2007 PhilWeb Annual Report by PhilWeb Corporation

2007 Annual Report

Annual Report 2007

Letter to shareholders

PAGCOR e-Games CafĂŠs

Sports Betting

Mobile

Board of directors and executive officers

Statement of managementâ&#x20AC;&#x2122;s responsibility

Report of independent auditors

Balance sheets

Statements of operations

Statements of changes in equity

Statements of cash flows

Notes to financial statements

Corporate information

LETTER TO SHAREHOLDERS

It is with much pleasure that we report that in 2007 your Company again achieved record financial and operating results. Our focus on expanding our network of PAGCOR e-Games Cafés, coupled with our expansion into new modes of sports betting and mobile gaming, delivered overwhelmingly positive results. This base of profitability lays the groundwork for our aggressive growth plans in the years ahead. As we look forward into the future of the gaming industry in the country, we see enormous potential for PhilWeb.

During the year, we increased our equity investment in ISM Communications Corporation from 16.4% to 22.3%. In turn, ISM has been increasing its ownership in the country’s oldest telecommunication company, Eastern Telecommunications Philippines, Inc., to 67.5% as of December 2007. Another 10.2% was acquired in early 2008, bringing ISM’s investment in ETPI to a total of 77.7%. These investments are channeling income to your Company, in fact a total of P102 million for 2007 alone.

PHILWEB NET INCOME, IN MILLIONS OF PESOS

The Philippine Amusement and Gaming Corporation (PAGCOR), the Philippines’s regulatory agency for all gaming, is already the third largest contributor of revenues to the government. It is at least partially in recognition of their significance to the country that their congressional franchise was renewed for another 25 years, effective July 2008. As PAGCOR seeks to expand their revenue contribution in the coming years, your Company will continue to cooperatively work with them to deliver new gaming opportunities to tourists and other customers.

222.8

225 200 175 150

116.1

125 100

Supporting National Government Objectives

75 50 25 0

In addition, the market value of our equity investments in ISM as of this writing and 2007 is P883 million. Compared to our total investment cost of P379 million, this is an unrealized profit over half a billion pesos.

-2.3

-25 2005

Creating Excellent Financial Results Net Income for 2007 was P222.8 million, 92% better than the previous year. These results were fueled by excellent results in our core business – running PAGCOR’s e-Games Cafés – as well as strength in our other gaming businesses, new launches and equity investments. On several levels, our Income Statement results can only be described as exponential. Our Net Revenue was P269 million in 2007, double that of the previous year. Operating Income quintupled to P121 million, from P23 million in 2006. We fully expect these revenue and operating income trends to continue in 2008. Most significantly, your Company ended 2007 with a very strong balance sheet. We had cash of almost P500 million, which keeps us well positioned for aggressive expansion and/or acquisition of other gaming businesses, a number of which we are presently evaluating.

More than the financial results, the contributions of your Company towards 2006 2007 achieving the aims of PAGCOR and the national government cannot be ignored. One of the critical objectives of PAGCOR has always been to stamp out illegal forms of gambling. The agency realizes that simply shutting down jueteng, masiao and other forms of illegal gambling is not enough. It is also imperative to offer a legitimate alternative. To this end, the products of your Company fit this national objective. Our PAGCOR e-Games Cafés and other products, such as Basketball Jackpot, offer a low-priced form of entertainment and gaming to many who look for fair and legitimate gaming, properly regulated by the government. By offering these legitimate PAGCOR-operated games, we provide venues such that Filipinos need not patronize the unsavory world of illegal gambling operators. It is also important to note that the PAGCOR e-Games Café business model and the Internet Sports Betting Stations (ISBS) are both attractive opportunities for the small-and-mediumscale businessman to get into profitable enterprises. Today, most of our cafés and ISBS are, in fact, owned by independent entrepreneurs, all acting as agents of PAGCOR.

We also continue to work closely with the Department of Finance and the Bureau of Internal Revenue on their Premyo Sa Resibo program. PSR, as it has become known, has the objective of increasing tax collections by encouraging consumers to ask for Official Receipts. Since its inception in June 2006, it has issued over one hundred million Raffle Entry Numbers, making it the most successful ongoing raffle in the country. Today the program continues to award a million pesos every Friday, with over P80 million in prize money given away so far.

Growing our Core Business The Philippines has a strong regulatory framework supporting the gaming industry, a position that is unique in the ASEAN region. Not only are land-based casinos allowed, but internet-based gaming is also supported. This legal infrastructure is a strong foundation for PhilWeb’s future growth. Today we have three segments in our core gaming business. The first is our network of PAGCOR e-Games Cafés, essentially internet cafés dedicated to casino games. There are two strategies we are focusing on to grow this segment. The first and most obvious one is to grow the network itself. By December 2007, we had a total of 76 cafés, 73% more than the 44 cafés we had a year earlier. Café expansion will be more aggressive in 2008, expanding into the provincial areas. Second, we are strengthening the player base per café, by expanding the number of games available and improving marketing efforts. The second segment of our gaming business is sports betting. A wager on a sports event differs from a bet on a casino game, in that the outcome of a sports event is based on skill rather than chance. Our sports betting business has a network of almost 300 Internet Sports Betting Stations. Each of these independently operated kiosks sells various games, including our core Basketball Jackpot product and newer games like Magic 5 Spin to Win and Lucky Wheel. Mobile is the third and most promising segment of our gaming business. On a worldwide basis, gaming via mobile phone is one

PhilWeb Chairman Roberto V. Ongpin

of the most rapidly growing segments of the industry. We believe that this technology offers the most capability of combating illegal gambling, which is mostly confined to small-scale bets that are manually collected. In September 2007, we launched the country’s first text-based lottery, Txtingo, which offered a five million peso, progressively increasing jackpot. At a price of P9.00 per text, our mobile lottery has attracted a faithful core group of users. We are planning on increasing the marketing efforts behind Txtingo and PSR, our first mobile raffle, in 2008, such that this segment should become even more profitable for PhilWeb in the future.

Looking Beyond the Core In early 2008, PhilWeb continued its strong growth and at a faster rate of acceleration. As of the date of this writing, we had 91 PAGCOR e-Games Cafés in operation, an increase of 15 from the year-end figure. Gross bets have reached P3.5 billion a month, a rate of growth over the previous year of some 70%. Daily bet volumes average over P120 million. Significantly, the number of players in our cafés has been averaging close to 40,000 per day, a three-fold increase from that of last year. Casino winnings are averaging over P3 million per day or a growth rate of 75% over last year. All these indicators have been most encouraging and by year-end 2008, we see another quantum leap in PhilWeb’s bottom line profitability. As we look back at 2007, we would like to express our deepest appreciation to our café, kiosk and mobile players, whose growing numbers attest to the success of our strategies; to our business partners, whose support has been invaluable in bringing innovation to gaming; to our employees, whose dedication, integrity and loyalty have been instrumental to our growth; and to our Board of Directors and shareholders, whose faith has enabled us to chart the right course. We look forward to the coming years, with your Company reaching for ever greater heights. 30 April 2008

Roberto V. Ongpin Chairman

Dennis O. Valdes President

PhilWeb President Dennis O. Valdes

PAGCOR e-GAMES CAFÉS

Our core business segment had a stellar year. There were a total of 76 cafés at the

end of December 2007, an increase of 32 cafés from the previous year. The latest cafés are being opened by entrepreneurs who think big; they invest more workstations and in such features as larger LCD displays and better customer amenities. One of our newest openings, for example, in the Silver City Mall in Pasig City, has almost a hundred computers, all with 21” displays. Just a year ago, our typical cafés opened with only 12 workstations.

GROSS BET VOLUMES, IN BILLIONS OF PESOS 30

28.6

25 20

17.3

15 10.8

10 5 0

2005

2006

2007

Bet volumes grew 66% to a total of P28.6 billion in 2007. The new PAGCOR e-Games logo features a modern font that aligns it with PAGCOR’s land-based casinos.

PAGCOR is also in the midst of re-branding the cafés, with the objective of improving performance and making them appeal to a wider audience. The re-branding effort is led by the launch of a new logo. All the cafés are now known as PAGCOR e-Games Cafés rather than Internet Casino Stations. Launching the new logo means the deployment of close to a hundred new signs of varying dimensions, but as the new look comes in, we expect that players will appreciate the consistent brand image and recognize the many different locations where the cafés have sprouted up across the country. As a result of these improvements, bet volume in the PAGCOR eGames Cafés grew to P28.6 billion, 66% better than the P17.3 billion

RIGHT: The Modular PAGCOR e-Games Café (MPEG) is decorated in an eye-catching scheme.

achieved in 2006. Bet volume growth continues unabated in 2008, currently at a 70% year-on-year rate. In early 2008, we have set several records for our PAGCOR e-Games Cafés. Our monthly bet volume was a record P3.5 billion in March. The following month, we hit a new daily high on April 26, when the total Casino Win reached P4.7 million for the day alone, a winning percentage of 3.58%. That winning margin is particularly significant. In 2007, the average winning percentage of all casino games improved to a net 3% win, as compared to 2.2% the previous year. A 0.8 percentage point improvement may not seem large, until one realizes that based on 2007 bet volumes, this improvement means an additional P23 million in Casino Win. The improvement in margin is due to improvements in marketing and player development. Our fastest growing player niche is women,

LEFT:PAGCORandPhilWebofficialsontheroof deckofanMPEG,Lefttoright,JomarSalazar, PAGCOR-RDDPitSupervisor,RaulCamahalan, PAGCOR-RDDCasinoShiftManager,PinkyRojas, PAGCOR-RDDSeniorProductDevelopment Manager,OliverGo,PhilWebSVP-PEGS,Dennis Valdes,PhilWebPresident,ApaOngpin,PhilWeb SVP-Marketing.

GAME DISTRIBUTION, BY VALUE 100 90 80 who mostly prefer to play slot machine games. In comparison, our core player base used to be older males playing baccarat. The house edge in slots is larger than in baccarat, thus a shift in game distribution can have an exciting impact on a café’s performance. The resulting synergy from improvements in both bet volume growth, winning margin and player development showed in our café revenues, which totaled P195 million, more than double the previous year. All these indicators have been most encouraging as of early 2008 and by year-end, we see another stellar year for our core business segment.

11%

10%

16%

15%

26%

34%

70 60 50 40 30 20

47%

41%

OTHERS BLACKJACK SLOTS BACCARAT

0 2006

2007

TheshiftinGameDistributionreflectsthesuccessofourmarketingandplayerdevelopmentefforts, as we attract more women players, who prefer slot machine games to baccarat.

Modular Cafés Now that Metro Manila already has a fair amount and distribution of PAGCOR e-Games Cafés, we need to pursue growth more aggressively in provincial areas. To serve these markets, we came up with the Modular PAGCOR e-Games Café or “MPEG,” an internet café built into a jumbo container van. An MPEG is complete turnkey solution. It is fully outfitted, airconditioned and furnished with sixteen 19-inch LCD monitor gaming stations, a cashier station, a bathroom and a roof deck. The best part is that the cost is comparable to the renovation of a comparable rental space, without the hassle of project management. The MPEGs can be quickly delivered, installed and opened, even in small parking lots, gasoline stations, gaming areas like cockpits and anywhere a gaming aficionado might be. With these, PAGCOR stands to make greater progress towards its goal of legitimizing all gaming in the country.

ABOVE:WomenhaveprovedtobeasurprisinggrowthmarketforourPAGCORe-GamesCafés. Theynowconstitute45%ofallplayers.Theyalsoprefertoplayslot machinegames.

BigGame, Inc. Of the 76 PAGCOR e-Games Cafés, 13 are operated by BigGame, Inc., a wholly owned subsidiary of PhilWeb. BigGame’s cafés are strategically located throughout Metro Manila, but we are spearheading the provincial expansion by investing in new sites in Subic Bay, Cebu, Bacolod, Davao and other key cities. BigGame will also be deploying the first MPEGs in provinces in the early part of 2008.

BELOW: The PAGCOR e-Games Bus is a marketing and playerdevelopment innovation used to promote the product around the country

BigGame proved to be a significant contributor of revenues to PhilWeb in 2007. Total commissions revenue trebled to P34 million as we increased the number of BGI cafés and put in a new team to focus on marketing and player development. BigGame has big plans for the coming year, with a target of tripling its café network and further increasing its revenue contributions to PhilWeb.

A PAGCOR E-GAMES SUCCESS STORY

duardo Dagpin is a consummate entrepreneur in Ormoc, the most progressive city in Southern Leyte. Decades ago, Eduardo quit his pre-med studies to start out in retail— from videotapes to dry goods. Now, he owns the Ormoc Sugarland building in the downtown district. He tells us the PAGCOR e-Games café business has been quite good. He opened his very first cafe in 2005, then the second in Cebu the following year. He plans to open yet another in 2008. His ultimate goal: to have 10 cafes within the next few years— not exactly an impossibility considering his attitude: expand, expand, expand.

Eduardo says. His loyal customers are in the age-range of 50 up. Eduardo values his partnership with PAGCOR and PhilWeb. “This kind of business requires roundthe-clock monitoring and they’ve been very helpful.” He knew that he had committed partners when, one time, PhilWeb chairman Bobby Ongpin called him from the hospital. “I think he was even out of the country,” Eduardo chuckles in amazement. “Nasa ospital na, tumatawag pa!”

He cautions: “Don’t rely on your partners for everything. Initiative is important. For instance, PhilWeb takes care of marketing concerns, but I too, must also do some marketing of my own.” He Eduardo Dagpin, in front of his successful PAGCOR Eduardo also operates a Lotto station, but also stresses the importance of monitoring, which e-Games café in Ormoc City, Leyte he himself doesn’t gamble. Nor does he can be a challenge considering he has other consider the cafés “gambling joints.” He says, “For me, they’re simply businesses to take care of. entertainment.” “Patience,” according to Eduardo, is ultimately the secret to the business. It’s all about trust. “If the place attracts two or three new clients “This business teaches you patience. It’s actually a good training ground a day, then I’m happy,” he said. “Because once they play and find for any kind of enterprise. Once you succeed in this, you’re ready for out that the games are fair, then you can be sure they’ll be back,” anything.”

Big Game is PhilWeb’s wholly-owned subsidiary that operates a total of 13 PAGCOR e-GAMES Cafés.

Multiplayer Games Our casino games usually involve playing against the computer, but for the first time this year, we introduced games wherein players can play (anonymously) against other players. Our first multiplayer game was Baduki, a Korean game produced by Digiwave for our expatriate Korean niche market. Working with Digiwave, we will be launching the world-acclaimed multiplayer phenomenon, Texas Hold’em Poker, in 2008.

The PAGCOR e-Games Bus features 8 comfortable stations in a relaxing interior.

We continue to work with other software providers to enhance the suite of games available in our cafés. We are especially excited about multiplayer games with a Pinoy relevance, such as pusoy, tong-its and pusoy dos. These games are all currently in development and should be launched in mid-2008.

Play Away We have always wanted to launch a true online version of our games, which we call Play Away, to serve the segment of our population that prefers to game from the comfort of their own homes. We are currently developing mahjong as the first game we will introduce to this niche.

The bus was our unique stand at the recent Asia’s GEM gaming industry exposition.

The development of mahjong has been complicated by the different sets of mahjong rules in various countries, making software standardization an issue. However, we are working on a version conforming to Philippine rules and hope to introduce this in 2008.

Baduki, a Korean card game, is one of our multiplayer projects.

SPORTS BETTING

Our Sports Betting business had a challenging yet profitable year.

Total revenues increased to P33 million in 2007, 27% more than the P26 million garnered the previous year. The majority of our Sports Betting business comes from our Internet Sports Betting Stations (ISBS). These kiosks promote the game Basketball Jackpot, which had a difficult year, as connectivity issues plagued new betting terminals introduced by a third-party vendor. As a result of chronic downtimes, operators were unable to maximize their bet volumes. For the first time since its launch, Basketball Jackpot bet volumes declined, with a total of P250 million, or 6% less than the previous year. To add to the challenges, bettors correctly guessed the outcomes of the Basketball Jackpot game more than in previous years. As a result, payouts to bettors increased and game revenues were significantly affected. In January, we started a cooperative venture with a new sports book operator, PhilKingdom. PhilKingdom is a foreign-owned company that specializes in fixed odds betting on international sports like NBA basketball, soccer, boxing and other leagues. The venture generated a new source of revenue for PhilWeb.

Basketball Jackpot is our sports betting game that competes successfully with the illegal and widespread “ending” game. Bettors try to guess the ending digits of the winner’s and loser’s score of a basketball game.

The combination of Basketball Jackpot, PhilKingdom and other sports betting products we have in the pipeline will make this segment of our business a growing one in the future. For 2008, we are developing a mobile version of Basketball Jackpot, which we believe will attract a new pool of players to the game. Currently, Basketball Jackpot’s core market is geographically limited by the number of ISBS kiosks. The convenience of mobile will greatly expand the game’s reach and introduce it to a wider audience.

SPORTS BETTING PAYS OFF

pon a friend’s recommendation, Marilyn Ranola called up PhilWeb to inquire how she could start her own Sports Betting business. That was in 2003; from then on, everything was merely multiplication— and now Marilyn has 20 Basketball Jackpot outlets.

trusted operators and personnel plus attentiveness to the winners. You should make sure they’re paid right away.” The Ranola family, which hails from Masbate, has long been involved in the construction business. An Accounting graduate of Miriam College, the 37-year-old Ranola oversees the little details herself— everything from printer ink to papers for receipts, etc. She divides her time between the outlets (accounting alone takes around two hours every day) and her three-year-old baby.

But twenty outlets is a formidable number. Ranola operates in the greater eastern part of Quezon City: Visayas Avenue, Novaliches, Philcoa, Batasan, Litex, Marilyn Ranola called Philweb on an impulse but her strongest outlet remains the one in Muñoz. and today owns 20 sports Strangely enough, the Pinoy’s seemingly genetic fondness “Because it has great traffic. For one, it’s located right betting outlets. for basketball has failed to infect Marilyn. She has yet to inside a market. The spot is also a drop-off point for become a fan of the sport but business is business. “I just watch it for jeepneys to and from Edsa so it’s very ideal,” says Ranola. the results. I don’t have a favorite team or a favorite player,” she laughs, “although I do wish that the games would go into overtime— so that But more than location, Ranola catalogs the formula to a successful more people could bet.” operation: “Personal management and daily accounting plus

MOBILE

The Premyo Sa Resibo mobile raffle, or PSR, found its groove in 2007, achieving the status of a nationwide institution. Premyo Sa Resibo issued its one hundred millionth raffle entry number in February 2008, making it the country’s most successful raffle program ever. Since its inception in June 2006, the program has given away over P80 million in prizes, and continues to pick a new millionaire every Friday.

A cooperative effort between the Bureau of Internal Revenue (BIR), the Department of Finance, PAGCOR and PhilWeb, PSR has the objective of educating and encouraging consumers to ask for official receipts (OR’s) for their purchases. Consumers text in the details on their OR’s, for which they are given raffle entry numbers corresponding to the value of the amount texted in. Each raffle entry costs just P1.50. With PhilWeb’s assistance, the BIR analyzes all the data from the text database, detecting anomalies such as spurious and unregistered receipts.

PREMYO SA RESIBO is the Philippines’ most successful mobile game, with over 100 million entries and growing.

A total of 67 million entries were received in 2007, and over P47 million was given in prizes. Over 700,000 individual mobile numbers participated last year, more than double that of 2006. The benefit of these numbers to the BIR was 9.4 million OR’s added to their database coming from over 400,000 establishments. Winners came from all over the country, demonstrating the program’s nationwide reach. This was reinforced by the holding of draws outside the National Capital Region, in places such as Baguio City; Valenzuela, Bulacan; Cebu City; San Pedro, Laguna; Tacloban, Leyte; San Fernando, Pampanga; Calasiao, Pangasinan; and Tagaytay City.

Our omnibus ad for Premyo Sa Resibo featured 28 actual millionaire winners of the contest, an important element in gaining the public’s trust and confidence in the program.

PSR’s success was due to a reinvigorated marketing program, spreading the news about PSR. In March 2007, in partnership with Manila Broadcasting Corporation’s Love Radio stations, PSR conducted special daily local draws in Baguio City, Cebu City, Davao City, Iloilo City and Lucena City. Of the total participants from these areas during the period, 79% were new participants to PSR. PSR was marketed by means of weekly print ads in major dailies, several TV campaigns and cinema ads, and televised draws, principally on ABC TV with replays in government-owned stations NBN, RPN and IBC. Below-the-line efforts included a massive mobilization

Our latest Premyo Sa Resibo ads feature strong graphic elements that help them “pop out” from the clutter of everyday broadsheet ads.

POSITIVE PRESS FOR PSR This front-page article in the Philippine Star on November 26, 2006, about Premyo Sa Resibo winner Agaito Espinosa Jr., a hotel clerk from Cagayan de Oro, helped boost participation in the contest

hen 41-year-old hotel clerk Agapito Espinosa Jr. of Cagayan de Oro received a call saying he won P1 million from the “Premyo sa Resibo” raffle of the Bureau of Internal Revenue (BIR), he thought the man at the other line was playing a prank on him. Although Espinosa joined the raffle, he never really thought of winning. After texting to 9777 the three sets of numbers indicated on the receipt for the motorcycle accessories he recently bought, Espinosa forgot about the whole thing. The Premyo sa Resibo raffle, a project of the BIR and the Philippine Amusement and Gaming Corp. (PAGCOR), aims to encourage Filipinos to ask for their official receipts when purchasing goods or services. Espinosa was surprised when Philweb senior vice president Florentino Mauricio informed him over the phone that he won P1 million in cash. PhilWeb is the BIR and Pagcor’s online partner for the conduct of the raffle. “We had just come from the market to buy goods to sell in our small store around 6:17 p.m. when I heard my cell phone ringing. When I looked at my cell phone, it registered an unknown number, a landline, calling,” Espinosa said. The caller, who turned out to be Mauricio, asked Espinosa if he watched the televised raffle draw. Espinosa said he missed the televised draw, so Mauricio advised him to watch the replay at 11 p.m. or purchase a newspaper the next day. That night, Espinosa watched the show with his wife and their eightyear-old daughter and nearly fell from his seat when his number was announced as the winner. Despite watching the draw on television, Espinosa was still skeptical because he had read news reports of contest

and lottery scams wherein people have been duped of their hard-earned money. He was finally convinced when Philweb sponsored his air fare from Cagayan de Oro to Manila on Nov. 15. He was welcomed by BIR personnel and ushered to a platform, where officials handed him his check during a simple ceremony. “Like what Onyok Velasco said, Premyo sa Resibo is real. Back then, I didn’t believe in contests or promotions like this. Now that I’ve won, I have no more doubts that it’s real,” Espinosa said during the awarding ceremony. The wife of former Olympic boxer Onyok Velasco won P100,000 in a previous Premyo sa Resibo draw. When asked what he would do with his winnings, Espinosa said he will renovate their small sari-sari store and stock it with more goods. He also plans to buy a van for his business. “Whenever I buy five sacks of rice at the market, I use my motorcycle to transport them to the store. It takes me five trips just to bring all the sacks since I can only load one on the motorcycle. With the money that I have, I can now buy a van. I’ll use the remaining money for the store,” he said. When asked if he was worried that he might be robbed by people who find out about his good fortune, Espinosa said he was not bothered at all. He said his friends were encouraged to join the raffle when they learned about his luck in the raffle. “As a matter of fact, my co-workers already know that I won. Now, almost all of my friends are sending entries to Premyo sa Resibo,” he said. – Patricia Esteves

Our launch ad for TXTINGO shows the step-by-step procedure for joining the game.

of posters and fliers, and roadshows conducted in conjunction with the BIR’s tax campaigns. The telcos also contributed to marketing with SMS broadcasts. Smart Communications held a free load campaign for PSR, in cooperation with PhilWeb in December. In this promo, 200 entrants a day were selected at random and awarded P60 worth of airtime load.

prize, which starts at P5 million and progressively increases each day it is not won. All texters are automatically informed of the results through their mobile phones. TXTINGO has attracted a faithful core group of users, who text in their entries daily. We are committed to the tremendous potential inherent in the mobile

PhilWeb continues to improve and innovate the PSR program. For 2008, we are planning to increase prizes and create incentives for businesses that issue the winning OR’s. Thus, we can spur businesses to encourage their customers to participate in the PSR program. TXTINGO is the country’s first mobile lottery with bets payable from airtime load.

TXTiNGO TXTINGO was launched in September 2007, exclusively available to Smart mobile subscribers. TXTINGO is the country’s first SMSbased, pay-from-load mobile lottery. To join, entrants simply pick nine numbers and text these in (with the keyword BET) to 4646. Each entry costs only P9.00. Every day at noon, the TXTINGO computer draws the winning numbers. An entrant whose numbers match would win the jackpot

gaming format, and look forward to launching even more gaming products in the future. As in the case of Premyo Sa Resibo and other mobile games, we believe that constant enhancements are critical to avoid consumer wear-out. For 2008, among the improvements we are planning is a five-digit TXTINGO Super Singko, which features a larger progressive grand prize and a host of consolation prizes.

BOARD OF DIRECTORS

Roberto V. Ongpin was elected chairman of the Company in January 2000. He is presently the chairman of ISM Communications Corporation, Eastern Telecommunications Philippines, Inc., Connectivity Unlimited Resource Enterprise, alphaland Corporation, the Developing Countries Investment Corporation, and La Flor de la Isabela, Inc., deputy chairman of the South China Morning Post (Hong Kong), director of Shangri-La Asia (Hong Kong), and E-2 Capital (Holdings) Ltd. (Hong Kong). He was former managing partner of SyCip Gorres Velayo & Co. and served as Minister of Trade and Industry of the Republic of the Philippines from 1979 to 1986. Mr. Ongpin is a certified public accountant and has an MBA from Harvard Business School. Eric O. Recto was elected vice chairman on July 28, 2006 and director of the Company in March 2005. He is also vice chairman of alphaland Corporation. He is currently CEO of Eastern Telecommunications Philippines, Inc. (ETPI) and the Connectivity Unlimited Resources Enterprises, Inc. (CURE), as well as a director and president of ISM Communications Corporation. He is also an independent director of the Philippine National Bank and the PNOC Energy Development Corporation and Metro Pacific Investment Corporation. He is also a director of Maynilad Water Services, Inc. Before that, he was Undersecretary of the Department of Finance for the Philippine Government in charge of both the International Finance Group and the Privatization Office in 2005. Before his work with the government, he was CFO of Alaska Milk Corporation and prior to that, Belle Corporation. Mr. Recto has a degree in Industrial Engineering from the University of the Philippines as well as an MBA from the Johnson School, Cornell University. Ray C. Espinosa was elected vice chairman of the Company on June 20 2006. He is currently a director of Philippine Long Distance Telephone Company, vice chairman of PLDT Beneficial Trust Fund, president and CEO of ePLDT, Inc., and Wolfpac Mobile, Inc., director and corporate secretary of Cyber Bay Corp., and director and member of the Audit and Nomination Committee of Lepanto Consolidated Mining Company. He was a partner of Sycip Salazar Hernandez & Gaimaitan from 1982 to 2000, foreign associate in Convington & Burling ( Washington, D. C., U.S.A.) from 1987 to 1988 and law lecturer in Ateneo de Manila School of Law from 1983 to 1985 and 1989. He is a member of the Integrated Bar of the Philippines and has a Master of Laws from the University of Michigan Law School. Dennis O. Valdes was elected president of the Company on July 28, 2006. He is presently a director of ISM Communications Corporation. He worked in various capacities for the Inquirer Group of Companies from 1996 to 2006, as a director of Phil. Daily Inquirer, Inc.; founding president of Inq7 Interactive, Inc. and president of Inquirer Publications, Inc. Simultaneously, he worked for the Print Town Group of companies, as EVP and chairman of the executive committee of FEP Printing Corp., president of Lexmedia Digital Corp. and founding president of Newspaper Paraphernalia, Inc. He is a certified public accountant, graduated magna cum laude in Business Administration and Accountancy from the University of the Philippines and has a MBA degree from the Kellogg School of Management, Northwestern University.

Tomas I. Alcantara was elected a director of the Company in May 2002. He is presently chairman and president of Aldevinco, Alsons Consolidated Resources, Inc., Alto Power Management Corp., director of DBP-Daiwa Securities Corp, Manila Economic and Cultural Office, Petronas Energy (Phils.), Inc. and Public Estates Authority, among others. He was formerly an Undersecretary of the Department of Trade and Industry. Ramon S. Ang was elected a director of the Company in November 2001. He is currently vice chairman and COO of San Miguel Corporation. Mr. Ang is also a member of the board of directors of Picop Resources and Cyber Bay Corporation. Benito R. Araneta was elected a director of the Company in March 2003. He is chairman and CEO of the Araneta Properties, Inc., chairman and president of Boie, Inc., Philippine American Drug Co., chairman of Boie-Takeda Chemicals, Inc. and Philcomsat Holdings, director of Southeast Asia Cement Corp., Honda Philippines, Inc., and The Professional Group, among others. Randall Cox was elected director of the company in December 2005. He is currently chairman of Coxinvest LLC, a consulting company based in California, USA. In the past, he served as managing director of Lombard Asian Private Investment Company, a Hong Kong-based private equity fund associated with CALPERS, the Asian Development Bank and a Hongkong-based boutique investment bank. He was formerly the president of Yes Television Asia and a board and execom member of Good Morning Securities. Mr Cox has a BA from the University of California, San Diego and an MBA from the University of California Marshall School of Business. Craig Ehrlich was elected a director of the Company in May 2002. He is presently director and vice chairman of ISM Communications Corporation, chairman of the global GSM Association (GSMA), and director of Hutchison Mobile Communications. He was a former managing director of Sunday Communications Limited. Mr. Ehrlich has a B.A. degree from the University of California Los Angeles, a masters degree from Occidental College and a postgraduate fellowship with the Coro Foundation. Mariano L. Galicia, Jr. was elected director of the Company on June 20, 2006. He is currently the group vice president of ePLDT, Inc. He was formerly a senior vice president of Fort Bonifacio Development Corp., group vice president for corporate services of Metro Pacific Corp., human resources director of Johnson & Johnson (Phils.), Inc., Jansen Pharmaceuticals and J & J Medical Phils., Inc. and group manager of Del Monte Philippines, Inc. / Del Monte International, Inc. He has a Bachelor of Science degree from the University of the Philippines. Mario J. Locsin was elected a director of the Company in January 2000. He is presently a director of ISM Communications Corp., president of Metro Manila Turf Club, Aeropartners, Inc., Inpilcom Inc., and Treasurer of Hideco Sugar Milling Co., Inc. In the past, he served as a director of Belle Corporation, APC Group, Southwest Resources, Philippine Long Distance Telephone Co. and Pilipino Telephone Company, as well as director, executive vice president and COO of Philippine Airlines.

Mario A. Oreta was elected director of the Company in March 2005. He is currently president of alphaland Corporation and manages his own law firm, which he set up in 1978. He was previously a managing partner of Tanjuatco, Oreta, Factoran and Berenguer, and Oreta, Suarez and Narvasa. He is a member of the Philippine Bar. Rafael B. Ortigas was elected vice president and director of the Company in April 2002. He is currently the executive vice president of Sagitro, Inc., vice president of Leafar Commercial Corporation, chairman , president & director of Rising Sons of 3K, Inc., chairman/ director of CK3K, Inc. and director of Vinmer Realty, Inc., Concrete Aggregates Corp., director and treasurer of Creative Trade Center Services, Inc. and general partner of Ortigas and Company, Ltd. He was formerly chairman and CEO of Itogon-Suyoc Mines Inc. and president of Concrete Aggregates Corporation. George Tan was elected director of the Company on June 20, 2006. He is currently the senior vice president and chief financial officer of ePLDT, Inc., a position he has been holding since September 2000. He was executive vice president and chief finance officer of William, Gothong & Aboitiz, Inc. from 1998 to 1999. He was an associate professor and held various key positions in the Asian Institute of Management from 1989 to 1997. He is a certified public accountant and has a Master in Business Management from Asian Institute of Management. Delfin J. Wenceslao, Jr. was elected a director of the Company in May 2004. He is presently the chairman and president of D.M. Wenceslao & Associates, Inc. and Fabricom Manufacturing Corporation, chairman of Philippine Ecopanel, Inc. and Mandaue Land Consortium, Inc., president and director of Bay Dredging, Inc.and Bay Resources and Development Corporation, managing director of R-I Consortium, and director of Belle Bay City Corporation. Roberto V. San Jose was elected Corporate Secretary of the Company in January 2000. He is a director of Mabuhay Holdings Corporation, ISM Communications Corporation, Interport Resources Corporation, and corporate secretary of Alsons Consolidated Resources, Inc., Anglo-Philippine Holdings Corporation, Philcomsat Holdings Corporation, Premiere Entertainment Productions, Inc., and Solid Group, Inc. He is a director and/or Corporate Secretary of various companies which are clients of the law firm of Castillo Laman Tan Pantaleon & San Jose (CLTPSJ). He is a member of the Philippine Bar and a Senior Partner of CLTPSJ. Cliburn Anthony A. Orbe was elected Assistant Corporate Secretary of the company in June 2006. He has a Bachelor of Laws from Mindanao State University where he graduated cum laude and class valedictorian. He was formerly an associate of the Rodrigo Berenguer Guno law firm. He is a member of the Integrated Bar of the Philippines.

Executive Officers

Roberto V. Ongpin Chairman

Ray C. Espinosa Vice Chairman

Eric O. Recto Vice Chairman

Dennis O. Valdes President

BUSINESS AREA MANAGERS

Oliver R. Go Senior Vice President, PAGCOR e-Games CafĂŠs

Raul E. Bandera Senior Vice President, Sports Betting

Florentino B. Mauricio Senior Vice President, Mobile

Rafael A. S. G. Ongpin Senior Vice President, Marketing and TXTINGO

Scott A. Sproule Chief Technical Adviser

Support Group Managers

Josephine A. Manalo Vice President, Assistant to the Chairman

Cliburn Anthony A. Orbe Vice President, Legal

Raquel Georgina A. Patdu Senior Vice President, Chief Financial Officer

Sonia C. Veras Vice President, Finance

Amado Y. Velasco Vice President, Software Development

Ferdimark L. Mariano Assistant Vice President, BigGame, Inc.

IĂąaki C. Matute Assistant Vice President, Network Operations

Rodolfo B. Intengan Senior Manager, Internal Audit

STATEMENT OF MANAGEMENT’S RESPONSIBILITY

REPORT OF INDEPENDENT AUDITORS

CONSOLIDATED BALANCE SHEETS

CONSOLIDATED STATEMENTS OF OPERATIONS

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

CONSOLIDATED STATEMENTS OF CASHFLOW

CONSOLIDATED STATEMENTS OF CASH FLOWS

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. Reporting Entity PhilWeb Corporation (“the Parent Company”) was, originally, a mining and exploration company incorporated in the Philippines and registered with the Securities and Exchange Commission (SEC) on August 20, 1969 under the name South Seas Oil and Mineral Exploration Co. Inc. In 2000, upon the approval by the stockholders and effectivity of the Restructuring Plan, which includes, among others, the change in the primary purpose from a mining and oil exploration company to that of an internet company and change in corporate name to “PhilWeb.Com., Inc.”, the Parent Company focused its activities on building its internet-based products and services. The internet business of the Parent Company started commercial operations on January 1, 2001. On November 5, 2002, the SEC approved the change in corporate name of the Parent Company from “PhilWeb.Com, Inc.” to “PhilWeb Corporation”. This recent change in corporate name is in line with the new emphasis and focus of the Parent Company on the internet gaming industry. On May 29, 2003, the stockholders approved a resolution to amend the primary purpose of the Parent Company to gaming, and to include the current internet business activities as an additional secondary purpose of the Parent Company, thereby amending the Second Article of its Articles of Incorporation. Under the same resolution, the Board of Directors was also granted the authority to determine the text of the gaming purpose clause in the amended Articles of Incorporation.

The address of the Parent Company’s registered office is at 17th Floor, The Enterprise Center, Tower 1, 6766 Ayala Avenue corner Paseo de Roxas, Makati City.

The Parent Company has no immediate parent or ultimate parent and is listed at the Philippine Stock Exchange (PSE) under the stock symbol “WEB”.

2. Basis of Preparation The Parent Company has secured the necessary clearances from the Bureau of Internal Revenue (BIR) for the dissolution of the following wholly owned subsidiaries which have not been in operations since 2002: 1. PhilWeb Cable Holdings, Inc. 2. PhilWeb Celebrity Corporation 3. PhilWeb eVenture Corporation 4. PhilWeb Internet Solutions, Inc. The Parent Company has likewise applied for the necessary clearances from the BIR for the dissolution of the following wholly owned subsidiaries which have not been in operations since 2002: 1. PhilWeb Cyberworld Corporation 2. PhilWeb Software Corporation The consolidated financial statements include the accounts of the Parent Company and the following wholly-owned subsidiaries, which were all incorporated in the Philippines, and special purpose entities (SPEs) incorporated in the British Virgin Islands, (collectively referred to as a the Group):

Statement of Compliance The consolidated financial statements have been prepared in accordance with Philippine Financial Reporting Standards (PFRS). The consolidated financial statements as of and for the year ended December 31, 2007 were approved and authorized for issuance by the President, Chairman and Chief Financial Officer on April 29, 2008 as authorized by the Board of Directors of the Parent Company on April 9, 2008. Basis of Consolidation Subsidiaries Subsidiaries are entities controlled by the Group. Control exists when the Group has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that presently are exercisable are taken into account. The financial statements of the subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. The accounting policies of subsidiaries have been changed when necessary to align them with the policies adopted by the Group.

Special Purpose Entities The Group has a number of special purpose entities (SPEs) for investment purposes. An SPE is consolidated, if based on an evaluation of the substance of its relationship with the Group and the SPE’s risk and rewards, the Group concludes that it controls the SPE. The consolidated financial statements are prepared using uniform accounting policies for like transactions and other events in similar circumstances. Associate An associate is an entity in which the Group has significant influence, but not control, over the financial and operating policies. An associate is accounted for using the equity method. The consolidated financial statements include the Group’s share of the income and expenses of associates from the date that significant influence commences until the date that significant influence ceases. When the Group’s share of net losses exceeds its interest in an associate, the carrying amount of that interest is reduced to nil and the recognition of further losses is discontinued except to the extent that the Group has an obligation or has made payments on behalf of the associate. Transactions Eliminated on Consolidation Intra-group balances, and any unrealized income and expenses arising from intra-group transactions, are eliminated in preparing the consolidated financial statements. Unrealized gains arising from transactions with associates are eliminated against the investment to the extent of the Group’s interest in the associate. Unrealized losses are eliminated in the same way as unrealized gains, but only to the extent that there is no evidence of impairment. The financial statements of the subsidiary are prepared for the same reporting years as the Parent Company, using consistent accounting policies. The following summary explains the significant accounting policies which have been adopted by the Group in the preparation of the consolidated financial statements and have been applied consistently to all the periods presented. Basis of Measurement The consolidated financial statements have been prepared under the historical cost basis, except for derivative financial instruments which are stated at fair value. Functional and Presentation Currency The consolidated financial statements are presented in Philippine peso, which is the Group’s functional currency. Use of Estimates and Judgment The preparation of consolidated financial statements in conformity with PFRS requires management to make judgments, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Although these estimates are based on management’s best

knowledge of current events and actions, actual results may differ from these estimates. Judgments are made by management on the development, selection and disclosure of the Group’s critical accounting policies and estimates and the application of these policies and estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods. In particular, information about significant areas of estimation, uncertainty and critical judgments in applying accounting policies that have the most significant effect on the amounts recognized in the Group’s consolidated financial statements are included in the following notes: • Notes 5, 6, 7 and 9 - estimated impairment losses on receivables, other current assets investments and other assets • Note 8 - estimated useful lives of property and equipment • Note 12 - realizability of deferred tax assets • Note 14 - measurement of share-based payments • Note 16 - classification of leases • Note 17 - measurement of pension obligations • Note 19 - valuation of financial instruments • Note 21 - provisions and contingencies

3. Summary of Significant Accounting Policies Adoption of New Standards, Amendments to Standards and Interpretations The Financial Reporting Standards Council, approved the adoption of a number of new standards, amendments to standards, and interpretations as part of PFRS. New Standard, Amendment to Standard and Interpretations Adopted in 2007 Effective January 1, 2007, the Group adopted the following new standard, amendment to standard and interpretations: • PFRS 7, Financial Instruments: Disclosures. This introduces new disclosures to improve the information about financial instruments. It requires the disclosure of quantitative and qualitative information about exposure to risks arising from financial instruments, including specific minimum disclosures about credit risk, liquidity risk and market risk, as well as sensitivity analysis to market risk. The Group availed of the exemption provided by FRSC under PFRS 7, giving transitional relief with respect to the presentation of comparative information for the new risk disclosures about the nature and extent of risks arising from financial instruments. • Amendment to PAS 1, Presentation of Financial Statements - Capital Disclosures. This introduces disclosures about the entity’s objectives, policies and processes for managing capital; quantitative data about what the entity regards as capital; whether the entity has complied with any capital requirements; and if it has not complied, the consequences of such non-compliance.

• IFRIC 8, Scope of PFRS 2 Share-based Payment which addresses the accounting for share-based payment transactions in which some or all of goods or services received cannot be specifically identified.

The Group has not yet determined the potential effect of the adoption of the above new and revised standards and interpretations on the consolidated financial statements.

• IFRIC 10, Interim Financial Reporting and Impairment which prohibits the reversal of an impairment loss recognized in a previous interim period in respect of goodwill, an investment in an equity instrument or a financial asset carried at cost.

Financial Instruments Non-derivative Financial Instruments Non-derivative financial instruments comprise of cash and cash equivalents, receivables, due to/from related parties and accounts payable and accrued expenses.

The adoption of the above new standard, amendment to standard and interpretations did not have a material effect on the Group’s financial statements. Additional disclosures required by them were included in the consolidated financial statements, where applicable. New and Revised Standards and Interpretations Not Yet Adopted The following are the new and revised standards and interpretations which are not yet effective for the year ended December 31, 2007, and have not been applied in preparing the consolidated financial statements: • Revised PAS 1, Presentation of Financial Statements which requires entities to disclose “total comprehensive income”, i.e, changes in equity during a period, other than those changes resulting from transactions with owners in their capacity as owners. This will be presented either in one statement (i.e., a statement of comprehensive income) or two statements (i.e., an income statement and a statement beginning with profit or loss and displaying components of their comprehensive income). Certain requirements are also required by PAS 1 that are not required by the original standard. This standard is effective on January 1, 2009. • Revised PAS 23, Borrowing Costs, which removes the option to expense borrowing costs and requires an entity to capitalize borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset as part of the cost of that asset. This standard is effective on January 1, 2009. • Philippine Interpretation - IFRIC 11, IFRS 2 - Group and Treasury Share Transactions. This interpretation will be effective for financial years beginning on or after January 1, 2008. This describes how to apply PFRS 2, Share-based Payment, to share-based payment arrangements involving an entity’s own equity instruments and share-based payment arrangements of subsidiaries involving equity instruments of its parent company. • PFRS 8, Operating Segments which requires an entity to adopt the “management approach” to reporting segment information. This will be effective January 1, 2009 and will replace PAS 14, Segment Reporting. • IFRIC 14, PAS 19 - The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction, which clarifies when refunds or reductions in future contributions in relation to defined benefit assets should be regarded as available and provides guidance on the impact of minimum funding requirements (MFR) on such assets. It also addresses when an MFR might give rise to a liability. Effectivity date is January 1, 2008.

Non-derivative financial instruments are recognized initially at fair value plus, any directly attributable transaction costs. Subsequent to initial recognition non-derivative financial instruments are measured as described below. A financial instrument is recognized if the Group becomes a party to the contractual provisions of the instrument. Financial assets are derecognized if the Group’s contractual rights to the cash flows from the financial assets expire or if the Group transfers the financial asset to another party without retaining control or substantially all risks and rewards of the asset. Regular way purchases and sales of financial assets are accounted for at trade date, i.e., the date that the Group commits itself to purchase or sell the asset. Financial liabilities are derecognized if the Group’s obligations specified in the contract expire or are discharged or cancelled. Financial instruments are offset when the Group has a legally enforceable right to offset and intends to settle either on a net basis or to realize the asset and settle the liability simultaneously. Financial Assets Financial assets are classified as either financial assets at fair value through profit or loss, loans and receivables, held-to-maturity investments, or available-for-sale financial assets, as appropriate. When financial assets are initially recognized, they are measured at fair value. In the case of investments not at fair value through profit or loss, fair value at initial recognition includes directly attributable transaction costs. The Group determines the classification of its financial assets and financial liabilities upon initial recognition and, where allowed and appropriate, re-evaluates this designation at each balance sheet date. Cash and Cash Equivalents Cash includes cash on hand and in banks and is stated at its face value. Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash with original maturities of three months or less from dates of acquisition and that are subject to an insignificant risk of change in value. Receivables Receivables are non-derivative financial assets with fixed or determinable payment dates that are not quoted in an active market. These are recognized initially at fair value and subsequently measured at amortized cost using effective interest method, less allowance for impairment loss. An allowance for impairment loss of receivables is established when there is an objective evidence that the Group will not be able to collect all amounts due according to the original terms of receivables. Financial Liabilities This category pertains to financial liabilities that are not held for trading or not designated as at FVPL at the inception of the liability.

Classified under this category are the Group’s accounts payable and accrued expenses. Business Combinations and Goodwill Goodwill represents the excess of the cost of the acquisition of the subsidiaries over the Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities of the subsidiary. Goodwill is measured at cost less accumulated impairment losses. Goodwill is reviewed for impairment, annually or more frequently, is events or changes in circumstances indicate that the carrying value may be impaired. Goodwill acquired in a business combination is initially measured at cost being the excess of the cost of the business combination over the Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities. Following initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is reviewed for impairment, annually or more frequently, if events or changes in circumstances indicate that the carrying value may be impaired. For Special Purpose Entities (SPEs), goodwill is recognized only if the SPE is a business whereas“business”is defined as a self-sustaining integrated set of activities and assets conducted and managed for purpose of providing a return to investors. Impairment is determined by assessing the recoverable amount of the cashgenerating unit to which the goodwill relates. Where the recoverable amount of the cash-generating unit is less than the carrying amount, an impairment loss is recognized. Property and Equipment Property and equipment are carried at cost less accumulated depreciation, amortization and impairment losses, if any. Initially, an item of property and equipment is measured at its cost, which comprises its purchase price and any directly attributable costs of bringing the asset to the location and condition for its intended use. Subsequent costs that can be measured reliably are added to the carrying amount of the asset when it is probable that future economic benefits, associated with the asset will flow to the Group. Purchased software that is integral to the functionality of the related equipment is capitalized as part of the equipment. The costs of day-to-day servicing of an asset are recognized as expenses in the period in which they are incurred. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. Leasehold improvements are amortized over the estimated useful life of the improvements or the term of the lease, whichever is shorter. The estimated useful lives are as follows: Number of Years Computer software 10 Computer equipment 5 Network and data communication equipment 5 Leasehold and site improvements 5 Furniture and fixtures 3-5 Office equipment 3-5 Transportation equipment 3

The useful lives and depreciation and amortization method are reviewed at each balance sheet date to ensure that they are consistent with the expected pattern of economic benefits from those assets. When an asset is disposed of, or is permanently withdrawn from use and no future economic benefits are expected from its disposal, the cost or revalued amount and any related accumulated depreciation, amortization and impairment losses, if any, are removed from the accounts and any resulting gain or loss arising from the retirement or disposal is recognized in the consolidated statements of operations. Impairment of Assets Financial Assets A financial asset is considered to be impaired if objective evidence indicates that one or more events have a negative effect on the estimated future cash flows of that asset. An impairment loss in respect of a financial asset measured at amortized cost is calculated as the difference between its carrying amount, and the present value of the estimated future cash flows discounted at the original effective interest rate. Significant financial assets are tested for impairment on an individual basis. The remaining financial assets are assessed collectively in groups that share similar credit risk characteristics. All impairment losses are recognized in the consolidated statements of operations. Non-financial Assets Non-financial assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If any such indication exists and where the carrying amount of an asset exceeds its recoverable amount, the asset or cash-generating unit is written down to its recoverable amount. The estimated recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. The fair value less costs to sell is the amount obtainable from the sale of an asset in an arm’s length transaction less the cost of disposal while value in use is the present value of estimated future cash flows expected to arise from the continuing use of an asset and from its disposal at the end of its useful life. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of time value of money and the risks specific to the asset. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs. Impairment losses are recognized in the consolidated statements of operations. Recovery of impairment losses recognized in prior years is recorded when there is an indication that the impairment losses recognized for the asset no longer exist or have decreased. The recovery is recognized in the consolidated statements of operations. However, the increase in carrying amount of an asset due to a recovery of an impairment loss is recognized to the extent that it does not exceed the carrying amount that would have been determined (net of depreciation and amortization) had no impairment loss been recognized for that asset in prior years.

Share-based Transactions The Parent Company has a stock option plan for directors, officers and other key employees, whereby employees render services for shares or rights over shares (“equity-settled transaction”). The rights granted under the plan are not assignable and non- transferable. The cost of the equity settled transaction is measured by reference to the fair value of the stock option at the date at which they are granted. Fair value is determined using an option-pricing model as detailed in Note 14. The cost of equity-settled transactions is recognized, together with a corresponding increase in equity, over the period in which the performance is fulfilled (“vesting period”). No expense is recognized for grants that do not ultimately vest. The dilutive effect of outstanding option is reflected as additional share-dilution in the computation of earnings per share (Note 15). Revenue and Expense Recognition Revenue is recognized upon performance of the related service, when it is probable that the economic benefits associated with the transaction will flow to the Group, and the amount of the revenue can be measured reliably. Descriptions of the Group’s revenues are as follows: Application Services Application services refer to revenues earned from providing technical, marketing and cash management services for internet gaming operations of the Philippine Amusement and Gaming Corporation (PAGCOR) particularly for sports betting and internet casino. Revenue is based on agreed percentages of net winnings from the sports betting and internet casino operations. For sports betting, net winnings is derived after deducting from gross bets the payout to winners, payments of commissions to gaming operators, franchise taxes and software licensing fees. For internet casino, net winnings is derived after deducting from casino winnings the payments of commissions to gaming operators, franchise taxes and software licensing fees. Also included in the account are the software licensing fees the Parent Company receives from Sports Betting.

Operating Leases Leases where the lessor retains substantially all the risks and benefits of ownership of the asset are classified as operating leases. Payments made under operating leases are recognized as expense in the consolidated and the Parent Company statements of income on a straight-line basis over the lease term, unless another systematic basis is more representative of the time pattern of the Group’s benefit. Borrowings and Borrowing Costs All loans and borrowings are initially recognized at the fair value of the consideration received less directly attributable transaction costs. After initial recognition, interest bearing loans and borrowings are subsequently measured at amortized cost using the effective interest method. Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for more than 12 months after the balance sheet date. Borrowing costs are recognized as expenses when incurred and recognized in the consolidated statements of operations. Foreign Currency Transactions Transactions in foreign currencies are translated to the functional currency at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated to the functional currency at the exchange rate at that date. The foreign currency gain or loss on monetary items is the difference between amortized cost in the functional currency at the beginning of the period, adjusted for effective interest and payments during the period, and the amortized cost in foreign currency translated at the exchange rate at the end of the period. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are translated to the functional currency at the exchange rate at the date that the fair value was determined. Foreign currency differences arising on translation are recognized in consolidated statements of operations. Income Taxes Income tax expense comprises of current and deferred tax. Income tax expense is recognized in profit or loss except to the extent that it relates to items recognized directly in equity, in which case it is recognized in equity.

Application services also include the Group’s share from the income of Premyo sa Resibo Program (PSR Program) which is recognized as a percentage of net revenue of PSR, as computed in accordance with the agreement between the Company and PAGCOR . Where the PSR Program incurs a net loss, such loss is immediately recognized in the Group’s statements of operations.

Current income tax is the expected tax payable on the taxable income for the year, using tax rates enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years.

Commission Income Commission income from the operation of internet casino stations (ICS) as an ICS operator is computed based on agreed percentage of gross winnings from ICS operations.

Deferred tax is provided using the liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences when they reverse, based on the laws that have been enacted or substantively enacted at the balance sheet date.

Interest Income Interest income from bank deposits and short-term investments, net of final tax, is recognized on a time proportion basis that reflects the effective yield on the assets. Other income is recognized when earned.

A deferred tax asset is recognized to the extent that it is probable that future taxable profits will be available against which temporary difference can be utilized. Deferred tax assets are reviewed at each balance sheet date and are reduced to the extent that it is no longer probable that the related income tax benefit will be realized.

Expenses are recorded when incurred.

Retirement Benefits The Group accrues retirement expense based on the provisions of Republic Act (R.A.) 7641. The Company’s obligation is calculated by estimating the amount of future benefits that employees have earned in return for their service in the current and prior periods; that benefit is discounted to determine its present value using the projected unit credit method. The Group and the Parent Company’s net obligation in respect of their pension plan is calculated separately by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods; that benefit is discounted to determine its present value, and the fair value of any plan assets is deducted. The discount rate is the yield at the balance sheet date of long-term government bonds that have maturity dates approximating the terms of the Group and the Parent Company’s plan. The calculation is performed by a qualified actuary using the projected unit credit method. When the benefits of the plan are improved, the portion of the increased benefit relating to past service by employees is recognized as an expense in the consolidated and the Parent Company statements of income on a straight-line basis over the average period until the benefits become vested. To the extent that the benefits vest immediately, the expense is recognized immediately in the consolidated and the Parent Company statements of income. In calculating the Group and the Parent Company’s obligation in respect to the plan, to the extent that any cumulative unrecognized actuarial gain or loss exceeds 10 per cent of the greater of the present value of the defined benefit obligation and the fair value of plan assets, that portion is recognized in the consolidated and the Parent Company statements of income over the expected average remaining working lives of the employees participating in the plan. Otherwise, the actuarial gain or loss is not recognized. Earnings or Loss Per Share Basic earnings or loss per share is determined by dividing net income or loss for the year by the weighted average number of common shares outstanding during the year. Diluted earnings or loss per share is also computed in the same manner as the aforementioned, except that, any outstanding options and warrants are further assumed to have been exercised at the beginning of the year. Provisions and Contingencies A provision is recognized if, as a result of a past event, the Group has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. Contingent liabilities are not recognized in the consolidated financial statements. These are disclosed in the notes to the consolidated financial statements unless the possibility of an outflow of resources embodying economic benefits is remote. Contingent assets are not recognized in the consolidated financial statements but are disclosed 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 recognized in the consolidated financial statements. Post year-end events that are not adjusting events are disclosed in the notes to the consolidated financial statements when material.

4. Cash and Cash Equivalents This account at December 31 consists of:

Cash on hand and in banks Short-term investments

2007 P101,988,310 394,507,827 P496,496,137

2006 P 52,718,234 427,887,690 P480,605,924

Cash in banks earns interest at the prevailing bank deposit rates. Short-term investments are made for varying periods of up to three months depending on the immediate cash requirements of the Group and earn interest at the prevailing shortterm investment rate.

5. Receivables This account at December 31 consists of: Trade receivables Advances for advertising Receivable from broker Notes receivable Advances to officers and employees Others Allowance for impairment losses

2007 P 1,800,990 30,902,680 26,215,902 12,323,090 475,204 15,369,370 87,087,236 (672,490) P86,414,746

2006 50,369,176 483,123 8,601,339 59,453,638 (672,490) P58,781,148 P

Receivable from broker represents amount due from a broker for the sale of 714 million ISM shares of stock in 2007 (see Note 7). Notes receivable represent various drawdowns from the US$1.5 million credit line extended by the Parent Company to a third party which bear interest of 7% per annum, payable in one year from drawdown date, inclusive of a one year grace period on the principal. Each drawdown is evidenced by a promissory note executed by the borrower in favor of the Parent Company. The notes receivable are due to be collected in 2008.

6. Other Current Assets This account at December 31 consists of: 2007 Input tax P24,488,012 Creditable withholding taxes 2,579,950 Prepaid expenses 1,310,977 28,378,939 Allowance for impairment losses (24,488,012) P 3,890,927

2006 P19,422,570 966,736 884,364 21,273,668 P21,273,670

The provision for impairment loss on input tax of P24.5 million is included in the parent company statement of operations under “Miscellaneous Expenses”.

7. Equity Investment This account at December 31 consists of investment in ISM, an associate:

of the staggered payment, transfer of the legal ownership of the shares in each SPV shall take simultaneously with the receipt of the corresponding tranche payments. However, SIIS shall act as the nominee of the Parent Company with respect to the beneficial ownership and beneficial rights attached to the shares in each SPV from the date of the agreement. SIIS shall deliver documents evidencing ownership of the SPVs and their equal equity interest in the ISM shares (including but not limited to the stock certificate/s over all the outstanding shares of stock of the SPVs and certificate/s of stock covering the ISM shares endorsed by SIIS in favor of the SPVs) upon execution of the agreement. The first of the four installments was paid in December 2006 and the balance was fully paid in September 2007. On May 16, 2007, the Philippine Stock Exchange (PSE) approved ISM’s application to list for additional shares to cover the 1:1 stock rights offering to all stockholders as of the record date of June 8, 2007 at an offer price of P0.01 per rights share. In July 2007, the Company subscribed to additional 13,237,083,081 shares of ISM through the exercise of the rights offer at P0.01 par value per share. The subscription price was paid in full as at December 31, 2007. On December 28, 2007, the Company sold 714 million ISM shares of stock at P0.037. The gain on sale is recognized in the consolidated statements of operations. The Group’s total investments, in ISM as of December 31, 2007 and 2006 represent subscription for 24.5 billion shares or 22.31% and 12 billion shares or 16.41%, respectively. As of December 31, 2007 and 2006, the market value of the corresponding total shareholdings of the Company in ISM based on quoted marked price at the PSE is about P883 million and P591 million, respectively. A summary of the financial information of ISM follows:

On July 2, 2001, the Parent Company entered into a MOA with ISM wherein ISM appointed the Parent Company to manage the transformation of ISM from a mining company to a company engaged in information technology, multimedia, telecommunications, and other similar industries, including the identification and negotiation with potential investors who will infuse the necessary capital or assets for projects in such industries. As consideration for the services the Parent Company, and in order to generate investor confidence in the new corporate direction of ISM, the Parent Company undertook to subscribe to 12,000,068,290 unissued shares of ISM at its par value of P0.01 per share for which the Parent Company made a partial payment of twenty five percent (25%) on such subscription. On July 21, 2004, the Parent Company sold 2,285,714,286 fully paid shares of ISM to Softbank Investment International (Strategic) Limited (SIIS), a third party, for US$1.4 million (P80 million). In 2006, SIIS, transferred its ownership over the ISM shares to four (4)“special purpose entities (“SPE”or“SPV) which were incorporated under the laws of the British Virgin Islands and are wholly-owned by SIIS. The purpose of the four SPVs is to own and hold the ISM shares in equal proportion. On September 22, 2006, the Parent Company entered into an agreement (“deed of sale”) with SIIS covering the sale and transfer of the four SPVs. In consideration of the transfer, the Parent Company shall pay SIIS US$1.4 million in four equal tranches of US$358,613 each due every three months from date of the agreement. As a result

2007 Consolidated assets P3,900,039,812 Consolidated liabilities 619,865,626 Equity attributable to Equity Holders of ISM 2,412,245,463 Minority interest 867,928,723 Net income attributable to Equity Holders of ISM 466,017,371 Minority interest share in net income 204,888,980

2006 P895,695,207 11,343,945 455,563,397 -

In 2007, ISM has determined that it has control over Eastern Telecommunications Philippines, Inc. (“ETPI”), a company engaged in telecommunications, when it acquired majority of its voting rights. Accordingly, ISM included ETPI in its 2007 consolidated financial statements. As of December 31, 2007, ISM has 67.5% direct and indirect ownership on the total outstanding shares of ETPI. ISM’s consolidated income for the year ended December 31, 2007 mainly consists of net income of its consolidated subsidiaries reduced by the minority shareholders’ interest and negative goodwill from its acquisition of ETPI determined on the date ISM has gained control of the former. The 2006 net income mainly consists of negative goodwill on its acquisition of investment in a subsidiary.

In 2007, ISM received deposits for future stock subscription from a foreign investor in the amount of US$442 million which will be applied as payment for subscription to newly issued shares of stock upon approval by the SEC of ISM’s application for increase in its authorized capital stock from 120 billion shares to 180 billion shares. ISM’s assets in 2006 mainly consist of investments in ETPI which were subsequently consolidated in 2007 when ETPI became ISM’s subsidiary.

8. Property and Equipment The movements and balances of this account (in thousands) as of and for the years ended December 31 are as follows:

9. Other Assets This account at December 31 consists of:

Computer software includes software costs incurred on an internet gaming platform being developed by a third party software developer. The software is expected to be fully developed and used in 2008. Other assets from discontinued operations represent receivables and other assets from the Group’s ISP business which was discontinued when the Group focused operations on the internet gaming business. The Group has provided full allowance for impairment loss on these assets. The P12.5 million cash deposited in the “Philweb ITF Pagcor” account represents the prize funds of PhP6.250 million each for Txtingo 9 and PSR Jackpot, inclusive of provision for 20% winners tax, in compliance with the Intellectual Property License and Management Agreement with PAGCOR. All

withdrawals from the funds are subject to approval of PAGCOR and can only be used for the purpose of paying the prizes and corresponding tax, if any, of the above mentioned game formats.

10. Accounts Payable and Accrued Expenses This account at December 31 consists of: Accrued expenses and other current liabilities Accounts payable Commission payable

2007 P36,544,112 44,539,836 1,390,180 P82,474,128

2006 P2,113,374 50,413,559 3,956,388 P56,483,321

11. Other Current Liabilities This account at December 31 consists of: Note Due to software provider Payable for equity investment 6 Accrued rent Others

13. Related Party Transactions

2007 P7,458,937 - - 13,471,697 P20,930,634

2006 P4,677,280 54,409,581 7,532,996 19,188,088 P85,807,945

In the normal course of business, companies within the Group extend/obtains cash advances to/from related parties or other companies with the same owners to finance working capital requirements. The Due from Related Parties account at December 31 consists of advances to the following companies:

12. Income Taxes and Registration with the Board of Investments (“BOI”) Effective March 14, 2001, the Parent Company was registered with the BOI as a new IT service firm, providing Internet services and other IT-related services on a pioneer status. As a BOI-registered enterprise, the Parent Company is entitled to certain tax and non tax incentives which include, among others, an income tax holiday for a period of six (6) years, extendable under certain conditions to eight (8) years; tax and duty-free importation of capital equipment; and, tax credit on domestic capital equipment. In 2007, the Parent Company has availed of P52.3 million income tax holiday exemption, covering the period January 1 to March 13, 2007 and 2006, respectively. There was no tax benefits availed in 2005 since the Parent Company has reported taxable losses of P2.3 million. On February 26, 2007, the Parent Company was registered with the BOI, under Registration No. 2007-030, on a pioneer status as New IT Service Firm in the Field of an Application Service Provider. ITH entitlement period started on March 1, 2007 to February 28, 2013. As a BOI registered enterprise, the Parent Company is entitled to certain tax and non-tax incentives which include among others, income tax holiday for a period of six (6) years from March 2007, provided, however, that the firm has complied with the infusion of the minimum investment cost of US$2.5 million or its peso equivalent within one year from date of its BOI registration. In case of failure to comply with the said investment requirement, the BOI Board shall be constrained to automatically amend to six (6) years ITH to non-pioneer entitled to four (4) years ITH. On February 28, 2007, the Parent Company informed the BOI that the investment requirement is projected to complied within the year 2008 as it achieve full blast operations in the field of application service providing business. Deferred tax assets of the Group at December 31 have not been recognized in respect of the following items because it is not probable that future tax benefits will be available against which the Group can utilize the benefits therefrom.

The Parent Company also bills ISM for administrative expenses representing the latter’s share in operating expenses which include salaries, representation and entertainment, rental and communication expenses. Total share of ISM amounted to around P10.2 million, P9.4 million and P6.0 million for 2007, 2006 and 2005, respectively. On July 26, 2006, the Parent Company executed an irrevocable domestic standby letter of credit in favor of PAGCOR amounting to P10 million to guarantee Premyo sa Resibo, Inc.’s obligation on the Premyo sa Resibo program. Compensation of key management personnel of the Group pertaining to short-term employee benefits as of December 31, 2007, 2006 and 2005 amounted to P16.2 million, P9.2 million and P5.3 million, respectively.

14. Capital Stock Stock Option Plan On February 15, 2000, the Board of Directors (BOD) approved the Parent Company’s Stock Option Plan (“Plan”) covering all employees, officers and directors of the Company, its subsidiaries and associates as well as such other qualified persons determined as eligible by the BOD. The aggregate number of shares that may be purchased under the Plan shall not be more than five percent (5%) of the total number of shares of the outstanding capital stock of the Parent Company, at a price not less than eighty percent (80%) of the fair market value of the shares on the date the option is granted. Effectivity date is one (1) year after an option is awarded to the participant. 1/3 of the total number of options covered by a grant shall vest upon effectivity date; 1/3 shall vest one year after effectivity date and 1/3 shall vest two years after the effectivity date. Options may be exercised within a period of three (3) years, starting after the lapse of one (1) year from the date of grant. The fair value of stock option is estimated using an option pricing method, which considered annual stock volatility, risk-free interest rate, expected life of option and exercise price. During the period ended December 31, 2007, the Company had the following grants:

17. Pension Liability The Group accrues retirement benefits for its employees in compliance with Republic Act 7641“Philippine Retirement Law”which requires a company to pay a minimum retirement benefit to employees who retires after reaching the mandatory age of 65 years old or the optional retirement age of 60 years old with at least five (5) years of service to the company. The reconciliation of the present value of the defined benefit obligation to the recognized liability included under“Noncurrent Liabilities”in the consolidated and Parent Company balance sheets is as follows:

The options outstanding at December 31, 2007 have an exercise price in the range of 0.013 to P0.0135 and a weighted average remaining life of 2.5 years. The weighted average share price at the date of exercise for share options exercised in 2007 was P0.0119. Surplus from Writedown of Capital Stock This represents the excess of the total reduction in par value of the common stock of the Parent Company over the accumulated deficit balance in connection with the quasi-reorganization completed in 1984.

15. Earnings (Loss) Per Share The weighted average number of common shares used in determining basic and diluted earnings (loss) per share is shown below: December 31, 2007 December 31, 2006 December 31, 2005

Basic 122,459,639,136 110,912,295,025 96,166,489,842

The recognized expense included under “Employee benefits” in the consolidated and Parent Company statements of income consists of:

Diluted 123,680,972,418 114,339,429,725 100,468,291,204

The diluted loss per share reflects the dilutive effects of the warrant shares, as well as the shares issued in 2001 in connection with the Stock Option Plan.

16. Lease Commitments The Group leases its main and other offices under various operating leases with terms ranging from three (3) to eight (8) years. Such leases are renewable at the end of the lease terms upon mutual consent of the parties. Total rentals recognized in the consolidated statements of operations amounted to about P9.0 million, P9.7 million and P7.2 million in 2007, 2006 and 2005, respectively.

18. Other Contracts and Commitments Non-cancellable operating lease rentals as of December 31, 2006, 2005 and 2004 are payable as follows:

The Group has entered into the following contracts and commitments: a. On February 12, 2007, the Parent Company entered into a Memorandum of Agreement (MOA) with RTG Studio, Inc. to provide technology, marketing, distribution, service and sales for various game formats for North American and Philippine-based sports. Subsequently, the Parent Company executed

a. Credit Risk is limited to the risk arising from inability of a debtor to make payments when receivables are due. The Group’s internet gaming businesses are made on cash basis and internet gaming operators are covered by required security deposits. Other receivables arise from one-of transactions and are due and demandable on a short term basis. Due to these reasons, management believes that the Group has no significant exposure to credit risk as of December 31, 2007 and 2006.

a Novation Agreement wherein RTG Studio’s rights and obligations were transferred to Phil Kingdom, Inc. The MOA with Phil Kingdom, Inc. was cancelled in February 2008. b. On July 26, 2006, the Parent Company executed an irrevocable domestic standby letter of credit in favor of PAGCOR amounting to P17 million to guarantee Premyo sa Resibo, Inc.’s (PSR) obligation on the Premyo sa Resibo program and its obligation on internet casinos and internet sports betting.

The carrying amount of receivables represents the Group’s maximum exposure to credit risk in relation to financial assets.

c. On June 5, 2006, the Parent Company entered into an Intellectual Property License and Management Agreement (IPLMA) with PAGCOR wherein the Parent Company has proposed to license its intellectual property rights to the software systems for an SMS-based mobile game, “Premyo sa Resibo” program.

b. Liquidity Risk is the risk that the Group will be unable to meet its obligations as they fall due. To effectively manage liquidity risk, the Group monitors its cash flows and ensures that credit facilities are available to meet its obligation when they fall due.

d. On June 1, 2006, the Parent Company entered into an IPLMA for Internet Casinos with PAGCOR, to license its intellectual property rights to the software system and to provide the collateral hardware and other requirements necessary for the operations of PAGCOR’s internet-based and internet-linked products. This supersedes the Supplemental Agreement No. 1 on the Memorandum of Agreement dated March 18, 2003 and November 28, 2002, respectively, and the Supplemental Agreement No. 2 dated June 30, 2003.

The Group’s ratio of current assets to current liabilities as of December 31, 2007 and 2006 are 3:1 and 2.4:1, respectively. c. Market Risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and other market prices will affect the Group’s income or value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimizing the return.

e. On May 16, 2006, the Parent Company entered into a Software License Agreement with RTG Holdings Limited, wherein the latter has agreed to license the Parent Company the Licensed Programs for use in PAGCOR’s internet casino operations. f. In April 2006, the Parent Company entered into a Memorandum of Understanding with the Department of Finance, Bureau of Internal Revenue, and PAGCOR, whereby the Parent Company and PAGCOR will establish a nationwide text-based raffle program with prizes. This project will be called “Premyo sa Resibo” which will encourage all purchasers of goods and services in the country to demand a receipt for every purchase. g. In November 2005, the Parent Company entered into a Memorandum of Agreement with BoS (Antigua) Limited, a company organized under Antigua laws, wherein the Parent Company has agreed to exclusively engage the latter as a technology, marketing, distribution, service and sales provider for various future internet gaming formats for North American sports, Philippine based sports, as well as other events as may be approved by PAGCOR. This agreement was cancelled effective August 1, 2006.

19. Financial Risk and Capital Management Financial Instruments The Group’s principal financial instruments consist of cash and cash equivalents, receivables, due from related parties and accounts payable and accrued expenses. The main risks arising from the Group’s financial instruments are liquidity risk, credit risk and market risk. The policies for managing each of these risks are provided below:

d. Foreign Currency Risk. In the normal course of business, the Group enters into transactions denominated in foreign currency. As a result, the Group is subject to transaction and translation exposures resulting from currency exchange rate fluctuations. The Group regularly monitors outstanding financial assets and liabilities in foreign currencies and maintains them at a level responsive to the current exchange rates so as to minimize the risks related to these foreign currency denominated assets and liabilities. The Group’s foreign currency denominated assets as of December 31, 2007 are as follows:

Sensitivity Analysis A 10% strengthening of the peso against dollar as at December 31, 2007 would have increased equity and profit or loss by P1.6 million. A 10% weakening of the peso against dollar as at December 31, 2007 would have had the equal but opposite effect, on the basis that all other variables remain constant. Fair Values The fair values of the Group’s financial instruments approximate their carrying amounts as of balance sheet date either because of their relatively short-term nature or the interest rates they carry approximate interest rates for comparable instruments in the market.

Capital Management The Boardâ&#x20AC;&#x2122;s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business.

component or business segment; hence, the management believes that there is no particular disclosure on segment reporting.

The Group defines capital as total equity, which includes capital stock, net of treasury stock and retained earnings.

21. Contingencies

Except for funds required by PAGCOR to be set aside for the internet gaming operations, the Group is not subject to externally imposed capital requirements.

The Group is a party to certain lawsuits or claims filed by third parties which are either pending decision by the courts or are subject to settlement agreements. The outcome of these lawsuits or claims cannot be presently determined. In the opinion of management and its legal counsel, the eventual liability form these lawsuits or claims, if any, will not have a material effect on the consolidated financial statements.

20. Segment Reporting The Group has only one significant group of related products or services that are subject to the same risks and returns. The Groupâ&#x20AC;&#x2122;s operations and sources of revenues are interdependent, share the use of the facilities of the Parent Company, particularly computer equipments and are under agreements with PAGCOR, the Group being PAGCORâ&#x20AC;&#x2122;s partner in the internet gaming business. There is no other distinguishable

22. Reclassification Certain accounts in the 2006 Group financial statements have been reclassified to conform to the 2007 presentation.

CORPORATE INFORMATION

Legal Counsel Castillo Laman Tan Pantaleon & San Jose Law Offices Independent Public Accountants KPMG Manabat Sanagustin & Co. Banks Bank of Commerce Bank of the Philippine Islands Banco de Oro Unibank Metropolitan Bank and Trust Company Philippine National Bank Security Bank & Trust Corporation Union Bank of the Philippines United Coconut Planters Bank Stock Transfer Service Agent Emerald Registry & Transfers Corporation

PhilWeb Corporation is listed on the Philippine Stock Exchange. Ticker Symbol: WEB

The Enterprise Center, 17th floor, Tower 1, 6766 Ayala Ave., Makati City Tel. nos.: (632) 338.5599, (632) 814.1818 philweb.com.ph basketballjackpot.net pagcoregames.com.ph premyosaresibo.com.ph txtingo.ph