goFLUENT Philippines, Inc.

Financial StatementsDecember 31, 2015 and 2014

and

Independent Auditors’ Report

COVER SHEETfor

AUDITED FINANCIAL STATEMENTS

SEC Registration Number

C S 2 0 0 4 1 2 6 6 4

Company Name

G O F L U E N T P H I L I P P I N E S , I N C .

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

1 0 T H F L O O R I B M P L A Z A B U I L D I N G ,

E A S T W O O D C I T Y C Y P E R P A R K ,

B A G U M B A Y A N , L I B I S , Q U E Z O N C I T Y

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

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

www.gofluent.com 437-01-01 0917-867-3509

No. of StockholdersAnnual Meeting

Month/DayFiscal YearMonth/Day

6 2nd week of August December 31

CONTACT PERSON INFORMATIONThe designated contact person MUST be an Officer of the Corporation

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

ERIC SAVINA esavina@gofluent.com 437-01-01 0917-557-7190

Contact Person’s Address

120 Willow Street, Valley Vista Village, Better Living Subdivision, Parañaque, Metro Manila

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.

GOFLUENT PHILIPPINES, INC. STATEMENTS OF FINANCIAL POSITION

December 312014 2013

ASSETSCurrent AssetsCash (Notes 17 and 18) P5,257,857 P5,252,774Accounts receivables (Notes 5, 15, 17 and 18) 29,485,608 30,245,414Prepayments 850,736 804,424Total Current Assets 35,594,201 36,302,612

Noncurrent AssetsProperty and equipment (Notes 6 and 19) 4,132,904 3,284,667Software (Note 7) 87,117 95,562Deferred income tax asset - net (Note 14) 115,006 45,368Refundable deposits (Notes 17, 18 and 19) 2,897,457 2,726,025Total Noncurrent Assets 7,232,484 6,151,622

TOTAL ASSETS P42,826,685 P42,454,234

LIABILITIES AND EQUITYCurrent LiabilitiesAccounts payable and other liabilities (Notes 9, 17 and 18) P12,825,972 P11,750,689Dividends payable (Notes 13 and 15) 13,498,200 −Loan payable (Note 8) − 1,000,000Income tax payable 230,773 574,261Obligations under finance lease - current (Notes 6, 17, 18

and 19) 681,455 258,935Total Current Liabilities 27,236,400 13,583,885

Noncurrent LiabilitiesAccrued retirement benefits (Note 16) 2,495,241 2,002,469Obligations under finance lease - net of current portion

(Notes 6, 17, 18 and 19) 1,398,086 26,864Total Noncurrent Liabilities 3,893,327 2,029,333

Total Liabilities 31,129,727 15,613,218

EquityCapital stock (Note 13) 5,000,000 5,000,000Remeasurement losses on retirement benefits - net

of deferred income tax (Notes 3 and 16) (243,397) (263,122)Retained earnings (Note 13)

Appropriated 1,940,355 2,104,138Unappropriated 5,000,000 20,000,000

Total Equity 11,696,958 26,841,016

TOTAL LIABILITIES AND EQUITY P42,826,685 P42,454,234

See accompanying Notes to Financial Statements.

GOFLUENT PHILIPPINES, INC. STATEMENTS OF COMPREHENSIVE INCOME

Years Ended December 312014 2013

REVENUE (Notes 10 and 15) P158,298,403 P159,014,703

COST OF SERVICES (Note 11) 129,424,323 130,939,785

GROSS PROFIT 28,874,080 28,074,918

Expenses (Note 12) (25,792,591) (25,890,725)Foreign exchange gain (loss) - net (Note 17) (2,098,866) 2,181,046Finance costs (Notes 8 and 19) (115,011) (209,435)Interest income 87,378 122,761Other expenses - net (7,653) (121,918)

INCOME BEFORE INCOME TAX 947,337 4,156,647

PROVISION FOR INCOME TAX (Notes 2 and 14)Current 1,181,710 934,050Deferred (70,590) 13,772

1,111,120 947,822

NET INCOME (LOSS) (163,783) 3,208,825

OTHER COMPREHENSIVE INCOME (LOSS)Other comprehensive income (loss) not to be reclassified to profit

or loss in subsequent periods Remeasurement gain (loss) on retirement

benefits (Note 16) 20,677 (54,811)Income tax effect (952) 2,534

19,725 (52,277)

TOTAL COMPREHENSIVE INCOME (LOSS) (P144,058) P3,156,548

See accompanying Notes to Financial Statements.

GOFLUENT PHILIPPINES, INC.STATEMENTS OF CHANGES IN EQUITY FOR THE YEARS ENDED DECEMBER 31, 2014 and 2013

Capital Stock

Remeasurementon Retirement

Benefits - Net of Deferred Income Tax

(Note 3)

Retained Earnings - Appropriated

(Note 13)

Retained Earnings -Unappropriated

(Note 13) Total

BALANCES AT DECEMBER 31, 2012 P250,000 (P210,845) P23,600,234 P45,079 P23,684,468Net income for the year – – 3,208,825 3,208,825Remeasurement loss on retirement benefits - net of deferred

income tax – (52,277) – – (52,277)Total comprehensive income for the year – (52,277) – 3,208,825 3,156,548Issuance of stock dividends (Note 13) 4,750,000 – (4,750,000) – –Release of appropriation of retained earnings (Note 13) – – (16,746,096) 16,746,096 –

BALANCES AT DECEMBER 31, 2013 5,000,000 (263,122) 2,104,138 20,000,000 26,841,016Net loss for the year – – – (163,783) (163,783)Remeasurement income on retirement benefits - net of deferred

income tax – 19,725 – – 19,725Total comprehensive income for the year – 19,725 – (163,783) (114,058)Release of appropriation of retained earnings (Note 13) – – (2,104,138) 2,104,138 –Appropriation of retained earnings (Note 13) – – 1,940,355 (1,940,355) –Cash dividend (Note 13) – – – (15,000,000) (15,000,000)

BALANCES AT DECEMBER 31, 2014 P5,000,000 (P243,397) P1,940,355 P5,000,000 P11,696,958

See accompanying Notes to Financial Statements.

GOFLUENT PHILIPPINES, INC.STATEMENTS OF CASH FLOWS

Years Ended December 312014 2013

CASH FLOWS FROM OPERATING ACTIVITIESIncome before income tax P947,337 P4,156,647Adjustments for:

Depreciation and amortization (Notes 6, 7, 11 and 12) 3,108,650 5,130,307Interest expense 61,129 152,202Unrealized foreign exchange loss (gain) – net 1,719,378 (948,226)Retirement benefit costs (Note 16) 513,449 457,550Amortization of deferred lease expense 80,004 105,279Interest income (87,378) (122,761)

Operating income before working capital changes 6,342,569 8,930,998Decrease (increase) in:

Accounts receivable (957,534) (7,621,881)Prepayments (46,312) (98,096)

Increase in accounts payable and other liabilities 14,573,483 59,681Cash generated from operations 19,912,206 1,270,702Income taxes paid, including final taxes (1,525,198) (493,220)Interest received 8,542 8,953Interest paid (61,129) (152,202)Net cash from operating activities 18,334,421 634,233

CASH FLOWS FROM INVESTING ACTIVITIESPurchases of property and equipment (Note 6) (1,184,219) (743,078)Purchases of computer software (Note 7) (133,880) (57,294)Refund of security deposit 120,000 195,846Additions to refundable deposits (292,600) −Net cash used in investing activities (1,490,699) (604,526)

CASH FLOWS FROM FINANCING ACTIVITIESDividends paid (15,000,000) −Payment of loans (1,000,000) (1,000,000)Proceeds from availment of loans (Note 8) − 2,000,000Payments of obligations under finance lease (836,601) (1,567,369)Net cash used in financing activities (16,836,601) (567,369)

EFFECT OF FOREIGN EXCHANGE RATE CHANGES ON CASH (2,038) 1,378

NET INCREASE (DECREASE) IN CASH 5,083 (536,284)

CASH AT BEGINNING OF YEAR 5,252,774 5,789,058

CASH AT END OF YEAR P5,257,857 P5,252,774

See accompanying Notes to Financial Statements.

GOFLUENT PHILIPPINES, INC.NOTES TO FINANCIAL STATEMENTS

1. Corporate Information

goFLUENT Philippines, Inc., (the Company) was registered with the Philippine Securities and Exchange Commission (SEC) on August 16, 2004. Its primary purpose is to provide Information Technology-based distance learning services and lessons and developing, producing and offering the distance learning training and language modules, software and materials.

The Company is a subsidiary of goFLUENT Group SA, a Swiss company. The Company’s ultimate parent is Dream Team Co. Investments (formerly Palawan Investments), another Swiss company.

The Company’s principal place of business is 10th Floor IBM Plaza Building, Eastwood City Cyberpark, Bagumbayan, Libis, Quezon City.

The financial statements were approved for issue by the Company’s Board of Directors (BOD) on February 10, 2015.

2. Registration with the Philippine Economic Zone Authority (PEZA)

The Company is registered with PEZA as an Ecozone IT Enterprise, engaged in the provision of Specialized English Lessons over the telephone (distance learning) and other IT-enabled services and quality assurance services in relation to distance-learning and the importation of machinery, equipment, tools, goods, wares, articles or merchandise directly used in its registered operations.

The Company is also entitled to incentives granted to non-pioneer projects under Republic Act No. (RA) 7916, as amended, and the PEZA IT Guidelines to wit:

a. Incentives under Book VI of Executive Order 226 which include the following:

1) Corporate income tax holiday (ITH) for four years for original project effective on the committed date of start of commercial operations, or the actual date of start of commercial operations, whichever is earlier; ITH entitlement for the original project can also be extended for another three years provided specific criteria are met for each additional year and prior PEZA approval is obtained; duly approved and registered “Expansion” and “New” projects are entitled to a three-year and four-year ITH, respectively;

2) Tax and duty free importation of merchandise which include raw materials, capital equipment, machineries, and spare parts;

3) Exemption from wharfage dues and export tax, impost or fees;4) Value Added Tax (VAT) zero-rating of local purchases subject to compliance with

Philippine Bureau of Internal Revenue (BIR) and PEZA requirements; and5) Exemption from payment of any and all local government imposts, fees, licenses or taxes

except real estate tax; however, machineries installed and operated in the ecozone for manufacturing, processing or for industrial purposes shall not be subject to payment of real estate taxes for the first three years of operation of such machineries; production equipment not attached to real estate shall be exempt from real property taxes.

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b. After the lapse of ITH, the following incentives shall apply:

1) Exemption from national and local taxes, in lieu thereof, payment of 5% final tax on gross taxable income as provided in Section 24 of RA 7916 and Rule XX of the Rules and Regulations to Implement RA 7916; and

2) Additional deduction for training expenses (1/2 of value) against the 5% tax on gross income earned, but not to exceed 3%, subject to guidelines to be formulated by PEZA in coordination with the Department of Labor and Employment and the Department of Finance (Section 42 of RA 7916).

c. Pursuant to BIR’s Revenue Regulations No. (RR) 14-2002, income payments to PEZA registered enterprises under the ITH and 5% gross income tax incentives are exempt from expanded withholding tax.

d. Non-fiscal incentives shall include the following:

1) Permanent resident status within the ecozone for foreign investors with initial investment of at least US$150,000;

2) Employment of foreign nationals; and3) Simplified import and export procedures.

The original four-year ITH incentive for Eastwood ended in October 2008. The Company was able to apply for and was granted an extension of its ITH until August 31, 2010. For the Alabang branch, the Company’s four-year ITH incentive ended in May 2011 but was able to apply for and was granted an extension of its ITH until May 31, 2013.

In 2014, both branches were already subject to 5% final tax on gross taxable income. The tax benefits from the ITH amounted P347,388 in 2013 (see Note 14).

3. Summary of Significant Accounting and Financial Reporting Policies

Basis of PreparationThe financial statements have been prepared on the historical cost basis and are presented in Philippine Peso (Peso), which is the Company’s functional currency.

Statement of ComplianceThe financial statements have been prepared in compliance with Philippine Financial Reporting Standards (PFRS).

The PFRS for Small and Medium-sized Entities (PFRS for SMEs) has been approved for adoption by the Philippine Financial Reporting Standards Council on October 13, 2009 and by the SEC on December 3, 2009. The PFRS for SMEs is effective for annual periods beginning on or after January 1, 2010, and is required to be used by entities that meet the definition of an SME, which include, among others, an entity with total assets of between P3 million and P350 million or total liabilities of between P3 million and P250 million.

The Company qualifies for reporting under the PFRS for SMEs. However, as a subsidiary of a foreign parent company reporting under International Financial Reporting Standards, the Company availed of the exemption from the mandatory adoption of the PFRS for SMEs and prepared its financial statements in compliance with full PFRS.

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Changes in Accounting Policies The accounting policies adopted are consistent with those of the previous financial year except for the adoption of the following amendments and Philippine Interpretations based on the interpretations of the International Financial Reporting Standards Interpretations Committee (IFRIC) effective beginning January 1, 2015.

Amendments to PAS 19, Employee Benefits - Defined Benefit Plans: Employee ContributionsPAS 19 requires an entity to consider contributions from employees or third parties when accounting for defined benefit plans. Where the contributions are linked to service, they should be attributed to periods of service as a negative benefit. These amendments clarify that, if the amount of the contributions is independent of the number of years of service, an entity is permitted to recognize such contributions as a reduction in the service cost in the period in which the service is rendered, instead of allocating the contributions to the periods of service. This amendment is effective for annual periods beginning on or after January 1, 2015. The amendment is not relevant to the Company, since the Company’s retirement plan is noncontributory.

Annual Improvements to PFRS (2010 to 2012 cycle)

The Annual Improvements to PFRSs (2010 to 2012 cycle) contain non-urgent but necessary amendments to the following standards. These are effective for annual periods beginning on or after January 1, 2015. Except as otherwise stated, the amendments do not have a significant impact on the financial statements.

PFRS 2, Share-based Payment - Definition of Vesting ConditionThis improvement is applied prospectively and clarifies various issues relating to the definitions of performance and service conditions which are vesting conditions, including:

A performance condition must contain a service condition A performance target must be met while the counterparty is rendering service A performance target may relate to the operations or activities of an entity, or to those

of another entity in the same group A performance condition may be a market or non-market condition If the counterparty, regardless of the reason, ceases to provide service during the

vesting period, the service condition is not satisfied.

PFRS 3, Business Combinations - Accounting for Contingent Consideration in a Business CombinationThe amendment is applied prospectively for business combinations for which the acquisition date is on or after July 1, 2014. It clarifies that a contingent consideration that is not classified as equity is subsequently measured at fair value through profit or loss whether or not it falls within the scope of PAS 39. This amendment is not relevant to the Company.

PFRS 8, Operating Segments - Aggregation of Operating Segments and Reconciliation of the Total of the Reportable Segments’ Assets to the Entity’s AssetsThe amendments are applied retrospectively and clarify that:

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An entity must disclose the judgments made by management in applying the aggregation criteria in the standard, including a brief description of operating segments that have been aggregated and the economic characteristics (e.g., sales and gross margins) used to assess whether the segments are ‘similar’.

The reconciliation of segment assets to total assets is only required to be disclosed if the reconciliation is reported to the chief operating decision maker, similar to the required disclosure for segment liabilities.

PAS 16, Property, Plant and Equipment: Revaluation Method - Proportionate Restatement of Accumulated Depreciation, and PAS 38, Intangible Assets: Revaluation Method - Proportionate Restatement of Accumulated AmortizationThe amendment is applied retrospectively and clarifies in PAS 16 and PAS 38 that the asset may be revalued by reference to the observable data on either the gross or the net carrying amount. In addition, the accumulated depreciation or amortization is the difference between the gross and carrying amounts of the asset.

PAS 24, Related Party Disclosures - Key Management PersonnelThe amendment is applied retrospectively and clarifies that a management entity, which is an entity that provides key management personnel services, is a related party subject to the related party disclosures. In addition, an entity that uses a management entity is required to disclose the expenses incurred for management services. The amendments affect disclosures only and have no impact on the Company’s financial position or performance.

Annual Improvements to PFRS (2011 to 2013 cycle)

The Annual Improvements to PFRSs (2011 to 2013 cycle) contain non-urgent but necessary amendments to the following standards. These are effective for annual periods beginning on or after January 1, 2015. Except as otherwise stated, the amendments have no significant impact on the financial statements.

PFRS 3, Business Combinations - Scope Exceptions for Joint ArrangementsThe amendment is applied prospectively and clarifies the following regarding the scope exceptions within PFRS 3:

Joint arrangements, not just joint ventures, are outside the scope of PFRS 3. This scope exception applies only to the accounting in the financial statements of the

joint arrangement itself.

PFRS 13, Fair Value Measurement - Portfolio ExceptionThe amendment is applied prospectively and clarifies that the portfolio exception in PFRS 13 can be applied not only to financial assets and financial liabilities, but also to other contracts within the scope of PAS 39.

PAS 40, Investment PropertyThe amendment is applied prospectively and clarifies that PFRS 3, and not the description of ancillary services in PAS 40, is used to determine if the transaction is the purchase of an asset or business combination. The description of ancillary services in PAS 40 only differentiates between investment property and owner-occupied property (i.e., property, plant and equipment).

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Accounting Standards, Amendments to Existing Standards and Interpretations Effective Subsequent to December 31, 2015The standards, amendments and interpretations which have been issued but not yet effective as at December 31, 2015 are disclosed below. Except as otherwise indicated, the Company does not expect the adoption of the applicable new and amended PFRS to have a significant impact on the financial position or performance.

Deferred

PFRS 10, Consolidated Financial Statements and PAS 28, Investments in Associates and Joint Ventures - Sale or Contribution of Assets between an Investor and its Associate or Joint VentureThese amendments address an acknowledged inconsistency between the requirements in PFRS 10 and those in PAS 28 in dealing with the sale or contribution of assets between an investor and its associate or joint venture. The amendments require that a full gain or loss is recognized when a transaction involves a business (whether it is housed in a subsidiary or not). A partial gain or loss is recognized when a transaction involves assets that do not constitute a business, even if these assets are housed in a subsidiary. These amendments are effective from annual periods beginning on or after January 1, 2016. This mandatory adoption date was deferred indefinitely.

The following new standards and amendments were already adopted by the FRSC but are still for approval by BOA.

Effective in 2016

Amendments to PAS 1, Presentation of Financial Statements – Disclosure InitiativeThe amendments include narrow-focus improvements in five areas; namely, materiality, disaggregation and subtotals, notes structure, disclosure of accounting policies and presentation of items of other comprehensive income arising from equity accounted investments. The amendments are effective on or after January 1, 2016. These amendments will not have any impact on the Company’s financial statements.

Amendments to PAS 16, Property, Plant and Equipment, and PAS 38, Intangible Assets - Clarification of Acceptable Methods of Depreciation and AmortizationThe amendments clarify the principle in PAS 16 and PAS 38 that revenue reflects a pattern of economic benefits that are generated from operating a business (of which the asset is part) rather than the economic benefits that are consumed through use of the asset. As a result, a revenue-based method cannot be used to depreciate property, plant and equipment and may only be used in very limited circumstances to amortize intangible assets. The amendments are effective prospectively for annual periods beginning on or after January 1, 2016, with early adoption permitted. These amendments are not expected to have any impact to the Company given that the Company is not using a revenue-based method to depreciate its non-current assets.

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Amendments to PAS 16, Property, Plant and Equipment, and PAS 41, Agriculture - Bearer Plants The amendments change the accounting requirements for biological assets that meet the definition of bearer plants. Under the amendments, biological assets that meet the definition of bearer plants will no longer be within the scope of PAS 41. Instead, PAS 16 will apply. After initial recognition, bearer plants will be measured under PAS 16 at accumulated cost (before maturity) and using either the cost model or revaluation model (after maturity). The amendments also require that produce that grows on bearer plants will remain in the scope of PAS 41 measured at fair value less costs to sell. For government grants related to bearer plants, PAS 20, Accounting for Government Grants and Disclosure of Government Assistance, will apply. The amendments are retrospectively effective for annual periods beginning on or after January 1, 2016, with early adoption permitted. These amendments are not expected to have any impact to the Company as the Company does not have any bearer plants.

Amendments to PAS 27, Separate Financial Statements - Equity Method in Separate Financial StatementsThe amendments will allow entities to use the equity method to account for investments in subsidiaries, joint ventures and associates in their separate financial statements. Entities already applying PFRS and electing to change to the equity method in its separate financial statements will have to apply that change retrospectively. For first-time adopters of PFRS electing to use the equity method in its separate financial statements, they will be required to apply this method from the date of transition to PFRS. The amendments are effective for annual periods beginning on or after January 1, 2016, with early adoption permitted. These amendments will not have any impact on the Company’s financial statements.

Amendments to PFRS 10, Consolidated Financial Statements, PFRS 12, Disclosure of Interests in Other Entities, and PAS 28, Investments in Associates and Joint Ventures - Investment Entities: Applying the Consolidation Exception. The amendments address certain issues that have arisen in applying the investment entities exception under PFRS 10. The amendments are effective for annual periods beginning on or after January 1, 2016, with early adoption permitted. These amendments will not have any impact on the Company’s financial statements.

Amendments to PFRS 11, Joint Arrangements - Accounting for Acquisitions of Interests in Joint Operations The amendments to PFRS 11 require that a joint operator accounting for the acquisition of an interest in a joint operation, in which the activity of the joint operation constitutes a business must apply the relevant PFRS 3 principles for business combinations accounting. The amendments also clarify that a previously held interest in a joint operation is not remeasured on the acquisition of an additional interest in the same joint operation while joint control is retained. In addition, a scope exclusion has been added to PFRS 11 to specify that the amendments do not apply when the parties sharing joint control, including the reporting entity, are under common control of the same ultimate controlling party.

The amendments apply to both the acquisition of the initial interest in a joint operation and the acquisition of any additional interests in the same joint operation and are prospectively effective for annual periods beginning on or after January 1, 2016, with early adoption permitted.

PFRS 14, Regulatory Deferral Accounts

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PFRS 14 is an optional standard that allows an entity, whose activities are subject to rate-regulation, to continue applying most of its existing accounting policies for regulatory deferral account balances upon its first-time adoption of PFRS. PFRS 14 is effective for annual periods beginning on or after January 1, 2016. Since the Company is an existing PFRS preparer, this standard would not apply.

Annual Improvements to PFRSs (2012-2014 cycle)

The Annual Improvements to PFRSs (2012-2014 cycle) are effective for annual periods beginning on or after January 1, 2016 and are not expected to have a material impact on the Company. They include:

PFRS 5, Non-current Assets Held for Sale and Discontinued Operations - Changes in Methods of DisposalThe amendment is applied prospectively and clarifies that changing from a disposal through sale to a disposal through distribution to owners and vice-versa should not be considered to be a new plan of disposal, rather it is a continuation of the original plan. There is, therefore, no interruption of the application of the requirements in PFRS 5. The amendment also clarifies that changing the disposal method does not change the date of classification.

PFRS 7, Financial Instruments: Disclosures - Servicing ContractsPFRS 7 requires an entity to provide disclosures for any continuing involvement in a transferred asset that is derecognized in its entirety. The amendment clarifies that a servicing contract that includes a fee can constitute continuing involvement in a financial asset. An entity must assess the nature of the fee and arrangement against the guidance in PFRS 7 in order to assess whether the disclosures are required. The amendment is to be applied such that the assessment of which servicing contracts constitute continuing involvement will need to be done retrospectively. However, comparative disclosures are not required to be provided for any period beginning before the annual period in which the entity first applies the amendments.

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PFRS 7, Applicability of the Amendments to PFRS 7 to Condensed Interim Financial Statements This amendment is applied retrospectively and clarifies that the disclosures on offsetting of financial assets and financial liabilities are not required in the condensed interim financial report unless they provide a significant update to the information reported in the most recent annual report.

PAS 19, Employee Benefits - Regional Market Issue Regarding Discount RateThis amendment is applied prospectively and clarifies that market depth of high quality corporate bonds is assessed based on the currency in which the obligation is denominated, rather than the country where the obligation is located. When there is no deep market for high quality corporate bonds in that currency, government bond rates must be used.

PAS 34, Interim Financial Reporting - Disclosure of Information ‘Elsewhere in the Interim Financial Report’The amendment is applied retrospectively and clarifies that the required interim disclosures must either be in the interim financial statements or incorporated by cross-reference between the interim financial statements and wherever they are included within the greater interim financial report (e.g., in the management commentary or risk report).

Effective in 2018

PFRS 9, Financial Instruments - Hedge Accounting and Amendments to PFRS 9, PFRS 7 and PAS 39 PFRS 9 (2013 version) already includes the third phase of the project to replace PAS 39 which pertains to hedge accounting. This version of PFRS 9 replaces the rules-based hedge accounting model of PAS 39 with a more principles-based approach. Changes include replacing the rules-based hedge effectiveness test with an objectives-based test that focuses on the economic relationship between the hedged item and the hedging instrument, and the effect of credit risk on that economic relationship; allowing risk components to be designated as the hedged item, not only for financial items but also for non-financial items, provided that the risk component is separately identifiable and reliably measurable; and allowing the time value of an option, the forward element of a forward contract and any foreign currency basis spread to be excluded from the designation of a derivative instrument as the hedging instrument and accounted for as costs of hedging. PFRS 9 also requires more extensive disclosures for hedge accounting.

PFRS 9 (2013 version) has no mandatory effective date. The mandatory effective date of January 1, 2018 was eventually set when the final version of PFRS 9 was adopted by the FRSC. The adoption of the final version of PFRS 9, however, is still for approval by BOA.

The Company is currently assessing the impact of adopting this standard.

The adoption of the third phase of the project is not expected to have any significant impact on the Company’s financial statements.

PFRS 9, Financial InstrumentsIn July 2014, the final version of PFRS 9 was issued. PFRS 9 reflects all phases of the financial instruments project and replaces PAS 39 and all previous versions of PFRS 9. The standard introduces new requirements for classification and measurement, impairment, and

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hedge accounting. PFRS 9 is effective for annual periods beginning on or after January 1, 2018, with early application permitted. Retrospective application is required, but comparative information is not compulsory. Early application of previous versions of PFRS 9 is permitted if the date of initial application is before February 1, 2015.

The Company is currently assessing the impact of adopting this standard.

The adoption of the other phases of the project is not expected to have any significant impact on the Company’s financial statements.

The following new standard issued by the IASB has not yet been adopted by the FRSC.

International Financial Reporting Standards (IFRS) 15, Revenue from Contracts with Customers IFRS 15 was issued in May 2014 and establishes a new five-step model that will apply to revenue arising from contracts with customers. Under IFRS 15, revenue is recognized at an amount that reflects the consideration to which an entity expects to be entitled to in exchange for transferring goods or services to a customer. The principles in IFRS 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 IFRS. Either a full or modified retrospective application is required for annual periods beginning on or after January 1, 2017, with early adoption permitted. This mandatory adoption date was moved to January 1, 2018.

The Company is currently assessing the impact of IFRS 15 and plans to adopt the new standard on the required effective date once adopted locally.

CashCash includes cash on hand and in banks. Cash in banks earn interest at bank deposit rates.

Financial Assets and Financial LiabilitiesFinancial assets within the scope of PAS 39 are classified as either financial assets at FVPL, loans and receivables, held-to-maturity investments, or available-for-sale financial assets, as appropriate. Financial liabilities, on the other hand, are classified as either financial liabilities at FVPL or other financial liabilities, as appropriate. The Company determines the classification of its financial assets and financial liabilities at initial recognition and, where allowed and appropriate, reevaluates this designation at each reporting period.

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Financial assets and financial liabilities are recognized initially at fair value. Directly attributable transaction costs, if any, are included in the initial measurement of financial assets and financial liabilities, except for any financial instruments measured at FVPL. The Company recognizes a financial asset or financial liability in the statement of financial position when it becomes a party to the contractual provisions of the instrument.

All regular way purchases and sales of financial assets are recognized on the trade date, i.e., the date that the Company commits to purchase the financial asset. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the period generally established by regulation or convention in the marketplace.

As of December 31, 2015 and 2014, the Company’s financial instruments consist of loans and receivables and other financial liabilities.

Loans and receivablesLoans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are carried at amortized cost using the effective interest rate method. Gains and losses are recognized in profit or loss when the loans and receivables are derecognized or impaired, as well as through the amortization process. Loans and receivables are included as current assets if maturity is within 12 months from the end of reporting period; otherwise, these are classified as noncurrent assets.

As of December 31, 2015 and 2014, the Company’s loans and receivables consist of cash in banks, accounts receivables and refundable deposits.

Other financial liabilitiesOther financial liabilities are non-derivative financial liabilities with fixed or determinable payments that are not quoted in an active market. They arise when the Company owes money, goods or services directly to a creditor with no intention of trading the payables. Other financial liabilities are carried at amortized cost in the statement of financial position. Amortization is determined using the effective interest rate method. Other liabilities are included in current liabilities if maturity is within 12 months from the end of reporting period; otherwise, these are classified as noncurrent liabilities.

As of December 31, 2015 and 2014, the Company’s other financial liabilities consist of accounts payable and other liabilities, dividends payable, loans payable and obligations under finance lease.

Derecognition of Financial Assets and LiabilitiesFinancial assetsA financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is derecognized when:

the rights to receive cash flows from the asset have expired; the Company retains the right to receive cash flows from the asset, but has assumed an

obligation to pay them in full without material delay to a third party under a “pass-through” arrangement; or

the Company has transferred its rights to receive cash flows from the asset and either (a) has transferred substantially all the risks and rewards of the asset, or (b) has neither transferred nor retained substantially all risks and rewards of the asset, but has transferred control of the asset.

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

Financial liabilitiesA financial liability is derecognized when the obligation under the financial liability is discharged or cancelled or has expired.

Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification will result into the removal of the original liability and the recognition of a new liability and any resulting difference in the respective carrying value is recognized in profit or loss.

Impairment of Financial AssetsThe Company assesses at each reporting period whether there is objective evidence that a financial asset or group of financial assets is impaired.

Assets carried at amortized costIf there is objective evidence that an impairment loss on loans and receivables carried at amortized cost has been incurred, the amount of the loss is measured as the difference between the financial asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate (i.e., the effective interest rate computed at initial recognition). Objective evidence of impairment includes, but are not limited to, bankruptcy or insolvency on the part of the customer and adverse changes in the economy. The carrying amount of the asset is reduced directly when collectibility of the account is remote, for example, due to bankruptcy on the part of the customer. The Company provides an allowance when it is probable that the receivable will not be collected in the future. The amount of loss shall be recognized in profit or loss.

The Company first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, and individually or collectively for financial assets that are not individually significant. If it is determined that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, the financial asset is included in a group of financial assets with similar credit risk characteristics and that group of financial assets is collectively assessed for impairment. Financial assets that are individually assessed for impairment and for which an impairment loss is or continues to be recognized are not included in a collective assessment of impairment.

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed. Any subsequent reversal of an impairment loss is recognized in profit or loss, to the extent that the carrying value of the asset does not exceed its amortized cost at the reversal date.

Day 1 DifferenceWhere the transaction price in a non-active market is different from the fair value from other observable current market transactions in the same instrument or based on a valuation technique whose variables include only data from observable market, the Company recognizes the difference

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between the transaction price and fair value (a “Day 1” profit or loss) in profit or loss unless it qualifies for recognition as some other type of asset. In cases where not observable data is used, the difference between the transaction price and model value is recognized in profit or loss only when the inputs become observable or when the instrument is derecognized.

Offsetting of Financial InstrumentsFinancial assets and financial liabilities are offset and the net amount reported in the statement of financial position if, and only if, there is a currently enforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis, or to realize the asset and settle the liability simultaneously. This is not generally the case with master netting agreements, and the related assets and liabilities are presented gross in the statement of financial position.

Determination of Fair ValueFair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either:

in the principal market for the asset or liability, or in the absence of a principal market, in the most advantageous market for the asset or liability.

The principal or the most advantageous market must be accessible to the Company.

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

A fair value measurement of a non-financial asset takes into account a market participant's ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.

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

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

Level 1 - Quoted (unadjusted) market prices in active markets for identical assets or liabilities Level 2 - Valuation techniques for which the lowest level input that is significant to the fair

value measurement is directly or indirectly observable Level 3 - Valuation techniques for which the lowest level input that is significant to the fair

value measurement is unobservable

For assets and liabilities that are recognized in the financial statements on a recurring basis, the Company determines whether transfers have occurred between Levels in the hierarchy by re-assessing categorization (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.

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PrepaymentsPrepayments are amounts paid in advance for goods and services that are yet to be delivered and from which future economic benefits are expected to flow to the Company within its normal operating cycle or within 12 months from the end of reporting period.

Property and EquipmentProperty and equipment are stated at cost less accumulated depreciation, amortization and any impairment in value. The initial cost of the property and equipment consists of its purchase price, including import duties, taxes and any directly attributable cost of bringing the asset to its workingcondition and location for its intended use. Expenditures incurred after the property and equipment have been put into operation, such as repairs and maintenance are normally charged to profit or loss in the period in which the costs are incurred. In situations where it can be clearly demonstrated that the expenditures have resulted in an increase in the future economic benefits expected to be obtained from the use of an item of property and equipment beyond its originally assessed standard or performance, the expenditures are capitalized as an additional cost of the property and equipment.

Depreciation is computed using the straight-line method over the estimated useful lives of the assets as follows:

Furniture and fixtures 2–5 yearsComputer equipment 2–3 yearsOffice equipment 2–3 yearsVehicles 5 years

Leasehold improvements are amortized over the estimated useful life of the improvements of two to three years or the lease term, whichever is shorter.

The useful lives, depreciation and amortization method are reviewed periodically to ensure that the periods, method of depreciation and amortization are consistent with the expected pattern of economic benefits from items of property and equipment.

When assets are retired or otherwise disposed of, the cost and the related accumulated depreciation, amortization and impairment in value are removed from the accounts, and any resulting gain or loss is recognized in profit or loss.

Intangible AssetsIntangible assets, consisting of software, acquired separately are measured on initial recognition at cost. Following initial recognition, intangible assets are carried at cost less any accumulated amortization and any accumulated impairment losses. Internally generated intangible assets, excluding capitalized development costs, are not capitalized and expenditure is recognized in profit or loss in the year in which the expenditure is incurred.

The useful lives of intangible assets are assessed to be either finite or indefinite.

Amortization of intangible assets with finite useful lives is computed using the straight-line method over the estimated useful life of three years. The amortization period and the amortization method for intangible assets with finite useful lives are reviewed at least at each end of reporting period.  Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are accounted for by changing the amortization period or

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method, as appropriate, and treated as changes in accounting estimates. The amortization expense of intangible assets with finite lives is recognized in profit or loss.

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Impairment of Property and Equipment and SoftwareThe carrying values of property and equipment and software are reviewed for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable.  If any such indication exists, or when an annual impairment testing for an asset is required, and where the carrying value exceeds the estimated recoverable amount, the assets or cash generating units are written down to their recoverable amount.  The recoverable amount of property and equipment and software is the greater of fair value less costs to sell and value-in-use. In assessing value-in-use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessment of the time value of money and the risks specific to the asset.  For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs.  Impairment loss, if any, is recognized in profit or loss.

Retained EarningsRetained earnings represent the cumulative balance of net income or loss net of any dividend declaration. Unappropriated retained earnings represent the portion that is free and can be declared as dividends to stockholders while appropriated retained earnings represent portion that has been restricted and therefore not available for any dividend declaration.

RevenueRevenue is recognized to the extent that it is probable that the economic benefits will flow to the Company and the income can be reliably measured. Revenue is measured at the fair value of the consideration received. The following specific recognition criteria must also be met before income is recognized:

Revenue from rendering of lessons, quality assurance and resources development and IT development are recognized when the services are rendered.

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

Foreign Currency-denominated TransactionsTransactions denominated in foreign currency are recorded using the exchange rate prevailing at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are revalued using the closing exchange rate at the end of reporting period. Foreign exchange gains or losses are credited to or charged against current operations.

LeasesThe determination of whether an arrangement is, or contains, a lease is based on the substance of the arrangement at inception date, of whether the fulfillment of the arrangement is dependent on the use of a specific asset or assets and the arrangement conveys a right to use the asset. A reassessment is made after inception of the lease only if one of the following applies:

(a) there is a change in contractual terms, other than a renewal or extension of the arrangement;(b) a renewal option is exercised or extension granted, unless the term of the renewal or extension

was initially included in the lease term;(c) there is a change in the determination of whether fulfillment is dependent on a specified asset;

or(d) there is a substantial change to the asset.

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Where reassessment is made, lease accounting shall commence or cease from the date when the change in circumstances gave rise to the reassessment for scenarios (a), (c) or (d) and at the date of renewal or extension period for scenario (b).

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Finance leases, which transfer to the Company substantially all the risks and benefits incidental to ownership of the leased item, are capitalized at the inception of the lease at the fair value of the leased property or, if lower, at the present value of the minimum lease payments. Lease payments are apportioned between the finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are reflected in the statement of comprehensive income. Capitalized leased assets are depreciated over the shorter of the estimated useful life of the asset or the lease term.

Operating lease payments are recognized as an expense in the statement of comprehensive income on a straight-line basis over the lease term.

A sale and leaseback transaction involves the sale of an asset and the leasing back of the same asset. The lease payment and the sale price are usually interdependent because they are negotiated as a package. If the leaseback is a finance lease, the excess of sales proceeds over the carrying amount of the assets is deferred and amortized over the lease term. If the leaseback is an operating lease, and it is clear that the transaction is established at fair value, any profit or loss is recognized immediately. If the sale price is below fair value, any profit or loss is recognized immediately except that, if the loss is compensated for by future lease payments at below market price, it shall be deferred and amortized in proportion to the lease payments over the period for which the asset is expected to be used. If the sale price is above fair value, the excess over fair value is deferred and amortized over the period for which the asset is expected to be used.

Short-term Employee BenefitsSalaries and wages are recognized in profit or loss when the employees’ services have been rendered to the Company.

Retirement BenefitsThe Company provides for estimated retirement benefits to be paid under RA7641 to all its regular employees.

The accrued retirement liability represents the present value of the defined benefit obligation at the end of the reporting period. The cost of providing benefits is actuarially determined using the projected unit credit method.

Defined benefit costs include service cost, interest on the net accrued benefit liability and remeasurements of net accrued benefit liability.

Service costs which include current service costs, past service costs and gains or losses on non-routine settlements are recognized as expense in profit or loss. Past service costs are recognized when plan amendment or curtailment occurs. These amounts are calculated annually by independent qualified actuaries.

Net interest on the net defined benefit liability or asset is the change during the period in the net defined benefit liability or asset that arises from the passage of time which is determined by applying the discount rate based on government bonds to the net defined benefit liability or asset. Net interest on the net defined benefit liability or asset is recognized as expense or income in profit or loss.

Remeasurements comprising actuarial gains and losses are recognized immediately in OCI in the period in which they arise. Remeasurements are not reclassified to profit or loss in subsequent periods.

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Other Employee BenefitsOther employee benefits include Social Security System, Philhealth and other contributions, 13th month pay and other incentives provided to employees. These are recognized in profit or loss when the employees’ services have been rendered to the Company.

Employee settlements and accrued leave are recognized as a liability when they are accumulating and paid to the employees. The undiscounted liabilities for leave expected to be settled wholly before twelve months after the end of the reporting period is recognized for services rendered by employees up to the end of the reporting period.

Other ExpensesOther expenses are recognized when incurred. These are measured at the fair value of the consideration paid or payable.

Income TaxesCurrent income taxCurrent income tax assets and liabilities for the current and prior periods are measured at the amounts expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that have been enacted or substantively enacted at the end of the reporting period.

Deferred income taxDeferred income tax is provided, using the balance sheet liability method, on all temporary differences at the financial reporting date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.

Deferred income tax liabilities are recognized for all taxable temporary differences. Deferred income tax assets are recognized for all deductible temporary differences to the extent that it is probable that sufficient future taxable profits will be available against which the deductible temporary differences can be utilized.

The carrying amount of deferred income tax assets is reviewed at each end of the reporting period and reduced to the extent that it is no longer probable that sufficient future taxable profits will be available to allow all or part of the deferred income tax asset to be utilized.

Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realized or the liability is settled, based on tax rates and tax laws that have been enacted or substantively enacted at the end of the reporting period.

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

Provisions and ContingenciesContingent liabilities are not recognized in the financial statements. They are disclosed in the notes to the financial statements unless the possibility of an outflow of resources embodying economic benefits is remote. A contingent asset is not recognized in the financial statements but is disclosed in the notes to the financial statements when an inflow of economic benefits is probable.

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Events After the End of the Reporting PeriodPost year-end events that provide additional information about the Company’s position at the reporting date (adjusting events) are reflected in the financial statements. Post year-end events that are not adjusting events are disclosed in the notes to the financial statements when material.

4. Significant Accounting Judgments and Estimates

The preparation of the financial statements in conformity with PFRS requires management to make judgments and estimates that affect the amounts reported in the financial statements. The judgments and estimates used in the financial statements are based upon management’s evaluation of relevant facts and circumstances as of the date of the financial statements. Actual results could differ from such estimates. Future events may occur which will cause the judgments and estimates used in arriving at the estimates to change. The effects of any change in judgments and estimates are reflected in the financial statements as they become reasonably determinable.

JudgmentsIn the process of applying the Company’s accounting policies, management has made the following judgments, apart from those involving estimations, which has the most significant effect on the amounts recognized in the financial statements:

Determination of the Company’s functional currencyBased on the economic substance of the underlying circumstances relevant to the Company, the functional currency is determined to be the Peso. It is the currency that mainly influences the revenue, cost of services, and operating expenses.

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

Financial assets amounted to P37,640,922 and P37,640,922 as of December 31, 2015 and 2014, respectively (see Note 18). Financial liabilities amounted to P22,980,780 and P22,980,780 as of December 31, 2015 and 2014, respectively (see Note 18).

Operating Lease - Company as LesseeThe Company has operating lease agreements for its office spaces. The Company has determined that the risks and rewards of ownership of the underlying properties have been retained by the lessors. Accordingly, the leases are accounted for as operating leases (see Note 19).

Finance Lease - Company as LesseeThe Company has lease and sale and leaseback agreements covering its computer equipment and vehicle. The Company has determined that the risks and rewards of ownership of the vehicle and computer equipment have been transferred to the Company since the lease terms of the assets are for the major part of the economic life of the assets and the present value of their minimum lease payments at inception date is equal to the fair value of the leased assets. Accordingly, these lease agreements are accounted for as finance leases. The carrying value of the assets under finance leases amounted to P2,559,301 and P2,559,301 as of December 31, 2015 and 2014, respectively

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(see Note 6). Outstanding obligations under finance leases amounted to P2,079,541 and P2,079,541 as of December 31, 2015 and 2014, respectively (see Note 19).

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Asset impairmentThe Company reviews its financial assets at each financial reporting date to assess whether an allowance for impairment should be recognized in its statement of comprehensive income. In particular, judgment by management is required in the estimation of the amount and timing of future cash flows when determining the level of allowance required. Such estimates are based on assumptions about a number of factors and actual results may differ, resulting in future changes to the allowance.

The Company also assesses the impairment of nonfinancial assets whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

Management believes that there was no indication of impairment on the Company’s financial and nonfinancial assets in 2015 and 2014. Accordingly, no impairment loss was recognized.

EstimatesThe key assumptions concerning the future and other key sources of estimation and uncertainty at the end of the reporting period that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.

Estimation of useful lives of property and equipment and softwareThe Company estimated the useful lives of its property and equipment and software based on the period over which the assets are expected to be available for use. The carrying value of property and equipment, net of accumulated depreciation and amortization, amounted to P4,132,904 and P4,132,904 as of December 31, 2015 and 2014, respectively (see Note 6). The carrying value of software, net of accumulated amortization, amounted to P87,117 and P87,117 as ofDecember 31, 2015 and 2014, respectively (see Note 7).

Estimation of retirement benefits costsThe determination of the obligation and cost of retirement benefits is dependent on the assumptions used by the actuary in calculating such amounts. Those assumptions are described in Note 16 and include among others, discount rates and salary increase rates. In accordance with PFRS, actual results that differ from the Company’s assumptions are accumulated and amortized over future periods and, therefore, generally affect the recognized expense and recorded obligation in such future periods.

Accrued retirement benefits amounted to P2,495,241 and P2,495,241 as of December 31, 2015 and 2014, respectively (see Note 16).

Recognition of deferred income tax assetManagement’s assessment on the recognition of deferred income tax assets is based on the projected taxable income in the following periods. As of December 31, 2015 and 2014, the Company recognized deferred income tax assets on retirement benefits amounting to P115,470 and P115,470, respectively, as management believes that sufficient future taxable income will be available against which the deferred income tax assets can utilized (see Note 14).

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5. Accounts Receivable

The normal credit term for trade receivables is 30 days.

6. Property and Equipment

The carrying value of the assets under finance leases amounted to P2,559,301 and P2,559,301 as of December 31, 2015 and 2014, respectively.

2015 2014Trade (Note 15) - 29,128,585 Others - 173,101 Advances to Officers and Employees - 159,938 Advances to Affiliates - 23,984

- 29,485,608

Furniture & Computer Computer Office Leasehold VehicleFixtures Equipment Equipment Equipment Improvements under

under Finace Finance Lease (Note 19) Lease (Note19)

CostJanuary 1 2,342,633 8,579,590 6,714,351 1,320,539 7,006,503 1,355,000 27,318,616 Additions - Retirement and Disposal - December 31 2,342,633 8,579,590 6,714,351 1,320,539 7,006,503 1,355,000 27,318,616 Accumulated Depreciation and AmortizationJanuary 1 1,724,558 7,809,027 5,453,592 1,191,486 6,950,591 56,458 23,185,712 Depreciation and - Amortization (Note 11 and 12) - Retirement and Disposal - December 31 1,724,558 7,809,027 5,453,592 1,191,486 6,950,591 56,458 23,185,712 Net Book Value 618,075 770,563 1,260,759 129,053 55,912 1,298,542 4,132,904

Total

2015

Furniture & Computer Computer Office Leasehold VehicleFixtures Equipment Equipment Equipment Improvements under

under Finace Finance Lease (Note 19) Lease (Note19)

CostJanuary 1 3,867,758 8,062,025 6,382,111 1,717,551 6,941,315 1,419,035 28,389,795 Additions 272,843 734,065 1,275,343 112,123 65,188 1,355,000 3,814,562 Retirement and Disposal (1,797,968) (216,500) (943,103) (509,135) - (1,419,035) (4,885,741) December 31 2,342,633 8,579,590 6,714,351 1,320,539 7,006,503 1,355,000 27,318,616 Accumulated Depreciation and AmortizationJanuary 1 3,118,399 7,085,483 5,167,978 1,619,345 6,694,888 1,419,035 25,105,128 Depreciation and - Amortization (Note 11 and 12) 404,127 940,044 1,228,717 81,276 255,703 56,458 2,966,325 Retirement and Disposal (1,797,968) (216,500) (943,103) (509,135) - (1,419,035) (4,885,741) December 31 1,724,558 7,809,027 5,453,592 1,191,486 6,950,591 56,458 23,185,712 Net Book Value 618,075 770,563 1,260,759 129,053 55,912 1,298,542 4,132,904

Total

2014

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7. Software

8. Loan Payable

In 2013, the Company availed of short-term loan from a local bank with principal amounting to P2,000,000 and bearing interest of 5.75% per annum. Outstanding balance of the loan as of December 31, 2013 amounting to P1,000,000 was fully settled in 2014. Total interest on this loan charged to operations amounted to P3,913 in 2015 and P3,913 in 2014.

9. Accounts Payable and Other Liabilities

“Others” includes liabilities to various government agencies.

10. Revenue

2015 2014Cost:

January 1 1,984,815 Additions 133,880 Retirement (50,400) December 31 - 2,068,295

Accumulated amortization:January 1 1,889,253 Amortization (Notes 11 and 12) 142,325 Retirement (50,400) December 31 - 1,981,178

Net Book Value - 87,117

2015 2014Trade 528,479 Accrued expenses 6,871,947 Others 5,425,546

- 12,827,986

2015 2014Lessons 109,589,828 IT - Development 25,070,284 IT - Resources 7,197,927 IT - BPO 5,191,408 eWriting 3,753,958 IT - Helpdesk 3,217,041 VCR Lessons 2,559,446 IT - CRM 1,468,599 Trainer management services 249,912

- 158,298,403

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11. Cost of Services

12. Expenses

13. Stockholders’ Equity

The Company’s capital stock as of December 31, 2015 and 2014 comprise of the following:

Authorized shares 50,000Par value per share P100Subscribed and paid up P5,000,000

As of December 31, 2012, the Company’s appropriated retained earnings amounted toP23,600,234. However, upon further deliberation of the said retained earnings appropriation balance as of December 31, 2012, the BOD resolved in its meeting on January 31, 2013, that of the total appropriated amount, P14,750,000 will be distributed subsequently as stock and cash dividends, P3,850,234 will be retained as appropriation for expansion of the Company’s business process outsourcing team and their office (i.e. to be implemented in the first quarter of 2013), and the remaining P5,000,000 will be reverted back to unappropriated retained earnings in 2013.

Subsequently, on August 2, 2013, the BOD approved the declaration of stock dividends of 7,500 shares totaling P750,000 to stockholders of record as of December 31, 2012.

2015 2014Salaries and Wages 94,701,640 Employee Benefits (Note 16) 18,799,010 Rentals 7,546,626 Utilities 3,983,106 Depreciation and Amortization (Note 6 and 7) 2,856,188 Communication Expense and Others 1,537,753

- 129,424,323

2015 2014Salaries and Wages 11,771,820 Employee Benefits (Note 16) 2,929,002 Dues and Subscription 2,510,065 travel and Entertainment 2,036,113 Professional fees and outside services 1,666,812 Supplies expense 1,537,144 Rent 1,521,306 Utilities expense 516,645 Communication Expense and Others 290,748 Depreciation and Amortization (Note 6 and 7) 252,462 Others 760,474

- 25,792,591

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On September 10, 2013, the stockholders approved the increase in the Company’s authorized capital stock from P1,000,000, divided into 10,000 shares at P100 par value per share to P5,000,000, divided into 50,000 shares at P100 par value per share. On the same date, the BOD approved the declaration of stock dividends of 40,000 shares totaling P4,000,000 to stockholders of record as of December 31, 2012. The Company’s application for increase in authorized capital stock was approved by the SEC on November 15, 2013. Upon approval, the Company issued the stock dividends declared in 2013 to the stockholders.

On its meeting dated November 29, 2013, the BOD also approved the reversal of appropriated retained earnings amounting to P10,000,000.

On December 26, 2013, the BOD resolved to further release the amount of P6,746,096 for dividend declaration to stockholders of record as of December 31, 2013. The remaining appropriated retained earnings amounting to P2,104,138 will be retained for expansion and relocation of BPO Services and Data Mining Services to be implemented in the first quarter of 2014. After completion of the project, on December 30, 2014, the BOD resolved to release the previously appropriated retained earnings amounting to P2,104,138. On the same date, the BOD further resolved to appropriate P1,940,355 for the opening of a new office in Cebu before the end of 2015.

On November 30, 2014, the BOD resolved to declare cash dividend of P15,000,000 to be distributed to stockholders of record as of December 31, 2013. The cash dividend, net of final withholding tax, remained outstanding as of December 31, 2014.

14. Income Taxes

a. The provision for current income tax consists of the following:

b. The components of the Company’s net deferred income tax assets as of December 31, 2015 and 2014 are as follows:

2015 2014Gross income tax (GIT) on registered activities 1,175,191 Regular corporate income tax (RCIT) on unregistered activities 5,059 Final tax on interest income 1,460

- 1,181,710

2015 2014Deferred income tax asset on accrued retirement benefits 115,470 Deferred income tax liability (464)

- 115,006

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c. The reconciliation between the provision for income tax at statutory rates and the provision for income tax as shown in profit or loss in 2015 and 2014 are as follows:

15. Related Party Transactions

Enterprises and individuals that directly, or indirectly through one or more intermediaries, control or are controlled by or under common control with the Company, are related parties of the Company. Associates and individuals owning, directly or indirectly, an interest in the voting power of the Company that gives them significant influence over the enterprise, key management personnel, including directors and officers of the Company and close members of the family of these individuals, and companies associated with these individuals also constitute related parties. In considering each possible related entity relationship, attention is directed to the substance of the relationship and not merely the legal form. The Company has various related party transactions with its affiliates within the goFLUENT group. The Company’s related party transactions are as follows:

2015 2014Income tax at 5% of gross income 1,443,704 Increase (decrease) in provision for income

tax resulting from:Income tax holiday, net of 25% rate differential for ITH

taxable income taxed at RCIT rate versus the 5% GIT rate - Temporary difference recognized as deferred tax assets (70,590) Additional deduction for training expenses under RA No. 7916 (528,819) Nondeductible rent and other expenses 123,693 Realized foreign exchange gain and other income subject to GIT 136,613 Income tax on income subject to regular tax rate 5,059 Final tax on interest income 1,460

1,111,120

Outstanding - Balance

Transactions Due from (to)Nature Related Parties during the year Related Parties Terms and Conditions

Revenue (a) goFluent Shared Services - - Non-interest bearing, unsecuredgoFluent Technologies - - Non-interest bearing, unsecuredgoFluent SAS - - Non-interest bearing, unsecuredgoFluent Sarl - - Non-interest bearing, unsecuredgoFluent USA - - Non-interest bearing, unsecuredgoFluent SRL - - Non-interest bearing, unsecuredgoFluent SLU - - Non-interest bearing, unsecuredgoFluent GmbH - - Non-interest bearing, unsecuredgoFluent UK - - Non-interest bearing, unsecuredgoFluent Canada - - Non-interest bearing, unsecuredgoFluent OOO - - Non-interest bearing, unsecuredNovo English - - Non-interest bearing, unsecuredgoFluent KK - - Non-interest bearing, unsecured

Advances (b) goFluent Technologies - - Non-interest bearing, unsecuredDividends (c) Stockholders - - Non-interest bearing, unsecured

2015

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a. The Company renders services to related parties which include, among others, (a) language lessons through telephone and videoconferencing, (b) technical language lessons, (c) management of complete language training program, (d) quality assurance services, and (e) IT enabled services. Under the agreements between the Company and the related parties, the latter shall pay the Company an agreed fixed fee per language lesson rendered. The fees for quality assurance, and IT enabled services shall be based on monthly or hourly fees, mutually agreed for specific projects.

b. The Company also made advances to a related party in the course of conducting its business.

c. As discussed in Note 13, the Company declared cash dividends to stockholders in 2014.

d. Short-term benefits given by the Company to key management personnel amounted to P7,557,789 and P7,557,789 in 2015 and 2014, respectively.

16. Retirement Benefits

The Company provides for estimated retirement benefits to be paid under RA 7641 to all its regular employees. An independent actuary, using the projected unit credit method, conducts an actuarial valuation of the retirement benefits costs.

The following tables summarize the components of net retirement benefits cost recognized in the profit or loss and the amounts recognized in the statements of financial position.

The components of retirement benefits costs which were charged to operations are as follows:

Outstanding - Balance

Transactions Due from (to)Nature Related Parties during the year Related Parties Terms and Conditions

Revenue (a) goFluent Shared Services 117,885,216 5,538,872 Non-interest bearing, unsecuredgoFluent Technologies 32,623,979 21,409,884 Non-interest bearing, unsecuredgoFluent SAS 2,436,704 592,851 Non-interest bearing, unsecuredgoFluent Sarl 1,694,050 62,620 Non-interest bearing, unsecuredgoFluent USA 838,427 199,337 Non-interest bearing, unsecuredgoFluent SRL 520,278 134,860 Non-interest bearing, unsecuredgoFluent SLU 473,123 114,762 Non-interest bearing, unsecuredgoFluent GmbH 433,224 227,092 Non-interest bearing, unsecuredgoFluent UK 359,497 100,558 Non-interest bearing, unsecuredgoFluent Canada 357,495 182,833 Non-interest bearing, unsecuredgoFluent OOO 276,809 140,158 Non-interest bearing, unsecuredNovo English 249,912 239,092 Non-interest bearing, unsecuredgoFluent KK 149,689 186,666 Non-interest bearing, unsecured

Advances (b) goFluent Technologies 23,984 23,984 Non-interest bearing, unsecuredDividends (c) Stockholders 15,000,000 (13,498,200) Non-interest bearing, unsecured

2014

2015 2014Current service cost 420,334 Interest cost 93,115 Total - 513,449

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The amounts recognized in the Company’s statement of financial position represent the present value of obligation (PVO). PVO are as follows:

The assumptions used to determine retirement benefits costs of the Company as of January 1 are as follows:

As of December 31, 2015, the discount rate and salary increase rate are 4.51% and 3.00%, respectively.

2015 2014January 1 2,002,469 Current service cost 420,334 (Forward)Interest cost 93,115 Actuarial loss (gain) due to:

Experience adjustments (65,705) Changes in financial assumptions 45,028 Changes in demographic assumptions -

December 31 - 2,495,241

2015 2014Discount rate 4.65%Salary increase rate 3.00%

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The sensitivity analysis below has been determined based on reasonably possible changes of each significant assumption on the defined benefit obligation as of December 31, 2015 and 2014 on PVO, assuming all other assumptions were held constant:

2014Increase

(Decrease) Effect on PVODiscount rate +1% (P297,099)

-1% 332,199Future salary rate increases +1% 334,343

-1% (305,285)Employee turnover +10% (361,172)

-10% 361,172

2013Increase

(Decrease) Effect on PVODiscount rate +1% (P281,133)

-1% 281,133Future salary rate increases +1% 261,090

-1% (261,090)Employee turnover +10% (282,461)

-10% 282,461

Shown below is the undiscounted maturity analysis of the benefit payments as of December 31, 2015 and 2014:

2014 2013Less than 1 year P214,400 P–More than 1 year to 5 years 606,371 793,615More than 5 years 9,498,605 7,994,715

P10,319,376 P8,788,330

17. Financial Risk Management Objectives and Policies

The Company’s activities expose it to a variety of risks, which include foreign currency risk, credit risk, and liquidity risk. The Company’s overall risk management program seeks to minimize potential adverse effects on the Company’s financial performance. Risk management is carried out by the Country Manager, with the assistance of the treasury specialist, under policies approved by the BOD.

Foreign Currency RiskThe Company operates domestically but its revenue is denominated in foreign currency and is exposed to foreign currency risk with respect to US dollar and Euro. To manage the foreign currency risk, the Company converts its US dollar and Euro collections into Peso within a short period of time.

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The Company’s foreign currency - denominated financial assets and liabilities are as follows:

2014

Account CurrencyAmount in

Foreign Currency Peso EquivalentCash in banks US$ 79,853 P3,562,819

EUR 1,173 63,7303,626,549

Accounts receivable US$ 171,084 7,633,269EUR 396,019 21,519,300

29,152,569Total US$ 250,937 11,196,088

EUR 397,192 21,583,030P32,779,118

2013

Account CurrencyAmount in

Foreign Currency Peso EquivalentCash in banks US$ 96,644 P4,292,368

EUR 422 25,6364,318,004

Accounts receivable US$ 245,321 10,895,709EUR 315,550 19,190,500

30,086,209Total US$ 341,965 15,188,077

EUR 315,972 19,216,136P34,404,213

As of December 31, 2015 and 2014, the applicable closing rate was P44.617 and P44.617 to US$1, and P54.339 and P54.339 to EUR1, respectively. Net foreign exchange loss amounted to P2,098,866 in 2015 and net foreign exchange gain amounted to P2,098,866 in 2014.

The tables in the following section show the effect on income before income tax of reasonably possible changes in foreign currency rates. There is no other impact on the Company’s equity other than those already affecting the income.

December 31, 2014

Currency Increase (Decrease) in RateEffect on Income

Before Income TaxUS$ +4% P447,842

-4% (447,842)

EUR +6% P1,294,981-6% (1,294,981)

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December 31, 2013

Currency Increase (Decrease) in RateEffect on Income

Before Income TaxUS$ +4% P607,466

-4% (607,466)

EUR +6% P1,153,045-6% (1,153,045)

Credit RiskThe Company has no significant exposure to credit risk because its customers are affiliates and are required to pay either in advance or within sixty days upon the receipt of the invoice. With respect to credit risk arising from the other financial assets of the Company, which comprise mainly of cash and refundable deposits, the Company’s exposure to credit risk arises mainly from the default of the counterparty.

The maximum credit exposure of the Company on its financial assets is equal to their carrying values as December 31, 2015 and 2014. These financial assets are not supported by collateral from the counterparties.

The following table provides the credit quality per class of the Company’s financial assets as of December 31, 2015 and 2014:

December 31, 2014Neither

Past Due Nor Impaired Past Due But Not Impaired

- High Grade 31 to 60 days 61-90 days 91-120 days  TotalCash in banks P5,257,857 P– P– P– P5,257,857Accounts receivable

Trade 6,948,322 5,557,112 2,828,710 13,794,441 29,128,585Advances to officers and employees 159,938 – – – 159,938Advances to affiliate – – – 23,984 23,984Others 173,101 – – – 173,101

Refundable deposits 2,897,457 – – – 2,897,457Total P15,436,675 P5,557,112 P2,828,710 P13,818,425 P37,640,922

December 31, 2013Neither

Past Due Nor Impaired Past Due But Not Impaired

- High Grade 31 to 60 days 61-90 days 91-120 days  TotalCash in banks P5,252,774 P– P– P– P5,252,774Accounts receivable

Trade 15,629,943 2,622,606 2,847,385 8,967,019 30,066,953Advances to officers and employees 85,268 – – – 85,268Advances to affiliate 13,037 – – 6,218 19,255Others 73,938 – – – 73,938

Refundable deposits 2,726,025 – – – 2,726,025Total P23,780,985 P2,622,606 P2,847,385 P8,973,237 P38,224,213

As of December 31, 2015 and 2014, all of the Company’s financial assets are considered to be of high grade quality. High grade receivables consist of receivables from customers and other parties with good credit standing with the Company and with a history of no or little delay in payments.

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Liquidity RiskPrudent liquidity risk management implies maintaining sufficient cash. The Company aims to maintain flexibility in funding by keeping committed credit lines available.

The tables below summarize the maturity profile of the Company’s financial liabilities based on contractual undiscounted payments and the maturity profile of the Company’s financial assets that will be used to finance the maturing liabilities:

December 31, 2014

On DemandLess than

1 Year Over 1 Year TotalFinancial LiabilitiesDividends payable P13,498,200 P− P− P13,498,200Accounts payable and accrued expenses:

Trade 528,479 − − 528,479Accrued expenses 6,871,947 − − 6,871,947Others* 2,613 − − 2,613

7,403,039 − − 7,403,039Obligations under finance lease**

(Note 19) − 905,108 1,668,122 2,573,230P20,901,239 P905,108 P1,668,122 P23,474,469

Financial AssetsCash P5,257,857 P− P− P5,257,857Accounts receivable:

Trade receivables − 29,128,585 − 29,128,585Advances to officers and employees − 159,938 − 159,938Advances to affiliate − 23,984 − 23,984Others − 173,101 − 173,101

5,257,857 29,485,608 − 34,743,465Refundable deposits − − 2,897,457 2,897,457

P5,257,857 P29,485,608 P2,897,457 P37,640,922 *Amounts are exclusive of nonfinancial liabilities amounting to P5,422,933.**Amounts include interest due amounting to P493,689.

Capital ManagementThe primary objective of the Company's capital management is to ensure that it maintains a strong and healthy financial position to support its current business operations and drive its expansion and growth in the future.

The Company considers its capital stock and retained earnings totaling P11,696,958 and P11,696,958 as of December 31, 2015 and 2014, respectively, as its capital employed. No changes were made in the objectives, policies or processes during the years ended December 31, 2015 and 2014.

As disclosed in Note 13, the Company increased its authorized capital stock from P1,000,000 toP5,000,000 and declared stock dividends totaling P15,000,000 in 2014. The Company also declared cash dividend amounting to P15,000,000 in 2015.

18. Financial Assets and Financial Liabilities

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The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate such value:

Current financial assets and liabilitiesDue to the short-term nature of the transactions, the carrying values of cash, accounts receivable, loans payable, accounts payable and other liabilities and dividends payable approximate their fair values.

Noncurrent financial assets and liabilitiesThe fair values of the refundable deposits and obligations under finance lease have been calculated by discounting the expected future cash flows at the prevailing interest rates for instruments with similar maturities. Fair values of these financial instruments were classified under the Level 2 fair value hierarchy.

The following table sets forth the carrying values and estimated fair values of these noncurrent financial assets and financial liabilities as of December 31:

2014 2013Carrying

ValueFair

ValueCarrying

ValueFair

ValueNoncurrent financial assetsRefundable deposits P2,897,457 P2,317,381 P2,726,025 P2,440,524

Noncurrent financial liabilitiesObligations under finance lease (Note 19) P2,079,541 P2,030,320 P285,799 P236,895

19. Lease Commitments

Operating LeasesThe Company has lease agreements covering its Alabang and Eastwood office spaces for a period of five years until 2018 and 2019, respectively. The Company also entered into noncancellable lease agreements for the rentals of condominium unit. These lease agreements required the Company to pay security deposits which are included under “Refundable deposits” in the statements of financial position.

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The future minimum lease commitments under these agreements are follows:

2014 2013

Less than 1 year 8,198,760 P4,434,510More than 1 year to 5 years 24,310,893 11,681,853

P32,509,653 P11,116,363

The future minimum lease payments due within one year on the lease of condominium units amounted to P385,000.

Finance LeasesThe Company entered into various finance lease agreements in 2014 and in prior years covering several computer equipment and vehicle for a period of two years and five years, respectively.

The reconciliation between the total minimum lease payments together with their present value as of December 31 follows:

2014 2013Minimum Present value of Minimum Present value of

lease payments lease payments lease payments lease paymentsWithin one year P905,108 P681,455 P269,914 P258,935After one year but not more than five years 1,668,122 1,398,086 27,068 26,864Total minimum payments 2,573,230 2,079,541 296,982 285,799Finance costs (493,689) – (11,183) –Present value of minimum lease payments P2,079,541 P2,079,541 P285,799 P285,799

20. Supplementary Information Required Under Revenue Regulations No. 15-2010

In compliance with BIR Revenue Regulations No. 15-2010 issued on November 25, 2010, mandating all taxpayers to disclose information on taxes, duties and licenses paid and accrued during the taxable year, the following present information on taxes and license fees paid or accrued in 2014:

a. The Company, being a PEZA-registered entity, has no output value added tax (VAT) in 2015. The Company has VAT zero-rated sales reflected in the Revenue account amounting to P158,298,403 pursuant to the provisions of RA No. 7916.

b. The Company also has no vat input tax claimed during the year, all purchases are likewise vat zero-rated.

c. The Documentary Stamp Tax (DST) paid on the following transactions are as follows:

Amount DSTFinance lease contracts P2,104,274 P10,521Lease contract 884,211 885Insurance contracts 155,156 17,838

P3,143,641 P29,244

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d. Other taxes and licenses that were paid during the year are as follows:

Local:Local taxes on insurance contracts P1,710Residence tax certificate 500

P2,210

National -Annual registration fee P1,000

Peza-Peza Permits P15,697

e. The amount of withholding taxes paid and accrued for the year amounted to:

Paid Accrued TotalTaxes on compensation and

benefits P20,537,419 P1,530,412 P22,067,831Creditable withholding taxes 502,470 28,960 531,430Final withholding tax − 1,501,800 1,501,800

P21,039,889 P3,061,172 P24,101,061

GOFLUENT PHILIPPINES, INC. SUPPLEMENTARY SCHEDULE OF RETAINED EARNINGS AVAILABLE FOR DIVIDEND DECLARATIONDECEMBER 31, 2014

Unappropriated Retained Earnings, as adjusted to available for dividend distribution, beginning 18,958,995Adjustments for deferred income tax assets (47,411)Unappropriated retained earnings, as adjusted to amount

available for dividend declaration, beginning 18,911,584Add: net income(loss) actually earned/realized during the year

Net loss during the year closed to retained earnings (163,783)Add (less): Non-actual/unrealized income

Unrealized foreign exchange gain in prior year realized this year 948,226Unrealized foreign exchange gain in the current year (9,278)Increase in deferred income tax asset (70,590)

Net income(loss) actually earned/realized during the year 704,575Add (less): Dividend declaration during the period (15,000,000) Reversal of Appropriated Retained Earnings 2,104,138 Appropriation of Retained Earnings (1,940,355)

(14,836,218)

Unappropriated retained earnings available for dividend declaration, end 4,779,942