SEC Number A2000-03008 File Number

PANCAKE HOUSE, INC. _________________________________________________

(Company’s Full Name)

Pancake House Center 2259 Chino Roces Avenue Extension

Makati City ______________________________________

(Company’s Address)

(632) 784-9000 ______________________________________

(Telephone Number)

December 31 ______________________________________

(Calendar Year Ending) (month and day)

Form 17-Q Quarterly Report ______________________________________

Form Type

17-Q ______________________________________

Amendment Designation (If applicable)

June 30, 2014 ______________________________________

Period Ended Date

______________________________________ (Secondary License Type and File Number)

2

SECURITIES AND EXCHANGE COMMISSION

SEC FORM 17-Q QUARTERLY REPORT PURSUANT TO SECTION 17 OF THE SECURITIES

REGULATION CODE AND SRC RULE 17(2)(B) THEREUNDER 1. For the quarterly period ended June 30, 2014 2. SEC Identification No: A2000-03008 3. BIR Tax Identification No. 205-357-210-000 4. Exact name of issuer as specified in its charter PANCAKE HOUSE, INC. 5. Manila, Philippines

Province, Country or other jurisdiction of incorporation or organization 6. Industry Classification Code: (SEC Use Only) 7. Pancake House Center, 2259 Chino Roces Ave. Ext, Makati City 1231 Address of issuer’s principal office Postal Code 8. (632) 784-9000

Issuer's telephone number including area code 9. Not applicable

Former name, former address, and former fiscal year, if changed since last report 10. Securities registered pursuant to Sections 8 and 12 of the SRC, or Sec. 4 and 8 of the RSA

Number of Shares of Common Stock Title of Each Class Outstanding and Amount of Debt Outstanding Pancake House Inc. Common Stock 259,210,840 Shares

11. Are any or all of these securities listed on the Philippine Stock Exchange. Yes [ / ] No [ ]

If yes, state the name of such stock exchange and the classes of securities listed therein: Philippine Stock Exchange Pancake House Common shares 12. Indicate by check mark whether the issuer:

(a) has filed all reports required to be filed by Section 17 of the Code and SRC Rule 17 thereunder or Sections 11 of the RSA and RSA Rule 11 (a)-1 thereunder, and Sections 26 and 141 of the Corporation Code of the Philippines during the preceding 12 months (or for such shorter period that the issuer was required to file such reports); Yes [ / ] No [ ]

(b) has been subject to such filing requirements for the past 90 days.

Yes [ ] No [ / ]

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PART I – FINANCIAL INFORMATION Financial Statements The consolidated financial statements of Pancake House, Inc. (PHI) and its subsidiaries as of June 30, 2014 and December 31, 2013 and for the six months ended June 30, 2014, 2013, and 2012 include the consolidated accounts of the Company and the following subsidiaries:

Table 1 – Ownership Structure

Company

% Ownership Remarks

PANCAKE HOUSE

Happy Partners, Inc. 51% Established in 2004; started commercial operations in September 2004

PCK-MTB, Inc. 60% Established in January 2005; started commercial operations in May 2005

PCK Bel-Air, Inc. 51% Established in February 2005; started commercial operations in May 2005

Always Happy Greenhills, Inc. 60% Established in February 2006; started commercial operations in March 2006

PCK MS, Inc. 50% Established in November 2007; started commercial operations in November 2007

PCK Boracay, Inc. 60% Established in September 2009; started commercial operations in October 2009

Always Happy BGC, Inc.

51%

Established in January 2011; started commercial operations in March 2011

PCK-LFI, Inc.

70%

Established in January 2011; started commercial operations in April 2011

PCK-N3, Inc. 51% Established in January 2011; started commercial operations in May 2011

PCKPolo, Inc. 70% Established in June 2012; started operations in July 2012

PCK-Palawan, Inc. 60% Established in June 2012; started operations in July 2012

Pancake House Int’l, Inc. 100% Established in February 2007

PH Ventures, Inc. 100% Established in October 2001

Pancake House Products, Inc. 100% Established in July 2001

DENCIO’S

DFSI-One Nakpil, Inc. 60%

Established in January 2005; started commercial operations immediately thereafter.

DFSI Subic, Inc. Golden BERRD Grill, Inc.

100% 100%

Established in March 2005 by DFSI; started commercial operations in November 2005

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Company

% Ownership

Remarks

TERIYAKI BOY

Teriyaki Boy Group, Inc. 70% Acquired by PHI on October 28, 2005

TBGI Tagaytay, Inc.

40%

Established in May 2005; started commercial operations in November 2006

TBGI Marilao, Inc. 51% Established in November 2006; started commercial operations in January 2007

TBGI Trinoma, Inc. 60% Established in March 2007; started commercial operations in May 2007

Tboy MS, Inc. 50% Established in November 2007; started commercial operations in December 2007

PCK-Palawan, Inc. 60% Established in June 2012; started operations in July 2012

SINGKIT

88 JUST ASIAN, INC.

80% Established in March 2006; started commercial operations in May 2006

LE COEUR DE FRANCE

BOULANGERIE FRANCAISE, INC. 100% Acquired by PHI on February 8, 2008

THE CHICKEN RICE SHOP

CRPPHILIPPINES, INC. 50%

Established in January 2011; started commercial operations in April 2011

YELLOW CAB

YELLOW CAB FOOD CORP. YCPI Pizza Ventures, Inc.

100%

55%

Acquired by PHI on September 9, 2011 Established on November 2012; started commercial operations in December 2012

SCHOOL (Vocational Technology)

PHI CULINARY ARTS AND FOOD SERVICES INSTITUTE, INC. 100%

Established in Jan 12, 2009, started commercial operations in September 2009 (please refer to Note 4 of Financial Statement – June 30, 2014)

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The financial statements and other reports were presented to show the performance of each trade name. However, management has concluded that all trade names can be aggregated into a single operating segment as allowed under PFRS 8 due to their similar characteristics. Management has established that all trade names are primarily used within the Group's operations in the Philippines and have the following characteristics:

Item 1. Similar nature of products/services offered and methods to distribute products and provide services, that is, food service through casual dining experience;

Item 2. Similar nature of production processes through establishment of central commissary for the Group that caters all brands for all store outlets; and,

Item 3. Similar class of target customers which are middle-class consumers. There are no significant elements of income or loss that did not arise from the Group's continuing operations during the period. Except as discussed in the Notes to Financial Statements, there have been no changes in estimates of amounts previously reported with respect to these financial statements. There are also no material events subsequent to June 30, 2014 that have not been reflected in the financial statements. RESULTS OF OPERATIONS AND FINANCIAL CONDITION FOR JUNE 30 2014 EXECUTIVE SUMMARY For the first half, Pancake Group’s consolidated revenues reached P1,849.4 billion, up 2%, compared to P1,815.0 billion posted in first half 2013. Store sales increased 1% to P1,535.4 billion as of June 30, 2014 from P1,525.2 billion as of June 30, 2013 owing to a wider store network and larger customer base. Commissary sales rose 15% to P258.2 million mainly driven by higher revenues of franchisees. Franchise income (franchise and royal fees) declined 13% to P55.8 million attributed to the higher number of franchise stores that opened in the same period last year. Yellow Cab and Pancake House anchored the Group’s revenue momentum, with sales improving by 3% and 5% year-on-year to P928.0 million and P589.5 million, correspondingly. As other brands continue to ramp up, the Company is poised to sustain its revenue growth trajectory with the roll out of additional stores located in strategic growth areas. This will be supplemented by an aggressive marketing campaign aimed at enhancing brand recognition and promoting new products across all lines. Consolidated costs of sales went up 1% to P1,482.3 billion year-on-year, as a result of cost management efforts anchored on operational efficiencies and resource optimization. General and administrative expenses increased 58% to P313.8 million for the first six months of 2014 against P198.5 million year-on-year on the back of additional allowances for past due accounts and higher compensation-related costs. Selling and marketing expenses grew 28% to P66.4 million in June 30, 2014 as opposed to P51.7 million in the previous year, due to intensified advertising activities set to broaden product awareness in the market.

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Consolidated EBITDA contracted 71% to P73.2 million for the six months of 2014, from P250.1 million in the same period last year. Consequently, the Company posted a net loss of 36.6 million for June 30, 2014, down 145% compared to P81.9 million in June 30, 2013. Management does not expect this downtrend to continue and remains steadfast in its commitment to take all of its brands to its next phase of growth. Table 2 shows the consolidated operating results for the six months ended June 30, 2014, 2013 and 2012:

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Results of Operations Pancake Group’s consolidated revenues reached P1,832.8 billion, up 1%, compared to P1,815.0 billion posted in first half 2013. Store sales increased .66% to P1,535.4 billion as of June 30, 2014 from P1,525.2 billion as of June 30, 2013 owing to a wider store network and larger customer base. Commissary sales rose 7.13% to P241.6 million mainly driven by higher revenues of franchisees. Franchise income (franchise and royal fees) declined 13% to P55.8 million attributed to a higher number of franchise stores that opened in the same period last year. Combined store and commissary costs of sales for first half 2014 rose by 5% to P1,545.8 billion, versus P1,471.4 billion in the previous year is attributed to increase in material and labor costs. Cost of Labor for the six months ended June 30, 2014 amounted to P267.4 million, 4% higher than the P257.3 million reported for the six months ended June 30, 2013. The increase is primarily attributed to new stores opened towards end of last year and casual employee requirements to improve customer service at the stores. General and administrative expenses increased 58% to P313.8 million for the first six months of 2014 against P198.5 million year-on-year on the back of additional allowances for past due accounts. Selling and marketing expenses grew 28% to P66.4 million in June 30, 2014 as opposed to P51.7 million in the previous year, due to intensified advertising activities set to broaden product awareness in the market. Net other income came in 86% higher year-on-year amounting to P29.2 million, from P15.73 million in first half 2013 to lower interest expense. Consolidated EBITDA contracted 70.7% to P73 million for the six months of 2014, from P250 million in the same period last year. As a result, the Pancake House Group reported a consolidated net loss of P36.6 million (P28.7 million attributable to equity holders of the Parent) as of June 30, 2014, down 145% compared to P81.9 million as of June 30, 2013. The comparative analysis of profitability ratios for the six months ended June 30, 2014, 2013 and 2012 are stated below:

Table 3 - Consolidated Profitability Ratios (x : 1.00)

For the Six Months Ended June 30

2014 2013 2012 Net Income Ratio -2.00% 4.51% 3.00% Return on Assets -1.22% 2.80% 1.93% Return on Equity -3.67% 7.92% 5.43%

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Financial Condition, Liquidity and Capital Resources Financial Condition The following table shows the consolidated assets, liabilities and stockholder’s equity as of June 30, 2014 and December 31, 2013.

Table 4 - Consolidated Balance Sheet

As of

June 30, 2014

As of December 31, 2013

Current Assets 894.64 951.12 Total Assets 2,997.91 2,969.92 Current Liabilities 1,884.55 1,821.80 Total Liabilities 1,998.50 1,944.49 Total Equity 999.41 1,025.43

The Company’s consolidated total assets stood at P2,997.9 billion as of June 30, 2014 and December 31, 2013. Consolidated total liabilities were at P1,998.5 billion as of June 30, 2014 and P1,944.5 billion as of December 31, 2013. Total Stockholder's Equity was at P999.4 million as of June 30, 2014 and P1,025.4 billion as of December 31, 2013. Liquidity Position

Table 5 - Liquidity and Solvency Ratios (x : 1.00)

As of

June 30, 2014

As of December

31, 2013 Liquidity Current Ratio 0.47 0.52 Solvency Debt-to-asset ratio 0.67 0.65 Debt-to-equity ratio 1.99 1.87

Pancake House Group’s current ratio was stable at 0.47:1 as of June 30, 2014 and 0.52:1 as of December 31, 2013. Total debt to asset ratio and total debt to equity ratio came in at 0.67:1 and 1.99:1, respectively, as of June 30, 2014 and 0.65:1 and 1.87:1, respectively, as of December 31, 2013.

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RESULTS OF OPERATIONS AND FINANCIAL CONDITION FOR JUNE 30 2013 Results of Operations The Group’s consolidated revenues went up by 8.57% or P143.28 million to P1,815.00 million for the six months ended June 30, 2013 from P1,671.72 million for the same period last year. The growth was attributed to a sustained growth in same base store sales and increase in store network by 9% or 24 stores to 292 stores as of June 30, 2013 from 268 stores as of June 30, 2012. Store Sales for the six months ended June 30, 2013 amounted to P1,525.23 million, an increase by P124.15 million from P1,401.08 million of the same period last year. Commissary Sales and Franchise revenues (continuing license fee and franchise income) amounted to P225.54 million and P64.23 million, respectively.

Combined store and commissary costs of sales for the first semester improved by 1.4% to 37.8% from same period last year’s of 39.2% due to the group’s continuing efforts to manage costs such as expanded synergies among brands, resource optimization and strategic materials management. Cost of Labor for the six months ended June 30, 2013 amounted to P257.27 million or 14.7% from P242.09 million or 15.0% of the same period last year, a slight decrease of 0.3% as percent of revenues due to more efficient management of manpower resources. The Group still continues to bring the cost of labor ratio down by increasing sales and by enhancing the efficiencies in both the commissary and stores. Consolidated operating expenses decreased by 1.18% to 31.5% of the current period from 32.7% of the same period last year as the management continues to implement programs that optimize the use of the Group’s resources and generate savings. Consolidated sales and marketing expenses amounted to P51.66 million, higher than last year's P33.46 million due to higher spending in advertising and promotional campaigns which brings an increase in the system wide store sales. Consolidated administrative expenses for the current period amounted to P198.50 million or 10.9% of consolidated revenues from P170.11 million or 10.2% of same period last year. The slight increase was attributed to increased personnel related costs in the head office due to government mandated wage increases, rental escalation, and increased administrative activities in relation to international franchising. Net other income of P15.73 million for the six months ended June 30, 2013 increased by P13.64 million from net other charges of P2.09 million in the same period last year primarily due to recognition of delivery income generated from Yellow Cab delivery operations and service income recognized from the culinary school operations. The Group posted a consolidated net income of P81.85 million (P82.06 million attributable to equity holders of the Parent) for the first semester of 2013, 64.6% higher than last year’s P50.07 million (P49.90 million attributable to equity holders of the Parent). As a percent of revenues, the group slightly improved its profitability to 4.5% of the current period from 3.5% of the same period last year.

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Consolidated EBITDA improved by 1.91% at 13.8% amounting to P250.11 million (P243.11 million attributable to equity holders of the Parent) for the first semester 2013 from 11.9% amounting to P198.44 million (P185.41 million attributable to equity holders of the Parent) of the first semester of 2012. Financial Condition, Liquidity and Capital Resources Financial Condition The Group’s consolidated total assets stood at P2.92 billion and P2.89 billion as of June 30, 2013 and December 31, 2012, respectively. Consolidated total liabilities amounted to P1.89 billion and P1.86 billion as of June 30, 2013 and December 31, 2012. Total Stockholder's Equity went up by P8.20 million, from P1,025.32 million as of December 31, 2012 to P1.033.52 million as of June 30, 2013. The increase was attributed from earnings generated in the current period, net of dividend declarations during the period. Liquidity Position The Group’s current ratio remained at 1.01:1 as of June 30, 2013 and December 31, 2012. Total debt to asset ratio and total debt to equity ratio were at 0.65:1 and 1.81:1, respectively, as of June 30, 2013 and 0.65:1 and 1.80:1, respectively, as of December 31, 2012. ACCOUNTS WITH MORE THAN 5% CHANGE IN BALANCES (Against December 31, 2013 Balances) Cash and cash equivalents

Cash and Cash Equivalents decreased to P31 million as of June 30, 2014 from P341.7 million as of December 31, 2013 primarily due to an increase in trade and other payables.

Trade and Other Receivables – net

Trade and other receivables amounted to P380 million, from P441.8 million as of December 31, 2013, due to reversal of unreleased checks.

Inventories

Inventories went down to P9.4 million as of June 30, 2014 from P96.9 million as of December 31, 2013 attributable to the decline in food and beverage inventory level as of June 30, 2014.

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Prepaid expenses and Other Current Assets

Prepaid expenses increased by P45.5 million from P70.7 million as of December 31, 2013 to P116 million as of June 30, 2014. The increase was mainly due to prepayment of rental expense for the newly opened stores and unapplied creditable withholding tax.

Intangible Assets

Intangible assets declined from P1.2 billion as of December 31, 2013 to P1.1 billion as of June 30, 2014 related to the spin off of PHICAFSI and amortization.

Pension Asset

Pension asset decreased by 30% to P3.5 million as of June 30, 2014 from P5.1 million as of December 31, 2013 due to increase in present value of defined benefit obligation.

Deferred Income Tax Assets

Deferred income tax assets increased by P74.3 million, arising from additional excess minimum corporate income tax over regular income tax and deferred income tax on additional provisions for retirement benefits.

Other Noncurrent Assets

Other Noncurrent assets decreased by P18 million due to reclassification and utilization of deposits.

Trade and Other Payables

Trade and other payables increased by P42 million mainly due to traded items purchased and other liabilities pertaining to the construction of new stores.

Loans Payables

Loans payables increased due to additional bank borrowings. Current Portion of Long Term debt

Current portion of Long term debt was settled in March 2014. Current Portion of Mortgage Payable

Current portion of Mortgage payable decreased by P4 million due to amortization paid during this period.

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Income Tax Payable

The decrease in Income Tax Payable was attributed to lower net income for the reporting period.

Retirement Benefit Obligation

Accrued Retirement Liability increased by P13 million attributed to additional provisions accruing for the six months ended June 30, 2014.

Provision for share in equity in net losses of a joint venture

Share in equity in net losses of a joint venture (ICF-CCE, Inc.) amounting to P19.86 million was disposed.

Cash Dividends As of June 30, 2014, the following were the records of dividends declared out of PHI’s retained earnings:

Declaration Date

Record Date Payment

Date

Retained Earnings as

of

Amount per Share

(PHP)

Total Dividends

(PHP)

May$27,$2011$ June$15,$2011$ June$30,$2011$ Dec$31,$2010$ 0.0907$ 21,568,048.00$

Dec$8,$2011$ Dec$23,$2011$ Dec$29,$2011$ June$30,$2011$ 0.0512$ 12,175,127.30$

May$31,$2012$ June$15,$2012$ June$29,$2012$ Dec$31,$2011$ 0.1469$ 34,932,152.34$

Feb$22,$2013$ Mar$11,$2013$ Mar$29,$2013$ June$30,$2012$ 0.1007$ 23,946,002.32$

June$28,$2013$ July$12,$2013$ July$31,$2013$ Dec$31,$2012$ 0.1897$ 45,109,797.81$

Equity Securities There were no issuances, repurchases and repayments of debt and equity securities during the period. DISCUSSION OF THE COMPANY’S TOP FIVE (5) KEY PERFORMANCE INDICATORS The following are the major performance indicators that the company uses. Analyses are employed by comparisons and measurements based on the financial data for the six months ended June 30, 2014 and 2013.

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Number of Outlets Consistent with its commitment to grow the business, the Group opened additional stores to cater to a broader market. The Group implements a guided and programmed expansion plan to tap new growth areas.

Number of Outlets by Brand as of June 30, 2014 and 2013

Brand Co-owned Joint

Venture Franchised Total

2014

Pancake House 37 17 60 114 Dencios - 1 14 15 Teriyaki Boy 21 4 10 35 Sizzlin' Pepper Steak 14 - 2 16 Le Coeur de France 14 - - 14 The Chicken Rice Shop - 2 - 2 Yellow Cab 87 2 15 104 Maple 3 3 Total 176 26 101 303

2013 Pancake House 35 16 53 104 Dencios - 1 13 14 Teriyaki Boy 18 4 12 34 Sizzlin' Pepper Steak 15 - 3 18 Le Coeur de France 11 - - 11 The Chicken Rice Shop - 4 - 4 Yellow Cab 84 2 14 100 Maple 2 2 Total 165 27 95 287

$

System Sales System Wide Sales pertains to the total sales to customers both from company-owned and franchised stores. Total system-wide sales of the Group for the six months ended June 30, 2014 and 2013 amounted to P2.19 billion and P2.09 billion, respectively. The 5% increase was driven by growth in same store sales and a wider branch network.

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Revenues The Company and its operating subsidiaries generate revenues from three sources: (i) Store sales from company-owned stores; (ii) Commissary sales to franchised stores; and (iii) Fees from franchisees consisting of one-time franchise fees and continuing license fees. The Pancake House Group posted consolidated revenues of P1,832.8 billion for the six months ended June 30, 2014, up 1% compared to P1,815.0 billion in the same period last year. Earnings before Interest, Taxes, Depreciation, and Amortization (EBITDA) EBITDA measures the company’s ability to generate cash from operations. It is computed by adding back depreciation and amortization (non-cash expenses) to earnings before interest and income taxes are deducted. Consolidated EBITDA for the six months ended June 30, 2014 stood at P73.22 million, accounting for 4% of consolidated revenues. Net Income Ratio Net Income Ratio provides a measure of return for every peso of revenue earned, after all other operating expenses and non-operating expenses, including provision for income taxes, are deducted. It is the percentage of the company’s income after tax to net sales in a given period. Net Income Ratio was at negative 2% of consolidated revenues amounting to a loss P36.6 million for the six months ended June 30, 2014. Off Balance Sheet Transactions, Arrangement, Obligation and Other Relationships There are no off-balance sheet transactions, arrangements, obligation (including contingent obligations), and other relationships of the Company with unconsolidated entities or other persons created during the reporting period.

PART II – OTHER INFORMATION

-Not applicable-

Pancake House, Inc. and Subsidiaries Consolidated Financial Statements June 30, 2014 and December 31, 2013 And for the Six months Ended June 30, 2014 and 2013

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PANCAKE HOUSE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

Note June 30, 2014

(Interim)

December 31, 2013

ASSETS

Current Assets Cash P=311,111,240 P=341,682,074 Trade and other receivables 5 380,083,724 441,848,273 Inventories 6 87,519,203 96,882,681 Prepaid expenses and other current assets 7 115,928,791 70,708,406 Total Current Assets 894,642,958 951,121,434

Noncurrent Assets Property and equipment 8 440,854,370 468,026,288 Intangible assets 9 1,101,696,704 1,210,370,496 Pension asset 21 3,419,602 5,060,399 Deferred income tax assets 23 184,697,988 110,390,753 Security deposits on lease contracts 25 162,243,564 139,943,666 Other noncurrent assets 10 210,353,012 85,011,158 Total Noncurrent Assets 2,103,265,240 2,018,802,760

TOTAL ASSETS P=2,997,908,198 P=2,969,924,194

LIABILITIES AND EQUITY

Current Liabilities Trade and other payables 11 P=737,253,499 P=695,401,918 Loans payable 12 1,129,500,000 304,500,000 Current portion of long-term debt 13 – 785,875,587 Current portion of mortgage payable 14 3,783,356 7,859,204 Income tax payable 14,011,795 28,162,241 Total Current Liabilities 1,884,548,650 1,821,798,950

Noncurrent Liabilities Mortgage payable 14 1,500,247 1,500,247 Retirement benefit obligations 21 76,035,723 62,971,420 Accrued rent payable 25 29,775,685 31,632,671 Provision for share in equity in net losses of a joint venture 10 6,637,932 26,590,726 Total Noncurrent Liabilities 113,949,587 122,695,064

Equity Capital stock 16 259,210,840 237,795,455 Additional paid-in capital 16 287,662,665 176,806,287 Notes for conversion to equity 15 – 120,386,027 Other comprehensive income (13,373,445) (12,114,357) Retained earnings 16 372,980,797 401,680,302 906,480,857 924,553,714 Noncontrolling interests 92,929,104 100,876,466

Total Equity 999,409,961 1,025,430,180

TOTAL LIABILITIES AND EQUITY P=2,997,908,198 P=2,969,924,194

See accompanying Notes to Consolidated Financial Statements.

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PANCAKE HOUSE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME Six Months Ended June 30 2014 2013

Note 2nd Quarter

(Three months) Six Months

Ended June 30 2nd Quarter

(Three months) Six Months

Ended June 30 REVENUES Restaurant sales P=757,168,459 P=1,535,369,505 P=780,855,363 P=1,525,234,805 Commissary sales 137,309,195 241,625,200 117,218,076 225,537,496 Franchise and royalty fees 25 28,214,124 55,805,748 32,736,232 64,228,707 922,691,778 1,832,800,453 930,809,671 1,815,001,008 COST OF SALES 18 719,069,628 1,545,833,883 756,193,066 1,471,442,714 GROSS PROFIT 203,622,150 286,966,570 174,616,604 343,558,293 OPERATING EXPENSES General and administrative expenses 19 290,825,933 313,804,437 92,663,232 198,502,162 Sales and marketing expenses 37,348,993 66,434,005 31,236,549 51,664,125 328,174,926 380,238,442 123,899,780 250,166,286 INCOME (LOSS) FROM OPERATIONS (124,552,776) (93,271,872) 50,716,824 93,392,007 OTHER INCOME (CHARGES) Delivery and service income 13,945,041 26,235,482 16,543,109 34,273,195 Interest expense on loans 12 (2,534,266) (15,990,102) (17,369,243) (31,471,474) Share in net income (loss) of joint ventures (12,052) (423,100) (190,726) (1,240,491) Interest income – 278,869 110,296 384,080 Interest expense on the debt component of

convertible notes – – (1,779,446) (3,526,858) Other income - net 15,216,078 19,138,759 7,559,236 17,315,043 26,614,801 29,239,908 4,873,226 15,733,495 INCOME (LOSS) BEFORE INCOME TAX (97,937,975) (64,031,964) 55,590,050 109,125,502 PROVISION FOR INCOME TAX 23 31,459,771 27,385,097 (14,293,011) (27,274,849) NET INCOME (LOSS) (66,478,204) (P=36,646,867) P=41,297,039 P=81,850,630

ATTRIBUTABLE TO: Equity holders of the parent (P=60,604,252) (P=28,699,505) P=40,499,520 P=82,063,809 Minority interest (5,873,952) (7,947,362) 797,520 (213,179) (P=66,478,204) (P=36,646,867) P=41,297,039 P=81,850,630 Earnings Per Share - For income for the period ended attributable to the equity holders of the parent Basic 24 (P=0.23) (P=0.11) P=0.17 P=0.35 Diluted 24 (0.23) (0.11) 0.16 0.33

See accompanying Notes to Consolidated Financial Statements.

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PANCAKE HOUSE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Six Months Ended June 30 2014 2013

2nd Quarter Six Months

Ended June 30 2nd Quarter Six Months

Ended June 30

NET INCOME (P=66,327,270) (P=36,646,867) P=41,297,039 P=81,850,630

OTHER COMPREHENSIVE INCOME (LOSS) Loss from exchange differences on translation of

foreign operations (6,942,436) (1,259,088)

1,685,896 TOTAL COMPREHENSIVE INCOME (P=73,269,706) (P=37,905,955) P=41,297,039 P=83,536,527

ATTRIBUTABLE TO: Equity holders of the parent (P=67,395,752) (P=29,958,594) P=40,499,520 P=82,063,809 Minority interest (5,873,954) (7,947,361) 797,520 (213,179) (P=73,269,706) (P=37,905,955) P=41,297,039 P=81,850,630

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PANCAKE HOUSE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY FOR THE SIX MONTHS ENDED JUNE 30, 2014 and 2013 Attributable to Equity Holders of the Parent Company

Note Capital Stock Additional

Paid-in Capital

Notes for Conversion to

Equity

Accumulated Translation Adjustment

Retained Earnings

Actuarial Gains (Losses) Total

Noncontrolling Interests Total Equity

Balances at January 1, 2014 P=237,795,455 P=176,806,287 P=120,386,027 (P=6,650,303) P=401,680,302 (P=5,464,054) P=924,553,714 P=100,876,466 P=1,025,430,180

Net loss – – – – (28,699,505) – (28,699,505) (7,947,362) (36,646,867)

Other comprehensive income – – – (1,259,088) – – (1,259,088) – (1,259,088)

Movements in noncontrolling interests – – – – – – – – – Conversion of notes to equity 16 21,415,385 110,856,378 (120,386,027) – – – 11,885,736 – 11,885,736

Balances at June 30, 2014 P=259,210,840 P=287,662,665 P=– (P=7,909,391) P=372,980,797 (P=5,464,054) P=906,480,857 P=92,929,104 P=999,409,961

Balances at January 1, 2013 (Unaudited) P=237,795,455 P=176,806,287 P=120,386,027 (P=3,097,438) P=349,815,047 P=– P=881,705,378 P=143,619,232 P=1,025,324,610

Net income 82,063,810 – 82,063,810 (213,179) 81,850,631

Other comprehensive income – – – 1,685,896 – – 1,685,896 – 1,685,896

Movements in noncontrolling interests – – – – – – – (6,280,859) (6,280,859)

Cash dividends 16 – – – – (69,055,800) – (69,055,800) – (69,055,800)

Balances at June 30, 2013 P=237,795,455 P=176,806,287 P=120,386,027 (P=1,411,542) P=362,823,057 P=– P=896,399,284 P=137,125,194 P=1,033,524,478

See accompanying Notes to Consolidated Financial Statements.

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PANCAKE HOUSE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Note Six Months Ended June 30 2014 2013

CASH FLOWS FROM OPERATING ACTIVITIES

Income before income tax (P=64,031,964) P=109,125,502 Adjustments for:

Provision for impairment losses 106,526,085 – Depreciation and amortization 8 105,437,610 89,253,211 Amortization of intangibles 9 16,831,123 17,113,176 Interest expense 12 15,990,102 34,998,345 Share in net losses of joint ventures 10 421,300 1,240,491 Interest income (278,869) (384,080)

Operating income before working capital changes 180,895,387 251,346,645 Decrease (increase) in:

Trade and other receivables 43,608,758 (16,706,651) Inventories 9,363,478 (6,012,948) Prepaid expenses and other current assets (45,220,385) 6,445,686

Increase (decrease) in: Trade and other payables 40,171,193 49,757,174 Retirement benefit obligations 14,705,100 5,892,307 Accrued rent payable (1,856,986) –

Net cash generated from operations 241,666,545 290,722,213 Income taxes paid (61,072,584) (55,227,557) Interest paid (15,990,102) (30,402,318) Interest received 278,869 384,080 Net cash provided by (used in) operating activities 164,882,728 205,476,418

CASH FLOWS FROM INVESTING ACTIVITIES

Acquisitions of:

Property and equipment 8 (77,817,271) (98,213,031) Trademarks and software 9 (5,043,104) (1,579,197)

Proceeds from disposal of property and equipment

– –

Decrease (increase) in: Security deposits on lease contracts (22,299,898) – Other noncurrent assets (125,341,854) 6,985,640

Net cash used in investing activities (230,502,127) (92,806,588)

CASH FLOWS FROM FINANCING ACTIVITIES

Net proceeds from (payments) of:

Loans payable 825,000,000 (28,500,000) Long-term debt (785,875,587) – Mortgage payable (4,075,848) (1,892,506)

Cash dividends paid 16 – (69,055,800) Returns to noncontrolling interests – (6,280,859) Net cash provided by (used in) financing activities 35,048,565 (105,729,165)

NET INCREASE IN CASH

(30,570,834) 6,940,665

CASH AT BEGINNING OF PERIOD

341,682,074 372,549,691

CASH AT END OF PERIOD

P=311,111,240 P=379,490,356 See accompanying Notes to Consolidated Financial Statements.

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PANCAKE HOUSE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS !!!1. Corporate Information

Pancake House, Inc. (the Company) was incorporated on March 1, 2000 and is domiciled in the Republic of the Philippines. Its shares are publicly traded in the Philippine Stock Exchange. The 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 “Pancake House”, “Dencio’s”, ”Teriyaki Boy”, “Singkit”, “Sizzlin’ Pepper Steak”, “Le Coeur de France”, “The Chicken Rice Shop” and “Yellow Cab”.

On December 20, 2013, Pancake House Holdings, Inc. (PHHI), the previous ultimate parent company, agreed to sell to the Max’s Group of Companies (MGOC) all of its shares in the Company at a price of P=15 per share. MGOC also made a tender offer to the minority shareholders of the Company at a price of P=15 per share. On February 24, 2014, MGOC completed its acquisition of the 233,160,200 shares or 89.95% of the Company’s outstanding shares. MGOC is composed of ten companies which are mostly owned by individual shareholders.

On June 30, 2014, the BOD approved the combination of MGOC and PCKH, in a transaction valued at P=4,054.0 million. The entities in the Max’s Group of Companies will become 100% subsidiaries of PCKH at the completion of the transaction.

As part of and in consideration for the transaction, the Company, subject to the approval of the SEC of the increase in its authorized capital stock, shall issue to the existing shareholders of MGOC new shares which shall have an aggregate value of P=4,054.0 million, based on an issue price per share of P=15.00 if the new shares will be issued prior to the record date for the stock dividend distribution that was approved by the shareholders of PCKH on June 10, 2014 or an issue price per share of P=7.50 if the new shares will be issued after the record date for the stock dividend distribution. On July 31, 2014, the SEC has approved the application for the increase in authorized capital stock of the Company.

On July 22, 2014, the BOD approved the change of name of the Company to “MAX’S GROUP, INC.” subject to approval of stockholders of record as of August 8, 2014 and the SEC.

The registered office address of the Company is Pancake House Center, 2259 Pasong Tamo Extension, Makati City.

2. Summary of Significant Accounting Policies

Basis of Preparation The consolidated financial statements of the Group have been prepared under the historical cost basis. The consolidated financial statements are presented in Philippine peso, which is the Company’s functional currency, and all values are rounded to the nearest peso except when otherwise indicated.

Statement of Compliance The consolidated financial statements have been prepared in accordance with Philippine Financial Reporting Standards (PFRS).

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Basis of Consolidation The consolidated financial statements of the Group comprise the financial statements of the 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 an investee, including:

• The contractual arrangement with the other vote holders of the investee • Rights arising from other contractual arrangement • 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 that there are changes to one or more of the three elements of control. Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group losses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated statement of income from the date the Group gains control until the date the Group ceases to control the subsidiary. Profit or loss and each component of other comprehensive income (OCI) are attributed to the equity holders of the parent of the Group and to the noncontrolling interests, even if this results in the noncontrolling interests having a deficit balance. Noncontrolling interests represent the portion of net results and net assets not held by the Group. They are presented in the consolidated statements of financial position within equity, apart from equity attributable to equity holders of the Company and are separately disclosed in the consolidated statement of income and consolidated statement of comprehensive income. Noncontrolling interests consist of the amount of those interests at the date of original business combination and the noncontrolling interests’ share on changes in equity since the date of the business combination. The financial statements of the subsidiaries are prepared for the same reporting year as the Company. Consolidated financial statements are prepared using uniform accounting policies for like transactions and other events in similar circumstances. Intercompany balances and transactions, including intercompany profits and losses, are eliminated. A change in the ownership interest of a subsidiary, without loss of control, is accounted for as an equity transaction. If the Group loses control over a subsidiary, it:

• Derecognizes the assets (including goodwill) and liabilities of the subsidiary • Derecognizes the carrying amount of any noncontrolling interests • 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

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The consolidated financial statements include the accounts of the Company and the following subsidiaries:

Percentage of

Effective Ownership

Company Name Nature of Business 2014 2013

Yellow Cab Food Corporation (YCFC) Restaurant 100 100 YCPI Pizza Venture, Inc. Restaurant 55 55

Teriyaki Boy Group, Inc. (TBGI) Restaurant 70 70 TBGI-Trinoma, Inc. Restaurant 42 42 TBGI-Marilao, Inc. Restaurant 36 36 TBOY-MS, Inc.** Restaurant 35 35

TBGI-Tagaytay, Inc. (TBGI Tagaytay)** Restaurant 28 28 Boulangerie Francaise, Inc. (BFI) Restaurant 100 100 YCPC Subic, Inc. (formerly DFSI Subic, Inc.) Restaurant 100 100 Golden B.E.R.R.D. Grill, Inc.* Restaurant 100 100 Pancake House Products, Inc. (PHPI)* Manufacturing 100 100 Pancake House Ventures, Inc. (PHVI)* Holding Company 100 100 Pancake House International, Inc. (PHII) Holding Company 100 100

Teriyaki Boy International - Inc. Franchising 100 100 Yellow Cab Food Co. International - Inc. Franchising 100 100 Pancake House, International

Malaysia Sdn Bhd (PHIM) Restaurant 100 100 88 Just Asian, Inc. (88JAI) Restaurant 80 80 CRP Philippines, Inc.** Restaurant 50 50 Always Happy Greenhills, Inc. Restaurant 60 60 Always Happy BGC, Inc. Restaurant 51 51 Happy Partners, Inc. Restaurant 51 51 PCK-LFI, Inc. Restaurant 70 70 PCK-AMC, Inc.* Restaurant 60 60 PCK-Boracay, Inc. Restaurant 60 60 PCK-MTB, Inc. Restaurant 60 60 PCK-N3, Inc. Restaurant 51 51 PCK Bel-Air, Inc. Restaurant 51 51 PCK-MSC, Inc.** Restaurant 50 50 PCKPolo, Inc. Restaurant 70 70 PCK-Palawan, Inc. Restaurant 60 60 DFSI One-Nakpil, Inc. Restaurant 60 60 PHI Culinary Arts and Food Services

Institute, Inc. (PHI CAFSI)*** Culinary School – 100 Hospitality School Management

Group, Inc. (HSMGI)*** Management – 60 International School for Culinary

Arts and Hotel Management Quezon City, Inc.*** Culinary School – 60

*Dormant companies as at June 30, 2014 and December 31, 2013. **Although the Group owns not more than 50% of the voting power of these companies, it is able to govern the financial and operating policies of the companies by virtue of an agreement with the other investors of such entities. Consequently, the Group consolidates its investment in these companies. ***Not included in the consolidation in 2014.

All of the subsidiaries are incorporated and operating in the Philippines, except for PHII, Teriyaki Boy International - Inc., Yellow Cab Food Co. International - Inc. which are incorporated in British Virgin Islands and Pancake House, International Malaysia Sdn Bhd (PHIM), a company incorporated and operating in Malaysia.

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Changes in Accounting Policies The accounting policies adopted are consistent with those of the previous financial year, except for the adoption of the following amendments to PFRS which the Group has adopted starting January 1, 2014: PAS 36, Impairment of Assets (Amendments) - Recoverable Amount Disclosures for Non-Financial Assets These amendments remove the unintended consequences of PFRS 13 on the disclosures required under PAS 36. In addition, these amendments require disclosure of the recoverable amounts for the assets or CGUs 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, PFRS 12 and PAS 27, Investment Entities They 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. Philippine Interpretation IFRIC 21, Levies (IFRIC 21) IFRIC 21 clarifies that an entity recognizes a liability for a levy when the activity that triggers payment, as identified by the relevant legislation, occurs. For a levy that is triggered upon reaching a minimum threshold, the interpretation clarifies that no liability should be anticipated before the specified minimum threshold is reached. PAS 39, Financial Instruments: Recognition and Measurement (Amendments) - Novation of Derivatives and Continuation of Hedge Accounting These amendments provide relief from discontinuing hedge accounting when novation of a derivative designated as a hedging instrument meets certain criteria. PAS 32, Financial Instruments: Presentation - Offsetting Financial Assets and Financial Liabilities (Amendments) The amendments clarify the meaning of “currently has a legally enforceable right to set-off” and also clarify the application of the PAS 32 offsetting criteria to settlement systems (such as central clearing house systems) which apply gross settlement mechanisms that are not simultaneous. The amendments affect presentation only and have no impact on the Group’s financial position or performance. Financial Instruments Financial instruments are recognized in the consolidated statements of financial position when the Group becomes a party to the contractual provisions of the instruments. The Group determines the classification of its financial instruments on initial recognition and, where allowed and appropriate, re-evaluates this designation at each balance sheet date. All regular way purchases and sales of financial assets are recognized on the settlement date. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the period generally established by regulation or convention in the marketplace. 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 are categorized as either financial assets at FVPL, loans and receivables, held to maturity (HTM) investments or available-for-sale (AFS) financial assets. Financial liabilities are categorized as FVPL or other financial liabilities. Financial instruments are classified as liabilities or equity in accordance with the substance of the 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

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holders of financial instruments classified as equity are charged directly to equity, net of any related income tax benefits. Financial Assets As at June 30, 2014 and December 31, 2013, the Group does not have any financial assets at FVPL, HTM investments and AFS financial assets. The Group’s financial assets are of the nature of loans and receivables.

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. This accounting policy mainly relates to the consolidated statements of financial position captions “Cash”, “Trade and other receivables” and noncurrent receivables included under “Other noncurrent assets” which arise primarily from restaurant and commissary sales, franchise fees, royalty fees and other types of receivables. Loans and receivables are classified as current assets when they are expected to be realized within twelve months after the balance sheet date or within the normal operating cycle, whichever is longer. Loans and receivables are recognized initially at fair value, which normally pertains to the billable amount. After initial measurement, loans and receivables are subsequently measured at amortized cost using the effective interest rate method, less allowance for impairment losses. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees that are an integral part of the effective interest rate. The amortization, if any, is included in “Interest income” account in the consolidated statement of income. The losses arising from impairment of loans and receivables are recognized in the consolidated statement of income. The level of allowance for probable losses is evaluated by management on the basis of factors that affect the collectibility of accounts. Financial Liabilities As at June 30, 2014 and December 31, 2013, the Group does not have any financial liabilities at FVPL. The Group’s financial liabilities consist of other financial liabilities. Issued financial liabilities or their components, which are not designated at FVPL are categorized as other financial liabilities, where the substance of the contractual arrangement results in the Group having an obligation either to deliver cash or another financial asset to the holder, or to satisfy the obligation other than by the exchange of a fixed amount of cash or another financial asset for a fixed number of own equity shares. The components of issued financial liabilities that contain both liability and equity elements are accounted for separately, with the equity 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 statements of income. This accounting policy applies primarily to the Group’s “Trade and other payables”, “Loans payable”, “Long-term debt”, “Mortgage payable”, “Debt component of convertible notes” and other obligations that meet the above definition (other than liabilities covered by other accounting standards, such as income tax payable). Other financial liabilities are classified as current liabilities when these are expected to be settled within twelve months from the balance sheet date or the Group does not have an unconditional right to defer settlement for at least twelve months from the balance sheet date.

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

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

liability. The principal or the most advantageous market must be accessible to the Group. The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their best economic interest. A fair value measurement of nonfinancial asset takes into account a market participant’s ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use. The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximizing the use of relevant observable inputs and minimizing the use of nonobservable inputs. All assets and liabilities for which fair value is measured or disclosed in the consolidated financial statements are categorized within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:

• Level 1 - Quoted (unadjusted) market prices in active markets for identical assets or liabilities

• Level 2 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable; and

• Level 3 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is not observable.

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 balance sheet 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 June 30, 2014 and December 31, 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 the difference 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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Offsetting Financial Instruments Financial assets and financial liabilities are offset and the net amount is reported in the consolidated statements of financial position if, and only if: 1. there is a currently enforceable legal right to offset the recognized amounts; and 2. there is an intention to settle on a net basis, or to realize the asset and settle the liability

simultaneously. Impairment of Financial Assets Carried at Amortized Cost The Group assesses at each balance sheet date whether there is objective evidence that a financial asset or group of financial assets is impaired. A financial asset or a group of financial assets is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events that has or have occurred after the initial recognition of the asset (an incurred “loss event”) and that loss event has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated. Objective evidence of impairment may include indications that the borrower or a group of borrowers is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganization and where observable data indicate that there is measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults. 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, whether significant 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 the amount 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 recognized in the consolidated statement of income to the extent that the carrying value of the asset does not exceed its amortized cost at reversal date. Derecognition of Financial Instruments Financial Asset A financial asset (or, where applicable a part of a financial asset or part of a group of similar financial assets) is derecognized when: 1. the rights to receive cash flows from the asset have expired; 2. the Group retains the right to receive cash flows from the asset, but has assumed an

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

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

Where the Group has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognized to the extent of the Group’s continuing involvement in the asset. Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Group could be required to repay. 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 for spoilage, breakage and obsolescence. Prepaid Expenses and Other Current Assets Prepaid Expenses Prepaid expenses are carried at cost and are amortized on a straight-line basis over the period of expected usage, which is equal to or less than twelve months or within the normal operating cycle. Advances to Suppliers Advances to suppliers represent advance payments on goods or services to be purchased in connection with the Group’s operations. These are charged as an expense in the consolidated statement of income upon actual receipt of goods or services, which is normally within twelve months or within the normal operating cycle. Creditable Withholding Taxes (CWTs) CWTs represent the amount withheld by the Group’s customers in relation to its restaurant and commissary sales. These are recognized upon collection of the related sales and are utilized as tax credits against income tax due as allowed by the Philippine taxation laws and regulations. CWTs are stated at their estimated NRV. Property and Equipment Property and equipment is stated at cost less accumulated depreciation and amortization and any allowance for impairment in value. The initial cost of property and equipment comprises of its purchase price, including import duties and nonrefundable purchase taxes and any directly attributable costs of bringing the property and equipment to its working condition and location for its intended use. Expenditures incurred after the property and equipment have been put into operation, such as repairs and maintenance, are

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normally charged to expense in the period the costs are incurred. In situations where it can be clearly demonstrated that the expenditures have resulted in an increase in the future economic benefits expected to be obtained from the use of an item of property and equipment beyond its originally assessed standard of performance, the expenditures are capitalized as an additional cost of property and equipment. 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. Leasehold improvements are amortized using the straight-line method over the estimated useful lives of the improvements or term of the lease, whichever is shorter. The estimated useful lives of the assets are as follows:

Number of Category Years Leasehold improvements 5 Store equipment 3-8 Kitchen equipment 3-5 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. Fully depreciated and amortized assets are retained as property and equipment until these are no longer in use. Construction in-progress, included in property and equipment, is stated at cost. This includes cost of construction and other direct costs. Construction in-progress is not depreciated until such time as the relevant assets are completed and available for use. Intangible Assets Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is the fair value as at the date of acquisition. Following initial recognition, intangibles are carried at cost less any accumulated amortization and any accumulated impairment losses. Internally generated intangibles, excluding brand development costs, are not capitalized and expenditures is reflected in the consolidated statement of income in the year in which the expenditure is incurred. 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 5 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 balance sheet 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. The amortization expense on software is recognized in the consolidated statement of income under general and administrative expense category consistent with its function.

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Trademarks Trademarks are measured initially at cost. The cost of trademarks acquired in business combinations is its fair value at the date of acquisition. Following initial recognition, trademarks are carried at cost less accumulated amortization and any accumulated impairment losses. The Group’s trademarks have a finite useful life of 20 years and are amortized over such period using the straight-line method. The useful life and amortization method for trademarks are reviewed at least at each balance sheet date. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the trademarks are accounted for by changing the useful life and amortization method, as appropriate, and treated as a change in accounting estimates. The amortization expense on trademarks is recognized in the consolidated statement of income under the 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 consideration. Following initial recognition, lease right is carried at cost less accumulated amortization and any accumulated impairment losses. The Group’s lease rights have a term of 5 years and are amortized over such period using the straight-line method. The useful life and amortization method for lease rights are reviewed at least at each balance sheet date. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the lease rights are accounted for by changing the useful life and amortization method, as appropriate, and treated as a change in accounting estimates. The amortization expense on lease right is recognized in the consolidated statement of income under the cost of sales consistent with its function. Business Combinations and Goodwill Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred, measured at acquisition date fair value, and the amount of any noncontrolling interest in the acquiree. For each business combination, the acquirer measures the noncontrolling interest in the acquiree pertaining to instruments that represent present ownership interests and entitle the holders to a proportionate share of the net assets in the event of liquidation either at fair value or at the proportionate share of the acquiree’s identifiable net assets. All other components of noncontrolling interest are measured at fair value unless another measurement basis is required by PFRS. Acquisition-related costs incurred are expensed and included in general and administrative expenses. When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. This includes the separation of embedded derivatives in host contracts by the acquiree, if any. 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

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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 the contingent 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, the Group 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. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group’s cash-generating units (CGU) that are expected to benefit from the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units. Where goodwill forms part of a CGU and part of the operation within CGU unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in this circumstance is measured based on the relative values of the operation disposed of and the portion of the CGU retained. 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 current VAT liabilities is presented as current asset in the consolidated statements 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. Investment in Joint Ventures The Group has interests on the following jointly controlled entities:

• ICF-CCE, Inc., a jointly controlled entity with Far Eastern University (FEU) • CRP Singapore Holdings Pte. Ltd., a jointly controlled entity with a foreign entity

The Group and the other party (the Venturers) have a contractual arrangement that establish joint control over the economic activities of the joint venture. The agreement requires unanimous agreement for financial and operating decisions between the venturers.

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The Group’s investments in joint ventures are accounted for using the equity method based on the percentage share of capitalization of the Group in accordance with the joint venture agreement. Under the equity method, the investment is initially carried in the consolidated statements of financial position at cost plus the Group’s share in post-acquisition changes in the net assets of the joint venture, less any impairment in value. The consolidated statements of income includes the Group’s share in the results of operations of the joint ventures. Where there has been a change recognized directly in the equity of the joint ventures, the Group recognizes its share of any changes and discloses this, when applicable, in the consolidated statements of changes in equity. Dividends received from the joint venture reduce the carrying amount of the investment. When the Group’s share of losses in joint venture equals or exceeds its interest in the joint venture, the recognition of further losses is discontinued except to the extent that the Group has incurred obligations or made payments on behalf of the joint venture. Any excess of accumulated equity in net losses over the cost of investment is recognized as a liability under “Provision for share in equity in net losses of a joint venture” account in the consolidated statements of financial position. 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 longer has 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 balance sheet 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 is written down to its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In determining fair value less costs to sell, an appropriate valuation model is used. These calculations are corroborated by valuation multiples or other available fair value indicators. Impairment losses from continuing operations are recognized in the consolidated statements of income. An assessment is made for these nonfinancial assets at each balance sheet date to determine whether there is any indication that previously recognized impairment losses may no longer exist or may have decreased. If such indication exists, the Group makes an estimate of recoverable amount. Any previously recognized impairment loss is reversed only if there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognized. If that is the case, the carrying amount of the asset is increased to its recoverable amount. That increased amount cannot exceed the carrying amount that would have been determined, net of depreciation and amortization, had no impairment loss been recognized for the asset in prior years. Such reversal is recognized in the consolidated statements of income. Goodwill Goodwill is tested for impairment annually and when circumstances indicate that the carrying

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value may be impaired. Impairment is determined for goodwill by assessing the recoverable amount of each CGU, to which the goodwill relates. When the recoverable amount of the CGU is less than its carrying amount, an impairment loss is recognized. Impairment losses relating to goodwill cannot be reversed in future periods. 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 balance sheet 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 statements of income. Provisions Provisions 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 made by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments 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 an interest expense. Where the Group expects some or all of a provision to be reimbursed, the reimbursement is recognized as a separate asset but only when the reimbursement is virtually certain. The expense relating to any provision is presented in the consolidated statement of income, net of any reimbursement. 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 in proportion 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 adjustment to the carrying amount is recognized in the consolidated statement of income. The equity component of a compound financial instrument is not remeasured subsequent to initial recognition. Upon conversion, capital stock and any additional paid-in capital are recognized while the equity component relating to the converted notes are derecognized. Capital Stock and Additional Paid-in Capital Capital stock represents the par value of issued shares. Incremental costs directly attributable to the issue of new capital stock are shown in equity as a deduction, net of tax, from the proceeds. Additional paid-in capital represents the excess of the shareholders’ total contribution over the stated par value of shares.

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Retained Earnings Retained earnings include accumulated profits attributable to the Company’s stockholders and reduced by dividends. Dividends are recognized as liabilities and deducted from equity when they are declared. Dividends for the year that are approved after the balance sheet date are dealt with as an event after the balance sheet date. Retained earnings may also include effect of changes in accounting policy as may be required by the transitional provisions of new and amended standards. 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. Customer Loyalty Programme The Group maintains a loyalty points program named “Orange Card” which allows the customers to accumulate points when they purchase products in the Group’s chain of restaurants. The points can then be redeemed for any food vouchers or freebies accepted in the Group’s chain of restaurants, subject to a minimum number of points being obtained. The consideration received is allocated between the products sold and points issued, with the consideration allocated to the points being equal to their fair value. The fair value of the points issued is deferred in “Deferred revenue” under “Trade and other payables” account in the consolidated statements of financial position and recognized as revenue when the points are redeemed. Other Income Other income is recognized when earned. Costs and Expenses Costs and expenses are decreases in economic benefits during the accounting period in the form of outflows or decrease of assets or incurrence of liabilities that result in decreases in equity, other than those relating to distributions to equity participants.

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Costs of Sales Costs of sales, which mainly pertain to purchases of food and beverages, direct labor and overhead directly attributable in the generation of sales, are generally recognized when incurred. General and Administrative General and administrative expenses are generally recognized when the services are used or the expenses arise. Sales and Marketing Sales and marketing expenses, which represent advertising and other selling costs, are generally expensed as incurred. Defined Benefit Plan.! ! 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 fair value 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. Defined benefit costs comprise the following:

• Service cost • Net interest on the net defined benefit liability or asset • Remeasurements of net defined benefit liability or asset.

Service costs which include current service costs, past service costs and gains or losses on nonroutine settlements are recognized as expense in the consolidated statement of income. Past service costs are recognized when plan amendment or curtailment occurs. These amounts are calculated periodically by independent qualified actuaries. Net interest on the net defined benefit liability or asset is the change during the period in the net defined benefit liability or asset that arises from the passage of time which is determined by applying the discount rate based on government bonds to the net defined benefit liability or asset. Net interest on the net defined benefit liability or asset is recognized as expense or income in the consolidated statement of income. Remeasurements comprising actuarial gains and losses, return on plan assets and any change in the effect of the asset ceiling (excluding net interest on defined benefit liability) are recognized immediately in OCI in the period in which they arise. Remeasurements are not reclassified to the consolidated statement of income in subsequent periods. 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 to the 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.

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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 consolidated statements of financial position. Group as a Lessor Leases where the Group does not transfer substantially all the risks and benefits of ownership of the assets are classified as operating leases. Initial direct costs incurred in negotiating operating leases are added to the carrying amount of the leased asset and amortized over the lease term on the same basis as the rental income. Contingent rents are recognized as revenue in the period in which they are earned. Operating lease receipts are recognized as an income in the consolidated statement of income on a straight-line basis over the lease term. The difference between the straight-line recognition basis and the actual payments received in relation to the operating lease agreement is recognized under “Trade and other receivables” (if current) and “Other noncurrent assets” (if noncurrent) accounts in the consolidated statements of financial position. Borrowing Costs Borrowing costs directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial period of time to get ready for its intended use or sale are capitalized as part of the cost of the respective assets. All other borrowing costs are expensed in the period they occur. Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds. Foreign Currency Translation The functional currency of the entities of the Group is the Philippine peso except for PHII and its subsidiaries, 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 balance sheet date. All differences are taken to the consolidated statement of income. The assets and liabilities of PHII are translated into Philippine peso at the rate of exchange ruling at the balance sheet 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. 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 rates and income tax laws used to compute the amount are those that are enacted or substantively enacted at the balance sheet date. Deferred Income Tax Deferred income tax is provided, using the balance sheet liability method, on all temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.

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Deferred income tax liabilities are recognized for all taxable temporary differences, except:

• where the deferred income tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and

• in respect of taxable temporary differences associated with investments in subsidiaries, where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.

Deferred income tax assets are recognized for all deductible temporary differences, carryforward of unused tax credits from excess minimum corporate income tax (MCIT) and unused net operating loss carryover (NOLCO) to the extent that it is probable that taxable profit will be available against which the deductible temporary differences and carryforward of unused tax credits from excess MCIT and unused NOLCO can be utilized, except:

• where the deferred income tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and

• 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 balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax assets to be utilized. Unrecognized deferred income tax assets are reassessed at each balance sheet 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 rates (and tax laws) that have been enacted or substantively enacted at the balance sheet 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. Operating Segments The Group operates using its different trade names on which operating results are regularly monitored by the chief operating decision maker (CODM) for the purpose of making decisions about resource allocation and performance assessment. The CODM has been identified as the Chief Executive Officer of the Group. However, as permitted by PFRS 8, Operating Segments, the Group has aggregated these segments into a single operating segment to which it derives its revenues and incurs expenses as these segments have the same economic characteristics and are similar in the following respects:

a. the nature of products and services; b. the nature of production processes; c. the type or class of customer for the products and services; and d. the methods used to distribute their products and services.

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 by the weighted average number of common shares outstanding during the year, with retroactive adjustments for any stock dividends declared and stock split.

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Diluted EPS is calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all dilutive potential ordinary shares. The Company’s convertible notes are dilutive potential ordinary shares. In computing for the diluted EPS, the convertible note is assumed to have been converted into ordinary shares, and the net income is adjusted to eliminate the interest expense less the tax effect, if any. Where the EPS effect of potential dilutive ordinary shares would be anti-dilutive, basic and diluted EPS are stated at the same amount. Contingencies Contingent liabilities are not recognized in the consolidated financial statements. These are disclosed unless the possibility of an outflow of resources embodying economic benefits is remote. Contingent assets are not recognized in the consolidated financial statements but disclosed in the notes to consolidated financial statements when an inflow of economic benefits is probable. Events After the Balance Sheet Date Post year-end events that provide additional information about the Group’s position at the balance sheet date (adjusting events) are reflected in the consolidated financial statements. Post year-end events that are not adjusting events are disclosed in the notes to consolidated financial statements when material. New Accounting Standards, Interpretations and Amendments to Existing Standards Effective Subsequent to January 1, 2014 Standards and interpretations issued but not yet effective up to the date of issuance of the Group’s consolidated financial statements are listed below. Except as otherwise indicated, the Group does not expect the adoption of these new and amended PFRS, Philippine Interpretation from International Financial Reporting Interpretation Committee (IFRIC) and improvements to PFRS to have significant impact on its consolidated financial statements. The Group will adopt these standards and interpretations when these become effective. PAS 19, Employee Benefits (Amendments) - Defined Benefit Plans: Employee Contributions The amendments apply to contributions from employees or third parties to defined benefit plans. Contributions that are set out in the formal terms of the plan shall be accounted for as reductions to current service costs if they are linked to service or as part of the remeasurements of the net defined benefit asset or liability if they are not linked to service. Contributions that are discretionary shall be accounted for as reductions of current service cost upon payment of these contributions to the plans. The amendments to PAS 19 are to be retrospectively applied for annual periods beginningon or after July 1, 2014. Annual Improvements to PFRSs (2010-2012 cycle) The Annual Improvements to PFRSs (2010-2012 cycle) contain non-urgent but necessary amendments to the following standards: PFRS 2, Share-based Payment - Definition of Vesting Condition The amendment revised the definitions of vesting condition and market condition and added the definitions of performance condition and service condition to clarify various issues. This amendment shall be prospectively applied to share-based payment transactions for which the grant date is on or after July 1, 2014. PFRS 3, Business Combinations - Accounting for Contingent Consideration in a Business Combination The amendment clarifies that a contingent consideration that meets the definition of a financial instrument should be classified as a financial liability or as equity in accordance with PAS 32. Contingent consideration that is not classified as equity is subsequently measured at fair value through profit or loss whether or not it falls within the scope of PAS 39. The amendment shall be

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prospectively applied to business combinations for which the acquisition date is on or after July 1, 2014. The Group shall consider this amendment for future business combinations. 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 have been assessed in determining that the aggregated operating segments share similar economic characteristics. The amendments also clarify that an entity shall provide reconciliations of the total of the reportable segments’ assets to the entity’s assets if such amounts are regularly provided to the chief operating decision maker. These amendments are effective for annual periods beginning on or after July 1, 2014 and are applied retrospectively. The amendments affect disclosures only and have no impact on the Group’s financial position or performance. PFRS 13, Fair Value Measurement - Short-term Receivables and Payables The amendment clarifies that short-term receivables and payables with no stated interest rates can be held at invoice amounts when the effect of discounting is immaterial. PAS 16, Property, Plant and Equipment - Revaluation Method - Proportionate Restatement of Accumulated Depreciation The amendment clarifies that, upon revaluation of an item of property, plant and equipment, the carrying amount of the asset shall be adjusted to the revalued amount, and the asset shall be treated in one of the following ways: a. The gross carrying amount is adjusted in a manner that is consistent with the revaluation of the carrying amount of the asset. The accumulated depreciation at the date of revaluation is adjusted to equal the difference between the gross carrying amount and the carrying amount of the asset after taking into account any accumulated impairment losses. b. The accumulated depreciation is eliminated against the gross carrying amount of the asset. The amendment is effective for annual periods beginning on or after July 1, 2014. The amendment shall apply to all revaluations recognized in annual periods beginning on or after the date of initial application of this amendment and in the immediately preceding annual period. PAS 24, Related Party Disclosures - Key Management Personnel The amendments clarify that an entity is a related party of the reporting entity if the said entity, or any member of a group for which it is a part of, provides key management personnel services to the reporting entity or to the parent company of the reporting entity. The amendments also clarify that a reporting entity that obtains management personnel services from another entity (also referred to as management entity) is not required to disclose the compensation paid or payable by the management entity to its employees or directors. The reporting entity is required to disclose the amounts incurred for the key management personnel services provided by a separate management entity. The amendments are effective for annual periods beginning on or after July 1, 2014 and are applied retrospectively. The amendments affect disclosures only and have noimpact on the Group’s financial position or performance. PAS 38, Intangible Assets - Revaluation Method - Proportionate Restatement of Accumulated Amortization The amendments clarify that, upon revaluation of an intangible asset, the carrying amount of the asset shall be adjusted to the revalued amount, and the asset shall be treated in one of the following ways: a. The gross carrying amount is adjusted in a manner that is consistent with the revaluation of the carrying amount of the asset. The accumulated amortization at the date of revaluation is adjusted to equal the difference between the gross carrying amount and the carrying amount of the asset after taking into account any accumulated impairment losses.

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b. The accumulated amortization is eliminated against the gross carrying amount of the asset. 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 the standard. The amendments are effective for annual periods beginning on or after July 1, 2014. The amendments shall apply to all revaluations recognized in annual periods beginning on or after the date of initial application of this amendment and in the immediately preceding annual period. Annual Improvements to PFRSs (2011-2013 cycle) The Annual Improvements to PFRSs (2011-2013 cycle) contain non-urgent but necessary amendments to the following standards: PFRS 1, First-time Adoption of Philippine Financial Reporting Standards - Meaning of ‘Effective PFRSs’ The amendment clarifies that an entity may choose to apply either a current standard or a new standard that is not yet mandatory, but that permits early application, provided either standard is applied consistently throughout the periods presented in the entity’s first PFRS financial statements. PFRS 3, Business Combinations - Scope Exceptions for Joint Arrangements The amendment clarifies that PFRS 3 does not apply to the accounting for the formation of a joint arrangement in the financial statements of the joint arrangement itself. The amendment is effective for annual periods beginning on or after July 1 2014 and is applied prospectively. PFRS 13, Fair Value Measurement - Portfolio Exception The amendment clarifies that the portfolio exception in PFRS 13 can be applied to financial assets, financial liabilities and other contracts. The amendment is effective for annual periods beginning on or after July 1 2014 and is applied prospectively. PAS 40, Investment Property The amendment clarifies the interrelationship between PFRS 3 and PAS 40 when classifying property as investment property or owner-occupied property. The amendment stated that judgment is needed when determining whether the acquisition of investment property is the acquisition of an asset or a group of assets or a business combination within the scope of PFRS 3. This judgment is based on the guidance of PFRS 3. This amendment is effective for annual periods beginning on or after July 1, 2014 and is applied prospectively.

PFRS 9, Financial Instruments: Classification and Measurement PFRS 9, as issued, reflects the first and third phases of the project to replace PAS 39 and applies to the classification and measurement of financial assets and liabilities and hedge accounting, respectively. Work on the second phase, which relate to impairment of financial instruments, and the limited amendments to the classification and measurement model is still ongoing, with a view to replace PAS 39 in its entirety. PFRS 9 requires all financial assets to be measured at fair value at initial recognition. A debt financial asset may, if the fair value option (FVO) is not invoked, be subsequently measured at amortized cost if it is held within a business model that has the objective to hold the assets to collect the contractual cash flows and its contractual terms give rise, on specified dates, to cash flows that are solely payments of principal and interest on the principal outstanding. All other debt instruments are subsequently measured at fair value through profit or loss. All equity financial assets are measured at fair value either through OCI or profit or loss. Equity financial assets held for trading must be measured at fair value through profit or loss. For liabilities designated as at FVPL using the fair value option, the amount of change in the fair value of a liability that is attributable to changes in credit risk must be presented in OCI. The remainder of the change in fair value is presented in profit or loss, unless presentation of the fair value change relating to the entity’s own credit risk in OCI would create or enlarge an accounting

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mismatch in profit or loss. All other PAS 39 classification and measurement requirements for financial liabilities have been carried forward to PFRS 9, including the embedded derivative bifurcation rules and the criteria for using the FVO. The adoption of the first phase of PFRS 9 may have no impact on the classification and measurement of the Group’s financial assets, and will potentially have no impact on the classification and measurement of financial liabilities. On hedge accounting, PFRS 9 replaces the rules-based hedge accounting model of PAS 39 with a more principles-based approach. Changes include replacing the rules-based hedge effectiveness test with an objectives-based test that focuses on the economic relationship between the hedged item and the hedging instrument, and the effect of credit risk on that economic relationship; allowing risk components to be designated as the hedged item, not only for financial items, but also for nonfinancial items, provided that the risk component is separately identifiable and reliably measurable; and allowing the time value of an option, the forward element of a forward contract and any foreign currency basis spread to be excluded from the designation of a financial instrument as the hedging instrument and accounted for as costs of hedging. PFRS 9 also requires more extensive disclosures for hedge accounting. PFRS 9 currently has no mandatory effective date. PFRS 9 may be applied before the completion of the limited amendments to the classification and measurement model and impairment methodology. The Group has yet to conduct a quantification of the full impact of this standard. The Group will quantify the effect of this standard in conjunction with the other phases, when issued, to present a more comprehensive picture. Philippine Interpretation IFRIC 15, Agreements for the Construction of Real Estate This interpretation covers accounting for revenue and associated expenses by entities that undertake the construction of real estate directly or through subcontractors. This interpretation requires that revenue on construction of real estate be recognized only upon completion, except when such contract qualifies as construction contract to be accounted for under PAS 11, Construction Contracts, or involves rendering of services in which case revenue is recognized based on stage of completion. The SEC and the Financial Reporting Standards Council (FRSC) have deferred the effectivity of this interpretation until the final Revenue standard is issued by the International Accounting Standards Board (IASB) and an evaluation of the requirements of the final Revenue standard against the practices of the Philippine real estate industry is completed. Under prevailing circumstances, the adoption of the foregoing new and revised PFRS is not expected to have any material effect on the financial statements. Additional disclosures will be included in the financial statements, as applicable.

3. Significant Accounting Judgments and Estimates The consolidated financial statements prepared in accordance with PFRS require management to make judgments and estimates that affect amounts reported in the consolidated financial statements and related notes. The judgments and estimates used in the consolidated financial statements are based upon management’s evaluation of relevant facts and circumstances as of the date of the consolidated financial statements. Actual results could differ from such estimates. Judgments and estimates are continually evaluated and are based on historical experiences and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Judgments Determining Functional Currency The functional currency of the companies in the Group has been determined to be the Philippine

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peso except for certain subsidiaries and joint venture whose functional currency are the US Dollar. The Philippine peso is the currency that mainly influences the sale of goods and services and the costs of sales. Investment in Subsidiaries The Group determined that it has control over its subsidiaries (see Note 2) 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 use its power over the investee to affect its returns. The following were also considered:

• The contractual arrangement with the other vote holders of the investee • Rights arising from other contractual agreements • The Group’s voting rights and potential voting rights

Operating Lease Commitments - The Group as Lessee The Group has entered into commercial property leases on its restaurant premises and administrative office location. The Group has determined that all the significant risks and rewards of ownership of these properties remain with the lessors. Accordingly, these leases are accounted for as operating leases (see Notes 17 and 24). Operating Lease Commitments - The Group as a Lessor The Group has entered into commercial property sublease agreements. The Group has determined that all the significant risks and rewards of ownership of the properties remain with the Group. Accordingly, the lease is accounted for as an operating lease (see Note 25). 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. Useful Life of Trademarks Trademarks represent the value of the Group’s externally acquired trade names, which were recorded at estimated fair market value at the time of acquisition. Trademarks are assessed to have a finite useful life of 20 years from the date of acquisition. Useful Life of 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 a subsidiary of the Group. Brand development costs are assessed to have a finite useful life of 20 years. Useful Life of Lease Rights Lease rights pertain to acquired rights to lease on certain prime locations for a period of five years. Lease rights are assessed to have a finite useful life equal to the term of the related lease. Useful Life of Software License Software license pertains to the cost of the Group’s new accounting and point of sale system. Software license is assessed to have a finite useful life of five years.

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Estimates Estimating Impairment of Trade and Other Receivables and Noncurrent Receivables Management reviews the age and status of these receivables and identifies accounts that are to be provided with allowances on a continuous basis. The Group maintains allowances for impairment losses at a level considered adequate to provide for potential uncollectible receivables. Allowance for impairment losses amounted to P=128.7 million and P=22.1 million as at June 30, 2014 and December 31, 2013, respectively (see Note 5). Management believes that the allowance is sufficient to cover receivable balances which are specifically identified to be doubtful of collection. The aggregate carrying amounts of trade and other receivables and noncurrent receivables (included under “Other noncurrent assets” account), net of allowance for impairment losses, amounted to P=380.1 million and P=446.8 million as at June 30, 2014 and December 31, 2013, respectively (see Notes 5 and 10). Estimating NRV of Inventories The Group estimates the allowance for inventory losses related to store and kitchen supplies and operating equipment for sale whenever the utility of these inventories becomes lower than cost due to damage, physical deterioration or obsolescence. Due to the nature of the food and beverage inventories, the Group conducts monthly inventory count and any resulting difference from quantities that are currently recognized is charged to expense or related provision, as applicable. Inventories at cost amounted to P=87.5 million and P=96.9 million as at June 30, 2014 and December 31, 2013, respectively (see Note 6). Estimating Impairment of Prepaid Expenses and Other Current Assets, Property and Equipment, Security Deposits on Lease Contracts, Utilities and Other Deposits and Input VAT 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 June 30, 2014 and December 31, 2013. The aggregate net book values of these assets amounted to P=778.6 million and P=740.9 million as at June 30, 2014 and December 31, 2013, respectively (see Notes 7, 8 and 10). Estimating Useful Life and Impairment of Intangible Assets The Group estimates the useful lives of intangible assets based on the period over which assets are expected to benefit the financial performance of the Group. The estimated useful lives are reviewed periodically and are updated if expectations differ from previous estimates due to technical or commercial obsolescence and legal or other limits on the use of the trademarks. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset is accounted for by changing the amortization period or method, as appropriate, and treated as changes in accounting estimates. Due to the stiff competition in the industry where the Group operates and the uncertainty in the business environment, the Group subjects the trademarks to annual impairment testing, together with goodwill, to assess reasonableness of its assigned useful life. Assessment for impairment requires an estimation of the value in use of the CGUs to which the trademarks are allocated. Estimating the value in use requires the Group to make an estimate of the expected future cash flows from the CGUs and also to choose a suitable discount rate in order to calculate the present

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value of those cash flows. Based on projections made by management on cash flows arising from the CGUs where the trademarks relate, the recoverable amounts of the CGUs calculated based on value in use are greater than the corresponding carrying values of the CGUs as of December 31, 2013. The carrying values of intangible assets with finite life amounted to P=304.6 million and P=318.5 million as of June 30, 2014 and December 31, 2013, respectively (see Note 9). 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 2. The recoverable amounts of CGUs have been determined based on value in use calculations which require the use of estimates. Based on the impairment testing conducted, the recoverable amounts of the CGUs as at June 30, 2014 and December 31, 2013 calculated based on value in use are greater than the corresponding carrying values (including goodwill) of the CGUs as of the same dates. The carrying amount of goodwill amounted to P=800.7 million and P=889.5 million as at June 30, 2014 and December 31, 2013, respectively (see Note 9). Estimating Impairment of Investment in Joint Ventures The Group performs an impairment review of its interest in joint ventures whenever an impairment indicator exists. If there is an objective evidence of impairment, the Group calculates the amount of impairment as the difference between the recoverable amount of the joint venture and its carrying value. The investment’s recoverable amount is the higher of its fair value less cost to sell and its value in use. Estimating value in use requires the Group to make an estimate of the expected future cash flows of the joint venture and to make use of a suitable discount rate to calculate the present value of those future cash flows. As at June 30, 2014 and December 31, 2013, the Group’s share in accumulated net losses exceeds the carrying amount of its investment and the Group recognized the excess of accumulated equity in losses over the cost of investment under “Provision for share in equity in net losses of a joint venture” amounting to P= 6.6 million and P= 26.6 million, respectively. ICF-CCE, Inc. incurred continuous losses from its operations (see Note 10). Estimating the Useful Lives of Property and Equipment The Group reviews annually the estimated useful lives of property and equipment 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=440.9 million and P=468.5 million as at June 30, 2014 and December 31, 2013, respectively (see Note 8). 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 15. Effectively, the dividends on common shares would serve as the minimum interest on the note. However, it is difficult to estimate these future dividends since there are no committed dividends on the Company’s common shares and a pattern or trend could not also be determined based on prior years’ dividend payments. Consequently, the liability component was calculated based on the consolidated forecasted net income. The liability

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component is adjusted at each balance sheet date when there are significant changes in the consolidated forecasted net income using the original effective interest rate at the date of inception of the convertible notes. Such adjustment is recognized in the consolidated statement of income. Accrued interest and current portion of debt component of convertible notes, presented as part of “Trade and other payables” account, amounted to nil and P=11.9 million as at June 30, 2014 and December 31, 2013, respectively (see Note 11). Estimating Retirement Benefit Costs The determination of the Group’s obligation and pension cost is dependent on the selection of certain assumptions used by the actuaries in calculating such amounts, which are described in Note 21 to the consolidated financial statements. Retirement benefit costs amounted to P=16.7 million and P=25.9 million in June 30, 2014 and 2013, respectively. Pension asset amounted to P=3.4 million and P=5.1 million as at June 30, 2014 and December 31, 2013. Accrued retirement liability amounted to P=76.0 million and P=63.0 million as at June 30, 2014 and December 31, 2013, respectively (see Note 21). Estimating Realizability of Deferred Income Tax Assets The Group reviews the carrying amounts of deferred income tax assets at each balance sheet 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=90.5 million as at June 30, 2014 and December 31, 2013, for which no deferred income tax assets were recognized. The carrying values of deferred income tax assets amounted to P=184.7 million and P=110.4 million as at June 30, 2014 and December 31, 2013, respectively (see Note 23). 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 June 30, 2014 and 2013 (see Note 29).

4. Material Partly-Owned Subsidiary and Disposal of Interest

Material Partly-Owned Subsidiary Below is the financial information of TBGI which have material noncontrolling interest as at June 30, 2014 and December 31, 2013. The noncontrolling shareholder holds 30% equity interest. Accumulated balance of material noncontrolling interest amounted to P=107.4 million and P=116.0 million as at June 30, 2014 and December 31, 2013, respectively. Loss allocated to material noncontrolling interest amounted to P=4.9 million in 2014 and P=8.1million in 2013.

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The summarized financial information of TBGI is provided below. The information is based on the amounts before intercompany elimination:

For the six months ended June 30, 2014

For the year ended December

31, 2013 Revenue P=263,270,011 P=517,144,350 Cost of sales (244,619,696) (453,601,768) General and administrative expenses (41,702,414) (81,170,034) Sales and marketing and selling expense (6,377,754) (16,841,567) Other income 2,253,502 3,560,385 Income (loss) before tax (27,176,351) (30,908,634) Provision (benefit) for income tax (10,885,749) (3,943,819) Net income (loss) (P=16,290,602) (P=26,964,815)

Attributable to noncontrolling interest (P=4,887,180) (P=8,089,444)

The summarized statements of financial position of TBGI as at June 30, 2014 and December 31, 2013 follows:

2014 2013

Current assets P=197,313,546 P=194,525,741

Noncurrent assets 257,327,400 258,707,254

Current liabilities (93,804,043) (64,581,941)

Noncurrent liabilities (2,962,125) (2,085,097)

Total equity P=357,874,778 P=386,565,957

Attributable to:

Equity holders of the parent P=364,330,911 P=270,596,170

Noncontrolling interest 107,362,433 115,969,787

Summarized cash flow information of TBGI for the six months ended June 30, 2014 and for the year ended December 31, 2013 follows:

2014 2013

Operating (P=41,559,354) (P=2,979,133) Investing (6,316,665) (26,113,017) Financing 58,210,187 3,253,682 Net increase (decrease) in cash P=10,334,168 (P=25,838,468)

Disposal of Interest On February 5, 2014, the BOD of the Company approved the resolution to subscribe to an 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 Company to waive its pre-emptive rights over the issuance of PHICAFSI of an additional 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 Company grants PHHI an irrevocable voting proxy over the Company’s shares and an option to purchase the Company’s shares in PHICAFSI at book value. Following these transactions, the Company will no longer consolidate PHICAFSI and its subsidiaries’ financial position and results of operations.

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5. Trade and Other Receivables

This!account!consists!of:!

Note June 30,

2014 December 31,

2013 Trade P=235,066,988 P=167,127,821 Receivables from franchisees 85,194,998 73,805,435 Receivable from sale of asset group 51,921,673 52,921,673 Royalties 54,536,924 25,344,222 Officers and employees 15,396,413 15,604,891 Nontrade 14,633,602 23,345,458 Credit card receivable 6,599,206 6,776,056 Due from ICF-CCE, Inc. – 45,371,365 Receivable from sale of property and

equipment – 2,543,840 Others 45,409,026 51,156,533 508,758,830 463,997,294 Less: Allowance for impairment losses 128,675,106 22,149,021 P=380,083,724 P=441,848,273

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 deposits, which is equivalent to an estimate of 15-day purchases, as guarantee on their payables to the Group. As at June 30, 2014 and December 31, 2013, the value of deposits which is recorded under “Trade and other payables” account amounts to P=21.3 million and P=20.9 million, respectively (see Note 11). The deposits are applied against the overdue purchases of the franchisees.

Receivable from sale of asset group represents outstanding receivable from the sale, assignment and transfer of the net assets attributable to certain entities and a portion of its property and equipment relating to the Company-owned outlets in 2010. Other receivables primarily pertain to noninterest-bearing reimbursable costs incidental to the operations of the franchised stores and are normally settled on a 30-60 days’ terms. Allowance for impairment losses is attributable to the individual impairment of certain trade receivables, advances to officers and employees and other receivables.

6. Inventories

June 30, 2014

December 31, 2013

Food and beverage P=63,971,986 P=74,636,671 Store and kitchen supplies 21,651,234 20,347,228 Operating equipment for sale 1,895,983 1,898,782

P=87,519,203 P=96,882,681 All categories of inventories are carried at cost. The aggregate amount of inventories recognized under costs of sales (under “Food and beverage” and “Supplies and equipment sold”) in the consolidated statements of income amounted to P=663.1 million and P=644.9 million for the six months ended June 30, 2014 and 2013 respectively (see Note 18).

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7. Prepaid Expenses and Other Current Assets

June30,

2014 December 31,

2013 Prepaid expenses P=56,345,196 P=20,062,864 Advances to suppliers 24,154,231 22,471,362 CWTs 16,859,584 18,208,297 Others 18,569,780 9,965,883 P=115,928,791 P=70,708,406

Other current assets mainly include prepaid input VAT, unused supplies and advanced freight costs.

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8. Property and Equipment

June 30, 2014

Leasehold Store and

Kitchen Furniture,

Fixtures and Transportation Construction Improvements Equipment Equipment Equipment In-Progress Total Cost: Balances at beginning of year P=884,697,290 P=764,089,526 P=164,914,027 P=90,989,472 P=8,533,523 P=1,913,223,838 Additions 37,471,317 24,694,569 5,946,440 1,971,914 – 70,084,240 Disposals – (1,980,086) (91,486) (3,346,020) – (5,417,592) Balances at end of year 922,168,607 786,804,009 170,768,981 89,615,366 8,533,523 1,977,890,486 Accumulated depreciation and amortization: Balances at beginning of year 641,424,791 600,776,108 131,255,341 71,741,310 – 1,445,197,550 Depreciation and amortization 42,794,768 38,366,310 10,861,763 4,057,657 – 96,080,498 Disposals – (1,960,604) (19,610) (2,261,718) – (4,241,932) Balances at end of year 684,219,559 637,181,814 142,097,494 73,537,249 – 1,537,036,116 Net book values P=237,949,048 P=149,622,195 P=28,671,487 P=16,078,117 P=8,533,523 P=440,854,370

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December 31, 2013 Furniture, Leasehold Store and Kitchen Fixtures and Transportation Construction Improvements Equipment Equipment Equipment In-Progress Total Cost: Balances at beginning of year P=789,627,192 P=698,030,089 P=140,287,643 P=83,583,795 P=5,085,991 P=1,716,614,710 Additions 123,666,954 92,475,642 26,573,984 12,119,148 8,739,090 263,574,818 Disposals (33,888,414) (26,416,205) (1,947,600) (4,713,471) – (66,965,690) Reclassifications 5,291,558 – – – (5,291,558) – Balances at end of year 884,697,290 764,089,526 164,914,027 90,989,472 8,533,523 1,913,223,838 Accumulated depreciation and amortization: Balances at beginning of year 571,594,190 548,414,853 113,359,615 65,898,343 – 1,299,267,001 Depreciation and amortization 103,719,015 71,255,888 19,605,031 8,905,113 – 203,485,047 Disposals (33,888,414) (18,894,633) (1,709,305) (3,062,146) – (57,554,498) Balances at end of year 641,424,791 600,776,108 131,255,341 71,741,310 – 1,445,197,550 Net book values P=243,272,499 P=163,313,418 P=18,270,160 P=19,248,162 P=8,533,523 P=468,026,288

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9. Intangible Assets

June 30,

2014 December 31,

2013

Goodwill P=800,670,676 P=889,522,322 Trademarks - net 284,527,879 298,393,531 Software license - net 13,966,769 14,423,038 Lease rights - net 2,531,380 3,244,167 Brand development costs - net – 4,787,438 P=1,101,696,704 P=1,210,370,496

Goodwill Goodwill acquired through business combination has been attributed to the following brands which are considered to be separate CGUs of the Group:

Yellow Cab (see Note 4) P=708,785,272 P=708,785,272 Pancake House 60,654,740 60,654,740 Le Coeur de France 31,230,664 31,230,664 Hospitality School Management Group, Inc. (see Note 4) – 88,851,646 P=800,670,676 P=889,522,322

As of December 31, 2013, the recoverable amount of each CGU calculated through value in use, exceeded the carrying amount of the CGU including goodwill. Value in use was derived using cash flow projections based on financial budgets approved by senior management covering a five-year period. Cash flows beyond the five-year period are extrapolated using a zero percent growth rate. Discount rate applied to the cash flow projections in determining recoverable amount is 12% and 11% in 2013 and 2012, respectively.

The calculations of value in use of goodwill are most sensitive to the following assumptions:

a) Discount rates - Discount rates were derived from the Group’s weighted average cost of

capital and reflect management’s estimate of risks within the CGUs. This is the benchmark used by the management to assess operating performance and to evaluate future investment proposals. In determining appropriate discount rates, regard has been given to various market information, including, but not limited to, ten-year government bond yield, bank lending rates and market risk premium and country risk premium.

b) Growth rate estimates - The long-term rate used to extrapolate the budget for the investee

companies excludes expansions and possible acquisitions in the future. Management also recognizes the possibility of new entrants, which may have significant impact on existing growth rate assumptions. Management however, believes that new entrants will not have a significant adverse impact on the forecast included in the budget.

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

June 30, 2014

Trademarks Software

Brand Development

Costs Lease Rights Total Cost Balances at beginning of period P=556,502,857 P=20,133,493 P=5,973,372 P=7,127,870 P=589,737,592 Additions – 5,043,104 – – 5,043,104 Effect of deconsolidation – – (5,973,372) – (5,973,372) Balances at end of period 556,502,857 25,176,597 – 7,127,870 588,807,324 Accumulated amortization Balances at beginning of period 258,109,326 8,094,076 1,185,934 3,883,703 271,273,039 Amortization 14,049,423 3,115,752 – 712,787 17,877,962 Translation adjustment (183,771) – – – (183,771) Effect of deconsolidation – – (1,185,934) – (1,185,934) Balances at end of period 271,974,978 11,209,828 – 4,596,490 287,781,296 P=284,527,879 P=13,966,769 P=– P=2,531,380 P=301,026,028

December 31, 2013

Trademarks Software

Brand Development

Costs Lease Rights Total Cost Balances at beginning of year P=556,502,857 P=12,793,710 P=5,973,372 P=7,127,870 P=582,397,809 Additions 7,339,783 7,339,783 Balances at end of year 556,502,857 20,133,493 5,973,372 7,127,870 589,737,592 Accumulated amortization: Balances at beginning of year 233,033,894 1,834,635 887,265 2,458,129 238,213,923 Amortization 28,285,526 6,259,441 298,669 1,425,574 36,269,210 Translation adjustment (3,210,094) (3,210,094) Balances at end of year 258,109,326 8,094,076 1,185,934 3,883,703 271,273,039 P=298,393,531 P=12,039,417 P=4,787,438 P=3,244,167 P=318,464,553 10. Other Noncurrent Assets

June 30,

2014 December 31,

2013 Receivable from disposal of interest (Note 4) P=143,570,590 P=– Utilities and other deposits 38,476,158 41,399,346 Input VAT 21,104,695 20,438,438 Noncurrent receivables – 4,909,281 Others 7,201,569 18,264,093 P=210,353,012 P=85,011,158 Others mainly represent long-term portion of prepaid rent. Investment in joint venture in 2014 and 2013 include 50% interest in CRP Singapore Holdings Pte. Ltd. (CRPS) which has been incorporated in Singapore. CRPS is engaged in the business of franchising under the brand names “The Chicken Rice Shop” and “Pancake House”. Investment in a joint venture in 2013 also includes 50% interest in ICF-CCE, Inc. ICF-CCE, Inc. is engaged in the business of operating a culinary skills training center and a restaurant for the practicum of its students. ICF-CCE, Inc. is part of the disposal of interest in 2014 discussed in Note 4.

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The aggregate movements in these investments as at June 30, 2014 and December 31, 2013 are as follows:

Note June 30,

2014 December 31,

2013 Acquisition cost P=6,468,844 P=6,468,844 Accumulated equity in net losses:

Balances at beginning of year (33,059,570) (23,684,766) Disposal 4 19,876,638 – Share in equity in net losses (421,300) (12,043,157) Translation adjustments 497,456 2,668,353 Balances at end of year (13,106,776) (33,059,570)

Excess of share in equity net losses over cost (P=6,637,932) (P=26,590,726)

As at June 30, 2014 and December 31, 2013, the Group recognized “Provision for share in equity in net losses of a joint venture” in the consolidated statements of financial position amounting to P=6.6 million and P=26.6 million, respectively in relation to its investment in ICF-CCE, Inc. The carrying amount of the investment in CRPS presented as “Investment in a joint venture” under “Other noncurrent assets” account amounted to nil as at June 30, 2014 and December 31, 2013.

11. Trade and Other Payables

Note June 30,

2014 December 31,

2013 Trade P=284,950,836 P=238,797,718 Nontrade 189,923,309 228,143,305 Accrued expenses 153,115,552 115,987,772 Service charges 22,044,293 19,216,593 Deposits 21,282,035 20,945,328 Output VAT 18,186,726 14,812,278 Contract retention 7,787,875 3,142,875 Deferred revenue 5,459,900 5,576,837 Rent payable 4,616,994 5,480,097 Accrued interest and current portion of debt component of convertible notes 15 – 11,885,736 Others 29,885,979 31,413,379 P=737,253,499 P=695,401,918

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 purchases made by the Group that are already received as of balance sheet date but with pending documents, payroll and other benefits as of cut-off date that are not yet due for payment 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.

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Other payables include withholding taxes payable, current portion of accrued rent payable and SSS and PAG-IBIG premiums payable.

12. Loans Payable

The Group obtained peso denominated short-term loans from several banks and from stockholders to finance working capital requirements. The short-term loans from the banks bear interest rates ranging from 4.0% to 4.5% in 2013 and 2012, respectively and will mature in the succeeding year. On March 5, 2014, the Group availed of P=923.0 million short-term loan from Banco De Oro. The proceeds of the loan was used by the Group to prepay the outstanding balance of the P=800.0 million loan from MBTC and FMIC (see Note 29). The short-term loan bears interest rate of 3.0% and will mature on March 5, 2015. Interest expense on loans payable amounted to P=13.1 million and P=3.3 million for the six months ended June 30, 2014 and 2013, respectively.

Interest expense charged to profit or loss are as follows:

Note 2014 2013 Loans payable P=13.0 million P=10.4 million Long-term debt 13 2.7 million 21.0 million Mortgage payable and convertible notes 15 0.3 million 0.1 million P=16.0 million P=31.5 million

13. Long-term Debt

On September 6, 2011, the Company availed P=800.0 million from the Notes Facility Agreement (NFA) entered into on August 31, 2011, with Metropolitan Bank & Trust Company (Treasury Department) as facility agent, paying agent. The proceeds of which were used by the Company to acquire 100% interest in YCFC.

The NFA comprised two tranches. With 5 year maturity and bear fixed annual interest rates at 4.7368% and 6.2550%.

Under the NFA, the Company 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 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). The Group was not able to comply with the foregoing debt covenants as at December 31, 2013. Accordingly, the entire balance of long-term debt (net of unamortized deferred financing cost) was presented as part of current liabilities in the consolidated statements of financial position as at December 31, 2013. The long-term debt was subsequently settled in March 2014 (see Note 29). On March 2014, the Group refinanced, and accordingly prepaid in full, the outstanding loan balance and related interest with an aggregate amount of P=801.1 million. The Group was able to obtain waiver on penalties which are due in relation to the prepayment of the long-term debt. Current portion of long-term debt (net of unamortized deferred financing cost) amounted to

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P=785.9 million as of December 31, 2013. Unamortized deferred financing cost reduced the carrying amount of long-term debt by P=6.1 million as of December 31, 2013. Interest expense on long-term debt amounted to P=8.5 million and P=10.2 million for the six months ended June 30, 2014 and 2013, respectively.

14. Mortgage Payable

Mortgage payable represents financing loans from local commercial banks for the acquisition of cars for managerial and supervisory employees. The loans bear annual interest rates ranging from and 15% to 17% in 2014 and 2013 and are payable in 24 to 36 equal monthly installments from the date of the loan.

June

30, 2014 December 31,

2013 Current portion P=3,783,356 P=7,859,204 Noncurrent portion 1,500,247 1,500,247 P=5,283,603 P=9,359,451

15. Convertible Notes

As at December 31, 2013, the convertible notes consist of the following:

Supplemental Investment Agreement Aureos South East Asia Fund, LLC (ASEAF) and Aureos Malaysia Fund, LLC (AMF), $3.0 million five-year convertible notes commencing on October 7, 2009 and maturing on October 7, 2014 P=11,531,153

Less current portion (see Note 11) 11,531,153 P=–

In January 2014, the balance of notes for conversion to equity was converted into 21,415,385 common shares of the Group (see Note 16). As a result, the “Debt component of convertible notes” and the “Notes for conversion to equity” were derecognized in exchange for the common shares. The difference between the aggregate amount of “Debt component of convertible notes” and the “Notes for conversion to equity” over the par value of shares issued are recognized as “Additional paid-in capital” in equity. The current portion of convertible notes is included under “Accrued interest and current portion of debt component of convertible notes”, which is part of “Trade and other payables” account in the consolidated statements of financial position (see Note 11).

The original investment agreement with Aureos South East Asia Fund, LLC (ASEAF) and Planters Bank Venture Capital Corporation for SMEs (PVCC), a $4.0 million five-year convertible notes commencing on October 21, 2005 and maturing on October 21, 2010, was entered into for the acquisition of TBGI, as contemplated under the Memorandum of Agreement dated September 20, 2006 between the Company and Teriyaki Boy, Inc./Tonka Teriyaki, Inc. The supplemental investment agreement was entered into for the purpose of financing the Group’s planned expansion of outlet stores and improvement of existing stores and facilities.

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Under the original and supplemental investment agreement, the Company shall issue five-year convertible notes (the Notes) to ASEAF, PVCC and AMF (collectively referred to as “the Investors”), denominated in peso at the prevailing exchange rate at the time of issue or its Peso equivalent. The Notes shall be entitled to interest commencing from the year of funding equivalent to (a) fifty percent (50%) of the audited consolidated net income of the Group for the current fiscal year multiplied by the equity interest of the Investors, or (b) the dividend which would have been due to the Investors if they already held conversion shares instead of the Notes as of the dividend record date, whichever is higher. Interest shall be payable in arrears semi-annually, on or before June 30 and December 31 of each year. The Investors, at their option, will have the right to convert their Notes, at any time after the issue date, into the number of fully paid, non-assessable common shares determined by dividing the conversion price or adjusted conversion price from its issue price. The conversion shares shall account for no less than the equity interest of the Investors. In view of the five-year term of the Notes, unless the Notes are converted before the lapse of the term, the Notes shall be mandatorily converted into common shares as of the last day of the term. The equity interest of the Investors and the conversion price per common share of each of the notes are 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 The Company adjusted the carrying amount of the debt component of convertible notes relating to the supplemental investment agreement based on updated consolidated forecasted net income in future years. As a result, the Company recognized an income of P=3.8 million in 2013, presented as “Gain (loss) on remeasurement of convertible notes” presented as part of “Other income - net” in the consolidated statements of income representing the difference between the original amount and the revised amount of the debt component of convertible notes (see Note 22). Accretion charge amounted to nil and P=1.7 million for the six months ended June 30, 2014, and 2013, respectively, and was presented as “Interest expense on the debt component of convertible notes” in the consolidated statements of income.

16. Equity

a. Capital Stock

June 30,

2014 December 31,

2013

Common shares - P=1 par value Authorized - 400,000,000 shares Issued - 259,210,840 shares in 2014 and 237,795,455 shares in 2013 Beginning balance P=237,795,455 P=237,795,455 Conversion of notes (see Note 15) 21,415,385 – Ending balance P=259,210,840 237,795,455

On December 15, 2000, the Company listed with the PSE its common shares, wherein it offered 188,636,364 shares to the public at issue price of P=1.48 per share. The total proceeds from the issuance of new shares amounted to P=279.2 million.

On July 31, 2014, the SEC approved the application for the increase in authorized capital stock

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of the Company from P=400,000,000 divided into 400,000,000 shares at P=1 par value to P=1,400,000,000 divided into 1,400,000,000 shares at P=1 par value, approved by the BOD on May 12, 2014 and by stockholders owning or representing at least two-thirds of the outstanding shares on June 10, 2014.

As at June 30, 2014 and December 31, 2013, the Company has 80 and 123 shareholders, respectively.

b. Retained Earnings

The following are the dividends declared and paid by the Company:

Date of Declaration Date of Record Date Paid Amount

Cash Dividend

per Share June 28, 2013 July 12, 2013 July 31, 2013 P=45,109,798 P=0.19

February 22, 2013 March 11, 2013 March 29, 2013 23,946,002P 0.10 May 31, 2012 June 15, 2012 June 29, 2012 34,932,152 0.15

December 8, 2011 December 23, 2011 December 29, 2011 12,175,127 0.05 May 27, 2011 June 15, 2011 June 30, 2011 21,568,048 0.09

November 12, 2010 December 1, 2010 December 15, 2010 12,769,616 0.05 May 24, 2010 June 10, 2010 June 30, 2010 8,957,591 0.05

On June 10, 2014, the BOD declared 100% stock dividend equivalent to 259,210,840 common shares at a par value of P=1 a share. The stock dividends will be distributed and paid to stockholders of record as of the record date and payment date as will be determined and fixed by the SEC incident to its approval of the aforementioned in authorized capital stock. On July 31, 2014, the SEC the approved the application for the increase in authorized capital stock of the Company.

17. Related Party Disclosures

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.

(i) Prior to the acquisition of the Group by MGOC, the Group has the following significant transactions with the following entities which are considered related parties:

Classification Period Transactions

Outstanding

balance Terms Condition

Entities under common control

First Lucky Property

Corporation Lease 2014 P=– P=– 30 days upon Secured

2013 P=25,388,477 P=– 30 days upon Secured

Lapanday Properties

Philippines, Inc. Lease 2014 – – 30 days upon Secured

2013 3,876,165 – 30 days upon Secured

Macondray Plastics

Products, Inc. Purchases 2014 – – 30 days upon Unsecured

2013 3,444,280 358,895 30 days upon Unsecured

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

2013 3,103,146 218,531 30 days upon Unsecured

a. Operating lease agreement with First Lucky Property Corporation (FLPC) for the lease of the

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Group’s principal office building and warehouse located at 2259 Pasong Tamo Extension, Makati City, for a period of five (5) years, renewable at the option of the lessee for an additional period of five (5) years at mutually acceptable rates, terms and conditions. The lease agreement provides for a monthly rental of P=1.2 million, plus applicable VAT, subject to an escalation rate of seven (7%) percent per annum, commencing on the second year from the start of lease period.

In September 1, 2012, the Group renewed its lease agreement for a period of 3 years up to August 31, 2015 renewable for an additional period three years at the option of the lessor. The lease agreement provides a monthly rental rate equivalent to P=1.6 million, which shall be the rate applicable for the entire lease term. As at June 30, 2014 and December 31, 2013, rental and security deposits on the said lease contract amounting to P=7.2 million were included under the “Security deposits on lease contracts” account in the consolidated statements of financial position. Rental deposit of P=3.6 million is to be applied as rental payments for the last three (3) months of the lease contract; while the security deposit of P=3.6 million is to be refunded after the expiration of the lease contract.

b. Operating lease agreement with Lapanday Properties Philippines, Inc. for the lease of the Company’s commissary warehouse located at 2263 Pasong Tamo Extension, Makati City, for a period of ten (10) years, renewable upon the written agreement of contracting parties involved. The latest amendment to the contract of lease provides for a monthly rental of P=238,567, plus VAT, applicable from 2013 up to 2015, subject to an annual increase of not more than 7.5% of the preceding year’s monthly rental. Security deposits on the said lease contracts totaling P=1.1 million as of June 30, 2014 and December 31, 2013 were included under the “Security deposits on lease contracts” account in the consolidated statements.

(ii) Compensation of key management personnel are as follows:

2014 2013 Salaries and other employee benefits P=7,710,727 P=7,137,717 Post-employment benefits 539,751 499,640 P=8,250,478 P=7,637,357

18. Cost of Sales

This account consists of:

Six Months Ended June 30 Note 2014 2013 Food and beverage 6 P=646,402,930 P=644,889,915 Salaries and wages 228,653,167 218,147,022 Rentals 197,116,959 182,474,263 Light and water 98,200,718 94,937,385 Depreciation and amortization 8 83,342,332 77,115,190 Fuel and oil 46,783,352 39,597,566 Supplies used 36,106,682 37,009,698 Employee's benefits 38,748,869 39,123,248 Security services 33,513,112 9,889,796

Repairs and maintenance 31,674,648 23,350,819 Supplies and equipment sold 28,874,139 17,018,486 Taxes and licenses 26,302,064 23,611,594

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(Forward) Transportation and travel 10,570,971 24,425,537 Communications 5,367,826 5,181,507 Amortization of intangible assets 9 1,009,600 779,454 Insurance 2,199,043 2,504,830 Others 30,967,471 31,386,404 P=1,545,833,883 P=1,471,442,714

19. General and Administrative Expenses

This account consists of:

Six Months Ended June 30 Note 2014 2013 Provision for impairment losses 5 P=106,526,085 P=– Salaries and wages 63,332,267 61,926,579 Employee's benefits 26,262,080 29,094,429 Depreciation and amortization 8 22,095,279 12,138,021 Amortization of intangibles 9 15,821,523 16,333,723 Rentals 16,836,145 22,101,306 Transportation and travel 9,623,356 10,551,073 Light and water 9,197,038 8,293,684 Professional fees 7,508,961 9,715,001 Supplies 4,469,113 6,458,728 Communications 3,856,702 3,373,672 Credit card charges 3,629,510 3,048,285 Entertainment 3,102,233 3,374,390 Taxes and licenses 2,833,812 1,790,962 Others 18,710,333 10,302,309 P=313,804,437 P=198,502,162

20. Nature of Expenses

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

Six months ended June 30 Note 2014 2013 Included in costs of sales:

Depreciation and amortization 18 P=83,342,332 P=77,115,190 Amortization of intangible assets 18 1,009,600 779,454

Included in general and administrative expenses: Depreciation and amortization 19 22,095,279 12,138,021 Amortization of intangible assets 19 15,821,523 16,333,723

P=122,268,734 P=106,366,388

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

Six months ended June 30 Note 2014 2013 Included in costs of sales:

Salaries and wages 18 P=228,653,167 P=218,147,022 Employees’ benefits 18 38,748,869 39,123,248

Included in general and administrative expenses: Salaries and wages 19 74,777,762 61,926,579 Employees’ benefits 19 29,443,298 29,094,429

P=371,623,096 P=348,291,278

21. Retirement Benefit Costs

The Group has a funded defined benefit pension plan covering substantially all of its employees, which require contributions to be made to separately administered fund.

The following tables summarize the net retirement benefit cost recognized in the consolidated statements of income and the funded status and the amounts recognized in the consolidated statements of financial position and other information about the plan, based on the latest actuarial valuation as at December 31, 2013.

Components of retirement benefit costs recognized in the consolidated statements of income are as follows:

2014 2013 Current service costs P=14,240,595 P=18,958,175 Net interest costs 2,464,505 6,929,877 P=16,705,100 P=25,888,052

Retirement benefit costs are included under employees’ benefits in the “General and administrative expense” account in the consolidated statements of income.

Components of pension asset recognized in the consolidated statements of financial position are as follows:

June 30, December 31, 2014 2013 Fair value of plan assets P=19,781,271 P=19,195,799 Present value of defined benefit obligation 16,361,669 14,135,400 P=3,419,602 P=5,060,399

Components of retirement benefits obligation recognized in the consolidated statements of financial position are as follows:

June 30, December 31, 2014 2013 Present value of defined benefit obligation P=118,173,628 P=101,961,218 Fair value of plan assets 42,137,905 38,989,798 P=76,035,723 P=62,971,420

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

June 30,

2014 December 31,

2013 Balances at beginning of year P=116,096,618 P=113,101,072 Current service costs 14,240,595 18,958,175 Interest costs 4,198,084 6,929,877 Remeasurement gain – (16,288,998) Benefits paid – (6,603,508) Balances at end of year P=134,535,297 P=116,096,618

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

2014 2013 Balances at beginning of year P=58,185,597 P=57,835,748 Interest income 1,733,579 3,548,287 Contributions 2,000,000 4,000,000 Benefits paid – (6,603,508) Actuarial gains – (594,930) Balances at end of year P=61,919,176 P=58,185,597

The major categories of plan assets as a percentage of the fair value of total plan assets are as follows:

2014 2013 Investment securities 92.8% 92.8% Cash in bank 5.9% 5.9% Receivables 1.3% 1.3% 100% 100%

The fair value of plan assets is equal to its carrying amount.

The Plan is being administered and managed by a Trustee bank. The Trustee is responsible for the 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 various security bonds from Bangko 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 Discount rate 5.9%-6.2% 5.9%-6.2% 5.0% and 5.0% and Salary increase rate 8.0% 8.0%

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Amounts for the current and previous four years are as follows:

2014 2013 2012 2011 2010 Fair value of plan assets P=61,919,176 P=58,185,597 P=57,835,748 P=54,200,948 P=50,901,700 Present value of defined benefit

obligation 134,535,297 116,096,618 113,101,072 93,677,894 46,743,300 Funded status (72,616,121) (57,911,021) (55,265,324) (39,476,946) 4,158,400 Experience adjustments on plan

liabilities – – (12,658,820) (6,350,176) –

22. Other Income (Charges) This account consists of the following:

2014 2013 Delivery income P=20,352,053 P=7,941,746 Service income 5,876,661 24,474,501 National advertising fee 4,036,542 – Interest income 278,869 384,080 Management income 6,768 1,856,948 Others 15,102,216 17,315,056 P=45,653,109 P=51,972,331

Other income is mainly from gain on sale of property and equipment and rentals from subleased locations.

23. Income Taxes

The current provision for income tax represents the Company’s and certain subsidiaries’ regular income tax and MCIT. Final tax represents the Company’s and certain subsidiaries’ final tax on interest income and franchise and royalty fees.

The components of the Group’s net deferred income tax assets are as follows: 2014 2013 Deferred income tax assets recognized in consolidated statements of income on: NOLCO P=81,891,215 P=57,587,203 Excess MCIT 24,132,053 14,425,430 Retirement benefit obligations 21,313,728 20,388,415 Accrued rent payable 8,932,706 9,489,801 Allowance for impairment losses 38,576,433 6,684,465 Pension asset recognized in profit or loss 390,444 390,444 Others 12,866,961 4,830,547 188,103,540 113,796,305 Deferred income tax liabilities recognized in other comprehensive income on: Retirement benefit obligation (1,496,989) (1,496,989) Pension asset (1,908,563) (1,908,563) P=184,697,988 P=110,390,753 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.

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June 30,

2014 December 31,

2013 NOLCO P=86,774,741 P=86,273,879 Accrued retirement liability 162,391 162,391 Excess MCIT 3,986,995 3,929,104 Accrued rent payable 50,141 50,141 Allowance for impairment losses 86,995 86,995 P=91,061,263 P=90,502,510

As at June 30, 2014, the Group has NOLCO and MCIT that can be claimed as deduction from future taxable income and income tax liabilities, respectively, as follows:

Year incurred Year of Expiration NOLCO MCIT 2014 2017 P=81,514,235 P=9,675,514 2013 2016 173,835,071 6,962,432 2012 2015 87,995,140 6,625,977 2011 2014 16,401,013 4,765,125 P=359,745,459 P=28,029,048

24. Earnings Per Share

The following reflects the income and share data used in the calculation of basic and diluted EPS:

Basic EPS Six months ended June 30 2014 2013 Net income attributable to common

equity holders of the parent (P=28,699,505) P=82,063,809 Divide by weighted average number

of common shares 259,210,840 237,795,455 Basic EPS (P=0.11) P=0.35

Diluted EPS Six months ended June 30 2014 2013 Net income attributable to common

equity holders of the parent adjusted for the effect of convertible notes: Net income attributable to Common equity holders of

the Parent (P=28,699,505) P=82,063,809 Interest on convertible notes -

net of tax – 3,526,859 (28,699,505) P=85,590,668 Divide by weighted average number

of common shares adjusted for the effect of dilution: Weighted average number of

common shares 259,210,840 237,795,455 Effect of conversion of

convertible notes – 21,415,385 259,210,840 259,210,840 Diluted EPS (P=0.11) P=0.17

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There have been no transactions involving common shares or potential common shares that occurred subsequent to the balance sheet dates.

25. Significant Contracts and Agreements

Franchise Agreements The Group has granted its franchisees the right to adopt and use the restaurant system of several brands in restaurant operations for a period and under the terms and conditions specified in the franchise agreements. The agreements provide for an initial franchise fee payable upon execution of the agreement and monthly royalty fees.

The following table presents the royalty fee rates and the aggregate amounts of royalty fees recognized in each brand:

Royalty Fee Rates* 2014 2013 Pancake House 9% 14.5 million P=13.6 million Dencio’s 8%-9% 4.8 million 5.1 million Teriyaki Boy 10% 3.6 million 4.4 million Yellow Cab 3%-6% 3.7 million 3.3 million

*as a percentage of Net Sales of franchised store outlets

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=162.2 million and P=139.9 million as at June 30, 2014 and December 31, 2013, respectively, 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 and P=101.7 million for the six months ended June 30, 2014 and 2013, respectively (see Notes 18 and 19). Accrued rent payable amounted to P=34.4 million and P=37.1 million as at June 30, 2014 and December 31, 2013, respectively, which represents the straight-line adjustment on rent.

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

2014 2013 Within one year P=144,998,987 P=134,472,587 More!than!one!year!bus!less!than

five years 269,461,654 266,830,054 More than five years 65,836,740 65,836,740 P=480,297,381 P=467,139,381

Group as Lessor The Company and YCFC entered into sublease agreements with third parties for periods ranging from 1 to 10 years, renewable upon mutual agreement between the Company/YCFC and its lessees. The lease agreements provide for a fixed monthly rental or monthly rentals subject to an annual escalation rate of 5% beginning on the second year from the start of the lease period. Rental income attributable to the Group amounted to P=8.7 and P=6.3 million for the three months ended June 30, 2014, and 2013, respectively. Rent receivable arising from straight-line adjustment amounted to P=1.1 million as at June 30, 2014 and December 31, 2013.

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

2014 2013 Within one year P=19,377,707 P=19,377,707 After one year but not more than five years 18,723,643 18,723,643 P=38,101,350 P=38,101,350

26. Financial Instruments

Financial Risk Management Objectives and Policies The Group’s financial instruments consist of cash, trade and other receivables, noncurrent receivables (included under “Other noncurrent assets”), trade and other payables, loans payable, mortgage payable, debt component of convertible notes and long-term debt. The BOD is mainly responsible for the overall risk management approach and for the approval of risk strategies and principles of the Group. It also has the overall responsibility for the development of risk strategies, principles, frameworks, policies and limits. It establishes a forum for discussion of the Group’s approach to risk issues in order to make relevant decisions. The main risks arising from the use of financial instruments are liquidity risk, credit risk, foreign currency 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 flexibility through 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. As at June 30, 2014 and December 31, 2013, the financial assets held by the Group for liquidity purposes consist of cash and trade and other receivables. The table below summarizes the maturity profile of the Group’s financial liabilities as at June 30, 2014 and December 31, 2013 based on contractual undiscounted payments. June 30, 2014 Less than 3 to 12 1 to 5 On demand 3 months months years Total Trade and other payables P=366,737,276 P=149,677,171 P=172,766,347 P=– P=689,180,794

Loans payable 1,129,500,000 ─ ─ ─ 1,129,500,000

Mortgage payable ─ 5,283,603 ─ ─ 5,283,603

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December 31, 2013 Less than 3 3 to 12 1 to 5 On demand months months years Total Trade and other payables P=255,738,388 P=296,339,457 P=96,301,896 P=– P=648,379,741 Loans payable – – 304,500,000 – 304,500,000 Mortgage payable – – 7,859,204 1,500,247 9,359,451 Long-term debt – – 801,122,423 – 801,122,423 Debt component of

convertible notes – – 11,531,153 – 11,531,153 * Excluding statutory payables and taxes and current portion of debt component of convertible notes. ** Includes future interest

Credit Risk Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial 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 the counterparty, 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: June 30, 2014

Past due but not impaired Neither Past

30 30-60 60-90 Over 90 Impaired

Total Due nor Financial

days days Days days

Impaired Assets

Cash with banks P=300,754,037 P=300,754,037 P=– P=– P=– P=– P=– Trade and other receivables: 508,758,830 113,206,216 40,404,513 38,619,437 30,912,431 156,941,127 128,675,106 P=703,049,613 P=413,960,251 P=40,404,513 P=38,619,437 P=30,912,431 P=156,941,127 P=22,149,021

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December 31, 2013 Past due but not impaired Neither Past

30 30-60 60-90 Over 90 Impaired

Total Due nor Financial

days days Days days

Impaired Assets

Cash with banks P=341,682,074 P=341,682,074 P=– P=– P=– P=– P=– Trade and other receivables: 467,924,053 168,325,983 41,061,557 20,547,893 26,753,738 189,085,861 22,149,021 Noncurrent receivables 4,926,759 4,926,759 – – – – – P=810,606,127 P=510,008,057 P=41,061,557 P=20,547,893 P=26,753,738 P=190,085,861 P=22,149,021

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 of foreign 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 June 30, 2014 and December 31, 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 of June 30, 2014 and December 31, 2013 are considered immaterial in relation to the consolidated financial statements. Thus, management believes that the Group’s exposure to foreign currency risk is insignificant. Interest Rate Risk The Group’s exposure to market risk for changes in interest rates relates primarily to its loans payable, long-term debt and mortgage payable. To manage this risk, the Group determine the mix of its debt portfolio as a function of the level of current interest rates, the required tenor of the loan and the general use of the proceeds of its fund raising activities.

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The following table demonstrates the sensitivity to a reasonable possible change in interest rates, with all other variables held constant, of the Group’s income before tax:

Increase (decrease) in Effect on income basis points before tax December 31, 2013 100 (557,993) (100) 557,993 December 31, 2012 100 (420,745) (100) 420,745

Fair Value Information and Categories of Financial Instruments The carrying values and fair values of the Group’s financial assets and liabilities as of June 30, 2014 and December 31, 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, Trade and Other Receivables, Trade and Other Payables, Loans Payable and Mortgage Payable The carrying amounts of cash, trade and 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 notes was 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.

27. Capital Management

The Group considers the equity attributable to the Company presented in the consolidated statements of financial position as its capital. The primary objective of the Group’s capital management is to ensure that it maintains a strong credit rating and healthy capital ratios in order to support its business and maximize shareholder value.

The Group manages its capital structure and makes adjustments to it, in light of changes in economic conditions. To maintain or adjust the capital structure, the Group may adjust the dividend payment to shareholders, return capital to stockholders or issue new shares. No changes were made in the objectives, policies or processes in 2014 and 2013.

The Group monitors capital using the debt-to-equity ratio, which is total liabilities (excluding equity in net loss over cost of investment in joint venture) divided by the total equity. The Group’s policy is to maintain debt-to-equity ratio at a level not greater than 2:1. The Group determines total debt as the sum of its liabilities.

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Debt-to-equity ratios of the Company as of June 30, 2014 and December 31, 2013 are as follows:

June 30,

2014 December 31,

2013 Trade and other payables P=664,693,593 P=695,401,918 Loans payable 1,129,500,000 304,500,000 Mortgage payable 5,283,603 9,359,451 Long-term debt – 785,875,587 Income tax payable 14,011,795 28,162,241 Retirement benefit obligations 76,035,723 62,971,420 Accrued rent payable 29,775,685 31,632,671

Total liabilities P=1,919,300,399 P=1,917,903,288 Divide by total equity 991,409,961 1,025,430,180 Debt-to-equity ratio P=1.94 P=1.87

28. 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 3). Restaurant sales, commissary sales and franchise and royalty fees reflected in the consolidated statements of income are all 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 six months ended June 30, 2014 and 2013.

The Group’s international operations of the Pancake House brand (through PHII) and operations pertaining to the culinary school (through PHI CAFSI) are considered to be immaterial in relation to the consolidated financial statements. Total assets and revenues are 6.65% and 1.14% in 2014 and 4.12% and 0.02% in 2013, respectively, of the consolidated assets and revenues of the Group.

29. Other Matters

a. Contingencies

The 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 Company, PHVI and Kenmor Corporation have agreed to amicably settle the case. On the same date, the Company paid the agreed amount to Kenmor Corporation to settle all of its claims.