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TELAS NACIONALES ERSA, S.A. DE C.V.

FINANCIAL STATEMENTS FOR THE YEARS ENDED


DECEMBER 31, 2015 AND 2014

INDEPENDENT AUDITORS REPORT

BALANCE SHEETS

STATEMENTS OF OPERATIONS

STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY

STATEMENTS OF CASH FLOW

NOTES TO THE FINANCIAL STATEMENTS

Independent auditors report


May 24, 2016
To the stockholders of
TELAS NACIONALES ERSA, S.A. DE C.V.
Introduction
1. We have audited the balance sheets of TELAS NACIONALES
ERSA, S.A. DE C.V. as of December 31, 2015 and 2014, and the
related statements of operations, changes in stockholders
equity and cash flow for the years then ended, and a summary
of significant accounting policies and other explanatory notes.
Management responsibility
2. The financial statements are the responsibility of the
Companys management in accordance with accounting
standards generally accepted. This responsibility includes:
designing, implementing and maintaining internal control
relevant to the preparation and reasonable presentation of
financial statements, which are free of material misstatement of
relative importance, whether due to fraud or error, selecting
and applying appropriate accounting policies, and making
accounting estimates that are reasonable in the circumstances.
Auditors Responsibility
3. Our responsibility is to express an opinion on these financial
statements, based on our audit. Except for the noted in
paragraph 6, we conducted our audit in accordance with
International Standards on Auditing. Those standards require us
to fulfill relevant ethical requirements and plan and perform the
audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement of
relative importance.
Extent of the audit
4. An audit includes performing procedures to get audit evidence
about the amounts and disclosures in the financial statements.
The procedures selected depend on the opinion of the auditors,
including the evaluation of the risks of misstatement on the
financial statements because to be it fraud or error. Making

those risk assessments the auditor considers internal control


relevant to the preparation and fair presentation of financial
statements of the entity in order to design audit procedures
that are appropriate in the circumstances, but not for the
purpose of expressing an opinion about the effectiveness of the
entity's internal control. An audit also includes evaluating the
appropriateness of accounting policies used and the
reasonableness of accounting estimates made by management,
as well as evaluating the overall presentation of the financial
statements.
We consider the audit evidence that have obtained is sufficient
and appropriate to provide a foundation for our audit opinion.
Basis for the adverse opinion.
5. The company has incurred significant losses during 2015,
generating an accumulated deficit at December 31, 2015, of
$16,921,571 that represents more than two thirds of the
capital. These are events or conditions that collectively may
cast significant doubt on the applicability of going business in
preparing the financial statements of the company.
6. As will be mention in note 5, currently accounting department
of TELAS NACIONALES ERSA, S.A. DE C.V. is reconciling the
balances at December 31, 2015 and 2014 with the related
companies, ARVA Textil, S.A. de C.V., Servicios Mltiples, S.A. de
C.V., and Data Innovations, S.A. de C.V., therefore, at this date
is unknown end result of these reconciliations.
7. As will be mention in the note 6, the inventories at 31
December 2015 and 2014, include $18,628,922 and
$16,002,028 respectively, that are considered slow movement,
for which there is no provision to absorb losses that may result
from this condition. Due to the growth of slow-moving
inventories we consider that these inventories are impaired.
8. As will be mention in the note 4, the provision for doubtful
accounts at December 31, 2015, is insufficient in about
$1,578,000 to cover losses that may result from this concept.
9. Other accounts receivable include $6,502,448 corresponding to
the purchase of machinery and equipment in October 2011 that
there is no detail, these assets are not depreciated during the

years 2011, 2012, 2013, 2014 and 2015 the failure to record
the relative depreciation generates a decrease in profits these
years and also that these assets are not properly classified as
part of property, plant and equipment.
Disclaimer of Opinion
10.
In our opinion, because of the importance of the effects
of the matters described in paragraphs five (5) to nine (9), the
financial statements dont show reasonably all important
information about the financial position of TELAS NACIONALES
ERSA, S.A. DE C.V. at December 31 2015 and 2014, and its
financial performance and its cash flows for the years ended on
those dates, in accordance with accounting principles generally
accepted.
Emphasis on important issue
11.
Without modifying our opinion, it is important to put
attention to Note 5 to the financial statements. TELAS
NACIONALES ERSA, S.A. DE C.V. is a member of a group of
related companies, and has transactions/relationships with
other members of the group. In consequence of these
relationships, it is possible that the terms of these transactions
are not the same as those that result from transactions
between companies totally unrelated.

TELAS NACIONALES ERSA, S.A. DE C.V.


BALANCE SHEETS
December 31, 2015 AND 2014
(Local Currency)

Assets
Assets Current
Cash

Note

2015
$

Accounts receivables, net

Related parties

Inventories

Prepaid expenses
Total asset current
Property, plant and equipment, net

Other assets
$
Liabilities and stockholders' equity
Liabilities Current
Short-term debt

Documents debt
Account payable to stockholders
Account payable

Related Parties

Accrued Liabilities
Total liabilities current
Stockholders' equity
Common stock
Asset revaluation surplus
Accumulated deficit/ retained earnings
Legal reserve

1
7

3,241,372
29,931,64
9
20,178,40
0
38,810,25
5
125,014
92,286,69
0
37,952,45
3
432,649
130,671,7
92
17,816,44
8
6,208,593
16,953,04
1
76,260,03
3
7,692,574
124,930,6
89
15,156,00
0
7,262,584
(16,921,57
2)
244,091

2014
$

4,074,076
31,589,55
3
21,840,91
8
40,005,07
1
374,978
97,884,59
6
44,498,88
9
628,933
143,012,4
18
18,312,04
4
1,574,592
6,174,661
34,786,63
6
51,557,42
3
4,992,592
117,397,9
48
15,156,00
0
7,262,584
2,951,795
244,091

Total Shareholders & Equity

5,741,103

130,671,7
92

25,614,47
0
$

143,012,4
18

The Notes 1 to 13, are part of these financial statements

TELAS NACIONALES ERSA, S.A. DE C.V.


STATEMENTS OF OPERATIONS
December 31, 2015 AND 2014
(Local Currency)
Revenues and Costs: Net Sales
Cost of sales

Note

2015
$

10

Gross loss

Operating Expenses: Sales and administrative expenses

10

Operating loss

Other income and expenses


Financial expenses
Other income (expenses), net
Total other income (expenses)
Net loss

11

102,862,0
74
(121,554,5
64)
(18,692,49
0)

2014
$

105,605,51
4
(119,791,3
01)
(14,185,78
7)

(2,141,674
)
(20,834,16
4)

(10,829,05
7)
(25,014,84
4)

(2,838,045
)
3,798,872
960,797

(11,244,57
9)
41,947,244
30,702,665

(19,873,36
7)

(5,687,821)

The Notes 1 to 13 are part of these financial statements

TELAS NACIONALES ERSA, S.A. DE C.V.


STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
December 31, 2015 AND 2014
(Local Currency)

Common
stock
Balance December
31, 2009
Disposal
of
fixed
assets revalued
contributions cancel
against
retained
earnings
Adjustment
Net profit
Balances
as
of
December 31, 2010
Net loss

$ 65,000,00
0
(49,844,0
00)

$ 15,156,00
0

$ 15,156,00
0

Asset
revaluation
surplus
40,569,49
5
(33,306,91
1)

7,262,584

7,262,584

Accumulate
d deficit
(103,700,01
9)

Legal
Reserve
244,009

85,144,000

15,819,993
5,687,821
2,951,795
(19,873,367
)
(16,921,572
)

The Notes 1 to 13 are part of these financial statements

Legalize
capital
pending
35,300,00
0
(35,300,0
00)

82

Total

37,413,485
(33,306,91
1)

244,091

15,820,075
5,687,821
25,614,470

244,091

(19,873,36
7)
5,741,103

TELAS NACIONALES ERSA, S.A. DE C.V.


STATEMENTS OF CASH FLOW
December 31, 2015 AND 2014
(Local currency)
Cash flows from operating activities:
Net profit/(loss)

(19,873,36
7)

Adjustments
Previous years adjustment
Profit/Loss in assets sales

116,748

Depreciation and amortization

7,641,892

Changes in operating assets and


liabilities: (increase) / decrease in assets
Accounts receivables
Related companies

1,657,904
5,372,141

Inventories
Prepaid expenses
Other assets
(increase) / decrease in liabilities
Accounts payable
Documents debt
Account payable to stockholders
Related companies
Accrued Liabilities
Net cash flows from operating activities

1,194,816
249,964
196,284
(17,833,59
5)
(1,574,592
)
33,932
24,702,61
0
2,699,982
4,584,719

5,687,821
15,820,07
5
(49,993,73
7)
10,343,04
4

7,191,424
(13,499,51
8)
9,757,944
170,435
(196,276)
(33,405,38
7)
1,574,592
6,174,661
13,868,13
7
(145,297)
(26,652,08
2)

Investment activities
Sales of fixed assets

120,000

Acquisition of fixed assets

(1,332,204
)
(1,212,204
)

Net cash flows from investment activities

Financing activities
Paid of debt

(495,596)

Net cash flows from financing activities

(495,596)

Net increase for the year

2,876,919

Cash at beginning of the year


Cash at end of year

101,967,6
22
(519,333)

364,453
3,241,372

101,448,2
89
(74,742,31
5)
(74,742,31
5)
53,892
$

310,561
364,453

Operating, investing and financing


non-cash
Cancellation deed outstanding principal
and accumulated losses against capital

(85,144,00
0)

Cancellation of revaluation surplus on sale


of fixed assets

(33,306,91
1)

The Notes 1 to 13 are part of these financial statements

TELAS NACIONALES ERSA, S.A. DE C.V.


NOTES TO THE FINANCIAL STATEMENTS
December 31, 2015 AND 2014
(Local Currency)
NOTE 1. HISTORY AND OPERATIONS OF THE COMPANY.
HISTORY AND OPERATIONS: - The company was organized under the
laws of El Salvador in July 2000 as a variable capital corporation, with
an indefinite life, residing in El Salvador and its main activity is the
manufacture, distribution and marketing of all kinds textile products
and accessories. Additionally, dedicated to the sale of movable and
immovable property of every kind, stocks and securities trading,
investment and financing of all kinds of companies or businesses,
whether individual or social, to the representation of foreign
companies of any turn, whether commercial, industrial or financial.

COMMON STOCK. The minimum authorized capital is $100,000 and


the maximum is
$65,000,000, represented by 650,000 for
nominative common shares of L100 each. At December 31, 2015 and
2014 were subscribed and paid 151.560 shares.
NOTE 2. SUMMARY OF THE SIGNIFICANT ACCOUNTING POLICIES.
The significant accounting policies adopted by the company in
preparing the financial statements are listed below: Basis of presentation. The financial statements have been prepared in
accordance with accounting principles generally accepted in Mexico,
standards under the historical cost convention.
Income recognition. Revenues are recorded as revenues when earned
and billed.
Inventories. Inventories are stated at cost or market, whichever is
less. The cost price is determined on the basis of average costs of
purchase or production.
Investments. Investments are recorded at cost, regardless of the
degree of participation in the company has invested.
Property, plant and equipment. Fixed assets are recorded at cost of
acquisition or construction, except those who have been revalued.
Depreciation is computed using the straight-line method over the
estimated useful lives of depreciable assets, as detailed below.
Buildings and Facilities
30 years
Machinery and equipment
10 years
Vehicles
5 years
Office furniture and equipment
10 years
Improvements extend the useful life of fixed assets are capitalized
and expenditures for repairs and maintenance are charged to P&L.
Workers' compensation. According to the law, the company is obliged
to pay compensation to employees dismissed without just cause.
Estimates. The preparation of the financial statements requires
management of the company make certain estimates and
assumptions that affect reported amounts of assets and liabilities and
the disclosure of contingent liabilities at the date of the financial
statements and revenues and expenses for the years informed.
Assets and liabilities are recognized in financial statements when it is
probable that future economic benefits will flow to or from the entity

and that different items have a cost or value that can be reliably
measured.
If in the future such estimates and assumptions that are based on
management's best criterion of the date of the financial statements
are modified with respect to the current circumstances, the original
estimates and assumptions will be appropriately modified in the year
in which produce such changes.
Foreign currency transactions. Foreign currency transactions are
recorded at exchange rates prevailing on the date of the transaction
and related balances are adjusted to the exchange rate prevailing at
the date of closing; profit or losses resulting from these adjustments
are recorded in the current year's results.
Financial instruments. The financial instruments included in the
balance sheet are: cash, bank balances, accounts receivable, notes
payable, bank loans and accounts payable.
Credit risk. Financial assets that represent a potential credit risk to the
company are main of cash, bank deposits, notes and accounts
receivable, loans payable. All cash, bank deposits are deposited in
financial institutions of high credit quality.
Fair value. The fair value of bank deposits, accounts receivable, bank loans and
accounts payable in approaches to fair values owing to of the short term.

NOTE 3. CURRENCY
The company remains accounting records in pesos, which is the
official currency of Mexico, shown with the symbol "$" in the
appended financial statements. The exchange rate against the dollar
of the United States of America is determined by the Central Bank of
Mexico. At December 31, 2015 and 2014, average prices for buying
and selling for every dollar were $12.4160 and 12.6609, respectively.

NOTE 4. NOTES AND ACCOUNTS RECEIVABLE


Notes and accounts receivable at December 31 were formed as
follows:

Customers

2015
4,777,274 $

2014
6,852,122

Prepaid to suppliers
Shareholders
Officers and employees
Other receivables
Less provision of bad debts
$

94,336
18,354,244
25,008
6,737,428
29,988,290
(56,641)
29,931,649 $

46,066
17,953,673
138,884
6,655,449
31,646,194
(56,641)
31,589,553

Accounts receivable at December 31, 2015, includes balances of


approximately $1,635,000 doubtful receivables, for which the
company only has a provision of approximately $57, 000 to cover
losses for this item.

NOTE 5. RELATED PARTIES.


The company considers as related companies, their shareholders and
companies that are controlled basically due the same shareholders,
through joint investment in the capital of those companies.
The company is a member from a group of related companies
and has transactions and relationships with other group
members.
Balances at December 31 were as follows:

Accounts receivables
Servicios Multiples, S.A.

Datacolored, S.A. de C.V.


Industrial EM Group, S.A. de C.V.
Industrias de vanguardia, S.A. de
C.V.
Industrias Buena Vista, S.A.

2015
3,608,802 $
*
3,766,718
*
68,330

2014
8,835,188*
3,766,738*

22,669

Creaciones y Vanguardia textil,


S.A. de C.V.
Manufacturera del centro, S.A.
de C.V.
$

12,285,65
5
75,250

12,483,297

373,645

373,645

20,178,40 $
0

69,004

25,550,541

Accounts payable
Productos Textiles del Centro,
S.A. de C.V.
$
Distribuidora Textiles, S.A.
C.V.
GA, S.A. de C.V.
Modas Textiles, S.A. de C.V.
Innovaciones Textiles, S.A.

de

Manufactureras Unidas, S.A. de


C.V.
Confecciones Industriales, S.A.

44,089,23 $
2
3,694,879
*
5,861,778
2,951,282
19,129,77
4

19,995,399
3,077,535*
7,373,357
3,225,500
17,305,144
47,400

533,088
76,260,03 $
3

533,088
51,557,423

* Currently the accounting department of TELAS NACIONALES ERSA,


S.A. DE C.V., is reconciling balances with these related companies
December 31, 2015 and 2014.

NOTE 6. INVENTORIES.
Inventories at December 31 were formed as follows: -

Finished goods
Work-in-process

Raw material
Spare parts
$

2015
5,486,061 $
13,726,90
2
14,359,59
8
5,237,694
38,810,25 $
5

2014
6,508,947
14,920,083
13,514,486
5,061,555
40,005,071

The inventory account at December 31, 2015 and 2014, including


$18,628,922 and $16,022.028, respectively, considered slow-moving.
Management believes there will not be significant losses when
available of them. The composition of the amounts mentioned here, is
as follows: -

2015

2014

Finished goods
Work-in-Process
Raw material
Spare parts

2,633,309
6,588,913
6,892,607
2,514,093
18,628,92
2

2,603,579
5,968,033
5,405,794
2,024,622
16,002,028

NOTE 7. PROPERTY, PLANT AND EQUIPMENT.


The movements and depreciation at December 31 are detailed below:
Ground
water and
fire
control

2015
Book value at beginning
of year
(+) Asset investments
(-) Disposal of fixed
assets
(+)
Removal
of
depreciation
(-) Depreciation
Book value at end of
year
At December 31,
The cost
Revaluation
Accumulated
depreciation
Books value, net

5,470,595

machinery
and
equipmen
t and the
revaluatio
n
35,034,44
3
490,516

Furniture
and
equipmen
t

Constructi
on in
progress

32,489

3,944,977

16,385

44,498,889

365,326
(325,191)

259,261
(16,385)

1,115,103
(341,576)

Vehicles

Total

321,929

(1,494,13
1)
3,976,464

(5,376,68
1)
30,148,27
8

15,092,23
4

88,514,22
7
7,262,584
(65,628,5
33)
30,148,27
8

(11,115,7
70)
3,976,464

321,929
(771,080)

(7,641,892)

397,815

3,433,158

37,952,453

3,289,00
2

13,760,42
7

120,655,89
0

(2,894,44
9)
394,553

(10,327,2
69)
3,433,158

(89,966,021
)
37,952,453

3,248,86
7

13,501,16
6

(3,216,37
8)
32,489

(9,556,18
9)
3,944,977

2014
The cost

Revaluation
Accumulated
depreciation
Books value, net

15,092,23
4
(9,621,63
9)
5,470,595

88,023,71
1
7,262,584
(60,251,8
52)
35,034,44
3

16,385

16,385

119,882,36
3
7,262,584
(82,646,058
)
44,498,889

* In 2004 the company included a reassessment of machinery and


equipment by $7,262,584 based on the valuation made by an independent
appraiser and this operation arose on revaluation of capital equal value.

According to the Commercial Code in Honduras, the company cannot have


the capital revaluation until sold or disposed of revalued assets.

NOTE 8. LOANS PAYABLE.


The balances of the loans payable at December 31, are payable in
U.S. dollars, were contracted at rates between 10% and 12%, with
short-term maturity and are detailed as follows: 2015
2014
Banco del Pas, S.A.
$
459,956
Inversiones Las Flores, S.A.
17,816,44
17,816,448
8
Total
$ 17,816,44 $ 18,312,044
8

NOTE 9. SUPPLIERS.
Supplier Balances at December 31 are shown as follows: 2015
2014
In foreign currency (Dollars of the
United States of America)
$ 9,314,72 $ 17,184,986
0
Domestic currency
7,638,32
17,601,650
1
$ 16,953,0 $ 34,786,636
41

NOTE 10. COSTS AND EXPENSES.


The costs and expenses incurred in the year ending December 31 are as
follows: Cost of sales
Cost of inventories recognized as
expense
Operating Expenses
Wages, salaries and social benefits
Miscellaneous expenditure
Depreciations
Travel expenses
Fuel and lubricants
Insurance
Commissions
Telephone and fax

2015
121,554,564 $

1,001,870
423,287

2014
119,791,301

4,892,254
2,895,589
1,185,742
692,825
231,652
258,278
3,528
148,858

Fees
Materials and supplies
Export expenses
Total
Total of expenses

457,183
55,981
203,353
2,141,674
123,696,238 $

247,393
57,479
215,459
10,829,057
130,620,358

NOTE 11. TAX BENEFITS.


the company operated under free tax zone, obtaining the following tax
benefits: a) Introduction of goods without tax tariff, charges, surcharges, consular
fees, excise and other consumption taxes and duties which have
direct or indirect import customs operations and exports.

NOTE 12. CONTINGENT LIABILITY.


The declarations of the company federal income tax, sales tax and
withholding tax from employees and others, for the years 2006 to
2010, have not been reviewed by the tax authorities. However the
company's management believes that these revisions will be not
claims that may affect the financial statements.

NOTE 13. APPROVAL OF FINANCIAL STATEMENTS.


The financial statements at December 31, 2015, were approved for
emission by the General Manager of the company in April 2016.