wellex industries incorporated and subsidiaries form 17-a - 2011.pdf · annual meeting secondary...

COVER SHEET

0 0 0 0 0 1 1 7 9 O

SEC Registration No.

W E L L E X I N D U S T R I E S , I N C .

A N D S U B S I D I A R I E S

(Company's Full Name)

2 2 N D F L O O R C I T I B A N K T O W E R

8 7 4 1 P A S E O D E R O X A S S T R E E T

M A K A T I C I T Y

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

Atty. Mariel L. Francisco (632) 687-7536

Contact Person Contact Telephone No.

1 2 3 1 1 7 - A

Fiscal Year FORM TYPE Month Day

Annual Meeting

Secondary License Type, If Applicable

Dept. Requiring this Doc. Amended Articles Number/Section

Total Amount of Borrowings

1,041

Total No. of Stockholders Domestic Foreign

To be accomplished by SEC Personnel concerned

File Number LCU

Document I.D. Cashier

S T A M P S

Remarks = pls. use black ink for scanning purposes

Annual Report: WIN

SECURITIES AND EXCHANGE COMMISSION

SEC FORM 17-A

ANNUAL REPORT PURSUANT TO SECTION 11

OF THE SECURITIES REGULATION CODE AND SECTION 141

OF THE CORPORATION CODE OF THE PHILIPPINES

1. For the Calendar year ended December 31, 2011

2. SEC Identification Number 11790 3. BIR Tax Identification No. 003-946-426

4. WELLEX INDUSTRIES, INC.

Exact name of registrant as specified in its charter

5. Metro Manila, Philippines

(Province, country or other jurisdiction of incorporation or organization

6. (SEC Use only)

Industry Classification Code

7. 22nd

Floor Citibank Tower, 8741 Paseo de Roxas St., Makati City

Address of principal office

8. Telephone No. (02) 706-7888

Registrant’s telephone number, including area code

9. REPUBLIC RESOURCES AND DEVELOPMENT CORPORATION

Former name, former address, and former fiscal year, if changed since last report.

10. Securities registered pursuant to Sections 4 and 8 of the RSA :

Title of Each Class No. of Shares of Common Stock Outstanding:

and Amount of Debt Outstanding

Common Shares – P1.00 par value Issued - P3,271,926,700.00

11. Are any or all of these securities listed on the Philippine Stock Exchange?

Yes [ x ] No. [ ]

12. Check whether the registrant:

(a) has filed all reports required to be filed by Section 17 of the SRC and SRC Rule 17

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 12 months (or for such shorter period that the registrant was required to

file such reports);

Yes [ x ] No [ ]

(b) has been subject to such filing requirements for the past 90 days.

Yes [ x ] No [ ]

13. The aggregate market value of the voting stock held by non-affiliates : P120,654,737.00

14. Not Applicable

PART I - BUSINESS AND GENERAL INFORMATION

Item 1. Business

A. DESCRIPTION OF BUSINESS

(1) Business Development

Wellex Industries, Incorporated (WIN) is a company incorporated in the Philippines to engage

primarily in the business of mining and oil exploration and was known as Republic resources and

Development Corporation (REDECO). Under Section 11 of the Corporation Code of the Philippines, an

entity has a 50-yer corporate life. The Company’s corporate life officially ended on October 19, 2009.

On January 19, 2006, the Company’s Board of Directors (BOD) and stockholders approved the

amendment of the Company Articles of Incorporation extending the corporate life for another 50 years

up to October 19, 2056. The Company’s Amended Articles of Incorporation was approved by the

Securities and Exchange Commission (SEC) on July 20, 2007.

On January 28, 2008, the BOD approved the amendment of the Company’s primary purpose from a

holding company to a company engaged in the business of mining and oil exploration. The Change in

primary purpose is subject for the approval of the stockholders of the Company and to the Rules and

Regulations of the SEC and PSE.

The Company wholly owns two companies, namely Plastic City Industrial Corporation (PCIC) and

Philfoods Asia, Inc. (collectively known as the Group.) Both subsidiaries have ceased operations but

PCIC Subsidiaries has leased out its warehouse/ building facilities.

Business Development of the Subsidiaries:

Due to extremely difficult economic situation which besieged the country for the past five years now,

adversely affecting almost all businesses most especially the manufacturing sector, both subsidiaries of

WIN namely, Plastic City Industrial Corporation (PCIC) and Philfoods Asia, Inc. have decided to

temporarily cease its manufacturing and commercial operations. The continued losses and cessation of

operations were due mainly to scarcity of raw materials, increase in production costs in electricity,

power and raw materials coupled with keen competition brought about the influx of imported goods.

Due to the cessation of operations, WIN is now concentrating in leasing out its warehouse facilities.

The Company’s present activity is focused on reorganizing its operations and maintaining its equipment

and facilities in preparation for the resumption of its operations. It is now looking for strategic partners

whether local or foreign to operate the PCIC plant.

(2) Business of Wellex Industries

(i) Principal products and services

Wellex Industries Inc. is a publicly listed holding company with investments in subsidiaries and its

principal subsidiaries PCPI and Philfoods are the following:

Plastic City Industrial Corporation

In November 1999, the Company formalized the entry of Plastic City Industrial Corporation (PCIC)

into the Wellex Industries, Inc. family. PCIC is the Philippines’ first fully-integrated manufacturer of

plastic products used in a number of industries.

From its humble beginnings as a plastic scrap palletizing operation in 1969, PCIC is now at the

forefront of the plastics industry, moving toward its vision to become a world-class manufacturing and

packaging enterprise.

PCIC’s plants are located on a 50-hectare property north of Metro Manila. It is one of the largest

conversion concerns in Southeast Asia with. Plastic City is an industrial metropolis in itself.

PCIC serves the demands of different sectors such as plastic packaging, invaluable house ware

products, appliance and telecommunications accessories, industrial parts and pipes for waterworks,

sewerage and telecommunications, and electrical conduit systems. PCIC responds to its market’s ever

changing requirements.

PCIC provides its clients with services that range from design concept to delivery of plastic products. It

continuously maintains and develops a select group of technical staff that specializes in all aspects of

the trade. This includes the sourcing of raw materials, mold design, and fabrication, production,

finishing, and marketing.

The PCIC subsidiaries stopped operations in 2002.

The company offers a wide range of plastic products manufactured by its subsidiaries applying a

different process for each product. Below is the summary of the products and its major customers and

their relative contribution to sales.

Subsidiary and Product Line Customers % To Sales

Pacific Plastic Corp.

Injection molded plastic products

for industrial parts of appliances Matsushita Electric Phil Co. 40%

Injection moulded plastic product for

Commercial use like mono-block chairs

Drawers, kitchen wares, and other

Household items. Shoe Mart, Marcat Mktg. 50%

Weltex Industries Corp.

Blue UPVC In-House Piping System Norsophil Metal Resources Inc. 30%

UPVC Water Main Piping System Makati Development Corp. 30%

UPVC Sewer Piping System

UPVC Electrical Conduit and Piping Bonifacio Communication Corp 10%

HDPE Piping System Comsys 10%

Kennex Container Corp

Polyethylyne Terephthalate(PET) bottle

Containers for mineral waters Agua Vida., Klear Water 50%

Subsidiary and Product Line Customers % To Sales

Blow Moulded Plastic Products Shoe Mart, Marcat Mktg 40%

Like water jugs

Rexlon Industrial Corp.

Thermoformed Plastic Disposable

Cup Coca Cola Phils., Kentucky 80%

Mister donut

Thermoformed Plastic cake Tray Goldilocks 10%

Philfoods Asia, Inc.

Philfoods Asia, Inc., was established to become a major processor and producer of packaged beverages

and foodstuffs. Based in Valenzuela, Metro Manila, the plant’s capabilities cover a wide array of items,

which include bottled drinking water, fruit juices, powdered juices, and cereal-based products such as

biscuits, instant noodles, and other snack foods.

All plant equipment have been procured and installed for its programmed commercial operation.

However because of the continuing adverse condition of the Philippine economy the management

decided to postpone its operation.

(ii) Export Sales

Wellex Industries and its subsidiaries are not engaged in export sales.

(iii) Distribution Methods of the Products

Since the company’s subsidiaries CEASED in commercial operations there are no distributions

of products.

(iv) Publicly-announced new product or services

Wellex Industries and its subsidiaries have no publicly-announced product or service.

(v) Competition

Since the company’s subsidiaries CEASED commercial operations and currently focusing on

temporarily leasing out its warehouse facilities, the company doesn’t engaged in any

competitions.

(vi) Sources and availability of raw materials and principal supplier

Since the company’s subsidiaries are CEASED in commercial operations, purchases and use of

raw materials are also being seized.

(vii) Dependence on one or few major customers

Wellex Industries Inc. and its subsidiaries are not dependent on any one industry, company or

customers.

(viii) Transactions with and/or dependence on related parties

Since the company’s subsidiaries CEASED commercial operations, there are no major

transactions on related parties.

(ix) Patent, Trademark, Copyright, Franchise, Concession or Royalty Agreement

Wellex Industries Inc. and its subsidiaries are not covered with any patent, trademark,

copyright, franchise, concession or royalty agreement.

(x) Government Approval of Principal Products or Services

There is no need for any government approval on principal products of Wellex Industries Inc.

and its subsidiaries.

(xi) Effect of Existing or Probable Governmental Regulations on Business

Since the company’s subsidiaries are CEASED in commercial operation there are no existing or probable

governmental regulations on business.

(xii) Estimate of the Amount Spent During Each Year of the Last Three Calendar Years on

Research and Development Activities

There are no such activities in Wellex Industries Inc. and its subsidiaries. However for PCIC,

most marketing research is done in cooperation with prospective principals/investors. Cost on

the part of the PCIC is very minimal.

(xiii) Cost and Effects of Compliance with Environmental Laws

Since the company’s subsidiaries are CEASED in commercial operation there are no cost and

effects of compliance with environmental laws.

(xiv) Total Number of Fulltime Employees (as of December 31, 2011):

The Wellex Industries Inc. and its’ subsidiaries have 15 regular employees. No CBA. There has

been no strike or any similar threat for the last 3 years also there are no supplemental and

incentive arrangements with its employees. The number of employees will be increased only

upon entry of new principals.

(xv) Major Risk

Since the company’s subsidiaries are CEASED in commercial operation there are no major risk

happened in the company as a whole.

( b ) Additional Requirements as to Certain Issues or Issuers

Not Applicable

Item 2. Properties

Description of Properties

These Four (4) Properties in Montalban, Rizal are not subject to any liens or encumbrances.

# Location Title Area (In Sq. Meters)

1 Montalban, Rizal TCT N- 330602 3,283.00




Properties of the company’s subsidiaries under Plastic City Industrial Corporation are as follows:

1. LAND

Properties at any one time or another are subject, in the ordinary course of business, to certain

liens and/or encumbrance in favor of their respective bank creditors on short term basis for short term

bank facilities, whether or not there are outstanding obligations thereto.

None of the stated properties are under any lease contract.

The company has no intention of acquiring property for the next twelve (12) months.

Location Title Area (In Sq.

Meters)

Inland Container Corp.

Maysan, Valenzuela T-100259 * 1,000

T-100258 * 1,000

T-122790 * 1,000

T-123319 * 1,000

T-152765 * 1,000

T-122791 * 1,000

T-122792 * 1,000

T-122793 * 1,000

T-122794 * 1,000

T-122790 * 1,000

V-13207 * 1,000

V-13208 * 1,000


Valenzuela T-123321 * 5,598

T-95577 * 30,987

T-111339 * 8,600

T-112620 * 7,841

T-122995 * 195

Kennex Container

Corp.

Canumay, Valenzuela 116045 * 11,806

V-3845 * 1,000

V-4075 * 13,880

T-104313 * 27,181

V-4074 * 3,051

V-3952 * 4,959

V-3953 * 800

T-118213 * 2,050

T-124652 * 14,332

V-6111 * 23,000

T-143893 * 3,870

T-123303 * 22,900

T-123322 * 2,563

T-128112 * 194

T-1333034 * 492

T-126448 * 4,000

T-140376 * 4,330

T-139086 * 5,001

T-136923 * 2,000

T-116810 * 8,825

T-117459 * 1,391

T-139143 * 1,732

T-129796 * 9,106

T-144609 * 2,995

T-152764 * 19,748

T-122810 * 400

T-122811 * 813

T-122812 * 800

T-144412 * 6,132

T-151962 * 400

T-128111 * 214

T-98405 * 240

T-123439 * 240

Rexlon Industries Corp.

Maysan, Valenzuela T-123520 * 225

V-5877 * 17,782

V-5878 * 10,581

T-144616 * 16,844

T-144615 * 5,893

T-144617 * 161

T-120035 * 240

V-5237 * 3,199

V-5362 * 1,000

T-145177 * 4,666

V-2227 * 3,198

V-6593 * 1,601

V-6594 * 3,200

V-6595 * 1,100

V-6596 * 1,099

V-7944 * 11,457

V-3592 * 1,600

T-520389 *

T-515073 *

T-525537 *

T-520390 *

T-104274 *

T-123520 *

V-6592 *

MPC

Canumay, Valenzuela T – 123318 * 4221

2. MACHINERY AND EQUIPMENTS

Pipe Systems Plant Blow Moulding / PET Plant

Section Machine Section Machine

PE 55 mm YEI – 1 Blowing Bekum - 1

55 mm YEI – 2 Bekum - 2




80 mm YEI – 1 Tahara - 1



Tahara - 4

PVC CMT 58 Ardor

CMT 68 Fongkee

PPI 77 55 - 1

PPI 90 65 - 1

65 - 5

Injection Moulding Plant

Section Machine 75 – 1,2,3

IWASAKI PM – 1 Nissei * 90 - 1

PM - 2 Nissei * 90 - 2

PM - 3 Nissei * 100 - 1

PM - 4 Nissei * 100 - 2

PM - 5 Nissei * 100 - 3

PM - 6 Nissei * 100 - 4

PM - 7 Nissei * 100 - 5

PM - 8 Nissei *

PM - 9 Nissei * PET Aoki 250 LL

PM - 10 Nissei * Aoki 500 LL

PM - 11 Nissei * Aoki 500 LL

PM - 12 Nissei *

PM – 14 Nissei *

PM - 15 Nissei *

PM - 16 Nissei *

PM - 17 Nissei *

PM - 18 Nissei *

PM - 19 Nissei *

PM - 20 Nissei *

PM - 21 Nissei *

PM - 22 Nissei *

PPC/PCC PC - 29 Nissei

PC - 30 JSW

PC - 39 KF

PC - 40 Jon Wai

PC - 41 Natco

PC - 42 Jon Wai

PC - 43 Jon Wai

PC - 44 Jon Wai

PC - 45 Jon Wai

PC - 46 Nissei

PC - 47 Nissei

PC - 48 Nissei

PC - 49 Nissei

PC - 50 Nissei

PC - 51 Nissei

PC - 52 Nissei

PC - 53 Nissei

PC - 54 Nissei

PC - 55 Nissei

PC - 56 Nissei

PC - 57 Nissei

PC - 58 Nissei

40 OZ JSW

60 OZ JSW

125 OZ Natco

140 OZ Natco

200 A OZ Nissei

200 B OZ Nissei

260 OZ Natco

Thermoforming Plant

Section Machine

Extrusion E2 – Wellex

E2 – Taiwan

E3 – Taiwan

Thermofor

ming T1 – Dipiemme Rimming R1 – Dipiemme

T2 – Dipiemme R2 – Illig

T3 – Illig R3 – Dipiemme

T4 – Illig

T5 – Illig Printing P1 – Moss

T6 – Illig P2 – Omso



T9 – Illig V1 – Taiwan

3. BUILDINGS AND GROUND IMPROVEMENTS

Since the company stopped the operation and focused in leasing the warehouses here are the

lists of lessors as follows:

No. Name of Lessee Co. Bldg. No. Area

in sqm Contact Period

Monthly Rental (Net of

5% EWT)

1 New Pro Manufacturing & Industrial Corp. ICC 11

960 01.15.11 - 01.15.12

56,496.00

2 San Miguel Packaging Specialists Inc. ICC 45-A

1,980 02.23.11 - 02.22.12

113,496.43

3 San Miguel Packaging Specialists Inc. ICC 45-A

2,220 01.23.11 - 01.23.12

127,253.57

4 San Miguel Packaging Specialists Inc. ICC 45-C

2,340 05.01.11 - 04.30.12

125,190.00

5 San Miguel Packaging Specialists Inc. ICC 13 extra area

960 02.01.11 - 03.31.11

51,260.00

6 San Miguel Packaging Specialists Inc. ICC 32

3,052 03.01.11 - 02.29.12

163,282.00

7 Global Trade Asia Services Inc. ICC 13

960 11.15.10 - 11.15.11

51,360.00

8 Ginebra San Miguel Inc. ICC 22

1,134 12.15.10 - 11.30.11

66,735.90

9 Ginebra San Miguel Inc. ICC 24

1,476 12.15.10 - 11.30.11

86,862.60

10 Ginebra San Miguel Inc. ICC admin. office 12.15.10 - 11.30.11

10,000.00

11 Ginebra San Miguel Inc. ICC open yard

1,500 12.15.10 - 11.30.11

42,997.95

12 Ginebra San Miguel Inc. ICC 27 open space

800 12.15.10 - 11.30.11

22,932.24

13 Unistar Asia Manufacturing Company ICC 17

378 03.25.11 - 03.25.12

22,245.30

14 SMYPC - Manila Glas Plant ICC 38-A

1,773 03.01.11 - 06.30.11

106,238.16

15 Sta. Rita 168 Builders Corporation KCC 15

924 02.01.11 - 06.30.12

49,434.00

16 JM Ecotech Solution Co. KCC 40

1,980 09.10.10 - 03.10.11

105,930.00

17 Hayama Industrial Corporation KCC 39-A

1,244 01.01.11 - 12.31.11

66,554.00

18 Hayama Industrial Corporation KCC 42

1,980 01.01.11 - 12.31.11

105,930.00

19 Apo Global Cosmetic Depot Inc. PPC 35-A

288 02.15.11 - 02.15.12

16,948.80

20 Catfish Enterprises PPC Open Space of

23

35 05.01.11 - 10.31.11

1,809.41

21 Pandayan Bookshop PPC 3

1,050 01.15.11 - 01.15.12

81,937.28

22 San Miguel Brewery Inc. PPC shipping yard

1,430 05.01.11 - 04.30.13

53,459.78

23 San Miguel Brewery Inc. PPC 23

3,105 05.01.10 - 04.30.13

232,157.52

24 Sher Sales Center PPC 5

187.50 01.01.11 - 12.31.11

12,137.81

25 Wynonah's Home Creation PPC 4 Extension

350 09.06.11 - 01.05.12

31,474.30

26 Pimeco Industries PPC 20

924 10.16.10 - 10.15.11

51,905.70

27 Unistar Asia Manufacturing Company PPC 4

405.64 12.01.10 - 11.30.11

26,042.09

28 CVC Supermart Inc. PPC showroom

228.70 01.15.11 - 01.15.12

14,682.54

29 10 Daliri Multi-Purpose Cooperative PPC 3 T.R.

125 01.15.11 - 01.15.12

6,319.69

30 SBA East Corporation PPC 6

322.0 10.01.11 - 12.31.11

22,791.00

31 Pandayan Bookshop PPC 3 T. R.

578.55 01.15.11 - 01.15.12

27,857.18

Item 3. Legal Proceedings

On October 28, 2010, PCIC subsidiaries (namely ICC, PPC and KCC) with certain affiliates

jointly filed a petition for corporate rehabilitation before the regional trial court of Valenzuela

City by authority of Section 1, Rule 4 of Rules and Procedures on Corporate Rehabilitation, in

order to revive PCIC subsidiaries manufacturing operations and bring them back to profitability

for the benefit of the creditors, employees and stockholders. As part of the rehabilitation plan,

the following actions will be undertaken:

a) Conversion of the PCIC subsidiaries industrial real estate into commercial and residential

zones to increase its value. This project will be undertaken in a joint venture with

Philippine Estate Corporation (PHES). This would have the effect of improving the

salability of the properties and of bringing in additional rental income for the petitioners.

Equally important, this would also improve the value of the collateral held by creditor

Banks, against loan obtained by the ICC and affiliates;

b) Conversion into equity of the advances from individual stockholders and affiliates to ensure

that funds available for debt servicing are paid to creditor Banks;

c) Capital infusion of P20 million to PCIC subsidiaries to be used to repair and recondition

manufacturing equipments and machinery, for start-up costs, for working capital

requirements to purchase resin and other materials;

d) Debt restructuring of the outstanding loans with creditor banks as follows:

i) Proportionate recognition by PCIC subsidiaries of the outstanding loan principal with

forty-five percent (45%) thereof to be recognized by PPC; twenty percent (20%)

thereof to be recognized by ICC; and thirty-five percent (35%) thereof to be recognized

by the KCC;

ii) Waiver of penalty and a portion of interest;

iii) Grace period of two (2) years on principal payments on restructured loans;

iv) Fifty percent (50%) of the recognized principal to be paid in twelve (12) equal

quarterly payments starting March 2013 up to December 2015, with the remaining 50%

to be paid as a balloon payment by December 2015; and

v) Interest at five percent (5%) per annum on the restructured loan for the duration of the

rehabilitation plan payable quarterly in arrears for twenty (20) quarters, starting March

2011 up to December 2015, based on declining restructured principal balance.

PCIC subsidiaries have appointed persons, who possess all the qualifications and have no

conflict of interest for the position of Rehabilitation Receiver in order to successfully

implement the Rehabilitation Plan. As of December 31, 2011, the petition for rehabilitation filed before the Regional Trial Court of Valenzuela City is pending for approval. The eventual outcome of these matters cannot be determined at this time.

Item 4. Submission of Matters to a Vote of Security Holders There were no matters submitted to a vote of security holders during the fourth quarter of the fiscal year covered.

PART II. OPERATIONAL AND FINANCIAL INFORMATION

Item 5. Market for Issuer’s Common Equity and Related Stockholder Matters

(1) Market Information

a ) The principal market of Wellex Industries Inc. common equity is the Philippine Stock Exchange, Inc.

(PSE) where it was listed in 1958. Here are list of the high and low sales price by quarter for the last 3 years

are as follows :

“ CLASS A “

High Low

2011

First Quarter 0.090 0.060 Second Quarter 0.610 0.560

Third Quarter 0.100 0.094

Fourth Quarter 0.290 0.088

2010

First Quarter 0.123 0.123

Second Quarter 0.091 0.091



2009

First Quarter 0.140 0.140

Second Quarter 0.130 0.120



The price information as of December 31, 2010 (latest practical trading date) was closed at

P0.088 for Class A and there are 1,041 holders.

(2) Holders

a) As of December 31, 2011 here are 3,271,926,700 outstanding common shares and 1,041

stockholders.

WELLEX INDUSTRIES INCORPORATED AND SUBSIDIARIES

LIST OF TOP 20 STOCKHOLDERS OF RECORD

December 31, 2011

STOCKHOLDER'S NAME NATIONALITY SUBSCRIBED PERCENTAGE TO

TOTAL OUTSTANDING

WILLIAM T. GATCHALIAN FILIPINO

835,000,100.00 25.520

PCD NOMINEE CORP. FILIPINO

775,402,946.00 23.699

DEE HUA T. GATCHALIAN FILIPINO

492,962,532.00 15.066

SHERWIM T. GATCHALIAN FILIPINO

317,750,100.00 9.711

SHINJI KOBAYASHI FILIPINO

210,650,000.00 6.438

PACIFIC REHOUSE CORPORATION FILIPINO

150,000,000.00 4.584

ELVIRA A. TING FILIPINO

111,850,000.00 3.418

KENNETH T. GATCHALIAN FILIPINO

100,000,100.00 3.056

THE WELLEX GROUP, INC. FILIPINO

80,000,000.00 2.445

RECOVERY DEVELOPMENT CORPORATION FILIPINO

52,335,090.00 1.600

PCD NOMINEE CORP. (NON-FILIPINO) OTHERS

51,939,600.00 1.587

ORIENT PACIIFC CORPORATION FILIPINO

36,340,000.00 1.111

LUCIO W. YAN &/OR CLARA Y. YAN FILIPINO

26,738,000.00 0.817

LI CHIH-HUI FILIPINO

13,500,000.00 0.413

WELLEX GLOBAL EQUITIES, INC. FILIPINO

4,050,000.00 0.124

INTERNATIONAL POLYMER CORP. FILIPINO

2,700,000.00 0.083

RODOLFO S. ETRELLADO FILIPINO

750,000.00 0.023

PROBITY SEC. MGT. CORP. FILIPINO

463,200.00 0.014

ROSENDO LIM CHINESE

450,000.00 0.014

REGINA CAPITAL DEVELOPMENT CORPORATION FILIPINO

300,000.00 0.009

(3) Dividends

(a) The company's Articles of Incorporation states that dividends may be declared only out of

the unrestricted retained earnings. The Company has declared no cash dividends on its common shares

for the last 6 calendar years. The Company's financial statements as of December 31, 2011 reflect

negative retained earnings. Thus, unless the Company's retained earnings position changes, the

directors will not be able to legally declare any dividends on its common shares.

Wellex Industries Inc. has no restrictions that limit the ability to pay dividends on common equity.

(4) Recent Sales of Unregistered or Exempt Securities

There are no recent sales of unregistered or exempt securities.

Item 6. Management’s Discussion and Analysis or Plan Operation

1. Plan of Operation

Since the Company ceased its manufacturing operations due to, among others, high production

costs and stiff competition, the focus of its operations was shifted to leasing its warehouse facilities.

The Company reorganized its operations by leasing out its vacant facilities to interested operators.

Likewise, the Company continuously exerts efforts to maintain its machineries and equipment with a

view of inviting foreign partners with modern technologies to revive the plastic manufacturing business

and to be able to compete in local market.

In 2007 and prior years, the Company’s business of mining and oil exploration became

secondary to real estate and energy development.

On January 28, 2008, the BOD approved the amendment of the Company’s primary purpose

from a holding company to a company engaged in the business of mining and oil exploration.

The purpose of the amendment of the primary purpose was essentially to enable the Company

to ride the crest of a resurgent mining industry including oil exploration of the country’s offshore oil

fields. The Company‘s strategy is to identify mining properties with proven mineral deposits

particularly nickel, chromite, gold and copper covered by MPSAs and to negotiate for either a buyout

or enter into a joint venture arrangement. For its oil and mineral exploration activities, the Company has

identified and conducted initial discussions with potential investors.

However, the continuing global financial crises dampened the metal and oil prices that

adversely affected the investment environment of mining and oil and mineral exploration industry of

the country.

Projected Plan of Operation for the next 12 months:

a.) Based on current operation, the Company’s cash requirements can be generated

internally from continues sales of plastic products inventories and leased rental.

However, should there be substantial deviation from the Company’s commercial

activities there might be a need to raise funds by way of advances from shareholders or

officers.

b.) With the increasing demand for the warehousing facilities and considering the strategic

location of the Group warehouse facilities for northbound product distribution such as

Central and North Luzon are, management continuously improve and maintain its

facilities in order to have it readily available for lease on short or long term basis

c.) The Group is currently pursuing with potential local investors’ interest in

manufacturing PVC pipes and related Pholyetheline Etheline (PE) products and is

exploring the possibility of a joint venture (JV) undertaking where in the group will

contribute its machineries and equipment and manufacturing technology while its

prospective JV partners will provide the working capital and handle the marketing and

distribution channels. The Group is expecting to complete the negotiation with

potential investors in the following year.

d.) The Group is also considering the development of new product lines in the near future

once the economy improves. And we do not expect significant changes in the number

of employees, if we need manpower we will outsource.

2. Management’s Discussion and Analysis

a) Key Performance Indicators

The Company and its subsidiaries determine their performance on the following five (5) key

performance indicators.

1. Revenue Growth – the company gauge its performances by determining the increase or

decrease of average Rental Income generated per tenant for the year.

2. Receivables- the company assesses in collecting receivables and in management of

credit by determining the past due ration done thru the aging receivables. The company

considers receivables over 60 days as past due. This is derived by dividing past due

receivables by the total outstanding receivable.

3. Gross Profit Margin- this is derived by dividing the gross profit over the revenues

amount.

4. Working Capital- to meet the obligations of the company, it is measured by

determining current assets over current obligations.

5. Advances by the Affiliates- this is to determine, how much the obligations of the

company of which are, the affiliated companies are the responsible in paying that

liabilities.

Indicator 2011 2010

Revenue 10% 8%

Receivables (Past Due Ratio) 95% 99%

Gross Profit Rate 46% 51%

Working Capital 14% 14%

Advances Ratio 0% 5%

For the year 2011, all working capital requirements came from the rental income generated by the

subsidiaries.

Financial Highlights

The following table shows the comparative operating data and financial statements of the Company for

the years ending December 31, 2011 and 2010.

As of December 31 ( Amts.in '000)

2011 2010

Income Statement

Rental Income P 18,732 P 15,332

Less : Total Expenses 19,553 20,230

Income (Loss) from Continuing Operations ( 821) (4,898)

Loss from Discontinued Operations (26,991) (36,679)

Net Loss for the Year (27,812) ( 41,577)

Earnings / (Loss ) Per Share

(0.0090)

(0.0127)

Balance Sheet

Current Assets 12,900 12,712

Investments in shares of stock 0 0

Investment properties 1,039,406 1,043,142

Investments in a joint venture 543,509 543,508

Plant, property and equipment 197,369 216,560

Advances to affiliates 128,268 130,857

Other assets 181 181

Total Assets 1,921,633 1,946,960

Current liabilities 94,022 89,720

Non-current liabilities 445,001 446,818

Stockholder's equity 1,382,610 1,410,422

Total Liabilities & Equity 1,921,633 1,946,960

CHANGES IN RESULTS OF OPERATION

Revenues and Earnings per share

Total revenues for the year 2011 and 2010 are as follows P18.732M and P 15.332M. The

reason was since Plastic City Industrial Corporation ceased its operation in 2002, the

Company’s focus is on its marketing strategy is to lease out its warehouse facilities. The lease

term ranges from three (3) months to three (3) years and is renewable under such terns and

conditions as the parties may agree, provided that at least ninety (90) days prior to the

expiration of the lease period, the lessee shall inform the lessor in writing of his desire to renew

the lease.

Earnings per share comparisons from year 2011 and 2010 as follows: -P0.0090 and -P0.0127

respectively.

Cost and Expenses

Total expenses as reflected on the table consist of direct cost, operating expenses and finance

cost net of other income for each year.

Direct cost consisted primarily of Depreciation, Security Services, Repairs and Maintenance,

Property Taxes and Insurance. Direct cost for 2011 increased by 36% as compared to last year

due to various repairs made and property taxes paid.

Operating expenses for 2011 increased by 20%.

Finance cost for 2011 decreased by 50% due to decreased on current market interest rate

charged on borrowings.

See notes to the financial statements.

CHANGES IN FINANCIAL CONDITION

Current Assets:

Receivables

This account consists of trade receivable from customers of Plastic City Industrial Corporation

subsidiaries and related parties. This year, the trade receivable account decreased by 65% due

to collections from the lessees. The Group Receivables came mostly from Concept Moulding

Corporation and Genwire Manufacturing Corporation. See attached Notes to Financial

Statements.

Prepaid expenses and other current assets

This account increased by P1.057M this year or 23%, Majority on this account came from

Prepaid taxes account amounted to 5.3M. Breakdown of this account was illustrated to the

notes to the Financial Statements.

Noncurrent Assets:

Advances to Affiliates

This account consists of advances made by the company to finance the working capital

requirements of its subsidiaries.

The recorded balance as of December 31, 2011 and 2010 amounted to P128.268 million and

P130.857 million, respectively.

Investment Properties

This account consists of land and buildings and improvements held primarily to earn rentals

and for capital appreciation and future development. The land and buildings and improvements

were situated in Valenzuela, Metro Manila and Montalban, Rizal are carried as revalued

amounts as determined by an independent firm of appraisers.

A decreased by 9% in the amount of the Properties is due to depreciation of property. See

notes to the Financial Statements.

Investments in a Joint Venture

This account consists of parcels of land contributed to a joint venture through a Joint Venture

Agreement entered into in 1997 between PCIC subsidiaries (Inland Container Corporation,

Rexlon Industrial Corporation and Kennex Container Corporation) with Philippine Estates

Corporation (PEC) as Developer and PCIC subsidiaries and other affiliates as co-landowners.

An amount of P543.5M for 2011 and P543.5M for 2010 were recorded.

Property, Plant and Equipment

This consists mainly of land, buildings and various equipments of PCIC subsidiaries and

Philfoods used for the manufacture of plastic products and food processing.

Depreciation and amortization are computed using the straight –line method over the estimated

lives of the assets. See notes to financial statement.

The decrease is due to the depreciation provision during the year. At present, property, plant

and equipment are not subject to any liens or encumbrances.

Total depreciation on appraisal amounted to P8.702M, P20.239M and P18.589M in 2011, 2010

and 2009 respectively.

On April 8 2009, the PCIC subsidiaries’ Buildings and Machinery & Equipments were

revalued by an independent firm of appraisers.

Other Assets

This consists mainly of Refundable Deposits. An amount of P0.181M was recorded in year

2011 and 2010.

Current Liabilities:

Notes Payable

This consists of term loan from Equitable PCIB and PNB. In comparison of year 2011 and

2010, the account decreased by 8.44%. Under the restructuring agreement entered with the

bank in 2004, the loan shall be payable from June 01, 2004 to June of 2007with interest of

10.5% p.a. for the first year of the restructuring period

The total finance cost charged to operations amounted to P 3.79M in 2011 and P7.65M in 2010.

See notes to Financial Statement.

Accounts Payable

This account consists of trade payables and an affiliate, International Polymer Corporation.

The amount recorded in year 2011 and 2010 are as follows P 37 millions and P 36.7 millions,

respectively. See Notes to Financial Statements.

Advances from Affiliates and Stockholders

This represents non-interest bearing cash advances extended by the Affiliates and Stockholders

to the Company and Subsidiaries for working capital requirements.

The decreased by 0.32% were recorded in 2011 due to the offsetting of advances to and from

Plastic City Corporation.

(i) Summary of Material Trends, Events and Uncertainties

Philfoods Incorporated

Philfoods started commercial operation in 2000, suspended it in 2002. Management is looking for

possible partners to operate its facilities. The equity method of accounting for this investment was

discontinued, its losses having exceeded the cost of investment. In 2003, Philfoods also reviewed

the recoverability of its property, plant and equipment and recognized in its statement of operations,

an impairment loss amounting to P 13.9M; which was included in the consolidated accumulated

impairment loss of P136.5M.

Plastic City Industrial Corporation and its Subsidiaries

PCIC and its subsidiaries have CEASED operations but have leased out their warehouse facilities.

The intention of the Group is to continue its operations by focusing on “injection moulding” due to

its very encouraging prospect and which was shown to have a high viability rating that will

contribute highly towards the Group’s maximum operations and financial position. Management is

continuously in search of reliable joint venture partners who have means to continue its operations.

On October 28, 2010, PCIC subsidiaries (namely ICC, PPC and KCC) with certain affiliates jointly

filed a petition for corporate rehabilitation in order to revive its manufacturing operations. Details

of the rehabilitation were fully disclosed in the notes to financial statement.

(ii) Events that will Trigger Direct of Contingent Financial Obligation

Since the Plastic City Industrial Corporation and Philfoods Incorporated CEASED in commercial

operation there are no events that will trigger direct of contingent financial obligation that is

material to Wellex Industries Inc. including any default or acceleration of an obligation.

(Please see the notes in Audited Consolidated Financial Statements.)

(iii) Material Off-Balance Sheet Transactions, Arrangements, Obligations

There are no material off-balance sheet transactions, arrangements, obligations (including

contingent obligations), and other relationships of Wellex Industries Inc. with unconsolidated

entities or other persons created during the reporting period. The present activity of the company is

focused on reorganizing its operations in preparation for its new businesses.

(iv) Commitment For Capital Expenditures


operation there are no commitment on major capital expenditures.

(v) Any Known Trends, Events of Uncertainties (Material Impact on Net Sales / Net Income)


operation and is disposed to lease out its warehouse facilities.

Rental Income recorded for the year 2011 compared to 2010 was increased by 22% due increase in

the number of tenants in the warehouses of Plastic City compound. As of December 31, 2011 there

are 31 lessees occupying the warehouses, shipyards, open spaces and extensions inside the Plastic

City premises as compared to 26 lessees for 2010.

(vi) Significant Element of Income or Loss That Did Not Arise From Continuing Operation

Philfoods Asia, Inc., ceased its operations in 2002. PCIC and subsidiaries ceased manufacturing

operations in 2001 and prior years and leased out their warehouse/ building facilities. The intention

of the Company is to continue its operation by focusing on activities such as “injection molding due

to their very encouraging prospects and which have shown to have a high viability rating that will

contribute highly towards the Company’s maximum operation and financial position.

But the company is now more focus on leasing its warehouses.

The results of operations for the years ended December 31, 2011 and 2010 are as follows:

2011 2010

Rental Income P 18,732,086 P 15,332,556

Direct Cost and Expenses 10,159,032 7,485,886

Gross Profit 8,573,054 7,846,670

Operating Expenses 5,957,253 4,977,096

Income from Operations 2,615,801 2,869,574

Other Income (expenses) 534,715 75,701

3,150,516 2,945,275

Finance Cost (3,789,270) ( 7,654,397)

Income (Loss) Before Tax ( 638,754) ( 4,709,122)

Income Tax Expense

Current ( 182,010) ( 189,116)

Deferred - -

Income (Loss) from Continuing Operation ( 820,764) (4,898,238)

Discontinued Operations

Loss from Discontinued Operations (26,991,640) (36,679,662)

Net Loss for the Year (P 27,812,404) (P 41,577,900)

See notes to financial statements.

(vii) Material Changes on Line Items in Financial Statements

Here as some analyses as follows:

Income Statement: 2011 2010 Difference %

Rental Income P18,732,086 P15,332,556 P 3,399,530 22 %

- As of December 31, 2011 there are 31 occupants in PCIC premises. The contract terms are

renewable.

Total Operating Exp P 5,957,253 P 4,977,096 P 980,157 20%

- Repair & Maintenance, Security, Taxes & Licenses and Depreciation are the major accounts.

Loss fr. Discontinued Operations P26,991,640 P36,679,662 P-9,688,022 -26%

- Mainly of this account were from the revaluation of real estate properties by an independent

firm of appraisers. Fair value is determined by the reference to market based evidence.

Balance Sheet: 2011 2010 Difference %

Advances to Affiliates P128,268,188 P130,857,005 P-2,588,817 -2%

- A non-bearing interest cash advances extended by the Affiliate to the company for their

working capital requirements. And on December 15, 2007 the management agreed to enter the deed

of assignments between the parent company and its subsidiaries with affiliates. There are an

agreement happened in 2008 for the Deed of Assignments from different subsidiaries and affiliates.

Receivables P1,844,207 P 5,282,727 P-3,438,520 -65%

- Mainly of the PCIC collections came from the Joint Ventures account (KCC, RIC , ICC) and

the group receivables from TWGI, CMC, GMC and Polygem Enterprises were assigned to other

affiliated companies for the settlement of PCIC subsidiaries payable to affiliated companies

Investment Properties P1,039,406,307 P 1,043,141,548 P-3,735,241 -0.36%

- A decreased by 8 was recorded for the year 2008 due to the revaluation of Land located in

Pasig City and the Buildings & Improvements located in Valenzuela City conducted last year 2008

by an independent firm of appraisers. Fair Value is determined by reference to market based

evidence.

- See attached Notes to Financial Statements

Investments in a Joint Ventures P 543,508,507 P 543,508,507 0.00 0%

- July of 1997 the PCIC subsidiaries entered into a joint venture with the Philippine Estate

Corporation, as the developer and the PCIC subsidiaries and other affiliates as co-landowners.There

was no disposal of investment in joint venture assets in 2007 and 2006.

- April of 2009, an independent firm of appraiser conducts to update / revalue the properties the

record of various companies.

Property Plant & Equipment P197,368,653 P216,560,104 P-19,191,451 -9%

-PCIC subsidiaries’ buildings and machinery and equipment were revalued on April 8, 2009 by

an independent firm of appraisers. The valuation was determined by reference to market

transactions on arms’ length terms using cost and market data or direct sales comparison approach.

The revaluation of buildings and machinery and equipment resulted to recovery of previously

recognized impairment loss of P33,659,547 (see note 12 of the financial statement).

- Depreciation on appraisal increase amounted to P8,702,803, P20,239,857 and P18,589,687 in

2011, 2010 and 2009, respectively.

Advances fr Affiliates & S’holders P440,605,635 P442,000,292 P1,394,657

- On December 16, 2008 and December 29, 2009 between the parent company and its

subsidiaries with affiliates entered into the deed of assignment.

- Year of 2006, the PCIC and it’s subsidiaries entered in to a various deed of assignments of

receivables from and payables to various affiliates. The assignment of inter-company receivables/

payables and advances to/from affiliates was in line with the plan of integrating the Group inter-

company account balances to facilitate the preparation of inter-company reconciliation, billing and

collection and payment processes among the group.

Current Ratio: Current Assets / Current Liabilities = 14%

Material changes on line items in financial statements are presented under the captions

‘Changes in Financial Condition” and ‘Changes in Operating Results”

Please Refer to the Attached Notes to Financial Statements.

(viii) Effect of Seasonal Changes in the Financial Condition or Results of Operations

The financial condition or results of operations is not affected by any seasonal change.

Item 7. Financial Statements

The consolidated Financial Statements and related Notes to Financial Statements of the

Company are incorporated herein by reference and attached as an integral part of this Annual Report.

Item 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Information on Independent Accountant and other Related Matters

(1) External Audit Fees and Services

(a) Audit and related fees for Wellex Industries Incorporated is P 846,500 in 2011 and P775,000 in

2010 for expressing an opinion on the financial statements and assistance in preparing the

annual income tax return. Any deficiencies in internal control and detected misstatements and

fraudulent or illegal acts are other information given to the attention of the management.

(b) Tax fees – See notes to financial statements.

(c) Other fees – See notes to financial statements.

(d) Audit committee’s approval policies and procedures for the above services – the committee will

evaluate the proposals from known external audit firms. The review will focus on quality of

service, commitment to deadline and fees as a whole, and no one factor should necessarily be

determinable.

(2) Changes and disagreements with Accountants on Accounting and Financial Disclosure

No independent accountant who was previously engaged as the principal accountant to

audit Wellex Industries Inc. Financial Statements, on an independent accountant on whom the

principal accountant expressed reliance in its report regarding a significant subsidiary, has

resigned (or indicated it has declined to stand for re-election after the completion of the current

audit) or was dismissed in the two most recent fiscal years or any subsequent interim period.

Furthermore, there was no disagreement with the former accountant on any matter of

accounting principles or practices, financial statement disclosures, or auditing scope or

procedure.

PART III – CONTROL AND COMPENSATION INFORMATION

Item 9. Directors and Executive Officers of the Issuer

(1) Directors, including Independent Directors and Executive Officers

There are twelve (12) members of the board, three (3) of whom are independent directors.

The Directors of the Company are elected at the annual stockholders’ meeting to hold office until the

succeeding annual meeting and until they’re successors have been elected and qualified.

Officers are appointed or elected annually by the Board of Directors at its first meeting following the

Annual Meeting of Stockholders, each to hold office until the corresponding meeting of the Board of

Directors in the next year or until a successor shall have been elected, appointed or shall have qualified.

The directors and executive officers of the Company are as follows:

Name

Position Age Position in other listed

Companies

1. Rogelio D. Garcia Chairman 72

Director, Metropolitan

Holdings & Equities

Corp.

2. Weslie T. Gatchalian President / CEO 32 Dir. – Forum Pacific, Inc.

3. Elvira A.Ting Vice – President 52

Director – Forum Pacific

Inc.; Waterfront Phils.,

Inc.; Phil. Estates Corp.

4. Atty. Miguel B. Varela Director

( Independent ) 70

Director - Manila Bulletin

Publishing Corp.;

Megaworld Corp.;

Chairman - Transunion

Corporation

5. Kenneth T. Gatchalian Treasurer/Director 36

Dir. – Forum Pacific, Inc.

& Waterfront Phils. Inc

6. William T. Gatchalian Director 62

Chairman-Wellex

Petroleum, Inc.; Director

–Waterfront Phil. Inc.;

Phil. Estates Corp.

7. Abelardo G. Palad Jr. Director

( Independent ) 68

President/CEO – Palm

Core Realty & Dev.’t,

Inc.; Northern Plains

Agro-Industrial Corp.;

Independent Director –

Luisita Golf & Country

Club, Inc.

8. Byoung Hyun Suh Director

( Independent )

55

President – Pan Isalnds,

Inc.; Three Seven Foods

& Products, Inc.; Golden

Shin Jan Farm; Overseas

Korean Traders

Associations.

9. Atty. Lamberto A. Mercado Jr. Director

48

Dir. – Forum Pacific, Inc

10. Omar Guinomla Director 39

Chairman/President –

Recovery Real Estate

Corp.

11. Ricky L. Ricardo Director 48

VP, Corp. Affairs –

Acesite (Phils.) Hotel

Corp.; Director – Mayo

Bonanza,

12. Atty. Mariel L. Francisco Corporate Sec.

Rogelio D. Garcia : Chairman

Mr. Roger Garcia, Filipino, the Chairman of the company. Mr. Garcia is 72 years old and earned his

AB and Bachelor of Laws from the University of the Philippines. He earned his MBA Senior Executive

Program from Ateneo de Manila University. He is currently Director of the Metropolitan Alliance

Holdings & Equities Corporation, Director of Express Bank and Executive Consultant to the Perpetual

System Group of Companies.

Weslie T. Gatchalian : President / CEO

Mr. Weslie T. Gatchalian, Filipino, an elected President of the company last January of 2008. He is the

current Assistant Vice-President of Metro Alliance Holdings and Equities Corp., the Managing Director

of The Wellex Group. Also, he is the Director of Forum Pacific Inc., Director of Mabuhay Vinyl

Corporation, Director of NPC Alliance Corporation. He is 30 years of age and holds a Bachelor Degree

in Business and Operation Management in Oxford Brookes University, U.K. and a Masters Degree in

Management in London Metropolitan University, U.K.

Elvira A. Ting : Vice President

Ms. Elvira A. Ting, Filipino, the Director/Vice-President of the company. She is the President & CEO

of Philippine Estates Corporation; Chairperson/Director of Express Savings Bank; Treasurer of

Palawan Estates Corporation; Director/Treasurer of Forum Pacific, Inc.; Director/Treasurer of

Waterfront Phils.,Inc. She’s been a director/president of Wellex Industries, Inc. since February 2001.

She is 50 years old and earned her Bachelors Degree in Business Administration major in Management

from the Philippine School of Business Administration.

Kenneth T. Gatchalian : Director / Treasurer

Mr. Kenneth T. Gatchalian is a Director of the company. He is the current Executive Vice President –

Chief Operating Officer of Phil. Estates Corp. He is also a current member of the Board of Forum

Pacific, Inc. and Waterfront Phil., Inc. He is 32 years old and holds a Degree in Bachelor of Science in

Architecture from University of Texas in San Antonio, Texas, USA.

William Gatchalian : Director

Mr. Gatchalian is concurrently, the Chairman and President of The Wellex Group Inc., Fiipino, a

diversified company, which is one of the biggest conglomerate of consumer and industrial plastic

products in Southeast Asia and which is also engaged or has interest in agriculture, aquaculture, real

estate, property development and construction, aviation, banking, hotels, and securities. He is also the

Vice-Chairman of Forum Pacific Inc. and Director of Philippine Estate Corporation. He is 60 years old

and holds a degree of Bachelor of Science in Business Management from the University of the East.

Atty. Miguel A. Varela : Independent Director

Atty. Varela, Filipino 68 years of age, graduated of Liberal Arts in San Beda College and Bachelor of

Law in Ateneo de Manila University. An Independent Director elected last January of 2008. Currently

the Chairman of the Board of the Philippine Chamber of Commerce and Employers Confederation of

the Philippines. He is also the President of Mega World Corporation and Director of Manila Bulletin.

Abelardo G. Palad Jr.: Independent Director

Mr. Abelardo Palad, Filipino, he is the Adviser to Tarlac Governor on the development plans and

programs of the province, to Tarlac City Mayor on Lands Management, and currently adviser of

Paulino M. Ejercito & Associates Law Office. Mr. Palad is 68 years old and a Geodetic Engineer by

profession. He worked as a general consultant of the following corporations and organizations: Jose

Cojuangco & Sons Organizations, Filinvest Development Corporation, Bases Convention Development

Authority and the First Philippine Holdings

Byoung Hyun Suh : Independent Director

Mr. Byoung is the current President of Pan Islands Inc., President of Three Seven Foods & Products

Inc. and Golden Jin Shan Farm since 1995, President since 2004 of the Overseas Korean Traders

Associations. Worked as a President of KIA Inter-trade Asia Regional Office from 1995 to 1997. Also

he worked as a Resident Manager in Samsung Corporation Philippines from 1988 to 1995 and in

Samsung Corp., Seoul Korea as a Manager in Chemical Division. Mr. Byoung is a Korean national. He

is 53 years old and has a Bachelors Degree in Business Administration from Korea University in Seoul,

Korea

Atty. Lamberto A. Mercado Jr.: Director

Mr. Mercado, Filipino, the Vice-President for Legal of the Wellex Group, Inc. He was elected one of

the Directors of the Company. Director of Forum Pacific Inc. and Water Front Phils., Inc. He is 48

years old, graduated in Ateneo de Manila University, School of Law and a member of the Board of

Trustees of Ateneo Law Alumni Foundation, Inc. Atty. Mercado is a Certified Public Accountant. Prior

to his post in Wellex Group, he was connected with the Subic Bay Metropolitan Authority (SBMA).

From November 1993 to July 1997, he was the chief of staff of SBMA. He also served as president of

the Freeport Service Corporation in SBMA between August 1996 to January 1998. He was appointed

Deputy Administrator for administration in February 1997, a post he held until August 1998.

Omar Guinomla: Director

Mr. Guinomla, Filipino, is the current Chairman and President of Recovery Real Estate Corp and Vice

President of Pacific Rehouse Corporation. He is the assistant corporate secretary of Orient Pacific

Corporation and Recovery Development Corporation. He is 39 years old.

Ricky L. Ricardo: Director

Mr. Ricardo is 48 years old and has been Corporate Affairs Officer of Waterfront Philippines, Inc. since

August 25, 2007. Mr. Ricardo serves as Vice President for Corporate Affairs of Acesite (Phils.) Hotel

Corporation. He also served as Compliance Officer of Waterfront Philippines, Inc. and Acesite (Phils.)

Hotel Corporation. He obtained his Bachelor’s Degree in Management Economics from Ateneo de

Manila University.

Atty. Mariel L. Francisco : Corporate Secretary

She is the incumbent Corporate Secretary of Wellex Industries Inc., Filipino and connected with

Corporate Counsels Philippines since 2010, with an office address at Unit 3104, 34/F Antel Global

Corporate Center, # 3 Doña Julia Vargas Avenue, Ortigas Center, Pasig City.

2) Significant Employees

There are no other employees other than the officers mentioned in the preceding subsection

who are expected to make significant contribution to the business.

(3) Family Relationships

Except to the sons of Mr. William T. Gatchalian; Mr. Kenneth T. Gatchalian and Weslie T

Gatchalian and Ms. Elvira A.Ting who is a sister in law, there are no family relationships among the

officers listed.

(4)Involvement in Certain Legal Proceedings None of the directors and executive officers was involved in certain legal proceedings during

the past five (5) years. Neither have they been convicted by final judgment in any criminal proceedings,

or been subject to any order, judgment or decree of competent jurisdiction, permanently or temporarily

enjoining, barring, suspending, or otherwise limiting their involvement in any type of business,

securities, commodities or banking activities, nor found in an action by any court or administrative

bodies to have violated a securities and commodities law.

Registrant is not aware of any legal proceedings to which the registrant or any of its

subsidiaries or affiliates is a party or which any of their property is the subject.

Item 10. Executive Compensation

1) Summary of Compensation Table – Annual Compensation

Name and Principal Position Year Salary Bonus Other

Compensation

Mr. Rogelio D. Garcia 2011 - -

10,000.00

Chairman 2010 - - -

2009 - - -

Mr. Weslie T. Gatchalian 2011 - - -

President/CEO 2010 - - -

2009 - - -

Ms. Elvira A. Ting 2011 - - -

Vice President 2010 - - -

2009 - - -

Mr. Kenneth T. Gatchalian 2011 - - -

Treasurer 2010 - - -

2009 - - -

Other Directors 2011 - -

10,000.00

2010 - - -

2009 - -

40,000.00

All Directors & Officers as a 2011 - -

20,000.00

Group Unnamed 2010 - - -

2009 - -

40,000.00

(2) Compensation of Directors

Except for a nominal amount of per diem during attendance in special meetings, there are no

standard arrangements with regard to election, any bonus, profit sharing, pension/retirement plan,

granting of any option, warrant or right to purchase any securities. There are no other arrangements

or consulting contracts or other form of services with directors.

(3) Employment Contracts and Termination of Employment and Change–in-Control

Arrangements

There is no employment contract and termination of employees and change-in-control

arrangement with directors and executive officers.

(4) Warrants and Options Outstanding: Repricing

There are no warrants and options outstanding held by Wellex Industries Inc.’s CEO, executive

officers and all officers and directors as a group. There is no repricing made.

Item 11. Security Ownership of Certain Record and Beneficial Owners and Management

(1) Security Ownership of Certain Record and Beneficial Owners

As of December31, 2011, Wellex Industries, Inc., knows no one who beneficially owns in

excess of 5% of Wellex Industries, Inc. common stock except as set forth in the table below:

Title of Name, Address of Record Name of Benificial Owner & Citizenship No. of Percent

Class Owner & Relationship w/ Issuer Relationship w/ Record Owner Shares

Common William T. Gatchalian William T. Gatchalian Filipino 835,000,100 25.520

35/F One Corporate Center, Doña

Julia Vargas Ave. corner Meralco

Ave., Ortigas Center, Pasig City

Director/Stockholder

Common PCD Nomenee Corp. No record or beneficial owner Filipino 775,402,946 23.699

37/F Tower 1, The Enterprise Center, Owns more than 5% of the issued

6766 Ayala Ave., corner Paseo De and outstanding shares

Roxas, Makati City

Stockholders

Common Dee Hua T. Gatchalian Dee Hua T. Gatchalian Filipino 492,962,532 15.066


Julia Vargas corner Meralco Ave.,

Ortigas Center, Pasig City

Stockholder

Common Sherwin T. Gatchalian Sherwin T. Gatchalian Filipino 317,750,100 9.711


Julia Vargas corner Meralco Ave.,

Ortigas Center, Pasig City

Stockholder

Common Shinji Kobayashi Shinji Kobayashi Filipino 210,650,000 6.438

c/o TWGI 35/F One Corporate

Center, Doña Julia Vargas Ave. cor.

Meralco Ave., Ortigas Center, Pasig

Stockholder

(1) Security Ownership of Management

As of December 31, 2011 the security ownership of individual directors, executive officers and

nominees of Wellex Industries Inc. is as follows:

Title of Name of Beneficial Amount & Nature of Citizenship Percent

Class Owner Beneficial Ownership of Class

Common - Class A William T. Gatchalian 835,000,100 – Direct Filipino 25.520 %

Common - Class A Elvira A. Ting 111,850,000 – Direct Filipino 3.418 %

Common - Class A Kenneth T. Gatchalian 100,000,100 – Direct Filipino 3.056 %

Common - Class A Weslie T. Gatchalian 4,000 – Direct Filipino .000 %

Common - Class A Miguel B. Varela 10,000 – Direct Filipino .000 %

Common - Class A Lamberto B. Mercado 200 – Direct Filipino .000 %

Common - Class A Rogelio D. Garcia 200 – Direct Filipino .000 %

Common - Class A Abelardo Palad 100 – Direct Filipino .000 %

Common - Class A Byoung H.Suh 100 – Direct Korean .000 %

Common – Class A Omar Guinomla 100,000 – Direct Filipino .003%

Common – Class A Ricky Ricardo 460,000 – Direct Filipino .014%

Total 1,047,424,800 32.011%

(3) Voting Trust Holders of 5% or More

There are no voting trust holders of 5% or more.

(4) Changes in Control

There is no change in control of Wellex Industries and there is no arrangement, which may

result in change control.

Item 12. Certain Relationships and Related Transactions Since the Plastic City Industrial Corporation and Philfoods, Inc. ceased their operations last

2002.There is no other material contract to which the registrant or any of its affiliates is a party.

Part IV – CORPORATE GOVERNANCE

Item 13. Corporate Governance

1. Company’s Compliance Officers is mandated to monitor the compliance to all

concerned the provisions and requirements of the Manual on Corporate Governance,

facilitate the monitoring. The Compliance Officer has established the “Corporate

Governance Monitoring and Assessment” to measure or determine the level of

compliance of the Corporation with the Amended Manual on Corporate Governance

(Manual).

2. Wellex Industries believes that its Amended Manual on Corporate Governance is in

line with the leading practices and principles on good governance, and as such, is in

full compliance.

3. There were minor deviations from the Corporation’s Manual during the period January

to December 2008 due mainly to recent changes and business development plans.

4. Wellex Industries Inc. will improve its Amended Manual on Corporate Governance

when appropriate and warranted, in the Board of Directors’ best judgment. In addition,

it will be improved when regulatory agency such as the SEC requires the inclusion of a

specific provision.

Part V – EXHIBITS AND SCHEDULES

Item 14. Exhibits and Reports on SEC Form 17-C

(a) Exhibits

Consolidated Financial Statements

Statement of Management’s Responsibility for Financial Statements

Report of Independent Public Accountants

Consolidated Balance Sheets as of December 31, 2011 and 2010

Consolidated Statements of Income for each of the three years

ended December 31, 2011, 2010 and 2009

Statements of Changes in Equity for each of the three years ended

December 31, 2011, 2010 and 2009

Consolidated Statements of Cash Flows for each the three years ended

December 31, 2011, 2010 and 2009

Notes to Consolidated Financial Statements

Supplementary Schedules

Report of Independent Public Accountants on Supplementary

Schedules

A. Marketable Securities

B. Amounts Receivables from Directors, Officers, Employees,

Related Parties and Principal Stockholders (Other than Affiliates)

C. Non-current Marketable Equity Securities Other than

D. Indebtedness to Unconsolidated Subsidiaries and Related Parties

E. Intangible Assets – Other Assets

F. Long – Term Debt

G. Indebtedness to Related Parties

H. Guarantees of Securities of Other Issuers

I. Capital Stock

However, the continuing global financial crises dampened the metal and oil prices that adversely affected the investment environment of mining and oil and mineral exploration industry of the country. On October 28, 2010, PCIC subsidiaries (namely ICC, PPC and KCC) with certain affiliates

jointly filed a petition for corporate rehabilitation before the regional trial court of Valenzuela

City by authority of Section 1, Rule 4 of Rules and Procedures on Corporate Rehabilitation, in

order to revive PCIC subsidiaries manufacturing operations and bring them back to profitability

for the benefit of the creditors, employees and stockholders. As part of the rehabilitation plan,

the following actions will be undertaken:

e) Conversion of the PCIC subsidiaries industrial real estate into commercial and residential

zones to increase its value. This project will be undertaken in a joint venture with

Philippine Estate Corporation (PHES). This would have the effect of improving the

salability of the properties and of bringing in additional rental income for the petitioners.

Equally important, this would also improve the value of the collateral held by creditor

Banks, against loan obtained by the ICC and affiliates;

f) Conversion into equity of the advances from individual stockholders and affiliates to ensure

that funds available for debt servicing are paid to creditor Banks;

g) Capital infusion of P20 million to PCIC subsidiaries to be used to repair and recondition

manufacturing equipments and machinery, for start-up costs, for working capital

requirements to purchase resin and other materials;

h) Debt restructuring of the outstanding loans with creditor banks as follows:

vi) Proportionate recognition by PCIC subsidiaries of the outstanding loan principal with

forty-five percent (45%) thereof to be recognized by PPC; twenty percent (20%)

thereof to be recognized by ICC; and thirty-five percent (35%) thereof to be recognized

by the KCC;

vii) Waiver of penalty and a portion of interest;

viii) Grace period of two (2) years on principal payments on restructured loans;

ix) Fifty percent (50%) of the recognized principal to be paid in twelve (12) equal

quarterly payments starting March 2013 up to December 2015, with the remaining 50%

to be paid as a balloon payment by December 2015; and

x) Interest at five percent (5%) per annum on the restructured loan for the duration of the

rehabilitation plan payable quarterly in arrears for twenty (20) quarters, starting March

2011 up to December 2015, based on declining restructured principal balance.

PCIC subsidiaries have appointed persons, who possess all the qualifications and have no

conflict of interest for the position of Rehabilitation Receiver in order to successfully

implement the Rehabilitation Plan. As of December 31, 2011, the petition for rehabilitation filed before the Regional Trial Court of Valenzuela City is pending for approval. The eventual outcome of these matters cannot be determined at this time.

Consequently, the consolidated financial statements have been prepared assuming that the Group will continue as a going concern. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of the recorded assets or the recognition and classification of liabilities that might result from the outcome of this uncertainty.

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The more significant accounting policies and practices applied in the preparation of these consolidated financial statements are set forth to facilitate the understanding of data presented in these consolidated financial statements. The policies have been consistently applied to all the years presented, unless otherwise stated. Basis of Preparation and Presentation of Financial Statements The consolidated financial statements of the Group have been prepared in accordance with

Philippine Financial Reporting Standards (PFRS). The term PFRS in general includes all

applicable PFRS, Philippine Accounting Standards (PAS), interpretations of the Philippine

Interpretations Committee (PIC), Standing Interpretations Committee (SIC) and International

Financial Reporting Interpretations Committee (IFRIC) which have been approved by the

Financial Reporting Standards Council (FRSC) and adopted by the SEC. The consolidated financial statements have been prepared under the historical cost convention,

except otherwise stated. The preparation of consolidated financial statements in conformity with PFRS requires the

Group’s management to exercise its judgment in the process of applying accounting policies. It

also requires the use of certain critical accounting estimates. The areas involving a higher

degree of judgment or complexity, or areas where assumptions and estimates are significant to

the consolidated financial statements are disclosed in Note 3.

New Interpretations, Revisions and Amendments to PFRS

The following revised standard, amendments to existing standards and interpretations as

approved by the FRSC which are mandatory for annual periods beginning January 1, 2011:

PAS 24 (Revised), Related Party Disclosures (effective January 1, 2011). The revised

standard clarifies and simplifies the definition of a related party and removes the

requirement for government-related entities to disclose details of all transactions with the

government and other government-related entities. The Company has applied the revised

standard from January 1, 2011. The adoption did not have significant impact on the

consolidated financial statements as the Group has no government-related entities identified

as related parties.

PAS 32 (Amendment), Financial Instruments: Presentation - Classification of Rights Issues

(effective February 1, 2010). The amendment addresses the accounting for rights issues

that are denominated in a currency other than the functional currency of the issuer.

Provided certain conditions are met, such rights issues are now classified as equity

regardless of the currency in which the exercise price is denominated. Previously, these

issues had to be accounted for as derivative liabilities. The amendment applies

retrospectively in accordance with PAS 8, Accounting Policies, Changes in Accounting

Estimates and Errors.

This amendment is not applicable to the Group as there were no rights issues whether in

functional other currencies.

Philippine Interpretation IFRIC 14, PAS 19 - The Limit on a Defined Benefit Asset,

Minimum Funding Requirements and their Interaction (Amendment) (effective January 1,

2011). The amendment corrects an unintended consequence of Philippine Interpretations

IFRIC 14. Without the amendments, entities are not permitted to recognize as an asset

some voluntary prepayments for minimum funding contributions. This was not intended

when Philippine Interpretation IFRIC 14 was issued, and the amendment corrects this. The

amendment should be applied retrospectively to the earliest comparative period presented.

This interpretation is not applicable to the Group.

Philippine Interpretation IFRIC 19, Extinguishing Financial Liabilities with Equity

Instruments (effective July 1, 2010). The interpretation clarifies the accounting by an entity

when the terms of a financial liability are renegotiated and result in the entity issuing equity

instruments to a creditor of the entity to extinguish all or part of the financial liability (debt

for equity swap). It requires a gain or loss to be recognized in profit or loss, which is

measured as the difference between the carrying amount of the financial liability and the fair

value of the equity instruments issued. If the fair value of the equity instruments issued

cannot be reliably measured, the equity instruments should be measured to reflect the fair

value of the financial liability extinguished. This interpretation is not applicable to the

Group.

2010 Improvements to PFRS (effective for annual periods on or after January 1, 2011)

The following are the relevant amendments to PFRS which contains amendments that result in

changes in accounting, presentation, recognition and measurement. It also includes

amendments that are terminology or editorial changes only which have either minimal or no

effect on accounting. These amendments are part of the IASB’s annual improvements project

published in August 2009.

PFRS 1 (Revised), First-time Adoption of Philippine Financial Reporting Standards

(effective January 1, 2011). The amendment clarifies that, if a first-time adopter changes

its accounting policies or its use of the exemptions in PFRS 1 after it has published an

interim financial report in accordance with PAS 34, Interim Financial Reporting, it should

explain those changes and update the reconciliations between previous GAAP and PFRS.

The amendment also allows first-time adopters to use an event-driven fair value as deemed

cost, even if the event occurs after the date of transition, but before the first PFRS financial

statements are issued.

When such re-measurement occurs after the date of transition to PFRS, but during the

period covered by its first PFRS financial statements, any subsequent adjustment to that

event-driven fair value is recognized in equity.

It also clarifies that entities subject to rate regulation are allowed to use previous GAAP

carrying amounts of property, plant and equipment or intangible assets as deemed cost on

an item-by-item basis. Entities that use this exemption are required to test each item for

impairment under PAS 36 at the date of transition. The amendment is not applicable to

the Group.

PFRS 3, Business Combinations (effective July 1, 2010). The amendment clarifies that the

amendments to PFRS 7, Financial Instruments: Disclosures, PAS 32, Financial

Instruments: Presentation, and PAS 39, Financial Instruments: Recognition and

Measurement, that eliminate the exemption for contingent consideration, do not apply to

contingent consideration that arose from business combinations whose acquisition dates

precede the application of PFRS 3 (as revised in 2008).

The amendment also clarifies that the choice of measuring non-controlling interests at

fair value or at the proportionate share of the acquiree’s net assets applies only to

instruments that represent present ownership interests and entitle their holders to a

proportionate share of the net assets in the event of liquidation. All other components of

non-controlling interest are measured at fair value unless another measurement basis is

required by PFRS.

It also clarifies that the application guidance in PFRS 3 applies to all share-based

payment transactions that are part of a business combination, including unreplaced and

voluntarily replaced share-based payment awards. The amendment is not applicable to

the Group

PFRS 7, Financial Instruments: Disclosures (effective January 1, 2011). The amendment

emphasizes the interaction between quantitative and qualitative disclosures about the nature

and extent of risks associated with financial instruments. The Group has adopted this

amendment beginning January 1, 2011 but the adoption did not have significant impact on

the consolidated financial statements.

PAS 1, Presentation of Financial Statements (effective January 1, 2011). The amendment

clarifies that an entity may present an analysis of other comprehensive income for each

component of equity, either in the statement of changes in equity or in the notes to the

financial statements. The Group adopted this amendment beginning January 1, 2011.

PAS 27, Consolidated and Separate Financial Statements (effective July 1, 2010). The

amendment clarifies that the consequential amendments from PAS 27 made to PAS 21, The

Effect of Changes in Foreign Exchange Rates, PAS 28, Investments in Associates, and PAS

31, Interests in Joint Ventures, apply prospectively for annual periods beginning on or after

July 1, 2009, or earlier when PAS 27 is applied earlier. The Group has adopted this

amendment beginning January 1, 2011 but the adoption did not have significant impact on

the consolidated financial statements.

PAS 34, Interim Financial Reporting (effective January 1, 2011). The amendment provides

guidance to illustrate how to apply disclosure principles in PAS 34 and add disclosure

requirements around:

- The circumstances likely to affect fair values of financial instruments and their

classification;

- Transfers of financial instruments between different levels of the fair value

hierarchy;

- Changes in classification of financial assets; and

- Changes in contingent liabilities and assets.

The Group has adopted this amendment beginning January 1, 2011 but the adoption did

not have significant impact on the consolidated financial statements.

Philippine Interpretation IFRIC 13, Customer Loyalty Programs (effective January 1,

2011). The amendment clarifies the meaning of ‘fair value’ in the context of measuring

award credits under customer loyalty program. This amendment is not applicable to the

Group.

New standards, amendments and interpretations to existing standards that are not yet

effective and not early adopted by the Group

PAS 1 (Amendment), Financial Statement Presentation - Other Comprehensive Income

(effective July 1, 2012). The main change resulting from these amendments is 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 do not address which items are presented

in other comprehensive income. The Group will apply the amendment beginning

January 1, 2013. The adoption is not expected to have a significant impact on the

consolidated financial statements as the Group but will result in changes in presentation in

the consolidated statement of comprehensive income.

PAS 12 (Amendment), Income Taxes - Deferred Tax (effective January 1, 2012). PAS 12

currently requires an entity to measure the deferred tax relating to an asset depending on

whether the entity expects to recover the carrying amount of the asset through use or sale. It

can be difficult and subjective to assess whether recovery will be through use or through

sale when the asset is measured using the fair value model in PAS 40, Investment Property.

This amendment therefore introduces an exception to the existing principle for the

measurement of deferred tax assets or liabilities arising on investment property measured at

fair value. As a result of the amendments, SIC 21, Income Taxes - Recovery of Revalued

Non-Depreciable Assets, will no longer apply to investment properties carried at fair value.

The amendments also incorporate into PAS 12 the remaining guidance previously

contained in SIC 21, which is withdrawn. The Group has yet to assess the amendment’s full

impact and intends to adopt this amendment beginning January 1, 2012.

PAS 19 (Amendment), Employee Benefits (effective January 1, 2013). These amendments

eliminate the corridor approach and calculate finance costs on a net funding basis. They

would also require recognition of all actuarial gains and losses in other comprehensive

income as they occur and of all past service costs in profit or loss. The 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). This amendment is

not expected to have an impact on the consolidated financial statements as the Group

determines retirement benefits under R.A 7641. Retirement benefit obligation under RA

7641 is not materially different with the amount computed using the projected unit credit

method required under PAS 19.

PAS 27 (Revised), Separate Financial Statements (effective January 1, 2013). The revised

standard includes the provisions on separate financial statements that are left after the

control provisions of PAS 27 have been included in the new PFRS 10). The Company will

apply the amendment beginning January 1, 2013. The revision is not applicable on the

consolidated financial statements.

PAS 28 (Revised), Investments in Associates and Joint Ventures (effective January 1,

2013). This revised standard includes the requirements for joint ventures, as well as

associates, to be equity accounted following the issue of PFRS 11. The revision is not

expected to have a significant impact on the consolidated financial statements.

PFRS 1 (Amendment), First-time Adoption of PFRS - Fixed Dates and Hyperinflation

(effective July 1, 2011). These amendments include two changes to PFRS 1, First-time

adoption of PFRS. The first replaces references to a fixed date of January 1, 2004 with ‘the

date of transition to PFRS’, thus eliminating the need for entities adopting PFRS for the

first time to restate derecognition transactions that occurred before the date of transition to

PFRS. The second amendment provides guidance on how an entity should resume

presenting financial statements in accordance with PFRS after a period when the entity was

unable to comply with PFRS because its functional currency was subject to severe

hyperinflation. This amendment is not applicable to the Group.

PFRS 7 (Amendment), Financial Instruments: Disclosures - Derecognition (effective July

1, 2011). This amendment will promote transparency in the reporting of transfer

transactions and improve users’ understanding of the risk exposures relating to transfers of

financial assets and the effect of those risks on an entity’s financial position, particularly

those involving securitization of financial assets. The Group will adopt the amendment

beginning January 1, 2012 and provide the additional disclosures required by the

amendment upon adoption.

PFRS 9, Financial Instruments (effective January 1, 2013). This standard is the first step in

the process to replace PAS 39, Financial Instruments: Recognition and Measurement.

PFRS 9 introduces new requirements for classifying and measuring financial assets and is

likely to affect the Company’s accounting for its financial assets. The Group has yet to

assess PFRS 9’s full impact and intends to adopt PFRS 9 beginning January 1, 2013.

PFRS 10, Consolidated Financial Statements (effective January 1, 2013). This new

standard builds on existing principles by identifying the concept of control as the

determining factor in whether an entity should be included within the consolidated financial

statements of the parent company. The standard provides additional guidance to assist in

the determination of control where this is difficult to assess. The Group will apply the

amendment beginning January 1, 2013. The adoption is not expected to have an impact on

the consolidated financial statements as the Group as all controlled entities were already

included in these consolidated financial statements.

PFRS 11, Joint Arrangements (effective January 1, 2013). This new standard is a more

realistic reflection of joint arrangements by focusing on the rights and obligations of the

arrangement rather than its legal form. There are two types of joint arrangement: joint

operations and joint ventures. Joint operations arise where a joint operator has rights to the

assets and obligations relating to the arrangement and hence accounts for its interest in

assets, liabilities, revenue and expenses. Joint ventures arise where the joint operator has

rights to the net assets of the arrangement and hence equity accounts for its interest.

Proportional consolidation of joint ventures is no longer allowed. The Group has yet to

assess the full impact of new standard and intends to adopt this new standard beginning

January 1, 2013.

PFRS 12, Disclosures of Interests in Other Entities (effective January 1, 2013). This new

standard includes the disclosure requirements for all forms of interests in other entities,

including joint arrangements, associates, special purpose vehicles and other off balance

sheet vehicles. The Group has yet to assess PFRS 12’s full impact and intends to adopt

PFRS 12 beginning January 1, 2013.

PFRS 13, Fair Value Measurement (effective January 1, 2013). This new standard aims to

improve consistency and reduce complexity by providing a precise definition of fair value

and a single source of fair value measurement and disclosure requirements for use across

PFRS. The requirements, which are largely aligned between IFRS and US GAAP, do not

extend the use of fair value accounting but provide guidance on how it should be applied

where its use is already required or permitted by other standards within IFRS or US GAAP.

The Group is yet to assess PFRS13’s full impact and intends to adopt PFRS 13 beginning

January 1, 2013. Basis of Consolidation The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries) as at reporting date. Control is achieved when the Company has the power to govern the financial and operating policies of an investee entity so as to obtain benefits from its activities. On acquisition, the assets and liabilities of a subsidiary are measured at their fair values at the date of acquisition. Any excess of the cost of acquisition over the fair values of the identifiable net assets acquired is recognized as goodwill. Any deficiency of the cost of acquisition below the fair values of the identifiable net assets acquired (i.e. discount on acquisition) is credited to profit and loss in the period of acquisition. The interest of minority shareholders is stated at the minority’s proportion of the fair values of the assets and liabilities recognized. Subsequently, any losses applicable to the minority interest in excess of the minority interest are allocated against the interests of the parent. The results of operations of subsidiaries acquired or disposed of during the year are included in the consolidated statements of comprehensive income from the effective date of acquisition or up to the effective date of disposal, as appropriate. Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used in line with those used by other members of the Group. All significant intercompany transactions and balances between Group are eliminated in the consolidation including the following (see Note 12): Revaluation reserves arising from the revaluation of PCIC subsidiaries real estate

properties (property and equipment, investment properties and investments in a joint venture); and

Deferred tax liabilities related to the revaluation of PCIC subsidiaries real estate properties.

The consolidated financial statements include the financial statements of the Company and the following subsidiaries, which were all incorporated in the Philippines.

Ownership

Subsidiaries Principal Activity 2011 2010

Direct Ownership

Philfoods Asia, Incorporated (Philfoods) Manufacturing 100% 100%

Plastic City Industrial Corporation (PCIC) Manufacturing 100% 100%

Indirect Ownership (Subsidiaries of PCIC)

Inland Container Corporation (ICC) Manufacturing 100% 100%

Kennex Container Corporation (KCC) Manufacturing 100% 100%

MPC Plastic Corporation (MPC) Manufacturing 100% 100%

Pacific Plastic Corporation (PPC) Manufacturing 100% 100%

Rexlon Industrial Corporation (RIC) Manufacturing 100% 100%

Weltex Industries Corporation (WIC) Manufacturing 100% 100%

a) Direct ownership Philfoods Philfoods started commercial operations in 2000 and was suspended in 2002. Management is looking for possible partners to operate its facilities. In 2003, Philfoods also reviewed the recoverability of its property, plant and equipment, and recognized in its statement of comprehensive income an impairment loss amounting to P13,907,709, which was included in the consolidated accumulated impairment loss of P136,088,452 (see Note 9). PCIC PCIC and its subsidiaries have ceased operations but have leased out their warehouse facilities. The intention of the Group is to continue its operation by focusing on “injection molding” due to its very encouraging prospect and which has shown to have a high viability rating that will contribute highly towards the Group’s maximum operation and financial position. Management is continuously in search for a reliable joint venture partners who have the means to continue its operations. b) Indirect ownership ICC ICC was incorporated in the Philippines and registered with the Securities and Exchange Commission (SEC) on June 23, 1981, primarily to engage in the manufacture of plastic containers. The Company ceased its commercial operations on July 30, 2000, and had leased out its buildings as warehouses. PPC PPC was incorporated in the Philippines and registered with the Securities and Exchange Commission (SEC) on October 1, 1982. The Company was established primarily to manufacture plastic raw materials, rigid and non-rigid plastic products, plastic compounds, derivatives and other related chemical substances. The Company ceased its commercial operations on May 16, 2002, and had leased out its buildings as warehouses.

WIC WIC was incorporated in the Philippines and registered with the Securities and Exchange Commission (SEC) on July 19, 1994. The Company was established to engage in the business of manufacturing PVC pipes, PVC fittings, PE pipes, PE tubings, PE fittings, PB tubings and fittings, water meters, hand pumps, cast iron and other metal accessories, including their components and by-products. The Company ceased its commercial operations on April 30, 2002. RIC RIC was incorporated in the Philippines and registered with the Securities and Exchange Commission (SEC) on October 9, 1984. The Company was engaged in the business of manufacturing and molding plastic products. The Company ceased its commercial operations on April 30, 2002. KCC KCC was incorporated in the Philippines and registered with the Securities and Exchange Commission (SEC) on February 14, 1983. The Company was established to manufacture all kinds of plastic containers. The Company ceased its commercial operations on April 30, 2002, and had leased out its buildings as warehouses. MPC MPC was incorporated in the Philippines and registered with the Securities and Exchange Commission (SEC) on October 11, 1984. The Company was established for the purpose of producing various kinds of plastic products. The Company ceased its commercial operations in January 1994. After the subsidiaries ceased commercial operation they had not resumed thereon. The subsidiaries were all located at T. Santiago Street, Canumay, Valenzuela City. Cash

Cash includes cash on hand, deposits held at call with banks. Financial Instruments a) Classification The Group classifies its financial assets and liabilities according to the categories described

below. The classification depends on the purpose for which the financial assets and liabilities

were acquired. Group’s management determines the classification of its financial assets and

liabilities at initial recognition. Financial assets The Group classifies its financial assets in the following categories: financial assets at fair

value through profit or loss, loans and receivables, held-to-maturity investments and available-

for-sale financial assets.

Financial assets at fair value through profit or loss Financial assets at fair value through profit or loss are financial assets held for trading. A

financial asset is classified in this category if acquired principally for the purpose of selling in

the short-term. Derivatives are also categorized as held for trading unless they are designated as

hedges. Assets in this category are classified as current assets.

The Group has no financial assets at fair value through profit or loss and derivative financial

assets classified under this category as of December 31, 2011 and 2010, respectively. Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments

that are not quoted in an active market. They are included in current assets, except for

maturities greater than 12 months after the reporting date, which are then classified as non-

current assets.

The Group’s loans and receivables consist of trade and other receivables and advances to

affiliates and stockholders as of December 31, 2011 and 2010, respectively (see Note 5). Held-to-maturity investments Held-to-maturity financial assets are non-derivative financial assets with fixed or determinable

payments and fixed maturities that the Group’s management has the positive intention and

ability to hold to maturity. If the Group were to sell other than an insignificant amount of held-

to-maturity financial assets, the whole category would be tainted and reclassified as available-

for-sale. Held-to-maturity financial assets are included in non-current assets, except for those

with maturities less than 12 months from the reporting date which are classified as current

assets.

The Group does not hold financial assets under this category as of December 31, 2011 and 2010, respectively. Available-for-sale financial assets Available-for-sale financial assets are non-derivatives that are either designated in this category

or not classified in any of the other categories. They are included in non-current assets unless

the investment matures or management intends to dispose of the investment within 12 months

from the reporting date.

The Group does not hold financial assets under this category as of December 31, 2011 and 2010, respectively. Financial liabilities The Group classifies its financial liabilities in the following categories: financial liabilities at

fair value through profit or loss (including financial liabilities held for trading and those that

designated at fair value); and financial liabilities at amortized cost.

Financial liabilities at fair value through profit or loss This category comprises two sub-categories: financial liabilities classified as held for trading,

and financial liabilities designated by the Group as at fair value through profit or loss upon

initial recognition.

A financial liability is classified as held for trading if it is acquired or incurred principally for

the purpose of selling or repurchasing it in the near term or if it is part of a portfolio of

identified financial instruments that are managed together and for which there is evidence of a

recent actual pattern of short-term profit-taking. Derivatives are also categorized as held for

trading unless they are designated and effective as hedging instruments. Financial liabilities

held for trading also include obligations to deliver financial assets borrowed by a short seller.

The Group has no financial liabilities are classified as financial liabilities at fair value through

profit or loss as of December 31, 2011 and 2010, respectively. Financial liabilities at amortized cost Financial liabilities that are not classified as at fair value through profit or loss fall into this

category and are measured at amortized cost.

The Group’s borrowings, accounts payable and other liabilities, advances from affiliates and

stockholders and advances from lessees are classified under this category. b) Recognition and measurement Initial recognition and measurement Regular purchases and sales of investments are recognized on trade date - the date on which the

Group commits to purchase or sell the asset. Financial assets and liabilities are initially

recognized at fair value plus transaction costs for all financial assets and liabilities not carried at

fair value through profit or loss. Financial assets and liabilities carried at fair value through

profit or loss are initially recognized at fair value, and transaction costs are recognized as

expense in profit or loss. Subsequent measurement Available for-sale financial assets and financial assets and liabilities at fair value through profit

or loss are subsequently carried at fair value. Loans and receivables and held-to-maturity

investments are carried at amortized cost using the effective interest method. Other financial

liabilities are measured at amortized cost using the effective interest method.

Gains or losses arising from changes in the fair value of financial assets and liabilities at fair

value through profit or loss, including interest and dividend income and interest expense, are

presented in profit or loss within ‘other gains/(losses) - net’ in the period in which they arise.

Dividend income from financial assets at fair value through profit and loss is recognized in

profit or loss as part of other income when the Group’s right to receive payment is established.

Changes in the fair value of monetary securities denominated in a foreign currency and

classified as available-for-sale are analyzed between translation differences resulting from

changes in amortized cost of the security and other changes in the carrying amount of the

security. The translation differences are recognized in profit or loss, and other changes in

carrying amount are recognized in consolidated other comprehensive income. Changes in the

fair value of non-monetary securities classified as available-for-sale are recognized in

consolidated other comprehensive income.

When securities classified as available-for-sale are sold or impaired, the accumulated fair value

adjustments recognized in equity are included in profit or loss as gains and losses from

investment securities. Interest on available-for-sale securities calculated using the effective interest method is

recognized in profit or loss as part of other income. Dividends on available-for-sale equity

instruments are recognized in profit or loss as part of other income when the Group’s right to

receive payment is established. c) Determination of fair value The Group classifies its fair value measurements using a fair value hierarchy that reflects the

significance of the inputs used in making the measurements. The fair value hierarchy has the

following levels:

• Quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1);

• Inputs other than quoted prices included within Level 1 that are observable for the asset or

liability, either directly (that is, as prices) or indirectly (that is, derived from prices) (Level

2); and

• Inputs for the asset or liability that are not based on observable market data (that is,

unobservable inputs) (Level 3). The fair value of financial instruments traded in active markets is based on quoted market

prices at the reporting date. A market is regarded as active if quoted prices are readily and

regularly available from an exchange, dealer, broker, industry group, pricing service, or

regulatory agency, and those prices represent actual and regularly occurring market transactions

on an arm’s length basis.

The fair value of financial instruments that are not traded in an active market (for example,

over-the-counter derivatives) is determined by using valuation techniques. These valuation

techniques maximize the use of observable market data where it is available and rely as little as

possible on entity specific estimates. If all significant inputs required to fair value an instrument

are observable, the instrument is included in level 2.

If one or more of the significant inputs is not based on observable market data, the instrument is

included in level 3. Specific valuation techniques used to value financial instruments include:

• Quoted market prices or dealer quotes for similar instruments.

• The fair value of interest rate swaps is calculated as the present value of the estimated

future cash flows based on observable yield curves.

• The fair value of forward foreign exchange contracts is determined using forward exchange

rates at the reporting date, with the resulting value discounted back to present value.

• Other techniques, such as discounted cash flow analysis, are used to determine fair value

for the remaining financial instruments. d) Impairment of financial assets Assets carried at amortized cost 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

impaired and impairment losses are incurred only if there is objective evidence of impairment

as a result of one or more events that occurred after the initial recognition of the asset (a ‘loss

event’) and that loss event (or events) has an impact on the estimated future cash flows of the

financial asset or group of financial assets that can be reliably estimated. The criteria that the Group uses to determine that there is objective evidence of an impairment

loss include:

• Significant financial difficulty of the issuer or obligor;

• A breach of contract, such as a default or delinquency in interest or principal payments;

• The Group, for economic or legal reasons relating to the borrower’s financial difficulty

granting to the borrower a concession that the lender;

• It becomes probable that the borrower will enter bankruptcy or other financial

reorganization;

• The disappearance of an active market for that financial asset because of financial

difficulties; or;

• Observable data indicating that there is a measurable decrease in the estimated future cash

flows from a portfolio of financial assets since the initial recognition of those assets,

although the decrease cannot yet be identified with the individual financial assets in the

portfolio, including:

i) Adverse changes in the payments status of borrowers in the portfolio; and

ii) National or local economic conditions that correlate with defaults on the assets in the

portfolio. For loans and receivables category, the Group first assesses whether there is objective evidence of impairment exists individually for receivables that are individually significant, and collectively for receivables that are not individually significant. If the Group determines that no objective evidence of impairment exists for an individually assessed receivable, whether significant of not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses those for impairment. Trade and other receivables 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. The amount of the loss is measured as the difference between the asset’s carrying amount and

the present value of estimated future cash flows (excluding future credit losses that have not

been incurred) discounted at the financial asset’s original effective interest rate. The carrying

amount of the asset is reduced and the amount of the loss is recognized in profit or loss. If a

loan or held-to-maturity investment has a variable interest rate, the discount rate for measuring

any impairment loss is the current effective interest rate determined under the contract. As a

practical expedient, the Group may measure impairment on the basis of an instrument’s fair

value using an observable market price.

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be

related objectively to an event occurring after the impairment was recognized (such as an

improvement in the debtor’s credit rating), the reversal of the previously recognized

impairment loss is recognized in profit or loss. Reversals of previously recorded impairment

provision are based on the result of management’s update assessment, considering the available

facts and changes in circumstances, including but not limited to results of recent discussions

and arrangements entered into with customers as to the recoverability of receivables at the end

of the reporting period. Subsequent recoveries of amounts previously written-off are credited

against operating expenses in profit or loss. Assets classified as available-for-sale The Group assesses at the end of each reporting period whether there is objective evidence that

a financial asset or a group of financial assets is impaired. For debt securities, the Groupuses

the criteria refer to for assets carried at amortized cost. In the case of equity investments

classified as available-for-sale, a significant or prolonged decline in the fair value of the

security below its cost is also evidence that the assets are impaired. If any such evidence exists

for available-for-sale financial assets, the cumulative loss - measured as the difference between

the acquisition cost and the current fair value, less any impairment loss on that financial asset

previously recognized in profit or loss - is removed from equity and recognized in profit or loss.

Impairment losses recognized in profit or loss on equity instruments are not reversed in profit

or loss. Subsequent increase in the fair value after impairment are recognized as other

comprehensive income. If, in a subsequent period, the fair value of a debt instrument classified

as available-for-sale increases and the increase can be objectively related to an event occurring

after the impairment loss was recognized in profit or loss, the impairment loss is reversed

through profit or loss. e) Derecognition Financial assets are derecognized when the rights to receive cash flows from the investments

have expired or have been transferred and the Group has transferred substantially all risks and

rewards of ownership. Financial liabilities are derecognized when extinguished, i.e., when the obligation is discharged

or is cancelled or expires. f) Offsetting Financial assets and liabilities are offset and the net amount reported in the statement of

financial position when there is a legally enforceable right to offset the recognized amounts and

there is an intention to settle on a net basis, or realize the asset and settle the liability

simultaneously. Claims for Input Value Added Tax (VAT) and Prepaid Taxes Claims for input VAT and prepaid taxes are stated at face value less provision for impairment, if any. Allowance for unrecoverable input VAT and prepaid taxes, if any, is maintained by the Group at a level considered adequate to provide for potential uncollectible portion of the claims. The Group, on a continuing basis, makes a review of the status of the claims designed to identify those that may require provision for impairment losses.

Property and Equipment Property and equipment are carried at cost, except for buildings and machinery and equipment of PCIC subsidiaries which are carried at revalued amount as determined by an independent firm of appraisers, less accumulated depreciation and any impairment in value. All other property and equipment are stated at cost. The cost of an asset consists of its purchase price and costs directly attributable to bringing the asset to its working condition and location for its intended use. Subsequent expenditures relating to an item of property, plant 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 expenses in the period in which those are incurred. Any increase in the carrying amount arising on the revaluation of assets is recognized in other comprehensive income and accumulated in equity under the heading revaluation surplus, except to the extent that it reverses a revaluation decrease of the same asset previously recognized as expense, in which case the increase is recognized as income. The decrease in carrying amount is recognized in other comprehensive income reduces the amount accumulated in equity under the heading revaluation surplus. The buildings and machinery and equipment of PCIC subsidiaries were revalued with sufficient regularity (at least once every three years) to ensure that the fair value does not differ materially from its carrying amounts. The last appraisal of buildings and machinery were performed by an independent firm of appraisers on April 8, 2009. The net appraisal increment resulting from the revaluation of PCIC subsidiaries property and equipment including the amount of appraisal increase absorbed through depreciation is eliminated in the consolidated financial statements (see Note 12). Depreciation are computed using the straight-line method over the following estimated useful lives:

In Years Buildings 50 Leasehold improvements 5 to 10 Machinery and equipment 4 to 32 Tools and equipments 5 to 10 Furniture and fixtures 3 to 10

The useful lives, depreciation and amortization methods are reviewed periodically to ensure that the periods and methods of depreciation and amortization are consistent with the expected pattern of economic benefits from items of property and equipment. An assets carrying amount is written down immediately to its recoverable amount if the assets carrying amount is greater than its estimated recoverable amount. An item of property and equipment is derecognized upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss on derecognition of the assets (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the consolidated statement of comprehensive income in the year the asset is derecognized.

Investment Properties Investment properties are principally for rental and capital appreciation, and not occupied by the Group. Investment properties are measured initially at cost, including transaction costs. The carrying amount includes the cost of replacing part of an investment property at the time the cost is incurred, if the recognition criteria are met, and excludes the costs of day-to-day servicing of an investment property. Expenditures incurred after the investment properties has been put in operation, such as repairs and maintenance costs, are normally charged against income in the period in which the costs are incurred. Subsequent to initial recognition, investments properties (except land) are stated at cost less accumulated depreciation and any impairment in value. Land is carried at cost less any impairment in value. Depreciation are computed using the straight-line method over the following estimated useful lives:

In Years Buildings and improvements 50 Land improvements 5

Investment property is derecognized when either it has been disposed of or when the investment property is permanently withdrawn from use and no future economic benefit is expected from its disposal. Any gain or loss on the retirement or disposal of an investment property is recognized in the profit or loss in the year of retirement or disposal.

A transfer is made to investment property when there is a change in use, evidenced by ending

of owner-occupation and commencement of an operating lease to another party. A transfer is

made from investment property when and only when there is a change in use, evidenced by

commencement of owner-occupation or commencement of development with a view to sale. A

transfer between investment property, owner-occupied property and inventory does not change

the carrying amount of the property transferred nor does it change the cost of that property for

measurement or disclosure purposes. Investments in a Joint Venture The Group has an interest in a joint venture, whereby the venturers have a contractual arrangement that establishes joint control. Joint venture involves the use of the assets and other resources of the venturers rather than the

establishment of a corporation, partnership or other entity or a financial structure which is

separate from the venturers themselves. Joint venture is accounted using the proportionate

consolidation whereby the venturers share in assets, liabilities, income and expenses is included

line by line in the financial statements. The contractual arrangement determines how the

revenue and expenses incurred in common are shared among the venturers. The Group has entered into a joint venture operations for the development of its properties. The Group recognizes investment in joint venture using the proportionate consolidation. The Group’s interests in the joint venture are recognized in the consolidated financial statements for the assets that it controls or contributed and the liabilities that it incurs, and the related income and expenses from the sale and development of the assets and therefore no other adjustment or consolidation procedures are required.

Impairment of Assets At each reporting date, the Group reviews the carrying amounts of its tangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the assets is estimated in order to determine the extent of the impairment loss (if any). When the asset does not generate cash flows that are independent from other assets, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted at 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 which the estimates of future cash flows have not been adjusted. If the recoverable amount of an asset is estimated to be less that its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. An impairment loss is recognized as an expense immediately, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation increase. When an impairment loss subsequently reverses, the carrying amount of the asset or cash generating unit is increase to the revised estimate of its recoverable amount, but only to the extent of the carrying amount that would have been determined (net of any depreciation) had no impairment loss been recognized for the asset or cash-generating unit in prior years. A reversal of an impairment loss is recognized as income unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase. Equity instruments Capital stock is determined using cost of shares that have been issued. Additional paid-in capital includes any premiums received on the initial issuance of capital stock. Any transaction costs associated with the issuance of shares are deducted from additional paid-in capital, net of any related income tax benefits. Treasury shares are stated at cost of reacquiring such shares. Treasury share, are own equity instruments which are reacquired, are recognized at cost and deducted from equity. No gain or loss is recognized in the income statement on the purchase, sale issue or cancellation of the Group’s own equity instruments. Any difference between the carrying amount and the consideration, if reissued, is recognized in additional paid-in capital. Voting rights related to treasury shares are nullified for the Group and no dividends are allocated to them respectively. When the shares are retired, the capital stock account is reduced by its par value and the excess of cost over par value upon retirement is debited to additional paid-in capital when the shares were issued and to retained earnings for the remaining balance. Deficit includes all current and prior period results as disclosed in the consolidated statements of comprehensive income. Revenue and Expense Recognition Revenues are measured at the fair value of the consideration received or receivable and are recognized when it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognized:

Rental income from operating lease is recognized on straight-line basis over the term of the lease contracts. Rental received in advance is treated as advances from lessees and recognized as income when actually earned. Interest income is accrued on a time proportion basis, by reference to the principal outstanding and at the effective interest rate applicable. Cost and expenses are recognized in the consolidated statements of comprehensive income upon utilization of the service or at the date they are incurred. All finance costs are reported in the statement of comprehensive income, except capitalized borrowing costs which are included as part of the cost of the related qualifying asset, on an accrual basis. Current and Deferred Income Tax Current income tax

Current tax assets and liabilities for the current and prior periods and measured at the amount

expected to be recovered from or paid to the tax authority. The tax rates and tax laws used to

compute the amount are those that are enacted or substantively enacted as at the end of the

reporting period. Deferred income tax

Deferred tax is provided, using the liability method, on all temporary differences, with certain

exceptions, at the reporting date between the tax bases of assets and liabilities and their

carrying amounts for financial reporting purposes.

Deferred tax liabilities are recognized for all taxable temporary differences, with certain

exceptions. Deferred tax assets are recognized for all deductible temporary differences,

carryforward benefits of unused tax credits from excess of minimum corporate income tax

(MCIT) over the regular corporate income tax and unused 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 carryforward benefits of unused tax credits and NOLCO

can be utilized.

Deferred tax liabilities are not provided on nontaxable temporary differences associated with

investments in domestic associates and interests in joint ventures. The carrying amount of

deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no

longer probable that sufficient taxable profit will be available to allow the deferred tax assets to

be utilized. Unrecognized deferred tax assets are reassessed at each reporting date and are

recognized to the extent that it has become probable that future taxable profit will allow the

deferred tax assets to be recovered.

Deferred tax assets and liabilities are measured at the tax rate that is 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. Movements in the deferred

income tax assets and liabilities arising from changes in tax rates are charged against or

credited to income for the period.

Deferred tax assets and liabilities are offset, if a legally enforceable right exists to set off

current tax assets against current tax liabilities and the deferred income taxes relate to the same

taxable entity and the same taxation authority. Leases Leases wherein the Group substantially transfers to the lessee all risks and benefits incidental to

ownership of the leased item are classified as finance leases and are presented as receivable at

an amount equal to the Group’s net investment in the lease. Finance income is recognized

based on the pattern reflecting a constant periodic rate of return on the Group’s net investment

outstanding in respect of the finance lease.

Leases which do not transfer to the lessee substantially all the risks and benefits of ownership

of the asset are classified as operating lease. Lease income from operating lease is recognized

in consolidated statement of comprehensive income on a straight-line basis over the lease term.

The Group determines whether an arrangement is, or contains a lease based on the substance of

the arrangement. It makes an assessment of whether the fulfilment of the arrangement is

dependent on the use of a specific asset or assets and the arrangement conveys a right to use the

asset.

The Group leased out (as an operating lease) buildings and its facilities that it owns. The asset

is included in the consolidated statement of financial position as an investment property.

Related Party Relationships and Related Party Transactions

Related party relationship exists 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 relationship also exists between

and/or among entities which are under common control with the reporting enterprise, or

between, and/or among the reporting enterprise and its key management personnel, directors, or

its shareholders. In considering each possible related party relationship, attention is directed to

the substance of the relationship, and not merely the legal form. A related party transaction is a transfer of resources, services or obligations between related

parties, regardless of whether a price is charged.

Retirement Benefits Obligation The Group has established a non-contributory defined benefit obligation for its qualified employees based on the amounts required by law. The Group accrues the estimated cost of retirement benefits required by the provisions of RA No. 7641 (Retirement Law). Under RA 7641, the Company and PCIC are required to provide minimum retirement benefits to qualified employees. The retirement cost accrued includes normal cost and estimated past service cost. Segment Reporting A business segment is a Group of assets and operations engaged in providing products or services that are subject to risks and returns that are different from those of other business segments. A geographical segment is engaged in providing products or services within a particular economic environment that are subject to risks and return that are different from those of segments operating in other economic environments.

Operating segments are reported on the basis upon which the Group reports its primary segment information. Financial information on business segments is presented in Note 19. Earnings (Loss) Per Share Earnings (loss) per share are determined by dividing net income (loss) for the year by the weighted average number of shares outstanding during the year, excluding common shares purchased by the Group and held as treasury shares.. Provisions Provisions for environmental restoration, restructuring costs and legal claims are recognized

when: the Group has a present legal or constructive obligation as a result of past events; it is

probable that an outflow of resources will be required to settle the obligation; and the amount

has been reliably estimated. Restructuring provisions comprise lease termination penalties and

employee termination payments. Provisions are not recognized for future operating losses.

Where there are a number of similar obligations, the likelihood that an outflow will be required

in settlement is determined by considering the class of obligations as a whole. A provision is

recognized even if the likelihood of an outflow with respect to any one item included in the

same class of obligations may be small.

Provisions are measured at the present value of the expenditures expected to be required to

settle the obligation using a pre-tax rate that reflects current market assessments of the time

value of money and the risks specific to the obligation. The increase in the provision due to

passage of time is recognized as interest expense. Contingent Assets and Liabilities Contingent assets and liabilities are not recognized because their existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the entity. Contingent liabilities are disclosed, unless the possibility of an outflow of resources embodying economic benefits is remote. Contingent assets are disclosed only when an inflow of economic benefits is probable. Events after Reporting Period The Group identifies events after the reporting period as events that occurred after the reporting date but before the date of consolidated financial statements were authorized for issue. Any events after the reporting period that provide additional information about the Group’s consolidated financial position at the reporting date are reflected in the consolidated financial statements. Non-adjusting events are disclosed in the notes to the consolidated financial statements when material.

2. SIGNIFICANT ACCOUNTING JUDGMENTS AND ESTIMATES The preparation of the Group’s consolidated financial statements requires management to make judgments and estimates that affect amounts reported in the consolidated financial statements and related notes. These judgments and estimates are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The Group believes the following represent a summary of these significant estimates and judgments and related impact and associated risks in the consolidated financial statements. a) Judgments Management has made the following judgments, apart from those involving estimation, which have the most significant effect on the amounts recognized in the consolidated financial statements.

Distinction between investment properties and owner-occupied properties

The Group determines whether a property qualifies as investment property. In making its

judgment, the Group considers whether the property generates cash flows largely independent

of the other assets held by an entity.

Some properties comprise a portion that is held to earn rentals or for capital appreciation and

other portion that is held for administrative purposes. If these portions cannot be sold separately

at the reporting date, the property is accounted for as investment property only if an

insignificant portion is held for administrative purposes. The Group considers each property

separately in making its judgment. Functional currency

The Group has determined that its functional currency is the Philippine peso, which is the currency of the primary environment in which the Group operates.

Operating lease The Group has entered into various lease agreements. Critical judgment was exercised by

management to distinguish each lease agreement as either an operating or finance lease by

looking at the transfer or retention of significant risk and rewards of ownership of the properties

covered by the agreements. Failure to make the right judgment will result in either

overstatement or understatement of assets and liabilities. The Group classifies its leases as operating lease since the Group believes that it retains substantially all the risk and benefits of ownership of the asset. Provisions and contingencies

Judgment is exercised by management to distinguish between provisions and contingencies. Policies on recognition and disclosure of provision and disclosure of contingencies are discussed in Note 2 and fully described in Note 23.

b) Estimates The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amount of assets and liabilities within the next financial year are discussed below. Valuation of receivables

Allowance is made for specific group of accounts where objective evidence of impairment exists. The factors considered by management in the review of the current status of its receivables are (1) length and nature of their relationship and its past collection experience, (2) financial and cash flow position and (3) other market conditions as at reporting date. Management reviews the allowance on a continuous basis. Receivables (including advances to affiliates and stockholders), net of allowance for doubtful accounts as of December 31, 2011 and 2010 amounted to P130,112,395 and P136,139,732, respectively (see Notes 5 and 18).

Reversal of allowance for doubtful accounts amounted to P267,992 and P10,991 in 2011 and 2010, respectively (see Notes 15 and 16).

Estimated useful lives of assets

The Group estimates the useful lives of its investment properties and property and equipment based on the period over which the assets are expected to be available for use. The estimated useful lives are reviewed at least annually and are updated if expectations differ from previous estimates due to physical wear and tear. The estimation of the useful lives of the property and equipment is based on a collective assessment of industry practice and experience with similar assets. It is possible, however, that future results of operations could be materially affected by changes in estimates brought about by changes in factors mentioned above. The amounts and timing of recorded expenses for any period would be affected by changes in these factors and circumstances. A reduction in the estimated useful lives of the property and equipment would increase recorded operating expenses and decrease non-current assets. The carrying value of the Group’s investment properties (except land) and property, plant and equipment as of December 31, 2011 and 2010 are as follows:

2011 2010

Investment properties - note 7 P 120,838,422 P 124,573,663 Property and equipment - note 9 197,368,653 216,560,104 P 318,207,075 P 341,133,767

Asset impairment

PFRS requires that an impairment review be performed when certain impairment indicators are present. The Group assesses annually whether there is any indication that an asset is impaired. If any such indication exists, the Group estimates the recoverable amount of the asset in accordance with the accounting policy (see Note 2). Though the Group believes that the assumptions used in the estimation of fair values reflected in the consolidated financial statements are appropriate and reasonable, significant changes in these assumptions may materially affect the assessment of recoverable values and any resulting impairment loss could have a material adverse effect on the consolidated statements of financial position and consolidated statements of comprehensive income.

Retirement benefits obligation

The determination of the Group’s obligation and cost of pension benefits is dependent on the selection of certain assumptions used by management in calculating such amounts. Any changes in these assumptions will impact the carrying amount of retirement benefit obligation. Additional information is disclosed in Note 17. Deferred tax assets

The Group reviews its deferred tax assets at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax assets to be utilized. Due to the cessation of its subsidiaries operation, management expects that the Group will continue to incur losses and the related deferred tax assets will not be utilized in the near future. The Group’s deferred tax assets with full valuation allowance are fully discussed in Note 20.

3. CASH This account consists of the following: 2011 2010

Cash in bank P 5,351,995 P 2,782,637 Cash on hand 20,000 20,000 P 5,371,995 P 2,802,637

Cash in banks earn interest at the respective bank deposit rates.

4. TRADE AND OTHER RECEIVABLES - net

This account consists of the following: 2011 2010

Trade P 1,818,265 P 2,558,900 Receivable from affiliates - note 18 533,722 3,674,607 Others 562,089 387,081 2,914,076 6,620,588 Allowance for doubtful accounts ( 1,069,869) ( 1,337,861) P 1,844,207 P 5,282,727

Trade receivables include rental receivables of PCIC subsidiaries amounting to P748,396 and P906,159 as of December 31, 2011 and 2010, respectively. Rental receivables are collectible monthly based on terms of the contract.

Other receivables include advances to employees and reimbursable utilities expenses from PCIC subsidiaries tenants. The credit quality and aging to trade and other receivables are fully disclosed in Note 26. The movement of the allowance for doubtful accounts is as follows: 2011 2010

Balance at beginning of year P 1,337,861 P 1,347,172 Provision during the year - notes 15 1,680 Reversals during the year - notes 15 and 16 ( 267,992) ( 10,991) Balance at end of year P 1,069,869 P 1,337,861

5. PREPAYMENTS AND OTHER CURRENT ASSETS This account consists of the following: 2011 2010

Creditable withholding tax P 5,317,616 P 4,587,149 Creditable input tax 360,331 39,992 Others 6,078

P 5,684,025 P 4,627,141

The carrying amounts of the creditable withholding and input taxes are reduced to the extent that they are no longer probable that sufficient income tax due and revenue subject to VAT, respectively, will be available to allow all or part of the creditable withholding and input taxes to be utilized. As of December 31, 2011 and 2010, respectively, no provision for impairment has been recorded since management believes that the accounts are fully realizable.

6. INVESTMENT PROPERTIES - net The details of the Group’s investment properties are as follows: December 31, 2011

Land

Land

improvements

Buildings and

improvements

Total

Net carrying amounts, January 1, 2011 P 918,567,885 P 1,974,492 P 122,599,171 P 1,043,141,548

Depreciation ( 658,165) ( 3,077,076) ( 3,735,241)

Net carrying amounts, December 1, 2011 P 918,567,885 P 1,316,327 P 119,522,095 P 1,039,406,307

Cost or valuation P1,103,292,035 P 3,290,824 P 360,764,700 P1,467,347,559

Accumulated depreciation ( 1,974,497) ( 68,880,979) ( 70,855,476)

Impairment loss ( 184,724,150) ( 172,361,626) ( 357,085,776)


December 31, 2010

Land

Land

improvements

Buildings and

improvements

Total

Net carrying amounts, January 1, 2010 P 918,567,885 P 2,632,658 P 125,676,246 P 1,046,876,789

Depreciation ( 658,166) ( 3,077,075) ( 3,735,241)


Cost or valuation P1,103,292,035 P 3,290,824 P 360,764,700 P 1,467,347,559

Accumulated depreciation ( 1,316,332) ( 65,803,903) ( 67,120,235)

Impairment loss ( 184,724,150) ( 172,361,626) ( 357,085,776)


Rental income earned on the above investment properties amounted to P18.73 million, P15.33 million and P16.71 million for the years ended December 31, 2011,2010 and 2009 respectively. While direct operating expenses incurred on the buildings such as repairs and maintenance, security, insurance and property tax (excluding depreciation expenses) amounted to P6.42 million, 3.75 million and P5.10 million in 2011, 2010 and 2009 respectively, shown under “Direct costs and expenses” in the statements of comprehensive income (see Note 13).

The Group’s investment properties fair value was determined after a valuation was performed by independent appraisers on April 8, 2009. The aggregate fair value of the Group’s investment properties amounted to P1.049 billion. The fair market value was determined by reference to market transactions on arm’s length terms at the date of valuation. The re-measurement of investment properties fair value resulted to recovery of previously recognized impairment loss amounting to P16,050,697 (see Note 12). The value of investment properties was arrived using a combination of cost and market (or

direct sales comparison) approach. Cost approach is based on the principle of substitution,

which holds that an informed buyer would not pay more for a given property than the cost of an

equally desirable alternative. Market data approach is an appraisal technique in which the

market value estimate is predicted based upon prices paid in actual market transactions and

current listings, the former fixing the lower limit of value in a static or advancing market

(pricewise), and fixing the higher limit of value in a declining market; and the latter fixing the

higher limit in any market. The Group assess that the change in the fair market value of investment properties as of December 31, 2011 and 2010, in reference to appraised value in 2009, is insignificant based on existing zoning classification, market condition and physical condition that would require reassessment of the investment properties fair values. On November 24, 2009, Philippine Veterans Bank foreclosed land to secure payment of loan of an affiliate amounting to P88.8 million by virtue of the real estate mortgage, executed by the Company. The property was sold at an auction to the highest bidder Philippine Veterans Bank which tendered an amount of P71.326 million. The Group recognized advances to Metro Alliance Holdings and Equities Corp. of P105.06 million for the value of the land foreclosed to settle the affiliate loan with the bank (see Note 18). On September 7, 1999, the Board of Directors approved the execution of a third-party real estate mortgage on the Group’s properties located in Quezon City with an actual area of 6,678 square meters to secure the loan of Waterfront Philippines, Incorporated, an affiliate, with the Social Security System (SSS) amounting to P375 million. In 2003, SSS foreclosed the asset mortgaged in the amount of P198,639,000.

The Group filed a civil case against SSS on the foreclosed property claiming for sum of money and damages in the amount of P500 million. The case is pending before the Regional Trial Court of Quezon City. All the other real estate properties are not subject to any liens or encumbrances. Portion of the Group’s investment properties were used as collateral for loans obtained by Inland Container Corporation (ICC) and affiliated companies. The carrying amount of these investment properties are as follows: 2011 2010

Collateral for loan obtain by ICC P 354,245,678 P 355,725,973 Collateral for loan obtained by affiliates 310,981,700 310,981,700 P 665,227,378 P 666,707,673

Due to the inability of the affiliates to pay the loan obtained from Philippine National Bank, the mortgaged properties were subjected to foreclosure proceedings on November 5, 2010. However, the PCIC subsidiaries filed a petition for Corporate Rehabilitation on October 28, 2010 (see Note 1).

7. INVESTMENTS IN A JOINT VENTURE In July 1997, PCIC subsidiaries (Inland Container Corporation, Rexlon Industrial Corporation and Kennex Container Corporation) entered into a Joint Venture Agreement (the “Agreement”) with Philippine Estates Corporation (PHES), as Developer and PCIC subsidiaries and other affiliates as co-landowners, whereby PHES will develop into industrial estate the parcels of land situated at Canumay, Valenzuela, Metro Manila owned by the Group and its co-landowners. For these jointly-controlled assets, PCIC subsidiaries contributed a total of 192,484 square meters of raw land. As part of the Agreement, the developer is entitled to a certain percentage of the net sales proceeds after deduction of all relevant taxes and marketing and administrative expenses. All other matters relating to the contributed parcels of land by the co-landowners, including the release of the title of the developed saleable lots is subject to the terms and conditions as set out in the Agreement. PCIC subsidiaries investment in joint venture properties were revalued on April 8, 2009 by an independent firm of appraisers. The revaluation of investment in joint venture resulted to appraisal increase amounting to P173,540,307 (see Note 12). The value of investment in joint venture properties was arrived using a combination of cost and

market (or direct sales comparison) approach. Cost approach is based on the principle of

substitution, which holds that an informed buyer would not pay more for a given property than

the cost of an equally desirable alternative. Market data approach is an appraisal technique in

which the market value estimate is predicted based upon prices paid in actual market

transactions and current listings, the former fixing the lower limit of value in a static or

advancing market (pricewise), and fixing the higher limit of value in a declining market; and

the latter fixing the higher limit in any market. The carrying amount of joint venture asset is as follows: 2011 2010

Cost P 102,092,864 P 102,092,864 Appraisal increase 441,415,643 441,415,643 P 543,508,507 P 543,508,507

The Group’s does not recognize share in the joint venture revenues and expenses as of December 31, 2011 and 2010, respectively. Portion of the real estate properties of PCIC subsidiaries with an aggregate carrying amount of P512,348,300 as of December 31, 2011 and 2010, respectively, were mortgaged with BDO to secure the loans obtained by Inland Container Corporation (ICC).

8. PROPERTY, PLANT AND EQUIPMENT - net

The details of the Group’s property, plant and equipment are as follows: December 31, 2011

Building and

improvements

Machinery and

equipment

Tools and

equipment

Furniture and

fixtures

Total

Net carrying amounts,

January 1, 2011

P 4,788,130

P 211,670,620

P

P 101,354

P 216,560,104

Additions 151,785 151,785

Depreciation ( 144,060) ( 19,068,895) ( 107,638) ( 22,643) ( 19,343,236)


December 1, 2011

P 4,644,070

P 192,601,725

P 44,147

P 78,711

P 197,368,653

Cost or valuation P 18,898,995 P 883,287,076 P 14,328,370 P 10,327,519 P 926,841960

Accumulated

depreciation

( 7,184,967)

( 561,769,019)

( 14,284,223)

( 10,146,646)

( 593,384,855)

Impairment loss ( 7,069,958) ( 128,916,332) ( 102,162) ( 136,088,452)


December 1, 2010

P 4,644,070

P 192,601,725

P 44,147

P 78,711

P 197,368,653

December 31, 2010

Building and

improvements

Machinery and

equipment

Tools and

equipment

Furniture and

fixtures

Total


January 1, 2010

P 4,932,190

P 244,381,832

P

P 41,339

P 249,355,361

Additions 71,875 71,875

Depreciation ( 144,060) ( 32,711,212) ( 11,860) ( 32,867,132)


December 1, 2010

P 4,788,130

P 211,670,620

P

P 101,354

P 216,560,104

Cost or valuation P 18,898,995 P 883,287,076 P 14,176,584 P 10,327,519 P 926,690,174

Accumulated

depreciation

( 7,040,907)

( 542,700,124)

( 14,176,584)

( 10,124,003)

( 574,041,618)

Impairment loss ( 7,069,958) ( 128,916,332) ( 102,162) ( 136,088,452)


December 1, 2010

P 4,788,130

P 211,670,620

P

P 101,354

P 216,560,104

Depreciation on appraisal increase amounted to P8,702,803, P20,239,857 and P18,589,687 in 2011, 2010 and 2009, respectively. Total depreciation charged to operating expenses amounted to P19,343,236 and P32,867,132 in 2011 and 2010, respectively (see Note 16). PCIC subsidiaries’ buildings and machinery and equipment were revalued on April 8, 2009 by an independent firm of appraisers. The fair market value was determined by reference to market transactions on arm’s length terms using cost and market data or direct sales comparison approach as disclosed in Note 7.

PCIC subsidiaries’ buildings and machinery and equipment were revalued on April 8, 2009 by an independent firm of appraisers. The valuation was determined by reference to market transactions on arm’s length terms using cost and market data or direct sales comparison approach. The revaluation of buildings and machinery and equipment resulted to recovery of previously recognized impairment loss of P33,659,547 (see Note 12).

The value of buildings and machinery equipment was arrived using a combination of cost and

market (or direct sales comparison) approach. Cost approach is based on the principle of

substitution, which holds that an informed buyer would not pay more for a given property than

the cost of an equally desirable alternative. Market data approach is an appraisal technique in

which the market value estimate is predicted based upon prices paid in actual market

transactions and current listings, the former fixing the lower limit of value in a static or

advancing market (pricewise), and fixing the higher limit of value in a declining market; and

the latter fixing the higher limit in any market. The carrying amount of the Group’s buildings and machinery and equipment if measured at cost follows: 2011 2010

Cost P 460,167,458 P 460,015,672 Accumulated depreciation ( 333,547,051) ( 323,050,864) Impairment loss ( 26,996,917) ( 26,996,917) P 99,623,490 P 109,967,891

9. BORROWINGS This account represents restructured loan obtained from Banco de Oro by ICC, with outstanding balance of P47,365,872 as of December 31, 2011 and 2010, respectively. As of December 31, 2011 and 2010, the loan is subject to restructuring with the following terms and conditions shown under Note 1. Certain real properties owned by subsidiaries were held as collateral under this loan. The carrying amount of collateral properties as of December 31, 2011 and 2010, are as follows: 2011 2010

Investment properties - note 7 P 354,245,678 P 355,725,973 Investment in joint venture - note 8 512,348,300 512,348,300 P 866,593,978 P 868,074,273

Total finance costs charged to operations amounted to P3.79 million, P7.65 million and P5.19 million in 2011, 2010 and 2009, respectively, computed at 8% to 10% based on current market interest.

10. ACCOUNTS PAYABLE AND OTHER LIABILITIES This account consists of:

2011 2010 Accounts payable P 14,429,286 P 17,373,258 Payable to affiliates - note 18 22,576,647 19,323,973 Interest payable 5,295,110 1,505,840 Deferred rental – note 21 2,577,512 2,150,671 Value added tax and other taxes payable 1,429,371 1,256,138 Other payables 348,799 744,293 P 46,656,725 P 42,354,173

Interest payable represents accrual of interest on outstanding balance of restructured loans. The carrying amounts of accrued expenses and other current liabilities, which are expected to be settled within the next twelve months from reporting period, is a reasonable approximation of its fair value.

11. CAPITAL STOCK AND RELATED TRANSACTIONS The Company has P3,500,000,000 authorized capital stock comprise of 3,500,000,000 common shares with par value of P1 per share. Details of the Company’s issued and outstanding capital stock are as follows:

2011 2010 2009 Issued – 3,276,045,637 shares P 3,276,045,637 P 3,276,045,637 P 3,276,045,637 Treasury shares – 10,000 shares ( 10,000) ( 10,000) ( 10,000) P 3,276,035,637 P 3,276,035,637 P 3,276,035,637

The movement of treasury shares follows:

2011 2010 2009 Outstanding shares at cost P 10,000 P 10,000 P 16,486,633 Reissuance of treasury shares ( 16,476,633) P 10,000 P 10,000 P 10,000

Treasury shares of 16,476,633 were reissued to a third party at a loss of P14,494,807 which was shown as adjustment to deficit.

Consolidation adjustments

The following accounts under PCIC subsidiaries financial statements were eliminated in the process of preparing the consolidated financial statements and credited directly to the Company’s investment in PCIC:

2011 2010

Net appraisal increment on the following: Property and equipment P 67,874,394 P 73,966,433 Investments in a joint venture 310,830,776 310,830,776

378,705,170 384,797,209

Less: deferred tax liabilities Property and equipment 29,086,192 31,213,190 Investments in a joint venture 133,213,190 133,213,190

162,299,382 164,426,380

Net revaluation reserves: Property and equipment 38,788,202 42,753,243 Investments in a joint venture 177,617,586 177,617,586

P 216,405,788 P 220,370,829

The significant movements in the deficit account mainly attributed to transactions of PCIC subsidiaries arising from the increase (decrease) in appraisal capital due to the following:

2011 2010 2009

Recovery of prior year recognized impairment loss on:

Investment properties - note 7 P P P 16,050,697 Property and equipment – note 9 33,659,547

Appraisal increase on real estate properties contributed to the joint venture – note 8

173,540,307 Write-off of property and equipment ( 1,117,654) P P P 222,132,897

12. DIRECT COSTS AND EXPENSES This account consists of the following:

2011 2010 2009 Depreciation - note 7 P 3,735,241 P 3,735,241 P 3,730,921 Security services 3,546,051 3,224,999 3,226,151 Repairs and maintenance 1,663,551 347,694 1,306,615 Property taxes 1,185,083 177,952 556,058 Insurance 29,106 13,141 P 10,159,032 P 7,485,886 P 8,832,886

13. OPERATING EXPENSES This account consists of the following: 2011 2010 2009

Salaries and wages P 2,047,252 P 2,089,227 P 2,053,874 Professional fees 1,809,500 1,206,055 421,893 Taxes and licenses 605,013 527,439 616,046 Commission 568,291 616,248 656,292 Listing and maintenance fee 440,341 274,677 432,127 SSS, Medicare and EC contributions 113,191 121,032 122,146 Transportation and travel 28,223 17,876 26,310 Insurance 59,324 Others 345,442 124,542 250,717 P 5,957,253 P 4,977,096 P 4,638,729

14. OTHER INCOME - net This account consists of the following: 2011 2010 2009

Miscellaneous income P 258,456 P 276,836 P 2,849

Reversal of allowance for doubtful accounts

267,992

Interest income 9,464 4,806 7,698

Provision for doubtful accounts – note 5 ( 1,680)

Other charges ( 1,198) ( 204,261) P 534,715 P 75,701 P 10,547

15. DISCONTINUED OPERATIONS Philfoods Asia, Inc. ceased its operations in 2002. PCIC and subsidiaries ceased manufacturing operations in 2001 and prior years and leased out their warehouse/ building facilities. The intention of the Group is disclosed in Note 1. In compliance with PFRS 5, the results of discontinued operations for the years ended December 31, 2011, 2010 and 2009 follow: 2011 2010 2009

Revenue P P P 639,830 Expenses 27,003,638 36,830,816 44,248,105 Other income (charges) – net 11,998 153,924 ( 30,439,391) Loss before tax ( 26,991,640) ( 36,676,892) ( 74,047,666) Income tax expense - note 21 ( 2,770) ( 10,724) Loss from discontinued operations (P 26,991,640) (P 36,679,662) (P 74,058,390)

Cost and expenses consists of:

2011 2010 2009 Depreciation - note 9 P 19,343,236 P 32,867,132 P 35,459,370 Taxes and licenses 3,553,900 Salaries, wages and benefits 1,731,350 1,518,295 1,965,508 Light and water 1,288,180 1,305,686 681,831 Professional fees 253,000 187,550 1,024,500 Loss on write off of machinery

and equipment

3,279,132

Inventory movements 940,970 Repairs and maintenance 29,809 Insurance 4,279 Others 833,972 952,153 862,706 P 27,003,638 P 38,830,816 P 44,248,105

Other income (charges) consists of:

2011 2010 2009

Reversal of (provision for) impairment loss on:

Trade and other receivables P P (P 44,500) Allowance for doubtful accounts - note 5 10,991 53,664 Advances to affiliates ( 30,859,027) Others 11,998 142,932 410,472 P 11,998 P 153,923 (P 30,439,391)

Total assets and liabilities from discontinued operations were shown in Note 19. Assets attributable to discontinued operations significantly consists of machineries and equipment used for the manufacturing of various plastic products before the subsidiaries ceased commercial operations in 2002 and prior years.

16. RETIREMENT BENEFITS OBLIGATION

The Company and PCIC adopted Republic Act No. 7641 as its arrangement to provide retirement benefits to all its regular employees. In case of retirement, employees shall be entitled to receive such retirement benefits as may have been earned under the existing laws. The movements in the defined benefit obligation recognized and presented as accrued retirement benefit obligation in the consolidated statement of financial position are as follows: 2011 2010 2009

Balance at beginning of year P 1,614,910 P 1,573,210 P 1,531,510 Retirement provision 41,700 41,700 41,700 Benefits paid ( 238,095)

Balance at end of year P 1,418,515 P 1,614,910 P 1,573,210

The provision for retirement benefits in 2011, 2010 and 2009 were included under salaries, wages and employees benefit in the consolidated statements of comprehensive income. Management believes that the defined benefit obligation computed using the provisions of R.A 7641 is not materially different with the amount computed using the projected unit credit method as required under PAS 19, Employee Benefits.

17. RELATED PARTY TRANSACTIONS Related party transactions consist of advances to and from affiliated companies and stockholders to meet the operational needs of the Group. Related party transactions are non-interest bearing, unsecured and with no definite repayment period. a) Related party transactions The Group had transactions with related parties, significant of which are as follows: The Group advanced from Concept Moulding Corporation (CMC) funds for payment of

property taxes amounting to P3,203,574 and P406,037 in 2011 and 2010, respectively. The advances were treated as collection of the Group’s outstanding receivable from CMC.

The Group advanced from The Wellex Group, Inc. (TWGI) for working capital

requirement. As an arrangement, the advances is treated as collection of outstanding

receivables from TWGI.

The Group advanced pays the operating expenses on behalf of certain affiliates. Total

advances to affiliates amounted to P206,810 and P66,996 in 2011 and 2010, respectively.

In 2010, the Group advanced from Plastic City Corporation (PCC) funds to partially settle

its outstanding loan balance. Total amount advanced from PCC amounted to P4,366,283.

Offsetting of intercompany receivables and payables was made as part of the Groups plan of integrating intercompany account balances to facilitate the preparation of intercompany reconciliation, billing and collection and payment processes among the Group. b) Related party balances

2011 2010 Receivable from affiliates:

Concept Moulding Corporation P 267,970 P 3,471,546 Genwire Manufacturing Corp. 264,352 203,061 Others 1,400

P 533,722 P 3,674,607

2011 2010 Advances to affiliates and stockholders Affiliates:

Metro Alliance Holdings and Equities Corp. P 105,060,000 P 105,060,000 Wellex Petroleum, Inc. 2,313,469 2,297,090 Others 18,544

107,392,013 107,357,090

Stockholders: The Wellex Group, Inc. 77,289,435 79,476,702 Waterfront Philippines, Inc. 436,473 77,289,435 79,913,175

Total 184,681,448 187,270,265 Allowance for doubtful accounts ( 56,413,260) ( 56,413,260)

P 128,268,188 P 130,857,005

Payable to affiliates:

International Polymer Corp. P 22,504,427 P 19,211,115 Plastic City Corp. 72,220 112,858

P 22,576,647 P 19,323,973

Advances from affiliates and stockholders: Affiliates:

Diamond Stainless Corp. P 132,846,223 P 132,858,010 Plastic City Corp. 33,324,438 33,500,369 Kentar Industrial Corp. 22,824,910 26,146,064 Philippine Estates Corp. 26,315,186 23,200,971 Rexlon Realty 23,187,370 23,187,370 International Polymer Corp. 11,691,554 11,691,554 Asia Pacific Corp. 4,046,257 4,046,257 Ropeman 3,202,528 3,202,528 Individuals 17,704,478 17,704,478

P 275,142,944 275,537,601 Stockholders:

Pacific Rehouse 15,540,753 15,540,753 Individuals 149,921,938 150,921,938

165,462,691 166,462,691

P 440,605,635 P 442,000,292

c) Compensation of key management personnel With the cessation of the subsidiaries commercial operations in prior years, the Group’s primary source of revenue is limited to the lease rental of its building and warehouse facilities to sustain its day to day operating costs and expenses. In view of the Group’s tight cash position, management decided to suspend any form of compensation to all executive officers effective in 2004.

18. BUSINESS SEGMENT INFORMATION a) Segment information The Group’s operating business segment are organized and managed separately according to business activities. The Group’s management monitors the operating result of its business units separately for the purpose of making decisions about resource allocation and performance assessment. Segment performance is evaluated based on operating profit or loss and is measured consistently with operating profit or loss in the consolidated financial statements. However, Groups financing which includes finance cost, impairment of assets and income taxes are managed on a group basis and are not allocated to operating segments. The Group has no geographical segment for segment reporting format as the Group’s risks and rates of return are in the same economic and political environment, with the Group is incorporated and operating in the Philippines. The Group has only one operating segment representing PCIC subsidiaries that leases out idle properties as warehouses to third parties. Operating segments excludes discontinued operations of the subsidiaries and non reportable segment representing the Parent Company as currently the Parent Company do not earn revenue or may earn revenue that is only incidental to activities such as interest income. The segment information on reportable segment as follows: 2011 2010 2009

Revenue of reportable segment P 18,732,086 P 15,332,556 P 16,712,383 Other income 525,253 281,642 8,329 Reversal of allowance for doubtful accounts

53,664

Interest income 8,910 Depreciation ( 3,735,241) ( 3,735,241) ( 3,730,920) Allowance for doubtful accounts ( 1,680) Operating expenses ( 9,922,170) ( 7,364,600) ( 8,877,635) Finance cost ( 3,789,270) ( 7,654,397) ( 5,188,270) Income tax ( 182,010) ( 189,116) ( 189,842) Segment net income (loss) 1,637,558 ( 3,330,836) ( 1,212,291)

Total segment assets 1,473,614,590 1,486,392,244 1,514,517,917

Expenditure for non-current assets 151,786 71,875 41,339

Total segment liabilities P 698,097,328 P 754,268,415 P758,882,167

As of December 31, 2011, 2010 and 2009, the Group has no intersegment revenue to be reported. The following reconciliations were provided for additional segment information: Net income (loss) 2011 2010 2009

Net income (loss) of reportable segment P 1,637,558 (P 3,330,836) (P 1,212,290) Net loss of non-reportable segment ( 2,458,320) ( 1,567,402) ( 32,423,872) Net loss from discontinued operations (26,991,642) ( 36,679,662) ( 42,559,025) Impairment loss on treasury shares 10,000 Net loss reported in the consolidated statements of comprehensive income

(P 27,812,404)

(P 41,577,900)

(P 76,185,187)

Assets 2011 2010

Assets of reportable segment P 1,473,614,590 P 1,486,392,244 Assets of non-reportable segment 1,409,199,749 1,411,561,902 Assets from discontinued operations 489,511,418 498,895,618 Intercompany receivables and investments eliminated in the consolidation

( 1,450,693,031)

( 1,449,889,251)

Assets reported in the consolidated statements of financial position

P 1,921,632,726

P 1,946,960,513

Liabilities 2011 2010

Liabilities of reportable segment P 698,097,328 P 700,391,704 Liabilities of non-reportable segment 1,181,570 1,085,404 Liabilities from discontinued operations 420,350,311 417,477,227 Intercompany liabilities eliminated in the consolidation

( 580,606,080)

( 582,415,823)

Liabilities reported in the consolidated statements of financial position

P 539,023,129

P 536,538,512

b) Entity-wide information The Group is domiciled in the Philippines. All revenues generated are from the Philippines. The revenue shown above represents the total Group’s revenue from lease of real properties. As of December 31, 2011 and 2010, the Group has no financial assets reported in the total non-current assets. Total deferred tax assets of P44,068,011 and P47,554,596 included in the total non-current assets are fully covered by valuation allowance (see Note 20).

19. INCOME TAX

a) Income tax expense from continuing operations

A numerical reconciliation of the provision for (benefit from) income tax and the product of accounting income (loss) multiplied by the applicable tax rates follow:

2011 2010 2009

Loss before tax (P 638,754) (P 3,141,720) (P 1,076,114) Tax benefit at 30% (P 191,626) (P 942,516) (P 322,834) Tax effect on: Reversal of allowance for doubtful accounts

( 16,898)

Interest income ( 2,543) Others 13,127 63,390 1,279 Changes in valuation allowance 363,052 1,068,242 528,295 P 182,010 P 189,116 P 189,842

b) Income tax expense from discontinued operations

A numerical reconciliation of the provision for (benefit from) income tax and the product of accounting income (loss) multiplied by the applicable tax rate follow:

2011 2010 2009

Loss before tax (P 26,991,640) (P 38,244,294) (P 74,908,507) Tax expense (benefit) at 30% (P 8,097,492) (P 11,473,288) (P 22,472,552) Tax effect on: Depreciation on appraisal increase 2,610,841 6,071,957 5,576,906 Provision for impairment losses 9,270,464 Interest income – banks ( 3,599) ( 1,442) ( 2,309) Others ( 569,738) ( 344,481) 19,809 Changes in valuation allowance 6,059,988 5,750,024 7,618,406

P P 2,770 P 10,724

In 2011, 2010 and 2009, the Group has no income tax expense under the normal corporate income tax rate because it had incurred taxable losses. However, the Group is subject to MCIT as defined under the tax regulations. c) Deferred tax assets The composition of deferred tax assets is as follows: 2011 2010

NOLCO P 20,939,836 P 23,499,957 Allowance for:

Doubtful accounts 17,244,939 17,341,410 Impairment loss 4,883,221 5,419,668

Accrued retirement benefits 425,554 484,473 MCIT 574,461 809,088 44,068,011 47,554,596 Valuation allowance ( 44,068,011) ( 47,554,596)

P P

A corresponding full valuation allowance has been established since the Group believes that it is more likely than not, that the carryforward benefits will not be realized in the near future. d) NOLCO and MCIT As of December 31, 2011, the Group has NOLCO and MCIT that can be claimed as deduction from future income tax payable and taxable income, respectively, as follows: NOLCO Year

Incurred

Expiration

Date

Beginning

balance

Additions

Expired

Claimed

Ending

balance

2011 2014 P P20,930,557 P P P20,930,557

2010 2013 21,141,093 21,141,093

2009 2012 27,727,803 27,727,803

2008 2011 29,563,877 ( 29,563,877)

P 78,432,773 P20,930,557 (P 29,563,877) P P69,799,453

MCIT Year

Incurred

Expiration

Date

Beginning

balance

Additions

Expired

Claimed

Ending

balance

2011 2014 P P 182,009 P P P 182,009

2010 2013 191,886 191,886

2009 2012 200,566 200,566

2008 2011 416,636 ( 416,636)

P 809,088 P 182,009 (P 416,636) P P 574,461

The Group’s NOLCO of P29,563,877 and MCIT of 416,636 as of December 31, 2007 had expired in 2010.

e) Relevant Tax Regulations Effective July 2008, Republic Act 9504 was approved, giving corporate taxpayers an option to claim itemized deduction or optional standard deduction (OSD) equivalent to 40% of gross sales. Once the option to use OSD is made, it shall be irrevocable for the taxable year for which the option was made. On February 18, 2010, the Bureau of Internal Revenue (BIR) issued RR No. 2-2010. It requires a taxpayer who avails of the OSD in the first quarter of its taxable year to claim the same OSD in determining its taxable income for the rest of the year, including final annual income tax return. Likewise, a taxpayer who avails of itemized deduction on the first quarter of its taxable year or fails to file an income tax return for the first quarter of the taxable year shall have to claim the itemized deduction in determining the taxable income for the rest of the year, including the final income tax return. The amendment is applicable beginning annual period ended December 31, 2009. The Group opted to adopt the itemized deduction in 2011 and 2010.

20. LEASES PCIC subsidiaries lease their warehouse/ building facilities. The lease term ranges from three (3) months to three (3) years and is renewable under such terms and conditions as the parties may agree, provided that at least ninety (90) days prior to the expiration of the lease period, the lessee shall inform the lessor in writing of his desire to renew the lease. The future minimum rental income is as follows: 2011 2010

Due not later than one year P 5,055,471 P 8,778,424 Due more than one year but not more than three years 1,067,728 4,270,913 P 6,123,199 P 13,049,337

Lease contracts include payment of advance rental by the lessee which shall be refunded without interest on the expiration of the lease or pre-termination of the lease period, less any corresponding obligation and damages. Total advances from lessee amounted to P2,976,382 and P3,203,265 in 2011 and 2010, respectively. Deferred rental income relative to the lease amounted to P2,577,512 as of December 31, 2011 and P2,150,671 as of December 31, 2010 as shown under “Accounts payable and other liabilities” account (see Note 11).

The carrying amount of the buildings being leased out is P119,522,095 and P122,599,171 as of December 31, 2011 and 2010, respectively (see Note 7). Total rental income is P18,732,086, P15,332,556 and P16,712,383 in 2011, 2010 and 2009, respectively.

21. LOSS PER SHARE The following table presents information necessary to calculate the loss per share: 2011 2010 2009

Consolidated net loss for the year P 27,812,404 P 41,577,900 P 76,185,187 Weighted average number of common shares outstanding during the year 3,276,045,637 3,276,045,637 3,276,045,637

Loss per share P 0.0090 P 0.0127 P 0.0233

22. CONTINGENCIES The Group has various contingent liabilities arising in the ordinary conduct of business which

are either pending decision by the courts or being contested, the outcome of which are not

presently determinable.

In the opinion of management and its legal counsel, the eventual liability under these lawsuits

or claims, if any, will not have a material or adverse effect on the Group’s financial position

and results of operations.

23. NOTES TO CONSOLIDATED STATEMENTS OF CASH FLOWS Non-cash financing and operating activities consist of:

2011 2010 2009

Partial settlement of borrowings through advances from an affiliate

P

P 10,514,839

P

24. PRIOR PERIOD ADJUSTMENTS The error resulted from recognition of PCIC subsidiaries (RIC and MPC) appraisal increase on investment properties amounting to P1,183,800 in 2009. The Group opted to subsequently measure its investment properties under cost model as allowed by PAS 40. Under cost model, investment properties are subsequently measured at cost less accumulated depreciation and impairment loss. The adjustment of the error resulted to the restatement of the following accounts in 2009: As previously

Stated

Restatement

As restated Investment properties: Cost P 1,572,273,556 (P 1,183,800) P 1,571,089,756 Accumulated depreciation ( 63,384,994) ( 63,384,994) Accumulated impairment loss ( 460,827,973) ( 460,827,973)

P 1,048,060,589 (P 1,183,800) P 1,046,876,789

As previously

Stated

Restatement

As restated Other adjustments from PCIC subsidiaries:

Appraisal increment on: Property and equipment P 33,659,547 P P 33,659,547 Real estate properties contributed to the joint venture

173,540,307

173,540,307

Write-off of property and equipment

( 1,117,654)

( 1,117,654)

Recovery of impairment loss previously recognized on investment properties

17,234,497

( 1,183,800)

16,050,697

P 223,316,697 (P 1,183,800) P 222,132,897

25. RISK MANAGEMENT POLICIES The Group is exposed to a variety of financial risk which results from both its operating and financing activities. The Group’s risk management is coordinated with the Board of Directors, and focuses on actively securing the short-term cash flows by minimizing the exposure to financial markets. The Group does not actively engage in the trading of financial assets for speculative purposes nor does it write options. The most significant financial risks to which the Group is exposed to are described below: a) Credit risk Credit risk is managed on a group basis. Credit risk arises from cash, trade and other receivables and advances to affiliates and subsidiaries.

The maximum credit risk exposure of the financial assets is the carrying amount of the financial assets shown on the face of statement of financial position (with trade and other receivables and advances to affiliates and stockholders presented gross of allowance for doubtful accounts), as summarized below: 2011 2010

Cash – note 4 P 5,371,995 P 2,802,637 Trade and other receivables - note 5 2,914,076 6,620,588 Advances to affiliates and stockholders - note 18 184,681,448 187,270,265

P 192,967,519 P 196,693,490

The credit quality of financial assets is discussed below: Cash in bank

The Group deposits its cash balance in a commercial and universal bank to minimize credit risk

exposure. Trade and other receivables The Group assesses credit risk on trade accounts receivable for indicators of impairment by reviewing the age of accounts. As of December 31, 2011 and 2010 the Group classifies all its trade receivable as past due and impaired. Allowance for doubtful accounts had been provided to cover uncollectible balance. The Group does not hold any collateral as security for these receivables. Credit risk arising from rental income from leasing of buildings is primarily managed through a

tenant selection process. Prospective tenants are evaluated on the basis of payment track record

and other credit information. In accordance with the provisions of the lease contracts, the

lessees are required to deposit with the Group security deposits and advance rentals which

helps reduce the Group’s credit risk exposure in case of defaults by the tenants. For existing

tenants, the Group has put in place a monitoring and follow-up system. Receivables are aged

and analyzed on a continuous basis to minimize credit risk associated with these receivables. Advances to affiliates and stockholders As of December 31, 2011 and 2010, the Group classifies advances to affiliates and stockholders as past due but not impaired with certain portion determined to be past due and impaired. The Company does not hold any collateral as security on the receivables. The management continues to review receivables from affiliates and subsidiaries for any legally enforceable right to offset with liabilities with the expressed intention of the borrower to settle on a net basis. Certain subsidiaries filed a corporate rehabilitation as plan to revive its operation for the benefit of stockholder and affiliates (see Note 1).

The aging and quality of financial assets is shown below: December 31, 2011 Neither past

due nor

impaired

Past due but not impaired

Past due and

impaired

Total

1-30 days

31-60 days

Over

60 days

Cash P 5,371,995 P P P P P 5,371,995

Receivables from:

Trade 691,609 53,169 1,809 1,809 1,069,869 1,818,265

Related parties 6,588 1,410 5,224 519,101 533,722

Others 287,220 186,895 36,009 53,365 562,089

Advances to:

Affiliates 107,392,013 107,392,013

Stockholders 20,876,176 56,413,260 77,289,435

P 6,357,412 P 241,474 P 43,042 P 128,842,462 P 57,483,129 P 192,967,519

December 31, 2010 Neither past

due nor

impaired

Past due but not impaired

Past due and

impaired

Total

1-30 days

31-60 days

Over

60 days

Cash P 2,802,637 P P P P P 2,802,637

Receivables from:

Trade 841,533 261,033 1,030 159,964 1,295,343 2,558,900

Related parties 3,632,089 42,518 3,674,607

Others 73,503 69,598 28,517 215,460 387,081

Advances to:

Affiliates 107,357,090 107,357,090

Stockholders 23,499,915 56,413,260 79,913,175

P 3,717,673 P 330,631 P 29,547 P 134,864,518 P 57,751,121 P 196,693,490

Certain trade and other receivables were assessed to be impaired and allowance for doubtful accounts amounting to P1,069,869 and P1,337,781 as of December 31, 2011 and 2010, respectively, has been provided (see Note 5). The individually impaired receivables mainly relates to customers and affiliates which are in difficult economic situations or have ceased commercial operations. b) Liquidity risk The Group’s policy is to maintain a balance between continuity of funding through cash advances from the Parent Company and affiliates. The following table details the Group’s remaining contractual maturity for its financial liabilities (with accounts payable and other liabilities excluding value added tax and other taxes payable). The table below has been drawn up based on undiscounted cash flows of financial liabilities based on earliest date on which the Group can be required to pay. December 31, 2011

With indefinite

term of

maturity

With definite term of maturity

Total

Due within

one year

More than

one year

Borrowings P 47,365,872 P P P 47,365,872

Accounts payable and other liabilities 46,656,725 46,656,725

Advances from affiliates and

Stockholders

440,605,635

440,605,635

Advances from lessees 2,976,382 2,976,382

P 487,971,507 P 46,656,725 P 2,976,382 P537,604,614

December 31, 2010

With indefinite

term of

maturity

With definite term of maturity

Total

Due within

one year

More than

one year

Borrowings P 47,365,872 P P P 47,365,872

Accounts payable and other liabilities 42,354,174 42,354,173


Stockholders

442,000,292

442,000,292

Advances from lessees 3,203,265 3,203,265

P 489,366,164 P 42,354,173 P 3,203,265 P534,923,602

Substantial portion of the Group’s financial liabilities consist of advances from affiliates and stockholders. The Group does not expect to pay its liabilities to related parties within 12 months after the reporting date. Furthermore, advances from affiliates and stockholders were settled through assignment and offsetting among the Group.

As of December 31, 2011 and 2010, payment of borrowings was suspended as it is subject to restructuring (see Note 1). Terms and interest rate is renegotiated with the lender bank including possible waiver of portion of interest and penalties. The loan was secured by real properties of Group. c) Market risks Cash flow and fair value interest rate risk As the Group has no significant interest bearing assets, the Group’s income and operating cash flows are substantially independent of changes in market interest rates. The Group’s interest rate risk arises from bank deposits. The Group’s cash in bank earns interest at current interest rate level; any variation in the interest is expected to have an insignificant impact on Group’s operation. Foreign currency risk The Group’s exposure to foreign currency risk is not significant as the Group does not actively engage in foreign currency related transactions. Price risk The Group is not exposed to price risk as it has no financial assets classified as available-for-sale or fair value through profit or loss.

26. CATEGORIES AND FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES

a) Categories and fair value of financial assets and liabilities

The carrying amounts and fair values of the categories of assets and liabilities presented in the

consolidated statement of financial position are shown below:

Financial assets classified as loans and receivables:

2011 2010

Carrying

value Fair value

Carrying

value Fair value

Cash P 5,371,995 P 5,371,995 P 2,802,637 P 2,802,637

Trade and other receivables 1,844,207 1,844,207 5,282,727 5,282,727

Advances to affiliates and

stockholders 128,268,188 128,268,189 130,857,005 130,857,005

P 135,484,390 P 135,484,390 P 138,942,369 P 138,942,369

Financial liabilities classified as other financial liabilities:

2011 2010

Carrying

value Fair value

Carrying

value Fair value

Borrowings P 47,365,872 P 47,365,872 P 47,365,872 P 47,365,872

Accounts payable and other

liabilities *

45,227,354

45,227,354

41,098,035

41,098,035


stockholders

440,605,635

440,605,635

442,000,292

442,000,292

Advances from lessees 2,976,382 2,976,382 3,203,265 3,203,265

P 536,175,243 P 536,175,243 P 533,667,464 P 533,667,464

* Excluding value added tax and other taxes payable

b) Fair value estimation

The methods and assumptions used by the Group in estimating the fair value of the financial

instruments are as follows:

Financial assets

Cash and trade and other receivable - The carrying amounts of cash and trade and other

receivables approximate fair values due to relatively short-term maturities.

Advances to affiliates and stockholders - The fair value of advances to affiliates and

stockholders is not reasonably determined due to the unpredictable timing of future cash flows.

Financial liabilities

Borrowings - The carrying amounts of borrowings approximate fair values due to its

undetermined term of maturity.

Accounts payable and other liabilities - The carrying amounts of accounts payable and other

liabilities approximate fair values due to relatively short-term maturities.

Advances from lessees - The fair value of advances from lessees is not reasonably determined

due to the unpredictable future cash outflow as refund for these amounts. Commonly these

advances were applied by tenants to rental and not refunded.

Payable to related parties - The fair value of advances from affiliates and stockholders is not

reasonably determined due to the unpredictable timing of future cash flows.

c) Fair value hierarchy

The different fair value valuation methods are fully disclosed in Note 2.

As of December 31, 2011 and 2010, the Group has no financial assets or liabilities whose fair

value is measured by valuation method under Levels 1, 2 and 3.

27. CAPITAL RISK MANAGEMENT

The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern, so that it can continue to provide returns for stockholders and to maintain an optimal capital structure to reduce the cost of capital. The Group defines capital as share capital and deficit for the purpose of capital management. Consistently with others in the industry, the Group monitors capital on the basis of the gearing ratio. This ratio is calculated as net debt divided by total capital. Net debt is calculated as total borrowings (including accounts payables and other liabilities, advances from affiliates and stockholders as shown in the consolidated statement of financial position) less cash and cash equivalents. Total capital is calculated as Equity as shown in the consolidated statement of financial position plus Net debt. During 2011, the Group’s strategy, which was unchanged from 2010, was to keep the gearing ratio below 50% as proportion to net debt to capital. The gearing ratios as at December 31, 2011 and 2010 were as follows: 2011 2010

Accounts payable and other liabilities P 46,656,725 P 42,354,173

Borrowings 47,365,872 47,365,872

Advances from lessees 2,976,382 3,203,265 Retirement benefits obligation 1,418,515 1,614,910 Advances from stockholders and affiliates 440,605,635 442,000,292 Less: Cash ( 5,371,995) ( 2,802,637) Net debt 533,651,134 533,729,875

Total equity 1,382,609,597 1,410,422,001

Total capital P 1,916,260,731 P 1,944,151,876

Gearing ratio 27.85% 27.45%

The status of the Group’s operation and management plan is fully disclosed in Note 1.

* * *


APPENDIX A – FINANCIAL SOUNDNESS

DECEMBER 31, 2011

2011 2010

Profitability ratios:

Return on assets Nil Nil Return on equity Nil Nil Net profit margin Nil Nil

Solvency and liquidity ratios:

Current ratio 13.72% 14. 17% Debt to equity ratio 38.99% 38.04%

Financial leverage ratio:

Asset to equity ratio 1.38% 1.38%

Debt to asset ratio 28% 27.55% Interest rate coverage ratio Nil Nil

Wellex Industries, Inc.

(Ultimate Parent)

Philfoods Asia, Inc.

(WIN Subsidiary)

Plastic City Industrial Corp.

(WIN Subsidiary)


(PCIC Subsidiary)

Kennex Container Corp.

(PCIC Subsidiary)

Inland Container Corp.

(PCIC Subsidiary)

Weltex Industries Corp.

(PCIC Subsidiary)

Rexlon Industrial Corp.

(PCIC Subsidiary)

MPC Plastic Corp.

(PCIC Subsidiary)


APPENDIX B – MAP OF C ONGLOMERATE OR GROUP

OF COMPANIES WITHIN WHICH THE COMPANY BELONGS

DECEMBER 31, 2011


APPENDIX C – STANDARDS AND INTERPRETATIONS EFFECTIVE FOR

ANNUAL PERIODS BEGINNING JANUARY 1, 2011

DECEMBER 31, 2011

Effective date Remarks Revised standards, amendments to existing standards and interpretations for periods beginning

January 1, 2011

PAS 24 (Revised), Related Party Disclosure January 1, 2011 Adopted PAS 32 (Amendment), Financial Instruments: Presentation –

Classification of Rights Issues February 1, 2010 Not applicable Philippine Interpretation IFRIC 14, PAS 19 - The Limit on a

Defined Benefit Asset, Minimum Funding Requirements

and their Interaction (Amendment) January 1, 2011 Not applicable Philippine Interpretation IFRIC 19, Extinguishing Financial

Liabilities with Equity Instruments July 1, 2010 Not applicable

2010 Improvements to PFRS effective for annual periods on or after January 1, 2011

PFRS 1 (Revised), First-time Adoption of Philippine

Financial Reporting Standards January 1, 2011 Not applicable PFRS 3, Business Combinations July 1, 2010 Not applicable PFRS 7, Financial Instruments: Disclosures January 1, 2011 Adopted

PAS 1, Presentation of Financial Statements January 1, 2011 Adopted PAS 27, Consolidated and Separate Financial Statements July 1, 2010 Not applicable PAS 34, Interim Financial Reporting January 1, 2011 Not applicable Philippine Interpretation IFRIC 13, Customer Loyalty

Programs January 1, 2011 Not applicable


SCHEDULE A – FINANCIAL ASSETS

DECEMBER 31, 2011

Name of issuing entity and

associate of each issue

Number of shares or principal amount of

bonds and notes

Amount shown in the

statement of financial position

Valued based on market quotation at

end of reporting

period

Income received and

accrued

Not Applicable


SCHEDULE B – AMOUNTS RECEIVABLE FROM DIRECTORS, OFFICERS, EMPLOYEES,

RELATED PARTIES AND PRINCIPAL STOCKHOLDERS (OTHER THAN RELATED PARTIES)

DECEMBER 31, 2011

Name and designation of

Balance at beginning of Amounts Amounts

written-off Non-Current Balance at end

debtor period collected Current of period

Not Applicable


SCHEDULE C – AMOUNTS RECEIVABLE FROM RELATED PARTIES

WHICH ARE ELIMINATED DURING THE CONSOLIDATION OF

FINANCIAL STATEMENTS

DECEMBER 31, 2011

beginning of Balance at

Amounts Amounts written-off

Non- Balance at end Name and designation of debtor period collected Current Current of period

Direct Subsidiaries

Plastic City Industrial Corporation

Philfoods Asia, Incorporated

P 34,841,420 P - P - P - P - P 34,841,420

52,454,878 - - - - 52,454,878

Indirect Subsidiaries (PCIC

Subsidiaries)

Pacific Plastic Corporation 15,478,754 - 15,478,754

Kennex Container Corporation 34,380,744 - 34,380,744

Inland Container Corporation 38,715,445 - 38,715,445

Weltex Industries Corporation 14,666,623 - 14,666,623

MPC Plastic Corporation 2,033,573 - 2,033,573

P 192,571,437 P - P - P - P - P 192,571,437


SCHEDULE D – INTANGIBLE ASSETS - OTHER ASSETS

DECEMBER 31, 2011

Beginning Additions at

Charged to

cost and Charged to

Other charges

additions Ending

Description balance cost expenses other accounts (deductions) balance

Miscellaneous and

refundable deposits P 180,844 P - P - P - P - P 180,844

Title of issue and type of

obligation

Amount authorized by

indenture

Amount shown under

caption “Current portion of

long term debt” in related

statement of financial

position

Amount shown under

caption “Long-term

debt” un the related

statement of financial

position

Secured loan P 47,365,872 ___


SCHEDULE E – LONG TERM DEBT

DECEMBER 31, 2011


SCHEDULE F – INDEBTEDNESS TO RELATED PARTIES (LONG TERM LOANS

FROM RELATED COMPANIES)

DECEMBER 31, 2011

Balance at beginning Balance at end Name of related party of period of period

Affiliates

Diamond Stainless Corporation Plastic City Corporation Kenstar Industrial Corporation Philippine Estates Corporation

P 132,846,223 P 132,858,010 33,324,438 33,500,369 22,824,910 26,146,064 26,315,186 23,200,971

Rexlon Realty 23,187,370 23,187,370 International Polymer Corporation Asia Pacific Corporation

11,691,554 11,691,554 4,046,257 4,046,257

Ropeman 3,202,528 3,202,528 Others (individuals) 17,704,478 17,704,478

Stockholders

Pacific Rehouse 15,540,753 15,540,753 Individuals 149,921,938 150,921,938

P 440,605,635 P 442,000,292


SCHEDULE G – GUARANTEES OF SECURITIES OF OTHER ISSUERS

DECEMBER 31, 2011

Name of issuing entity of

securities guaranteed by

the Company for which

this statement is filed

Title of issue of each

class of securities

Total amount

guaranteed and

Amount owned by

person for which

guaranteed outstanding statement is filed Nature of guarantee

Not Applicable

Title of issue

Number of shares

authorized

Number of shares

issued and

outstanding as

shown under

related statement of

financial position

caption

Number of shares

reversed for

options, warrants,

conversion and

other rights

Number of shares

held by related

parties

Directors, officers

and employees

Others

Common shares

“Class A” 3,500,000,000 3,276,045,637 - 10,000 1,310,299,393 1,965,736,244


SCHEDULE H – CAPITAL STOCK

DECEMBER 31, 2011

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