COVER SHEET

2 5 1 6 0 S.E.C. Registration Number

I P V G C O R P .

(Company's Full Name)

3 4 F R C B C P L A Z A T O W E R 2

6 8 1 9 A Y A L A A V E N U E

M A K A T I C I T Y 1 2 0 0

(Business Address: No. Street City / Town / Province)

Mr. Emmanuel L. Jalandoni Corporate Information Officer (632) 757-1731 to Atty. Ma. Eleonor Santiago (632) 757-1740 Corporate Secretary Assistant Corporate Info. Officer Contact Person/s Company Telephone Number

Last 1 2 3 1 June SEC Form 17-A Friday Month Day FORM TYPE Month Day Fiscal Year Annual Meeting

Secondary License Type, If Applicable

Dept. Requiring this Doc. Amended Articles Number/Section

Total No. of Stockholders Domestic Foreign

To be accomplished by SEC Personnel concerned

File Number LCU

Document I.D. Cashier

S T A M P S

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 December 31, 2007

2. Commission identification number. 25160

3. BIR Tax Identification No 310-000-189-138

4. Exact name of issuer as specified in its charter IPVG CORP

5. Province, country or other jurisdiction of incorporation or organization : Metro Manila, Philippines

6. Industry Classification Code: (SEC Use Only)

7. 34F RCBC Plaza Tower 2, 6819 Ayala Avenue, Makati City 1200 Address of issuer's principal office Postal Code

(632) 757-1731 to 40 8. Issuer's telephone number, including area code

9. ______Former name, former address and former fiscal year, if changed since last report

10. Securities registered pursuant to Sections 8 and 12 of the SRC, or Sections 4 and 8 of the RSA

Number of shares of common stock Title of each Class outstanding and amount of debt outstanding

Common 675,501,163

11. 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

12. 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 [ ]

13. 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”).

APPLICABLE ONLY TO ISSUERS INVOLVED IN INSOLVENCY/SUSPENSION OF PAYMENTS PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

14. 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 [ ]

DOCUMENTS INCORPORATED BY REFERENCE

15. 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 foregoing sections of this report may 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 audited consolidated financial statements and related notes. Our financial statements, and the financial discussions below, have been prepared in accordance with Philippine Generally Accepted Accounting Principles (GAAP).

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 and Business Process Outsourcing (BPO).

IPVG established the following subsidiaries: in 2005, IP Converge Data Center to focus on the IT&T initiatives, and IP E-Game Ventures Inc. to pursue our Online Computer Games business, and in 2006, IP Contact Center Outsourcing for our BPO initiatives.

Business Milestones in 2007

For the First Quarter

• In February 2007, IPVG and its online games subsidiary IP E-Game Ventures Inc . partnered with Singapore- based regional gaming firm Infocomm Asia Holdings (IAH) For IP E-Games to become the exclusive publisher and distributor of exciting IAH titles, including the multi-awarded “Granada Espada” (“GE”), a triple-AAA title developed by Hakkyu Kim, the recognized “father to Korean online games” and creator of Ragnarok. The partnership will take both IP E-Games and IAH further into the rapidly growing Philippine market Massively- Multiplayer Online Role-Playing Games (MMORPG), alongside other IP E-Games titles such as Ran Online, Battle Position and Supreme Destiny.

• In March 2007, IP Converge signed a Memorandum of Agreement with First Cagayan Leisure & Resorts Corporation to form a joint-venture company to be named First Cagayan Converge Data Center, Inc. First Cagayan Converge will engage in the business of information technology such as but not limited to IP communication, co-location, bandwidth, disaster recovery services, software development, internet merchant payment processing and payment solution and other value-added services to the licensed locators of First Cagayan, as well as to Cagayan Economic Zone Authority (CEZA).

• In March 2007, IP Contact Center Outsourcing Inc . announced its agreement with PCCW Teleservices (Hong Kong) Limited (“PCCW Teleservices”), a subsidiary of PCCW Limited, to provide call center services in the Philippines. Under this Agreement IPCCO will provide call center services in the Philippines to meet the English- language requirements of PCCW Teleservices’ clients in other parts of the world. The cooperation will establish the first PCCW-branded and certified contact center in the Philippines.

For the Second Quarter

• In April 2007, IP Egames held its first anniversary celebration with an event dubbed “Dom1Nation” held at Le Pavilion in Pasay City, and attended by up to 2,500 of its avid gamers. Dom1nation was a whole day event with live tournaments, live entertainment, and the most thrilling activities. The event also was the venue for the launch of the e-Gamer Loyalty Card, the Philippines first privilege card for online gamers. The e-Gamer Loyalty Card is exclusive only to e-Games players and will provide them coolest in-game benefits, the best online game support, the best privileges and the sweetest discounts from partner establishments.

• In May 2007, IP Converge Data Center entered into a partnership with Salesforce.com, a NYSE-listed company (www.salesforce.com ) and a leading provider of on-demand business services geared towards the managing and

sharing of company sales, support, marketing and partner information. The partnership will strengthen IPC’s Managed Services offering to regional and local markets.

Under the Agreement, IPC shall promote Salesforce.com as part of its IT solutions and service offerings to its clients. Salesforce.com’s Customer Relationship Management (CRM) platform enables customers, developers, and partners to build powerful on-demand applications that extend beyond CRM, and to deliver the benefits of multi-tenancy and the Business Web across the enterprise.

• IPVG Corp. and its subsidiary, IP Contact Center Outsourcing Inc . executed a Heads of Agreement on June 29, 2007, to acquire the fixed assets, material contracts, and existing customer accounts of Globalstride Corporation and Globalstride Holdings Ltd. Globalstride operates a 260-seat contact center at IBM Plaza, Eastwood City primarily servicing inbound and outbound voice support for US-based clients. On July 31, 2007 the parties executed the Purchase Agreement that completed the acquisition, and on August 1, IPCCO formally assumed operations control over the Eastwood facilities.

• IPCCO has been issued a Certificate of Registration as an Ecozone IT Enterprise by the Philippine Economic Zone Authority (PEZA). Under the Registration Agreement signed on June 26, IPCCO shall be entitled to avail of applicable fiscal and non-fiscal incentives accorded to PEZA-registered firms including Income Tax Holiday for 4 years, extendable to 8 years.

For the Third Quarter

• IPVG raised P794 Million through Private Placements by various financial and individual investors into the Company’s stock. Investors included the Trust Departments of ING Bank NV Manila Branch and Banco de Oro – EPCI Inc., the Philippine Star group of companies, investment houses RCBC Capital Corp., Philippine Equity Partners Inc., Abacus and Solar Securities. Proceeds of the Private Placement have been earmarked for the expansion of the Data Center facilities locally and within the region, additional investments in IP Egame Ventures for quality games, and the build-up of the Contact Center business through additional operating seats.

• In August, IP Contact Center Outsourcing Inc . officially took over the operations and business of the former Globalstride Corporation including a 260-seat contact center at IBM Plaza, Eastwood City Cyberpark, Libis. Combined with the previous operations at RCBC Plaza, this brought the total seats of IPCCO to 350.

• In September, IP E-Game Ventures obtained its registration from the Board of Investments (BOI) as a new ICT Export Service Firm in the field of Application Software and Systems Development for the On-Line Computer Systems – Non-Pioneer Status. With this, Egames is better positioned to service global gaming requirements from the Philippines, and from a purely Philippine game publisher, is evolving as a global player.

• IPCCO received the approval from the Philippine Economic Zone Authority (PEZA), registering IPCCO’s new call center operations at IBM Plaza, Eastwood City Cyrberpark. Last June 26, IPCCO has been issued a Certificate of Registration as an Ecozone IT Enterprise by the Philippine Economic Zone Authority (PEZA). Under the Registration Agreement, IPCCO shall be entitled to avail of applicable fiscal and non-fiscal incentives accorded to PEZA-registered firms including Income Tax Holiday for 4 years, extendable to 8 years.

For the Fourth Quarter

• In October 2007, IPVG executed a Memorandum of Agreement (“MOA”) with Credence Analytics Pvt India to form a special purpose joint venture company in the Philippines which will engage in the business of providing outsourced treasury services to banking and financial institutions. Credence Analytics is one of the leading Treasury and Risk Management solutions provider in India, and is a partner of IP Converge Data Center.

• In November 2007, IP Converge Data Center acquired a carrier neutral, telco-grade internet data center in Singapore through the purchase of 100% of IP-Converge Pte. Ltd., which owns and operates the Singapore IDC. The facility is located at New Tech Park, Lorong Chuan at the center of Singapore, and was constructed by Cable and Wireless.

• In November 2007, I-Pay Commerce Ventures, Inc ., was formally launched as the IPVG’s newest subsidiary. iPay is in the business of providing payment processing services to the public.

• IPVG submitted a letter proposal to acquire People Support through an all-cash offer the outstanding capital stock of People Support with target valuation of $15 per share representing a 28% premium over PeopleSupport’s 60- day weighted average closing price. At the same time, IPVG announced the execution of a Memorandum of Understanding (“MOU”) with AO Capital Partners Ltd. (“AO Capital”) to create a special purpose vehicle (“SPV”) for purposes of making a proposal to acquire PeopleSupport, Inc. Subsequently, the offer was increased to $17 per share. The offer has since been withdrawn.

• On 20 December 2007, IP E-Game Ventures, Inc . signed a Shareholders’ Agreement with GMA New Media, Inc . (“GMA-NMI”) creating and operating a joint venture company (“JVC”) which will engage in the business of designing, operating and maintaining casual online gaming and casual online gaming related portals. The JVC shall have an authorized capital stock of P800M with an initial paid in capitalization of P200M, to be equally owned by IPE and GMA-NMI, with each party having a 50% stake in the JVC.

• On 26 December 2007, IPVG executed a Memorandum of Agreement (“MOA”) with the stockholders of Interactive Teleservices Corporation (“Influent”) a leading US based contact center, for the acquisition of 70% stake in the company.

-oOo-

IP CONVERGE DATA CENTER INC.

Business Overview

IP-Converge™ is an Information Technology & Telecommunications (IT&T) company, providing a wide array of managed data services and business solutions at international standards.

The foundation of the company’s business is centered on customer satisfaction through high-quality, on time delivery and through a personalized, “boutique” approach to clients.

IP-Converge™ currently operates carrier-neutral, telco-grade Internet Data Center and network facilities in the Philippines, Hong Kong, and Singapore, and has points-of-presence in the UK and in the United States through sister- company Prolexic Technologies. In addition, IP-Converge™ is peered with all major Internet exchanges in the Philippines, and in the Asia Pacific region. Through this robust international network infrastructure, we are able to offer premium IP-based 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, VOIP, and other IT solutions and applications. Our expertise range from simple bandwidth provisioning to fully integrated network management systems and IT applications where IP-Converge™ initiates, designs, and manages the overall network of its clients. We help our customers minimize cost and difficulty from doing “IT” themselves. True to our Corporate Vision of “Shaping the IP landscape for the communities we serve”, our aim is to enable our customers to achieve their own corporate goals and support their growth moving forward.

Our strategic global partnerships, robust data center infrastructure, fully-trained professional staff, make us the preferred choice for IT and telecommunications services.

Property and Resources

IP-Converge operates two Internet Data Centers (IDCs): in RCBC Plaza, Makati City, Philippines, and in New Tech Park, Singapore. Both are purpose-built, state-of-the-art facilities backed by the company’s robust Asia-Pacific network infrastructure. The Makati site is on a PEZA (Philippine Export Zone Authority)-registered building.

Peered with all major telecommunications providers and Internet exchanges in the Philippines and the Asia Pacific region, these IDCs are maintained by onsite facilities personnel, and monitored and operated by the IP-Converge Network Operations Center in Makati City.

Our Asia Pacific network infrastructure is a fully meshed IP transport and Internet connectivity system that’s currently composed of three (3) major telecommunications points-of-presence in the Philippines, Singapore and Hong Kong.

IP-Converge has multiple STM-1 (155mbps) bandwidth capacity on four (4) international submarine cable networks namely, APCN, APCN 2, EAC, and SEA-ME-WE 3, and is the only Philippine-based provider with direct connectivity to the Hong Kong Internet Exchange (HKIX) which is a major telecommunications hub in the Asia Pacific region.

In addition to IDC and telecommunications facilities, the Company’s strategic business partnerships with global industry leaders also serve as a key resource. It is with these partners and affiliates that the Company ensures superior quality of its solutions and services, and promote mutual growth between parties.

Lastly, IP-Converge is also proud of its growing team of highly-trained IT professionals, who engage in customer and partner transactions on a day to day basis.

Business Segments of IP Converge

MANAGED DATA SERVICES

IP-Converge Managed Data Services leverage on the company’s robust Internet data center facilities and network infrastructure, as well as its highly-skilled and professionally-trained manpower resources. Carrier-neutrality is one of IP-Converge’s many advantages. Through this, the company is able to offer customers with a high level of customization for these services.

1. Internet Data Center Services

The IP-Converge Internet Data Center is the Philippines’ only international telco-grade, carrier-neutral Internet Data Center offering server co-location, managed network services, data and network security, disaster recovery and a host of other services and customized facilities that meet the specific needs of our clients’ distinct requirements.

Located at RCBC Plaza, Makati, Philippines, the facility is laid out on over 1800 square meters of custom-built space, readily accessible by land or helicopter. It also houses the Philippine data termination node for the PCCW worldwide network and is an ideal location for any client requiring Data Center services and bandwidth to any specific location. IP-Converge offers total systems management, from simple stand-alone server co-location to fully managed services including full bandwidth provisioning.

A. Co-location Services

IP-Converge’s Co-location Services allow customers to host network and data storage equipment in our Internet Data Center (IDC) facilities in Manila, Singapore, and Hong Kong. By doing so, customers take advantage of our secure, state-of-the art infrastructures and resilient, high-bandwidth connectivity.

Through these facilities, we provide robust, secure and highly optimized Internet data center environment (space, power and HVAC) for the co-location of network equipment and application servers for our customers. IP-Converge’s IDCs feature full telecommunications redundancy, continuous power and 24x7 technical monitoring and maintenance.

Facilities and Security Requirements:

Building Structure: • Designed in accordance with the National Structure Code of the Philippines • Seismic-zone 4 compliant

Physical Maintenance: • Anti-static raised flooring • Overhead cabling with separate power and network trays • IDC access requires foot covers to maintain cleanliness and sanitation

Fire-Suppression System: • VESDA Laser Fire detection system • FM 200 (Great Lakes Chemical) clean agent fire suppressant (extinguishes combustible, electrical or flammable fires within seconds

Air-Conditioning: • LIEBERT Chilled water down flow AC unit in an (n+1) configuration

• Temperature is kept at a constant 22 degrees C +/- • Humidity is kept at a constant 50% +/-

Power Supply: • Dual LIEBERT 200 KVA UPS with a 30 minute battery bank • UPS power feed per cabinet with allowed total max combined avg. draw of 1.6 KVA

Generators: • 7x Mitsubishi MGS 2500 Generator Sets with 2500 KVA capacity each • 45,000 liters of Diesel fuel on reserve

Security and Support: • Man traps secured by multiple security layers. • Entrances secured by Electronic Access Cards and Biometric Devices • Continuous closed-circuit video surveillance and recording • 24 x 7 escorted access for all personnel • 24 x 7 maintenance and technical support

B. Intelligent Remote Hands

As an extension of IP-Converge Co-location Services, Intelligent Remote Hands provides Co-location customers with top-level server/network monitoring, management and maintenance either on a “per need” basis, or pre-planned with an agreed Scope of Work. Through this special service, customers may request scheduled or unscheduled Remote Hands support, 24x7 via phone call or email to the IP-Converge Helpdesk.

There are three (3) Intelligent Remote Hands service levels:

• IRH Level 1 is already packaged with IP-Converge Server Co-location services and includes basic maintenance and monitoring tasks.

• IRH Level 2 includes tasks with higher levels of responsibility than those of Level 1. These are situations which entail more time-consuming actions and would otherwise require a customer's physical presence. These services are suited for advanced technical and/or professional services where highly skilled technicians and/or engineers may be needed to accomplish a task or provide assistance with a complex system or network component, software application, or operating system.

• IRH Level 3 is a near-ASP level service that includes 24x7 fully dedicated network and server monitoring management and maintenance. Tasks that support major system changes which fall under this category are: Installation and configuration of Operating System and Applications; Changing the configuration of operating system and applications; Health monitoring of operating system and application as well as hardware; and other outsourced network and facilities services.

C. Managed Firewall

Recognizing an alarming global increase in cyber-crime, IP-Converge believes that it is imperative for businesses providing online services of any type, or running critical operations over a network, to be constantly prepared for such threats.

Our Managed Firewall service allows multiple-policy implementation and configuration. Through global partner, Juniper Networks , IP-Converge assures clients of world-class, up-to-date Intrusion Detection and Prevention service, as well as real-time reporting and statistics.

By co-locating equipment in IP-Converge IDCs, customers can immediately leverage on our Managed Firewall service to keep their network and data safe and secure.

2. Connectivity Services

IP-Converge’s Connectivity Services are high-performance dedicated Internet packages at reasonable cost. Through strategic partnerships and relationships with IT/Telco industry leaders, IP-Converge is able to offer integrated

communications solutions to Philippine businesses with a global market, and in parallel, give foreign enterprises the ability to extend the availability of their services and products to the bustling Philippine market.

A. Global Internet Access (GIA)

IP-Converge’s Global Internet Access provides customers with high-capacity Internet connectivity through the most diversely-routed, IP backbone networks in the Asia-Pacific region, with direct connectivity to the US and Europe. Customers immediately benefit from superior network performance and extensive Internet connectivity to the rest of the world. In addition, our GIA service provides flexible and highly-scalable solutions that support the changing and growing requirements of all our customers. And with 34.5 Gigabit/s of active international core network capacity on a single AS network, customers are just one hop away from the major global Internet markets.

Our GIA service is offered at different service levels, speeds, configurations and interface types to provide scalability and flexibility to match individual customer requirements.

B. IP Transport Services

Through our steadfast business relationships with major international and domestic carriers, we are able to provide our customers with multiple options for -grade, yet carrier-neutral IP transport services in the country and to the rest of the world.

• Dedicated Leased Line or Local Loops serve as direct connections between our customers’ premises and our GIA platform in our IDC. Being carrier-neutral, our domestic network coverage is as large as that of all local loop providers combined.

• IPLCs (International Private Line Circuits) are dedicated international circuits delivered through IP-Converge’s robust and fully redundant Asia Pacific network infrastructure and managed by our 24 x 7 Network Operations Center. We offer IPLCs bundled with our GIA bandwidth, or as clear channels, depending on customer requirements.

• Managed IP-VPN provides secure communications to our customers’ remote locations, and ensure the privacy of data transmission. The solution enables secure, reliable connectivity along with network and application-level protection for critical, high-traffic network segments where advanced applications such as VoIP and streaming media are highly utilized.

3. Prolexic DDoS Mitigation

DDoS or Distributed Denial of Service 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 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 are often customized and/or combined):

• 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 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 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 BGP4-enabled Internet circuit. Connections can be

made directly within Prolexic’s points-of-presence, or via a Prolexic partnered low-cost dedicated circuit directly to Prolexic’s IPN.

Leveraging on these 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.

BUSINESS SOLUTIONS SERVICES

IP-Converge Business Solutions & Services are some of the most advanced systems and software around. Ranging from financial to operational solutions, these applications simply aim to help organizations do business with ease. As part of IP-Converge’s thrust towards customer enablement, these solutions allow clients to streamline internal processes, utilize cost-effective business tools, or jumpstart into a new business with minimal expense.

Salesforce.com On-Demand Business Solutions

Salesforce.com is the market and technology leader in on-demand business services. The company’s Salesforce suite of on-demand applications enables customers to manage and share all of their sales, support, marketing and partner information on-demand.

The Apex platform, Salesforce.com’s on-demand 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 apps on the AppExchange . Customers can also take advantage of Successforce , Salesforce.com’s world-class training, support, consulting and best practices offerings.

IP-Converge V.O.I.C.E.S.

V.O.I.C.E.S. or Voice Over Internet Call Exchange Suite is the newest telecommunications service offering of IP- Converge, leveraging on its existing data center infrastructure and IP-transport facilities.

We offer full-feature Contact Center Solutions as well as wholesale VOIP termination services for easy set-up of communications requirements for the Contact Center / BPO industry. We customize our solutions to fit customer requirements and provide them with everything needed to get their system up and running -- from platform, to termination, to the necessary equipment.

Operating in IP-Converge’s telco-grade, international Internet data center, these V.O.I.C.E.S. services are available in cost-effective packages and come bundled with IP-Converge’s carrier-redundant and highly secure dedicated Internet connectivity. And through partnerships with industry-leading international VOIP carriers and service providers, IP- Converge assures customers that when it comes to global telecommunications and connectivity, service quality is no less than excellent.

IP-Converge Financial Systems

As part of its service offerings for the banking and financial sector, IP-Converge has tied up with Credence Analytics , an India-based financial software solutions company with strong domain skills in the banking and financial services arena. Through this partnership, IP-Converge provides Treasury, Risk management, and Trust systems to the Philippine banking community. This leverages our skills in systems integration and the provisioning of server co-location, bandwidth and particularly Disaster Recovery services to the financial sector.

These are a few of IP-Converge’s major financial applications by Credence Analytics: • Credence RiskMark - Risk Management • Credence iDEAL - Treasury • Credence iDEAL Trust - Investment and Funds Management • Credence Mercury-FX - Remittance Management • Credence Quadryx - Wealth Management • Credence Asset Liability Mgt Sol. (CALMs) - Asset / Liability Management

Key Competitors

There are a number companies offering Data Center facilities in the country, but the main players are limited to three : (i) Vitro of ePLDT, (ii) the former Ayalaport at Pasong Tamo Extension, and (iii) IP Converge.

Milestones in 2007 and Interim Period

In March 2007, IP Converge Data Center Corp. signed a Memorandum of Agreement with First Cagayan Leisure & Resorts Corporation (First Cagayan) to form a joint-venture Corporation named First Cagayan Converge Data Center, Inc. First Cagayan Converge will engage in the business of information technology such as but not limited to IP communication, co-location, bandwidth, disaster recovery services, software development, internet merchant payment processing and payment solution and other value-added services to the licensed locators of First Cagayan, as well as to Cagayan Economic Zone Authority (CEZA). Moreover, it will invest in building, upgrading and maintaining the IP Communications infrastructure that connects CEZA to the global internet. This includes fiber optic networks, wireless radio stations, a telco-grade internet data center, network operations center, and network hubs/access points.

In November 2007, IP Converge completed the acquisition of its second site at New Tech Park, Singapore. IP Converge Pte Ltd. is the only overseas IDC that is fully-owned and operated by a Filipino company, and mirrors the Philippine Data Center by providing the same co-location, bandwidth and disaster recovery services, and using a robust and telco-grade infrastructure. This facility will allow us to penetrate Southeast Asia’s fast-growing internet data center market, which is currently dominated by regional and multinational companies.

In January 2008, IPVG completed the acquisition of Prolexic Technologies Inc., a US based managed security service provider of Distributed Denial of Service (DDoS) mitigation solutions. DDoS is an attempt to make a computer resource unavailable to its intended users. Although the means to, motives for, and targets of a DDoS attack may vary, it generally consists of the concerted, malevolent efforts of a person or persons to prevent an Internet site or service from functioning efficiently or at all, temporarily or indefinitely. DDoS attacks have increased in size and frequency over the last 12 months. Prolexic has led the DDoS mitigation sector for many years, by combining the industry’s most advanced and sophisticated mitigation technology with the world’s largest dedicated mitigation network.

Following this acquisition, IP Converge announced that it will implement the management and operation of Prolexic’s Global Support Center.

Outlook

IP-Converge has been successful in attaining leadership in the facilities outsourcing business with close to 90% of its existing data center space now fully occupied. The company has expanded another 300 sqm of IDC facilities within RCBC Plaza, to meet the growing demand from current and prospective clients. With the acquisition of the Singapore facilities, we are poised to capture the growing demands of the Asian market.

Our Vision / Mission

Vision: Shaping the IP landscape for the communities we serve. Mission: Our corporate mission is directed to the specific communities that we serve. • Customer Community: Enable better business practices for our customers • Partner Community: Promote mutual growth among partners • Internal Community: Ensure career fulfillment for employees • Shareholder Community: Ensure maximum value on shareholders’ investments. • Corporate Social Responsibility (for the marginalized youth community): Provide opportunities to develop ICT expertise for qualified individuals

Quality Policy

Our Quality Commitment is to ensure Customer Satisfaction, and develop long-term Partnerships through our distinct “boutique” approach.

This “boutique” method is exemplified through: • Keen understanding of customer needs through a consultative mindset; • Alignment of business resources and adoption of best-of-breed IT&T solutions to suit Customer requirements.

By adhering to these, we are able to provide customer-centric solutions that promote cost-efficiency, maximum productivity and growth, thus empowering our Customers to achieve their business goals.

IP E-GAME VENTURES INC.

IP E-Game Ventures (E-Games) was incorporated in November 2005 after IPVG secured licensing rights to locally publish various on-line games from TERRA ICT in June, 2005, and RAN ONLINE from Goldsky/Feya Technologies in November, 2005.

E-Games started commercial operations on March 31, 2006, and now operates the #1 and #2 online games in terms of number of subscribers in a market with explosive growth. RAN Online represents the top MMORPG (Massively Multiplayer Online Role Playing Game) in the country, and O2Jam leads the MMO Casual Games market. Statistics from respected 3 rd party IT company (Digital Filipino) serve as evidence of the success of E-Games and our products in the Philippines.

E-Games obtained the exclusive rights to some of the top online content in the world and brings it to the local market providing the best value to our consumers. Our company is the pioneer of the free-to-play business model, a model that has disrupted the market and allowed us to leapfrog existing competitors. Since the start, we have enjoyed an accelerated growth in both user base and pre-paid card sales.

Business Segments

E-Games’ business is comprised of three (2) main segments of products and services, which are delivered to our end- customers through our base of more than 8,000 internet café retailers, and through broadband internet access at home. We are concentrating primarily on local internet consumers, which has a potential base of over 15million customers.

• MMORPG (Massively Multi-Player Online Role-Playing Games). Massively Multiplayer Online Role-Playing Game ( MMORPG ) is a genre of online computer role-playing games (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, and take control over many of that character's actions. 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 while the player is away from the game. This segment of games targets the hardcore gamers. We currently publish the market-dominant product RAN Online, and have launched another game, , Granado Espada in 3Q2007. RAN Online has more than 800,000 active users and more than 30,000 concurrent users (data as of March 2007).

Also this January 2008, E-Games partnered with South Korean based application software and solutions development company, ESTsoft, to bring the highly anticipated futuristic action MMORPG, CABAL Online, to the country.

CABAL Online is a unique third-person MMORPG that combines futuristic, fantasy and medieval themes into one action-packed, sophisticated role playing adventure. The game has been successfully launched in Asia, Europe, and America (including USA and Canada), gathering 20,000,000 registrations across the globe. In Vietnam, CABAL Online recorded a maximum of 75,000 concurrent users at any given time. It is expected to be one of the biggest titles to hit the Filipino online gaming community.

• MMO Casual 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 there are comparatively low production and distribution costs for the producer. (Source: Wikipedia)

Our casual game O2Jam is currently the market leader in terms of daily users. It has more than 500,000 active users, and concurrency levels of more than 12,000 (as of March 2007).

Our new game Audition, Dance Battle, which was launched in Q4 2006, is the #1 online casual game in the world, and we expect tremendous success in this market. Since its launch, Audition has been one of the fastest growing casual games in the country, and has more than 300,000 registered users with concurrency levels of more than 6,000 users as of March 2007.

The company’s casual game titles have a combined active user base of over 700,000, with over 6,000 concurrent users.

In the first quarter or 2008, e-Games entered a joint venture with GMA New Media Inc., the digital media arm of GMA Network, Inc. to form I-Play.

I-Play, having P800M authorized capital, aims to evolve and promote casual online gaming and its digital content development, especially with the convergence of traditional and digital media through IP E-Games and GMA- NMI. I-Play, Inc. is equally owned by IP E-Games and GMA-NMI, with each party having a 50% stake in the company.

Strategic Partners

In 2006, the Philstar group of companies acquired a minority stake in E-Games. Aside from the monetary investment into E-Games, this partnership has also resulted in other opportunities for E-Games, in terms of partnerships with and access to media, marketing firms, content developers and other value-added services providers.

E-Store Exchange (affiliate of GMA7) also invested a minority stake in Egames. E-Store Exchange provides E-Games media and advertising inventory on GMA7, the #1 Television Network in the Philippines.

In 2007, Egames signed a joint venture agreement with GMA-NMI to form iPLAY. GMA Network, Inc. is the leading free-to-air media broadcasting company in the Philippines. It is principally engaged in television and radio broadcasting, the production of television programs for domestic and international audiences and other related businesses.

Major Milestones (2007 and Interim Period)

In February 2007, IPVG Corp. and IP E-Games partnered with Singapore-based regional gaming firm Infocomm Asia Holdings (IAH) For IP E-Games to become the exclusive publisher and distributor of exciting IAH titles, including the multi-awarded “Granada Espada” (GE), a triple-A title developed by Hakkyu Kim, the recognized “father to Korean online games” and creator of Ragnarok.

The partnership takes both IP E-Games and IAH further into the rapidly growing Philippine market for Massively Multiplayer Online Game (MMOG) and Massively-Multiplayer Online Role-Playing Games (MMORPG), alongside other IP E-Games titles such as RAN Online and Supreme Destiny.

Both companies will be maximizing the value of their distributorship agreement, taking their collaboration to the level where IAH can acquire and invest in IP E-Games. In the same manner, the agreement likewise enables IPVG to invest in IAH that will also allow them to participate in a regional floatation on a regional stock exchange.

IAH for its part, secured a more than $14 million in funding, making it one of the most well-funded online games start- ups in the region. It also recently acquired exclusive region-wide rights to top-rated MMORPGs Granado Espada and Hellgate: London from Korean online game publisher HanbitSoft and American game developer Flagship Studios respectively. IAH’s principal investors include The9 (Nasdaq listed), a China based gaming operator, IDA (telecommunications arm of the Singapore Government) and CommerzBank. IAH has also recently secured funding commitments from GigaMedia and SoftBank’s Bodhi Investments.

With the partnership between IPVG and IAH, local gamers will be able to experience more Asian-made virtual worlds. As the competition heats up to open more spectacular and breathtaking virtual worlds, more heart-pounding fights among virtual characters, and a more exhilarating overall experience, Philippine game publishers will be faced with more grueling real-world competition.

Key Competitors

Since the popularity of online computer games started in 2000, there have been a number of game publishing companies that have set up shop in the Philippines. The pioneer in terms of leading the charge is Level-Up!, a company that launched the game RAGNAROK. Level-Up! has since been acquired by ePLDT, and it continues to offer new titles both in the MMORPG and casual games genre.

Other companies are (i) ABS-CBN which publishes Tantra Online, (ii) AMDG, publisher of Lineage II, and other smaller companies.

Risk factors

We view the following risk factors associated with the online games industry and the Company which may have a material effect on the future financial performance of the Company:

1. The online gaming sector is new in the Philippines, and is still considered in its infancy. Most of the game publishers, including E-Games, have limited operating history in this field, which may result in difficulties normally associated in start-up environments.

2. Game publishers have a dependence on 3 rd parties such as game developers for the enhancement of the games. Maintaining and sustaining a satisfactory relationship with our licensors or developers is critical in ensuring technical support for the games. Failure to do so may negatively impact our business since we rely on them for content upgrades, localization and technical support. To mitigate this risk, our team and management are constantly in search for the right partners in the region; we have established, and continue to pursue, licensing agreements with a number of publishers over the next 3 to 5 years.

3. The emergence of new technologies that may affect popularity of online games, in particular, MMORPGs is also one factor that may impact our financial performance in the future. In a cutting edge industry such as online gaming, new developments in technology affecting how games are delivered to end consumers may create new mediums and new ways of playing games which may adversely affect MMORPGs.

4. Internet. Online games are dependent on the quality and accessibility of the Internet. The over-all user experience may be adversely affected by a poor internet connection. The growth of the gaming sector in the Philippines may be limited as internet access has not reached more far-flung areas in the country. The number of Internet users will continue to grow at a 20% per annum pace. This rate can be further accelerated as new technology and infrastructure becomes available. The percentage of online gamers relative to the number of internet users will also increase as more options and better games become available.

IP CONTACT CENTER OUTSOURCING INC.

IP-Contact Center Outsourcing, Inc (“IPCCO”) is a wholly-owned subsidiary of IPVG that focuses on the business process outsourcing (“BPO”) industry.

Property and Facilities

IPCCO’s operations are currently located at the 25 th floor of IBM Plaza, Eastwood City Libis, where all of the customer service agents hold office. IPCCO has selected the Cisco Unified Communications and Collaboration Suite (“UCC” formerly IPCC) that provides a pure VoIP IPBX. This enables IPCCO to easily deploy and integrate multiple sites, as well as provide a lower cost structure.

IPCCO has two clients supporting three (3) programs. Our programs include Tier 1 Customer Service for our affiliate IP E-Games, Operator Services for IPVG group of companies, and Tier 1 Technical Support for IP Converge.

IPCCO has also secured a contract with a Fortune Global 200 company to provide tier 1 customer care support in its AsiaPacific markets. The majority of IPCCO’s clients are US-facing and operating during the night shift in the Philippines. We provide Inbound, Outbound voice as well as non-voice BPO services.

Business Segments

Inbound Solutions

IPCCO provides inbound services that are virtually true extensions of our Clients’ operations with order and service processing abilities. We hold the responsibility of representing our Clients’ brand with the same care as its business owners. We establish close-knit relationships with our clients to implement technology and provide premier outsourced support to meet our customer service needs.

IPCCO also provides non-voice support by regulating and monitoring chat rooms. We maintain clean rooms real time 24/7. Our Client offers mobile community solution such as mobile online chatting, content clearing house and interactive mobile entertainment. It has over 7 million registered users worldwide and has licensed its products and services to more than 85 mobile operators in 33 countries. Some of their customers and partners include Cingular, T- Mobile, Verizon, Sprint Nextel and Vodafone.

Our inbound voice support varies in levels or tiers. One of our biggest Clients is one of the oldest specialty direct mail order companies in the US; produce over 50+ catalogs per year. IPCCO processes over 80% of their US orders. Our services includes Inbound Customer Service, Inbound/Outbound Sales and Order Entry & Back Office.

We also service a leading global provider of push e-mail. The client services similar to Blackberry on a wide variety of mobile devises and is a leading provider of solutions for individual users, small and medium enterprises through wireless operators. IPCCO has Technical Support Level 2 offering customer Support infrastructure for over 40 mobile operators worldwide. We follow the sun supporting centers in APAC, EMEA and Americas.

Outbound Solutions

IPCCO provides an extensive range of outbound solutions in both business-to-business and business-to-consumer programs.

Our Business-to-Business program reaches out to existing and potential new customers for a leading NASDAQ-listed local search engine company; consistently ranks in the Top 100 in U.S. website traffic according to Internet research firm, comScore. The company is based in Irvine, California and has affiliate offices across the country and around the world.

We also service Business-to-Consumer solutions to one of the leading Fortune 500 companies across South East Asia. We introduce our Client’s products and services to their potential customers to increase their market share and promote their new products. Our experienced sales team goes above and beyond the targeted sales figures set by our Customer.

Distance Learning

IPCCO offers Distance Learning, an e-Learning subset. We serve one of the largest English language schools in Korea. They are regarded as the pioneer in providing comprehensive English education in Korea.

Our distance learning solutions has been proven cost effective and is not constrained by geographic considerations. We offer opportunities in situations where traditional education has difficulty operating given the distance and time. We provide flexibility and tailor fit our services to our customers needs.

We recruit, train and manage personal English teachers to educate students in Korea and China. We provide outbound modules in business and practical English lessons. Lesson durations vary from a minimum ten minutes to a maximum of an hour, guaranteeing clear line quality through our robust voice platforms.

Milestones (in 2007 and interim period)

PCCW Partnership

In March 2007, IPCCO announced its Agreement with PCCW Teleservices (Hong Kong) Limited (“PCCW Teleservices”), an indirect wholly owned subsidiary of PCCW Limited, to provide call center services in the Philippines. Under this Agreement IPCCO will provide call center services in the Philippines to meet the English- language requirements of PCCW Teleservices’ clients in other parts of the world. The cooperation will establish the first PCCW-branded and certified contact centers in the Philippines.

PCCW Teleservices is the largest networked call center operator in Greater China and currently runs eleven contact centers in Asia, involving more than 5,000 seats, providing a source of formidable expertise to support new call center operations in the Philippines. IPCCO will also benefit from using PCCW Teleservices’ proprietary knowledge, in- house technology and PCCW trademark in its day-to-day operation of contact centers in the Philippines under a licensing arrangement with PCCW Teleservices.

The cooperation will develop a sharper competitive edge for IPCCO, which will replicate PCCW Teleservices’ internationally-recognized operational excellence via proprietary processes, procedures and support systems based on world-class standards.

Globalstride Acquisition

On June 29, 2007, IPCCO acquired the fixed assets, material contracts and the existing customer accounts of Globalstride Corporation (“GC”) and Globalstride Holdings Ltd. (“GHL”). GC operated a 260-seat contact center primarily servicing inbound/outbound voice support for United States clients.

Under the Agreement, IPVG Corp. acquired the 260-seat contact center and material contracts of GC in addition to the existing customer accounts of GHL. IPCCO assumed the obligations in respect to the customer accounts to be transferred by GHL and consequently, hired the customer service representatives and employees of GC. Globalstride Corporation was incorporated in March 2000 to provide customer service solutions through telephone, email and on- line internet chat. The company is a wholly owned subsidiary of Globalstride Holdings Limited.

PEZA Certification

On June 26, 2007, IPCCO executed a Registration Agreement with the Philippine Economic Zone Authority, and was also issued a Certificate of Registration as an Economic IT Enterprise pursuant to the provisions of Republic Act No. 7916 as amended. As an ECO-IT enterprise, IPCCO is entitled to conduct and operate its business at any PEZA registered building. Under the same agreement, IPCCO will be entitled to avail of the applicable incentives as provided for or extended by RA No. 7916, as amended, and its implementing rules and regulations and other existing and subsequent issuances in favor of PEZA- registered companies.

PEZA incentives, under the law include the following: Income Tax Holiday (ITH) or exemption from Corporate Income Tax for four years, extendable to a maximum of eight years. After the ITH period, incentives include the option to pay a special 5% tax on gross income, in lieu of all national and local taxes, exemption from duties and taxes on imported capital equipment, spare arts, supplies and raw materials, domestic sales allowance of up to thirty percent of total sales, exemption from wharfage dues and export taxes, imposts and fees, additional deduction of 50% of the total cost of manpower training, permanent resident status for foreign investors and immediate family members.

Competition

IPCCO provides call center management services to both local and International markets. Our local experience covers the Information Technology and Communications industry (IT&C) and online games. Our International Clients are from Fortune 500 Companies in the banking industry, Consumer Products Company, Info communications, Consumer catalogs and web hosting.

As the BPO industry is regarded as one of the fastest growing industries in the world. Companies of all types of businesses are considered potential clients. IPCCO’s ongoing goal is to serve Fortune 500 companies.

India, Eastern Europe, Latin America, China, and Southeast Asia are racing to land jobs in the economic growth all over the world. When it comes to the trend in primary business requirements, experts are seeing a shift from cost- effectiveness to skills quality and competence. This development all the more strengthens the Philippines' position as an emerging global leader in the BPO industry.

There are currently more than 120 call centers in the Philippines, and of which about 90% have a substantial presence in Metro Manila. They include TeleTech, Teleperformance, PeopleSupport, eTelecare, Sykes, Telus, Ventus, Convergys, ePerformax, Sitel, Sykes, ACS, among others. Other companies have located their internal call centers here in the Philippines as well, such as Dell, Deutsche Bank, and HSBC.

Risk Factors

1. Supply of skilled operators. The success of any contact center or BPO company is the ability to hire, train and retain operators with the requisite skills in supporting customer programs. Attrition rates among call centers in the Philippines may increase with the entry of new contact centers offering better compensation, incentives, and general working conditions. Failure to contain the attrition rate may affect the future financial performance of the Company. 2. Competition. As mentioned above, the Philippines has become a hotspot for BPO companies. Prospective customers have many options to choose from, and existing customers may be able to move providers easily. Other companies can also establish their own contact centers, given the perceived profitability of the ventures and other

cost-effective considerations. Our value proposition, and strong strategic partner/s will help mitigate these risks. 3. Operational or execution risks, as in any business exist in the Contact Center industry. Our reliance on the robustness and integrity of our Network Infrastructure and facilities is critical in ensuring the success of our customer programs. A sudden breakdown of our infrastructure can result in substantial losses to customers, and therefore could result to negative financial impact on our company. 4. Foreign currency risks. The BPO industry, being a net provider of foreign currency, has been affected by the continued appreciation of the Peso versus the US Dollars. From 49.132 as of end of December 31, 2006, the exchange rate ended 2007 at 41.401 (15.7%). Most of the expenses of BPO companies are in local currency, salaries and benefits of agents, office rent, administrative and general expenses. Therefore, each dollar collected as of end of 2007 effectively contributes 15% less than what it would have fetched in 2006, affecting the profitability of the companies. We have addressed this issue as early as October of 2007, immediately after we acquired Globalstride. The company entered into forward contracts with a foreign commercial bank in the Philippines, for the next 12 months, which fixed the conversion rate at a premium over the market. We will continue to adopt this policy for our contracts, by ensuring that our business is not impacted by the fluctuations in the exchange rate.

IPAY COMMERCE VENTURES INC. i-Pay Commerce Ventures, Inc. (i-PCV), is a subsidiary of IPVG Corp. It provides value-added payment processing services to various partners in the Philippines and abroad. Such services include processing of local and international remittances, processing of internet based debit and credit card payments (e-commerce), issuance of debit cards, loyalty programs among others.

Through strategic partnerships i-PCV is at the forefront of end-to-end payment processing.

Products

1. i-CASH is the flagship product of iPCV. It is a cash management solution that integrates the following: Cash Card Features: • Receive international remittances or local money transfers • Load more monetary value at i-CASH top-up establishments • Withdraw at any ATM in the Philippines • Withdraw from any VISA ATM abroad • Transfer funds to other i-CASH holders

Debit Card Features: • Cash-less shopping at your favorite stores through Bancnet and Visa terminals • On-line transactions o Internet purchases o Bills payment

Privilege and Loyalty Card features • Freebies and discounts from 200+ merchants nationwide • Rewards through i-Loyalty for remittance and virtual terminal usage

2. Local Remittances. Payment processing solution supporting local remittances. Handles bulk allotment distribution requirements of agency and manning types of companies, as well as remittance requirements of retail customers. This solution supports bank-to-bank transfers and door-to-door delivery.

3. Payment Processing Services. A one-stop-shop payment processing solution that addresses the various payment requirements of merchants ranging from: merchant accounts, electronic commerce through Visa, MasterCard, Diners Credit and Debit Cards.

Market and Competition i-PCV operates in a highly competitive and dynamic market with players from different industries such as: telecommunications, banking and finance, remittance, credit card. Among the major players are the following:

Industry Major Players Telecommunications Globe Telecom, Smart Communications, Inc. Banking & Finance BPI, PNB Remittance IRemit, Inc. / Western Union Credit Card Issuing & Acquiring Equitable Card Network / BPI

Revenue Sources

i-PCV currently has (3) major revenue sources broken down as follows:

1. Issuing Business. As issuer of Visa and i-CASH debit and loyalty cards, i-PCV derives revenues from fees such as card fee, membership fees and transaction fees.

2. Remittance Business. Through i-PCV’s local and international remittance business, revenue is derived from the remittance processing fees.

3. Acquiring Business. The acquiring business covers processing of payments to merchant establishments from various credit card issuers as well as i-CASH debit cards. It also covers loading of value to the i-CASH card (top-up) and drawing of funds (cash back) through i-CASH virtual terminals deployed in various partner merchant establishments. Revenue from this business is derived from commissions based on the face value of the sale (Merchant Discount Rate) and other transaction fees.

As of December 31, 2007, i-PCV has not yet started commercial operations, and has not reported any revenues.

Strategic Partners

1. iPayDNA International Limited. A reputable international organization specializing in e-commerce solutions, which include among others, processing of debit card / credit transactions from major debit or credit card brands as well as direct debits from banks in China.

2. SabiClub Corporation. The Philippine-based licensor of Station 168 Internet Cafes, servicing 30,000 of its members nationwide. The membership is targeted toward the Korean community based in the Philippines, where about 70% of the membership base is Korean.

PART II. RESULTS OF OPERATIONS

A. FINANCIAL RESULTS

Financial Highlights and Key Performance Indicators

2007 2006 Amount % Consolidated Balance Sheet Total Assets 1,491,645,277 292,793,001 1,198,852,276 409% Current Assets 889,807,342 138,857,423 750,949,919 541% Property & Equipment 184,674,629 94,069,092 90,605,537 96%

Total Liabilities 458,231,844 252,576,094 205,655,750 81% Interest-bearing Loans 126,149,278 37,002,768 89,146,510 241% Stockholder's Equity 1,036,271,413 54,149,972 982,121,441 1814%

Consolidated Statements of Income 2007 2006 Amount % Revenues 714,559,612 242,703,647 471,855,965 194% Gross Profit 339,153,772 82,777,831 256,375,941 310% Expenses 277,224,768 215,275,638 61,949,130 29%

Income/(Loss) from Operations 61,929,004 (132,497,807) 194,426,811 147% Net Income/ (Loss) 169,536,370 (102,137,199) 271,673,569 266%

Consolidated Cash Flows 2007 2006 Amount %

Net Cash Provided/ (Used) by Operating Activities (138,499,227) 110,958 138,610,185 124921% Net Cash Provided/ (Used) in Investing Activities (637,707,489) (72,754,592) 564,952,897 777% Capital Expenditures (142,080,844) (59,284,237) 82,796,607 140% Intangible Assets (48,960,218) (21,471,091) 27,489,127 128%

Net Cash Provided by Financing Activites 899,730,787 117,146,150 782,584,637 668%

Other Financial Data 2007 2006 Amount % Current Ratio 2.10 0.67 1.43 215%

Gross Margin 0.47 0.34 0.13 39% Net Operating Margin 0.24 -0.42 0.66 156% Earnings Per Share 0.278 -0.223 0.50 224% Debt to Equity Ratio 0.13 1.21 -1.08 -89%

Operational Data Number of Employees 555 147 408 278%

Exchange Rates 46.1484 51.3143 -5.17 -10%

• 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

2007 vs 2006

The Group posted a consolidated group revenues of P923 million for 2007, an increase of 233% from P277 million in 2006. Net of distributor’s margins & extraordinary income, the Group posted a 194% increase in revenues from P243M in 2006 to P715M in 2007. This was mainly due to the significant growth in global internet access/bandwidth services of P155M and gameplay revenue of P161M. IPVG Corp. is focused on technology-based ventures that are in sunrise sectors of the global, regional and local economy. As more and more people go digital, they interact online on the Internet and use an ever-increasing variety of services that are becoming available. This fuels demand for further IP-communication and IP-based content.

2007 vs. 2006 (P-Millions)

300 250 200

150

100 50 0 Global Internet M itigation IM BS/IPLC/SA Gameplay Access/Bandwi Colocation BPO Services Others Services T Revenue dth 2007 265 66 49 22 238 49 26 2006 110 41 6 77 9 Increase 155 26 42 22 161 49 17

While its individual management teams are focused on their core businesses, the Group continually identified new, high-growth opportunities which can be capitalized on by leveraging existing assets. In line with its strategic road map, the Group took advantage of its expertise in strategic acquisitions as it continued to invest in new partners, new products & services, and the incubation of new ideas. As a result, substantial contributions also came from mitigation services (in partnership with Prolexic Technologies, Inc.), International Managed Bandwidth Services or IMBS (a new offering from its subsidiary IP-Converge), and BPO services (IPCCO or IP Contact Center Outsourcing Inc.). IPCCO acquired the fixed assets, material contracts, and the existing customer accounts of Globalstride Corp. and Globalstride Holdings in July 2007. % to Total Growth Others BPO services 4% 10% Global Internet Access/Bandw idth 33%

Colocation Gameplay Revenue 5% 34%

Mitigation services IMBS/IPLC/SAT 9% 5% In terms of revenue contribution, IP-Converge still had the biggest share in 2007 at 56% of total but this was smaller compared to its 65% share in 2006 as shown by the introduction of new revenue sources.

2007 % to Total 2006 % to Total

IP-Converge 397,798,158 56% 156,545,996 65%

IP E-games 239,647,341 34% 77,432,896 32% IPCCO 41,341,179 6% - 0% IPVG 17,478,908 2% 8,724,755 4% IPC Pte. Ltd. 18,294,026 3% 0% Total 714,559,612 242,703,647

Millions Revenue Share 400 350 300 250 200 150 100 50 0 2006 e 2007 nverg G -games -Co IPCCO IPV IP IP E

IPC Pte. Ltd.

The P216M or 135% growth in cost of services was much lower compared to the revenue growth leading to a higher consolidated gross margin of 47% in 2007 (vs. 34% in 2006). As a percentage of revenues, COS improved from 66% to 53% of total. This was the result of the Groups’ pioneering introduction of new business models with the goal of becoming a regional player in partnership with large global operators. The P45M or 145% increase in royalties is a testament to the Group’s aggressive global tie-ups.

Overhead expenses were also much lower at only 39% of revenues (89% in 2006) owing to the remarkable revenue growth and reasonable cost management. While transportation & travel grew by P20.7M or 268% due to aggressive business development efforts & increased business activity, overall operating expenses still posted a modest growth of only 29%.

• As the Group continues to expand its operations, headcount grew by 278% with the addition of 408 employees. Total headcount stood at 555 as of December 2007. Not counting the consultants, salaries & wages only increased by 13% with the ratio of officers to staff shifting from 1:2.5 to 1: 5.6 in 2007. Below is the headcount breakdown per subsidiary. 2007 2006 IPVG Parent 37 12 Managerial 20 7 Rank & File 17 5 IPC 59 29 Managerial 22 9 Rank & File 37 20 IPEV 110 67 Managerial 26 14 Rank & File 84 53 IPCCO 341 19 Managerial 13 6 Rank & File 328 13 IPAY 6 0 Managerial 2 0 Rank & File 4 0 IPF 1 0 Managerial 1 0 Rank & File - 0 On the Job Trainees 0 16 Consultants 1 4 Total 555 147

Note: None of our employees subject to Collective Bargaining Agreements (CBA), are on strike or have threatened to go on strike.

• Cost of communications services grew by 93% or P71M mainly due to the 141% & 66% increase in Global Internet Access/bandwidth business and co-location, respectively. • Capital expenditures also posted an effective increase of 72% as reflected in the P21.6M net rise in depreciation charges. Consistent with previous years, we did not accelerate the depreciation of any assets of the company and of its subsidiaries. Assets are still depreciated using the straight-line method for 3 to 7 years. • Rent rose by P19M or 103% as the Group leased an additional office space (563 sq.m.) at the 4 th Floor of RCBC Plaza last April and took on the Libis, Quezon City office of IPCCO in August. The main goal of the renovation

was to increase the capacity of the internet data center to accommodate additional demand for managed data services. The data center was stretched out for an additional 75 racks & 55 square meters. The offices located at the 4 th floor of RCBC Plaza are Human Resources, I-Pay Commerce Ventures, Inc., key business development offices of IPVG, and affiliates SoftAir, First Cagayan Converge Data Center, Inc. (FCCDCI).

Net Income posted a remarkable turnaround from a loss of P102M in 2006 to an income of P170M in 2007. This would have been higher by P23M had the US Dollar remained stable but it depreciated by 17% from P48.91 in January to P41.74 in December 2007—offsetting even the best Dollar deposit placement rates of 5%, which led to a foreign exchange loss.

Net of assets due from related parties, the Group posted an impressive asset growth of 370% from P287M in 2006 to P1.35B in 2007. This growth was due to the P125M short-term investments of IPVG, 317% or P199M increase in receivables, 853% or P161M increase in prepaid expenses & other current assets, and a 96% or P90M investments in fixed assets. Asset growth outpaced the growth in total liabilities of 81% or P206M. This was primarily due to the growth in payables of P94M or 83% and short-term loans of P97M. No new long-term loans were availed in 2007.

Additional common stocks of P192M were issued in during the year. Combined with the additional paid-in capital of P654.8M and issuances of stock subscriptions amounting to P44M, this led to a increase in total stockholder’s equity from P54M to P1.036B. The ability to meet short-term obligations also improved with current ratio increasing from 0.67 to 2.10. The Group was also conservative in financing its growth with debt with a debt-to-equity ratio of only 0.13 vs. 1.21 in 2006.

2006 vs 2005

Total Consolidated Revenues for 2006 increased by 714% from P29.8M to P242.7 or a total increase of P212. This substantial increase was attributed to the commencement of commercial operations of E-games and the full year operations of IP Converge (as compared to the six month operations in 2005). The average monthly revenue for the Company in 2006 is P20.2Million as compared to P4.98Million in 2005, or an increase of about 4 times. The contribution by business units to the total revenue (less eliminating entries due to related party transactions) is as follows:

2006 (P-M) % of Total 2005 (P-M) % of Total IP Converge Data Center 156.5 65% 29.8 100% IP Egame Ventures Inc. 77.4 32% - 0% IPVG 8.7 4% - 0% Total 242.6 100% 29.8 100%

Consolidated Expenses likewise increased by 269% from P58.3M in 2005 to P215.8M in 2006, an increase of P157Million. Out of this amount, the sum of P69.3Million was attributed to a one-time charge that the Company recorded relative to the exercise by the holders of their Employee Stock Option Plan. All operating units likewise recorded increases in Operating Expenses due to increased business activity, business development spending, higher manpower complement, and advertising expenditures. This resulted in the increase by 137% in the Net Loss of the company from 2005 to 2006.

• Salaries, Wages and Allowance increased by 494% due to the increase in number of full time employees from 85 as of end of December 2005 to 127 as of December 2006 (147 including OJTs and Consultants). • Out of the P110.9Million in Salaries expenses, P69.3Million reflects the one-time charge for the exercise of the Employee Stock Option Plan of 2005 of 37.198Million shares. • Advertising and Promotion expenses increased by 1,855% from P2.2Million in 2005 to P42.86Million in 2006 due to the tri-media (print, radio and TV) expenses for IP Egames. Egames utilized all advertising media to launch the games and to acquire subscribers. • Depreciation and Amortization increased by 88% from P9.1Million in 2005 to P17.61Million in 2006 due to the acquisition of new equipment and software licenses by all subsidiaries. • We did not accelerate the depreciation of any assets of the company and of its subsidiaries due to product or equipment obsolescence. Assets are depreciated using the straight-line method for 3 to 7 years. • Professional Fees increased by 298% and Outside Services increased by 291% due to increased payments to third-party service firms engaged by the Company to conduct Audit, Legal and Technical services. • Transportation and Travel increased by 106% due to increased activity in the overseas travel for IP Converge in setting up the Network infrastructure in Hong Kong, and in the local travel by the Egames sales team to broaden the reach of the games outside the Greater Metro Manila area. In 2006, Egames has established presence in the key urban areas of Luzon (Baguio, Cavite, Pampanga), Visayas (Cebu, Iloilo and Bacolod), and Mindanao (Davao). • Corresponding increases in Supplies, Representation, Communication, Repairs and Maintenance, and Miscellaneous expenses are attributable to general increase in business activity of the Company and its subsidiaries.

• Total Assets increased by 164.5% from P110.7Million to P292.8Million due to the increase in Cash and current assets by 552%, Property and Equipment of the three subsidiaries by 55%, Intangible Assets such as Software Licenses by 183%, and Deferred Tax Assets by 384%.

On the other hand, Total Liabilities increased by 100% from P126.1Million in 2005 to P252.6 Million in 2006, where Current Liabilities increased by 100% to P208Million from P103.7Million. Interest- Bearing Loans, on the other hand, decreased by 27% due to the conversion of some of the interest-bearing advances from shareholders and officers to equity. Current Ratio, as a result, improved from 0.21 in 2005 to 0.67 in 2006.

As a result of the Conversion of Stockholders Advances in the amount of P44.1Million and the exercise of the ESOP shares equivalent to P37.2Million, the stockholders equity improved from a capital inadequacy position in 2005 to a positive P47.9Million as of end of 2006.

IP Converge (IPC)

Product/Service Offerings and Customer Acquisition

IPC continually served the international telecommunications requirements of its customers through key partnerships with major suppliers in the region including PCCW, Microsoft, PLDT, e-PLDT, and Globe. It also expanded its products & services by investing in strategic tie-ups with major global providers. The value proposition is to address supplementary service needs of its existing clients and expand customer base for future data service offerings. IP Converge grew its customer base from 67 in March to 110 as of yearend 2007.

IPC

Managed Data Managed IT Services Solutions

On-Demand Internet Data IP-Transport Financial Systems Contact Center CRM Solutions Center Services & Connectivity (Credence Analytics) (Salesforce.com)

Global Internet Server Co-location VOIP Access (GIA)

International Managed Network Security Bandwidth Services Hosted IP-PBX (IMBS)

DDoS Mitigation (Prolexic) Local Loop (LL)

Managed Firewall Cross Connect (CC) (Juniper)

DDoS or Distributed Denial of Service 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 has partnered with Prolexic Technologies (USA), the world’s pioneer in DDoS Mitigation. DDOS attacks have increased in size and frequency by more than 200% last year. The continued growth of the internet translates to sustained demand for secure hosting environments and internet security services.

IPC forged a partnership with Salesforce.com, a worldwide leader in on-demand customer relationship management (CRM) services. It delivers business process innovations that allow customers to attain workplace productivity and efficiency through simple yet accurate management of business information.

An agreement was also formed with Credence Analytics, an India-based specialist in financial solutions with strong domain and technology skills in the banking and financial services arena. Through this partnership, IP-Converge provides Treasury, Risk management, and Trust systems to the Philippine banking community. This leverages the company’s skills in systems integration and the provisioning of server co-location, bandwidth and particularly Disaster Recovery services to the financial sector.

Before the end of 2007, IPVG approved the acquisition of a carrier neutral, telco grade Internet data center in Singapore through the purchase of 100 percent of IP-Converge Pte. Ltd., that owns and operates the Singapore IDC. This Singapore facility is the only internet data center fully owned & operated by a Filipino company. This allows IPC to penetrate Southeast Asia where demand currently outpaces supply.

Revenues

IPC recorded a 154% increase in total revenues from P157M in 2006 to P398M in 2007 due to significant growths in mitigation services, co-location, and GIA. 2007 2006 Increase % Global Internet Access/Bandwidth 262.03 109.78 152.25 139% Colocation 61.88 40.56 21.33 53% Mitigation services 48.66 6.21 42.45 684% IMBS 21.76 - 21.76 Others 3.46 - 3.46 Total 397.80 156.55 241.25 154%

The product mix expanded as more clients made use of new offerings such as mitigation services and IMBS . This was also attributed to the increase in customer base.

Revenue Share (%)

1% 0% 5% 4% Others 100% 12% 26% IMBS 80% 16%

Mitigation services 60%

66% 70% 40% Colocation

20% Global Internet Access/Bandw idth 0% 2007 2006

• While the share to total revenue of Global Internet Access/Bandwidth was slightly lower at 66% in 2007, this does not overshadow its year-on-year growth of 139% or P152M. • Co-location also posted a P21M or 53% growth, which is actually impressive although lower than the growth of other services. As a result, its share of total revenues dropped from 26% in 2006 to 16% as of 2007. • In terms of absolute amounts, the new service IMBS matched the P21M increase in co-location service by recording full year sales of P21.8M or a 5% share of total revenues.

Cost of Services

IPC maintains its exclusive tie-up with PCCW of Hong Kong to represent PCCW’s full suite of products to the Philippines market. PCCW is one of the largest regional Asian carriers, and through its subsidiary Reach Networks, owns the largest IP- telecommunications backbone in Asia.

PCCW has awarded IPC as its local reseller and partner in the Philippine market, for all of PCCW products and services

including bandwidth, disaster recovery, systems integration, security software, and network management. The partnership with PCCW, the strength of their track record and the deep experience that PCCW has built-up in the service provisioning in the Information Technology & Telecommunications (IT&T) field helps distinguish IPC from its competitors.

• Total cost of services increased by or P175M or 257% in 2007.

• The bandwidth that the company source through its partnership with PCCW, Asia Netcom (ANC) and other major telcos comprise 55% of its cost of sales, and is delivered through interconnection facilities between the customer’s site and IP Converge’s. It increased by P96M or 248% from only P38.6M in 2006.

• Rent, Dues and Utilities are composed of the amount allocated on the portion of leased area dedicated to the Data Center facilities, and comprise 10% of cost of sales. It increased by P16.6M or 210%.

• Repairs and Maintenance is composed of the cost of maintaining the UPS and Airconditioning Equipment, and other incidental costs due to the ordinary wear and tear of the network, computer and office equipment within the data center facilities. This comprises 6% of cost of sales and grew by 402% or P11M..

• Salaries and Direct Labor for personnel dedicated to the maintenance and operations of the Data Center facilities comprise 3% of cost of sales and increased by 829% or P7.5M.

• Other Costs include outside services, supplies, and other incidental expenses related to the operations of the data center facility.

IP E-Game Ventures Inc. (IPEV)

Online gaming continues to be a world phenomenon. IPEV’s form of online gaming, which is role-playing based, takes place in a virtual world in which hundreds of thousands of players can interact in cyberspace. The virtual world is always there and constitutes a social network. The games are free but in order to enhance gameplay experience, the players have the option to purchase accessories such as a sword and body armor in order to combat monsters. This is good because players spend as much or as little as they can afford.

Filipinos playing computer games online are increasing and getting younger. The company already has 7 million registered players and this number is expected to rise over the next few years to 10 million. The Philippines is just about to overtake all other Asian countries in terms of growth in online gaming and this sector is growing at about 40 percent a year. With IPEV having access to the most successful titles, it was able to capture half of this rapidly growing market in 2007 (based on a 3 rd party survey made last year). It now has around 8,000 Internet café businesses partners to date.

The Internet and Mobile Marketing Association of the Philippines said its survey revealed 32 percent of those who have access to the Internet, play games; while 30 percent do school research. About 60% percent of the gamer population is in Luzon. The reason for the growth is mainly infrastructure, culture, and affordability.

IPVG Corp. has invested an additional $2 million in IPEV in 2007. This is a clear expression of its board’s vote of confidence. Several strategic alliances were also established by the company. A joint venture between IPEV and GMA New Media Inc., the digital media arm of GMA Network Inc., was formed for the creation of a new gaming subsidiary called I-Play inc. a tie-up between international gaming company Infocomm Asia Holdings (IAH) also allowed E- Games to be the exclusive publisher and distributor of Korean fantasy massively multiplayer online role-playing game (MMORPG) Granado Espada in the Philippines, along with other IAH titles.

Revenues

The revenues are derived from the sale of prepaid cards in various denominations of P20, P50, P100, P200, P300, P500, P750, and P1,000. These cards are equivalent to the same number of E-Points that are then used by our subscribers as virtual currencies to purchase online items. The subscribers then load or top-up their accounts with E-games. Revenue is recognized upon activation of prepaid cards sold to the subscriber. The revenues are net Value Added Taxes and cost of distribution which averaged 23% in 2007.

The subscribers, or Gamers, can also load their accounts with Electronic points (E-points), and begin purchasing items within the games. E-points, in contrast to Pre-paid cards, are distributed over web-based distributors. P repaid cards are available in every major distribution outlets nationwide, including Internet cafes, MRT stops, convenience stores,

bookstores, and other outlets that sell telco and internet cards. The company has partnered with reputable card distribution companies in each of the major urban centers in Metro Manila, Metro Cebu, Davao, Iloilo, and Batangas.

IPEG

MMORPG Casual Games (I-Play)

RAN Supreme Granado O2JAM Audition Online Destiny Espada

Virtual Items on sale, or purchased by the gamers through the e-points, range from specialized outfits, pets, and others personal effects for Dreamville; swords, armors, bus passes, and other weapons for RAN Online and other Massively Multi-player Online Role Playing Games (MMORPG); and songs, outfits and musical instruments for casual games (O2Jam & Audition). Each item is worth a corresponding amount of E-points.

Revenue Breakdown

(In P-Millions) 2007 2006 Y-o-Y Growth Revenue % to Total Revenue % to Total Amount %

MMORPG 216.7 90.4% 71.3 93% 145.4 204% Casual Games 21.6 9.0% 5.6 7% 16.1 289% Others 1.4 0.6% 0.01 0% 1.4 10618%

Total 239.6 100% 76.8 100% 162.8 212%

• Total revenues (net of discounts) increased by 212% to P239.6M in 2007. Both MMORPG & Casual Games grew by 204% & 289%, respectively. • MMORPG still account for majority of revenues albeit slightly lower at 90% from 93% in 2006 due to the higher revenues from casual games. • Other income from loyalty cards, merchandise sales, & GE limited edition boxes amounted to P1.4M.

The company is also promoting “adver-gaming” or putting advertisements in the games. Adver-gaming is the lead up before a consumer buys the product in the real world. Information and communications company IPVG Corp. is targeting digital advertising, citing research that Internet advertising revenue worldwide amounted to nearly $17 billion last year. Undeniably, the Internet is the biggest marketplace there is.

Currently, advertisers in the Philippines are focused on tri-media as their primary medium due to reach and frequency of use, it is their comfort zone. But the company aims to show how powerful and effective in-game advertising is -- that it can actually translate to product sales and better brand recall leading to its adoption as a new advertising medium. Piper Jaffray & Co.`s Internet media and marketing research team released a report in February this year that global online advertising revenue was expected to reach $81.1 billion in 2011. The company has seen this potential and is allotting its time and effort to increase awareness among advertisers. It expects digital advertising to account for as much as 20 percent of online gaming revenues two years from now.

Cost of Services

IPEV’s direct costs made up 43% of total revenues in 2007. This was a large improvement over its 67% in 2006 owing to the 182% growth in revenues.

Y-o-Y Growth COS Breakdown 2007 % to Total 2006 % to Total Amount % Royalties 76.4 74% 31.2 60% 45 145% Communication 13.8 13% 16.3 31% -2 -15% Salaries and other employee benefits 4.5 4% 1.3 2% 3 258% Inventory costs 8.3 8% 3.0 6% 5 183%

Total 103 100% 52 100% 51 100% The company does not develop games, a risky business, but gets them from regional partners such as Infocomm Asia Holdings (IAH) with whom it has signed a strategic partnership. RAN Online is currently the No. 1 game but there is also a wide choice of other popular games. Royalties are paid to the licensors such as IAH and comprise 65% of the cost of sales for E-games. Royalty for RAN Online is at 35%. Other game titles like Supreme Destiny have lower royalty fees at 21% of revenue. Total royalties for 2007 amounted to P81M or 26% of total revenues or 74% of total cost of sales.

Communications expense constitutes 13% of the total cost of sales. This includes the co-location cost of costing the servers, the bandwidth costs being utilized in operating the games, and other telco related costs. Egames has entered into service agreements with e-PLDT for the hosting of the servers in their data center, Vitro. Egames has also entered into service agreements with its sister company, IP Converge Data Center for bandwidth provisioning and additional hosting services. These agreements are subject to strict compliance by the service provider in meeting the indicated service level agreements.

Salaries of Game Masters and technical staff comprise 4% of the total cost of sales. Game masters are in-game operators that ensure a pleasant gaming experience for our subscribers. They are tasked to monitor technical and product related issues, respond to various concerns of gamers while at play, and at the same time, police the game from illicit language and improper behavior of the gamers, if any. Our game masters and operators are on hand 24x7.

Other expenses include cost of printing and distribution of the PINs & prepaid cards and constitute 8% of the total cost of sales.

2007 vs 2006

Our consolidated cash and cash equivalents as of December 31, 2007 amounted to P171.2M, an increase of P123.5 or 259% from 2006. The primary sources of our cash and cash equivalents were cash flow from financing activities amounting to P899.7M (net). In turn, these funds were used for various capital expenditures, in property and equipment, software licenses, and operating expenses. Net cash used in investing activities amounted to P638M, a 776% increase from 2006 expenditures of P72.8M. Out of this amount, 46% or P271M of goodwill was attributed to the consolidations involving IPC Pte. Ltd., IPCCO, & ROI. Another 32% was spent on the acquisition of fixed assets, computer and network equipment, improvements while 21% or P125M went into short-term investments.

Financing Activities

In 2006, the growth of the Data Center and the One Line Gaming business required additional resources to finance the acquisition of new equipment and software licenses, expansion of existing facilities, investments in human resource and additional working capital requirements. To finance these activities, we have done the following:

• IP Converge secured a Five (5)-Year Term Loan with Export and Industry Bank in the amount of US$600,000.00 with a Standby Letter of Credit for an additional amount of US$150,000.00. The total amount of US$750,000.00 was secured by a guarantee from the Trade and Investment Development Corporation of the Philippines (TIDCORP), or also known as the Philippine Export and Import Agency (PHILEXIM). Interest Rate on the Loan is based on Libor, and re-priced annually. Term starts on August 2006 and ends in July 2011. Proceeds of the Loan were used to finance the expansion of the Data Center. • IP Egames secured an investment from the Philstar group for their acquisition of 20% of the company in February 2006 for P20Million in Cash and in print advertising spots in the Philippine Star daily. The proceeds of the investment were used to fund payment of Software licenses to our game publishers/ partners, to pay for operating expenses of Egames prior to its commercial launch in March 31, 2006, and to fund additional working capital after the launch.

Additional Discussions on Risks

Our risk dynamics remain similar to previous years. Like any business operating in the Philippines, we are faced with potentially adverse effects of any changes in the country’s socio-political landscape. Political instability continues to weigh heavily on the Philippines.

We also have plans of tapping the international markets in the future for fund-raising activities, the success of which is dependent on the credit grade of the Philippines as a whole.

Other than the above-mentioned risks and those discussed in previous sections of this report, no other known trends, events or uncertainties will have a material impact on the company’s net sales and income from continuing operations.

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 675,501,163 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 2005 to 2007:

2007 Q1 Q2 Q3 Q4 High P7.10 P7.60 P11.50 P9.90 Low P3.55 P5.00 P5.80 P7.10

2006 2005 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 High P2.50 P2.50 P2.50 P4.70 P2.00 P3.50 P3.50 P2.50 Low P2.50 P2.00 P2.20 P2.00 P2.80 P2.80 P2.14 P2.10 Source: PSE

(2) Holders

As of December 31, 2007 , the Corporation has a total outstanding common stock of 675,501,163 shares, held by 746 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:

Class of Rank N a m e Securities Number of Shares Percentage 1 PCD NOMINEE CORP. Common 196,401,770 29.074971 2 JAIME C. GONZALEZ Common 116,550,583 17.253943 3 ELITE HOLDINGS, INC. Common 87,552,300 12.961088 4 JAIME ENRIQUE Y. GONZALEZ Common 87,299,290 12.923633 5 PCD NOMINEE CORP. Common 80,833,922 11.966522 MARIE CONSTANCE Y. 6 GONZALEZ Common 28,733,701 4.253686 7 BANCO DE ORO-EPCI, INC. Common 16,500,000 2.442631 8 ROGER STONE Common 16,147,547 2.390454 9 JUAN KEVIN G. BELMONTE Common 6,000,000 0.888229 10 STEVE TSAO Common 3,333,000 0.493411 PILIPINO STAR PRINTING CO., 11 INC. Common 3,000,000 0.444115 12 PILIPINO STAR NGAYON, INC. Common 3,000,000 0.444115 TRANSNATIONAL DIVERSIFIED 13 CORP. Common 2,507,639 0.371226 FIRST METRO SAVE AND 14 LEARN EQUITY FUND, INC Common 2,500,000 0.370096 15 ARNOLD CATANI Common 2,076,802 0.307446 16 EMMANUEL L. JALANDONI Common 2,000,000 0.296076 17 CARLO NAVARRO Common 1,972,566 0.292015 18 MARCO ANTONIO Y. SANTOS Common 1,667,000 0.24678 19 CATHERINE J. UY Common 1,500,001 0.222058 20 SRINIVAS POLISHETTY Common 1,461,761 0.216397

TOTAL TOP 20 661,037,952 97.858892 OTHER STOCKHOLDERS 14,463,211 2.141108 TOTAL OUTSTANDING 675,501,163 100.00

The total number of shares held by the top 20 shareholders at 661,037,952 represents 97.858892% of the corporation’s total outstanding stock.

(3) Dividends

The Corporation’s Board of Directors has not declared any dividend for the past two (2) 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.

(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 (1 st ) tranche of the grant. On 27 April 2006 the Corporation granted the second (2 nd ) 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 1 st and 2 nd 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 1 st , 2 nd 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 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

The Corporation has engaged KPMG Laya Mananghaya and Co. as its external auditor for the last four (4) fiscal years. KPMG has conducted the financial audit of the group including the parent company and its various operating subsidiaries. For this service in 2007, the total billing of KPMG amounted to P1,197,000.00, including fees for the mid-term audit ending September 30, 2007. Total billings for 2006 was at P800,000 and for 2005 at P400,000. The appointment and engagement of KPMG as external auditor was approved by a majority vote of the shareholders during the Annual General Meeting held on July 26, 2007.

Aside from the services as the group’s financial auditor, the corporation also engaged KPMG to certify the corporation’s application for an increase in the authorized capital stock of the parent and/or of the subsidiaries. The fees for this engagement were approximately P50,000.00.

Aside from the aforementioned activities, the Corporation or any of its subsidiaries, have not engaged KPMG for any other service.

During the course of the audit, the corporation and KPMG did not have any material disagreements on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure. We note however, that submission of this report (SEC 17A for 2007) has been delayed due to the late submission of KPMG of the required audited financial statements past the extended deadline for submission of April 29, 2008.

PART IV. CONTROL AND COMPENSATION INFORMATION

DIRECTORS & CORPORATE OFFICERS

Directors:

Name Age Citizenship Positions held Term of Office

Jaime C. Gonzalez 62 Filipino Director, Chairman, 11 June 2003 - present Jaime Enrique Y. Gonzalez 31 Filipino Managing Director, CEO 11 June 2003 – present & President Srinivas Polishetty 41 Indian Director, Treasurer 13 Feb 2004 - present Marco Antonio Y. Santos 39 Filipino Director, Deputy 13 Feb 2004 - present Chairman Christopher Cox 38 American Director 13 Feb 2004 - present Rene Fuentes 61 Filipino Independent Director 13 Feb 2004 - present Juan Kevin Belmonte 46 Filipino Director 26 July 2007- present Emmanuel L. Jalandoni 39 Filipino Director & Chief 27 November 2007 – Finance Officer present Roger Stone 59 British Director, Deputy 19 June 2006 - present Chairman Carlos G. Dominguez 62 Filipino Director 22 October 2004 - present Juan Victor S. Tanjuatco 60 Filipino Independent Director 22 October 2004 -present Eduardo Martin Lichauco 39 Filipino Director 19 June 2006 - 22 November 2007

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); and Chairman of Export and Industry Bank (a commercial bank listed in the Philippine Stock Exchange).

Mr. Jaime Enrique Y. Gonzalez is the founder and incorporator of IPVG Corp., and its predecessors Adobo Interactive Inc. and Balikbayanmail.com. He managed the corporation’s growth from start-up to take-off stage to its present structure and size. Mr. Gonzalez also serves as a Director on the board of Retail Specialist Inc., Elite Holdings, Inc. and has held past directorships with Edsamail Philippines, Inc. His undergraduate and post- graduate studies were in Middlebury College and Asian Institute of Management, respectively.

Mr. Srinivas Polishetty is currently the Vice President of American Orient Capital Partners (Philippines). He has an MBA degree from the Asian Institute of Management and McGill University of Montreal. Prior to joining American Orient Capital Partners (Philippines), he worked as an equity research analyst covering Asian utilities and was a deputy director for a leading Indian oil and gas firm.

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) (1990- 1992), 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. Christopher Cox has worked in numerous investment and corporate finance boutiques focusing on technology, including Lord, Abbett & Co., and Robertson, Stephens & Co. Prior to entering the investment world, he successfully turned around Serotta & Fat City Cycles, a market leader in high-end hand-built bicycles in the United States. He has a Masters Degree in Philosophy from Cambridge University, an MBA from Harvard Business School, and a Masters of Science from the University of South Carolina. Currently, he is working to improve the education process in a region of the United States.

Mr. Rene Fuentes is currently the Liberal Arts Program Director and Advisor of Sycip Gorres Velayo & Co. (SGV & Co.) 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., and 1911 Insurance Agency Corporation. He took his MBA from University of Sta. Clara, United States.

Mr. Eduardo Martin Lichauco is Senior Vice President of AO Capital Partners, an investment and financial advisory services firm, covering the Asia Pacific region. He is also Managing Director of AO Tholons Capital, AO Capital’s joint venture private equity fund with Tholons Capital. Prior to AO Capital, he was Country Manager of ations of Walden International, a leading global venture capital firm. He also served in a concurrent capacity as Vice-President of the firm’s South/Southeast Asia operations, identifying cross-border investment opportunities between the US and the region in the semiconductor, software, IT-Enabled Services and telecommunication industries. Mr. Lichauco has over 15 years of private equity and venture capital experience and started his career with H&Q Philippines, Inc. where he served as Associate Director. Mr. Lichauco also worked with the Project Finance division of ING Bank, in between his stints with Walden and H&Q.

Mr. Lichauco received his Masters in Business Administration (MBA) with Honors from the Arthur D. Little School of Management in Chestnut Hill, Massachusetts, USA. He also holds a Bachelor of Arts degree, Major in Economics from the Ateneo de Manila University in Manila, Philippines.

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. 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.

Mr. Carlos G. Dominguez is a director of several publicly listed and private companies in the Philippines. He serves as Chairman/Director of RCBC Capital Corporation; President and Director of Philippine Tobacco Flue- Curing and Redrying Corporation, Baesa Redevelopment Corporation, C.G. Dominguez & Associates, Inc., Retail Specialists, Inc., Sports Specialist Worldwide, Inc., Huntly Corporation, Halifax Capital Resources, Inc., and Director of Alsons Consolidated Resources, Inc., House of Investments, Inc., United Paragon Mining Corporation, Shangri-La Plaza Corporation, and Northern Mindanao Power Corporation. He also served as Secretary of the Department of Agriculture and the Department of Environment and Natural Resources during the Aquino Administration from 1986 to 1989, and was the Chairman and Chief Executive Officer of Philippine Airlines from 1993 to 1995. He took up his Master of Business Administration from the Ateneo de Manila Graduate School of Business, and also took up Stanford Executive Program from the Stanford University.

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), in New Zealand also with Banque Indosuez, and in the Philippines, with Banque Indosuez, Manila Offshore Branch and the Bancom Group, Inc. Mr. Tanjuatco is currently the Executive Vice President of Export and Industry Bank, 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. Emmanuel L. Jalandoni holds a Bachelors of Science Degree from the Ateneo de Manila University (1990), majoring in Management Engineering. Before joining the Corporation as the Chief Finance Officer, Mr. Jalandoni was Chief Finance Officer for Edsamail Holdings Pte Ltd. an e-commerce company and Internet Service Provider that pioneered the free email services in the country. Prior to that, he was also the Program Sales Manager for Wholesale Banking Solutions at Unisys Asia Division from 1998 to 2000, and held various positions at Citibank N.A., Manila branch from 1990 to 1997. As the current group Chief Finance Officer of IPVG, he is in charge of Accounting, Finance and Treasury operations of the parent company and of the different subsidiaries.

Executive officers and Significant Employees of IPVG and Subsidiaries

The Corporation considers its entire workforce as significant employees with everyone expected to work together to achieve the goals and objectives of the Corporation.

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), and Mr. Emmanuel L. Jalandoni, the Chief Financial Officer (since May 2004), the other Executive officers of the Corporation and its subsidiaries – and members of the IPVG Management Committee, are:

Reynaldo R. Huergas President, 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, he was Managing Director of myAyala Inc. Contact Center Solutions and Services Group from June 2005, and for Global Data Hub Inc. (formerly Ayalaport Makati Inc.) from April 2004 to May 2005, where he managed a full-scale data center operation. He spent ten years in Hong Kong, Singapore and Indonesia in companies where he occupied senior management positions, was Vice President for Fixed Networks Group of Globe Telecoms from 1994 to 1997, and was Country Manager for Unisys World Trade Inc. - Indonesia and Singapore.

Steve Tsao President, IP E-Game Ventures Inc. (since January 2004) Steve has held various management positions over seven (7) years within the companies Dupont and Corning. He has had specific experience in the wide scale deployment of IT Solutions and Operational Integrations of Mergers & Acquisitions. Steve has an MBA from Babson College (presently ranked #1 for Entrepreneurship) and studied International Business at Harvard. Steve is also a pioneering MMOG gamer, starting some of the earliest MMOG communities and portals. He has experience in consulting for some of the top MMOG developers.

Eric P. Paragas President, IP Contact Center Outsourcing, Inc. (since June 2005)

Eric is in charge of developing IPVG’s contact center and business process outsourcing initiatives, and was responsible for managing initially the data center operations immediately after the acquisition from Reach. He was Managing Director of Riscuity Inc., the first US licensed and BOI-registered A/R portfolio management company in the Philippines, from August 2002 to April 2004, where he was responsible for the Philippine operations including Project Management, IT, Human Resources and Training, Quality Assurance, Marketing, Strategic Planning and Implementation. Prior to that, he was a consultant for Smart Communications as Head of Business Process Analysis and Design Department, Mobile Commerce Group in 2001 and e-Commerce strategist in Sun Microsystems Philippines Inc. Business Consulting Services in 1999. He founded an internet development firm in 1997 called Agora Integrated Solutions Inc, and was head of Investment Center for the Subic Bay Metropolitan Authority. He holds a Degree in Finance and International Business, Minor in Biology at the University of Texas, Austin, Texas (1991).

Warren Liu Chief Technology Officer (since November 2003)

Warren has over ten (10) years of experience in the Gaming and Technology Industry. He has consulted and managed network solutions for clients in the United States as well as throughout Asia. He is the founder of Wewp!, one of the first gaming review websites, which subsequently made a successful transition to a private financing group. He is the founder and director of Virtual Batavia a pioneering company in the mobile and technology sector. He has been one of the pioneers in the MMOG space in terms of community and market understanding.

Maria Eleonor A. Santiago Chief Legal Counsel and Corporate Secretary (since November 2006)

Bebong obtained her Bachelor of Laws degree from the San Beda College of Law and Bachelor of Arts Degree in Political Science from the University of the Philippines-Diliman. She took up the Strategic Business Economics Program from the University of Asia and the Pacific. She started her law practice as an Associate of Medel Macam Del Rosario & Collado Law Offices then as Senior Associate of Romero Lagman Valdecantos & Arreza Law Offices. In 1996, she joined Jaka Investments Corporation as Corporate Legal Counsel where she practiced corporation law and handled cases for the Jaka Group of Companies in various fields of law such as, criminal, civil, administrative and immigration.

Jose Manuel S. Fernando , Vice President for Business Development (since May 2007)

Manny has over 14 years experience in the telecommunications industry, having started his career in the industry way back in 1994. Prior to joining IPVG, he was the Senior Vice President/Chief Operations Officer in Wireless Services Asia Inc., the first-ever mobile content provider in the Philippines. Manny likewise took management positions in some of the top companies in the industry such as Isla Communications, Ericsson Telecommunications Inc., and Sendo International Ltd. With more than a decade of experience, Manny has gained extensive proficiencies in Commercial Partnership Programs, Business Development and P&L Management. Manny is a founding member and director of the Internet and Mobile Marketing Association of the Philippines (IMMAP) – the premier marketing association for organizations that utilize the internet and mobile as part or their entire business model. Manny graduated with a degree in Business Management in Ateneo de Manila University. He took his Master's Degree in International Management at The American Graduate School of International Management (Thunderbird) in Arizona, USA.

Oleen Miranda , Vice President for Human Resources & Organization Development (Since May 2007)

Oleen has a doctorate in Organization Psychology from the Marshall Goldsmith School of Management, California School of Professional Psychology, USA. She is also a licensed psychologist with The British Psychological Society in the UK, and has experience in both the business and public sector environments. She has worked for institutions ranging from London Hospital and Holloway Prison in the UK, to blue chip companies such as Ford and Chevron in the UK and US. Her role in IPVG is to ensure continued and improved business performance across all subsidiaries while the company transitions from its dramatic growth phase into well established market leader.

Antonio Jose Garcia , Vice President for Investor Relations (Since July 2006)

Tonio is a Marketing graduate of De La Salle University, with over 25 years experience in operations management, stock brokerage and portfolio management securities dealing and customer service with AGJ Securities Corp, Vantage Securities Corp. and UOB Securities Corp. He also has extensive experience in the creation, launching, development, and overall management of various businesses, more particularly for Philweb Corp., where he was formerly a Senior Vice President.

Gil Edeza , Vice President for Business Development (Since June 2007)

Gil is the former Global CTO of Level-Up Games, and has been involved in major technology start-ups in the country such as Netopia, Wolfpac Communications, and Level Up. He counts 18 years of experience in the Information Technology and Telecoms sectors, including his stint as the youngest Country Manager of an IT Multinational Company – 3Com.

Alejandro James A. Chiongbian , President, i-Pay Commerce Ventures Inc. (since April 2007)

Dondi initially joined the IPVG group in 2006 as a Business Consultant/Project Director, and was instrumental in the research, design and development of IPVG’s payment and remittance business. Prior to this, he was connected with the Renoir Group from 2004 - 2006. Here, he specialized in the analysis and implementation of organizational change

which resulted in significant, measurable, and sustainable profit for companies - in the banking, finance, logistics, manufacturing, processing, medical and health, real estate and telecommunications industries - across the Asia Pacific and the United States. From 1999 – 2001, Dondi held various positions in Eastern Shipping Lines and Eastern International Plastic Packaging Corp. He has an MBA from the Asian Institute of Management in the Philippines and holds a degree in Finance from the George Washington University in Washington DC, USA.

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. Christopher Cox is the son-in-law of Jaime C. Gonzalez and the brother-in-law of Enrique Gonzalez.

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 2006:

1. People vs. Mark Samson

Criminal case for violation of Article 318 (Other Deceits) of the Revised Penal Code was filed by IPVG Corp. against the Accused Mark Samson. After the Accused was arraigned before the Makati Metropolitan Trial Court, Branch 63, the case was referred for mediation. During the mediation, Accused offered to amicably settle the civil aspect of the case by paying the total amount of P245,978.37. The Corporation accepted the proposal of the Accused, with 50% of the said amount paid upon execution of the parties’ Compromise Agreement and the remaining 50% in 15 monthly installments covered by 15 post dated checks payable to the Corporation.

The counter-complaint filed by Mark Samson against Steve Tsao has been dismissed for lack of merit by the Prosecutor’s Office of Makati City.

2. IP E-Game Ventures, Inc. vs. Nellody Estrella

IP E-Game Ventures, Inc. (IPE), a subsidiary of the Corporation, filed a Complaint against Nellody Estrella for violation of Republic Act No. 8792 ( Phil. E-Commerce Law). On 15 December 2006 a Resolution was issued by the City Prosecution’s Office of Makati City in favor of IPE, finding that a probable cause exists to indict the Accused and for the filing of an information. After the warrant of arrest was served to the accused he was arraigned and the case is now set for pre-trial.

3. IPE E-Game Ventures, Inc. vs. Chester Buagas, Sedrick Diestro, Jhunrey Sablad, Nino Atanacio and Carlos Miranda

IPE filed a criminal complaint under Republic Act No. 8792 (Phil. E-Commerce Law) for “hacking of the Company’s electronic points. The complaint was initially filed with the Criminal Investigation and Detection Group (CIDG) of the Philippine National Police (PNP) on December 4, 2007 and was endorsed to the Department of Justice and later on to the City Prosecutor’s Office of Makati for Preliminary Investigation. The case is now submitted for resolution.

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 2007 (including the preceding two fiscal years, and current fiscal year – estimated only):

Salary (In Other Annual Year Bonus Philippine Pesos) Compensation 2005 818,519.47 None None 2006 1,050,000.00 None See Stock Options Chief Executive Officer 2007 1,950,000.00 51,360.00 None 2008 Est. 1,950,000.00 TBD TBD 2005 2,637,864.48 None None Four (4) next most highly 2006 4,516,033.35 None See Stock Options compensated executive officers 2007 5,445,270.83 None None 2008 est. 5,752,500.00 TBD TBD 2005 4,037,478.16 None None All other officers and directors 2006 3,358,463.91 None See Stock Options as a group 2007 10,225,489.72 None None 2008 est. 12,285,000.00 TBD TBD *TBD – To be determined. At the time of the report, the Corporation has not given, nor paid any bonuses or other forms of compensation, to its officers and directors. Moreover, the extent and amounts of any subsequent bonuses or other forms of compensation, are yet to be determined.

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.

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 (1 st ) tranche of the grant. On 27 April 2006, the second (2 nd ) 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 1 st and 2 nd 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 1 st , 2 nd 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 3 rd tranche of stock options on 26 July 2007. The 3 rd 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 3 rd 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.

Security Ownership of Owners of more than 5% of voting securities

Title of Name, address of Name of Beneficial owner and Citizenship No. of Percentage Class record owner and relationship with record owner Shares relationship with (direct) issuer Common Jaime C. Gonzalez Jaime C. Gonzalez is the beneficial Filipino 116,550,583 17.253943% 25 th Floor Philamlife owner and record owner Tower Makati Avenue, Makati City

Stockholder Common Jaime Enrique Y. Jaime Enrique Y. Gonzalez is the Filipino 87,299,290 12.923633% Gonzalez beneficial owner and record owner 25 th Floor Philamlife Tower Makati Avenue, Makati City

Stockholder Common PCD Nominee Corp. Jaime C. Gonzalez is the beneficial Filipino 196,401,770 29.074971% Stockholder owner of 8,931,616 shares; Jaime Enrique Y. Gonzalez is the beneficial owner of 100,000 shares; PCD Nominee Corp. is the record owner Common Elite Holdings, Inc. Elite Holdings Inc. is the beneficial Filipino 87,552,300 12.961088% 25 th Floor Philamlife owner and record owner. Tower Makati Avenue, Exercise of voting power rests with Makati City Laurita O. Laure

Stockholder Common PCD Nominee Corp. PCD Nominee Corp. is the record Foreigner 80,833,922 11.966522% owner Stockholder

Security Ownership of Management

The following are the security ownership of the directors and executive officers of the Corporation as of 31 December 2007:

Name of Beneficial Amount and Nature of Citizenship No. of shares Percentage Owner; Relationship with Beneficial Ownership held held Issuer (direct & indirect) Common Jaime C. Gonzalez; P116,550,583.00; Filipino 125,482,199 18.57616 Chairman Stockholder of Record, P8,931,616.00 of which is lodged with PCD Nominee. Common Jaime Enrique Y. P87,299,290.00; Filipino 87,399,290 12.93844 Gonzalez; President and Stockholder of Record, CEO P100,000.00 of which is lodged with PCD Nominee Common Roger Stone; P16,147,547.00; British 16,674,547 2.46847 Deputy Chairman Stockholder of Record, P527,000.00 of which

is lodged with PCD Nominee Common Marco Y. Santos; P1,667,000.00; Filipino 1,930,000 0.28571 Vice Chairman Stockholder of Record, P263,000.00 of which is lodged with PCD Nominee Common Srinivas Polishetty P1,461,761.00; Indian 1,461,761 0.216397 Director Stockholder of Record Common Rene Fuentes; P1.00; Stockholder of Filipino 1,308,946 0.216397 Director Record, P1,308,945.00 of which is lodged with PCD Nominee Common Martin Lichauco; P200,000.00; Filipino 200,000 0.029608 Director, until 22 Stockholder of Record, November 2007 Common Christopher Cox; P1.00; Stockholder of American 1 0.00000 Director Record Common Juan Victor S. Tanjuatco; P1.00; Stockholder of Filipino 50,001 0.007402 Director Record, P50,000.00 of which is lodged with PCD Nominee Common Carlos G. Dominguez P1.00; Stockholder of Filipino 1 0.000000 Director Record Common Juan Kevin Belmonte; P6,000,000.00; Filipino 6,000,000 0.888229 Director Stockholder of Record Common Emmanuel L. Jalandoni P2,000,000.00; Filipino 2,500,000 0.370096 Director & Chief Finance Stockholder of Record Officer P500,000.00 of which is lodged with PCD Nominee Common Warren Liu P1,000,000.00; Belizean 1,000,000 0.148038 Chief Technology Officer Stockholder of Record IP Converge Data Center Common Steve Tsao P3,333,000.00; Taiwanese 3,333,000 0.493411 President, IP E-Game Stockholder of Record Ventures, Inc. Common Eric Paragas P1,000,000.00; Filipino 1,000,000 0.148038 President, IP Contact Stockholder of Record Center Outsourcing, Inc. Common Reynaldo Huergas; P1,000,000.00; Filipino 1,000,000 0.148038 President, IP Converge Stockholder of Record Data Center, Inc. Common Maria Eleonor Santiago P200,000.00; Filipino 200,000 0.029608 Corporate Secretary Stockholder of Record

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. Christopher Cox is the son-in-law of Jaime C. Gonzalez and the brother-in-law of Enrique Gonzalez.

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 five-year Management Agreements with the following subsidiaries: IP E-Game Ventures, Inc. (“IPE”); IP Converge Data Center, Inc. (“IPC”); and IP Contact Center Outsourcing, Inc. (“IPCCO”)

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.

IPCCO provides Customer Care services to customers of IPC and IPE, both at an arms-length basis.

IPCCO has also entered into a Tele-Marketing Sales Agreement with IPE for the acquisition of Internet café’s as distributors of Egames’ prepaid cards.

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 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.

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 2007:

As of 31 December 2007, Jaime C. Gonzalez and Jaime Enrique Y. Gonzalez are the registered owners of 17.25% and 12.96% of the total and outstanding capital stock of the Corporation. Elite Holdings owns 12.96% 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.

PART V. CORPORATE GOVERNANCE

Part of the evaluation system established by the Corporation to measure or determine the level of compliance of the Board of Directors and top level management with its Manual of Corporate Governance (“Manual”) is the continuous monitoring of the attendance of the members of the board in its Board Meetings and various Committee Meetings. The Certification on the Attendance of the individual members of the Board of Directors is submitted annually to the SEC and the PSE. Moreover, the attendance and participation of the members of the Board of Directors and the senior management of the Corporation in seminars and trainings on Corporate Governance are also monitored and submitted to the SEC and PSE.

As expressly provided in the Corporation’s Manual, the Compliance Officer is elected by the Board. In the 2007 Organizational meeting of the Board of Directors held on 26 July 2007, the Compliance Officer, Corporate Information Officer and the Alternate Corporate Information Officer were duly elected. The Members of the Corporation’s Executive, Nomination, Audit and Compensation/ESOP Committees were also elected, with at least one Independent Director elected for Audit, Compensation and Nomination Committees to carry out various critical responsibilities. The business experience/profile and qualification of the Independent Directors were also disclosed to the stockholders prior to their election. The Corporation also conducted a self-assessment by answering and filing the 2007 Corporate Governance Scorecard for Publicly-listed Companies.

In addition thereto, as part of the Corporation’s evaluation system, the Corporation and its subsidiary are in the process of securing ISO 9001 Certification. The ISO certification or registration is being pursued for proper quality management and to achieve customer satisfaction and expectation through consistent products and services. The goal for the ISO certification is to improve the company’s effectiveness through process performance metrics or the numerical measurement of the effectiveness of tasks and activities. The requirements in ISO 9001 include, but are not limited to the following: the presence of procedures that cover all key processes in the business, monitoring processes to ensure effectiveness, having and keeping records, verifying the outputs for defects and the appropriate corrective or remedial action, regular review of individual processes and quality system and facilitating continual improvement.

One of the measures taken by the Corporation to comply with the leading practices on good Corporate Governance, is the amendment of its Manual on 7 January 2008 by adding the following provisions: (1) requirement for all directors, before assuming their position, to attend a seminar on corporate governance which shall be conducted by a duly recognized private or government institution; (2) creation of a Compensation Committee, providing therein the duties and responsibilities of the Committee members; and (3) Creation of a Nomination Committee and providing therein the Committee responsibilities. The amendment expressly stating the creation of Compensation and Nomination Committees and the Committee responsibilities was undertaken to formalize what have been in existence and practiced by the Corporation for the past several years.

Pursuant to the above stated amendment, majority of the members of the Board of Directors of the Corporation attended the Seminar on Corporate Governance in March 2008 in addition to the participation of the Corporation’s officers in a workshop on Corporate Governance in November 2007.

The Corporation is not aware of any deviation from its Manual except for the following: The Manual requires the Corporation to have an internal auditor. As of the moment, the Corporation operates on a lean workforce and there is no position for an internal auditor. However, in substantial compliance with the Manual, an Internal Controls Group was constituted specifically for the purpose of assessing the procedural and organizational controls and systems of the Corporation and its subsidiaries and to ensure that such controls and systems are effective, appropriate and complied with. Simultaneously, the Internal Controls Group is also responsible for securing the Corporation’s ISO 9000/9001

Certification. This was duly reported to the SEC and PSE in the Corporation’s Certification on compliance with its Manual.

The Corporation is willing to allocate reasonable amount of funds for additional seminars and workshops given by training provider accredited by the SEC to further improve the implementation and operationalize the Corporation’s Manual. Furthermore, the Corporation intends to conduct performance assessment of the CEO and the top level management of the Corporation. The Board is also planning to conduct an annual self-assessment.

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. SEC Form 17-C filed on 14 June 2007, reporting the resolution of the Board of Directors in its meeting held on 13 June 2007 to postpone the Annual Stockholders’ Meeting of the Corporation from 30 June 2007 to 26 July 2007;

2. SEC Form 17-C filed on 26 June 2007 disclosing the following matters taken up during the Board of Directors Meeting held on 26 June 2007:

a. Follow on offering of up to 100,000,000 shares and authorizing the officers of the Corporation to file the registration statement with the SEC; b. Issuance of up to 4,166,666 shares at P5.00 per share to Mr. James Huang in exchange for his five percent (5%) share in the outstanding capital stock of RanOnline Philippines, Inc. subject to certain terms and conditions; c. Confirmation of Deed of Assignment between the Corporation and E-Store Exchange (“ESX”) for the assignment of IPVG’s shares in IP E-Game Ventures, Inc. in exchange of advertising spots in GMA 7 worth P25M; d. Confirmation of the Call Option Agreement with Elite holdings, Inc. for the acquisition of 100% of the outstanding capital stock of IP Contact Center Outsourcing, Inc (“IPCCO”) and to immediately acquire Elite’s 33% of IPCCO subject to the valuation of an independent financial advisor; e. Confirmation of Management Agreement executed by IPVG, PCCW and IPCCO for the operation of IPCCO’s call center.

3. SEC Form 17-C dated 29 June 2007, reporting the execution by IPCCO and the Corporation of a Heads of Agreement to acquire the 260- seat contact center in QC including the fixed assets, material contracts and the existing customer accounts of Globalstride Corporation and Globalstride Holdings Ltd.

4. SEC Form 17-C dated 3 July 2007, disclosing the resolution of the Board of Directors to issue not more than 41.670 million shares of common stock at P6.00 per share through private placement to ING Bank NV. Manila Branch (Trust Department) out of the authorized and unissued capital stock to finance the Corporation’s expansion plans.

5. SEC Form 17-C dated 24 July 2007, reporting the strategic partnership of the Corporation with Jungchul Academy Philippines, Inc. (“JCAP”) to target the growing educational tourism or language tourism market.

6. SEC Form 17-C filed on 26 July 2007 disclosing the following:

A. Matters taken up during the Corporation’s 2007 Annual Stockholders’ Meeting:

i. Election of the following members of the Company’s Board of Directors: Jaime C. Gonzalez, Jaime Enrique Y. Gonzalez, Srinivas Polishetty, Marco Antonio Y. Santos, Christopher Cox, Roger Stone, Carlos G. Dominguez, Eduardo Martin Lichauco, Rene R. Fuentes (independent Director), Juan Victor Tanjuatco (independent Director), Juan Kevin Belmonte. ii. Approval of the 3 rd tranche of stock options under the Corporation’s 2005 Stock Option Plan to the extent of 23,552,038 shares of common stock which shall be granted to eligible and 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 3 rd tranche and the implementing terms of the grant. iii. ratification of all acts, resolutions, contracts, proceedings, elections and appointments made or taken by the Board of Directors and the management during the past year up to the date of the

2007 Annual Stockholders’ Meeting including the following resolutions/transactions involving companies with interlocking directors: 1. Approving the conversion of advances into equity and the implementation of the conversion. 2. Approving and confirming the Call Option Agreement with Elite Holdings, Inc. and pursuant thereto, to exercise the call option for the acquisition of 100% of the outstanding capital stock of IP Contact Center Outsourcing, Inc. (“IPCCO”)

iv. Approval of the initiation of the proposed follow on offering and issuance of approximately one hundred million (100,000,000) shares of common stock out of the authorized and unissued capital stock of the Corporation. v. Confirmation of the engagement of KPMG Laya Mananghaya as external auditor of the Company.

B. Matters taken up during the Corporation’s 2007 Organizational Board Meeting:

i. Election of the following officers of the Corporation: 1. Jaime C. Gonzalez -- Chairman 2. Marco Antonio Y. Santos -- Deputy Chairman 3. Roger Stone -- Deputy Chairman 4. Jaime Enrique Y. Gonzalez -- President/Managing Director 5. Srinivas Polishetty -- Treasurer 6. Emmanuel L. Jalandoni -- Chief Finance Officer/ Corporate Information Officer 7. Maria Eleonor Santiago -- Corporate Secretary/ Compliance Officer /Alternate Corporate Information Officer 8. Sheila Quien-Feliciano -- Assistant Corporate Secretary 9. Shelah Mae Famador -- Assistant Corporate Secretary

ii. The following were elected as members of the various committees of the Board: Executive Committee -- Jaime C. Gonzalez Jaime Enrique Y. Gonzalez Roger Stone Emmanuel L. Jalandoni (alternate) Compensation/ESOP Committee -- Jaime C. Gonzalez Jaime Enrique Y. Gonzalez Juan Victor Tanjuatco Roger Stone (alternate) Audit Committee -- Jaime C. Gonzalez Srinivas Polishetty Rene Fuentes Roger Stone (alternate) Nomination Committee -- Jaime C. Gonzalez Jaime Enrique Y. Gonzalez Rene Fuentes Roger Stone (alternate)

7. SEC Form 17-C dated 30 July 2007 disclosing the execution of a Loan Agreement with Malayan Bank Savings & Mortgage Bank for a PhpP50 M term loan to finance the Corporation’s acquisition of a call cente.;

8. SEC Form 17-C filed 1 August 2007, disclosing the signing of a Purchase Agreement, Deeds of Sale and Deeds of Assignment of Rights and Assumption of Obligation by the Corporation, IPCCO, Globalstride Corp. and Globalstride Holdings Ltd. for the acquisition of the 260 seat contact center including all the fixed assets, material contracts, revenue generating relations and the existing customer accounts.

9. SEC Form 17-C filed 2 August 2007, disclosing the execution of a Loan Agreement with Unicapital Inc. for a PhpP50 M term loan to finance the Corporation’s acquisition and expansion of a call cente.;

10. SEC Form 17-C filed 7 August 2007, disclosing the issuance and allotment of up to 50 million shares at P8 per share through private placement to financial and other investors from the authorized and unissued capital stock of the Corporation.

11. SEC Form 17-C filed 7 August 2007, disclosing the execution of Subscription Agreements with the following financial institutions and other investors for the issuance of a total of 44,000,000 shares at P8 per share: Banco de Oro-EPCI, Inc., ING Bank N.V. Manila Branch (Trust Department), Abacus Securities Corporation and Philippine Star Group.

12. SEC Form 17-C filed 8 August 2007, disclosing the execution of a Subscription Agreement with ING Bank N.V. Manila Branch (Trust Department) for the issuance of 2,500,000 shares at P8 per share.

13. SEC Form 17-C filed 18 September 2007, reporting that the Corporation’s subsidiary, IP Contact Center Outsourcing, Inc. (“IPCCO”), received the duly executed Supplemental Agreement to its Registration Agreement from PEZA approving the registration of its new call center operations at Libis, QC.

14. SEC Form 17-C filed 28 September, reporting the election of Attys. Shelah Mae W. Famador and Sheila Quien- Feliciano as Assistant Corporate Secretaries of the Corporation. It was also disclosed that the Corporation approved the issuance of 5.5 million shares at subscription price of P8 per share through private placement to Solar Securities, Inc., Juan Kevin Belmonte and Gerardo Limlingan, Jr.

15. SEC Form 17-C filed 1 October 2007, disclosing that the Corporation’s subsidiary, I-Pay Commerce Ventures Inc. (“IPCV”), approved and ratified the IPCV’ execution of a Memorandum of Agreement with Export and Industry Bank(“EIB”) to undertake personalized ATM Card and Remittance Services.

16. SEC Form 17-C filed 5 October 2007, reporting the Corporation’s execution of a Memorandum of Agreement (“MOA”) with Credence Analytics Pvt India to form a special purpose joint venture company in the Philippines which will engage in the business of providing outsourced treasury services to banking and financial institutions.

17. SEC Form 17-C filed 17 October 2007, disclosing the following:

a. subscription by the Corporation to 100,000,000 shares out of the proposed increase of IP Contact Center Outsourcing Inc. (“IPCCO”) authorized capital stock from P8M to P408M. It was also reported that IPCCO is now a 100% owned subsidiary of the Corporation by virtue of the exercise of its call option under the Call Option Agreement with Elite Holdings, Inc. b. authority to subscribe to 90M shares out of the proposed increase in the authorized capital stock of its wholly owned subsidiary, IP Converge Data Center, Inc. (“IPC”). This will result in the increase of the capitalization of IPC from P100M to P460M. c. authority to invest up to US$2M in its subsidiary, IP E-Game Ventures, Inc. (“IPE”). The funds will be used to acquire more game titles, expand its presence regionally and for such other beneficial purpose.

18. SEC Form 17-C filed 14 November 2007 reporting the following:

a. approval of IPC to acquire a carrier neutral, telco-grade internet data center in Singapore through the purchase of 100% of IP-Converge Pte. Ltd., which owns and operates the Singapore IDC. b. launch of I-Pay Commerce Ventures, Inc. , the Corporation’s subsidiary, which is in the business of providing payment processing services to the public. c. The 3 rd Quarter and year to date consolidated revenues of the Corporation and its subsidiaries. d. Entry into the Vietnam Online games market through investment in Cyberworld Corporation, a fully licensed online games publisher in Vietnam.

19. Form 17-C filed 23 November 2007, reporting the resignation of Mr. Martin T. Lichauco as a member of the Board of Directors of the Corporation effective immediately and the election of Mr. Emmanuel L. Jalandoni to replace Mr. Lichauco.

20. SEC Form 17-C filed 3 December 2007, disclosing the execution of an Agreement with Sabiclub.com Corp. for a 40% equity stake in a subsidiary to be created by Sabiclub for up to US$480,000.

21. SEC Form 17-C filed 3 December 2007, reporting the execution of a Memorandum of Understanding (“MOU”) with AO Capital Partners Ltd. (“AO Capital”) to create a special purpose vehicle (“SPV”) for purposes of making a proposal to acquire PeopleSupport, Inc. (People Support). Pursuant thereto, a letter proposal was submitted to

People Support to acquire through an all-cash offer the outstanding capital stock of People Support with target valuation of $15 per share, representing a 28% premium over PeopleSupport’s 60- day weighted average closing price.

22. SEC Form 17-C dated 20 December 2007, reporting the execution by the Corporation’s subsidiary, IP E-Game Ventures, Inc. (“IPE”), of a Shareholders’ Agreement with GMA New Media, Inc. (“GMA-NMI”) creating and operating a joint venture company (“JVC”) which will engage in the business of designing, operating and maintaining casual online gaming and casual online gaming related portals. The JVC shall have an authorized capital stock of P800M with an initial paid in capitalization of P200M, to be equally owned by IPE and GMA- NMI, with each party having a 50% stake in the JVC.

23. SEC Form 17-C filed 26 December 2007, disclosing the Corporation’s execution of a Memorandum of Agreement (“MOA”) with the stockholders of Interactive Teleservices Corporation (“Influent”) a leading US based contact center, for the acquisition of 70% stake in the company.

IPVG CORP. AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS December 31, 2007 and 2006

Manabat Sanagustin & Co. Telephone +63 (2) 885 7000

Certified Public Accountants +63 (2) 893 8507

22/F, Philamlife Tower, 8767 Paseo de Roxas Fax +63 (2) 894 1985 Makati City 1226, Metro Manila, Philippines +63 (2) 816 6 595

Internet www.kpmg.com.ph e-Mail [email protected]

PRC -BOA Registration No. 0003 SEC Accreditation No. 0004 -FR -1 BSP Accredited

REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Stockholders IPVG Corp. 34 th 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 balance sheets as at December 31, 2007 and 2006, and the consolidated statements of operations, consolidated statements of changes in equity (capital deficiency) and consolidated statements of cash flows for each of the three years in the period ended December 31, 2007, and a summary of significant accounting policies and other explanatory notes.

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. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.

Auditors’ Responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits 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 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 auditors’ 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 auditors consider 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.

Units 142/144 & 146/148 Unit 503, 5 th Floor, Keppel Center Ground Floor, Alpha Building Samar Loop corner 2nd Floor, Uy Building Subic International Hotel Compound Cardinal Rosales Avenue Sen. B. Aquino Avenue Suite 3, Doll Building Rizal corner Sta. Rita Roads Cebu Business Park Mandurriao 6th Street Manabat Sanagustin & Co. Subic Bay Freeport Zone 2222 Cebu City 6000 Iloilo City 5000 Bacolod City 6100 certified public accountants, Philippines Philippines Philippines Philippines

a professional partnership established Telephone +63 (47) 252 2825 Telephone +63 (32) 233 9337 Telephone +63 (33) 321 3821 Telephone +63 (34) 434 9225 under Philip pine law, is a member of the +63 (32) 233 9339 +63 (33) 321 3822 KPMG firms affiliated network with of independent KPMG International, member a Fax +63 (47) 252 2826 Fax +63 (32) 233 9327 Fax +63 (33) 321 3823 Fax +63 (34) 434 8015 Swiss cooperative. e-Mail [email protected] e-Mail [email protected] e-Mail [email protected] e-Mail [email protected]

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of IPVG Corp. and Subsidiaries as of December 31, 2007 and 2006, and their consolidated financial performance and their consolidated cash flows for each of the three years in the period ended December 31, 2007, in accordance with Philippine Financial Reporting Standards.

MANABAT SANAGUSTIN & CO.

JOSE P. JAVIER, JR. Partner CPA License No. 0070807 SEC Accreditation No. 0678-A Tax Identification No. 112-071-224 BIR Accreditation No. 08-001987-16-2007 Issued December 11, 2007; Valid until December 10, 2010 PTR No. 0988737 J Issued January 7, 2008 at Makati City

April 28, 2008 Makati City, Metro Manila

Manabat Sanagustin & Co. Telephone +63 (2) 885 7000

Certified Public Accountants +63 (2) 893 8507

22/F, Philamlife Tower, 8767 Paseo de Roxas Fax +63 (2) 894 1985 Makati City 1226, Metro Manila, Philippines +63 (2) 816 6 595

Internet www.kpmg.com.ph e-Mail [email protected]

PRC -BOA Registration No. 0003 SEC Accreditation No. 0004 -FR -1 BSP Accredited

REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Stockholders IPVG Corp. 34 th Floor, Tower 2, RCBC Plaza Ayala Avenue, Makati City

We have audited the accompanying consolidated financial statements of IPVG Corp. and Subsidiaries as of and for the year ended December 31, 2007, on which we rendered our report dated April 28, 2008.

Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. The accompanying supplementary schedules as of December 31, 2007 and for the year then ended, required by the Securities and Exchange Commission, are presented for the purpose of additional analysis and are not a required part of the basic financial statements. The information in such supplementary schedules has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated, in all material respects, when considered in relation to the basic financial statements taken as a whole.

MANABAT SANAGUSTIN & CO.

JOSE P. JAVIER, JR. Partner CPA License No. 0070807 SEC Accreditation No. 0678-A Tax Identification No. 112-071-224 BIR Accreditation No. 08-001987-16-2007 Issued December 11, 2007; Valid until December 10, 2010 PTR No. 0988737 J Issued January 7, 2008 at Makati City

April 28, 2008 Makati City, Metro Manila

Units 142/144 & 146/148 Unit 503, 5 th Floor, Keppel Center Ground Floor, Alpha Building Samar Loop corner 2nd Floor, Uy Building Subic International Hotel Compound Cardinal Rosales Avenue Sen. B. Aquino Avenue Suite 3, Doll Building Rizal corner Sta. Rita Roads Cebu Business Park Mandurriao 6th Street Manabat Sanagustin & Co. Subic Bay Freeport Zone 2222 Cebu City 6000 Iloilo City 5000 Bacolod City 6100 certified public accountants, Philippines Philippines Philippines Philippines

a professional partnership established Telephone +63 (47) 252 2825 Telephone +63 (32) 233 9337 Telephone +63 (33) 321 3821 Telephone +63 (34) 434 9225 under Philip pine law, is a member of the +63 (32) 233 9339 +63 (33) 321 3822 KPMG firms affiliated network with of independent KPMG International, member a Fax +63 (47) 252 2826 Fax +63 (32) 233 9327 Fax +63 (33) 321 3823 Fax +63 (34) 434 8015 Swiss cooperative. e-Mail [email protected] e-Mail [email protected] e-Mail [email protected] e-Mail [email protected]

IPVG CORP. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS

December 31 Note 2007 2006 ASSETS Current Assets Cash 30 P171,189,335 P47,665,264 Short-term investments 6, 30 125,000,000 - Receivables - net 7, 24, 30 261,927,015 62,850,343 Due from related parties - net 19, 30 139,594,522 5,401,724 Inventories - net 8 12,180,647 4,055,781 Prepaid expenses and other current assets 9, 24, 29 179,915,823 18,884,311 Total Current Assets 889,807,342 138,857,423 Noncurrent Assets Investments in associates and joint venture – net 10 9,999,998 - Property and equipment - net 7, 11, 15, 18, 20 184,674,629 94,069,092 Intangible assets - net 7, 12 322,714,757 26,601,947 Deferred tax assets - net 27 32,429,508 28,881,855 Other noncurrent assets 13, 26, 30 52,019,043 4,382,684 Total Noncurrent Assets 601,837,935 153,935,578 P1,491,645,277 P292,793,001

LIABILITIES AND EQUITY Current Liabilities Accounts payable and accrued expenses 14, 30 P208,328,785 P113,871,477 Loans payable – current 11, 15, 30 105,185,128 8,289,969 Current portion of obligations under finance lease 16, 30 5,674,156 3,180,510 Advances from officers and stockholders 19, 30 1,386,539 5,813,102 Income tax payable 27 12,077,835 570,401 Unearned revenues 17 32,988,795 35,491,216 Other current liabilities 11, 18, 30 58,499,244 41,219,256 Total Current Liabilities 424,140,482 208,435,931

Noncurrent Liabilities Loans payable - net of current portion 11, 15, 30 20,964,150 28,712,799 Obligations under finance lease - net of current portion 16, 30 527,484 8,390,540 Subscriptions payable 10, 30 7,666,092 166,092 Accrued retirement liability 25 3,502,615 2,159,805 Other noncurrent liabilities 11, 20 1,431,021 4,710,927 Total Noncurrent Liabilities 34,091,362 44,140,163 Total Liabilities 458,231,844 252,576,094

Share in Accumulated Losses of Subsidiaries in Excess of Investments (2,857,980) (13,933,065) Forward

December 31 Note 2007 2006 Equity Equity Attributable to the Equity Holders of the Parent Company Common stock 21 P622,948,863 P430,883,068 Additional paid-in capital 770,532,758 115,767,446 Deposits for future stock subscriptions 21 1,009,333 45,109,333 Deficit (397,242,831) (543,734,584) Treasury stock (83,888) (83,888) Total Equity Attributable to the Equity Holders of the Parent Company 997,164,235 47,941,375 Minority Interest 21 39,107,178 6,208,597 Total Equity 1,036,271,413 54,149,972 P1,491,645,277 P292,793,001

See Notes to the Consolidated Financial Statements.

IPVG CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS

Years Ended December 31 Note 2007 2006 2005 REVENUES - Net 22 P714,559,612 P242,703,647 P29,842,664 COSTS OF SERVICES 11, 12, 23, 26, 29 375,405,840 159,925,816 19,392,225 GROSS PROFIT 339,153,772 82,777,831 10,450,439

OPERATING EXPENSES Salaries and other employees’ benefits 19, 25 93,073,682 110,857,394 18,669,222 Depreciation and amortization 11, 12 40,113,416 17,136,327 9,135,738 Transportation and travel 28,464,383 7,736,029 3,751,628 Advertising and promotions 24,832,449 42,856,563 2,191,842 Professional fees 18,198,091 11,925,616 2,995,193 Rent 26 17,794,411 3,010,973 4,563,317 Supplies and other office expenses 14,877,083 6,134,047 1,082,456 Communication, light and water 12,760,025 3,493,550 2,046,685 Other outside services 9,526,383 3,820,631 978,368 Representation 7,937,264 3,193,288 1,701,119 Impairment losses 7, 30 3,553,040 1,432,304 9,316,337 Taxes and licenses 3,128,188 514,022 548,216 Repairs and maintenance 963,331 1,134,952 248,419 Donation 709,800 - - Recruitment and hiring 228,710 - - Miscellaneous 1,064,512 2,029,942 1,073,925 277,224,768 215,275,638 58,302,465 INCOME (LOSS) FROM OPERATIONS 61,929,004 (132,497,807) (47,852,026) OTHER INCOME (EXPENSES) - Net Other income 24 163,698,604 15,406,787 3,335,075 Foreign exchange gains (losses) - net (26,686,146) 1,232,644 2,655,812 Interest - net (2,479,817) (17,085,634) (3,345,788) Others (1,402,178) (1,214,806) (1,047,273) 133,130,463 (1,661,009) 1,597,826

INCOME (LOSS) BEFORE SHARE IN NET LOSSES (INCOME) OF CONSOLIDATED SUBSIDIARIES IN EXCESS OF INVESTMENTS 195,059,467 (134,158,816) (46,254,200) SHARE IN NET LOSSES (INCOME) OF CONSOLIDATED SUBSIDIARIES IN EXCESS OF INVESTMENTS (11,075,085) 10,927,817 292,060 Forward

Years Ended December 31 Note 2007 2006 2005 INCOME (LOSS) BEFORE INCOME TAX P183,984,382 (P123,230,999) (P45,962,140) PROVISION FOR (BENEFIT FROM) INCOME TAX 27 14,448,012 (21,093,800) (2,955,397) NET INCOME (LOSS) P169,536,370 (P102,137,199) (P43,006,743)

Attributable to: Equity holders of the Parent Company P146,491,753 (P89,702,311) (P42,282,361) Minority interest 23,044,617 (12,434,888) (724,382) P169,536,370 (P102,137,199) (P43,006,743)

Earnings (Loss) Per Share 28 Basic P0.2780 (P0.2234) (P0.1137) Diluted 0.2780 (0.2234) (0.1121)

See Notes to the Consolidated Financial Statements.

IPVG CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (CAPITAL DEFICIENCY)

Years Ended December 31 Note 2007 2006 2005 EQUITY ATTRIBUTABLE TO THE EQUITY HOLDERS OF THE PARENT COMPANY COMMON STOCK 21 Balance at beginning of year P430,883,068 P371,980,785 P371,980,785 Issuances during the year 192,065,795 58,902,283 - Balance at end of year 622,948,863 430,883,068 371,980,785

ADDITIONAL PAID-IN CAPITAL Balance at beginning of year 115,767,446 41,371,290 41,371,290 Additions during the year 654,765,312 74,396,156 - Balance at end of year 770,532,758 115,767,446 41,371,290

DEPOSITS FOR FUTURE STOCK SUBSCRIPTIONS 21 Balance at beginning of year 45,109,333 26,259,333 19,844,370 Additions (issuances) during the year (44,100,000) 18,850,000 6,414,963 Balance at end of year 1,009,333 45,109,333 26,259,333

COMMON STOCK OPTIONS OUTSTANDING 21 - - 5,125,000 DEFICIT Balance at beginning of year (543,734,584) (454,032,273) (411,749,912) Net income (loss) during the year 146,491,753 (89,702,311) (42,282,361) Balance at end of year (397,242,831) (543,734,584) (454,032,273) TREASURY STOCK at cost - 97,510 shares (83,888) (83,888) (83,888) 997,164,235 47,941,375 (9,379,753)

MINORITY INTEREST 21 Balance at beginning of year 6,208,597 (3,080,388) (2,356,006) Additions during the year 9,853,964 21,723,873 - Share in net income (loss) during the year 23,044,617 (12,434,888) (724,382) Balance at end of year 39,107,178 6,208,597 (3,080,388) P1,036,271,413 P54,149,972 (P12,460,141)

See Notes to the Consolidated Financial Statements.

IPVG CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS

Years Ended December 31 Note 2007 2006 2005 CASH FLOWS FROM OPERATING ACTIVITIES Income (loss) before income tax P183,984,382 (P123,230,999) (P45,962,140) Adjustments for: Gain (loss) on disposal of property and equipment 24 (58,218,139) 61,785 750,616 Depreciation and amortization 11, 12 51,570,924 30,050,011 9,135,738 Interest expense 10,753,352 17,436,942 3,427,137 Interest income (8,273,535) (352,905) (81,348) Impairment losses 3,553,040 1,432,304 9,316,337 Stock options benefit - 31,775,000 5,125,000 Operating income (loss) before working capital changes 183,370,024 (42,827,862) (18,288,660) Increase in: Receivables (116,439,101) (53,330,418) (4,354,028) Inventories (9,244,366) (4,055,781) - Due from related parties (134,192,798) (2,346,438) (4,492,787) Prepaid expenses and other current assets (161,031,512) (13,876,356) (5,107,892) Increase (decrease) in: Accounts payable and accrued expenses 94,457,308 74,159,100 35,158,657 Unearned revenues (2,502,421) 35,040,613 450,603 Other current liabilities 17,279,988 23,259,308 7,180,705 Accrued retirement liability 1,342,810 1,608,207 551,598 Cash generated from (used in) operations (126,960,068) 17,630,373 11,098,196 Interest paid (10,753,352) (16,768,426) (212,025) Income tax paid (6,488,231) (1,103,894) (324,536) Interest received 5,702,424 352,905 81,348 Net cash provided by (used in) operating activities (138,499,227) 110,958 10,642,983

CASH FLOWS FROM INVESTING ACTIVITIES Increase in goodwill 12 (271,530,070) - - Additions to: Property and equipment 11 (142,080,844) (59,284,237) (66,939,570) Intangible assets 12 (48,960,218) (21,471,091) (7,196,165) Proceeds from short-term investments 6 (125,000,000) - - Decrease (increase) in other noncurrent assets (47,636,359) 7,861,009 (11,706,498) Additional investments in associates and joint venture (2,499,998) - - Proceeds from disposal of property and equipment - 139,727 25,000 Net cash used in investing activities (637,707,489) (72,754,592) (85,817,233) Forward

Years Ended December 31 2007 2006 2005 CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from loans 15 P102,293,097 P29,989,493 P49,329,738 Repayments of loans (13,146,587) (1,323,508) - Increase (decrease) in obligations under finance lease (5,369,410) 1,772,093 9,798,958 Increase (decrease) in other noncurrent liabilities (3,279,906) 1,745,224 10,369,769 Repayment of advances from officers and stockholders (4,426,563) 3,018,353 - Decrease (increase) in share in accumulated losses of subsidiaries in excess of investments 11,075,085 (10,927,817) (292,060) Proceeds from issuances of shares of stock 21 147,965,795 71,148,439 - Increase in additional paid-in capital 21 654,765,312 - - Additions to minority interest 9,853,964 21,723,873 - Deposits for future stock subscriptions - - 6,414,963 Net cash provided by financing activities 899,730,787 117,146,150 75,621,368

NET INCREASE IN CASH 123,524,071 44,502,516 447,118 CASH AT BEGINNING OF YEAR 47,665,264 3,162,748 2,715,630 CASH AT END OF YEAR P171,189,335 P47,665,264 P3,162,748

See Notes to the Consolidated Financial Statements.

IPVG CORP. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. Reporting Entity

IPVG Corp. (“the Parent Company”) was registered with the Philippine Securities and Exchange Commission (SEC) and listed in the Philippine Stock Exchange (PSE) on December 9, 2003. The Parent Company’s primary purpose is to invest its funds in media and information technology businesses, as well as engage in management of investment in media and information technology industry, and to engage in the business of providing internet, intranet, extranet, content delivery, non-regulated on-line gaming, non-regulated computer game retailing, call centers, data center and value-added services to any and all types of information technology users, whether private or government-owned, in the local, regional and global markets, including but not limited to reselling manufacturing, assembling, processing, producing, inventing and developing, any and all kinds of communication products and services; purchase, sale, import and export, license, distribution and rental of any computer hardware, equipment and all other types of similar or allied products and the components thereof; engage in e-commerce, including but not limited to purchase, sale, import and export distribution and marketing at wholesale and retail insofar as may be permitted by law, all kinds of goods, commodities, ware and merchandise of every kind and description through the use of internet, intranet, extranet and other value-added services; and in consequence or as may be necessarily useful and convenient in the premises, carry on and undertake such activities which may be reasonably and conveniently carried on in connection with or incidental to the above purpose, or calculated, directly or indirectly, to enhance the value of or render profitable, any of the Parent Company’s property or rights.

The Parent Company’s registered office address is at 34th Floor, Tower 2, RCBC Plaza, Ayala Avenue, Makati City.

2. Basis of Preparation

Statement of Compliance The consolidated financial statements have been prepared in accordance with Philippine Financial Reporting Standards (PFRS). PFRS includes statements named PFRS and Philippine Accounting Standards (PAS), including Philippine Interpretation from International Financial Reporting Interpretations Committee (IFRIC), issued by the Financial Reporting Standards Council (FRSC.)

The consolidated financial statements as of and for the year ended December 31, 2007 comprise the financial statements of the Parent Company and its subsidiaries (collectively referred to as “the Group”).

The consolidated financial statements as of and for the year ended December 31, 2007 were approved and authorized for issue by the Board of Directors (BOD) on April 28, 2008.

Basis of Measurement The consolidated financial statements have been prepared on the historical cost basis.

Functional and Presentation Currency The consolidated financial statements are presented in Philippine peso, which is the Group’s functional currency.

Use of Estimates and Judgments The preparation of the consolidated financial statements in conformity with PFRS requires management to make judgments, estimates and assumptions that affect the application of policies and reported amounts of assets, liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances; the results of which form the basis of making the judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Although, these estimates are based on management’s best knowledge of current events and actions, actual results may differ from these estimates.

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.

In particular, information about significant areas of estimation uncertainty and critical judgments in applying accounting policies that have the most significant effect on the amounts recognized in the consolidated financial statements are as follows:

Assessment of Material Contracts, Computer Software and Licenses as Intangible Assets The Group acquired material contracts, computer software and licenses to be used for its primary line of business. Based on the following attributes, the Group assessed that the material contracts, computer software and licenses are intangible assets since: (1) the computer software and licenses are separable and are not an integral part of the related hardware, thus, the Group can sell the computer software and licenses individually or together with a related contract, asset or liability; (2) the material contracts can be sold separately; and (3) the material contracts, computer software and licenses arose from contractual or other legal rights.

Finance Leases The Group has entered into various lease of computer equipment. The Group has determined that the lease arrangement is a finance lease arrangement due to the following: (1) the present value of the minimum lease payments amounts to at least substantially all of the fair value of the leased asset; and (2) due to the nature of the leased asset, the lease term is for the major part of the economic life of the asset.

As of December 31, 2007 and 2006, obligations under finance lease amounted to P6,201,640 and P11,571,050, respectively (see Note 16).

Operating Leases The Group has entered into various lease agreements as lessee. The Group has determined that the lessor retains all significant risk and rewards of ownership of these properties which are leased out under operating lease arrangements.

Rent expense recognized in the statements of operations in 2007, 2006 and 2005 amounted to P37,722,121, P18,627,786 and P10,052,943, respectively (see Note 26) .

Functional Currency The Group has determined that its functional currency is the Philippine peso. It is the currency of the primary economic environment in which the Group operates.

Estimating Allowance for Impairment Losses on Receivables The Group maintains allowance for impairment losses at a level considered adequate to provide for probable uncollectible receivables. The level of this allowance is evaluated by management on the basis of factors that affect the collectibility of accounts. The Group reviews the age and status of receivables, and identifies accounts that are to be provided with allowances on a continuous basis. The amount and timing of the recorded expenses for any period would differ if the Group made different judgments or utilized different methodologies. An increase in allowance for impairment losses would increase the recorded operating expenses and decrease current assets.

As of December 31, 2007 and 2006, receivables, net of allowance for impairment losses, amounted to P261,927,015 and P62,850,343, respectively (see Notes 7 and 30).

Estimating Net Realizable Values The Group provides an allowance for inventories whenever the utility of inventories becomes lower than cost due to damage, physical deterioration, obsolescence, changes in price levels or other causes. The estimate of net realizable value is reviewed regularly.

As of December 31, 2007 and 2006, inventories stated at net realizable value amounted to P12,180,647 and P4,055,781, respectively (see Note 8).

Estimating Useful Lives of Property and Equipment The Group estimates the useful lives of property and equipment based on the period over which the assets are expected to be available for use. The estimated useful lives of property and equipment are reviewed at each balance sheet date and are updated if expectations differ from previous estimates due to physical wear and tear, technical or commercial obsolescence and legal or other limits on the use of the assets. In addition,

estimation of the useful lives of property and equipment is based on collective assessment of industry practice, internal technical evaluation and experience with similar assets. It is possible, however, that future results of operations could be materially affected by changes in these estimates brought about by changes in factors mentioned above.

The estimated useful lives of property and equipment are as follows:

Number of Years Office and network equipment 3 - 5 Office furniture and equipment 3 - 5 Computer equipment 3 - 5 Leasehold improvements 5 Transportation equipment 3 - 5

As of December 31, 2007 and 2006, property and equipment, net of accumulated depreciation and amortization, amounted to P184,674,629 and P94,069,092, respectively (see Note 11).

Estimating Useful Lives of Intangible Assets with Finite Lives The Group assessed that the useful lives of intangible assets, specifically material contracts, computer software and licenses, are finite. Thus, these intangible assets with finite lives are amortized over its useful lives. The Group estimates the useful lives and amortization method of intangible assets with finite lives based on the period and pattern in which the intangible assets’ future economic benefits are expected to be consumed by the Group. The estimated useful lives and amortization period of intangible assets with finite lives are reviewed at each balance sheet date and are updated if there are changes in the expected useful lives or the expected pattern of consumption of future economic benefits embodied in the intangible assets. It is possible, however, that future results of operations could be materially affected by changes in estimates brought about by changes in the estimates used.

The estimated useful lives of intangible assets with finite lives are three (3) to seven (7) years.

As of December 31, 2007 and 2006, intangible assets with finite lives, net of accumulated amortization, amounted to P49,369,288 and P24,786,548, respectively (see Note 12).

Impairment of Financial and Non-financial Assets In accordance with the Group’s policy on impairment, the Group performs an impairment test when certain impairment indicators are present. In determining the present value of future cash flows expected to be generated from the continued use of financial and non-financial assets, the Group is required to make estimates and assumptions that can materially affect the consolidated financial statements.

As of December 31, 2007 and 2006, the Group has determined that there is no additional impairment necessary for its financial and non-financial assets.

Estimating Deferred Tax Assets and Liabilities The Group reviews its deferred tax assets at each balance sheet 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 asset to be utilized. The Group also reviews the expected timing and tax rates upon reversal of temporary differences and adjusts the impact of deferred tax accordingly.

As of December 31, 2007 and 2006, the temporary differences wherein no deferred tax assets were recognized amounted to P45,690,292 and P105,663,381, respectively. As of December 31, 2007 and 2006, deferred tax assets recognized amounted to P32,429,508 and P28,881,855, respectively (see Note 27).

Asset Retirement Obligation Determining asset retirement obligation requires estimation of the cost of dismantling property and equipment and other costs of restoring the leased properties to their original condition. The Group determined that there are no significant asset retirement obligations as of December 31, 2007 and 2006.

3. Significant Accounting Policies

Adoption of New Standards, Revised Standards, Amendments to Standards and Interpretations The FRSC approved the adoption of new standards, revised standards, amendments to standards and interpretations.

New Standard and Amendment to Standard Adopted in 2007 Effective January 1, 2007, the Group adopted the following new standard and amendment to standard which are relevant to its operations:

PFRS 7, Financial Instruments: Disclosures, introduces new disclosures to improve the information about financial instruments. It requires the disclosure of quantitative and qualitative information about exposure to risks arising from financial instruments, including specified minimum disclosures about credit risk, liquidity risk and market risk, as well as sensitivity analysis to market risk. It replaces the disclosure requirements of PAS 32, Financial Instruments: Disclosures and Presentation. Adoption of this standard resulted in the inclusion of additional disclosure on the consolidated financial statements (see Note 4).

The Group adopted the amendment to the transitional provisions of PFRS 7 as approved by the FRSC of the Philippines, which gives transitory relief with respect to the presentation of comparative information for the new risk disclosures about the nature and extent of risks arising from financial instruments. Accordingly, the Group did not present comparative information for the disclosures required by PFRS 7, unless the disclosures were previously required under PAS 32; and

Amendment to PAS 1, Presentation of Financial Statements - Capital Disclosures , introduces disclosures about the entity's objectives, policies and processes for managing capital; quantitative data about what the entity regards as capital; whether the entity has complied with any capital requirements; and if it has not complied, the consequences of such non-compliance. Adoption of these amendment resulted in inclusion of additional disclosures in the consolidated financial statements (see Note 4).

New Standard, Revised Standards, Amendment to Standard and Interpretations Not Yet Adopted

PFRS 8, Operating Segments, requires an entity to adopt the “management approach” to reporting segment information. It is required for adoption only by entities whose debt or equity instruments are publicly traded, or are in the process of filing with the Philippine SEC for the purposes of issuing any class of instruments in a public market. PFRS 8 is effective for annual periods beginning on or after January 1, 2009 and will replace PAS 14, Segment Reporting ;

Revised PFRS 3, Business Combinations , includes in its scope business combinations involving only mutual entities, and those in which separate entities or businesses are brought together to form a reporting entity by contract alone. All business combinations are accounted for by applying the acquisition method (referred to previously as the purchase method). Revised PFRS 3 is effective for annual periods beginning on or after July 1, 2009;

Revised PAS 1, Presentation of Financial Statements , this revised standard will be effective for financial years beginning on or after January 1, 2009. In accordance with the revised PAS 1, the statements of changes in equity shall include only transactions with owners, while all non-owner changes will be presented in equity as a single line with details included in a separate statement. Owners are defined as holders of instruments classified as equity.

In addition, the revised PAS 1 provides for the introduction of a new statement of comprehensive income that combines all items of income and expense recognized in the statements of income together with “other comprehensive income”. The revisions specify what is included in other comprehensive income, such as gains and losses on available-for-sale assets, actuarial gains and losses on defined benefit pension plans and changes in the asset revaluation reserve. Entities can choose to present all items in one statement, or to present two linked statements, a separate statement of income and a statement of comprehensive income;

Revised PAS 23, Borrowing Costs, removes the option to expense borrowing costs and requires that an entity capitalize borrowing costs directly attributable to the acquisition, construction or production of a

qualifying asset as part of the cost of that asset. Revised PAS 23 is effective for annual periods beginning on or after January 1, 2009;

Amendment to PAS 27, Consolidated and Separate Financial Statements , relates mainly to changes in the accounting for non-controlling interest and the loss of control of a subsidiary. Amendment to PAS 27 is effective for annual periods beginning on or after July 1, 2009;

IFRIC 11, PFRS 2 - Group and Treasury Share Transactions , describes how to apply PFRS 2, Share- based Payment , to share-based payment arrangements involving an entity’s own equity instruments and share-based payment arrangements of subsidiaries involving equity instruments of its parent company. IFRIC 11 is effective for annual periods beginning on or after January 1, 2008;

IFRIC 13, Customer Loyalty Programmes , addresses the accounting by entities that operate, or otherwise participate in, customer loyalty programmes for their customers. It relates to customer loyalty programmes under which the customer can redeem credits for awards such as free or discounted goods or services. IFRIC 13 is effective for annual period beginning on or after July 1, 2008; and

IFRIC 14, PAS 19 Employee Benefits - The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction , clarifies when refunds or reductions in future contributions in relation to defined benefit assets should be regarded as available and provides guidance on the impact of minimum funding requirements (MFR) on such assets. It also addresses when a MRF might give rise to a liability. IFRIC 14 is effective for annual periods beginning on or after January 1, 2008.

Under prevailing circumstances, the adoption of the above new standard, revised standards, amendment to standard and interpretations are not expected to have a material effect on the Group’s financial statements.

The following summary explains the significant accounting policies which have been adopted and consistently applied in the preparation of the consolidated financial statements.

Principles of Consolidation The consolidated financial statements include the accounts of the Parent Company and the individual accounts of the following subsidiaries:

Proportion of Ownership Interest Held by Effective Equity Parent Interest of the Name of Subsidiary Company Subsidiary Parent Company IP Converge Data Center Inc. (IPCDC) 100.00% 100.00% IP-Converge Pte. Ltd. (IPCP) (a) 100.00% 100.00% IP Converge Data Services, Inc. (IPDS) (a) 100.00% 100.00% IP Contact Center Outsourcing Inc. (IPCCO) 100.00% 100.00% International On-line Games, Inc. (IOG) (a) 100.00% 100.00% Station 168 Corp. (S168) (a) 100.00% 100.00% IP E-Game Ventures Inc. (IPEG) 71.01% 71.01% Ran On-line, Inc. (ROI) (a) 100.00% 71.01% I-Pay Commerce Ventures Inc. (IPAY) (a) 66.67% 66.67% IP Distance Learning Ventures Inc. (IPDL) (a) 60.00% 60.00% Single Search Philippines, Inc. (SSPI) (b) 50.94% 50.94% Next Sequel Interactive Inc. (NSI) (b) 33.33% 33.33% (a) has not started commercial operations (b) dormant

IPCDC is a company registered and incorporated in the Philippines to develop, produce, design, integrate, sell, buy or otherwise deal with goods and services in connection with the transmission, receiving, or exchange of voice, data, video or any form or kind of communication.

IPCP is a company registered and incorporated in Singapore to carry on the business of an internet access/service provider. IPCP was incorporated on July 23, 2007 and has not started commercial operations.

IPDS is a company registered and incorporated in the Philippines to render various services and applications such as data center services, co-location services and managed services. IPDS was incorporated on September 6, 2005 and has not started commercial operations.

IPCCO is a company registered and incorporated in the Philippines to engage in business process outsourcing activities and operate as a contact center.

IOG is a company registered and incorporated in the Philippines to engage in the business of interactive gaming and content distribution, catering to the local, regional and global market and provide internet, intranet, extranet and other value-added services. IOG was incorporated on January 1, 2005 and has not started commercial operations.

S168 is a company registered and incorporated in the Philippines to engage in the business of providing computer and internet service to the public such as interactive online gaming, internet access, lease of computer, and any other incidental services thereto. S168 was incorporated on July 12, 2006 and has not started commercial operations.

IPEG is a company registered and incorporated in the Philippines to engage in the business of interactive gaming and content distribution.

ROI is a company registered and incorporated in the Philippines to engage in the business of interactive gaming and content distribution. ROI was incorporated on August 3, 2006 and has not started commercial operations.

IPAY is a company registered and incorporated in the Philippines to provide end-to-end payment solutions, card issuance platforms, payment vehicles linked to electronic wallets, switching solutions, remittance services, and any other value added services for payment processing. IPAY was incorporated on April 16, 2007 and has not started commercial operations.

IPDL is a company registered and incorporated in the Philippines to provide English learning services through learning centers, e-mail, internet, phone, and any other means of communication. IPDL was incorporated on April 24, 2007 and has not started commercial operations.

SSPI is a company registered and incorporated in the Philippines to primarily engage in the business of website and data maintenance, phone line services, and providing relationship matchmaking services for Filipino citizens over the internet. SSPI has suspended its operations in 2004.

NSI is a company registered and incorporated in the Philippines primarily engaged to create, produce, operate, maintain and carry out audio, visual and audio-visual materials including but not limited to presentations, promotions, commercials, and documentaries through any medium of communication or telecommunication. NSI has suspended its operations in 2005. Although the Parent Company controls less than 50% of the voting shares of stock of NSI, it has the power to govern the financial and operating policies of the aforementioned entity. Accordingly, NSI was included in the consolidation.

Subsidiaries are entities controlled by the Group. Control exists when the Group has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that are currently exercisable are taken into account. Subsidiaries are consolidated from the date control is transferred to the Group and cease to be consolidated from the date control is transferred out of the Group.

The financial statements of the subsidiaries are prepared for the same reporting year using uniform accounting policies for like transactions and other events in similar circumstances. All significant intragroup account balances and transactions were eliminated in the consolidated financial statements.

Non-derivative Financial Instruments Non-derivative financial instruments comprise of cash, short-term investments, receivables, due from related parties, deposits, accounts payable and accrued expenses, loans payable, obligations under finance lease, advances from officers and stockholders, other current liabilities and subscriptions payable.

Non-derivative financial instruments are recognized initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, non-derivative financial instruments are measured as described below.

Cash Cash includes cash on hand and in banks. Cash in banks earns interest at the respective deposit rates. These are carried at face value.

Short-term Investments Short-term investments consist of money market placements and certificate of deposits with original maturities of less than one year from date of issue.

Receivables Receivables are subsequently measured at amortized cost using effective interest method, less allowance for impairment. An allowance for impairment of receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables. The amount of the allowance is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the effective interest rate.

Borrowings Borrowings are subsequently measured at amortized cost using the effective interest method.

Other Other non-derivative financial instruments are measured at amortized cost using the effective interest method, less any impairment losses.

De-recognition of Financial Assets and Financial Liabilities Financial assets are de-recognized if the Group’s contractual rights to the cash flows from the financial assets expire or if the Group transfers the financial asset to another party without retaining control or substantially all risks and rewards of the asset. Financial liabilities are de-recognized if the Group’s obligations specified in the contract expire or are discharged or cancelled.

Inventories Inventories are stated at the lower of cost and net realizable value. Cost is determined using the weighted average method. Net realizable value is the estimated selling price less estimated costs to sell.

Investments in Associates and Joint Venture Investments in associates and joint venture are accounted for under the equity method of accounting.

Associates are those entities in which the Group has significant influence, but not control, over the financial and operating policies. Under the equity method, the investment is initially recorded at cost and the carrying amount is increased or decreased to recognize the investor’s share of the profits and losses of the investee after the date of acquisition. Distributions received from an investee reduce the carrying amount of the investment. When the Group’s share of losses exceeds the carrying amount of the investments in associates, the carrying amount is fully written down and recognition of further losses is discontinued except to the extent that the Group have incurred obligations in respect of the associates. Allowance is set-up for any substantial and presumably permanent decline in the carrying amount of the investments.

A joint venture is a contractual arrangement whereby two or more parties undertake and economic activity which is subject to a joint control. The interest in First Cagayan Converge Data Center, Inc. (FCC), a joint venture, is accounted for under the allowed alternative treatment using the equity method. Property and Equipment Property and equipment are stated at cost less accumulated depreciation, amortization and impairment losses, if any.

Initially, an item of property and equipment is measured at its cost, which comprises its purchase price and any directly attributable cost of bringing the asset to the location and condition for its intended use. Subsequent costs that can be measured reliably are added to the carrying amount of the asset when it is probable that future economic benefits associated with the asset will flow to the Group. The costs of day-to- day servicing of an asset are recognized as expenses in the period in which they are incurred.

Depreciation is recognized in the consolidated statements of operations on a straight-line basis over the estimated useful lives of the each part of an item of property and equipment. Leasehold improvements are amortized over the estimated useful lives of the improvements or the term of the lease, whichever is shorter.

The useful lives and depreciation and amortization method are reviewed at each balance sheet date to ensure that such useful lives and depreciation and amortization method are consistent with the expected pattern of economic benefits from those assets.

When an asset is disposed of, or is permanently withdrawn from use and no future economic benefits are expected from its disposal, the cost and accumulated depreciation, amortization and impairment losses, if any, are removed from the accounts and any resulting gain or loss arising from the retirement or disposal is recognized in the consolidated statements of operations.

Intangible Assets Intangible assets consist of material contracts, computer software and licenses and goodwill.

Material contracts, computer software and licenses are measured at cost less accumulated amortization and impairment losses, if any. Amortization is computed using the straight line method over the estimated useful lives. The useful lives of intangible assets are assessed to be either finite or indefinite. Intangible assets with finite lives are amortized over the useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortization period and method for an intangible asset with finite useful life is reviewed annually or earlier whenever an indicator 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.

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 impairment losses, if any. Goodwill is reviewed annually or more frequently if events or changes in circumstances indicate the carrying value 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 the consolidated statements of operations.

Impairment of Assets Financial Assets A financial asset is considered to be impaired if objective evidence indicates that one or more events have had a negative effect on the estimated future cash flows of that asset.

An impairment loss in respect of a financial asset measured at amortized cost is calculated as the difference between its carrying amount, and the present value of the estimated future cash flows discounted at the original effective interest rate.

Individually significant financial assets are tested for impairment on an individual basis. The remaining financial assets are assessed collectively in groups that share similar credit risk characteristics.

Impairment losses are recognized in the consolidated statements of operations.

Non-financial Assets Non-financial assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If any such indication exists and where the carrying amount of an asset exceeds its recoverable amount, the asset or cash-generating unit is written down to its recoverable amount. The estimated recoverable amount is the higher of an asset’s value in use or its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of time value of money and the risks specific to the asset. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs. Impairment losses are recognized in the consolidated statement of operations.

Recovery of impairment losses recognized in prior years is recorded when there is an indication that the impairment losses recognized for the asset no longer exist or have decreased. The recovery is recognized in the consolidated statements of operations. However, the increase in carrying amount of an asset due to a recovery of an impairment loss is recognized to the extent that it does not exceed the carrying amount that would have been determined (net of depreciation and amortization) had no impairment loss been recognized for that asset in prior years.

Share-based Payment Transactions In 2005, certain employees received remuneration in the form of share-based payment transactions, whereby employees render services in exchange for shares or rights over shares (“equity-settled transactions”).

The cost of equity-settled transactions with employees was measured by reference to the fair value of the stock options at the date at which they were granted less the established stock option price of P1 per share. Fair value is determined using the closing rate listed in the PSE.

The cost of equity-settled transactions was recognized, together with a corresponding increase in equity, over the period in which the option can be exercised.

The diluted effect of outstanding option is reflected as additional share-dilution in the computation of earnings per share.

Leases Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases are recognized in the consolidated statements of operations on a straight-line basis over the term of the lease. Lease incentives received are recognized as an integral part of the total lease expense, over the term of the lease.

On the other hand, leases where substantially all the risks and benefits incidental to the ownership of leased properties are transferred to the Group are classified as finance leases. Upon initial recognition, the leased asset is measured at an amount equal to the lower of its fair value and the present value of the minimum lease payments. Subsequent to initial recognition, the asset is accounted for in accordance with the accounting policy applicable to that asset. Minimum lease payments under finance lease are apportioned between the finance charge and the reduction of the outstanding liability. The interest expense component of finance lease payments is recognized in the consolidated statements of operations using the effective interest rate method.

Revenue Recognition Revenue is recognized to the extent that the benefits will flow to the Group and the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognized:

Internet Connectivity, Server Hosting, Network Security Services and Point-To-Point Connections are initially recognized as unearned revenue in the balance sheets. Revenue is recognized upon performance of the related service.

Business Process Outsourcing Revenue is recognized upon performance of business process outsourcing activities to its clients.

Game-play Revenue is initially recognized as unearned revenue in the balance sheets. Revenue is recognized based on usage of the prepaid card or expiration of the unused value, whichever comes earlier.

Sale of Other Inventories is recognized when the significant risks and rewards of ownership of the goods have passed to the buyer which normally coincides upon delivery.

Other Income is recognized when the significant risks and rewards of ownership of the goods have passed to the buyer.

Interest Income is recognized as it accrues in profit or loss, using the effective interest method.

Retirement Cost The Group accrues retirement benefits for its employees in compliance with Republic Act (RA) No. 7641 “Philippine Retirement Law” which requires a company to pay a minimum retirement benefit to employees

who retire after reaching the mandatory retirement age of 65 years old or the optional age of 60 years old with at least five (5) years of service to the Group. The retirement benefit is equivalent to one-half (1/2) month salary for every year of service.

Under PAS 19, Employee Benefits , the cost of defined retirement benefits, including those mandated under RA No. 7641, should be determined using projected unit credit method, which requires an actuarial valuation which the Group did not undertake. Management believes, however, that the effect on the consolidated financial statements of the difference between the current method used by the Group and the required actuarially determined valuation method is not significant.

Related Party Transactions Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. It includes companies in which one or more of the directors and/or controlling interest or are in a position to exercise significant influence therein.

Foreign Currency Transactions Transactions in foreign currencies are recorded in Philippine peso at exchange rates prevailing at transaction dates. Monetary assets and liabilities denominated in foreign currencies are translated at the rate of exchange prevailing at the balance sheet date. Exchange gains or losses arising from translation of foreign currency denominated items at rates different from those at which they were previously recorded are recognized in the consolidated statements of operations.

Income Tax Income tax comprises current and deferred tax. Income tax is recognized in the consolidated statements of operations except to the extent that it relates to items recognized directly in equity, in which case it is recognized in equity.

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

Deferred tax is provided using the balance sheet liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and amounts used for taxation purposes and the carryforward tax benefits of net operating loss carryover (NOLCO) and excess of minimum corporate income tax (MCIT) over regular corporate income tax (RCIT). The amount of deferred tax provided is based on the expected manner of realization or settlement of the carrying amount of assets and liabilities, using the tax rates enacted or substantively enacted at the balance sheet date.

A deferred tax asset is recognized only to the extent that it is probable that future taxable profits will be available against which the asset can be utilized. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realized.

Earnings (Loss) Per Share Basic earnings (loss) per share is computed by dividing net income/loss applicable to common stock by the weighted average number of common shares outstanding during the year, with retroactive adjustments for any stock dividends declared. Diluted earnings (loss) per share is also computed in the same manner as the aforementioned, except that any outstanding options and warrants are further assumed to have been exercised at the beginning of the year.

Segment Reporting A segment is a distinguishable component of the Group that is engaged in providing related products or services, which is subject to risks and returns that are different from those of other segments. Segment information is presented in respect of the Group’s business segments which are determined based on the Group’s management and internal reporting structure.

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 assessments of the time value of money and, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognized as an interest expense.

Contingencies Contingent liabilities are not recognized in the consolidated financial statements but are disclosed unless the possibility of an outflow of resources embodying economic benefits is remote. Contingent assets are not recognized in the consolidated financial statements but are disclosed when an inflow of economic benefits is probable.

Events After the Balance Sheet Date Post year-end events that provided additional information about the Group’s position at the balance sheet date (adjusting events) are recognized in the consolidated financial statements when material. Post year-end events that are not adjusting events are disclosed in the notes to the consolidated financial statements when material.

4. Financial Risk Management

The Group’s financial instruments consist of cash, short-term investments, receivables, due from related parties, deposits, accounts payable and accrued expenses, loans payable, obligations under finance lease, advances from officers and stockholders, other current liabilities and subscriptions payable. The main purpose of these financial instruments is to finance the Group’s operations. The main risks arising from the use of these financial instruments are credit risk, liquidity risk and market risk.

The BOD has overall responsibility for the establishment and oversight of the Group’s risk management framework. The BOD has delegated to management the responsibility of developing and monitoring the Group’s risk management policies.

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.

The BOD oversees how management monitors compliance with the Group’s risk management policies and procedures and reviews the adequacy of the risk management framework in relation to the risks faced by the Group.

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 receivables from counterparties and is monitored on an ongoing basis. The objective is to reduce the risk of loss through default by counterparties.

Trade and Other Receivables The management has established a credit policy under which each new customer is analyzed individually for creditworthiness before the Group’s standard payment terms and conditions are offered. The Group’s 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 for similar financial assets.

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 incurring 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 the President/Chief Executive Officer. Typically, the Group ensures that it has sufficient cash on demand to meet expected operational expenses for a period of 60 days, including servicing of financial obligations; this excludes the potential impact of extreme circumstances that cannot be reasonably predicted.

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 other monetary assets and liabilities denominated in foreign currencies, the Group ensures that its net exposure is kept to an acceptable level by buying or selling foreign currencies at spot rates when necessary to address short-term imbalances.

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.

Capital Management The BOD’s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business. The BOD monitors the return on capital, which the Group defines as net operating income divided by total equity. As of December 31, 2007 and 2006, return on capital is 5.98% and -244.69%, respectively.

The BOD’s target is for employees of the Group to hold ten percent (10%) of the Group’s ordinary shares by 2008 through the Employee Stock Option Plan, and other similar stock purchase plans which the Group may implement in the future. At present, employees hold 3.36% of the outstanding shares.

The BOD seeks to maintain a balance between the higher returns that might be possible with higher levels of borrowings and the advantages and security afforded by a sound capital position.

There were no changes in the Group’s approach to capital management during the year.

The Group is not subject to externally imposed capital requirements.

5. Segment Reporting

The Group comprises of the following main business segments:

Data Center. This includes internet connectivity services (resale of bandwidth), server hosting (co-location), network security services (mitigation) and point-to- point connection (international private line connections) services;

Interactive Gaming. This includes sale of prepaid cards for use in the various on-line video games;

Contact Center . This pertains to the customer support service; and

Others . This includes sales of various applications, reimbursements and various utility charges from clients.

The assets, liabilities and results of operations of the business segments of the Group as of and for the years ended December 31, 2007, 2006 and 2005 are shown below (in thousands):

Data Center Interactive Gaming Contact Center Others Eliminations Consolidated 2007 2006 2005 2007 2006 2005 2007 2006 2005 2007 2006 2005 2007 2006 2005 2007 2006 2005 External revenues P401,686 P165,323 P25,918 P238,273 P75,500 P - P48,732 P179 P - P25,869 P1,702 P3,925 P - P - P - P714,560 P242,704 P29,843 Inter-segment revenues 6,908 - - - 1,350 - 10,747 1,634 - 14,940 7,680 - 32,595 10,664 - - - - Total segment revenue P408,594 P165,323 P25,918 P238,273 P76,850 P - P59,479 P1,813 P - P40,809 P9,382 P3,925 P32,595 P10,664 P - P714,560 P254,704 P29,843

Segment result P55,219 (P54,412) (P36,564) P32,374 (P67,502) (P11,812) (P26,835) (P10,584) P - (P10,064) (P185) (P880) P11,235 P185 P1,404 P61,929 (P132,498) (P47,852) Other income (expenses) ------133,130 (1,661) 1,598 Share in net losses (income) of consolidated subsidiaries in excess of investments ------(11,075) 10,928 292 Provision for (benefit from) income tax ------14,448 (21,094) (2,955) Net income (loss) P55,219 (P54,412) (P36,564) P32,374 (P67,502) (P26,835) (P10,584) P - (P10,064) (P185) (P880) P11,235 P185 P1,404 P169,536 (P102,137) (P43,007)

Data Center Interactive Gaming Contact Center Others Eliminations Consolidated 2007 2006 2007 2006 2007 2006 2007 2006 2007 2006 2007 2006 Segment assets P1,633,961 P273,471 P218,800 P119,717 P122,996 P21,389 P10,532 P1,314 (P504,644) (P123,098) P1,481,645 P292,793 Investment in equity accounted investments 10,000 ------10,000 - Total Assets P1,643,961 P273,471 P218,800 P119,717 P122,996 P21,389 P10,532 P1,314 (P504,644) (P123,098) P1,491,645 P292,793

Segment liabilities P489,802 P165,114 P142,970 P128,984 P52,875 P27,797 P15,203 P1,557 (P242,618) (P70,876) P458,232 P252,576

Capital expenditures P65,018 P28,728 P26,434 P38,580 P87,722 P13,447 P25,561 P - (P13,694) P - P191,041 P80,755 Depreciation 20,917 14,549 13,351 10,248 5,465 892 894 - - - 40,627 25,689 Amortization of intangible assets 2,048 1,432 3,150 2,922 7,595 7 53 - (1,902) - 10,944 4,361

6. Short-term Investments

Short-term investments represent special deposit account by the Parent Company with Bangko Sentral ng Pilipinas, managed by Export and Industry Bank, with original maturity of 185 days and earning an interest rate of 5.2% per annum.

7. Receivables

This account consists of:

Note 2007 2006 Trade receivables P122,329,058 P65,001,020 Interest receivable 2,571,111 - Others Rotherham Consultants Limited (RCL) 24 75,000,000 - IP Ventures Cayman Inc. (IPCY) 24 61,775,846 - IPVG Corp. Pte. LTd. (IPPL) 24 3,884,612 - IPAYDNA International, Inc. (IPAYDNA) 1,011,193 - Others 4,151,471 3,838,992 270,723,291 68,840,012 Less allowance for impairment losses 8,796,276 5,989,669 P261,927,015 P62,850,343

Trade receivables are non-interest bearing and are generally on a 30-day term.

License Agreements a. In 2006, IPEG was granted license to market, distribute, publish and advertise "02 Jam" and "Audition" (“Licensed Games”) in the Philippines by virtue of license agreements with 02 Media and T3 Entertainment Co. Ltd., respectively. Furthermore, IPEG owns servers for the use, distribution and publication of the licensed products, and the lease of internet connectivity/bandwidth, technical operating platforms and others ("Assets").

In December 2007, IPEG entered into a Deed of Transfer and Assignment with RCL, a company registered in British Virgin Islands (BVI), whereby IPEG shall sell and transfer the “Assets” and assign and transfer the rights to promote the “Licensed Games” and manage the customer service in BVI. Total consideration for the sale amounts to P100,000,000 (P25,000,000 of which shall be for the lease period 2008). The recorded gain on sale for the above transaction amounts to P58,218,139, shown under "Other income" in the consolidated statements of operations (see Note 24);

b. In 2006, a Game License Agreement (“GLA”) was executed by and between 02 Media (“Licensor”) and IPPL, a corporation established under the laws of Singapore, wherein the Licensor granted IPPL the right to distribute, publish, market and promote 02 JAM (“Licensed Product”). The GLA was subsequently assigned to the Parent Company; and

c. In September 2007, the Parent Company and IPCY, a corporation established under the laws of the Cayman Islands, entered into a License and Distribution Agreement (“LDA”), whereby the Parent Company shall grant IPCY an exclusive license to market, distribute, publish, promote, advertise and manage customer service of the Licensed Product. The consideration for the LDA amounted to US$1,333,330 or P61,775,846, which is credited to “Other income” as shown in the consolidated statements of operations (see Note 24).

Service Agreement In 2007, the Parent Company and IPPL entered into a Service Agreement (“SA”), whereby the Parent Company shall support and set-up a Singapore Data Center, set-up Indian and Vietnam joint ventures, among others. The consideration for the SA totaled P5,042,911, which is credited to “Other income” as shown in the consolidated statements of operations (see Note 24).

Reseller Agreement IPAY entered into a “Reseller Agreement” with IPAYDNA, whereby IPAY shall promote IPAYDNA services (also called Merchant Card Services) to merchants who accept credit cards. The Merchant Card Services includes acceptance, processing and collection of transactions on behalf of the merchants.

Consequently, IPAY made advances to IPAYDNA for professional services and system customization. This amount will be subsequently offset with the share in service revenues of IPAYDNA.

8. Inventories

This account consists of:

2007 2006 Granado Espada Boxes (GE Boxes) at cost P5,893,740 P - Granado Espada Pins (GE Pins) at cost 4,493,273 - Prepaid cards at net realizable value 1,793,634 4,055,781 P12,180,647 P4,055,781

The cost of prepaid cards as of December 31, 2007 and 2006 amounted to P2,913,134 and P4,055,781, respectively.

9. Prepaid Expenses and Other Current Assets

This account consists of:

Note 2007 2006 Deposits: Indefeasible rights of use in cable systems 29 P118,030,000 P - Internet connectivity 7,009,198 - Rental - others 2,340,272 - Others 9,403,509 6,128,628 Prepayments: Advertising 24 33,223,200 - Rental 986,000 - Others 5,722,156 6,934,524 Input value added tax - net - 3,833,635 Creditable withholding taxes 2,130,387 1,106,295 Others 1,071,101 881,229 P179,915,823 P18,884,311

Advertising Agreements In 2007, IPEG entered into various Advertising Agreements with third parties (“Advertisers”), wherein IPEG shall provide advertising space/spots to the Advertisers. In consideration thereof, the Advertiser shall pay in property or in kind, and shall be made based on the agreed payment to IPEG.

Subsequently, the parties have agreed that the Advertisers shall, as payment, also advertise the IPEG’s products and services through various media utilized by the Advertisers. As of December 31, 2007, prepaid advertising recognized amounted to P23,223,200. Other income recognized for these transactions amounted to P20,735,000 in 2007, as shown in the consolidated statements of operations (see Note 24).

Deed of Assignment In July 2007, the Parent Company and E-Store Exchange.com, Inc. (ESX), entered into a Deed of Assignment, whereby, ESX has agreed to provide additional advertising spots worth P10,000,000 in addition to the consideration of the purchase of IPEG’s shares in 2006.

10. Investments in Associates and Joint Venture

Details of the Group’s investments are as follows:

Percentage of Ownership 2007 2006 Investments in shares of stock - at cost : FCC 40.00% P9,999,998 P - Pocket Aces Corp. (PAC) 51.42% 121,459 121,459 Advance Gaming Ventures, Inc. (AGV) 33.00% 100,000 100,000 10,221,457 221,459 Less allowance for impairment losses 221,459 221,459 P9,999,998 P -

FCC is a company registered and incorporated in the Philippines to engage in information technology and communication services business. FCC is a joint-venture undertaking by IPCDC with First Cagayan Leisure & Resorts Corporation which owns 60% of the capital stock. FCC was incorporated on November 14, 2007 and has not yet started commercial operations.

PAC and AGV have suspended its operations since 2004. As of December 31, 2007 and 2006, the Group has already provided full allowance on these investments.

Subscriptions payable consists of:

2007 2006 FCC P7,500,000 P - PAC 91,092 91,092 AGV 75,000 75,000 P7,666,092 P166,092

11. Property and Equipment

Movements of this account are as follows:

Office and Office Network Furniture and Computer Leasehold Transportation Equipment Equipment Equipment Improvements Equipment Total Gross carrying amount: January 1, 2006 P6,623,904 P24,567,457 P23,994,518 P14,228,421 P - P69,414,300 Additions 31,310,248 8,922,427 11,387,047 6,922,015 742,500 59,284,237 Disposals - (456,001) - - - (456,001) December 31, 2006/January 1, 2007 37,934,152 33,033,883 35,381,565 21,150,436 742,500 128,242,536 Additions 65,070,320 20,330,264 27,230,149 24,852,491 4,597,620 142,080,844 Disposals (10,971,141) - (9,426,450) - - (20,397,591) Reclassifications 101,454 (101,454) - - - - December 31, 2007 92,134,785 53,262,693 53,185,264 46,002,927 5,340,120 249,925,789 Accumulated depreciation and amortization: January 1, 2006 520,753 4,096,442 2,835,272 1,286,494 - 8,738,961 Depreciation and amortization 4,736,774 8,664,708 8,884,367 3,398,897 4,226 25,688,972 Disposals - (254,489) - - - (254,489) December 31, 2006/January 1, 2007 5,257,527 12,506,661 11,719,639 4,685,391 4,226 34,173,444 Depreciation and amortization 9,498,640 10,358,538 15,000,599 4,905,997 863,483 40,627,257 Disposals (2,479,704) - (7,069,837) - - (9,549,541) Reclassifications 23,422 (23,422) - (176,116) 176,116 - December 31, 2007 12,299,885 22,841,777 19,650,401 9,415,272 1,043,825 65,251,160 Net carrying amount: December 31, 2006/January 1, 2007 P32,676,625 P20,527,222 P23,661,926 P16,465,045 P738,274 P94,069,092 December 31, 2007 P79,834,900 P30,420,916 P33,534,863 P36,587,655 P4,296,295 P184,674,629

Certain “Computer equipment and Network Equipment” were used as mortgaged property to secure IPCDC’s long-term loan with Export and Industry Bank (see Note 15).

In 2007, IPEG sold certain office and computer equipment to RCL with net carrying amount of P10,848,050 (see also Note 7).

Purchase Agreement - Globalstride Corporation On July 31, 2007, the Parent Company and IPCCO entered into a Purchase Agreement ("Agreement") with Globalstride Corporation (GSC), whereby, the Parent Company and IPCCO would purchase the fixed assets and material contracts of GSC, as detailed in the Agreement.

The total consideration for the assets was US$1,250,000, which comprise of fixed assets and material contracts (see also Note 12), as follows:

In USD In PHP Fixed assets US$620,000 P28,379,750 Material contracts 630,000 28,522,259 US$1,250,000 P56,902,009

Sale and Purchase Agreement - Reach Networks Philippines, Inc. On July 1, 2005, IPCDC entered into a “Sale and Purchase Agreement of Data Center Assets” with Reach Networks Philippines, Inc (“Reach”), a company registered in the Philippines. In consideration thereof, IPCDC shall:

a. Pay Reach the amount of US$400,000;

b. Pay Reach US$150,000 on or before December 31, 2007 but as a way of credit security, IPCDC shall set-up a Standby Letter of Credit in favor of Reach for the same amount (see Note 18); and

c. Provide Reach 60 months free rent of office space (see Note 18).

IPCDC obtained a Standby Letter of Credit from a local bank with a validity period of five (5) years. The face value of the said standby letter of credit shall automatically be reduced to US$100,000 at the end of the third (3 rd ) year; to US$50,000 at the end of the fourth (4 th year); and to zero at the end of the fifth year. This was fully paid in 2007 (see Note 18).

IPCDC recognized advance rent recorded at present value representing the 60 months free rent of rack and office space. As of December 31, 2007 and 2006, advance rent included under the “Other current liabilities” and “Other noncurrent liabilities” account totaled P2,395,537 and P3,529,510, respectively (see Notes 18 and 20).

12. Intangible Assets

This account consists of:

2007 2006 Goodwill P273,345,469 P1,815,399 Computer software and licenses - net 24,808,454 24,786,548 Material contracts - net 24,560,834 - P322,714,757 P26,601,947

Goodwill Movements of goodwill are as follows:

2007 2006 Gross carrying amount: Balance at beginning of year P1,815,399 P1,815,399 Additions during the year 271,530,070 - Balance at end of year P273,345,469 P1,815,399

Beginning goodwill amounting to P1,815,399 arose from the merger in 2002 between MBF, Inc. and the Parent Company (formerly Adobo Interactive, Inc.), with the former as surviving entity but using “IPVG Corp.” as the new corporate name.

On the other hand, goodwill arising from consolidation is attributable to the following:

IPCP P164,230,070 IPCCO 86,500,000 ROI 20,800,000 P271,530,070

Material Contracts, Computer Software and Licenses Movements of material contracts, computer software and licenses are as follows:

Computer Software and Material Licenses Contracts Total Gross carrying amount: January 1, 2006 P10,345,425 P - P10,345,425 Additions 21,471,091 - 21,471,091 December 31, 2006/January 1, 2007 31,816,516 - 31,816,516 Additions 20,437,959 28,522,259 48,960,218 Disposals (9,083,650) - (9,083,650) Reclassification (7,500,000) - (7,500,000) December 31, 2007 35,670,825 28,522,259 64,193,084 Accumulated amortization: January 1, 2006 2,668,929 - 2,668,929 Amortization for the year 4,361,039 - 4,361,039 December 31, 2006/January 1, 2007 7,029,968 - 7,029,968 Amortization for the year 6,982,242 3,961,425 10,943,667 Disposals (3,149,839) - (3,149,839) December 31, 2007 10,862,371 3,961,425 14,823,796 Net carrying amount: December 31, 2006/January 1, 2007 P24,786,548 P - P24,786,548

December 31, 2007 P24,808,454 P24,560,834 P49,369,288

In 2007, IPEG sold certain computer software to RCL with net carrying amount of P5,933,811 (see Note 7).

The reclassification amounting to P7,500,000 pertains to a computer software bought in 2006 for a related party, but recorded by the Parent Company as intangible assets rather than as advances.

13. Other Noncurrent Assets

This account consists of:

Note 2007 2006 Restricted time deposits P25,000,000 P - Receivable from Sabiclub.com Corp. (SCC) 17,984,280 - Security deposits 26 8,971,883 4,298,404 Others 62,880 84,280 P52,019,043 P4,382,684

Restricted Time Deposits Restricted time deposit pertains to placement with Deutsche Bank (“DB”) assigned by the Parent Company to DB. The said placement is in consideration of DB’s continuing advances and grant of banking facilities to the Parent Company. The assignment of the deposit took effect immediately upon execution of the Assignment of Term

Deposit, whereby, all the right, title, interest and benefit of the Parent Company in and to the deposit shall vest upon and accrue in favor of DB.

Receivable from SCC In November 2007, IPCDC entered into an agreement with SCC, wherein SCC shall create a “Subsidiary” and inject into this subsidiary SCC’s internet café and internet service provider businesses. SCC commits to grant IPCDC ownership of forty percent (40%) of the equity in the above mentioned subsidiary as payment of SCC’s liability to IPCDC in the amount of P17,984,280 as of December 31, 2007.

Moreover, IPCDC shall have the ability to put or sell its 40% ownership jointly-owned company (put option) to SCC for the same amount. If the subsidiary is able to meet the minimum profitability of P20.4 million per annum for the next two years and the subsidiary and SCC is current in payments to IPCDC, the put option is terminated.

14. Accounts Payable and Accrued Expenses

This account consists of:

2007 2006 Accounts payable P192,472,894 P108,852,161 Accrued expenses 13,822,327 5,019,316 Others 2,033,564 - P208,328,785 P113,871,477

Accounts payable and accrued expenses include trade and operating amounts payable by the Group within one year.

15. Loans Payable

This account consists of:

Note 2007 2006 Malayan Bank loan (MB loan) P50,000,000 P - Unicapital, Inc. loan (UC loan) 50,000,000 - Export and Industry Bank (EIB loan) 11 23,293,688 29,427,000 RCBC Savings Bank loan (RCBC loan) 2,293,097 - Directors - 4,543,200 Officers - 2,470,075 Others 562,493 562,493 126,149,278 37,002,768 Less noncurrent portion EIB loan 18,634,950 28,150,306 RCBC loan 1,766,707 - Others 562,493 562,493 20,964,150 28,712,799 P105,185,128 P8,289,969

MB Loan MB loan pertains to a promissory note issued by the Parent Company for a period of one (1) year maturing on July 30, 2008, and with interest rate of 13.5% per annum.

UC Loan Unicapital, Inc. loan pertains to a promissory note issued by the Parent Company for a period of six (6) months which matured on January 25, 2008, and with interest rate of 11.0% per annum.

EIB Loan On June 9, 2006, IPCDC entered into a five (5)-year loan agreement with EIB with a principal amount of $600,000 and a standby letter of credit in the amount of US$150,000. Quarterly principal payments amount to US$37,500 and interest rate is equivalent to one (1) year LIBOR plus 4% per annum and repriceable annually.

Consequently, on July 19, 2006, IPCDC entered into a chattel mortgage agreement with Trade and Investment Development Corporation (TIDCORP), also known as Philippine Export-Import Credit Agency (Philexim), in connection with the guarantee of IPCDC’s loan of US$600,000. As of December 31, 2007 and 2006, the carrying amount of the mortgaged property included in “Property and Equipment” account amounted to P31,445,023 and P47,855,773, respectively (see Note 11).

RCBC Loan RCBC loan pertains to loan obtained by the Parent Company and IPCDC to finance the acquisition of two (2) company cars. The said loan totaled P2,304,400, payable in 60 monthly installments (P27,091 for a period of 5 years) starting from November 26, 2007 up to October 26, 2012 and interest rate is 8.2149% per annum.

Directors Loan In August 2006, IPEG entered into short-term loan agreements with its directors to finance an immediate working capital requirement. Interest on these loans is 1.83% per month. The said loans are already fully-paid in 2007.

Officers Loan In 2005, the Parent Company obtained interest-bearing loans from its officers which are payable over a period of 60 to 180 days. Interest on these loans ranges from 12% to 18% per annum. The said loans are already fully-paid in 2007.

16. Obligations Under Finance Lease

In 2006 and 2005, the Parent Company sold and leased back certain computer equipment for a period of three (3) years under a finance lease agreement with PCI Leasing and Finance, Inc., in behalf of IPEG. The computer equipment under the said lease was recorded under IPEG. The stated interest rate for the finance lease is 18% per annum.

As of December 31, 2007, the details of the obligations under finance lease are as follows:

Minimum Lease Principal Interest Payments Less than one year P5,674,156 P609,292 P6,283,448 Between one and three years 527,484 15,191 542,675 P6,201,640 P624,483 P6,826,123

17. Unearned Revenues

This account consists of:

2007 2006 Sales of prepaid cards P26,115,802 P32,058,202 Internet connectivity, server hosting and other services 6,872,993 3,433,014 P32,988,795 P35,491,216

Revenues from sale of prepaid cards are deferred until the actual usage of the card value.

Revenues for server hosting and other services are also deferred until the services have been rendered.

18. Other Current Liabilities

This account consists of:

Note 2007 2006 Customers deposits P43,494,183 P22,540,936 Withholding taxes payable 3,923,043 4,360,467 Accrued payroll 3,852,740 1,800,190 Output value added tax - net 1,840,900 - Advance rent - net 11 964,516 887,312 Payable to Reach 11 - 7,252,190 Others 4,423,862 4,378,161 P58,499,244 P41,219,256

Customer deposits represent security deposit being renewed annually by clients of the Parent Company and IPCDC for internet connectivity, server hosting and other services and as security for the payment of bills.

19. Related Party Transactions

In the normal course of business, the Group has transactions with related parties as follows:

a. Advances from/to employees, officers and stockholders which are mostly unsecured, non-interest bearing and are collectible on demand;

b. Reimbursable out-of-pocket expenses and other expenses paid by the Group in behalf of related parties; and

c. LDA and SA with IPCY and IPPL (see Note 7).

Due from related parties consists of:

Relationship 2007 2006 IPPL Under common control P82,283,945 P - FCC Joint Venture 26,748,418 - Cyberworld Inc. Under common control 16,981,531 - PAC* Associate 6,640,345 6,640,345 IPCY Under common control 2,445,100 - IP Interactive Inc. Under common control 1,973,145 - AGV* Associate 1,627,480 1,627,480 Clubs Diamond* Under common control 1,069,412 1,069,412 IP Foundation Inc. Under common control 557,078 - Botika ng Munisipyo, Inc.* Under common control 128,256 128,256 Others Under common control 857,150 - 141,311,860 9,465,493 Officers 7,748,155 5,401,724 149,060,015 14,867,217 Less allowance for impairment losses 9,465,493 9,465,493 P139,594,522 P5,401,724 * Accounts with full allowance.

Key management personnel compensations are as follows:

2007 2006 2005 Short-term employee benefits P27,195,459 P14,891,143 P7,792,983 Stock options - 30,135,000 5,000,000 P27,195,459 P45,026,143 P12,792,983

In 2006, all stock options were fully exercised and paid-up by the officers and employees, and capital stock were already issued (see Note 21).

20. Other Noncurrent Liabilities

This account consists of:

Note 2007 2006 Advance rent - net 11 P1,431,021 P2,642,198 Others - 2,068,729 P1,431,021 P4,710,927

21. Common Stock

On July 25, 2005, the Parent Company established a Stock Option Plan (the Plan). This was approved by the shareholders owning at lease two-thirds (2/3) of the outstanding capital stock of the Parent Company and by the majority of the BOD of the Parent Company.

Under the Plan, the Parent Company granted options to its employees for the subscription of 20,500,000 common shares. The stock option may be exercised by the employee within the vesting period of three (3) years from the date of grant. The stock options were already exercised in 2006 and capital stock was already issued to employees.

As of December 31, 2007, 2006 and 2005, common stock consists of:

2007 2006 2005 Common stock - P1 par value Authorized - 800,000,000 shares in 2007 and 500,000,000 shares in 2006 and 2005 Balance at beginning of year Issued and outstanding - 430,883,068 shares in 2007, 371,980,785 shares in 2006 and 2005 P430,883,068 P371,980,785 P371,980,785 Issuances during the year - 192,065,795 shares in 2007 and 58,902,283 shares in 2006 192,065,795 58,902,283 - Subscribed - 52,552,300 shares in 2007 (net of subscription receivable of P52,552,300 in 2007) - - - Balance at end of year P622,948,863 P430,883,068 P371,980,785 On July 22, 2005, the BOD approved the increase in the authorized common stock from P500,000,000 divided into 500,000,000 shares at P1 par value per share to P800,000,000 divided into 800,000,000 shares at P1 par value per share. On February 6, 2007, the SEC approved the increase in the authorized common stock.

On November 27, 2006, the BOD approved the conversion of certain advances from stockholders and loans payable into 44,100,000 shares of common stock with P1 par value.

As of December 31, 2007, 2006 and 2005, net additions to minority interest consist of:

2007 2006 2005 IPCCO P9,000,000 P - P - IPAY 625,000 - - IPDL 250,004 - - IPEG - 21,702,803 - ROI (21,070) 21,070 - Others 30 - - P9,853,964 P21,723,873 P -

22. Revenues

This account consists of:

2007 2006 2005 Global internet access (GIA) P265,080,335 P109,780,022 P13,228,350 Sale of prepaid cards 238,273,095 77,432,896 - Co-location services (Co-location) 66,183,518 40,557,955 12,689,542 BPO services 48,731,542 - - Mitigation 48,661,332 6,208,019 - International Private Line Circuits (IPLC) 21,760,656 - - Others 25,869,134 8,724,755 3,924,772 P714,559,612 P242,703,647 P29,842,664

Revenues mainly consists of the following services:

a. GIA/“Internet Connectivity”

The Parent Company and IPCDC resells international bandwidth to support direct secure links to specific locations (IPLC) and general high speed access into the internet.

b. Sale of prepaid cards/”Game-play Revenue”

IPEG sells prepaid cards for use in the various on-line video games being offered.

c. Co-location/“Server Hosting”

The Parent Company and IPCDC offers co-location services providing clients’ space, power and air conditioning in a secure environment where they can locate computers (usually larger servers) and to provide the very best operating conditions for their equipment.

d. BPO services

IPCCO offers contact center and business process outsourcing services to various clients. This includes customer service, technical support, telemarketing or telesales and others.

e. Mitigation/“Network Security Services”

Service offered by IPCDC that applies filtering cyber crimes or attacks for businesses, including filtering internet traffic destined for customer services for the purpose of reducing or eliminating denial of service type traffic.

f. IPLC/”Point-to-point Connections”

This service includes dedicated international circuits which supports local area network and extranet environments.

g. Others

This includes sales of various applications, reimbursements and various utility charges from clients

23. Costs of Services

This account consists of:

Note 2007 2006 2005 Communication, internet charges and co-location P134,512,254 P75,869,985 P8,051,131 Royalties 29 76,423,083 31,182,786 - Salaries and employees’ benefits 35,306,950 3,176,833 721,812 Mitigation cost 32,610,954 - - Rent 26 19,927,710 15,616,813 5,489,626 Other outside services 14,689,661 3,431,748 375,198 Repairs and maintenance 13,988,086 7,131,651 2,175,812 Communication, light and water 12,507,926 3,377,434 1,060,554 Telecommunications cost 11,958,222 - - Depreciation and amortization 11, 12 11,537,727 12,913,684 - Inventory costs 8,338,496 2,950,819 - Others 3,604,771 4,274,063 1,518,092 P375,405,840 P159,925,816 P19,392,225

24. Other Income

This account consists of:

Note 2007 2006 2005 Gain on sale of licensed product - IPCY 7 P61,775,846 P - P - Gain on sale of a property and equipment and intangible assets - RCL 7 58,218,139 - - Advertising income 9 21,860,000 15,275,000 - Additional gain on sale of IPEG shares 9 10,000,000 - - Service agreement fee - IPPL 7 5,042,911 - - Others 6,801,708 131,787 3,335,075 P163,698,604 P15,406,787 P3,335,075

In 2006, advertising income pertains to IPEG’s exchange transaction with E-Store Exchange, Inc. (ESX), whereby ESX shall advertise IPEG’s services in exchange for advertisement in IPEG’s on-line games website.

25. Retirement Cost

The Group’s employees are entitled to retirement benefits in accordance with RA No. 7641.

As of December 31, 2007 and 2006, the Group has retirement liability of P3,502,615 and P2,159,805, respectively.

Retirement benefit expense recognized in the consolidated statements of operations under operating expenses amounted to P1,342,810 and P1,056,608 in 2007 and 2006, respectively.

26. Lease Commitments

a. In February 2007, the Parent Company and IPCCO entered into a lease agreement with RCBC Realty Corporation for an office space at the 4 th Floor, Podium, Yuchengco Tower, RCBC Plaza, Makati City. The turnover date was on March 1, 2007 to give way to the construction and improvements of the leased property. Actual lease commenced on May 1, 2007 and will end on April 30, 2010 (total of 3 years). Monthly payments, which are subject to annual escalation rate of 5% compounded on an annual basis, are as follows:

Year Monthly Rental 1 P 986,000 2 1,035,300 3 1,087,065

In addition, said lease required a security deposit equivalent to three monthly rentals and association dues totaling P3,636,600 (see Note 13).

Rent expense recognized in the consolidated statements of operations for the aforementioned amounted to P8,256,973 in 2007.

b. On August 1, 2007, IPCCO and GSC entered into a Deed of Assignment for the lease of office premises with Eastwood Cyber One Corporation (ESOC). The original lease contract between GSC and ESOC was for a period of one (1) year from December 15, 2006 to December 14, 2007. Monthly rental amounts to P384,915, while monthly association dues amount to P80/sqare meter or P106,400 per month. The lease agreement requires a security deposit equivalent to P1,099,759 (see Note 13).

On December 15, 2007, IPCCO renewed the lease agreement with ESOC for a period of 3 years which commenced on December 15, 2007 and will end on December 14, 2010. Monthly rental for the renewal amounts to P465,500, subject to annual escalation rate of 5%. The lease agreement requires an additional P439,882 to the original security deposit. The additional security deposit was paid in January 2008.

Rent expense recognized in the consolidated statements of operations amounted to P4,204,147 million in 2007.

c. In 2005, the Parent Company entered into an operating lease agreement with RCBC Realty Corporation (RCBC) for an office space in Tower 2, Yuchengco Tower, RCBC Plaza, Makati City. The lease commenced on July 1, 2005 and will end on June 30, 2010. Monthly rental amounts to P1,100,136, with an escalation of 10% on the 4 th year and a further 10% on the 5 th year, while monthly association dues amount to P311,705. The lease agreement requires a security deposit equivalent to three monthly rentals and association dues amounting to P4,235,524 (see Note 13).

Rent expense including association dues recognized in the consolidated statements of operations for the aforementioned amounted to P18,170,762, P13,143,247 and P8,612,943 in 2007, 2006 and 2005, respectively.

d. In March 2007, IPEG entered into a Contact of Lease of office space (as stockroom rent for inventories) located at Unit 511 Cityland 10 Tower 2, H.V. de la Costa St. corner Valero, Salcedo Village, Makati City. The term of the lease contract shall be for a period of one (1) year, commencing on March 6, 2007 to March 5, 2008 and shall be for the amount of P9,375 exclusive of association dues. Security deposit amounting to P18,750, equivalent to 2 months rent, is required which shall be refunded to IPEG two (2) months after the termination of the lease contract. This was subsequently renewed for one (1) year at the rate of P10,312.50 per month.

Rent expense recognized in the consolidated statements of operations for the aforementioned amounted to P93,750 in 2007.

e. On July 31, 2006, IPCDC entered into a 3-year lease contract with RCBC for a portion of the roof deck space to install antenna for two of its clients. Monthly rental amounts to P15,000/each per month, payable quarterly in advance.

Rent expense recognized in the consolidated statements of operations for the aforementioned amounted to P414,000 and P105,000 in 2007 and 2006, respectively.

f. In July and August 2007, IPAY leased an office space in Export and Industry Bank (EIB) Building. Monthly rental charged by EIB amounted P25,270 per month (which includes the utilities allocation and parking rental), while monthly association dues amounted to P1,500 per month. Rent expense recognized in the consolidated statements of operations for the period amounted to P45,486 in 2007.

In September 2007, IPAY transferred to IPVG’s office in Tower 2, Yuchengco Tower, RCBC Plaza, Makati City.

g. Rent expense recognized for various lease contracts (i.e., apartments, condominium units, hotel rooms, others) for officers and consultants working for projects both locally and overseas, including rental for various events and functions amounted to P6,537,003, P2,905,973 and P1,440,000 in 2007, 2006 and 2005, respectively.

h. In 2005, the Parent Company pre-terminated its lease agreement with Bonanza Realty Inc. for an office space at Karrivin Plaza. Resulting to such was the payment by the Parent Company of a pre-termination penalty equivalent to three times the prevailing monthly rent. The original term of the lease commenced on November 1, 2004 and should have ended on October 31, 2006.

Future minimum lease payments under operating lease are as follows:

2007 2006 Within one year P27,489,423 P13,381,632 After one year but not more than three years 63,491,901 35,287,329 P90,981,324 P48,668,961

27. Income Tax

The components of the Group’s provision for (benefit from) income tax are as follows:

2007 2006 2005 Current tax expense P17,995,666 P1,674,295 P265,947 Deferred tax benefit (3,547,654) (22,768,095) (3,221,344) P14,448,012 (P21,093,800) (P2,955,397)

IPCDC’s operations IPCDC was registered with the Philippine Economic Zone Authority (PEZA) on April 24, 2006 which entitled IPCDC to 5% gross income tax incentive. This shall be 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 IPCDC are subject to regular income tax.

IPEG’s operations IPEG was registered with the Board of Investments (BOI) in October 2007, as a New ICT Export Service firm in the field of application software/systems development for the on-line computer systems. In March 2007, a Memorandum of Agreement between BOI and the Bureau of Internal Revenue (BIR) was signed on the availment of Income Tax Holiday (ITH) incentives for BOI-registered enterprises.

In April 2008, IPEG was granted a Certificate of ITH entitlement by the BOI for a period of four (4) years starting from October 2007 up to October 2011.

Hence, to summarize, in 2007, IPEG shall be subject to the following:

a. January - October 2007 - Regular income tax; b. November - December 2007 - Income tax holiday.

Non-registered activities of IPEG are subject to regular income tax.

IPCCO’s operations IPCCO was registered with the PEZA on June 26, 2007 to engage in call center operations. IPCCO was granted, among others, corporate ITH for four (4) years for its operations in RCBC Plaza, Makati City.

Subsequent to the acquisition of GSC’s assets in IBM Plaza, Eastwood City Libis, Quezon City, IPCCO was issued a supplemental agreement by PEZA on September 7, 2007 wherein its business operations in Eastwood City will be entitled to 5% gross income tax incentive. This shall be in lieu of all national and local taxes and other incentives under RA 7916, the Special Economic Zone Act of 1995.

Hence, to summarize, in 2007, IPCCO shall be subject to the following:

c. January - June 2007 - Regular income tax; d. July - December 2007 - Income tax holiday (RCBC Plaza operations);and e. August - December 2007 - 5% Gross income tax (IBM Plaza operations).

Non-registered activities of IPCCO are subject to regular income tax.

The reconciliation of the provision for (benefit from) income tax computed at statutory income tax rate to the provision for (benefit from) income tax shown in the consolidated statements of operations follows:

2007 2006 2005 Income (loss) before income tax P183,984,382 (P123,230,999) (P45,962,140) Expected tax benefit at statutory rate P64,394,534 (P47,743,317) (P15,868,543) Addition to (reductions in) income tax resulting from the tax effects of: Write-off (use) of NOLCO (29,791,318) 117,277 413,238 Change in tax rates (18,026,541) 2,665,963 (1,052,360) Effect of income tax holiday (11,301,959) - - Change in unrecognized deferred tax assets 9,219,668 22,405,485 13,101,832 Interest income subjected to final tax (2,881,977) (124,326) (27,038) Non-deductible expenses 2,777,016 1,585,118 477,474 Expiration of MCIT 58,589 - - P14,448,012 (P21,093,800) (P2,955,397)

The components of the Group’s net deferred tax assets are attributable to the following:

2007 2006 NOLCO P22,015,197 P29,250,182 Allowance for impairment losses 6,771,052 - MCIT 3,217,772 - Unrealized foreign exchange gain 111,780 (637,800) Accrued retirement liability 313,707 269,473 P32,429,508 P28,881,855

The components of the Group’s unrecognized deferred tax assets are attributable to the following temporary differences:

2007 2006 NOLCO P37,257,133 P86,257,653 Advance rental 3,529,511 - Accrued retirement liability 2,054,711 838,283 Allowance for impairment losses 1,729,437 17,142,217 Write-down of inventories to net realizable value 1,119,500 - MCIT - 1,105,857 Unrealized foreign exchange gain - 319,371 P45,690,292 P105,663,381

Deferred tax assets have not been recognized because management believes it is not probable that sufficient taxable profit will be available against which all deferred tax assets may be utilized.

The Group has NOLCO which can be claimed as deduction against future taxable income as follows:

Year Incurred Expiry Date Amount Applied/Expired Balance 2004 2007 P2,570,275 (P2,570,275) P - 2005 2008 33,631,838 (28,726,788) 4,905,050 2006 2009 128,484,661 (53,860,988) 74,623,673 2007 2010 20,628,965 - 20,628,965 P185,315,739 (P85,158,051) P100,157,688

The Group has MCIT which are available for offsetting against future income tax liabilities as follows:

Year Incurred Expiry Date Amount Applied/Expired Balance 2004 2007 P58,589 (P58,589) P - 2005 2008 265,947 - 265,947 2006 2009 781,321 - 781,321 2007 2010 2,170,504 - 2,170,504 P3,276,361 (P58,589) P3,217,772

On May 24, 2005, Republic Act No. 9337 entitled “An Act Amending the National Internal Revenue Code, as Amended, with Salient Features” (Act), was passed into a law effective November 1, 2005. Among others, the Act includes the following significant revisions to the rules of taxation: a. Change in the corporate income tax rates from 32% to 35% starting November 1, 2005 and to 30% starting January 1, 2009 and onwards; and b. Change in interest expense disallowed as deductible expense by an amount equivalent to a certain percentage of the interest income subjected to final tax as follows: 42% starting November 1, 2005 and 33% starting January 1, 2009 and onwards.

On October 10, 2007, the BIR issued Revenue Regulation No.12-2007, which amended the timing of the calculation and payment of MCIT from an annual basis to a quarterly basis, i.e., excess MCIT from a previous quarter during the current taxable year may be applied against subsequent quarterly or current annual income tax due, whether MCIT or RCIT. However, excess MCIT from the previous taxable year/s are not creditable against MCIT due for a subsequent quarter and are only creditable against quarterly and annual RCIT.

28. Earnings (Loss) Per Share

The computation of basic earnings (loss) per share is as follows:

2007 2006 2005 Net income (loss) P146,491,753 (P89,702,311) (P42,282,361) Divided by weighted average number of common shares 526,915,966 401,431,927 371,980,785 Earnings (loss) per share P0.2780 (P0.2234) (P0.1137)

The computation of diluted earnings (loss) per share is as follows:

2007 2006 2005 Net income (loss) P146,491,753 (P89,702,311) (P42,282,361) Divided by weighted average number of common shares 526,915,966 401,431,927 377,105,785 Earnings (loss) per share P0.2780 (P0.2234) (P0.1121)

29. Significant Contracts and Agreements

The Group entered into the following contract and agreements:

a. Sale and Purchase Agreement

Indefeasible Rights of Use (IRU) in Cable Systems In 2007, IPCDC entered into an agreement with PCCW Global (Singapore) Pte. Ltd., (PCCW), whereby, IPCDC desires to acquire the IRU of a certain amount of telecommunications capacity on the “Intra-Asia cable system” (IACS), a multi-terabit linear submarine cable system linking Singapore, Hong Kong and Japan. PCCW has obtained the right to use and resell telecommunications capacity on the aforementioned IACS.

The effective date of the transaction shall be in January 2008 and the IRU capacity fee shall be payable as follows:

a. 50% in the amount of US$2,750,000 on September 30, 2007 (deposit which shall be used as a credit against the capital cost); and

b. 50% in the amount of US$2,750,000 upon signing of the Agreement.

Each year, during the term of a segment, IPCDC shall pay PCCW the Operations and Maintenance fee (ONM). The first payment of the ONM fee for the capacity shall be due and payable by IPCDC in advance within 15 days after PCCW’s delivery of the first connection notice for the capacity and thereafter, on the first day of each quarter during the term. The annual ONM fee shall be US$275 thousand per year until the end of the term.

PCCW expects that the system will have a minimum economic life of 15 years. In the event that the underlying cable used for the provision of the capacity is retired or decommissioned for any reason or at anytime by the supplier of the cable, then, any IRU capacity granted to IPCDC in respect of that capacity or segment will automatically terminate at the time of such retirement and IPCDC will not be entitled to any refund of the IRU capacity fee.

Upon the expiration or termination of the term all rights to use the capacity shall revert to PCCW without reimbursement of any of the IRU capacity fee or other sums, costs, fees, or payment previously made by IPCDC with respect thereto, and from and after such time, IPCDC shall have no further rights or obligations unless such rights or obligations are specifically provided to survive the term.

b. Licensing Agreements

Goldsky Access (“GoldSky”) - for “Ran Online” game In 2006, IPEG and Goldsky entered into a Licensing Agreement wherein Goldsky grants IPEG an exclusive, non-transferable and royalty bearing right within the Philippines to use the server software of the licensed online game computer program which is licensed by Goldsky with its Korean title “RAN Online”. The agreement also grants IPEG the right to produce, distribute and sell the passwords and/or other access methods to its subscribers to gain access to the game service. In consideration of the grant of exclusive license, IPEG agrees to pay Goldsky localization fees and a running royalty fee based on net revenues.

O2 Media, Inc. (“O2 Media”) - for “O2Jam” game In 2007, IPEG and O2 Media, Inc., a corporation established under the laws of Korea, entered into a Game License Agreement, whereby, the O2 Media will grant IPEG, an exclusive license to market, distribute, publish, promote, advertise, and manage customer service of O2 Jam in the Philippines. The term shall be for two (2) years, which shall automatically be extended for another one (1) year term, if there is no breach by either party. In consideration thereof, IPEG shall pay monthly royalty fee based on the revenues.

T3 Entertainment Co. Ltd. (“T3”) - for “Audition” game In 2007, IPEG and T3, a corporation established under the laws of Korea, entered into a Software Licensing Agreement, whereby, T3 grants IPEG an exclusive, non-transferable, non-assignable and non-sub licensable (except to affiliate or subsidiary) to operate Audition. The license shall remain in force until three (3) years and shall be automatically renewed for additional term of one (1) year. The running royalty shall be based on gross revenues.

Hanbitsoft, Inc. (“Hanbitsoft”) - for “Supreme Destiny” game In 2007, IPEG and Hanbitsoft, a corporation established under the laws of Korea, entered into a License and Distribution Agreement, whereas, Hanbitsoft possesses exclusive license and owns the trademarks, copyrights and patents of the Supreme Destiny game. Hanbitsoft grants IPEG an exclusive license to service in the Philippines. The term shall be for one (1) year and may be subject to extension not later than 30 days prior to the expiration of the contract. Royalty payments shall be based on the gross revenues.

Terra ICT In 2006, IPEG and Terra ICT entered into an online gaming distribution agreement, whereby Terra ICT will grant IPEG the exclusive and non-transferable right to use reproduce, publish, duplicate, display, transfer, deliver and transmit publicly and privately in the Philippines “Dreamville” and “O2Jam” online games and other related promotional materials.. In consideration of the grant of exclusive license, IPEG agrees to pay Terra ICT a one time cost for the localization and installation of the online games and royalty fee based on net revenues.

In 2007, IPEG suspended its operations of Dreamville, while 02Jam was directly contracted with O2 Media.

c. Service Agreements

IPCCO and PCCW Teleservices (Hongkong) Limited On November 1, 2006, IPCCO entered into a service agreement with PCCW Teleservices, wherein IPCCO will be the sole and exclusive vehicle for PCCW Teleservices to service English-speaking requirements of its clients. PCCW, on the other hand, will grant or procure to grant IPCCO the right to use “PCCW Teleservices” brand, provide management expertise, quality assurance and business development with multi- national corporations. In connection with this agreement, the Parent Company hereby grants a call option to PCCW Teleservices or one of its affiliates to acquire from the Parent Company up to 60% of the issued share capital of IPCCO during a specified option period.

30. Financial Instruments

Credit Risk The carrying amount of financial assets as of December 31, 2007 represents the maximum credit exposure. The maximum exposure to credit risk at the reporting date is as follows:

Cash P171,189,335 Short-term investments 125,000,000 Receivables - net 261,927,015 Due from related parties - net 139,594,522 Deposits 145,817,742 Restricted deposit 25,000,000 P868,528,614

The aging of trade receivables as of December 31, 2007 is as follows:

Gross Amount Impairment Current P64,982,824 P38,448 Past due 1-30 days 24,201,091 57,864 Past due 31-60 days 3,198,902 4,344 Past due 61-90 days 17,145,699 97,752 Past due 91-180 days 5,231,331 115,880 More than 180 days 7,569,211 6,793,102 P122,329,058 P7,107,390

The movements in the allowance for impairment losses in respect of trade receivables during the year are as follows:

Amount Balance at January 1, 2007 P4,078,755 Impairment loss recognized during the year 3,028,635 Balance at December 31, 2007 P7,107,390

The allowance for impairment losses on trade receivables as of December 31, 2007 amounting to P7,107,390 relates to outstanding accounts with customers as the Company believes that they would not be able to collect amounts due from these customers. Based on historic default rates, the Group believes that no impairment allowance is necessary in respect of other trade receivables since most of the customers have a good track record with the Group.

Liquidity Risk The following are the contractual maturities of financial liabilities as of December 31, 2007:

Carrying Contractual Amount Cash Flow Within 1 year 2 to 5 years Non-derivative financial liabilities Accounts payable and accrued expenses P208,328,785 P208,328,785 P208,328,785 P - Loans payable 126,149,278 126,149,278 105,185,128 20,964,150 Obligations under finance lease 6,201,640 6,826,123 6,283,448 542,675 Advances from officers and stockholders 1,386,539 1,386,539 1,386,539 - Other current liabilities 58,499,244 58,499,244 58,499,244 - Subscriptions payable 7,666,092 7,666,092 - 7,666,092 P408,231,578 P408,856,061 P379,683,144 P29,172,917

As disclosed above, the Group’s financial assets amounted to P868,528,614 as of December 31, 2007, which are sufficient to meet its contractual obligations.

Currency Risk The Group’s exposure to foreign currency risk as of December 31, 2007 is as follows:

Peso Equivalent USD Cash P82,507,795 $1,990,156 Receivables - net 162,081,246 3,656,215 Due from related parties - net 237,070,831 5,286,172 Accounts payable and other current liabilities (111,007,549) (2,506,350) Loans payable (23,293,687) (562,500) Net balance sheet exposure P347,358,636 $7,863,693 Estimated forecast sales P881,349,503 P21,833,738 Estimated forecast expenses (140,884,513) (3,497,612) Net statement of operations exposure P740,464,990 P18,336,126

Average exchange rates for December 31, 2007 is US$1 = P46.115. The exchange rate applicable as of December 31, 2007 is US$1 = P41.411.

Sensitivity Analysis A 10% strengthening of the Philippine peso against US$ as of December 31, 2007 would have increased equity and profit or loss by P96.76 million.

A 10% weakening of the Philippine peso against US$ as of December 31, 2007 would have had the equal but opposite effect, on the basis that all other variables remain constant.

Interest Rate Risk As of December 31, 2007, the interest rate profile of the Parent Company’s interest-bearing financial instruments are as follows:

Fixed rate instruments Financial liabilities P102,855,590 Variable rate instruments Financial liabilities P23,293,688

Sensitivity Analysis for Fixed Rate Instruments As of December 31, 2007, 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 P1.03 million, in so far as the effect of fixed interest-bearing loans are concerned.

Sensitivity Analysis for Variable Rate Instruments As of December 31, 2007, 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 P0.23 million, in so far as the effect of variable interest-bearing loans are concerned.

Fair Values The fair values of cash, short-term investments, receivables, due from related parties, accounts payable and accrued expenses, advances from officers and stockholders and other current liabilities approximate their carrying amounts due to relatively short-term nature of these financial instruments.

Subscriptions payable does not have fixed payment terms; thus, the fair value cannot be determined.

The fair values and carrying amounts of the following financial instruments as of December 31, 2007 and 2006 are shown below:

Carrying Fair Amount Value 2007 Deposits P145,817,742 P144,951,780 Restricted time deposit 25,000,000 25,000,000 Obligations under finance lease 6,201,640 6,201,640 Loans payable 126,149,278 126,149,278 2006 Deposits 10,427,032 10,427,032 Obligations under finance lease 11,571,050 11,571,050 Loans payable 37,002,768 37,002,768

The following methods and assumptions are used to estimate the fair value:

Deposits, Obligations under Finance Lease and Loans Payable . The fair values are based on the present value of future cash flows, discounted at the market rate of interest at the reporting date.

Restricted Time Deposits. The fair value of restricted time deposits approximates its carrying amount as restricted time deposits represent cash deposits to DB which approximates its fair value.

31. Events After the Balance Sheet Date

Purchase of Prolexic Technologies, Inc. (“Prolexic”) On January 7, 2008, the BOD of the Parent Company approved the purchase of one hundred percent (100%) of the outstanding capital stock of Prolexic equivalent to 1,034,152 shares for US$10,500,000. Prolexic is a company engaged in the business of providing protection to businesses operating on the internet, including e-commerce businesses, banks and others, against distributed denial of service attacks that attempt to make web servers unavailable to intended users.

Issuance of Shares to Qualified Employees On January 7, 2008, the BOD of the Parent Company approved the issuance of up to 20,000,000 shares of stock out of the unissued capital stock to the employees of the Group. Consequently, the BOD agreed to delegate to the Executive Committee the determination of the terms and conditions for the issuance of shares to the employees provided that the price shall be approximately P8.00 per share, payable in cash.