sme ppi_fs1210&09 prob-silv

8/3/2019 SME Ppi_fs1210&09 Prob-silv

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Probe Productions, Inc.

Financial StatementsDecember 31, 2010 and 2009

and

Independent Auditors Report

SyCip Gorres Velayo & Co.


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1 5 1 5 5 3

SEC Registration Number

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

(Companys Full Name)

1 3 M a t i p i d S t r e e t , S i k a t u n a V i l l a

g e , Q u e z o n C i t y

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

Cecilia L. Lazaro 922-9273(Contact Person) (Company Telephone Number)

1 2 3 1 A A F S

Month Day (Form Type) Month Day(Fiscal Year) (Annual Meeting)

(Secondary License Type, If Applicable)

Dept. Requiring this Doc. Amended Articles Number/Section

Total Amount of Borrowings

Total No. of Stockholders Domestic Foreign

To be accomplished by SEC Personnel concerned

File Number LCU

Document ID Cashier

S T A M P S

Remarks: Please use BLACK ink for scanning purposes.

*SGVMC115430*

COVER SHEET


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INDEPENDENT AUDITORS REPORT

The Board of Directors


13 Matipid Street, Sikatuna Village

Quezon City

Report on the Financial Statements

We have audited the accompanying financial statements of Probe Productions, Inc., which comprise

the balance sheets as at December 31, 2010 and 2009, and the statements of income, statements of

changes in equity and statements of cash flows for the years then ended, and a summary of significant

accounting policies and other explanatory information.

Managements Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in

accordance with Philippine Financial Reporting Standards for Small and Medium-sized Entities and

for such internal control as management determines is necessary to enable the preparation of financial

statements that are free from material misstatement, whether due to fraud or error.

Auditors Responsibility

Our responsibility is to express an opinion on these financial statements based on our audits. We

conducted our audits in accordance with Philippine Standards on Auditing. Those standards require

that we comply with ethical requirements and plan and perform the audit to obtain reasonable

assurance whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures

in the financial statements. The procedures selected depend on the auditors judgment, including the

assessment of the risks of material misstatement of the financial statements, whether due to fraud orerror. In making those risk assessments, the auditor considers internal control relevant to the entitys

preparation and fair presentation of the financial statements in order to design audit procedures that are

appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness

of the entitys internal control. An audit also includes evaluating the appropriateness of accounting

policies used and the reasonableness of accounting estimates made by management, as well as

evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for

our audit opinion.

*SGVMC115430*

SyCip Gorres Velayo & Co.6760 Ayala Avenue1226 Makati CityPhilippines

Phone: (632) 891 0307Fax: (632) 819 0872www.sgv.com.ph

BOA/PRC Reg. No. 0001

SEC Accreditatio n No. 0012 -FR-2

A member firm of Ernst & Young Global Limited


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Opinion

In our opinion, the financial statements present fairly, in all material respects,the financial position ofProbe Productions Inc. as at December 31, 2010 and 2009, and its financial performance and its cash

flows for the years then ended in accordance with Philippine Financial Reporting Standards for Small

and Medium-sized Entities.

Report on the Supplementary Information Required Under Revenue Regulations 15-2010

Our audits were conducted for the purpose of forming an opinion on the basic financial statements

taken as a whole. The supplementary information on taxes, duties and licenses in Note 18 to thefinancial statements is presented for the purpose of filing with the Bureau of Internal Revenue and is

not a required part of the basic financial statements. Such information is the responsibility of the

management of Probe Productions Inc. The information has been subjected to the auditing procedures

applied in our audit of the basic financial statements. In our opinion, is fairly stated in all material

respects in relation to the basic financial statements taken as a whole.

SYCIP GORRES VELAYO & CO.

Michael C. Sabado

Partner

CPA Certificate No. 89336

SEC Accreditation No. 0664-A

Tax Identification No. 160-302-965

BIR Accreditation No. 08-001998-73-2009,

June 1, 2009, Valid until May 31, 2012

PTR No. 2641561, January 3, 2011, Makati City

March 14, 2011

*SGVMC115430*


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Report on the Financial Statements

We have audited the accompanying financial statements of Probe Productions, Inc., which comprisethe balance sheets as at December 31, 2010 and 2009, and the statements of income, statements of

changes in equity and statements of cash flows for the years then ended, and a summary of significant

accounting policies and other explanatory information.

Managements Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in

accordance with Philippine Financial Reporting Standards for Small and Medium-sized Entities and

for such internal control as management determines is necessary to enable the preparation of financial

statements that are free from material misstatement, whether due to fraud or error.

Auditors Responsibility

Our responsibility is to express an opinion on these financial statements based on our audits. We

conducted our audits in accordance with Philippine Standards on Auditing. Those standards require

that we comply with ethical requirements and plan and perform the audit to obtain reasonable

assurance whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures

in the financial statements. The procedures selected depend on the auditors judgment, including the

assessment of the risks of material misstatement of the financial statements, whether due to fraud or

error. In making those risk assessments, the auditor considers internal control relevant to the entitys

preparation and fair presentation of the financial statements in order to design audit procedures that areappropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness

of the entitys internal control. An audit also includes evaluating the appropriateness of accounting

policies used and the reasonableness of accounting estimates made by management, as well as

evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for

our audit opinion.

*SGVMC115430*


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Opinion

In our opinion, the financial statements present fairly, in all material respects,the financial position ofProbe Productions Inc. as at December 31, 2010 and 2009, and its financial performance and its cash

flows for the years then ended in accordance with Philippine Financial Reporting Standards for Small

and Medium-sized Entities.

Report on the Supplementary Information Required Under Revenue Regulations 15-2010

Our audits were conducted for the purpose of forming an opinion on the basic financial statements

taken as a whole. The supplementary information on taxes, duties and licenses in Note 18 to thefinancial statements is presented for the purpose of filing with the Bureau of Internal Revenue and is

not a required part of the basic financial statements. Such information is the responsibility of the

management of Probe Productions Inc. The information has been subjected to the auditing procedures

applied in our audit of the basic financial statements. In our opinion, is fairly stated in all material

respects in relation to the basic financial statements taken as a whole.


Michael C. Sabado

Partner







March 14, 2011

*SGVMC115430*


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Quezon City

We have audited the financial statements of Probe Productions, Inc. for the year ended December 31,2010, on which we have rendered the attached report dated March 14, 2011.

In compliance with Securities Regulation Code Rule No. 68, we are stating that the above Company

has a total number of eight (8) stockholders owning one hundred (100) or more shares each.


Michael C. SabadoPartner







March 14, 2011

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TO ACCOMPANY INCOME TAX RETURN




Quezon City

We have audited the financial statements of Probe Productions, Inc. for the year ended December 31,

2010, on which we have rendered the attached report dated March 14, 2011.

In compliance with Revenue Regulations V-20, we are stating the following:

1. The taxes paid or accrued by the above Company for the year ended December 31, 2010 are

shown in the Schedule of Taxes and Licenses attached to the Annual Income Tax Return.

2. No partner of our Firm is related by consanguinity or affinity to the president, manager or

principal stockholders of the Company.


Michael C. Sabado

Partner







March 14, 2011

*SGVMC115430*







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PROBE PRODUCTIONS, INC.

BALANCE SHEETS

December 31

2010 2009

ASSETS

Current Assets

Cash (Note 5) 1,353,706 5,585,080

Short-term investments (Note 6) 6,473,153 7,214,518

Receivables (Note 7) 8,400,512 3,043,490

Total current assets 16,227,371 15,843,088

Noncurrent AssetsProperty and equipment (Note 8) 2,090,153 2,739,608

Deferred tax assets - net (Note 16) 552,690 432,880

Other assets (Note 9) 128,070 133,763

Total noncurrent assets 2,770,913 3,306,251

18,998,284 19,149,339

LIABILITY AND EQUITY

Current Liability

Accounts payable and accrued expenses (Note 10) 1,010,252 1,269,868

Equity

Capital stock 12,225,000 12,225,000

Retained earnings 5,763,032 5,654,471

Total Equity 17,988,032 17,879,471

18,998,284 19,149,339

See accompanying Notes to Financial Statements.

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STATEMENTS OF INCOME

Years Ended December 31

2010 2009

REVENUE

Advertising 13,714,391 20,323,211

Fluctuation gain (loss) in value of short-term investments

(Note 6) 698,634 1,127,370

Interest 461,238 549,584

Gain on sale of property and equipment 374,691 10,114

Dubbing 18,326

Miscellaneous 515 1,358

15,249,469 22,029,963

EXPENSES AND CHARGES

Production costs (Notes 12 and 14) 7,605,437 12,075,469

General and administrative expenses (Notes 13, 14 and 15) 7,178,027 8,608,559

Foreign currency loss 304,340 194,854

15,087,804 20,878,882

INCOME BEFORE INCOME TAX 161,665 1,151,081

PROVISION FOR INCOME TAX (Note 16)

Current 172,914 207,739

Deferred (119,810) (18,222)53,104 189,517

NET INCOME 108,561 961,564


*SGVMC115430*


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STATEMENTS OF CHANGES IN EQUITY


2010 2009

CAPITALSTOCK- 1 par value

Authorized - 20,000,000 shares

Issued and outstanding - 12,225,000 shares 12,225,000 12,225,000

RETAINED EARNINGS

Balance at beginning of year 5,654,471 4,692,907

Net income 108,561 961,564

Balance at end of year 5,763,032 5,654,471


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STATEMENTS OF CASH FLOWS


2010 2009

CASH FLOWS FROM OPERATING ACTIVITIES

Income before income tax 161,665 1,151,081

Adjustments for:

Depreciation (Notes 8,12,13 and 14) 718,759 877,948

Foreign exchange loss (Note 6) 258,100 136,099

Gain on sale of property and equipment (374,691) (10,114)

Interest income (461,238) (549,584)

Fluctuation (gain )in value of short-term

investments (Note 6) (698,634) (1,127,370)Operating income (loss) before changes in working capital (396,039) 478,060

Decrease (increase) in:

Receivables (5,357,022) (376,540)

Other assets 5,692 56,701

Decrease in accounts payable and accrued expenses (259,616) (69,163)

Net cash generated from (used for) operations (6,006,985) 89,058

Interest received 95,163 29,308

Income tax paid (150,655) (188,098)

Net cash flows used in operating activities (6,062,477) (69,732)

CASH FLOWS FROM INVESTING ACTIVITIES

Disposal of short-term investments (Note 6) 5,925,716 870,840Proceeds from sale of property and equipment 374,691 10,114

Short-term investments (Note 6) (4,400,000) (2,000,000)

Acquisition of property and equipment (Note 8) (69,304) (934,996)

Net cash flows provided by (used in) investing activities 1,831,103 (2,054,042)

NET DECREASE IN CASH (4,231,374) (2,123,774)

CASH AT BEGINNING OF YEAR 5,585,080 7,708,854

CASH AT END OF YEAR(Note 5) 1,353,706 5,585,080


*SGVMC115430*


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NOTES TO FINANCIAL STATEMENTS

1. Corporate Information

Probe Productions, Inc. (the Company) was registered with the Philippine Securities and

Exchange Commission on May 24, 1988 primarily to engage in the operations and activities of

radio and television broadcast stations and production of radio, television and movie programs.

The registered office address of the Company is at 13 Matipid Street, Sikatuna Village, Quezon

City.

In 2010, the Company stopped its operation when its flagship program Probe Profiles ended last

June 30, 2010 which is the main income stream of the Company. It indicates the existence of

material uncertainty which cast doubt that the Company will continue as a going concern.

2. Basis of Preparation

Basis of Preparation

The Companys financial statements have been prepared under the historical cost convention

method and are presented in Philippine Peso (). All amounts are rounded to the nearest peso

unless otherwise indicated.

Statement of Compliance

The accompanying financial statements of the Company have been prepared in compliance with

accounting principles generally accepted in the Philippines (Philippine GAAP), as set forth inPhilippine Financial Reporting Standards for Small and Medium-sized Entities (PFRS for SMEs).

These are the Companys first annual financial statements prepared in compliance with PFRS for

SMEs. The Companys financial statements until December 31, 2009 had been prepared in

accordance with Philippine GAAP for non-publicly accountable entities (NAPAEs).

The Company applied Section 35, Transition to the PFRS for SMEs, in preparing the financial

statements, with January 1, 2010 as the date of transition. The Company has consistently applied

the accounting policies set forth below to all the years presented, except those relating to the

classification and measurement of financial instruments. An explanation of how the PFRS for

SMEs has affected the reported financial position, financial performance and cash flows of the

Company is provided in the succeeding paragraphs.

The preparation of the Companys financial statements in conformity with PFRS for SMEs

requires the use of certain critical accounting estimates. It also requires management to exercise

its judgment in the process of applying the Companys accounting policies. The areas involving a

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

to the financial statements are disclosed in Note 4.

The Preface to PFRS for SMEs provides that the PFRS for SMEs shall be used by entities that

meet the definition of an SME, as set forth in the SEC En Banc Resolution dated August 13, 2009.

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The SEC defines SMEs for financial reporting purposes as entities that meet all of the following

criteria:

a) Total assets of between 3 million and 350 million or total liabilities of between 3 million and

250 million;

b) Not required to file financial statements under Securities Regulation Code Rule 68.1;

c) Not in the process of filing financial statements for the purpose of issuing any class of

instruments in a public market;

d) Not holders of secondary licenses issued by a regulatory agency, such as banks, investment

houses, finance companies, insurance companies, security brokers/dealers, mutual funds and

pre-need companies; and

e) Not public utilities.

3. Changes in Accounting Policies

The accounting policies adopted are consistent with those of the previous financial year except for

the adoption of PFRS for SMEs starting January 1, 2010. As stated above, these are the

Companys first annual financial statements prepared in compliance with PFRS for SMEs. The

adoption of PFRS for SMEs did not have material impact on the Companys financial statements

except for the following:

Section 28,Employee BenefitsEmployee benefits are all forms of consideration given by an entity in exchange for service

rendered by employees, including directors and management. This section applies to all

employee benefits, except for share-based payment transactions. The Company had nounamortized actuarial gain (loss) in 2009 and 2008, thus, restatement on the Companys

financial statements is not required.

Section 29,Income TaxThis section covers accounting for income tax. It requires an entity to recognize the current

and future tax consequences of transactions and other events that have been recognized in the

financial statements. These recognized tax amounts comprise current tax and deferred tax.

Current tax is tax payable (refundable) in respect of the taxable profit (tax loss) for the current

period or past periods. Deferred tax is tax payable or recoverable in future periods, generally

as a result of the entity recovering or settling its assets and liabilities for their current carrying

amount, and the tax effect of currently unused tax losses and tax credits. The adoption of this

standard resulted to disclosing the valuation allowance that was provided on the Net OperatingLoss Carryover (NOLCO) that is deemed not recoverable in future periods (Note 16).

The Company deemed that there is no enough taxable income in the future from which the

NOLCO may be applied, thus, a full allowance was recognized for NOLCO.

Effect on the Statement of Cash Flows for 2009

There is no material differences between the Companys statement of cash flows prepared under

PFRS from SMEs and statement of cash flows prepared under Philippine GAAP for NPAEs.

*SGVMC115430*


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4. Summary of Significant Accounting Policies

Use of Judgments, Estimates and Assumptions

The preparation of the financial statements in conformity with PFRS for SMEs requires

management to make judgments, estimates and assumptions that affect the amounts reported in the

financial statements and accompanying notes. The estimates and assumptions used in the

accompanying financial statements are based upon managements evaluation of relevant facts and

circumstances as of balance sheet date. Actual results could differ from such estimates.

Revenue and Cost Recognition

Revenue is recognized when it is probable that the economic benefits associated with the

transactions will flow to the Company and the amount of revenue can be measured reliably.

The following specific recognition criteria must also be met before revenue is recognized:

Advertising revenue and production costsAdvertising revenue is recognized when services are rendered and earned and production costs are

recognized when incurred.

Interest incomeInterest income on cash in banks is recognized as it accrues.

Cash

Cash includes cash on hand and in banks. Cash in banks earns interest at the prevailing bank

deposit rates.

Short-term Investments

Short-term investments are made for varying periods depending on the immediate cash

requirements of the Company and earn interest at the respective short-term investment rates.

Short-term investments are recorded in the balance sheet at fair value. Changes in fair value are

recorded under Fluctuation gain (loss) in value of short-term investments account in the

statement of income. Interest earned is recorded in interest income.

Receivables

Receivables are recognized and carried at billable amounts less any allowance for doubtful

accounts. A provision for doubtful accounts is established when there is objective evidence that

the Company will not be able to collect all amounts due according to the original terms of

receivables. The amount of provision is the difference between the assets carrying amount and

the present value of estimated future cash flows discounted at the effective interest rate. The

provision is recognized in the statement of income.

Property and Equipment

Property and equipment, except for land, are carried at cost less accumulated depreciation andany impairment in value. Land is carried at cost less any impairment in value.

The initial cost of property and equipment comprises its purchase price, including import duties,

taxes and any directly attributable costs of bringing the asset to its working condition and location

for its intended use. Expenditures incurred after the assets have been put into operation, such as

repairs and maintenance, are normally charged against income in the period 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

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property and equipment beyond its originally assessed standard of performance, the expenditures

are capitalized as an additional cost of property and equipment.

Depreciation is calculated using the straight-line method over the estimated useful lives of the

assets, as follows:

Years

Building 10

Production equipment 2-3

Office furniture, fixtures and equipment 2-3

Transportation equipment 3

The estimated useful lives of the property and equipment are reviewed annually based on factors

that include asset utilization, technological changes, environmental factors and anticipated use ofthe property and equipment to ensure that the method and period of depreciation are consistent

with the expected pattern of economic benefits from items of property and equipment.

Impairment of Assets

The carrying values of property and equipment are reviewed for impairment when events or

changes in circumstances indicate the carrying values may not be recoverable. If any such

indication exists or where the carrying values exceed the estimated recoverable amounts, the

assets or cash-generating units are written down to their recoverable amounts. The recoverable

amount of property and equipment is the greater of net selling price and value in use. 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 losses are recognized in the

statement of income.

Retirement Cost

Retirement costs are actuarially determined using the projected unit credit method. This method

reflects services rendered by employees up to the date of valuation and incorporates assumptions

concerning employees projected salaries. Retirement costs include current service cost plus

amortization of past service cost, experience adjustments and changes in actuarial assumptions

over the expected average remaining working lives of the covered employees.

Income Tax

Current taxCurrent tax assets and liabilities for the current and prior period are measured at the amount

expected to be recovered from or paid to the taxation authorities. The tax rates and the tax lawsused to compute the amount are those that are enacted or substantively enacted at the balance

sheet date.

Deferred taxDeferred tax is provided, using the balance sheet liability method, on all temporary differences at

the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for

financial reporting purposes.

Deferred tax liabilities are recognized for all taxable temporary differences, with certain

exceptions. Deferred tax assets are recognized for all deductible temporary differences,

carryforward of unused tax credits from excess of minimum corporate income tax (MCIT) overregular corporate income tax (RCIT) and net operating loss carryover (NOLCO), to the extent that

it is probable that taxable profit will be available against which the deductible temporary

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differences and carryforward of unused tax credits from excess MCIT and NOLCO can be

utilized.

The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to

the extent that it is no longer probable that sufficient taxable profit will be available to allow all or

part of the deferred tax assets to be utilized.

Deferred tax assets and liabilities are measured at the tax rates that are applicable to the year 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 balance sheet date.

Equity

Capital stock is measured at par value for all shares issued. Retained earnings represent

accumulated earnings of the Company less dividends declared.

Provisions

Provisions are recognized when the Company has a present obligation (legal or constructive) as a

result of a past event, it is probable that an outflow of resources embodying economic benefits will

be required to settle the obligation and a reliable estimate can be made of the amount of the

obligation.

General and Administrative Expenses

General and administrative expenses constitute costs of administering the business. These are

recognized as expenses when incurred.

Foreign Currency TransactionsThe Companys financial statements are presented in Philippine Peso, which is the functional and

presentation currency. Transactions in foreign currencies are initially recorded at the Philippine

peso currency rate ruling at the date of the transaction. However, monetary assets and liabilities

denominated in foreign currencies are retranslated at the Philippine peso closing rate of exchange

prevailing at the balance sheet date. All differences are taken to profit or loss during the period of

retranslation.

Contingencies

Contingent liabilities are not recognized in the financial statements. They are disclosed unless the

possibility of an outflow of resources embodying economic benefits is remote. Contingent assets

are not recognized in the financial statements but are disclosed when an inflow of economic

benefits is probable.

Subsequent Events

Post year-end events that provide additional information about the Companys position at the

balance sheet 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.

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5. Cash

This account consists of:

2010 2009

Cash on hand 73,411 103,411

Cash in banks 1,280,295 5,481,669

1,353,706 5,585,080

Cash in banks earns interest at the prevailing deposit rates.

6. Short-term Investments

Short-term investments consist of money market placements with maturities of more than three (3)

months up to one (1) year and earn interest at the prevailing short-term investments rates ranging

from 0.02% to 7.88% in 2010 and 0.02% to 7.88% in 2009. The investment was disposed in 2010.

2010 2009

Beginning balance 5,165,261 4,593,452

Disposal (5,925,716) (870,840)

Interest income earned 319,921 451,378

Fluctuation gain 698,634 1,127,370

Foreign exchange loss (258,100) (136,099)

Ending balance 5,165,261

In 2010, the Company has a total time deposit account with a local commercial bank amounting

6,400,000 with interest rate of 4.19% per annum. For the year ended December 31, 2010, interest

income earned amounted to 73,153.

7. Receivables


2010 2009

Due from DLL, Inc. 5,925,716 Creditable withholding tax 1,357,417 1,249,560

Due from Unlimited Productions, Inc.

(UPI) (Note 11) 1,032,456 346,020

Trade accounts receivable 84,923 1,434,300

Advances to employees 13,610

8,400,512 3,043,490

Due from DLL is noninterest bearing and are generally collectible in the short-term.

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8. Property and Equipment

The rollforward analysis of this account follows:

2010

Land Building

Production

Equipment

Office

Furniture,

Fixtures and

Equipment

Transportation

Equipment Total

Cost

At January 1, 2010 1,802,250 3,542,367 12,551,045 1,696,581 2,926,365 22,518,608

Additions 50,499 18,805 69,304Retirements/Disposal (1,481,316) (128,161) (1,310,909) (2,920,386)

At December 31, 2010 1,802,250 3,542,367 11,120,228 1,587,225 1,615,456 19,667,526

Accumulated Depreciation

At January 1, 2010 3,542,367 11,637,793 1,672,476 2,926,364 19,779,000

Depreciation (Note 14) 692,465 26,293 1 718,759

Retirements/Disposal (1,481,316) (128,161) (1,310,909) (2,920,386)

At December 31, 2010 3,542,367 10,848,942 1,570,608 1,615,456 17,577,373

Net Book Value as at

December 31, 2010 1,802,250 271,286 16,617 2,090,153

2009

Land Building

Production

Equipment

Office

Furniture,Fixtures and

Equipment

Transportation

Equipment Total

CostAt January 1, 2009 1,802,250 3,542,367 20,009,014 1,666,734 2,926,365 29,946,730

Additions 905,149 29,847 934,996

Retirements/Disposal (8,363,118) (8,363,118)

At December 31, 2009 1,802,250 3,542,367 12,551,045 1,696,581 2,926,365 22,518,608

Accumulated DepreciationAt January 1, 2009 3,542,367 19,168,691 1,626,748 2,926,364 27,264,170Depreciation (Note 14) 832,220 45,728 877,948

Retirements/Disposal (8,363,118) (8,363,118)

At December 31, 2009 3,542,367 11,637,793 1,672,476 2,926,364 19,779,000

Net Book Value as at

December 31, 2009 1,802,250 913,252 24,105 1 2,739,608

In the ordinary course of business, the Company acquires property and equipment either through

purchase or in exchange for services. For assets acquired on account, the full contract price is

recorded and the related liability is recognized.

Depreciation charged against current operations amounted to 718,759 and 877,948 in 2010 and

2009, respectively (Notes 12, 13 and 14).

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9. Other Assets


2010 2009

Prepaid value-added tax (VAT) 53,811 53,811

Investment in preferred shares 21,000 21,000

Receivable from a travel agency 5,000 10,694

Rental deposits 8,000 8,000

Others 40,259 40,258

128,070 133,763

The prepaid VAT represents the amount of VAT remitted prior to the collection of the related

billings.

Others account consists of cash performance bonds and deposit.

10. Accounts Payable and Accrued Expenses


2010 2009

Accounts payable (Note 8) 736,290 674,690

Accrued expenses 180,206 112,000

Output VAT 93,756 386,085

Withholding taxes payable 95,714

Other payables 1,379

1,010,252 1,269,868

Output VAT is presented net of input VAT. As of December 31, 2010 and 2009, input VAT

amounted to 10,644 and 20,232, respectively.

11. Related Party Transactions

Transactions between related parties are based on terms similar to those offered to non-relatedparties. Parties are related if one party has the ability, directly or indirectly, to control the other

party or exercise significant influence over the other party in making financial and operating

decisions and the parties are subject to common control or common significant influence. Related

parties may be individuals or corporate entities.

Related party transactions consist mainly of noninterest-bearing cash advances to UPI for working

capital requirements amounting 1,032,456 and 346,020 as of December 31, 2010 and 2009,

respectively (Note 7).

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12. Production Costs


2010 2009

Talent fees 3,496,024 4,044,224

Salaries and wages 2,136,420 4,490,757

Depreciation (Notes 8 and 14) 692,464 832,220

Fuel and oil 389,103 640,676

Transportation and travel 333,420 698,273

Meal expenses 179,103 287,841

Post production 145,341 282,845

Rental of production facilities 98,105 95,790

Supplies 96,907 478,885Repairs and maintenance 38,550 112,847

Outside services 111,111

7,605,437 12,075,469

13. General and Administrative Expenses


2010 2009

Retirement cost (Note 15) 2,529,579 1,049,251

Communication, light and water 1,117,178 1,843,000

Outside services 960,729 1,053,064

Salaries and wages 861,806 1,848,936

Employee benefits 533,943 998,328

Taxes and licenses (Note 18) 278,381 317,790

Insurance 270,919 240,582

General administration 231,815 124,518

Supplies 137,067 304,913

Entertainment, amusement and recreation (Note 16) 96,899 348,166

Repairs and maintenance 69,831 292,234

Depreciation (Notes 8 and 14) 26,295 45,728

Advertising and promotions 10,272 57,306Courier, postage stamps and telegram 693 22,479

Trainings and seminars 2,240

Miscellaneous 52,620 60,024

7,178,027 8,608,559

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14. Depreciation

Depreciation is distributed as follows:

2010 2009

Production costs (Note 12) 692,464 832,220

General and administrative expenses (Note 13) 26,295 45,728

718,759 877,948

15. Retirement Plan

The Company has a funded, noncontributory, defined benefit pension plan covering substantially

all of its regular employees. The benefits are based on years of service and compensation on thelast year of employment. Past service costs are amortized over the expected average future service

years of plan members estimated to be 20.3 years in 2010 and 2009. Total retirement cost

amounted to 2,529,579 and 1,049,251 in 2010 and 2009, respectively (Note 13). In 2010, the

Company paid separation pay amounting 2,363,579 to its retired employees.

Based on the actuarial valuation report as of September 30, 2008, computed using the projected

unit credit method, the actuarial accrued liability amounted to 7,452,358. The principal actuarial

assumptions used to determine pension benefits included investment yield rate of 5% and salary

increase rate of 10% per annum. The Companys annual contribution to the retirement plan

consists of a payment covering the current service cost for the year plus payments toward funding

the actuarial accrued liability.

16. Income Tax

Provision for income tax consists of:

2010 2009

Current:

Final 22,259 19,641

MCIT 150,655 188,098

Deferred (119,810) (18,222)

53,104 189,517

Provision for income tax pertains to final tax and MCIT.

Income taxes include corporate income tax, as discussed below, and final taxes paid at the rate of

20.0%, which is a final withholding tax on gross interest income from debt instruments and other

deposit substitutes.

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Effective November 1, 2005, Republic Act (RA) No. 9337, an act amending the National Internal

Revenue Code (NIRC of 1997), provides that the RCIT rate shall be 35.0% until January 1, 2009.

Starting January 1, 2009 the RCIT rate shall be 30.0%. Interest allowed as a deductible expense is

reduced by an amount equivalent to 42.0% of interest income subjected to final tax starting

November 1, 2005 until December 31, 2008. Starting January 1, 2009, interest allowed as

deductible expense shall be reduced by 33%.

Revenue Regulations No. 10-2002 defines expenses to be classified as entertainment, amusement

and representation (EAR) expenses and sets a limit for the amount that is deductible for tax

purposes. EAR expenses are limited to 0.5% of net sales for sellers of goods or properties or 1%

of net revenue for sellers of services. For sellers of both goods or properties and services, an

apportionment formula is used in determining the ceiling in such expenses. EAR expenses

(included under General and administrative expenses account in the statements of income)

amounted to 96,899 in 2010 and 348,166 in 2009 (Note 13).

As of December 31, 2010, the Company did not recognize its deferred tax assets on NOLCO

because of its limited capacity to take advantage of their benefits, thus, full valuation allowance

was recognized.

Details of which are as follow:

NOLCO

Year Incurred Amount Expired Balance Expiry Year

2010 74,669 74,669 2013

MCIT

Year Incurred Amount Expired Balance Expiry Year

2008 215,084 215,084 2011

2009 188,098 188,098 2012

2010 150,655 150,655 2013

553,837

The net deferred tax assets as of December 31, 2010 and 2009 relate to the tax effects of the

following:

2010 2009

Deferred tax assets:

Unamortized past service cost 449,093 497,542

Unrealized foreign exchange loss 91,302 58,456

Nondeductible expense 12,295 12,295

552,690 568,293

Less deferred tax liabilities:

Unearned income 135,413

552,690 432,880

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A reconciliation of the Companys statutory income tax rate to effective income tax rate follows:

2010 2009

Statutory income tax rate 30.00% 30.00%

Add (deduct) tax effects of:

Changes in unrecognized deferred tax assets 93.19 (7.68)

Excess of MCIT over RCIT 46.19 (2.98)

Interest income subjected to final tax (6.88) (0.85)

Income subject to other tax rate (129.65) (29.38)

Expired MCIT 12.93

Nondeductible expense 3.33

Expired NOLCO 11.09

Effective income tax rate 32.85% 16.46%

17. Contingencies

The Company has various contingent liabilities arising in the ordinary conduct of business which

are either pending decision by the courts or being contested, the outcomes of which are not

presently determinable. In the opinion of management and its legal counsel, the eventual liability

under these lawsuits or claims, if any, will not have a material or adverse effect on the Companys

financial position and results of operations. No provisions were made during the year.

18. Disclosures Required Under Revenue Regulations 15-2010

The Company reported and/or paid the following taxes in 2010:

Value Added Tax

The Companys sales are subject to output value added tax (VAT) while its importations and

purchases from other VAT-registered individuals or corporations are subject to input VAT. The

VAT rate is 12.0%

a. Net Sales/Receipts and Output VAT declared in the Companys VAT returns filed for the

year.

Net Sales/Receipts Output VAT

Taxable Sales:

Sales of services 13,714,906 1,645,789

Others 374,691 44,963

14,089,597 1,690,752

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b. Input VAT

Balance at January 1, 2010 20,231

Current years domestic purchases/payments for:

Goods for resale/manufacture or further processing

Goods other than for resale or manufacture 44,755

Capital goods subject to amortization 3,440

Capital goods not subject to amortization

Services lodged under cost of goods sold

Services lodged under other accounts 181,772

Claims for tax credit/refund and other adjustments (239,554)

Balance at December 31, 2010 10,644

c. Information on the Companys importation for 2010The Company does not undertake importation activities.

d. Other Taxes and Licenses for 2010

Taxes and licenses, local, and national, include real estate taxes, licenses and permits for 2010:

License and permits fees 260,431

Real estate taxes 4,368

Documentary stamp taxes 360

Others 13,222

278,381

e. Withholding TaxesDetails of withholding taxes in 2010 follow:

Withholding taxes on compensation and benefits 252,827

Expanded withholding taxes 389,896

Final withholding taxes

642,723

f. Tax Assessment and Cases

The Company has no deficiency tax assessments, whether protested or not. The Company has

not been involved in any tax cases under preliminary investigation, litigation and/or

prosecution in courts or bodies outside the BIR.

19. Approval of the Financial Statements

The accompanying financial statements have been approved and authorized for issuance by the

Board of Directors on March 14, 2011.

sme ppi_fs1210&09 prob-silv

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