ionics, inc. and subsidiaries quarterly report...contact person’s address no.14 mountain drive,...

IONICS, INC. and SUBSIDIARIES QUARTERLY REPORT

For the 3rd Quarter Ended September 30, 2018

(SEC Form 17-Q)

2

SEC Registration Number

1 0 7 4 3 2

Company Name

I O N I C S , I N C . A N D S U B S I D I A R I E S

Principal Office (No./Street/Barangay/City/Town/Province)

C i r c u i t S t r e e t , L i g h t I n d u s t r y

a n d S c i e n c e P a r k o f t h e P h i l i p

p i n e s I , B o . D i e z m o , C a b u y a o ,

L a g u n a

Form Type Department requiring the report Secondary License Type, If Applicable

1 7 - Q

COMPANY INFORMATION

Company’s Email Address Company’s Telephone Number/s Mobile Number

[email protected]

(049) 508-1111 0917-869-5688

No. of Stockholders Annual Meeting

Month/Day Fiscal Year Month/Day

862 06/19 09/30

CONTACT PERSON INFORMATION

The designated contact person MUST be an Officer of the Corporation

Name of Contact Person Email Address Telephone Number/s Mobile Number

RONAN R. ANDRADE [email protected]

(049) 508-1111 0917-869-5688

Contact Person’s Address

No.14 Mountain Drive, Light Industry and Science Park II, Brgy. La Mesa, Calamba, Laguna

Note: In case of death, resignation or cessation of office of the officer designated as contact person, such incident shall be reported to the Commission within thirty (30) calendar days from the occurrence thereof with information and complete contact details of the new contact person designated.

C O V E R S H E E T

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SEC Number: 107432 File Number: ________

IONICS, INC. AND SUBSIDIARIES ________________________________________

(Company’s Full Name)

Circuit Street, Light Industry and Science Park of the Philippines I, Bo. Diezmo, Cabuyao, Laguna

________________________________________ (Company’s Address)

(049) 508 - 1111 _________________________________________

(Telephone Number)

September 30, 2018 _________________________________________

(Fiscal Year Ending) (month & day)

Quarterly Interim Condensed Consolidated Financial Statements (SEC Form 17-Q)

________________________________________________ Form Type

________________________________________________

Amendment Designation (if applicable)

_________________________________________ Period Ended Date

__________________________________________

Secondary License Type and File Number

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SECURITIES AND EXCHANGE COMMISSION

SEC FORM 17-Q

QUARTERLY REPORT PURSUANT TO SECTION 17 OF THE SECURITIES REGULATION CODE AND SRC RULE 17 (2) (B) THEREUNDER

1. For the quarter ended September 30, 2018

2. SEC Identification Number 107432 3. BIR Tax Identification No. 000-124-671-000 4. Exact name of issuer as specified in its charter IONICS, INC. 5. Province, country or other jurisdiction of incorporation or organization Philippines 6. Industry classification code: (SEC Use Only) 7. Address of principal office Circuit Street, Light Industry and Science Park of

the Philippines I, Bo. Diezmo, Cabuyao, Laguna Postal code 4025 8. Issuer's telephone number, including area code (049) 508-1111 and Fax Number (049) 508-111 loc. 309 9. In 1996, the Company changed its principal place of business from Makati, Metro Manila to Cabuyao,

Laguna. 10. Securities registered pursuant to Sections 8 and 12 of the SRC, or Sec. 4 and 8 of the SRC

Title of Each Class Number of Shares of Common Stock Outstanding Common P=1.00 par value, issued 857,974,992 shares and

outstanding, 837,130,992 shares (net of 20,844,000 shares of treasury stock).

11. Are any or all of these securities listed on a Stock Exchange? Yes [ x ] No [ ]

If yes, state the name of such Stock Exchange and the classes of securities listed therein: Philippine Stock Exchange Common

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12. Check whether the issuer:

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

Yes [ x ] No [ ]

(b) has been subject to such filing requirements for the past ninety (90) days. Yes [ x ] No [ ]

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PART I – FINANCIAL INFORMATION

ITEM 1.Unaudited Interim Condensed Consolidated Financial Statements

The unaudited interim condensed consolidated financial statements including notes thereto are filed as part of this report (pages 12-37 ). These unaudited interim condensed consolidated financial statements include the accounts of the Parent Company and its wholly-owned subsidiaries, Ionics Properties, Inc. (IPI), Synertronix, Inc. (SI), Ionics Circuits Limited (ICL), Iomni Precision, Inc. (Iomni), Ionics Products Solutions, Inc. (IPSI) and the 97% owned Ionics EMS, Inc. (EMS) and a Subsidiary (EMS-USA). Material intercompany balances have been eliminated in the consolidation.

ITEM 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations Below are the Consolidated Key Financial Ratios for the period ended September 30, 2018 and for the year ended December 31, 2017:

September 30,

2018 December 31,

2017 Revenue Growth 14.81% 8.18% Gross Profit Margin 14.33% 15.51% Net Income Margin 7.50% 6.63% Return on Equity 6.65% 7.97% Leverage Ratio 0.08:1 0.15:1 Current Ratio 2.48:1 2.27:1 Debt-to-Equity Ratio 0.45:1 0.50:1 Asset-to-Equity Ratio 1.45:1 1.50:1 Interest Rate Coverage Ratio 15.84:1 22.42:1

1. Revenue Growth

Revenue growth is computed from current revenue less revenue of the prior period divided by revenue of the prior period. The result is expressed in percentage.

2. Gross Profit Margin

Gross profit margin reflects the management’s policies related to pricing and production efficiency. This is computed by dividing gross profit by the total revenue for the period. The result is expressed in percentage.

3. Net Income Margin

Net income margin is the ratio of the Group’s net income for a given period. This is computed by dividing net income by the total revenue for the period. The result is expressed in percentage.

4. Return on Equity

Return on equity ratio is the ratio of the Group’s net income to equity. This measures the management’s ability to generate returns on their investments. This is computed by dividing net income by total equity.

5. Current Ratio

Current ratio is the ratio of the Group’s current resources and its current obligation. This is computed by dividing current assets by current liabilities.

6. Leverage Ratio

Leverage ratio determines the Group’s cost mix and its effects on the operating income. This is computed by dividing net debt by the sum of total equity and net debt.

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7. Debt-to-Equity Ratio The debt-to-equity ratio is used to measure the Group’s financial standing and ability to repay its obligations. This is computed by dividing total liabilities by equity.

8. Asset-to-Equity Ratio The asset to equity ratio shows the relationship of the total assets of the Group to the portion owned by shareholders. This indicates the company’s leverage (debt) used to finance the Group. This is computed by dividing total assets by equity.

9. Interest Rate Coverage Ratio Interest coverage ratio is the ratio of the Group’s ability to meet its interest payment. This is computed by dividing the sum of income before income taxes and finance costs by the finance costs.

As of the filing date, the management of the Group is not aware of:

a) any known trends, demands, commitments, events or uncertainties that will have a material impact on the issuer’s liquidity;

b) any events that will trigger direct or contingent financial obligation that is material to the Group, including any default or acceleration of an obligation;

c) all material off-balance sheet transactions, arrangements, obligations (including contingent obligations), and other relationships of the Group with unconsolidated entities or other persons created during the reporting period;

d) any material commitments for capital expenditures, the general purpose of such commitments and the expected sources of funds for such expenditures;

e) any known trends, events or uncertainties that have had or that are reasonably expected to have a material favorable or unfavorable impact on net sales/ revenues/ income from continuing operations;

f) any significant elements of income or loss that did not arise from the issuer’s continuing operations; and,

g) any seasonal aspects that had a material effect on the financial condition or results of operations.

The causes for any material change from period to period, which shall include vertical and horizontal analyses of any material item, were disclosed in page number 7 to 10 of this report.

CONSOLIDATED FINANCIAL POSITION As of September 30, 2018, the consolidated assets of the Group amounted to US$71.08 million which is US$2.34 million higher than the US$68.74 million as of December 31, 2017. The increase in the Group’s total assets was due to the increase in inventories, cash and cash equivalents generated by operations and advance payment to suppliers reported under prepayments and other current assets.

Current ratio increased from 2.27:1 as of December 31, 2017 to 2.48:1 as of September 30, 2018. While, Group’s debt-to-equity ratio decreased from 0.50:1 as of December 31, 2017 to 0.45:1 as of September 30, 2018, respectively.

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Below is the summary of Balance Sheet Accounts with more than 5% increase (decrease):

Percentage increase (decrease) September 30, 2018 vs. December 31, 2017 vs. December 31, 2017 December 31, 2016 ASSETS Cash and cash equivalents 33 (24) Receivables (18) 38 Inventories 32 47 Prepayments and other current assets 32 49 Available-for-sale investments 11 (16) Property, plant and equipment (11) 38 Deferred tax assets 38 (19) LIABILITIES Accounts payable and accrued expenses 15 38 Advances from customers (16) (55) Bank loans and finance lease liabilities (19) 267 Income tax payable (37) 103 Net pension liability (8) N/A Other noncurrent liabilities (31) 6

As of September 30, 2018 (09.30.18 vs. 12.31.17) Cash and cash equivalents increased due to cash flows generated from operations. Receivables decreased due to lower sales in Q3 2018 versus Q4 2017 which are most collected subsequently after the first 2 months of the next period. Inventories increased aligned with the booked orders as of end of Q3 2018. The increase in prepayments and other current assets was attributable to advance payments made to suppliers in line with the increase in purchase of materials. The increase in available-for-sale investments was due to additional investment to an Investee Company. Property and equipment decreased due to depreciation for the period. Deferred tax assets increased due to tax adjustments related to straight line valuation of rental income. The increase in accounts payable and accrued expenses is attributable to the accrual of 13th month pay of employees to be paid on Q4. The decrease in advances from customers was due to application of advance payments against receivable. Bank loans and finance lease liabilities decreased due to settlement of loans for the quarter. The decrease in income tax was due to payments on income tax for the last quarter of 2017 and first two (2) quarters of 2018. Net pension liability decreased due to retirement benefits paid and foreign currency revaluation. Other noncurrent liabilities decreased due to the amortization of security deposits during the year with no renewal of term. As of December 31, 2017 (12.31.17 vs. 12.31.16) The decrease in cash was primarily due to acquisition of machineries and equipment and raw materials. Receivables increased due to sales to a new customer. Inventories increased as a result of increasing customers order. The increase in prepayments and other current assets was attributable to advance payment made to suppliers in line with the increase in purchase of materials. AFS investments decrease due to impairment of investment in Pacific Synergies IV. Property and equipment increased due to acquisitions made during the period to invest the plant’s capacity. Deposits and others decreased due to foreign currency exchange revaluation and a refund of deposit from a utility company. Deferred tax assets decrease due to tax adjustments related to straight line valuation of rental income. The increase in accounts payable and accrued expenses is attributable to the purchase of raw materials. The decrease in advances from customer was due to application of advance payments against receivable. Bank loans and finance lease liability increased due to acquisition of machine under finance lease. The increase in income tax payable was due to increase in income tax for the period.

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CONSOLIDATED RESULTS OF OPERATIONS The summarized revenues and net income (losses) of the Group for the nine month period ended September 30, 2018 and 2017 are presented as follows (amounts in US Dollars):

September 30, 2018 (9 months)


REVENUE

Operating Expense

NET INCOME (LOSS)*

REVENUE

Operating Expense

NET INCOME (LOSS)* COMPANY Sales

Rental Income and

Other Income Total Sales

Rental Income and

Other Income Total

Parent − 441,087 441,087 378,886 (41,144) − 374,961 374,961 498,261 (212,685) EMS and Subsidiary 39,599,474 244,671 39,844,145 2,148,456 1,857,821 33,705,494 63,101 33,768,595 2,051,473 1,235,800 IPI − 1,891,883 1,891,883 76,362 1,448,492 − 1,893,056 1,893,056 69,560 1,448,607 ICL − 11,493 11,493 27,656 (16,188) − 47,604 47,604 220,927 (173,376) Iomni 2,161,914 120,671 2,282,585 138,676 29,503 2,408,189 115,716 2,523,905 149,208 27,632 Synertronix − 3 3 359 (356) − 1 1 513 (527) IPSI − 76 76 530 (7,372) − 103 103 24,719 (26,625) TOTAL 41,761,388 2,709,884 44,471,272 2,770,925 3,270,756 36,113,683 2,494,542 38,608,225 3,014,661 2,298,826 Eliminations (153,282) (465,179) (618,461) (127,808) (68,188) (126,126) (426,041) (552,167) (26,321) (10,268) Consolidated 41,608,106 2,244,705 43,852,811 2,643,117 3,202,568 35,987,557 2,068,501 38,056,058 2,988,340 2,288,558

*Net income (loss) attributable to equity holders of the Parent Company.

The Group’s sales increased by US$5.62 million or by 16% from US$35.99 million for the nine months of 2017 to US$41.61 million in the same period of 2018. With the increase in sales, gross profit increased to US$6.24 million in 2018 from US$5.65 million in 2017. Operating expenses decreased by US$0.27 million from US$2.91 million in 2017 to US$2.64 million in 2018 due to lower amount of impairment loss provided during the period. Finance cost and other expenses increased by US$0.10 million from US$0.14 million to US$0.24 million.

The Group posted an income before income tax of US$3.61 million and US$2.63 million for the nine month period ended September 30, 2018 and 2017, respectively.

With the foregoing, the Group reported an increase of 40% in the consolidated net income attributable to equity holders of the Parent Company from US$2.29 million to US$3.21 million for the nine month period ended September 30, 2017 and 2018, respectively. INDIVIDUAL RESULT OF OPERATIONS Ionics, Inc. The Parent Company reported a net loss of US$0.04 million and US$0.21 million for the nine months period ended September 30, 2018 and 2017, respectively. There was no dividend income received during the period.

The individual performances of the subsidiaries for the nine months period ended September 30, 2018 and 2017 are as follows: Ionics EMS, Inc. and Subsidiary The Group’s sales increased by US$5.89 million or 17% from US$33.71 million for the nine months period ended September 30, 2017 to US$39.60 million in the same period of 2018 due to higher demand in both turnkey and consignment business. With the increase in sales, gross profit increased by 20% or US$0.70 million from US$3.57 million in 2017 to US$4.27 million in the same period of 2018. Operating expenses increased by US$0.10 million from US$2.05 million in 2017 to US$2.15 million in 2018 due to impairment of receivables. With the foregoing, the Group reported a 50% increase in net income from US$1.24 million to US$1.86 million for the nine months period ended September 30, 2017 and 2018, respectively.

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Ionics Properties, Inc. (IPI)

IPI contributed rent income of US$1.89 million for both nine month period ended September 30, 2018 and 2017, respectively. Net income amounted to US$2.75 and $1.45 million for the nine month period ended September 30, 2018 and 2017, respectively. Ionics Circuits, Ltd. (ICL) ICL reported a net loss amounting to US$0.02 million and US$0.10 million for the nine month period ended September 30, 2018 and 2017, respectively. Synertronix, Inc. (SI) Synertronix reported a net loss amounting to US$0.001 million for the nine month period ended September 30, 2018 and 2017. Iomni Precision, Inc. (Iomni) Iomni’s sales in the nine months of 2018 decreased by US$0.25 million from US$2.41 million in 2017 to US$2.16 million in 2018. Operating expenses amounted to US$0.14 million and US$0.15 million in period ended September 30, 2018 and 2017, respectively. With the foregoing, the Company’s performance resulted to a net income of US$0.03 million for the nine month period ended September 30, 2018 and 2017. Ionics Products Solutions, Inc. (IPSI) IPSI reported a net loss amounting to US$0.001 million due to the impact of foreign currency translation and US$0.03 million for the nine month period ended September 30, 2018 and 2017, respectively. ITEM 3. Additional Requirements Financial Soundness Indicator Below are the financial ratios that are relevant to the Group for two comparative periods:

a. Liquidity Ratio

September 30,

2018 December 31,

2017 Current ratio Current ratio 2.48:1 2.27:1 Quick asset ratio 1.48:1 1.50:1 Debt-to-equity ratio 0.45:1 0.50:1 Asset-to-equity ratio 1.45:1 1.50:1

b. Profitability Ratio

September 30,

2018 September 30,

2017 Interest rate coverage ratio 15.84:1 23.39:1 Profitability ratio Gross profit margin 14.33% 14.90% Operating margin 8.27% 7.03% Net income margin 7.50% 6.14% Revenue growth 14.81% (1.97%)

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PART II - OTHER INFORMATION As of the period ended September 30, 2018, the Group: a) has not experienced any suspension of its operations; b) has no contract of merger, consolidation or joint venture, contract of management,

licensing, marketing, distributorship or similar agreement was signed; c) has no offering of right, granting of stock options and corresponding plans; and, d) has not done any transfer of assets during the quarter.

SIGNATURE

Pursuant to the requirements of the Securities Regulation Code, the issuer has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

ISSUER : IONICS, INC.

__ 11.14.2018____ RONAN R. ANDRADE Date VP - Finance

__11.14.2018____ LAWRENCE C. QUA Date Chairman and CEO

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IONICS, INC. AND SUBSIDIARIES UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (Amounts in Thousands)

Unaudited September 30,

2018

Audited December 31,

2017

ASSETS

Current Assets Cash and cash equivalents (Notes 3, 4, 5 and 22) US$13,230 US$9,961 Receivables (Notes 3, 6 and 22) 12,869 15,710 Inventories (Note 7) 15,907 12,057 Prepayments and other current assets 1,558 1,184 Total Current Assets 43,564 38,912

Noncurrent Assets Available-for-sale investments (Notes 3, 8 and 22) 2,549 2,287 Investment in associates (Note 9) 727 731 Property, plant and equipment (Note 10) 18,769 21,164 Investment properties (Note 11) 5,080 5,249 Deferred tax assets 29 21 Refundable deposits (Notes 3 and 22) 360 378 Total Noncurrent Assets 27,514 29,830 US$71,078 US$68,742

LIABILITIES AND EQUITY

Current Liabilities Accounts payable and accrued expenses (Notes 3, 4, 12 and 22) US$11,008 US$9,609 Advances from customers (Note 13) 1,100 1,311 Current portion of bank loans and finance lease liabilities

(Notes 3, 4, 14 and 22) 5,369 6,040 Income tax payable 120 189 Total Current Liabilities 17,597 17,149

Noncurrent Liabilities Net pension liability 2,475 2,679 Bank loans and finance lease liabilities - net of current portion

(Notes 3, 4, 14 and 22) 1,059 1,890 Other noncurrent liabilities (Note 12) 802 1,155 Total Noncurrent Liabilities 4,336 5,724 Total Liabilities 21,933 22,873

(Forward)

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IONICS, INC. AND SUBSIDIARIES UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (Amounts in Thousands)

Unaudited September 30,

2018

Audited December 31,

2017

Equity (Note 4) Capital stock US$17,633 US$17,633 Additional paid-in capital 9,072 9,072 Retained earnings 24,761 21,556 Unrealized losses on available-for-sale investments (Note 8) (324) (361) Other reserves (838) (838) Adjustment to noncontrolling interests (943) (943) Exchange differences 877 904 Treasury shares (1,365) (1,365) 48,873 45,658 Noncontrolling interests 272 211 Total Equity 49,145 45,869 US$71,078 US$68,742 See accompanying Notes to Unaudited Interim Condensed Consolidated Financial Statements.

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IONICS, INC. AND SUBSIDIARIES UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Amounts in Thousands, Except Earnings per Share) For the Period Ended September 30

2018 2017

July to September (3 months)

January to September (9 months)


January to September

(9 months)

REVENUE (Note 21) Sales US$13,807 US$41,608 US$14,579 US$35,988 Rental income 650 1,950 661 1,951 14,457 43,558 15,240 37,939

COST OF SALES AND RENTAL SERVICES Cost of sales (Note 15) 12,020 36,941 12,868 31,967 Cost of rental services (Note 16) 122 373 106 318 12,142 37,314 12,974 32,285 GROSS PROFIT 2,315 6,244 2,266 5,654 OPERATING EXPENSES (Note 17) 947 2,643 927 2,908 OTHER INCOME (EXPENSES) Share in net earnings (loss) of associates

(Notes 9 and 21) 2 4 (72) (21) Finance costs (Note 18) (85) (243) (56) (104) Others - net (Note 19) 60 245 23 10 (23) 6 (105) (115) INCOME BEFORE INCOME TAX 1,345 3,607 1,234 2,631 PROVISION FOR INCOME TAX 135 341 125 302 NET INCOME 1,210 3,266 1,109 2,329 OTHER COMPREHENSIVE INCOME (LOSS) Items that may be reclassified to profit or loss

Impairment loss on available-for-sale investments reclassified to profit or loss (Note 8) − 7 − 137

Net unrealized gains (losses) on available-for-sale investments (Note 8)

16 30 − (329)

Exchange differences − (27) − (23) 16 10 − (215)

TOTAL COMPREHENSIVE INCOME US$1,226 US$3,276 US$1,109 US$2,114

NET INCOME ATTRIBUTABLE TO: Equity holders of the Parent Company (Note 20) US$1,185 US$3,205 US$1,086 US$2,289 Noncontrolling interests 25 61 23 40 US$1,210 US$3,266 US$1,109 US$2,329

TOTAL COMPREHENSIVE INCOME ATTRIBUTABLE TO:

Equity holders of the Parent Company US$1,201 US$3,215 US$1,086 US$2,074 Noncontrolling interests 25 61 23 40

US$1,226 US$3,276 US$1,109 US$2,114

BASIC/DILUTED EARNINGS PER SHARE For net income for the period attributable to ordinary

equity holders of the Parent Company (Note 20)

US$0.0009 US$0.0039

US$0.0009 US$0.0027

See accompanying Notes to Unaudited Interim Condensed Consolidated Financial Statements.

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IONICS, INC. AND SUBSIDIARIES UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS CHANGES IN EQUITY (Amounts in Thousands)

Attributable to the Equity Holders of the Parent Company

Capital

Stock

Additional Paid-in Capital

Retained Earnings

Unrealized Gains/

(Losses) on

Available- for-Sale

Investments (Note 8)

Other Reserves

Adjustment to Non-

Controlling Interest

Exchange Difference

Treasury Shares Totals

Non- Controlling

Interest Total

Balances as of January 1, 2018 US$17,633 US$9,072 US$21,556 (US$361) (US$838) (US$943) US$904 (US$1,365) US$45,658 US$211 US$45,869 Net income − − 3,205 − − − − − 3,205 61 3,266 Other comprehensive income (loss) − − − 37 − − (27) − 10 − 10 Total comprehensive income (loss) − − 3,205 37 − − (27) − 3,215 61 3,276 Balances as of September 30, 2018 US$17,633 US$9,072 US$24,761 (US$324) (US$838) (US$943) US$877 (US$1,365) US$48,873 US$272 US$49,145 Attributable to the Equity Holders of the Parent Company

Capital

Stock

Additional Paid-in Capital

Retained Earnings

Unrealized Gains/

(Losses) on Available-

for-Sale Investments

(Note 8) Other

Reserves

Adjustment to Non-

Controlling Interest

Exchange Difference

Treasury Shares Totals

Non- Controlling

Interest Total

Balances as of January 1, 2017 US$17,633 US$9,072 US$17,975 (US$216) (US$908) (US$943) US$927 (US$1,065) US$42,475 US$137 US$42,612 Net income − − 2,289 − − − − − 2,289 40 2,329 Other comprehensive loss − − − (192) − − (23) − (215) − (215) Total comprehensive income (loss) − − 2,289 (192) − − (23) − 2,074 40 2,114 Treasury shares − − − − − − − (300) (300) − (300) Balances as of September 30, 2017 US$17,633 US$9,072 US$20,264 (US$408) (US$908) (US$943) US$904 (US$1,365) US$44,249 US$177 US$44,426

See accompanying Notes to Unaudited Interim Condensed Consolidated Financial Statements.

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IONICS, INC. AND SUBSIDIARIES

UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Amounts in Thousands)

(Forward)

For the Period Ended September 30 2018 2017

July to September

(3 months)

January to September (9months)



CASH FLOWS FROM OPERATING ACTIVITIES Income before income tax US$1,345 US$3,607 US$1,234 US$2,631 Adjustments for: Depreciation and amortization (Notes 10 and 11) 1,166 3,536 1,058 2,942 Share in net earnings of associates (Note 9) (2) (4) 72 21 Impairment loss on available-for-sale investments (Note 8) 17 24 − 137 Finance costs 85 243 56 104 Movement in pension liability 6 (174) 4 21 Interest income (Note 19) (28) (50) (6) (17) Unrealized foreign exchange loss (gain) 20 (35) (16) (16) Gain (losses) on sale of property and equipment (2) (2) 52 52 Operating income before working capital changes 2,607 7,145 2,454 5,875 Decrease (increase) in: Receivables 592 2,849 (3,638) (2,986) Inventories (631) (3,850) (1,384) (6,089) Prepayments and other assets 257 (373) 141 (551)

Refundable deposits (1) (15) (2) 25 Increase (decrease) in: Accounts payable and accrued expenses (674) 1,424 3,934 7,229 Advances from customers 117 (211) (201) (1,387) Other noncurrent liabilities − (342) 13 156 Net cash provided from operations 2,267 6,627 1,317 2,272 Interest received 17 38 (3) 7 Interest paid (85) (263) (40) (80) Income taxes paid (98) (404) (96) (274) Net cash provided by operating activities 2,101 5,998 1,178 1,925

CASH FLOWS FROM INVESTING ACTIVITIES Acquisitions of: Property, plant and equipment (Note 10) (173) (807) (1,211) (4,905) Investment property (Note 11) (59) (93) − (49)

Available-for-sale investment − (250) − − Proceeds from sales of property and equipment 2 2 − − Payment of capital commitment − − (80) (174) Cash used in investing activities (230) (1,148) (1,291) (5,128)

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For the Period Ended September 30

2018 2017

July to September

(3 months)



January to September

(9 months)

CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from commercial loans US$4,000 US$7,954 US$− US$− Payments of:

Commercial loans (3,954) (7,954) − − Finance lease (608) (1,526) (909) (1,657) Bank loans (19) (48) − (49)

Reacquisition of the Parent Company’s own shares − − − (300) Net cash used in financing activities (581) (1,574) (909) (2,006) Effect of exchange rate changes on cash and cash equivalents 6 (7) 2 2 NET INCREASE (DECREASE) IN CASH AND

CASH EQUIVALENTS 1,296 3,269 (1,020) (5,207) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 11,934 9,961 8,957 13,144 CASH AND CASH EQUIVALENTS AT END OF PERIOD (Note 5) US$13,230 US$13,230 US$7,937 US$7,937

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IONICS, INC. AND SUBSIDIARIES NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Amounts in Thousands, Except Par Value per Share and Earnings per Share) 1. Corporate Information

Ionics, Inc. (the Parent Company) is a domestic corporation incorporated under the laws of the Philippines and registered with the Securities and Exchange Commission (SEC) in September 1982 with a corporate life of 50 years. The Parent Company started commercial operations in July 1987 to engage in electronic manufacturing services business. In September 1999, the Parent Company transferred its primary manufacturing business to a majority owned subsidiary, Ionics EMS, Inc. (EMS), which was subsequently listed in the Singapore Exchange Securities Trading Limited (Singapore Exchange). Consequently, the Parent Company’s primary purpose was amended from a manufacturing company to a holding company. On February 25, 2000, EMS offered its shares of stock to the public and became publicly listed in the Singapore Exchange Securities Trading Limited (Singapore Exchange). Low daily turnover and low daily market capitalization prompted EMS to reconsider its continued listing in the Singapore Exchange. Consequently, on March 2, 2010, the EMS and the Parent Company jointly announced the proposed voluntary delisting of the EMS from the Singapore Exchange. The Parent Company offered to purchase common shares issued to the minority stockholders in compliance with the delisting proposal. Subsequently, the Parent Company acquired an additional 104,801,455 shares or 6.72% ownership on EMS. The registered office address of the Parent Company is Circuit Street, Light Industry and Science Park of the Philippines I, Bo. Diezmo, Cabuyao, Laguna.

The Parent Company is listed in the Philippine Stock Exchange. The unaudited interim condensed consolidated financial statements were approved and authorized for issue by the Board of Directors (BOD) on November 9, 2018.

2. Summary of Significant Accounting Policies

Basis of Preparation The unaudited interim condensed consolidated financial statements for the nine month period ended September 30, 2018 of Ionics, Inc. and Subsidiaries (the Group) have been prepared in accordance with Philippine Accounting Standards (PAS) 34, Interim Financial Reporting.

The unaudited interim condensed consolidated financial statements do not include all the information and disclosures required in the annual financial statements, and should be read in conjunction with the Group’s annual financial statements as at December 31, 2017.

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The unaudited interim condensed consolidated financial statements are presented in United States (US) Dollar, which is also the Parent Company’s functional currency. All values are rounded to the nearest thousand (US$000) except when otherwise indicated. The following are the wholly and majority owned subsidiaries of the Parent Company as of September 30, 2018 and December 31, 2017:

Subsidiaries Country

of Incorporation Principal Activity Effective Percentage

of Ownership ICL Cayman Islands Investing 100% IPI Philippines Leasing 100 Iomni Philippines Manufacturing 100 SI Philippines Manufacturing 100 IPSI Philippines Retailing 100 EMS Philippines Manufacturing 97

IUSA United States of America Prototyping 97

Changes in Accounting Policies and Disclosures The accounting policies adopted in the preparation of the unaudited interim condensed consolidated financial statements are consistent with those of the Group’s annual consolidated financial statements for the year ended December 31, 2017, except for the adoption of new standards and interpretations effective as of January 1, 2018. As required by PAS 34, the nature and effect of these changes are disclosed below. Several other new standards and amendments apply for the first time in 2018. However, they do not materially impact the unaudited interim condensed consolidated financial statements of the Group. The nature and impact of each new standard and amendment is described below:

• Amendments to PFRS 2, Share-based Payment, Classification and Measurement of Share-

based Payment Transactions The amendments to PFRS 2 address three main areas: the effects of vesting conditions on the measurement of a cash-settled share-based payment transaction; the classification of a share-based payment transaction with net settlement features for withholding tax obligations; and the accounting where a modification to the terms and conditions of a share-based payment transaction changes its classification from cash settled to equity settled. On adoption, entities are required to apply the amendments without restating prior periods, but retrospective application is permitted if elected for all three amendments and if other criteria are met. Early application of the amendments is permitted. The Group has assessed that the adoption of these amendments will not have any impact on the 2018 consolidated financial statements.

• PFRS 9, Financial Instruments

PFRS 9 reflects all phases of the financial instruments project and replaces PAS 39, Financial Instruments: Recognition and Measurement, and all previous versions of PFRS 9. The standard introduces new requirements for classification and measurement, impairment, and hedge accounting. PFRS 9 is effective for annual periods beginning on or after January 1, 2018. Retrospective application is required but providing comparative information is not

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compulsory. For hedge accounting, the requirements are generally applied prospectively, with some limited exceptions. The Group’s detailed impact assessment of the three aspects of PFRS 9: classification and measurement, impairment, and hedge accounting is still ongoing.

• PFRS 15, Revenue from Contracts with Customers PFRS 15 establishes a new five-step model that will apply to revenue arising from contracts with customers. Under PFRS 15, revenue is recognized at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer. The principles in PFRS 15 provide a more structured approach to measuring and recognizing revenue. The new revenue standard is applicable to all entities and will supersede all current revenue recognition requirements under PFRSs. Either a full retrospective application or a modified retrospective application is required for annual periods beginning on or after January 1, 2018. Early adoption is permitted. The recognition and measurement requirements in PFRS 15 also apply to gains or losses on disposal of nonfinancial assets (such as items of property and equipment and intangible assets), when that disposal is not in the ordinary course of business. The Group’s detailed assessment of the changes in the new revenue standard is ongoing. In addition, as the presentation and disclosure requirements in PFRS 15 are more detailed than under current PFRS, the Group is currently assessing what necessary changes it needs to make on its current systems, internal controls, policies and procedures to enable the Group to collect and disclose the required information.

• Amendments to PAS 28, Measuring an Associate or Joint Venture at Fair Value (Part of Annual Improvements to PFRSs 2014 - 2016 Cycle) The amendments clarify that an entity that is a venture capital organization, or other qualifying entity, may elect, at initial recognition on an investment-by-investment basis, to measure its investments in associates and joint ventures at fair value through profit or loss. They also clarify that if an entity that is not itself an investment entity has an interest in an associate or joint venture that is an investment entity, the entity may, when applying the equity method, elect to retain the fair value measurement applied by that investment entity associate or joint venture to the investment entity associate’s or joint venture’s interests in subsidiaries. This election is made separately for each investment entity associate or joint venture, at the later of the date on which (i) the investment entity associate or joint venture is initially recognized; (ii) the associate or joint venture becomes an investment entity; and (iii) the investment entity associate or joint venture first becomes a parent.

The amendments should be applied retrospectively and is effective on January 1, 2018, with earlier application permitted. The Group is currently assessing the potential effect of the amendments on its consolidated financial statements.

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• Amendments to PAS 40, Investment Property, Transfers of Investment Property The amendments clarify when an entity should transfer property, including property under construction or development into or out of investment property. The amendments state that a change in use occurs when the property meets, or ceases to meet, the definition of investment property and there is evidence of the change in use. A mere change in management’s intentions for the use of a property does not provide evidence of a change in use. The amendments should be applied prospectively to changes in use that occur on or after the beginning of the annual reporting period in which the entity first applies the amendments. Retrospective application is only permitted if this is possible without the use of hindsight. Effective for annual periods beginning on or after January 1, 2018. Since the Group’s current practice is in line with the clarifications issued, the amendments do not have any impact on its consolidated financial statements.

• Philippine Interpretation IFRIC 22, Foreign Currency Transactions and Advance Consideration The interpretation clarifies that, in determining the spot exchange rate to use on initial recognition of the related asset, expense or income (or part of it) on the derecognition of a nonmonetary asset or nonmonetary liability relating to advance consideration, the date of the transaction is the date on which an entity initially recognizes the nonmonetary asset or nonmonetary liability arising from the advance consideration. If there are multiple payments or receipts in advance, then the entity must determine a date of the transactions for each payment or receipt of advance consideration. Entities may apply the amendments on a fully retrospective basis. Alternatively, an entity may apply the interpretation prospectively to all assets, expenses, and income in its scope that are initially recognized on or after (i) the beginning of the reporting period in which the entity first applies the interpretation; or (ii) the beginning of a prior reporting period presented as comparative information in the financial statements of the reporting period in which the entity first applies the interpretation. Since the Group’s current practice is in line with the clarifications issued, the amendments do not have any impact on its consolidated financial statements.

3. Financial Risk Management Objectives and Policies

Risk Management Structure All policy directions, business strategies and management initiatives emanate from the BOD. The BOD convenes in quarterly meetings and in addition, is available to meet in the interim should the need arise. The Group has adopted internal guidelines setting forth matters that require BOD approval. Under the guidelines, all new investments, any increase in investment in business and subsidiary and any divestments require BOD approval. The normal course of the Group’s business exposes it to a variety of financial risks such as credit risk, liquidity risk and market risks which include equity price risk and foreign currency risk exposures.

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The Group has various financial assets such as cash and cash equivalents, trade and non-trade receivables (excluding advances to officers and employees), AFS investments and refundable deposits. The Group’s principal financial liabilities consist of accounts payable and accrued expenses (excluding advances from investee and deferred rent), bank loans and finance lease liabilities, and security deposits (presented under other noncurrent liabilities). The main purpose of these financial liabilities is to raise funds for the Group’s operations.

The Group’s policies on managing the risks arising from the Group’s financial instruments follow: Credit Risk Credit risk is the risk of loss resulting from the failure of a borrower or counterparty to perform its obligations during the life of the transaction. This includes the risk of non-payment by banks and customers, failed settlement of transactions and default on contracts. Management has a credit policy in place and the exposures to these credit risks are monitored on an ongoing basis. The Group’s credit risk management involves entering into arrangements only with counterparties with acceptable credit standing and that are duly approved by the BOD. The Group’s receivables are monitored on a regular basis resulting to insignificant exposure to bad debts. The Group does not hold any collateral from its customers thus, the carrying amounts of cash and cash equivalents, receivables, AFS investments and refundable deposits approximate the Group’s maximum exposure to credit risk. No other financial assets carry a significant exposure to credit risk. The Group performs ongoing credit evaluations of its customers’ financial condition and makes provisions for impairment losses based on the outcome of its credit evaluations. Risk concentration of the maximum exposure to credit risk An industry sector analysis of the Group’s maximum exposure to credit risk is as follows:

September 30, December 31, 2018 2017

Banks and financial intermediaries US$13,219 US$9,948 Consumer electronics 5,303 2,853 Telecommunications (Telecom) 3,391 8,761 Computer peripherals 3,046 2,525 Automotive 409 712 Real estate 191 327 Others 801 768 Total US$26,360 US$25,894

The Group has concentration of credit risk due to sales to significant customers. The financial assets of the Group were more concentrated to banks and financial intermediaries, consumer electronics and telecom industries which accounted for 83.13% of the total financial assets as of September 30, 2018. While as of December 31, 2017, the Group’s assets are more concentrated to banks and financial intermediaries, telecom and computer electronics industries which accounted for 83.27% of the total financial assets. The Group’s financial instruments are broadly diversified along industry, product and geographic lines, and transactions are entered into with a range of counterparties, thereby mitigating any significant concentration of credit risk.

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The tables below summarize the credit quality of the Group’s financial assets (gross of allowance for credit and impairment losses) as of September 30, 2018 and December 31, 2017, respectively:

September 30, 2018

Neither Past Due nor Individually Impaired Past Due

but not Individually Minimal Risk Average Risk High Risk Impaired Impaired Total Cash and cash equivalents* US$13,219 US$− US$− US$− US$− US$13,219 Receivables Trade receivables 10,460 − − 1,001 708 12,169 Other receivables from customers 643 − − 274 70 987 Rent receivables 180 − − − − 180 Advances to managers and employees** 20 − − − − 20 SSS claims receivables 29 − − − − 29 Others 77 − − 97 5 179 Refundable deposits 360 − − − − 360 US$24,988 US$− US$− US$1,372 US$783 US$27,143 *Excludes cash on hand amounting to US$0.011 million **Excludes nonfinancial assets amounting to US$0.088 million

December 31, 2017

Neither Past Due nor Individually Impaired Past Due

but not Individually Minimal Risk Average Risk High Risk Impaired Impaired Total Cash and cash equivalents* US$9,948 US$− US$− US$− US$− US$9,948 Receivables Trade receivables 9,885 − − 3,494 458 13,837 Other receivables from customers 561 − − 1,196 55 1,812 Rent receivables 228 − − − − 228 SSS claims receivables 22 − − − − 22 Advances to managers and employees** 13 − − − − 13 Others*** 47 − − 122 5 174 Refundable deposits 378 − − − − 378 US$21,082 US$− US$− US$4,812 US$518 US$26,412

*Excludes cash on hand amounting to US$0.013 million ** Excludes nonfinancial assets amounting to US$0.076 million. *** Excludes nonfinancial assets amounting to US$0.066 million. The Group classifies credit quality risk as follows: Minimal risk - accounts with a high degree of certainty in collection, where counterparties have consistently displayed prompt settlement practices, and have little to no instance of defaults or discrepancies in payment.

Average risk - active accounts with minimal to regular instances of payment default, due to ordinary/common collection issues, but where the likelihood of collection is still moderate to high as the counterparties are generally responsive to credit actions initiated by the Group. High risk - accounts with a low probability of collection and can be considered impaired based on historical experience, where counterparties exhibit a recurring tendency to default despite constant reminder and communication, or even extended payment terms. The Group maintains cash and cash equivalents with various financial institutions that management believes to be of high credit quality. The Group’s policy is to invest with financial institution from which it has outstanding loans and loan facilities.

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Liquidity Risk Liquidity risk is the risk of not being able to meet funding obligations such as the repayment of liabilities or payment of asset purchases. Short-term funding is obtained to finance cash requirements for capital expenditures and operations. Amount of credit lines are obtained from designated banks duly approved by the BOD. Surplus funds are placed with reputable banks to which the Group has outstanding loans and loan facilities. The Group’s policy is to regularly monitor its liquidity requirements and its compliance with lending covenants, to ensure that it maintains sufficient reserves of cash and highly liquid marketable securities and adequate committed lines of funding from major financial institutions to meet the short and longer term liquidity requirements of the Group.

The tables below show the maturity profile of the financial assets and liabilities, based on its internal methodology that manages liquidity based on remaining contractual maturities:

September 30, 2018

On demand Less than 3 months

3 to 12 Months

1 to 5 years

More than 5 years Total

Financial assets Cash and cash equivalents US$8,721 US$4,509 US$− US$− US$− US$13,230 Receivables1 1,372 11,281 128 − − 12,781 Refundable deposit2 − − − 158 − 158 10,093 15,790 128 158 − 26,169 Financial liabilities Accounts payable and

accrued expenses3 3,109 7,380

−

−

− 10,489 Bank loans4 − 2,454 3,111 1,059 − 6,624 Security deposits5 − − − 200 303 503 3,109 9,834 3,111 1,259 303 17,616 Liquidity gap US$6,984 US$5,956 (US$2,983) (US$1,101) (US$303) US$8,553

1Excluding nonfinancial asset amounting to US$0.088 million. 2Excluding utility deposits amounting to US$0.202 million 3Excluding nonfinancial liabilities amounting to US$0.519 million 4Including future interest payable amounting to US$0.122 million

5Presented under other noncurrent liabilities

December 31, 2017

On demand Less than 3 months

3 to 12 months

1 to 5 years

More than 5 years Total

Financial assets Cash and cash equivalent US$7,461 US$2,500 US$− US$− US$− US$9,961Receivables1 4,813 10,584 173 − − 15,570Refundable deposit2 − − − 38 − 38 12,274 13,084 173 38 − 25,569Financial liabilities Accounts payable and accrued

expenses3 3,156 6,083 9 − − 9,248Bank loans and finance lease

liabilities4 − 712 5,507 1,888 3 8,110Security deposits5 − − − 182 306 488 3,156 6,795 5,516 2,070 309 17,846Liquidity gap US$9,118 US$6,289 (US$5,343) (US$2,032) (US$309) US$7,723

1Excluding nonfinancial assets amounting to US$0.14 million 2Excluding utility deposits amounting to US$0.34 million. 3Excluding nonfinancial liabilities amounting to US$0.361 million. 4Including future interest payable amounting to US$0.18 million 5Presented under other noncurrent liabilities

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The Group finances its cash requirements by tapping its available credit lines. Market Risk Market risk is the risk of loss to future earnings, to fair value or future cash flows of a financial instrument as a result of changes in its price, caused by changes in interest rates, equity prices and foreign currency exchange rates and other market factors.

Interest Rate Risk Interest rate risk is the risk that the value of a financial instrument will fluctuate because of changes in interest rates. The Group’s interest-bearing financial instruments include cash in banks and bank loans. The Group’s income and operating cash flows are substantially independent of changes in market interest rates. The Group follows a prudent policy in managing its assets and liabilities so as to ensure that exposure to fluctuation in interest rates are kept within acceptable limits. Equity price risk The Group’s equity price risk exposure at period-end relates to financial assets whose values will fluctuate as a result of changes in market prices, principally, quoted equity securities classified as AFS investments.

Quoted AFS investments are subject to price risk due to changes in market values of instruments arising either from factors specific to individual instruments or their issuers or factors affecting all instruments traded in the market.

The analysis below is performed for reasonably possible movements in the market index with all other variables held constant, showing the impact on equity both in September 30, 2018 and December 31, 2017.

September 30, 2018 December 31, 2017

Change in

market index

Effect on other

comprehensive income

Change in market index

Effect on other

comprehensive income

US NASDAQ +20% US$8 +25% US$12 -20% (8) -25% (12)

Foreign currency risk Foreign currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The Group is exposed to currency risk primarily through purchases that are denominated in a currency other than the functional currency of the Group. The currency giving rise to this risk is primarily Philippine Peso (P=) and Japanese Yen (¥). It is the Group’s policy not to trade in derivative contracts. In addition, the Group believes that its profile of foreign currency exposure on its assets and liabilities is within conservative limits in the type of business in which the Group is engaged.

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The table below details the Group’s exposure at the reporting date to currency risk arising from forecasted transactions or recognized assets or liabilities denominated in a currency other than the functional currency of the Group.

a. Philippine Peso


In US Dollar

In Philippine Peso In US Dollar

In Philippine Peso

Cash US$906 P=48,944 US$901 P=44,972

Receivables 688 37,152 661 33,020 AFS investments 727 39,272 687 34,298 Refundable deposits 211 11,400 225 11,249

2,532 136,768 2,474 123,539 Less: Accounts payable and accrued expenses 2,941 158,876 2,070 103,374

Net exposure (US$409) (P=22,108) US$404 P=20,165

b. Japanese yen


In US Dollar

In Japanese Yen In US Dollar In Japanese Yen

Gross exposure arising from recognized liabilities US$− ¥− (US$66) (¥7,400)

The exchange rates used to restate the Group’s foreign currency-denominated assets and liabilities follow:

Currency Source September 30,

2018 December 31,

2017 Philippine Peso Philippine Dealing & Exchange Corp.

closing rate US$0.018512 US$0.020028 Japanese Yen Bangko Sentral ng Pilipinas (BSP)

closing rate ¥0.008821

¥0.008859 Sensitivity analysis The following table indicates the approximate change in the Group’s income before income tax in response to reasonably possible changes in the foreign exchange rates to which the Group has significant exposure at the reporting date:

Increase (decrease) from year-end exchange rates 2018 2017 Changes in foreign currency exchange rates Philippine Peso 7.57% (7.57%) 0.42% (0.42%) Japanese Yen 0.43% (0.43%) 3.28% (3.28%) Effect on income (loss) before tax Philippine Peso US$31 (US$31) US$2 (US$2) Japanese Yen − − (3) 3

Other than the potential impact on income (loss) before income tax, there is no other effect on equity.

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The sensitivity analysis has been determined assuming that the change in foreign currency exchange rates has occurred at the reporting date and has been applied to each of the Group entities’ exposure to currency risk for financial instruments in existence at that date, and that all other variables, in particular interest rates, remain constant. The Group does not expect the impact of the volatility on other currencies to be material.

The stated changes represent management’s assessment of reasonably possible changes in foreign currency exchange rates over the period until the next annual reporting date. Results of the analysis as presented in the above table represent an aggregation of the effects on each of the entities’ income before tax measured in the respective functional currencies, translated into US Dollars at the exchange rate ruling at the reporting date for presentation purposes.

4. Capital Management The Group’s primary objective in managing capital is to provide returns for shareholders and benefits for other stakeholders, by pricing products and services commensurately with the level of risk and by securing access to finance at a reasonable cost. The Group monitors capital using a leverage ratio, which is net debt divided by the sum of total equity and net debt. Net debt includes bank loans and trade and other payables less cash and cash equivalents. The Group’s policy is for its leverage ratio not to exceed 75%.

The leverage ratio as of September 30, 2018 and December 31, 2017 follows:

September 30,

2018 December 31,

2017 Current liabilities Accounts payable and accrued expenses* (Note 12) US$10,898 US$9,499 Current portion of bank loans and finance lease

liabilities (Note 14) 5,369 6,040 16,267 15,539 Noncurrent liabilities Security deposits 315 467 Bank loans and finance lease liabilities - net of

current portion (Note 14) 1,059 1,890 1,374 2,357 Total debt 17,641 17,896 Less cash and cash equivalents 13,230 9,961 Net debt 4,411 7,935 Equity 49,145 45,869 Total equity and net debt US$53,556 US$53,804 Leverage ratio 8.24% 14.75%

*Excluding cash advances from an investee amounting to US$0.11 million as of September 30, 2018 and December 31, 2017.

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5. Cash and Cash Equivalents

This account consists of:

September 30,

2018 December 31,

2017 Cash on hand US$11 US$13 Cash in banks 8,710 7,448 Cash equivalents 4,509 2,500 US$13,230 US$9,961

6. Receivables


September 30,

2018 December 31,

2017 Trade receivables US$12,169 US$13,837 Other receivables from customers 987 1,812 Rent receivables 180 228 Advances to managers and employees 108 89 SSS claims receivables 29 22 Others 179 240 13,652 16,228 Less allowance for impairment losses (Note 17) 783 518 US$12,869 US$15,710

The table below shows the aging analysis of receivables as at September 30, 2018 and December 31, 2017:

September 30, 2018 Past Due but Not Impaired

1 to 30 31 to 60 61 to 90 91 to 120 Over 120 Total Current Days Days days days Days Impaired

Trade receivables US$12,169 US$10,460 US$440 US$227 US$126 US$100 US$108 US$708 Other receivables from customers 987 643 97 − − − 177 70 Rent receivables 180 180 − − − − − − Advances to managers and employees 108 108 − − − − −

−

SSS claims receivables 29 29 − − − − − − Others 179 77 − − − − 97 5 US$13,652 US$11,497 US$537 US$227 US$126 US$100 US$382 US$783

December 31, 2017

Past Due but Not Impaired 1 to 30 31 to 60 61 to 90 91 to 120 Over 120

Total Current Days Days days days Days Impaired Trade receivables US$13,837 US$9,885 US$1,933 US$963 US$244 US$− US$354 US$458 Other receivables from customers 1,812 563 87 740 43 44 280 55 Rent receivables 228 228 − − − − − − Advances to managers and employees 89 89 − − − − −

−

SSS claims receivables 22 22 − − − − − − Others 240 113 − − − − 122 5

US$16,228 US$10,900 US$2,020 US$1,703 US$287 US$44 US$756 US$518

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7. Inventories

This account consist of:

September 30,

2018 December 31,

2017 At NRV: Finished goods (Note 15) US$145 US$73 Work-in-process (Note 15) 261 421 406 494 At cost: Raw materials 13,294 9,474 Finished goods (Note 15) 127 206 Work-in-process (Note 15) 1,135 1,012 Spare parts and supplies 945 871 15,501 11,563 US$15,907 US$12,057

The related cost of inventories recorded at NRV follows:

September 30,

2018 December 31,

2017 Raw materials US$284 US$284 Finished goods 189 84 Work in process 306 517

US$779 US$885

The Group recognizes a write-down whenever the NRV of finished goods and work in process is lower than its cost. Inventory write-down for finished goods amounted to US$0.04 million and US$0.01 million for the nine month period ended September 30, 2018 and full year ended December 31, 2017, respectively, while the write-down recognized for work-in-process amounted to US$0.05 million and US$0.10 million for the nine month period ended September 30, 2018 and full year ended December 31, 2017, respectively. All inventory write-downs of work-in-process and finished goods are reported under cost of sales.

8. Available-for-Sale Investments

September 30,

2018 December 31,

2017 Quoted US$169 US$139 Unquoted 2,380 2,148 US$2,549 US$2,287

Quoted AFS investments are listed in the Philippines Stock Exchange, aside from TiVo (Rovi) which is listed in the US NASDAQ stock market.

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The movements in net unrealized losses on AFS investments follow:

September 30,

2018 December 31,

2017 Balances at beginning of year (US$361) (US$216) Unrealized loss (gain) transferred from equity to profit or loss (Note 17) 7 (179) Change in fair value of AFS investments 30 34 Balances at end of period (US$324) (US$361)

9. Investment in Associates

The composition of and movements in this account follow:

September 30,

2018 December 31,

2017 Acquisition cost: Balances at beginning of year US$580 US$406 Additions − 174 Balances at end of period 580 580 Accumulated equity in net earnings Balances at beginning of year 244 256 Share in net earnings (losses) 4 (12) Balances at end of period 248 244 Equity in cumulative translation adjustment (101) (93) Net book values US$727 US$731

10. Property, Plant and Equipment The composition of and movements in this account follow:

September 30, 2018

Land

Machineries and

Equipment

Building, Building

Improvements and Leasehold Improvements

Tools and Other

Equipment

PlantWater andAircondi-

tioningSystems

Furniture, Fixtures

and Equipment

Transpor-tation

Equipment

Construction-in-Progress Total

Cost Balances at beginning of year US$1,925 US$33,772 US$7,693 US$7,038 US$1,429 US$263 US$268 US$57 US$52,445 Additions − 679 − 200 − − − − 879 Disposals − (227) − (47) − (1) (3) − (278) Balances at end of period 1,925 34,224 7,693 7,191 1,429 262 265 57 53,046 Accumulated depreciation Balances at beginning of year − 18,558 6,709 4,423 1,224 251 116 − 31,281 Depreciation and amortization

(Notes 15, 16 and 17) − 2,307 211 634 81 4 37−

3,274 Disposals − (227) − (47) − (1) (3) − (278) Balances at end of period − 20,638 6,920 5,010 1,305 254 150 − 34,277 Net book values US$1,925 US$13,586 US$773 US$2,181 US$124 US$8 US$115 US$57 US$18,769

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December 31, 2017

Land

Machineries and

Equipment

Building, Building

Improvements and Leasehold Improvements

Tools and Other

Equipment

PlantWater andAircondi-

tioningSystems

Furniture, Fixtures and

Equipment

Transpor-tation

Equipment

Construction-in-Progress Total

Cost Balances at beginning of year US$1,919 US$30,726 US$7,659 US$5,735 US$1,388 US$259 US$191 US$304 US$48,181 Additions 6 8,103 34 1,273 12 4 79 57 9,568 Disposals − (5,061) − (241) − − (2) − (5,304) Reclassifications − 4 − 271 29 − − (304) − Balances at end of year 1,925 33,772 7,693 7,038 1,429 263 268 57 52,445 Accumulated depreciation Balances at beginning of year − 21,153 6,435 3,864 1,026 245 74 − 32,797 Depreciation and amortization

(Notes 15, 16 and 17) − 2,465 274 769 178 6 44

− 3,736 Disposals − (5,061) − (189) − − (2) − (5,252) Reclassifications − 1 − (21) 20 − − − − Balances at end of year − 18,558 6,709 4,423 1,224 251 116 − 31,281 Net book values US$1,925 US$15,214 US$984 US$2,615 US$205 US$12 US$152 US$57 US$21,164

Property and equipment include capitalized assets acquired through bank loan and finance lease. The unpaid acquisition of these capitalized assets amounted to US$0.07 million and US$3.93 million as of September 30, 2018 and December 31, 2017, respectively (see Note 14).

11. Investment Properties The composition of and movements in this account follow:

September 30, 2018

Land Building Building

Improvements Total Cost Balances at beginning of year US$2,390 US$5,295 US$3,905 US$11,590 Additions − − 93 93 Balances at end of period 2,390 5,295 3,998 11,683 Accumulated Depreciation and

Amortization Balances at beginning of year − 2,798 3,537 6,335 Depreciation and amortization

(Notes 16 and 17) − 133 129 262 Balances at end of period − 2,931 3,666 6,597 Exchange Reserves (6) − − (6) Net Book Values US$2,384 US$2,364 US$332 US$5,080

December 31, 2017

Land Building Building

Improvements Total Cost Balances at beginning and end of year US$2,390 US$5,295 US$3,905 US$11,590 Accumulated Depreciation and

Amortization Balances at beginning of year − 2,619 3,353 5,972 Depreciation and amortization

(Notes 16 and 17) − 179 184 363 Balances at end of year − 2,798 3,537 6,335 Exchange Reserves (6) − − (6) Net Book Values US$2,384 US$2,497 US$368 US$5,249

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12. Accounts Payable and Accrued Expenses This account consists of:

September 30,

2018 December 31,

2017 Trade payables US$6,993 US$6,966 Accrued expenses 2,533 1,731 Unearned rent income 693 710 Security deposit 503 488 Non-trade payables 59 46 Others 1,029 823 11,810 10,764 Less noncurrent portion of unearned rent and security deposits 802 1,155 US$11,008 US$9,609

Accrued expenses consist of:

September 30,

2018 December 31,

2017 Accrued salaries, wages and other benefits US$1,189 US$505 Accrued sales commission 319 257 Accrued utilities 305 364 Accrued professional fees 200 118 Accrued handling charges 120 135 Accrued rent 44 46 Accrued direct materials 26 14 Others 330 292 US$2,533 US$1,731

13. Advances from Customers

The account represents advanced payments for raw material purchases and required to customers to cover uncollectible receivables in the future amounting to US$1.10 million and US$1.31 million as of September 30, 2018 and December 31, 2017, respectively.

14. Bank Loans and Finance Lease Liabilities


September 30,

2018 December 31,

2017 Finance lease liabilities Current US$1,303 US$1,968 Noncurrent 922 1,765 Commercial loan Current 4,000 4,000 Car loans Current 66 72 Noncurrent 137 125 US$6,428 US$7,930

33

15. Cost of Sales


September 30, 2018

(9 months)

September 30, 2017

(9 months) Raw materials and supplies used US$22,690 US$20,813 Salaries, wages and benefits 7,620 6,392 Depreciation and amortization (Note 10) 3,167 2,532 Occupancy cost and utilities 2,266 2,363 Handling and freight charges 301 457 Other expenses 853 484 Total manufacturing cost 36,897 33,041 Work-in-process (Note 7) Beginning 1,433 296 Ending (1,396) (1,238)Cost of goods manufactured 36,934 32,099 Finished goods (Note 7) Beginning 279 127 Ending (272) (259) US$36,941 US$31,967

16. Cost of Rental Services


September 30, 2018

(9 months)

September 30, 2017

(9 months)Depreciation (Notes 10 and 11) US$273 US$278 Taxes and licenses 5 4 Other expenses 95 36 US$373 US$318

17. Operating Expenses This account consists of:

September 30, 2018

(9 months)

September 30, 2017

(9 months) General and administrative expenses US$1,853 US$1,887 Selling expenses 790 1,021

US$2,643 US$2,908

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General and administrative expenses consist of the following:

September 30, 2018

(9 months)

September 30, 2017

(9 months)Salaries and benefits US$905 US$947 Provision for impairment loss on

receivable 275 − Professional fees 197 203 Occupancy cost and utilities 82 176 Depreciation (Notes 10 and 11) 77 116 Insurance 44 44 Impairment loss on AFS investment

(Note 8) 24 137 Taxes and licenses 7 13 Receivables written-off − 22 Other expenses 242 229

US$1,853 US$1,887

Selling expenses consist of the following:

September 30, 2018

(9 months)

September 30, 2017

(9 months)Sales commission and agent’s

professional fee US$467 US$574 Salaries and benefits 229 359 Depreciation and amortization

(Notes 10 and 11) 19 16 Other expenses 75 72

US$790 US$1,021

18. Finance Costs


September 30,

2018 September 30,

2017 (9 months) (9 months)Interest on term loans US$213 US$76 Other interests 30 28 US$243 US$104

35

19. Others - net This account consists of:

September 30,

2018 September 30,

2017 (9 months) (9 months) Foreign currency exchange gains - net US$226 US$4 Interest income 50 11 Bank charges (38) (33) Miscellaneous 7 28 US$245 US$10

20. Earnings Per Share

The basis of income per share calculations attributable to the equity holders of the Parent Company follows:

September 30, 2018

(9 months)

September 30, 2017

(9 months)a. Net income attributable to equity holders of the Parent Company US$3,205 US$2,289 b. Weighted average number of outstanding common shares 823,072 837,131 c. Basic earnings per share (a/b) US$0.0039 US$0.0027

There were no potential dilutive shares in 2018 and 2017.

21. Segment Information The primary segment reporting format of the Group is by business segments as the Group’s

risks and rates of return are affected predominantly by differences in the goods produced. Secondary information is reported geographically. The operating businesses are organized and managed separately according to the nature of the products and services provided, with each segment representing a strategic business unit that offers different products and serves different markets.

The Group’s geographical segments are based on the location of the Group’s assets. Sales to

external customers disclosed in the geographical segments are based on the geographical location of its customers.

The revenues from major customers under the computer peripherals industry amounted to US$12.12 million and US$10.66 million in September 30, 2018 and 2017, respectively. Total revenues from these customers exceed 10% of the total revenues of the Group.

36

The analysis of the Group’s segments by product line follows:


Computer

Peripherals Telecom Automotive Consumer

Electronics Real Estate Others

Adjustments and

Eliminations Total Sales (external customers) US$13,753 US$12,699 US$1,023 US$13,310 US$− US$976 (US$153) US$41,608 Rental income US$− US$110 US$− US$− US$1,880 US$425 (US$465) US$1,950 Income (loss) from operations US$1,350 US$499 (US$136) US$294 US$1,514 US$80 US$− US$3,601 Foreign exchange gain (loss) - net 142 34 1 26 (2) 25 − 226 Income tax (83) (86) (2) (49) (77) (44) − (341) Share in net earnings of associates - net − − − − − 11 (7) 4 Interest - net (92) (66) − (61) 14 12 − (193) Noncontrolling interests − − − − − − (61) (61) Miscellaneous - net (11) (9) (1) (10) − − − (31) Net income (loss) US$1,306 US$372 (US$138) US$200 US$1,449 US$84 (US$68) US$3,205 Identifiable assets US$13,430 US$14,747 US$1,038 US$15,594 US$11,817 US$45,976 (US$37,876) US$64,726 Unallocated assets − − − 5,722 − 630 − 6,352 Total assets US$13,430 US$14,747 US$1,038 US$21,316 US$11,817 US$46,606 (US$37,876) US$71,078 Identifiable liabilities US$161 US$2,176 US$87 US$500 US$1,295 US$3,916 (US$45,820) (US$37,685) Unallocated liabilities − − − − − 59,618 − 59,618 Total liabilities US$161 US$2,176 US$87 US$500 US$1,295 US$63,534 (US$45,820) US$21,933 Capital expenditures US$310 US$145 US$− US$59 US$93 US$365 US$− US$972 Depreciation and amortization US$2,092 US$662 US$− US$312 US$281 US$189 US$− US$3,536


Computer

Peripherals Telecom Automotive Consumer

Electronics Real Estate Others

Adjustments and

Eliminations Total Sales (external customers) US$11,862 US$12,689 US$2,044 US$8,675 US$− US$844 (US$126) US$35,988 Rental income US$− US$90 US$− US$− US$1,889 US$410 (US$438) US$1,951 Income (loss) from operations US$1,185 US$210 (US$97) US$82 US$1,537 (US$205) US$34 US$2,746 Foreign exchange gain (loss) - net 44 (14) − 3 − (29) − 4 Share in net earnings of associate − − − − − (32) 11 (21) Income tax (102) (62) (5) (32) (77) (24) − (302) Interest - net (30) (44) − (10) (12) 3 − (93) Noncontrolling interests − − − − − − (40) (40)Miscellaneous - net (6) (16) (2) (13) − 32 − (5) Net income (loss) US$1,091 US$74 (US$104) US$30 US$1,448 (US$255) US$5 US$2,289

Identifiable assets US$14,778 US$20,092 US$2,025 US$10,300 US$10,063 US$46,195 (US$38,711) US$64,742 Unallocated assets − − − 2,863 − 651 − 3,514 Total assets US$14,778 US$20,092 US$2,025 US$13,163 US$10,063 US$46,846 (US$38,711) US$68,256

Identifiable liabilities US$44 US$2,365 US$195 US$295 US$1,981 US$30,798 (US$47,108) (US$11,430) Unallocated liabilities − − − − − 35,260 − 35,260 Total liabilities US$44 US$2,365 US$195 US$295 US$1,981 US$66,058 (US$47,108) US$23,830 Capital expenditures US$4,884 US$826 US$39 US$2,644 US$97 US$274 US$− US$8,764 Depreciation and amortization US$1,938 US$360 US$23 US$164 US$287 US$170 US$− US$2,942

22. Fair Value Measurement The Group’s financial instruments consist of cash and cash equivalents, receivables (excluding advances to officers and employees), refundable deposits, AFS investments, accounts payable and accrued expenses, bank loans and finance lease liabilities and security deposits presented under other noncurrent liabilities. The fair values of cash and cash equivalents, receivables, accounts payable and accrued expenses approximate their respective carrying values due to the short term maturities of these instruments.

37

The fair value of bank loans approximates its carrying value because these bank loans are subject to monthly/quarterly interest repricing based on market rate.

The estimated fair value of refundable deposits and security deposits represents the present value of the amount of estimated future cash flows expected to be collected or paid derived using the incremental borrowing rate of the Group for a similar loan. The fair value of the Group’s refundable deposits amounted to US$0.04 million as of September 30, 2018 and December 31, 2017. The fair value of the Group’s security deposits amounted to US$0.50 million and US$0.49 million as of September 30, 2018 and December 31, 2017. These are included within Level 3 of the hierarchy. The fair value of AFS investments is determined using the market prices of the listed shares and the price of the most recent transaction for non-listed shares. Where the fair value of unquoted equity securities could not be reliably determined, the AFS investment is carried at cost, subject to impairment. The estimated fair values of finance lease liabilities represent the present value of the amount of estimated future cash flows expected to be collected or paid derived using the incremental borrowing rate of the Group for a similar loan. The fair value of the Group’s lease liabilities amounted to US$2.21 million and the carrying value amounted to US$2.22 million as of September 30, 2018. The fair value of the Group’s lease liabilities amounted to US$3.76 million and the carrying value amounted to US$3.73 million as of December 31, 2017. This is included within Level 3 of the hierarchy. AFS investments measured at fair value based on the quoted market bid prices are included within the Level 1 of the fair value hierarchy. In 2018 and 2017, there were no transfer between Level 1 and Level 2 of the fair value hierarchy, and no transfer into and out of the Level 3 category.

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