IKK ICHIGAN INC.NOTES TO FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009(Amounts in Philippine Peso)

1. Corporate Information

IKK ICHIGAN INC. is a corporation duly organized and existing by the virtue of Philippine laws with SEC Registration Number CS200616656 approved last October 25, 2006. The company’s principal address is located at 528 Panday Pira St., Tondo Manila.

That the primary purpose of this corporation is to engage in the business of sale of cars, automobile, SUV , ambulance, trucks and trading of goods such as spare parts, accessories of cars and trucks and other similar items on wholesale/retail basis. Import and Export of the same and auto services/assembler.

In November 2007, the stockholders of the corporation in a special meeting approved to increase its capitalization from one million pesos (P1,000,000.00) to one hundred million pesos (100,000,000.00), in increasing the paid up capital to seven million six hundred thirty one thousand ninety nine and 75/100 (P 7,631,399.75).

The corporation, likewise amended its purpose from trading spare parts, accessories of cars and trucks to assembler and importer of transportation equipment in semi-knockdown from which includes spare parts and accessories.

And the corporation amended its company address from 435 Francisco St., Tondo Manila to528 Panday Pira St., Tondo Manila.

2. Basis of Preparation and Accounting Policies

This financial statements have been prepared in accordance with the International Financial Reporting Standard for Small and Medium-sized Entities issued by the International Accounting Standards Board. They are presented in Philippine Peso.

Revenue recognition

Revenue from sales of goods is recognized when the goods are delivered and title has passed. Revenue is measured at the fair value of the consideration received or receivable, net of discounts and sales-related taxes collected .Borrowing Costs

All borrowing costs are recognized in profit and loss in the period in which they are incurred.

Income Tax

Income tax expense represents the sum of the tax currently payable and deferred tax.

The tax currently payable is based on taxable profit for the year.

Deferred tax is recognized on differences between the carrying amounts of assets and liabilities in the financial statements and their corresponding tax bases (known as temporary differences). Deferred tax liabilities are recognized for all temporary differences that are expected to reduce taxable profit in the future, and any unused tax losses or unused tax credits. Deferred tax assets are measured at the highest amount that, on the basis of current or estimated future taxable profit, is more likely than not to be recovered.

The net carrying amount of deferred tax assets is reviewed at each reporting date and is adjusted to reflect the current assessment of future taxable profits. Any adjustments are recognized in profit or loss.

Deferred tax is calculated at the tax rates that are expected to apply to the taxable profit (tax loss) of the periods in which it expects the deferred tax asset to be realized or the deferred tax liability to be settled, on the basis of tax rates that have been enacted or substantively enacted by the end of the reporting period.

Property ,Plant and Equipment

Items of property, plant and equipment are measured at cost less accumulated depreciation and any accumulated impairment losses.

Depreciation is charged so as to allocate the cost of assets less their residual values over their estimated useful lives, using the straight-line method. The following annual rates are used for the depreciation of property, plant and equipment:

Buildings 2 percentFixtures and equipment 10-30 percent

If there is an indication that there has been a significant change in depreciation rate, useful life or residual value of an asset, the depreciation of that asset is revised prospectively to reflect the new expectations.

Intangible assets

Intangible assets are purchased computer software that is stated at cost less accumulated depreciation and any accumulated impairment losses. It is amortized over its estimated life of five years using the straight-line method If there is an indication that there has been a significant change in amortization rate, useful life or residual value of an intangible asset, the amortization is revised prospectively to reflect the new expectation.

Impairment of assets

At each reporting date, property, plant and equipment, intangible assets, and investments in associates are reviewed to determine whether there is any indication that those assets have suffered an impairment loss. If there is an indication of possible impairment, the recoverable amount of any affected asset (or group of related assets) is estimated and compared with its carrying amount. If estimated recoverable amount is lower, the carrying amount is reduced to its estimated recoverable amount, and an impairment loss is recognized immediately in profit or loss.

Similarly, at each reporting date, inventories are assessed for impairment by comparing the carrying amount of each item of inventory (or group of similar items) with its selling price less costs to complete and sell. If an item of inventory (or group of similar items) is impaired, its carrying amount is reduced to selling price less costs to complete and sell, and an impairment loss is recognized immediately in profit or loss.

If an impairment loss subsequently reverses, the carrying amount of the asset (or group of related assets) is increased to the revised estimate of its recoverable amount ( selling price less costs to complete and sell, in the case of inventories), but not in excess of the amount that would have been determined had no impairment loss been recognized for the asset (group of related assets) in prior years. A reversal of an impairment loss is recognized immediately in profit and loss.

If an impairment loss subsequently reverses, the carrying amount of the asset ( or group of related assets) is increased to the revised estimate of its recoverable amount ( selling price less costs to complete and sell, in the case of inventories ), but not in excess of the amount that would have been determined had no impairment loss been recognized immediately in profit or loss.

Leases

Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership of the leased asset to the Company. All other leases are classified as operating leases.

Rights to assets held under finance leases are recognized as assets of the company at the fair value of the leased property (or, if lower, the present value of minimum lease payments) at the inception of the lease. The corresponding liability to the lessor is included in the statement of financial position as a finance lease obligation. Lease payments are apportioned between finance charges and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are deducted in measuring profit or loss. Assets held under finance leases are included in property, plant and equipment, and depreciated and assessed for impairment losses in the same way as owned assets.

Rentals payable under operating leases are charged to profit or loss on a straight-line basis over the term of the relevant lease.

Inventories

Inventories are stated at the lower of cost and selling price less costs to complete and sell. Cost is calculated using the first-in, first-out (FIFO) method.

Trade and other receivables

Most sales are made on the basis of normal credit terms, and the receivables do not bear interest. Where credit is extended beyond normal credit terms, receivables are measured at amortized cost using the effective interest method. At the end of each reporting period, the carrying amounts of trade and other receivables are reviewed to determine whether there is any objective evidence that the amounts are not recoverable. If so, an impairment loss is recognized immediately in profit or loss.

Trade payables

Trade payables are obligation on the basis of normal credit terms and do not bear interest. Trade payables denominated in a foreign currency are translated into CU using the exchange rate at the reporting date. Foreign exchange gains or losses are included in other income or other expenses.

Bank loans and overdrafts

Interest expense is recognized on the basis of the effective interest method and is included in finance costs.

Employee benefits/ long service payment

The liability for employee benefit obligations relates to government-mandated long service payments. All full-time staff, excluding directors, are covered by the programme. A payment is made of 5 percent of salary (as determined for the twelve months before the payment) at the end of each five years of employment. The payment is made as part of the December payroll in the fifth year. The Group does not fund this obligation in advance.

The group’s cost and obligation to make long-service payments to employees are recognized during the employees periods of service. The cost and obligation are measured using the projected unit credit method, assuming a 4 per cent average annual salary increase, with employee turnover based on the Group’s recent experience, discounted using the current market yield for high quality corporate bonds.Provision for warranty obligations

3. Transition to the PFRS for SMEs

3.1 Basis of transition to the PFRS for SMEs3.1.1 The financial statements for the year end December 31, 2010 are the Company’s financial statements prepared in accordance with PFRS for SMEs. The Company’s date od transition to the PFRS for SMEs is January 1, 2010, for all periods up to the including December 31, 2009, the Company prepared its financial statements in accordance with Philippine financial Reporting Standards (PFRS)

3.2 Reconciliation

The following reconciliations show the effects on the company’s equity of the transition from the Company’s previous full PFRS to the PFRS for SMEs at January 1, 2010 and December 31, 2010 and the Company’s profit for the year ended December 31, 2010.

Reconciliation of EquityDecember 31, 2010 January 1, 2010

Total Equity under previous Full PFRS P 113,000,000 113,000,000Adjustments (If there is any) 0 0Total Equity under PFRS for SMEs P 113,000,000 113,000,000

Reconciliation of Net Income

December 31, 2010 January 1, 2010

Net Income reported underPrevious Full PFRS P 168,275 274,508Adjustment (If there is any) 0 0Net Income for the year under PFRS for SMEs 168,275 274,508

4. Managements Significant Accounting Judgment and Estimates

4.1 JudgmentsThe preparation of the Company’s financial statements in conformity with Financial Reporting Framework (in reference to the Generally Accepted Accounting Principles of the Philippines) requires management to make estimates and assumptions that affect the amounts reported in the Company’s financial statements and accompanying notes. The estimates and assumptions used in the Company’s Financial statements are based upon management’s evaluation of relevant facts and circumstances as of the date of the Company’s financial statements. Actual results could differ from such estimates, judgments and estimates are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

4.2 EstimatesIn the application of the Company’s accounting policies, required to make judgment, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis.

Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period, or in the periods of the revision affects both current and future periods.

The following represents a summary of the significant estimates and judgments and related impact and associated risks in the Company’s financial statements.

Estimated Useful Lives of Property, Plant and EquipmentThe Company estimates the useful lives of property, plant and equipment based on the period over which the property, plant and equipment are expected to be available for use. The estimated useful lives of the property, plant and equipment are reviewed periodically and are updated if expectations differ from previous estimates due to physical wear and tear, technical or commercial obsolescence and legal or other limits on the use of the property, plant and equipment. In addition, the estimation of the useful lives of property, plant and equipment is based on the collective assessment of industry practice, internal technical evaluation and experience with similar assets. It is possible, however , that future financial performance could be materially affected by changes in the estimates brought by changes in factors mentioned above. The amounts and timing of recorded expenses for any period would be affected by changes in there factors and circumstances.A reduction in the estimated useful lives of the property, plant and equipment would increase the recorded expenses and decrease the non-currents assets.

Asset ImpairmentThe Corporation is required to perform an impairment review when certain impairment indicators are present. Purchase accounting requires extensive use of accounting estimates and judgment to allocate the purchase price to the fair market values of the assets and liabilities.

Determining the fair value of property, plant and equipment, investments and intangible assets, which require the determination of future cash flows expected to be generated from the continued use and ultimate disposition of such assets, requires the Corporation to make estimates and assumptions that can materially affect the financial statements. Future events could cause the Corporation to conclude that property, plant and equipment assets associated with an acquired business is impaired. Any resulting impairment loss could have a material adverse impact on the financial condition and results of operations. The preparation of the estimated future cash flows involves significant judgment and estimations. While the Corporation believes that its assumptions are appropriate and reasonable, significant changes in the assumptions may material affect the assessment of recoverable values and may lead to future additional impairment charges under Philippine Financial Reporting Standards.

5. Revenue

2010 2009

Services 38,721,435 51,866,534

Total         38,721,435   51,866,534   

6. Cost of Sales

2010 2009

Cost of Materials and Services 58,365,166 27,054,318Depreciation Expenses 2,064,179 1,569,920

Total 60,429,345 28,624,238========================================================================

7. Income Tax Expense

2010 2009

Current Tax 1,364,017 569,501 0 0

Deferred tax              

Total          1,364,017   569,501   

Income tax is calculated at 30 percent of the estimated assessable profit for the year.

8. Trade and Other Receivables

2010 2009

Trade debtors 5,513,492 45,592,347 Prepayments         0   0   

Total         5,513,492    45,592,347   

This account consists of:

Name Amount

CC Liner 2,817,737Cher Transport Devt Service Cooperative 814,683

9. Other Current Assets 2010 2009

Creditable Withholding Tax 1,310,510 515,720

Input Tax 8,571,153 0

Total 9,881,664 515,720

10. Property, Plant & Equipment

Land Building Equipment TOTALCost:

Balance at beginning of period

25,000,000

15,000,000

12,222,222

52,222,222

Additions 0 0 0 0Disposals 0 0 0 0Balance at end of period

25,000,000 15,000,000 12,222,222 52,222,222

Less: Accumulated Depreciation:

Balance at beginning of period

2,500,000

1,500,000

1,222,222

5,222,222

Additions 2,500,000 1,500,000 1,222,222 5,222,222Disposals 0 0 0 0Balance at end of period

5,000,000 3,000,000 2,444,444 10,444,444

NET BOOK VALUE

20,000,000

12,000,000

9,777,778

41,777,778

11. Trade Payables

Trade Payables amounted to P 1,214,013 and P 4,674,083 as of December 31, 2010 and December 31, 2009 respectively.

12. Non-Trade Payables2010 2009

Loan 15,989,939 26,864,552Total 15,989,939 26,864,552

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13. Share Capital

The authorized capital stock of the corporation is P 500,000.00 pesos with P 5,000 shares with par value of P 100.00 pesos per share.

The company has pending application for the increase of capital stock based on the Board meeting held last March 31, 2010 and the subscription deposit has already took place waiting for the approval of the increase in capital stock by SEC.

14. Cash and Cash Equivalents2010 2009

Cash on Hand 1,609,264 2,936,579

Overdrafts 0 0

Total 1,609,264 2,936,579

15. Inventory

Haise Van - 16 Units - 950,000/ unit - 15,200,000Ambulance (bubble top)- 3 Units - 1,050,000/unit - 3,150,000Ambulance (low roof) - 6 Units - 1,050,000/unit - 6,300,000Truck Chassis 4 wheeler - 28 Units - 550,000/unit - 15,400,0004 wheeler - 34 Units - 660,000/unit - 22,440,0006 wheeler - 35 Units - 710,000/unit - 24,850,0006 wheeler - 4 Units - 790,000/unit - 3,160,0004 wheeler - 1 Unit (jeep) - 750,000/unit - 750,000

4 Units (FB) - “ - 3,000,000 2 Units (chassis)- “ - 1,500,000

6 wheeler - 7 Units - 810,000/unit - 5,670,0006 wheeler(bus chassis)- 15 Units - 950,000/unit - 14,250,000dumptruck - 4 Units - 1,500,000/unit - 6,000,000bus chassis - 11 Units - 850,000/unit - 9,350,0004 wheeler - 2 Units - 590,000/unit - 1,180,000 Total 132,200,000

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16. General and Administrative Expenses

2010 2009

Gasoline and Oil 274,946 248,839Salaries and Wages 270,000 1,004,300Office Supplies 83,325 82,630Professional Fee 33,689 0Communication, Light and Water 0 1,236,001Transportation and Travel 0 467,193Advertising Expenses 0 110,545Representation Expenses 0 64,614Repairs and Maintenance 0 45,600Taxes and Licenses 0 28,032

Total 661,960 3,287,754

17. Retained Earnings

2010 2009

Retained Earnings, beginning 1,440,673 1,166,165Net Profit 168,275 274,508 Retained Earnings, End 1,608,948 1,440,673

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