SEC Form 17-A - Millennium Global Holdings, Inc.

COVER SHEET
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S.E.C. Registration Number
I
P V G
C O
R P .
(Company's Full Name)
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R C B C
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A Y A L A
M A K A T I
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(Business Address: No. Street City / Town / Province)
Mr. Ricardo Lagdameo
Chief Investment Officer/ Corporate Information Officer
Ms. Mary Jenelle C. Palma
Acting CFO
Atty. Juname de Leon
Corporate Secretary / Alternate Corporate Info. Officer
Contact Person/s
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Month
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Day
Fiscal Year
(632) 976-4784
Company Telephone Number
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SEC Form 17-A
June
FORM TYPE
Month
Annual Meeting
Secondary License Type, If Applicable
Dept. Requiring this Doc.
Number/Section
Total No. of Stockholders
Amended
Domestic
To be accomplished by SEC Personnel concerned
File Number
LCU
Document I.D.
Cashier
STAMPS
Articles
Foreign
SECURITIES AND EXCHANGE COMMISSION
SEC FORM 17-A
ANNUAL REPORT PURSUANT TO SECTION 17
OF THE SECURITIES REGULATION CODE AND SECTION 141
OF THE CORPORATION CODE OF THE PHILIPPINES
1.
For the fiscal year ended
2.
Commission identification number. 25160
3.
BIR Tax Identification No 000-189-138-000
4.
Exact name of issuer as specified in its charter
5.
Province, country or other jurisdiction of incorporation or organization : Metro Manila, Philippines
6.
Industry Classification Code:
7.
34F RCBC Plaza Tower 2, 6819 Ayala Avenue, Makati City
Address of issuer's principal office
December 31, 2011
Issuer's telephone number, including area code
IPVG CORP
(SEC Use Only)
1200
Postal Code
(632) 976-4784
8.
________________________________________________________________
Former name, former address and former fiscal year, if changed since last report
9.
Securities registered pursuant to Sections 8 and 12 of the SRC, or Sections 4 and 8 of the RSA
Title of each Class
Number of shares of common stock
outstanding and amount of debt outstanding
Common
798,344,721 shares
10. Are any or all of the securities listed on a Stock Exchange?
Yes [ √ ]
No [ ]
If yes, state the name of such Stock Exchange and the class/es of securities listed therein:
Philippine Stock Exchange; Common Shares
11. Indicate by check mark whether the registrant:
(a) has filed all reports required to be filed by Section 17 of the SRC and SRC Rule 17.1
thereunder or Section 11 of the RSA and RSA Rule 11(a)-1 thereunder, and Sections 26 and
141 of the Corporation Code of the Philippines, during the preceding twelve (12) months (or
for such shorter period the registrant was required to file such reports)
Yes
[√ ]
No [ ]
(b) has been subject to such filing requirements for the past ninety (90) days.
Yes
[√ ]
No [ ]
12. State the aggregate market value of the voting stock held by non-affiliates of the registrant. The
aggregate market value shall be computed by reference to the price at which the stock was sold, or the
average bid and asked prices of such stock, as of a specified date within sixty (60) days prior to the date
of filing. If a determination as to whether a particular person or entity is an affiliate cannot be made
without involving unreasonable effort and expense, the aggregate market value of the common stock
held by non-affiliates may be calculated on the basis of assumptions reasonable under the
circumstances, provided the assumptions are set forth in this Form. (See definition of "affiliate" in
“Annex B”).
The aggregate market value of the voting stock held by non-affiliates of the Company as of December
31, 2011 is P405,517,864 (324,414,291 shares @ 1.25/share).
APPLICABLE ONLY TO ISSUERS INVOLVED IN
INSOLVENCY/SUSPENSION OF PAYMENTS PROCEEDINGS
DURING THE PRECEDING FIVE YEARS:
13. Check whether the issuer has filed all documents and reports required to be filed by Section 17 of the
Code subsequent to the distribution of securities under a plan confirmed by a court or the Commission.
Yes [ ]
No [ ] (N/A)
DOCUMENTS INCORPORATED BY REFERENCE
14. If any of the following documents are incorporated by reference, briefly describe them and identify the
part of SEC Form 17-A into which the document is incorporated:
(a) Any annual report to security holders; (N/A)
(b) Any information statement filed pursuant to SRC Rule 20; (N/A)
(c) Any prospectus filed pursuant to SRC Rule 8.1. (N/A)
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Our discussions in the succeeding sections of this report pertain to the results of our company’s operations for
the twelve (12) months ended December 31, 2011. This report covers the different business units under the
group, including the parent company. References are going to be made to results of operations for the same
period of the previous year 2010.
This report may also contain forward-looking statements that reflect our current views with respect to the
company’s future plans, events, operational performance, and desired results. These statements, by their very
nature, contain substantial elements of risks and uncertainties. Actual results may be different from our
forecasts.
Furthermore, the information contained herein should be read in conjunction with the accompanying
unaudited consolidated financial statements and related notes. Our financial statements, and the financial
discussions below, have been prepared in accordance with Philippine Financial Reporting Standards (PFRS).
PART I. BUSINESS AND GENERAL INFORMATION
IPVG Corp. is a company listed in the Philippine Stock Exchange, Inc. and is focused in the following growth
areas: Information Technology & Telecommunications (IT&T), Online Computer Games (OCG) and Business
Process Outsourcing (BPO).
IPVG established the following subsidiaries: In 2005, IP Converge Data Center, Inc. (IPCDC) to focus on the
IT&T initiatives, and IP E-Game Ventures Inc. (IPEV), to pursue on the online computer games business and
payment solutions. In 2006, IP Contact Center Outsourcing, Inc. (IPCCO) was incorporated for our BPO
initiatives. In 2007, IPAY Commerce Ventures Inc. (IPAY) was incorporated as IPVG’s initiative in the
remittance market. At the start of 2008, IPVG acquired three more companies, namely: Prolexic
Technologies, Inc., Interactive Teleservices Corp., and Megamobile, Inc. In 2009, we sold off majority stakes
in our BPO businesses and Megamobile.
In 2011, IPEV purchased a majority stake in Digital Paradise Inc., which operates Netopia, the largest chain of
Internet cafes in the Philippines and Webworx, a chain of 21 Internet cafes under the brand “CyBr”. CyBr is
the most prominent brand of i-cafes focused on servicing the online gaming community.
On July 1, 2011, Shareholders of IPVG Corp. (PSE: IP), approved a new corporate restructuring plan for the
Company. In particular, the shareholders approved the sale of all assets and liabilities of IPVG to a new private
company, IP Ventures, Inc., ("IPVI"), having the exact same shareholding structure of IPVG, and the
delegation to the board for the mechanics of the restructuring. Essentially, the aim of the restructuring plan is
to increase shareholder value and potentially generate cash for the company’s shareholders.
The restructuring is in line with the next evolution of the Group where it believes the operating companies that
have reached critical mass can pursue public listing, and that the investment holding company can remain
private. This restructuring plan can be seen as yet another opportunity for the Company to achieve its business
and operational targets and create shareholder value for the group. Pursuant to its restructuring plan, IPVG has
transferred substantially all of its assets to IPVI.
1
Business Milestones in 2011
Highlights in the First Quarter:
§
IPVG Corp. (PSE: IP) exercised its option to subscribe to 20 million shares in IP E-Game Ventures, Inc.
(IP E-Games/PSE: EG), its online gaming subsidiary. The Board of Directors of IP E-Games approved the
issuance of 20 million shares to IPVG upon compliance with the terms and conditions of the option
agreement.
§
IP Converge Data Center, Inc. (IP-Converge/PSE: CLOUD), information technology and
telecommunications subsidiary of IPVG Corp., signed an agreement with Tokyo-based Type I
telecommunications carrier, IPS Inc., for the two-way resellership of solutions and services to local and
Japan-based customers.
§
IP-Converge signed a Php105 million loan agreement with Banco de Oro Unibank Inc. The amount is to
finance the construction of a new Internet data center facility in Bonifacio Global City, Taguig. The new
data center will be a state-of-the-art “green” data center facility that utilizes the latest practices and
technology that promote energy efficiency and conservation.
§
I-Pay Commerce Ventures, Inc. (i-PCV), the payment services subsidiary of IPVG Corp., held its Php 1
million monthly raffle draw at SM Marikina for its “Premyo sa Resibo” program.
§
IP E-Games concluded its 4:1 rights offering. A maximum of 134,182,218 common shares were issued at
a price of P1.00 per share. After the rights offering, IP E-Games had approximately 167.7 million
outstanding capital stock. Proceeds of the rights offering were used to finance company acquisitions, for
working capital, and new games.
§
IP-Converge signed a Services Provider License Agreement (SPLA) with Microsoft Philippines. The
SPLA is part of Microsoft’s Volume Licensing program for organizations, which provides companies with
the capability to offer software and services such as Web hosting, hosted applications, messaging,
collaboration and platform infrastructure to its end-customers.
§
IPVG Corp. sold a portion of its equity stake in Prolexic Technologies, Inc. (Prolexic) to Kennet Partners,
a leading technology growth equity investor, for US$13.86 million. An additional US$2.88 million will be
paid to IPVG from the sale of shares to management team members over an agreed vesting period. IPVG
also provided a US$3.3 million loan to Prolexic to support the company’s expansion plans.
§
Cloud-based software provider, in Contact, partnered with IP-Converge for the latter’s cloud hosting
services. in Contact’s application servers are to be co-located in the IPC Data Center, and will provide
connectivity to in Contact’s offices and clients.
§
i-PCV was awarded as the Best Newcomer in the Western Union Asia Pacific Agent Summit 2011.
§
Though its “Premyo sa Resibo” program, i-PCV held the first ever caravan run in Sta. Rosa, Laguna.
§
i-PCV held its Php 1 million monthly raffle draw at SM Pampanga for its “Premyo sa Resibo” program.
Highlights in the Second Quarter:
§
IP E-Game Ventures Inc., the listed online gaming subsidiary (PSE: EG) of IPVG, successfully concluded
its transaction to purchase ePLDT’s 75% stake in Digital Paradise Inc. The latter operates Netopia, the
largest chain of Internet cafes in the Philippines.
§
The transfer of IP E-Games of its 40% stake in First Cagayan Data Center Inc. (FCCDCI) to publicly
listed data center operator IP Converge Data Center, Inc (PSE: CLOUD) for a total consideration of P120
million was approved by the Board of Directors of both companies. FCCDCI is a state of the art Internet
data center located at the Cagayan Special Economic Zone (CEZA). Partnered with major
telecommunication companies in the Philippines, FCCDI provides a fully redundant network directly from
2
Cagayan across the Asia-Pacific region, particularly to Hong Kong, Japan, and Singapore via the TGN-IA
(Tata Global Network- Intra Asia) cable system.
§
IP Converge and Salesforce.com, leader in on-demand business services and customer relationship
management (CRM), held the first session of its Business Growth mini-seminar series entitled “3 Simple
Ways to Business Growth.” The seminar provides insights into how cloud computing and Salesforce.com
can help companies grow their businesses. The seminar targeted professionals and executives who wish to
find out how to unlock the power of Cloud Computing to enhance their overall work and management
experience. IP-Converge is the only Salesforce.com Select Consulting Partner in the Philippines.
§
IP E-Games announces its plans to acquire a chain of 23 Internet cafes under the brand “CyBr.” Parties
have signed an agreement for the sale and purchase of not less than 51% of the outstanding capital stock.
CyBr is owned and operated by the company CyberOne Technology Corp.
§
IP Converge, through its partnership with technology giant, Google, recently held the first session of its
“Everyone’s Gone Google” seminar series. The seminar provided insights on how businesses can benefit
from the Google Enterprise suite of products. Resource speakers from both IP-Converge and Google
discussed real-life applications of the various Google Enterprise products offered locally by IP-Converge,
namely: Google Apps for Business, Google Postini Services, Google Earth & Maps, and Google Search
Appliance.
§
The International Data Centre Group (IDC-G), the first global data center alliance, has signed IPConverge as its 12th Alliance Member. IP-Converge now joins Omadata in Indonesia as part of IDC-G’s
global network in the Asian Pacific region. The London-based IDC-G alliance network is the first
partnership of high-end data center operators around the world under a strong, unified brand, providing
international businesses with a centralized point of contact for their data center needs.
§
IP E-Games makes known its plans to acquire I.T. Log Park Inc. (I.T. Log), a leading internet café chain.
Parties signed an agreement for the sale and purchase of not less than 75% of the outstanding capital stock
of I.T. Log. The latter operates one of the fastest growing Internet café chains in the country. The café
chain is made up of a total of 32 branches located in mixed residential and commercial areas around the
metro.
§
I-Pay Commerce Ventures, Inc. (i-PCV), the payment solutions subsidiary of IPVG Corp., held a “Premyo
sa Resibo” (PSR) Independence Day event. The gathering, with over 5,000 attendees, was initiated by the
BIR and held at Rizal Park, Luneta in Manila. PSR Cards were the highlight of the BIR’s participation in
the event.
§
i-PCV rolled out more than 300 locations with payment services leader, Western Union. Since 2010, iPCV has been appointed as Western Union’s direct agent to offer money transfer and foreign exchange
services. To date, the Company has a total of 500 outlets.
§
Together with Digital Paradise Inc. (operator of the Netopia brand of Internet Cafes), i-PCV rolled out
Western Union services to nearly 20 company-owned i-café branches, including those in Ayala Malls.
Highlights in the Third Quarter:
§
In July, IPVG Corp. held its Annual Shareholders’ Meeting where the Rationalization of Corporate
Structure/Restructuring Plan of IPVG was approved. Under the proposed new plan, all assets and
liabilities of IPVG will be transferred to a new private company (New Co.).
§
In August, IPVG released its interim financial results for the second quarter of 2011. It reported a net
income of PHP296.72 million, a substantial increase from the PHP10.18 million it posted in the same
period in 2010. Consolidated revenue stood at Php650.28 million, a 3.1% rise from the Php630.82 million
disclosed in the same period last year.
§
IP Converge Data Center, Inc. (IP-Converge), the IT&T subsidiary of IPVG, and the country’s first and
only publicly listed Internet Data Center and Cloud Services Provider (PSE: CLOUD), released its interim
financial results for the second quarter of 2011. It posted net earnings of PHP33.5 million, representing a
3
60% increase from the PHP20.95 million it reported for the same period in 2010. Revenues rose to 259.42
million, in the first-half of 2011, while gross profit also increased by 14%, amounting to PHP78.9 million.
§
The Board of Directors of IP-Converge held a meeting and approved the terms and conditions of the
acquisition of a 40% stake in First Cagayan Converge Data Center Inc., from IP E-Game Ventures Inc.
§
IP E-Game Ventures Inc. (E-Games), IPVG’s listed online gaming subsidiary (PSE: EG), released its
interim financial results for the second quarter of 2011. E-Games reported a net income of PHP36.32
million for the first-half of 2011, a significant increase from the PHP0.42 million posted for the same
period last year. EBITDA numbers rose to PHP62.34 million or a 460% improvement from last year’s
Php11.32 million result. Revenues, on the other hand, amounted to Php198.21 million for the first half of
2011, versus Php86.96 million in 2010, a 125% increase.
§
The E-Games share price climbed to record highs. Analyst reports from Abacus Securities Corporation
and PCCI Securities Brokers Corporation made BUY recommendations for E-Games, expressing their
confidence that the company shows potential to be the largest consumer Internet firm in the country.
§
I-Pay Commerce Ventures Inc., (IPCV) the payment solutions subsidiary of IPVG, through its Premyo sa
Resibo program, held its P1 million draw. Celebrity endorser, Boy Abunda, carried out the draw during
the BIR Anniversary at the BIR national office in Quezon City.
§
In September, pursuant to it’s previously disclosed corporate restructuring, and the approved mechanics,
terms and conditions thereof, IPVG Corp. entered into agreements with IP Ventures, Inc. (New Co) for
the transfer of all or substantially all of its properties and assets, including the transfer of all of its shares in
its listed subsidiaries, and all or substantially all of its liabilities.
§
E-Games executed and concluded the Subscription Agreement with Webworx Computer Technology
Corporation, which owns and operates the “CyBr” brand of Internet cafes. E-Games subscribed to 60% of
the outstanding capital stock of Webworx. CyBr is one of the largest and fastest growing brands of
Internet cafes in the country with 18 company-owned and 5 franchised branches.
§
IP-Converge launched “Think Out Cloud”, a cloud advocacy campaign that seeks to widen awareness on
cloud-computing among Philippine companies, especially small and medium enterprises (SMEs). The
campaign, launched in Makati City, heralds the company’s efforts to make more accessible, especially to
SMEs, its value-driven solutions and services by offering them on the cloud.
§
IPCV boarded 16 additional Western Union locations for the third quarter of 2011.
Highlights in the Fourth Quarter:
In November, IPVG Corp. amended Article Seven of its Amended Articles of Incorporation increasing the
Company’s Authorized Capital Stock from One Billion Pesos (P 1,000,000,000.00) divided into One Billion
(1,000,000,000) shares at par value of One Peso (P1.00) per share, to Two Billion Pesos (P 2,000,000,000.00)
divided into Two Billion (2,000,000,000) shares at par value of One Peso (P1.00) per share.
4
Pursuant to its approved corporate restructuring IPVG Corp. on September 28, 2011 entered into an Asset
Purchase Agreement with IP Ventures, Inc.(IPVI) for the transfer of all or substantially all of its properties,
assets and liabilities, including its equity interest in the shares of stock of its listed and non-listed subsidiaries
namely,
Listed Subsidiaries
(a) IP E-Game Ventures, Inc.; and
(b) IP Converge Data Center, Inc.
Non-listed Subsidiaries
(1) Prolexic Technologies, Inc.
(2) PCCW Teleservices Philippines, Inc.
(3) Megamobile, Inc.
(4) I-Pay Commerce Ventures, Inc.
(5) IP Contact Center Outsourcing, Inc.
(6) IP E-Global Holdings, Corp.; and
(7) Rotherham Consultants Limited
In this regard, the Business Overview of the Subsidiaries transferred to IPVI below refer to activities and
updates as of the end of September 2011:
IP CONVERGE DATA CENTER INC.
IP Converge Data Center, Inc. (Tradename: IP-Converge™ / PSE: ‘CLOUD’) is the first and
only Internet Data Center and Cloud Services Provider listed on the Philippine Stock Exchange. It is an
information technology & telecommunications company, providing local and regional enterprises with an
array of managed data services and cloud-based business solutions at international standards. The company
operates true carrier-neutral, telco-grade Internet Data Center facilities in the Philippines as well as its own
Asia-Pacific network infrastructure, and works with global technology leaders to deliver only the best
solutions and services to its clientele. An ISO 9001:2008 Certified company, the foundation of IP-Converge's
business is centered on customer satisfaction through high-quality, on-time delivery, and a personalized
"boutique" approach to clients.
Business Overview
IP-Converge™ is an information technology & telecommunications company, providing local and regional
enterprises with managed data services and business solutions at international standards. It is also the first and
only Internet Data Center and Cloud Services Provider listed on the Philippine Stock Exchange (PSE:
‘CLOUD’).
An ISO 9001:2008 Certified company, the foundation of IP-Converge's business is centered on customer
satisfaction through high-quality on-time delivery, the implementation of best business practices, and a
personalized, "boutique" approach to clients.
The company operates telco-grade Internet data center facilities in the Philippines that connect to the world
through its international PoP (point of presence) in Hong Kong, and is the only Internet data center with
wholly owned bandwidth capacity on an undersea cable network: the Intra-Asia Cable (IAC) system.
IP-Converge upholds its carrier and vendor-neutrality by peering with all major Internet exchanges in the
Philippines and the Asia Pacific region, and by partnering with the world’s leading hardware and software
providers. Through its robust international network infrastructure and business relationships with global
industry giants, IP-Converge is able to offer world-class solutions and services in the region.
The company offers superior packages of integrated IT and telecommunications services to enterprises,
institutions and other service providers. These solutions include Internet data center services, dedicated
Internet connectivity, network security, and a host of business applications that simply helps clients minimize
cost and difficulty of doing "IT" themselves.
5
True to its brand promise of "Empowering Business.", IP-Converge’s
IP Converge’s mission is to ensure that its customers
achieve their business goals through value-driven
value
Internet solutions. With strategic local and international
partnerships, robust data center infrastructure, fully-trained
fully trained professional staff, and a clearly defined mission
that benefits customers, IP-Converge
Converge is the ideal choice for IT and telecommunications services.
Business Segments (and Solutions & Services) of IP Converge Data Center, Inc.
1. MANAGED DATA SERVICES
Converge Managed Data Services leverage on the company’s robust Internet data center facilities and
IP-Converge
network infrastructure, as well as its highly-skilled
highly
and professionally-trained
trained manpower resources. CarrierCarrier
neutrality is one of IP-Converge’s
Converge’s many advantages. Through this, the company is able to offer customers with
a high level of customization for these services.
1.1. IPC Data Center
telco
carrierIPC Data Center is a true telco-grade,
neutral, international Internet data center facility
owned and operated by IP-Converge.
IP
It provides
co-location
location services, data and network security,
disaster recovery, business continuity and a host of other managed services and customized facilities
that meet specific customer needs. It is IP-Converge's
IP Converge's core competency and main line of business.
IPC Data Center - MKT
Located at RCBC Plaza, Makati, Philippines, IPC Data Center is laid out on 100% custom-built
custom
space, readily accessible by land or helicopter. Being truly carrier-neutral,
carrier neutral, this facility holds multiple
points of presence from leading local and international telecommunications providers and carriers. It
is an ideal facility for businesses and organizations requiring
requiring Internet data center services and
bandwidth to any specific location. IP-Converge
IP Converge offers a wide array of Managed Data Services from
co-location
location and professional services, to Internet and data connectivity.
IPC Data Center - BGC
IPC Data Center - BGC is IP-Converge's
Converge's newest Internet data center facility, located at Bonifacio
Technology Center, Bonifacio Global City, Taguig, and Metro Manila, Philippines. Being truly
carrier-neutral,
neutral, this facility holds multiple points of presence from leading local and international
in
telecommunications providers and carriers. It is an ideal facility for businesses and organizations
requiring Internet data center services and bandwidth to any specific location. IP-Converge
IP
offers a
wide array of Managed Data Services from co-location
co location and professional services, to Internet and data
connectivity.
1.1.1. Co-location
location Services
Converge's Co-location
Co location Services allow customers to host network and data storage
IP-Converge's
equipment in the IPC Data Center. By doing so, customers take advantage of our secure,
state-of-the
the art infrastructure and resilient, high-bandwidth
high bandwidth connectivity. Through this
facility, we provide robust, secure and highly optimized Internet data center environment
(space, power and cooling) for the co-location
co
of network
twork equipment and application servers
for our customers. IPC Data Center features full telecommunications redundancy, continuous
power and 24x7 technical monitoring and maintenance.
1.2. IPC ACCESS Connectivity Solutions
utions are high-performance
high
IP
IPC Access communications solutions
transit and managed connectivity services that run on IPIP
Converge’s robust global network infrastructure. These services
provide businesses and organizations with access to the
multitude of data and content over the Internet, as well as the capability to communicate and
collaborate in the “Cloud”.
6
Converge’s robust Asia pacific
pacific network infrastructure a fully meshed system with a point-ofpoint
IP-Converge’s
presence in Hong Kong, and is peered with all major telecommunications providers and Internet
In
exchanges in the Philippines and the region. IP-Converge
IP
is the very first Filipino Internet service
provider to peer directly with the HKIX (Hong Kong Internet Exchange) - a major connectivity hub in
Asia.
Converge’s multi-gigabit
multi
active international core network capacity on a single AS
Through IP-Converge’s
network, Philippine-based
based customers are just a few hops away from global Internet markets, and
foreign clients are likewise able to extend the availability of their products and services to the bustling
local market.
1.2.1. Global Internet Access (GIA)
IP-Converge’s Global Internet Access provides customers with
high-capacity
capacity Internet connectivity through the most diverselydiversely
routed, IP backbone networks in the Asia-Pacific
Asia
region, with
direct connectivity to the US and Europe.
fit from superior network
Customers immediately benefit
performance and extensive Internet connectivity to the rest of the world. In addition, GIA provides
flexible and highly-scalable
scalable solutions that support the changing and growing requirements
requi
of
enterprises. And, being truly carrier-neutral,
carrier
IP-Converge
Converge is peered and partnered with all domestic
and major regional telecommunications carriers, making GIA a robust and resilient communications
service. In addition, through steadfast business
business relationships with these leading providers, IPIP
Converge is able to serve clients from any point in the country, and the region.
GIA is offered at different service levels, speeds, configurations
configurations and interface types to provide the
scalability and flexibility
ity to match individual customer requirements.
1.2.2. Connectivity Services
Through our steadfast business relationships with major international and domestic carriers,
we are able to provide our customers with multiple options for telco-grade,
telco
carrier-neutral
connectivity services in the country and to the rest of the world.
1.2.2.1. Digital Leased Lines or Local Loops serve as direct connections between
our customers' premises and our GIA platform in our IDC. Being carrier-neutral,
carrier
our domestic network coverage is as large as that of all local loop providers
combined.
1.2.2.2. IPLCs (International Private
te Line Circuits) are dedicated international
circuits delivered through IP-Converge’s
IP Converge’s strategic partnerships with leading
international carriers. These links are monitored 24x7 by our Network Operations
Center, and supported by back-to-back
back
Service Level Agreements (SLAs) with
respective telcos. We o er IPLCs bundled with our GIA bandwidth, or as clear
channels, depending on customer requirements.
1.2.2.3. Managed IP-VPN
IP
provides secure communications to our customers'
remote locations, and ensure the privacy
privacy of data transmission. The solution enables
secure, reliable connectivity along with network and application-level
application
protection for
critical, high-tra
high
c network segments where advanced applications such as VoIP
and streaming media are highly utilized.
.3. IPC Professional Services
1.3.
IPC Professional Services enable customers to leverage on the
wide range of technical professional services that the company can
provide, complementary to existing IPC Data Center and IPC
Access services. With a roster of highly skilled and experienced
7
technical professionals IPC is able to offer skill sets ranging from data communications, LAN/WAN
and TCP/IP design and management, data center design and management, to IT systems management
- including specific skill sets around database systems, operating systems and server/networking
server/networ
equipment.
Customers are immediately able to leverage on this offering either on a regular, ongoing basis through
our Managed Services or on a one-time
one time project basis, Implementation Services.
1.3.1. Managed Services
A set of Professional Services performed by IP-Converge
Converge regularly on behalf of customers to
augment or replace tasks performed by in-house
in
personnel on an on-going
going basis.
Managed Services cover regularly scheduled and routine services that customers require,
such as on-going
going maintenance
maintenance and management, systems administration, break-fix
break
services
and service desk, among others to ensure customers’ systems are running at an optimum
level and ensure the availability of their mission-critical
mission critical applications and data.
1.3.2. Implementation Services
Se
Professional Services performed by IP-Converge
IP
as a one-time
time project, on behalf of
customers to augment or replace their performed by in-house
in house personnel.
For customers who require work or services to be done on an ad-hoc
ad hoc basis, Implementation
Services
es are an ideal solution as it covers a range of tasks from server and equipment testing
and mounting, cabling, server and system setup and even LAN/WAN implementation and
design.
1.4. Prolexic DDoS Mitigation Services
DDoS or Distributed Denial of Service
ce is currently the world’s
most costly cyber crime, able to cripple a network for a period of
time by using multiple computers that have been infected to send
out bogus traffic to a specified target. To mitigate this massive
network threat, IP-Converge
Converge has
has partnered with Prolexic Technologies (USA), the world’s pioneer in
DDoS Mitigation services.
Prolexic routes traffic via three primary methods (although due to clients’ individual needs, set-ups
set
are often customized and/or combined):
1.4.1. DNS Redirection / Proxy - Our original delivery method and still the quickest
method to deploy Prolexic’s solution, IPs on Prolexic’s intrusion prevention network (IPN)
are provided to the customer. Through a DNS change, all customer traffic is routed
rou
to
Prolexic’s IPN, where it is cleansed. Once traffic is filtered of malicious content, it is proxied
back to the customer’s infrastructure. Proxy is a simple configuration and provides the
additional benefit of content caching.
1.4.2. BGP Routing / GRE
G
Tunneling - Clean Pipe Virtual Transport® can be easily
implemented over a dedicated GRE tunnel. Prolexic will announce the customer’s subnet
and tunnel traffic to its location via Generic Route Encapsulation (GRE) tunnels. GRE
tunneling provides a customer
customer several advantages, including total control over when traffic is
filtered. Traffic re-routes
re routes can be performed quickly using BGP, the standard routing protocol
in use today to support complex routing policies.
1.4.3. Direct Circuit - Imagine having a dedicated circuit that can withstand a 10+ Gbps
SYN flood or TCP connection flood. With dedicated circuits, customers will have the
defenses required to survive such attacks without notice. Clean Pipe Virtual Transport®
circuits can be implemented like a standard
s
BGP4-enabled
enabled Internet circuit. Connections can
be made directly within Prolexic’s points-of-presence,
points
presence, or via a Prolexic partnered low-cost
low
dedicated circuit directly to Prolexic’s IPN.
2. BUSINESS SOLUTIONS & SERVICES
ns & Services are some of the most advanced systems and software around.
IP-Converge Business Solutions
Ranging from financial to operational solutions, these applications simply aim to help organizations do
8
business with ease. As part of IP-Converge’s
Converge’s thrust towards customer enablement,
enablement, these solutions allow clients
to streamline internal processes, utilize cost-effective
cost effective business tools, or jumpstart into a new business with
minimal expense.
Demand Business Services
2.1. Salesforce.com On-Demand
Salesforce.com is the market and technology leader
l
in ondemand business services. The company’s Salesforce suite of onon
demand applications enables customers to manage and share all
of their sales, support, marketing and partner information on-demand.
on
The Apex platform, Salesforce.com’s on-demand
on
platform, allows customers and partners to build
powerful new applications quickly and easily, customize and integrate the Salesforce suite to meet
their unique business needs, and distribute and sell on-demand
on demand apps on the AppExchange. Customers
can also take advantage of Successforce, Salesforce.com’s world-class
world class training, support, consulting
and best practices offerings.
As Salesforce.com Select Consulting Partner in the Philippines, IP-Converge
IP Converge provides Salesforce.com
licenses, customization and implementation
implementation services, and customer support to organizations in the
country and the ASEAN region. Subsequently, IP-Converge
IP Converge has been merited by Salesforce.com with
the Top ASEAN Partner of 2008 award, and the ASEAN Customer Satisfaction Award for 2009.
2.2. Microsoft Dynamics CRM
Microsoft Dynamics CRM is a full customer
relationship management (CRM) suite with marketing,
sales, and service capabilities that are fast, familiar, and
flexible, helping businesses of all sizes to find, win, and
grow profitable customer relationships. Delivered through a network of channel partners providing
specialized services, Microsoft Dynamics CRM works with familiar Microsoft® products to
streamline processes across an entire business.
2.3. Google Enterprise Products
Google enterprise products combine the innovation and ease of use of Google's
consumer products with the features, security and support that your organization
requires. These solutions meet the needs of organizations of all sizes and serve
over 30,000 search
search and 3,000,000 Google Apps customers.
2.3.1. Google Apps for Business
Google Apps brings simple, powerful
communication and collaboration
tools to your organization. With
Google Apps, your users can use applications such as Gmail™ webmail service (with 25GB
mail storage per user and virtually no spam and viruses), Google Talk™
Tal
instant messaging
service, Google Calendar™ calendaring service, Google Docs™ productivity programs
(word processing, spreadsheets and presentations), Google Sites™ web application for
intranets and project sites, and Google Video™ for sharing and publishing
publishing in-house
in
video.
All this running on your own domain -- for users to work together more effectively, and at
LESS COST compared to traditional license-based
license based tools. Best of all, it's all hosted by
Google, so there's no hardware or software to download,
download, install or maintain, and your users
can access their email, documents and other data anytime, anywhere!
2.3.2. Google Search Appliance
9
Google Search Appliance (GSA) is an integrated hardware and software search solution that
brings the ease of Google search to intranets and websites of any size. Leveraging algorithms
specifically designed for enterprise content, Google Search Appliance provides users with
fast, highly relevant results. Organizations can use GSA to make data on servers, content
management systems, databases, and business applications instantly and securely available
from a single familiar search box. More than 35,000 companies worldwide use Google
Enterprise search solutions.
2.3.3. Google Message Discovery
Complete email security and archiving in one package. Make your email servers more
secure, compliant, and productive. Block email threats before they reach your organization.
Create a secure and searchable email archive without making a significant infrastructure
investment by storing messages in the cloud. Locate pertinent messages quickly and
comprehensively even as your email volumes and compliance requirements grow. Leverage
cloud services to reduce maintenance, protect bandwidth, and free up resources to work on
strategic business initiatives.
2.3.4. Google Message Security
Protect your email infrastructure from spam and viruses; easily set and manage usage
policies. Make your email servers more secure, compliant, and productive. Block email
threats before they reach your organization. Ensure proprietary information that must remain
confidential stays where it’s safe. Eliminate the need for the ongoing patching and updates
required by appliance or software solutions. Leverage cloud services to reduce maintenance,
conserve bandwidth, and improve the performance of your existing email infrastructure.
2.3.5. Google Message Continuity
Complete email continuity and disaster recovery solution in one package. Protect your
organization from email outages and productivity disruptions. Minimize risk of data loss
from on-premise server failures. Maintain up-to-date correspondences despite incidents
affecting IT infrastructure. Leverage cloud computing to reduce maintenance, protect
bandwidth, and free up resources to work on strategic business initiatives.
Key Competitors
There are a number companies offering Data Center facilities in the country, but the main players aside from
IP-Converge are the following: (i) ePLDT’s Vitro data center, (ii) Globe’s MK2 data center (formerly
AyalaPort), and (iii) Total Information Management (TIM).
Mission, Vision and ISO Policy statements
Mission:
Our Mission is to ensure our customers achieve their business goals with our valuedriven Internet solutions.
Vision:
We will be the leading provider of world-class cloud computing solutions to the
enterprise.
…by building and operating state-of-the-art, full-service data center facilities
...by providing business solutions on-demand
…by forging strategic partnerships with industry leaders
…by being a preferred employer in our industry
…by continuing our financial strength
…by ensuring customer satisfaction all the time
Quality Policy:
IP-Converge is committed to maintaining customer satisfaction by consistently providing value-driven
solutions and services.
10
Value is ensured through continuous improvement and innovation, and by emphasizing quality in daily
operations, as reflected by consistent compliance to the company’s annually audited Quality Management
System (QMS), and the professionalism of each IP-Converge employee.
Information Security Policy:
IP-Converge ensures the confidentiality, integrity, and availability of information and associated assets by
identifying, assessing, mitigating, and managing information security risks and ensuring business continuity.
Effective and secure information handling, as well as the appropriate response to security incidents, are
ensured through consistent compliance to the company’s Information Security Management System (ISMS)
and is reviewed and audited annually.
IP E-GAME VENTURES INC.
IP E-Game Ventures Inc. (“Company” or “E-Games”) was incorporated on November 22, 2005,
primarily to engage in the business of interactive gaming and content distribution. We are the online gaming
subsidiary of IPVG Corp., a Philippine company whose shares are listed in the Philippine Stock Exchange,
Inc. (“PSE”), both directly (14.5%) and indirectly (55%) through its 71%-owned subsidiary, IPE Global
Holdings, Inc., a company incorporated in British Virgin Islands.
We are one of the leading online game publishers in the country. We offer a portfolio of online games
consisting of massively multiplayer online role-playing games or MMORPGs and casual online games. We
pioneered the free-to-play business model, wherein gamers are not required to pay a subscription fee to play
online games. Gamers are given the option of purchasing “in-game items” to enhance their gaming
experience. We sell our virtual currency (e-Points) that is used to purchase these in-game items.
We started commercial operations on March 31, 2006 and now operate the two online games most
often played in the Philippines based on a survey conducted by AE Research Exponents, Inc. in August 2008.
Our online games RAN Online and CABAL Online are the top two MMORPGs, and our casual game
Audition was the third ranked online game most often played and the most often played casual online game
played in the country based on the same survey.
The Company now operates the largest internet café chain in the country with over 100 outlets. The
Company plans to grow these outlets over the next 3 years, as part of its strategy to become the leading digital
consumer platform in the country.
We have 28 main distributors through which we cover the entire country, with a network spanning
approximately 20,000 outlets such as internet cafés, independent kiosks, mini marts, and computer shops.
SUBSIDIARIES AND AFFILIATES
Digital Paradise, Inc.
Digital Paradise, Inc. was incorporated in the Philippines and registered with the Philippine Securities
and Exchange Commission (SEC) on July 23, 2002 to establish, purchase or otherwise acquire, develop,
transfer, assign, or license a distinctive business format or system in rendering internet, desktop publishing and
other related services to the public. Digital Paradise Inc. was registered with the Board of Investments (BOI) as
a “New IT Service Firm in the field of Community Access” on a non-prior status under the Omnibus
Investments Code of 1987. Under the provision of the registration, the Company’s sales generated from its
own community access activity and franchisee fees were entitled to income tax holiday (ITH) until November
30, 2008.
On June 22, 2010 SEC approved and issued the Certificate of Amendment of the Articles of
Incorporation on the Company’s Primary purpose as follows: To engage in, conduct and carry on the business
of providing shared community access through the internet, computer leasing, desktop publishing and other
Internet-related activities, buying, selling, distributing, marketing at wholesale and retail in so far as may be
permitted by law, all kinds of goods, commodities, wares and merchandise of every kind and description, of
11
computer products, to enter into all kinds of contracts for the provision of said services, export, import,
purchase acquisition, sale at wholesale or retail and other disposition for its own account as principal or in
representative capacity as manufacturer’s representative broker, indentor, commission merchant, factors or
agents, upon consignment of all kinds of goods, wares, merchandise or products whether natural or artificial.
Netopia is the largest chain of Internet Café in the Philippines with over 2,847 (owned) workstations
consisting of 71 company-owned and 34 franchised branches located in major malls and school perimeters.
Netopia’s products and services are: First Layer: (a) Computer Use: Office Applications, Editing,
File Transfer, etc. (b) Internet Access: Surfing, Chat, VOIP, Research, Gaming, Social Networking, etc. (c)
Venue/Block rental for training, testing, recruitment, meetings, corporate events, etc.. Second Layer: (a) Value
Added Services: document and photo printing, layouts, advertising, CD burning, consumables sales, etc. (b)
Electronic load for mobile phones, online games, landlines, cable TV, etc.; Third Layer: (a) Products/ Digital
content distribution (b) all prepaid cards for e-learning programs (c) PIN dispensing services.
Webworx Computer Technology Corp..
Webworx Computer Technology Corp. was incorporated in the Philippines and registered with the
Philippine Securities and Exchange Commission (SEC) on August 17, 2011 to engage in, conduct, and carry
on the business of providing shared community access though the internet, computer leasing, desktop
publishing and other internet-related activities, buying, selling, distributing, marketing at wholesale and retail
insofar as may be permitted by law, all kinds of goods, commodities, wars and merchandise of every kind and
description, of computer products, and to enter into all kinds of contracts for the provision of such services.
Webworx, a chain of 21 Internet cafes under the brand “CyBr” is one of the largest Internet café chains in the
Philippines consisting of 17 company-owned and 4 franchised branches. Cybr is the most prominent brand of
i-cafes focused on servicing the online gaming community. All of their Internet cafes are located in
commercial malls and shopping centers around Luzon.
RAN Online, Inc.
RAN Online, Inc. was incorporated on August 3, 2006. It has an authorized capital stock of P1
million divided into one million common shares, and a subscribed capital of P250,000. It is a wholly-owned
subsidiary that provides information technology support services to third party gaming companies as well as
our affiliates. On April 21, 2009, the Board of Directors and stockholders of RAN Online, Inc. approved the
change of name to Game Masters, Inc. and the primary purpose to engage in business process outsourcing
(BPO) focused on online gaming clients, gaming and content distribution, catering to local, regional and global
markets. As of September 30, 2010, the subsidiary is still in the process of preparing the necessary
documentary requirements for its application with the Securities and Exchange Commission (“SEC”) for the
said changes.
X-Play Online Games Incorporated (“X-Play”)
On December 20, 2007, we signed a Shareholders’ Agreement with GMA New Media, Inc.
(“GNMI”) creating and operating a joint venture company, X‐Play, which will engage in the business of
designing, operating and maintaining casual online gaming and casual online gaming related portals. X‐Play
has an authorized capital stock of P800 million (comprised of eight million common shares with a par value of
P100 per share), subscribed capital of P200 million, and paid-in capital of P100 million, equally owned with
GNMI. Our contribution to capital was in the form of cash and certain online gaming assets. GNMI
contributed cash and advertising airtime.
The formation of X‐Play will allow us to expand our casual games platform to the mainstream
television market. We hope to recruit new players for our casual games from the television viewing public.
We will have access to the website development, talents and advertising spots of GMA Network, Inc.
First Cagayan Converge Data Center, Inc. (“FCCDCI”)
12
FCCDCI was registered with the SEC on November 17, 2007 and was formed as a joint venture
company between IP Converge Data Center, Inc. (“IPCDCI”) and First Cagayan Leisure & Resort Corp.
(“FCLRC”), to engage in information technology and communications, such as but not limited to Internet
Protocol Systems products and their improvements and other services related thereto, such as co‐location,
bandwidth, disaster recovery services, software development, internet merchant payment processing and
payment solution to the licensed locators of FCLRC, as well as the Cagayan Economic Zone Authority.
FCCDCI has an authorized capital stock of P25 million divided into 25 million shares with a par
value of P1 per share, of which P25 million has been subscribed and P6.25 million has been paid. FCCDCI
was established with FCLRC owning 60% and IPCDCI owning 40%. The company started commercial
operations on January 1, 2008.
On January 1, 2009, IPCDCI effectively assigned its subscription rights (covering 9,999,998 shares of
FCCDCI, which represent 40% of FCCDCI’s outstanding capital stock) to E-Games, the consideration for
which was paid in cash.
Our acquisition of FCCDCI improves our communications infrastructure in the Philippines,
particularly in the Northern Luzon area. FCCDCI maintains an extensive fiber optic network and data center in
Cagayan Economic Zone Authority. FCCDCI is a profitable company and diversifies our business model by
capturing the enterprise market.
PRODUCTS AND SERVICES
Our products and services fall under two main segments, MMORPGs and casual online games, which
are delivered to our end-customers through our internet game portal. We have a potential base of over 24
million customers1 based on the Philippine population with internet access, either through internet cafes or
personal broadband internet access.
We pioneered the free-to-play revenue model, wherein players can play games for free. We sell
prepaid cards and prepaid PINs that are used by gamers to purchase in-game virtual items such as
performance-enhancing accessories, pets, weapons, and other virtual items that make the gaming experience
more enjoyable.
MMORPG
A MMORPG is a genre of online computer RPGs in which a large number of players interact with
one another in a virtual world. As in all RPGs, players assume the role of a fictional character or an “avatar”,
which serves as their online alter ego. These avatars can be realistic, fantastic or even cartoon-like, depending
on the genre of the game. MMORPGs are distinguished from single-player or small multi-player RPGs by the
number of players and by the game’s persistent world, usually hosted by the game’s publisher, which
continues to exist and evolve even while the player is away from the game. This segment of online games
targets the hardcore gamers.
As the game characters progress through the game, they gain experience and collect game items such
as weapons and pets, which allow them to have certain powers, and enable them to attain a higher level in the
game and a better standing in the gamer community. Collective groups of gamers (called “guilds”) form
within the game, thereby building camaraderie and enhancing the overall gaming experience. The key to a
successful operation in this business is the creation and maintenance of these large communities of gamers that
can be later monetized at many levels.
As of date, the following is a list of our active licensed MMORPGs:
Game Title
Description
Start of
Commercial
Operation
Game Source/ Licensor
1
Philippine Daily Inquirer, August 25, 2009, as quoted from Eric Barrera, Nielsen Philippines Director for
Client Services, at the Mobile Marketing Summit 2009
13
Game Title
Description
RAN Online
Modern campus based
game
CABAL Online
Granado Espada
Dragonica
Futuristic fantasy game
with dungeons
Old world exploration
fantasy game
three dimensional (3D)
side‐scrolling action
fantasy adventure
game
Start of
Commercial
Operation
Game Source/ Licensor
March 31, 2006
Developed by Min
Communications (Korea) and
licensed from Goldsky Access
International, Inc. (Malaysia)
June 12, 2008
ESTsoft Corp. (Korea)
September 15,
2007
Infocom Asia Holdings Pte. Ltd.
(Singapore)
September 2,
2010
Cyber Gateway (L) Pte. Limited
(Singapore)
Casual Games
The term “casual game” is used to refer to a category of electronic or computer games targeted at a
mass audience. Casual games usually have a few simple rules and an engaging game design, making it easy
for a new player to begin playing the game in just minutes. They require no long-term time commitment or
special skills to play, and they represent comparatively low production and distribution costs for the producer.
Starting June 2008, we spun off our casual gaming division into X-Play, our joint venture with GNMI.
As of date, the following is a list of X-Play’s active licensed casual game titles:
Game Title
Description
Start of Commercial
Operation
Game Source/ Licensor
Audition Dance
Battle (Audition)
Music rhythm game
November 2006
T3 Entertainment Co., Ltd.
(Korea)
October 13, 2009
MGame Corporation (Korea)
October 12, 2010
YD Online Corporation (Korea)
To be launched 4th
Quarter 2010
Shanda Music Limited
(Hong Kong)
Operation7
BandMaster
Super Star
Online
First person shooter
game
Band‐themed music
rhythm game
Online karaoke
game
14
IPAY COMMERCE VENTURES INC.
I-Pay Commerce Ventures, Inc. (“i-PCV”), is a subsidiary of the IPVG Corp (PSE: IP), a publicly listed
company in the Philippine Stock Exchange (“PSE”) and considered to be the ‘proxy’ IT company in the
Philippines with major interests in communications (“IDCs” or “internet data centers”), content (“online
games”), and business process outsourcing (“BPO”).
I-PCV is a registered remittance agent under the Bangko Sentral ng Pilipinas (BSP) and has signed with
Western Union Network as a direct agent in the Philippines. It has also purchased the assets of PSRCard Corp.,
which effectively gives I-PCV the rights to manage the Premyo Sa Resibo Card program of the BIR, in
collaboration with Philweb.
To date, the Company has over 600 outlets.
I-PCV has launched an integrated platform for remittance and other retail-based services targeting SME’s in
the country. This package is called the I-PCV Business Center. Services include processing of local and
international remittances via Western Union, foreign exchange, sales and distribution of the Premyo Sa Resibo
Cards, online bills payments, and airtime cell phone loading.
THE BUSINESS MODEL
I-PCV offers Business Center services specifically catering to existing retail-based enterprises, many of which
are drug stores, pawnshops, Internet cafes, travel agencies, bingo parlors and gasoline stations. The program
allows partner Merchants to increase income through added services on top of the existing products and
services provided by the Merchant’s outlet.
THE REMITTANCE MARKET
The increasing number of migrant Filipinos around the world has propelled the Philippines as the third largest
receiving corridor of money transfer services, next to India and Mexico. In fact, around 10% of the country’s
90 million population are recorded to be living abroad. In 2008, 1.4 million Filipinos moved abroad for work,
a daily deployment of close to 4,000 people. It is understood that remittances have become a major pillar of the
Philippine domestic economy, making up about 10% of the country’s Gross Domestic Product (GDP). Even
the Philippine Government has championed the overseas workers calling them “modern day heroes.”
Consequently, the Philippines received a record $17.3 billion in remittances in 2009, growing an average of
15% year-on-year since 2005.
Despite the current economic slowdown, the business of money remittance is expected to grow. Stimulus cash
spending, and the growing number of professional overseas Filipino workers are projected to contribute to an
estimated 10% growth for 2010.
There remains a large untapped segment of the market that remits through informal channels. An estimated 3550% of all remittances pass through these ‘gray channels’. i-PCV aims to capture this segment by developing a
wide network of Western Union remittance outlets.
PRODUCTS AND SERVICES
Western Union:
I-PCV, as a direct agent, is authorized by Western Union to help enroll outlets for them to become authorized
Western Union locations.
Western Union locations earn a commission from each remittance transaction processed in the Western Union
remittance system. There are two types of Western Union remittance transactions: Pay-out transactions are
when a customer collects or receives money from a Western Union location, and Send-out transactions are
when customers send money through the Western Union location. Western Union transactions can either be in
US dollars or Philippine Pesos.
15
Western Union is a global leader in money transfer services, offering the ability to send and receive money in
more than 420,000 Western Union Agent locations and in over 200 countries and territories.
Bills Payment and Cell Phone load:
To further increase the foot traffic and maximize revenue potential, the I-PCV Business Center services
includes Bills Payment and Cell Phone Load services. Some Biller companies available are Maynilad, Manila
Water, Veco, Davao Light, Smart, Globe, PLDT, and numerous others. The Cell Phone Load services include
pre-paid load from three main telecommunication companies: Smart, Globe and Sun. The Bills Payment and
Cell phone Load services are easy to use and accessed on the same computer terminal as the Western Union
services.
Premyo Sa Resibo (PSR) Card:
The Premyo Sa Resibo program is an initiative of the Bureau of Internal Revenue (BIR) with the premise of
providing incentives to Filipino’s so that they demand a receipt for all their purchases. The original method to
join PSR was to write a name and contact number on actual receipt and drop these receipts off at BIR offices
nation-wide. Since then, the BIR and Philweb tied up and introduced an SMS text registration of receipts.
Allowing people to purchase a PSR Card to register receipts further enhanced the method of joining the PSR
program of BIR. For a nominal price of twenty pesos, people can have multiple chances to win, including the
incentive prize of one million pesos.
16
PROLEXIC TECHNOLOGIES, INC.
IPVG acquired Prolexic Technologies Inc. in December 21, 2007 through a Stock Purchase Agreement with
the stockholders of Prolexic for 100% of the outstanding capital stock of the company. Prolexic was
incorporated in May 21, 2004 in the State of Delaware, USA. The company is engaged in the business of
providing protection to businesses operating in the Internet against Distributed Denial of Service (DDoS)
attacks that make the web servers unavailable to their intended users. Prolexic is the only security provider
that has proven capabilities in identifying, tracking, and mitigating the largest and most innovative DDoS
attacks faced by companies nowadays.
Prolexic mitigation services use a global network designed to protect businesses from all forms of DDoS
attacks and emerging security threats to DNS, VoIP, and email while simultaneously increasing network
performance. Leveraging its unique filtering techniques, high-speed bandwidth and peering, advanced routing,
and other patent-pending devices, Prolexic has created the most powerful DDoS detection and protection
system in the world.
Prolexic’s Clean Pipe Virtual Transport® service enables enterprises and service providers to scale against the
largest and most aggressive DDoS attacks on the Internet. This protection can be provided through three
different delivery methods:
•
DNS Redirection / Proxy
An original delivery method and still the quickest method to deploy Prolexic’s solution, IPs on Prolexic’s
intrusion prevention network (IPN) are provided to the customer. Through a DNS change, all customer
traffic is routed to Prolexic’s IPN, where it is cleansed. Once traffic is filtered of malicious content, it is
proxied back to the customer’s infrastructure. Proxy is a simple configuration and provides the additional
benefit of content caching.
•
BGP Routing / GRE Tunneling
Clean Pipe Virtual Transport® can be easily implemented over a dedicated GRE tunnel. Prolexic will
announce the customer’s subnet and tunnel traffic to its location via Generic Route Encapsulation (GRE)
tunnels. GRE tunneling provides a customer several advantages, including total control over when traffic
is filtered. Traffic re-routes can be performed quickly using BGP, the standard routing protocol in use
today to support complex routing policies.
•
Direct Circuit
A dedicated circuit that can withstand a 10+ Gbps SYN flood or TCP connection flood. With dedicated
circuits, customers will have the defenses required to survive such attacks without notice. Clean Pipe
Virtual Transport® circuits can be implemented like a standard BGP4-enabled Internet circuit.
Connections can be made directly within Prolexic’s points-of-presence, or via a Prolexic partnered lowcost dedicated circuit directly to Prolexic’s IPN.
Market Opportunity
Over the past several years, the rise in global physical security threats has been matched in the online world.
IT security threats are growing rapidly with respect to number, size and sophistication. Thus, the market of
products that detect and prevent these threats continued to grow just as rapidly.
The size and growth of the DDoS mitigation market, the ineffectiveness of traditional security solutions
against DDoS attacks, and the attractive economics of IT security combine to create a large and addressable
opportunity for Prolexic. DDoS attacks have a dramatic and expensive impact on their targets. The scale of
these attacks can take down company websites. An example of a DDoS attack would consist of a cyberterrorist placing a malicious program in a large number of independent computers that are connected to the
Internet, and when prompted, these “zombie” computers begin a barrage of communication with the target
business’ website, causing the website to shut down due to traffic it cannot handle.
17
DDoS attacks made headlines in 2001 by taking down the Internet presence of eBay, Microsoft and Amazon,
and causing over $1B in damages and lost business, and have been found to be the most expensive cyber-crime
according to a 2004 FBI/CSI survey. Several other companies over the last five years have been taken down
by DDoS attacks including Authorize.net in 2004 that caused the servers of the payment gateway service
provider to shut down for over a week. And as more and more companies become web-enabled, including
banks, online stock brokers, e-commerce retailers, etc., more companies require the services of a company like
Prolexic.
Property and Facilities
Prolexic is headquartered in Hollywood, Florida (20 miles outside of Miami), and currently leases a multipurpose space of approximately 5000 square feet. The Prolexic network on the other hand, is currently made
up of four data centers in Miami and San Jose in USA, London UK and Hong Kong in China, . The
organization and management team has varied experience in start-ups to high growth markets, headed by its
President, Mr. Gus Cunningham. Gus joined Prolexic in March 2006 as Vice President of Sales EMEA,
having previously spent eight years in the managed hosting business in London, England with both Savvis Ltd
and Globix Ltd.
Competition
Prolexic’s innovative technology and unique approach to mitigating DDoS attacks clearly differentiate the
company from its competition. The competition can be divided into direct competitors, consisting of
companies specifically targeting the DDoS solutions market with DDoS mitigation hardware and scrubbing
centers; and indirect competitors, consisting of companies that provide a variety of Internet security services,
including co-location, hosted and Internet service providers but do not provide explicit DDoS solutions.
18
PART II. RESULTS OF OPERATIONS
Financial Highlights and Key Performance
Indicators
AS AT
Consolidated Balance Sheet
Total Assets
Current Assets
Property and Equipment
Total Liabilities
Current Liabilities
Interest-bearing Loans
Stockholders’ Equity
Continuing and Discontinued Operations
Consolidated Statements of Income
Revenues
Gross Profit
Expenses
Income (loss) from operations
Earnings Before Interest, Taxes, Dep’t. & Amort.
Net Income / (Loss) before tax
Net Income / (Loss) after tax-continuing operations
Net Income / (Loss) after tax-discontinued operations
Net Income / (Loss) after tax from continuing and
discontinued operations
December 31
2011
2010
283,509,452
283,039,643
0
28,526,409
28,526,409
0
254,983,043
Consolidated Cash Flows
Key Performance Indicators
Current Ratio
Book Value per Share
Debt to Stockholder's Equity
Gross Margin
EBITDA Margin
Net Income Margin
Earnings Per Share(Basic/diluted)
December 31
2011
2010
934,542,611
510,438,081
(538,471,227)
(28,033,146)
175,617,380
(502,476,122)
(342,767,177)
(233,233,319)
(576,000,496)
2011
(597,000,988)
506,801,797
28,656,499
288
43.31
Increase (Decrease)
Amount
%
68,040,163
(644,040,659)
-947%
December 31
2010
121,094.567
(43,258,317)
155,815,013
2010
798,344,721
%
-87%
-63%
-100%
-98%
-97%
-100%
-76%
-27%
-31%
-22%
-164%
-37%
-666%
-479%
946%
2011
2011
Amount
(1,926,027,298)
(480,759,484)
(1,021,373,909)
(1,115,968,075)
(1,034,286,829)
(361,747,077)
(810,059,223)
(353,937,075)
(227,300,153)
155,763.617
(71,536,536)
(102,902,771)
(591,301,849)
(433,113,127)
(210,927,532)
December 31
9.92
0.32
0.11
55%
18.8%
-61.63%
P 0.7843
Increase (Decrease)
1,288,479,686
737,738,234
(694,234.844)
43,503,390
278,520,151
88,825,727
90,345,950
(22,305,787)
December 31
December 31
Outstanding Shares
Number of Employees
Ave. Exchange Rates ($ to Peso)
2,209,536,750
763,799,127
1,021,373,909
1,144,494,484
1,062,813,238
361,747,077
1,065,042,266
December 31
December 31
Net Cash from Operating Activities
Net Cash from Investing Activities
Net Cash from Financing Activities
December 31
Increase (Decrease)
Amount
(718,095,555)
550,060,114
(127,158,514)
0.72
1.47
1.07
57%
21.6%
5.28%
P 0.0719
December 31
2010
722,344,721
299
45.11
19
%
-593%
-502%
-82%
A. FINANCIAL RESULTS
Ratios
• Current Ratio is computed by dividing Current Assets by Current Liabilities.
• Gross Margin is computed by dividing Gross Profit by Total Revenue.
• Net Operating Margin is computed by dividing Net Income / Loss by Total Revenue.
• Earnings Per Share is computed by dividing Net Income / Loss by Weighted Average
Number of Common Shares.
• Debt to Equity Ratio is computed by dividing the sum of Short Term and Long Term
Interest Bearing Loans by the Total Stockholders Equity and Advances from
Stockholders.
Discussion on Financial Results
The sale of all or substantially all the Corporation’s assets and the transfer of the liabilities to IP Ventures Inc. on
September 26, 2011,, have an effect on IPVG Corp. consolidated comparative figures for 2011 vs. 2010.
The Group’s restructuring plan is to focus on its core assets to optimize its value,
value, as it plans to inject an operating
business into the Company.
2011 vs. 2010
During the year, the Group’s consolidated gross
gr revenue reached P934.5 Million, a decrease of P353.9 Million from
previous year ’s P1.29 Billion. The decrease was the result of the transfer of assets and liabilities which rendered the
Company to have loss its control over its subsidiaries and associates since the voting interests have been transferred
to IPVI effective September 2011. The revenues from discontinued operations are only for nine-month
nine
period (Jan-September, 2011).
Revenues from continuing operations decreased by 33% from P7.8Million to P5.2Million
P
lion mainly due to decrease in
management fees. In 2011 the Company recognized Management fees from subsidiaries only until September, 2011
except for Prolexic which was no longer billed after the Company sold its 69% ownership interest in March, 2011.
Revenue
(Php-Million)
Total
2009
Discontinued Operations
2010
Continuing Operations
2011
-
500.00
1,000.00
1,500.00
Cost of Sales, as a percentage of net
n revenues, went up from 43% in 2010 to 45% in 2011.
20
As a result, Gross
Margins declined to 55% from 57% in 2010 for Continuing and Discontinued Operations.
Earnings Before Interest, Depreciation and Amortization (EBITDA) amounted to P175.6
175.6 Million from
previous year’s P278.5 million or a decrease by (P102.9) Million or (37%) for Continuing and Discontinued
Operations.
Consolidated Net Loss from continuing and discontinued operations after tax amounted to (P576.0) Million
loss from
m previous year’s gain of P68.0 Million. In 2011 there was a non-recurring impairment loss totaling
20
(P575.1) Million from financial and non-financial assets and a Loss on transfer of assets and liabilities for
P140.0 Million as a result of the restructuring plan of the Company. These losses were offset by a gain on sale
of investments in subsidiaries for P333.1Million.
Total consolidated assets decrease by (P1.9) Billion from P2.2 Billion in the previous year to P283.5 Million in
2011, which is mainly attributable to the sale of substantially all its assets in connection with the restructuring
plan of the Company.
Likewise, total consolidated liabilities decrease by (P1.1) Billion from P1.14Billion in the previous year to
P28.5 Million mainly attributable to the sale of substantially all its liabilities in connection with the
restructuring plan of the Company.
Total Stockholder’s Equity for 2011 was at P255.0 Million which decreased from previous year’s P 1.1
Billion, representing a 76% decrease in Equity as compared with 2010..
Additional details on balance sheet accounts may be found at the accompanying Notes to Financial
Statements.
Expenses
Comparing 2011 against 2010, the top expenses in Peso terms for the Continuing and Discontinued
Operations are as follows:
•
Salaries and Benefits decreased by 47% or P186.2 Million from P395.9Million in 2010 to P209.7Million
in 2010. This accounts for about 30% of total operating expenses in 2011. Towards the conclusion of the
restructuring activities there was a decrease in the head count from 292 in June, 2011 to 288 employees in
September 30, 2011. Below is the headcount summary for each of the quarters ended in 2011. In line with
the Company’s Restructuring Plan with IPVI dated September 28, 2011 all individuals currently
employed by or under the payroll of IPVG were transferred to IPVI.
IPVG and Subsidiaries
Headcount Summary
IPVG Parent
Managerial
Rank and File
IP Converge Data Center
Managerial
Rank and File
IP Egame Ventures Inc.
Managerial
Rank and File
I-PCV
Managerial
Rank and File
Prolexic
Managerial
Rank and File
On the Job Trainees
Consultants
Total
Dec-10
32
12
20
78
28
50
116
30
86
20
6
14
37
3
34
0
16
Mar-11
28
10
18
78
25
53
114
33
81
23
5
18
n/a
n/a
n/a
0
10
Jun-11
28
10
18
81
28
53
152
34
118
19
5
14
n/a
n/a
n/a
0
12
Sep-11
-
Dec-11
-
-
-
-
-
-
-
-
-
-
-
299
253
292
-
-
•
Outside Services in 2011 amounted to P110.5 Million which consist of foreign and local contracted
services related to external Legal & Audit services in connection with the restructuring plan of the
Company. This accounts for about 16% of total operating expenses in 2011.
•
Impairment losses on Financial Assets and Nonfinancial Assets amounted to P168.5 Million in 2011
21
which were incurred as part of the restructuring plan of the Company and mainly from discontinued
operations. This accounts for about 24% of total operating expenses in 2011
Details of the restructuring activities and effect to the Company’s financial position may be found at the
accompanying Notes to Financial Statements.
Liquidity and Capital Resources
The following table shows our consolidated cash flows for 2011 and 2010:
December 31
Consolidated Cash Flows
Net Cash from Operating Activities
Net Cash from Investing Activities
Net Cash from Financing Activities
2011
(597,000,988)
506,801,797
28,656,499
December 31
2010
121,094.567
(43,258,317)
155,815,013
Increase (Decrease)
Amount
%
(718,095,555)
550,060,114
(127,158,514)
-593%
-502%
-82%
Our consolidated cash and cash equivalents as of December 2011 amounted to P 201.8 Million, a decrease of
about P61.5 Million as compared to December 2010. This is mainly due to the net effect of the restructuring
plan of the Company wherein substantially all assets and liabilities were transferred to IPVI in September,
2011 per the Asset Purchase Agreement including its investment in subsidiaries and associates for total of
P282 Million partly paid in cash for P200 Million and P82 Million in receivables.
Operating Activities
Consolidated cashflow from operations amounted to (P20.3) Million before change in working capital. Net
Cash outflow from operation activities amounted to (P597.0) Million. . Funds were mainly used for operations
and expenses in relation to the restructuring activities of the company.
Investing Activities
On March 28, 2011 the Company concluded the sale of its 69% ownership interest in Prolexic. Net proceeds
from the sale is P298.0 Million net of the amount of loan granted by the Company to Prolexic amounting to
P143.1 Million and other liabilities assumed in behalf of IPCDC and IPEV assumed by the Company for P35.9
Million.
Total consideration received from the Restructuring Plan which transferred to IPVI substantially all of IPVG
assets and substantially all of its liabilities amounted to P282.0 Million in cash, gross of the Company’s shortterm placement of P25.0Million.
Financing Activities
As part of the restructuring plan substantially all liabilities of the Company for P189.9 Million were transferred
and assumed by IPVI in October, 2011. Increase in capital stock in 2011 was for P93.0 Million
***
The group’s keen eye for opportunities & enhanced synergy is shown in its acquisition of new companies.
This is reflected in the significant increase in funds flowed into subsidiaries, associates & joint ventures. The
Group also continues to make capital investments and additions to property & equipment & intangibles since
year-end 2007.
With the 2011 Restructuring plan in place, the Company seeks to optimize its value as it plans to inject new
operating ventures and business for the Company.
22
23
Requirements under SRC Rule 17 and 68.1
We have extensively disclosed the risks in our Annual Report 17A and Financial Statements filed with the
exchange.
Financial Risk Assessment
The Company and its operating subsidiaries face various categories and levels of risk. Inherent in all of the
businesses is Counterparty risk, or the risk that clients may stop or delay payments of their service invoices,
and that suppliers may fail to deliver the goods and services. Each company is addressing these issues through
continuous dialogue with, and management of, the specific counterparty at risk. We do not see, at this point,
that any failure on the part of our customers, our suppliers, or a group thereof, would materially affect the
financial conditions and results of the company.
Currency Risk
Companies in the outsourcing business and those with USD-denominated billings are naturally prone to the
movements in the exchange rates. The company expose to currency risk is Prolexic Technologies, Inc
(100%), operating in the United States.
During the regime of a strong Peso, the company decided to hedge its net USD inflows with a foreign bank, by
fixing the USD-Peso exchange rate until the end of the contract. Since then, the Peso has depreciated and we
may see the USD to strengthen as the other economies are affected by the credit crisis, and inflows from OFW
remittances may slow down.
Disclosure on Financial Instruments
The Company and its subsidiaries do not carry any market-based financial instruments, derivatives, and other
similar products in their portfolios. Hence, the evaluation of these financial instruments, comparison to fair
values and realization of gains or losses, criteria for determining fair values, are not applicable to IPVG.
IPVG’s investments in foreign securities are limited to its shares in Prolexic Technologies, Inc. Prolexic is not
traded in any public exchange in their territories.
Aside from risks that are inherent in our businesses, such as risks from competitive forces and from the
performance of business operations, we do not foresee any other trend, event or uncertainty that will have a
material impact on our net sales and income from the continuing operations of our subsidiaries.
Any events that will trigger direct or contingent financial obligation, which is material to the company,
including default or acceleration of an obligation.
The recent implementation of the Corporation’s approved Restructuring plan will result to some material key
variable and other qualitative and quantitative factors which will impact on the income and loss and will
trigger direct or contingent financial obligations that are material to the Corporation.
All material off -balance sheet transactions, arrangements, obligations (including contingent obligations) and
other relationships of the company with unconsolidated entities or other persons created during the reporting
period.
There is no material off-balance sheet transaction, arrangement, obligation and other relationship of the
Corporation with unconsolidated entities or other persons created during the reporting period.
Any significant elements of income or loss that did not arise from the issuer’s continuing operations.
The company does not foresee any extraordinary income or loss that would arise from non-core operating
business.
24
Issuances, repurchases, and repayments of debt and equity securities.
We have not issued, repurchased, nor repaid any debt and equity securities.
Any change in the composition of the issuer during the period, including business combinations,
acquisition or disposal of subsidiaries and long-term investments, restructuring, and discontinuing
operations.
The sale of all or substantially all the Corporation’s assets and the transfer of the liabilities to IP Ventures,
Inc. will have an effect beginning Fourth Quarter of 2011. The Company transferred its investments in
subsidiaries and associates, net of allowance for impairment losses on September 30, 2011 and are
reported under discontinued operations.
Changes in contingent liabilities or contingent assets since the last annual balance sheet date.
There have been changes in contingent liabilities or assets since the last annual balance sheet date due to the
restructuring of the Company in September, 2011.
Disclosures not made under SEC Form 17-C.
All disclosures made under SEC Form 17-C have been filed during the period.
Other subsequent events disclosed under SEC Form 17-C.
None to disclose, other than those subsequently mentioned.
25
PART III. SECURITIES OF THE REGISTRANT
(A) Market Price of and Dividends on Registrant’s Common Equity and Related Stockholder Matters:
(1) Market Information
The common shares of IPVG Corp. (“IPVG” or the “Corporation”), up to and not exceeding 798,344,721
shares, are listed and traded principally on the Philippine Stock Exchange (“PSE”).
Summary of Trading Prices at the Philippine Stock Exchange for each of the full quarterly period during
2009 to 2011:
2011
High
Low
Q1
1.32
1.27
Q2
1.42
1.18
High
Low
Q1
1.94
1.20
Q2
1.94
1.20
Q3
2.58
1.16
Q4
3.87
1.23
Q3
1.60
1.32
Q4
1.74
1.26
2010
Q1
1.44
1.30
2009
Q2
Q3
2.16
1.90
1.98
1.82
Q4
1.56
1.56
Source: PSE
(2) Holders
As of December 31, 2011, the Corporation has a total outstanding common stock of 798,344,721 shares,
held by 743 individual and corporate stockholders. The top twenty (20) stockholders of IPVG, their
respective number of shares held, and the corresponding percentage of these shares out of the total shares
outstanding, are as follows:
Rank
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
PCD NOMINEE CORPORATION (FILIPINO)
ELITE HOLDINGS, INC.
PCD NOMINEE CORPORATION (FOREIGN)
IPVG EMPLOYEE, INC.
ROGER STONE
PAUL JOSEPH CUNNINGHAM
MIRANDA, OLEEN
GONZALEZ, JAIME ENRIQUE Y.
TSAO, STEVE
TRANSNATIONAL DIVERSIFIED CORP
CATANI, ARNOLD
E-STORE EXCHANGE.COM, INC.
POLISHETTY, SRINIVAS
REDIX INC.
DELOS REYES, PERCIVAL
HUERGAS, REYNALDO
TABLIGAN, VICTOR
HOJAS, RUBIN M.
DILIG, RODOLFO
OROPEZA, ROGACIANO
Class of
Securities
Common
Common
Common
Common
Common
Common
Common
Common
Common
Common
Common
Common
Common
Common
Common
Common
Common
Common
Common
Common
TOTAL TOP 20
OTHER STOCKHOLDERS
Common
Name
TOTAL OUTSTANDING
Number of
Shares
602,214,372
55,052,300
47,908,716
38,000,000
18,500,001
6,000,000
6,000,000
5,141,530
3,333,000
2,507,639
2,076,802
1,763,080
1,461,761
856,889
500,000
500,000
190,140
189,790
181,040
161,381
792,538,441
5,806,280
798,344,721
Percentage
75.43%
6.90%
6.00%
4.76%
2.32%
0.75%
0.75%
0.64%
0.42%
0.31%
0.26%
0.22%
0.18%
0.11%
0.06%
0.06%
0.02%
0.02%
0.02%
0.02%
99.27%
0.73%
100.00%
26
The total number of shares held by the top 20 shareholders at 792,538,441 represents 99.27% of the
corporation’s total outstanding stock.
(3) Dividends
The Corporation’s Board of Directors has not declared any dividend for the past three (3) years.
Under the By-Laws of the Corporation, dividends shall be declared only from surplus profits and shall be
payable at such time and in such amounts as the Board of Directors shall determine; Provided, however,
that no stock dividends shall be issued without the approval of the stockholders representing not less than
two-thirds (2/3) of all stock then outstanding and entitled to vote at a general meeting of the Corporation
or at a special meeting called for the purpose. No dividends shall be declared that impair the capital of the
Corporation. Other than the aforesaid, there are no other restrictions that would limit or would likely to
limit in the future the ability of the corporation to pay dividends on common equity.
(4) Recent Issuance of Shares Constituting Exempt Transaction
In 2005: Issuance of shares by the corporation covering 25,000,000 shares at an issue/par value of
P1.00/share last July 2005 by way of private placement. Said issuance constituted an exempt transaction
under Section 10.1 Paragraph (k) of the Securities Regulation Code (“SRC”) which covers “(k) the sale of
securities by an issuer to fewer than twenty (20) persons in the Philippines during any twelve (12) – month
period.” The notice of exempt transaction of said private placement was duly submitted to the Securities
and Exchange Commission (“SEC”) on 25 July 2005 and approved for listing by the PSE on 12 January
2006.
The names of the private placement investors for the 25,000,000 shares and the respective date of sale/full
payment are as follows: Peter Dee (24 June 2003), Rene Fuentes (1 July 2003), Arnold Catani (5 August
2003), Fabrecom Manufacturing Corp. (12 September 2003), Cayetano Seabstian Ata Dado & Cruz (22
September 2003) , Redix Inc.( 29 September 2003), Jaime C. Gonzalez (14 October 2003 & 17 December
2003), Transnational Diversified Corporation (15 October 2003), George Uy-Tioco (4 December 2003),
Mark Chiongbian (31 March 2004 & 30 April 2004), Emmanuel L. Jalandoni (26 May 2004), Nachiappan
Algappan (28 May 2004) , Florentino Santos (14 January 2005), Roger Stone (11 August 2005), Value
Quest Finance Corporation (1 April 2005 & 7 April 2005) and Jaime Enrique Y. Gonzalez (14 June 2005).
The payments were initially booked as deposits for future subscription until the investors agreed to
convert their deposits into actual subscription of shares.
In 2006: (1) On 29 December 2006, the Corporation filed with the SEC the documents for the amendment
of Article 7 of the Corporation’s Articles of Incorporation, increasing the Authorized Capital Stock
(“ACS”) by Three Hundred Million Pesos (P300,000,000.00) . Out of the increase in the Corporation’s
ACS, 131,652,300 shares were subscribed amounting to One Hundred Thirty One Million Six Hundred
Fifty Two Thousand Three Hundred Pesos (P131,652,300.00). The subscription and subsequent issuance
of the said shares fall under Section 10.1, Paragraph (i) of the SRC and Paragraph 2, Rule 10.1 of the
Amended Implementing Rules and Regulation (“IRR”) of the SRC, constituting exempt transaction.
The issuance of the 131,652,300 shares was made in pursuance to the increase in the ACS from Five
Hundred Million Pesos (P500,000,000.00) divided into 500,000,000 shares to Eight Hundred Million
Pesos (P800,000,000.00) divided into 800,000,000 shares, with a par value of P1.00 per share. The
amount of Forty Four Million One Hundred Thousand Pesos (P44,100,000.00) out of the total
subscription has been paid up pursuant to a conversion of loan advances into equity: Elite Holdings, Inc. P29,184,100.00, Roger Stone - P13,397,547.00, Jaime C. Gonzalez - P763,731.00 and Jaime Enrique Y.
Gonzalez - P754,622.00.
On 6 February 2007, the SEC approved the amendment of Article 7 of the Corporation’s Articles of
Incorporation and on even date issued the Certificate of Increase of Authorized Capital Stock and the
Certificate of Filing of the Amended Articles of Incorporation. On 12 July 2007 the PSE approved the
Corporation’s Application for Listing Covering the Debt to Equity Conversion.
27
(2) The Board of Directors of the Corporation approved the Corporation’s stock option plan entitled
“IPVG Corp. – 2005 Stock Option Plan” (the “Plan”) and was ratified by its stockholders holding at least
2/3 of the outstanding capital stock of the Corporation on 25 July 2005. Under the Plan, shares of stock of
the Corporation equivalent to 10% of its outstanding capital stock at that time, or 37,198,078 shares
(“ESOP Shares”), was reserved out of the unissued capital stock for purposes of any and all grants that
may be approved out of the Plan.
On 26 October 2005, the SEC in a Resolution granted the Corporation’s Request for Exemptive Relief
under Section 10.2 of the SRC for the exemption of registration of the securities covered by the Plan. On
12 January 2006, the PSE approved the listing of the 37,198,078 shares.
Out of the ESOP Shares, a total of 20,500,000 shares have been granted to fifteen (15) qualified officers
and employees at the exercise price of P1.00 per share in July 2005, which constituted the first (1st)
tranche of the grant. On 27 April 2006 the Corporation granted the second (2nd) tranche of stock options
amounting to approximately 16,500,000 at the exercise price of P1.00 per share to the identified qualified
employees: Roger Stone, Jaime Enrique Y. Gonzalez, Steve Tsao, Warren Liu, Reynaldo Huergas,
Emmanuel L. Jalandoni, Sheila Feliciano, Raymund Del Val, Mike Ladios and Percival De Los Reyes.
On 10 December 2006, the Corporation’s Compensation Committee (“Committee”) approved the
reallocation of the unused shares, which reverted back to the pool of shares reserved for the whole Plan, as
a result of the resignation or cessation of employment of some qualified employees under the 1st and 2nd
tranche. The re-allocated shares totaling 748,078 were granted at the same exercise price in favor of
Donna B. Mantos, Flor B. Barnido, Maria Regina R. Lopez, Eduardo Martin Lichauco and Maria Eleonor
A. Santiago.
The Corporation, through the Committee, approved the acceleration of the vesting period for the 1st, 2nd
and for the re-allocated shares, and made any and all options not yet exercisable, exercisable subject to
certain terms and conditions. Thus, as of 31 December 2006, all the qualified employees, except those
who resigned or ceased to be employees and whose unexercised options were automatically terminated
under the Plan, have availed of the grant and exercised their options by paying the exercise price. There
are therefore no outstanding warrants or options held by the CEO, the executive officers and all other
officers, directors and employees of the Corporation.
In 2007: There were three (3) separate issuances of shares out of the Corporation’s unissued and
authorized capital stock constituting exempt transactions by way of private placements to different
individual and corporate investors in 2007: (1) 41,670,000 shares at an issue price of P6.00 per share; (2)
62,500,000 shares at an issue price of P8.00 per share; and (3) 5,500,000 shares at an issue price of P8.00
per share. The said three (3) issuances covering 109,670,000 shares of common stock constituted exempt
transactions under Section 10.1 Paragraphs (k) and (l) of the SRC, to wit: “(k) the sale of securities by an
issuer to fewer than twenty (20) persons in the Philippines during any twelve (12) – month period. And (l)
the sale of securities to any number of the following qualified buyers: (i) bank; (ii) Registered Investment
house. ”
(1) For the issuance of 41,670,000 shares, the Notice of Exempt Transaction of the private placement was
duly filed with the SEC on 9 July 2007 and approved for listing by the PSE on 23 August 2007. The
valuation of the issuance of the said shares at an issue price of P8.00 per share is based on the volume
Weighted Average Price (“VWAP”) over a period of sixty (60) days prior to the Closing date, 5 July
2007. The P6.00/share is equivalent to a 12% discount on VWAP.
The names of the private placement investors for the 41,670,000 shares and the respective date of sale/full
payment are: ING Bank, N.V. Manila Branch (Trust Department) FAO IMA Yu Kiat Bin &/or Evangeline
Yu (6 July 2007), ING Bank, N.V. Manila Branch (Trust Department) FAO IMA Ernest Cuyegkeng (6
July 2007); ING Bank, N.V. Manila Branch (Trust Department) FAO IMA A. Soriano (6 July 2007), ING
Bank, N.V. Manila Branch (Trust Department) as Trustee for various accounts (6 July 2007), ING Bank,
N.V. Manila Branch (Trust Department) FAO IMA The Board of Trustees of PERAA (6 July 2007) .
(2) For the issuance of 62,500,000 shares, the Notice of Exempt Transaction was duly filed with the SEC
on 21 August 2007 and approved for listing by the PSE on 17 September 2007. The valuation of the
issuance of the said shares at an issue price of P8.00 per share is based on the VWAP over a period of
28
sixty (60) days prior to the Closing date, 6 August 2007. The P8.00/share is equivalent to a 10% discount
on VWAP.
The names of the private placement investors for the 62,500,000 shares and the respective date of sale/full
payment are: BDO-EPCI Inc. (10 August 2007), ING Bank, N.V. Manila Branch (Trust Department) as
Trustee for various accounts (13 Aug. 2007), ING Bank, N.V. Manila Branch (Trust Department) FAO of
Suburbia Auto Ventures, Inc. (13 Aug. 2007), ING Bank, N.V. Manila Branch (Trust Department) FAO
Board of Trustees of PERAA (13 Aug. 2007); ING Bank, N.V. Manila Branch (Trust Department) FAO
Juan C. Tueres III and/or Christine O. Tueres (13 Aug. 2007), ING Bank, N.V. Manila Branch (Trust
Department) FAO Eduardo C. De Luna and/or Jeanette K. De Luna (13 Aug. 2007), RCBC Capital
Corporation (13 Aug. 2007); Abacus Securities Corporation (13 Aug. 2007), Kevin Belmonte (16 Aug.
2007), Jaime Miguel Belmonte (13 Aug. 2007), Pilipino Star Printing Company, Inc. (13 Aug. 2007)
Pilipino Star Ngayon, Inc. (13 Aug. 2007) Philippine Equity Partners, Inc. (13 Aug. 2007).
(3) For the issuance of the 5,500,000 shares, the Notice of Exempt Transaction of said private placement
was duly filed with the SEC on 11 October 2007 and approved for listing by the PSE on 13 December
2007. The valuation of the issuance of the said shares at an issue price of P8.00 per share is based on the
VWAP over a period of sixty (60) days prior to the Closing date, 2 October 2007. The P8.00/share is
equivalent to 8.57 % discount on the VWAP.
The names of the investors for the 5,500,000 shares and the respective date of sale/full payment are: Solar
Securities, Inc. (16 August 2007), Juan Kevin Belmonte (31 October 2007) and Gerardo Limlingan (4
September 2007). The amounts were initially remitted by the investors to the Corporation as deposits for
future subscription until converted into subscription for the shares.
(B) Description of Securities
Holders of all common stocks of the Corporation have complete voting rights.
Under the Articles of Incorporation of the Corporation, no stockholder shall, because of his/its ownership of
stock in the Corporation, have a pre-emptive or other right to purchase, subscribe for or take any part of any
stock or of any other securities convertible into carrying options or warrants to purchase stock of the
Corporation. Any part of such stock or other securities may, at any time be issued, optioned for sale, and sold
or disposed of by the Corporation pursuant to the resolution of its Board of Directors to such persons and upon
such terms as such Board may deem proper without first offering such stock or securities or any part thereof to
existing stockholders.
(C) Information on Independent Accountant
For 2010, KPMG Manabat Sanagustin & Co. (MS&Co.) was engaged as the external auditors of the parent
company and certain subsidiaries. For this service, the total fee of MS&Co. amounted to P632,500 for 2010
audit.(exclusive of value-added tax and out-of-pocket expenses).
For 2011, the appointment and engagement of Reyes Tacandong & Co. (RTC) as external auditor was
approved by a majority vote of the shareholders during the Special Stockholders Meeting held on November
15, 2011.
Aside from the service discussed above, in 2011, the Group also engaged RTC for various agreed-upon
procedures. The total fee for this engagement amounted to P600,000 exclusive of value-added tax and out-ofpocket expenses.
Aside from the aforementioned services, the Group has not engaged RTC for any other service.
29
PART IV. CONTROL AND COMPENSATION INFORMATION
DIRECTORS & CORPORATE OFFICERS
Directors:
Name
Age
Citizenship
Positions held
Term of Office
Jaime C. Gonzalez
Jaime Enrique Y. Gonzalez
65
34
Filipino
Filipino
11 June 2003 - present
11 June 2003 – present
Marco Antonio Y. Santos
42
Filipino
Roger Stone
63
British
Srinivas Polishetty
Juan Victor S. Tanjuatco
Rene R. Fuentes
Juan Kevin Belmonte
Reynaldo D. Huergas
Ricardo F. Lagdameo
Leonardo T. Po
45
64
64
49
64
34
34
Indian
Filipino
Filipino
Filipino
Filipino
Filipino
Filipino
Director, Chairman,
Managing Director, CEO
& President
Director, Deputy
Chairman
Director, Deputy
Chairman
Director, Treasurer
Independent Director
Independent Director
Director
Director
Director, CIO
Director
13 Feb 2004 - present
19 June 2006 - present
13 Feb 2004 - present
22 October 2004 -present
13 Feb 2004 - present
26 July 2007- present
28 July 2010 - present
19 Nov. 2010 - present
31 Jan 2011 - present
Mr. Jaime C. Gonzalez is a graduate of the Harvard Business School (MBA) and of De La Salle University in
Manila: B.A. in Economics (com laude) and B.S. in Commerce (cum laude). He is presently Chairman and
Chief Executive Officer of AO Capital Partners Limited, a financial and investment advisory firm with
headquarters in Hong Kong. He is a member of the Board of Directors of a number of publicly listed
companies, including IPVG Corp., Euromoney Institutional Investor PLC (a leading international media group
focused primarily on the international finance sector listed in the London Stock Exchange) [Nov.2005-present];
and Chairman of Export and Industry Bank (a commercial bank listed in the Philippine Stock Exchange)[May
2006-present].
Mr. Jaime Enrique Y. Gonzalez oversees strategic direction of the IPVG Group, and directly handles all
investment-related activities including fund-raising, mergers, acquisitions and divestments. Mr. Gonzalez has
been intimately involved in the start-up process of all business units, and works with business unit heads to
ensure that they meet or exceed operating targets. Mr. Gonzalez has had a successfully track record in the
internet space, having founded a series of internet start-ups that have been acquired by larger U.S. based firms
(match.ph/itzamatch.com) and has taken IPVG from garage to public. Mr. Gonzalez has a Bachelor of Arts in
International Politics and Economics from Middlebury College. He attended the program for Masters in
Entrepreneurship course at the Asian Institute of Management. He is also a student at the Harvard Business
School as part of its OPM program.
Mr. Marco Antonio Y. Santos is a Director in Mapua Information Technology Center Inc., iPeople Inc. (a
listed company), Market Intelligence Holdings, Inc., Indio Communication Inc.; Chairman in Edsamail
Holdings Pte Ltd. and Touch Media Philippines Inc. He was General Manager of Edsamail Singapore Private
Ltd. (2000-2001), Head Marketing of Evoserve, Inc (2000), Director of Mezcal Corporation of the Philippines
(1998), AVP Marketing Manager of Philippine Fuji Xerox (1996-2000), Marketing Trainee of Fuji Xerox Co.
Ltd. Japan (1992-1995) and Copywriter/Marketing Officer of Basic/ Foote, Cone and Belding (FCB) (19901992), and presently Directors in Pocket Aces Corp., International On-Line Games, Inc., Clubs Diamond
PanPac Corporation and Botika Ng Munisipyo, Inc. Mr. Santos holds a Bachelors of Science Degree from the
Ateneo de Manila University (1990), majoring in Management Engineering.
Mr. Roger Stone has had more than thirty (30) years experience in the areas of marketing, sales, software
development and executive management in the IT and telecommunications industries. For a number of years
he ran his own consultancy business and leveraged his exposure to European, Asian & Pacific rim, Central and
Latin American business markets. He has spent almost 20 years of his career working outside the United
Kingdom in Austria, Hong Kong, India, Philippines, Vietnam, Thailand and Costa Rica and has held senior
management posts in IT companies including CEO of a UK based plc. He graduated from Loughborough
University of Technology in the United Kingdom with an Honours degree in Aero /Automotive Engineering.
30
Mr. Srinivas Polishetty is Managing Director of AO Capital Partners Limited (AO Capital) [2007-present] ,
an investment and financial advisory services firm, covering the Asia Pacific region. Prior to joining AO
Capital, he worked as a regional research analyst covering Asian utilities for a major stock brokerage house and
as a deputy director for a leading Indian oil & gas firm [1989-1995]. His experience includes corporate finance
and project finance work in various sectors, including information technology, business process outsourcing,
infrastructure, manufacturing, and pharmaceuticals. Srini had been with AO Capital for the last 13 years and
has more than 22 years experience in corporate finance and investment banking. Srini started his career with
Oil and Natural Gas Corporation Limited where he went on to become its deputy director in the global
procurements division. Srini received his MBA from the Asian Institute of Management and McGill
University. He is also a Chemical Engineering graduate from the Indian Institute of Technology.
Mr. Juan Victor Tanjuatco is a holder of a Masters Degree in Business Administration in Finance from
Wharton School of Finance and Commerce, University of Pennsylvania and a Bachelor of Arts Degree in
Economics from Ateneo de Manila University (cum laude). He has built up his work expertise through
extensive exposure in the United States with IBM Philadelphia, in Hongkong with Credit Agricole Indosuez
(formerly Banque Indosuez) [January 1986- January 1994], in New Zealand also with Banque Indosuez
[January 1977 – January 1983], and in the Philippines, with Banque Indosuez, Manila Offshore Branch and the
Bancom Group, Inc. [January 1975-January 1977]. Mr. Tanjuatco is currently the Executive Vice President of
Export and Industry Bank [June 2007-present], Chairman and Director of Tincan Mobile Solutions, Inc.,
Director of Ketmar Fast food Corp. and President of Tanjuatco Development Corp. and Tanay Central Rice
Mill, Inc.
Mr. Rene Fuentes is currently the Liberal Arts Program Director and Advisor of Sycip Gorres Velayo & Co.
(SGV & Co.) [October 1999-present] His business experience during the past 5 years up to present, include
management consultancy and directorship in foundations and private companies, which include, La Flor De La
Isabela, International Wine & Food Society (Philippine Branch), Philippine-Australia Business Council,
Philippine-New Zealand Business Council, De La Salle University Science Foundation, Inc.,[October 2001present] and 1911 Insurance Agency Corporation [October 2001-present]. He took his MBA from University
of Sta. Clara, United States.
Mr. Juan Kevin G. Belmonte is the president of Nuvoland, a real estate company, and Philstar Global
Corporation which owns and operates philstar.com, a leading internet portal. He sits on the Boards of the
Philippine Star Group of Companies, IP E-Game Ventures, Inc., and Nuvoland. Mr. Belmonte was a partner at
Arthur Andersen & Co./SGV & Co. He received his Masters in Management from Northwestern
University, USA.
Mr. Reynaldo R. Huergas is the incumbent President of IP Converge Data Center Inc. since January 2006.
Rene is a seasoned executive with more than twenty-year (20) track record of successful sales and marketing,
business development, management and executive experience in technology, telecommunications, and
customer service management in Asia and the United States. Prior to joining IPVG, Rene has held executive
positions in Globe Telecom, myAyala Inc.[June 2005-December 2005] and Global Data Hub (formerly
Ayalaport Makati Inc.) [April 2004 to May 2005], and was Country Manager for Unisys World Trade Inc. Indonesia and Singapore. Rene also worked at iAsiaworks (Silicon Valley) [July 2001-February 2002], a
venture-funded company in Sunnyvale, California engaged in Internet data center services in the Asia Pacific;
as well as a content provider in Burlingame, California.
Mr. Ricardo Lagdameo is a holder of a Masters Degree in Business Administration from Columbia Business
School, New York, N.Y. and a Bachelor of Arts Interdisciplinary Studies Degree from Ateneo De Manila
University. Prior to joining IPVG Corp., Mr. Lagdameo was an Associate in Investment Banking at CLSA
Exchange Capital [September 2008-May 2010]. His experience includes employment as a Marketing Assistant
for ING Baring Bank [June 1999-January 2001], and General Manager of Carrije Cargo Inc. and Je Suis
Gourmand, Inc. [October 2002-December 2006]. The last two companies are owned by Mr. Lagdameo. Mr.
Lagdameo is currently the Corporation’s Corporate Information Officer, Chief Investment Officer Investor
Relations Group.
Mr. Leonardo Arthur T. Po is a holder of a Bachelor of Science in Business Administration degree (Magna
Cum Laude) from Boston University, Boston, MA, USA. He is currently the Executive Director and General
Manager for Emerging Business Units of the Century Pacific Group of Companies [May 2008-present], and the
Business Unit Head and General Manager of Yoshinoya Century Pacific, Inc.[March 2002-present]. Mr. Poe is
likewise a Co-Founder of Superfly Entertainment, Inc. [October, 2004-present]
31
Executive officers and Significant Employees of IPVG and Subsidiaries
In addition to Mr. Jaime Enrique Y. Gonzalez who is the President and Chief Executive Officer of the
Corporation (since 2003), Mr. Roger Stone who is the Deputy Chairman (since January 2005), Mr. Reynaldo
R. Huergas, President of IP Converge Data Center Inc., and Mr. Ricardo F. Lagdameo, Head of Corporate
Finance and Investor Relations and Chief Investment Officer, the other Executive officers and Significant
Employees of the Corporation and its subsidiaries – and members of the IPVG Management Committee, are:
Atty. Juname C. De Leon is a graduate of the Ateneo De Manila University School of Law with a Juris
Doctor degree (1995), and of De La Salle University with a Bachelor of Commerce Major in Legal
Management degree (1991). Prior to joining the Company, Atty. De Leon was the Head of the Prosecution
and Enforcement Department of the Philippine Stock Exchange, Inc. from March 2006 to January 2009. Her
professional experience includes employment as a Hearing Officer and Securities Review Counsel at the
Securities and Exchange Commission [1999-2002] and as General Counsel of Fortune Managers [2002-2006],
a management consultancy firm specializing in Corporate Rehabilitation and Insolvency. Atty. De Leon
likewise engaged in litigation practice for several years at the early stage of her legal career [1995-1999].
Atty. Jaypee Orland C. Pedro before joining IPVG Group’s legal team, he had the opportunity to work in
both the government and the private sector: as a law clerk in the Supreme Court under the Office of Associate
Justice Arturo D. Brion [June 2009-August 2010], and as an Associate in the Manalo Puno Jacson and
Guerzon Law Offices [May 2007-January 2009] in the Alabang Area. He successfully passed the 2006 bar
examination after graduating from the Ateneo de Manila University School of Law on the same year. Prior to
that, he obtained a degree in Management Economics in 2002 also from the Ateneo de Manila University.
Mary Jenelle C. Palma earned her Bachelor of Science in Accountancy (cum laude), from the University of
Santo Tomas, Philippines. She is currently the Acting Chief Finance Officer. Prior to joining the company,
she has more than 6 years of audit experience of mostly multinational companies in various industries
throughout Asia. She also has experience in advisory services, due diligence and fraud audit. She is also a
member of the Institute of Certified Public Accountants in the Philippines.
Family Relationships
Mr. Jaime C. Gonzalez is the father of Jaime Enrique Y. Gonzalez. Jaime Enrique Y. Gonzalez and Marco Y.
Santos are second cousins.
Involvement of Directors and Executive Officers in Certain Legal Proceedings
The following are the material pending legal proceedings to which the Corporation and/or any of its
subsidiaries or affiliates, and/or any of its Directors and Officers, is a party or of which any of their property is
the subject as of 31 December 2009:
1.
Emma Grace Rallos vs. IPVG Corp., Jaime Enrique Y. Gonzalez and Roger Stone (NLRCNCR-Case No.-10-14636-08)
A labor case filed against the company for alleged violations of the Labor Code with claims for moral
and exemplary damages and attorney’s fees. Ms. Grace Rallos was former Vice President for Human
Resources and Organization Development of the Company. She joined the company in September
2008 and was terminated on October 2008 due to redundancy. The Case is currently pending on
appeal with the Supreme Court.
2.
Alexander Miranda vs. IPVG Corp., Jaime Enrique Y. Gonzalez and Roger Stone (NLRCNCR-Case No. 00-01-00423-09)
This is a labor case filed against the company for alleged violations of the Labor Code with claims for
moral and exemplary damages and attorney’s fees. Mr. Alexander Miranda was formerly a Senior
Developer/Architect of the Company. He was terminated on 18 December 2008 on just cause. IPVG
filed for partial appeal of the decision of the Labor Arbiter. The case is dismissed/closed.
32
Aside from the foregoing, the Corporation is not aware of any legal proceedings of the nature required to be
disclosed under Part I, paragraph (C) of "Annex C, as amended" of the SRC Rule 12 with respect to the
Company and/or its subsidiaries."
The Corporation is not aware of (1) any bankruptcy petition filed by or against any business of which any of
the directors and executive officers was a general partner or executive officer either at the time of the
bankruptcy or within two years prior to that time; (2) any conviction of any of the directors and executive
officers by final judgment or being subject to a pending criminal proceeding, domestic or foreign, excluding
traffic violations and other minor offenses; (3) any of the directors and executive officers being subject to any
order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent
jurisdiction, domestic or foreign, permanently or temporarily enjoining, barring, suspending or otherwise
limiting his involvement in any type of business, securities, commodities or banking activities; and (4) any of
the directors and executive officers being found by a domestic or foreign court of competent jurisdiction (in a
civil action), the Commission or comparable foreign body, or a domestic or foreign Exchange or other
organized trading market or self regulatory organization, to have violated a securities or commodities law or
regulation, and the judgment has not been reversed, suspended, or vacated, occurring during the past five (5)
years up to the latest date that are material to an evaluation of the ability or integrity of any director, any
nominee for election as director, executive officer, underwriter or control person of the Registrant.
EXECUTIVE COMPENSATION
The following Table is a summary of all plan and non-plan compensation awarded to, earned by, paid to, or
estimated to be paid to, directly or indirectly, the Chief Executive Officer (“CEO”), the four (4) most highly
compensated executive officers other than the CEO who served as executive officers, and all officers and
directors as a Group as of 31 December 2011 (including the preceding three fiscal years):
Year
Top five (5) most highly
compensated executive
officers
All other officers and directors
as a group
2008
2009
2010
2011
2008
2009
2010
2011
Salary (In
Philippine Pesos)
8,346,770
8,213,838
6,494,075
18,270,833
10,722,437
11,897,737
9,558,087
18,730,542
Bonus
187,840
None
2,400,000
210,000
187,840
None
2,400,000
210,000
Other Annual
Compensation
None
None
None
None
None
None
None
None
Since the date of their elections, except for per diems, the directors have served without compensation. The
directors did not also receive any amount or form of compensation for committee participation or special
assignments. Under Section 7, Article III of the By-Laws of the Corporation, the compensation of directors,
which shall not be more than ten percent (10%) of the net income before income tax of the corporation during
the preceding year, shall be determined and apportioned among the directors in such manner as the Board may
deem proper, subject to the approval of the stockholders representing at least a majority of the outstanding
capital stock at a regular or special meeting. As of this date, no standard or other arrangements have been
made in respect of director’s compensation.
33
Employee Stock Option Plan
Certain key executive officers, directors and employees, by virtue and nature of their employment contracts
with the Corporation, are entitled to participate in the Corporation’s Employee Stock Option Plan (the
“ESOP”). The implementation of the ESOP is a very effective reward mechanism to attract, reward and retain
key employees in the organization and enables key employees to acquire a proprietary interest in maximizing
the growth, profitability and success of the Corporation.
The Corporation adopted the “IPVG Corp. – 2005 Stock Option Plan” (the “Plan”) on 25 July 2005. Under the
Plan, shares of stock of the corporation equivalent to 10% of its outstanding capital stock at that time, or
37,198,078 shares (“ESOP Shares”), was reserved out of the unissued capital stock for purposes of any and all
grants that may be approved out of the Plan.
On 26 October 2005, the SEC in a resolution granted the corporation’s Request for Exemptive Relief under
Section 10.2 of the SRC for the exemption of registration of the securities covered by the Plan. On 12 January
2006, the PSE approved the listing of the 37,198,078 shares.
Out of the 37,198,078 ESOP Shares, a total of 20,500,000 shares have been granted to fifteen (15) qualified
officers and employees of the Corporation at the exercise price of P1.00 per share in July 2005, which
constitutes the first (1st) tranche of the grant. On 27 April 2006, the second (2nd) tranche of stock options at the
exercise price of P1.00 per share were granted. And on 10 December 2006, the Corporation’s Compensation
Committee (“Committee”) approved the reallocation of the unused shares, which reverted back to the pool of
shares reserved for the whole Plan, as a result of the resignation or cessation of employment of some qualified
employees under the 1st and 2nd tranche. The re-allocated shares totaling 748,078 were granted at the same
exercise price in favor of five (5) additional qualified employees.
Bearing in mind the primary purpose of the ESOP and pursuant to the provisions of the Plan, the Committee
approved the acceleration of the vesting period for the 1st, 2nd and for the re-allocated shares, and made any and
all options not yet exercisable, exercisable subject to certain terms and conditions. At the time the stock
options were exercised by the qualified employees, the market price of the share was P2.50 per share. As of 31
December 2006, there were no more options held by the qualified employees of the Corporation.
The Board of Directors and the Stockholders holding or representing at least 2/3 of the outstanding capital
stock of the Corporation approved the 3rd tranche of stock options on 26 July 2007. The 3rd tranche covers of
23,552,038 shares of common stock of the Corporation which shall be granted to qualified employees
including members of the Board of Directors, corporate officers and managing groups, and rank and file
employees. The Corporation’s Stock Option Committee shall determine the actual participants of the 3rd
tranche and the implementing terms and conditions of the grant. As of now, the qualified employees and the
number of shares to be granted to the employees are still to be determined by the Stock Option Committee.
34
Security Ownership of Owners of more than 5% of voting securities
Title of
Class
Name, address of record owner
and relationship with issuer
Common
PCD Nominee Corp.
37th Floor Tower 1, Enterprise
Bldg,6766 Ayala Ave.
Makati City
Common
Stockholder
Elite Holdings, Inc.
50 McKinley Road,
Forbes Park, Makati City
Name of
Beneficial owner
and relationship
Citizenship
with record owner
(direct)
PCD Nominee
Filipino
Corp. is the record
owner
No. of Shares
Percentage
602,214,372
75.43%
Elite Holdings Inc.
is the beneficial
owner and record
owner.
Filipino
55,052,300
6.90%
PCD Nominee
Corp. is the record
owner
Foreigner
47,908,716
6.00%
Stockholder
Common
PCD Nominee Corp.
PSE Centre, Ayala Avenue
Makati City
Stockholder
Security Ownership of Management
The following are the security ownership of the directors and executive officers of the Corporation as of 31
December 2011:
Common
Common
Common
Common
Common
Common
Common
Common
Common
Common
Common
Name of Beneficial
Owner; Relationship
with Issuer
Jaime C. Gonzalez;
Chairman
Jaime Enrique Y.
Gonzalez; President
and CEO
Marco Y. Santos;
Vice Chairman
Roger Stone;
Deputy Chairman
Srinivas Polishetty
Director
Juan Victor S.
Tanjuatco;
Independent Director
Rene Fuentes;
Independent Director
Juan Kevin Belmonte;
Director
Reynaldo Huergas;
Director
Ricardo F. Lagdameo
Director
Leonardo T. Po
Amount and Nature of
Beneficial Ownership (direct &
indirect)
P1 (Direct);
P155,735,899 (Indirect)
P5,141,530 (Direct);
P87,482,760 (Indirect)
Citizenship
Percentage
held
Filipino
19.51%
Filipino
11.60%
P 1 (Direct)
Filipino
0.00%
P18,500,000(Direct) ;
P20,340,546 (Indirect)
P1,461,761.00 (Direct);
P1,079,000 (Indirect)
P1.00 (Direct);
P50,000 (Indirect)
British
4.86%
Indian
0.31%
Filipino
0.01%
P1.00 (Direct);
P500,000(Indirect)
P1.00 (Direct);
P16,000,999 (Indirect)
P500,000;
(Direct)
P1 (Direct);
Filipino
0.06%
Filipino
2.00%
Filipino
0.06%
Filipino
0.00%
P1 (Direct);
Filipino
0.11%
35
Director
P850,000 (Indirect)
The total security ownership, direct and indirect, of the directors and corporate officers of the Company as of
December 31, 2011 is 307,643,502 common shares, equivalent to 38.54% of the outstanding capital stock of
the Company.
Voting Trust Holders of 5% or more
There are no persons holding 5% or more of a class under a voting trust or similar arrangement.
Changes in Control
There has been no change in the control of the corporation since the last fiscal year.
Family Relationships
Mr. Jaime C. Gonzalez is the father of Jaime Enrique Y. Gonzalez. Jaime Enrique Y. Gonzalez and Marco Y.
Santos are second cousins.
Certain Relationships and Related Transactions
In the ordinary course of business, the Corporation has transactions with associates, affiliates, subsidiaries and
other related parties consisting principally of cash advances and reimbursement of expenses, various
guarantees, management and service agreements and intercompany charges. The Corporation has also entered
into Management Agreements with the following subsidiaries: IP Converge Data Center, Inc. (“IPC”); and
Prolexic Technologies Inc. (Prolexic).
The Management Agreement covers services provided by the parent including, but not limited to, general
management, business development, legal, human resources, finance and accounting, office maintenance and
support.
IPC provides the Bandwidth and Data Center Services to IPE at market rates, and where such agreement to
provide the above-mentioned services is at an arms-length basis.
On 29 December 2006, the Corporation filed for the amendment of the Corporation’s Articles of
Incorporation, increasing the Authorized Capital Stock (“ACS”) by Three Hundred Million Pesos
(P300,000,000.00), from Five Hundred Million Pesos (P500,000,000.00) divided into 500,000,000 shares to
Eight Hundred Million Pesos (P800,000,000.00) divided into 800,000,000 shares, which was approved by the
SEC on 6 February 2007. On 12 July 2007 the PSE approved the Corporation’s Application for Listing
Covering the Debt to Equity Conversion.
Out of the increase in the Corporation’s ACS, Elite Holdings, Inc. (“Elite”) subscribed to 131,652,300 shares
amounting to One Hundred Thirty One Million Six Hundred Fifty Two Thousand Three Hundred Pesos
(P131,652,300.00) at P1.00 per share, with paid up amounting to P29,184,100.00 pursuant to a conversion of
loan advances into equity. The basis for the conversion of advances into equity is the Loan Agreement
executed by the parties giving the creditor the option to convert the credit into equity after the original term of
the loan. In October 2007, Elite paid the Corporation Thirty Five Million Pesos (P35,000,000.00) in cash as
additional payment of its subscription.
Elite Holdings, Inc. is a corporation organized and existing under Philippine laws with a primary purpose to
act as a holding company to hold real estate investments, including shares of stock listed and traded in the
PSE, and other securities and assets. The principal stockholders of Elite include the following: the spouses Mr.
Jaime C. Gonzalez and Ms. Constance Y. Gonzalez, and the siblings Mr. Jaime Enrique Y. Gonzalez and Ms.
Carissa Pilar Y. Gonzalez. The spouses Mr. Jaime C. Gonzalez and Mrs. Constance Y. Gonzalez are the
parents of Jaime Enrique Y. Gonzalez and Ms. Carisa Pilar Y. Gonzalez.
On 26 June 2007, the Corporation’s Board of Directors approved and ratified the execution of the Call Option
Agreement by IPVG with Elite. The Corporation was also authorized to immediately exercise the call option to
acquire 33% of the outstanding capital stock of IP Contact Center Outsourcing, Inc. (“IPCCO”) equivalent to
1,000,000 shares. And on 26 July 2007, the Stockholders approved and ratified the said resolution of the
Board. Subsequently, Elite executed a Deed of Sale of Shares of Stock with Deed of Assignment of all its
36
rights, title and interest to and in the IPCCO shares including the rights under the Option Agreement in favor
of Hanley Property Limited (“Hanley”). On 15 September 2007, the Corporation, on the basis of the valuation
of a third party financial advisor, issued to Hanley a Notice of Exercise of Option to purchase the shares for
P87,500,000.00. The Corporation and Hanley then executed a Deed of Sale of Shares of Stock for the
1,000,000 shares in IPCCO.
On 29 April 2008, the Corporation and Elite entered into an Investment Agreement with GEM Global Yield
Fund Limited, Gem Investment Advisors, Inc. (collectively “GEM”). Under the Investment Agreement, the
Corporation has an option to require GEM to subscribe from the Company and to purchase from Elite shares in
the Corporation, on terms and subject to conditions provided in the said agreement, for up to an aggregate of
three million Philippine Pesos (P300,000,000.00) in value. The Investment Agreement is valid for three years
or until the aggregate purchase prices paid by GEM equals the total commitment value.
On July 2, 2008, the Company’s BOD approved a resolution to increase in the Company’s authorized capital
stock from P800,000,000 divided into 800,000,000 shares to P1,000,000,000, divided into 1,000,000,000
common shares, both with a par value of P1 per share. In anticipation of the increase in of authorized capital
stock, the Company received P51,762,561 and P41,310,065 in 2010 and 2009, respectively, from various
stockholders as deposits for future stock subscriptions as of reporting date. The application for the increase in
authorized capital stock of the Company was approved by the SC on June 21, 2010.
Aside from the foregoing, there had been no material transaction during the past two (2) years involving the
Corporation or any of its subsidiaries in which a director, executive officer or stockholder owning ten (10%) or
more of total outstanding shares and members of their immediate family had or is to have a direct or indirect
material interest.
Parents, and immediate parents of IPVG as of 31 December 2011:
As of 31 December 2011, Jaime C. Gonzalez and Jaime Enrique Y. Gonzalez are the registered owners of
19.51% and 11.60% of the total and outstanding capital stock of the Corporation. Elite Holdings owns 15.76%
of the total issued and outstanding capital stock. Elite is a holding company owned by the Gonzalez family.
Transactions with Promoters
The Company has not had any transactions with promoters for the past five (5) years.
37
PART V. CORPORATE GOVERNANCE
The Board of directors and shareholders, management and employees of IPVG Corp. believe that corporate
governance is a necessary component to achieve strategic business management. Going beyond compliance to
laws and the implementation of rules and regulations, IPVG’s governance cultivates a corporate culture of
integrity and empowering leadership, and significantly contributes to long-term growth and enhanced
shareholder value.
IPVG Corp. is committed to adhering to the highest level of sound corporate governance practices in setting
values that serve as its foundation in guiding both employees and stockholders alike. With a dedicated team of
professionals who share such passion, its business practices and work ethics put in place a philosophy of
corporate transparency and public accountability.
In Compliance with SEC Memorandum Circular No.6, Series of 2009, the Corporation revised its Manual of
Corporate Governance, adopting all the mandatory provisions of the Revised Code of Corporate Governance
pursuant to the aforesaid Memorandum Circular. There has been no deviation from the Corporation’s Manual
of Corporate Governance.
THE BOARD OF DIRECTORS
IPVG Corp. is led by a Board which is the highest authority in matters of governance and in managing the
business of the Company.
It is the Board’s responsibility to foster the long-term success of the Corporation and secure its sustained
competitiveness in a manner consistent with its fiduciary responsibility, which it shall exercises in the best
interest of the Corporation, its shareholders and other stakeholders.
The Board meets regularly throughout the year to ensure a high standard of business practice for the
Corporation and its stakeholders and to ensure soundness, effectiveness, and adequacy of the Corporation’s
internal control environment. Independent judgment is exercised at all times.
COMMITTEES
To aid in complying with the principles of good corporate governance and as expressly provided in the
Corporation’s Manual of Corporate Governance, the following committees were established with specific
responsibilities.
Compensation Committee. The Compensation Committee is composed of three (3) directors, one of whom is
an independent director and with an alternate member. The Committee established a formal, transparent
procedure developing a policy on executive remuneration and for fixing the remuneration packages of
corporate officers and directors. It provided oversight over remuneration of senior management and other key
personnel ensuring that compensation is consistent with the Corporation’s culture, strategy and control
environment. It determined the amount of remuneration, which is sufficient to attract and retain directors and
officers who are needed to run the company successfully.
Audit Committee.
The Audit Committee is comprised of three (3) members of the Board, one of which is an independent director
and with an alternate member. The members have adequate understanding at least or competence at most of
the company’s financial management systems and environment. The Committee checks all financial reports
against its compliance with both the internal financial management handbook and pertinent accounting
standards, including regulatory requirements. It performs oversight financial management functions
specifically in the areas of managing credit, market, liquidity, operational, legal and other risks of the
Corporation, and crisis management.
The committee function includes a direct interface with the internal and external auditors which are separate
and independent of each other.
38
Nomination Committee.
The Nomination Committee is comprised of three (3) voting members of the Board and one independent
director and an alternate member. Its main function is to install and maintain a process to ensure that all
directors to be nominated for election at the annual stockholders’ meeting have all the qualifications and none
of the disqualifications for directors as stated in the By-Laws, the Manual of Corporate Governance of the
Corporation and the pertinent rules of the Securities & Exchange Commission (“SEC”).
Also, the Committee is tasked to review and evaluate the qualifications of all persons nominated to positions in
the Corporation which require appointment by the Board.
Executive Committee.
The Executive Committee is composed of three (3) voting members, one of whom is an independent director.
The Executive Committee acts in accordance with the authority granted by the Board, or during the absence of
the Board, on specific matters within the competence of the Board of Directors, except with respect to
approval of any action for which shareholders’ approval is also required; distribution of cash dividends; filling
of vacancies in the Board or in the Executive Committee; amendment or repeal of By-Laws or the adoption of
new By-Laws; amendment or repeal of any resolution of the Board of Directors which by its express terms is
not so amendable or repealable; and the exercise of powers delegated by the Board exclusively to other
committees.
Compliance Officer
Atty. Juname De Leon, who is the Company’s Chief Legal Counsel, is the Compliance Officer designated to
ensure adherence to corporate principles and best practices. Appointed by the Chairman of the Board, the
Compliance Officer also holds the position of a Corporate Secretary.
The duties of the Compliance Officer include monitoring of compliance with the provisions and requirements
of the Manual on Corporate Governance; determine violation/s of the Manual and recommend penalty for
violation thereof for further review and approval of the Board; appear before the Securities and Exchange
Commission upon summon; and identify, monitor and control compliance risks.
The Compliance Officer is responsible in issuing a certification every January 30th of the year on the extent of
the Corporation’s compliance with this Manual for the completed year.
Content and Timing of Disclosures
IPVG Corp. updates the investing public with strategic, operating and financial information through adequate
and timely disclosures filed with the Securities and Exchange Commission and the Philippine Stock Exchange.
In addition to compliance with periodic reportorial requirements, the Corporation ensures that not only major
and market-sensitive information but material information such as earnings, dividend declarations, joint
ventures and acquisitions, sale and disposition of significant assets are punctually disclosed to the SEC,
Philippine Stock Exchange (“PSE”) and to the public through the Corporation’s website which are updated
regularly.
39
PART VI. EXHIBITS AND SCHEDULES
The reports on SEC Form 17-C, as amended, which were filed during the last six-month period covered by this
report, pertain to the following:
1.
Form 17-C filed on 03 December 2010, reporting the appointment of Atty. Jaypee Orlando C. Pedro
as Assistant Corporate Secretary and Alternate Information Officer. The Board approved today the
issuance of 7.5 million shares of stock as repayment to shares advances made by shareholders in favor
of the Corporation. In relation to the earlier approval of the Board on 25 August 2010 of its
participation (direct and indirect) to the Stock Rights Offering (SRO) of EG, the Board confirmed
today the payment of P30, 000,000.00 as full payment of IPVG Corp.’s direct subscription to the SRO
and partial payment (advanced) in favor of IPE Global Holdings, Inc. as indirect participation to the
SRO.
2.
Form 17- C filed on 19 November 2010, reported the following,
The Board of Directors (the “Board”) of IPVG Corp. (the “Corporation”) held a Special Meeting
today and approved the following matters:
-
The Board of Directors accepted today the resignation of Mr. Eduardo Martin T. Lichauco as
Director of the Corporation. Mr. Lichauco’s resignation is brought about by the demands on
his time and resources by his other professional obligations.
-
The Board appointed Mr. Ricardo F. Lagdameo as Director to replace of Mr. Lichauco in the
Board of Directors.
Mr. Lagdameo is currently the Corporation’s Corporate Information Officer, Chief
Investment Officer and Head of the Corporate Finance and Investor Relations Group.
Mr. Lagdameo is a holder of a Masters Degree in Business Administration from Columbia
Business School, New York, NY and a Bachelor of Arts Interdisciplinary Studies Degree
from Ateneo De Manila University. Prior to joining the company, Mr. Lagdameo was an
Associate in Investment Banking at CLSA Exchange Capital. His experience includes
employment as Marketing Assistant for ING Barings Bank, and General Manager of Carrije
Cargo Inc. and Je Suis Gourmand, Inc. The last two companies are owned by Mr. Lagdameo
while pursuing his MBA degree.
3.
Form 17- C filed on 17 November 2010, reported on the following matters
In relation to the Third Quarter Report (SEC Form 17-Q) submitted by IPVG Corp. (the
“Corporation”) to the Securities and Exchange Commission (“SEC”) and the Philippine Stock
Exchange, Inc. (“PSE”) on 15 November 2010, the Corporation issued today a press release on its
interim financial results for the 3rd Quarter of 2010 (ended 30 September 2010).
4.
Form 17- C filed on 20 October 2010, reported the following
-
The Board approved today the terms of the second tranche payment proposal (“Second
Tranche Payment”) by PCCW Teleservices (Hong Kong) Limited (“PCCW”). The Second
Tranche Payment will be made pursuant to the Sale and Purchase Agreement dated 28
October 2008 as amended and supplemented by the Supplemental Agreement to the Sale
and Purchase Agreement relating to the issued share capital of IP BPO Holdings Pte. Ltd
dated 04 August 2009 made between IPVG Corp., IPVG Investment Holdings, Inc. and
PCCW Teleservices (Hong Kong) Limited.
After adjustments pursuant to the approved terms, the net amount due and payable to the
Corporation would be US$ 10,991,198.
-
In relation to the approval of the terms and conditions of the Second Tranche Payment, the
Board approved the requirement of capitalization of its advances amounting to
40
P22,530,895.00 into equity in PCCWP without impact on the current shareholdings ratio.
In relation thereto,
the Board approved the further amendment of the subscription
agreement with PCCWP increasing the subscription price of the Corporation’s subscription
to 857,143 shares in PCCWP from P76.1235661 per share to P102.4096059 per share.
5.
Form 17- C filed on 28 October 2010 reported on the following matters,
-
In relation to the Securities and Exchange Commission (the “Commission”)’s findings of
violation against IPVG Corp. for its late filings of its 2010 First Quarter Report (SEC Form
17-Q) and 2009 Annual Report and Audited Financial Statement (AFS), the Commission
assessed and directed the Corporation to pay the corresponding penalties amounting to
P1,020,000.(for the late filing of SEC Form 17-Q) and P205,000.00 (for the late filing of
SEC Form 17-A and the AFS). The late filings of the aforesaid reports were mainly caused
by the delay in the completion of the 2009 Audit of the Corporation’s financial statements.
On 13 October 2010, the Corporation requested the Commission for a reduction of the
assessed penalty. Pending the resolution of the said request for reduction, the Corporation
offered and paid the total assessed penalty amounting to P1,225,000.00 to the
Commission.
The Corporation shall make the appropriate disclosure upon its receipt of the Commission’s
resolution on its request for reduction of penalty.
-
IPVG Corp.’s subsidiary IP Converge Data Center, Inc. (“IP Converge”) received today its
Notice of Approval by the Philippine Stock Exchange, Inc. (“PSE” or “Exchange”)’s Board
of Directors of its application for the initial listing of IP Converge’s 181,866,669 common
shares under the Second Board of the Exchange.
Of the 181,866,669 common shares of IP Converge to be listed, 136,400,002 common shares
represent the issued and outstanding shares prior to the Initial Public Offering. IPVG Corp.
currently holds 90.91% of IP Converge’s issued and outstanding shares.
The Exchange in the same Notice of Approval likewise granted the request of IP Converge
for exemption from Section 3 of the Rule on Distribution of IPO Shares through the
Exchange requiring the grant of ten percent (10%) discount to the Final Offer Price for Local
Small Investors.
The Initial Public Offering of the Corporation will have an Offer Price of up to P8.80 per
Offer Share and is expected to raise gross proceeds of up to P400 Million.
IP Converge targets a listing date within the first half of December 2010.
A press release on the matter is attached to this Disclosure.
-
Pursuant to the 20 October 2010 approval by the Board of Directors of IPVG Corp. (the
“Corporation’’) of the Second Tranche Payment Proposal of PCCW Teleservices (Hong
Kong) Limited (“PCCW Teleservices”), the Corporation completed the sale of its company’s
business process outsourcing ventures today.
The completion is in line with the agreement signed between IPVG and PCCW Teleservices
in October 2008 as amended and supplemented by the Sale and Purchase Agreement dated
August 2009, wherein PCCW agreed to acquire for up to US$22million the entire issued
share capital of IP BPO Holdings Pte Ltd. (the “BPO Holding Company”), a wholly-owned
subsidiary of IPVG.
The Corporation and PCCW Teleservices earlier agreed to the amount of US$11.5million for
the second tranche payment. The second trance payment was determined by a performance
based formula.
41
The full payment was received by the Corporation from PCCW Teleservices today. A press
release on the matter is attached to this disclosure.
6.
Form 17- C filed on 25 August 2010, reported on the following matters
-
7.
The IPVG Corp. Board of Directors (the “Board”) approved the direct and indirect (through
IPE Global Holdings Corp.) participation of the Corporation in the proposed rights offering
of IP E-Game Ventures, Inc. (E-Games) which was approved during E-Games Annual
Stockholders Meeting held on 26 July 2010, subject to the terms and conditions of the
rights offering and the availability of funds.
-
The Board approved today the listing of additional shares with the Philippine Stock
Exchange, Inc. (“PSE”) covering shares issued or to be issued by the Corporation as
enumerated in the Comprehensive Corporate Disclosure contained in the Corporation’s
Definitive Information Statement distributed to the Shareholders starting 13 August 2010.
-
The transactions relating to the issuances or future issuances of shares are for the approval
of the Shareholders during the Regular Stockholders Meeting to be held 03 September 2010.
Form 17- C filed on 16 August 2010, reported on the following matters
IPVG Corp. (the “Corporation”) has released its interim financial results for the 1st half of the
year (for period ended June 30, 2010).
The Interim Financial Report includes the highlights and
financial performance of the Corporation and its subsidiaries for the first two quarters of 2010.
The Corporation also issued today a press release containing an overview of its financial performance
for the said period. A copy of the press release is herewith attached.
8.
Form 17- C filed on 28 July 2010, reported on the following matters
-
The IPVG Corp. Board of Directors (the “Board”) approved the International
Representation Agreement entered into by its subsidiary I-Pay Commerce Ventures, Inc.
(“I-PCV”) with Western Union Network (Canada) Company (“Western Union”). Under the
said Agreement, Western Union has agreed for I-PCV to offer in the Philippines the Western
Union-branded money transfer services. The IPVG Corp. subsidiary initially plans to offer
the said services in 200 locations nationwide by the end of the year.
IPCV is the payment and remittance services subsidiary of IPVG Corp. IPCV is a certified
Bangko Sentral ng Pilipinas remittance agent that provides value-added payment
transactions to various partners in the country and abroad, offering multiple products to
merchant partners that range from Co-Branded Visa Debit Cards, online payment solutions,
Western Union remittance services, and Foreign Exchange services, among others.
Western Union is a leader in global payment services. It provides consumers and businesses
with fast, reliable and convenient ways to send and receive money around the world, as well
as send payments and purchase money orders. Its services are offered through a combined
network of more than 420,000 agent locations in 200 countries and territories.
A press release regarding this matter is attached hereto.
-
The Board approved the plan of its subsidiary IP Converge Data Center Inc. to register and
list its shares with the Securities and Exchange Commission and the Philippine Stock
Exchange, Inc. respectively, subject to terms and conditions as the subsidiary may deem
favorable to the Corporation.
-
The Board appointed Mr. Reynaldo D. Huergas as Director of IPVG Corp. to fill in the
vacancy in the Board of Directors created by the resignation of Mr. Emmanuel L. Jalandoni
42
effective 31 January 2010 (subject of Corporate Disclosure dated 15 January 2010). Mr.
Huergas shall serve the unexpired term of Mr. Jalandoni until a new set of Directors are
elected and qualified at the Annual Stockholders Meeting to be held on 03 September 2010.
Mr. Huergas is the incumbent President of IPVG Corp. subsidiary IP Converge Data Center
Inc. He has a track record of more than 20 years in sales, marketing, and business
development, with extensive experience in technology, telecommunications, and customer
service management in Asia and the US. Prior to joining IPVG and IP-Converge, Rene has
held executive positions in Globe Telecom, myAyala Inc., and Global Data Hub (formerly
Ayala Port), and occupied senior management positions in Unisys Corp. in the Philippines,
Hong Kong, Singapore, and Indonesia as well. Rene also worked at iAsiaworks (Silicon
Valley), a venture-funded company in Sunnyvale, California engaged in Internet data center
services in the Asia Pacific; as well as a content provider in Burlingame, California.
-
9.
In relation to the Annual Stockholders Meeting of the Corporation scheduled on 03
September 2010, the Board of Directors of the Corporation set 09 August 2010 as the
Record Date for shareholders entitled to attend and vote at the stockholders meeting.
Form 17- C filed on 17 June 2010, reported on the following matters
-
The Board of Directors (the “Board”) approved today to grant a corporate guarantee in favor
of its subsidiary I-Pay Commerce Ventures, Inc. (“IPCV”) in relation to IPCV’s
International Representation Agreement with Western Union Network (Canada) Company.
-
The board also resolved to grant authority to its President Jaime Enrique Y. Gonzalez and
Ricardo F. Lagdameo to negotiate and sign necessary agreements to refinance at a lower
interest rate IPVG’s loan.
-
The board likewise approved the conversion of IPVG’s P50,000,000.00 advances to IPCV
into equity. IPVG currently holds 56% of the total outstanding shares of IPCV.
-
The Board, in compliance the PSE Revised Rules on the Lodgment of Securities, approved
to authorize its transfer agent, Securities Transfer Services, Inc (STSI) the authority to
receive and cancel jumbo certificates from PDTC. STSI was likewise authorized to issue uncertificated shares.
The Board also authorized the Corporation to enter into an agreement with PASTRA.NET
on the use of linkage with the Electronic Registration (EDR) System.
The Board authorized the President Jaime Enrique Y. Gonzalez to negotiate and act in behalf
of IPVG and to sign and deliver any and all documents necessary in the implementation of
the foregoing resolutions.
-
The Board approved the appointment of Mr. Ricardo Lagdameo as the Corporation’s Chief
Investment Officer and Head of the Corporate Finance and Investor Relations Group.
Mr. Lagdameo is a holder of a Masters Degree in Business Administration from Columbia
Business School, New York, NY. And a Bachelor of Arts Interdisciplinary Studies Degree
from Ateneo De Manila University. Prior to joining the company, Mr. Lagdameo was an
Associate in Investment Banking at CLSA Exchange Capital. His experience includes
employment as Marketing Assistant for ING Barings Bank, and General Manager of Carrije
Cargo Inc. and Je Suis Gourmand, Inc. The last two companies are owned by Mr. Lagdameo
while pursuing his MBA degree.
43
10. Form 17- C filed on 19 April 2010, reported on the following matters
-
The Board of Directors resolved today to postpone the Company’s Annual Stockholders’
Meeting, which according to the Company’s By-Laws should be held every last Friday of
June, and resolved further to hold the Annual Stockholders’ Meeting of 03 September 2010
at 2:00 pm, at the Hexagon Lounge, 4th Floor Podium, RCBC Plaza, 6819 Ayala Avenue,
Makati City.
-
The Board of Directors also resolved to authorize the Executive Committee to review and
approve the financial policies and framework for IPVG Corp. and its subsidiaries for the
period 2010 onwards.
-
The Board of Directors likewise authorized the President and CEO, Jaime Enrique Y.
Gonzalez to enter into an Investment Agreement with PSRCARD CORP, to act in behalf of
the Corporation and to sign and deliver any and all documents necessary for the
implementation of the transaction.
-
The Board of Directors accepted today the resignation of Atty. Sheila T. Quien as Corporate
Secretary effective today, and as Alternate Corporate Information Officer and Chief Legal
Counsel effective 30 April 2010.
The Board appointed today Atty. Juname C. De Leon, the current Assistant Corporate
Secretary, as the new Corporate Secretary.
Atty. Juname De Leon is a graduate of the Ateneo De Manila University School of Law with
a Juris Doctor degree (1995), and of De La Salle University with a Bachelor of Commerce
Degree Major in Legal Management (1991). Prior to joining the Company, Atty. De Leon
was the Head of the Prosecution and Enforcement Department of the Philippine Stock
Exchange, Inc. from March 2006 to January 2009. Her professional experience includes
employment as a Hearing Officer and Securities Review Counsel at the Securities and
Exchange Commission and as General Counsel of Fortune Managers, a management
consultancy firm specializing in Corporate Rehabilitation and Insolvency. Atty. De Leon
likewise engaged in litigation practice for several years at the early stage of her legal career.
-
In order to comply with SEC Memorandum Circular No. 6, Series of 2009, the Board of
Directors approved today the adoption of a New Corporate Governance Manual to reflect
changes required by the aforementioned SEC Memorandum Circular.
11. Form 17- C filed on 01 February 2010, reported on the following matters
In connection with the disclosure of IPVG Corp. (the “Company”) on 29 January 2010 regarding
approval by the Philippine Stock Exchange of the application by IP E-Game Ventures, Inc. (IPE) of
listing by way of introduction, attached is the official press release of IPE.
12. Form 17- C filed on 29 January 2010, reported on the following matters
IPVG Corp. (the “Company”) was furnished today, a copy of the letter from the Philippine Stock
Exchange, Inc. (the “Exchange” or “PSE”) addressed to the Company’s subsidiary IP E-Game
Ventures, Inc. (“IPE”) informing IPE of the approval of its application for the initial Listing By Way
of Introduction of 33,545,554 common shares (“Subject Shares”) under the Second Board of the
Exchange, at an indicative reference opening price of Fifty Pesos (Php 50.00) per share.
IPE is qualified to list by way of introduction pursuant to Section 1 (e) of Part H of Article III of the
Revised Listing Rules of the PSE.
On May 25, 2009, IPE was cleared by the Board of Investments (“BOI”) to list its shares via Listing
By Way of Introduction with the PSE.
44
The Subject Shares applied for listing are already issued. No public offering of the Subject Shares
will be undertaken. No underwriter has been engaged and no offer price has been set in connection
with the aforementioned registration and listing. In compliance with the lock up requirement under
Section 2 (k) of Part E of article III of the Revised Listing Rules of the PSE, the shares of the
following shareholders are subject of the lock up for the duration of 365 days after the listing of such
shares:
Shareholder
IPE Global Holdings Corp
IPVG Corp.
IPVG Employees, Inc.
No. of Shares
25,817,990
4,860,000
764,000
Percentage
76.96%
14.49%
2.28%
Further, in compliance with Article 7(11), Chapter 2 of the Preliminary Title of the Omnibus
Investment Code, Section 1, Rule VIII of the Implementing Rules and Regulations of the Omnibus
Investment Code and Section 4 of the Listing By Way of Introduction Rules and IPE shall make a
public offering of its within 1 year from listing of its securities in the Exchange and comply with the
minimum public ownership requirement of the PSE.
After IPE’s listing, the Company would still own, directly and indirectly, majority shares and retain
control over IPE. Per consultation with the Company’s external auditor, Manabat San Agustin & Co.
(KPMG), the Company was advised that pursuant to PFRS No. 27, IPE shares shall continue to be
recognized in the books of IPVG Corp. as an investment in subsidiary and recorded at cost. Hence,
any increase in market value or share price of IPE over par value, would not be recognized as
unrealized gain in the financial statements of IPVG.
13. Form 17- C filed on 15 January 2010, reported on the following matters
Mr. Emmanuel L. Jalandoni tendered today his resignation as IPVG Corp’s Chief financial Officer
close of business day of January 31, 2010.
Mr. Jalandoni likewise resigned from his position as Director and Chief Information Officer of IPVG
Corp.
The Deputy Chief Finance Officer, Mr. Michael Eric I. Sarmiento will assume the position of Acting
Chief Finance Officer effective February 1, 2010.
Mr. Sarmiento is a holder of a Masters in Business Administration (MBA) degree from the University
of the Philippines (2004) and received his Bachelors of Science Degree in Industrial Engineering
from the University of Sto. Tomas. Before joining the IPVG Group as Deputy Chief Financial Officer
in 2007, he was Head of MIS & Budget Division in RCBC. He was in the banking industry for ten
years with applied knowledge in Financial Planning & Analysis, Business Analysis, Management
Accounting, Business Analytics, Information Management, MIS Project Management, Corporate
Planning, Corporate Banking, and Budget Management.
14. Form 17-C 9 December 2011 reported on the following matters
In relation to the 29 April 2009 Investment Agreement (“the Agreement”) among IPVG Corp. (the
“Corporation”), GEM Global Yield Fund Limited, GEM Investment Advisors, Inc. (collectively,
“GEM”) and Elite Holdings, Inc., the Corporation has issued a Draw Down Notice to GEM for 38
million shares of the Corporation. In this connection, and pursuant to the share lending requirements
under the Agreement, the majority shareholders who participated in the 19 October 2011 voluntary
lock-up agreement agreed to the partial lifting of 38 Million shares from the pool of the locked-up
shares. The amendment to the voluntary lock-up by the majority shareholders is to comply with the
obligation under the Investment Agreement.
45
15. Form 17-C 15 November 2011 reported on the following matters
The Shareholders approved the Minutes of the previous Shareholder Meeting held on 01 July 2011
and ratified all acts, contracts, investments and resolutions of the Board of Directors and the
Management since the last Regular Stockholders Meeting held on 01 July 2011.
The Stockholders unanimously approved the appointment of Reyes Tacandong & Co. as the new
Independent External Auditor for the year 2011. The Stockholders likewise authorized the President
and CEO to approve the fees, and the terms and conditions of the engagement of the external
auditor.
The Stockholders representing at least 2/3 of the outstanding capital stock of the Corporation
unanimously approved
the amendment of Article Seventh of the Amended Articles of
Incorporation of IPVG Corp. increasing the Authorized Capital Stock of the Corporation from One
Billion Pesos (P1,000,000,000.00) divided into One Billion (I,000,000,000) shares at par value of
One Peso (P1.00) per share, to Two Billion Pesos (P2,000,000,000.00) divided into Two Billion
(2,000,000,000) shares at par value of P1.00 per share.
The Stockholders likewise authorized the Board of Directors to determine and approve the terms and
conditions of the private placement/s and/or subscriptions to the increase in Authorized Capital
Stock.
The Board approved the amendment of Article Seventh of the Amended Articles of Incorporation
of IPVG Corp. increasing the Authorized Capital Stock of the Corporation from One Billion Pesos
(P1,000,000,000.00) divided into One Billion (I,000,000,000) shares at par value of One Peso
(P1.00) per share, to Two Billion Pesos (P2,000,000,000.00) divided into Two Billion
(2,000,000,000) shares at par value of P1.00 per share.
The Board accepted today the resignation of Atty. Maria Cristina Bayhon-Garcia as Assistant
Corporate Secretary and Alternate Information Officer of the Corporation.
16. Form 17-C 14 November 2011 reported on the following matters
IPVG Corp. released its Interim Financial results for the 3rd Quarter of the year (for the
period ended 30 September 2011)
17. Form 17-C 4 October 2011 reported on the following matters
The Board approved the change of the Corporation’s External Auditor, from Manabat Sanagustin
& Co. (KPMG) to Reyes Tacandong & Co. The change of the Corporation’s External Auditor during
the Special Stockholders Meeting on 15 November 2011 at 3:00 p.m.
The Board resolved to declare due and payable to the Corporation unpaid subscriptions to the capital
stock, and made a capital call on all partially-paid subscriptions. Subscribers with partially paid
/unpaid subscriptions were given five (5) trading days from notice within which to fully-pay their
subscriptions. Failure to pay on the aforesaid period shall result to stocks covered by the unpaid
subscription, to become delinquent and shall be subject to sale pursuant to Sections 67 and 68 of the
Corporation Code.
The Board approved to Issue up to 201,655,279 shares at P1.00 per share, and to delegate to the
Executive Committee the Authority to Determine the Terms and Conditions of the Subscriptions.
The Board authorized the President of the Corporation to negotiate and sign agreement/s for the
injection of business into IPVG Corp., pursuant to its restructuring program.
The Board approved to delegate to the Executive Committee the authority to review and approve the
proposed write-off of Bad Debts.
46
In line with the Corporate Restructuring Plan of the Corporation, the Board approved the transfer of
the Corporation’s receivables to IP Ventures, Inc.
18. Form 17-C on 15 August 2011, reported on the following matters
IPVG Corp. pursuant to its previously disclosed corporate restructuring and the approved mechanics,
terms and conditions thereof, entered into agreements with IP Ventures, Inc. (NewCo) for the transfer
of all or substantially all of its properties and assets, including the transfer of all of its shares in its
listed subsidiaries namely, (a) IP E-Game Ventures, Inc.; and (b) IP Converge Data Center, Inc.; and
its non-listed subsidiaries, namely, (1) Prolexic Technologies, Inc.; (2) PCCW Teleservices
Philippines, Inc.; (3) Megamobile, Inc.; (4) I-Pay Commerce Ventures, Inc.; (5) IP Contact Center
Outsourcing, Inc.; (6) IP E-Global Holdings, Corp.; and (7) Rotherham Consultants Limited; and all
or substantially all of its liabilities.
19. Form 17-C on 15 August 2011, reported on the following matters
The Board of Directors approved the subscription to 40,000,000 shares in IP Converge Data Center,
Inc. at P2.52 per share.
The Board approved the disposition of inactive and non-operational subsidiaries.
The Board approved the appointment of Atty. Cristina Bayhon-Garcia as Assistant Corporate
Secretary and Alternate Information Officer.
The Board appointed its President and CEO, Jaime Enrique Y. Gonzalez as its Proxy to represent the
Corporation and vote its shares in the Annual Stockholders Meeting of IP Converge Data Center, Inc.
scheduled on 09 September 2011.
20. Form 17-C on 15 August 2011, reported on the following matters
IPVG Corp. has released its interim financial results for the 2nd Quarter of the year (for period ended
30 June 2011). The Interim Financial Report includes the highlights and financial performance of
the Corporation and its subsidiaries for the first half of 2011, reporting a net income of Php296.72
million, a substantial increase from the Php10.8 million posted in the same period last year.
Consolidated revenue stood at Php650.28 million, a 3.1% rise from the Php630.82 million reported in
the first half of 2010.
21. Form 17-C on 19 July 2011, reported on the following matters
The Board approved the Mechanics, Terms and Conditions of the Rationalization of Corporate
Structure/ Restructuring Plan of IPVG Corp.:
a.) To implement the corporate restructuring by transferring all or substantially all of its assets and
liabilities to a new company (New Co.)
b.) To sell, dispose or transfer all or substantially all of its assets, including all of its shares in the
Listed Subsidiaries and Non-Listed Subsidiaries, at a price which shall not be less than:
• Carrying cost in the Corporation’s books with respect to the shares of the Listed
Subsidiaries; and
• The book value as of the latest audited financial statements of the Non-Listed Subsidiaries
with respect to the shares of the Non-Listed Subsidiaries
c.) To delegate to the Executive Committee the authority to determine the record date for purposes
of implementing the proposed restructuring, including the identification of the stockholders of
IPVG Corp. who will be stockholders of New Co.
d.) To authorize Mr. Jaime Enrique Y. Gonzalez and/or Mr. Ricardo F. Lagdameo, for and behalf of
IPVG Corp., to sign, execute and deliver any and all documents, agreements , applications
with the SEC, PSE, BIR and/or other applicable regulatory authorities, and other forms, letters,
and instruments, and perform any and all acts as may be necessary to implement the corporate
restructuring of the Corporation.
47
22. Form 17-C on 1 July 2011, reported on the following matters
The Board approved the Minutes of the previous Shareholder Meeting held on 03 September 2010,
the 2010 Annual Report, 2010 Financial Statements and 2010 Management Report.
The Stockholders approved the listing of additional shares with PSE covering shares issued or to be
issued by the Corporation as enumerated in the Comprehensive Corporate Disclosure of the
Definitive Information Statement.
The Stockholders approved the amendment of Article Second, Section 1 & 2 and Article Ninth,
Section 2 of the Corporation’s Amended By-Laws to allow notices and communications to
stockholders, directors, and officers in electronic and /or disk format.
The Stockholders approved the proposed rationalization of corporate structure/restructuring of IPVG
Corp, and the delegation of authority to the Board of Directors to determine the mechanics, terms and
conditions of the proposed rationalization including the shareholders’ acquisition of shares in the
NewCo in the same proportions as their Shareholdings in IPVG Corp., such that NewCo will have the
same shareholding structure as well as the same assets and liabilities as IPVG Corp.
The Stockholders representing 72.11% approved to sell, dispose or transfer all or substantially all of
IPVG’s Corporate properties and assets and all or substantially all of its liabilities to New Co. and
delegated the authority to the Board to determine the terms and conditions of the sale, disposition or
transfer.
The Stockholders elected the following to the Board of Directors for the term 2011-2012:
Name
Jaime C. Gonzalez
Jaime Enrique Y. Gonzalez
Marco Antonio Y. Santos
Roger Stone
Srinivas Polishetty
Juan Victor S. Tanjuatco - Independent Director
Rene R. Fuentes – Independent Director
Juan Kevin Belmonte
Reynaldo D. Huergas Ricardo F. Lagdameo
The Stockholders approved the appointment of KPMG Manabat Sanagustin & Co. as the
Independent External Auditor for the year 2011 and authorized the President and CEO to approve the
fees, and the terms and conditions of the engagement.
48
The Board duly approved the appointment of the following Officers for the year 2011-2012:
Name
Positions
Jaime C. Gonzalez
Jaime Enrique Y. Gonzalez
Marco Antonio Y. Santos
Roger Stone
Srinivas Polishetty
Juname C. De Leon
Chairman,
CEO & President
Deputy Chairman
Deputy Chairman
Treasurer
Corporate Secretary &
Compliance Officer
Assistant Corporate Secretary
Corporate Information Officer
Alternate Information Officer
Jaypee Orlando C. Pedro
Ricardo F. Lagdameo
Jaime Enrique Y. Gonzalez
Juname C. De Leon
Jaypee Orlando C. Pedro
The Board duly approved the following Directors as Committee members, as required by the
Amended By-Laws and the Manual on Corporate Governance:
Name
Positions
Rene R. Fuentes – Chairman
Jaime C. Gonzalez
Srinivas Polishetty
Roger Stone
Jaime C. Gonzalez - Chairman
Jaime Enrique Y. Gonzalez
Rene R. Fuentes
Roger Stone
Leonardo Arthur T. Po
Jaime C. Gonzalez - Chairman
Jaime Enrique Y. Gonzalez
Juan Victor S. Tanjuatco
Roger Stone
Marco Antonio Y. Santos
Jaime C. Gonzalez - Chairman
Jaime Enrique Y. Gonzalez
Roger Stone
Juan Kevin G. Belmonte
Ricardo F. Lagdameo
Audit Committee
Nominations Committee
Compensation/ESOP Committee
Executive Committee
23. Form 17-C on 3 June 2011, reported on the following matters
The Board approved to extend shareholders loan to PCCW Teleservices (Philippines) in the principle
amount of USS$453,000.00
24. Form 17-C on 18 May 2011, reported on the following matters
IPVG released its interim financial results for the 1st Quarter of the year (for the period ended 31
March). The Interim Financial report includes the highlights and financial performance of the
Corporation and its subsidiaries for the first quarter of 2011 reflecting therein a substantial increase
in net income compared with the same period last year. The Corporation reported consolidated
revenue of P367.51 million representing an increase of 15% from 2010 Q1
25. Form 17-C on 15 April 2011, reported on the following matters
The Board approved to move the Annual Stockholders Meeting of the Corporation for this year,
from 24 June 2011, the date provided for under the Corporation’s Amended By-Laws (last Friday
49
of June),
to 01 July 2011, at 3 p.m. The Record Date for the purpose of determining
stockholders entitled to Notice of and to Vote at the ASM, is set at end of business hours of 03
June 2011.
The Board approved the amendments of Sections 1 and 2 of Article II, and Section 2 of Article IX of
the Corporation’s Amended By-Laws to allow the distribution of Notice and/or Information
Statements, and other communications to Shareholders in Electronic or CD Format.
26. Form 17-C on 31 January 2011, reported on the following matters
Mr. Michael Ferrer resigned as Director of the Corporation.
Mr. Leonardo Arthur T. Po was elected as Director to replace of Mr. Ferrer in the Board of
Directors.
The Board approved to exercise its Option under the Option Agreement signed by the Corporation
with IP E-Game Ventures, Inc. (EG), wherein the Corporation can subscribe up to 20,000,000 shares
in EG at P1.00 per share. The Corporation approved to subscribe to 20,000,000 shares.
Board approved the following Corporate Guarantees:
a.) Corporate guarantee in favor of subsidiary IP Converge Data Center, Inc. in relation to the
latter’s 2-year credit facility with Banco De Oro Unibank, Inc. for P105 Million.
b.) Corporate guarantee in favor of Rotherham Consultants, Ltd. in relation to the $900,000 loan by
IP Capital Partners Ltd.
c.) Corporate guarantee in favor of subsidiary IP E-Game Ventures, Inc. (EG) for P9M to secure
20% of the Credit Facility obtained by EG from Unionbank of the Philippines.
50
51
IPVG Corp. and Subsidiaries
Consolidated Financial Statements
December 31, 2011
(With Comparative Figures for 2010 and 2009)
With independent auditor’s report provided by
REYES TACANDONG & CO.
FIRM PRINCIPLES. WISE SOLUTIONS.
COVER SHEET
0 0 0 0 0 2 5 1 6 0
SEC Registration Number
I P V G
C O R P .
A N D
S U B S I D I A R I E S
Company’s Full Name
3 4 t h
F l o o r ,
A y a l a
T o w e r
A v e n u e ,
2 ,
R C B C
M a k a t i
C i t y
P l a z a ,
Business Address: No. Street City/Town/Province
Jaime Enrique Y. Gonzalez
(02) 976-4784
Contact Person
Company Telephone Number
1 2
3 1
A A C F S
Month
Day
(Form Type)
Month
(Fiscal Year)
Day
(Annual Meeting)
(Secondary License Type, If Applicable)
SEC
Dept. Requiring this Doc.
Amended Articles Number/Section
Total Amount of Borrowings
Total Number of
Stockholders
Domestic
Foreign
To be accomplished by SEC Personnel concerned
File Number
Document I.D.
LCU
Cashier
STAMPS
Remarks = Please use black ink for scanning purposes
PHINMA Plaza
39 Plaza Drive, Rockwell Center
Makati City 1200 Philippines
www.reyestacandong.com
Phone: +632 982 9100
Fax : +632 982 9111
BOA Accreditation No. 4782
SEC Accreditation No. 0207-F
INDEPENDENT AUDITOR’S REPORT
The Stockholders and the Board of Directors
IPVG Corp.
34th Floor, Tower 2
RCBC Plaza, Ayala Avenue
Makati City
We have audited the accompanying consolidated financial statements of IPVG Corp. and Subsidiaries,
which comprise the consolidated statement of financial position as at December 31, 2011, and the
consolidated statement of comprehensive income, consolidated statement of changes in equity and
consolidated statement of cash flows for the year then ended, and a summary of significant
accounting policies and other explanatory information.
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial
statements in accordance with Philippine Financial Reporting Standards, and for such internal control
as management determines is necessary to enable the preparation of consolidated financial
statements that are free from material misstatement, whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our
audit. We conducted our audit in accordance with Philippine Standards on Auditing. Those
standards require that we comply with ethical requirements and plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial statements are free from
material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures
in the consolidated financial statements. The procedures selected depend on the auditor’s
judgment, including the assessment of the risks of material misstatement of the consolidated
financial statements, whether due to fraud or error. In making those risk assessments, the auditor
considers internal control relevant to the entity’s preparation and fair presentation of the
consolidated financial statements in order to design audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s
internal control. An audit also includes evaluating the appropriateness of accounting policies used
and the reasonableness of accounting estimates made by management, as well as evaluating the
overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis
for our audit opinion.
The correspondent firm of
-2-
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the
financial position of IPVG Corp. and Subsidiaries as at December 31, 2011, and their financial
performance and their cash flows for the year then ended in accordance with Philippine Financial
Reporting Standards.
Other Matter
The consolidated financial statements of IPVG Corp. and Subsidiaries as at and for the years ended
December 31, 2010 and 2009 were audited by another auditor whose report dated April 14, 2011,
expressed a modified opinion on those statements due to scope limitation on the carrying amount of
the investment and advances to a subsidiary, Rotherham Consultants Limited (RCL), as at
December 31, 2010 and 2009. The opinion of such other auditor, however, does not include the
restatements and reclassification adjustments discussed in Note 6 to consolidated financial
statements.
REYES TACANDONG & CO.
HAYDEE M. REYES
Partner
CPA Certificate No. 83522
Tax Identification No. 102-095-265
SEC Accreditation No. 0663-AR-1
Group A; Valid until March 30, 2014
BOA Accreditation No. 4782; Valid until December 31, 2012
BIR Accreditation No. 08-005144-6-2010
Issued November 5, 2010; Valid until November 5, 2013
PTR No. 3174555
Issued January 2, 2012, Makati City
May 2, 2012
Makati City, Metro Manila
INDEPENDENT AUDITOR’S REPORT
The Stockholders and the Board of Directors
IPVG Corp.
We have audited the accompanying consolidated financial statements of IPVG Corp. and Subsidiaries,
which comprise the consolidated statement of financial position as at December 31, 2011, and the
consolidated statement of comprehensive income, consolidated statement of changes in equity and
consolidated statement of cash flows for the year then ended, and a summary of significant
accounting policies and other explanatory information.
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial
statements in accordance with Philippine Financial Reporting Standards, and for such internal control
as management determines is necessary to enable the preparation of consolidated financial
statements that are free from material misstatement, whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our
audit. We conducted our audit in accordance with Philippine Standards on Auditing. Those
standards require that we comply with ethical requirements and plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial statements are free from
material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures
in the consolidated financial statements. The procedures selected depend on the auditor’s
judgment, including the assessment of the risks of material misstatement of the consolidated
financial statements, whether due to fraud or error. In making those risk assessments, the auditor
considers internal control relevant to the entity’s preparation and fair presentation of the
consolidated financial statements in order to design audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s
internal control. An audit also includes evaluating the appropriateness of accounting policies used
and the reasonableness of accounting estimates made by management, as well as evaluating the
overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis
for our audit opinion.
-2-
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the
financial position of IPVG Corp. and Subsidiaries as at December 31, 2011, and their financial
performance and their cash flows for the year then ended in accordance with Philippine Financial
Reporting Standards.
Other Matter
The consolidated financial statements of IPVG Corp. and Subsidiaries as at and for the years ended
December 31, 2010 and 2009 were audited by another auditor whose report dated April 14, 2011,
expressed a modified opinion on those statements due to scope limitation on the carrying amount of
the investment and advances to a subsidiary, Rotherham Consultants Limited (RCL), as at
December 31, 2010 and 2009. The opinion of such other auditor, however, does not include the
restatements and reclassification adjustments discussed in Note 6 to consolidated financial
statements.
REYES TACANDONG & CO.
HAYDEE M. REYES
Partner
CPA Certificate No. 83522
Tax Identification No. 102-095-265
SEC Accreditation No. 0663-AR-1
Group A; Valid until March 30, 2014
BOA Accreditation No. 4782; Valid until December 31, 2012
BIR Accreditation No. 08-005144-6-2010
Issued November 5, 2010; Valid until November 5, 2013
PTR No. 3174555
Issued January 2, 2012, Makati City
May 2, 2012
Makati City, Metro Manila
IPVG CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
DECEMBER 31, 2011
(With Comparative Figures for 2010 and 2009)
2010
(As Restated Note 6)
2009
(As Restated Note 6)
=201,801,401
P
=263,344,092
P
=29,692,829
P
–
77,033,528
–
–
–
4,204,714
283,039,643
250,517,290
150,440,951
7,779,535
7,776,704
8,153,063
75,787,492
763,799,127
327,222,559
163,919,627
25,763,815
12,723,569
–
67,729,440
627,051,839
–
–
–
469,809
–
469,809
178,671,839
233,895,176
787,478,733
81,173,452
164,518,423
1,445,737,623
289,297,113
250,575,416
452,768,183
49,310,651
199,396,523
1,241,347,886
=283,509,452
P
=2,209,536,750
P
=1,868,399,725
P
=–
P
=305,499,234
P
=297,195,675
P
–
15,776,492
12,749,917
–
28,526,409
36,408,832
655,734,402
58,617,498
6,553,272
1,062,813,238
40,959,021
584,474,797
8,394,891
4,881,245
935,905,629
2011
ASSETS
Current Assets
Cash and cash equivalents (Notes 10 and 31)
Trade and other receivables - net (Notes 11
and 31)
Due from related parties (Notes 27 and 31)
Available-for-sale investment (Notes 12 and 31)
Inventories (Note 13)
Assets classified as held for sale (Note 12)
Other current assets (Note 14)
Total Current Assets
Noncurrent Assets
Investments in associates and a joint venture
(Note 15)
Property and equipment - net (Note 16)
Intangible assets - net (Note 17)
Deferred tax assets (Note 26)
Other noncurrent assets (Note 18)
Total Noncurrent Assets
LIABILITIES AND EQUITY
Current Liabilities
Current portion of:
Loans payable (Notes 19 and 31)
Obligations under finance lease (Notes 30 and
31)
Trade and other payables (Notes 15, 20 and 31)
Due to related parties (Notes 27 and 31)
Income tax payable
Total Current Liabilities
(Forward)
-2-
2010
(As Restated Note 6)
2009
(As Restated Note 6)
=–
P
=56,247,843
P
=90,140,696
P
–
–
–
28,526,409
10,773,907
14,659,496
81,681,246
1,144,494,484
26,330,326
10,843,351
127,314,373
1,063,220,002
2011
Noncurrent Liabilities
Loans payable - net of current portion
(Notes 19 and 31)
Obligations under finance lease - net of current
portion (Notes 30 and 31)
Retirement benefit liability (Note 25)
Total Noncurrent Liabilities
Total Liabilities
Equity Attributable to Equity Holders
of the Parent
Capital stock (Note 28)
Additional paid-in capital
Deposits for stock subscriptions (Note 28)
Reserves
Deficit
Non-controlling Interests
Total Equity
798,344,721
801,801,734
1,000,000
–
(1,343,006,173)
258,140,282
(3,157,239)
254,983,043
=283,509,452
P
See accompanying Notes to Consolidated Financial Statements.
705,367,163
801,801,734
12,075,250
5,506,629
(728,833,331)
795,917,445
269,124,821
1,065,042,266
=2,209,536,750
P
641,948,863
770,448,870
94,081,959
19,494,883
(780,179,521)
745,795,054
59,384,588
805,179,722
=1,868,399,725
P
IPVG CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED DECEMBER 31, 2011
(With Comparative Figures for 2010 and 2009)
2011
2010
(As Restated Note 6)
2009
(As Restated Note 6)
REVENUE (Note 21)
=5,206,101
P
=7,817,411
P
=20,786,405
P
COST OF SALES AND SERVICES (Note 22)
21,079,794
29,333,774
22,746,227
(15,873,693)
(21,516,363)
(1,959,822)
(144,127,767)
(70,237,874)
(81,484,734)
(225,604,478)
(32,667,907)
(271,453,088)
GROSS LOSS
OPERATING EXPENSES (Note 23)
IMPAIRMENT LOSSES ON:
FINANCIAL ASSETS (Note 7)
NONFINANCIAL ASSETS (Note 7)
(71,537,497)
GAIN ON SALE OF INVESTMENTS (Note 8)
333,115,632
LOSS ON TRANSFER OF ASSETS
AND LIABILITIES (Note 7)
(139,963,124)
OTHER CHARGES - NET (Note 24)
INCOME (LOSS) FROM CONTINUING
OPERATIONS BEFORE INCOME TAX
(9,557,508)
–
–
210,356,550
8,970,410
–
–
(7,568,370)
629,227
(273,548,434)
78,366,036
(345,298,007)
69,218,743
(11,979,914)
(11,374,714)
NET INCOME (LOSS) FROM CONTINUING
OPERATIONS
(342,767,177)
90,345,950
(333,923,293)
NET INCOME (LOSS) FROM DISCONTINUED
OPERATIONS (Note 7)
(233,233,319)
(22,305,787)
78,268,641
NET INCOME (LOSS)
(576,000,496)
68,040,163
(255,654,652)
(3,565,252)
–
INCOME TAX EXPENSE (BENEFIT) (Note 26)
OTHER COMPREHENSIVE INCOME (LOSS)
Net change in fair value of available-for-sale
investment (Note 12)
Currency translation differences on foreign
operations
TOTAL COMPREHENSIVE INCOME (LOSS)
NET INCOME (LOSS) ATTRIBUTABLE TO:
Equity holders of the Parent
Non-controlling interests
(Forward)
(1,941,377)
(13,988,254)
3,565,252
1,614,254
(P
=581,507,125)
=54,051,909
P
(P=250,475,146)
(P
=580,929,886)
4,929,390
(P
=576,000,496)
=51,346,190
P
16,693,973
=68,040,163
P
(P=286,529,008)
30,874,356
(P=255,654,652)
-2-
2011
TOTAL COMPREHENSIVE INCOME (LOSS)
ATTRIBUTABLE TO:
Equity holders of the Parent
Non-controlling interests
BASIC/DILUTED EARNINGS (LOSS) PER SHARE
(Note 29)
Net Income (Loss) Attributable to Equity
Holders of the Parent
(P
=586,436,515)
4,929,390
(P
=581,507,125)
2010
(As Restated Note 6)
2009
(As Restated Note 6)
=38,807,936
P
15,243,973
=54,051,909
P
(P=280,351,158)
29,876,012
(P=250,475,146)
(P
=0.7843)
=0.0719
P
(P=0.4242)
Net Income (Loss) from Continuing Operations
Attributable to Equity Holders of the
Parent
(P
=0.4627)
=0.1266
P
(P=0.4943)
Net Income (Loss) from Discontinued
Operations Attributable to Equity Holders
of the Parent
(P
=0.3216)
(P=0.0547)
=0.0701
P
See accompanying Notes to Consolidated Financial Statements.
IPVG CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED DECEMBER 31, 2011
(With Comparative Figures for 2010 and 2009)
2011
CAPITAL STOCK - P
=1 par value (Note 28)
Balance at beginning of year:
As previously reported
Prior period adjustment
As restated
Issuances of shares
Subscriptions of shares
Balance at end of year
=688,792,421
P
16,574,742
705,367,163
92,977,558
–
798,344,721
2010
(As Restated Note 6)
2009
(As Restated Note 6)
=641,948,863
P
–
641,948,863
46,843,558
16,574,742
705,367,163
=641,948,863
P
–
641,948,863
–
–
641,948,863
ADDITIONAL PAID-IN CAPITAL
Balance at beginning of year
As previously reported
Prior period adjustment
As restated
Premiums received
Balance at end of year
801,885,622
(83,888)
801,801,734
–
801,801,734
770,532,758
(83,888)
770,448,870
31,352,864
801,801,734
770,532,758
(83,888)
770,448,870
–
770,448,870
DEPOSITS FOR STOCK SUBSCRIPTIONS
Balance at beginning of year:
As previously reported
Prior period adjustment
As restated
Return of deposit (Note 27)
Issuances of shares
Subscriptions of shares (see Note 28)
Additional deposits
Balance at end of year
28,649,992
(16,574,742)
12,075,250
(11,075,250)
–
–
–
1,000,000
94,081,959
–
94,081,959
–
(65,431,967)
(16,574,742)
–
12,075,250
42,319,398
–
42,319,398
–
–
–
51,762,561
94,081,959
5,506,629
(3,565,252)
(1,941,377)
–
–
19,494,883
–
(13,988,254)
–
5,506,629
14,315,380
–
1,614,251
3,565,252
19,494,883
RESERVES
Balance at beginning of year
Reversal due to transfer (Note 12)
Foreign currency translation
Unrealized gains
Balance at end of year
(Forward)
-2-
2010
(As Restated Note 6)
2009
(As Restated Note 6)
(P
=579,988,215)
(148,845,116)
(728,833,331)
(33,242,956)
(580,929,886)
(1,343,006,173)
(P=717,815,969)
(62,363,552)
(780,179,521)
–
51,346,190
(728,833,331)
(P=572,197,154)
(25,895,499)
(598,092,653)
104,442,140
(286,529,008)
(780,179,521)
(83,888)
83,888
–
(83,888)
83,888
–
(83,888)
83,888
–
2011
DEFICIT
Balance at beginning of year:
As previously reported
Prior period adjustments
As restated
Change in equity interest in subsidiaries
Net income (loss)
Balance at end of year
TREASURY STOCK
Balance at beginning of year
As previously reported
Prior period adjustments
Balance at end of year, as restated
EQUITY ATTRIBUTABLE TO EQUITY HOLDERS
OF THE PARENT
258,140,282
795,917,445
NON-CONTROLLING INTERESTS
Balance at beginning of year:
As previously reported
Prior period adjustments
As restated
Change in ownership interest in subsidiaries
Net income (loss)
Balance at end of year
234,182,380
34,942,441
269,124,821
(277,211,450)
4,929,390
(3,157,239)
34,400,466
24,984,122
59,384,588
193,046,260
16,693,973
269,124,821
=254,983,043
P
See accompanying Notes to Consolidated Financial Statements.
=1,065,042,266
P
745,795,054
32,846,255
–
32,846,255
(4,336,023)
30,874,356
59,384,588
=805,179,723
P
IPVG CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2011
(With Comparative Figures for 2010 and 2009)
2010
(As Restated Note 6)
2009
(As Restated Note 6)
(P
=273,548,434)
(228,927,687)
(502,476,121)
=78,366,036
P
10,459,691
88,825,727
(P=345,298,007)
81,442,764
(263,855,243)
(333,115,632)
(210,088,693)
(44,057,396)
307,846,532
267,231,921
139,963,124
–
84,439,716
–
–
278,854,489
–
79,101,071
35,879,469
(11,965,774)
99,696,706
54,522,327
(599,917)
89,538,386
54,509,714
(2,182,801)
(5,368,118)
2,425,126
134,558
(10,882,778)
3,816,145
–
(18,152,107)
4,284,927
–
–
(20,343,844)
(1,129,108)
108,600,125
(2,212,455)
96,727,514
28,183,971
7,776,704
68,975,081
(679,343,401)
(594,751,489)
(6,553,272)
4,303,774
(597,000,987)
(834,447)
4,225,660
(8,058,052)
67,537,702
171,470,988
(50,976,338)
599,917
121,094,567
(181,448,126)
4,339,345
4,121,047
(95,182,071)
(171,442,291)
(11,542,555)
2,182,801
(180,802,045)
2011
CASH FLOWS FROM OPERATING ACTIVITIES
Income (loss) before income tax from:
Continuing operations
Discontinued operations (Note 8)
Income (loss) before income tax
Adjustments for:
Gain on sale of investments in associates
(Note 8)
Impairment losses on:
Nonfinancial assets
Financial assets
Loss on transfer of assets and liabilities
Depreciation and amortization (Notes 16
and 17)
Interest expense (Note 24)
Interest income
Equity share in net income of associates
and a joint venture (Note 15)
Retirement benefits (Note 25)
Unrealized foreign exchange loss
Loss (gain) on disposal of property and
equipment
Operating income before working capital changes
Decrease (increase) in:
Trade and other receivables
Inventories
Prepaid expenses and other current assets
Increase (decrease) in trade and other payables
Net cash generated from (used for) operations
Income taxes paid
Interest received
Net cash provided by (used in) operating activities
(Forward)
-2-
2010
(As Restated Note 6)
2009
(As Restated Note 6)
=P297,968,476
175,000,000
–
–
=317,608,491
P
–
2,502,617
–
=341,200,898
P
–
73,144,725
214,306,199
(125,268,605)
(64,037,040)
(61,479,156)
(350,080,954)
(72,521,574)
(17,854,750)
(166,092)
(207,663,175)
2011
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from:
Sale of investments in subsidiaries and
associates
Transfer of assets and liabilities (Note 7)
Property and equipment
Intangible assets
Additions to:
Property and equipment (Note 16)
Intangible assets (Note 17)
Investments in subsidiaries and associate
(Note 15)
Net decrease (increase) in:
Other noncurrent assets
Due from related parties
Acquisitions of business - net of cash acquired
(Note 7)
Net cash provided by (used in) investing activities
–
154,362,430
97,331,960
34,878,101
13,478,676
(69,824,731)
(63,564,392)
(28,555,424)
506,801,797
–
(43,258,317)
–
197,223,200
85,477,558
(47,312,659)
12,764,455
(58,706,607)
–
(54,509,714)
128,438,650
(47,182,739)
–
(21,405,014)
(20,106,608)
193,046,180
11,507,822
21,200,845
4,335,942
(70,448,811)
(20,315,500)
28,656,501
50,222,607
–
155,815,013
(1,646,429)
(892,327)
(20,003,861)
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS
(61,542,691)
233,651,263
(3,582,706)
CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR
263,344,092
29,692,829
33,275,535
CASH AND CASH EQUIVALENTS
AT END OF YEAR (Note 10)
=201,801,401
P
=263,344,092
P
=29,692,829
P
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuances of common stock
Interest paid
Net proceeds from (repayments of):
Loans payable
Obligations under finance lease
Additions to non-controlling interests
Increase (decrease) in:
Due to related parties
Other noncurrent liabilities
Net cash provided by (used in) financing activities
See accompanying Notes to Consolidated Financial Statements.
IPVG CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(With Comparative Information for 2010 and 2009)
1. Corporate Information
IPVG Corp. (the “Company” or IPVG) was incorporated and registered with the Philippine
Securities and Exchange Commission (SEC) on May 19, 1964. The Company’s primary purpose is
to invest and engage in management of investments in media and information technology
industry; internet, intranet, extranet, and all types of information technology users; purchase,
sale, import and export, license, distribution and rental of any computer hardware and
equipment; and engage in e-commerce. The subsidiaries are mainly involved in communications,
IP services and internet security services; content online games and mobile solutions; and
payment solutions. The Company and subsidiaries are collectively referred to as the “Group.”
The common shares of the Company were listed beginning March 1, 1976 in the Philippine Stock
Exchange (PSE).
Corporate Restructuring
In July 2011, the shareholders and the Board of Directors (BOD) of IPVG approved IPVG’s
Restructuring Plan, which aims to increase shareholder value and potentially generate cash for
IPVG. As part of the Restructuring Plan, IP Ventures, Inc. (IPVI) was incorporated in the
Philippines on September 16, 2011. IPVI is owned by the same shareholders of IPVG in the same
proportion as their shareholdings in the latter.
Following the formation of IPVI, IPVG transferred substantially all its assets and liabilities,
including its equity interest in the shares of the stock of listed subsidiaries, namely: IP E-Game
Ventures, Inc. (IPEVI) and IP Converge Data Center, Inc. (IPCDC), and other non-listed
subsidiaries, pursuant to the Asset Purchase Agreement (APA) dated September 28, 2011
(see Note 7).
The corporate ownership structure of the Company and IPVI remains the same before and after
the transaction. While IPVI mirrors the corporate structure of the Company, the Company keeps
its current corporate structure, having the same set of shareholders post restructuring. The
Restructuring Plan also seeks to optimize its value, as it plans to inject an operating business into
the Company, while IPVI serves as the new holding company of the Group having the same
purpose and business as the Company. The Company provided exit mechanisms for minority
shareholders of IPVI, which were as follows: (i) Tender Offer made by IPVI for 40 million shares of
the Company at P=1.70 per share in October 2011; and (ii) the principal shareholders’ intention to
acquire up to 10 million shares from the market.
On November 15, 2011, the Company increased its authorized capital from 1 billion shares at
₱1.0 par value to 2 billion shares at ₱1.0 par value. The increase was approved by the SEC on
March 27, 2012. However on January 20, 2012, the Company again increased its authorized
capital from 2 billion shares at ₱1.0 par value to 10 billion shares at ₱1.0 par value. On the same
date, the BOD approved the change in the Company’s primary purpose allowing the Company,
among others, to establish a refinery in the Philippines to refine metal ores, precious stones, oil,
gas, coal and other minerals.
-2-
In line with the new business, Conqueror Spare, Ltd. (CSL) subscribed to 2.8 billion shares at ₱1.0
par value equivalent to ₱2.8 billion of the increase. CSL and the Company signed a memorandum
of agreement to acquire 100% ownership of New Wave Resources (NWR) for ₱2.8 billion. The
acquisition gives the Company the exclusive rights over a strategic relationship with a leading
builder and operator of refineries in People’s Republic of China. CSL has remitted ₱2.8 billion to
the Company in payment of its subscription (see Note 32).
The registered address of the Company is at 34th Floor, Tower 2, RCBC Plaza, Ayala Avenue,
Makati City.
The accompanying consolidated financial statements as at and for the year ended December 31,
2011 (with comparative figures for 2010 and 2009) were approved and authorized for issue by
the BOD on May 2, 2012, as reviewed and recommended for approval by the Audit Committee
on the same date.
2. Basis of Preparation and Statement of Compliance
Basis of Preparation
The accompanying consolidated financial statements have been prepared on the historical basis,
except for available-for-sale (AFS) investments, which are measured at fair value.
The consolidated financial statements have been presented in Philippine Peso, the Company’s
functional and presentation currency. All values are in absolute amounts, unless otherwise
indicated.
Statement of Compliance
The consolidated financial statements have been prepared in compliance with Philippine
Financial Reporting Standard (PFRS) issued by the Philippine Financial Reporting Standards
Council (FRSC) and adopted by the SEC, including the SEC Pronouncement.
This financial reporting framework includes PFRS, Philippine Accounting Standards (PAS) and
Philippine Interpretations from International Financial Reporting Interpretations Committee
(IFRIC).
3. Summary of Changes in Accounting Policies
Adoption of New and Revised PFRS
The Group adopted new and revised PFRS effective January 1, 2011 as summarized below.

PAS 24, Related Party Disclosures (Amended) – The amended standard simplified the
definition of a related party by clarifying relationships that are considered to be related
parties to assure consistency in the application of the standard.

PAS 32, Financial Instruments: Presentation - Classification of Rights Issues (Amended) –
Rights issues (and certain options or warrants) are classified as equity instruments when the
rights are given pro rata to all existing owners of the same class of an entity’s non-derivative
equity instruments, or given to acquire a fixed number of the entity’s own equity instruments
for a fixed amount in any currency.
-3-

Philippine Interpretation IFRIC 14, Prepayments of a Minimum Funding Requirement – The
amendment provides guidance on assessing the recoverable amount of a net pension asset
and permits an entity to treat the prepayment of a minimum funding requirement as an
asset.

Philippine Interpretation IFRIC 19, Extinguishing Financial Liabilities with Equity Instruments –
The interpretation clarifies that equity instruments issued to a creditor to extinguish a
financial liability qualify as consideration paid. The equity instrument issued is measured at
its fair value. If the fair value cannot be reliably measured, the instruments are measured at
the fair value of the liability extinguished. Any gain or loss is recognized immediately in profit
or loss.

Improvements to PFRS
The omnibus amendments to PFRS were issued in May 2011 primarily to clarify accounting
and disclosure requirements to assure consistency in the application of the following
standards.
-
PFRS 3, Business Combinations
PFRS 7, Financial Instruments: Disclosures
PAS 1, Presentation of Financial Statements
PAS 27, Consolidated and Separate Financial Statements
The foregoing new and revised PFRS have no significant impact on the amounts and disclosures
in the consolidated financial statements of the Group.
New and Revised PFRS Not yet Adopted
Relevant new and revised PFRS, which are not yet effective for the year ended December 31,
2011, have not been applied in preparing the consolidated financial statements and are
summarized below.
Effective for annual periods beginning on or after July 1, 2011:

PFRS 7, Financial Instruments: Disclosures - Enhanced Derecognition Disclosure Requirements
– Additional disclosure on financial assets that have been transferred but not derecognised
and the continuing involvement in the derecognised assets is required to enable the user of
the financial statements to evaluate related risks.

PFRS 7, Financial Instruments: Disclosures - Transfers of Financial Assets – The amendment
will allow users of financial statements to improve their understanding of transfer
transactions of financial assets (for example, securitizations), including understanding the
possible effects of any risks that may remain with the entity that transferred the assets. The
amendments also require additional disclosures if a disproportionate amount of transfer
transactions are undertaken around the end of a reporting period.

PFRS 7, Financial Instruments Disclosures - Offsetting Financial Assets and Financial Liabilities
(Amendments) – The amendment requires entities to disclose information that will enable
users to evaluate the effect or potential effect of netting arrangements on an entity’s
financial position. The new disclosure is required for all recognized financial instruments that
are subject to an enforceable master netting arrangement or similar agreement.
Effective for annual periods beginning on or after July 1, 2012:
-4-

PAS 1, Financial Statement Presentation, Presentation of Items of Other Comprehensive
Income – The amendment changed the presentation of items in Other Comprehensive
Income. Items that could be reclassified to profit or loss at a future point in time would be
presented separately from items that will never be reclassified.
Effective for annual periods beginning on or after January 1, 2013:

PAS 19, Employee Benefits (Amendment) – There were numerous changes ranging from the
fundamental such as removing the corridor mechanism and the concept of expected returns
on plan assets to simple clarifications and re-wording.

PAS 27, Separate Financial Statements (as revised in 2011) – As a consequence of the new
PFRS 10, Consolidated Financial Statements and PFRS 12, Disclosure of Interest in Other
Entities and PAS 27, Consolidated and Separate Financial Statements, is now limited to
accounting for subsidiaries, jointly controlled entities, and associates in separate financial
statements.

PAS 28, Investments in Associates and Joint Ventures (as revised in 2011) This standard
describes the application of the equity method to investments in joint ventures and
associates.

PFRS 10, Consolidated Financial Statements – The standard replaces the portion of PAS 27
that addresses the accounting for consolidated financial statements and SIC-12 Consolidation
- Special Purpose Entities. It establishes a single control model that applies to all entities
including special purpose entities. This will require management to exercise significant
judgment to determine which entities are controlled, and are required to be consolidated by
a parent company.

PFRS 11, Joint Arrangements – The standard replaces PAS 31, Interests in Joint Ventures and
SIC-13, Jointly-controlled Entities - Non-monetary Contributions by Venturers. The standard
removes the option to account for jointly controlled entities using proportionate
consolidation. Instead, joint venture entities that meet the definition of a joint venture must
be accounted for using the equity method.

PFRS 12, Disclosure of Involvement with Other Entities – The standard includes all of the
disclosures that were previously in PAS 27 related to consolidated financial statements, as
well as all of the disclosure requirements that were previously included in PAS 31, Interest in
Joint ventures, and PAS 28, Investments in Associates. These disclosures relate to an entity’s
interests in subsidiaries, joint arrangements, associates and structured entities. A number of
new disclosures are also required.

PFRS 13, Fair Value Measurement – The standard establishes a single source of guidance
under PFRS for all fair value measurements. It does not change when an entity is required to
use fair value, but rather provides guidance on how to measure fair value under PFRS when
fair value is required or permitted.
-5-
Effective for annual periods beginning on or after January 1, 2015:

PFRS 9, Financial Instruments: Classification and Measurement – The standard is the first
phase in the replacement of PAS 39, Financial Instruments - Recognition and Measurement,
and applies to classification and measurement of financial assets as defined in PAS 39. The
completion of the changes is expected in early 2011.
Under prevailing circumstances, the adoption of the foregoing new and revised PFRS is not
expected to have any material effect on the Group’s consolidated financial statements.
4. Summary of Significant Accounting and Reporting Policies
Basis of Consolidation
The accompanying consolidated financial statements include the financial statements of the
Company and its subsidiaries, which it controls as at December 31 of each year. Control is
normally evidenced when the Company owns, either directly or indirectly, more than 50% of the
voting rights of an entity’s capital stock.
Following is the list of the subsidiaries or companies, which the Company controls (see Notes 1
and 7):
Effective Interest
Subsidiaries
1
Prolexic Technologies, Inc. (Prolexic)
Place of
Incorporation
United States of
America
Functional
Currency
US Dollar
Philippines
Principal Activity
Communications
2011
–
2010
100.00
Philippine Peso
Business Process
Outsourcing
–
100.00
British Virgin
Island (BVI)
US Dollar
Consultancy
–
100.00
BVI
US Dollar
Online Games
–
71.01
Philippines
Philippine Peso
Online Games
–
63.91
Philippines
Philippine Peso
Internet, Desktop
Publishing
–
75.00
Ran On-line, Inc. (ROI)
Philippines
Philippine Peso
Online Games
–
63.91
Webworx Computer Technology Corp.
3
(Webworx)
Philippines
Philippine Peso
Computer Leasing
–
60.00
Philippines
Philippine Peso
Communications
–
68.18
IP Contact Center Outsourcing, Inc.
(IPCCO)
Rotherham Consultants Limited (RCL)
IPE Global Holdings Corp. (IPE)
2
IP E-Game Ventures, Inc. (IPEVI)
Digital Paradise, Inc. (DPI)
3
3
IP Converge Data Center, Inc. (IPCDC)
IP Converge Data Services, Inc. (IPCDS)
4
Philippines
Philippine Peso
Communications
–
68.18
I-Pay Commerce Ventures, Inc. (IPAY)
Philippines
Philippine Peso
Payment Processing
Services
–
56.67
IP Distance Learning Ventures, Inc.
(IPDL)
Philippines
Philippine Peso
E-Learning
60.00
60.00
Single Search Philippines, Inc. (SSPI)
Philippines
Philippine Peso
Entertainment
51.00
100.00
Next Sequel Interactive, Inc. (NSI)
Philippines
Philippine Peso
Entertainment
33.00
33.00
Singapore
Singapore Dollar
Communications
100.00
100.00
Viridiem Pte. Ltd. (Viridiem)
1
2
3
4
69% was sold in March 2011.
Effective interest through the Company and IPE, which owned 23.59% and 69.75%, respectively
Effective interest through IPEVI
Effective interest through IPCDC
-6-
The financial statements of the subsidiaries are prepared for the same reporting year as the
Company, using uniform accounting policies for like transactions and other events in similar
circumstances. All significant intercompany balances and transactions, including inter-group
unrealized profits and losses resulting from intercompany, are eliminated in preparing the
consolidated financial statements.
The financial statements of subsidiaries are included in the consolidated financial statements
from the date when the Group obtains control and continue to be consolidated until the date
when such control ceases. The results of operations of the subsidiaries acquired or disposed
during the year are included in the consolidated statement of comprehensive income from the
date of acquisition or up to the date of disposal, as appropriate.
As a result of the transfer of certain subsidiaries to IPVI, the related accounts have been excluded
in the 2011 consolidated financial statements. The 2011 consolidated statement of
comprehensive income includes the results of operations of said subsidiaries up to
September 30, 2011, the date of the transfer (see Notes 1 and 7).
Non-controlling interests represent the portion of profit or loss and net assets not held by the
Group and are presented separately in the consolidated statement of comprehensive income
and within equity in the consolidated financial position, separately from equity attributable to
equity holders of the Parent.
Non-controlling interests include the equity interests in IPE, IPEVI, IPCDC, IPCDS, IPAY, IPDL, SSPI
and NSI not held by the Group (see Notes 1 and 7).
Business Combination and Goodwill
Business combinations are accounted for using the purchase accounting method. This involves
recognizing identifiable assets (including previously unrecognized intangible assets) and liabilities
(including contingent liabilities and excluding future restructuring) of the acquired business at
fair value.
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 of the acquiree. Following initial recognition, goodwill
is measured at cost less any accumulated impairment losses. For impairment testing, goodwill
acquired in a business combination is, from the acquisition date, allocated to each of the entity’s
cash-generating units or group of cash-generating units that are expected to benefit from the
synergies of the combination, irrespective of whether other assets or liabilities of the entity are
assigned to those units or groups of units. Each unit or group of units to which goodwill is
allocated represents the lowest level within the entity at which goodwill is monitored for internal
management purposes.
Where goodwill forms part of a cash-generating unit (or group of cash-generating units) and part
of the operation within that unit is disposed of, the goodwill associated with the operation
disposed of is included in the carrying amount of the operation in determining the gain or loss on
disposal of the operation. Goodwill disposed of in this circumstance is measured based on the
relative values of the operation disposed of and the portion of the cash-generating unit retained.
-7-
When subsidiaries are sold, the difference between the selling price and the net assets plus
cumulative exchange differences arising from the translation and goodwill is recognized in profit
or loss.
The goodwill on investments in associates is included in the carrying amount of the related
investments.
Business combination arising from transfers of interest in entities that are or that become under
the control of the shareholders that controls the Group during the year is accounted for using
book values. Any difference between the purchase price and the net assets of acquired entity is
recognized in profit or loss. The acquiree’s assets and liabilities are recognized at book values
and results of operations are included in the consolidated financial statements as if the
acquisition has occurred at the beginning of the year.
Discontinued Operations
A discontinued operation is a component of the Group’s business that represents a separate
major line of business or geographical area of operations that has been disposed of or is held for
sale, or is a subsidiary acquired exclusively with a view to resale. Classification as discontinued
operations occur upon disposal or when the operation meets the criteria to be classified as held
for sale, if earlier. When an operation is classified as discontinued operations, the comparative
consolidated statement of comprehensive income is re-presented as if the operation had been
discontinued from the start of the comparative years.
In the consolidated statement of comprehensive income of the reporting year, and the
comparable period of the previous years, income and expenses from discontinued operations are
reported separately from normal income and expenses down to the level of income after taxes.
The resulting profit or loss (after taxes) is reported separately in the consolidated statement of
comprehensive income.
Functional and Presentation Currency
The consolidated financial statements are presented in Philippine Peso, which is the functional
and presentation currency of the Company. Each entity determines its own functional currency,
which is the currency that best reflects the economic substance of the underlying events and
circumstances relevant to that entity, and items included in the consolidated financial
statements of each entity are measured using that functional currency.
The functional currency of all the subsidiaries, except for Prolexic, IPE, RCL and Viridiem is the
Philippine Peso. The functional currency of Prolexic, IPE, RCL is US Dollar. The functional
currency of Viridiem is Singapore Dollar. As at reporting date, the assets and liabilities of
Prolexic, IPE and RCL are translated into the presentation currency of the Company (the
Philippine Peso) at the rate of exchange ruling at reporting date and, their statement of
comprehensive income are translated at the weighted average exchange rates for the year. The
exchange differences arising from the translation are taken directly to “Reserve” account within
the equity section of the consolidated statement of financial position. Upon disposal of any of
these foreign subsidiaries, the deferred cumulative translation adjustments amount recognized
in equity relating to that particular foreign subsidiary will be recognized in profit or loss.
-8-
Financial Assets and Liabilities
Date of Recognition. The Group recognizes a financial asset or liability when it becomes a party
to the contractual provisions of the instrument. In the case of a regular way purchase or sale of
financial assets, recognition is done using settlement date accounting.
Initial Recognition of Financial Instruments. Financial instruments are recognized initially at fair
value of the consideration given (in case of an asset) or received (in case of a liability). The initial
measurement of financial instruments, except for those designated at fair value through profit or
loss (FVPL), includes transaction costs.
Day 1 Profit. Where the transaction price in a non-active market is different from the fair value
of the other observable current market transactions in the same instrument or based on a
valuation technique whose variables include only data from observable market, the Group
recognizes the difference between the transaction price and fair value (a Day 1 profit) in profit or
loss unless it qualifies for recognition as some other type of asset. In cases where data used has
inputs in a valuation model are not observable, the difference between the transaction price and
model value is only recognized in profit or loss when the inputs become observable or when the
instrument is derecognized. For each transaction, the Group determines the appropriate
method of recognizing the Day 1 profit amount.
Classification of Financial Instruments. The Group classifies its financial assets into the following
categories: financial assets at FVPL, loans and receivables, held-to-maturity (HTM) investments
and AFS financial assets. The Group classifies its financial liabilities as either financial liabilities at
FVPL or other financial liabilities.
The classification depends on the purpose for which the investments are acquired and whether
these are quoted in an active market. Management determines the classification of the financial
assets and liabilities at initial recognition and, where allowed and appropriate, re-evaluates such
designation at every reporting date.
The Group does not have financial instruments classified as financial assets or liabilities at FVPL
and HTM investments as at December 31, 2011 and 2010.
Loans and Receivables. Loans and receivables are non-derivative financial assets with fixed or
determinable payments and maturities that are not quoted in an active market. After initial
measurement, loans and receivables are carried at amortized cost using the effective interest
method, less any allowance for impairment. Any interest earned on loans and receivables is
recognized as part of “Interest income” in profit or loss on an accrual basis. Amortized cost is
calculated by taking into account any discount or premium on acquisition and fees that are
integral part of the effective interest rate. The periodic amortization is also included as part of
“Interest income” in profit or loss. Gains or losses are recognized in profit or loss when loans and
receivables are derecognized or impaired, as well as through the amortization process.
The Group’s cash in banks, cash equivalents, trade and other receivables, due from related
parties, temporary placements and security deposits (included in the “Other current and
noncurrent assets” accounts), are included in this category (see Notes 10, 11, 14, 18 and 27).
-9-
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 and are subject to an
insignificant risk of change in value.
AFS Financial Assets. AFS financial assets are those nonderivative financial assets which are
designated as such or do not qualify to be classified as financial assets at FVPL, HTM
investments or loans and receivables. After initial measurement, AFS financial assets are
measured at fair value, with gains and losses being recognized as other comprehensive income
until the investment is derecognized or until the investment is determined to be impaired at
which time the cumulative gain or loss previously recognized in other comprehensive income is
included in profit or loss. Unquoted equity securities whose fair value cannot be reliably
measured are carried at cost.
Certain investments in equity securities of the Group are classified under this category
(see Note 12).
Other Financial Liabilities. This category pertains to non-derivative financial liabilities that are
not held for trading or not designated as at FVPL upon the inception of the liability. These
include liabilities arising from operations or noninterest-bearing loans and borrowings.
The financial liabilities are recognized initially at fair value and are subsequently carried at
amortized cost, taking into account the impact of applying the effective interest method of
amortization (or accretion) for any related premium, discount and any directly attributable
transaction costs.
The Group’s trade and other payables (excluding statutory and tax liabilities), due to related
parties, obligations under finance lease and loans payable are included in this category
(see Notes 19, 20, 27 and 30).
Derecognition of Financial Assets and Liabilities. A financial asset (or, where applicable, a part of
a financial asset or part of a group of similar financial assets) is derecognized when:

the rights to receive cash flows from the asset expired;

the Group retains the right to receive cash flows from the asset, but has assumed an
obligation to pay them in full without material delay to a third party under a “pass-through”
arrangement; or

the Group has transferred its rights to receive cash flows from the asset and either: (a) has
transferred substantially all the risks and rewards of the asset; or (b) has neither transferred
nor retained substantially all the risks and rewards of the asset, but has transferred control
of the asset.
When the Group has transferred its rights to receive cash flows from an asset and has neither
transferred nor retained substantially all the risks and rewards of the asset nor transferred
control of the asset, the asset is recognized to the extent of the Group’s continuing involvement
in the asset. Continuing involvement that takes the form of a guarantee over the transferred
asset is measured at the lower of the original carrying amount of the asset and the maximum
amount of consideration that the Group could be required to pay.
- 10 -
Financial Liabilities. A financial liability is derecognized when the obligation under the liability is
discharged, cancelled or has expired. When an existing financial liability is replaced by another
from the same lender on substantially different terms, or the terms of an existing liability are
substantially modified, such an exchange or modification is treated as a derecognition of the
original liability and the recognition of a new liability. The difference in the respective carrying
amounts is recognized in profit or loss.
Offsetting of Financial Instruments. Financial assets and liabilities are offset and the net amount
is presented if, and only if, there is currently enforeceable right to offset the recognized amounts
and there is intention to settle on a net basis, or to realize the asset and settle the liability
simultaneously.
Impairment of Financial Assets
The Group assesses at each reporting date whether there is objective evidence that a financial
asset or group of financial assets is impaired.
Loans and Receivables. The Group first assesses whether objective evidence of impairment exists
individually for financial assets that are individually significant, and individually or collectively for
financial assets that are not individually significant. If it is determined that no objective evidence
of impairment exists for an individually assessed financial asset, whether significant or not, the
asset is included in a group of financial assets with similar credit risk characteristics and that
group of financial assets is collectively assessed for impairment. Assets that are individually
assessed for impairment and for which an impairment loss is or continues to be recognized are
not included in a collective assessment of impairment.
If, in a subsequent year, the amount of the impairment loss decreases and the decrease can be
related objectively to an event occurring after the impairment was recognized, the previously
recognized impairment loss is reversed. Any subsequent reversal of an impairment loss is
recognized in profit or loss.
A provision for impairment is made when there is objective evidence (such as the probability of
insolvency or significant financial difficulties of the debtor) that the Group will not be able to
collect all of the amounts due under the original terms of the invoice. Impaired receivables are
derecognized when they are assessed as uncollectible.
AFS Financial Assets. For AFS investments, the Group assesses at each reporting date whether
there is objective evidence that a financial asset or group of financial assets is impaired.
In case of equity investments classified as AFS, impairment indications would include a significant
or prolonged decline in the fair value of the investments below its cost. The determination of
what is “significant” or “prolonged” requires judgment. The Group treats “significant” generally
as 20% or more of the original cost of the investment, and “prolonged,” longer than 12 months.
Where there is evidence of impairment, the cumulative loss, measured as the difference
between the acquisition cost and the current fair value, less any impairment loss on that financial
asset previously recognized in profit or loss, is removed from equity and recognized in profit or
loss. Impairment losses on equity investments are not reversed through profit or loss. Increases
in fair value after impairment are recognized directly in equity.
- 11 -
Equity
Capital Stock. Capital stock is measured at par value for all shares issued. Incremental costs
directly attributable to the issuance of new shares and share options are recognized as a
deduction from equity, net of any tax.
Additional Paid-in Capital. Additional paid-in capital includes any premiums received on the
initial issuance of capital stock. Any transaction costs associated with the issuance of shares are
deducted from additional paid-in capital, net of any tax.
Deposits for Stock Subscriptions. Deposits for stock subscriptions represent funds received by the
Company from the shareholders to be applied as payment for additional subscriptions of shares
or that will be applied as payment in exchange for a fixed number of the Company’s own equity
instruments.
Inventories
Inventories are measured at the lower of cost and net realizable value (NRV). Cost is determined
using weighted average method. NRV is the estimated selling price in the ordinary course of
business, less the estimated costs to make the sale.
Assets Classified as Held For Sale and Discontinued Operations
Noncurrent assets, or disposal groups comprising assets and liabilities, that are expected to be
recovered primarily through sale rather than through continuing use, are classified as held for
sale. This condition is regarded as met only when the sale is highly probable and the asset or
disposal group is available for immediate sale in its present condition. Management must be
committed to the sale, which should be expected to qualify for recognition as a completed sale
within one year from the date of classification.
Immediately before classification as held for sale, the assets, or components of a disposal group,
are remeasured in accordance with the Company’s accounting policies. Thereafter generally, the
assets, or disposal group, are measured at the lower of their carrying amount and fair value less
cost to sell. Impairment losses on initial classification as held for sale and subsequent gains or
losses on remeasurement are recognised in profit or loss. Gains are not recognized in excess of
any cumulative impairment loss.
Investments in Associates and a Joint Venture
Investments in associates and a joint venture are accounted for under the equity method of
accounting.
An associate is an entity over which the Group has significant influence but not control, generally
accompanying a shareholding of between 20% and 50% of the voting rights of another entity.
The Group’s share of its associate’s post-acquisition profits or losses is recognized in profit or
loss, and its share of post-acquisition movements in the associate’s equity reserves is recognized
directly in equity. The cumulative post-acquisition movements are adjusted against the carrying
amount of the investments. When the Group’s share of losses in an associate equals or exceeds
its interest in the associate, including any other unsecured receivables, the Group does not
recognize further losses, unless it has incurred obligations or made payments on behalf of the
associate.
- 12 -
A joint venture is a contractual arrangement whereby two or more parties undertake an
economic activity which is subject to a joint control.
An assessment of the carrying value of the investment is performed when there is an indication
that the investment has been impaired.
Unrealized intercompany profits arising from the transactions with the associate are eliminated.
Goodwill relating to an associate is included in the carrying amount of the investment and is not
amortized.
Property and Equipment
Property and equipment are measured at cost less accumulated depreciation, amortization and
any impairment losses.
Initially, an item of property and equipment is measured at its cost, which comprises its purchase
price and any directly attributable cost of bringing the asset to the location and condition
necessary for it to be capable of operating in a manner intended by management. 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. Costs of
day-to-day servicing of an asset are recognized as expenses in the year in which these are
incurred.
The useful lives, depreciation and amortization method are reviewed at each reporting date to
ensure that the year and method are consistent with the expected pattern of economic benefits
from the items of property and equipment.
Depreciation and amortization are computed using the straight-line method over the estimated
useful lives of the assets as follows:
Asset Type
Computer and network equipment
Office furniture, fixtures and equipment
Transportation equipment
Leasehold improvements
Number of Years
3 - 10
3-5
3-5
3 - 5 or term of the lease,
whichever is shorter
Property and equipment held under finance lease agreements are depreciated over their
expected useful lives (determined by reference to comparable owned assets) or over the term of
lease, whichever is shorter.
Fully depreciated assets are retained in the accounts until these are no longer in use and no
further charge for depreciation and amortization are made in respect of 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 and accumulated depreciation, amortization and
any impairment losses are removed from the accounts and any resulting gain or loss arising from
the retirement or disposal is recognized in profit or loss.
- 13 -
Intangible Assets
Intangible assets consist of goodwill, Indefeasible Right of Use (IRU) of a certain
telecommunications submarine cable system capacity, acquired customer contracts, gaming
licenses and computer software.
Intangible assets are measured on initial recognition at cost. Following initial recognition,
intangible assets with finite lives are carried at cost less accumulated amortization and any
impairment losses.
Intangible assets with finite lives are amortized over the related economic useful lives and
assessed for impairment whenever there is an indication that the intangible asset may be
impaired. The amortization periods and method for an intangible asset with finite useful life is
reviewed annually or earlier whenever an indication of impairment exists. Changes in the
expected useful life or the expected pattern of consumption of future economic benefits
embodied in the asset are accounted for by changing the amortization period or method, as
appropriate, and treated as changes in accounting estimates. The amortization is recognized in
profit or loss in the expense category consistent with the function of the intangible asset.
The estimated useful lives of intangible assets are as follows:
Asset Type
IRU
Computer software
Gaming licenses
Customer contracts
Number of Years
15 from the date
of activation
5
3
3
Goodwill, which represents the excess of the cost of the acquisition over the fair value of the net
identifiable assets at the date of acquisition, is stated at cost less any impairment losses.
Goodwill is reviewed annually or more frequently if events or changes in circumstances indicate
the carrying amount may be impaired. Impairment is determined by assessing the recoverable
amount of the cash-generating unit (group of cash-generating units) to which the goodwill
relates. Where the recoverable amount of the cash-generating unit or group of cash-generating
units is less than the carrying amount, an impairment loss is recognized in profit or loss.
Impairment of Nonfinancial Assets
Property and Equipment and Intangible Assets with Finite Life. At each reporting date, the Group
assesses whether there is any indication that its nonfinancial assets may be impaired. When an
indicator of impairment exists or when an annual impairment testing for an asset is required, the
Group makes a formal estimate of an asset’s recoverable amount. Recoverable amount is the
higher of an asset’s fair value less costs to sell and its value in use. The recoverable amount is
determined for an individual asset, unless the asset does not generate cash inflows that are
largely independent from other assets or groups of assets, in which case the recoverable amount
is assessed as part of the cash-generating unit to which it belongs. Where the carrying amount of
an asset (or cash-generating unit) exceeds its recoverable amount, the asset (or cash-generating
unit) is considered impaired and is written down to its recoverable amount. In assessing value in
use, the estimated future cash flows are discounted to their present value using a pre-tax
discount rate that reflects current market assessment of the time value of money and the risks
specific to the asset (or cash-generating unit). An impairment loss is charged to the consolidated
statement comprehensive income in the year in which it arises.
- 14 -
An assessment is made at each reporting date as to whether there is any indication that
previously recognized impairment losses may no longer exist or may have decreased. If such
indication exists, the recoverable amount is estimated. A previously recognized impairment loss
is reversed only if there has been a change in the estimates used to determine the asset’s
recoverable amount since the last impairment loss was recognized. In such instance, the carrying
amount of the asset is increased to its recoverable amount. However, that increased amount
cannot exceed the carrying amount that would have been determined, net of any depreciation
and amortization, had no impairment loss been recognized for the asset in prior years. Such
reversal is recognized in the profit or loss. After such reversal, any depreciation and amortization
charges are adjusted in future years to allocate the asset’s revised carrying amount, on a
systematic basis over its remaining useful life.
Goodwill. Goodwill is reviewed for impairment, annually or more frequently, if events or changes
in circumstances indicate that the carrying value may be impaired. Impairment is determined for
goodwill by assessing the recoverable amount of the cash-generating unit (or group of cashgenerating units) to which the goodwill relates. Where the recoverable amount of the cashgenerating unit (or group of cash-generating units) is less than the carrying amount of the cashgenerating unit (or group of cash-generating units) to which goodwill has been allocated, an
impairment loss is recognized immediately in the consolidated statement of comprehensive
income. Impairment loss relating to goodwill cannot be reversed for subsequent increases in its
recoverable amount in future years. The Group performs its annual impairment test of goodwill
as at December 31 of each year.
Investments in Associates and a Joint Venture. The Group determines whether it is necessary to
recognize an impairment loss on its investment in an associate and joint venture. The Group
determines at each reporting date whether there is any objective evidence that the investment
in an associate and joint venture is impaired. If this is the case, the Group calculates the amount
of impairment as being the difference between the fair value of the associate and the acquisition
cost and recognizes the amount in the consolidated statement of comprehensive income.
Revenue Recognition
Revenue is recognized to the extent that it is probable that the economic benefits will flow to the
Group and the revenue can be reliably measured. The following specific recognition criteria must
also be met before revenues are recognized.
Service Revenue from Online Gaming is recognized based on usage of the prepaid card sold and
loaded to the gaming system by the patrons, net of re-sellers’ discount. Unearned revenue which
pertains to the total value of prepaid cards sold but are not yet loaded to and used up in the
gaming system are included under “Trade and other payables” account.
Service Revenue from Global Internet Access (GIA)/Internet Connectivity, Server Hosting, Network
Security Services, Applications and Point-to-Point Connections are recognized upon performance
of the related services. Unearned income which pertains to advance payments from clients for
services not yet rendered are included under “Trade and other payables” account.
Service Revenue from Community Access is recognized based on actual usage, net of discounts
given.
Management Fees and Advertising Income are recognized in accordance with the terms of the
relevant agreement. This is generally when the customer has approved services that have been
provided.
- 15 -
Franchise and Royalty Fees. Initial franchise fees are recognized when all material services or
conditions relating to the franchise agreement have been substantially performed or satisfied.
Royalty fees for the continuing use of the Company's trademarks are recognized in accordance
with the terms of the agreement. Fees collected to defray the costs of common advertising
expenses are segregated and recorded as a liability against which the advertising costs are
charged.
Membership Cards. Revenue is recognized over the term of the membership agreement.
Rent income is recognized on a straight-line basis over the term of the lease.
Dividend Income is recognized when the Company’s right to receive payment is established.
Interest Income. Interest income on funds invested is recognized as it accrues, using the effective
interest method.
Equity Share in Net Income (Losses) of Associates and a Joint Venture. The Group recognizes its
share in the net income (losses) of an associate proportionate to the equity in the voting shares
of such associate, in accordance with the equity method of accounting for investments.
Expense Recognition
Costs and expenses are recognized in profit or loss upon receipt of goods, utilization of the
service or at the date the costs and expenses are incurred.
Borrowing Costs
Borrowing cost presented as “Interest expense” is generally expensed as incurred.
Borrowing costs directly attributable to the construction or production of a qualifying asset are
added to the cost of those assets, until such time as the assets are substantially ready for their
intended use or sale. Qualifying assets are assets that necessarily take a substantial period of
time to get ready for their intended use or sale. Investment income earned on the temporary
investment of specific borrowings, pending their expenditure on a qualifying asset, is deducted
from the borrowing costs eligible for capitalization.
Leases
The determination of whether an arrangement is, or contains a lease is based on the substance
of the arrangement at inception date of whether the fulfillment of the arrangement is dependent
on the use of a specific asset or assets or the arrangement conveys a right to use the asset.
Finance Leases. Leases which transfer to the Group substantially all the risks and benefits
incidental to ownership of the leased property are classified as finance lease. The leased
property subject of the finance lease arrangement is capitalized at the inception of the lease at
the fair value of the leased property, or if lower, at the present value of the minimum lease
payments. Lease payments are apportioned between the finance charge and reduction of the
lease liability as to achieve a constant rate of interest on the remaining balance of the liability.
Finance charges are recognized in profit or loss in the year incurred.
Capitalized leased assets are depreciated consistent with the policy for owned property and
equipment.
- 16 -
Operating Leases. Leases where the lessor retains substantially all the risks and benefits
incidental to ownership of leased properties are classified as operating leases. Operating lease
payments are recognized as expense in profit or loss on a straight-line basis over the lease term.
Related Parties
Parties are considered related if one party has the ability, directly or indirectly, to control the
other party or exercise significant influence over the other party in making financial and
operating decisions. Parties are also considered to be related if they are subject to common
control or significant influence. Related parties may be individuals or corporate entities.
Foreign Currency Transactions
Transactions in foreign currencies are recorded in the functional currency based on the exchange
rates prevailing at the dates of the transactions. Outstanding foreign currency denominated
monetary assets and liabilities are translated at the exchange rate prevailing at reporting date.
Foreign exchange gains or losses arising from settlements of foreign currency transactions and
translations of foreign currency-denominated assets and liabilities are recognized in profit or
loss.
Retirement Benefits
The Group accrues retirement benefits for its employees in compliance with Republic Act (RA)
No. 7641 “Philippine Retirement Law,” which requires the Group to pay a minimum retirement
benefit to employees who retire later reaching the mandatory retirement age of 65 years old or
the optional age of 60 years old with at least five years of service to the Group. The retirement
benefit is equivalent to one-half month of the latest basic pay for every year of service.
The cost of defined retirement benefits is actuarially determined using the projected unit credit
method. Under this method, the current service cost is the present value of retirement benefits
obligation in the future with respect to services rendered in the current year. Actuarial gains and
losses arising from experience adjustments and changes in actuarial assumptions are recognized
in profit or loss when the net cumulative unrecognized actuarial gains and losses at the end of
previous year exceed 10% of the higher of the defined benefit obligation and the fair value of
plan assets at that date. These gains or losses are recognized over the expected average
remaining working lives of the employees.
Past service costs are recognized immediately in profit or loss, unless the changes to the
retirement plan are conditional on the employees remaining in service for a specified period of
time (the vesting period). In this case, past service costs are amortized on a straight-line basis
over the vesting period.
The defined benefit asset or liability is the aggregate of the present value of the defined benefit
obligation and actuarial gains and losses not recognized, reduced by past service costs not yet
recognized and the fair value of plan assets on which the obligations are to be settled directly.
The present value of the defined benefit obligation is determined by discounting the estimated
future cash outflows using interest rate on government bonds that have terms to maturity
approximating the terms of the related retirement obligation.
Income Tax
Income tax for the year comprises current and deferred tax. Income tax is recognized in profit or
loss, except to the extent that it relates to a business combination, items recognized directly in
equity or in other comprehensive income.
- 17 -
Current Tax. Current income tax assets and liabilities for the current and prior years are
measured at the amount expected to be recovered from or paid to the taxation authorities. The
tax rate and tax laws used to compute the amount are those that have been enacted or
substantively enacted at the reporting date.
Deferred Tax. Deferred income tax is provided using the liability method on all temporary
differences at the reporting date between the tax bases of assets and liabilities and their carrying
amounts for financial reporting purposes. It is recognized in respect of temporary differences
between the carrying amounts of assets and liabilities for financial reporting purposes and the
amounts used for taxation purposes. Deferred tax is not recognized for the following temporary
differences: the initial recognition of assets or liabilities in a transaction that is not a business
combination and that affects neither accounting nor taxable profit or loss, and differences
relating to investments in subsidiaries and jointly controlled entities to the extent that it is
probable that they will not reverse in the foreseeable future, In addition, deferred tax is not
recognized for taxable temporary differences arising on the initial recognition of goodwill.
Deferred tax is measured at the tax rate that is expected to be applied to temporary differences
when they reverse, based on the tax laws that have been enacted or substantively enacted by
the reporting date. Deferred tax assets and liabilities are offset if there is a legally enforceable
right to offset current tax liabilities and assets, and these relate to income taxes levied by the
same tax authority.
A deferred tax asset is recognized for all deductible temporary differences, carry-forward benefit
of unused tax credits from excess minimum corporate income tax (MCIT) over the regular income
tax (RCIT), and unused net operating loss carryover (NOLCO), to the extent that it is probable that
taxable profit will be available against which the deductible temporary differences, and the carryforward benefits of unused tax credits from MCIT and unused NOLCO can be utilized. The
carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the
extent that it is no longer probable that the related tax benefit will be realized.
Value-Added Tax (VAT). Revenue, expenses and assets are recognized net of the amount of VAT
except:
•
where the tax incurred on a purchase of assets or services is not recoverable from the
taxation authority, in which case the tax is recognized as part of the cost of acquisition of the
asset or as part of the expense item as applicable; and
•
receivables and payables that are stated with the amount of tax included.
The net amount of VAT recoverable from the taxation authority is included as part of “Other
current assets” while the net amount of payable to taxation authority is included as part of
“Trade and other payables” account in the consolidated statement of financial position.
Earnings per Share
Basic earnings per share is calculated by dividing the profit or loss attributable to common
shareholders of the Company by the weighted average number of common shares outstanding
during the year, adjusted for own shares held.
- 18 -
Diluted earnings per share is calculated in the same manner, adjusted for the effects of all
dilutive potential common shares.
As the Company has no dilutive potential common shares outstanding, basic and diluted EPS are
stated at the same amount.
Provisions
Provisions are recognized when the Group has a present legal or constructive obligation as a
result of a past event, it is probable that an outflow of resources embodying economic benefits
will be required to settle the obligation and a reliable estimate can be made of the amount of the
obligation. If the effect of the time value of money is material, provisions are determined by
discounting the expected future cash flows at a pre-tax rate that reflects current market
assessment of the time value of money and, where appropriate, the risks specific to the liability.
Where discounting is used, the increase in the provision due to the passage of time is recognized
as an interest expense.
Contingencies
Contingent liabilities are not recognized in the consolidated financial statements but are
disclosed in the notes to 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 in the notes to consolidated financial
statements when an inflow of economic benefits is probable.
Segment Reporting
The Group is organized into four major business segments. Such business segments are the
bases upon which the Company reports its primary segment information. Financial information
on business segments is presented in Note 9 to consolidated financial statements.
Events After the Reporting Date
Any event after the reporting date that provides additional information about the Group’s
financial position at reporting date (adjusting event) is reflected in the consolidated financial
statements. Any event after the reporting date that is not an adjusting event is disclosed in the
notes to consolidated financial statements when material to the consolidated financial
statements.
5. Significant Accounting Judgments, Estimates and Assumptions
The preparation of consolidated financial statements requires management to make judgments,
estimates and assumptions that affect the application of policies and reported amounts of assets
and liabilities, income and revenues. The estimates and associated assumptions are based on
historical assumptions 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 the carrying
values of assets and liabilities that are not readily apparent from other sources. Actual results
may differ from these 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 and in any
future periods affected.
- 19 -
Judgments are made by management on the development, selection and disclosure of the
Company’s critical accounting policies and estimates and the application of these policies and
estimates.
In particular, information about significant areas at estimation uncertainty and critical judgments
in applying accounting policies that have the most significant effect on the amount recognized in
the consolidated financial statements are as follows:
Judgments
In the process of applying the Company’s accounting policies, management has made judgment,
apart from those involving estimations, which have the most significant effect on the amounts
recognized in the consolidated financial statements.
Determining Functional Currency. Except for Prolexic, RCL, IPE and Viridiem, the Company and all
other subsidiaries and associates have determined that their functional currency is the Philippine
Peso. The Philippine Peso is the currency of the primary economic environment in which the
Company and all other subsidiaries and associates operate. The Philippine Peso is also the
currency that mainly influences the sale of goods and services as well as the costs of selling such
goods and providing such services.
Prolexic, RCL and IPE have determined that the US Dollar is their functional currency. Viridiem
has determined that the Singapore Dollar is their functional currency. Thus, the accounts of
these entities were translated to Philippine Peso for the purposes of consolidation to the Group’s
accounts.
Evaluating Lease Agreements

Operating Lease - Group as Lessee
The Group has an existing lease agreement with RCBC Realty Corporation for the Group’s
office spaces. All the significant risks and benefits incidental to the ownership of the leased
office spaces remain with the lessor, since the leased property and all attached permanent
fixtures will be returned to the lessor upon the termination of the lease. Accordingly, the
lease agreement is accounted for as operating lease.
Rent expense amounted to P=51.6 million in 2011 (P
=43.5 million and P
=47.7 million in 2010 and
2009, respectively) (see Note 30).

Finance lease - Group as Lessee
The Group has lease agreements with various leasing and financing institutions for computer
and network and transportation equipment. The lease provides that ownership of these
assets shall transfer to the Group at the end of the lease term. Accordingly, the lease is
accounted for as finance lease (see Note 30).
As at December 31, 2011, the carrying amount the Company’s property and equipment held
under finance lease amounted to nil (P=20.3 million as at December 31, 2010) (see Note 16).
- 20 -
Estimates
Estimating Allowance for Impairment Losses on Receivables. The Group maintains allowance for
impairment losses on receivables at a level considered adequate to provide for potential
uncollectible receivables. The level of this allowance is evaluated by management on the basis of
factors that affect the collectability of the accounts. These factors include, but are not limited to,
the length of the Group’s relationship with the customer, the customer’s payment behavior and
known market factors. The Group reviews the age and status of receivable and identifies
accounts that are to be provided with allowance on a continuous basis. The amount and timing
of recorded expenses for any year would differ if the Group made different judgments or utilized
different estimates.
As part of the Company’s Restructuring Plan, the Company reviewed its loans and receivables
prior to transferring the same to IPVI in October 2011.
The Group recognized impairment losses on trade and other receivables and due from related
parties amounting to P=185.6 million and P
=78.5 million in 2011, respectively (P
=84.4 million and nil
in 2010).
The carrying amount of trade and other receivables amounted to nil as at December 31, 2011
(P
=250.5 million as at December 31, 2010) (see Note 11).
The carrying amount of amounts due from related parties amounted to P
=77.0 million as at
December 31, 2011 (P
=150.4 million as at December 31, 2010) (see Note 27).
Recognition of Impairment of AFS Investments. The Group classifies certain financial assets as
AFS equity securities and recognizes movements in fair value in other comprehensive income and
equity. When the fair value declines, management makes assumptions about the decline in
value to determine whether it is an impairment that should be recognized in profit or loss.
Impairment may be appropriate when there is evidence of deterioration in the financial wealth
of investee, industry and sector performance and operational and financing cash flows.
The Group treats AFS equity securities as impaired when there has been a significant or
prolonged decline in the fair value below its cost or where other objective evidence of
impairment exists. The determination of what is “significant” or “prolonged” requires judgment.
The Group treats “significant” generally as 20% or more of the original cost of the investment,
and “prolonged,” longer than 12 months. In addition, the Group evaluates other factors
including normal volatility in share price for quoted securities and the future cash flows and the
discount factors for unquoted securities.
The Company recognized impairment loss on its AFS investments amounting to P=3.2 million in
2011 (nil in 2010). The carrying amount of AFS investments amounted to nil as at December 31,
2011 (P
=7.8 million as at December 31, 2010) (see Note 12).
Estimating Allowance to Reduce Inventories to Net Realizable Value. The Group maintains an
allowance to reduce inventories to NRV at a level considered adequate to provide for potential
obsolete inventories and other factors based on specific identification and as determined by
management for inventories estimated to be unsalable in the future. The level of this allowance
is evaluated by management based on the movements and current condition of inventory items.
- 21 -
As at December 31, 2011, the cost of inventories amounting to nil (P
=7.8 million as at
December 31, 2010) is lower than its NRV (see Note 13).
Estimating Useful Lives of Property and Equipment. The Group estimates the useful lives of
property and equipment based on the period over which these are expected to be available for
use. The Group reviews annually the estimated useful lives of property and equipment based on
the factors that include asset utilization, internal technical evaluation, technological changes,
environmental and anticipated use of the assets tempered by related industry benchmark
information. It is possible that future results of operations could be materially affected by
changes in these estimates brought about by changes in the factors mentioned. A reduction in
the estimated useful lives of property and equipment would increase depreciation expense and
decrease noncurrent assets.
As at December 31, 2011, the carrying amount of property and equipment amounted to
Estimating Useful Lives of Intangible Assets. The Company assessed that computer software,
gaming licenses, IRU and customer contracts have finite useful lives. The Company estimates the
useful lives and amortization method of intangible assets based on the year and pattern in which
the future economic benefits from a particular computer game (in the case of gaming licenses),
customer contracts, IRU and computer software are expected to be consumed. The estimated
useful lives and amortization period of intangible assets with finite lives are reviewed at each
reporting date and are updated if there are changes in estimates embodied in the intangible
assets. Actual results, however, may vary due to changes in estimates brought about by changes
in the estimates used.
As at December 31, 2011, the carrying amount of intangible assets with finite lives amounted to
nil (P
=376.1 million as at December 31, 2010) (see Note 17).
Impairment of Nonfinancial Assets. The Group assesses impairment of assets whenever events
or changes in circumstances indicate that the carrying amount of an asset may not be
recoverable. The factors that the Group considers important which could trigger an impairment
review include the following:

significant underperformance relative to expected historical or projected future operating
results;

significant changes in the manner of use of the acquired assets or the strategy for overall
business; and

significant negative industry or economic trends.
The Group recognizes impairment loss whenever the carrying amount of an asset exceeds its
recoverable amount. The recoverable amount is computed using the value in use approach.
Recoverable amounts are estimated for individual assets or, if it is not possible, for the cash
generating unit to which the assets belongs.
The Company recognized impairment loss on its nonfinancial assets amounting to P
=307.8 million
in 2011 (nil in 2010).
- 22 -
Determination of Retirement Benefits Liability. The determination of the Group’s obligation and
cost of retirement benefits and other employee benefits is dependent on the selection of certain
assumptions used by the independent actuary in calculating such amounts. Those assumptions
include, among others, discount rates and salary increase rates. In accordance with PFRS, actual
results that differ from the Group’s assumptions, subject to the 10% corridor test, are
accumulated and amortized over future periods and therefore, generally affect the recognized
expense and recorded obligation in such future periods.
While the Group believes that the assumptions are reasonable and appropriate, significant
differences between actual experience and assumptions may materially affect the cost of
retirement benefits and related obligations.
As at December 31, 2011, retirement benefit liability amounted to nil (P
=14.7 million as at
December 31, 2010) (see Note 25).
Recoverability of Deferred Tax Assets. The Group reviews the carrying amounts of deferred tax
assets at each reporting date and reduces the carrying amount to the extent that it is no longer
probable that sufficient taxable profit will be available to allow all or part of the deferred tax
assets to be utilized.
As at December 31, 2011, the deferred tax assets amounted to P
=0.5 million (P
=81.2 million as at
December 31, 2010) (see Note 26).
Provision and Contingencies. The estimate of the probable costs for the resolution of possible
claims has been developed in consultation with outside legal counsel and is based upon an
analysis of potential results.
6. Prior Period Adjustments
The 2010 and 2009 consolidated financial statements have been restated to reflect the following:
 Adjustments to recognized the following:

Commitment fee of P
=5.0 million pursuant to the Investment Agreement with GEM Global
Yield Fund Limited (GEM Global) and GEM Investment Advisors, Inc. (GEMIA), incurred and
unpaid in 2010 (see Note 30).

Impairment losses on advances made for certain projects included under “Trade and other
receivables” account amounting to P
=43.8 million.

Various expenses incurred in 2010 amounting to P=27.4 million, P
=10.4 million in 2009 and
=9.1 million in 2008
P

Foreign exchange gain in 2010 amounting to P
=1.6 million.

Reversal of previously recognized reserve in 2010 for consigned transactions and related
cost amounting to P
=1.8 million and P=2.9 million, respectively.
- 23 -
 Additional amortization of intangible assets amounting to P=1.7 million each in 2010 and
2009.
 Write-off of various fully amortized and expired game licenses in 2010 amounting to
=8.9 million.
P

Decrease in the share in equity of X-Play Online Games, Inc. (X-Play, a joint venture)
amounting to P=18.8 million and P=17.6 million in 2010 and 2009, respectively, as a result of
restatements of X-Play’s 2010 and 2009 financial statements.

Recognition of shares advanced by a shareholder for professional services amounting to
=7.2 million rendered to the Company in prior years.
P
 Reclassifications of the following:

Deposits for stock subscriptions amounting to P
=16.5 million to recognize subscribed capital
stock of P=30.5 million, net of subscription receivable of P=13.9 million in 2010. The deposit
was made originally while the application of the Company’s increase in authorized capital
stock filed in 2008 was still pending approval by the SEC. The application for the increase in
authorized capital stock was approved by the SEC on June 28, 2010.

Treasury stock amounting to P
=83,888 credited against additional paid-in capital to reflect
the retirement of treasury stock prior to 2009.

Computer equipment acquired in 2010, previously included under “Intangible assets” to
“Computer and network equipment,” with a net carrying value of P=2.2 million and related
depreciation of P=0.3 million.

Nontrade receivable from X-Play, previously included under “Other receivables” to “Due
from related parties,” amounting to P
=0.3 million in 2010.

Current portion of long-term loan, previously classified as noncurrent in 2010, amounting
to P
=14.0 million.

Reclassification of loans payable in 2009 amounting to P
=2.4 million to trade and other
payables.

Advances to ePLDT representing advance payment for acquisition of DPI, previously
classified under “Other current assets” to “Other noncurrent assets,” amounting to
=20.0 million in 2010.
P

Temporary placements used to fund the acquisition of DPI, previously classified as “Cash”
to “Other noncurrent assets,” amounting to P
=79.7 million (see Note 18).
- 24 -
The following are the financial impact of the restatements and reclassification adjustments to the
2010 and 2009 consolidated financial statements:
December 31, 2010
Cash and cash equivalents
Trade and other receivables
Inventories
Other current assets
Investments in associates and a joint
venture
Intangible assets
Other noncurrent assets
Current portion of loans payable
Trade and other payables
Due to related parties
Loans payable - net of current portion
Capital stock
Additional paid-in capital
Deposits for stock subscriptions
Treasury stock
Deficit, ending
Non-controlling interests
Net income
As Previously
Reported
=344,846,728
P
295,382,768
5,618,212
98,050,992
Restatements
(P
=81,502,636)
(44,865,478)
2,158,492
(22,263,500)
As Restated
=263,344,092
P
250,517,290
7,776,704
75,787,492
197,442,274
792,354,816
64,267,569
293,873,484
616,528,263
51,457,498
70,247,843
688,792,421
801,885,622
28,649,992
(83,888)
(579,988,215)
234,182,380
144,563,488
(18,770,435)
(4,876,083)
100,250,854
11,625,750
39,206,139
7,160,000
(14,000,000)
16,574,742
(83,888)
(16,574,742)
83,888
(148,845,116)
34,942,441
(76,523,325)
178,671,839
787,478,733
164,518,423
305,499,234
655,734,402
58,617,498
56,247,843
705,367,163
801,801,734
12,075,250
–
(728,833,331)
269,124,821
68,040,163
December 31, 2009
Trade and other receivables
Inventories
Investments in associates and a joint
venture
Intangible assets
Current portion of loans payable
Trade and other payables
Due to related parties
Additional paid-in capital
Treasury stock
Deficit, ending
Non-controlling interest
Net loss
As Previously
Reported
=329,037,559
P
9,843,872
Restatements
(P
=1,815,000)
2,879,697
As Restated
=327,222,559
P
12,723,569
306,915,490
455,972,466
299,569,925
571,639,161
1,234,891
770,532,758
(83,888)
(717,815,969)
34,400,466
(244,170,802)
(17,618,377)
(3,204,283)
(2,374,250)
12,835,636
7,160,000
(83,888)
83,888
(62,363,552)
24,984,202
(11,483,850)
289,297,113
452,768,183
297,195,675
584,474,797
8,394,891
770,448,870
–
(780,179,521)
59,384,668
(255,654,652)
- 25 -
7. Transfer of Assets and Liabilities
As discussed in Note 1 to consolidated financial statements, in July 2011, in line with IPVG’s
Restructuring Plan, the APA with IPVI dated September 28, 2011 was implemented transferring
to IPVI substantially all of IPVG’s assets, including its shares of stock in the listed subsidiaries
(IPEVI and IPCDC) and non-listed subsidiaries and associates (see Note 15), substantially all
liabilities, material contracts and agreements (including contracts with customers and clients)
and all individuals currently employed by or under the payroll of IPVG.
The transfers were made at: (1) prevailing market price of the shares of stock of the listed
subsidiaries at the date of transfer and (2) book value of the shares based on the latest audited
financial statements or P
=5,000 for the shares of stock of the nonlisted subsidiaries and
associates. Total consideration received by the Company amounted to P
=282.0 million, gross of
the Company’s short-term placement amounting to P=25.0 million. Unpaid consideration by IPVI
amounts to P
=82.0 million as at December 31, 2011 (see Note 27).
The carrying amount of the assets and liabilities transferred are as follows:
Net assets of subsidiaries transferred to IPVI and
deconsolidated as at September 30, 2011
IPVG’s assets transferred on September 30, 2011
Investments in associates
AFS investment
IPVG’s assets transferred in October 2011
Short-term deposit
Trade and other receivables
Due from related parties
Other current assets
Assets classified as held for sale
Property and equipment
Intangible assets
Security deposits
IPVG’s liabilities transferred in October 2011
Loans payable
Trade and other payables
Due to related parties
Retirement benefit liability
Total Net assets transferred
Consideration (see Notes 10 and 27)
Loss from transfer of net assets to IPVI
=363,036,888
P
27,159,547
115,041,390
142,200,937
25,000,000
44,357,965
31,510,860
1,325,356
1,568,966
1,612,128
279,648
947,974
106,602,897
112,348,423
48,574,568
23,167,089
5,787,518
189,877,598
421,963,124
282,000,000
=139,963,124
P
- 26 -
Prior to the transfer of assets to IPVI, the Company made an assessment of the realizability of the
financial and nonfinancial assets. Impairment losses recognized in 2011 are summarized below.
Impairment Losses on Financial Assets
Trade and other receivables
Due from related parties
AFS investments
=185,585,809
P
78,473,218
3,172,894
=267,231,921
P
Impairment Losses on Nonfinancial Assets
Investments in associates
Other current assets
Assets classified as held for sale
Goodwill and intangible assets
Security deposits
=59,518,508
P
995,571
6,364,097
238,124,435
2,843,921
=307,846,532
P
Discontinued Operations
As a result of the transfer of assets and liabilities, the Company is deemed to have loss its control
over its subsidiaries and significant influence over its associates since the voting interests have
been transferred to IPVI. In addition, the loss of control is treated as a deemed sale transaction
in accordance with the Amended PFRS 5, Non-current Assets Held for Sale and Discontinued
Operations.
The related accounts of all the subsidiaries transferred have been excluded in the 2011
consolidated statement of financial position as at the date of transfer. The 2011 consolidated
statement of comprehensive includes the results of operations of the subsidiaries up to
September 30, 2011, the date of the transfer.
The results of operations of the Company’s subsidiaries for the nine month period September 30,
2011 (for the years ended December 31, 2010 and 2009) included under “Net income (loss) from
discontinued operations” account are summarized below:
Revenue (see Note 21)
Cost of sales and services (see Note 22)
Gross income
Impairment losses on:
Financial assets
Nonfinancial assets
Loss on sale of investments
Operating expenses (see Note 23)
Other income (charges) (see Note 24)
Income (loss) before income tax
Income tax expense (see Note 26)
2011
(Nine Months)
=929,336,510
P
435,200,717
494,135,793
(41,627,443)
(236,309,035)
–
(441,268,550)
(3,858,453)
(228,927,688)
4,305,631
2010
(One Year)
(As restated see Note 6)
=1,280,662,275
P
551,725,096
728,937,179
2009
(One Year)
(As restated
- see Note 6)
=1,253,709,035
P
572,508,640
681,200,395
(51,771,809)
–
(731,514)
(641,604,449)
(24,369,716)
10,459,691
32,765,478
(7,401,401)
–
–
(599,461,660)
7,105,430
81,442,764
3,174,123
- 27 -
Net income (loss) from discontinued
operations
Attributable to:
Equity holders of the Parent
Non-controlling interests
2011
(Nine Months)
2010
(One Year)
(As restated see Note 6)
2009
(One Year)
(As restated
- see Note 6)
(P
=233,233,319)
(P
=22,305,787)
=78,268,641
P
(P
=228,927,688)
4,305,631
(P
=233,233,319)
(P
=39,047,349)
16,741,562
(P
=22,305,787)
=47,378,163
P
30,890,478
=78,268,641
P
The net cash provided by (used in) discontinued operations for the nine month period ended
September 30, 2011 (for the years ended December 31, 2010 and 2009) are as follows:
Net cash provided by (used in) operating
activities
Net cash provided by (used in) investing
activities
Net cash provided by (used in) financing
activities
Net increase (decrease) in cash and cash
equivalents
Effect of foreign exchange rate changes
on cash and cash equivalents
Cash and cash equivalents at beginning
of period
Cash and cash equivalents at end of period
2011
(Nine Months)
2010
(One Year)
(As restated see Note 6)
2009
(One Year)
(As restated see Note 6)
(P
=301,177,491)
=141,528,760
P
(P
=324,581,098)
79,128,420
(224,523,829)
447,318,158
(22,637,200)
298,805,031
(123,540,366)
(244,686,271)
215,809,962
(803,306)
–
–
–
244,752,986
=66,715
P
28,943,024
=244,752,986
P
29,746,330
=28,943,024
P
8. Business Combinations and Disposal of a Subsidiary
The Group through IPEVI acquired two internet café chains (DPI and Webworx) in line with its
plan to be the leading digital consumer platform in the Philippines, providing content, retail
access, and advertising platforms to Internet users.
Acquisition of DPI
On April 1, 2011, IPEVI acquired from ePLDT, Inc. 97,557,504 shares of DPI, representing 75%
ownership, for a total consideration of P=145.0 million or P
=1.49 a share.
DPI’s primary purpose was amended on June 22, 2010 to include engaging in the business of
providing shared community access through the internet, computer leasing, and other internetrelated activities. On February 19, 2012, DPI further amended its Articles of Incorporation to
include as its secondary purpose, the business of establishing, operating and maintaining
restaurants, coffee shops, refreshment parlors, cocktail lounges and cater foods and drinks.
- 28 -
DPI uses the brand Netopia and EGG for its chain internet café in the Philippines. As at
December 31, 2011, DPI has 94 company-owned and 31 franchised branches located in major
malls and near schools.
The fair values of the identified assets and liabilities of DPI at the time of acquisition and the
purchase price was allocated as follows:
Cash and cash equivalents
Trade and other receivables
Inventories
Other current assets
Property and equipment
Computer software
Other noncurrent assets
Trade and other payables
Retirement benefit liability
Net assets
Percentage share of net assets acquired
Net assets acquired
Goodwill arising on acquisition (see Note 17)
Total consideration
Amounts
=96,413,941
P
4,298,460
9,439,884
8,096,828
54,305,912
269,177
35,172,276
(33,415,723)
(16,021,600)
158,559,155
75%
118,919,366
26,080,634
=145,000,000
P
The revenue and net income of DPI from the acquisition date until September 30, 2011
amounted to P
=170.0 million and P=8.2 million, respectively, were included in the Group’s results
of operations in 2011 under “Net income (loss) from discontinued operations” account. The cash
outflows on the acquisition amounted to P
=147.9 million which includes the P
=145 million
acquisition cost and P=2.9 million transaction costs recorded under “Outside services” line item
under “Operating expenses” account of discontinued operations.
Acquisition of Webworx
On September 2, 2011, the IPEVI subscribed to 375,000 unissued shares of Webworx,
representing 60% ownership interest, for a total consideration of P=48.0 million or P
=128 a share,
Webworx was incorporated in the Philippines and registered with the SEC on August 17, 2011 to
engage in the business of providing shared community access through the internet, computer
leasing, desktop publishing and other internet related activities.
- 29 -
The provisional fair values of the identified assets and liabilities of Webworx as at the date of
acquisition and the purchase price was allocated as follows:
Cash
Property and equipment
Intangible assets
Other noncurrent assets
Trade and other payables
Net assets
Percentage share of net assets acquired
Net assets acquired
Goodwill arising on acquisition (see Note 17)
Total consideration
Amounts
=48,030,785
P
10,645,109
1,935,024
6,504,184
(46,702,610)
20,412,492
60%
12,247,495
35,752,505
=48,000,000
P
The fair value adjustments are still provisional and were based on the carrying values as at the
date of acquisition. The Company is currently determining the fair values of the identified assets
and liabilities as at acquisition date.
The revenue and net income of Webworx from the acquisition date until September 30, 2011
amounted to P
=2.5 million and P
=0.07 million, respectively, were included in the Group’s results of
operations in 2011 under “Net income (loss) from discontinued operations” account.
The cash outflows on the acquisition amounted to P
=48.01 million, which includes the
=48.0 million acquisition cost and P
P
=0.01 million transaction costs recorded under “Outside
services” line item under “Operating expenses” account of discontinued operations.
As a result of APA, as at December 31, 2011, the respective net assets of DPI and Webworx,
being direct subsidiaries of IPEVI which was transferred to IPVI, were no longer included in the
Group’s consolidated financial statements.
Disposal of Prolexic
On March 28, 2011, upon the approval of the Company’s BOD, the Company concluded the sale
of 69% ownership interest in Prolexic for $13.9 million (P=600.6 million) to Kennet Partners, which
resulted to a gain of P
=333.1 million, net of related expenses amounting to P=16.2 million. The net
proceeds from the sale of P
=298.0 million is net of amount of loan granted by the Company to
Prolexic amounting to P
=143.1 million (see Note 11), amounts payable to Prolexic of
=107.4 million and other liabilities assumed in behalf of IPCDC and IPEVI by the Company
P
amounting to P=35.9 million.
As a result of the disposal of 69% interest in Prolexic, the net assets of Prolexic ,related goodwill
arising from its acquisition (see Note 17) as well as the cumulative translation adjustments was
excluded from the consolidated financial statements at the date of disposal. The revenue and
net income of Prolexic from January until March 28, 2011 amounting to P
=188.4 million and
=26.0 million, respectively, were included in the Group’s results of operations in 2011 under “Net
P
income (loss) from continuing operations” account.
Remaining investment in Prolexic amounting to P
=114.0 million was treated as an AFS investment
(see Note 12) which was transferred to IPVI pursuant to APA (see Note 7).
- 30 -
9. Segment Reporting
Business Segments
Prior to APA and deconsolidation of IPVG’s listed and nonlisted subsidiaries to IPVI
(see Note 7), the Group’s operating business are organized and managed separately according to
the nature of products and services provided, with each segment representing a strategic
business unit that offers different products and serves different markets. The Group is engaged
in the business of Data Center, Online Computer Games, Contact Center and Mobile Content and
Others. Details of the Group’s business segments are as follows:

Data Center segment pertains to internet connectivity services (resale of bandwidth), server
hosting (co-location), network security services (mitigation) and point-to-point connection
(international private line connections) services.

Online Computer Games segment includes sale of prepaid cards for use in various online
video games.

Contact Center segment relates to customer support and other call center services.

Mobile Content, Corporate and Others segment includes sales of various applications,
marketing services, general and corporate income and expense items.
Segment Assets and Liabilities
Segment assets include all operating assets used by a segment and consist principally of
operating cash, trade and other receivables and advances and property and equipment, net of
allowances and provisions. Segment liabilities include all operating liabilities and consist
principally of trade and other payables and taxes currently payable. Segment assets and
liabilities do not include deferred income taxes.
Intersegment Transactions
The Group’s operating business are organized and managed separately according to the nature
of segment accounting policies, which are the same as the policies described in Note 4.
Intersegment sales and transfers are eliminated in consolidation.
As a result of the deconsolidation of subsidiaries transferred to IPVI, the remaining business
segment pertains mostly to corporate related transaction which is under “Mobile Content,
Corporate and Others” segment in the segment information that follows.
- 31 -
The following tables present revenue and profit information regarding business segments for the year ended December 31, 2011 (with comparative figures for 2010 and 2009) and certain assets and
liabilities information regarding industry segments as at December 31, 2011 (with comparative figures for 2010 and 2009):
(Amounts in Thousands)
Data Center*
Online Computer Games*
Contact Center*
Mobile Content and Others**
Corporate
Eliminations
Consolidated
2011
2010
2009
2011
2010
2009
2011
2010
2009
2011
2010
2009
2011
2010
2009
2011
2010
2009
2011
2010
2009
Total Revenue
Sales to external customers
Inter-segment sales
Total revenue
=407,762
P
10,996
=418,758
P
=498,771
P
22,541
=521,312
P
=505,686
P
10,625
=516,311
P
=336,349
P
–
=336,349
P
=194,855
P
–
=194,855
P
=242,077
P
–
=242,077
P
=P–
–
=–
P
=–
P
–
=–
P
=–
P
–
=–
P
=185,226
P
7,695
=192,921
P
=587,037
P
61,738
=648,775
P
=505,946
P
66,337
=572,283
P
=P5,206
18,163
=23,369
P
=P7,817
43,085
=50,902
P
=20,786
P
33,548
=54,334
P
=–
P
(36,854)
(P
= 36,854)
=–
P
(127,364)
(P
=127,364)
=–
P
(110,510)
(P
=110,510)
=934,543
P
–
=934,543
P
=1,288,480
P
–
=1,288,480
P
=1,274,495
P
–
=1,274,495
P
Results
Segment results
=128,965
P
=159,313
P
=151,008
P
=200,003
P
=43,424
P
=117,410
P
=–
P
=–
P
=–
P
=165,440
P
=546,053
P
=412,783
P
=2,289
P
=21,568
P
=31,588
P
(P
= 18,435)
(P
=62,937)
(P
=33,548)
=478,262
P
=707,421
P
=679,241
P
(P
= 75,723)
53,242
(P
=79,264)
80,049
(P
=81,484)
69,524
(P
= 235,240)
(35,237)
(P
=106,131)
(62,707)
(P
=126,363)
(8,953)
(P
= 923)
(923)
(P
=2,825)
(2,825)
(P
=4,369)
(4,369)
(P
= 153,101)
12,339
(P
=481,422)
64,631
(P
=420,834)
(8,051)
(P
= 143,993)
(141,704)
(P
=110,299)
(88,731)
(81,444)
(49,856)
=23,584
P
5,149
=68,099
P
5,162
=33,548
P
–
(P
= 585,396)
(107,134)
(P
=711,842)
(4,421)
(P
=680,946)
(1,705)
(811)
–
(4,743)
–
(3,051)
–
154
(9,849)
(43,803)
–
–
–
(40,029)
–
–
–
(3,113)
–
(942)
(139,960)
(3,226)
–
(1,237)
–
(470,420)
(391,343)
(32,668)
-
(271,453)
-
244,816
233,305
–
–
–
–
(267,232)
(307,847)
(84,440)
–
(278,854)
–
-
–
–
52,925
642
–
–
–
–
-
(1,374)
–
333,116
210,357
8,970
(52,925)
–
–
333,116
209,625
8,970
–
–
(2,945)
3,455
–
–
(2,941)
383
–
–
(25,448)
365
–
10,667
(10,168)
838
–
6,686
(4,806)
–
–
8,326
(1,913)
25
–
–
(919)
–
–
–
(22,113)
1
–
–
(22,093)
4
(4,681)
9
–
–
(3,632)
3
–
–
(2,238)
1,280
(492)
–
(17,166)
7,664
(26,030)
272
9,826
(23,024)
14,749
(139,471)
(5,299)
–
–
–
4,197
(7,429)
–
–
–
10,798
(14,240)
(139,963)
5,368
(35,879)
11,966
–
10,883
(66,951)
659
–
18,152
(63,918)
2,183
2,193
(4,467)
1,922
(610)
161
365
(79)
321
(54)
(324)
(619)
(83)
18,063
14,793
–
1,512
–
1,448
14,866
16,782
(470)
54,664
6,114
=48,550
P
2,551
70,832
9,754
=61,078
P
(730)
42,582
7,502
=35,081
P
5,172
13,892
(2,407)
=16,299
P
9,109
(94,718)
3,635
(P
=98,354)
2,311
161
1,713
(P
=1,552)
(52)
(25,068)
–
(P
=25,068)
37,545
8,295
99
=8,196
P
(1,047)
(134,337)
(5,997)
(P
= 128,340)
(3,129)
52,950
19,377
=33,573
P
(3,117)
(13,982)
(6,140)
(7,842)
36
(680,391)
69,219
(P
= 749,610)
126
81,389
(11,980)
=93,369
P
(1,475)
(297,470)
(11,375)
(P
=286,095)
–
285,575
–
=285,575
P
–
3,442
–
=3,442
P
–
(3,443)
–
(P
=3,443)
3,681
(502,476)
73,524
(P
= 576,000)
8,605
88,826
20,786
(P
=68,040)
34,534
(263,856)
(8,201)
(P
=255,655)
(P
= 580,929)
4,929
(P
= 576,000)
=51,346
P
16,694
=68,040
P
(P
=286,529)
30,874
(P
=255,655)
Unallocated expenses
Income (loss) for operations
Impairment losses on:
Financial assets
Non-financial assets
Gain on sale of investments
in subsidiaries
Loss on transfer of assets
and liabilities
Investment loss
Interest expense
Interest income
Net foreign exchange gains
(losses)
Other income (charges) net
Income (loss) before tax
Tax expense (income)
Net income (loss)
Attributable to:
Equity holders of the Parent
Non-controlling interests
Net income (loss)
2
(10)
(41,879)
6,595
(P
= 48,474)
- 32 -
Data Center*
Online Computer Games*
Contact Center*
Mobile Content and Others**
Corporate
Eliminations
Consolidated
2011
2010
2009
2011
2010
2009
2011
2010
2009
2011
2010
2009
2011
2010
2009
2011
2010
2009
Assets and Liabilities
Segment assets
Investments
Intangible assets
Deferred tax assets
Total assets
=P–
–
–
–
=–
P
=481,160
P
62
191,998
63
=673,283
P
=526,462
P
62
2,096
33
=528,653
P
=P–
–
–
–
=–
P
=325,630
P
86,695
30,733
1,418
=444,476
P
=169,065
P
95,209
20,988
1,469
=286,731
P
=P–
–
–
–
=–
P
=67,149
P
–
–
–
=67,149
P
=237,365
P
–
–
–
=237,365
P
=1,399
P
–
=1,399
P
=227,055
P
157,626
10,004
=394,685
P
=142,271
P
16,767
13,063
=172,101
P
=287,020
P
1,500
–
470
=288,990
P
=309,965
P
923,971
2,479
69,689
=1,306,104
P
(P
=38,143)
3,398
34,745
=P
(P
= 5,379)
(1,500)
–
–
(P
= 6,879)
(P
=253,621)
(832,057)
409,518
–
(P
=676,160)
(P
=431,565)
(763,642)
409,518
–
(P
=785,689)
Segment liabilities
Total liabilities
=P–
=–
P
=P240,326
=240,326
P
=P309,764
=309,764
P
=P–
=–
P
=P461,243
=461,243
P
=P261,433
=261,433
P
=P–
=–
P
=P104,924
=104,924
P
=P207,309
=207,309
P
=P7,463
=7,463
P
=P251,618
=251,618
P
=P151,541
=151,541
P
=P28,520
=28,520
P
=P340,005
=340,005
P
=P564,738
=564,738
P
(P
= 1,545)
(P
= 1,545)
(P
=253,621)
(P
=253,621)
(P
=431,565)
(P
=431,565)
=P34,438
=34,438
P
=P1,144,494
=1,144,494
P
=P1,063,220
=1,063,220
P
=107,543
P
=3,005
P
=25,181
P
=266,334
P
=37,442
P
=20,065
P
=–
P
=–
P
=–
P
=3,020
P
=1,902
P
=–
P
=360
P
=33,922
P
=27,311
P
=–
P
=–
P
=–
P
=377,257
P
=76,271
P
=72,557
P
20,801
21,263
21,126
42,706
28,139
20,018
21
–
42
10,792
41,781
41,347
4,782
8,514
7,005
–
–
–
79,101
99,697
89,538
Other Segment Information
Capital expenditures
Depreciation and
amortization
* Business segments under discontinued operations
** In 2011, only corporate related transactions are included in this segment. Transactions related to mobile content and others are included under the results of discontinued operations
2011
2010
2009
=283,040 P
P
=1,157,337
–
177,520
–
792,355
470
81,173
(P
= 283,510) (P
=2,208,385)
=P602,252
(652,056)
455,972
49,311
(P
=455,479)
- 33 -
10. Cash and Cash Equivalents
This account consists of:
Cash on hand
Cash in banks
Short-term investments (see Note 7)
2011
=P65,000
1,736,401
200,000,000
=201,801,401
P
2010
(As restated see Note 6)
=462,688
P
98,881,404
164,000,000
=263,344,092
P
Cash in banks earn interest at the respective bank deposit rates. Short-term investments are
short-term deposits, which are made for varying periods of up to three months, depending on
the immediate cash requirements of the Company, and earn interest at the respective shortterm deposit rates.
Short-term investments include the following:

In 2011, proceeds of P=200.0 million from APA (see Note 7) were invested with Esquire
International Financing, Inc. (Esquire) with interest of 4% per annum.

In 2010, the short-term deposit represents the proceeds raised from the Initial Public
Offering (IPO) of the Company’s shares, which was invested as time deposit with a local bank.
Short-term deposit earns interest of 6% per annum.
The cash and cash equivalents of IPCDC and its subsidiary, IPCDS, IPE, IPEVI and its subsidiaries,
IPCCO and IPAY were deconsolidated as at September 30, 2011 as a result of APA (see Note 7).
11. Trade and Other Receivables
As at December 31, 2010 (as restated - see Note 6), this account consisted of:
Trade receivables:
Related parties (see Note 27)
Third parties
Loans receivable
Advances to suppliers
Advances to officers and employees
Interest receivable
Dividend receivable (see Note 15)
Others
Allowance for impairment losses
=P5,552,380
150,350,777
36,403,000
119,098,104
13,741,597
769,413
18,300,000
13,692,814
357,908,085
(107,390,795)
=250,517,290
P
- 34 -
Trade receivables are noninterest-bearing and are generally on a 30 to 60-day credit term.
Certain trade receivables and advances were assessed by the Group to be impaired. The
movements in the allowance for impairment losses are as follows:
Balance at beginning of year
Impairment loss
Transferred to IPVI (see Note 7)
Effect of deconsolidation of discontinued
operations (see Note 7)
Balance at end of year
2011
=P107,390,795
185,585,809
(186,320,677)
2010
(As restated see Note 6)
=23,620,873
P
83,769,922
–
(106,655,927)
=–
P
–
=107,390,795
P
Impairment losses recognized mainly composed of impairment losses on receivables of Parent
Company and advances of IPCCO amounting to P=144.0 million and P=40.0 million.
The trade and other receivables of IPCDC, IPE, IPEVI and its subsidiaries, IPCCO and IPAY were
deconsolidated as at September 30, 2011 (see Note 7).
Trade and other receivables of IPVG were transferred to IPVI in October 2011.
Loans Receivable
On March 25, 2011, following the sale of the Company’s 69% ownership interest Prolexic
(see Note 8), Prolexic issued two promissory notes to the Company amounting to $0.8 million
and $2.5 million (P
=143.1 million), which bear an interest of 10% per annum. Maturity date of the
notes is earlier of: a) five years (for the $0.8 million note) to seven years (for the $2.5 million
note) from the issue date, or b) closing date of any consolidation, merger, or reorganization of
Prolexic into or with other entity or entities. Prior to the transfer to IPVI, loans receivable to
Prolexic amounting to P
=150.2 million includes accrued interest amounting to P
=7.1 million.
On June 1, 2011, the Company granted a loan amounting to $0.5 million (P=19.6 million) to PCCW
Teleservices Philippines, Inc. (PCCWP), an associate. The loan will mature in two years from the
drawdown date and bears an interest rate of 8% per annum which shall be due and payable on
semi-annual basis. Prior to transfer to IPVI, loans receivable to PCCWP amounting to
=20.0 million includes accrued interest amounting to P
P
=0.4 million.
Interest-bearing loans granted to IPAY Commerce Ventures, Inc. and Megamobile amounted to
=1.6 million and P
P
=1.3 million with interest at 15% per annum. The loan from Megamobile was
fully provided with allowance in 2010, while the loan from IPAY is intended to be converted to
investment and was transferred to IPVI in 2011.
The loans receivable as at December 31, 2010 includes loans granted by RCL on November 3,
2010, to IP Capital Management Limited (IPCPL), a related party under common control, which
was organized and existing under the laws of the Territory of the British Virgin Islands,
amounting to $0.8 million (P
=35.1 million). The loan is subject to an interest rate of 4.5% per
annum. The said loan was settled in 2011.
- 35 -
Dividend Receivable
On November 15, 2010, First Cagayan Converge Data Center, Inc. (FCCDCI), an associate,
declared a total cash dividend of P
=38.0 million payable to shareholders of record as at
December 31, 2010, in which the Company’s share is 40% or P=15.2 million.
Dividends receivable as at December 31, 2010 includes dividends declared on June 30, 2009
amounting to P=5.6 million, out of which, P=3.1 million pertains to the Company’s share in dividends.
12. AFS Investments
Movements in this account are as follows:
Balance at beginning of the year
Reclassification (see Note 8)
Reversal due to transfer (see Note 7)
Impairment loss
Transferred to IPVI (see Notes 7 and 8)
Disposal
Balance at end of year
2011
=P7,779,535
114,000,000
(3,565,252)
(3,172,893)
(115,041,390)
–
=–
P
2010
=25,763,815
P
–
–
–
(17,984,280)
=7,779,535
P
In 2011, AFS investments consist of 22% ownership interest in Megamobile and remaining 31% in
Prolexic. These were transferred to IPVI in 2011.
In 2010, the Company sold its investment in T Communications and Community, Inc. to
Sabiclub.com (SCC) for a total consideration of P
=6.9 million in cash plus certain assets from
Station 168 Internet Center in BF Paranaque, Makati and Baguio with a fair market value of
=8.2 million, net of SCC’s customer deposits of P
P
=2.9 million. The Company recognized these
assets as “Assets classified as held for sale” in the consolidated statement of financial position.
In 2011, some of these assets amounting to P
=0.2 million was sold. The remaining assets
amounting to P=1.6 million, net of impairment losses of P=6.4 million, were transferred to IPVI
(see Note 7).
In October 2010, the Company completed its sale of the issued share capital of Influent in
relation to the Sale and Purchase Agreement entered into with PCCW Teleservices (Hong Kong)
Limited. The second tranche payment was received in October 2010, resulting to a gain of
=209.8 million.
P
On December 8, 2010, the Company and IPCPL, entered into a deed of assignment of one share
representing 100% of outstanding capital stock in IPVG Investment Holdings, Inc., a company
incorporated in British Virgin Islands (BVI), in exchange of US$7,000 (P=0.3 million).
- 36 -
13. Inventories
As at December 31, 2010 (as restated - see Note 6), the account consisted of:
At cost:
Game installers
Prepaid cards
Game PINs
=7,016,192
P
232,796
527,716
=7,776,704
P
As at December 31, 2010, the cost of inventories was lower than its NRV.
The inventories of IPEVI, its subsidiaries and IPAY were deconsolidated as at September 30, 2011
(see Note 7).
14. Other Current Assets
This account consists of:
Input VAT - net of output VAT
Creditable withholding tax
Prepayments
Security deposits
Advances for PSE listing
Others
2011
=3,400,157
P
804,557
–
–
–
–
=4,204,714
P
2010
(As restated Note 6)
=4,319,508
P
1,219,824
45,389,859
18,490,091
2,917,378
3,450,832
=75,787,492
P
Security deposits mainly pertain to payments to telecommunications companies which provide
leased line services to the Group. The contracts with the telecommunications companies are
renewable every year.
Other current assets of IPCDC, IPCDS, IPE, IPEVI and its subsidiaries, IPCCO, and IPAY were
transferred to IPVI and deconsolidated as at September 30, 2011 (see Note 7).
Other current assets of IPVG were transferred to IPVI in October 2011 (see Note 7).
- 37 -
15. Investments in Associates and a Joint Venture
This account consists of:
2011
Investments in associates:
Balance at beginning of the year
As previously reported
Prior period adjustments (see Note 6)
As restated
Equity in net income (see Note 24)
Share in dividends declared (see Note 11)
Additions
Change in equity interest
Transferred to IPVI (see Note 7)
Effect of deconsolidation of discontinued
operations (see Note 7)
Balance at end of the year
Allowance for impairment losses
Balance at beginning of the year
Provisions (see Note 7)
Transferred to IPVI (see Note 7)
Balance at end of the year
Carrying value
=197,663,733
P
(18,770,435)
178,893,298
5,368,118
–
–
–
(86,678,024)
2010
(As restated see Note 6)
=307,136,949
P
(17,618,377)
289,518,572
10,882,778
(15,200,000)
22,530,895
(128,838,947)
–
(97,361,933)
221,459
–
178,893,298
221,459
59,518,477
(59,518,477)
221,459
=–
P
221,459
–
–
221,459
=178,671,839
P
Details of the Company’s investments are as follows:
2011
Entity
Associates:
PCCW Teleservices Philippines, Inc.
(PCCWP)
Pocket Aces Corp. (PAC)
Advance Gaming Ventures, Inc.
(AGV)
FCCDCI
Nature of Business
Ownership
Interest
2010
(As restated - see Note 6)
Ownership
Amount
Interest
Amount
BPO
Entertainment
–
–
=–
P
–
30.00
51.00
=91,976,709
P
121,459
On-line games
Information technology
–
–
–
–
–
33.00
27.64
100,000
29,179,807
121,377,975
Interactive gaming and
content distribution
–
–
=–
P
50.00
57,515,323
=178,893,298
P
Joint Venture
X-Play
Carrying amount has been fully provided with allowance from impairment loss.
As discussed in Note 7, the investments in associates (except for investments in PAC and AGV)
and investment in a joint venture were transferred to IPVI in October 2011.
- 38 -
Prior to the transfer (see Note 7), the Company recognized impairment loss on its investment in
PCCWP amounting to P
=59.5 million in 2011.
X-Play
Under a Shareholders Agreement in 2007, GMA New Media, Inc. (GNMI) and IPEVI agreed to
have equal equity interest in X-Play, an interactive company. Both parties subscribed to one
million common shares each at par value of P
=100 per share. The Company paid
=50.0 million in cash and the balance is payable in the form of online game assets while GNMI
P
paid P
=50.0 million cash and the balance is payable in the form of television airtime.
On October 19, 2011, GNMI executed a Subscription Agreement with IPEVI, wherein the latter
committed to allow GNMI to subscribe 5.0 million shares out of the total IPEVI’s shares to be
offered for public listing for a subscription price of P
=26 a share or P
=130.0 million. On the same
date, IPEVI and GNMI executed an Option Agreement relative to their shares in X-Play. Under
the Option Agreement, IPEVI irrevocably granted GNMI the option to sell its 1.0 million shares in
X-Play at a total exercise price of P
=75.0 million. This option shall expire on October 19, 2012.
The investment account represents the carrying value of the 50% interests in X-Play, accounted
for under the equity method.
FCCDCI
FCCDCI engaged in information technology and communications, was acquired by the Company
on January 1, 2009.
As at December 31, 2011, unpaid dividend amounted to nil (P=18.3 million in 2010) (see Note 11).
PAC and AGV
PAC and AGV have suspended its operations since 2004. PAC is not considered a subsidiary
because the Company does not control and has no power to govern PAC’s financial and
management decisions. As of December 31, 2010, the Group has already fully provided an
allowance for impairment losses on these investments.
Financial information of the associates and joint venture as at and for the year ended
December 31, 2010 follows:
X-Play
FCCDCI
Assets
=68,829,709
P
220,461,123
Liabilities
=53,799,063
P
145,431,630
Revenue
=32,131,957
P
265,613,259
Net Income
(Loss)
(P=27,911,414)
51,603,633
As at December 31, 2010, subscriptions payable included under “Trade and other payables”
account consisted of:
X-Play
FCCDI
=50,000,000
P
5,000,000
=55,000,000
P
In 2011, the outstanding subscription payable to FCCDCI amounting to P=5.0 million was settled in
full while the remaining P=50.0 million was already excluded from the consolidated statement of
financial position as a result of deconsolidation of IPEVI (see Note 7).
- 39 -
16. Property and Equipment
Movements in this account are as follows:
Gross carrying amount:
January 1, 2010
Additions
Disposals
December 31, 2010
Acquisition through
business combinations
(see Note 8)
Additions
Transferred to IPVI
(see Note 7)
Effect of transfer and
deconsolidation of
subsidiaries
December 31, 2011
Accumulated depreciation
and amortization:
January 1, 2010
Depreciation and
amortization
Disposals
December 31, 2010
Acquisition through
business combinations
(see Note 8)
Depreciation and
amortization
Disposal
Transferred to IPVI
(see Note 7)
Effect of transfer and
deconsolidation
of subsidiaries
December 31, 2011
Carrying amount:
December 31, 2010
December 31, 2011
Computer
and Network
Equipment
Office
Furniture,
Fixtures and
Equipment
= 399,875,697
P
29,706,105
–
429,581,802
= 15,592,452
P
1,019,267
–
16,611,719
= 10,502,614
P
240,389
(3,656,084)
7,086,919
= 56,585,899
P
–
(627,121)
55,958,778
= 482,556,662
P
30,965,761
(4,283,205)
509,239,218
155,878,827
90,199,900
41,905,545
5,447,619
1,668,198
33,929
52,615,947
29,586,757
252,068,517
125,268,205
(5,730,291)
(3,906,469)
(4,253,346)
(11,804,566)
(25,694,672)
(669,930,238)
–
(60,058,414)
–
(4,535,700)
–
(126,356,916)
–
(860,881,268)
–
192,541,659
11,053,041
5,429,210
22,957,336
231,981,246
68,487,193
(30,544,262)
230,484,590
270,513
–
11,323,554
2,257,572
(2,878,829)
4,807,953
5,770,609
–
28,727,945
76,785,887
(33,423,091)
275,344,042
114,839,630
30,333,303
1,486,285
40,458,278
187,117,496
47,494,364
(212,143)
3,801,425
–
1,110,860
(329,492)
6,833,629
–
59,240,278
(541,635)
(5,234,934)
(3,621,402)
(3,795,015)
(11,431,193)
(24,082,544)
(387,371,507)
–
(41,836,880)
–
(3,280,591)
–
(64,588,659)
–
(497,077,637)
–
=199,097,212
P
=5,288,165
P
=2,278,966
P
=27,230,833
P
=233,895,176
P
=–
P
=–
P
=–
P
=–
P
=–
P
Transportation
Equipment
Leasehold
Improvements
Total
Certain network and computer equipment with an aggregate carrying amount of nil and
=14.8 million as at December 31, 2011 and 2010, respectively, have been mortgaged as a
P
guarantee of the Group’s loan payable for certain loans. The loan has an outstanding balance of
nil as at December 31, 2011 (P
=5.3 million as at December 31, 2010) (see Note 19).
Certain property and equipment are held under finance leases amounting to P=20.3 million as at
December 31, 2010 (see Note 30).
Depreciation is recognized in profit or loss as follows:
Cost of sales and services (see Note 22)
Operating expenses (see Note 23)
2011
=15,282,739
P
43,957,539
=59,240,278
P
2010
(As restated see Note 6)
=20,713,159
P
63,547,648
=84,260,807
P
2009
(As restated see Note 6)
=17,292,548
P
59,478,651
=76,771,199
P
- 40 -
The property and equipment of IPCDC, IPEVI and its subsidiaries, IPCCO and IPAY were
deconsolidated as at September 30, 2011 (see Note 7).
17. Intangible Assets
The gross carrying amounts and accumulated amortization at the beginning and end of 2011 and
2010 are shown below:
Gross carrying amount:
January 1, 2010
Additions
December 31, 2010
Acquisitions through
business combinations
(Note 8)
Additions
Write off
Transferred to IPVI
(see Note 7)
Effect of transfer and
deconsolidation of
subsidiaries
(see Note 8)
December 31, 2011
Accumulated amortization:
January 1, 2010
Prior year adjustment
(see Note 6)
As restated
Amortization
December 31, 2010
Amortization
Write off
Transferred to IPVI
(see Note 7)
Impairment losses
Effect of transfer and
deconsolidation of
subsidiaries (see Note 8)
December 31, 2011
Carrying amount:
December 31, 2010
December 31, 2011
Goodwill
IRU
Customer
Contracts
Software and
Licenses
Patent and
Trademark
Total
=411,333,741
P
–
411,333,741
=–
P
183,942,000
183,942,000
=–
P
7,811,578
7,811,578
=P58,164,554
158,024,635
216,189,189
=16,618,657
P
302,741
16,921,398
=P486,116,952
350,080,954
836,197,906
61,833,139
–
–
–
–
–
–
–
–
2,204,201
59,979,423
(8,904,331)
–
1,369,621
–
64,037,340
61,349,044
(8,904,331)
–
–
–
(8,384,102)
–
(8,384,102)
(471,351,481)
1,815,399
(183,942,000)
–
(7,811,578)
–
(261,084,380)
–
(18,291,019)
–
(942,480,458)
1,815,399
–
–
–
29,206,678
937,808
30,144,486
–
–
–
–
–
–
–
–
–
–
5,109,500
–
–
–
–
–
1,952,894
–
3,204,283
32,410,961
14,864,176
47,275,137
48,891,281
(8,904,331)
–
937,808
506,228
1,444,036
1,423,532
–
3,204,283
33,348,769
15,370,404
48,719,173
57,377,207
(8,904,331)
–
88,315,399
–
–
–
–
(8,104,454)
149,809,036
–
–
(8,104,454)
238,124,435
(86,500,000)
1,815,399
(5,109,500)
–
(1,952,894)
–
(228,966,669)
–
(2,867,568)
–
(325,396,631)
1,815,399
=411,333,741
P
=183,942,000
P
=7,811,578
P
=168,914,052
P
=15,477,362
P
=787,478,733
P
=–
P
=–
P
=–
P
=–
P
=–
P
=–
P
Goodwill
Goodwill as at December 31, 2010 is attributable to the following:
Prolexic (see Note 8)
IPCCO
Merger between MBF, Inc. (MBF) and the Company
=323,018,342
P
86,500,000
1,815,399
=411,333,741
P
In 2011, goodwill arising from acquisition of IPCCO and goodwill arising from the merger in 2002
between MBF and the Company was fully provided with allowance for impairment losses prior to
transfer to IPVI and deconsolidation of IPCCO.
- 41 -
While IPCCO has been incurring losses in its operations in prior years, management initially
planned to redirect the business operations of IPCCO in 2010. On March 30, 2010, IPCCO
entered into a two year service agreement with ANZ Bank (Vietnam) Limited (ANZ) to promote
and sell ANZ credit cards through telesales channels. IPCCO, however, incurred losses from these
operations.
In early 2011, management terminated IPCCO’s Vietnam operations and fully provided an
impairment allowance on its investment in IPCCO amounting to P
=188.0 million (nil in 2010) in its
separate financial statements and as a result, goodwill arising from acquisition of IPCCO
amounting to P=87.0 million was also fully provided with allowance in its consolidated financial
statements.
On January 2, 2012, IPCCO’s BOD and stockholders approved a resolution for the cessation of the
Company’s operations effective January 16, 2012. IPCCO has not yet adopted a formal plan of
liquidation but had already disposed all of its assets in 2011. IPCCO is still in the process of
obtaining a tax clearance from the Bureau of Internal Revenue for its business closure and
corporate dissolution.
IRU in Telecommunication Submarine Cable Systems Capacity
The IRU comprise of three units of initial capacity on the Intra-Asia Cable System (IACS), a multiterabit linear submarine cable system linking Singapore, Hong Kong and Japan.
On April 29, 2011, one unit of IRU capacity has been activated.
Customer Contracts
This represents the value of customer contracts acquired by the Group from Sabiclub.com Corp.
(SCC) as settlement of the latter’s outstanding payable to the Company for bandwidth purchases.
As a result, SCC’s direct customers became direct customers of the Group.
The customer contract is being amortized over a period of three years starting 2011 until 2013.
The intangible assets of IPCDC, IPEVI and its subsidiaries, RCL, and IPAY were deconsolidated as
at September 30, 2011 (see Note 7).
Software and Licenses
In 2011, the Group decided to fully provide an allowance for impairment losses on its game
licenses in RCL considering the higher costs that will be involved in setting-up and maintaining
customer service in the BVI as compared to the revenue that will be generated from these game
licenses.
The Company recognized an impairment loss amounting to P=140.0 million in 2011 (nil in 2010).
Amortization is recognized in profit or loss as follows:
Cost of sales and services (see Note 22)
Operating expenses (see Note 23)
2011
=16,893,242
P
2,967,551
=19,860,793
P
2010
(As restated see Note 6)
=11,276,059
P
4,159,840
=15,435,899
P
2009
(As restated see Note 6)
=7,440,325
P
5,326,862
=12,767,187
P
- 42 -
18. Other Noncurrent Assets
As at December 31, 2010 (as restated - see Note 6), this account consisted of:
Temporary placements (see Notes 8 and 19)
Advances to ePLDT (see Note 8)
Security deposits
Others
=129,671,756
P
20,000,000
14,843,167
3,500
=164,518,423
P
As at December 31, 2010, temporary placements amounting to P
=50.0 million pertain to the
special savings deposit used to secure the Company’s long-term loans which were subsequently
withdrawn by the Company in May 2011 (see Note 19). The remaining amount of temporary
placements as at December 31, 2010 amounting to P
=79.7 million were held as escrow fund used
to fund acquisition of investment in DPI (see Note 8).
Advances to ePLDT as at December 31, 2010 pertain to the initial advance payment for the
acquisition of DPI, which was completed on April 1, 2011.
Security deposits include refundable deposits from co-location service providers and deposits in
relation to leased spaces and store premises
Other noncurrent assets of IPCDC, IPEVI and its subsidiaries and IPCCO were deconsolidated as at
September 30, 2011 (see Note 7).
Security deposits of IPVG were transferred to IPVI in October 2011 (see Note 7).
19. Loans Payable
As at December 31, 2010 (as restated - see Note 6), the Company had loans from the following:
Current:
China Banking Corporation (CBC)
Esquire
Unicapital, Inc. (Unicapital)
Malayan Bank (Malayan)
Asia United Bank (AUB)
Related parties
Small Business Corporation (SBC)
Export and Industry Bank (EIB)
IPVG Employees, Inc. (IEI)
Majalco Finance and Investment, Inc. (Majalco)
RCBC
Total current portion
Noncurrent:
AUB
RCBC
Total noncurrent portion
=84,400,000
P
63,648,929
61,598,343
52,173,381
14,000,000
10,296,222
7,000,000
5,326,613
5,000,000
1,760,401
295,345
305,499,234
56,000,000
247,843
56,247,843
=361,747,077
P
- 43 -
CBC
The loan from CBC is for a period of three years until 2011 with interest based on the prevailing
three-month benchmark rate of the Philippines Dealing System Treasury Fixing plus a bank
spread of 2% per annum. The loan is secured by a guarantee issued by Philippine Export-Import
Credit Agency (PhilEXIM), to the extent of 90% of the principal and its corresponding interest and
other charges and/or penalties. In 2011, the Group fully settled its loan payable to CBC.
Total guarantee fees included under “Interest expense” account recognized in 2011 amounted to
=0.3 million (P
P
=4.0 million in 2010).
Esquire
The loans from Esquire are unsecured short-term loans, which generally bear a monthly interest
ranging from 2% to 2.25% in 2011 (2% to 2.25% in 2010). In cases when the Group availed of
“back-to-back” loans which have corresponding time deposit in Esquire, the loans bears an
annual interest of 9% per annum or a monthly interest rate of 0.75%.
Malayan and Unicapital
The loans are short-term loans with interest of 13.5% and 10.45% for Malayan and Unicapital,
respectively. Both loans are guaranteed by certain stockholders who pledged their shares in
IPVG for a fee, which should collectively aggregate to at least 150% of the principal loan availed
pro rata in favor of the creditors.
AUB
The loan is a secured long-term loan amounting to P
=70.0 million for the purpose of establishing
escrow account for the acquisition of DPI. Interest ranges from 5% to 6% per annum, repriceable
on the second year. The principal is payable in five equal quarterly installments starting
December 29, 2011 until December 28, 2012.
As security for the loan, IPEVI executed a Deed of Assignment over its Special Savings Account
(SSA) placement with AUB amounting to P=50.0 million, including the interest/earnings and
renewal or roll-over thereon. The SSA cannot be withdrawn by IPEVI until the loan is fully paid
(see Note 18).
Related Parties
The loans from officers and stockholders bear interest ranging from 2.5% to 12% in 2011 (5% to
15.50% in 2010) (see Note 27).
SBC
The loan from SBC amounting to P
=7.0 million bears interest of 12% per annum, have a three-year
term and secured by a land owned by a third party. The Company pays to the said third party
with 8% guarantee fee per annum based on the outstanding balance of the secured loan
beginning 2011.
EIB
The loan from EIB for principal amount of $0.6 million and a standby letter of credit (SBLC) in the
amount of $0.2 million, reduced to $100,000 at the end of the fifth year. The loan bears interest
equivalent to one year London Interbank Offered Rate (LIBOR) plus 4% repriceable annually and
is payable on quarterly principal payment of $37,500 up to five years until 2011.
- 44 -
As security for the loan, PhilEXIM in favor of EIB guarantees the Group’s loan facility and the
related property and equipment acquired from the proceeds of the loan are mortgaged in favor
of PhilEXIM.
All loans payable were settled in 2011.
IEI
The loan from IEI amounted to P
=5.0 million at 18% interest per annum due six months after the
date of execution. Pursuant to the agreement, IPEVI granted IEI the option to require payment
of the of the loan in (i) cash, (ii) shares of stock of IPEVI (at a conversion price of P=50) or (iii) both.
The loan became due on July 8, 2010. However, pursuant to Amendatory Agreement dated
August 20, 2010, the lender extended the loan’s due date to July 8, 2011. In 2011, IPVG settled
the loan in behalf of IPEVI.
Majalco
The unsecured loan bears interest ranging from 12.5% to 13.5% per annum, with a term of one
year and renewable thereafter.
RCBC
Loans obtained from RCBC represent borrowings with a maturity period of five years mainly to
finance the acquisition of the Company’s vehicles and transportation equipment.
Interest Expense
Interest expense on loans amounted P
=35.9 million in 2011 (P=67.0 million and P
=64.0 million in
2010 and 2009, respectively, as restated), and is presented as “Interest expense” in the
consolidated statement of comprehensive income (see Note 24). Guarantee fees to the
stockholders forming part of the Company’s interest expense amounted to P=3.0 million in 2011
(P
=9.0 million and P=9.4 million in 2010 and 2009, respectively, as restated).
The outstanding balance of loans availed by IPCDC, IPEVI and its subsidiaries, and IPAY were
deconsolidated as at September 30, 2011 (see Note 7).
Loans payable of IPVG were transferred to IPVI in October 2011 (see Note 7).
20. Trade and Other Payables
This account consists of:
2011
Trade payables:
Third parties
Related parties (see Note 27)
Advances from officers and employees
Net output VAT payable
Unearned income
Dividends payable
(Forward)
=1,005,407
P
–
2,926,563
581,430
–
–
2010
(As restated see Note 6)
=250,340,821
P
5,745,994
13,200,164
5,624,250
62,030,534
26,727,280
- 45 -
2011
=–
P
–
11,097,000
166,092
–
=15,776,492
P
Customer deposits
Withholding taxes
Accrued expenses
Subscription payable (see Note 15)
Others
2010
(As restated see Note 6)
=19,743,809
P
14,744,439
75,067,068
55,000,000
127,510,043
=655,734,402
P
Trade payables and accrued expenses include trade and operating amounts payable by the
Group within one year.
Unearned income refers to customer advances for which service has yet to be rendered by the
Company.
Customer deposits represent security deposits being renewed annually by clients of the Group
for internet connectivity, server hosting and other services and as a security for the payment
bills.
Accrued expenses in 2011 amounting to P
=11.1 million pertain to unpaid consultancy fee to the
Company’s financial advisor.
In 2010, other payables as at December 31, 2010 amounting P
=113.0 million includes payable to
previous shareholder of Prolexic which the Company settled fully in 2011 upon sale of its 69%
interest in Prolexic (see Note 8).
In 2010, trade payables to third parties amounting to P=9.1 million and P
=4.1 million were
derecognized after it was ascertained that there are no more valid third party claimant for these
liabilities (see Note 24).
The trade and other payables of IPCDC, IPCDS, IPE, IPEVI and its subsidiaries, IPCCO, RCL and IPAY
were deconsolidated as at September 30, 2011 (see Note 7).
Trade and other payables of IPVG were transferred to IPVI in October 2011 (see Note 7).
21. Revenue
Service revenue from continuing operations consist of:
Rent
GIA
Service agreement fee
Others
2011
=4,467,217
P
–
–
738,884
=5,206,101
P
2010
(As restated see Note 6)
=5,602,232
P
1,907,779
–
307,400
=7,817,411
P
2009
=–
P
2,821,187
17,965,218
–
=20,786,405
P
- 46 -
Service revenue from discontinued operations consists of:
Mitigation
GIA
Community access
Online gaming
IMBS
Co-location services
Applications
Advertising
Service agreement fees (see Note 27)
Rent (see Note 27)
Management fees (see Note 27)
Sale of prepaid cards
Others
2011
=215,825,099
P
208,565,480
159,267,700
147,371,245
62,601,783
56,335,900
14,246,023
8,166,923
4,554,246
–
–
–
52,402,111
=929,336,510
P
2010
(As restated see Note 6)
=633,133,510
P
250,994,348
–
186,911,575
57,195,738
78,821,605
2,995,335
1,684,973
10,125,354
12,011,768
–
–
46,788,069
=1,280,662,275
P
2009
=562,449,760
P
257,331,049
–
205,272,725
32,179,016
85,688,404
25,263,281
8,800,800
–
–
42,053,346
1,202,010
33,468,644
=1,253,709,035
P
Mitigation or Network Security Service. The Group provides service that applies filtering cybercrimes or attacks for business, including filtering internet traffic destined for customer services
for the purpose of reducing or eliminating denial of service type traffic.
GIA or Internet Connectivity. The Group resells international bandwidth to support direct and
secure links to specific locations (International Private Line Connections or IPLC) and general high
speed access into the internet.
Co-location/Server Hosting. Co-location services provide clients with space, power and air
conditioning in a secure environment for the clients’ offsite data base (usually large servers) and
to provide best operating conditions for their network equipment.
IMBS. IMBS is a mix between GIA and co-location services offered by the Group as a complete
information technology business solution to clients.
Applications. The Group offers systems and various software application ranging from financial
to operational solution which allow customers to streamline internal processes utilize costservice business tools, or jumpstart into a new business with minimal expense.
Management Fees. This includes revenue for various management agreements wherein IPVG
will render consulting, advisory and management services for a fixed monthly fee (see Note 27).
Others. This includes of various applications, financial system and other business solutions and
services.
- 47 -
22. Cost of Sales and Services
Cost of sales and services from continuing operations consist of:
2010
(As restated see Note 6)
2009
(As restated see Note 6)
=10,158,022
P
7,656,000
652,061
451,102
126,809
=12,365,937
P
14,660,273
814,383
711,746
283,080
=P4,732,113
15,147,860
1,001,697
–
–
–
2,035,800
=21,079,794
P
498,355
–
=29,333,774
P
443,461
1,421,096
=22,746,227
P
2011
Salaries and other employee benefits
(see Note 25)
Rent (see Note 30)
Repairs and maintenance
Outside services
Utilities
Communication, internet charges
and co-location
Others
Cost of sales and services from discontinued operations consist of:
2010
(As restated see Note 6)
2009
(As restated see Note 6)
=195,832,817
P
=364,551,733
P
=340,444,147
P
58,284,990
41,774,752
40,978,476
5,678,791
52,703,443
–
7,351,915
62,182,723
9,891,945
32,175,981
17,069,754
18,283,236
30,317,418
17,617,429
22,245,354
23,061,073
55,298,264
12,482,851
16,010,329
7,474,867
3,111,604
1,001,124
3,202,787
=435,200,717
P
31,866,873
12,984,173
2,607,074
2,531,393
8,621,415
=551,725,096
P
25,460,817
11,181,358
9,563,018
9,730,654
5,859,875
=572,508,640
P
2011
Communication, internet charges
and co-location
Cost of game boxes and prepaid cards
(see Note 13)
Royalties
Mitigation services
Depreciation and amortization
(see Notes 16 and 17)
Commissions
Utilities
Salaries and other employee benefits
(see Note 25)
Rent (see Note 30)
Repairs and maintenance
Outside services
Others
- 48 -
23. Operating Expenses
Operating expenses from continuing operations consist of:
2010
(As restated Note 6)
2009
(As restated Note 6)
=68,398,033
P
=1,848,085
P
=3,319,011
P
24,880,124
15,145,322
6,210,608
6,163,432
5,458,562
12,531,950
2,029,473
2,271,637
23,919,599
2,452,596
33,741,633
2,247,212
5,564,591
12,907,390
3,613,438
4,781,595
2,401,803
2,258,472
1,790,424
469,539
6,169,853
=144,127,767
P
8,513,905
1,645,061
787,215
1,772,723
8,247,914
4,217,716
=70,237,874
P
7,004,939
3,631,225
5,073,794
2,167,714
1,183,857
1,029,930
=81,484,734
P
2010
(As restated Note 6)
2009
(As restated Note 6)
=184,799,267
P
=383,360,375
P
=289,878,217
P
42,143,495
34,196,760
27,622,686
24,717,089
16,982,732
13,757,037
13,263,371
13,207,956
42,109,934
8,292,890
20,175,333
=441,268,550
P
60,865,383
15,099,112
37,810,652
13,680,791
28,878,778
14,180,589
18,026,794
6,243,028
42,646,154
11,955,314
8,857,479
=641,604,449
P
59,472,374
16,285,676
22,672,912
14,000,929
25,681,635
8,795,167
24,762,056
3,192,341
110,457,573
10,445,975
13,816,805
=599,461,660
P
2011
Outside services
Salaries and other employee benefits
(see Note 25)
Representation
Transportation and travel
Professional fees
Taxes and licenses
Depreciation and amortization
(see Notes 16 and 17)
Supplies and other office expenses
Rent (see Note 30)
Communication, light and water
Advertising and promotions
Others
Operating expenses from discontinued operations consist of:
2011
Salaries and other employee benefits
(see Note 25)
Depreciation and amortization
(see Notes 16 and 17)
Rent (see Note 30)
Professional fees
Communication, light and water
Transportation and travel
Representation
Advertising and promotions
Taxes and licenses
Outside services
Supplies and other office expenses
Others
- 49 -
24. Other Income (Charges)
Other income (charges) from continuing operations consist of:
Interest expense
Interest income
Net foreign exchange gains (losses)
Equity share in net income of associates
and joint venture (see Note 15)
Others
2011
(P
=17,166,382)
7,663,821
(83,013)
2010
(As restated Note 6)
(P
=26,030,339)
272,230
18,063,445
2009
(As restated Note 6)
(P
=23,023,726)
508,757
14,793,164
–
28,066
(P
=9,557,508)
–
126,294
(P
=7,568,370)
9,826,300
(1,475,268)
=629,227
P
2011
(P
=18,713,087)
2010
(P
=40,920,863)
2009
(P
=40,894,435)
5,368,118
4,301,953
1,531,107
280,103
3,373,353
(P
=3,858,453)
10,882,778
387,248
(3,197,364)
(731,514)
9,209,999
(P
=24,369,716)
8,325,807
1,674,044
1,989,111
–
36,010,903
=7,105,430
P
Other income (charges) from discontinued operations consists of:
Interest expense
Equity share in net income of associates
and joint venture (see Note 15)
Interest income
Net foreign exchange gains (losses)
Gain (loss) on disposal of assets
Others - net (see Note 20)
On December 31, 2009, Prolexic approved to return a portion of its Parent Company's capital
amounting to US$1.4 million (P
=63.6 million) and at the same time declared a dividend amounting
to US$0.1 million (P
=4.7 million).
25. Retirement Benefits
The Group’s employees are entitled to retirement benefits in accordance with RA No. 7641,
which is unfunded.
The reconciliation of the present value of the defined benefit obligation to the recognized liability
presented as “Retirement benefit liability” account in the consolidated statement of financial
position is shown below:
Present value of defined obligation
Unrecognized actuarial gains
Unrecognized past service cost - non vested benefits
Unrecognized transitional liability
Transferred to IPVI (see Note 7)
Effect of transfer and deconsolidation of subsidiaries
(see Note 7)
Recognized liability
2011
=24,769,815
P
8,198,248
1,062,661
(84,245)
(5,787,518)
(28,158,961)
=–
P
2010
=9,247,274
P
4,556,119
1,024,593
(168,490)
–
–
=14,659,496
P
- 50 -
Movements in present value of the defined benefit obligation are as follows:
2011
=P9,247,274
6,282,100
2,930,436
801,265
5,508,740
–
=24,769,815
P
Balance at beginning of year
Business combination
Current service cost
Interest cost
Actuarial losses (gains)
Past service cost - nonvested benefits
Balance at end of year
2010
=9,603,359
P
–
3,010,804
768,268
(1,838,720)
(2,296,437)
=9,247,274
P
The amounts of retirement benefits which are recorded under “Salaries and other employee
benefits” account in the consolidated statement of comprehensive income are as follows:
2011
=2,930,436
P
801,265
38,068
(270,131)
84,245
=3,583,883
P
Current service costs
Interest costs
Amortization of past service cost
Actuarial gain
Transitional adjustment
2010
=3,010,804
P
768,268
80,303
(70,546)
27,314
=3,816,143
P
2009
=3,832,044
P
427,505
143,372
(163,839)
45,845
=4,284,927
P
Principal actuarial assumptions at the reporting date are as follows:
Discount rate
Expected rate of salary
Discount rate
Expected rate of salary increases
IPVG
7.32%
10.00%
IPVG
7.9%
5.0%
2011
IPCDC
6.30%
7.50%
2010
IPCDC
7.9%
5.0%
IPEVI
6.00%
5.00%
DPI
6.29%
6.00%
IPEVI
7.9%
5.0%
The historical information of the amounts for the current and previous four annual periods are as
follows:
Present value of defined benefit obligation
Deficit in the plan
Experience adjustments on plan liabilities
2011
=–
P
–
–
2010
=9,247,274
P
9,247,274
2,121,363
2009
=9,603,359
P
9,603,359
–
- 51 -
Salaries and Employee Benefits
Expense recognized for salaries and employee benefits are presented below.
Short-term employee benefits
Retirement benefits
2011
=232,263,859
P
3,583,883
=235,847,742
P
2010
=436,308,992
P
3,816,143
=440,125,135
P
2009
=349,527,853
P
4,284,927
=353,812,780
P
The amount of salaries and employee benefits is allocated as follows:
Operating expenses (see Note 23)
Cost of sales and services (see Note 22)
2011
=209,679,391
P
26,168,351
=235,847,742
P
2010
=395,892,325
P
44,232,810
=440,125,135
P
2009
=323,619,850
P
30,192,930
=353,812,780
P
26. Income Tax
The components of income tax expense (benefit) are as follows:
Current tax expense
Deferred tax expense (benefit)
2011
=P12,986,565
60,537,810
=73,524,375
P
2010
(P
=27,745,037)
6,959,473
(P
=20,785,564)
2009
=P28,940,813
(20,740,222)
=8,200,591
P
IPCDC’s Operations
IPCDC is registered with the Philippine Economic zone Authority (PEZA) which entitled IPCDC to
5% gross income tax incentive in lieu of all national and local taxes and other incentives under RA
No. 7916, the Special Economic Zone Act of 1995.
Non-registered activities of IPCCO are subject to regular income tax.
IPEVI’s Operations
The Company registered with the BOI on October 16, 2007 under the Omnibus Investments Code
of 1987 as a New Information Communications and Technology Export Service Firm in the field of
application/systems development for the on-line computer systems.
As a registered enterprise, the Company is entitled to certain tax and nontax incentives which
include, among others, income tax holiday for a period of four years until October 15, 2011.
In 2011 and 2010, no tax incentives were availed of by the Company.
- 52 -
The reconciliation of the income tax expense computed at statutory income tax rate and the
income tax shown in profit or loss is as follows:
Income tax at statutory rate
Add (deduct) income tax effects of:
Impairment losses on:
Financial assets
Nonfinancial assets
Nondeductible expenses
Nontaxable income
Expiration/application of MCIT
Interest income subject to final tax
Unrecognized deferred tax assets
Income subjected to RCIT
Recovery of previously unrecognized
deferred tax assets
Capital loss on sale of investment
Equity share in net loss (income)
of associates and a joint venture
2011
(P
=164,843,562)
79,926,281
92,353,960
66,650,217
(8,817,193)
8,680,933
(426,261)
–
–
2010
(As restated see Note 6)
=53,722,507
P
–
–
6,757,360
2,170,504
(50,564)
17,864,905
(269,053)
2009
(As restated see Note 6)
(P
=75,711,418)
–
–
46,248,812
781,321
(23,430)
7,961,150
–
–
–
(48,860,768)
–
2,454,567
15,925,559
–
=73,524,375
P
–
(P
=20,785,564)
(5,837,152)
=8,200,591
P
The components
of the Group’s deferred tax assets pertain to the Group’s related temporary
2011
2010
differences
as follow:
(As restated see Note 6)
2009
2011
2010
(As restated
Excess of MCIT over regular corporate income tax
=P444,904
=9,125,838
P
see
Note 6) foreign exchange loss (gain)
Unrealized
24,904
1,099,157
Allowance for impairment losses
Income taxof
atreceivables
statutory rate
–
16,868,218
(P
=164,843,562)
Retirement benefit liability
–
2,882,057
=53,722,507
P
NOLCO
–
=51,198,182
P
(P
=75,711,418)
=469,808
P
=81,173,452
P
Add (deduct) income tax effects of:
MCIT which can be applied against RCIT due are as follows:
Year Incurred
Impairment
losses on:
2010
2009
2008
Amount
=5,422,112
P
3,102,318
2,492,468
Applied/Expired
=4,977,208
P
3,102,318
2,492,468
Remaining
Balance
=444,904
P
–
–
Valid Until
2013
2012
2011
Financial assets
In 2010,
Prolexic utilized all available net operating loss carryforward amounting to $165,143.
79,926,281
–
The following
table shows the Company’s foreign currency-denominated monetary financial
–
Nonfinancial assets
92,353,960
- 53 -
assets and liabilities and their Philippine Peso equivalents as at December 31, 2011 and 2010:
Year Incurred
2011
2010
2009
2008
Amount
=–
P
48,552,925
105,727,894
16,379,788
Applied/Expired
=–
P
–
–
–
Remaining
Balance
=–
P
48,885,925
105,727,894
16,379,788
Valid Until
2014
2013
2012
2011
27. Related Party Transactions
In the normal course of business, the Group has transactions with its related parties, as follows:
Services
Internet connectivity, server
hosting, IMBS, rent,
management fee
Rent
Other services
Entity
FCCDI
X-Play
PCCWP (formerly BPOT)
2011
2010
=P3,103,452
1,098,222
–
=78,163,177
P
1,464,296
264,034
On February 16, 2010, the BOD approved a resolution in writing-off accounts receivable from
Cyberworld Corporation, LP Ventures Cayman Corp. and IPCDC amounting to P
=271.5 million. This
transaction was considered as subsequent adjusting event in 2009 and presented under
“Impairment losses on financial assets” account in profit or loss.
Related party trade receivables account as at December 31, 2010 consists of:
FCCDI
PCCWP (formerly BPOT)
Megamobile
X-Play
=3,043,354
P
1,164,172
791,687
553,167
=5,552,380
P
Due from related parties account consists of:
IPVI
Prolexic International Pte. Ltd.
Cyberworld
IP Ventures Cayman
PAC
IP Interactive
BPOH
AGV
(Forward)
2011
=77,033,528
P
–
–
–
–
–
–
–
2010
=–
P
57,451,343
41,341,532
12,034,450
6,640,345
5,032,687
4,852,486
1,627,480
- 54 -
IPVG Pte. Ltd.
X-Play
Go Squirt
Others
Allowance for impairment
2011
=–
P
–
–
–
77,033,528
–
=77,033,528
P
2010
=1,069,522
P
309,387
61,978
32,623,128
163,044,338
(12,603,387)
=150,440,951
P
Amounts due to IPVI, mainly pertain to unpaid consideration arising from transfer of assets and
liabilities amounting to P
=82.0 million (see Note 7), gross of any reimbursable expenses advanced
by the Company in behalf of IPVI.
Related party trade payable account consists of:
2010
=5,634,625
P
111,369
=5,745,994
P
PCCWP formerly BPOT
Others
Due to related parties account consists of:
IEI
X-Play
IEI
BPOT
Others
Officers
2011
=12,749,917
P
–
–
–
–
=12,749,917
P
–
=–
P
2010
=–
P
39,496,500
10,202,823
1,755,601
2,574
=51,457,498
P
7,160,000
=58,617,498
P
Advances to Related Parties, Officers and Employees
The Group also obtains from stockholders and other related parties for working capital purposes.
The advances are non-interest bearing, unsecured and repayable within 12 months. Advances
from related parties as at December 31, 2011 amounted to P=17.3 million (P
=51.5 million in
December 31, 2010), and are presented as a separate line item under the current liabilities in the
consolidated statement of financial position.
The Group also has outstanding advances to its officers and employees amounting to
nil and P
=13.7 million as of December 31, 2011 and 2010, respectively. These advances to officers
and employees are mostly unsecured, non-interest bearing, and are collectible within 12 months
Certain payable to shareholders and officers amounting to P=7.5 million was converted to equity
in 2011.
Management Fees
The Group entered into management Agreements (MA) with Cyberworld, Inc. (a company under
common control) and FCCDI. The MA covers services provided by the Group including, but not
- 55 -
limited to, general management, business development, legal, human resources, finance and
accounting, office maintenance and support.
Management fees, included as part of Revenue in the consolidated statement of comprehensive
income amounted to nil in 2011 (P
=12.0 million and P
=42.1 million in 2010 and 2009, respectively)
(see Note 21). The total outstanding receivable arising from this transaction included as part of
Advances to FCCDI (under Investments to and advances to Associates and Joint venture account)
and Advances to Cyberworld, Inc. (under Advances to related parties account) amounted to nil as
at December 31, 2011 (P
=44.3 million as at December 31, 2010).
Rendering of Services
FCCDI, a company engaged in IT and communication services business, is a reseller of the IPCDC’s
service. In 2010, IPCDC rendered internet connectivity, server hosting and IMBS to FCCDI and
earned service revenues totaling P
=139.8 million. The foregoing amounts were included as part of
GIA, co-location services and IMBS, respectively, under Revenue account in the consolidated
statement of comprehensive income (see Note 21).
Rentals
The Group leases office spaces to its associates, joint venture and related parties under common
control. Total rental income amounted to P
=4.2 million in 2011 (P=5.6 million and P
=5.9 million in
2010 and 2009, respectively) and is presented as Rentals under Revenue account in the
consolidated statement of comprehensive income (see Note 21).
Key Management Personnel Compensation
Total salaries and other short-term benefits given to the Group’s key management personnel
amounted to P
=49.6 million in 2011 (P
=83.4 million and P
=38.2 million in 2010 and 2009,
respectively).
28. Common Stock
Details of capital stock are as follows:
Authorized
Issued
Subscribed
Number of Shares
2011
2010
1,000,000,000
1,000,000,000
798,344,721
688,792,421
–
64,052,300
- 56 -
Movements of outstanding shares are as follows:
Number of Shares
2011
2010
Issued:
Balance at beginning of year
Issuances
Balance at end of year
Subscribed:
Balance at beginning of year
Issuances
Additional subscriptions (see Note 6)
Balance at end of year
688,792,421
109,552,300
798,344,721
641,948,863
46,843,558
688,792,421
–
–
–
–
798,344,721
33,552,300
–
30,500,000
64,052,300
752,844,721
Issuances during the Year
On December 3, 2010, the BOD approved the issuance of the 5 million shares at par value of
stock as repayment for the advances made by the stockholder to Elite Holdings, Inc. for
2.5 million shares (P=2.5 million). The said shares were issued on May 6, 2011.
On October 10, 2011, the Company issued 102.1 million shares (P
=102.1 million) as follows:
a. 33.6 million shares at P=1 per share (P
=33.6 million) to Elite Holdings, Inc. in exchange for the
latter’s subscription to the Company’s shares made in 2008;
b. 30.5 million shares (P
=30.5 million) to various stockholders in line with the increase in
authorized capital stock from P=800 million divided into 800 million shares with the par value
of P=1.00 each to P
=1.0 billion divided into 1.0 billion shares with the par value of P
=1.00 each
which was approved by SEC on June 28, 2010; and
c. 38.0 million shares (P=38.0 million) to IPVG Employees Inc. in exchange for the latter’s
subscription made in 2011.
IEI, an existing shareholder, subscribed to shares of IPVG and applied its receivable from IPVG as
partial payment of the subscription. In 2011, IEI opted to settle its total subscription in cash
amounting to P=38.0 million, and as a result, the initial partial payment for the subscription was
reclassified to “Due to related parties” account amounting to P=11.1 million.
On November 15, 2011, the BOD approved the increase in authorized capital stock from
=1.0 billion, divided by 1.0 billion common shares to P
P
=2.0 billion, divided by 2.0 billion common
shares, both with a par value of P
=1 a share.
Deposits for stock subscriptions
The Company reclassified deposits for stock subscriptions amounting to P=11.1 million to due to
related parties. The investor assigned its receivable of P
=13.5 million, including the reclassified
balance from the Company to IPVG Employees, Inc. (IEI) on October 7, 2011, which the latter
may use to pay its subscription still outstanding amounting to P
=34.2 million in October. IEI
settled its subscription payable and the shares were issued on October 10, 2011.
- 57 -
29. Earnings (Loss) per Share
The computation of basic and diluted earnings per share is as follows:
Net income (loss) attributable to Equity
Holders of the Parent Company
Continuing operations
Discontinued operations
Divided by weighted average number
of common shares
Basic/Diluted Earnings Loss per Share
Continuing Operations
Discontinued Operations
2011
2010
(As restated see Note 6)
2009
(As restated see Note 6)
=580,929,886
P
342,693,633
238,236,253
=51,346,190
P
90,393,539
(39,047,349)
(P
=286,529,008)
(333,907,172)
47,378,164
740,714,609
(P
=0.7843)
(0.4627)
(0.3216)
714,172,942
=0.0719
P
0.1266
(0.0547)
675,501,163
(P
=0.4242)
(0.4943)
(0.0701)
The weighted average number of common shares for basic and diluted earnings per share is as
follows:
Issued common shares at beginning of year
Effect of issuance of common shares
Total weighted average number
of common shares
2011
714,172,942
26,541,667
2010
675,501,163
38,671,779
2009
675,501,163
–
740,714,609
714,172,942
675,501,163
30. Commitments and Contingencies
Operating Lease Commitments - Group as Lessee
The Company has an existing lease agreement with RCBC Realty Corporation for office space at
the 4th Floor, Podium, Yuchengco Tower, RCBC Plaza, Makati City for a period of three years
effective May 1, 2010 to April 30, 2013, with renewal options, and includes annual escalation
rate of 5%. The lease required a security deposit equivalent to three monthly rentals and
association dues totaling P
=3.6 million.
Pursuant to the APA as discussed in Notes 1 and 7, the lease agreement was transferred to IPVI.
Rental expense amounted to P
=51.6 million in 2011 (P=43.5 million and P
=47.7 million in 2010 and
2009, respectively), which are allocated as follows:
Cost of sales and services (see Note 22)
Operating expenses (see Note 23)
2011
=P15,130,867
36,455,232
=51,586,099
P
2010
=27,644,446
P
15,886,327
=43,530,773
P
2009
=26,329,218
P
21,359,470
=47,688,688
P
Finance Lease Commitments - Group as Lessee
The Group has finance leases covering certain network and computer equipment with terms of
two years.
The obligations under finance lease are payable as follows:
- 58 -
2011
Not later than one year
Later than on year
and not later than
five years
2010
Future
Minimum
Lease
Payments
Principal
Future
Minimum
Lease
Payments
Interest
Interest
Principal
=–
P
=–
P
=–
P
=37,852,658
P
=1,443,826
P
=36,408,832
P
–
=P–
–
=P–
–
=P–
11,104,739
=P48,957,397
330,832
=1,774,658
P
10,773,907
=P47,182,739
Interest expense pertaining to these finance leases recognized in profit or loss as part of finance
costs in 2011, 2010 and 2009 amounted to P
=1.2 million, P
=2.5 million and P
=2.5 million,
respectively.
Others
There are commitments, guarantees, litigations, and contingent liabilities that arise in the normal
course of the Groups’ operations which are not reflected in the accompanying consolidated
financial statements. Management is of the opinion that losses, if any, from these commitments
and contingencies will not have material effects on the Group’s consolidated financial
statements.
31. Financial Risk Management Objectives and Policies
The Company has exposure to the following risks from its use of financial instruments:
 Credit Risk
 Liquidity Risk
 Market Risk
This note presents information about the Group’s exposure to each of the above risks, the
Group’s objectives, policies and processes for measuring and managing risk and the Company’s
management of capital. Further quantitative disclosures are included throughout these financial
statements.
The BOD has overall responsibility for the establishment and oversight of the Group’s risk
management framework. The BOD has established the Executive Committee, which is
responsible for developing and monitoring the Group’s risk management policies. The
Committee identifies all issues affecting the operations of the Company and reports regularly to
the BOD on its activities.
The Group’s risk management policies are established to identify and analyze the risks faced by
the Group, to set appropriate risk limits and controls, and to monitor risks and adherence to
limits. Risk management policies and systems are reviewed regularly to reflect changes in
market conditions and the Group’s activities. The Group, through its training and management
standards and procedures, aims to develop a disciplined and constructive control environment in
which all employees understand their roles and obligations.
Credit Risk
Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial
instrument fails to meet its contractual obligations, and arises principally from the Group’s
- 59 -
receivables form counterparties and is monitored on an ongoing basis. The objective is to reduce
the risk of loss through default by counterparties.
Receivables. The management has established a credit policy under which each new customer is
analyzed individually for creditworthiness before the Company’s standard payment terms and
conditions are offered. The Company review includes external ratings, when available, and in
some cases, bank and industry references.
The Group establishes an allowance for impairment that represents its estimate of incurred
losses in respect of trade and other receivables. The main components of this allowance are
specific loss component that relates to individually significant exposures, and a collective loss
component established for groups of similar assets in respect of losses that have been incurred
but not yet identified. The collective allowance is determined based on historical data of
payment statistics from similar financial assets.
The carrying amount of financial assets represents the maximum credit exposure. The maximum
exposure to credit risk at the reporting dates is as follows:
2011
Cash and cash equivalents
Trade and other receivables - net
Due from related parties
Security deposits
=201,736,401
P
–
77,033,528
–
=278,769,929
P
2010
(As restated see Note 6)
=262,881,404
P
250,517,290
150,440,951
33,333,258
=697,172,903
P
The aging of trade receivables as at December 31, 2010 is as follows:
Current
Past due 1-30 days
Past due 31-60 days
More than 60 days
Gross Amount
=43,325,582
P
17,750,920
10,197,221
70,624,947
=141,898,670
P
Impairment
=–
P
–
–
63,587,817
=63,587,817
P
Total
=43,325,582
P
17,750,920
10,197,221
7,037,130
=78,310,853
P
In respect of receivables, the Group is not exposed to any significant credit risk exposure to any
single counterparty or any group of counterparties having similar characteristics.
The table below shows the credit quality of the Group’s financial assets based on their historical
experience with the corresponding debtors.
Cash in banks
Due from related parties
As at December 31, 2011
Grade A
Grade B
Total
=1,736,401
P
=–
P
=1,736,401
P
–
77,033,528
77,033,528
=1,736,401
P
=77,033,528
P
=78,769,929
P
- 60 -
Cash in banks
Trade and other receivables - net
Due from related parties
Security deposits
As at December 31, 2010 (as restated - see Note 6)
Grade A
Grade B
Grade C
Total
=98,881,404
P
=–
P
=–
P
=98,881,404
P
216,594,519
27,948,141
5,974,630
250,517,290
–
150,440,951
–
150,440,951
20,008,771
–
–
20,008,771
=335,484,694
P
=178,389,092
P
=5,974,630
P
=519,848,416
P
Grade A receivables pertains to those receivables from customers that always pay on time or
even before the maturity date. Grade B includes receivables that are collected on their due
dates provided that they were reminded or followed up by the Group. Those receivables which
are collected consistently beyond their due dates and require persistent effort from the Group
are included under Grade C.
Cash in banks and short-term investments are considered good quality as these pertains to
deposits in reputable banks.
Liquidity Risk
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall
due. The Group’s approach in managing liquidity is to ensure, as far as possible, that it will
always have sufficient liquidity to meet its liabilities when due, under both normal and stressed
conditions, without recurring unacceptable losses or risking damage to the Group’s reputation.
The Group prepares weekly cash position report, which assists in monitoring cash flow
requirements and is distributed to the Chief Finance Officer, the Deputy Chairman, and
President/Chief Executive Officer. Typically, the Company ensures that is has sufficient cash on
demand to meet extended operational expenses for a period of 60 days, including servicing of
financial obligations; this includes the potential impact of extreme circumstances that cannot be
reasonably predicted.
The Group’s financial liabilities have contractual maturities, which are presented below:
Carrying
Amount
Trade and other payables
Due to related parties
=P15,028,970
12,749,917
=27,778,887
P
As at December 31, 2011
Contractual
6 months
Cash Flow
or less
6-12 months
=–
P
=15,028,970
P
=15,028,970
P
12,749,917
12,749,917
–
=
P
–
=27,778,887
P
=27,778,887
P
1-2 years
=–
P
–
=–
P
** Excluding tax payables to government and other non-financial liabilities
Trade payables
Loans payable
Due to related parties
Obligations under finance lease
Carrying
Amount
=518,335,179
P
361,747,077
58,617,498
47,182,739
=985,882,493
P
As at December 31, 2010
Contractual
6 months
Cash Flow
or less
6-12 months
=518,335,179 P
P
=491,607,899
=26,727,280
P
361,747,077
144,562,492
146,936,742
58,617,498
58,617,498
–
47,182,739
18,926,329
18,926,329
=985,882,493 P
P
=713,714,218 P
=192,590,351
** Excluding tax payables to government and other non-financial liabilities
1-2 years
=–
P
70,247,843
–
11,104,739
=81,352,582
P
- 61 -
Market Risk
Market risk is the risk that changes in market prices, such as foreign exchange rates, interest
rates and equity prices will affect the Group’s income or the value of its holdings of financial
instruments. The objective of market risk management is to manage and control market
exposures within acceptable parameters, while optimizing the return.
Currency Risk
The Group is exposed to currency risk on sales and purchases that are denominated in a currency
other than the functional currency of the Group. In respect of monetary assets and liabilities
denominated in foreign currencies, the Group ensures that its net rates when necessary to
address short-term imbalances.
The Group’s exposure to foreign currency risk as at December 31, 2011 and 2010 is as follows:
2011
Financial Assets
Cash
Trade and other receivables - net
Due from related parties - net
Financial Liabilities
Trade and other payables
Loans payable
Due to related parties
Peso
Equivalent
2010
USD
Peso
Equivalent
USD
10,844,306
–
–
10,844,306
247,361
–
–
247,361
20,497,562
123,595,596
110,800,046
254,893,204
442,192
2,818,167
2,526,805
5,787,164
–
–
–
–
10,844,306
–
–
–
–
247,361
(221,434,315)
(4,932,000)
(70,087,820)
(296,454,135)
(41,560,931)
(5,252,928)
(112,500)
(1,598,719)
(6,964,147)
(1,176,983)
The closing rate applicable as at December 31, 2011 is US$1:P
=43.84 (P=43.84 as at December 31,
2010).
Sensitivity Analysis. A 6% strengthening of the Philippine Peso against USD as at December 31,
2011 would had decreased equity and profit or loss by P
=0.7 million (P=2.1 million in 2010).
A 6% weakening of the Philippine Peso against US$ as at December 31, 2011 and 2010 have had
the equal but opposite effect, on the basis that all other variables remain constant.
Interest Rate Risk
The Group’s exposure to risks for changes in interest rates relates primarily to its loans payable.
The Group’s practice is to manage its interest cost by reference to current market borrowing
rates.
As at December 31, 2010, the interest rate profile of the Group’s interest-bearing financial
instruments are as follows:
Fixed-rate instruments:
Loans payable
Obligations under finance lease
=361,747,077
P
47,182,739
- 62 -
Sensitivity Analysis for Fixed Rate Instruments. As at December 31, 2011 and 2010, it is
estimated that a general increase in one percentage point in interest rate, with all other variables
held constant, would decrease the Group’s income before tax and equity by approximately
nil million and P
=4.93 million, respectively, in so far as the effect of fixed interest-bearing loans are
concerned.
Fair Values
The fair values together with the carrying amounts of the financial assets and liabilities shown in
the consolidated statement of financial position are as follows:
Financial Assets
Cash and cash equivalents
Trade and other receivables
Due from related parties
Security deposits
Financial Liabilities
Trade and other payables
Loans payable
Due to related parties
Obligations under finance lease
2010
(As restated -see Note 6)
Carrying Value
Fair Value
Carrying Value
2011
Fair Value
=201,801,401
P
–
77,038,528
–
=278,839,929
P
=201,801,401
P
–
77,038,528
–
=278,839,929
P
=263,344,092
P
250,517,490
150,440,951
20,008,771
=684,311,304
P
=263,344,092
P
250,517,490
150,440,951
20,008,771
=684,311,304
P
=15,028,970
P
–
13,448,424
–
=28,477,394
P
=15,028,970
P
–
13,448,424
–
=28,477,394
P
=518,335,179
P
361,747,077
58,617,498
47,182,739
=985,882,493
P
=518,335,179
P
361,747,077
58,617,498
47,182,739
=985,882,493
P
Estimation of Fair Values. The following summarizes the major methods and assumptions used
in estimating the fair values of financial instruments reflected in the foregoing:
The fair values of cash and cash equivalents, receivables, due from related parties, other
noncurrent assets, accounts payable and accrued expenses, obligations under finance lease and
due to a related party approximate their carrying amounts due to relatively short-term nature of
these financial instruments.
The fair value of loans payable approximates its carrying amount, since the related interest is
being re-priced regularly to market rates.
Capital Management
The Company’s capital management objectives are to ensure its ability to continue as going
concern and to provide an adequate return to shareholders by pricing products and services
commensurate with the level of risk.
The company monitors capital on the basis of carrying amount of carrying amount of equity as
presented on the face of the consolidated statements of financial position as summarized below:
Total debt
Total equity
Debt-to-equity ratio
2011
=28,526,409
P
254,983,043
0.11:1
2010
(As restated see Note 6)
=1,144,494,484
P
1,065,042,266
1.07:1
- 63 -
The Chief Financial Officer of the Group has overall responsibility for monitoring of capital in
proportion to risk. Profiles for capital ratios are set in the light of changes in the Company’s
external environment and the risks underlying the Group’s business operations and industry.
32. Events after the Reporting Date
Increase in Capital to ₱2.0 billion
On March 27, 2012, the increase in the Company’s authorized capital from 1 billion shares at
₱1.0 par value to 2 billion shares at ₱1.0 par value was approved by the SEC. Of the increase, the
Company approved the issuance of 400 million shares at a subscription price equivalent to
₱400.0 million to BDO Private Bank, Inc., acting as a trustee.
Increase in Capital to ₱10.0 billion And New Business
On January 20, 2012, the BOD approved the amendment of the Company’s Articles of
Incorporation increasing the authorized capital stock from P
=2.0 billion, divided into 2 billion
shares at P=1.00 par value a share, to P=10.0 billion, divided into 10 billion shares with the same
par value. On the same date, the BOD approved the issuance of up to 2.8 billion shares at par
value from the increase in authorized capital stock. The increase in capital will be presented to
the shareholders for approval during the special stockholders meeting scheduled on
May 22, 2012.
On February 16, 2012, the BOD approved the amendment of its Articles of Incorporation to
change the primary purpose of the Company allowing the Company, among others, to establish a
refinery in the Philippines to refine metal ores, precious stones, oil, gas, coal and minerals
intended primarily for export purposes. The BOD approved the acquisition of NWR, a foreign
company that has a strategic relationship with the leading designer, builder and operator of
refineries in China for P=2.8 billion. For this purpose, the BOD also approved to issue 2.8 billion
shares at P=1.00 a share to CSL from the increase in the authorized capital stock and to enter into
a Memorandum of Understanding (MOU). The Company will partner with CSL, a CanadianMainland Chinese group, to carry out the refinery business.
On February 21, 2012, the Company and CSL signed a MOU for the Company to acquire 100% of
NWR for P
=2.8 billion and the Subscription Agreement for 2.8 billion shares. CSL remitted the
₱2.8 billion to the Company as stipulated in the subscription agreement.
Investment Agreement with GEM
Pursuant to the Investment Agreement entered into on April 29, 2009 by the Company with GEM
Global Yield Fund Limited and GEM Investment Advisors, Inc. (collectively known as “GEM”), and
Elite Holdings Inc. (Elite) that grants the Company the option to require GEM Global Yield Fund
Limited (the “Investor”) to subscribe from the Company and to purchase from the Existing
Shareholder of the Company, Elite Holdings Inc., shares in the Company, subject to certain terms
and conditions under the Agreement, for up to an aggregate value of P=300.0 million, the
Company, on various dates, issued drawdowns to GEM. In accordance with the Share Lending
provision of the Investment Agreement, Elite and Mr. Jaime Enrique Gonzalez provided loan
shares to GEM. On January 20, 2012, the BOD approved the issuance of the 38 million shares in
favor of GEM or its assigns pursuant to the Investment Agreement at subscription prices of P
=1.23
for 19 million shares and P
=1.24 for 19 million shares, payable in cash.
- 64 -
On February 16, 2012, the BOD approved to issue up to 24,583,821 shares in favor of the lending
shareholders in relation to the drawdown made on January 26, 2011 pursuant to the GEM
Investment Agreement at P
=1.17 per share.
PHINMA Plaza
39 Plaza Drive, Rockwell Center
Makati City 1200 Philippines
www.reyestacandong.com
Phone: +632 982 9100
Fax : +632 982 9111
BOA Accreditation No. 4782
SEC Accreditation No. 0207-F
INDEPENDENT AUDITOR’S REPORT
ON SUPPLEMENTARY SCHEDULES
The Stockholders and the Board of Directors
IPVG Corp. and Subsidiaries
34th Floor, Tower 2
RCBC Plaza, Ayala Avenue
Makati City
We have audited in accordance with Philippines Standards on Auditing, the consolidated financial
statements of IPVG Corp. and subsidiaries (the Company) and have issued our report thereon dated
May 2, 2012. Our audit was made for the purpose of forming an opinion on the consolidated
financial statements taken as a whole. The schedules listed in the Index to Financial Statements and
Supplementary Schedules are the responsibility of the Company’s management. These schedules are
presented for purposes of complying with Securities Regulation Code Rule 68 Part II and are not part
of the consolidated financial statements. These schedules have been subjected to the auditing
procedures applied in the audit of the consolidated financial statements and, in our opinion, fairly
state in all material respect the financial data required to be set forth therein in relation to the
consolidated financial statements taken as a whole.
REYES TACANDONG & CO.
HAYDEE M. REYES
Partner
CPA Certificate No. 83522
Tax Identification No. 102-095-265
SEC Accreditation No. 0663-AR-1
Group A; Valid until March 30, 2014
BOA Accreditation No. 4782; Valid until December 31, 2012
BIR Accreditation No. 08-005144-6-2010
Issued November 5, 2010; Valid until November 5, 2013
PTR No. 3174555
Issued January 2, 2012, Makati City
May 2, 2012
Makati City, Metro Manila
The correspondent firm of
PHINMA Plaza
39 Plaza Drive, Rockwell Center
Makati City 1200 Philippines
www.reyestacandong.com
Phone: +632 982 9100
Fax : +632 982 9111
BOA Accreditation No. 4782
SEC Accreditation No. 0207-F
INDEPENDENT AUDITOR’S REPORT
ON SUPPLEMENTARY SCHEDULES
The Stockholders and the Board of Directors
IPVG Corp. and Subsidiaries
34th Floor, Tower 2
RCBC Plaza, Ayala Avenue
Makati City
We have audited in accordance with Philippines Standards on Auditing, the consolidated financial
statements of IPVG Corp. and subsidiaries (the Company) and have issued our report thereon dated
May 2, 2012. Our audit was made for the purpose of forming an opinion on the consolidated
financial statements taken as a whole. The accompanying Schedule of Adoption of Effective
Accounting Standards and Interpretations is the responsibility of the Company’s management. This
schedule is presented for purposes of complying with Securities Regulation Code Rule 68 and is not
part of the consolidated financial statements. This information have been subjected to the auditing
procedures applied in the audit of the consolidated financial statements, including comparing such
information directly to the underlying accounting and other records used to prepare the
consolidated financial statements or to the consolidated financial statements themselves. In our
opinion, the information is fairly stated in all material respect in relation to the consolidated financial
statements taken as a whole.
REYES TACANDONG & CO.
HAYDEE M. REYES
Partner
CPA Certificate No. 83522
Tax Identification No. 102-095-265
SEC Accreditation No. 0663-AR-1
Group A; Valid until March 30, 2014
BOA Accreditation No. 4782; Valid until December 31, 2012
BIR Accreditation No. 08-005144-6-2010
Issued November 5, 2010; Valid until November 5, 2013
PTR No. 3174555
Issued January 2, 2012, Makati City
May 2, 2012
Makati City, Metro Manila
The correspondent firm of
PHINMA Plaza
39 Plaza Drive, Rockwell Center
Makati City 1200 Philippines
www.reyestacandong.com
Phone: +632 982 9100
Fax : +632 982 9111
BOA Accreditation No. 4782
SEC Accreditation No. 0207-F
INDEPENDENT AUDITOR’S REPORT
ON SUPPLEMENTARY SCHEDULES
The Stockholders and the Board of Directors
IPVG Corp. and Subsidiaries
34th Floor, Tower 2
RCBC Plaza, Ayala Avenue
Makati City
We have audited in accordance with Philippines Standards on Auditing, the consolidated financial
statements of IPVG Corp. and subsidiaries (the Company) and have issued our report thereon dated
May 2, 2012. Our audit was made for the purpose of forming an opinion on the consolidated
financial statements taken as a whole. The attached Corporate Structure of the Company as at
December 31, 2011 is the responsibility of the Company’s management. The attached Corporate
Structure is presented for purposes of complying with Securities Regulation Code Rule 68 Part II and
is not part of the consolidated financial statements. The said attachment have been subjected to the
auditing procedures applied in the audit of the consolidated financial statements and, in our opinion,
fairly state in all material respect the financial data required to be set forth therein in relation to the
consolidated financial statements taken as a whole.
REYES TACANDONG & CO.
HAYDEE M. REYES
Partner
CPA Certificate No. 83522
Tax Identification No. 102-095-265
SEC Accreditation No. 0663-AR-1
Group A; Valid until March 30, 2014
BOA Accreditation No. 4782; Valid until December 31, 2012
BIR Accreditation No. 08-005144-6-2010
Issued November 5, 2010; Valid until November 5, 2013
PTR No. 3174555
Issued January 2, 2012, Makati City
May 2, 2012
Makati City, Metro Manila
The correspondent firm of