman and member of the Board of Directors until August 31, 2013 and until his successor is elected and qualified. Mr. Calata is responsible for bringing the Company among the top 1000 Corporations in the Philippines and transforming it into the biggest combined distributor of Agro- Chemicals Feeds, Fertilizers and Seeds in the country. A member of the Management Association of the Philippines, Mr. Calata started his professional career as a Trainee Manager of then Planters Choice Agro Products, Inc. Mr. Calata was given the Gintong Kabataan Award ng Bulacan and the Gawad Dangal ng Plaridel Award in 2009. Mr. Calata earned a degree of Bachelor of Science in Commerce, Major in Management of Financial Institutions from the De La Salle University. BENISON PAUL BAUTISTA DE TORRES, CPA, 33, Filipino. Mr. De Torres has been the Chief Financial Officer of Calata Corporation since 2007. Currently, in addition to said position, Mr. De Torres is the Company’s Chief Operations Officer. Mr. De Torres served as Member of the Board of Directors from November 25, 2011 up to present. Mr. De Torres shall serve as member of the Board of Directors until August 31, 2013 and until his successor is elected and qualified. After passing the Certified Public Accountants’ Examination, Mr. De Torres joined the auditing firm of Villaruz, Villaruz and Co. as junior auditor. Thereafter, from 2004 to 2006, Mr. De Torres became an auditor of Sycip, Gorres, Velayo and Co. From 2006-2007, he assumed the position of Financial Services Manager of Prime Outsource Corporation. Mr. De Torres earned his Bachelor of Science in Accountancy at the Philippine School of Business Administration. JOSE MARIE E. FABELLA, 37, Filipino. Atty. Fabella is the Director and Corporate Secretary of Calata Corporation. He was nominated and appointed as a Member of the Board of Directors last December 28,

2012. He also served as Corporate Secretary from November 25, 2011 up to present. Atty. Fabella shall serve as Director and Corporate Secretary until August 31, 2013 and until his successor is elected and qualified. He is a partner at Fabella and Fabella Law Office - a firm which specializes in the practice of Corporate and Securities Law and is currently Corporate Secretary and Legal Counsel to various publicly-listed companies. After being admitted to the Philippine Bar in 2005, he immediately engaged in the practice of law by joining several law offices as an associate lawyer. Thereafter, he served as Securities Counsel III at the Securities Registration Division in the Corporation Finance Department of the Philippine Securities and Exchange Commission until January 2010. Apart from conducting lectures to listed companies, Atty. Fabella is an MCLE lecturer on Securities Law and a Masters of Law (Commercial Law) Candidate at the San Beda College Graduate School of Law. FR. CONDRADO C. ZABLAN, 48, Filipino. Fr. Zablan is an Independent Director of Calata Corporation. He was elected last August 31, 2012 and shall serve as member of the Board of Directors until August 31, 2013 and until his successor is elected and qualified. Fr. Zablan finished his undergraduate studies at the University of the East with a course on Civil Engineering in 1985. In 1999, he obtained A.B. Classical Philosophy in the Immaculate Concepcion Major Seminary and likewise earned his M.E. Masteral Degree in Pastoral Ministry. He was ordained as a priest in the year 2000. In 2007, he held the following positions: 1. Procurator – Immaculate Concepcion Major in Seminary; 2. Administrator – St. Joseph Parish, Meycauayan, Bulacan. In 2008, he held the position as Parish Priest at the Stella Maris Parish Church in Pamarawan, Malolos City, Bulacan. From 2011 up to the present, he holds the following positions: 1. Finance Officer , Colegio de San Pascual Baylon, Obando, Bulacan; 2. Member, Audit Team, Commission on Family and Life, Diocese of Malolos; 3. Member, Commission on Temporal Goods, Dioces of Malolos; 4. Member, Commission on Social Security and Welfare of Clergy, Diocese of Malolos; 4. Commission Head, Columbary, Diocese of Malolos. MR. SALCEDO T. FORONDA SR., 61, Filipino. Mr. Foronda is a Director of Calata Corporation. He was appointed as Member of the Board of Directors last December 28, 2012 up to present. He shall serve as member of the Board of Directors until August 31, 2013 and until his successor is elected and qualified. Mr. Foronda graduated from Araneta University Foundation with a degree in Bachelor of Science in Agriculture. Mr. Foronda is a known farmers organization leader in Cagayan Valley, farmers cooperative organizer, board member of numerous farmers cooperative in Isabela. An Awardee of numerous Agri-related endeavors. He is a practicing farmer well loved by fellow farmers in Isabela. His area of expertise includes organization cooperatives. He also served as Chairman of different associations and cooperatives namely: Municipal Agriculture and Fishery Council (1985-1997), Municipal Cooperative Development Council (1989) and Isabela Seed Growers Multipurpose Cooperative, Inc. (1993). He also entered in public service by serving a two terms as Councilor of Cauayan City (1989-97) and as public servant in the local government of Cauayan (1995-97). His professional experience includes: Sales agent, Philamlife (1991-2006); Monsanto, an agricultural company (1991-1995);Cargill Phil, an international producer and marketer of food, agricultural, financial and industrial products and services (1986-1991);Ayala Agri Bayer Phil (1981-1986);Rural Bank Cabanatuan (1973-1981). JOSE ABETO ZAIDE, 68, Filipino. Ambassador Zaide is a Director of Calata Corporation. He served as Member of the Board of Directors from November 25, 2011 up to March 27, 2013. Ambassador Zaide graduated with the degree of Bachelor of Arts in Economics at the Ateneo de Mania University in 1964. Currently, he writes for the Manila Bulletin under the segment “Below the Line.” Prior to this, his professional experience is as follows: Ambassador to France and permanent Delegate to UNESCO2006- Nov 2008; Ambassador to Portugal and Monaco (non-resident);Chief of Protocol, Department of Foreign Affairs, Manila, 2002-2006; Ambassador to the Federal Republic of Germany 1999-2002; Ambassador to Austriaand permanent Representative to the International1995-1999 Atomic Energy Agency(IAEA), United Nations Industrial Development Organization (UNIDO) and UN Organization in Vienna (UNOV); Ambassador to Slovenia and Croatia (non Resident); Assistant

Secretary for European Affairs, DFA Manila1995; Assistant Secretary for Asia Pacific Affairs 1993; Charge d’ Affaires, d.m., Philippine Embassy, Moscow, 1991-1992; Minister, Philippine Embassy, Brussels,1989-1991; First Secretary and Consul General, Philippine Embassy, New Delhi , 1984-1989; Executive Director, Office of European Affairs, DFA Manila,1983-1984; Director for Western European Affairs, Office of European Affairs, DFA Manila, 1983; Second Secretary and Consul, Philippine Embassy, Bonn, 1981-1983; Vice Consul, Philippine Consulate General, Hamburg, 1974-1981; Special Collecting Officer, Foreign Service Staff Employee I, PCG, Hamburg, 1973-1974; Clerk, DFA Manila, 1968-1973. Decorations and Other Skills Awardee of German Grand Cross by the President of the Federal Republic of Germany for Distinguished Service; Awardee of Grand Cross of Austria by the Minister of Foreign Affairs for Distinguished Service, including official visit of Philippine President; Isabela la Catolica, conferred in connection with the visit of H.M. the King of Spain and for written editorial enhancing Philippine-Spanish bilateral relations; Knight of Rizal, KOR 1984, Knight Commander of KOR 1999, founded Vienna Chapter 1999, founded Berlin Chapter 2002; Author of “ Bababa ba? Anecdotes of a Foreign Service Officer”; Fluent in English and Filipino, advanced German, basic French and Spanish. GEORGE A. NAVA, 63, Filipino. Mr. Nava is an Independent Director of Calata Corporation. He served as Member of the Board of Directors from November 25, 2011 up to March 27, 2013. Mr. Nava graduated in 1971 with a course on Mechanical Engineering at the Mapua Institute of Technology and placed 1st at the Mechanical Engineering Board Exam. In 1981, Mr. Nava practiced as a Professional Mechanical Engineer. In 1982, He took MBA units at the Ateneo De Manila for two years. In 1989, He graduated from the Swiss Feed Milling School in Uzwil, Switzerland. Mr. Nava has 25 accumulated years of service with San Miguel Corporation from Project Engineer to Vice-President/General Manager. He also has 41 years of experience as a Mechanical Engineer including 3 years of teaching at the National University. Other positions held are as follows: Vice President, San Miguel Purefoods Company Inc., 2002-2008; Vice president/ Gen Manager, Feeds Business San Miguel Foods Inc., 2002-2004; Concurrent Vice-President/ General Manager, Philippine Nutrition Technology Inc., ( a joint venture of SMPFC and Taiwan Nutrition Technology Inc.) 2002-2005; Vice President and Regional Cluster Director, San Miguel Purefoods Company Inc., 2004-2008; President, Philippine Association of Feed Millers Inc., 2002-2004; Member, Board of Directors, Philippine Nutrition and Technology Inc., 2002-2005; Member, Board of Directors, San Miguel Purefoods Company Inc., Vietnam, 2004-2006. Current Executive Officers of the Registrant Name Age Citizen

ship Period Served

Business Experience for the past 5 years

Joseph H. Calata 32 Filipino 1999 to present

Mr. Calata is the Chairman/President and Chief Executive Officer of Calata Corporation. Mr. Calata has served as Member of the Board of Directors from 1999 up to present; Corporate Secretary from 1999 to 2005 and Chairman of the Board and President from 2009 to present. Mr. Calata shall serve as Chairman and member of the Board of Directors until August 31, 2012 and until his successor is elected and qualified.

Benison Paul B. De Torres 33 2007 to present

Mr. De Torres has been the Chief Financial Officer of Calata Corporation since 2007. Currently, in addition to said position, Mr. De Torres is the Company’s Chief Operations Officer. Mr. De Torres was elected for the first time to the Board of Directors last November 25, 2011 and re-elected last August 31, 2012. Mr. De Torres shall serve as member of the Board of

Directors until August 31, 2013 and until his successor is elected and qualified.

Jose Marie E. Fabella 37 Nov 25, 2011 to present

Atty. Fabella is the Corporate Secretary of Calata Corporation. He was elected last November 25, 2011 and re-elected last August 31, 2012. He shall serve as such until August 31, 2013 and until his successor is elected and qualified. He is partner at Fabella and Fabella Law Office – a firm which specializes in the practice of Corporate and Securities Law and is currently Corporate Secretary and Legal Counsel to various publicly-listed companies. After being admitted to the Philippine Bar in 2005, he immediately engaged in the practice of law by joining several law offices as an associate lawyer. Thereafter, he served as Securities Counsel III at the Securities and Registration Division in the Corporate Finance Department of the Philippine Securities and Exchange Commission until January 2010. Apart from conducting lectures to listed companies, Atty. Fabella is an MCLE lecturer on Securities Law and a Masters of Law (Commercial Law) Candidate at the San Beda College Graduate School of Law.

Arnold S. Pajarillo 41 2008 to present

Mr. Pajarillo is currently the Sales Manager for Feeds. His business experience includes the following: Regional Sales Manager, Biostad Phils from May 2007 – September 2008; Sales Manager, SL Agritech, March 2003 – March 2007; Sales Manager, Sygenta Phils Inc., Fort Bonifacio, Taguig City; Production Supervisor, MNYT, May 1999 - May 2000; Sales Representative, Novartis Agro, Makati/Manila, 2005 – 2009

Vergel D. Formaran 37 2009 to present

Mr. Formaran is the Sales Manager for Chemical Seeds and Fertilizers. Prior to his engagement with the Company, he was Territory Sales Supervisor for Syngenta Philippine, Inc. from 2005 to 2009.

Janet H. Santos 31 Filipino 2009 to present

Ms. Santos is the Principal Accounting Officer / Purchasing Manager of the Company. Prior to her engagement with the Company, she held various positions in the Accounting and Treasury Department of Waltermart Supermarket, Inc.

Significant Employees There are no significant employees who are not executive officers who are expected by the registrant to make significant contribution to the business. Family Relationships There are no family relationships either by consanguinity or affinity up to the 4th civil degree among the Directors, executive officers, or persons nominated or chosen by the Company to become directors or executive officers. Involvement in Certain Legal Proceedings To the best of the Registrant’s knowledge, in the last 5 years up to the latest date of this information statement, none of the directors or officers is or has been involved in any of the following events material in evaluating his ability or integrity as such director or officer:

a) Any bankruptcy proceeding filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two (2) years prior to that time;

b) Any conviction by final judgment;

c) Any order, judgment or decree, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities, commodities or banking activities; and

d) Violation of a securities or commodities law or regulation.

Item 10. Executive Compensation Information as to the aggregate compensation during the last 2 fiscal years paid to the Company’s and five (5) most highly compensated executive officers, and all other officers and directors, as a group, are as follows:

SUMMARY COMPENSATION TABLE Annual Compensation (PhP)

2010 2011 2012 Bonus Other Compensation

5 Most Highly Compensated Officers Joseph H. Calata - CEO Benison Paul B. De Torres – CFO/COO Arnold Pajarillo – Sales Manager for Feeds Vergel Formaran – Sales Manager for Chemical, Seeds & Fertilizers Janet H. Santos – Principal Accounting Officer Total 3,504,000 4,056,000 4,584,000

0

0

Total Compensation of Other Unnamed Officers

1,000,000

1,000,000

1,000,000

0

0

TOTAL

4,504,000

5,056,000

5,584,000

0

0

Currently, employees of the Company do not receive supplemental benefits or incentive arrangements. Compensation of Directors Under the By-Laws of the Company, by resolution of the Board, each director, shall receive a reasonable per diem allowance for his attendance at each meeting of the Board. As compensation, the Board shall receive and allocate an amount of not more than 10% of the net income before income tax of the Company during the preceding year. Such compensation shall be determined and apportioned among directors in such manner as the Board may determine, subject to the approval of stockholders

representing at least majority of the outstanding capital stock at a regular or special meeting of the stockholders. As of date, the directors have yet to pass a resolution fixing their per diem. There are no other arrangements for compensation either by way of payments for committee participation or special assignments. There are also no outstanding warrants or options held by the Company’s Chief Executive Officer, other officers and/or directors. Employment Contracts None. WARRANTS AND OPTIONS There are no warrants or options outstanding and there are no options held by directors and officers. Item 11. Security Ownership of Certain Beneficial Owners and Management As of December 31, 2012, the following persons or group own more than five percent (5%) of the Registrant’s voting securities: Title of class

Name and Address of Record Owner and Relationship with Issuer

Name of Beneficial Owner and Relationship with Record Owner

Citizenship No. of Shares Held

Percent

Common PCD Nominee Corp G/F Makati Stock Exchange, Ayala Avenue, Makati City

PCD Nominee Corporation, a wholly owned subsidiary of the Philippine Depository and Trust Corporation, Inc. (PDTC), is the registered owner of the shares in the books of the Registrant’s stock transfer agent. The beneficial owner of such shares entitled to vote the same are PDTC’s participants, who hold the shares either in their own behalf or on behalf of their clients. The following PDTC participants hold more than 5% of the Registrant’s voting securities:

a. PCIB Securities, Inc – 60.50% - No relationship with the Issuer

b. JAKA Securties Corp. – 11.17% - No relationship with the Issuer

c. COL Financial Group, Inc. – 8.06% - No relationship with the Issuer

Filipino 357,080,800 99.158

As of December 31, 2012, the Company’s directors and key officers owned 60.486% of the Company’s issued and outstanding shares of common stock, as follows:

Title of Class

Name, Address of Record Owner and

Relationship with the Company

Name of Beneficial Owner and

Relationship with the

Record Owner

Citizenship No. of Shares Percentage

Common Joseph H. Calata Banga 1st, Plaridel, Bulacan Chairman / Ceo / President

Joseph H. Calata

Filipino 217,699,994 60.453

Common Benison Paul B. De Torres San Roque, San Rafael, Bulacan Director / Cfo / Treasurer

Joseph H. Calata

Filipino 1 nil

Common Salcedo T. Foronda Sr. Baringin Sur, Cauayan City, Isabela Director

Joseph H. Calata

Filipino 1 nil

Common Jose A. Zaide 51 Laguna Bay, South Bay Gardens, Paranaque City Director

Filipino 16,601 .005

Common Condrado C. Zablan 0681 Rizal St. Sta. Barbara, Baliwag, Bulacan Director

Joseph H. Calata

Filipino 1 nil

Common George A. Nava Caprina Street, La Residencia De Sta. Rosa, Sta. Rosa City, Laguna Independent Director

Joseph H. Calata

Filipino 100,301 .028

Common Jose Marie E. Fabella Director/Corporate Secretary

Joseph H. Calata

Filipino 1 nil

TOTAL 217,816,900 60.486% Voting Trust Holders of 5% or More There is no voting trust arrangement executed among the holders of five percent (5%) or more of the issued and outstanding shares of common stock of the Company.

(4) Changes in Control

Describe any arrangements which may result in a change in control of the registrant.

Change in Control

The Registrant is not aware of any change in control or arrangement that may result in a change in control of the Registrant since the beginning of its last fiscal year. Item 12. Certain Relationships and Related Transactions The details of the Group’s related parties are summarized as follows:

Name of the related party Relationship Nature of Operations

Calata Builders Common Stockholders A corporation established in the Philippines which ventures as a subcontractor and into the realty business

Calata Farms Common Owner A sole proprietorship owned by which offers high efficiency poultry growing using climate-controlled system

Avestha Holdings Corporation Common Owner A corporation established to engage in holding of shares of stock of different corporations

Individuals Stockholders Individuals who own shares of stock of the Parent Company

Individuals Key management personnel Individuals who have authority and responsibility for planning, directing and controlling the activities of the Group

i) An operating lease agreement was executed between the Group and the shareholders whereby the

latter granted the former with the rent-free use of office premises and a warehouse located in Bulacan.

ii) The key management personnel compensation recognized in salaries, wages and other benefits

under operating expenses in the consolidated statements of income consists of short-term benefits. There are no long term compensation and post-employment and termination benefits of key management personnel for the years ended December 31, 2012 and 2011.

iii) For the years ended December 31, 2012 and 2011, the Group disposed fully-depreciated property and equipment to a related party that resulted to a gain on disposal amounting to P835,200 and P1,914,123, respectively.

Movements of the outstanding balances showing the nature and amount of transactions under each category are as follows:

iv) Loans receivable

2012 2011 Avestha Holdings Corporation

January 1 P120,000,000 P- Loaned to - 120,000,000 December 31 P120,000,000 P120,000,000

The term of the loan is three (3) years. The principal of the loan will be payable after two (2) years in which an interest at the rate of six percent (6%) per annum will be payable on the balance at the end of every month. The loan is fully secured by the borrower’s various real estate properties independently valued at P166,549,000 on June 21, 2011 by Cuervo Appraisers, Inc. In exchange for the settlement of the loan, as of the reporting date, Avestha Holding Corporation is in the process of transferring to the Group the rights to the aforementioned real estate properties, pending compliance with regulatory requirements.

v) Advances to related parties

2012 2011 Agri Phil Corporation

January 1 P55,455,249 P- Cash advances to (55,455,249) 55,455,249 December 31 P- 55,455,249

Calata Farms January 1 - 33,173,159 Collections from - (33,173,159) December 31 - - Calata Builders

January 1 7,725,347 1,525,347 Cash advances to (collections from) (903,755) 6,200,000 December 31 6,821,592 7,725,347 Individuals January 1 3,315,016 174,325 Cash advances to 57,643,729 3,306,148 Cash advances from (1,213,008) (165,457) Cash dividends distributed (25,000,000) December 31 34,745,737 3,315,016 Total advances to related parties P41,567,329 P66,495,612

Cash advances were made to related parties to support their operating capital requirements. These are repayable once the related parties have sufficient cash flows to support their respective operations. These advances are non-interest bearing, unsecured and have no fixed repayment terms.

vi) The assessment of the allowance for impairment loss related to the amount of outstanding balances of the Group’s loans receivable and advances to related parties and the expense recognized during the period in respect of impairment loss is undertaken through examining the financial position of the related parties and the market in which they operate.

vii) Advances from related parties

2012 2011 Individuals January 1 (P52,461,454) P- Cash advances from (68,890,290) (67,869,405) Cash advances to 119,281,393 15,407,951 (P2,070,351)

(P52,461,454)

Cash advances from shareholders are used to support the operating capital requirements of the Group.

PART IV – CORPORATE GOVERNANCE

Item 13. Corporate Governance The Company has submitted its Manual on Corporate Governance to the SEC in compliance with Revised Code of Corporate Governance SEC Memorandum Circular No. 6 Series of 2009. The Company’s policy of corporate governance is based on its Manual. The Manual lays down the principles of good corporate governance in the entire organization. The Manual provides that it is the Board’s responsibility to initiate compliance to the principles of good corporate governance, to foster the long-term success of the Company and to secure its sustained competitiveness in a manner consistent with its fiduciary responsibility, which it shall exercise in the best interest of the Company, its shareholders and other stockholders. The Manual embodies the Company’s policies on disclosure and transparency, and mandates the conduct of communication and training programs on corporate governance. The Manual further provides for the rights all shareholders and the protection of the interests of minority stockholders. Commission of any violation of the Manual is punishable by a penalty ranging from reprimand to dismissal, depending on the frequency of commission as well as the gravity thereof. The Compliance Officer shall be responsible for determining violation/s through notice and hearing and shall recommend to the Chairman of the Board the imposable penalty of such violation, for further review and approval of the Board. The Board of Directors has constituted certain committees to effectively manage the operations of the Company. The Company’s principal committees of the Board of Directors include the Executive Committee, the Audit Committee, the Compensation Committee and the Nominations Committee. The performance of the Board and its individual members is being measured and monitored. Areas for improvement are discussed for action during the Board/Committee meetings. Board performance metrics include among others the individual director’s attendance at Board and Committee meetings, availability of minutes, open/closed action items, etc. The Board through its Audit and Compliance Committee shall, among others, continuously review and follow-up until closure all action items needed to be in full compliance with the company’s Manual on Corporate Governance and its related documents and policies. Plan to improve the Corporate Governance of the Company: Continuous initiatives for training of Directors, Officers and Employees to the various documents on corporate governance manuals and policies including its revisions.

PART V - EXHIBITS AND SCHEDULES Item 14. Exhibits and Reports on SEC Form 17-C Use of Proceeds from the Initial Public Offering

The Company filed with the Commission several reports from its independent external auditor Alba Romeo and Co. in relation to the actual use of proceeds from the IPO. Said reports were included as attachments to the Reviewed Quarterly Reports filed with the Commission. The following are the tasks accomplished by the independent external auditor as well as their independent findings: AS OF JUNE 30, 2012

1. Obtained the schedule of cash received as proceeds from the IPO as of May 23, 2012, accounted and agreed the related balance to the Company’s accounting records and bank statements as of June 30, 2012.

Gross proceeds P 269,551,028 Underwriting and selling fees for the Offer shares 8,102,700 Tax on Initial Public Offering 10,782,041 Documentary Stamp Tax 180,060 Philippines SEC filing and legal research fees 733,991 PSE listing and processing fees 2,756,840 Professional fees 4,582,587 Total expenses 27,138,219 Net proceeds P 242,412,809

2. We found the schedule to be mathematically accurate, and the net proceeds amounting to

P242,412,809 are intact per bank statements.

Banks Account Number Amount Bank of the Philippine Islands 4723000012 P 106,000,000 Banco de Oro 5840019691 101,612,809 BAnco de Oro 6840002577 20,000,000 Allied Bank 1161015443 14,800,000 P 242,412,809

3. The net proceeds from the IPO were accounted for in the Company’s records as “Cash in Banks”.

The cash in banks are unrestricted and maintained in universal banks and commercial banks.

AS OF SEPTEMBER 30, 2012

1. Obtained the schedule of cash received as proceeds from the IPO as of May 23, 2012 and the schedule of disbursements from such proceeds as of September 30, 2012, accounted and agreed the related balance to the Company’s accounting records and bank statements as of September 30, 2012.

Actual use of proceeds

Use of proceeds as stated in the prospectus

Gross proceeds P 269,551,028 P 270,090,000 Underwriting and selling fees for the Offer shares 8,102,700 8,102,700 Tax on Initial Public Offering 10,782,041 10,803,600 Documentary Stamp Tax 180,060 180,060 Philippines SEC filing and legal research fees 733,991 733,991 PSE listing and processing fees 2,756,840 2,756,840 Professional fees 4,582,587 4,000,000 Others - 1,100,000

Total expenses 27,138,219 27,677,191 Net proceeds as of June 30, 2012 242,412,809 242,412,809 Purchase of inventories 116,384,948 102,200,800 Renovation of stores 7,494,172 24,275,000 Purchase of equipment - 6,006,875 Operating expenses 3,967,018 412,965 Total expenses 127,846,138 132,895,640 Net Proceeds as of September 30, 2012 P 114,566,671 P 109,517,169

The IPO expenses amounting to P 27,138,219 as of June 30, 2012 have been vouched to supporting documents and payment vouchers on a test basis. No exceptions were noted based on the procedures performed.

2. The remaining balance of the proceeds from the IPO was accounted for in the Company’s records as “Cash in Banks”. The cash in banks are unrestricted and maintained in universal banks and commercial banks.

3. Purchases of inventories amounting to P 116,384,948 have been vouched to supporting purchase orders, suppliers’ sales invoices and delivery receipts, and payment vouchers. Renovation of stores and operating expenses amounting to P 7,494,172 and P 3,967,018, respectively, have been validated and vouched to supporting suppliers’ invoices and payment vouchers. No exceptions were noted based on the procedure performed.

4. We found the schedule to be mathematically accurate, and the balance of the net proceeds as of September 30, 2012 amounting to P 114,566,671 is maintained in the following bank accounts:

Banks Account Number Amount

Banco de Oro 5840019691 P 60,144,233 Bank of the Philippine Islands 4723000012 29,320,259 Metropolitan Bank and Trust Company 327-3-32750335-0 14,917,312 Allied Bank 1161015443 5,435,737 Bank of Commerce 062-00-000815-5 2,231,378 Metropolitan Bank and Trust Company 327-3-32750341-4 1,622,880 Banco de Oro 5840071898 380,090 Banco de Oro 5840071979 317,726 Banco de Oro 6840002577 197,056 P 114,566,671

AS OF DECEMBER 31, 2012

1. Obtained the schedule of cash received as proceeds from the IPO as of May 23, 2012 and the schedule of disbursements from such proceeds as of December 31, 2012, accounted and agreed the related balance to the Company’s accounting records and bank statements as of December 31, 2012 Actual use of

proceeds Use of proceeds as

stated in the prospectus

Gross proceeds P 269,551,028 P 270,090,000 Underwriting and selling fees for the Offer shares 8,102,700 8,102,700 Tax on Initial Public Offering 10,782,041 10,803,600 Documentary Stamp Tax 180,060 180,060 Philippines SEC filing and legal research fees 733,991 733,991 PSE listing and processing fees 2,756,840 2,756,840 Professional fees 4,582,587 4,000,000 Others - 1,100,000 Total expenses 27,138,219 27,677,191 Net proceeds as of June 30, 2012 242,412,809 242,412,809

Purchase of inventories 183,407,289 102,200,800 Renovation of stores 10,331,077 24,275,000 Purchase of equipment - 6,006,875 Operating expenses 7,437,348 412,965 Total expenses 201,175,714 132,895,640 Net Proceeds as of September 30, 2012 P 41,237,095 P 109,517,169

The IPO expenses amounting to P 27,138,219 as of June 30, 2012 have been vouched to supporting documents and payment vouchers on a test basis. No exceptions were noted based on the procedures performed.

2. The remaining balance of the proceeds from the IPO was accounted for in the Company’s records as “Cash in Banks”. The cash in banks are unrestricted and maintained in universal banks and commercial banks.

3. Purchases of inventories amounting to P 183,407,289 have been vouched to supporting purchase orders, suppliers’ sales invoices and delivery receipts, and payment vouchers. Renovation of stores and operating expenses amounting to P 10,331,077 and P 7,437,348, respectively, have been validated and vouched to supporting suppliers’ invoices and payment vouchers. No exceptions were noted based on the procedure performed.

4. We found the schedule to be mathematically accurate, and the balance of the net proceeds as of December 31, 2012 amounting to P 41,237,095 is maintained in the following bank accounts:

Banks Account Number Amount

Bank of the Philippine Islands 4723000012 P 30,186,159 Banco de Oro 5840019691 6,204,200 Metropolitan Bank and Trust Company 327-3-32750341-4 1,878,841 Banco de Oro 5840071979 956,232 Banco de Oro 5840071898 868,545 Allied Bank 1161015443 509,662 Banco de Oro 6840002577 501,684 Bank of Commerce 062-00-000815-5 101,912 Metropolitan Bank and Trust Company 327-3-32750335-0 29,860 P 41,237,095

SEC Form 17-C filed with the Commission for 2012

PERIOD COVERED NATURE OF DISCLOSURE 11 June 2012 MOA with National Agribusiness Corporation for the exclusive supply of

corn inputs 9 July 2012 Israel and Calata Partner on Modern Agri Technology 5 July 2012 On July 5, 2012, Calata Corporation (the “Company) conducted its first

Board Meeting as a listed Company with the Exchange. The matters discussed were as follows: Board approval of the minutes of the last Board of Directors meeting; Report from the President on the success of the recently conducted Initial Public Offering (“IPO”) of the Company, wherein proceeds amounting to PhP 242,412,808.76 were raised net of all taxes and expenses incurred; Audit Committee compliance with its commitment with the Exchange to strictly monitor the status and disbursements of the IPO proceeds, establish audit control procedures within the Company and perform all tasks covered by its mandate; Discussion and planning regarding the proper utilization of the proceeds from the IPO consistent with the Company’s disclosure in its Prospectus; Plans and prospects for establishment and expansion of

the Company’s retail network to increase market coverage and revenue stream for 2012; Board approval for Management to study and negotiate for acquisition of properties currently being used by the Company for its business; The conduct of the Company’s first Annual Stockholders’ Meeting as a listed company on August 31, 2012.

19 July 2012 On July 19, 2012, Calata Corporation (the “Company) conducted its Board Meeting. The matters discussed were as follows: Minutes of the last Board of Directors meeting; Setting the close of business on August 3, 2012 as the record date for the determination of the stockholders entitled to notice of the Company’s August 31, 2012 Annual Stockholders’ Meeting and any adjournment thereof, and to attend and vote thereat; Conversion of the Company’s advances to Agri Phil Corporation amounting to P55,455,249.00 into equity and purchase of all issued and outstanding shares of stock in Agri Phil Corporation at a par value of P100.00 per share or a total amount of P9,500,000.00; Payment by Avestha Holding Corporation (“Avestha”) with company-owned real estate properties as full settlement of Avestha’s loan obligation with the Company; Amendment to the Company’s Articles of Incorporation for the purpose of increasing the authorized capital stock from Eight Hundred Forty Five Million Four Hundred Thousand Pesos (PhP 845,400,000.00) up to an amount to be determined by the Board of Directors (“Board”) not exceeding Two Billion Pesos (PhP 2,000,000,000.00); The issuance of a Stock Option Plan covering Fifty Million (50,000,000) Common Shares under such terms and conditions as may be determined by the Board of Directors or any of its duly authorized representatives and subject to existing laws, rules and regulations; To obtain the approval of the majority of the minority shareholders on the waiver of the requirement, if any, to conduct a rights or a public offering with respect to the following: a) Transactions resulting to the issuance by a listed company of new voting shares to any party or to any persons acting in concert amounting to at least ten percent (10%) but not more than thirty-five percent (35%) of the total issued and outstanding capital stock of the issuer through a single or creeping transaction within a twelve (12) month period from the initial disclosure. Such transactions may include private placements, share swaps, property for share swaps, or conversion of securities to equity; and b) Listing of shares subscribed by Related Parties as defined by the Revised Listing Rules of the Philippine Stock Exchange.

30 June 2012 Report on Use of Proceeds 03 September 2012 During the Annual Stockholders’ Meeting of Calata Corporation (the

“Corporation”) held last Friday, 31 August 2012, the following were elected directors for the ensuing year: Mr. Joseph H. Calata, Mr. Benison Paul B. De Torres, Dr. Jaime C. Laya, CPA, Mr. Baltazar N. Endriga, CPA, Amb. Jose A. Zaide, Engr. George A. Nava (Independent Director), Fr. Conrado C. Zablan (Independent Director) On the said meeting, the following matters were approved and/or ratified by the stockholders: Adoption of the Audited Financial Statements for the calendar year ended December 31, 2011; Management’s Discussion of the Annual Report for the year 2011; Report on the 2012 Operations and Results to date; Amendment of the Articles of Incorporation of the Company for the purpose of increasing the authorized capital stock from Eight Hundred Forty Five Million

Four Hundred Thousand Pesos (PhP845,400,000.00) up to Two Billion Pesos (PhP2,000,000,000.00) as may be determined by the Board; Conversion of the Company’s advances to Agri Phil Corporation amounting to P55,455,249.00 into equity and purchase of all issued and outstanding shares of stock in Agri Phil Corporation at a par value of P100.00 per share or a total amount of P9,500,000.00; Payment by Avestha Holding Corporation (“Avestha”) with company-owned real estate properties as full settlement of Avestha’s loan obligation with the Company; Approval of the majority of the minority shareholders on the waiver of the requirement, if any, to conduct a rights or a public offering with respect to the following transactions which may be entered into with the Company in the future: a) Transactions resulting to the issuance by a listed company of new voting shares to any party or to any persons acting in concert amounting to at least ten percent (10%) but not more than thirty-five percent (35%) of the total issued and outstanding capital stock of the issuer through a single or creeping transaction within a twelve (12) month period from the initial disclosure. Such transactions may include private placements, share swaps, property for share swaps, or conversion of securities to equity; b) Listing of shares subscribed by Related Parties as defined by the Revised Listing Rules of the Philippine Stock Exchange; Approval of the issuance of a Stock Option Plan covering Fifty Million (50,000,000) Common Shares including subsequent issuances and amendments thereto under such terms and conditions as may be determined by the Board of Directors or any of its duly authorized representatives and subject to existing laws, rules and regulations; Ratification and Confirmation of All Acts, Resolutions and Decisions of the Board and Management; Appointment of BDO Alba Romeo & Co. as External Auditor for calendar year 2012;

03 October 2012 Audit Committee Meeting 20 November 2012 Release of lock up of IP Shares of JHC 20 November 2012 Exclusive supply agreement with Siembra Directa Corp. for the supply

of agricultural farm inputs 23 November 2012 Calata Corporation’s (“The Company”) Board of Directors Meeting held

on 23 November 2012, the following matters were discussed and approved: Minutes of the last Board of Directors meeting; Results of Operations as of 30 September 2012; Post IPO Business Developments and Plans and Prospects for the year 2013.

12 December 2012 Appointment of Mr. Salcedo T. Foronda, Sr. as New Director as Predecessor of Mr. Jaime C. Laya

28 December 2012 Appointment of Mr. Baltazar N. Endriga as New Director as Predecessor of Mr. Baltazar N. Endriga

SIGNATURES

Pursuant to the requirements of Section 17 of the Securities Regulation Code and Section 141 otthe Corporation Code, this report is signed on behalf of the Company by the undersigned, thereunto dulyauthorized, in the Municipality of Plaridel, Province of Bulacan on Aprit 16, 2013.

By:

JOSEPH H.IbAI.ATAChief Execuilve Officer

BENISON PAUS B. DE TORRESChief Operations Officer and Chief Finance Officer

_fu,{a/-JAN//H.SANTOS

P nncip a(Ae*o u n t i n g Of fi ce r

Vl*g1 l*JOSE 6nnfs E. FABELLA

Corporate Secretary

APR 1 b 2013 the afiiants exhibited toSUBSCRIBED AND SWORN to before me thisme competent evidence of their identity, as follows:

NAME CTC '

DRIVER'SLICENSg

PASSPORT NO.

DATE OF ISSUE PLACE OF ISSUE

Joseph H. Calata xx4137766 July 13,2009 DFA, ManilaBenison Paul B. De Tones co710014788 June 28, 2010 Guiqinto. BulacanJose Marie E. Fabella 882273534 April 20, 2011 DFA, ManilaJanet A. Santos cct2011 08829288 December 27 .2A11 Plaridel, Bulacan

Doc. No. 09k ;

PageNo. 3l ;

Book No. b{ ;

Seriesof 2013.PTR IiD, E:)

IBP ttrt: Tr!t: ii

NOTARY PUBLIC

Ri,i., ,,' x I f iilrriyb f{ii,,rIIJg

L. hl A CAt{t

CALATA CORPORATION AND ITS SUBSIDIARY

CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2012 AND 2011


CONSOLIDATED STATEMENTS OF FINANCIAL POSITION DECEMBER 31, 2012 AND 2011

Note 2012 2011

ASSETS Current assets Cash and cash equivalents

8

P395,503,777

P204,788,818 Trade and other receivables, net

9

242,146,197

252,529,132

Loans receivable

10

9,650,000

15,000,000 Advances to related parties

22

41,567,329

66,495,612

Inventories

11

220,483,700

179,835,048 Prepayments and other current assets

3,214,102

5,622,210

Total current assets

912,565,105

724,270,820

Noncurrent assets Loans receivable

10

120,000,000

120,000,000 Investment properties

12

112,865,000

134,152,963

Property and equipment, net

13

345,444,069

72,765,320 Deferred tax assets

24

2,589,764

1,858,969

Other noncurrent assets

25

3,305,132

-

Total noncurrent assets

584,203,965

328,777,252

Total assets

P1,496,769,070

P1,053,048,072

LIABILITIES AND EQUITY Current liabilities Trade and other payables

14

P186,928,204

P134,698,952 Loans payable

15

502,137,982

392,500,000

Advances from related parties

22

2,070,350

52,461,454

Dividends payable

17

-

25,000,000 Income tax payable

45,786,638

46,562,355

Total current liabilities

736,923,174

651,222,761

Non-current liabilities Loans payable

15

6,022,303

- Retirement benefit liability

23

2,938,573

1,820,747

Deferred tax liabilities

24

1,968,000

-

Total noncurrent liabilities

10,928,876

1,820,747

Total liabilities

747,852,050

653,043,508

Equity Share capital

16

360,112,000

324,100,000 Share premium

16

209,157,649

-

Retained earnings

179,647,371

75,904,564

Total equity

748,917,020

400,004,564

Total liabilities and equity

P1,496,769,070

P1,053,048,072

(The notes on pages 7 to 58 are an integral part of these consolidated financial statements.)


CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

Notes 2012 2011

Sales

18

P2,206,001,907

P2,001,710,303 Cost of sales

19

(1,948,363,094)

(1,786,448,915)

Gross profit

257,638,813

215,261,388 Operating expenses

20

(106,951,331)

(58,925,176)

Other operating income, net

21

29,218,496

9,629,815

Profit from operations

179,905,978

165,966,027 Finance income

8, 10

10,502,498

3,828,221

Finance costs

15

(32,894,932)

(26,934,023)

Profit before tax

157,513,544

142,860,225 Provision for income tax

24

(47,138,443)

(42,686,537)

Profit for the year

P110,375,101

P100,173,688

Basic and diluted earnings per share 26

P0.32

P0.69



CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

Note 2012 2011

Profit for the year

P110,375,101

P100,173,688 Other comprehensive income

-

-

Total comprehensive income

P110,375,101

P100,173,688


P0.32

P0.69



CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

Note Share capital Share

premium Retained earnings Total

Balance at January 1, 2011

P1,000,000

P-

P730,876

P1,730,876 Issuance of additional shares

16

323,100,000

-

-

323,100,000

Net income for the year

-

-

100,173,688

100,173,688 Other comprehensive income

-

-

-

-

Cash dividends declared 17

-

-

(25,000,000)

(25,000,000)

Balance at December 31, 2011

P324,100,000

P-

P75,904,564


16

36,012,000

209,157,649

-

245,169,649

Effect of purchase of non-controlling interest in subsidiary

6

-

-

(6,632,294)

(6,632,294)


-

-

110,375,101


-

-

-

-


P360,112,000

P209,157,649

P179,647,371

P748,917,020



CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

Notes 2012 2011

Cash flows from operating activities Profit before tax

P157,513,544

P142,860,225 Adjustments for:

Depreciation and amortization

13, 20

13,576,323

5,780,083

Impairment loss on trade receivables

9, 21

1,318,159

4,375,816

Retirement benefit costs

20, 23

1,117,826

450,133

Gain on disposal of property and equipment

13, 21

(1,735,200)

(1,914,123)

Finance income

8, 10

(10,502,498)

(3,828,221) Finance costs

15

32,894,932

26,934,023

Operating income before working capital changes

194,183,086

174,657,937

Decrease (increase) in:

Trade and other receivables

15,374,775

86,814,231

Advances to related parties

22

(140,274)

(1,226,567)

Inventories

(40,648,652)

44,409,521

Prepayments and other current assets

2,293,509

(6,494,604)


(3,305,132)

-

Increase (decrease) in:

Trade and other payables

52,229,253

(34,664,557)


22

(50,391,103)

52,461,454

Cash provided by operations

169,595,462

315,957,414 Finance income received

4,192,498

973,221

Income taxes paid

(46,562,355)

(14,452,191)

Net cash provided by operating activities

127,225,605

302,478,444

Cash flows from investing activities Increase in related party loans receivable

10

-

(120,000,000) Collection of loans receivable

10

5,350,000

-

Increase in advances to related parties

22

903,755

(28,482,091) Acquisition of investment property

12

-

(134,152,963)

Acquisition of property and equipment

13

(264,967,109)

(53,326,610) Disposal of property and equipment

900,000

-

Net cash used in investing activities

(257,813,354)

(335,961,664)

Cash flows from financing activities Proceeds from issuance of additional

shares

16

245,169,649

323,100,000

Net availments (payments) of loans payable

15

115,660,285

(77,000,000)

Purchase of non-controlling interest in subsidiary

6

(6,632,294)

-

Finance cost paid

(32,894,932)

(26,934,023)

Net cash provided by financing activities

321,302,708

219,165,977

Net increase in cash and cash equivalents

190,714,959

185,682,757

Cash and cash equivalents

January 1

204,788,818

19,106,061

December 31

P395,503,777

P204,788,818

Information on significant non-cash transactions

Conversion of debt to equity of subsidiary

(P55,455,249)

P- Cash dividend distribution through

offsetting

17

(25,000,000)

-


13

835,200

(1,914,123)

Transfer of investment property to property and equipment

12

21,287,963

-

Acquisition of farms

13

(21,287,963)

- Advances to related parties

22

79,620,049

1,914,123

P-

P-


CALATA CORPORATION AND ITS SUBSIDIARY (formerly Planters Choice Agro Products, Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

NOTE 1 – CORPORATE INFORMATION Calata Corporation (formerly Planters Choice Agro Products, Inc.) (the Parent Company) and its subsidiary (collectively referred herein as the Group) was organized under the laws of the Republic of the Philippines. The Parent Company was registered with the Philippine Securities and Exchange Commission (SEC) per Registration No. A199911666 on July 23, 1999. The primary purpose of the Parent Company is to conduct, engage in and carry on, as principal or otherwise, all lawful business activities involving livestock and agricultural business, corporate or otherwise, such as but not limited to the business of acquiring, raising, breeding, slaughtering, preserving, processing, packing, canning, enveloping, storing, marketing, exporting, and commercially distributing livestock such as chicken, fowl, cattle, calves, hogs, goats, sheep, lambs, all kinds of livestock and other animals, as may be permitted by law, for food purposes; the business of cultivating land and other natural resources, planting, growing, producing, buying, preserving, processing, packing, canning, enveloping, storing, marketing, exporting, and commercially distributing food and agricultural products including all kinds of goods, commodities, wares and merchandise of every kind and descriptions whether natural or artificial as may be permitted by law; the business of manufacturing, preparing stocking, packing, buying, selling, importing and exporting, dealing in and delivering all kinds of livestock and agricultural products such as but not limited to poultry, livestock, feeds, feed additives, fertilizers, pesticides, all types of chemicals and substance used for livestock and agriculture, and/or whatsoever materials which may be necessary or incidental to their manufacture or preparation inside or outside the Philippines and all kinds of materials and products and by-products arising out of or used in the breeding and slaughtering of poultry and livestock and all other agricultural activities for food purposes; and to direct, establish, construct, acquire, sell, lease operate and maintain slaughterhouse, dressing plants, processing plant, refrigerating plants, cold storage, warehouses, sheds, silos, bodegas, storage bins, and other buildings, facilities, structures and equipment necessary or expedient for the carrying out of the purposes aforesaid. The Group’s registered office address and principal place of business is at McArthur Highway, Banga 1st, Plaridel, Bulacan. On January 5, 2010, the Parent Company’s Board of Directors (BOD) amended its By-laws to change the corporate name from Planters Choice Agro Products, Inc. to Calata Corporation. On February 22, 2010, the SEC issued a Certificate of Amendment approving the said amendment. On August 5, 2011, the Parent Company’s BOD amended its article of incorporation to increase its authorized share capital from P1,000,000 to P345,400,000 with par value of P100 to P1, respectively (see Note 16). On August 17, 2011, the SEC issued a Certificate of Amendment approving the said amendment. On August 18, 2011, the Parent Company’s BOD amended its article of incorporation to increase its authorized share capital from P345,400,000 to P845,400,000 (see Note 16). On August 25, 2011, the SEC issued a Certificate of Amendment approving the said amendment.

8

On December 28, 2011, with the approvals by the Philippine Stock Exchange (PSE) for the Parent Company’s application for listing and by the SEC for the Registration Statement, a total of 36,012,000 common shares, with P1 par value, representing 10% of outstanding share capital, was offered and subscribed at P7.50 per share through an initial public offering on May 10 to 16, 2012 (see Note 16). The common shares comprise of 36,012,000 new shares issued by the Parent Company by way of a primary offer. The Parent Company’s common shares were listed and commenced trading on the PSE on May 23, 2012. On January 31, 2012, the Parent Company’s BOD amended its article of incorporation to change the primary purpose of the Parent Company to include the cultivation of land and other natural resources and on the other hand, to exclude the sale, at wholesale or retail, of livestock such as chicken, fowl, cattle, calves, hogs, goats, sheep, lambs, all kinds of livestock and other animals, as may be permitted by law, for food purposes; and food and agricultural products including all kinds of goods, commodities, wares and merchandise of every kind and descriptions whether natural or artificial. On February 6, 2012, the SEC issued a Certificate of Amendment approving the said amendment. On July 19, 2012, the Parent Company’s BOD approved the conversion of its P55,455,249.00 worth of advances to equity shares in Agri Phil Corporation (APC) as well as the purchase of all the issued and outstanding shares of stock therein. On August 3, 2012, the SEC approved said conversion which resulted to the Parent Company owning 85.37% ownership in APC. The investing public, including all the shareholders of the Parent Company have been informed of this development through timely and complete disclosures with the SEC via the filing of the requisite Current Report (SEC Form 17-C) and the uploading thereof with the PSE via the PSE Online Disclosure System. On September 30, 2012, the complete acquisition of APC had been implemented and reflected in the books of the Parent Company’s SEC Form 17-Q which was filed with the SEC and uploaded with the PSE via the PSE Online Disclosure System. APC has been included in the consolidated financial statements for the year ended December 31, 2012. APC is a corporation established to engage in import/export, buying, selling, distributing and marketing at wholesale and retail all kinds of goods of every kind and description such as but not limited to agricultural products. APC has been included in the consolidated financial statements by the time the Parent Company gained control. The consolidated financial statements of the Group as of and for the years ended December 31, 2012 and 2011 were authorized for issue by the BOD on March 15, 2013 and that the President and Chief Executive Officer (CEO) is authorized to approve such consolidated financial statements on their behalf. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 2.1 Basis of preparation The principal accounting policies adopted in the preparation of the consolidated financial statements are set out below. The policies have been consistently applied to both years presented, unless otherwise stated. Statement of compliance The consolidated financial statements of the Group have been prepared in compliance with Philippine Financial Reporting Standards (PFRS). Basis of measurement The consolidated financial statements have been prepared on a historical cost basis.

9

Presentation and functional currency The consolidated financial statements are prepared in Philippine Peso (P), which is the Group’s functional and presentation currency. All values are rounded off to the nearest Peso, unless otherwise indicated. Use of judgments and estimates The preparation of consolidated financial statements in compliance with PFRS requires the use of certain critical accounting estimates. It also requires the Group’s management to exercise judgment in applying the Group’s accounting policies. The areas where significant judgments and estimates have been made in preparing the consolidated financial statements and their effects are disclosed in Note 3. Changes in accounting policies and disclosures a. New standards and amendments effective from January 1, 2012

The accounting policies adopted are consistent with those of the previous period except for the following new standards and amendments effective for the first time on or after either January 1, 2012 or July 1, 2012 of which none have had a material effect on the consolidated financial statements:

Amendments to PFRS 7: Disclosures - Transfers of Financial Assets, effective July 1, 2011

Amendments to PAS 1, Presentation of Items of Other Comprehensive Income

Amendments to PAS 12, Deferred Tax: Recovery of Underlying Assets

The adoption of the standards or amendments is described below:

Amendments to PFRS 7: Disclosures - Transfers of Financial Assets: The amendment becomes effective for annual periods beginning on or after July 1, 2011. The amendment requires additional disclosure about financial assets that have been transferred but not derecognized to enable the user of the Group’s financial statements to understand the relationship with those assets that have not been derecognized and their associated liabilities. In addition, the amendment requires disclosures about continuing involvement in derecognized assets to enable the user to evaluate the nature of, and risks associated with, the entity’s continuing involvement in those derecognized assets.

Amendments to PAS 1, Presentation of Items of Other Comprehensive Income: The new requirements are effective for annual periods beginning on or after July 1, 2012. Earlier application is permitted. The amendments improved the consistency and clarity of the presentation of items of other comprehensive income. The amendments also highlighted the importance that the board places on presenting profit or loss and other comprehensive income together and with equal prominence.

The main change resulting from the amendments was a requirement for entities to group items presented in other comprehensive income on the basis of whether they are potentially reclassifiable to profit or loss subsequently (reclassification adjustments). The amendments did not address which items are presented in other comprehensive income. The amendments did not change the option to present items of other comprehensive income either before tax or net of tax. However, if the items are presented before tax, then the tax related to each of the two groups of other comprehensive income items (those that might be reclassified and those that will not be reclassified) must be shown separately.

10

Amendments to PAS 12, Deferred Tax: Recovery of Underlying Assets: The amendments are effective January 1, 2012. Earlier application is permitted. The amendments provide a practical approach for measuring deferred tax liabilities and deferred tax assets when investment property is measured using the fair value model in PAS 40, Investment Property. Under PAS 12, the measurement of deferred tax liabilities and deferred tax assets depends on whether an entity expects to recover an asset by using it or by selling it. However, it is often difficult and subjective to determine the expected manner of recovery when the investment property is measured using the fair value model in PAS 40.

To provide a practical approach in such cases, the amendments introduce a presumption that an investment property is recovered entirely through sale. This presumption is rebutted if the investment property is held within a business model whose objective is to consume substantially all of the economic benefits embodied in the investment property over time, rather than through sale.

Philippine Interpretation Committee-21 (PIC-21), Income Taxes - Recovery of Revalued Non-Depreciable Assets addresses similar issues involving non-depreciable assets measured using the revaluation model in PAS 16, Property, Plant and Equipment. The amendments incorporate PIC-21 into PAS 12 after excluding investment property measured at fair value from the scope of the guidance previously contained in PIC-21.

b. New standards and amendments to existing standards issued but not yet effective and not

early adopted by the Group Standards and amendments to existing standards issued but not yet effective up to the date of issuance of the Group’s consolidated financial statements are listed below. This listing is of standards and issued, which the Group reasonably expects to be applicable at a future date. The Group intends to adopt those standards when they become effective. i. Standards and amendments relevant to the Group

PFRS 9 Financial Instruments: Classification and Measurement (effective January 1, 2013): PFRS 9 as issued reflects the first phase of the FRSC work on the replacement of PAS 39 and applies to classification and measurement of financial assets as defined in PAS 39. The standard is effective for annual periods beginning on or after January 1, 2013. In subsequent phases, the FRSC will address classification and measurement of financial liabilities, hedge accounting and derecognition.

The adoption of the first phase of PFRS 9 will have an effect on the classification and measurement of the Group’s financial assets. The Group did not conduct an evaluation on the possible financial impact of an early adoption of the new standard as the Group will not early adopt the standard. However, initial indications show that adoption of PFRS 9 will have no significant impact on its financial position or performance.

PFRS 10 Consolidated Financial Statements: This standard was developed to eliminate perceived conflict on concept of consolidation between PAS 27, Consolidated and Separate Financial Statements (amended in 2008) and PIC-12, Consolidation – Special Purpose Entities. PAS 27 (amended in 2008) requires consolidation of entities based on control whereas PIC-12 mandates consolidation of entities based on risks and rewards. It provides a new definition of control based on three elements: power over the investee, exposure or rights to variable returns from involvement with the investee, ability to use power over the investee to affect the amount of investor’s return.

The new standard is applicable to annual periods beginning on or after January 1, 2013.

Earlier application is permitted.

11

PFRS 12 Disclosures of Interests in Other Entities (effective January 1, 2013): This standard prescribes all of the disclosure requirements for subsidiaries, joint arrangements, associates and unconsolidated structured entities. Earlier application is permitted.

The adoption of this standard will result to a number of new disclosure requirements.

PFRS 13 Fair Value Measurement (effective January 1, 2013): This standard was developed to eliminate inconsistencies of fair value measurements dispersed in various existing PFRS. It clarifies the definition of fair value, provides a single framework for measuring fair value and enhances fair value disclosures. Earlier application is permitted. The Group is currently assessing the impact that this standard will have on its financial position and performance.

Amendments to PFRS 7, Disclosures – Offsetting Financial Assets and Financial Liabilities: The amendment involves the revision of the required disclosures to include information that will enable users to evaluate the effect or potential effect of netting arrangements on an entity’s financial position.

An entity shall provide the disclosures required by the amendments retrospectively.

Earlier application is permitted. The amended standard shall be applied for annual periods beginning on or after January

1, 2013 and interim periods within these annual periods.

Amendments to PFRS 9 and PFRS 7, Mandatory Effective Date of PFRS 9 and Transition Disclosures: The amendments involve the following: (a) change of the original January 1, 2013 mandatory effective date of PFRS 9 to January 1, 2015, (b) modification of the relief from restating prior periods, and (c) additional required disclosures on transition from PAS 39, Financial Instruments: Recognition and Measurement to PFRS 9.

The amendments only affect disclosure and will have no impact on the Group’s

financial position or performance. The amended standard shall be applied for annual periods beginning on or after January 1, 2015. Earlier application is permitted.

Amendments to PFRS 10, PFRS 12 and PAS 27: Investment Entities: The amended standards shall be applied for annual periods beginning on or after January 1, 2014. Earlier application is permitted. The amendments define an investment entity and require a parent that is an investment entity to measure its investments in particular subsidiaries at fair value through profit or loss in its consolidated and separate financial statements. It also sets out disclosure requirements for investment entities into PFRS 12 and amend PAS 27.

Amendments to PAS 19, Employee Benefits: These amendments eliminate the corridor approach and calculate finance costs on a net funding basis. The amendments would also require recognition of all actuarial gains and losses in other comprehensive income as they occur and of all past service costs in the profit or loss. These amendments replace interest cost and expected return on plan assets with a net interest amount that is calculated by applying the discount rate to the net defined benefit liability (asset). The amended standard is applied retrospectively with limited exceptions. Entities shall apply the amended PAS 19 for annual periods beginning on or after January 1, 2013. Earlier application is permitted.

12

PAS 27 Separate and Consolidated Financial Statements: This completes the consolidation project. The standard was amended to contain requirements relating only to separate consolidated financial statements.

The amended standard is applicable to annual periods beginning on or after January 1,

2013. Earlier application is permitted.

Amendments to PAS 32, Offsetting Financial Assets and Financial Liabilities: This amendment provides an additional application guidance for offsetting in accordance with PAS 32. It clarifies the meaning of “currently has a legally enforceable right of set-off” and that some gross settlement systems may be considered equivalent to net settlement.

The amended standard shall be applied for annual periods beginning on or after January

1, 2014 and should be applied retrospectively. Earlier application is permitted.

ii. New standards, amendments and interpretation not relevant to the Group

Amendments to PFRS 1, Government Loans (effective January 1, 2013)

PFRS 11, Joint Arrangements (effective January 1, 2013)

Amendments to PFRS 11, Transition Guidance (effective January 1, 2013)

PAS 28 (Amended), Investment in Associates and Joint Ventures (effective January 1, 2013)

IFRIC 20 , Stripping Costs in the Production Phase of a Surface Mine (effective January 1, 2013

Annual improvements to PFRS The FRSC issued improvements to PFRS. The following improvements will be adopted as they become effective for annual periods on or after January 1, 2013:

Amendments to PFRS 1, First-Time Adoption of Philippine Financial Reporting Standards

PAS 1, Presentation of Financial Statements – Clarification of the Requirements for Comparative Information

PAS 16, Property, Plant and Equipment - Classification of Servicing Equipment

PAS 32, Financial Instruments Presentation – Tax Effect of Distribution to Holders of Equity Instruments

PAS 34, Interim Financial Reporting – Interim Financial Reporting and Segment Information for Total Assets and Liabilities

The Group, however, expects no significant impact on its financial position or performance from the adoption of the amendments.

2.2 Basis of consolidation

The consolidated financial statements comprise the financial statements of the Parent Company and its subsidiary. A subsidiary is an entity over which the Parent Company has the power to govern the financial operating policies generally accompanying a shareholding giving rise to a majority of voting rights. The subsidiary is fully consolidated from the date of acquisition, being the date on which the Parent Company obtains control, and continues to be consolidated until the date when such control ceases. The financial statements of the subsidiary are prepared for the same reporting period as the Parent Company, using consistent accounting policies. All intra-group balances, transactions, unrealized gains and losses resulting from intra-group transactions and dividends are eliminated in full.

13

A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction. If the Parent Company loses control over the subsidiary, it:

derecognizes the assets (including goodwill) and liabilities of the subsidiary

derecognizes the carrying amount of any non-controlling interest

derecognizes the cumulative translation differences recorded in equity

recognizes the fair value of the consideration received

recognizes the fair value of any investment retained

recognizes any surplus or deficit in profit or loss

reclassifies the parent’s share of components previously recognized in other comprehensive income to profit or loss or retained earnings, as appropriate.

Losses within a subsidiary are attributed to the non-controlling interest even if that results in a deficit balance. 2.3 Business combinations Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred measured at acquisition date fair value and the amount of any non-controlling interest in the acquiree. For each business combination, the Group elects whether to measure the non-controlling interest in the acquiree at fair value or at the proportionate share of the acquiree’s identifiable net assets. Acquisition-related costs are expensed as incurred and included in administrative expenses. When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. This includes the separation of embedded derivatives in host contracts by the acquiree. If the business combination is achieved in stages, the previously held equity interest is remeasured at its acquisition date fair value and any resulting gain or loss is recognized in profit or loss. Any contingent consideration to be transferred by the acquirer will be recognized at fair value at the acquisition date. Contingent consideration classified as an asset or liability that is a financial instrument and within the scope of PAS, is measured at fair value with changes in fair value recognized either in either profit or loss or as a change to other comprehensive income. If the contingent consideration is not within the scope of IAS 39, it is measured in accordance with the appropriate PFRS. Contingent consideration that is classified as equity is not remeasured and subsequent settlement is accounted for within equity. Goodwill is initially measured at cost, being the excess of the aggregate of the consideration transferred and the amount recognized for non-controlling interest over the net identifiable assets acquired and liabilities assumed. If the fair value of the net assets acquired is in excess of the aggregate consideration transferred, the gain is recognized in profit or loss. After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group’s cash-generating units that are expected to benefit from the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units.

14

Where goodwill has been allocated to a cash-generating unit and part of the operation within that unit is disposed of, the goodwill associated with the disposed operation is included in the carrying amount of the operation when determining the gain or loss on disposal. Goodwill disposed in these circumstances is measured based on the relative values of the disposed operation and the portion of the cash-generating unit retained. 2.4 Financial instruments i. Financial assets Initial recognition and measurement Financial assets within the scope of PAS 39 are classified as financial assets at fair value through profit or loss (FVPL), loans and receivables, held-to-maturity (HTM) investments, available-for-sale (AFS) financial assets, or as derivatives designated as hedging instruments in an effective hedge, as appropriate. The Group determines the classification of its financial assets at initial recognition. All financial assets are recognized initially at fair value plus transaction costs, except in the case of financial assets recorded at FVPL. Purchases or sales of financial assets that require delivery of assets within a time frame established by regulation or convention in the market place (regular way trades) are recognized on the trade date, i.e., the date that the Group commits to purchase or sell the asset. Subsequent measurement The subsequent measurement of financial assets depends on their classification as described below: (a) Financial assets at FVPL Financial assets at FVPL include financial assets held for trading and financial assets designated upon initial recognition at FVPL. Financial assets at FVPL are carried in the consolidated statements of financial position at fair value with net changes in fair value presented as finance costs (negative net changes in fair value) or finance income (positive net changes in fair value) in the consolidated statement of income. Financial assets are designated upon initial recognition at FVPL only if the criteria under PAS 39 are satisfied. The Group has not designated any financial assets at FVPL. (b) Loans and receivables Loans and receivable are non-derivative financial assets with fixed or determinable payments that are not quoted in the active market. After initial measurement, such financial assets are subsequently measured at amortized cost using effective interest rate (EIR) method, less impairment. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortization is included in finance income in the consolidated statement of income. The losses arising from impairment are recognized in the consolidated statement of income in finance costs for loans and in operating expenses for receivables.

15

Impairment provisions are recognized when there is objective evidence (such as significant financial difficulties on the part of the counterparty or default or significant delay in payment) that the Group will be unable to collect all of the amounts due under the terms of the receivable, the amount of such a provision being the difference between the net carrying amount and the present value of the future expected cash flows associated with the impaired receivable. For trade receivables, which are reported net; such provisions are recorded in a separate allowance account with the loss being recognized within operating expenses in the consolidated statement of income. On confirmation that the trade receivable will not be collectable, the gross carrying value of the asset is written off against the associated provision. The Group's loans and receivables comprise cash and cash equivalents, trade and other receivables, loans receivable, advances to related parties and refundable security deposit in the consolidated statements of financial position (see Notes 8, 9, 10, 22 and 25). (c) HTM investments Non-derivative financial assets with fixed or determinable payments and fixed maturities are classified as held to maturity when the Group has the positive intention and ability to hold them to maturity. After initial measurement, HTM investments are measured at amortized cost using the EIR, less impairment. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees that are an integral part of the EIR. The EIR amortization is included as finance income in the consolidated statement of income. The losses arising from impairment are recognized in the consolidated statement of income in finance costs. The Group did not hold any HTM investments during the years ended December 31, 2012 and 2011. (d) AFS investments AFS investments include equity investments and debt securities. Equity investments classified as AFS are those that are neither classified as held for trading nor designated at FVPL. Debt securities in this category are those that are intended to be held for an indefinite period of time and that may be sold in response to needs for liquidity or in response to changes in the market conditions. After initial measurement, AFS investments are subsequently measured at fair value with unrealized gains or losses recognized as other comprehensive income in the AFS reserve until the investment is derecognized, at which time the cumulative gain or loss is recognized in other operating income, or determined to be impaired, when the cumulative loss is reclassified from the AFS reserve to the consolidated statement of income in finance costs. Interest earned while holding AFS investments is reported as finance income using the EIR method. The Group evaluates whether the ability and intention to sell its AFS financial assets in the near term is still appropriate. When, in rare circumstances, the Group is unable to trade these financial assets due to inactive markets and management’s intention to do so significantly changes in the foreseeable future, the Group may elect to reclassify these financial assets. Reclassification to loans and receivables is permitted when the financial assets meet the definition of loans and receivables and the Group has the intent and ability to hold these assets for the foreseeable future or until maturity. Reclassification to the HTM category is permitted only when the entity has the ability and intention to hold the financial asset accordingly. For a financial asset reclassified from the AFS category the fair value carrying amount at the date of reclassification becomes its new amortized cost and any previous gain or loss on the asset that has been recognized in equity is amortized to profit or loss over the remaining life of the investment using the EIR. Any difference between the new amortized cost and the expected cash flows is also amortized over the remaining life of the asset using the EIR. If the asset is subsequently determined to be impaired, then the amount recorded in equity is reclassified to the consolidated statement of income. The Group does not have any asset under this category.

16

Derecognition A financial asset is derecognized when: a) the rights to receive cash flows from the asset have expired; b) the Group has transferred its rights to receive cash flows from the assets or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a ‘pass-through’ arrangement; and either (a) the Group has transferred substantially all the risks and rewards of the asset, or (b) the Group has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset. When the Group has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, it evaluates if and to what extent it has retained the risks and rewards of ownership. When it has neither transferred nor retained substantially all of the risks and rewards of the asset, nor transferred control of the asset, the asset is recognized to the extent of the Group’s continuing involvement in the asset. In that case, the Group also recognizes an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Group has retained. Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Group could be required to repay. ii. Impairment of financial assets The Group assesses, at each reporting date, whether there is objective evidence that a financial asset or a group of financial assets is impaired. A financial asset or a group of financial assets is deemed to be impaired if there is objective evidence of impairment as a result of one or more events that has occurred since the initial recognition of the asset (an incurred ‘loss event’) and that loss event has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated. Evidence of impairment may include indications that the debtors or a group of debtors is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganization and observable data indicating that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults. (a) Financial assets carried at amortized cost For financial assets carried at amortized cost, the Group first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, or collectively for financial assets that are not individually significant. If the Group determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is, or continues to be, recognized are not included in a collective assessment of impairment. If there is objective evidence that an impairment loss has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future expected credit losses that have not yet been incurred). The present value of the estimated future cash flows is discounted at the financial asset’s original EIR. If a loan has a variable interest rate, the discount rate for measuring any impairment loss is the current EIR.

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The carrying amount of the asset is reduced through the use of an allowance account and the loss is recognized in profit or loss. Interest income continues to be accrued on the reduced carrying amount and is accrued using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. The interest income is recorded as finance income in the consolidated statement of income. Loans together with the associated allowance are written off when there is no realistic prospect of future recovery and all collateral has been realized or has been transferred to the Group. If, in a subsequent year, the amount of the estimated impairment loss increases or decreases because of an event occurring after the impairment was recognized, the previously recognized impairment loss is increased or reduced by adjusting the allowance account. If a write-off is later recovered, the recovery is credited to finance costs in the consolidated statement of income. (b) Financial assets carried at cost If there is objective evidence of an impairment loss on an unquoted equity instrument that is not carried at fair value because its fair value cannot be reliably measured, or of a derivative asset that is linked to and must be settled by delivery of such an unquoted equity instrument, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the current market rate of return for a similar financial asset. (c) AFS investments For AFS investments, the Group assesses at each reporting date whether there is objective evidence that an investment or a group of investments is impaired. In the case of equity investments classified as AFS, objective evidence would include a significant or prolonged decline in the fair value of the investment below its cost. ‘Significant’ is evaluated against the original cost of the investment and ‘prolonged’ against the period in which the fair value has been below its original cost. When there is evidence of impairment, the cumulative loss – measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that investment previously recognized in the consolidated statement of income – is removed from other comprehensive income and recognized in the consolidated statement of income. Impairment losses on equity investments are not reversed through profit or loss; increases in their fair value after impairment are recognized directly in other comprehensive income. In the case of debt instruments classified as AFS, impairment is assessed based on the same criteria as financial assets carried at amortized cost. However, the amount recorded for impairment is the cumulative loss measured as the difference between the amortized cost and the current fair value, less any impairment loss on that investment previously recognized in the consolidated statement of income. Future interest income continues to be accrued based on the reduced carrying amount of the asset, using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. The interest income is recorded as part of finance income. If, in a subsequent year, the fair value of a debt instrument increases and the increase can be objectively related to an event occurring after the impairment loss was recognized in the consolidated statement of income, the impairment loss is reversed through the consolidated statement of income. iii. Financial liabilities Initial recognition and measurement Financial liabilities within the scope of PAS 39 are classified as financial liabilities at FVPL and other financial liabilities. The Group determines the classification of its financial liabilities at initial recognition. All financial liabilities are recognized initially at fair value and, in the case of other financial liabilities, net of directly attributable transaction costs.

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The Group’s financial liabilities as of December 31, 2012 and 2011 comprise of other financial liabilities which include trade and other payables, loans payable, advances from related parties and dividends payable. Subsequent measurement The measurement of financial liabilities depends on their classification as described below: (a) Financial liabilities at FVPL Financial liabilities at FVPL include financial liabilities held for trading and financial liabilities designated upon initial recognition as at FVPL. Financial liabilities are classified as held for trading if they are acquired for the purpose of selling in the near term. This category includes derivative financial instruments entered into by the Group that are not designated as hedging instruments in hedge relationships as defined by PAS 39. Separated embedded derivatives are also classified as held for trading unless they are designated as effective hedging instruments. Gains or losses on liabilities held for trading are recognized in the consolidated statement of income. Financial liabilities designated upon initial recognition at FVPL are designated at the initial date of recognition, and only if the criteria in PAS 39 are satisfied. The Group does not have any liabilities held for trading nor has it designated any financial liabilities as being at FVPL. (b) Other financial liabilities After initial recognition, other financial liabilities are subsequently measured at amortized cost using the EIR method. Gains and losses are recognized in profit or loss when the liabilities are derecognized as well as through the EIR amortization process. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortization is included as finance costs in the consolidated statement of income. Other financial liabilities include trade and other payables, loans payable, advances from related parties and dividends payable (see Notes 14, 15, 17 and 22). Derecognition A financial liability is derecognized when the obligation under the liability is discharged or 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. The difference in the respective carrying amounts is recognized in the consolidated statement of income. iv. Classification of financial instruments between debt and equity Financial instruments are classified as liability or equity in accordance with the substance of the contractual arrangement. Interest, dividends, gains and losses relating to a financial instrument or a component that is a financial liability is reported as expense or income. v. Offsetting of financial instruments Financial assets and financial liabilities are offset and the net amount is reported in the consolidated statements of financial position if, and only if, there is a currently enforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis, or to realize the asset and settle the liability simultaneously. This is not generally the case with master netting agreements, and the related assets and liabilities are presented gross in the consolidated statements of financial position.

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vi. Fair value of financial instruments The fair value of financial instruments traded in active markets is based on their quoted market price or dealer price quotation (bid price for long positions and ask price for short positions), without any deduction for transaction costs. For financial instruments not traded in an active market, the fair value is determined using appropriate valuation techniques. Such techniques may include:

Using recent arm’s length market transactions

Reference to the current fair value of another instrument that is substantially the same

A discounted cash flow analysis or other valuation models

An analysis of fair values of financial instruments and further details as to how they are measured are provided in Note 4. Fair value measurement hierarchy PFRS 7 requires certain disclosures which require the classification of financial assets and financial liabilities measured at fair value using a fair value hierarchy that reflects the significance of the inputs used in making the fair value measurement (Note 4). The fair value hierarchy has the following levels: a) quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1); b) inputs other than quoted prices included within Level 1 that are observable for the asset or

liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices) (Level 2); and c) inputs for the asset or liability that are not based on observable market data (unobservable

inputs) (Level 3).

The level in the fair value hierarchy within which the financial asset or financial liability is categorized is determined on the basis of the lowest level input that is significant to the fair value measurement. Financial assets and financial liabilities are classified in their entirety into only one of the three levels. 2.5 Cash and cash equivalents Cash and cash equivalents consist of cash in banks and deposits held at call with banks with original maturities of three months or less and are subject to an insignificant risk of change in value. For the purpose of reporting cash flows, cash and cash equivalents are unrestricted and available for use in current operations. 2.6 Inventories

Inventories are initially recognised at cost, and subsequently at the lower of cost and net realizable value (NRV). Cost comprises all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition. Cost is calculated using the first-in, first-out method. NRV represents the estimated selling price less all estimated costs to be incurred in marketing, selling and distributing the goods. When the NRV of the inventories is lower than the cost, the Group provides for an allowance for the decline in the value of the inventory and recognizes the write-down as an expense in the consolidated statement of income. When inventories are sold, the carrying amount of those inventories is recognized as an expense in the period in which the related revenue is recognized.

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2.7 Prepayments and other current assets Prepayments represent expenses not yet incurred but already paid in cash. Prepayments are initially recorded as assets and measured at the amount of cash paid. Subsequently, these are charged to the consolidated statement of income as they are consumed in operations or expire with the passage of time. Prepayments are classified in the consolidated statements of financial position as current assets when the cost of goods or services related to the prepayment are expected to be incurred within one year or the Group’s normal operating cycle, whichever is longer. Otherwise, prepayments are classified as noncurrent assets. Other assets are recognized when the Group expects to receive future economic benefit from it and the amount can be measured reliably. Other assets are classified in the consolidated statements of financial position as current assets when the cost of goods or services related to the assets are expected to be incurred within one year or the Parent Company’s normal operating cycle, whichever is longer. Otherwise, other assets are classified as noncurrent assets. 2.8 Investment properties Investment property, which pertains to land and building held to earn rentals and/or for capital appreciation, is measured initially at cost, including transaction costs. Subsequent to initial recognition, investment property is measured at cost less accumulated impairment loss, if any. Transfers to, or from, investment property shall be made only when there is a change in use. Investment property is derecognized by the Group upon its disposal or the investment property is permanently withdrawn from use and no future economic benefits are expected from its disposal. Any gain or loss on the retirement or disposal of investment properties is recognized in the consolidated statement of income in the year of retirement or disposal. Expenditures incurred after the investment properties have been put into operations, such as repairs and maintenance costs, are charged to the consolidated statement of income in the year the costs are incurred. Gains or losses on disposals are determined by comparing the proceeds with the carrying amount and are recognized in the consolidated statement of income. 2.9 Property and equipment Property and equipment are initially measured at cost. At the end of each reporting period, items of property and equipment are measured at cost less any subsequent accumulated depreciation, amortization and any accumulated impairment losses. Cost includes expenditure that is directly attributable to the acquisition of the asset and the estimated present value of any future unavoidable costs of dismantling and removing items. The corresponding liability is recognized within provisions. Subsequent expenditures relating to an item of property and equipment that have already been recognized are added to the carrying amount of the asset when it is probable that future economic benefits, in excess of the originally assessed standard of performance of the existing asset, will flow to the Group. All other subsequent expenditures are recognized as expense in the period in which those are incurred. Depreciation is computed on the straight-line method based on the estimated useful lives of the assets as follows:

Office equipment 5 years Transportation equipment 5 years Leasehold improvement 7 years

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Properties in the course of construction for production, rental or administrative purposes, or for purposes not yet determined, are carried at cost, less any recognized impairment loss. Cost includes materials used, professional fees and for qualifying assets, borrowing costs capitalized in accordance with the Group’s accounting policy. Depreciation of these assets, on the same basis as other property assets, commences at the time the assets are ready for their intended use. Leasehold improvements are amortized over the terms of the lease or the estimated useful life of the leasehold improvement, whichever is shorter. The estimated useful lives and depreciation and amortization method are reviewed periodically to ensure that the periods and method of depreciation and amortization are consistent with the expected pattern of economic benefits from items of property and equipment. When assets are retired or otherwise disposed of, the cost and the related accumulated depreciation and amortization and any impairment in value are removed from the accounts and any resulting gain or loss arising on the disposal or retirement of an asset, determined as the difference between the sales proceeds and the carrying amount of the asset, is recognized in the consolidated statement of income. 2.9 Impairment of non-financial assets The carrying amounts of the Group’s non-financial assets such as investment properties and property and equipment are reviewed at each reporting date to determine whether there is any indication of impairment or an impairment loss previously recognized no longer exists or may have decreased. If any such indication exists, the Group makes a formal estimate of the asset’s recoverable amount. The recoverable amount is the higher of an asset or its cash generating unit’s (CGU) fair value less costs to sell and its value in use. The fair value less costs to sell is the amount obtainable from the sale of the asset in an arm’s length transaction. 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 cash flows independent of those from other assets, the recoverable amount is determined for the CGU to which the asset belongs. Whenever the carrying amount of an asset or its CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount and an impairment loss is recognized in the consolidated statement of income. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation and amortization, if no impairment loss had been recognized. Reversals of impairment are recognized in the consolidated statement of income. 2.10 Provisions and contingencies Provisions are recognized when: (a) the Group has a present obligation (legal or constructive) as a result of a past event; (b) it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation; and (c) a reliable estimate can be made of the amount of the obligation. If the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognized as finance cost. When the Group expects a provision or loss to be reimbursed, the reimbursement is recognized as a separate asset only when the reimbursement is virtually certain and its amount is estimable. The expense relating to any provision is presented in the consolidated statement of income, net of any reimbursement.

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Contingent liabilities are not recognized in the Group’s consolidated financial statements. They are disclosed in the notes unless the possibility of an outflow of resources embodying economic benefits is remote. Contingent assets are not recognized in the Group’s consolidated financial statements but disclosed in the notes to Group’s consolidated financial statements when an inflow of economic benefits is probable. 2.11 Employee benefits Retirement benefit cost is determined using the projected unit credit method. This method reflects the services rendered by the employees up to the date of valuation and incorporates assumptions concerning employees’ projected salaries. Actuarial valuations are conducted with sufficient regularity, with option to accelerate when significant changes to underlying assumptions occur. Retirement benefit expense includes current service cost, interest cost, recognized actuarial gains and losses, the effect of any curtailment or settlements and amortization of transitional liability at the date of adoption of PAS 19. The defined benefit liability / defined benefit asset recognized in the consolidated statements of financial position is the present value of the defined benefit obligation at the reporting date less the fair value of plan assets, together with adjustments for unrecognized actuarial gains or losses and past service costs. The defined benefit obligation is calculated by an actuary using the projected unit credit method. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of government bonds that are denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating the terms of the related retirement liabilities. Cumulative unrecognized actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions in excess of the greater of 10% of the value of plan assets or 10% of the defined benefit obligation are spread to income over the expected average remaining working lives of employees. Past-service costs are recognized immediately in income, unless the changes to the retirement plan are conditional on the employees remaining in service for a specified period of time (the vesting period). In this instance, the past-service costs are amortized on a straight-line basis over the vesting period. 2.12 Share capital Share capital is measured at par value for all shares issued. When the shares are sold at a premium, the difference between the proceeds and the par value is credited to the “Share premium” 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 Group, the shares shall be measured either at the fair value of the shares issued or fair value of the liability settled, whichever is more reliably determinable. Incremental costs directly attributable to the issue of new ordinary shares are shown in equity as a deduction, net of tax, from the proceeds. Costs that relate to the stock market listing, or otherwise are not incremental costs directly attributable to issuing new shares, should be recorded as an expense in the statement of income. Transaction costs that relate jointly to more than one transaction (for example, costs of a concurrent offering of some shares and a stock exchange listing of other shares) are allocated to those transactions using a basis of allocation that is rational and consistent with the joint transactions.

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2.13 Retained earnings Retained earnings represent the cumulative balance of periodic net income or loss, dividend distribution, prior period adjustments, effect of changes in accounting policy and other capital adjustments. When retained earnings account has a debit balance, it is called “deficit”, and presented as a deduction from equity. 2.14 Dividends

Dividends are recognized when they become legally payable. Dividend distribution to equity shareholders is recognized as a liability in the Group’s consolidated financial statements in the period in which the dividends are declared and approved by the Group’s BOD. 2.15 Revenue recognition Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be measured reliably. Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for goods and services provided in the normal course of business. Revenue from the sale of goods is recognized when all of the following conditions are satisfied:

a. the Group has transferred to the buyer the significant risks and rewards of ownership of the goods;

b. the Group retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold;

c. the amount of revenue can be measured reliably; d. it is probable that the economic benefits associated with the transaction will flow to

the Group; and e. the costs incurred or to be incurred in respect of the transaction can be measured

reliably. If it is probable that discount will be granted and the amount can be measured reliably, then the discount is recognized as a reduction of revenue as the sale is recognized. Finance income is accrued on a time proportion basis, by reference to the principal outstanding and at the EIR applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset’s net carrying amount. 2.16 Costs and expense recognition Costs and expenses are recognized in the consolidated statement of income when decrease in future economic benefit related to a decrease in an asset or an increase in a liability has arisen that can be measured reliably. Costs and expenses are recognized in the consolidated statement of income: on the basis of a direct association between the costs incurred and the earning of specific items of income; on the basis of systematic and rational allocation procedures when economic benefits are expected to arise over several accounting periods and the association with income can only be broadly or indirectly determined; or immediately when an expenditure produces no future economic benefits or when, and to the extent that, future economic benefits do not qualify, or cease to qualify, for recognition in the consolidated statements of financial position as an asset. Costs and expenses in the consolidated statement of income are presented using the function of expense method. Costs of sales are expenses incurred that are associated with the goods sold and includes purchases of goods and distribution costs. Operating expenses are costs attributable to administrative, marketing and other business activities of the Group.

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2.17 Leases Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases. The Group does not have any leases under finance lease. The Group as lessee Operating lease payments are recognized as an expense on a straight-line basis over the lease term, except when another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed. Contingent rentals arising under operating leases are recognized as an expense in the period in which they are incurred. In the event that lease incentives are received to enter into operating leases, such incentives are recognized as a liability. The aggregate benefit of incentives is recognized as a reduction of rental expense on a straight-line basis, except when another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed. 2.18 Borrowing costs Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale. Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalization. Borrowing costs that are not directly attributable to the acquisition, construction or production of a qualifying asset are recognized in profit or loss in the period in which they are incurred. 2.19 Income taxes The tax expense for the period comprises current and deferred tax. Tax expense is recognized in the consolidated statement of income, except to the extent that it relates to items recognized in other comprehensive income or directly in equity, or when the tax arises from a business combination. Current and deferred tax that relates to items that are recognized in other comprehensive income or directly in equity are also recognized in other comprehensive income or directly in equity, respectively. Current income tax Current income tax assets and liabilities for the current and the prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute for the amount are those that are enacted or substantively enacted at the reporting date. Deferred income tax Deferred income tax is provided, using the liability method, on all temporary differences at the reporting date between the tax bases of assets and liabilities and its carrying amounts for financial reporting purposes.

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Deferred income tax liabilities are recognized for all taxable temporary differences. However, deferred income tax liabilities are not recognized if it arises from:

a) the initial recognition of goodwill; or b) the initial recognition of an asset or liability in a transaction which:

(i) is not a business combination; (ii) the initial recognition of an asset or liability in a transaction which is not a business

combination at the time of the transaction affects neither accounting nor taxable profit; and

(iii) investments in subsidiaries and jointly controlled entities where the Group is able to control the timing of the reversal of the difference and it is probable that the difference will not reverse in the foreseeable future.

Deferred income tax assets are recognized for all deductible temporary differences, carry-forward of unused tax credits from excess minimum corporate income tax (MCIT) and net operating loss carryover (NOLCO), to the extent that it is probable that taxable profit will be available against which the deductible temporary differences and carry-forward of unused tax credits from MCIT and NOLCO can be utilized, unless the deferred tax asset arises from the initial recognition of an asset or liability in a transaction that is not a business combination; and at the time of transaction, affects neither accounting profit nor taxable profit (tax loss). The carrying amount of deferred income 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 income tax asset to be utilized. Unrecognized deferred tax assets are reassessed at the end of each reporting period and are recognized to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered. Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the period 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. Deferred tax assets and deferred tax liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when the deferred tax assets and the deferred tax liabilities relate to income taxes levied by the same transaction authority on either the same taxable entity or different taxable entities which intend either to settle current tax liabilities and assets on a net basis, or to realize the assets and settle the liabilities simultaneously. 2.20 Earnings per share (EPS) Basic EPS is determined by dividing profit or loss by the weighted average number of shares issued and outstanding during the year. For the purpose of calculating diluted EPS, profit or loss for the year attributable to ordinary equity holders of the Parent Company and the weighted average number of shares outstanding are adjusted for the effects of all dilutive potential ordinary shares. 2.21 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. Related parties may be individuals or corporate entities. The key management personnel of the Group and post–employment benefit plans for the benefit of the Group’s employees are also considered to be related parties.

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2.22 Events after the reporting date Post year-end events up to the date when the consolidated financial statements were authorized for issue that provide additional information about the Group’s position at reporting date (adjusting events) are reflected in the consolidated financial statements. Post year-end events that are not adjusting events are disclosed in the notes to the consolidated financial statements when material. 2.23 Segment reporting An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Group’s other components. Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the CEO that makes strategic decisions. An operating segment may engage in business activities for which it has yet to earn revenues, for example, start-up operations may be operating segments before earning revenues. Segment results that are reported to the CEO include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Unallocated items comprise mainly corporate assets, head office expenses, interest income and expenditures and income tax assets and liabilities. Segment capital expenditure is the total cost incurred during the period to acquire property, and equipment and investment properties. NOTE 3 – SIGNIFICANT ACCOUNTING ESTIMATES AND JUDGMENTS The preparation of the consolidated financial statements in conformity with PFRS requires the Group’s management to make estimates, assumptions and judgments that affect the amounts reported in the consolidated financial statements and accompanying notes. The estimates and associated assumptions are based on historical experiences and other various factors that are believed to be reasonable under the circumstances including expectations of related future events, the results of which form the basis of making the judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. The estimates, assumptions and judgments are reviewed and evaluated on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods.

Judgments

Determination of functional currency Based on the economic substance of the underlying circumstances relevant to the Group, the functional currency is determined to be the Philippine Peso. It is the currency that mainly influences the Group’s operations.

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Classification of financial instruments

The Group classifies 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 agreement and the guidelines set by PAS 39 on the definitions of a financial

asset, a financial liability or an equity instrument. In addition, the Group also determines and

evaluates its intention and ability to keep the investments until its maturity date.

The substance of a financial instrument, rather than its legal form, and the management’s

intention and ability to hold the financial instrument to maturity generally governs its

classification in the consolidated statements of financial position. The classification of financial assets and liabilities is presented in Note 4. Determination whether an arrangement contains a lease The determination of whether an arrangement is, or contains, a lease is based on the substance of the arrangement at the inception of the lease. The arrangement is assessed for whether fulfillment of the arrangement is dependent on the use of a specific asset or assets or the arrangement conveys a right to use the asset or assets, even if that right is not explicitly specified in the arrangement. The Group has entered into operating lease arrangement as a lessee. The Group, as a lessee, has determined that the lessor retains substantial risks and rewards of ownership of these properties, which are on operating lease agreements. Leases accounted for as operating leases are disclosed in Note 25. Determination of fair value of financial instruments The Group carries certain financial assets and liabilities at fair value, which requires use of accounting estimates and judgment. While significant components of fair value measurement were determined using verifiable objective evidence, the amount of changes in fair value would differ if the Group utilized different valuation methodologies and assumptions. Any changes in fair value of these financial assets and liabilities would affect profit and loss and equity. The fair values and carrying values of financial assets and financial liabilities as of December 31, 2012 and 2011 are disclosed in Note 4. Estimates Impairment of loan and trade and other receivables The Group reviews its loans and receivables at each reporting date to assess whether a provision for impairment should be recognized in its consolidated statement of income or loans and receivables balance should be written off. In particular, judgment by management is required in the estimation of the amount and timing of future cash flows when determining the level of allowance is required. Such estimates are based on assumptions about a number of factors and actual results may differ, resulting in future changes to the allowance. Moreover, management evaluates the presence of objective evidence of impairment which includes observable data that comes to the attention of the Group about loss events such as but not limited to significant financial difficulty of the counterparty, a breach of contract, such as a default or delinquency in interest or principal payments, probability that the borrower will enter bankruptcy or other financial re-organization.

28

The carrying value of loans receivable amounted to P129,650,000 and P135,000,000 as of December 31, 2012 and 2011, respectively (see Note 10).The carrying value of trade and other receivables amounted to P242,146,197 and P252,529,132 as of December 31, 2012 and 2011, respectively (see Note 9). The Group provided an allowance for impairment on trade receivables amounting to P5,693,975 and P4,375,816 for the years ended December 31, 2012 and 2011, respectively (see Note 9). Impairment of inventories At each financial reporting date, inventories are assessed for impairment by comparing the carrying amount of each item of inventory (or group of similar items) with its selling price less costs to sell. If an item of inventory (or group of similar items) is impaired, its carrying amount is reduced to selling price less costs to sell, and an impairment loss is recognized immediately in profit or loss. Based on management’s assessment, inventories are fairly stated, thus, no impairment loss needs to be recognized as of December 31, 2012 and 2011. The carrying amount of inventories amounted to P220,483,700 and P179,835,048 as of December 31, 2012 and 2011, respectively (see Note 11). Estimation of useful lives of property and equipment The Group reviews annually the estimated useful lives of property and equipment based on the period over which the assets are expected to be available for use. It is possible that future results of operations could be materially affected by changes in these estimates. A reduction in the estimated useful lives of property and equipment would increase recorded depreciation and amortization expense and decrease the related asset accounts. The estimated useful lives of property and equipment are discussed in Note 2.8 to the consolidated financial statements, which showed no changes in 2012 and 2011. There is no change in the estimated useful lives of property and equipment during the year. Impairment of non-financial assets The Group assesses at each reporting date whether there is an indication that the carrying amount of all non-financial assets may be impaired. If any such indication exists, or when annual impairment testing for an asset is required, the Group makes an estimate of the asset’s recoverable amount. At the reporting date, the Group assesses 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. Based on management’s assessment, non-financial assets are fairly stated, thus, no impairment loss needs to be recognized as of December 31, 2012 and 2011. The Group’s investment property amounted to P112,865,000 and P134,152,963 as of December 31, 2012 and 2011, respectively (see Note 12).The Group’s property and equipment, net of accumulated depreciation and amortization, amounted to P345,444,069 and P72,765,320 as of December 31, 2012 and 2011, respectively (see Note 13). Realizability of deferred tax assets

Management reviews the carrying amount of deferred tax assets at each reporting date. The carrying amount of deferred tax assets is reduced to the extent that it is no longer probable that sufficient taxable profit will be available against which the related tax assets can be utilized. Management believes that sufficient taxable profit will be generated to allow all or part of the deferred tax assets to be utilized. The Group’s recognized deferred tax assets amounted to P2,589,764 and P1,858,969 as of December 31, 2012 and 2011, respectively (see Note 24).

29

Estimation of retirement benefits The determination of the obligation and retirement benefits is dependent on management’s assumptions used by actuaries in calculating such amounts. Those assumptions are described in Note 23 and include, among others, discount rates per annum and salary increase rates. Actual results that differ from the Group’s assumptions are accumulated and amortized over future periods and therefore, generally affect the recognized expense and recorded obligation in such future periods. While the Group believes that the assumptions are reasonable and appropriate, significant differences in the actual experience or significant changes in the assumptions may materially affect the retirement obligations. The details of the Group’s retirement benefit are provided in Note 23. Retirement benefit liability amounted to P2,938,573 and P1,820,747 as of December 31, 2012 and 2011, respectively. Net retirement benefit costs presented under operating expenses amounted to P1,117,826 and P450,133 for the years ended December 31, 2012 and 2011, respectively (see Note 20). NOTE 4 – FINANCIAL INSTRUMENTS The following table shows the classification, carrying values and fair values of the Group’s financial assets and financial liabilities as of December 31:

2012 2011

Carrying value Fair value

Carrying Value Fair value

Financial assets:

Loans and receivables Cash and cash equivalents

(Note 8) P385,035,496 P385,035,496 P204,788,818 P204,788,818 Trade and other receivables

(Note 9)

236,849,508

236,849,508 252,529,132 252,529,132 Loans receivable (Note 10) 129,650,000 129,650,000 135,000,000 135,000,000 Advances to related parties

(Note 22)

41,567,329

41,567,329 66,495,612 66,495,612 Refundable security deposit

(Note 25)

1,652,566

1,529,477 - -

P794,754,899 P794,631,810 P658,813,562 P658,813,562

2012 2011

Carrying value Fair value Carrying value Fair value

Financial liabilities: Other financial liabilities Trade and other payables

(Note 14) P182,883,130 P182,883,130 P134,698,952 P134,698,952 Loans payable (Note 15) 508,160,285 508,160,285 392,500,000 392,500,000 Advances from related parties

(Note 22)

2,070,350

2,070,350

52,461,454

52,461,454 Dividends payable (Note 17) - - 25,000,000 25,000,000

P693,113,765 P693,113,765 P604,660,406 P604,660,406

Due to the short-term nature of the transactions, the carrying amounts of cash and cash equivalents, trade and other receivables, short-term loans receivables, advances to (from) related parties, trade and other payables, and short-term loans payable approximates its fair values as of the reporting date. The fair value of the long term loans receivable from Avestha Holding Corporation is based on its carrying amount which approximates the discounted value of future cash flows using its interest rate of 6%.

30

The fair value of the refundable security deposit is based on the approximate discounted value of future cash flows using an interest rate of 3% on similar financial instruments with a term of three years. The difference in the fair value and the carrying value of the refundable security deposits will not materially affect the Group’s financial position. The fair value of the long term loans payable from a bank is based on its carrying amount which approximates the discounted value of future cash flows using interest rates ranging from 9.87% to 10.47%. The income, expense, gain and/or losses recognized from financial instruments are as follows: 2012 2011

Finance costs (Note 15) P32,894,932 P26,934,023 Impairment loss on trade receivables (Note 21) 1,318,159 4,375,816

P34,213,091 P31,309,839

Finance income (Notes 8 and 10) P10,502,498 P3,828,221 Gain from write-off of payable (Note 21) 5,279,022 -

P15,781,520 P3,828,221

NOTE 5 – FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES General objectives, policies and processes The BOD has overall responsibility and authority for the determination of the Group's risk management objectives and policies and designing and operating processes that ensure the effective implementation of such objectives and policies. The BOD has constituted certain committees to effectively manage the operations of the Group. The Group’s principal committees of the BOD include the Executive Committee, the Audit Committee, the Compensation Committee and the Nominations Committee. A brief description of the functions and responsibilities of the key committees are set out below: Executive Committee The Executive Committee is composed of three (3) members of the BOD. The Executive Committee may act by majority of all its members, on such specific matters within the competence of, and as may be delegated by the BOD. Audit Committee The Audit Committee provides an oversight of financial management functions, specifically in the areas of managing credit, liquidity, market, operational, legal and other risks and is primarily responsible for monitoring the statutory requirements of the Group. The Audit Committee is responsible for the setting up of an internal audit department and for the appointment of an internal auditor, as well as an independent external auditor. It monitors and evaluates the adequacy and effectiveness of the Group’s internal control systems. It ensures that the BOD is taking appropriate corrective action in addressing control and compliance functions with regulatory agencies. It also ensures the Group’s adherence to corporate principles, best practices and compliance with the Manual on Corporate Governance.

31

Compensation Committee The Compensation Committee is primarily responsible for establishing a formal and transparent procedure for developing a policy on executive remuneration and for fixing the remuneration packages of corporate officers who are receiving compensation from the Group. It is responsible for providing an oversight of remuneration of senior management and other key personnel and ensuring that compensation is consistent with the Group’s culture, strategy and control environment. Nomination Committee The Nomination Committee is primarily responsible for the review and evaluation of the qualifications of all persons nominated to positions requiring appointment by the BOD and the assessment of the BOD’s effectiveness in directing the process of renewing and replacing Board members. The overall objective of the BOD is to set polices that seek to reduce risk as far as possible without unduly affecting the Group's competitiveness and flexibility. Financial risk management objectives and policies The Group is exposed through its operations to credit risk, liquidity risk and market risk. The Group’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on the Group’s financial performance. There have been no substantive changes in the Group's exposure to financial instrument risks, its objectives, policies and processes for managing those risks or the methods used to measure them from previous periods unless otherwise stated in this note. The policies for managing specific risks are summarized below: Credit risk Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss. The receivable balances are monitored on an ongoing basis with the result that the Group’s exposure to impairment is not significant. The Group has a credit and collection department that is separate and independent from the sales department. The Group instituted this separate department even though the normal practice in its industry is that the sales people are also the ones who collect the receivables. The Group deals only with creditworthy counterparty duly approved by management. The following table provides information regarding the maximum credit risk exposure of the Group as of December 31: 2012 2011

Cash in banks and cash equivalents (Note 8) P385,035,496 P204,548,818 Trade and other receivables (Note 9) 242,146,197 252,529,132 Loans receivables (Notes 10 and 22) 129,650,000 135,000,000 Advances to related parties (Note 22) 41,567,329 66,495,612 Refundable security deposit (Note 25) 1,652,566 -

P800,051,588 P658,573,562

32

The following table provides information regarding the Group’s analysis of the age of financial assets by class as at the reporting date:

Past due but not impaired

Total

Neither past due nor impaired 31-60 days 61-90 days

Over 90 days Impaired December 31,2012

Loans and receivables Cash in banks and

cash equivalents P385,035,496 P385,035,496 P- P- P- P- Trade and other

receivables 242,146,197 194,399,149 12,685,647 13,640,231 27,115,144 5,693,975

Loans receivable 129,650,000 129,650,000 - - - - Advances to

related parties 41,567,329 41,567,329 - - - - Refundable

security deposit 1,652,566 1,652,566 - - - -

P800,051,588 P752,304,540 P12,685,647 P13,640,231 P27,115,144 P5,693,975


December 31, 2011 Total Neither past due

nor impaired 31-60 days 61-90 days Over 90 days Impaired

Loans and receivables

Cash in banks P204,548,818 P204,548,818 P- P- P- P-

Trade and other

receivables 252,529,132 224,888,994 12,899,632 3,211,957 15,904,365 4,375,816

Loans receivable 135,000,000 135,000,000

Advances to related

parties 66,495,612 66,495,612 - - - -

P658,573,562 P630,933,424 P12,899,632 P3,211,957 P15,904,365 P4,375,816

The Group’s loans receivable from Avestha Holdings Corporation amounting to P120,000,000 is fully secured by the borrower’s real estate properties independently valued at P166,549,000 on June 21, 2011 by Cuervo Appraisers, Inc. In exchange for the settlement of the loan, as of the reporting date, Avestha Holding Corporation is in the process of transferring to the Group the rights to the aforementioned real estate properties, pending compliance with regulatory requirements. There were no other credit enhancements attached to the Group’s financial assets aside from this collateral. Credit quality per class of financial assets The Group’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 - 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 - These are receivables that can be collected provided the Group makes persistent effort to collect them.

33

The table below shows the credit quality by class of financial assets of the Group based on their historical experience with the corresponding parties as of December 31, 2012 and 2011:

December 31, 2012

Neither past due nor impaired

High grade

Standard Substandard

Unrated Past due but not impaired Impaired Total grade grade


Cash in banks and cash equivalents

P385,035,496 P- P- P- P- P-

P385,035,496

Trade and other receivables 194,399,149

53,441,022

5,693,975 242,146,197

Loans receivable 129,650,000 - - - - - 129,650,000

Advances to related parties 41,567,329 - - - - - 41,567,329

Refundable security deposit 1,652,566 1,652,566

P752,304,540 P- P- P- P53,441,022 P5,693,975 P800,051,588

December 31, 2011


High grade



Loans and receivables Cash in banks P204,548,818 P- P- P- P- P- P204,548,818


220,513,178 - - -

32,015,954

4,375,816

248,153,316

Loans receivable 135,000,000 - - - - - 135,000,000 Advances to

related parties

66,495,613 - - - - -

66,495,613

P626,557,609 P- P- P- P32,015,954 P4,375,816 P654,197,747

The Group has no financial assets whose terms have been renegotiated. Liquidity risk This represents the risk or difficulty in raising funds to meet the Group’s commitment associated with financial obligation and daily cash flow requirement. The Group is exposed to the possibility that adverse exchanges in the business environment and/or its operations would result to substantially higher working capital requirements and the subsequent difficulty in financing additional working capital. The Group addresses liquidity concerns primarily through cash flows from operations and short-term borrowings, if necessary. The Group has credit lines with several of the top banks of the Philippines which gives it financial flexibility in its operations. The Group likewise regularly evaluates other financing instruments to broaden the Group’s range of financing sources. The following table summarizes the maturity profile of the Group’s other financial liabilities as of December 31, 2012 and 2011, respectively, based on the contractual undiscounted payments: At December 31, 2012

On demand Within 1 year

More than 1 year but not more than 5

years Total

Trade and other payables P182,883,130 P- P- P182,883,130 Loans payable 502,137,982 6,022,303 508,160,285 Advances from related parties 2,070,350 - - 2,070,350

P184,953,480 P502,137,982 P6,022,303 P693,113,765

34

At December 31, 2011



years Total

Trade and other payables P42,269,087 P92,429,865 P- P134,698,952

Loans payable - 392,500,000 - 392,500,000

Advances from related parties 52,461,454 - - 52,461,454 Dividends payable 25,000,000 - - 25,000,000

P119,730,541 P484,929,865 P- P604,660,406

Market risk

Market risk is the risk that the fair value of future cash flows of a financial instrument will

fluctuate because of changes in market prices. Market prices comprise three types of risk:

interest rate risk, foreign currency risk and commodity price risk. Financial instruments

affected by market risk include bank loans payable. i. Interest rate risk Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Group’s exposure to the risk of changes in market interest rates relates primarily to the Group’s bank loans payable. Interest rate sensitivity

The following table demonstrates the sensitivity to a reasonably possible change in interest rates on that portion of loans payable with all other variables held constant, the Group’s profit before tax is affected as follows:

Increase/decrease Effect on

profit interest rate before tax

2012 +1% (P328,949) -1% P328,949 2011 +1% (P269,340) -1% P269,340

The assumed movement in interest rates for the interest rate sensitivity analysis is based on the management’s assessment of the reasonably possible change in interest rates during the years presented. ii. Foreign currency risk

Foreign currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The Group is not exposed to the risks of changes in foreign exchange rates as it has not entered into transactions denominated in a currency other than its functional currency. iii. Commodity price risk Commodity price risk is the risk related to the volatility of price of certain commodities. The Group is not exposed to this risk as its operations do not constitute goods which prices are volatile.

35

Capital risk management

The Group manages its capital structure (total equity) and makes adjustments to it, in light of changes in economic conditions. To maintain or adjust the capital structure, the Group may adjust or delay the dividend payment to shareholders and appropriate a percentage of retained earnings towards expansion and capital expenditures. The Group through the Finance function sets operational targets and performance indicators in order to assure that the capital and returns requirements are achieved. Appropriate monitoring and reporting systems accompany these targets and indicators to assess the achievement of Group goals and institute appropriate action. No changes were made in the objectives, policies and processes in 2012 and 2011. The Group has no externally imposed capital requirements. NOTE 6 – BUSINESS COMBINATION On July 19, 2012, the Parent Company’s BOD approved the conversion of its P55,455,249 worth of advances to equity shares in APC as well as the purchase of all the issued and outstanding shares of stock therein. On August 3, 2012, the SEC approved said conversion which resulted to the Parent Company owning 85.37% ownership in APC. The investing public, including all the shareholders of the Parent Company have been informed of this development through timely and complete disclosures with the SEC via the filing of the requisite SEC Form 17-C and the uploading thereof with the PSE via the PSE Online Disclosure System. APC is a corporation established to engage in import/export, buying, selling, distributing and marketing at wholesale and retail all kinds of goods of every kind and description such as but not limited to agricultural products. The Parent Company acquired APC since the subsidiary’s retail chain stores allow the Parent Company to sell its products on a significant larger area than it has previously access to, thus increasing its market share. Assets acquired and liabilities assumed The fair values of the identifiable assets and liabilities of APC as at the date of acquisition were: Assets

Cash and cash equivalents P21,529,109 Other receivables 606,887 Inventories 94,141,759 Property and equipment 28,045,513

144,323,268

Liabilities Advances from related parties 29,944,280

Trade and other payables 47,842,868

77,787,148

Total identifiable net assets at fair value 66,536,120

Non-controlling interest measured at the non-controlling interest's share of the acquiree's identifiable net assets (2,867,706)

Gain from bargain purchase (Note 21) (8,213,165)

Purchase consideration transferred P55,455,249

The fair value of other receivables equals its book value. None of these receivables have been impaired and it is expected that the full contractual amounts can be collected.

36

From the date of acquisition, APC has contributed P414,392,019 of revenue and P6,938,575 to the profit before tax from continuing operations of the Group. On September 30, 2012, the Parent Company completed the acquisition of 100% ownership over APC. Cash consideration of P9,500,000 was paid to all the minority shareholders comprising 14.63% of the issued and outstanding capital stock of APC. The carrying value of the net assets of APC at the acquisition date was P68,696,134, and the carrying value of the additional interest acquired was P2,867,706. The difference of P6,632,294 between the consideration and the carrying value of the interest acquired has been recognized in retained earnings within equity. NOTE 7 – SEGMENT REPORTING The CEO is the Group’s chief operating decision-maker. Management has determined the operating segments based on the reports reviewed by the CEO that are used to make strategic decisions. The CEO considers the business based on the methods used to distribute the Group’s products. Management considers the performance based on the three methods used by the Group, distributorship and retailing of agro-products and farming operations. The reportable operating segments of distributorship and retailing derive its revenue primarily from different agro-products such as feeds, seeds, chemicals and fertilizers. The revenue of the reportable segments arises both from a related party and external customers. Transfer prices between the related party are set on an arm’s length basis in a manner similar to transactions with third parties. Such transfers are eliminated in consolidation. The Group has yet to earn revenues from its farming operations. The operating segments are organized and managed separately according to the different methods used to distribute the Group’s products, with each segment representing a strategic business unit that offers the same types of products sold either through wholesale or retail or used in farming operations. These divisions are the basis on which the Group reports its primary segment information. All operating business segments used by the Group meet the definition of a reportable segment under PFRS 8, Operating Segments. The CEO assesses the performance of the operating segments based on a measure of Earnings Before Interests, Taxes and Depreciation and Amortization (EBITDA). This measurement basis excludes the effects of non-recurring expenditure from the operating segments and common operating expenses. Interest expense is not allocated to segments, as this type of activity is driven by the central treasury function, which manages the cash position of the Group. Transfer prices between operating segments, if any, are on an arm’s length basis in a manner similar to transactions with third parties. Segment assets and liabilities Segment assets include all operating assets used by a segment and consist principally of operating cash, receivables and inventories. Segment liabilities include all operating liabilities and consist principally of trade and other payables. Segment assets and liabilities do not include deferred income taxes. Segment transactions Segment sales, expenses and performance include sales and purchases with a related party and third parties. Intercompany balances and transactions between segments, if any, are eliminated during the preparation of the Group’s consolidated financial statements.

37

The segment information provided to the CEO for the years ended December 31, 2012 and 2011 is as follows (amounts in thousands):

Distribution Retail Farming Unallocated expense

2012 2011 2012 2011 2012 2011 2012 2011

Sales P1,467,475 P2,001,710 P738,527 P- P- P- P- P- Cost of sales (1,276,558) (1,786,449) (671,805) - - - - - Other operating income 29,218 9,630 - - - - - - Operating expenses (20,010) (26,420) (59,122) - - - (27,819) (32,505) Finance income 10,404 3,828 98 - - - - - Finance costs - (26,934) - - - - (32,895) (26,934) Provision for income tax (44,858) (42,687) (2,280) - - - - -

Profit (loss) for the year 165,671 132,678 5,418 - - - (60,714) (59,439) Interest - - - - - - - - Taxes 44,858 42,687 2,280 - - - - - Depreciation and amortization 8,901 5,780 4,675 - - - - -

EBITDA P219,430 P208,079 P12,373 P- P- P- (P60,714) (P59,439)

38

A reconciliation of the total EBITDA of the reportable segments to the Group’s profit for the year is provided as follows (amounts in thousands):

Total

2012 2011

Sales P2,206,002 P2,001,710 Cost of sales (1,948,363) (1,786,449) Other operating income P29,218 14,006 Operating expenses (106,951) (63,301) Finance income P10,502 3,828 Finance costs (32,895) (26,934) Provision for income tax (47,138) (42,687)

Profit (loss) for the year P110,375 100,173 Common operating expenses 27,819 32,505 Interest 32,895 26,934 Taxes 47,138 42,687 Depreciation and amortization 13,576 5,780

EBITDA P231,803 P208,079

The segment assets and liabilities as of December 31, 2012 and 2011 are as follows (amounts in thousands):

Distribution Retail Farming Unallocated

2012 2011 2012 2011 2012 2011 2012 2011

Segment assets P801,575 P736,828 P165,989 P- P242,533 P50,377 P286,672 P287,131

Segment liabilities P152,275 P181,261 P80,440 P- P71,700 P- P443,437 P471,782

Additions to property and equipment P71,730

P53,326 P22,369

P- P192,156

P- P-

P-

The total reportable segments’ assets are reconciled to the Group’s total assets as follows:

2012

2011

Reportable segments' assets

P1,210,096,978

P736,828,490

Unallocated: Loans receivable (Note 10)

129,650,000

135,000,000 Advances to related parties (Note 22) 41,567,329

66,495,613

Investment properties (Note 12) 112,865,000

112,865,000 Deferred tax assets (Note 24) 2,589,764

1,858,969

P1,496,769,071

P1,053,048,072

The total reportable segments’ liabilities are reconciled to the Group’s total liabilities as follows:

2012

2011

Reportable segments' liabilities

P304,414,843

P181,261,307

Unallocated: Loans payable (Note 15)

436,460,285

392,500,000

Advances from related parties (Note 22) 2,070,350

52,461,454 Dividends payable (Note 17)

-

25,000,000

Retirement benefit (Note 23) 2,938,573

1,820,747 Deferred tax liabilities (Note 24) 1,968,000

-

P747,852,051

P653,043,508

The amounts provided to the CEO with respect to total assets and total liabilities are measured in a manner consistent with that of the consolidated financial statements.

39

The reportable segments’ assets are allocated based on the operations of the segment and the physical location of the assets. The Group’s loans receivable, advances to related parties, investment properties and deferred tax assets are not considered as segment assets. The reportable segments’ liabilities are allocated based on the operations of the segment. The Group’s loans payable, advances from related parties, dividends payable and retirement benefit liability are not considered as segment liabilities. Unallocated assets and liabilities are managed by the central treasury function. The Group does not have revenues from transactions with a single external customer amounting to ten percent (10%) or more of the Group’s total revenues. NOTE 8 - CASH AND CASH EQUIVALENTS The account consists of:

2012 2011

Cash on hand P10,468,281 P240,000 Cash in banks 365,035,496 204,548,818 Cash equivalents 20,000,000 -

P395,503,777 P204,788,818

Cash in banks earns interest at the respective bank deposit rates. Interest income earned from bank deposits amounted to P2,542,498 and P3,828,221 for the years ended December 31, 2012 and 2011, respectively. NOTE 9 – TRADE AND OTHER RECEIVABLES, NET The account consists of:

2012

2011

Trade receivables

P228,717,028

P247,081,567 Advances to suppliers

3,744,493

3,656,215

Accrued interest on loans receivable (Note 10)

9,165,000

2,855,000 Advances to employees

1,552,196

810,066

Other receivables

4,661,455

2,502,100

247,840,172

256,904,948

Allowance for impairment loss on trade receivables (Note 21)

(5,693,975)

(4,375,816)

P242,146,197

P252,529,132

Trade receivables are from dealers and customers of the Group and are not interest-bearing. Normal credit terms of trade receivables are 30 days and 60 days. Advances to suppliers represent advanced payments made to suppliers for purchases of goods. These are deducted from the purchase price upon receipt of the goods. Advances to employees are subject to liquidation upon utilization.

40

The Group provided for an allowance for impairment loss on trade receivables amounting to P5,693,975 and P4,375,816 as of December 31, 2012 and 2011, respectively. Details of changes in allowance for impairment loss of receivables are as follows: 2012 2011

January 1

P4,375,816

P-

Provision during the year (Note 21) 1,318,159 4,375,816

December 31 P5,693,975 P4,375,816

41

NOTE 10 – LOANS RECEIVABLE The details of and movements in the account are as follows:

Borrower Interest

rate Term Security

Balance at January 1,

2011

Availments (collections)

during the year

Balance at December 31,

2011


during the year


2012

Avestha Holdings Corporation (i) 6% per annum

3 years Real estate properties P-

P120,000,000

P120,000,000

P-

P120,000,000

Andres Lipana (ii) 6% per annum

1 year, renewable

Unsecured 15,000,000

-

15,000,000

(5,350,000)

9,650,000

Total P15,000,000 P120,000,000 P135,000,000 (P5,350,000) P129,650,000

Less: Current portion 15,000,000

9,650,000

Loans receivable, net of current portion

P120,000,000

P120,000,000

i) On September 26, 2011, the Group granted a loan to Avestha Holding Corporation, a related party (see Note 22), amounting to P120,000,000 for a

term of three (3) years. The principal of the loan will be payable after two (2) years in which an interest at the rate of six percent (6%) will be payable on the balance at the end of every month. The loan is fully secured by the borrower’s various real estate properties independently valued by Cuervo Appraisers, Inc. at P166,549,000. This loans receivable is presented under noncurrent assets in the consolidated statements of financial position. In exchange for the settlement of the loan, as of the reporting date, Avestha Holding Corporation is in the process of transferring to the Group the rights to the aforementioned real estate properties, pending compliance with regulatory requirements.

ii) On November 4, 2010, the Group granted a loan to Andres Lipana amounting to P15,000,000 for a term of one (1) year, renewable annually upon

mutual agreement of both parties. The principal of the loan is subject to an interest at the rate of 6 percent (6%) payable at the end of every month. In 2012 and 2011, the loan is renewed with the same terms and conditions. This loan receivable is presented under current assets in the consolidated statements of financial position.

Interest income earned from these loans amounted to P7,960,000 and P2,855,000 for the years ended December 31, 2012 and 2011, respectively (see Note 9). Out of the total amount of the interest income on these loans, the Group received interest amounting to P1,650,000 from the loans receivable from Andres Lipana.

42

NOTE 11 – INVENTORIES The account consists of: 2012 2011

Chemicals P159,003,786 P33,242,031 Feeds 18,347,804 123,429,837 Fertilizers 20,005,070 6,456,864 Seeds 23,127,040 16,706,316

P220,483,700 P179,835,048

The above inventories are carried at the lower of cost and NRV. The Group has no unusual purchase commitments or inventories pledged as security for liabilities. NOTE 12 – INVESTMENT PROPERTIES During 2011, the Group acquired various lands amounting to P134,592,963. The acquisition value is based on the valuation report dated June 21, 2011 conducted by an independent appraiser who holds a recognized and relevant professional qualification and has experience in the location and category of the investment property being valued. The Group applies the cost model in its investment properties. Management believes that the carrying amounts of the said properties approximate the fair values as of reporting date. During 2012, the Group reclassified investment properties amounting to P21,287,963 to property and equipment. The land will be used as a large scale farm for the Group’s livestock farming operations (see Note 13). The reconciliation of the carrying amount of investment properties at the beginning and end of the period is as follows: 2012

2011

At January 1 P134,152,963

P- Acquisition during the year -

134,152,963 Transfer to property and equipment (Note 13) (21,287,963)

-

At December 31 P112,865,000

P134,152,963

43

NOTE 13 – PROPERTY AND EQUIPMENT, NET The details of and movements in this account are as follows: Office Transportation Leasehold Construction

equipment equipment improvement Farms In progress Total

Cost

At January 1, 2011 1,841,453 P29,682,038 P- P- P- P31,523,491

Additions 505,266 2,444,447 - - 50,376,897 53,326,610

Disposals (160,280) (5,037,845) - - - (5,198,125)

At December 31, 2011 2,186,439 27,088,640 - - 50,376,897 79,651,976 Additions 8,850,838 13,478,031 25,198,217 - 192,156,097 239,683,183 Transfer from

investment properties (Note 12)

- - -

21,287,963 -

21,287,963

Acquisitions through business combinations

3,335,799

1,221,618

20,726,509

- -

25,283,926

Disposals - (3,320,000) - - - (3,320,000)

At December 31, 2012 14,373,076 38,468,289 45,924,726 21,287,963 242,532,994 362,587,048

Accumulated depreciation and amortization

At January 1, 2011 368,290 5,936,408 -

- - 6,304,698

Depreciation and amortization 421,854 5,358,229 - - - 5,780,083

Disposals (160,280) (5,037,845) - - - (5,198,125)

At December 31, 2011 629,864 6,256,792 - - - 6,886,656 Depreciation and amortization

2,360,582 6,072,239

5,143,502

- -

13,576,323

Disposals - (3,320,000) - - - (3,320,000)

At December 31, 2012 2,990,446 9,009,031 5,143,502 - - 17,142,979

Net book values

December 31, 2012 P11,382,630 P29,459,258 P40,781,224 P21,287,963 P242,532,994 P345,444,069

December 31, 2011 P1,556,575 P20,831,848 P- P- P50,376,897 P72,765,320

During the years ended December 31, 2012 and 2011, the Group capitalized expenditures amounting to P242,532,994 and P50,376,897, respectively, related to properties under construction. These expenditures consist of farm equipments, materials, labor and overhead directly related to the construction of the assets. The Group had not capitalized any borrowing costs attributable to the construction of such assets. During the year ended December 31, 2012 and 2011, the Group disposed fully-depreciated property and equipment that resulted to a gain on disposal amounting to P1,735,200 and P1,914,123, respectively. Gains on disposal amounting to P835,200 and P1,914,123 for the years ended December 31, 2012 and 2011 resulted from disposals of fully-depreciated equipment to a related party (see Note 22). The Group’s transportation equipment is subject to a chattel mortgage used as security for the long-term loans payable (see Note 15). Aside from the abovementioned chattel mortgage, there are neither restrictions on title on the Group’s property and equipment nor was any of it pledged as security for liability. The Group has no contractual commitment for the acquisition of property and equipment. Depreciation and amortization expense amounted to P13,576,323 and P5,780,083 for the years ended December 31, 2012 and 2011, respectively (see Note 20). The cost of fully depreciated property and equipment still in use amounted to P23,757,079 and Nil in December 31, 2012 and 2011, respectively. Management has reviewed the carrying values of the Group’s property and equipment as of December 31, 2012 and 2011 for impairment. Based on the results of its evaluation, there were no indications that the property and equipment were impaired.

44

NOTE 14 – TRADE AND OTHER PAYABLES The account consists of: 2012 2011

Trade payables P182,883,129 P124,120,187 Others 4,045,075 10,578,765

P186,928,204 P134,698,952

Trade payables are from suppliers of agro-products and are non-interest-bearing. Normal credit terms are 30 to 60 days. Other payables mainly consist of the one percent (1%) tax withheld by the Group on its collections from customers.

45

NOTE 15 – LOANS PAYABLE The loans payable as of December 31, 2012 and 2011 consist of secured short-term and long-term peso denominated loans obtained from local banks. The secured short-term peso-denominated loans were obtained to augment the Group’s funding for its farming operations. Various properties owned by the shareholders were used as collateral for these types of loans. The details of and movements in these loans are as follows:

Lending institution Interest rate Terms Security


2011

Availments during the

year


2011

Payments during the

year


year


2012

Banco de Oro Unibank Inc.

Effective interest rate

Renewable Unsecured P150,000,000

P-

P150,000,000

P-

P4,000,000

P154,000,000

Metropolitan Bank and Trust Company


Renewable Real estate properties

52,500,000

-

52,500,000

-

7,500,000

60,000,000

Allied Bank Effective

interest rate Renewable Unsecured

25,000,000

-

25,000,000

(25,000,000)

-

-

Bank of the Philippine Islands Effective

interest rate Renewable Suretyship

45,000,000

120,000,000

165,000,000

-

5,000,000

170,000,000

Planters Bank Effective

interest rate Renewable Deed of

Assignment

-

-

-

-

45,000,000

45,000,000 Development Bank of the

Philippines 9% Renewable Real estate

properties

-

-

-

-

71,700,000

71,700,000

P272,500,000

P120,000,000

P392,500,000

(P25,000,000)

P133,200,000

P500,700,000

Finance costs arising from these loans amounted to P32,726,245 and P26,934,023 in December 31, 2012 and 2011, respectively. The secured long-term peso-denominated loans were obtained to finance the Group’s acquisition of transportation equipment. These loans are secured by a chattel mortgage on the Group’s transportation equipment with a carrying amount of P8,561,421 (see Note 13). The details of and movements in these loans are as follows:



2011


year


2011

Payments during the

year


year


2012

Bank of the Philippine Islands 9.87%-10.47%

30 or 60 equal

monthly installments

Chattel mortgage

P-

P-

P-

(P494,825)

P7,955,110

P7,460,285

Less: Current portion

(1,437,982)

Long-term loans payable, net of current portion

P6,022,303

46

Finance costs arising from these loans amounted to P168,687 for the year ended December 31, 2012. There were no breaches of loan agreement terms such as any defaults of principal and interest of these loans payable during the period. NOTE 16 - SHARE CAPITAL The account consists of: 2012 2011

Authorized:

845,400,000 shares at P1 par value each

P845,400,000 P845,400,000

Issued and outstanding at January 1: 324,100,000 shares at P1 par value each in 2012, and 10,000 shares at P100 par value each in 2011

P324,100,000 P1,000,000 Issued during the year:

36,012,000 shares in 2012 and 323,100,000 shares in 2011 at P1 par value each

36,012,000 323,100,000

Issued and outstanding at December 31: 360,112,000 shares in 2012 and 324,100,000 shares in 2011 at P1 par value each

P360,112,000 P324,100,000

On August 5, 2011, the Group has increased its authorized share capital from one million pesos (P1,000,000) divided into ten thousand (10,000) shares with par value of one hundred peso (P100) per share, to three hundred forty five million, four hundred thousand pesos (P345,400,000) divided into three hundred forty five million, four hundred thousand (345,400,000) shares with par value of one peso (P1). On August 18, 2011, the Group has increased its authorized share capital from three hundred forty five million, four hundred thousand pesos (P345,400,000) divided into three hundred forty five million, four hundred thousand (345,400,000) shares with par value of one peso (P1) per share, to eight hundred forty five million, four hundred thousand pesos (P845,400,000) divided into eight hundred forty five million, four hundred thousand (845,400,000) shares with par value of one peso (P1) per share. Subscriptions and full payment of shares during the period were made on the following dates:

August 15, 2011 P86,100,000 August 23, 2011 125,000,000 September 9, 2011 112,000,000

P323,100,000

On May 23, 2012, the Group issued an additional 36,012,000 shares by way of a primary offer. The share premium resulting from the said offer is as follows: Gross proceeds P269,551,028

Underwriting and selling fees for the offer shares 8,102,700 Tax on Initial Public Offering 10,782,041 Documentary Stamp Tax 180,060 Philippine SEC filing and legal research fees 733,991 Professional fees 4,582,587

Total expenses 24,381,379

Net proceeds 245,169,649

Par value of offer shares

(36,012,000)

P209,157,649

47

Share premium arises when the amount subscribed for share capital is in excess of nominal value. NOTE 17 – DIVIDENDS On a meeting held on November 18, 2011, the BOD unanimously approved the declaration of cash dividends in the amount of Twenty Five Million Pesos (P25,000,000) to shareholders of record as of November 8, 2011, subject to the condition on the availability of unrestricted retained earnings to cover said dividend declaration. These dividends were paid in 2012 through offsetting of its advances to its shareholders (see Note 22). The dividend per share is P0.07. NOTE 18 – SALES The account consists of: 2012 2011

Feeds P957,129,439 P1,048,487,027 Chemicals 728,468,890 487,913,038 Fertilizers 448,392,575 442,938,467 Seeds 72,011,003 22,371,771

P2,206,001,907 P2,001,710,303

The Group has an existing Complementary Feeds Distributorship Agreement (the Agreement) with San Miguel Foods, Inc. (SMFI) wherein the parties agreed that the Group will exclusively distribute B-MEG Feeds. The Agreement is valid for one year and shall be automatically renewed upon expiry with the same terms and conditions except as may be agreed by the parties in writing, unless SMFI notifies the Group in writing of its intent to terminate the Agreement within 60 days prior to the end of the term. The Group also has distributorship agreements with Monsanto Philippines, Gastin Corporation and Syngenta Philippines, Inc. for the exclusive distribution in Luzon of the products sold by the said parties. The Group has other distributorship agreements but on a non-exclusive basis. In general, all supply and distribution agreements are renewed on a yearly basis. Renewal may be express when parties opt to execute a written agreement or implied when parties continue to do business dealings with each other such as taking of orders of supplies. The Group does not usually have duly executed distribution agreements with the rest of its suppliers of agro chemicals, fertilizers and seeds. Furthermore, based on industry practice, actual exclusive distribution agreements are not issued on a yearly basis. In the case of non-exclusive distribution agreements, no formal agreement is executed except for some. Instead, certifications are issued to attest that the Group is a distributor of the pertinent supplier products indicating therein exclusivity or non-exclusivity. However, for other non-exclusive suppliers, certifications are not even given since supply of the products continues for so long as the Group places an order. The Group’s revenue may be affected by any program developed or supported by the Department of Agriculture of the Philippines The Group’s revenue comes primarily from the sale of agricultural products. Any agricultural program that the Department of Agriculture develops for the farmers of the country may affect the Group’s revenue. In the event that the government is unable to effectively implement its programs, this might result in a slowdown of the Group’s business as farmers might not have the required resources to purchase the Group’s products. There is no guarantee that the Philippine government will not change or prioritize programs for agriculture in the coming years.

48

To mitigate this risk, the Group updates itself regularly with the Department of Agriculture’s policies or programs developed for the agricultural product industry. This allows the Group to react quickly to government programs relating to agricultural products. It also enables the Group to plan ahead to meet the Department of Agriculture’s ongoing or future policies or programs. The Group also conducts its own marketing activities to promote the use or consumption of its product. The Group intends to strengthen its marketing efforts nationwide. Risk of natural calamities The Group’s revenues are highly dependent on the weather conditions in the Philippines. Severe drought or flooding in a certain agricultural region will significantly affect the productivity of the farmers. This will highly affect the demand for fertilizers, pesticides and other agricultural chemicals. To mitigate this risk, the Group in partnership with its key suppliers would distribute new products manufactured through the use of modern technology to withstand if not totally resist the devastating effects brought by forces of nature. In addition, the Group distributes other agricultural products which are unaffected by natural calamities such as animal feeds for poultry, hogs and ducks. Risk of outbreak of animal diseases The Group’s revenues may be affected by the outbreak of swine and poultry diseases because the demand for animal feeds decreases in case an outbreak happens. To mitigate this risk the Group, in partnership with its key suppliers, currently deploys farm assistant technicians in the field to prevent and/or treat swine and poultry diseases. In addition, the Group also distributes veterinary medicines that help prevent or treat the said diseases. NOTE 19 – COST OF SALES The account consists of: 2012 2011

Inventories, beginning P179,835,048 P224,244,569 Net purchases 1,989,011,746 1,742,039,394

Cost of goods available for sale 2,168,846,794 1,966,283,963 Inventories, ending (Note 11) (220,483,700) (179,835,048)

P1,948,363,094 P1,786,448,915

49

NOTE 20 – OPERATING EXPENSES The account consists of:

2012

2011

Salaries, wages and benefits P36,485,056

P21,849,469

Depreciation and amortization (Note 13) 13,576,323

5,780,083

Professional fees 12,317,959

5,714,995

Rental (Note 25) 9,888,600

1,206,440

Transportation and travel 8,628,752

5,965,984

Taxes and licenses 4,745,505

1,435,725

Marketing 3,646,340

2,529,790

Communication 3,527,816

2,178,926

Repairs and maintenance 3,258,096

2,256,539

Office supplies 3,070,363

1,126,750

Representation and entertainment 2,089,242

1,525,269

Insurance 1,837,670

1,111,726

Retirement benefit costs (Note 23) 1,117,826

450,133

Association dues 988,360

-

Commissions 666,532

3,314,986

Others 1,106,891

2,478,358

P106,951,331

P58,925,176

NOTE 21 – OTHER OPERATING INCOME, NET The account consists of:

2012

2011

Rebate income P15,306,952

P12,045,795

Gain from a bargain purchase (Note 6) 8,213,165

-

Gain from write-off of payable 5,279,022

-

Gain on disposal of property and equipment (Note 13) 1,735,200

1,914,123

Others 2,316

45,713

Impairment loss on trade receivables (Note 9) (1,318,159)

(4,375,816)

P29,218,496

P9,629,815

50

NOTE 22 – RELATED PARTY TRANSACTIONS Related party relationships exist when one party has the ability to control, directly or indirectly through one or more intermediaries, the other party or exercise significant influence over the other party in making financial and operating decisions. Such relationships also exist between and/or among entities which are under common control with the reporting enterprise, or between and/or among the reporting enterprises and their key management personnel, directors or its shareholders. The details of the Group’s related parties are summarized as follows:


Calata Builders Under common

control A corporation established in the

Philippines which ventures as a subcontractor and into the realty business

Calata Farms Under common control

A sole proprietorship owned by which offers high efficiency poultry growing using climate-controlled system

Avestha Holdings Corporation Under common control

A corporation established to engage in holding of shares of different corporations

Individuals Shareholders Individuals who own shares of the Parent Company

Individuals Key management personnel

Individuals who have authority and responsibility for planning, directing and controlling the activities of the Group

52

Significant transactions and outstanding balances with related parties are as follows: Transactions

Rent expense (i)

Key management personnel compensation (ii)

Gain on disposal of property and equipment (iii)

Related parties Relationship 2012 2011 2012 2011 2012 2011

Individuals Key management personnel P- P- P5,974,094 P4,784,815 P- P- Individuals Shareholders - - - - 835,200 1,914,123

P- P- P5,974,094 P4,784,815 P835,200 P1,914,123

Outstanding balances

Loans receivable (iv)

Related parties Relationship 2012 2011 Terms and conditions Security

Nature of consideration to

be provided upon settlement

Guarantees given or received

Allowance for

impairment loss

Impairment loss

Avestha Holdings Corporation

Under common control P120,000,000 P120,000,000

3 years, 6% per annum

Real estate properties Cash N/A P- P-

Advances to related parties (v)





Allowance for

impairment loss

Impairment loss

Agri Phil Corporation Subsidiary P- P55,455,249 None Unsecured Cash N/A P- P-

Calata Builders Under common control 6,821,592 7,725,347 None Unsecured Cash N/A - - Individuals Shareholder 34,745,737 3,315,016 None Unsecured Cash N/A - -

P41,567,329 P66,495,612

P- P-

Advances from related parties (vii)


Nature of consideration to be

provided upon settlement


Individuals Shareholder

P2,070,350 P52,461,454 None Unsecured N/A N/A

53

i) An operating lease agreement was executed between the Group and the shareholders whereby the latter granted the former with the rent-free use of office premises and a warehouse located in Bulacan (see Note 25).

ii) The key management personnel compensation recognized in salaries, wages and other

benefits under operating expenses in the consolidated statements of income consists of short-term benefits. There are no long term compensation and post-employment and termination benefits of key management personnel for the years ended December 31, 2012 and 2011.

iii) For the years ended December 31, 2012 and 2011, the Group disposed fully-depreciated property and equipment to a related party that resulted to a gain on disposal amounting to P835,200 and P1,914,123, respectively (see Note 13).


iv) Loans receivable

2012 2011


January 1 P120,000,000 P- Loaned to - 120,000,000

December 31 P120,000,000 P120,000,000


54

v) Advances to related parties 2012 2011

Agri Phil Corporation

January 1 P55,455,249 P- Cash advances to (55,455,249) 55,455,249

December 31 P- 55,455,249

Calata Farms January 1 - 33,173,159 Collections from - (33,173,159)

December 31 - -

Calata Builders

January 1 7,725,347 1,525,347 Cash advances to (collections from) (903,755) 6,200,000

December 31 6,821,592 7,725,347

Individuals January 1 3,315,016 174,325 Cash advances to 57,643,729 3,306,148 Cash advances from (1,213,008) (165,457) Cash dividends distributed (25,000,000)

December 31 34,745,737 3,315,016

Total advances to related parties P41,567,329 P66,495,612


vi) The assessment of the allowance for impairment loss related to the amount of outstanding balances of the Group’s loans receivable and advances to related parties and the expense recognized during the period in respect of impairment loss is undertaken through examining the financial position of the related parties and the market in which they operate.

vii) Advances from related parties

2012 2011

Individuals

January 1 (P52,461,454) P- Cash advances from (68,890,289) (67,869,405) Cash advances to 119,281,393 15,407,951

(P2,070,350) (P52,461,454)


55

NOTE 23 - RETIREMENT BENEFIT COSTS The Group maintains an unfunded, non-contributory defined benefit retirement plan covering all qualified employees. Normal retirement benefits are equal to the employee’s retirement pay as defined in Republic Act No. 7641 multiplied by his years of service. Normal retirement date is the attainment of age 60 and completion of at least five years of service. The following tables summarize the components of net retirement benefit cost recognized in the consolidated statement of income and the amounts recognized in the consolidated statements of financial position:

Net retirement benefit costs presented under operating expense are as follows: 2012 2011

Current service cost P985,645 P347,571 Interest cost 132,181 102,562

P1,117,826 P450,133

Components of net retirement benefit liability and the amounts recognized in the consolidated statements of financial position are as follows: 2012 2011

Present value of defined benefit obligation P1,820,747 P2,008,832 Unrecognized actuarial gain 1,117,826 (188,085)

P2,938,573 P1,820,747

Present value of defined benefit obligation is as follows: 2012 2011

Balance at January 1 P2,008,832 P1,558,699 Actuarial loss 2,025,336 Interest cost 985,645 102,562 Current service cost 132,181 347,571

Balance at December 31 P5,151,994 P2,008,832

The principal assumptions used in determining retirement benefit liability of the Group are shown below: 2012 2011

Discount rates 5.62% 6.58% Future salary increase rates 5.00% 5.00%

56

NOTE 24 – INCOME TAXES a. The components of the Group’s provision for income tax are as follows:

2012 2011

Current P45,901,238 P28,219,506 Deferred 1,237,205 (1,418,759)

P47,138,443 P26,800,747

b. The components of the Group’s deferred tax assets are as follows:

Balance at

January 1, 2011

Charged to operations during the

period



year


Allowance for impairment losses on trade receivables

P-

P1,312,745

P1,312,745

P395,448

P1,708,193 Retirement benefit liability 411,184

135,040

546,224

335,347

881,571

P411,184 P1,447,785 P1,858,969 P730,795 P2,589,764

The Group reviews deferred tax assets at each reporting date and recognizes these to the extent that it is probable that sufficient taxable profit will be available to allow all or part of the deferred tax assets to be utilized. Deferred tax assets were recognized as of December 31, 2012 as management believes that the carryforward benefit would be realized in its future operations. c. The components of the Group’s deferred tax liabilities are as follows:

Balance at

January 1, 2011

Charged to

operations during the

period



year


Movement in accrued interest

P-

P-

P-

P1,893,000

P1,893,000 Unrealized gain

on disposal of equipment -

-

-

75,000

75,000

P- P- P- P1,968,000 P1,968,000

d. The reconciliation of the provision for income tax computed at the statutory income tax

rate to provision for income tax shown in the consolidated statement of income are as follows:

2012 2011

Income tax computed at 30% P47,254,063 P42,858,067 Add (deduct) income tax effects

resulting from: Non-deductible expenses 617,762 120,436 Income subjected to final tax (733,382) (291,966)

P47,138,443 P42,686,537

57

NOTE 25 – LEASE AGREEMENTS The Group has entered into various lease agreements with different individuals for the lease of warehouses located in various provinces in Central Luzon, all of which fall under the category of operating leases. The lease agreements are renewable every year where terms and conditions are subject to the agreement of both parties. The Group has entered in a lease agreement with its shareholders for the lease of office premises and warehouse located in Bulacan. The said lease is rent-free and renewable every year upon mutual agreement by the parties (see Note 22). On August 1, 2012, the Group entered into a lease agreement with KSA Realty Corporation for the lease of its office premises in Makati. The terms of the lease is for three (3) years and is subject to annual escalation rate of ten (10) percent. The lease agreement has a renewal potion. The details of the security deposit and advanced rental on this lease agreement are as follows:


Refundable security

deposit

Equivalent to three (3) months’ lease payment and refundable at the end of the lease term P1,652,566 P-


P3,305,132 P-

The refundable security deposit and the advanced rental are recognized in the consolidated statements of financial position under other non-current assets. There were no restrictions imposed by these lease arrangements such as those concerning dividends, additional debt and further leasing. The rent expense charged to operations for the years ended December 31, 2012 and 2011 amounted to P9,888,600 and P1,206,440, respectively (see Note 20). Future minimum annual rentals are as follows:

2012 2011


P1,206,440 More than one year but not later than five years 16,531,239 -

P27,772,437 P1,206,440

58

NOTE 26 – EARNINGS PER SHARE Basic EPS amounts are calculated by dividing net profit for the year attributable to ordinary equity holders of the Parent Company by the weighted average number of ordinary shares outstanding during the year. The financial information pertinent to the derivation of the basic earnings per share for the years ended December 31, 2012 and 2011, are as follows: 2012 2011

Profit for the year attributable to ordinary equity

holders of the Parent Company

P110,375,101 P100,173,688

Weighted average number of shares outstanding 345,107,000 145,300,000

P0.32 P0.69

There are no dilutive potential ordinary shares for the years ended December 31, 2012 and 2011. Therefore, the Group’s basic and diluted EPS for the said periods are equal. The reconciliations of the average number of shares outstanding as of the reporting date are as follows: At December 31, 2012

Date Number of shares

issued Number of shares

outstanding Weighted average number of shares

January 1, 2012 324,100,000 324,100,000 324,100,000 May 23, 2012 36,012,000 360,112,000 21,007,000

360,112,000

345,107,000





January 1, 2011 1,000,000 1,000,000 1,000,000 August 15, 2011 86,100,000 87,100,000 54,437,500 August 23, 2011 125,000,000 212,100,000 8,837,500

September 9, 2011 112,000,000 324,100,000 81,025,000

324,100,000

145,300,000

NOTE 27 – EVENTS AFTER THE REPORTING DATE On a meeting held on April 15, 2012 the BOD unanimously approved the declaration of cash dividends equivalent to 25% of the issued and outstanding shares of record as of May 17, 2012, or a total amount of Ninety Million Twenty Eight Thousand Pesos (P90,028,000) subject to the condition on the availability of unrestricted retained earnings to cover said dividend declaration.

59

CALATA CORPORATION (formerly Planters Choice Agro Products, Inc.)

OTHER DOCUMENTS TO BE FILED WITH THE PARENT COMPANY FINANCIAL STATEMENTS

UNDER PAR. 4 OF PART I – GENERAL FINANCIAL REPORTING REQUIREMENTS OF SRC RULE 68, AS AMENDED

DECEMBER 31, 2012

60


A. Non-stock and non-profit organizations Not applicable B. Foundations Not applicable C. Issues of securities to the public, and stock corporations with

unrestricted retained earnings in excess of 100% of paid-in capital stock

See Schedule C D. All secondary licensees of the Commission (financing

companies, broker dealer of securities and underwriters) and public companies

See Schedule D E. Financing companies Not applicable F. Mutual funds Not applicable G. Investment houses Not applicable H. Listed companies and investment houses that are part of a

conglomerate or group of companies

See Schedule H I. Listed companies that recently offered securities to the

public (either as initial or additional offering)

Not applicable J. Large and/or publicly-accountable entities See Schedule J

61

Schedule C. Reconciliation of retained earnings available for dividend declaration as at December 31, 2012

Unappropriated Retained Earnings, as adjusted to available for dividend

distribution, beginning

P75,904,564 Add: Net income actually earned/ realized during the year Net income during the period closed to Retained Earnings 98,172,706 Less: Non-actual/unrealized income net of tax - Equity in net income of associated/joint venture -

Unrealized foreign exchange gain – net (except those attributable to Cash and Cash Equivalents) Unrealized actuarial gain

-

Fair value adjustment (M2M gains) - Fair value adjustment of Investment Property resulting to gain - Adjustment due to deviation from PFRS/GAAP - gain -

Other unrealized gains or adjustments to the retained earnings as a result of certain transactions accounted for under the PFRS

-

Sub-total - Add: Non-actual losses - Depreciation on revaluation increment (after tax) - Adjustment due to deviation from PFRS/GAAP – loss - Loss on fair value adjustment of investment property (after tax) -

Net income actually earned during the period 174,077,270 Add (Less): Dividend declarations during the period - Appropriations of Retained Earnings during the period - Reversals of appropriation - Effects of prior period adjustments - Treasury notes -

TOTAL RETAINED EARNINGS, END AVAILABLE FOR DIVIDEND P174,077,270

62

Schedule D. Financial soundness indicators in two comparative periods

Current / Liquidity Ratios 2012

2011

Current ratio 1.22

1.11

Quick ratio 1.02

0.83

Solvency Ratio / Debt-to-Equity Ratio 2012

2011

Gearing ratio 0.68

0.98

Asset-to-Equity Ratio 2012

2011

Net assets per share 2.06

1.23

Interest Rate Coverage Ratio 2012

2011

Interest cover 5.26

6.30

Profitability Ratios 2012

2011

Return on capital employed 0.13

0.25

Gross profit margin 0.11

0.11

Net profit margin 0.05

0.05

Other Ratios 2012

2011

Earnings per share 0.28

0.69

Dividend cover N/A

4.06

Schedule H. Map showing the relationship between and among the Company and its

Subsidiary

Calata Corporation

(Parent Company)

Agri Phil

Corporation

(Subsidiary)

63

Schedule J. List of all the effective standards and interpretations under the PFRS as of year-end

PHILIPPINE FINANCIAL REPORTING STANDARDS AND INTERPRETATIONS Effective as of December 31, 2012

“Adopted”, “Not Adopted” or “Not Applicable”

Framework for the Preparation and Presentation of Financial Statements Conceptual Framework Phase A: Objectives and qualitative characteristics

PFRSs Practice Statement Management Commentary

Philippine Financial Reporting Standards

PFRS 1 (Revised)

First-time Adoption of Philippine Financial Reporting Standards

Adopted

Amendments to PFRS 1 and PAS 27: Cost of an Investment in a Subsidiary, Jointly Controlled Entity or Associate

Adopted

Amendments to PFRS 1: Additional Exemptions for First-time Adopters

Not Applicable

Amendment to PFRS 1: Limited Exemption from Comparative PFRS 7 Disclosures for First-time Adopters

Not Applicable

Amendments to PFRS 1: Severe Hyperinflation and Removal of Fixed Date for First-time Adopters

Not Applicable

Amendments to PFRS 1: Government Loans Not Applicable

PFRS 2 Share-based Payment Not Applicable

Amendments to PFRS 2: Vesting Conditions and Cancellations

Not Applicable

Amendments to PFRS 2: Group Cash-settled Share-based Payment Transactions

Not Applicable

PFRS 3 (Revised)

Business Combinations Adopted

PFRS 4 Insurance Contracts Not Applicable

Amendments to PAS 39 and PFRS 4: Financial Guarantee Contracts

Not Applicable

PFRS 5 Non-current Assets Held for Sale and Discontinued Operations

Not Applicable

PFRS 6 Exploration for and Evaluation of Mineral Resources Not Applicable

PFRS 7 Financial Instruments: Disclosures Adopted

Amendments to PFRS 7: Transition Not Applicable

Amendments to PAS 39 and PFRS 7: Reclassification of Financial Assets

Not Applicable

Amendments to PAS 39 and PFRS 7: Reclassification of Financial Assets - Effective Date and Transition

Not Applicable

Amendments to PFRS 7: Improving Disclosures about Financial Instruments

Not Applicable

Amendments to PFRS 7: Disclosures - Transfers of Financial Assets

Not Applicable

Amendments to PFRS 7: Disclosures – Offsetting Financial Not Applicable

64



Assets and Financial Liabilities

Amendments to PFRS 7: Mandatory Effective Date of PFRS 9 and Transition Disclosures

Not Applicable

PFRS 8 Operating Segments Adopted

PFRS 9 Financial Instruments Adopted


Not Applicable

PFRS 10 Consolidated Financial Statements Adopted

PFRS 11 Joint Arrangements Not Applicable

PFRS 12 Disclosure of Interests in Other Entities Not Applicable

PFRS 13 Fair Value Measurement Not Applicable

Philippine Accounting Standards

PAS 1 (Revised)

Presentation of Financial Statements Adopted

Amendment to PAS 1: Capital Disclosures Adopted

Amendments to PAS 32 and PAS 1: Puttable Financial Instruments and Obligations Arising on Liquidation

Not Applicable

Amendments to PAS 1: Presentation of Items of Other Comprehensive Income

Not Applicable

PAS 2 Inventories Adopted

PAS 7 Statement of Cash Flows Adopted

PAS 8 Accounting Policies, Changes in Accounting Estimates and Errors

Adopted

PAS 10 Events after the Balance Sheet Date Adopted

PAS 11 Construction Contracts Adopted

PAS 12 Income Taxes Adopted

Amendment to PAS 12 - Deferred Tax: Recovery of Underlying Assets

Adopted

PAS 16 Property, Plant and Equipment Adopted

PAS 17 Leases Adopted

PAS 18 Revenue Adopted

PAS 19 Employee Benefits Adopted

Amendments to PAS 19: Actuarial Gains and Losses, Group Plans and Disclosures

Adopted

PAS 19 (Amended)

Employee Benefits Adopted

PAS 20 Accounting for Government Grants and Disclosure of Government Assistance

Not applicable

PAS 21 The Effects of Changes in Foreign Exchange Rates Adopted

Amendment: Net Investment in a Foreign Operation Not applicable

65



PAS 23 (Revised)

Borrowing Costs Not applicable

PAS 24 (Revised)

Related Party Disclosures Adopted

PAS 26 Accounting and Reporting by Retirement Benefit Plans Not applicable

PAS 27 (Amended)

Separate Financial Statements Not applicable

PAS 28 (Amended)

Investments in Associates and Joint Ventures Not applicable

PAS 29 Financial Reporting in Hyperinflationary Economies Not applicable

PAS 31 Interests in Joint Ventures Not applicable

PAS 32 Financial Instruments: Disclosure and Presentation Adopted


Not applicable

Amendment to PAS 32: Classification of Rights Issues Not applicable

Amendments to PAS 32: Offsetting Financial Assets and Financial Liabilities

Not applicable

PAS 33 Earnings per Share Adopted

PAS 34 Interim Financial Reporting Not applicable

PAS 36 Impairment of Assets Adopted

PAS 37 Provisions, Contingent Liabilities and Contingent Assets Not applicable

PAS 38 Intangible Assets Not applicable

PAS 39 Financial Instruments: Recognition and Measurement Adopted

Amendments to PAS 39: Transition and Initial Recognition of Financial Assets and Financial Liabilities

Not applicable

Amendments to PAS 39: Cash Flow Hedge Accounting of Forecast Intragroup Transactions

Not applicable

Amendments to PAS 39: The Fair Value Option Not applicable


Not applicable


Not applicable

Amendments to PAS 39 and PFRS 7: Reclassification of Financial Assets – Effective Date and Transition

Not applicable

Amendments to Philippine Interpretation IFRIC–9 and PAS 39:

Not applicable

Embedded Derivatives Not applicable

Amendment to PAS 39: Eligible Hedged Items Not applicable

PAS 40 Investment Property Adopted

PAS 41 Agriculture Adopted

Philippine Interpretations

66



IFRIC 1 Changes in Existing Decommissioning, Restoration and Similar Liabilities

Not applicable

IFRIC 2 Members' Share in Co-operative Entities and Similar Instruments

Not applicable

IFRIC 4 Determining Whether an Arrangement Contains a Lease Adopted

IFRIC 5 Rights to Interests arising from Decommissioning, Restoration and Environmental Rehabilitation Funds

Not applicable

IFRIC 6 Liabilities arising from Participating in a Specific Market - Waste Electrical and Electronic Equipment

Not applicable

IFRIC 7 Applying the Restatement Approach under PAS 29 Financial Reporting in Hyperinflationary Economies

Not applicable

IFRIC 8 Scope of PFRS 2 Not applicable

IFRIC 9 Reassessment of Embedded Derivatives Not applicable

Amendments to Philippine Interpretation IFRIC–9 and PAS 39: Embedded Derivatives

Not applicable

IFRIC 10 Interim Financial Reporting and Impairment Not applicable

IFRIC 11 PFRS 2- Group and Treasury Share Transactions Not applicable

IFRIC 12 Service Concession Arrangements Not applicable

IFRIC 13 Customer Loyalty Programmes Not applicable

IFRIC 14 The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction

Not applicable

Amendments to Philippine Interpretations IFRIC- 14, Prepayments of a Minimum Funding Requirement

Not applicable

IFRIC 16 Hedges of a Net Investment in a Foreign Operation Not applicable

IFRIC 17 Distributions of Non-cash Assets to Owners Not applicable

IFRIC 18 Transfers of Assets from Customers Not applicable

IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments Not applicable

IFRIC 20 Stripping Costs in the Production Phase of a Surface Mine Not applicable

SIC-7 Introduction of the Euro Not applicable

SIC-10 Government Assistance - No Specific Relation to Operating Activities

Not applicable

SIC-12 Consolidation - Special Purpose Entities Not applicable

Amendment to SIC - 12: Scope of SIC 12 Not applicable

SIC-13 Jointly Controlled Entities - Non-Monetary Contributions by Venturers

Not applicable

SIC-15 Operating Leases - Incentives Not applicable

SIC-21 Income Taxes - Recovery of Revalued Non-Depreciable Assets

Not applicable

SIC-25 Income Taxes - Changes in the Tax Status of an Entity or its Shareholders

Not applicable

SIC-27 Evaluating the Substance of Transactions Involving the Not applicable

67



Legal Form of a Lease

SIC-29 Service Concession Arrangements: Disclosures. Not applicable

SIC-31 Revenue - Barter Transactions Involving Advertising Services

Not applicable

SIC-32 Intangible Assets - Web Site Costs Not applicable


CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2012 AND 2011


CONSOLIDATED STATEMENTS OF FINANCIAL POSITION DECEMBER 31, 2012 AND 2011

Note 2012 2011

ASSETS Current assets Cash and cash equivalents

8

P395,503,777

P204,788,818 Trade and other receivables, net

9

242,146,197

252,529,132

Loans receivable

10

9,650,000

15,000,000 Advances to related parties

22

41,567,329

66,495,612

Inventories

11

220,483,700

179,835,048 Prepayments and other current assets

3,214,102

5,622,210

Total current assets

912,565,105

724,270,820

Noncurrent assets Loans receivable

10

120,000,000

120,000,000 Investment properties

12

112,865,000

134,152,963

Property and equipment, net

13

345,444,069

72,765,320 Deferred tax assets

24

2,589,764

1,858,969


25

3,305,132

-

Total noncurrent assets

584,203,965

328,777,252

Total assets

P1,496,769,070

P1,053,048,072

LIABILITIES AND EQUITY Current liabilities Trade and other payables

14

P186,928,204

P134,698,952 Loans payable

15

502,137,982

392,500,000


22

2,070,350

52,461,454

Dividends payable

17

-

25,000,000 Income tax payable

45,786,638

46,562,355

Total current liabilities

736,923,174

651,222,761

Non-current liabilities Loans payable

15

6,022,303

- Retirement benefit liability

23

2,938,573

1,820,747

Deferred tax liabilities

24

1,968,000

-

Total noncurrent liabilities

10,928,876

1,820,747

Total liabilities

747,852,050

653,043,508

Equity Share capital

16

360,112,000

324,100,000 Share premium

16

209,157,649

-

Retained earnings

179,647,371

75,904,564

Total equity

748,917,020

400,004,564

Total liabilities and equity

P1,496,769,070

P1,053,048,072



CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

Notes 2012 2011

Sales

18

P2,206,001,907

P2,001,710,303 Cost of sales

19

(1,948,363,094)

(1,786,448,915)

Gross profit

257,638,813

215,261,388 Operating expenses

20

(106,951,331)

(58,925,176)

Other operating income, net

21

29,218,496

9,629,815

Profit from operations

179,905,978

165,966,027 Finance income

8, 10

10,502,498

3,828,221

Finance costs

15

(32,894,932)

(26,934,023)

Profit before tax

157,513,544

142,860,225 Provision for income tax

24

(47,138,443)

(42,686,537)

Profit for the year

P110,375,101

P100,173,688


P0.32

P0.69



CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

Note 2012 2011

Profit for the year

P110,375,101

P100,173,688 Other comprehensive income

-

-

Total comprehensive income

P110,375,101

P100,173,688


P0.32

P0.69



CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

Note Share capital Share

premium Retained earnings Total

Balance at January 1, 2011

P1,000,000

P-

P730,876


16

323,100,000

-

-

323,100,000


-

-

100,173,688


-

-

-

-

Cash dividends declared 17

-

-

(25,000,000)

(25,000,000)


P324,100,000

P-

P75,904,564


16

36,012,000

209,157,649

-

245,169,649

Effect of purchase of non-controlling interest in subsidiary

6

-

-

(6,632,294)

(6,632,294)


-

-

110,375,101


-

-

-

-


P360,112,000

P209,157,649

P179,647,371

P748,917,020



CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

Notes 2012 2011

Cash flows from operating activities Profit before tax

P157,513,544

P142,860,225 Adjustments for:

Depreciation and amortization

13, 20

13,576,323

5,780,083

Impairment loss on trade receivables

9, 21

1,318,159

4,375,816

Retirement benefit costs

20, 23

1,117,826

450,133


13, 21

(1,735,200)

(1,914,123)

Finance income

8, 10

(10,502,498)

(3,828,221) Finance costs

15

32,894,932

26,934,023

Operating income before working capital changes

194,183,086

174,657,937

Decrease (increase) in:


15,374,775

86,814,231

Advances to related parties

22

(140,274)

(1,226,567)

Inventories

(40,648,652)

44,409,521

Prepayments and other current assets

2,293,509

(6,494,604)


(3,305,132)

-

Increase (decrease) in:

Trade and other payables

52,229,253

(34,664,557)


22

(50,391,103)

52,461,454

Cash provided by operations

169,595,462

315,957,414 Finance income received

4,192,498

973,221

Income taxes paid

(46,562,355)

(14,452,191)

Net cash provided by operating activities

127,225,605

302,478,444

Cash flows from investing activities Increase in related party loans receivable

10

-

(120,000,000) Collection of loans receivable

10

5,350,000

-

Increase in advances to related parties

22

903,755

(28,482,091) Acquisition of investment property

12

-

(134,152,963)

Acquisition of property and equipment

13

(264,967,109)

(53,326,610) Disposal of property and equipment

900,000

-

Net cash used in investing activities

(257,813,354)

(335,961,664)

Cash flows from financing activities Proceeds from issuance of additional

shares

16

245,169,649

323,100,000

Net availments (payments) of loans payable

15

115,660,285

(77,000,000)

Purchase of non-controlling interest in subsidiary

6

(6,632,294)

-

Finance cost paid

(32,894,932)

(26,934,023)

Net cash provided by financing activities

321,302,708

219,165,977

Net increase in cash and cash equivalents

190,714,959

185,682,757

Cash and cash equivalents

January 1

204,788,818

19,106,061

December 31

P395,503,777

P204,788,818

Information on significant non-cash transactions

Conversion of debt to equity of subsidiary

(P55,455,249)

P- Cash dividend distribution through

offsetting

17

(25,000,000)

-


13

835,200

(1,914,123)

Transfer of investment property to property and equipment

12

21,287,963

-

Acquisition of farms

13

(21,287,963)

- Advances to related parties

22

79,620,049

1,914,123

P-

P-


CALATA CORPORATION AND ITS SUBSIDIARY (formerly Planters Choice Agro Products, Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

NOTE 1 – CORPORATE INFORMATION

Calata Corporation (formerly Planters Choice Agro Products, Inc.) (the Parent Company) and its

subsidiary (collectively referred herein as the Group) was organized under the laws of the

Republic of the Philippines.

The Parent Company was registered with the Philippine Securities and Exchange Commission

(SEC) per Registration No. A199911666 on July 23, 1999.

The primary purpose of the Parent Company is to conduct, engage in and carry on, as principal

or otherwise, all lawful business activities involving livestock and agricultural business,

corporate or otherwise, such as but not limited to the business of acquiring, raising, breeding,

slaughtering, preserving, processing, packing, canning, enveloping, storing, marketing,

exporting, and commercially distributing livestock such as chicken, fowl, cattle, calves, hogs,

goats, sheep, lambs, all kinds of livestock and other animals, as may be permitted by law, for

food purposes; the business of cultivating land and other natural resources, planting, growing,

producing, buying, preserving, processing, packing, canning, enveloping, storing, marketing,

exporting, and commercially distributing food and agricultural products including all kinds of

goods, commodities, wares and merchandise of every kind and descriptions whether natural or

artificial as may be permitted by law; the business of manufacturing, preparing stocking,

packing, buying, selling, importing and exporting, dealing in and delivering all kinds of livestock

and agricultural products such as but not limited to poultry, livestock, feeds, feed additives,

fertilizers, pesticides, all types of chemicals and substance used for livestock and agriculture,

and/or whatsoever materials which may be necessary or incidental to their manufacture or

preparation inside or outside the Philippines and all kinds of materials and products and by-

products arising out of or used in the breeding and slaughtering of poultry and livestock and all

other agricultural activities for food purposes; and to direct, establish, construct, acquire, sell,

lease operate and maintain slaughterhouse, dressing plants, processing plant, refrigerating

plants, cold storage, warehouses, sheds, silos, bodegas, storage bins, and other buildings,

facilities, structures and equipment necessary or expedient for the carrying out of the purposes

aforesaid.

The Group’s registered office address and principal place of business is at McArthur Highway,

Banga 1st, Plaridel, Bulacan.

On January 5, 2010, the Parent Company’s Board of Directors (BOD) amended its By-laws to

change the corporate name from Planters Choice Agro Products, Inc. to Calata Corporation. On

February 22, 2010, the SEC issued a Certificate of Amendment approving the said amendment.

On August 5, 2011, the Parent Company’s BOD amended its article of incorporation to increase its authorized share capital from P1,000,000 to P345,400,000 with par value of P100 to P1, respectively (see Note 16). On August 17, 2011, the SEC issued a Certificate of Amendment approving the said amendment. On August 18, 2011, the Parent Company’s BOD amended its article of incorporation to increase its authorized share capital from P345,400,000 to P845,400,000 (see Note 16). On August 25, 2011, the SEC issued a Certificate of Amendment approving the said amendment.

8

On December 28, 2011, with the approvals by the Philippine Stock Exchange (PSE) for the Parent Company’s application for listing and by the SEC for the Registration Statement, a total of 36,012,000 common shares, with P1 par value, representing 10% of outstanding share capital, was offered and subscribed at P7.50 per share through an initial public offering on May 10 to 16, 2012 (see Note 16). The common shares comprise of 36,012,000 new shares issued by the Parent Company by way of a primary offer. The Parent Company’s common shares were listed and commenced trading on the PSE on May 23, 2012. On January 31, 2012, the Parent Company’s BOD amended its article of incorporation to change the primary purpose of the Parent Company to include the cultivation of land and other natural resources and on the other hand, to exclude the sale, at wholesale or retail, of livestock such as chicken, fowl, cattle, calves, hogs, goats, sheep, lambs, all kinds of livestock and other animals, as may be permitted by law, for food purposes; and food and agricultural products including all kinds of goods, commodities, wares and merchandise of every kind and descriptions whether natural or artificial. On February 6, 2012, the SEC issued a Certificate of Amendment approving the said amendment.

On July 19, 2012, the Parent Company’s BOD approved the conversion of its P55,455,249.00

worth of advances to equity shares in Agri Phil Corporation (APC) as well as the purchase of all

the issued and outstanding shares of stock therein. On August 3, 2012, the SEC approved said

conversion which resulted to the Parent Company owning 85.37% ownership in APC. The

investing public, including all the shareholders of the Parent Company have been informed of

this development through timely and complete disclosures with the SEC via the filing of the

requisite Current Report (SEC Form 17-C) and the uploading thereof with the PSE via the PSE

Online Disclosure System.

On September 30, 2012, the complete acquisition of APC had been implemented and reflected

in the books of the Parent Company’s SEC Form 17-Q which was filed with the SEC and

uploaded with the PSE via the PSE Online Disclosure System. APC has been included in the

consolidated financial statements for the year ended December 31, 2012.

APC is a corporation established to engage in import/export, buying, selling, distributing and

marketing at wholesale and retail all kinds of goods of every kind and description such as but

not limited to agricultural products. APC has been included in the consolidated financial

statements by the time the Parent Company gained control.

The consolidated financial statements of the Group as of and for the years ended December 31,

2012 and 2011 were authorized for issue by the BOD on March 15, 2013 and that the President

and Chief Executive Officer (CEO) is authorized to approve such consolidated financial

statements on their behalf. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 2.1 Basis of preparation

The principal accounting policies adopted in the preparation of the consolidated financial

statements are set out below. The policies have been consistently applied to both years

presented, unless otherwise stated. Statement of compliance The consolidated financial statements of the Group have been prepared in compliance with Philippine Financial Reporting Standards (PFRS).

Basis of measurement The consolidated financial statements have been prepared on a historical cost basis.

9

Presentation and functional currency The consolidated financial statements are prepared in Philippine Peso (P), which is the Group’s functional and presentation currency. All values are rounded off to the nearest Peso, unless otherwise indicated.

Use of judgments and estimates

The preparation of consolidated financial statements in compliance with PFRS requires the use

of certain critical accounting estimates. It also requires the Group’s management to exercise

judgment in applying the Group’s accounting policies. The areas where significant judgments

and estimates have been made in preparing the consolidated financial statements and their

effects are disclosed in Note 3.

Changes in accounting policies and disclosures a. New standards and amendments effective from January 1, 2012

The accounting policies adopted are consistent with those of the previous period except for the following new standards and amendments effective for the first time on or after either January 1, 2012 or July 1, 2012 of which none have had a material effect on the consolidated financial statements:

Amendments to PFRS 7: Disclosures - Transfers of Financial Assets, effective July 1, 2011

Amendments to PAS 1, Presentation of Items of Other Comprehensive Income

Amendments to PAS 12, Deferred Tax: Recovery of Underlying Assets

The adoption of the standards or amendments is described below:

Amendments to PFRS 7: Disclosures - Transfers of Financial Assets: The amendment becomes effective for annual periods beginning on or after July 1, 2011. The amendment requires additional disclosure about financial assets that have been transferred but not derecognized to enable the user of the Group’s financial statements to understand the relationship with those assets that have not been derecognized and their associated liabilities. In addition, the amendment requires disclosures about continuing involvement in derecognized assets to enable the user to evaluate the nature of, and risks associated with, the entity’s continuing involvement in those derecognized assets.

Amendments to PAS 1, Presentation of Items of Other Comprehensive Income: The new requirements are effective for annual periods beginning on or after July 1, 2012. Earlier application is permitted. The amendments improved the consistency and clarity of the presentation of items of other comprehensive income. The amendments also highlighted the importance that the board places on presenting profit or loss and other comprehensive income together and with equal prominence.

The main change resulting from the amendments was a requirement for entities to group items presented in other comprehensive income on the basis of whether they are potentially reclassifiable to profit or loss subsequently (reclassification adjustments). The amendments did not address which items are presented in other comprehensive income. The amendments did not change the option to present items of other comprehensive income either before tax or net of tax. However, if the items are presented before tax, then the tax related to each of the two groups of other comprehensive income items (those that might be reclassified and those that will not be reclassified) must be shown separately.

10

Amendments to PAS 12, Deferred Tax: Recovery of Underlying Assets: The amendments are effective January 1, 2012. Earlier application is permitted. The amendments provide a practical approach for measuring deferred tax liabilities and deferred tax assets when investment property is measured using the fair value model in PAS 40, Investment Property. Under PAS 12, the measurement of deferred tax liabilities and deferred tax assets depends on whether an entity expects to recover an asset by using it or by selling it. However, it is often difficult and subjective to determine the expected manner of recovery when the investment property is measured using the fair value model in PAS 40.

To provide a practical approach in such cases, the amendments introduce a presumption that an investment property is recovered entirely through sale. This presumption is rebutted if the investment property is held within a business model whose objective is to consume substantially all of the economic benefits embodied in the investment property over time, rather than through sale.

Philippine Interpretation Committee-21 (PIC-21), Income Taxes - Recovery of Revalued Non-Depreciable Assets addresses similar issues involving non-depreciable assets measured using the revaluation model in PAS 16, Property, Plant and Equipment. The amendments incorporate PIC-21 into PAS 12 after excluding investment property measured at fair value from the scope of the guidance previously contained in PIC-21.

b. New standards and amendments to existing standards issued but not yet effective and not

early adopted by the Group Standards and amendments to existing standards issued but not yet effective up to the date of issuance of the Group’s consolidated financial statements are listed below. This listing is of standards and issued, which the Group reasonably expects to be applicable at a future date. The Group intends to adopt those standards when they become effective. i. Standards and amendments relevant to the Group

PFRS 9 Financial Instruments: Classification and Measurement (effective January 1, 2013): PFRS 9 as issued reflects the first phase of the FRSC work on the replacement of PAS 39 and applies to classification and measurement of financial assets as defined in PAS 39. The standard is effective for annual periods beginning on or after January 1, 2013. In subsequent phases, the FRSC will address classification and measurement of financial liabilities, hedge accounting and derecognition.

The adoption of the first phase of PFRS 9 will have an effect on the classification and measurement of the Group’s financial assets. The Group did not conduct an evaluation on the possible financial impact of an early adoption of the new standard as the Group will not early adopt the standard. However, initial indications show that adoption of PFRS 9 will have no significant impact on its financial position or performance.

PFRS 10 Consolidated Financial Statements: This standard was developed to eliminate perceived conflict on concept of consolidation between PAS 27, Consolidated and Separate Financial Statements (amended in 2008) and PIC-12, Consolidation – Special Purpose Entities. PAS 27 (amended in 2008) requires consolidation of entities based on control whereas PIC-12 mandates consolidation of entities based on risks and rewards. It provides a new definition of control based on three elements: power over the investee, exposure or rights to variable returns from involvement with the investee, ability to use power over the investee to affect the amount of investor’s return.

The new standard is applicable to annual periods beginning on or after January 1, 2013.

Earlier application is permitted.

11

PFRS 12 Disclosures of Interests in Other Entities (effective January 1, 2013): This standard prescribes all of the disclosure requirements for subsidiaries, joint arrangements, associates and unconsolidated structured entities. Earlier application is permitted.

The adoption of this standard will result to a number of new disclosure requirements.

PFRS 13 Fair Value Measurement (effective January 1, 2013): This standard was developed to eliminate inconsistencies of fair value measurements dispersed in various existing PFRS. It clarifies the definition of fair value, provides a single framework for measuring fair value and enhances fair value disclosures. Earlier application is permitted. The Group is currently assessing the impact that this standard will have on its financial position and performance.

Amendments to PFRS 7, Disclosures – Offsetting Financial Assets and Financial Liabilities: The amendment involves the revision of the required disclosures to include information that will enable users to evaluate the effect or potential effect of netting arrangements on an entity’s financial position.

An entity shall provide the disclosures required by the amendments retrospectively.

Earlier application is permitted. The amended standard shall be applied for annual periods beginning on or after January

1, 2013 and interim periods within these annual periods.

Amendments to PFRS 9 and PFRS 7, Mandatory Effective Date of PFRS 9 and Transition Disclosures: The amendments involve the following: (a) change of the original January 1, 2013 mandatory effective date of PFRS 9 to January 1, 2015, (b) modification of the relief from restating prior periods, and (c) additional required disclosures on transition from PAS 39, Financial Instruments: Recognition and Measurement to PFRS 9.

The amendments only affect disclosure and will have no impact on the Group’s

financial position or performance. The amended standard shall be applied for annual periods beginning on or after January 1, 2015. Earlier application is permitted.

Amendments to PFRS 10, PFRS 12 and PAS 27: Investment Entities: The amended standards shall be applied for annual periods beginning on or after January 1, 2014. Earlier application is permitted. The amendments define an investment entity and require a parent that is an investment entity to measure its investments in particular subsidiaries at fair value through profit or loss in its consolidated and separate financial statements. It also sets out disclosure requirements for investment entities into PFRS 12 and amend PAS 27.

Amendments to PAS 19, Employee Benefits: These amendments eliminate the corridor approach and calculate finance costs on a net funding basis. The amendments would also require recognition of all actuarial gains and losses in other comprehensive income as they occur and of all past service costs in the profit or loss. These amendments replace interest cost and expected return on plan assets with a net interest amount that is calculated by applying the discount rate to the net defined benefit liability (asset). The amended standard is applied retrospectively with limited exceptions. Entities shall apply the amended PAS 19 for annual periods beginning on or after January 1, 2013. Earlier application is permitted.

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PAS 27 Separate and Consolidated Financial Statements: This completes the consolidation project. The standard was amended to contain requirements relating only to separate consolidated financial statements.

The amended standard is applicable to annual periods beginning on or after January 1,

2013. Earlier application is permitted.

Amendments to PAS 32, Offsetting Financial Assets and Financial Liabilities: This amendment provides an additional application guidance for offsetting in accordance with PAS 32. It clarifies the meaning of “currently has a legally enforceable right of set-off” and that some gross settlement systems may be considered equivalent to net settlement.

The amended standard shall be applied for annual periods beginning on or after January

1, 2014 and should be applied retrospectively. Earlier application is permitted.

ii. New standards, amendments and interpretation not relevant to the Group

Amendments to PFRS 1, Government Loans (effective January 1, 2013)

PFRS 11, Joint Arrangements (effective January 1, 2013)

Amendments to PFRS 11, Transition Guidance (effective January 1, 2013)

PAS 28 (Amended), Investment in Associates and Joint Ventures (effective January 1, 2013)

IFRIC 20 , Stripping Costs in the Production Phase of a Surface Mine (effective January 1, 2013

Annual improvements to PFRS The FRSC issued improvements to PFRS. The following improvements will be adopted as they become effective for annual periods on or after January 1, 2013:

Amendments to PFRS 1, First-Time Adoption of Philippine Financial Reporting Standards

PAS 1, Presentation of Financial Statements – Clarification of the Requirements for Comparative Information

PAS 16, Property, Plant and Equipment - Classification of Servicing Equipment

PAS 32, Financial Instruments Presentation – Tax Effect of Distribution to Holders of Equity Instruments

PAS 34, Interim Financial Reporting – Interim Financial Reporting and Segment Information for Total Assets and Liabilities

The Group, however, expects no significant impact on its financial position or performance from the adoption of the amendments.

2.2 Basis of consolidation

The consolidated financial statements comprise the financial statements of the Parent Company and its subsidiary. A subsidiary is an entity over which the Parent Company has the power to govern the financial operating policies generally accompanying a shareholding giving rise to a majority of voting rights. The subsidiary is fully consolidated from the date of acquisition, being the date on which the Parent Company obtains control, and continues to be consolidated until the date when such control ceases. The financial statements of the subsidiary are prepared for the same reporting period as the Parent Company, using consistent accounting policies. All intra-group balances, transactions, unrealized gains and losses resulting from intra-group transactions and dividends are eliminated in full.

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A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction. If the Parent Company loses control over the subsidiary, it:

derecognizes the assets (including goodwill) and liabilities of the subsidiary

derecognizes the carrying amount of any non-controlling interest

derecognizes the cumulative translation differences recorded in equity

recognizes the fair value of the consideration received

recognizes the fair value of any investment retained

recognizes any surplus or deficit in profit or loss

reclassifies the parent’s share of components previously recognized in other comprehensive income to profit or loss or retained earnings, as appropriate.

Losses within a subsidiary are attributed to the non-controlling interest even if that results in a deficit balance. 2.3 Business combinations Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred measured at acquisition date fair value and the amount of any non-controlling interest in the acquiree. For each business combination, the Group elects whether to measure the non-controlling interest in the acquiree at fair value or at the proportionate share of the acquiree’s identifiable net assets. Acquisition-related costs are expensed as incurred and included in administrative expenses. When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. This includes the separation of embedded derivatives in host contracts by the acquiree. If the business combination is achieved in stages, the previously held equity interest is remeasured at its acquisition date fair value and any resulting gain or loss is recognized in profit or loss. Any contingent consideration to be transferred by the acquirer will be recognized at fair value at the acquisition date. Contingent consideration classified as an asset or liability that is a financial instrument and within the scope of PAS, is measured at fair value with changes in fair value recognized either in either profit or loss or as a change to other comprehensive income. If the contingent consideration is not within the scope of IAS 39, it is measured in accordance with the appropriate PFRS. Contingent consideration that is classified as equity is not remeasured and subsequent settlement is accounted for within equity. Goodwill is initially measured at cost, being the excess of the aggregate of the consideration transferred and the amount recognized for non-controlling interest over the net identifiable assets acquired and liabilities assumed. If the fair value of the net assets acquired is in excess of the aggregate consideration transferred, the gain is recognized in profit or loss. After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group’s cash-generating units that are expected to benefit from the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units.

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Where goodwill has been allocated to a cash-generating unit and part of the operation within that unit is disposed of, the goodwill associated with the disposed operation is included in the carrying amount of the operation when determining the gain or loss on disposal. Goodwill disposed in these circumstances is measured based on the relative values of the disposed operation and the portion of the cash-generating unit retained. 2.4 Financial instruments i. Financial assets Initial recognition and measurement Financial assets within the scope of PAS 39 are classified as financial assets at fair value through profit or loss (FVPL), loans and receivables, held-to-maturity (HTM) investments, available-for-sale (AFS) financial assets, or as derivatives designated as hedging instruments in an effective hedge, as appropriate. The Group determines the classification of its financial assets at initial recognition. All financial assets are recognized initially at fair value plus transaction costs, except in the case of financial assets recorded at FVPL. Purchases or sales of financial assets that require delivery of assets within a time frame established by regulation or convention in the market place (regular way trades) are recognized on the trade date, i.e., the date that the Group commits to purchase or sell the asset. Subsequent measurement The subsequent measurement of financial assets depends on their classification as described below: (a) Financial assets at FVPL Financial assets at FVPL include financial assets held for trading and financial assets designated upon initial recognition at FVPL. Financial assets at FVPL are carried in the consolidated statements of financial position at fair value with net changes in fair value presented as finance costs (negative net changes in fair value) or finance income (positive net changes in fair value) in the consolidated statement of income. Financial assets are designated upon initial recognition at FVPL only if the criteria under PAS 39 are satisfied. The Group has not designated any financial assets at FVPL. (b) Loans and receivables Loans and receivable are non-derivative financial assets with fixed or determinable payments that are not quoted in the active market. After initial measurement, such financial assets are subsequently measured at amortized cost using effective interest rate (EIR) method, less impairment. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortization is included in finance income in the consolidated statement of income. The losses arising from impairment are recognized in the consolidated statement of income in finance costs for loans and in operating expenses for receivables.

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Impairment provisions are recognized when there is objective evidence (such as significant financial difficulties on the part of the counterparty or default or significant delay in payment) that the Group will be unable to collect all of the amounts due under the terms of the receivable, the amount of such a provision being the difference between the net carrying amount and the present value of the future expected cash flows associated with the impaired receivable. For trade receivables, which are reported net; such provisions are recorded in a separate allowance account with the loss being recognized within operating expenses in the consolidated statement of income. On confirmation that the trade receivable will not be collectable, the gross carrying value of the asset is written off against the associated provision. The Group's loans and receivables comprise cash and cash equivalents, trade and other receivables, loans receivable, advances to related parties and refundable security deposit in the consolidated statements of financial position (see Notes 8, 9, 10, 22 and 25). (c) HTM investments Non-derivative financial assets with fixed or determinable payments and fixed maturities are classified as held to maturity when the Group has the positive intention and ability to hold them to maturity. After initial measurement, HTM investments are measured at amortized cost using the EIR, less impairment. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees that are an integral part of the EIR. The EIR amortization is included as finance income in the consolidated statement of income. The losses arising from impairment are recognized in the consolidated statement of income in finance costs. The Group did not hold any HTM investments during the years ended December 31, 2012 and 2011. (d) AFS investments AFS investments include equity investments and debt securities. Equity investments classified as AFS are those that are neither classified as held for trading nor designated at FVPL. Debt securities in this category are those that are intended to be held for an indefinite period of time and that may be sold in response to needs for liquidity or in response to changes in the market conditions. After initial measurement, AFS investments are subsequently measured at fair value with unrealized gains or losses recognized as other comprehensive income in the AFS reserve until the investment is derecognized, at which time the cumulative gain or loss is recognized in other operating income, or determined to be impaired, when the cumulative loss is reclassified from the AFS reserve to the consolidated statement of income in finance costs. Interest earned while holding AFS investments is reported as finance income using the EIR method. The Group evaluates whether the ability and intention to sell its AFS financial assets in the near term is still appropriate. When, in rare circumstances, the Group is unable to trade these financial assets due to inactive markets and management’s intention to do so significantly changes in the foreseeable future, the Group may elect to reclassify these financial assets. Reclassification to loans and receivables is permitted when the financial assets meet the definition of loans and receivables and the Group has the intent and ability to hold these assets for the foreseeable future or until maturity. Reclassification to the HTM category is permitted only when the entity has the ability and intention to hold the financial asset accordingly. For a financial asset reclassified from the AFS category the fair value carrying amount at the date of reclassification becomes its new amortized cost and any previous gain or loss on the asset that has been recognized in equity is amortized to profit or loss over the remaining life of the investment using the EIR. Any difference between the new amortized cost and the expected cash flows is also amortized over the remaining life of the asset using the EIR. If the asset is subsequently determined to be impaired, then the amount recorded in equity is reclassified to the consolidated statement of income. The Group does not have any asset under this category.

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Derecognition A financial asset is derecognized when: a) the rights to receive cash flows from the asset have expired; b) the Group has transferred its rights to receive cash flows from the assets or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a ‘pass-through’ arrangement; and either (a) the Group has transferred substantially all the risks and rewards of the asset, or (b) the Group has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset. When the Group has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, it evaluates if and to what extent it has retained the risks and rewards of ownership. When it has neither transferred nor retained substantially all of the risks and rewards of the asset, nor transferred control of the asset, the asset is recognized to the extent of the Group’s continuing involvement in the asset. In that case, the Group also recognizes an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Group has retained. Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Group could be required to repay. ii. Impairment of financial assets The Group assesses, at each reporting date, whether there is objective evidence that a financial asset or a group of financial assets is impaired. A financial asset or a group of financial assets is deemed to be impaired if there is objective evidence of impairment as a result of one or more events that has occurred since the initial recognition of the asset (an incurred ‘loss event’) and that loss event has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated. Evidence of impairment may include indications that the debtors or a group of debtors is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganization and observable data indicating that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults. (a) Financial assets carried at amortized cost For financial assets carried at amortized cost, the Group first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, or collectively for financial assets that are not individually significant. If the Group determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is, or continues to be, recognized are not included in a collective assessment of impairment. If there is objective evidence that an impairment loss has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future expected credit losses that have not yet been incurred). The present value of the estimated future cash flows is discounted at the financial asset’s original EIR. If a loan has a variable interest rate, the discount rate for measuring any impairment loss is the current EIR.

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The carrying amount of the asset is reduced through the use of an allowance account and the loss is recognized in profit or loss. Interest income continues to be accrued on the reduced carrying amount and is accrued using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. The interest income is recorded as finance income in the consolidated statement of income. Loans together with the associated allowance are written off when there is no realistic prospect of future recovery and all collateral has been realized or has been transferred to the Group. If, in a subsequent year, the amount of the estimated impairment loss increases or decreases because of an event occurring after the impairment was recognized, the previously recognized impairment loss is increased or reduced by adjusting the allowance account. If a write-off is later recovered, the recovery is credited to finance costs in the consolidated statement of income. (b) Financial assets carried at cost If there is objective evidence of an impairment loss on an unquoted equity instrument that is not carried at fair value because its fair value cannot be reliably measured, or of a derivative asset that is linked to and must be settled by delivery of such an unquoted equity instrument, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the current market rate of return for a similar financial asset. (c) AFS investments For AFS investments, the Group assesses at each reporting date whether there is objective evidence that an investment or a group of investments is impaired. In the case of equity investments classified as AFS, objective evidence would include a significant or prolonged decline in the fair value of the investment below its cost. ‘Significant’ is evaluated against the original cost of the investment and ‘prolonged’ against the period in which the fair value has been below its original cost. When there is evidence of impairment, the cumulative loss – measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that investment previously recognized in the consolidated statement of income – is removed from other comprehensive income and recognized in the consolidated statement of income. Impairment losses on equity investments are not reversed through profit or loss; increases in their fair value after impairment are recognized directly in other comprehensive income. In the case of debt instruments classified as AFS, impairment is assessed based on the same criteria as financial assets carried at amortized cost. However, the amount recorded for impairment is the cumulative loss measured as the difference between the amortized cost and the current fair value, less any impairment loss on that investment previously recognized in the consolidated statement of income. Future interest income continues to be accrued based on the reduced carrying amount of the asset, using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. The interest income is recorded as part of finance income. If, in a subsequent year, the fair value of a debt instrument increases and the increase can be objectively related to an event occurring after the impairment loss was recognized in the consolidated statement of income, the impairment loss is reversed through the consolidated statement of income. iii. Financial liabilities Initial recognition and measurement Financial liabilities within the scope of PAS 39 are classified as financial liabilities at FVPL and other financial liabilities. The Group determines the classification of its financial liabilities at initial recognition. All financial liabilities are recognized initially at fair value and, in the case of other financial liabilities, net of directly attributable transaction costs.

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The Group’s financial liabilities as of December 31, 2012 and 2011 comprise of other financial liabilities which include trade and other payables, loans payable, advances from related parties and dividends payable. Subsequent measurement The measurement of financial liabilities depends on their classification as described below: (a) Financial liabilities at FVPL Financial liabilities at FVPL include financial liabilities held for trading and financial liabilities designated upon initial recognition as at FVPL. Financial liabilities are classified as held for trading if they are acquired for the purpose of selling in the near term. This category includes derivative financial instruments entered into by the Group that are not designated as hedging instruments in hedge relationships as defined by PAS 39. Separated embedded derivatives are also classified as held for trading unless they are designated as effective hedging instruments. Gains or losses on liabilities held for trading are recognized in the consolidated statement of income. Financial liabilities designated upon initial recognition at FVPL are designated at the initial date of recognition, and only if the criteria in PAS 39 are satisfied. The Group does not have any liabilities held for trading nor has it designated any financial liabilities as being at FVPL. (b) Other financial liabilities After initial recognition, other financial liabilities are subsequently measured at amortized cost using the EIR method. Gains and losses are recognized in profit or loss when the liabilities are derecognized as well as through the EIR amortization process. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortization is included as finance costs in the consolidated statement of income. Other financial liabilities include trade and other payables, loans payable, advances from related parties and dividends payable (see Notes 14, 15, 17 and 22). Derecognition A financial liability is derecognized when the obligation under the liability is discharged or 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. The difference in the respective carrying amounts is recognized in the consolidated statement of income. iv. Classification of financial instruments between debt and equity Financial instruments are classified as liability or equity in accordance with the substance of the contractual arrangement. Interest, dividends, gains and losses relating to a financial instrument or a component that is a financial liability is reported as expense or income. v. Offsetting of financial instruments Financial assets and financial liabilities are offset and the net amount is reported in the consolidated statements of financial position if, and only if, there is a currently enforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis, or to realize the asset and settle the liability simultaneously. This is not generally the case with master netting agreements, and the related assets and liabilities are presented gross in the consolidated statements of financial position.

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vi. Fair value of financial instruments The fair value of financial instruments traded in active markets is based on their quoted market price or dealer price quotation (bid price for long positions and ask price for short positions), without any deduction for transaction costs. For financial instruments not traded in an active market, the fair value is determined using appropriate valuation techniques. Such techniques may include:

Using recent arm’s length market transactions

Reference to the current fair value of another instrument that is substantially the same

A discounted cash flow analysis or other valuation models

An analysis of fair values of financial instruments and further details as to how they are measured are provided in Note 4. Fair value measurement hierarchy PFRS 7 requires certain disclosures which require the classification of financial assets and financial liabilities measured at fair value using a fair value hierarchy that reflects the significance of the inputs used in making the fair value measurement (Note 4). The fair value hierarchy has the following levels: a) quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1); b) inputs other than quoted prices included within Level 1 that are observable for the asset or

liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices) (Level 2); and c) inputs for the asset or liability that are not based on observable market data (unobservable

inputs) (Level 3).

The level in the fair value hierarchy within which the financial asset or financial liability is categorized is determined on the basis of the lowest level input that is significant to the fair value measurement. Financial assets and financial liabilities are classified in their entirety into only one of the three levels. 2.5 Cash and cash equivalents Cash and cash equivalents consist of cash in banks and deposits held at call with banks with original maturities of three months or less and are subject to an insignificant risk of change in value. For the purpose of reporting cash flows, cash and cash equivalents are unrestricted and available for use in current operations. 2.6 Inventories

Inventories are initially recognised at cost, and subsequently at the lower of cost and net realizable value (NRV). Cost comprises all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition. Cost is calculated using the first-in, first-out method. NRV represents the estimated selling price less all estimated costs to be incurred in marketing, selling and distributing the goods. When the NRV of the inventories is lower than the cost, the Group provides for an allowance for the decline in the value of the inventory and recognizes the write-down as an expense in the consolidated statement of income. When inventories are sold, the carrying amount of those inventories is recognized as an expense in the period in which the related revenue is recognized.

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2.7 Prepayments and other current assets Prepayments represent expenses not yet incurred but already paid in cash. Prepayments are initially recorded as assets and measured at the amount of cash paid. Subsequently, these are charged to the consolidated statement of income as they are consumed in operations or expire with the passage of time. Prepayments are classified in the consolidated statements of financial position as current assets when the cost of goods or services related to the prepayment are expected to be incurred within one year or the Group’s normal operating cycle, whichever is longer. Otherwise, prepayments are classified as noncurrent assets. Other assets are recognized when the Group expects to receive future economic benefit from it and the amount can be measured reliably. Other assets are classified in the consolidated statements of financial position as current assets when the cost of goods or services related to the assets are expected to be incurred within one year or the Parent Company’s normal operating cycle, whichever is longer. Otherwise, other assets are classified as noncurrent assets. 2.8 Investment properties Investment property, which pertains to land and building held to earn rentals and/or for capital appreciation, is measured initially at cost, including transaction costs. Subsequent to initial recognition, investment property is measured at cost less accumulated impairment loss, if any. Transfers to, or from, investment property shall be made only when there is a change in use. Investment property is derecognized by the Group upon its disposal or the investment property is permanently withdrawn from use and no future economic benefits are expected from its disposal. Any gain or loss on the retirement or disposal of investment properties is recognized in the consolidated statement of income in the year of retirement or disposal. Expenditures incurred after the investment properties have been put into operations, such as repairs and maintenance costs, are charged to the consolidated statement of income in the year the costs are incurred. Gains or losses on disposals are determined by comparing the proceeds with the carrying amount and are recognized in the consolidated statement of income. 2.9 Property and equipment Property and equipment are initially measured at cost. At the end of each reporting period, items of property and equipment are measured at cost less any subsequent accumulated depreciation, amortization and any accumulated impairment losses. Cost includes expenditure that is directly attributable to the acquisition of the asset and the estimated present value of any future unavoidable costs of dismantling and removing items. The corresponding liability is recognized within provisions. Subsequent expenditures relating to an item of property and equipment that have already been recognized are added to the carrying amount of the asset when it is probable that future economic benefits, in excess of the originally assessed standard of performance of the existing asset, will flow to the Group. All other subsequent expenditures are recognized as expense in the period in which those are incurred. Depreciation is computed on the straight-line method based on the estimated useful lives of the assets as follows:

Office equipment 5 years Transportation equipment 5 years Leasehold improvement 7 years

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Properties in the course of construction for production, rental or administrative purposes, or for purposes not yet determined, are carried at cost, less any recognized impairment loss. Cost includes materials used, professional fees and for qualifying assets, borrowing costs capitalized in accordance with the Group’s accounting policy. Depreciation of these assets, on the same basis as other property assets, commences at the time the assets are ready for their intended use. Leasehold improvements are amortized over the terms of the lease or the estimated useful life of the leasehold improvement, whichever is shorter. The estimated useful lives and depreciation and amortization method are reviewed periodically to ensure that the periods and method of depreciation and amortization are consistent with the expected pattern of economic benefits from items of property and equipment. When assets are retired or otherwise disposed of, the cost and the related accumulated depreciation and amortization and any impairment in value are removed from the accounts and any resulting gain or loss arising on the disposal or retirement of an asset, determined as the difference between the sales proceeds and the carrying amount of the asset, is recognized in the consolidated statement of income. 2.9 Impairment of non-financial assets

The carrying amounts of the Group’s non-financial assets such as investment properties and

property and equipment are reviewed at each reporting date to determine whether there is any

indication of impairment or an impairment loss previously recognized no longer exists or may

have decreased. If any such indication exists, the Group makes a formal estimate of the asset’s

recoverable amount.

The recoverable amount is the higher of an asset or its cash generating unit’s (CGU) fair value less

costs to sell and its value in use. The fair value less costs to sell is the amount obtainable from

the sale of the asset in an arm’s length transaction. 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 cash flows independent of those from other assets,

the recoverable amount is determined for the CGU to which the asset belongs.

Whenever the carrying amount of an asset or its CGU exceeds its recoverable amount, the asset is

considered impaired and is written down to its recoverable amount and an impairment loss is

recognized in the consolidated statement of income.

An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation and amortization, if no impairment loss had been recognized. Reversals of impairment are recognized in the consolidated statement of income. 2.10 Provisions and contingencies Provisions are recognized when: (a) the Group has a present obligation (legal or constructive) as a result of a past event; (b) it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation; and (c) a reliable estimate can be made of the amount of the obligation. If the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognized as finance cost. When the Group expects a provision or loss to be reimbursed, the reimbursement is recognized as a separate asset only when the reimbursement

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is virtually certain and its amount is estimable. The expense relating to any provision is presented in the consolidated statement of income, net of any reimbursement. Contingent liabilities are not recognized in the Group’s consolidated financial statements. They are disclosed in the notes unless the possibility of an outflow of resources embodying economic benefits is remote. Contingent assets are not recognized in the Group’s consolidated financial statements but disclosed in the notes to Group’s consolidated financial statements when an inflow of economic benefits is probable. 2.11 Employee benefits Retirement benefit cost is determined using the projected unit credit method. This method reflects the services rendered by the employees up to the date of valuation and incorporates assumptions concerning employees’ projected salaries. Actuarial valuations are conducted with sufficient regularity, with option to accelerate when significant changes to underlying assumptions occur. Retirement benefit expense includes current service cost, interest cost, recognized actuarial gains and losses, the effect of any curtailment or settlements and amortization of transitional liability at the date of adoption of PAS 19. The defined benefit liability / defined benefit asset recognized in the consolidated statements of financial position is the present value of the defined benefit obligation at the reporting date less the fair value of plan assets, together with adjustments for unrecognized actuarial gains or losses and past service costs. The defined benefit obligation is calculated by an actuary using the projected unit credit method. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of government bonds that are denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating the terms of the related retirement liabilities. Cumulative unrecognized actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions in excess of the greater of 10% of the value of plan assets or 10% of the defined benefit obligation are spread to income over the expected average remaining working lives of employees. Past-service costs are recognized immediately in income, unless the changes to the retirement plan are conditional on the employees remaining in service for a specified period of time (the vesting period). In this instance, the past-service costs are amortized on a straight-line basis over the vesting period. 2.12 Share capital Share capital is measured at par value for all shares issued. When the shares are sold at a premium, the difference between the proceeds and the par value is credited to the “Share premium” 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 Group, the shares shall be measured either at the fair value of the shares issued or fair value of the liability settled, whichever is more reliably determinable. Incremental costs directly attributable to the issue of new ordinary shares are shown in equity as a deduction, net of tax, from the proceeds. Costs that relate to the stock market listing, or otherwise are not incremental costs directly attributable to issuing new shares, should be recorded as an expense in the statement of income. Transaction costs that relate jointly to more than one transaction (for example, costs of a concurrent offering of some shares and a stock exchange listing of other shares) are allocated to those transactions using a basis of allocation that is rational and consistent with the joint transactions.

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2.13 Retained earnings Retained earnings represent the cumulative balance of periodic net income or loss, dividend distribution, prior period adjustments, effect of changes in accounting policy and other capital adjustments. When retained earnings account has a debit balance, it is called “deficit”, and presented as a deduction from equity. 2.14 Dividends

Dividends are recognized when they become legally payable. Dividend distribution to equity shareholders is recognized as a liability in the Group’s consolidated financial statements in the period in which the dividends are declared and approved by the Group’s BOD. 2.15 Revenue recognition Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be measured reliably. Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for goods and services provided in the normal course of business. Revenue from the sale of goods is recognized when all of the following conditions are satisfied:

a. the Group has transferred to the buyer the significant risks and rewards of ownership of the goods;

b. the Group retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold;

c. the amount of revenue can be measured reliably; d. it is probable that the economic benefits associated with the transaction will flow to

the Group; and e. the costs incurred or to be incurred in respect of the transaction can be measured

reliably. If it is probable that discount will be granted and the amount can be measured reliably, then the discount is recognized as a reduction of revenue as the sale is recognized. Finance income is accrued on a time proportion basis, by reference to the principal outstanding and at the EIR applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset’s net carrying amount. 2.16 Costs and expense recognition Costs and expenses are recognized in the consolidated statement of income when decrease in future economic benefit related to a decrease in an asset or an increase in a liability has arisen that can be measured reliably. Costs and expenses are recognized in the consolidated statement of income: on the basis of a direct association between the costs incurred and the earning of specific items of income; on the basis of systematic and rational allocation procedures when economic benefits are expected to arise over several accounting periods and the association with income can only be broadly or indirectly determined; or immediately when an expenditure produces no future economic benefits or when, and to the extent that, future economic benefits do not qualify, or cease to qualify, for recognition in the consolidated statements of financial position as an asset. Costs and expenses in the consolidated statement of income are presented using the function of expense method. Costs of sales are expenses incurred that are associated with the goods sold and includes purchases of goods and distribution costs. Operating expenses are costs attributable to administrative, marketing and other business activities of the Group.

24

2.17 Leases Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases. The Group does not have any leases under finance lease. The Group as lessee Operating lease payments are recognized as an expense on a straight-line basis over the lease term, except when another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed. Contingent rentals arising under operating leases are recognized as an expense in the period in which they are incurred. In the event that lease incentives are received to enter into operating leases, such incentives are recognized as a liability. The aggregate benefit of incentives is recognized as a reduction of rental expense on a straight-line basis, except when another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed. 2.18 Borrowing costs Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale. Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalization. Borrowing costs that are not directly attributable to the acquisition, construction or production of a qualifying asset are recognized in profit or loss in the period in which they are incurred. 2.19 Income taxes The tax expense for the period comprises current and deferred tax. Tax expense is recognized in the consolidated statement of income, except to the extent that it relates to items recognized in other comprehensive income or directly in equity, or when the tax arises from a business combination. Current and deferred tax that relates to items that are recognized in other comprehensive income or directly in equity are also recognized in other comprehensive income or directly in equity, respectively. Current income tax Current income tax assets and liabilities for the current and the prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute for the amount are those that are enacted or substantively enacted at the reporting date. Deferred income tax Deferred income tax is provided, using the liability method, on all temporary differences at the reporting date between the tax bases of assets and liabilities and its carrying amounts for financial reporting purposes.

25

Deferred income tax liabilities are recognized for all taxable temporary differences. However, deferred income tax liabilities are not recognized if it arises from:

a) the initial recognition of goodwill; or b) the initial recognition of an asset or liability in a transaction which:

(i) is not a business combination; (ii) the initial recognition of an asset or liability in a transaction which is not a business

combination at the time of the transaction affects neither accounting nor taxable profit; and

(iii) investments in subsidiaries and jointly controlled entities where the Group is able to control the timing of the reversal of the difference and it is probable that the difference will not reverse in the foreseeable future.

Deferred income tax assets are recognized for all deductible temporary differences, carry-forward of unused tax credits from excess minimum corporate income tax (MCIT) and net operating loss carryover (NOLCO), to the extent that it is probable that taxable profit will be available against which the deductible temporary differences and carry-forward of unused tax credits from MCIT and NOLCO can be utilized, unless the deferred tax asset arises from the initial recognition of an asset or liability in a transaction that is not a business combination; and at the time of transaction, affects neither accounting profit nor taxable profit (tax loss). The carrying amount of deferred income 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 income tax asset to be utilized. Unrecognized deferred tax assets are reassessed at the end of each reporting period and are recognized to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered. Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the period 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. Deferred tax assets and deferred tax liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when the deferred tax assets and the deferred tax liabilities relate to income taxes levied by the same transaction authority on either the same taxable entity or different taxable entities which intend either to settle current tax liabilities and assets on a net basis, or to realize the assets and settle the liabilities simultaneously. 2.20 Earnings per share (EPS) Basic EPS is determined by dividing profit or loss by the weighted average number of shares issued and outstanding during the year. For the purpose of calculating diluted EPS, profit or loss for the year attributable to ordinary equity holders of the Parent Company and the weighted average number of shares outstanding are adjusted for the effects of all dilutive potential ordinary shares. 2.21 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. Related parties may be individuals or corporate entities. The key management personnel of the Group and post–employment benefit plans for the benefit of the Group’s employees are also considered to be related parties.

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2.22 Events after the reporting date Post year-end events up to the date when the consolidated financial statements were authorized for issue that provide additional information about the Group’s position at reporting date (adjusting events) are reflected in the consolidated financial statements. Post year-end events that are not adjusting events are disclosed in the notes to the consolidated financial statements when material. 2.23 Segment reporting An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Group’s other components. Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the CEO that makes strategic decisions. An operating segment may engage in business activities for which it has yet to earn revenues, for example, start-up operations may be operating segments before earning revenues. Segment results that are reported to the CEO include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Unallocated items comprise mainly corporate assets, head office expenses, interest income and expenditures and income tax assets and liabilities. Segment capital expenditure is the total cost incurred during the period to acquire property, and equipment and investment properties. NOTE 3 – SIGNIFICANT ACCOUNTING ESTIMATES AND JUDGMENTS

The preparation of the consolidated financial statements in conformity with PFRS requires the

Group’s management to make estimates, assumptions and judgments that affect the amounts

reported in the consolidated financial statements and accompanying notes. The estimates and associated assumptions are based on historical experiences and other various factors that are believed to be reasonable under the circumstances including expectations of related future events, the results of which form the basis of making the judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

The estimates, assumptions and judgments are reviewed and evaluated on an ongoing basis.

Revisions to accounting estimates are recognized in the period in which the estimate is revised

if the revision affects only that period or in the period of the revision and future periods if the

revision affects both current and future periods.

Judgments

Determination of functional currency Based on the economic substance of the underlying circumstances relevant to the Group, the functional currency is determined to be the Philippine Peso. It is the currency that mainly influences the Group’s operations.

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Classification of financial instruments

The Group classifies 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 agreement and the guidelines set by PAS 39 on the definitions of a financial

asset, a financial liability or an equity instrument. In addition, the Group also determines and

evaluates its intention and ability to keep the investments until its maturity date.

The substance of a financial instrument, rather than its legal form, and the management’s

intention and ability to hold the financial instrument to maturity generally governs its

classification in the consolidated statements of financial position. The classification of financial assets and liabilities is presented in Note 4. Determination whether an arrangement contains a lease The determination of whether an arrangement is, or contains, a lease is based on the substance of the arrangement at the inception of the lease. The arrangement is assessed for whether fulfillment of the arrangement is dependent on the use of a specific asset or assets or the arrangement conveys a right to use the asset or assets, even if that right is not explicitly specified in the arrangement. The Group has entered into operating lease arrangement as a lessee. The Group, as a lessee, has determined that the lessor retains substantial risks and rewards of ownership of these properties, which are on operating lease agreements. Leases accounted for as operating leases are disclosed in Note 25. Determination of fair value of financial instruments The Group carries certain financial assets and liabilities at fair value, which requires use of accounting estimates and judgment. While significant components of fair value measurement were determined using verifiable objective evidence, the amount of changes in fair value would differ if the Group utilized different valuation methodologies and assumptions. Any changes in fair value of these financial assets and liabilities would affect profit and loss and equity. The fair values and carrying values of financial assets and financial liabilities as of December 31, 2012 and 2011 are disclosed in Note 4. Estimates Impairment of loan and trade and other receivables The Group reviews its loans and receivables at each reporting date to assess whether a provision for impairment should be recognized in its consolidated statement of income or loans and receivables balance should be written off. In particular, judgment by management is required in the estimation of the amount and timing of future cash flows when determining the level of allowance is required. Such estimates are based on assumptions about a number of factors and actual results may differ, resulting in future changes to the allowance. Moreover, management evaluates the presence of objective evidence of impairment which includes observable data that comes to the attention of the Group about loss events such as but not limited to significant financial difficulty of the counterparty, a breach of contract, such as a default or delinquency in interest or principal payments, probability that the borrower will enter bankruptcy or other financial re-organization.

28

The carrying value of loans receivable amounted to P129,650,000 and P135,000,000 as of December 31, 2012 and 2011, respectively (see Note 10).The carrying value of trade and other receivables amounted to P242,146,197 and P252,529,132 as of December 31, 2012 and 2011, respectively (see Note 9). The Group provided an allowance for impairment on trade receivables amounting to P5,693,975 and P4,375,816 for the years ended December 31, 2012 and 2011, respectively (see Note 9). Impairment of inventories At each financial reporting date, inventories are assessed for impairment by comparing the carrying amount of each item of inventory (or group of similar items) with its selling price less costs to sell. If an item of inventory (or group of similar items) is impaired, its carrying amount is reduced to selling price less costs to sell, and an impairment loss is recognized immediately in profit or loss. Based on management’s assessment, inventories are fairly stated, thus, no impairment loss needs to be recognized as of December 31, 2012 and 2011. The carrying amount of inventories amounted to P220,483,700 and P179,835,048 as of December 31, 2012 and 2011, respectively (see Note 11). Estimation of useful lives of property and equipment The Group reviews annually the estimated useful lives of property and equipment based on the period over which the assets are expected to be available for use. It is possible that future results of operations could be materially affected by changes in these estimates. A reduction in the estimated useful lives of property and equipment would increase recorded depreciation and amortization expense and decrease the related asset accounts. The estimated useful lives of property and equipment are discussed in Note 2.8 to the consolidated financial statements, which showed no changes in 2012 and 2011. There is no change in the estimated useful lives of property and equipment during the year. Impairment of non-financial assets The Group assesses at each reporting date whether there is an indication that the carrying amount of all non-financial assets may be impaired. If any such indication exists, or when annual impairment testing for an asset is required, the Group makes an estimate of the asset’s recoverable amount. At the reporting date, the Group assesses 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. Based on management’s assessment, non-financial assets are fairly stated, thus, no impairment loss needs to be recognized as of December 31, 2012 and 2011. The Group’s investment property amounted to P112,865,000 and P134,152,963 as of December 31, 2012 and 2011, respectively (see Note 12).The Group’s property and equipment, net of accumulated depreciation and amortization, amounted to P345,444,069 and P72,765,320 as of December 31, 2012 and 2011, respectively (see Note 13). Realizability of deferred tax assets

Management reviews the carrying amount of deferred tax assets at each reporting date. The carrying amount of deferred tax assets is reduced to the extent that it is no longer probable that sufficient taxable profit will be available against which the related tax assets can be utilized. Management believes that sufficient taxable profit will be generated to allow all or part of the deferred tax assets to be utilized. The Group’s recognized deferred tax assets amounted to P2,589,764 and P1,858,969 as of December 31, 2012 and 2011, respectively (see Note 24).

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Estimation of retirement benefits The determination of the obligation and retirement benefits is dependent on management’s assumptions used by actuaries in calculating such amounts. Those assumptions are described in Note 23 and include, among others, discount rates per annum and salary increase rates. Actual results that differ from the Group’s assumptions are accumulated and amortized over future periods and therefore, generally affect the recognized expense and recorded obligation in such future periods. While the Group believes that the assumptions are reasonable and appropriate, significant differences in the actual experience or significant changes in the assumptions may materially affect the retirement obligations. The details of the Group’s retirement benefit are provided in Note 23. Retirement benefit liability amounted to P2,938,573 and P1,820,747 as of December 31, 2012 and 2011, respectively. Net retirement benefit costs presented under operating expenses amounted to P1,117,826 and P450,133 for the years ended December 31, 2012 and 2011, respectively (see Note 20). NOTE 4 – FINANCIAL INSTRUMENTS The following table shows the classification, carrying values and fair values of the Group’s financial assets and financial liabilities as of December 31:

2012 2011

Carrying value Fair value

Carrying Value Fair value

Financial assets: Loans and receivables

Cash and cash equivalents (Note 8) P385,035,496 P385,035,496 P204,788,818 P204,788,818

Trade and other receivables (Note 9)

236,849,508

236,849,508 252,529,132 252,529,132

Loans receivable (Note 10) 129,650,000 129,650,000 135,000,000 135,000,000 Advances to related parties

(Note 22)

41,567,329

41,567,329 66,495,612 66,495,612 Refundable security deposit

(Note 25)

1,652,566

1,529,477 - -

P794,754,899 P794,631,810 P658,813,562 P658,813,562

2012 2011

Carrying value Fair value Carrying value Fair value

Financial liabilities: Other financial liabilities Trade and other payables

(Note 14) P182,883,130 P182,883,130 P134,698,952 P134,698,952 Loans payable (Note 15) 508,160,285 508,160,285 392,500,000 392,500,000 Advances from related parties

(Note 22)

2,070,350

2,070,350

52,461,454

52,461,454 Dividends payable (Note 17) - - 25,000,000 25,000,000

P693,113,765 P693,113,765 P604,660,406 P604,660,406

Due to the short-term nature of the transactions, the carrying amounts of cash and cash equivalents, trade and other receivables, short-term loans receivables, advances to (from) related parties, trade and other payables, and short-term loans payable approximates its fair values as of the reporting date. The fair value of the long term loans receivable from Avestha Holding Corporation is based on its carrying amount which approximates the discounted value of future cash flows using its interest rate of 6%.

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The fair value of the refundable security deposit is based on the approximate discounted value of future cash flows using an interest rate of 3% on similar financial instruments with a term of three years. The difference in the fair value and the carrying value of the refundable security deposits will not materially affect the Group’s financial position. The fair value of the long term loans payable from a bank is based on its carrying amount which approximates the discounted value of future cash flows using interest rates ranging from 9.87% to 10.47%. The income, expense, gain and/or losses recognized from financial instruments are as follows: 2012 2011

Finance costs (Note 15) P32,894,932 P26,934,023 Impairment loss on trade receivables (Note 21) 1,318,159 4,375,816

P34,213,091 P31,309,839

Finance income (Notes 8 and 10) P10,502,498 P3,828,221 Gain from write-off of payable (Note 21) 5,279,022 -

P15,781,520 P3,828,221

NOTE 5 – FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES General objectives, policies and processes The BOD has overall responsibility and authority for the determination of the Group's risk management objectives and policies and designing and operating processes that ensure the effective implementation of such objectives and policies. The BOD has constituted certain committees to effectively manage the operations of the Group. The Group’s principal committees of the BOD include the Executive Committee, the Audit Committee, the Compensation Committee and the Nominations Committee. A brief description of the functions and responsibilities of the key committees are set out below: Executive Committee The Executive Committee is composed of three (3) members of the BOD. The Executive Committee may act by majority of all its members, on such specific matters within the competence of, and as may be delegated by the BOD. Audit Committee The Audit Committee provides an oversight of financial management functions, specifically in the areas of managing credit, liquidity, market, operational, legal and other risks and is primarily responsible for monitoring the statutory requirements of the Group. The Audit Committee is responsible for the setting up of an internal audit department and for the appointment of an internal auditor, as well as an independent external auditor. It monitors and evaluates the adequacy and effectiveness of the Group’s internal control systems. It ensures that the BOD is taking appropriate corrective action in addressing control and compliance functions with regulatory agencies. It also ensures the Group’s adherence to corporate principles, best practices and compliance with the Manual on Corporate Governance.

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Compensation Committee The Compensation Committee is primarily responsible for establishing a formal and transparent procedure for developing a policy on executive remuneration and for fixing the remuneration packages of corporate officers who are receiving compensation from the Group. It is responsible for providing an oversight of remuneration of senior management and other key personnel and ensuring that compensation is consistent with the Group’s culture, strategy and control environment. Nomination Committee The Nomination Committee is primarily responsible for the review and evaluation of the qualifications of all persons nominated to positions requiring appointment by the BOD and the assessment of the BOD’s effectiveness in directing the process of renewing and replacing Board members. The overall objective of the BOD is to set polices that seek to reduce risk as far as possible without unduly affecting the Group's competitiveness and flexibility. Financial risk management objectives and policies The Group is exposed through its operations to credit risk, liquidity risk and market risk. The Group’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on the Group’s financial performance. There have been no substantive changes in the Group's exposure to financial instrument risks, its objectives, policies and processes for managing those risks or the methods used to measure them from previous periods unless otherwise stated in this note. The policies for managing specific risks are summarized below: Credit risk Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss. The receivable balances are monitored on an ongoing basis with the result that the Group’s exposure to impairment is not significant. The Group has a credit and collection department that is separate and independent from the sales department. The Group instituted this separate department even though the normal practice in its industry is that the sales people are also the ones who collect the receivables. The Group deals only with creditworthy counterparty duly approved by management. The following table provides information regarding the maximum credit risk exposure of the Group as of December 31: 2012 2011

Cash in banks and cash equivalents (Note 8) P385,035,496 P204,548,818 Trade and other receivables (Note 9) 242,146,197 252,529,132 Loans receivables (Notes 10 and 22) 129,650,000 135,000,000 Advances to related parties (Note 22) 41,567,329 66,495,612 Refundable security deposit (Note 25) 1,652,566 -

P800,051,588 P658,573,562

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The following table provides information regarding the Group’s analysis of the age of financial assets by class as at the reporting date:


Total

Neither past due nor impaired 31-60 days 61-90 days

Over 90 days Impaired December 31,2012

Loans and receivables Cash in banks and

cash equivalents P385,035,496 P385,035,496 P- P- P- P- Trade and other

receivables 242,146,197 194,399,149 12,685,647 13,640,231 27,115,144 5,693,975

Loans receivable 129,650,000 129,650,000 - - - - Advances to

related parties 41,567,329 41,567,329 - - - - Refundable

security deposit 1,652,566 1,652,566 - - - -

P800,051,588 P752,304,540 P12,685,647 P13,640,231 P27,115,144 P5,693,975


December 31, 2011 Total Neither past due

nor impaired 31-60 days 61-90 days Over 90 days Impaired


Cash in banks P204,548,818 P204,548,818 P- P- P- P-

Trade and other

receivables 252,529,132 224,888,994 12,899,632 3,211,957 15,904,365 4,375,816

Loans receivable 135,000,000 135,000,000

Advances to related

parties 66,495,612 66,495,612 - - - -

P658,573,562 P630,933,424 P12,899,632 P3,211,957 P15,904,365 P4,375,816

The Group’s loans receivable from Avestha Holdings Corporation amounting to P120,000,000 is fully secured by the borrower’s real estate properties independently valued at P166,549,000 on June 21, 2011 by Cuervo Appraisers, Inc. In exchange for the settlement of the loan, as of the reporting date, Avestha Holding Corporation is in the process of transferring to the Group the rights to the aforementioned real estate properties, pending compliance with regulatory requirements. There were no other credit enhancements attached to the Group’s financial assets aside from this collateral. Credit quality per class of financial assets The Group’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 - 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 - These are receivables that can be collected provided the Group makes persistent effort to collect them.

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The table below shows the credit quality by class of financial assets of the Group based on their historical experience with the corresponding parties as of December 31, 2012 and 2011:

December 31, 2012


High grade




Cash in banks and cash equivalents

P385,035,496 P- P- P- P- P-

P385,035,496

Trade and other receivables 194,399,149

53,441,022

5,693,975 242,146,197

Loans receivable 129,650,000 - - - - - 129,650,000

Advances to related parties 41,567,329 - - - - - 41,567,329

Refundable security deposit 1,652,566 1,652,566

P752,304,540 P- P- P- P53,441,022 P5,693,975 P800,051,588

December 31, 2011


High grade



Loans and receivables Cash in banks P204,548,818 P- P- P- P- P- P204,548,818


220,513,178 - - -

32,015,954

4,375,816

248,153,316

Loans receivable 135,000,000 - - - - - 135,000,000 Advances to

related parties

66,495,613 - - - - -

66,495,613

P626,557,609 P- P- P- P32,015,954 P4,375,816 P654,197,747

The Group has no financial assets whose terms have been renegotiated. Liquidity risk This represents the risk or difficulty in raising funds to meet the Group’s commitment associated with financial obligation and daily cash flow requirement. The Group is exposed to the possibility that adverse exchanges in the business environment and/or its operations would result to substantially higher working capital requirements and the subsequent difficulty in financing additional working capital. The Group addresses liquidity concerns primarily through cash flows from operations and short-term borrowings, if necessary. The Group has credit lines with several of the top banks of the Philippines which gives it financial flexibility in its operations. The Group likewise regularly evaluates other financing instruments to broaden the Group’s range of financing sources. The following table summarizes the maturity profile of the Group’s other financial liabilities as of December 31, 2012 and 2011, respectively, based on the contractual undiscounted payments: At December 31, 2012



years Total

Trade and other payables P182,883,130 P- P- P182,883,130 Loans payable 502,137,982 6,022,303 508,160,285 Advances from related parties 2,070,350 - - 2,070,350

P184,953,480 P502,137,982 P6,022,303 P693,113,765

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years Total

Trade and other payables P42,269,087 P92,429,865 P- P134,698,952

Loans payable - 392,500,000 - 392,500,000

Advances from related parties 52,461,454 - - 52,461,454 Dividends payable 25,000,000 - - 25,000,000

P119,730,541 P484,929,865 P- P604,660,406

Market risk

Market risk is the risk that the fair value of future cash flows of a financial instrument will

fluctuate because of changes in market prices. Market prices comprise three types of risk:

interest rate risk, foreign currency risk and commodity price risk. Financial instruments

affected by market risk include bank loans payable.

i. Interest rate risk Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Group’s exposure to the risk of changes in market interest rates relates primarily to the Group’s bank loans payable. Interest rate sensitivity

The following table demonstrates the sensitivity to a reasonably possible change in interest rates on that portion of loans payable with all other variables held constant, the Group’s profit before tax is affected as follows:

Increase/decrease Effect on

profit interest rate before tax

2012 +1% (P328,949) -1% P328,949 2011 +1% (P269,340) -1% P269,340

The assumed movement in interest rates for the interest rate sensitivity analysis is based on the management’s assessment of the reasonably possible change in interest rates during the years presented. ii. Foreign currency risk

Foreign currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The Group is not exposed to the risks of changes in foreign exchange rates as it has not entered into transactions denominated in a currency other than its functional currency. iii. Commodity price risk Commodity price risk is the risk related to the volatility of price of certain commodities. The Group is not exposed to this risk as its operations do not constitute goods which prices are volatile.

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Capital risk management

The Group manages its capital structure (total equity) and makes adjustments to it, in light of changes in economic conditions. To maintain or adjust the capital structure, the Group may adjust or delay the dividend payment to shareholders and appropriate a percentage of retained earnings towards expansion and capital expenditures. The Group through the Finance function sets operational targets and performance indicators in order to assure that the capital and returns requirements are achieved. Appropriate monitoring and reporting systems accompany these targets and indicators to assess the achievement of Group goals and institute appropriate action. No changes were made in the objectives, policies and processes in 2012 and 2011. The Group has no externally imposed capital requirements. NOTE 6 – BUSINESS COMBINATION On July 19, 2012, the Parent Company’s BOD approved the conversion of its P55,455,249 worth of advances to equity shares in APC as well as the purchase of all the issued and outstanding shares of stock therein. On August 3, 2012, the SEC approved said conversion which resulted to the Parent Company owning 85.37% ownership in APC. The investing public, including all the shareholders of the Parent Company have been informed of this development through timely and complete disclosures with the SEC via the filing of the requisite SEC Form 17-C and the uploading thereof with the PSE via the PSE Online Disclosure System. APC is a corporation established to engage in import/export, buying, selling, distributing and marketing at wholesale and retail all kinds of goods of every kind and description such as but not limited to agricultural products. The Parent Company acquired APC since the subsidiary’s retail chain stores allow the Parent Company to sell its products on a significant larger area than it has previously access to, thus increasing its market share. Assets acquired and liabilities assumed The fair values of the identifiable assets and liabilities of APC as at the date of acquisition were: Assets

Cash and cash equivalents P21,529,109 Other receivables 606,887 Inventories 94,141,759 Property and equipment 28,045,513

144,323,268

Liabilities Advances from related parties 29,944,280

Trade and other payables 47,842,868

77,787,148

Total identifiable net assets at fair value 66,536,120

Non-controlling interest measured at the non-controlling interest's share of the acquiree's identifiable net assets (2,867,706)

Gain from bargain purchase (Note 21) (8,213,165)

Purchase consideration transferred P55,455,249

The fair value of other receivables equals its book value. None of these receivables have been impaired and it is expected that the full contractual amounts can be collected.

36

From the date of acquisition, APC has contributed P414,392,019 of revenue and P6,938,575 to the profit before tax from continuing operations of the Group. On September 30, 2012, the Parent Company completed the acquisition of 100% ownership over APC. Cash consideration of P9,500,000 was paid to all the minority shareholders comprising 14.63% of the issued and outstanding capital stock of APC. The carrying value of the net assets of APC at the acquisition date was P68,696,134, and the carrying value of the additional interest acquired was P2,867,706. The difference of P6,632,294 between the consideration and the carrying value of the interest acquired has been recognized in retained earnings within equity. NOTE 7 – SEGMENT REPORTING The CEO is the Group’s chief operating decision-maker. Management has determined the operating segments based on the reports reviewed by the CEO that are used to make strategic decisions. The CEO considers the business based on the methods used to distribute the Group’s products. Management considers the performance based on the three methods used by the Group, distributorship and retailing of agro-products and farming operations. The reportable operating segments of distributorship and retailing derive its revenue primarily from different agro-products such as feeds, seeds, chemicals and fertilizers. The revenue of the reportable segments arises both from a related party and external customers. Transfer prices between the related party are set on an arm’s length basis in a manner similar to transactions with third parties. Such transfers are eliminated in consolidation. The Group has yet to earn revenues from its farming operations. The operating segments are organized and managed separately according to the different methods used to distribute the Group’s products, with each segment representing a strategic business unit that offers the same types of products sold either through wholesale or retail or used in farming operations. These divisions are the basis on which the Group reports its primary segment information. All operating business segments used by the Group meet the definition of a reportable segment under PFRS 8, Operating Segments. The CEO assesses the performance of the operating segments based on a measure of Earnings Before Interests, Taxes and Depreciation and Amortization (EBITDA). This measurement basis excludes the effects of non-recurring expenditure from the operating segments and common operating expenses. Interest expense is not allocated to segments, as this type of activity is driven by the central treasury function, which manages the cash position of the Group. Transfer prices between operating segments, if any, are on an arm’s length basis in a manner similar to transactions with third parties. Segment assets and liabilities Segment assets include all operating assets used by a segment and consist principally of operating cash, receivables and inventories. Segment liabilities include all operating liabilities and consist principally of trade and other payables. Segment assets and liabilities do not include deferred income taxes. Segment transactions Segment sales, expenses and performance include sales and purchases with a related party and third parties. Intercompany balances and transactions between segments, if any, are eliminated during the preparation of the Group’s consolidated financial statements.

37

The segment information provided to the CEO for the years ended December 31, 2012 and 2011 is as follows (amounts in thousands):

Distribution Retail Farming Unallocated expense

2012 2011 2012 2011 2012 2011 2012 2011

Sales P1,467,475 P2,001,710 P738,527 P- P- P- P- P- Cost of sales (1,276,558) (1,786,449) (671,805) - - - - - Other operating income 29,218 9,630 - - - - - - Operating expenses (20,010) (26,420) (59,122) - - - (27,819) (32,505) Finance income 10,404 3,828 98 - - - - - Finance costs - (26,934) - - - - (32,895) (26,934) Provision for income tax (44,858) (42,687) (2,280) - - - - -

Profit (loss) for the year 165,671 132,678 5,418 - - - (60,714) (59,439) Interest - - - - - - - - Taxes 44,858 42,687 2,280 - - - - - Depreciation and amortization 8,901 5,780 4,675 - - - - -

EBITDA P219,430 P208,079 P12,373 P- P- P- (P60,714) (P59,439)

38

A reconciliation of the total EBITDA of the reportable segments to the Group’s profit for the

year is provided as follows (amounts in thousands):

Total

2012 2011

Sales P2,206,002 P2,001,710 Cost of sales (1,948,363) (1,786,449) Other operating income P29,218 14,006 Operating expenses (106,951) (63,301) Finance income P10,502 3,828 Finance costs (32,895) (26,934) Provision for income tax (47,138) (42,687)

Profit (loss) for the year P110,375 100,173 Common operating expenses 27,819 32,505 Interest 32,895 26,934 Taxes 47,138 42,687 Depreciation and amortization 13,576 5,780

EBITDA P231,803 P208,079

The segment assets and liabilities as of December 31, 2012 and 2011 are as follows (amounts in

thousands):

Distribution Retail Farming Unallocated

2012 2011 2012 2011 2012 2011 2012 2011

Segment assets P801,575 P736,828 P165,989 P- P242,533 P50,377 P286,672 P287,131

Segment liabilities P152,275 P181,261 P80,440 P- P71,700 P- P443,437 P471,782

Additions to property and equipment P71,730

P53,326 P22,369

P- P192,156

P- P-

P-

The total reportable segments’ assets are reconciled to the Group’s total assets as follows:

2012

2011

Reportable segments' assets

P1,210,096,978

P736,828,490

Unallocated: Loans receivable (Note 10)

129,650,000

135,000,000 Advances to related parties (Note 22) 41,567,329

66,495,613

Investment properties (Note 12) 112,865,000

112,865,000 Deferred tax assets (Note 24) 2,589,764

1,858,969

P1,496,769,071

P1,053,048,072

The total reportable segments’ liabilities are reconciled to the Group’s total liabilities as

follows:

2012

2011

Reportable segments' liabilities

P304,414,843

P181,261,307

Unallocated: Loans payable (Note 15)

436,460,285

392,500,000

Advances from related parties (Note 22) 2,070,350

52,461,454 Dividends payable (Note 17)

-

25,000,000

Retirement benefit (Note 23) 2,938,573

1,820,747 Deferred tax liabilities (Note 24) 1,968,000

-

P747,852,051

P653,043,508

The amounts provided to the CEO with respect to total assets and total liabilities are measured in a manner consistent with that of the consolidated financial statements.

39

The reportable segments’ assets are allocated based on the operations of the segment and the physical location of the assets. The Group’s loans receivable, advances to related parties, investment properties and deferred tax assets are not considered as segment assets. The reportable segments’ liabilities are allocated based on the operations of the segment. The Group’s loans payable, advances from related parties, dividends payable and retirement benefit liability are not considered as segment liabilities. Unallocated assets and liabilities are managed by the central treasury function. The Group does not have revenues from transactions with a single external customer amounting to ten percent (10%) or more of the Group’s total revenues. NOTE 8 - CASH AND CASH EQUIVALENTS

The account consists of:

2012 2011

Cash on hand P10,468,281 P240,000 Cash in banks 365,035,496 204,548,818 Cash equivalents 20,000,000 -

P395,503,777 P204,788,818

Cash in banks earns interest at the respective bank deposit rates. Interest income earned from bank deposits amounted to P2,542,498 and P3,828,221 for the years ended December 31, 2012 and 2011, respectively. NOTE 9 – TRADE AND OTHER RECEIVABLES, NET


2012

2011

Trade receivables

P228,717,028

P247,081,567 Advances to suppliers

3,744,493

3,656,215

Accrued interest on loans receivable (Note 10)

9,165,000

2,855,000 Advances to employees

1,552,196

810,066

Other receivables

4,661,455

2,502,100

247,840,172

256,904,948

Allowance for impairment loss on trade receivables (Note 21)

(5,693,975)

(4,375,816)

P242,146,197

P252,529,132

Trade receivables are from dealers and customers of the Group and are not interest-bearing. Normal credit terms of trade receivables are 30 days and 60 days. Advances to suppliers represent advanced payments made to suppliers for purchases of goods. These are deducted from the purchase price upon receipt of the goods. Advances to employees are subject to liquidation upon utilization.

40

The Group provided for an allowance for impairment loss on trade receivables amounting to P5,693,975 and P4,375,816 as of December 31, 2012 and 2011, respectively. Details of changes in allowance for impairment loss of receivables are as follows: 2012 2011

January 1

P4,375,816

P-

Provision during the year (Note 21) 1,318,159 4,375,816

December 31 P5,693,975 P4,375,816

41

NOTE 10 – LOANS RECEIVABLE The details of and movements in the account are as follows:

Borrower Interest

rate Term Security


2011


during the year


2011


during the year


2012

Avestha Holdings Corporation (i) 6% per annum

3 years Real estate properties P-

P120,000,000

P120,000,000

P-

P120,000,000

Andres Lipana (ii) 6% per annum

1 year, renewable

Unsecured 15,000,000

-

15,000,000

(5,350,000)

9,650,000

Total P15,000,000 P120,000,000 P135,000,000 (P5,350,000) P129,650,000

Less: Current portion 15,000,000

9,650,000

Loans receivable, net of current portion

P120,000,000

P120,000,000

i) On September 26, 2011, the Group granted a loan to Avestha Holding Corporation, a related party (see Note 22), amounting to P120,000,000 for a

term of three (3) years. The principal of the loan will be payable after two (2) years in which an interest at the rate of six percent (6%) will be payable on the balance at the end of every month. The loan is fully secured by the borrower’s various real estate properties independently valued by Cuervo Appraisers, Inc. at P166,549,000. This loans receivable is presented under noncurrent assets in the consolidated statements of financial position. In exchange for the settlement of the loan, as of the reporting date, Avestha Holding Corporation is in the process of transferring to the Group the rights to the aforementioned real estate properties, pending compliance with regulatory requirements.

ii) On November 4, 2010, the Group granted a loan to Andres Lipana amounting to P15,000,000 for a term of one (1) year, renewable annually upon

mutual agreement of both parties. The principal of the loan is subject to an interest at the rate of 6 percent (6%) payable at the end of every month. In 2012 and 2011, the loan is renewed with the same terms and conditions. This loan receivable is presented under current assets in the consolidated statements of financial position.

Interest income earned from these loans amounted to P7,960,000 and P2,855,000 for the years ended December 31, 2012 and 2011, respectively (see Note 9). Out of the total amount of the interest income on these loans, the Group received interest amounting to P1,650,000 from the loans receivable from Andres Lipana.

42

NOTE 11 – INVENTORIES The account consists of: 2012 2011

Chemicals P159,003,786 P33,242,031 Feeds 18,347,804 123,429,837 Fertilizers 20,005,070 6,456,864 Seeds 23,127,040 16,706,316

P220,483,700 P179,835,048

The above inventories are carried at the lower of cost and NRV. The Group has no unusual purchase commitments or inventories pledged as security for liabilities. NOTE 12 – INVESTMENT PROPERTIES During 2011, the Group acquired various lands amounting to P134,592,963. The acquisition value is based on the valuation report dated June 21, 2011 conducted by an independent appraiser who holds a recognized and relevant professional qualification and has experience in the location and category of the investment property being valued. The Group applies the cost model in its investment properties. Management believes that the carrying amounts of the said properties approximate the fair values as of reporting date. During 2012, the Group reclassified investment properties amounting to P21,287,963 to property and equipment. The land will be used as a large scale farm for the Group’s livestock farming operations (see Note 13). The reconciliation of the carrying amount of investment properties at the beginning and end of the period is as follows: 2012

2011

At January 1 P134,152,963

P- Acquisition during the year -

134,152,963 Transfer to property and equipment (Note 13) (21,287,963)

-

At December 31 P112,865,000

P134,152,963

43

NOTE 13 – PROPERTY AND EQUIPMENT, NET

The details of and movements in this account are as follows: Office Transportation Leasehold Construction

equipment equipment improvement Farms In progress Total

Cost

At January 1, 2011 1,841,453 P29,682,038 P- P- P- P31,523,491

Additions 505,266 2,444,447 - - 50,376,897 53,326,610

Disposals (160,280) (5,037,845) - - - (5,198,125)

At December 31, 2011 2,186,439 27,088,640 - - 50,376,897 79,651,976 Additions 8,850,838 13,478,031 25,198,217 - 192,156,097 239,683,183 Transfer from

investment properties (Note 12)

- - -

21,287,963 -

21,287,963

Acquisitions through business combinations

3,335,799

1,221,618

20,726,509

- -

25,283,926

Disposals - (3,320,000) - - - (3,320,000)

At December 31, 2012 14,373,076 38,468,289 45,924,726 21,287,963 242,532,994 362,587,048

Accumulated depreciation and amortization

At January 1, 2011 368,290 5,936,408 -

- - 6,304,698

Depreciation and amortization 421,854 5,358,229 - - - 5,780,083

Disposals (160,280) (5,037,845) - - - (5,198,125)

At December 31, 2011 629,864 6,256,792 - - - 6,886,656 Depreciation and amortization

2,360,582 6,072,239

5,143,502

- -

13,576,323

Disposals - (3,320,000) - - - (3,320,000)

At December 31, 2012 2,990,446 9,009,031 5,143,502 - - 17,142,979

Net book values

December 31, 2012 P11,382,630 P29,459,258 P40,781,224 P21,287,963 P242,532,994 P345,444,069

December 31, 2011 P1,556,575 P20,831,848 P- P- P50,376,897 P72,765,320

During the years ended December 31, 2012 and 2011, the Group capitalized expenditures amounting to P242,532,994 and P50,376,897, respectively, related to properties under construction. These expenditures consist of farm equipments, materials, labor and overhead directly related to the construction of the assets. The Group had not capitalized any borrowing costs attributable to the construction of such assets. During the year ended December 31, 2012 and 2011, the Group disposed fully-depreciated property and equipment that resulted to a gain on disposal amounting to P1,735,200 and P1,914,123, respectively. Gains on disposal amounting to P835,200 and P1,914,123 for the years ended December 31, 2012 and 2011 resulted from disposals of fully-depreciated equipment to a related party (see Note 22). The Group’s transportation equipment is subject to a chattel mortgage used as security for the long-term loans payable (see Note 15). Aside from the abovementioned chattel mortgage, there are neither restrictions on title on the Group’s property and equipment nor was any of it pledged as security for liability. The Group has no contractual commitment for the acquisition of property and equipment. Depreciation and amortization expense amounted to P13,576,323 and P5,780,083 for the years ended December 31, 2012 and 2011, respectively (see Note 20). The cost of fully depreciated property and equipment still in use amounted to P23,757,079 and Nil in December 31, 2012 and 2011, respectively.

44

Management has reviewed the carrying values of the Group’s property and equipment as of December 31, 2012 and 2011 for impairment. Based on the results of its evaluation, there were no indications that the property and equipment were impaired.

NOTE 14 – TRADE AND OTHER PAYABLES


2012 2011

Trade payables P182,883,129 P124,120,187 Others 4,045,075 10,578,765

P186,928,204 P134,698,952

Trade payables are from suppliers of agro-products and are non-interest-bearing. Normal credit terms are 30 to 60 days.

Other payables mainly consist of the one percent (1%) tax withheld by the Group on its

collections from customers.

45

NOTE 15 – LOANS PAYABLE The loans payable as of December 31, 2012 and 2011 consist of secured short-term and long-term peso denominated loans obtained from local banks. The secured short-term peso-denominated loans were obtained to augment the Group’s funding for its farming operations. Various properties owned by the shareholders were used as collateral for these types of loans. The details of and movements in these loans are as follows:



2011


year


2011

Payments during the

year


year


2012

Banco de Oro Unibank Inc.


Renewable Unsecured P150,000,000

P-

P150,000,000

P-

P4,000,000

P154,000,000

Metropolitan Bank and Trust Company


Renewable Real estate properties

52,500,000

-

52,500,000

-

7,500,000

60,000,000

Allied Bank Effective

interest rate Renewable Unsecured

25,000,000

-

25,000,000

(25,000,000)

-

-

Bank of the Philippine Islands Effective

interest rate Renewable Suretyship

45,000,000

120,000,000

165,000,000

-

5,000,000

170,000,000

Planters Bank Effective

interest rate Renewable Deed of

Assignment

-

-

-

-

45,000,000

45,000,000 Development Bank of the

Philippines 9% Renewable Real estate

properties

-

-

-

-

71,700,000

71,700,000

P272,500,000

P120,000,000

P392,500,000

(P25,000,000)

P133,200,000

P500,700,000

Finance costs arising from these loans amounted to P32,726,245 and P26,934,023 in December 31, 2012 and 2011, respectively. The secured long-term peso-denominated loans were obtained to finance the Group’s acquisition of transportation equipment. These loans are secured by a chattel mortgage on the Group’s transportation equipment with a carrying amount of P8,561,421 (see Note 13). The details of and movements in these loans are as follows:



2011


year


2011

Payments during the

year


year


2012

Bank of the Philippine Islands 9.87%-10.47%

30 or 60 equal

monthly installments

Chattel mortgage

P-

P-

P-

(P494,825)

P7,955,110

P7,460,285

Less: Current portion

(1,437,982)

Long-term loans payable, net of current portion

P6,022,303

46

Finance costs arising from these loans amounted to P168,687 for the year ended December 31, 2012. There were no breaches of loan agreement terms such as any defaults of principal and interest of these loans payable during the period. NOTE 16 - SHARE CAPITAL

The account consists of: 2012 2011

Authorized:

845,400,000 shares at P1 par value each

P845,400,000 P845,400,000

Issued and outstanding at January 1: 324,100,000 shares at P1 par value each in 2012, and 10,000 shares at P100 par value each in 2011

P324,100,000 P1,000,000 Issued during the year:

36,012,000 shares in 2012 and 323,100,000 shares in 2011 at P1 par value each

36,012,000 323,100,000

Issued and outstanding at December 31: 360,112,000 shares in 2012 and 324,100,000 shares in 2011 at P1 par value each

P360,112,000 P324,100,000

On August 5, 2011, the Group has increased its authorized share capital from one million pesos (P1,000,000) divided into ten thousand (10,000) shares with par value of one hundred peso (P100) per share, to three hundred forty five million, four hundred thousand pesos (P345,400,000) divided into three hundred forty five million, four hundred thousand (345,400,000) shares with par value of one peso (P1). On August 18, 2011, the Group has increased its authorized share capital from three hundred forty five million, four hundred thousand pesos (P345,400,000) divided into three hundred forty five million, four hundred thousand (345,400,000) shares with par value of one peso (P1) per share, to eight hundred forty five million, four hundred thousand pesos (P845,400,000) divided into eight hundred forty five million, four hundred thousand (845,400,000) shares with par value of one peso (P1) per share. Subscriptions and full payment of shares during the period were made on the following dates:

August 15, 2011 P86,100,000 August 23, 2011 125,000,000 September 9, 2011 112,000,000

P323,100,000

On May 23, 2012, the Group issued an additional 36,012,000 shares by way of a primary offer. The share premium resulting from the said offer is as follows: Gross proceeds P269,551,028

Underwriting and selling fees for the offer shares 8,102,700 Tax on Initial Public Offering 10,782,041 Documentary Stamp Tax 180,060 Philippine SEC filing and legal research fees 733,991 Professional fees 4,582,587

Total expenses 24,381,379

Net proceeds 245,169,649

Par value of offer shares

(36,012,000)

P209,157,649

47

Share premium arises when the amount subscribed for share capital is in excess of nominal value. NOTE 17 – DIVIDENDS On a meeting held on November 18, 2011, the BOD unanimously approved the declaration of cash dividends in the amount of Twenty Five Million Pesos (P25,000,000) to shareholders of record as of November 8, 2011, subject to the condition on the availability of unrestricted retained earnings to cover said dividend declaration. These dividends were paid in 2012 through offsetting of its advances to its shareholders (see Note 22). The dividend per share is P0.07. NOTE 18 – SALES


Feeds P957,129,439 P1,048,487,027 Chemicals 728,468,890 487,913,038 Fertilizers 448,392,575 442,938,467 Seeds 72,011,003 22,371,771

P2,206,001,907 P2,001,710,303

The Group has an existing Complementary Feeds Distributorship Agreement (the Agreement) with San Miguel Foods, Inc. (SMFI) wherein the parties agreed that the Group will exclusively distribute B-MEG Feeds. The Agreement is valid for one year and shall be automatically renewed upon expiry with the same terms and conditions except as may be agreed by the parties in writing, unless SMFI notifies the Group in writing of its intent to terminate the Agreement within 60 days prior to the end of the term. The Group also has distributorship agreements with Monsanto Philippines, Gastin Corporation and Syngenta Philippines, Inc. for the exclusive distribution in Luzon of the products sold by the said parties. The Group has other distributorship agreements but on a non-exclusive basis. In general, all supply and distribution agreements are renewed on a yearly basis. Renewal may be express when parties opt to execute a written agreement or implied when parties continue to do business dealings with each other such as taking of orders of supplies. The Group does not usually have duly executed distribution agreements with the rest of its suppliers of agro chemicals, fertilizers and seeds. Furthermore, based on industry practice, actual exclusive distribution agreements are not issued on a yearly basis. In the case of non-exclusive distribution agreements, no formal agreement is executed except for some. Instead, certifications are issued to attest that the Group is a distributor of the pertinent supplier products indicating therein exclusivity or non-exclusivity. However, for other non-exclusive suppliers, certifications are not even given since supply of the products continues for so long as the Group places an order. The Group’s revenue may be affected by any program developed or supported by the Department of Agriculture of the Philippines The Group’s revenue comes primarily from the sale of agricultural products. Any agricultural program that the Department of Agriculture develops for the farmers of the country may affect the Group’s revenue. In the event that the government is unable to effectively implement its programs, this might result in a slowdown of the Group’s business as farmers might not have the required resources to purchase the Group’s products. There is no guarantee that the Philippine government will not change or prioritize programs for agriculture in the coming years.

48

To mitigate this risk, the Group updates itself regularly with the Department of Agriculture’s policies or programs developed for the agricultural product industry. This allows the Group to react quickly to government programs relating to agricultural products. It also enables the Group to plan ahead to meet the Department of Agriculture’s ongoing or future policies or programs. The Group also conducts its own marketing activities to promote the use or consumption of its product. The Group intends to strengthen its marketing efforts nationwide. Risk of natural calamities The Group’s revenues are highly dependent on the weather conditions in the Philippines. Severe drought or flooding in a certain agricultural region will significantly affect the productivity of the farmers. This will highly affect the demand for fertilizers, pesticides and other agricultural chemicals. To mitigate this risk, the Group in partnership with its key suppliers would distribute new products manufactured through the use of modern technology to withstand if not totally resist the devastating effects brought by forces of nature. In addition, the Group distributes other agricultural products which are unaffected by natural calamities such as animal feeds for poultry, hogs and ducks. Risk of outbreak of animal diseases The Group’s revenues may be affected by the outbreak of swine and poultry diseases because the demand for animal feeds decreases in case an outbreak happens. To mitigate this risk the Group, in partnership with its key suppliers, currently deploys farm assistant technicians in the field to prevent and/or treat swine and poultry diseases. In addition, the Group also distributes veterinary medicines that help prevent or treat the said diseases. NOTE 19 – COST OF SALES


Inventories, beginning P179,835,048 P224,244,569 Net purchases 1,989,011,746 1,742,039,394

Cost of goods available for sale 2,168,846,794 1,966,283,963 Inventories, ending (Note 11) (220,483,700) (179,835,048)

P1,948,363,094 P1,786,448,915

49

NOTE 20 – OPERATING EXPENSES


2012

2011

Salaries, wages and benefits P36,485,056

P21,849,469

Depreciation and amortization (Note 13) 13,576,323

5,780,083

Professional fees 12,317,959

5,714,995

Rental (Note 25) 9,888,600

1,206,440

Transportation and travel 8,628,752

5,965,984

Taxes and licenses 4,745,505

1,435,725

Marketing 3,646,340

2,529,790

Communication 3,527,816

2,178,926

Repairs and maintenance 3,258,096

2,256,539

Office supplies 3,070,363

1,126,750

Representation and entertainment 2,089,242

1,525,269

Insurance 1,837,670

1,111,726

Retirement benefit costs (Note 23) 1,117,826

450,133

Association dues 988,360

-

Commissions 666,532

3,314,986

Others 1,106,891

2,478,358

P106,951,331

P58,925,176

NOTE 21 – OTHER OPERATING INCOME, NET


2012

2011

Rebate income P15,306,952

P12,045,795

Gain from a bargain purchase (Note 6) 8,213,165

-

Gain from write-off of payable 5,279,022

-

Gain on disposal of property and equipment (Note 13) 1,735,200

1,914,123

Others 2,316

45,713

Impairment loss on trade receivables (Note 9) (1,318,159)

(4,375,816)

P29,218,496

P9,629,815

50

NOTE 22 – RELATED PARTY TRANSACTIONS Related party relationships exist when one party has the ability to control, directly or indirectly through one or more intermediaries, the other party or exercise significant influence over the other party in making financial and operating decisions. Such relationships also exist between and/or among entities which are under common control with the reporting enterprise, or between and/or among the reporting enterprises and their key management personnel, directors or its shareholders. The details of the Group’s related parties are summarized as follows:


Calata Builders Under common

control A corporation established in the

Philippines which ventures as a subcontractor and into the realty business

Calata Farms Under common control

A sole proprietorship owned by which offers high efficiency poultry growing using climate-controlled system

Avestha Holdings Corporation Under common control

A corporation established to engage in holding of shares of different corporations

Individuals Shareholders Individuals who own shares of the Parent Company

Individuals Key management personnel

Individuals who have authority and responsibility for planning, directing and controlling the activities of the Group

52

Significant transactions and outstanding balances with related parties are as follows: Transactions

Rent expense (i)

Key management personnel compensation (ii)

Gain on disposal of property and equipment (iii)

Related parties Relationship 2012 2011 2012 2011 2012 2011

Individuals Key management personnel P- P- P5,974,094 P4,784,815 P- P- Individuals Shareholders - - - - 835,200 1,914,123

P- P- P5,974,094 P4,784,815 P835,200 P1,914,123

Outstanding balances

Loans receivable (iv)





Allowance for

impairment loss

Impairment loss


Under common control P120,000,000 P120,000,000

3 years, 6% per annum

Real estate properties Cash N/A P- P-

Advances to related parties (v)





Allowance for

impairment loss

Impairment loss

Agri Phil Corporation Subsidiary P- P55,455,249 None Unsecured Cash N/A P- P-

Calata Builders Under common control 6,821,592 7,725,347 None Unsecured Cash N/A - - Individuals Shareholder 34,745,737 3,315,016 None Unsecured Cash N/A - -

P41,567,329 P66,495,612

P- P-

Advances from related parties (vii)


Nature of consideration to be

provided upon settlement


Individuals Shareholder

P2,070,350 P52,461,454 None Unsecured N/A N/A

CALATA 2012 17-A FINAL DRAFT February 2001

j) An operating lease agreement was executed between the Group and the shareholders whereby the latter granted the former with the rent-free use of office premises and a warehouse located in Bulacan (see Note 25).

viii) The key management personnel compensation recognized in salaries, wages and other benefits

under operating expenses in the consolidated statements of income consists of short-term benefits. There are no long term compensation and post-employment and termination benefits of key management personnel for the years ended December 31, 2012 and 2011.

ix) For the years ended December 31, 2012 and 2011, the Group disposed fully-depreciated property and equipment to a related party that resulted to a gain on disposal amounting to P835,200 and P1,914,123, respectively (see Note 13).


x) Loans receivable

2012 2011


January 1 P120,000,000 P- Loaned to - 120,000,000

December 31 P120,000,000 P120,000,000


54

xi) Advances to related parties

2012 2011


January 1 P55,455,249 P- Cash advances to (55,455,249) 55,455,249

December 31 P- 55,455,249

Calata Farms January 1 - 33,173,159 Collections from - (33,173,159)

December 31 - -

Calata Builders

January 1 7,725,347 1,525,347 Cash advances to (collections from) (903,755) 6,200,000

December 31 6,821,592 7,725,347

Individuals January 1 3,315,016 174,325 Cash advances to 57,643,729 3,306,148 Cash advances from (1,213,008) (165,457) Cash dividends distributed (25,000,000)

December 31 34,745,737 3,315,016

Total advances to related parties P41,567,329 P66,495,612


xii) The assessment of the allowance for impairment loss related to the amount of outstanding balances of the Group’s loans receivable and advances to related parties and the expense recognized during the period in respect of impairment loss is undertaken through examining the financial position of the related parties and the market in which they operate.

xiii) Advances from related parties

2012 2011

Individuals

January 1 (P52,461,454) P- Cash advances from (68,890,289) (67,869,405) Cash advances to 119,281,393 15,407,951

(P2,070,350) (P52,461,454)


55

56

NOTE 23 - RETIREMENT BENEFIT COSTS The Group maintains an unfunded, non-contributory defined benefit retirement plan covering all qualified employees. Normal retirement benefits are equal to the employee’s retirement pay as defined in Republic Act No. 7641 multiplied by his years of service. Normal retirement date is the attainment of age 60 and completion of at least five years of service. The following tables summarize the components of net retirement benefit cost recognized in the consolidated statement of income and the amounts recognized in the consolidated statements of financial position:

Net retirement benefit costs presented under operating expense are as follows:

2012 2011

Current service cost P985,645 P347,571 Interest cost 132,181 102,562

P1,117,826 P450,133

Components of net retirement benefit liability and the amounts recognized in the consolidated

statements of financial position are as follows:

2012 2011

Present value of defined benefit obligation P1,820,747 P2,008,832 Unrecognized actuarial gain 1,117,826 (188,085)

P2,938,573 P1,820,747

Present value of defined benefit obligation is as follows:

2012 2011

Balance at January 1 P2,008,832 P1,558,699 Actuarial loss 2,025,336 Interest cost 985,645 102,562 Current service cost 132,181 347,571

Balance at December 31 P5,151,994 P2,008,832

The principal assumptions used in determining retirement benefit liability of the Group are shown below: 2012 2011

Discount rates 5.62% 6.58% Future salary increase rates 5.00% 5.00%

57

NOTE 24 – INCOME TAXES a. The components of the Group’s provision for income tax are as follows:

2012 2011

Current P45,901,238 P28,219,506 Deferred 1,237,205 (1,418,759)

P47,138,443 P26,800,747

b. The components of the Group’s deferred tax assets are as follows:

Balance at

January 1, 2011


period



year


Allowance for impairment losses on trade receivables

P-

P1,312,745

P1,312,745

P395,448

P1,708,193 Retirement benefit liability 411,184

135,040

546,224

335,347

881,571

P411,184 P1,447,785 P1,858,969 P730,795 P2,589,764

The Group reviews deferred tax assets at each reporting date and recognizes these to the extent that it is probable that sufficient taxable profit will be available to allow all or part of the deferred tax assets to be utilized. Deferred tax assets were recognized as of December 31, 2012 as management believes that the carryforward benefit would be realized in its future operations. c. The components of the Group’s deferred tax liabilities are as follows:

Balance at

January 1, 2011


period



year


Movement in accrued interest

P-

P-

P-

P1,893,000

P1,893,000

Unrealized gain on disposal of equipment -

-

-

75,000

75,000

P- P- P- P1,968,000 P1,968,000

d. The reconciliation of the provision for income tax computed at the statutory income tax rate to

provision for income tax shown in the consolidated statement of income are as follows:

2012 2011

Income tax computed at 30% P47,254,063 P42,858,067 Add (deduct) income tax effects

resulting from:

58

Non-deductible expenses 617,762 120,436 Income subjected to final tax (733,382) (291,966)

P47,138,443 P42,686,537

NOTE 25 – LEASE AGREEMENTS The Group has entered into various lease agreements with different individuals for the lease of warehouses located in various provinces in Central Luzon, all of which fall under the category of operating leases. The lease agreements are renewable every year where terms and conditions are subject to the agreement of both parties. The Group has entered in a lease agreement with its shareholders for the lease of office premises and warehouse located in Bulacan. The said lease is rent-free and renewable every year upon mutual agreement by the parties (see Note 22). On August 1, 2012, the Group entered into a lease agreement with KSA Realty Corporation for the lease of its office premises in Makati. The terms of the lease is for three (3) years and is subject to annual escalation rate of ten (10) percent. The lease agreement has a renewal potion. The details of the security deposit and advanced rental on this lease agreement are as follows:


Refundable security

deposit

Equivalent to three (3) months’ lease payment and refundable at the end of the lease term P1,652,566 P-


P3,305,132 P-

The refundable security deposit and the advanced rental are recognized in the consolidated statements of financial position under other non-current assets. There were no restrictions imposed by these lease arrangements such as those concerning dividends, additional debt and further leasing. The rent expense charged to operations for the years ended December 31, 2012 and 2011 amounted to P9,888,600 and P1,206,440, respectively (see Note 20). Future minimum annual rentals are as follows:

2012 2011


P1,206,440 More than one year but not later than five years 16,531,239 -

P27,772,437 P1,206,440

59

NOTE 26 – EARNINGS PER SHARE Basic EPS amounts are calculated by dividing net profit for the year attributable to ordinary equity holders of the Parent Company by the weighted average number of ordinary shares outstanding during the year. The financial information pertinent to the derivation of the basic earnings per share for the years ended December 31, 2012 and 2011, are as follows: 2012 2011

Profit for the year attributable to ordinary equity

holders of the Parent Company

P110,375,101 P100,173,688

Weighted average number of shares outstanding 345,107,000 145,300,000

P0.32 P0.69

There are no dilutive potential ordinary shares for the years ended December 31, 2012 and 2011. Therefore, the Group’s basic and diluted EPS for the said periods are equal. The reconciliations of the average number of shares outstanding as of the reporting date are as follows: At December 31, 2012




January 1, 2012 324,100,000 324,100,000 324,100,000 May 23, 2012 36,012,000 360,112,000 21,007,000

360,112,000

345,107,000





January 1, 2011 1,000,000 1,000,000 1,000,000 August 15, 2011 86,100,000 87,100,000 54,437,500 August 23, 2011 125,000,000 212,100,000 8,837,500

September 9, 2011 112,000,000 324,100,000 81,025,000

324,100,000

145,300,000

NOTE 27 – EVENTS AFTER THE REPORTING DATE On a meeting held on April 15, 2012 the BOD unanimously approved the declaration of cash dividends equivalent to 25% of the issued and outstanding shares of record as of May 17, 2012, or a total amount of Ninety Million Twenty Eight Thousand Pesos (P90,028,000) subject to the condition on the availability of unrestricted retained earnings to cover said dividend declaration.

60


OTHER DOCUMENTS TO BE FILED WITH THE PARENT COMPANY FINANCIAL STATEMENTS

UNDER PAR. 4 OF PART I – GENERAL FINANCIAL REPORTING REQUIREMENTS OF SRC RULE 68, AS AMENDED

DECEMBER 31, 2012

61

CALATA CORPORATION

(formerly Planters Choice Agro Products, Inc.)

A. Non-stock and non-profit organizations Not applicable B. Foundations Not applicable C. Issues of securities to the public, and stock corporations with

unrestricted retained earnings in excess of 100% of paid-in capital stock

See Schedule C D. All secondary licensees of the Commission (financing companies,

broker dealer of securities and underwriters) and public companies

See Schedule D E. Financing companies Not applicable F. Mutual funds Not applicable G. Investment houses Not applicable H. Listed companies and investment houses that are part of a

conglomerate or group of companies

See Schedule H I. Listed companies that recently offered securities to the public

(either as initial or additional offering)

Not applicable J. Large and/or publicly-accountable entities See Schedule J

62

Schedule C. Reconciliation of retained earnings available for dividend declaration as at December

31, 2012 Unappropriated Retained Earnings, as adjusted to available for dividend

distribution, beginning

P75,904,564 Add: Net income actually earned/ realized during the year Net income during the period closed to Retained Earnings 98,172,706 Less: Non-actual/unrealized income net of tax - Equity in net income of associated/joint venture -

Unrealized foreign exchange gain – net (except those attributable to Cash and Cash Equivalents) Unrealized actuarial gain

-

Fair value adjustment (M2M gains) - Fair value adjustment of Investment Property resulting to gain - Adjustment due to deviation from PFRS/GAAP - gain -

Other unrealized gains or adjustments to the retained earnings as a result of certain transactions accounted for under the PFRS

-

Sub-total - Add: Non-actual losses - Depreciation on revaluation increment (after tax) - Adjustment due to deviation from PFRS/GAAP – loss - Loss on fair value adjustment of investment property (after tax) -

Net income actually earned during the period 174,077,270 Add (Less): Dividend declarations during the period - Appropriations of Retained Earnings during the period - Reversals of appropriation - Effects of prior period adjustments - Treasury notes -

TOTAL RETAINED EARNINGS, END AVAILABLE FOR DIVIDEND P174,077,270

63

Schedule D. Financial soundness indicators in two comparative periods

Current / Liquidity Ratios 2012

2011

Current ratio 1.22

1.11

Quick ratio 1.02

0.83

Solvency Ratio / Debt-to-Equity Ratio 2012

2011

Gearing ratio 0.68

0.98

Asset-to-Equity Ratio 2012

2011

Net assets per share 2.06

1.23

Interest Rate Coverage Ratio 2012

2011

Interest cover 5.26

6.30

Profitability Ratios 2012

2011

Return on capital employed 0.13

0.25

Gross profit margin 0.11

0.11

Net profit margin 0.05

0.05

Other Ratios 2012

2011

Earnings per share 0.28

0.69

Dividend cover N/A

4.06

Schedule H. Map showing the relationship between and among the Company and its Subsidiary

Calata Corporation

(Parent Company)


(Subsidiary)

64

Schedule J. List of all the effective standards and interpretations under the PFRS as of year-end



Framework for the Preparation and Presentation of Financial Statements Conceptual Framework Phase A: Objectives and qualitative characteristics

PFRSs Practice Statement Management Commentary

Philippine Financial Reporting Standards

PFRS 1 (Revised)

First-time Adoption of Philippine Financial Reporting Standards Adopted

Amendments to PFRS 1 and PAS 27: Cost of an Investment in a Subsidiary, Jointly Controlled Entity or Associate

Adopted

Amendments to PFRS 1: Additional Exemptions for First-time Adopters

Not Applicable

Amendment to PFRS 1: Limited Exemption from Comparative PFRS 7 Disclosures for First-time Adopters

Not Applicable

Amendments to PFRS 1: Severe Hyperinflation and Removal of Fixed Date for First-time Adopters

Not Applicable

Amendments to PFRS 1: Government Loans Not Applicable

PFRS 2 Share-based Payment Not Applicable

Amendments to PFRS 2: Vesting Conditions and Cancellations Not Applicable

Amendments to PFRS 2: Group Cash-settled Share-based Payment Transactions

Not Applicable

PFRS 3 (Revised)

Business Combinations Adopted

PFRS 4 Insurance Contracts Not Applicable


Not Applicable

PFRS 5 Non-current Assets Held for Sale and Discontinued Operations Not Applicable

PFRS 6 Exploration for and Evaluation of Mineral Resources Not Applicable

PFRS 7 Financial Instruments: Disclosures Adopted

Amendments to PFRS 7: Transition Not Applicable


Not Applicable

Amendments to PAS 39 and PFRS 7: Reclassification of Financial Assets - Effective Date and Transition

Not Applicable

Amendments to PFRS 7: Improving Disclosures about Financial Instruments

Not Applicable

Amendments to PFRS 7: Disclosures - Transfers of Financial Assets

Not Applicable

65



Amendments to PFRS 7: Disclosures – Offsetting Financial Assets and Financial Liabilities

Not Applicable


Not Applicable

PFRS 8 Operating Segments Adopted

PFRS 9 Financial Instruments Adopted


Not Applicable

PFRS 10 Consolidated Financial Statements Adopted

PFRS 11 Joint Arrangements Not Applicable

PFRS 12 Disclosure of Interests in Other Entities Not Applicable

PFRS 13 Fair Value Measurement Not Applicable

Philippine Accounting Standards

PAS 1 (Revised)

Presentation of Financial Statements Adopted

Amendment to PAS 1: Capital Disclosures Adopted


Not Applicable

Amendments to PAS 1: Presentation of Items of Other

Comprehensive Income

Not Applicable

PAS 2 Inventories Adopted

PAS 7 Statement of Cash Flows Adopted

PAS 8 Accounting Policies, Changes in Accounting Estimates and Errors Adopted

PAS 10 Events after the Balance Sheet Date Adopted

PAS 11 Construction Contracts Adopted

PAS 12 Income Taxes Adopted

Amendment to PAS 12 - Deferred Tax: Recovery of Underlying Assets

Adopted

PAS 16 Property, Plant and Equipment Adopted

PAS 17 Leases Adopted

PAS 18 Revenue Adopted

PAS 19 Employee Benefits Adopted

Amendments to PAS 19: Actuarial Gains and Losses, Group Plans and Disclosures

Adopted

PAS 19 (Amended)

Employee Benefits Adopted

66



PAS 20 Accounting for Government Grants and Disclosure of Government Assistance

Not applicable

PAS 21 The Effects of Changes in Foreign Exchange Rates Adopted

Amendment: Net Investment in a Foreign Operation Not applicable

PAS 23 (Revised)

Borrowing Costs Not applicable

PAS 24 (Revised)

Related Party Disclosures Adopted

PAS 26 Accounting and Reporting by Retirement Benefit Plans Not applicable

PAS 27 (Amended)

Separate Financial Statements Not applicable

PAS 28 (Amended)

Investments in Associates and Joint Ventures Not applicable

PAS 29 Financial Reporting in Hyperinflationary Economies Not applicable

PAS 31 Interests in Joint Ventures Not applicable

PAS 32 Financial Instruments: Disclosure and Presentation Adopted


Not applicable

Amendment to PAS 32: Classification of Rights Issues Not applicable

Amendments to PAS 32: Offsetting Financial Assets and Financial Liabilities

Not applicable

PAS 33 Earnings per Share Adopted

PAS 34 Interim Financial Reporting Not applicable

PAS 36 Impairment of Assets Adopted

PAS 37 Provisions, Contingent Liabilities and Contingent Assets Not applicable

PAS 38 Intangible Assets Not applicable

PAS 39 Financial Instruments: Recognition and Measurement Adopted

Amendments to PAS 39: Transition and Initial Recognition of Financial Assets and Financial Liabilities

Not applicable

Amendments to PAS 39: Cash Flow Hedge Accounting of Forecast Intragroup Transactions

Not applicable

Amendments to PAS 39: The Fair Value Option Not applicable


Not applicable


Not applicable

Amendments to PAS 39 and PFRS 7: Reclassification of Financial Not applicable

67



Assets – Effective Date and Transition

Amendments to Philippine Interpretation IFRIC–9 and PAS 39: Not applicable

Embedded Derivatives Not applicable

Amendment to PAS 39: Eligible Hedged Items Not applicable

PAS 40 Investment Property Adopted

PAS 41 Agriculture Adopted

Philippine Interpretations

IFRIC 1 Changes in Existing Decommissioning, Restoration and Similar Liabilities

Not applicable

IFRIC 2 Members' Share in Co-operative Entities and Similar Instruments Not applicable

IFRIC 4 Determining Whether an Arrangement Contains a Lease Adopted

IFRIC 5 Rights to Interests arising from Decommissioning, Restoration and Environmental Rehabilitation Funds

Not applicable

IFRIC 6 Liabilities arising from Participating in a Specific Market - Waste Electrical and Electronic Equipment

Not applicable

IFRIC 7 Applying the Restatement Approach under PAS 29 Financial Reporting in Hyperinflationary Economies

Not applicable

IFRIC 8 Scope of PFRS 2 Not applicable

IFRIC 9 Reassessment of Embedded Derivatives Not applicable

Amendments to Philippine Interpretation IFRIC–9 and PAS 39: Embedded Derivatives

Not applicable

IFRIC 10 Interim Financial Reporting and Impairment Not applicable

IFRIC 11 PFRS 2- Group and Treasury Share Transactions Not applicable

IFRIC 12 Service Concession Arrangements Not applicable

IFRIC 13 Customer Loyalty Programmes Not applicable

IFRIC 14 The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction

Not applicable

Amendments to Philippine Interpretations IFRIC- 14, Prepayments of a Minimum Funding Requirement

Not applicable

IFRIC 16 Hedges of a Net Investment in a Foreign Operation Not applicable

IFRIC 17 Distributions of Non-cash Assets to Owners Not applicable

IFRIC 18 Transfers of Assets from Customers Not applicable

IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments Not applicable

IFRIC 20 Stripping Costs in the Production Phase of a Surface Mine Not applicable

SIC-7 Introduction of the Euro Not applicable

68



SIC-10 Government Assistance - No Specific Relation to Operating Activities

Not applicable

SIC-12 Consolidation - Special Purpose Entities Not applicable

Amendment to SIC - 12: Scope of SIC 12 Not applicable

SIC-13 Jointly Controlled Entities - Non-Monetary Contributions by Venturers

Not applicable

SIC-15 Operating Leases - Incentives Not applicable

SIC-21 Income Taxes - Recovery of Revalued Non-Depreciable Assets Not applicable

SIC-25 Income Taxes - Changes in the Tax Status of an Entity or its Shareholders

Not applicable

SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease

Not applicable

SIC-29 Service Concession Arrangements: Disclosures. Not applicable

SIC-31 Revenue - Barter Transactions Involving Advertising Services Not applicable

SIC-32 Intangible Assets - Web Site Costs Not applicable

Documents

16 April 2013 MS. JANET A. ENCARNACION Head, Disclosure