MGI CFS1214_MaxsGroupConso.pdf

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Max’s Group, Inc. (formerly Pancake House, Inc.) and

Subsidiaries

Consolidated Financial Statements



SEC Registration Number

A 2 0 0 0 - 0 3 0 0 8

Company Name

M A X ‘ S G R O U P , I N C . ( f o r m e r l y P a n c a

k e H o u s e , I n c . ) A N D S U B S I D I A R I E S

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

P a n c a k e H o u s e C e n t e r , 2 2 5 9 P a s o n g

T a m o E x t e n s i o n , M a k a t i C i t y

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

A A C F S C R M D Not Applicable

COVER SHEETfor

AUDITED FINANCIAL STATEMENTS



INDEPENDENT AUDITOR’S REPORT

The Stockholders and the Board of Directors

Max’s Group, Inc. and SubsidiariesPancake House Center

2259 Pasong Tamo Ext.

Makati City

Report on the Consolidated Financial Statements

We have audited the accompanying consolidated financial statements of Max’s Group, Inc. (formerlyPancake House, Inc.) and Subsidiaries, which comprise the consolidated statement of financial position

as at December 31, 2014, and the consolidated statement of income, consolidated statement of

comprehensive income, consolidated statement of changes in equity and consolidated statement of

cash flows for year then ended, and a summary of significant accounting policies and other explanatory

information.

Management’s Responsibility for the Consolidated Financial Statements

26th Floor Citibank Tower

8741 Paseo de Roxas

Makati City 1226 Philippines

www.reyestacandong.com

Phone: +632 982 9100

Fax : +632 982 9111

BOA/PRC Accreditation No. 4782November 12, 2012, valid until December 31, 2015

SEC Accreditation No. 0207-FR-1 (Group A)September 6, 2013, valid until September 5, 2016



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Opinion

In our opinion, the consolidated financial statements present fairly, in all material respects, the

financial position of Max’s Group, Inc. (formerly Pancake House, Inc.) and subsidiaries as at

December 31, 2014, and their financial performance and their cash flows for the year then ended in

accordance with Philippine Financial Reporting Standards.

Other Matter

The consolidated financial statements of Max’s Group, Inc. (formerly Pancake House, Inc.) and

Subsidiaries as at and for the years ended December 31, 2013 and 2012 were audited by another

auditor whose report dated April 14, 2014, expressed an unmodified opinion on those statements.

REYES TACANDONG & CO.

BELINDA B. FERNANDO

PartnerCPA Certificate No. 81207

T Id tifi ti N 102 086 538 000



REPORT OF INDEPENDENT AUDITOR

TO ACCOMPANY FINANCIAL STATEMENTS FOR FILING WITH THE

SECURITIES AND EXCHANGE COMMISSION


Max’s Group, Inc. and Subsidiaries

Pancake House Center

2259 Pasong Tamo Ext.

Makati City

We have audited the accompanying consolidated financial statements of Max’s Group, Inc. (formerlyPancake House, Inc.) and Subsidiaries (the Group) as at and for the year ended December 31, 2014,

on which we have rendered our report dated March 27, 2015.

In compliance with Securities Regulations Code Rule 68, as amended, we are stating that the

Company has 81 stockholders owning one hundred (100) or more shares each.

REYES TACANDONG & CO

26th Floor Citibank Tower

8741 Paseo de Roxas



Phone: +632 982 9100

Fax : +632 982 9111





MAX’S GROUP, INC. (FORMERLY PANCAKE HOUSE, INC.) AND

SUBSIDIARIES

CONSOLIDATED STATEMENT OF FINANCIAL POSITIONDECEMBER 31, 2014

(With Comparative Figures for 2013)

(Amounts in Thousands)

Note 2014 2013

ASSETS

Current Assets

Cash P=956,522 P=341,682

Trade and other receivables 8 677,559 441,848

Inventories 9 364,286 96,883

Prepaid expenses and other current assets 10 363,473 70,708

Total Current Assets 2,361,840 951,121

Noncurrent Assets

Property and equipment 11 1,712,220 470,410

Intangible assets 12 4,125,644 1,207,987

Investment properties 11 433,046 –

Net retirement plan assets 24 462,153 5,060

Net deferred income tax assets 26 196,605 110,391

Security deposits on lease contracts 28 320,567 139,944



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Note 2014 2013

Noncurrent Liabilities

Long-term debt 16 P=1,212,790 P= –

Mortgage payable 17 – 1,500

Net retirement liabilities 24 101,887 62,971

Accrued rent payable 28 37,328 31,633

Net deferred income tax liabilities 26 103,291Provision for share in equity in net losses of a joint

venture 13 6,741 26,591

Other noncurrent liabilities 9,557 –

Total Noncurrent Liabilities 1,471,594 122,695

Equity

Capital stock 19 1,087,082 237,795

Additional paid-in capital 19 5,353,289 176,806 Retained earnings 19 114,102 401,680

Notes for conversion to equity 18 – 120,386

Other comprehensive income (loss) 32,350 (12,114)

6,586,823 924,553

Shares held by subsidiaries 19 (2,610,013) –

Noncontrolling interests 56,061 100,876

Total Equity 4,032,871 1,025,429




SUBSIDIARIES

CONSOLIDATED STATEMENT OF INCOMEFOR THE YEAR ENDED DECEMBER 31, 2014

(With Comparative Figures for 2013 and 2012)

[Amounts in Thousands, except for earnings (loss) per share]

2014* 2013 2012

Note

Max’s Group, Inc.

(formerly Pancake

House, Inc.)

(1 year)

Max's Entities

(2 months)

Eliminating

Entries

Combined

Amounts

REVENUES

Restaurant sales P=3,243,904 P=947,406 P= – P=4,191,310 P=3,103,219 P=2,831,596

Commissary sales 322,145 211,656 (15,758) 518,043 503,473 467,107

Franchise and royalty fees 28 127,871 28,574 – 156,445 144,859 131,997

3,693,920 1,187,636 (15,758) 4,865,798 3,751,551 3,430,700

COSTS OF SALES 21 3,099,347 862,903 (15,758) 3,946,492 3,067,219 2,799,748

GROSS PROFIT 594,573 324,733 – 919,306 684,332 630,952

GENERAL AND ADMINISTRATIVE EXPENSES 22 (498,800) (213,883) – (712,683) (436,762) (399,329)

SALES AND MARKETING EXPENSES (172,575) (30,646) – (203,221) (131,386) (62,885)

FINANCE COSTS 15 (39,499) (25,254) – (64,753) (62,580) (61,331)

SHARE IN EQUITY IN NET LOSSES OF JOINT

VENTURES 13 – – – – (12,043) (10,124)

OTHER INCOME 25 133,418 1,342,364 (1,307,527) 168,255 100,972 113,157




SUBSIDIARIES

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED DECEMBER 31, 2014



Note 2014 2013 2012

NET INCOME (LOSS) (P=66,202) P=79,274 P=149,618

OTHER COMPREHENSIVE INCOME

Item to be reclassified to profit or loss

Income (loss) from exchange differences on

translation of foreign operations 5,057 (3,553) 1,466

Item not to be reclassified to profit or loss Actuarial gains (losses) on retirement benefit

plan 24 54,020 15,694 (1,134)

Income tax effect (16,206) (4,708) 340

42,871 7,433 672

TOTAL COMPREHENSIVE INCOME (LOSS) (P=23,331) P=86,707 P=150,290

TOTAL COMPREHENSIVE INCOME (LOSS)




SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED DECEMBER 31, 2014



Note 2014 2013 2012

CAPITAL STOCK 19

Balance at beginning of year P=237,795 P=237,795 P=237,795

Conversion of notes to equity 21,416 – –

Issuance of shares 568,660 – –

Stock dividends 259,211 – –

1,087,082 237,795 237,795

ADDITIONAL PAID-IN CAPITAL 19

Balance at beginning of year 176,806 176,806 176,806

Conversion of notes to equity 110,856 – –

Share swap transaction 3,434,844 – –

Issuance of new shares 426,784 – –

Sale on follow-on offering 1,204,029

Balance at end of year 5,353,289 176,806 176,806



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Note 2014 2013 2012

Not to be reclassified to profit or loss -

Remeasurement adjustments on net

retirement liabilities, net of deferred tax

Balance at beginning of year (P=5,464) (P=16,068) (P=15,284)

Remeasurement of net retirement liabilities

and net retirement plan assets, net of

deferred tax 39,407 10,604 (784)Balance at end of year 33,943 (5,464) (16,068)

32,350 (12,114) (19,165)

6,586,823 924,553 880,961

SHARES HELD BY SUBSIDIARIES - at cost 19

Acquisition of Parent Company shares by the

10 Max’s Entities (4,093,766) – – Sale on follow-on offering 1,483,753 – –

(2,610,013) – –

NONCONTROLLING INTERESTS

Balance at beginning of year 100,876 144,363 147,792

Effect of disposal on investment of subsidiaries (315) – –

Total comprehensive income (37,835) (25,941) (1,810)

( )





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Note 2014 2013 2012

CASH FLOWS FROM INVESTING ACTIVITIES

Acquisitions of:

Property and equipment 11 (P=356,163) (P=259,338) (P=239,779)

Intangible assets 12 (12,617) (7,340) (12,794)

Investment properties 104 – –

Subsidiaries, net of cash acquired 208,458 – (88,238)Decrease (increase) in:

Security deposits on lease contracts (123,392) (43,577) (29,850)

Other noncurrent assets 118,214 10,487 2,890

Net cash flows used in investing activities (165,396) (299,768) (367,771)

CASH FLOWS FROM FINANCING ACTIVITIES

Cash dividends paid 19 – (69,056) (34,932)

Net proceeds from (payments of):Loans payable (3,356,304) (1,500) (20,010)

Long-term debt 334,383 (4,000) (4,000)

Mortgage payable (1,195) 5,557 2,082

Convertible notes – (1,049) (1,571)

Net proceeds from issuance of shares 3,153,726 – –

Decrease in noncurrent liabilities (5,481)

Returns to noncontrolling interests (6,639) (17,163) (2,385)

Net cash flows provided by (used in) financing




SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(With Comparative Information for 2013 and 2012)


1. Corporate Information

MAX’S GROUP, INC. (formerly Pancake House, Inc.; the Parent Company) was incorporated in the

Philippines and registered with the Securities and Exchange Commission (SEC) on March 1, 2000.

Its shares are publicly traded in the Philippine Stock Exchange. The Parent Company and its

subsidiaries (collectively referred to as “the Group”) are primarily engaged in the business of

catering foods and establishing, operating and maintaining restaurants, coffee shops,

refreshments parlors and cocktail lounges.

The Group operates under the trade names “Max’s”, “Pancake House,” “Yellow Cab”, “KrispyKreme”, “Jamba Juice”, “Max’s Corner Bakeshop”, “Dencio’s”, ”Teriyaki Boy”, “Singkit”, “Sizzlin’

Steak”, “Le Coeur de France”, “The Chicken Rice Shop”, “Kabisera ni Dencio’s”, “Maple” and

“Meranti”.

On December 20, 2013, Pancake House Holdings, Inc. (PHHI), the previous ultimate parent

company, agreed to sell to the 10 companies which belong to the Max’s Group (Max’s Entities)

all of its shares in the Parent Company at a price of P=15 per share. The 10 Max’s Entities also



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The 20 Max’s Entities consist of Max’s Makati, Inc., Max’s Kitchen, Inc., Max’s SM Marikina, Inc.,

Max’s Ermita, Inc., Chicken’s R Us, Inc., Max’s Circle, Inc., Max’s Baclaran, Inc., Max’s Bakeshop,

Inc., Max’s Food Services, Inc., Max’s Express Restaurants, Inc., Square Top, Inc., No Bia, Inc.,

Max’s Franchising, Inc., Ad Circles, Inc., Alpha (Global) Max Group Limited, The Real American

Doughnut Company, Inc., Fresh Healthy Juice Boosters, Inc., MGOC Holdings, Inc., RooM

Ventures Corp. and Trota Gimenez Realty Corporation.

On August 22, 2014, the SEC approved the change in the Parent Company name to “MAX’SGROUP, INC.”.

The registered office address of the Parent Company is Pancake House Center, 2259 Pasong

Tamo Extension, Makati City. On January 22, 2015, the BOD approved the change in the Parent

Company’s principal place of business to 11F Ecoplaza Building, Pasong Tamo Ext., Makati City.

Amendment of the Articles of Incorporation for the change in registered office address is

currently ongoing.

The Board of Directors (BOD) has delegated the authority to the President and the Chief Financial

Officer to approve and authorize for issue the accompanying consolidated financial statements of

the Group as at and for the year ended December 31, 2014 (with comparative figures for 2013

and 2012). The accompanying consolidated financial statements of the Group as at and for the

year ended December 31, 2014 (with comparative figures for 2013 and 2012) were approved and

authorized for issue by the President and Chief Financial Officer on March 27, 2015.



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Amendments to PAS 36, Impairment of Assets - Recoverable Amount Disclosures for Non-

Financial Assets – These amendments remove the unintended consequences of PFRS 13, Fair

Value Measurement , on the disclosures required under PAS 36. In addition, these

amendments require disclosure of the recoverable amounts for the assets or (cash

generating units (CGU) for which impairment loss has been recognized or reversed during the

period. The amendments affect disclosures only and have no impact on the Group’s financial

position or performance.

Amendments to PFRS 10, Consolidated Financial Statements, PFRS 12, Disclosure of Interests

in Other Entities and PAS 27, Separate Financial Statements - Investment Entities ─ These

provide an exception to the consolidation requirement for entities that meet the definition

of an investment entity under PFRS 10. The exception to consolidation requires investment

entities to account for subsidiaries at fair value through profit or loss.

The adoption of the foregoing new and amended PFRS did not have any material effect on the

consolidated financial statements. Additional disclosures have been included in the notes toconsolidated financial statements, as applicable.

New and Amended PFRS Not Yet Adopted

Relevant new and amended PFRS which are not yet effective for the year ended December 31,

2014 and have not been applied in preparing the financial statements are summarized below.

Effective for annual periods beginning on or after July 1, 2014:



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The amendments also clarify that the amount of the adjustment of the accumulated

amortization should form part of the increase or decrease in the carrying amount accounted

for in accordance with PAS 38.

Amendment to PAS 40, Investment Property - Classifying Property as Investment Property or

Owner-Occupied Property – The amendment clarifies that determining whether a specific

transaction meets the definition of both a business combination and investment property

requires the separate application of PAS 40 and PFRS 3, Business Combination.

Amendments to PFRS 3, Business Combinations - Contingent Consideration and Scope

Exception for Joint Ventures – The amendments require that the contingent consideration

that is classified as an asset or liability is measured at fair value at each reporting date and

changes in fair value are recognized in profit or loss, including contingent considerations that

are classified as financial instrument.

The amendments also clarifies that the accounting for the formation of a joint arrangementin the financial statements of the joint arrangement itself is excluded in the scope of PFRS 3.

Amendments to PFRS 8, Operating Segments - Aggregation of Operating Segments and

Reconciliation of the Total of the Reportable Segments’ Assets to the Entity’s Assets – The

amendments require entities to disclose the judgment made by management in aggregating

two or more operating segments. This disclosure should include a brief description of the

operating segments that have been aggregated in this way and the economic indicators that



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4. Summary of Significant Accounting Policies

Basis of Consolidation

The consolidated financial statements of the Group comprise the financial statements of the

Parent Company and its subsidiaries. Control is achieved when the Group is exposed, or has

rights, to variable returns from its involvement with the investee and has the ability to affect

those returns through its power over the investee. Specifically, the Group controls an investee if

and only if the Group has:

Power over the investee (i.e. existing rights that give it the current ability to direct the

relevant activities of the investee);

Exposure, or rights, to variable returns from its involvement with the investee; and

The ability to use its power over the investee to affect its returns.

When the Group has less than majority of the voting or similar rights of an investee, the Group

considers all relevant facts and circumstances in assessing whether it has power over aninvestee, including:

The contractual arrangement with the other vote holders of the investee;

Rights arising from other contractual arrangement; and

The Group’s voting rights and potential voting rights.

The Group re-assesses whether or not it controls an investee if facts and circumstances indicate



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Derecognizes the cumulative translation differences recorded in equity

Recognizes the fair value of the consideration received

Recognizes the fair value of any investment retained

Recognizes surplus or deficit in profit or loss

Reclassifies the parent’s share of component previously recognized in OCI to profit or loss or

retained earnings, as appropriate, as would be required if the Group had directly disposed of

the related assets or liabilities.

The consolidated financial statements include the accounts of the Parent Company and the

following subsidiaries:

Percentage of

Nature of Effective Ownership

Company Name Business 2014 2013 2012

Boulangerie Francaise, Inc. (BFI) Restaurant 100 100 100

YCPC Subic, Inc. (formerly DFSI Subic, Inc.) Restaurant 100 100 100Golden B.E.R.R.D. Grill, Inc.

a Restaurant 100 100 100

Pancake House International, Inc. (PHII)

Holding

Company 100 100 100

Teriyaki Boy International - Inc. Franchising 100 100 100

Yellow Cab Food Co. International - Inc. Franchising 100 100 100

Pancake House, International

Malaysia Sdn Bhd (PHIM) Restaurant 100 100 100

Holding



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Percentage of

Nature of Effective Ownership

Company Name Business 2014 2013 2012

Subsidiaries effective November 7, 2014 (see Note 6):

RooM Ventures Corp. Real Estate 100 – –

No Bia, Inc. Commissary 100 – –

MGOC Holdings, Inc.

Investment

Holding 100 – – Max’s SM Marikina, Inc. Restaurant 100 – –

Chicken’s R Us, Inc. Restaurant 100 – –

The Real American Doughnut Company, Inc. Bakery 100 – –

Max’s Franchising, Inc. Franchising 100 – –

Trota Gimenez Realty Corporation Real Estate 100 – –

Alpha (Global) Max Group Limited (Alpha Max) Franchising 100 – –

Max’s Baclaran, Inc. Restaurant 100 – –

Max’s Kitchen, Inc. Restaurant 100 – –

Ad Circles, Inc.

Advertising

Support 100 – –

Square Top, Inc. Commissary 100 – –

Fresh Healthy Juice Boosters, Inc. Restaurant 100 – –

Max’s Bakeshop, Inc. Bakery 100 – –

Max’s Circle, Inc. Restaurant 100 – –

Max’s Ermita, Inc. Restaurant 100 – –

Max’s Express Restaurants, Inc. Restaurant 100 – –



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If the business combination is achieved in stages, any previously held interest is remeasured at its

acquisition date fair value and any resulting gain and loss is recognized in the consolidated

statement of income. It is then considered in the determination of goodwill.

Any contingent consideration to be transferred by the acquirer will be recognized at fair value at

the acquisition date. Subsequent changes to the fair value of the contingent consideration which

is deemed to be an asset or liability will be recognized in accordance with PAS 39 either in

consolidated statement of income or as a change to other comprehensive income. If thecontingent consideration is not within the scope of PAS 39, it is measured in accordance with

appropriate PFRS. Contingent consideration that is classified as equity, is not remeasured until it

is finally settled and accounted for within equity.

Goodwill is initially measured at cost, being the excess of the aggregate of the consideration

transferred and the amount recognized for noncontrolling interest, and any previous interest

held, over the net fair value of the identifiable assets acquired and liabilities assumed. If the fair

value of the net assets acquired is in excess of the aggregate consideration transferred, theGroup reassesses whether it has correctly identified all of the assets acquired and all of the

liabilities assumed and reviews the procedure used to measure the amounts to be recognized at

the acquisition date. If the reassessment still results in an excess of the fair value of net assets

acquired over the aggregate consideration transferred, then gain is recognized in consolidated

statement of income.

After initial recognition, goodwill is measured at cost less any accumulated impairment losses.



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Financial instruments are recognized initially at fair value of the consideration given (in the case

of an asset) or received (in the case of a liability). Except for financial instruments at fair value

through profit or loss (FVPL), the initial measurement of all financial instruments includes

transaction costs. Financial assets under PAS 39, Financial Instruments Recognition and

Measurement , are categorized as either financial assets at FVPL, loans and receivables, held to

maturity (HTM) investments or available-for-sale (AFS) financial assets. Also under PAS 39,

financial liabilities are categorized as FVPL or other financial liabilities.

Financial instruments are classified as liabilities or equity in accordance with the substance ofthe contractual arrangement. Interests, dividends, gains and losses relating to a financial

instrument or a component that is a financial liability, are reported as expense or income.

Distributions to holders of financial instruments classified as equity are charged directly toequity, net of any related income tax benefits.

Financial Assets

As at December 31, 2014 and 2013, the Group does not have any financial assets at FVPL, HTMinvestments and AFS financial assets. The Group’s financial assets are of the nature of loans andreceivables.

Loans and receivables are non-derivative financial assets with fixed or determinable payments

that are not quoted in an active market. They are not entered into with the intention of

immediate or short-term resale and are not classified as financial assets held for trading,

designated as AFS financial assets or designated at FVPL.



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component being assigned the residual amount after deducting from the instrument as a whole

the amount separately determined as the fair value of the liability component on the date of

issue. After initial measurement, other financial liabilities are subsequently measured at

amortized cost using the effective interest rate method. Amortized cost is calculated by taking

into account any discount or premium on the issue and fees that are an integral part of the

effective interest rate which is recognized in the consolidated statement of income.

This accounting policy applies primarily to the Group’s trade and other payables, loans payable,long-term debt, mortgage payable and debt component of convertible notes.

Other financial liabilities are classified as current liabilities when these are expected to be settled

within twelve months from the reporting date or the Group does not have an unconditional right

to defer settlement for at least twelve months from the reporting date.

Fair Value Measurement

Fair value is the price that would be received to sell an asset or paid to transfer a liability in anorderly 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.



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For assets and liabilities that are recognized in the consolidated financial statements on a

recurring basis, the Group 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 date.

For the purpose of fair value disclosures, the Group has determined classes of assets and

liabilities on the basis of the nature, characteristics and risks of the asset or liability and the level

of the fair value hierarchy as explained above.

As at December 31, 2014 and 2013, the Group does not have financial instruments measured at

fair value.

“Day 1” Difference

Where the transaction price in a nonactive market is different from the fair value of other

observable current market transactions in the same instrument or based on a valuation

technique whose variables include only data from observable market, the Group recognizes thedifference between the transaction price and fair value (a “Day 1” difference) in the consolidated

statement of income unless it qualifies for recognition as some other types of assets. In cases

where use is made of data which is not observable, the difference between the transaction price

and model value is only recognized in the consolidated statement of income when the inputs

become observable or when the instrument is derecognized. For each transaction, the Group

determines the appropriate method of recognizing the “Day 1” difference amount.



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For loans and receivables carried at amortized cost, the Group first assesses whether an

objective evidence of impairment (such as the probability of insolvency or significant financial

difficulties of the debtor) exists individually for financial assets that are individually significant, or

collectively for financial assets that are not individually significant. If there is objective evidence

that an impairment loss has been incurred, the amount of loss is measured as the difference

between the asset’s carrying value and the present value of the estimated future cash flows

(excluding future credit losses that have not been incurred). If the Group determines that no

objective evidence of impairment exists for individually assessed financial asset, whethersignificant or not, it includes the asset in a group of financial assets with similar credit risk

characteristics and collectively assesses for impairment. Those characteristics are relevant to the

estimation of future cash flows for groups of such assets by being indicative of the debtors’

ability to pay all amounts due according to the contractual terms of the assets being evaluated.

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 for impairment.

The carrying value of the asset is reduced through the use of an allowance account and theamount of loss is charged to the consolidated statement of income. If in case the receivable has

proven to have no realistic prospect of future recovery, any allowance provided for such

receivable is written off against the carrying value of the impaired receivable. Interest income

continues to be recognized based on the original effective interest rate of the asset. If, in a

subsequent year, the amount of the estimated impairment loss decreases because of an event

occurring after the impairment was recognized, the previously recognized impairment loss is

reduced by adjusting the allowance account. Any subsequent reversal of an impairment loss is



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Financial Liability. A financial liability is derecognized when the obligation under the 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 is treated as a

derecognition of the original liability and the recognition of a new liability, and the difference in

the respective carrying amounts of a financial liability extinguished or transferred to another

party and the consideration paid, including any noncash assets transferred or liabilities assumed

is recognized in the consolidated statement of income.

Inventories

Inventories consist of food and beverage, store and kitchen supplies and operating equipment

for sale. Inventories are valued at the lower of cost and net realizable value (NRV). Cost is

determined using the weighted average method. NRV of food and beverage is the estimated

selling price in the ordinary course of business less the estimated costs necessary to make the

sale. NRV of store and kitchen supplies and operating equipment for sale is the current

replacement cost. In determining NRV, the Group considers any adjustment necessary forspoilage, breakage and obsolescence.

Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets include prepaid expenses, advances to suppliers and

creditable withholding taxes.

Prepaid Expenses. Prepaid expenses are carried at cost and are amortized on a straight-line basis



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Each part of an item of property and equipment with a cost that is significant in relation to the

total cost of the item is depreciated and amortized separately.

Depreciation and amortization is computed using the straight-line method over the estimated

useful lives of the assets.

The estimated useful lives of the assets are as follows:

Category Number of Years

Building 10-25

Leasehold improvements 5 or term of the lease,

whichever is shorter

Store and kitchen equipment 3-8

Furniture, fixtures and equipment 3-5

Transportation equipment 3-5

The estimated useful lives, depreciation and amortization methods are reviewed periodically to

ensure that the periods and methods of depreciation and amortization are consistent with the

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

When assets are retired or otherwise disposed of, both the cost and related accumulated

depreciation and amortization are removed from the accounts and any resulting gain or loss is

recognized in the consolidated statement of income.



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Software License. Software license is measured initially at cost which is the amount of the

purchase consideration. Following initial recognition, software license is carried at cost less

accumulated amortization and any accumulated impairment losses. The Group’s software

license has a term of five years and is amortized over such period using the straight-line method.

The useful life and amortization method for software license are reviewed at least at each

reporting date. Changes in the expected useful life or the expected pattern of consumption of

future economic benefits embodied in the software is accounted for by changing the useful life

and amortization method, as appropriate, and treated as a change in accounting estimates. Theamortization expense on software is recognized in the consolidated statement of income under

general and administrative expense category consistent with its function.

Brand Development Costs. Brand development costs pertain to capitalized expenditures incurred

for the development of methods, materials and course curriculum and programs for use in the

operation of the Group. Brand development costs are measured on initial recognition at cost.

Following initial recognition, brand development costs are carried at cost less accumulated

amortization and any accumulated impairment losses. Amortization is recognized using straight-line method and begins when the development is complete and available for use over the period

of expected future benefits, which is 20 years. During the period of development, the asset is

tested for impairment annually. The amortization expense on brand development costs is

recognized in the consolidated statement of income under the general and administrative

expense category consistent with its function.

Lease Rights. Lease rights are measured initially at cost which is the amount of the purchase



- 16 -

Transfers are made to investment property when, and only when, there is change in use,

evidenced by cessation of owner-occupation or commencement of an operating lease to another

party. Transfers are made from investment property when, and only when, there is a change in

use, evidenced by commencement of owner-occupation or commencement of development with

a view to sell.

Other Nonfinancial Assets

Security Deposits on Lease Contracts and Utilities and Other Deposits. Security, utilities and other

deposits represent payment for security, utilities and other deposits made in relation to the lease

agreements entered into by the Group. These are carried at cost and will generally be applied as

lease payments toward the end of the lease terms.

Input Value-added Tax (VAT). Input VAT represents tax imposed on the Group by its suppliers

and contractors for the purchase of goods and services, as required under Philippine taxation

laws and regulations. The portion of input VAT that will be used to offset the Group’s currentVAT liabilities is presented as current asset in the consolidated statement of financial position.

Input VAT classified as noncurrent assets represent the unamortized portion of VAT imposed on

the Group for the acquisition of depreciable assets with an estimated useful life of at least one

year, which is required to be amortized over the life of the related asset or a maximum period of

60 months, whichever is shorter. Input VAT is stated at estimated NRV.



- 17 -

The reporting dates of the joint ventures and the Group are identical and the joint ventures’

accounting policies conform to those used by the Group for like transactions and events in

similar circumstances. Unrealized gains arising from transactions with the joint venture are

eliminated to the extent of the Group’s interest in the joint ventures against the related

investments. Unrealized losses are eliminated similarly but only to the extent that there is no

evidence of impairment in the asset transferred.

The Group ceases to use the equity method of accounting on the date from which it no longerhas joint control over, or significant influence in, the joint venture or when the interest becomes

held for sale.

Impairment of Nonfinancial Assets

Prepaid Expenses and Other Current Assets, Property and Equipment, Intangible Assets, Security

Deposits on Lease Contracts, Rental and Other Deposits and Input VAT

The Group assesses at each reporting date whether there is an indication that these nonfinancial

assets may be impaired. If any such indication exists, or when annual impairment testing for an

asset is required, the Group estimates these nonfinancial assets’ recoverable amount. An asset’s

recoverable amount is the higher of an asset’s or CGU’s fair value less costs to sell and its value in

use and is determined for an individual asset, unless the asset does not generate cash inflows

that are largely independent of those from other assets or groups of assets. Where the carrying

amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and



- 18 -

Investments in Joint Venture. After application of the equity method, the Group determines

whether it is necessary to recognize an additional impairment loss on the Group’s investment in

its joint ventures. The Group determines at each reporting date whether there is any objective

evidence that the interest in a joint venture is impaired. If this is the case, the Group calculates

the amount of impairment as the difference between the recoverable amount of the joint

venture and its carrying value and recognizes the amount in the “Share in equity in net losses of

joint ventures” in the consolidated statement of income.

Convertible Notes

Compound financial instruments issued by the Group comprise of convertible notes that can be

converted to capital stock at the option of the holder, and the number of shares to be issued

does not vary with changes in their fair value. The liability component of a compound financial

instrument is recognized initially at the fair value of a similar liability that does not have an equity

conversion option. The equity component is recognized initially at the difference between the

fair value of the compound financial instrument and the fair value of the liability component.

Any directly attributable transaction costs are allocated to the liability and equity components inproportion to their initial carrying amounts.

Subsequent to initial recognition, the liability component of a compound financial instrument is

measured at amortized cost using the effective interest method. When there are changes in the

estimates of future cash flows on the liability component, the carrying amount is adjusted to

reflect the revised estimated cash flows. The revised carrying amount is calculated by computing

the present value of estimated future cash flows using the original effective interest rate. Such



- 19 -

Revenue Recognition

Revenue is recognized to the extent that it is probable that the economic benefits will flow to the

Group and the revenue can be reliably measured. The following specific recognition criteria must

also be met before revenue is recognized.

Restaurant Sales. Revenue is recognized when the related orders are served.

Commissary Sales. Revenue is recognized upon delivery of goods.

Franchise and Royalty Fees. Revenue is recognized under the accrual basis in accordance with

the terms of the franchise agreements.

Fees charged for the use of continuing rights granted in accordance with the franchise

agreement, or other services provided during the period of the franchise agreement, are

recognized as revenue as the services are provided or as the rights are used.

Service Income. Service and management fee is recognized when related services are rendered.

Delivery Income. Revenue is recognized when the related orders are delivered.

Rental Income. Rental income is recognized on a straight-line basis over the lease term.

Interest Income. Revenue is recognized as the interest accrues using the effective interest rate

method.



- 20 -

Sales and Marketing. Sales and marketing expenses, which represent advertising and other

selling costs, are generally expensed as incurred.

Employee Benefits

Short-term Benefits. The Group recognizes a liability net of amounts already paid and an expense

for services rendered by employees during the accounting period. A liability is also recognized

for the amount expected to be paid under short-term cash bonus or profit sharing plans if the

Group has a present legal or constructive obligation to pay this amount as a result of past service

provided by the employee, and the obligation can be estimated reliably.

Short-term employee benefit liabilities are measured on an undiscounted basis and are expensed

as the related service is provided.

Retirement Benefits. The net defined benefit liability or asset is the aggregate of the present

value of the defined benefit obligation at the end of the reporting period reduced by the fairvalue of plan assets, adjusted for any effect of limiting a net defined benefit asset to the asset

ceiling. The asset ceiling is the present value of any economic benefits available in the form of

refunds from the plan or reductions in future contributions to the plan.

The cost of providing benefits under the defined benefit plans is actuarially determined using the

projected unit credit method.



- 21 -

Plan assets are assets that are held by a long-term employee benefit fund. Plan assets are not

available to the creditors of the Group, nor can they be paid directly to the Group. Fair value of

plan assets is based on market price information. When no market price is available, the fair

value of plan assets is estimated by discounting expected future cash flows using a discount rate

that reflects both the risk associated with the plan assets and the maturity or expected disposal

date of those assets (or, if they have no maturity, the expected period until the settlement of the

related obligations). If the fair value of the plan assets is higher than the present value of the

defined benefit obligation, the measurement of the resulting defined benefit asset is limited tothe present value of economic benefits available in the form of refunds from the plan or

reductions in future contributions to the plan.

The Group’s right to be reimbursed of some or all of the expenditure required to settle a defined

benefit obligation is recognized as a separate asset at fair value when and only when

reimbursement is virtually certain.

Operating Leases

Group as a Lessee. Operating leases represent those leases under which substantially all risks

and rewards of ownership of the leased assets remain with the lessors. Noncancellable

operating lease payments are recognized as expense in the consolidated statement of income on

a straight-line basis. The difference between the straight-line recognition basis and the actual

payments made in relation to the operating lease agreements are recognized under “Trade and

other payables” (if current) and “Accrued rent payable” (if noncurrent) accounts in the



- 22 -

Foreign Currency Translation

The functional currency of the entities of the Group is the Philippine peso except for PHII and its

subsidiaries and Alpha Max, with functional currency in the United States dollar ($). Each entity

in the Group determines its own functional currency and items included in the financial

statements of each entity are measured using that functional currency. Transactions in foreign

currencies are initially recorded using the prevailing exchange rate at the date of transaction.

Monetary assets and liabilities denominated in foreign currencies are restated at the functional

currency rate of exchange at the reporting date. All differences are taken to the consolidatedstatement of income.

The assets and liabilities of PHII and Alpha Max are translated into Philippine Peso at the rate of

exchange ruling at the reporting date and income and expenses are translated to Philippine peso

at monthly average exchange rates. The exchange differences arising on the translation are

taken directly to other comprehensive income and presented as a separate component of equity

under the “Accumulated translation adjustment” account.

Income Taxes

Current Income Tax. Current income tax liabilities for the current and prior periods are measured

at the amount expected to be paid to the taxation authorities. The income tax rate and tax laws

used to compute the amount are those that are enacted or substantively enacted at the

reporting date.



- 23 -

• in respect of deductible temporary differences associated with investments in subsidiaries,

associates and interests in joint ventures, deferred income tax assets are recognized only to

the extent that it is probable that the temporary differences will reverse in the foreseeable

future and taxable profit will be available against which the temporary differences can be

utilized.

The carrying amount of deferred income tax assets is reviewed at each reporting date and

reduced to the extent that it is no longer probable that sufficient taxable profit will be available

to allow all or part of the deferred income tax assets to be utilized. Unrecognized deferred

income tax assets are reassessed at each reporting date and are recognized to the extent that it

has become probable that future taxable profit will allow the deferred income tax assets to be

recovered.

Deferred income tax assets and liabilities are measured at the tax rate that is expected to apply

to the period when the asset is realized or the liability is settled, based on tax rate (and tax laws)

that have been enacted or substantively enacted at the reporting date.

Deferred income tax assets and deferred income tax liabilities are offset, if a legally enforceable

right exists to set off 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.

Earnings Per Share (EPS) Attributable to the Equity Holders of the Parent

Basic EPS is computed by dividing net income for the year attributable to common shareholders



- 24 -

Related Parties

Parties are considered to be 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. Parties are also considered to be related if they are subject to common

control or common significant influence.

An entity is also considered as a related party if the entity is a post-employment benefit plan for

the benefit of employees of either the reporting entity or an entity related to the reporting

entity. If the reporting entity is itself such a plan, the sponsoring employers are also related to

the reporting entity.

Provisions

Provisions, if any, are recognized when the Group 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. If the effect of the time value of money is material, provisions are determinedby discounting the expected future cash flows at a pretax rate that reflects current market

assessment of the time value of money and, where appropriate, the risks specific to the

liability. Where discounting is used, the increase in the provision due to the passage of time is

recognized as a finance cost.

Contingencies

Contingent liabilities are not recognized in the consolidated financial statements. These are



- 25 -

Judgments

In the process of applying the Group’s accounting policies, management has made the following

judgments, apart from those involving estimations, which have the most significant effect on the

amounts recognized in the consolidated financial statements.

Determining Functional Currency. The functional currency of the companies in the Group has

been determined to be the Philippine Peso except for certain subsidiaries and joint venture

whose functional currency are the US Dollar, Malaysian Ringgit and Singapore Dollar. The

Philippine Peso is the currency that mainly influences the sale of goods and services and the costs

of sales.

Determining Fair Values of Financial Instruments. Where the fair values of financial assets and

financial liabilities recognized in the consolidated statement of financial position cannot be

derived from active markets, they are determined using a variety of valuation techniques that

include the use of mathematical models. The Group uses judgments to select from variety of

valuation models and make assumptions regarding considerations of liquidity and model inputs

such as correlation and volatility for longer dated financial instruments. The input to these

models is taken from observable markets where possible, but where this is not feasible, a degree

of judgment is required in establishing fair value.

Establishing Control Over Investment in Subsidiaries. The Group determined that it has control

over its subsidiaries (see Note 4) by considering, among others, its power over the investee,

exposure or rights to variable returns from its involvement with the investee, and the ability to



- 26 -

Operating Segments. Although each trade name represents a separate operating segment,

management has concluded that there is basis for aggregation into a single operating segment as

allowed under PFRS 8 due to their similar characteristics. This is evidenced by a consistent range

of gross margin across all brand outlets as well as uniformity in sales increase and trending for all

outlets, regardless of the brand name. Moreover, all trade names have the following business

characteristics:

(a) Similar nature of products/services offered and methods to distribute products and provide

services, that is, food service through casual dining experience;

(b) Similar nature of production processes through establishment of central commissary for the

Group that caters all brands for all store outlets;

(c) Similar class of target customers which are middle-class consumers; and

(d) Primary place of operations is in the Philippines.

Estimates and Assumptions

The key assumptions concerning the future and other key sources of estimation uncertainty at

the financial reporting date, 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.

Estimating Impairment of Receivables. Management reviews the age and status of these

receivables and identifies accounts that are to be provided with allowances on a continuous



- 27 -

Estimating Impairment of Non-financial assets. The Group also assesses impairment on these

assets whenever events or changes in circumstances indicate that the carrying amount may not

be recoverable. The factors that the Group considers important which could trigger an

impairment review include the following:

• Significant underperformance relative to expected historical or projected future operating

results;

• Significant changes in the manner of use of the acquired assets or the strategy for overall

business; and

• Significant negative industry or economic trends.

In determining the present value of estimated future cash flows expected to be generated from

the continued use of the assets, the Group is required to make judgments and estimates that can

materially affect the consolidated financial statements.

There were no impairment indicators noted on these assets as at December 31, 2014 and 2013.

The aggregate net book values of these assets amounted to P=3,340.1 million as at

December 31, 2014 (P=742.9 million December 31, 2013) (see Notes 10, 11, 12, 13 and 28).

Estimating Impairment of Goodwill. The Group tests annually whether any impairment in

goodwill is to be recognized, in accordance with the related accounting policy in Note 4. The

recoverable amounts of CGUs have been determined based on value in use calculations which



- 28 -

Estimating the Useful Lives of Property and Equipment and Intangible Assets. The Group reviews

annually the estimated useful lives of property and equipment and intangible assets based on

expected asset utilization as anchored on business plans and strategies that also consider

expected future technological developments and market behavior. The estimated useful lives

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 these assets. In addition, estimation of the useful lives is based on collective assessment of

industry practice, internal technical evaluation and experience with similar assets. It is possible

that future results of operations could be materially affected by changes in these estimates

brought about by changes in the factors mentioned. The amount and timing of recorded

expenses for any period would be affected by changes in these factors and circumstances.

The net book values of property and equipment amounted to P=1,712.2 million as at

December 31, 2014 (P=470.4 million as at December 31, 2013) (see Note 11). The net book values

of intangible assets amounted to P=4,125.6 million as at December 31, 2014 (P=1,208.0 million as at

December 31, 2013) (see Note 12).

Estimating Debt Component of Convertible Notes. The determination of the debt component of

the convertible notes is based on the discounted amount of future cash flows of the interest

payments since the notes are mandatorily convertible into a fixed number of common shares

after the lapse of the term. Interest payments represent the higher of consolidated net income

or the dividends that the noteholders would have been entitled to as discussed in Note 18.

Effectively, the dividends on common shares would serve as the minimum interest on the note.



- 29 -

Estimating Realizability of Deferred Income Tax Assets. The Group reviews the carrying amountsof deferred income tax assets at each reporting date and reduces the amounts to the extent that

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

deferred income tax assets to be utilized in the future. The amount of deferred income tax

assets that are recognized is based upon the likely timing and level of future taxable profits

together with future tax planning strategies to which the deferred income tax assets can be

utilized.

The Group has temporary differences, excess MCIT and unused NOLCO totaling to P=72.5 million

as at December 31, 2014 (P=90.5 million as at December 31, 2013), for which no deferred income

tax assets were recognized. The carrying values of deferred income tax assets amounted to

P=182.0 million as at December 31, 2014 (P=113.8 million as at December 31, 2013) (see Note 26).

Estimating Contingencies. The estimate of probable costs for the resolution of possible claims

has been developed in consultation with the internal and external counsel handling the Group’s

defense in these matters and is based upon analysis of potential results. No provision for

probable losses arising from legal contingencies was recognized in the Group’s consolidated

financial statements as at December 31, 2014 and 2013 (see Note 32).

6. Business Combination

As discussed in Note 1, on November 7, 2014, the Group acquired 100% of the outstanding and



- 30 -

Goodwill recognized is a result of the expected synergies from combined operations of theacquirees and the acquirer, intangible assets that do not qualify for separate recognition and

other factors.

The purchase price allocation has been prepared on a preliminary basis. The Parent Company is

still in the process of completing its accounting of the transaction and reasonable changes are

expected as additional information becomes available. This will be finalized in 2015 as allowed

by PFRS.

From the date of acquisition, the 20 Max’s Entities have contributed net revenues and net

income of P=1,187.6 million and P=76.7 million, respectively to the Group. Had the acquisition

occurred as at the January 1, 2014, the combined revenues and net loss in for the year ended

December 31, 20 14 would have amounted to P=9,546.2 million and P=56.0 million, respectively.

The 2014 pro-forma consolidated statement of income is as follows:

REVENUES

Restaurant sales P=8,020,938

Commissary sales 1,257,731

Franchise and royalty fees 267,492

9,546,161

Costs of sales 7,720,749

Gross profit 1,825,412

General and administrative expenses (1,371,002)

Sales and marketing expenses (405 470)



- 31 -

7. Material Partly-Owned Subsidiary and Disposal of Subsidiaries

Material Partly-Owned Subsidiary

Below is the financial information of TBGI which have material noncontrolling interest as at

December 31, 2014 and 2013. The noncontrolling shareholder holds 30% equity interest.

Accumulated balance of material noncontrolling interest amounted to P=92.4 million as at

December 31, 2014 (P=116.0 million and P=123.7 million as at December 31, 2013 and 2012,respectively).

Income (loss) allocated to material noncontrolling interest in TBGI amounted to P=20.0 million in

2014, (P=8.1 million in 2013 and P=5.7 million in 2012).

The summarized results of operation of TBGI is provided below. The information is based on the

amounts before intercompany elimination:

2014 2013 2012

Revenue P=454,089 P=517,144 P=566,359

Cost of sales (442,316) (453,602) (472,072)

General and administrative expenses (100,972) (81,170) (69,845)

Sales and marketing expense (9,812) (16,842) (4,414)

Other income 3,918 3,561 4,606

Income (loss) before tax (95 093) (30 909) 24 634



- 32 -

Disposal of Subsidiaries

a. PHICAFSI. On February 5, 2014, the BOD of the Parent Company approved the resolution to

subscribe to additional 750,000 shares, out of PHICAFSI’s authorized but unissued shares and

to apply the advances to PHICAFSI as full payment for the subscription. The BOD also

authorized the Parent Company to waive its pre-emptive rights over the issuance of PHICAFSI

of an additional P=99.0 million worth of shares, each with a par value of P=1 in favor of PHHI

(which is currently in the process of changing its corporate name to exclude “Pancake

House”). It was resolved further that the Parent Company grants PHHI an irrevocable voting

proxy over the Parent Company’s shares and an option to purchase the Parent Company’s

shares in PHICAFSI at book value.

As at December 31, 2014, the Parent Company recognized receivable from disposal of

interest amounting to P=143.6 million, equivalent to the carrying value of net assets of

PHICAFSI (see Note 13).

b. AHGI and HPI. In October 2014, the Parent Company entered into a Share Purchase

Agreement to sell its 60% and 51% ownership interest with AHGI and HPI, respectively.

Consideration from the sale of AHGI and HPI shares and the corresponding gain on disposal

are as follows:

AHGI HPI

Carrying value of net assets (liabilities) (P=1,565) P=1,442



- 33 -

8. Trade and Other Receivables

This account consists of:

2014 2013

Trade P=372,991 P=167,128

Nontrade 209,854 23,345

Officers and employees 45,167 15,605

Royalties 33,619 25,344Credit card receivable 11,885 6,776

Receivable from:

Franchisees 73,946 73,805

Sale of asset group 52,922 52,922

Sale of property and equipment – 2,544

Due from ICF-CCE, Inc. – 45,371

Others 57,919 51,157

858,303 463,997Less allowance for impairment losses 180,744 22,149

P=677,559 P=441,848

Trade receivables pertain to commissary sales billed to franchisees which are secured,

noninterest-bearing and are normally settled on 15-30 days’ terms. The franchisees provide

certain amount of deposits as guarantee on the receivable. These deposits are presented under

“Trade and other payables” account in the consolidated statement of financial position



- 34 -

Movements of allowance for impairment loss are as follows:

Note 2014 2013

Balance at beginning of year P=22,149 P=22,218

Effect of:

Business combination 6 12,692 –

Disposal of investments in subsidiaries 7 (73) –

Provisions 21 150,610 4

Write-off (4,634) – Recoveries – (73)

Balance at end of year P=180,744 P=22,149

9. Inventories

This account consists of the following inventories which are carried at cost:

2014 2013

Food and beverage P=312,415 P=74,637

Store and kitchen supplies 51,871 20,347

Operating equipment for sale – 1,899

P=364,286 P=96,883



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11. Property and Equipment and Investment Properties

Movements in the property and equipment follows:

2014

Store and Furniture,

Leasehold Kitchen Fixtures and Transportation Construction

Land Building Improvements Equipment Equipment Equipment In-Progress Total

Cost

Balances at beginning of year P= – P= – P=774,501 P=640,047 P=131,363 P=66,789 P=8,510 P=1,621,210

Effects of:

Business combination 137,303 80,618 1,379,889 800,167 478,727 184,064 132,928 3,193,696

Disposal of investment in

subsidiaries – – (11,044) (12,454) – – – (23,498)

Additions – – 167,203 78,275 25,413 18,113 67,159 356,163

Transfer – – 3,169 (2,120) – – (1,049) – Disposals – – (61,257) (88,877) (19,863) (2,097) – (172,094)

Balances at end of year 137,303 80,618 2,252,461 1,415,038 615,640 266,869 207,548 4,975,477

Accumulated Depreciation and

Amortization

Balances at beginning of year – – 517,261 486,961 98,059 48,519 – 1,150,800

Effects of:

Business combination – 43,059 896,254 598,455 371,345 121,967 – 2,031,080


subsidiaries – – (4,920) (12,454) – – – (17,374)

Depreciation and amortization – 887 123,112 87,030 46,710 13,106 – 270,845

Disposals – – (61,257) (88,877) (19,863) (2,097) – (172,094)

Balances at end of year – 43,946 1,470,450 1,071,115 496,251 181,495 – 3,263,257Net Book Values P=137,303 P=36,672 P=782,011 P=343,923 P=119,389 P=85,374 P=207,548 P=1,712,220

Cost of fully depreciated property and equipment that are still used in operations amounted to P=658.9 million as at December 31, 2014 (P=443.8 million as at

December 31, 2013).



- 36 -

2013

Furniture,

Leasehold Store and Kitchen Fixtures and Transportation Construction

Improvements Equipment Equipment Equipment In-Progress Total

Cost

Balances at beginning of year P=683,779 P=571,431 P=107,209 P=56,265 P=5,063 P=1,423,747

Additions 119,319 89,941 26,013 15,326 8,739 259,338

Disposals (33,889) (21,325) (1,859) (4,802) – (61,875)

Reclassifications 5,292 – – – (5,292) –

Balances at end of year 774,501 640,047 131,363 66,789 8,510 1,621,210

Accumulated Depreciation and

Amortization

Balances at beginning of year 447,037 433,186 84,449 34,285 – 998,957

Depreciation and amortization 104,112 66,385 15,231 17,385 – 203,113

Disposals (33,888) (12,610) (1,621) (3,151) – (51,270)

Balances at end of year 517,261 486,961 98,059 48,519 – 1,150,800

Net Book Values P=257,240 P=153,086 P=33,304 P=18,270 P=8,510 P=470,410

Movements in the investment properties for 2014 follow:

Building and Condominium

Land Improvements Units Total

Cost

Effect of consolidation P=432,194 P=7,226 P=32,368 P=471,788

Disposals – – (26,430) (26,430)

Balances at end of year 432,194 7,226 5,938 445,358

Accumulated Depreciation and Amortization

Effect of consolidation – 5,748 26,797 32,545Depreciation and amortization – 626 474 1,100

Disposals – – (21,333) (21,333)

Balances at end of year – 6,374 5,938 12,312

Net Book Values P=432,194 P=852 P= – P=433,046



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12. Intangible Assets


2014 2013

Goodwill P=3,803,391 P=889,522

Trademarks 270,656 298,394

Software license 27,415 12,040Franchise fees 19,166 –

Lease rights 3,946 3,244

Brand development costs 1,070 4,787

P=4,125,644 P=1,207,987

Goodwill. Goodwill acquired through business combination has been attributed to the following

brands which are considered to be separate CGUs of the Group:

Note 2014 2013

Max’s 6 P=3,002,720 P= –

Yellow Cab 708,785 708,785

Pancake House 60,655 60,655

Le Coeur de France 31,231 31,231

Hospitality School Management Group, Inc. 7 – 88,851

P=3,803,391 P=889,522



- 38 -

The rollforward of trademark, brand developments costs and lease rights are as follows:

2014

Trademarks Software

Brand

Development

Costs Lease Rights

Franchise

Fees Total

Cost

Balances at beginning of year P=556,503 P=20,134 P=5,973 P=7,128 P= – P=589,738

Effect of:

Business combination 1,027 32,754 3,701 – 26,846 64,328

Disposal of investment insubsidiaries – – – – (5,973) (5,973)

Additions – 7,500 2,875 2,242 – 12,617

Disposal – (692) (3,114) – – (3,806)

Balances at end of year 557,530 59,696 9,435 9,370 20,873 656,904

Accumulated Amortization

Balances at beginning of year 258,109 8,094 1,186 3,884 – 271,273

Effect of:

Business combination 322 16,661 1,480 – 8,885 27,348


subsidiaries – – (1,186) – – (1,186)

Amortization 28,443 8,041 1,151 1,114 1,037 39,786

Disposal – (515) – (2,054) – (2,569)

Balances at end of year 286,874 32,281 2,631 2,944 9,922 334,652

Net Book Value P=270,656 P=27,415 P=6,804 P=6,426 P=10,951 P=322,252

2013

Trademarks Software

Brand

Development

Costs Lease Rights Total

Cost



- 39 -

The Group had an investment in a joint venture through PHICAFSI representing 50% interest inICF-CCE, Inc. which was incorporated in May 2010. ICF-CCE, Inc. is engaged in the business of

operating a culinary skills training center and a restaurant for the practicum of its students. In

2014, the Group ceased to consolidate PHICAFSI and its subsidiaries’ financial position and

results of operations.

Investments in joint venture also includes investment in CRPS.

The aggregate movements in these investments are as follow:

Note 2014 2013

Acquisition cost

Balance at beginning of year P=6,469 P=6,469

Effect of deconsolidation of ICF-CCE 6,200 –

Balance at beginning and end of year P=269 P=6,469

Accumulated equity in net losses

Balances at beginning of year (33,060) (23,685)Share in equity in net losses – (12,043)

Translation adjustments 86 2,668

Effect of deconsolidation of ICF-CCE 7 25,964 –

Balances at end of year (7,010) (33,060)

Excess of share in equity net losses

over cost (P=6,741) (P=26,591)



- 40 -

Trade payables are noninterest-bearing and generally on 30 to 60 day term.

Nontrade payable pertains mainly to the unpaid billings from contractors for construction of new

stores and for various renovation activities on existing stores, withholding taxes and SSS for

employees’ monthly contribution and unpaid billing from agencies for personnel requirement

that are contractual, among others.

Accrued expenses include Group purchases that are already received as at reporting date but

with pending documents, payroll and other benefits as at cut-off date that are not yet due forpayment and electricity and water expenses, among others.

Deposits include deposits on ingredients representing the amount received by the Group from its

franchisees as stipulated in the franchise agreement equivalent to 40% of the projected 15-day

food and beverage sales to cover for all the ingredients initially advanced by the Group for the

commencement of the franchise outlets’ commercial operations. These are carried at cost and

subject to a semi-annual review and is correspondingly adjusted based on the revised projected

monthly sales of the franchise outlet.

Other payables include withholding taxes payable, current portion of accrued rent payable and

PAG-IBIG premiums payable.

15. Loans Payable



- 41 -

Interest expense charged to profit or loss follows:

Note 2014 2013 2012

Loans payable P=39.0 million P=12.6 million P=15.3 million

Long-term debt 16 25.3 million 43.2 million 44.2 million

Mortgage payable and convertible

notes 17 0.5 million 6.8 million 1.8 million

P=64.8 million P=62.6 million P=61.3 million

16. Long-term Debt


2014 2013

Long-term loan P=1,274,110 P=785,876Finance lease liability 12,377 –

1,286,487 785,876

Current portion 73,697 785,876

Noncurrent portion P=1,212,790 P= –

On February 21, 2014, the Max’s Entities entered into a loan agreement for P=4,274.1 million with

a creditor bank The proceeds of the loan were used to acquire shares of stocks of the Parent



- 42 -

The loan is presented net of deferred transaction costs. A rollforward analysis of debt issue costsis shown below:

; 2014

Balance at transaction date P=19,500,002

Amortization (14,415,236)

Balance at end of year P=5,084,766

On September 6, 2011, MGI availed of an P=800.0 million loan from a Notes Facility Agreement

(NFA) with Metropolitan Bank & Trust Company (Treasury Department) as facility agent, paying

agent. The proceeds of which were used by the Parent Company to acquire 100% interest in

YCFC.

The loan has a five year maturity and bear fixed annual interest rates at 4.7368% and 6.2550%.

Under the NFA, MGI shall not permit its (i) Debt-to-Equity ratio at any time to exceed 2:1; (ii)

Debt Service Coverage Ratio as at December 31 not be less than 1.5; and (iii) Current Ratio at any

time not to be less than 1:1. Moreover, the Parent Company is prohibited from entering into

merger, spin-off, consolidation or reorganization (unless the Company is the surviving entity),

selling, transferring, conveying or otherwise disposing all or substantially all of its assets (unless

in the ordinary course of the business).

MGI was not able to comply with the foregoing debt covenants as at December 31, 2013.

d l h b l f l d b ( f d d f d f )



- 43 -

Interest expense on mortgage payables amounted to P=0.5 million in 2014 (P=6.8 million in 2013and P=1.8 million in 2012).

18. Convertible Notes

This account pertains to convertible notes issued by the Parent Company in 2005 to Aureos

South East Asia Fund, LLC (ASEAF) and Planters Bank Venture Capital Corporation for SMEs

(PVCC) for the expansion of the Teriyaki Boy Brand. Under the original investment agreement

and amendments, the convertible notes were subject to the following, but not limited to,

significant terms:

a. Interest shall be the higher between the investors’ equity equivalent share in 50% of the

audited net income of the Parent Company and its subsidiaries or dividends earned by the

convertible notes had it been considered part of equity at the beginning of the year.

b. Conversion shall be as follows:

Equity

Interest

Conversion

Price

Original Investment Agreement - ASEAF and PVCC 20.6728% P=4.56

Supplemental Investment Agreement - ASEAF and

AMF 8.2618% 6.50



- 44 -

19. Equity

The movements of the Group’s capital stock as at December 31, 2014 and December 31, 2013

follow:

2014 2013

Authorized capital stock - P=1 1,400,000,000 400,000,000

Issued and outstandingBalance at beginning of year 237,795,455 237,795,455

Issuance 568,660,342 –

Stock dividends 259,210,840 –

Conversion of notes to equity 21,415,385 –

Balance at end of year 1,087,082,022 237,795,455

Less shares held by subsidiaries 306,878,044 –

780,203,978 237,795,455

Capital Stock

On December 15, 2000, the Parent Company listed with the PSE its common shares, where it

offered 188,636,364 shares to the public at the issue price of P=1.48 per share. Proceeds from

these issuances of new shares amounted to P=279.2 million.

In January 2014, the Parent Company issued 21,415,385 common shares of the Parent Company

i h f ibl Th f h i f h ibl



- 45 -

The Group has 82 stockholders as of December 31, 2014 (123 stockholders as of December 31,2013).

Shares Held By Subsidiaries

Shares held by subsidiaries pertain to Parent Company shares of stock held by 10 Max’s entities

which were acquired on February 24, 2014. As at December 31, 2014 shares held by subsidiaries

amounted to P=2,610.0.

The movements of the shares held by subsidiaries as at December 31, 2014 are as follows:

Note No. of shares

Acquisition of Parent Company shares by the 10 Max’s Entities 233,160,189

Stock dividend 233,160,189

Effect of share swap 9,571,766

Sale on follow-on offering 1 (169,014,100)

Balance at end of year 306,878,044

As discussed in Note 1, 169,014,100 shares held by subsidiaries were sold during the follow-on

offering. Gain arising from such sale amounting to P=1,204.0 million pertains to the excess of

proceeds over the cost of the investments and direct transaction costs. Certain subsidiaries which

owned shares of other Max’s Entities exchanged such shares with MGI shares resulting to gain of

P=103.5 million. The net gains on sale and exchange were eliminated in the preparation of

consolidated financial statements and recognized as additional paid-in capital under equity.



- 46 -

20. Related Party Disclosures

The Group has transactions within and among the consolidated entities and related parties.

Parties are considered to be 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. Parties are also considered to be related if they are subject to common

control. Transactions between members of the Group and the related balances are eliminated at

consolidation and are no longer included in the disclosure.

(i) The Group has the following transactions with related parties:

Outstanding

Classification Year Transactions Balance Terms Condition

Entities under common control*

First Lucky Property Lease 2014 P= – P= – 30 days upon Secured

Corporation (FLPC) 2013 25,388 – 30 days upon Secured

Lapanday Properties Lease 2014 – – 30 days upon Secured

Philippines, Inc. (LPPI) 2013

3,876 – 30 days upon Secured

Macondray Plastics Purchases 2014 – – 30 days upon Unsecured

Products, Inc. 2013 3,444 358 30 days upon Unsecured

Macondray Philippine Co. Purchases 2014 – – 30 days upon Unsecured

2013 3,103 218 30 days upon Unsecured

Shares held by the Retirement

Plan

Retirement Plan

Retirement

fund 2014 304,928 304,928

Stockholders Receivable 2014 99,869 99,869 On demand Unsecured



- 47 -

21. Costs of Sales


Note 2014 2013 2012

Food and beverage P=1,672,205 P=1,247,687 P=1,174,725

Salaries and wages 645,122 477,037 421,240

Rentals 509,796 360,338 328,754

Depreciation and amortization 23 224,127 178,563 137,811Light and water 215,256 193,392 187,506

Supplies used 149,243 127,374 124,057

Fuel and oil 99,404 83,558 80,583

Employee’s benefits 92,277 79,081 90,781

Transportation and travel 80,940 52,531 39,482

Taxes and licenses 52,887 47,962 46,053

Security services 46,198 31,289 19,545

Supplies and equipment sold 42,946 65,265 48,416

Repairs and maintenance 17,378 50,772 43,169Dues and subscription 12,637 16,328 16,575

Communications 9,746 12,498 8,806

Insurance 2,553 2,780 3,128

Amortization of intangible assets 23 1,959 3,330 1,426

Others 71,818 37,434 27,691

P=3,946,492 P=3,067,219 P=2,799,748



- 48 -

Others consist of subscription, research and development and other fees.

23. Nature of Expenses

Depreciation and amortization included in the consolidated statement of income are as follows:

Note 2014 2013 2012

Included in Costs of Sales: 21

Depreciation and amortization P=224,127 P=178,563 P=137,811Amortization of intangible

assets 1,959 3,330 1,426

Included in General and

Administrative Expenses: 22

Depreciation and amortization 23,028 24,550 28,369

Amortization of intangible

assets 37,827 32,939 30,291

Included in corporatereorganization costs: 7

Depreciation and amortization 24,789 – –

P=311,730 P=239,382 P=197,897

Personnel costs included in the consolidated statement of income are as follows:

Note 2014 2013 2012



- 49 -

Components of retirement benefit costs recognized in the consolidated statement of income areas follows:

2014 2013 2012

Current service costs P=24,213 P=18,958 P=16,008

Net interest costs 3,558 3,382 2,647

Past service cost - curtailment (5,487) – –

Settlement (929) – –

P=21,355 P=22,340 P=18,655

Retirement benefit costs are included under employees’ benefits in the “General and

administrative expense” account in the consolidated statement of income.

Remeasurement effects recognized in the consolidated statement of comprehensive income are

as follows:

2014 2013 2012Actuarial gains (losses) due to:

Experience adjustments P=10,113 P=19,599 P=12,659

Changes in financial assumptions 112,988 (3,310) (15,016)

Demographic assumptions (336) – 1,410

Changes in the effect of asset ceiling (68,745) – –

Return on assets excluding amount included

in net interest cost (595) (187)



- 50 -

Changes in the present value of the defined benefit obligation are as follows:

2014 2013 2012

Balances at beginning of year P=116,097 P=113,101 P=93,678

Effect of business combination 236,276 – –

Retirement benefit costs in consolidated

statement of income:

Current service costs 24,213 18,958 16,008

Interest costs 9,202 6,930 6,281Past service cost - curtailment (5,487) – –

27,928 25,888 22,289

Remeasurement in other comprehensive

income:

Actuarial gain due to experience

adjustments (8,643) (19,599) (12,659)

Actuarial loss due to changes in financial

assumptions (1,806) 3,310 15,016Actuarial gain due to changes in

demographic assumptions 336 – (1,410)

(10,113) (16,289) 947

Benefits paid (3,538) (6,604) (3,812)

Balances at end of year P=366,650 P=116,096 P=113,102

Changes in the fair value of plan assets are as follows:



- 51 -

The Plan is being administered and managed by a Trustee bank. The Trustee is responsible forthe management, investment and reinvestment of the plan asset in accordance with the powers

granted.

The plan assets consist of the following:

• Cash in bank which includes regular savings and time deposits;

• Investments in securities include shares of the Parent Company, various security bonds fromBangko Sentral ng Pilipinas and equity securities and debt instruments; and

• Receivables comprise of interest receivables from investment securities.

The overall expected rate of return on plan assets is determined based on the market prices

prevailing on that date, applicable to the period over which the obligation is to be settled.

The principal assumptions used in determining the defined benefit obligation are as follows:

2014 2013 2012

Discount rate 4.5%-5.0% 5.9%-6.2% 6.1%-6.2%Salary increase rate 7.0% and 8.0% 5.0% and 8.0% 5.0% and 8.0%

The sensitivity analysis below has been determined based on reasonably possible changes of

each significant assumption on the defined benefit obligation as at December 31, 2014, assuming



- 52 -

25. Other Income

This account consists of the following:

Note 2014 2013 2012

Delivery income P=46,967 P=32,391 P=27,338

Service income and management

fee 30,640 30,491 45,885

National advertising fee 28,055 7,205 6,499Rental income 28 20,735 21,527 19,656

Gain on disposal of subsidiaries 7 13,001 – –

Call center charges 3,397 3,319 –

Interest income 1,297 1,069 3,636

Gain on remeasurement

of convertible notes 16 – 1,069 3,817

Others 24,163 3,901 6,326

P=168,255 P=100,972 P=113,157

Others consist mainly of sale of scrap materials and gain from sale of property and equipment.

As discussed in Note 19 to the consolidated financial statements, the net gains were eliminated

in the preparation of consolidated financial statements and recognized as additional paid-in

capital under equity.



- 53 -

The components of the Group’s recognized deferred tax assets and liabilities represent the taxeffects of the following temporary differences:

2014 2013

Net Deferred

Tax Assets

Net Deferred

Tax Liabilities

Net Deferred

Tax Assets

Net Deferred

Tax Liabilities

Deferred tax assets on:

NOLCO P=95,476 P=1,331 P=57,587 P= –

Excess MCIT 17,890 2,633 14,425 –

Net retirement liabilities 16,760 – 17,372 – Accrued rent payable 8,880 2,303 9,490 –

Allowance for impairment losses 52,726 995 6,684 –

Others 4,873 888 4,833 –

196,605 8,150 110,391 –

Deferred tax liabilities on:

Retirement benefit assets P= – (P=110,293) P= – P= –

Unamortized debt issue costs – (502) – –

Others – (646) – –

– (111,441) – –

Net deferred tax assets (liabilities) P=196,605 (P=103,291) P=110,391 P= –

No deferred income tax assets were recognized for the following temporary differences, unused

tax credits from excess MCIT and unused NOLCO of certain subsidiaries as it is not probable that

sufficient taxable profit will be available to allow the benefit of the deferred income tax assets to

be utilized in the future.

2014 2013



- 54 -

27. Earnings Per Share

Basic/diluted earnings (loss) per share are computed as follows:

Note 2014 2013 2012

Net income (loss) attributable to the

equity holders of the Parent

Company: (P=28,366) P=105,598 P=151,418

Divide by weighted average number

of common shares 557,920,032 497,006,295 497,006,295Basic earnings (loss) per share (0.05) 0.21 0.30

Net income attributable to common equity

holders of the Parent Company

adjusted for the effect of convertible

notes:

Net income attributable to common

equity holders of the Parent

Company: (28,366) 105,598 151,418

Interest on convertible notes - netof tax – 1,137 1,061

(28,366) 106,735 152,479

Divide by weighted average number

of common shares adjusted for the

effect of dilution:

Weighted average number of common

shares 557,920,032 497,006,295 497,006,295

Effect of conversion of convertible



- 55 -

Operating Lease Agreements

Group as Lessee. The Group leases its restaurant and commissary premises and offices it

occupies with various lessors for periods ranging from 1 to 15 years, renewable upon mutual

agreement between the Group and its lessors. The lease agreements provide for a fixed rental

and/or a monthly rental based on a certain percentage of actual sales or minimum monthly gross

sales.

Security deposits on lease contracts amounted to P=320.6 million as at December 31, 2014(P=139.9 million as at December 31, 2013), which is equivalent to one to three months rental.

Rental expense charged to costs of sales and general and administrative expenses amounted to

P=211.7 million in 2014 (P=204.6 million and P=417.1 million in 2013 and 2012, respectively)

(see Notes 20 and 21). Accrued rent payable amounted to P=37.3 million as at December 31, 2014

(P=31.6 million as at December 31, 2013), which represents the straight-line adjustment on rent.

The future minimum rentals payable under these operating leases are as follows:

2014 2013 2012

Within one year P=144,999 P=155,716 P=134,473

More than one year bus less than five

years 269,462 273,699 266,830

More than five years 65,837 28,390 65,837

P=480,298 P=457,805 P=467,140



- 56 -

The main risks arising from the use of financial instruments are liquidity risk, credit risk, foreigncurrency risk and interest rate risk. The BOD reviews and approves the policies for managing

each of these risks which are summarized below.

Liquidity Risk. Liquidity risk is the risk that the Group will not be able to meet its financial

obligations as they fall due. The Group’s objectives to managing liquidity risk is to ensure, as far

as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both

normal and stressed conditions, without incurring unacceptable losses or risking adverse effect

to the Group’s credit standing.

The Group seeks to manage its liquid funds through cash planning on a weekly basis. The Group

uses historical figures and experiences and forecasts from its collections and disbursements. As

part of its liquidity risk management, the Group regularly evaluates its projected and actual cash

flows. It also continuously assesses conditions in the financial markets for opportunities to

pursue fund raising activities.

The Group’s objective is to maintain a balance between continuity of funding and flexibilitythrough the use of bank loans, loans from related parties, convertible notes and other long-term

debts. The Group considers its available funds and its liquidity in managing its long-term

financial requirements. It matches its projected cash flows to the projected amortization of

convertible notes. For its short-term funding, the Group’s policy is to ensure that there are

sufficient operating inflows to match repayments of loans payable.

A t D b 31 2014 d 2013 th fi i l t h ld b th G f li idit



- 57 -

Credit Risk. Credit risk is the risk of financial loss to the Group if a customer or counterparty to afinancial instrument fails to meet its contractual obligations.

Concentrations arise when a number of counterparties are engaged in similar business activities,

or activities in the same geographic region, or have similar economic features that would cause

their ability to meet contractual obligations to be similarly affected by changes in economic,

political or other conditions. Concentrations indicate the relative sensitivity of the Group’s

performance to developments affecting a particular industry.

The Group has no significant concentrations of credit risk with any single counterparty or group

of counterparties having similar characteristics. Since the Group trades only on a cash or credit

card basis and with recognized third parties, there is no requirement for collateral. It is the

Group’s policy that all customers who wish to trade on credit terms are subject to credit

verification procedures. In addition, receivable balances are monitored on an ongoing basis with

the result that Group’s exposure to bad debts is not significant.

The Group’s exposure to credit risk on trade and other receivables arise from default of thecounterparty, with a maximum exposure equal to the carrying amounts of these receivables.

Credit risk from cash is mitigated by transacting only with reputable banks duly approved by

management.

The tables below summarize the aging analysis of the Group’s financial assets:

2014



- 58 -

The Group has assessed the credit quality of its financial assets as follows:

• Cash is deposited in reputable banks, which have a low probability of insolvency;

• Trade and royalty receivables are generally settled on due dates based on historical

experience;

• Advances to officers and employees are either collected through salary deduction or secured

by cash bonds;

• Other receivables are generally settled several days after due date; and

• Noncurrent receivables are settled based on the contractual payments received on a

monthly basis.

Foreign Currency Risk. The Group’s policy is to maintain foreign currency exposure within

acceptable limits and within existing regulatory guidelines. The Group believes that its profile offoreign currency exposure on its assets and liabilities is within conservative limits based on the

type of business and industry in which the Group is engaged. The Group’s exposure to foreign

currency exchange risk as at December 31, 2014 and 2013 pertains to the financial position and

performance of PHII and PHIM which were presented in $ and Malaysian Ringgit (MYR),

respectively.

The Group’s $ denominated and MYR denominated financial assets and liabilities as at



- 59 -

Fair Value Information and Categories of Financial InstrumentsThe carrying values and fair values of the Group’s financial assets and liabilities as at

December 31, 2014 and 2013 approximate their fair values.

The following methods and assumptions were used to estimate the fair value of each class of

financial instrument for which it is practicable to estimate such value:

Cash in Bank and Equivalents, Trade and Other Receivables, Trade and Other Payables, Loans

Payable and Mortgage Payable. The carrying amounts of cash in bank and equivalents, tradeand other receivables and trade and other payables, loans payable and mortgage payable

approximate their fair values due to their short-term maturities.

Noncurrent Receivables. The fair value of noncurrent receivables was based on the discounted

value of future cash flows using the applicable risk-free rates for similar types of accounts

adjusted for credit risk.

Debt Component of Convertible Notes. The fair value of the debt component of convertible noteswas based on the discounted value of future cash flows using the applicable rates ranging from

10.52% in 2014 and 6.15% in 2013.

Long-term Debt. The fair value of the long-term debt was based on the discounted value of

future cash flows using the applicable rate of 3.78% and 4.74% in 2014 and 2013, respectively.

60



- 60 -

Debt-to-equity ratios of the Group are as follows:

2014 2013

Total liabilities P=5,868,323 P=1,944,495

Divide by total equity 4,032,871 1,025,429

Debt-to-equity ratio 1.46 1.90

31. Operating Segment Information

For management purposes, the Group is organized into operating segments based on trade

names. However, due to the similarity in the economic characteristics, such segments have been

aggregated into a single operating segment for external reporting purposes (see Note 7).

Restaurant sales, commissary sales and franchise and royalty fees reflected in the consolidated

statement of income are mainly from external customers and franchisees within the Philippines,

which is the Group’s domicile and primary place of operations. Additionally, the Group’s

noncurrent assets are also primarily acquired, located and used within the Philippines.

Restaurant sales are attributable to revenues from the general public, which are generated

through the Group’s store outlets. Commissary sales and franchise and royalty fees are derived

from various franchisees of the Group’s trade names. Consequently, the Group has no

concentrations of revenues from a single customer or franchisee for the in 2014 2013 and 2012

61



- 61 -

32. Other Matters

a. Contingencies

The Parent Company and PHVI were named defendants in a civil case filed in October 2002

by Kenmor for the collection of a sum of money and damages.

On September 20, 2013, the Parent Company, PHVI and Kenmor Corporation have agreed to

amicably settle the case. On the same date, the Parent Company paid the agreed amount toKenmor Corporation to settle all of its claims.

b. Acquisition on Global Max Services Pte. Ltd (Global Max) and eMax’s, LLC, Colorado Ltd

(eMax)

On January 22, 2015, the BOD approved the Parent Company’s acquisition of eMax. eMax is

a duly registered entity in Colorado, USA, primarily engaged in the granting of franchises for

the development and operation of restaurants under the Max’s brand name within the NorthAmerican territory. eMax holds the franchise and intellectual property rights for Max’s

restaurants for North America. Such an acquisition will allow all shareholders of MGI to

benefit from the expected growth of the Max’s restaurant business in North America.

Moreover, on January 22, 2015, the BOD approved the Parent Company’s acquisition of

Global Max. Global Max is a duly registered entity in Singapore engaged in the business of

26th Floor Citibank Tower8741 Paseo de Roxas



Phone: +632 982 9100

Fax : +632 982 9111

BOA/PRC Accreditation No. 4782




ON SCHEDULE OF RETAINED EARNINGS AVAILABLE FOR DIVIDEND DECLARATION


Max’s Group, Inc.

Pancake House Center2259 Pasong Tamo Ext.

Makati City

We have audited in accordance with Philippines Standards on Auditing, the basic consolidated financial

statements of Max’s Group, Inc. (formerly Pancake House, Inc.) and Subsidiaries (the Group) as at and for

the year ended December 31, 2014 and have issued our report thereon dated March 27, 2015. Our

audit was made for the purpose of forming an opinion on the basic consolidated financial statements

taken as a whole. The accompanying Schedule of Retained Earnings Available for Dividend Declaration

is the responsibility of the Group’s management. This schedule is presented for purposes of complying

with Securities Regulation Code Rule 68, as amended, and is not part of the basic consolidated financial

statements. This information has been subjected to the procedures applied in the audit of the basic

consolidated financial statements, including comparing such information directly to the underlying

accounting and other records used to prepare the basic consolidated financial statements or to the

/November 12, 2012, valid until December 31, 2015


MAX’S GROUP INC (FORMERLY PANCAKE HOUSE INC ) AND




SUBSIDIARIES

RECONCILIATION OF RETAINED EARNINGS AVAILABLE FOR DIVIDEND DECLARATIONDECEMBER 31, 2014

Retained earnings at the beginning of year P=421,463,062

Adjustment for:

Deferred tax assets as at December 31, 2013 (65,994,844)

Retained earnings, as adjusted to amount available for

dividend declaration, at beginning of year 355,468,218

Add: Net loss for the year (28,119,392)

Less: Stock dividends (259,210,840)

Movement in deferred tax assets (29,455,171) (288,666,011)

Retained earnings available for dividend declaration, at end of year P=38,682,815

RECONCILIATION:

Retained earnings at end of year as shown in the financial statements P=134,132,830

Less: Deferred tax assets as at end of year (95,450,015)

Retained earnings available for dividend declaration, at end of year P=38,682,815




Phone: +632 982 9100

Fax : +632 982 9111

BOA/PRC Accreditation No. 4782




ON SCHEDULE OF ADOPTION OF EFFECTIVE ACCOUNTING STANDARDS




Makati City

We have audited in accordance with Philippines Standards on Auditing, the basic consolidated financial


the year ended December 31, 2014 and have issued our report thereon dated March 27, 2015. Our

audit was made for the purpose of forming an opinion on the basic consolidated financial statements

taken as a whole. The accompanying Schedule of Adoption of Effective Accounting Standards and

Interpretations is the responsibility of the Group’s management. This schedule is presented for

purposes of complying with Securities Regulation Code Rule 68, as amended, and is not part of the basic

consolidated financial statements. This information has been subjected to the procedures applied in

the audit of the basic consolidated financial statements, including comparing such information directly

to the underlying accounting and other records used to prepare the basic consolidated financial

November 12, 2012, valid until December 31, 2015


MAX’S GROUP INC (FORMERLY PANCAKE HOUSE INC ) AND



MAX S GROUP, INC. (FORMERLY PANCAKE HOUSE, INC.) AND

SUBSIDIARIES

SUPPLEMENTARY SCHEDULE OF ADOPTION OF

EFFECTIVE ACCOUNTING STANDARDS AND INTERPRETATIONSDECEMBER 31, 2014

Title Adopted Not

Adopted

Not

Applicable

Framework for the Preparation and Presentation of Financial

Statements

Conceptual Framework Phase A: Objectives and qualitative

characteristics

PFRSs Practice Statement Management Commentary

Philippine Financial Reporting Standards (PFRSs)

PFRS Title Adopted Not

Adopted

Not

Applicable

PFRS 1

(Revised)

First-time Adoption of Philippine Financial

Reporting Standards

N t N t



PFRS Title Adopted Not

Adopted

Not

Applicable

PFRS 4 Insurance Contracts

Amendments to PAS 39 and PFRS 4: Financial

Guarantee Contracts

PFRS 5Non-current Assets Held for Sale and

Discontinued Operations

PFRS 6Exploration for and Evaluation of Mineral

Resources

PFRS 7 Financial Instruments: Disclosures

Amendments to PAS 39 and PFRS 7:

Reclassification of Financial Assets

Amendments to PAS 39 and PFRS 7:

Reclassification of Financial Assets – Effective

Date and Transition

Amendments to PFRS 7: Improving Disclosures

about Financial Instruments

Amendments to PFRS 7: Disclosures – Transfers

of Financial Assets

Amendments to PFRS 7: Disclosures – Offsetting

Fi i l A t d Fi i l Li biliti

Philippine Accounting Standards (PASs)



Philippine Accounting Standards (PASs)

PAS Title Adopted Not

Adopted

Not

Applicable

PAS 1

(Revised)Presentation of Financial Statements

Amendment to PAS 1: Capital Disclosures

Amendments to PAS 32 and PAS 1: Puttable

Financial Instruments and Obligations Arising on

Liquidation

Amendments to PAS 1: Presentation of Items of

Other Comprehensive Income

PAS 2 Inventories

PAS 7 Statement of Cash Flows

PAS 8

Accounting Policies, Changes in Accounting

Estimates and Errors

PAS 10 Events after the Reporting Period

PAS 11 Construction Contracts

PAS 12 Income Taxes

Amendment to PAS 12 – Deferred Tax: Recovery

PAS 27



PAS 27

(Amended)Separate Financial Statements

Amendments to PAS 27: Investment Entities

PAS 28

(Amended)Investments in Associates and Joint Ventures

PAS 29Financial Reporting in Hyperinflationary

Economies

PAS 32Financial Instruments: Disclosure and

Presentation

Amendments to PAS 32 and PAS 1: Puttable

Financial Instruments and Obligations Arising on

Liquidation

Amendment to PAS 32: Classification of Rights

Issues

Amendments to PAS 32: Offsetting Financial

Assets and Financial Liabilities

PAS 33 Earnings per Share

PAS 34 Interim Financial Reporting

PAS 36 Impairment of Assets

Amendments to PAS 36: Recoverable Amount

Amendment to PAS 39: Eligible Hedged Items



Amendment to PAS 39: Eligible Hedged Items

Amendments to PAS 39: Novation of Derivatives

and Continuation of Hedge Accounting

PAS 40 Investment Property

PAS 41 Agriculture

Philippine Interpretations

Interpretations Title Adopted

Not

Adopted

Not

Applicable

IFRIC 1Changes in Existing Decommissioning,

Restoration and Similar Liabilities

IFRIC 2Members’ Share in Co-operative Entities and

Similar Instruments

IFRIC 4

Determining Whether an Arrangement Contains

a Lease

IFRIC 5

Rights to Interests arising from

Decommissioning, Restoration and

Environmental Rehabilitation Funds

IFRIC 6

Liabilities arising from Participating in a Specific

Market – Waste Electrical and Electronic

Not Not



Interpretations Title Adopted Not

Adopted

Not

Applicable

IFRIC 19

Extinguishing Financial Liabilities with Equity

Instruments

IFRIC 20Stripping Costs in the Production Phase of a

Surface Mine

IFRIC 21 Levies

SIC-7 Introduction of the Euro

SIC-10 Government Assistance – No Specific Relation toOperating Activities

SIC-13Jointly Controlled Entities – Non-Monetary

Contributions by Venturers

SIC-15 Operating Leases – Incentives

SIC-21Income Taxes – Recovery of Revalued Non-

Depreciable Assets

SIC-25Income Taxes – Changes in the Tax Status of an

Entity or its Shareholders

SIC-27Evaluating the Substance of Transactions

Involving the Legal Form of a Lease

SIC-29 Service Concession Arrangements: Disclosures




Phone: +632 982 9100

Fax : +632 982 9111





ON SUPPLEMENTARY SCHEDULES




Makati City

We have audited in accordance with Philippine Standards on Auditing, the consolidated financial


the year ended December 31, 2014 included in this Form 17-A and have issued our report thereon

dated March 27, 2015. Our audit was made for the purpose of forming an opinion on the consolidated

financial statements taken as a whole. The schedules listed in the Index to Financial Statements and

Supplementary Schedules are the responsibility of the Group’s management. These schedules are

presented for purposes of complying with Securities Regulation Code Rule 68, as amended, and are not

part of the basic financial statements. These schedules have been subjected to the auditing procedures

applied in the audit of the basic financial statements and, in our opinion, fairly state in all material

respects the financial data required to be set forth therein in relation to the basic financial statements





SUBSIDIARIES

SEC SUPPLEMENTARY SCHEDULES AS REQUIRED BY PAR. 6 PART II OFSRC RULE 68 AS AMENDED

DECEMBER 31, 2014

Table of Contents

Schedule Description Page

A Financial Assets 1

B Amounts Receivable from Directors, Officers, Employees, Related Parties,

and Principal Stockholders (Other than Related Parties) 2

C Amounts Receivable from Related Parties which are Eliminated during the

Consolidation of Financial Statements 3

D Intangible Assets - Other Assets 4




SUBSIDIARIES

SCHEDULE A - FINANCIAL ASSETS

DECEMBER 31, 2014

Description

Carrying

Value Fair Value

Cash on hand P=108,025 P=108,025

Loans and receivables:

Cash in banks and cash equivalents 848,497 848,497

Trade and other receivables* 677,559 677,559Receivable from disposal of interest 143,571 143,571

Noncurrent receivables 163 163

P=1,669,790 P=1,669,790

*Net of allowance for impairment losses totaling to P=180.7 million.




SUBSIDIARIES

SCHEDULE B - AMOUNTS RECEIVABLE FROM DIRECTORS, OFFICERS, EMPLOYEES, RELATED PARTIES and PRINCIPAL

STOCKHOLDERS (OTHER THAN RELATED PARTIES)

December 31, 2014

Deductions Ending Balance

Name and Designation of Debtor

Balance at

beginning of year Additions Collected

Written

off Current Noncurrent

Balance at end

of year

Officers and employees P=36,935 P=116,517 (P=94,464) P= – P=58,988 P= – P=58,988

P=36,935 P=116,517 (P=94,464) P= – P=58,988 P= – P=58,988


SUBSIDIARIES

SCHEDULE C - AMOUNTS RECEIVABLE FROM RELATED PARTIES WHICH ARE ELIMINATED DURING THE CONSOLIDATION



SC U C OU S C O S C U G CO SO O

OF FINANCIAL STATEMENTSDecember 31, 2014

Deductions Ending Balance

Related Party

Balance at

beginning of

year Additions Collections Write off

Amounts

written off Current Noncurrent

Balance at

end of year

Chickens R Us, Inc

Max's Ermita Inc

Max's Express Restaurants, Inc

Max's Food Services, Inc

Global Max's Servives Pte. LTD

Max's Franchising, Inc

Room Ventures Corp

Trota, Gimenez Realty Corp.Max's Kitchen, Inc

Max's Makati, Inc

Maxs' SM Marikina, Inc

Square Top, Inc

Max's Bakeshop, Inc

Max's Circle, Inc

The Real American Doughnut Company

Fresh Healthy Juice Boosters, Inc

88 Just Asian, Inc.

Always Happy BGC, Inc.

Always Happy Greenhills, Inc.

Boulangerie Francaise, Inc.

Chicken's R Us, Inc.

CRPPhilippines, Inc.

DFSI –One Nakpil, Inc.

P=34,991

66,047

2,500

239

2,399

4,860

–

7,55619,030

75,915

2,775

31,183

–

9,886

2,089

–

25,139

5,717

1

40,684

–

51,245

3,442

P=21,803

11,558

827

(186)

9,740

5,376

200

7,750152,752

314,171

9,121

827,643

33,267

–

143,779

–

46,434

–

–

7,808

27,285

100

–

P= –

–

–

–

–

–

–

– (91,496)

(253,276)

(9,932)

(803,021)

–

(2,017)

–

–

(69,420)

(1,323)

(2)

(789)

(57)

(51,345)

(700)

P= –

–

–

–

–

–

–

– –

–

–

–

–

–

–

–

–

–

–

–

–

–

–

P= –

–

–

–

–

–

–

– –

–

–

–

–

–

–

–

–

–

–

–

–

–

–

P=56,794

77,605

3,327

54

12,139

10,237

200

15,30580,286

136,810

1,965

55,805

33,267

7,870

145,869

–

2,152

4,394

(1)

47,703

27,228

–

2,742

P= –

–

–

–

–

–

–

– –

–

–

–

–

–

–

–

–

–

–

–

–

–

–

P=56,794

77,605

3,327

54

12,139

10,237

200

15,30580,286

136,810

1,965

55,805

33,267

7,870

145,869

–

2,152

4,394

(1)

47,703

27,228

–

2,742

DFSI –Subic, Inc.

Golden BERRD Grill, Inc.

Happy Partners, Inc.

Max's Kitchen Inc

15,335

(454)

(2,379)

–

–

–

10

45 419

–

(700)

(579)

–

–

–

–

–

–

–

–

–

15,335

(1,154)

(2,948)

45 419

–

–

–

–

15,335

(1,154)

(2,948)

45 419



Max s Kitchen, Inc.

Max's Bakeshop, Inc

Max's Express Restaurants, Inc

MGOC Holdings, Inc

No Bia, Inc.Pancake House Products, Inc.

Pancake House Ventures, Inc.

PCK Bel –Air, Inc.

PCK Boracay, Inc.

PCK MSC, Inc.

PCK MTB, Inc.

PCK –AMC, Inc.

PCK –LFI, Inc.

PCK –N3, Inc.

PCK –Palawan, Inc.

PCKPolo, Inc.

PHI International – BVI

PHI International – Malaysia

Room Ventures, Corp

Square Top Inc.

TBGI –Tagaytay, Inc.

Teriyaki Boy Group, Inc.

Trota, Gimenez Realty Corp

The Real American Doughnut Co. Inc

Yellow Cab Food Corporation

–

–

–

–

– 180

362

7,799

1,920

340

531

94

377

305

23

401

69,213

68,338

–

–

–

(84,431)

–

–

1,527

45,419

72,482

293

8,677

33,242 –

81

404

625

150

6,417

–

490

459

5,169

500

30,313

–

821

15,537

–

101,822

8,208

93,807

186,102

–

–

–

–

– (81)

–

(801)

(1,825)

(38)

(6,437)

(31)

(442)

(86)

(5,192)

(901)

(86)

(30,208)

–

–

–

(40,451)

–

–

(116,131)

–

–

–

–

– –

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

– –

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

45,419

72,482

293

8,677

33,24298

443

7,401

720

452

511

64

425

678

–

–

99,440

38,130

821

15,537

–

(23,060)

8,208

93,807

71,498

–

–

–

–

– –

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

45,419

72,482

293

8,677

33,24298

443

7,401

720

452

511

64

425

678

–

–

99,440

38,130

821

15,537

–

(23,060)

8,208

93,807

71,498

P=465,179 P=2,230,459 (P=1,487,368) P= – P= – P=1,208,270 P= – P=1,208,270


SUBSIDIARIES

SCHEDULE D: INTANGIBLE ASSETS – OTHER ASSETS



DECEMBER 31, 2014

Description

Beginning

balance

Additions at

cost Amortization

Charged to

other accounts

Other changesadditions

(deductions) Ending balance

Trademarks P=298,394 P= – P=28,443 P= – P=705 P=270,656

Software 12,040 7,499 8,041 – 15,918 27,416

Brand development cost 4,787 2,875 1,151 – 293 6,804

Lease rights 3,244 2,242 1,114 – 2,054 6,426

Franchise fees – – 1,037 – 11,988 10,951

Goodwill 889,522 3,002,720 – – (88,851) 3,803,391

P=1,207,987 P=3,015,336 P=39,786 P= – (P=57,894) P=4,125,644


SUBSIDIARIES

SCHEDULE E - LONG-TERM BORROWINGS



DECEMBER 31, 2014

Title of issue and type of obligation

Amount shown under “Currentportion of long-term borrowings”

account in the consolidated statement

of financial position

Amount shown under “Long-term borrowings” account in the

consolidated statement of financial

position

Loans payable P=2,307,288 P= –

Long-term debt 73,697 990,988

Mortgage payable 8,165 –

P=2,389,150 P=990,988

Details are discussed in Notes 15, 16 and 17 to consolidated financial statements.



PHI International – BVI

PHI International – Malaysia

TBGI –Marilao, Inc.

TBGI –Tagaytay, Inc.

8,794

21

–

–

2,987

23

92

109

(155)

–

(75)

(46)

–

–

–

–

11,625

44

17

63

–

–

–

–

11,625

44

17

63



TBGI –Trinoma, Inc.

TBOY –MS, Inc.

Teriyaki Boy Group, Inc.

FreshHealthy Juice Boosters, Inc.Global Maxs Services PTE ROHQ

Max's Franchising, Inc.

Max's Ermita, Inc.

Max's Baclaran, Inc.

Max's Bakeshop, Inc.

No Bia, Inc.

Ad Circles

TRADCI

Yellow Cab Food Corporation

–

–

28,784

– –

–

–

–

–

–

–

–

6,037

140

92

73,654

1,12142,376

2,684

274

8

4

12,283

100

140

158,885

(48)

(75)

(78,772)

(584)(42,484)

(3,285)

(403)

(8)

(4)

–

(191)

(157)

(165,435)

–

–

–

– –

–

–

–

–

–

–

–

–

92

17

23,665

538(108)

(600)

(130)

–

(0)

12,283

(91)

(17)

(512)

–

–

–

– –

–

–

–

–

–

–

–

–

92

17

23,665

538(108)

(600)

(130)

–

(0)

12,283

(91)

(17)

(512)

P=256,143 P=748,635 (P=619,381) (P=42,013) P=343,383 P= – P=343,383


SUBSIDIARIES

SCHEDULE H – CAPITAL STOCKHOLDERD b 31 2014



December 31, 2014

Number of shares held by

Title of IssueNumber of shares

authorized

Number of shares issuedand outstanding as shown

under the statement offinancial position caption

Number of sharesreserved for options,warrants, conversion

& other rights Related parties

Directors,officers andemployees Public

Common shares 1,400,000,000 780,203,980 – 341,677,966 196,025,536 242,500,478

MAX’S GROUP, INC.(FORMERLY PANCAKE HOUSE, INC.) AND



, ( , )

SUBSIDIARIES

(FORMERLY PANCAKE HOUSE, INC. AND SUBSIDIARIES) FINANCIAL RATIOSDECEMBER 31, 2014

Below is a schedule showing financial soundness indicators in the years 2014, 2013 and 2012.

2014 2013 2012

Current/Liquidity Ratio 0.54:1 0.52:1 1.01:1

Current assets P=2,361,840 P=951,121 P=955,381

Current liabilities 4,396,729 1,821,800 946,005

Solvency Ratio 0.03:1 0.15:1 0.17:1

Net income (loss) before depreciation 204,642 282,386 315,797

Total liabilities 5,868,323 1,944,495 1,864,157

Debt-to-equity Ratio 1.46:1 1.90:1 1.82:1

Total liabilities 5,868,323 1,944,495 1,864,157

Total equity 4,032,871 1,025,430 1,025,325

Asset-to-equity Ratio 2.46:1 2.90:1 2.82:1


SUBSIDIARIES

MAP SHOWING THE RELATIONSHIP BETWEEN AND AMONG THE GROUPDECEMBER 31, 2014



Documents

MGI CFS1214_MaxsGroupConso.pdf