Finances

Mrs. Sumalabe who has an accounting background assumed the management of Inzpects
finances. She is no stranger to the electronics business as she has previously worked as an
electronics technician in Intel.
Inzpect operates as a partnership between the Layas and the Sumalabes. Both parties have a
50-50 ownership stake, the actual capital funds for the first month or two were initially
borrowed from the Sumalabes, from relatives, friends, and loan from Mr. Layas pension
plan, which were all returned within a year of operation. The succeeding funds then came
from collections from customers.
As a small start-up, the owners postponed profit sharing for a while as most cash flows were
earmarked for paying employee salaries. The company earnings were plowed back to
purchase equipment and fund priority projects. Annexes A and B provide the companys
financial statements from 2005 to 2011.
Some financial problems that they encounter are mostly on late collection of accounts
receivable. Sometimes, their suppliers are already collecting but their clients are not yet
paying. Their client terms are by phases. For instance, 20% shall be collected upon project
approval, 40% upon installation and the remaining is after the end of the project. Meanwhile,
their credit terms from their suppliers are for 30 or 45 days. Their finance department
manages this through a monitoring system for accounts receivables and payables.
In December 2008, the owners decided to increase the companys capital from P1M to P56M.
The application is still pending for approval by the Securities and Exchange Commission.
The deposit for future stock subscription account refers to additional contribution made by
the shareholders for building construction and leasehold improvement to be subsequently
converted to equity shares.
The OEM/ODM Market
The original equipment and design manufacturers belong to the highest level of the value
chain. In this subsector of the electronics industry where customization is at its very nature,
innovation and design engineering is highly critical.
In an article published by the Center for International Trade and Expositions and Missions,
Mr. Laya was quoted that Inzpects biggest adversary is the international companies.
Considering their advanced facilities and very sufficient funds, these foreign companies are
sure to get the confidence of any major client. Although admittedly, those companies possess
high-technology facilities, Inzpect is very optimistic in selling and promoting their products.
Compared to their foreign competitors, Inzpect gives the same quality of products and
services at a fraction of a cost.2
Some known OEMs and ODMs located in the Philippines are PSi Technologies, Inc., Ionics
EMS Inc., Fastech Synergy Philippines, Inc., Philippine Makoto Corp., and Precision

Center for International Trade and Expositions and Missions. www. citem.com.ph. 2007 January 26.
8

Microcircuits, Inc. Most of them are large enterprises located in export-processing zones and
has acquired quality standards certifications.
1. PSi Technologies Inc., located in Taguig City, is a power semiconductor assembly and
test services (SATS) company serving niche markets in the global power semiconductor
market. It provides comprehensive package design, assembly and test services for power
semiconductors used in various electronic devices used in telecommunications and
networking systems, computers and computer peripherals, consumer electronics,
electronic office equipment, automotive systems and industrial products. In addition to its
power semiconductor assembly and test services, it also renders assembly and test
services for standard non-power semiconductor packages used for industrial, automotive,
military and computer peripheral applications. Its facility in Taguig has the following
certifications: ISO 9001, QS 9000, Mil-PRF-38535, TS 16949, ISO 14001 and ANSI
ESD S2020.
2. Ionics EMS Inc., located in Carmelray Industrial Park of the Philippines II, Laguna,
offers EMS and ODM services with product design and design support, new product
introduction, industrial engineering and manufacturing system and integrated supply
chain management. The customer segments of the company are the PC and computer
peripherals, telecommunications, consumer electronics, industrial and medical equipment
industries. Its production facilities in the Philippines are certified in ISO9001 with design,
ISO14001, TL9000 for telecommunications, and TS16949 for automotive manufacturing.
3. Fastech Synergy Philippines, Inc. started in 1983 as Circuit Packaging, Inc and was
renamed as Fastech in 1989. It is located in Light Industry and Science Park I, Laguna, is
an electronics and microwave manufacturing specialist. It provides turnkey sub-con
manufacturing assembly, test and tune, product development and drop shipment services
for OEM semiconductor and radio frequency/microwave manufacturers in Europe, US
and Asia. It offers total solutions on assembly, packaging and testing for power discrete
components, micro-packages and IC semiconductor components which support PTH and
SMT technologies, PCB assembly, general and customized packaging operations to drop
shipment services to end users. It caters to the needs of semiconductor and microwave
manufacturing services for applications in the field of computers, telecommunications,
consumer and automotive products. Fastech implements the provisions of ISO/TS
16949:2009 and ISO 9001:2008 Quality Management Systems.
4. Philippine Makoto Corp., located in Mactan Export Processing Zone, Lapu-Lapu City,
Cebu has P35 million capital and employs 320 employees. It is fully-owned by Japaneseowned Makoto Light Metal Co. Ltd. and was established in 1993. It manufactures
aluminum die cast body and other mechanical parts of prismatic binoculars, optical rings
and frames, magnetic eraser and lens. It assembles microscopes and its accessories. It
possesses the Integrated Management System certification on quality, environmental and
health and safety (OHSAS 18001, ISO9001 and ISO14001).
5. Precision Microcircuits, Inc., located in Mactan Economic Zone I, Lapu-City, Cebu was
established in 2000 as an independent surface-mount technology (SMT) contract
manufacturing facility. It adjusts to the customers requirements in terms of delivery
schedule changes and production changes. They assembled the PCBs for the latest
Timex digital watch models, heart rate monitors, NEC ADSL Modems & DSLAM
modules, Pentax Digital Camera Modules, Etc. In April 2010, the company started the
9

laser engraving, marking & cutting division which caters to a wide array of customers and
manufacturers from fashion jewelry, gift items, home decor, etc.
Strategic Prospects
Many semiconductor multi-national companies transferred to China, Vietnam and Cambodia
due to cheap labor costs resulting to the slowdown in the semiconductor industry which is
one of the major clientele of Inzpect.
The threat of the slowdown turned as an opportunity for Inzpect to explore other means of
using the electronic inspection system for other industries. This paved the way for its entry to
the food and pharmaceutical industries. Target companies like Wyeth, Nestle and San Miguel
Corporation, especially its brewery company, are ripe for penetration. Their recent product
line is an automated inspection system that scans milk formula and checks whether it
conforms to standard product specifications. Their vision systems are customized to inspect any
product defects on the milk packaging such as volume of milk content, tightness of the seal,
presence of the best before date, and such other specifications required by the client. Since their

vision systems are programmable to meet the quality requirements of the client, it has proven
to be flexible and adaptable to such other industries that require automated quality control
systems.
The owners once considered locating in an export-processing zone to enjoy tax incentives;
however, they find Taguig City of utmost convenient due to proximity to their residence as
well as their employees residences.
Expanding its network outside of Luzon is also an open possibility, should the firm consider
setting off satellite sales office in Cebu or Davao.
In terms of operational improvements, they cannot practically buy machines intended for
mass production because their business model involves customized machines which are
mostly one-of-a-kind.
In its area of expertise, Inzpect is unique in the country. For example, while Cognex solutions
are available from Singapore, not many companies have the capability to design, manufacture
and integrate the same into any local process. The competition, in general, consists of foreign
manufacturers that integrate inspection facilities into imported machinery. Inzpect is able to
provide design and cost-effective systems for local manufacturers. One of the reasons why
they survived through these years is the fact that their company is unique. There is no
company in the Philippines that is exactly the same to what they do. However, to be able to
move forward several issues need to be considered: new industry penetration, quality
management systems, corporate finance, succession plans, and territorial expansion.

10

Study Guide Questions:

1. How did the entrepreneurs in the spouses Laya and Sumalabe emerge?
a. What key occurrences do you think were critical to the making of an entrepreneur
amongst them?
b. How do the owners match the functions that each of them assumed?
c. What milestones were important to the enterprise?
2. How does the company fare in terms of the different functional aspects (i.e., marketing,
technical, human resource and finance)?
3. How is the company situated within the electronics industry?
a. What are the companys areas of strengths and weaknesses over other electronics
manufacturing companies?
b. What key points do other electronic manufacturing companies possess that Inzpect
can take a look on in order to improve its operations or strategic position?
4. What key strategic considerations should the owners focus on?
a. What key risk areas is the company vulnerable to?
b. What business opportunities can the company explore?
c. What particular industry should the company penetrate and how do you think
should they do it?
d. Is territorial expansion advisable?
5. What interventions should the government do in order to assist the growth of enterprises
like Inzpect?

11

Annex A
Inzpect Technologies, Inc.
STATEMENT OF FINANCIAL POSITION
As of December 31
(In Philippine Pesos)
ASSETS

2005

2006

2007

2008

2009

2010

2011

Current Assets
Cash

6,319,217

3,239,188

3,714,790

1,293,132

4,165,657

3,581,880

3,864,805

Receivables

6,306,152

13,706,854

5,873,879

5,103,914

13,325,562

38,712,483

7,905,625

70,423

74,895

1,547,081

1,270,618

824,300

1,616,792

1,811,463

2,403

61,369

69,410

98,837

Parts Inventory
Prepayment
Tax Asset
Total Current Assets
Property and Equipment, Net
TOTAL ASSETS

657,734

1,779,094

2,591,455

3,744,092

1,639,361

401,570

1,209,072

13,353,526

18,800,031

13,727,205

11,414,159

20,016,249

44,382,135

14,889,802

2,202,997

7,601,210

9,180,790

12,810,001

11,053,898

15,851,679

18,629,551

15,556,523

26,401,241

22,907,995

24,224,160

31,070,147

60,233,814

33,519,353

20,823,653

5,280,035

LIABILITIES AND SHAREHOLDERS' EQUITY

Current Liabilities
Accounts Payable
and Accrued Expenses

2,778,712

8,706,431

34,455,178

6,724,924

Retirement Fund Payable

832,807

493,036

493,036

453,238

Advances from Officer

Deposit for
future stock subscription

681,523

15,267,496

Income Tax Payable

Total Current Liabilities
Shareholders' Equity
Capital Share
(1,000 sh @ P100 par value)

11,385,291

10,000,000

11,467,496

1,905,296

15,267,496

99,105

238,051

699,931

361,300

375,630

389,354

11,484,396

21,061,704

15,979,966

16,121,838

11,480,393

50,605,064

22,445,658

100,000

100,000

100,000

100,000

13,462,200

100,000

100,000

Additional Paid-in Capital

2,088,747

2,088,747

2,088,747

2,088,747

2,088,747

2,088,747

2,088,747

Retained Earnings

1,883,380

3,150,790

4,739,283

5,913,575

4,038,807

7,440,003

8,884,948

Total Shareholders' Equity

TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY

4,072,127

5,339,537

6,928,030

8,102,322

19,589,754

9,628,750

11,073,695

15,556,523

26,401,241

22,907,996

24,224,160

31,070,147

60,233,814

33,519,353

2009

2010

Inzpect Technologies, Inc.

STATEMENT OF CHANGES IN SHAREHOLDERS EQUITY
For Years Ended December 31
(In Philippine Pesos)
2005

2006

2007

2008

2011

Contributed Capital
Beginning
Additional Subscription
(reclass)
End
Additional Paid-in Capital

100,000

100,000

100,000

100,000

100,000

13,462,200

13,362,200

(13,362,200)

100,000

100,000

100,000

100,000

100,000

13,462,200

100,000

2,088,747

2,088,747

2,088,747

2,088,747

2,088,747

2,088,747

2,088,747

547,775

1,883,380

3,150,790

4,739,283

5,913,575

4,038,807

7,440,003

(3,800,000)
1,444,945

100,000

Cumulative Earnings
Beginning
Restatement of Beg. Bal.

48,758

Dividend Paid
Net Income
End

1,335,605

1,218,652

1,588,493

1,174,292

1,925,232

3,401,196

1,883,380

3,150,790

4,739,283

5,913,575

4,038,807

7,440,003

12

8,884,948
TOTAL SHAREHOLDERS'
EQUITY

4,072,127

5,339,537

6,928,030

8,102,322

19,589,754

9,628,750

11,073,695

Annex B
Inzpect Technologies, Inc.
STATEMENT OF COMPREHENSIVE INCOME
For Years Ended December 31
(In Philippine Pesos)
2005

2006

2007

2008

2009

2010

2011

SALES

27,370,063

51,689,481

42,061,986

65,151,447

66,871,897

113,458,507

78,628,463

COST OF SALES

22,490,946

43,763,831

31,422,077

53,075,511

53,838,946

97,264,305

61,100,960

GROSS PROFIT

4,879,117

7,925,650

10,639,909

12,075,936

13,032,951

16,194,202

17,527,503

16,718

28,191

26,341

12,848

3,608

13,412

14,024

1,800

29,496

1,350

1,650

186,200

1,522,484

OTHER INCOME
Interest Income
Other Income
Unrealized Gain
on Foreign Exchange

705,164

259,907

TOTAL INCOME

5,600,999

8,215,548

10,695,746

13,409,385

13,038,209

17,916,298

17,541,527

ADMINISTRATIVE EXPENSES

3,975,882

6,494,913

7,289,305

11,609,699

10,054,058

13,494,785

14,874,739

976,708

183,890

426,014

1,319,251

OTHER EXPENSES
Realized loss on
foreign currency transactions
INCOME BEFORE
INCOME TAX EXPENSE

1,625,117

1,720,635

2,429,733

1,799,686

2,800,261

4,421,513

2,240,774

INCOME TAX EXPENSE

289,512

501,983

841,240

625,394

875,029

1,020,317

795,829

NET INCOME

1,335,605

1,218,652

1,588,493

1,174,292

1,925,232

3,401,196

1,444,945

13