20IS-Definitive-2009 Page 3 of 24 - Suntrust Home Dev · 20IS-Definitive-2009 Page 3 of 24 ... make the demand within the 30-day period shall be deemed a waiver of the appraisal right

20IS-Definitive-2009 Page 3 of 24

INFORMATION REQUIRED IN INFORMATION STATEMENT A. GENERAL INFORMATION Item 1. Date, time and place of annual meeting of security holders.

Date & time : 26 October 2009, 9:00 AM Place : The Richmonde Hotel, 21 San Miguel Avenue corner Lourdes Street

Ortigas Centre, Pasig City, Metro Manila, Philippines Principal office : 6th Floor, The World Centre Building 330 Sen. Gil Puyat Avenue, Makati City, Metro Manila, Philippines Approximate date on which the Information Statement is first to be sent or given: 05 October 2009 Item 2. Dissenter’s Right of Appraisal There are no matters to be acted upon or proposed corporate action in the agenda for the annual meeting of stockholders that may give rise to possible exercise by a dissenting stockholder of its appraisal rights under Title X of the Corporation Code of the Philippines. Nevertheless, any stockholder of the Company shall have the right to dissent and demand payment of the fair value of his shares in the following instances: (1) in case any amendment to the articles of incorporation has the effect of changing or restricting the rights of any stockholders or class of shares, or of authorizing preferences in any respect superior to those of outstanding shares of any class, or of extending or shortening the term of corporate existence; (2) in case the Company decides to invest funds in another corporation or business or for any purpose outside of the primary purpose for which it was organized; (3) in case of sale, lease, exchange, transfer, mortgage, pledge or other disposition of all or substantially all of the corporate property and assets, and (4) in case of merger or consolidation. The appraisal right may be exercised by any stockholder who shall have voted against the proposed corporate action by making a written demand on the Company within thirty (30) days after the date on which the vote was taken for payment of the fair value of his shares. A stockholder must have voted against the proposed corporate action in order to avail himself of the appraisal right. Failure to make the demand within the 30-day period shall be deemed a waiver of the appraisal right.

Item 3. Interest of Certain Persons in or Opposition to Matters to be Acted Upon (a) No officer or director at any time since the beginning of last fiscal year, or nominee for election as director, or associate of any of these persons, has any substantial interest, direct or indirect, by security holdings or otherwise, in any matter to be acted upon, other than election to office. (b) No director has informed the Company in writing of his/her intention to oppose any matter to be acted upon at the Annual Stockholders’ Meeting (“Meeting”).

20IS-Definitive-2009 Page 4 of 24 B. CONTROL AND COMPENSATION INFORMATION Item 4. Voting Securities and Principal Holders Thereof (a) Each of the 2,250,000,000 common shares outstanding as of 18 September 2009 shall be entitled to one vote with respect to all matters to be taken up during the Meeting. (b) All stockholders of record as of 18 September 2009 are entitled to notice and to vote at the Meeting either in person or by proxy. (c) All stockholders shall have cumulative voting rights in the election of the members of the board of directors of the Company. Cumulative voting entitles each stockholder to cast all his votes (total number of common shares held multiplied by the number of directors to be elected) in favor of one candidate. (d) Security Ownership of Certain Record and Beneficial Owners and Management: Security Ownership of Holders of more than 5% of the Company’s Voting Securities as of 18 September 2009:

Title Of Class

Name and Address of Record Owner& Relationship w/ Issuer

Beneficial Owner & Relationship w/Record

Owner

Citizenship

No. of Shares

Percent Owned

Common Megaworld Corporation 28/F The World Centre 330 Sen. Gil Puyat Avenue, Makati City It is solely a stockholder of the Issuer

Megaworld Corporation1 (also the record owner)

Filipino 705,834,992

31.37%

Common PCD NOMINEE CORPORATION G/F Makati Stock Exchange Building 6767 Ayala Avenue, Makati City2

PCIB Securities, Corporation 8/F PCI Tower 2, Dela Costa St., Makati City

Filipino 330,119,557

17.77%

Common Emerging Market Assets Limited Rm. 1028, 12/F The Centre Mark, 287-299 Queen’s Road, Central Hong Kong3

Emerging Market Assets Limited (also the record owner)

Non-Filipino

235,000,000 10.44%

Common Stanley Ho Hung-Sun c/o Suntrust Home Developers, Inc., 6/F World Centre Building 330 Sen. Gil Puyat Avenue Makati City He is solely a stockholder of the Issuer

Stanley Ho Hung-Sun (also the record owner)

Non-Filipino

116,100,000 5.16%

1 The Board of Directors appoints the person who has the power to direct the voting and disposition of the shares held by Megaworld Corporation in the Company. 2 Beneficiaries are brokers and custodian bank participants of PCD. 3 Messrs. Yip Chu Kwong, Yuen Siu, Yip Kwok Cheong, Yip Kwok Wai, Tse Yuen Yuen and Poon Kwok Kuen, all stockholders of Emerging Market Assets Limited (“EMAL”), have the power to direct the voting and disposition of the shares held by EMAL in the Company. They are businessmen who are based in Hong Kong and China and who have substantial investments in the manufacturing and real estate industries in Guangzhou, China and Hong Kong.


Security Ownership of Directors and Management as of 18 September 2009:

Title of Class Name of Beneficial Owner

Amount and Nature of Beneficial

Ownership

Citizenship Percent of Class

Common Ferdinand B. Masi 1 (direct) Filipino 0.00% Common Amelia A. Austria 1 (direct) Filipino 0.00% Common Evelyn G. Cacho 1 (direct) Filipino 0.00% Common Giancarlo C. Ng 1 (direct) Filipino 0.00% Common Felizardo T. Sapno 1 (direct) Filipino 0.00% Common Cresencio P. Aquino 1 (direct) Filipino 0.00% Common Ma. Vicenta S. Jalandoni 1 (direct) Filipino 0.00% Common Rolando D. Siatela 0 Filipino N/A Common All directors and

executive officers 7 (direct) 0.00%

Voting Trust Holders of 5% or More The Company has no knowledge of persons holding more than 5% of its voting securities under a voting trust or similar agreement. Change in Control The Company has no knowledge of any arrangements among stockholders that may result in a change in control of the Company.

Item 5. Directors Including Independent Directors and Executive Officers Incumbent The following are the incumbent directors and executive officers of the Company: Name Age Citizenship Present Position Ferdinand B. Masi 47 Filipino Chairman and President of the Board Amelia A. Austria 55 Filipino Independent Director Evelyn G. Cacho 47 Filipino Director and Treasurer Giancarlo C. Ng 32 Filipino Director Felizardo T. Sapno 51 Filipino Independent Director Cresencio P. Aquino 56 Filipino Independent Director Ma. Vicenta S. Jalandoni 42 Filipino Director Rolando D. Siatela 47 Filipino Corporate Secretary There are seven (7) members of the Company’s Board of Directors, three of whom are independent directors.


Background Ferdinand B. Masi. Mr. Masi, 47 years old, Filipino, is currently the Chairman of the Board of Directors and the President of the Company. He was appointed as Chairman of the Board on 09 November 2007 and has served as President since 09 February 2001. Mr. Masi is currently with the Distillery Division of the Consolidated Distillers of the Far East, Inc. where he has been connected for the past 26 years, holding positions such as Accounting Staff, Plant Accountant/Auditor, Chief Accountant, Finance & Administrative Manager and, currently, as General Manager. He is a Certified Public Accountant and member of the Philippine Institute of Certified Public Accountants. He finished his Masters Degree in Business Administration from the Ateneo Graduate School of Business in 2004.

Evelyn G. Cacho. Ms. Cacho, 47 years old, Filipino, is currently the Treasurer and a member of the Board of Directors of the Company since 29 August 2005. Ms. Cacho is concurrently a director of Empire East Land Holdings, Inc. (“EELHI”), a position she has occupied since February 2009. She joined EELHI in February 1995 and has served as its Vice President for Finance since February 2001. She also currently serves as director of Laguna Bel Air School, Inc., Sonoma Premier Land, Inc., Valle Verde Properties, Inc. and Sherman Oak Holdings, Inc. Prior to joining EELHI, she gained extensive experience in the fields of financial/operations audit, treasury, and general accounting from her work with banks, manufacturing and trading companies. Ms. Cacho has a bachelor’s degree in Business Administration major in Accounting. Giancarlo C. Ng. Mr. Ng, 32 years old, Filipino, was elected as a Director on 23 October 2007. He is currently the Officer-in-Charge for Finance & Administration of Consolidated Distillers of the Far East, Inc. (“Condis”), a position he has held since March 2006. He is a graduate of the University of Asia and the Pacific with a degree in Bachelor of Arts in Liberal Arts and Humanities, graduating Magna Cum Laude and Valedictorian of his batch. He also obtained his Masters of Science in Information Technology from the same university. Prior to being OIC for Finance and Administration, Mr. Ng was at various times from 2003 to 2006 an account officer, sales manager, and inter-team coordinator of Condis. Mr. Ng has handled Customer Relations Management, Sales and Delivery Logistics, and Information Technology Planning and Tactical Coordination for Condis and has extensive experience in work involving business processes and information technology solutions. He was the project manager for the email and internet connectivity infrastructure project and inventory system database of Condis. Prior to joining the Consolidated Distillers of the Far East, Inc., he was a member of the Systems Technology Support of Meralco MTP-CSPT from 1998-1999, where he participated in the company’s Y2K compliance project. Mr. Ng then joined the Software Services Department of the Orient Overseas Container Line Phils, Inc. as a software programmer from 2000-2003, where he developed web applications and also served as customer EDI programmer and trainer of new recruits. Mr. Ng has attended trainings and seminars on several software languages, Customer Relations Management, Business Orientation for Marketing and Sales, Business Writing, Information Strategy Planning, and on the New Digital Economy and Emerging Technologies for the Philippines in 2020. Ma. Vicenta S. Jalandoni. Ms. Jalandoni, 42 years old, Filipino, has been a member of the Company’s Board of Directors since 29 August 2005 and is currently the Assistant Corporate Secretary and Assistant Corporate Information Officer of the Company. She is currently First Vice President and group head of the Marketing Department 3 of Megaworld Corporation. She was previously a First Vice President for Sales, Marketing and Operations of Empire East Land Holdings, Inc. for six and a half years. Her previous employments include stints with the United Coconut Planters Bank (Manager/Product Officer), Raffles Inc. (Group Product Manager), Mondragon Phils., and Norwich Eaton. She is a graduate of the De La Salle University.


Felizardo T. Sapno. Mr. Sapno, 51 years old, Filipino, was elected as an Independent Director on 03 July 2006. He is currently the Plant Manager of the Consolidated Distillers of the Far East, Inc., a position he has held since August 1990. Mr. Sapno is a licensed Chemical Engineer and a graduate of the Mapua Institute of Technology with a degree in BS Chemical Engineering. He was previously employed with the Philippine Allied Leatherette, Inc. as Production Supervisor from October 1981 to October 1982 and the Central Azucarera de Tarlac as Shift Supervisor from November 1982 to November 1985. He is a member of various professional and socio-civic associations such as the Philippine Institute of Chemical Engineers, Center for Alcohol and Research Development Foundation, Inc., Philippine Association of Alcohol and Fermentation Technologies, Inc., Kiwanis International, Philippine Luzon District and the Knights of Columbus, Council 4668. Cresencio P. Aquino. Mr. Aquino, 56 years old, Filipino, was elected as an Independent Director on 29 June 2007. He is currently the Managing Partner of The Law Firm of CP Aquino and Partners Law Office, a position he has held since June 1998. He is a graduate of the San Sebastian College Manila with degrees in Bachelor of Arts and Bachelor of Laws. Atty. Aquino has extensive experience in both the public and private sector and the former positions he has held are: Corporate Legal Counsel of MBF Card and One Card Corporation from June 1998 to May 2004, the Special Assistant and Chief Legal Counsel of the Government Service Insurance System from September 1992 to June 1998, member of the Board of Directors of the Meat Packaging Corporation of the Philippines from September 1992 to June 1998, Personnel and Administrative Manager, Corporate Secretary and Chief Legal Counsel of ComSavings Bank from September 1992 to June 1998, Executive Director of the Department of Interior and Local Government (DILG) from 1998 to 1992, and Ex-Officio Commissioner of the DILG with the Housing and Land Use Regulatory Board also for the same period. Atty. Aquino has extensive experience in legal and corporate restructuring, management, human resources management, and litigation/collection matters and was formerly an Associate Professor with the San Sebastian College. Atty. Aquino has been a member of the Integrated Bar of the Philippines since 1978 and is also a member of the Capitol Bar Association, Knights of Columbus and the Lawyers League of the Philippines. Amelia A. Austria. Ms. Austria, 55 years old, Filipino, was elected as an Independent Director on 09 November 2007. She is currently the General Manager, a position she has held since November 2004, of Good Earth Technologies International, Inc., a company engaged in General Merchandising and other commercial activities. She is also the Corporate Secretary and a member of the Board of Directors of Zenith Synergy Realty and Development Corporation. She is a licensed Chemist and placed second in the Chemistry Licensure Examination in 1976. Ms. Austria is a graduate of the University of Santo Tomas with a Degree in BS Chemistry and is an undergraduate of the Masteral Program-MS Chemistry from the same university. Prior to joining Good Earth Technologies, Ms. Austria had extensive experience in work involving research and development and quality control. Rolando D. Siatela. Mr. Siatela, 47 years old, Filipino, was appointed Corporate Secretary of the Company on 23 May 2006 and is concurrently the Corporate Information Officer. He is currently an Assistant Vice President for Corporate Management of Megaworld Corporation. He is presently a member of the Board of Directors of Asia Finest Cuisine, Inc., the Assistant Corporate Secretary of Alliance Global Group, Inc. and Megaworld Corporation, and the Corporate Secretary of ERA Real Estate Exchange, Inc. and Oceanic Realty Group International, Inc. He obtained both his AB Political Science and Bachelor of Laws degrees from the Lyceum of the Philippines.


Nominees The Nomination Committee composed of Giancarlo C. Ng, Chairman and members, Felizardo T. Sapno, Cresencio P. Aquino, and Rolando D. Siatela accepts nominees to the Board of Directors, including nominees for independent director. The Committee is responsible for screening and qualifying the list of nominees. The following is the complete list of nominees for members of the Board of Directors:

1. Ferdinand B. Masi 2. Amelia A. Austria – Independent Director 3. Evelyn G. Cacho 4. Giancarlo C. Ng 5. Felizardo T. Sapno 6. Cresencio P. Aquino – Independent Director 7. Ma. Vicenta S. Jalandoni

Independent Director Pursuant to the SRC Rule 38, the Company is required to have at least two (2) independent directors in its Board of Directors (i.e., 20% of its board size), who are each independent of management and free from any business or other relationship which could, or could reasonably be perceived to, materially interfere with his exercise of independent judgment in carrying out his responsibilities as a director in the Company. An independent director should have at least one (1) share of the Company’s common stock, a college graduate or has been engaged or exposed to the business for at least five (5) years, and possesses integrity/probity and assiduousness. The guidelines on nomination and election of independent directors prescribed under Rule 38 of the Securities Regulation Code were adopted and complied with by the Corporation in its Amended By Laws approved by the SEC on June 5, 2006. This year’s nominees for directors include two persons who qualify as independent directors. The President, Mr. Ferdinand B. Masi, nominated the incumbent Independent Director, Ms. Amelia A. Austria, for another term, while Mr. Giancarlo C. Ng nominated the other incumbent Independent Director, Mr. Cresencio P. Aquino, for another term. Mr. Masi and Ms. Austria and Messrs. Ng and Aquino are not related by consanguinity or affinity up to the fourth civil degree. The Nomination Committee reviewed the qualifications of Mr. Aquino and Ms. Austria under the criteria defined by SEC in its Circular No. 16, series of 2002, and they do not possess any of the disqualifications enumerated under the same circular and in the Code of Corporate Governance (Their respective profiles are presented on the preceding pages). Having found them duly qualified, the Nomination Committee endorsed the nomination of Mr. Cresencio P. Aquino and Ms. Amelia A. Austria as candidates for Independent Directors for the ensuing year. Disagreements with the Company No director has resigned or declined to stand for re-election to the Board of Directors since the date of the last annual stockholders’ meeting because of a disagreement with the Company on any matter relating to the Company’s operations, policies or practices. Significant Employees The Company does not have significant employees, i.e., persons who are not executive officers but expected to make significant contribution to the business.


Family Relationships No director or executive officer is related to each other up to the fourth civil degree whether by consanguinity or affinity. Involvement in Legal Proceedings The Company has no knowledge of any of the following events that occurred during the past five (5) years up the date of this report that are material to an evaluation of the ability or integrity of any director, nominee for election as director, or executive officer:

o Any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time;

o Any conviction by final judgment in a criminal proceeding, domestic or foreign, or being subject to a pending criminal proceeding, domestic or foreign, excluding traffic violations and other minor offenses;

o 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

o 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.

Certain Relationships and Related Transactions Except for the material related party transactions described in the notes to the consolidatedfinancial statements of the Company for the years 2008, 2007 and 2006 (please see elsewhere in here), there has been no material transaction during the last two years, nor is there any material transaction currently proposed, to which the Company was or is to be a party, in which any director or executive officer, any nominee for election as director, stockholder of more than ten percent (10%) of the Company’s voting shares, and any member of the immediate family (including spouse, parents, children, siblings, and in-laws) of any such director or officer or stockholder of more than ten percent (10%) of the Company’s voting shares had or is to have a direct or indirect material interest Item 6. Compensation of Directors and Executive Officers The principal executive officers of the Company are: Name Position Ferdinand B. Masi Chairman & President (CEO) Evelyn G. Cacho Treasurer Rolando D. Siatela Corporate Secretary Ma. Vicenta S. Jalandoni Asst. Corporate Secretary No compensation was received from the Company and neither will there be any compensation for the ensuing year. There are no arrangements in force pursuant to which the officers of the Company are compensated, or are to be compensated, directly or indirectly, for any services provided as such officer.


There are no standard arrangements pursuant to which directors of the Company are compensated, or are to be compensated, directly or indirectly, for any services provided as a director, including any additional amounts payable for committee participation or special assignments, for the year 2008 and for the ensuing year. There are no per diems granted to directors for attendance at meetings. There are no other arrangements, including consulting contracts, pursuant to which any director of the Company was compensated, or is to be compensated, directly or indirectly, for the year 2008 and for the ensuing year, for any service provided as a director. No employment contracts, termination of employment, or change in control arrangements, were effected for the applicable fiscal year. No warrants or stock options are held by the Company’s CEO, its named executive officers or directors for year 2008 nor are there plans for extending warrants or options for the ensuing year. Item 7. Independent Public Accountants Punongbayan & Araullo (P&A), upon recommendation by the Audit Committee of the Board of Directors composed of Cresencio P. Aquino as Chairman and Evelyn G. Cacho and Amelia A. Austria as members, was the principal external auditors for the years 2008 and 2007, and is again being recommended to the stockholders for re-election as the Company’s principal external auditors for the year 2009, with Ms. Dalisay B. Duque as the lead engagement partner for the ensuing year. Punongbayan & Araullo was the principal accountant of the Company since 1999. In compliance with SEC Memorandum Circular No. 8, Series of 2003 (Rotation of External Auditors), and as adopted by the Company, external auditors are rotated or changed every five (5) years or earlier. There are no disagreements with auditors on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which, if not resolved to their satisfaction, would have caused the auditors to make reference thereto in their reports on the financial statements of the Company and its subsidiary. Representatives of Punongbayan & Araullo are expected to be present at the Meeting. They will have the opportunity to make a statement if they desire to do so and are expected to be available to respond to appropriate questions. External audit fees and services The fees billed by P&A for each of the last two financial years totaled P582,400 and P554,400 for the audit of 2008 and 2007 annual financial statements or services that are normally provided in connection with statutory and regulatory filings or engagements. There were no separate tax fees billed and no other products and services provided by P&A for the last two fiscal years. All the above services have been approved by the Company, upon recommendation of the Audit Committee of the Board of Directors composed of Cresencio P. Aquino as Chairman and Evelyn G. Cacho and Amelia A. Austria as members.


Changes in and disagreements with accountants on accounting and financial disclosure P&A, as principal auditors, issued an unqualified opinion on the consolidated financial statements. As such, there had been no disagreements with them on any accounting principles or practices, financial disclosures, and auditing scope or procedure. C. OTHER MATTERS Item 8. Action with Respect to Reports The Minutes of the Annual Meeting of Stockholders held on 11 November 20054 will be submitted to the stockholders for approval. The approval or disapproval of said Minutes will constitute merely an approval or disapproval of the correctness of the minute but will not constitute an approval or disapproval of the matters referred to in the Minutes.

Item 9. Other Proposed Action Ratification of Acts of the Board of Directors and Management Management will present its performance report and submit for ratification by the stockholders all actions taken by the Board of Directors and officers in connection with the conduct and/or prosecution of the business and affairs of the Company. These actions included the appointment of officers in the corporation, appointment of RCBC as stock transfer agent, opening of accounts and bank transactions, execution of MOAs (easements and undertakings), designating authorized signatories and representatives (authority to sign Statement of Management Responsibility for Financial Statements), and compliances with SEC rules and regulations (adoption of Manual on Corporate Governance; approval of certification issued by the Compliance Officer; amendment of Manual on Corporate Governance re: selective disclosure of material information). Item 10. Voting Procedures In the election of directors, the seven (7) nominees garnering the highest number of votes will be elected as members of the board of directors, provided that there shall always be at least two (2) independent directors in the Company’s board of directors. For all other matters proposed to be acted upon, the vote of a majority of the outstanding shares will be needed for approval. Voting for all matters proposed to be acted upon during the Meeting shall be by viva voce, in which case votes will be counted by a show of hands. Election inspectors duly appointed during the meeting shall be responsible for counting the number of votes, subject to validation by representatives of Punongbayan & Araullo, the Company’s external auditors.

4 A copy of the Minutes of the Annual Meeting of Stockholders held on 11 November 2005 is attached hereto as Annex “A”.


MANAGEMENT REPORT

AS REQUIRED BY SRC RULE 20 INCLUDING FINANCIAL INFORMATION FOR FIRST HALF OF 2009

General Nature and Scope of Business Suntrust Home Developers, Inc. (“the Company”) was incorporated under Philippine laws and registered with the Securities and Exchange Commission (“SEC”) on 18 January 1956 under the name Ramie Textiles, Inc. It was originally authorized to engage in the manufacturing and sale of all types of ramie products. The Company has since amended its Articles of Incorporation, with the principal changes being highlighted below, as it sought to identify investment opportunities that will yield attractive returns. These changes resulted in the Company’s present nature of business of engaging in the business of real estate development, mass community housing, townhouses and horizontal land development. On 29 June 2002, the Board of Directors of the Company approved the amendment of its Articles of Incorporation resulting in a change in name from Fairmont Holdings, Inc. to its present name of Suntrust Home Developers, Inc. The change in name came hand in hand with a corresponding amendment of the Articles of Incorporation and change in the Company’s primary purpose or nature of business, from a holding company to a real estate company authorized to engage in real estate development, mass community housing, townhouses and rowhouses development, residential subdivision and other massive horizontal land development. This change in the nature of business was prompted by the perception that being a holding company no longer appeared to be viable, at least in the next few years, considering the slump in the equities market. Moreover, it was also an opportune time for the Company to re-strategize and take advantage of the huge but untapped potential that the low-cost mass housing sector had to offer. Furthermore, a new secondary purpose was also approved authorizing the Company to acquire interests in tourism and leisure-related enterprises, projects or ventures. On the same date, the Board of Directors of the Company likewise approved an increase in the Company’s authorized capital stock from Php2 Billion to Php3 Billion for the purpose of enabling the Company to finance any acquisitions or projects that it may undertake in the future in line with its new corporate purpose. Out of the Php1 Billion increase, Php250 Million has been actually subscribed while Php62,500,000 out of the amount subscribed has been actually paid-up in cash by Megaworld Corporation, an existing stockholder of the Company. On 18 July 2002, the Company acquired from an affiliate, Empire East Land Holdings, Inc. (“EELHI”), all of the latter’s shareholdings in Empire East Properties, Inc. (“EEPI”). Prior to such acquisition, EEPI was incorporated on 14 November 1997 as a wholly-owned subsidiary of EELHI to engage in the development of socialized or low-cost housing projects. In March 2004, the Company’s percentage of ownership in EEPI was reduced from 100% to 60% upon the subscription by EELHI to the shares of stock of EEPI. On 30 August 2005, the Board of Directors of the Company approved the decrease in the number of members of the Board of Directors from eleven to seven directors and the extension of its corporate term for another fifty (50) years from 18 January 2006. Likewise, the Board of Directors approved the addition of separate sections in the Company’s By-Laws providing for the creation of Committees such as a Nomination Committee as well as the election of Independent Directors of the Company. These changes to the Articles of Incorporation were ratified by the stockholders of the Company on 11 November 2005 and were approved by the SEC on 10 May 2006.


On 8 July 2008, the SEC approved the change in name of EEPI to Suntrust Properties, Inc. (“SPI”) and an increase in its authorized capital stock. EELHI subscribed to such increase in authorized capital stock of SPI and, as a result thereof, the Company’s ownership interest in SPI decreased from 60% to 20% Consequently, the Company’s control over SPI ceased and, as such, SPI is no longer a subsidiary but is now considered an associate of the Company. No purchase of a significant amount of assets not in the ordinary course of business was made by the Company in the past three (3) years. No material reclassification, merger or consolidation involving the Company has occurred in the past three years. Neither has the Company, in the past three years, sold a significant amount of assets not in the ordinary course of business. The Company, currently, does not have any business operations and is not offering any product or service. Although the Company has expressed preference for mass housing development and is continuing to study a proposal to raise funds for its initial business ventures, it is also in the process of assessing its prospects in other fields. Thus, it is premature, and the Company is not prepared at this time, to identify and describe what business it proposes to do and what products, goods or services will be produced or rendered; its principal products or services and their markets with the relative contribution to sales or revenues of each product or services or group of related products or services; percentage of sales or revenue and net income contributed by foreign sales; distribution methods of products or services; competition; sources and availability of raw materials and the names of principal suppliers; and the Company’s dependency on its customers. Since the Company has not identified the industry in which it will engage in, it is likewise not in the position to discuss any government approval required for its principal products or services or the effect of existing or probable governmental regulations on its business. The Company’s associate, SPI, is engaged in the real estate business principally offering house-and-lot packages and condominium units. It is currently developing the Governor’s Hills affordable housing project in General Trias, Cavite, the Sunrise Hills project in Dasmariñas, Cavite, and the Sta. Rosa Heights project in Silang, Sta. Rosa, Laguna. Compared to other players in the industry, SPI caters to the low to middle income sector of the market since it focuses on socialized and low-cost housing projects. About 85% of SPI’s revenue is generated from its mass housing subdivisions while the remaining 15% come from sale of condominium units as well as from other income. While SPI does not have established foreign marketing branches, significant portion of its sales is identified with the foreign market particularly composed of overseas contract workers. SPI’s marketing network is comprised of in-house sales force as external brokers and its suppliers are based locally. SPI employs a modern construction technology known as the 3D monolithic panel system. The Company or SPI is not dependent upon a single or a few customers. No single customer accounts for 20% or more of SPI’s sales.


Management’s Discussion and Analysis of Operations In 2008, as a result of the subscription by EELHI to the increase in authorized capital stock of SPI, the Company’s ownership interest in SPI decreased from 60% to 20%. Consequently, the Company’s control over SPI ceased and, as such, SPI is no longer a subsidiary but is now considered an associate of the Company. This eventually resulted in the deconsolidation of SPI from the Company’s financial statements starting in July 2008. Below are the major decreases in the Company’s results of operations and financial condition due to decrease in its ownership in SPI: Results of Operations

Twelve months ended December 31, 2008 compared to Twelve months ended December 31, 2007

The company's total revenues exhibited a decrease of 100% or 361.44 million from 2007 to 2008. Costs and expenses also decreased from P634.31 million in 2007 to P74.31 million in 2008, or a decrease of P560.01 million which is equivalent to 88.29%. Its percentage to total revenues were marked at 764795.81% and 175.49% for the year 2008 and 2007, respectively. The net loss attributable to Company is P 74.30 million in 2008 from P277.95 million in 2007, representing a decrease of P203.65 million. Financial Condition

As of December 31, 2008 vs. December 31, 2007 Total current assets decreased by 99.93% from P1.60 billion year-end balances in 2007 to P1.18 million in 2008. Total non-current assets decreased by 42.78% or P433.53 million from P1.01 billion in 2007 to P579.85 million in 2008.

Total current liabilities decreased by 79.23% or P1.83 billion from P2.30 billion in 2007 to P478.77 million in 2008. Total non-current liabilities decreased by 100% or P57.26 million.

Equity decreased by P144.19 million from P246.46 million in 2007 to P102.26 million in 2008.

Material Changes in the Financial Statements Items: Increase/Decrease of 5% or more vs. 2007 As of December 31, 2007 SPI was consolidated in company's financial statement but starting July 2008 due to dilution of the Company’s interest from 60% to 20%, SPI'S financial statement was deconsolidated and this results to major decreases on financial statements of the company.


The Company's Financial Statements will continue to show losses from operation until such time it is able to successfully re-start its commercial operation. There is no explanatory comment on the seasonality or cyclicality of interim operations. There are no material events subsequent to the end of the interim period that have not been reflected in the financial statements for the interim period. Twelve months ended December 31, 2007 compared to Twelve months ended December 31, 2006

The Group's consolidated total revenue exhibited an increase of P66.17 million or 22.41% from P295.28 million in 2006 to P361.45 million in 2007 of the same period. P213.93 million of generated revenues came from the sale of residential lots and condominiums units in 2007. It has posted an increase of 36.75% or P57.49 million from P156.44 million in the previous year. Revenues from sale of residential units are recognized based on percentage of completion. Under this method, revenue is recognized with reference to the stage of development of the properties. These residential properties include Governors's Hills in Cavite, Sunrise Hills, also in Cavite, Regal Homes, another project in Cavite, Sta. Rosa heights in Laguna and UN gardens in Manila. Interest on in-house financing exhibited an increase of P26.73 million or 49.76% from P53.71 million in 2006 to P80.44 million in 2007. Realized gross profit on prior year's sales showed an improvement of P6.54 million or 14.56%. Other operating income consist of interest income and other revenues which displayed a 61.12% or P24.58 million decrease from P40.22 million in 2006 to P15.64 million in 2007. Total costs and expenses as a percentage of consolidated total revenues were marked at 175.49% and 196.32% for the year 2007 and 2006, respectively. Cost of Sales increased to P143.89 million in 2007 from P95.83 million in 2006. On the other hand, deferred gross profit presented a decrease of P26.19 million or 44.92%. Operating expenses increased from P407.44 in 2006 to P418.28 in 2007. This is attributable to increase in selling and distribution cost. Finance cost increased by P21.05 million or 150.67% from P13.97 million in 2006 to P35.02 million in 2007. Tax expense increased by 20.66% from P4.15 million in 2006 to P5.01 million in 2007. The net loss of the group is P272.87 million in 2007 and P284.40 million in 2006 representing a decrease of P11.54 million. Financial Condition

As of December 31, 2007 vs. December 31, 2006 Consolidated current assets increased by P310.43 million or 24.16% from P1.28 billion year-end balances in 2006 to P1.60 billion in 2007. Cash and cash equivalents showed a decrease of P12.37million or 36.24% from P34.12 million year end balance in 2006 to P21.75 million balance in 2007. Property development costs increased by 15.09% million or P149.42 from P990.10 million in 2006 to P1.14 billion in 2007. Prepayments and other current assets is larger by P22.82 million or 99.82% from P22.86 million in 2006 to P45.68 million in 2007.


Consolidated non-current assets decrease by 30.34% or P441.43 million from P1.45 billion in 2006 to P1.01 billion in 2007. Property and Equipment increased by P2.18 million or 24.14% from P9.03 million in 2006 to P11.20 million in 2007. Investment properties also decrease by 34.01% from P840.19 million in 2006 to P554.41 million in 2007 due to the depreciation of a certain property for the period in accordance with the PFRS. Trade & other receivables decreased by P7.36 million from P582.04 million in 2006 to P574.68 million in 2007. Consolidated current liabilities increase by P185.47 million or 8.96% from P2.07 billion in 2006 to P2.25 billion in 2007. Interest-bearing loans decrease by 25.20% or P35.01 million from P138.93 million in 2006 to P103.92 million in 2007. Trade and other payables increase by 14.74% or P16.98 million from P115.25 million in 2006 to P132.24 million in 2007. Increase of P42.10 million in Customers' Deposit or 25.40% from P165.74 million in 2006 to P207.83 million in 2007. Deferred income on real estate sales displayed a decrease of P19.34 million or 19.15% from previous year. Consolidated noncurrent liabilities decreased by P43.61 million or 28.82% from P151.29 million in 2006 to P107.68 million in 2007. Reserve for Property development decreased by P46.39 million or 31.88% from P145.51 million in 2006 to P99.12 million in 2007. Retirement Benefit Obligation is higher by 48.14% or P2.78 million from P5.78 million in 2006 to P8.56 million in 2007. Consolidated equity decreased by P272.87 million or 52.54% from P519.32 million in 2006 to P246.46 million in 2007. Deficit is higher by 17.29% or P277.95 million from P1.61 billion in 2006 to P1.89 billion n 2007. Material Changes in the Financial Statements Items: Increase/Decrease of 5% or more vs. 2006 Balance Sheet Cash and Cash equivalents - (36.24) Decrease is basically attributable to increase in construction related expenses and other operating expenses. Property Development Cost - 15.09% Increase is due to continuous development of properties. Prepayments & Other Current Assets - 99.82% Increase is mostly caused by increase in input vat. Property and Equipment - 24.14% Increase is due to additions during the year. Investment Property - (34.01%) Decrease is due to depreciation for the year.


Interest bearing loan - (25.20%) Decrease is due to loan payment made during the period. Trade and other payables - 14.74% Increase is due to credit purchases during the year. Advances from related parties - 16.27% Increase is due to additional advances during the year to finance the development and construction of its projects Customer's Deposit - 25.40% Increase is due to pre-selling of various projects. Deferred Income on Real Estate Sales - 19.15% Represents decrease in unearned revenue. Reserve for Property Development - (31.88%) Decrease is mainly due to the completed portion of cost attributable to various on-going projects. Retirement Benefit Obligation - 48.14% Increase is caused by accrual of retirement benefits for the current year. Deficit - 17.29% Increase is due to the effect of net loss for the year. Income Statement Real Estate Sales - 36.75% Increase is due to higher recognizable real estate sales this year. Interest on in house-financing - 49.76% Due to increase in number of clients who availed of extended credit terms during the year. Realized gross profit on prior year's sale - 14.56% Increase is attributable to realization of real estate sales during the period. Other Operating income - (61.12%)


Decrease is due to previous year's gain from write off of liability of subsidiary. Cost of Real Estate Sales - 50.16% Increase is relatively due to increase in real estate sales for the period. Deferred Gross Profit - (44.92%) Attributable to the recognition of sales this period. Selling and distribution cost - 40.31% Due to increase in selling and marketing cost during the period. Finance cost - 150.67% Increase as a result of interest payments related to outstanding and additional loans made by subsidiary. Income Tax Expense - 20.66% Increase is due to higher taxable income for the year. There are no other material changes in the Groups financial position (changes of 5% or more) and condition that will warrant a more detailed discussion. Further, there are no material events and uncertainties known to the management that would impact or change reported financial information and condition of the group. Top Five (5) Key Performance Indicators of the Company - 2007 1. Increase in Total Current Assets

Considerable increase is due to increase in property development cost. The Company is continuing to invest and pursue its expansion activities by acquiring and developing new projects.

2. Decrease in Interest-bearing loan

Decrease is due to settlement of current obligations. The Company retains commendable credit status.

3. Increase in Total Revenues Notable increase is basically due to the consequence of the support given by the organization to its sales group. Also, timely delivery of projects with the highest quality.

4. Increase in Realized Gross Profit

Increase is basically due to the completion of various projects, thus the Company continuously delivers projects on time with the highest quality.


5. Consistent land banking The Company keeps on intensifying its assets and retains creditable status in real estate through persistent expansion

There were no seasonal aspects that had a material effect on the financial condition or results of operations or any trends, events or uncertainties that would reasonably be expected to have a material impact on the net sales or revenues or income from continuing operations.

There are no known trends or demands, commitments, events or uncertainties that will result in or that are reasonably likely to result in increasing or decreasing the Company's liquidity. The company does not anticipate having any cash flow or liquidity problems nor it is in default or breach of any note, loan, lease or other indebtedness or financing arrangement. There are no material commitments for capital expenditures or any known trends, events or uncertainties that have had or reasonably expected to have a material impact on the net sales or revenues or income from continuing operations. First Half 2009 Business Development In 2008, as a result of the subscription by EELHI to the increase in authorized capital stock of SPI, the Company's ownership interest in SPI decreased from 60% to 20%. Consequently, the Company's control over SPI ceased and, as such, SPI is no longer a subsidiary but is now considered an associate of the Company. This eventually resulted in the deconsolidation of SPI from the Company's financial statements starting in July 2008 which explains the major decreases in the Company's results of operation. Results of Operations Six months ended June 30, 2009 compared to Six months ended June 30, 2008 The company's total revenues exhibited a decrease of 99.91% or 198.22 million from 2008 to 2009 of the same period. Cost and expenses also decreased by 99.64% or 207.23 million from 207.97 million in 2008 to 739.03 thousand in 2009. The net results of the company post a decrease in Net Loss of 94.24% or 9.19 million from 9.75 million in 2008 and 561.98 thousand in 2009.


Financial Condition As of June 30, 2009 and December 31, 2008 Current assets shows an increase of 7.32% or 86.52 thousand from 1.18 million in 2008 to 1.27 million in 2009. Cash & Cash Equivalents decreased by 3.41% or 20.27 thousand from 594.67 thousand in 2008 to 574.41 thousand in 2009. Prepayments increased by 18.19% or 106.78 thousand from 587.14 thousand in 2008 to 693.93 thousand in 2009 due to increase in prepaid taxes during the current period. Current assets shows an increase of 7.32% or 86.52 thousand from 1.18 million in 2008 to 1.27 million in 2009. Cash & Cash Equivalents decreased by 3.41% or 20.27 thousand from 594.67 thousand in 2008 to 574.41 thousand in 2009. Prepayments increased by 18.19% or 106.78 thousand from 587.14 thousand in 2008 to 693.93 thousand in 2009 due to increase in prepaid taxes during the current period. Total liabilities increased by 823.94 thousand from 478.77 million in 2008 to 479.60 million in 2009. Trade & Other Payables exhibited a decrease of 94.71% or 576.06 thousand from 608.25 thousand in 2008 to 32.19 thousand in 2009 brought by payment of accrued expenses during the period. Material Changes in the Financial Statement Items: Increase/(Decrease) of 5% or more versus 2008 Balance Sheet Prepayments & Other Current Assets - 18.19% Increase is caused by increase in prepaid taxes during the current period Trade and other payables - (94.71%) Decrease is brought by payment of accrued expenses during the period. Income Statement As of January 1, 2008, SPI was consolidated in the Company's financial statements, however, starting July 2008, due to the dilution of the Company's interest from 60% to 20%, SPI's financial statement was deconsolidated. This resulted to major decrease in the income statement of the Company. There is no explanatory comment on the seasonality or cyclicality of interim operations. There are no material events subsequent to the end of the interim period that have not been reflected in the financial statements for the interim period.


Market Price of and Dividends on the Company’s Common Shares Market Information The Company’s common shares are traded on the Philippine Stock Exchange. The closing price of the said shares as of 18 September 2009 was 0.44. The trading prices of the said shares for each quarter within the last two years and subsequent interim period are set forth below:

Year First Quarter Second Quarter Third Quarter Fourth Quarter 2007 High 0.91 1.24 1.04 0.72 Low 0.58 0.64 0.47 0.50 2008 High 0.58 0.41 0.44 1.56 Low 0.36 0.34 0.37 0.28 2009 High 0.28 0.49 Low 0.20 0.49

Shareholders There are 1,687 holders of the Company’s 2,250,000,000 outstanding shares of common stock. Below is a list of the top twenty holders of the Company’s shares of common stock as of 18 September 2009.

Rank Name No. of Shares Percentage of

Ownership 1 PCD Nominee Corporation (Filipino) 877,109,948 38.98% 2 Megaworld Corporation 705,834,992 31.37% 3 Emerging Market Assets Limited 235,000,000 10.44% 4 Stanley Ho Hung-Sun 116,100,000 5.16% 5 PCD Nominee Corporation (Non-Filipino) 17,384,566 .77% 6 EBC PCI TA No. 203-53106-5 17,000,000 .75% 7 Lucio L. Co 4,082,563 .18% 8 Genevieve Go 1,300,000 .05% 9 PCCI Securities Brokers Corp. 1,000,000 .04% 10 Romulo P. Ney 555,000 .02% 11 Rosendo Lim 550,000 .02% 12 Larcy Marichi Y. So &/or Hanson B. 513,700 .02% 13 Sik Keong Yap 500,000 .02% 14 Goldwell Properties Tagaytay, Inc. 450,000 .02% 15 Luciano H. Tan 450,000 .02%

16 Pablo N. Silva 437,499 .02% 17 Lucena B. Enriquez 420,000 .02% 18 Hanson G. So 400,000 .02% 19 Jaime Dy &/or Juliet Dy 399,000 .01% 20 Francis L. Dy &/or Ingred S. Dy 385,000 .01%


Dividends The deficit of the Company and its cash position did not merit any declaration of dividends for the last two fiscal years. The payment of dividends in the future will depend upon the Company's earnings, cash flow and financial condition, among other factors. The Company may declare dividends only out of its unrestricted retained earnings. These represent the net accumulated earnings of the Company, with its capital unimpaired, which are not appropriated for any other purpose. The Company may pay dividends in cash, by the distribution of property, or by the issue of shares of stock. Dividends paid in cash are subject to the approval by the Board of Directors. Dividends paid in the form of additional shares are subject to approval by both the Board of Directors and at least two-thirds (2/3) of the outstanding capital stock of the shareholders at a shareholders' meeting called for such purpose. The Corporation Code prohibits stock corporations from retaining surplus profits in excess of one hundred per cent (100%) of their paid-in capital stock, except when justified by definite corporate expansion projects or programs approved by the Board of Directors, or when the corporation is prohibited under any loan agreement with any financial institution or creditor from declaring dividends without its consent, and such consent has not yet been secured, or when it can be clearly shown that such retention is necessary under special circumstances obtaining in the corporation. Recent Sales of Unregistered Securities In the past three (3) years, the Company has not undertaken any sale of unregistered or exempt securities, or issued securities constituting an exempt transaction. Compliance with Leading Practices on Corporate Governance The Company adopted a Manual on Corporate Governance to institutionalize the rules and principles of good corporate governance in the entire organization in accordance with the Code of Corporate Governance promulgated by SEC. A copy of the Manual was submitted to SEC and PSE in 2002. Pursuant to the Manual, three Board committees, namely Nomination, Compensation and Remuneration, and Audit, were created in 2003 to aid in complying with the principles of good corporate governance. A Compliance Officer, directly reporting to the Chairman of the Board, was appointed on 03 February 2003 to monitor compliance with the provisions and requirements of the Manual. The Compliance Office also issues a certification every January 30 on the extent of compliance for the last completed year. A Self-Rating System on Corporate Governance was implemented and submitted to SEC and PSE in July 2003. In a certificate dated 29 January 2008 submitted to the SEC, the Company reported that it had substantially adopted all the provisions of its Manual of Corporate Governance. Among the measures undertaken by the Company in order to fully comply with the provisions of the leading practices on good corporate governance adopted in its Manual on Corporate Governance are monitoring and evaluation of the internal control system for corporate governance. The Company likewise maintains an active website wherein its Annual Reports, Quarterly Reports, Financial


Statements and other disclosures are uploaded for easy access and reference by the investing public. No sanctions have been imposed on any director, officer or employee on account of non-compliance. The Company is committed to good corporate governance and continues to improve and enhance the evaluation system for purposes of determining the level of compliance by the Company with its Manual on Corporate Governance.

UNDERTAKING The Company undertakes to provide without charge to a stockholder a copy of the Annual Report on SEC Form 17-A upon written request address to ROLANDO D. SIATELA, Corporate Secretary and Information Officer, Suntrust Home Developers, Inc., 6/F World Centre Building, 330 Sen. Gil Puyat Avenue, Makati City.

FINANCIAL STATEMENTS

Suntrust Home Developers, Inc.

December 31, 2008, 2007 and 2006

June 30, 2009

2008

(Company only - 2007

Notes see Note 1) (Consolidated)

CURRENT ASSETS

Cash and cash equivalents 4 594,676 P 21,753,572 P

Trade and other receivables - net 5 - 388,169,004

Property development costs 6 - 1,139,520,126

Prepayments and other current assets 7 587,144 45,682,727

Total Current Assets 1,181,820 1,595,125,429

NONCURRENT ASSETS

Investment in an associate 11 83,005,235 -

Trade and other receivables - net 5 - 186,512,112

Land held for future development 8 - 117,561,633

Advances to landowners and joint ventures 23 - 188,543,200

Property and equipment - net 9 - 11,202,901

SUNTRUST HOME DEVELOPERS, INC.

BALANCE SHEETS

DECEMBER 31, 2008 AND 2007

(Amounts in Philippine Pesos)

A S S E T S

Property and equipment - net 9 - 11,202,901

Investment property - net 10 436,848,488 436,848,488

Other noncurrent assets 12 60,000,645 72,714,330

Total Noncurrent Assets 579,854,368 1,013,382,664

TOTAL ASSETS 581,036,188 P 2,608,508,093 P

Forward

2008

(Company only - 2007

Notes see Note 1) (Consolidated)

CURRENT LIABILITIES

Interest-bearing loans 5 - 103,918,188 P

Trade and other payables 13 608,250 132,235,895

Reserve for property development 6 - 50,415,887

Advances from related parties 19 41,317,052 1,291,895,594

Customers' deposits - 207,834,015

Deferred income on real estate sales - 81,640,746

Provision 10 436,848,488 436,848,488

Total Current Liabilities 478,773,790 2,304,788,813

NONCURRENT LIABILITIES

Reserve for property development 6 - 48,707,665

Retirement benefit obligation 17 - 8,556,045

Total Noncurrent Liabilities - 57,263,710

Total Liabilities 478,773,790 2,362,052,523

LIABILITIES AND EQUITY

-2-

P

EQUITY

Capital stock 20 2,062,500,000 2,062,500,000

Deficit 1,960,237,602 )( 1,885,939,757 )(

Minority interest 1 - 69,895,327

Total Equity 102,262,398 246,455,570

TOTAL LIABILITIES AND EQUITY 581,036,188 P 2,608,508,093 P

See Notes to Financial Statements.

2008

(Company only - 2007 2006

Notes see Note 1) (Consolidated) (Consolidated)

REVENUES

Real estate sales - 213,932,302 P 156,443,904 P

Interest on in-house financing 5 - 80,436,345 53,709,532

Realized gross profit on prior years' sales - 51,439,303 44,901,944

Other operating income 15 9,716 15,638,359 40,221,579

9,716 361,446,309 295,276,959

COSTS AND EXPENSES

Loss on dilution of interest in a subsidiary 11 71,265,399 - -

Administrative expenses 16 1,951,193 377,259,611 378,210,020

Equity in net losses of an associate 11 1,090,087 - -

Cost of real estate sales 14 - 143,893,876 95,828,015

Deferred gross profit - 32,102,605 58,288,673

Selling and distribution costs 16 - 40,977,852 29,205,772

Other operating expenses 16 - 44,704 21,706

Finance costs 5, 19 - 35,021,075 13,970,833

Income tax expense 18 882 5,013,241 4,154,829


INCOME STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2008, 2007 AND 2006


P

Income tax expense 18 882 5,013,241 4,154,829

74,307,561 634,312,964 579,679,848

NET LOSS 74,297,845 P 272,866,655 P 284,402,889 P

Net loss (income) attributable to:

Parent company's shareholders 74,297,845 P 277,951,017 P 287,118,018 P

Minority interest - 5,084,362 )( 2,715,129 )(

74,297,845 P 272,866,655 P 284,402,889 P

Loss Per Share Attributable to Parent

Company's Shareholders 21 0.03 P 0.12 P 0.13 P


2008

(Company only - 2007 2006

Note see Note 1) (Consolidated) (Consolidated)

EQUITY ATTRIBUTABLE TO

SHAREHOLDERS OF PARENT COMPANY

CAPITAL STOCK 20

Issued and outstanding 2,000,000,000 P 2,000,000,000 P 2,000,000,000 P

Subscribed capital 250,000,000 250,000,000 250,000,000

Subscription receivable 187,500,000 )( 187,500,000 )( 187,500,000 )(

62,500,000 62,500,000 62,500,000

2,062,500,000 2,062,500,000 2,062,500,000

DEFICIT

Balance at beginning of year 1,885,939,757 )( 1,607,988,740 )( 1,320,870,722 )(

Net loss 74,297,845 )( 277,951,017 )( 287,118,018 )(

Balance at end of year 1,960,237,602 )( 1,885,939,757 )( 1,607,988,740 )(

Total Equity Attributable to Shareholders of

Parent Company 102,262,398 176,560,243 454,511,260

MINORITY INTEREST

Balance at beginning of year - 64,810,965 62,095,836

Net income - 5,084,362 2,715,129

Balance at end of year - 69,895,327 64,810,965

TOTAL EQUITY 102,262,398 P 246,455,570 P 519,322,225 P



STATEMENTS OF CHANGES IN EQUITY



2008

(Company only - 2007 2006Notes see Note 1) (Consolidated) (Consolidated)

CASH FLOWS FROM OPERATING ACTIVITIES

Loss before tax 74,296,963 )( P 267,853,414 )( P 280,248,060 )( P

Adjustments for:

Loss on dilution of interest in a subsidiary 71,265,399 - -

Equity in net earnings of an associate 1,090,087 - -

Interest income 4, 5 9,716 )( 82,289,322 )( 54,843,450 )(

Depreciation and amortization 16 1,290 287,675,535 286,837,560

Interest expense - 35,021,075 13,970,833

Dividend income 15 - 2,010,676 )( -

Impairment loss on receivables 5 - 8,636,575 -

Operating loss before working capital changes 1,949,903 )( 20,820,227 )( 34,283,117 )(

Increase in trade and other receivables - 61,778,031 )( 74,865,023 )(

Increase in property development costs - 169,719,591 )( 61,625,973 )(

Increase in land held for future development 8 - 500,000 )( 7,168,373 )(

Increase in prepayments and other current assets 48,054 )( 24,654,633 )( 8,846,664 )(

Decrease (increase) in advances to landowners and joint ventures - 24,000 )( 28,783,316

Increase (decrease) in trade and other payables 74,539 18,477,724 29,752,187 )(

Increase in customers' deposits - 42,096,990 22,526,503

Decrease in deferred income on real estates sales - 19,336,698 )( 14,505,509 )(

Increase in retirement benefit obligation - 2,780,206 1,433,638

Cash used in operations 1,923,418 )( 233,478,260 )( 178,303,389 )(

Cash paid for taxes 882 )( 5,100,291 )( 4,780,023 )(

Net Cash Used in Operating Activities 1,924,300 )( 238,578,551 )( 183,083,412 )(

CASH FLOWS FROM INVESTING ACTIVITIES

Interest received 9,716 82,657,032 55,063,530

Acquisitions of property and equipment 9 - 6,182,498 )( 3,513,171 )(

Dividends received - 2,010,676 -

Net Cash Used in Investing Activities 9,716 78,485,210 51,550,359

CASH FLOWS FROM FINANCING ACTIVITIES

Net advances from related parties 1,702,005 217,761,572 37,140,694

Net proceeds from (payments of) interest-bearing loans - 35,012,361 )( 110,966,154

Interest paid - 35,021,075 )( 13,970,833 )(

Net Cash From Financing Activities 1,702,005 147,728,136 134,136,015

NET INCREASE (DECREASE) IN CASH

AND CASH EQUIVALENTS 212,579 )( 12,365,205 )( 2,602,962

CASH AND CASH EQUIVALENTS OF A

FORMER SUBSIDIARY 20,946,317 )( - -

CASH AND CASH EQUIVALENTS

AT BEGINNING OF YEAR 21,753,572 34,118,777 31,515,815

CASH AND CASH EQUIVALENTS

AT END OF YEAR 594,676 P 21,753,572 P 34,118,777 P

Supplemental Information

In 2008, the beginning balance of cash and cash equivalents of Suntrust Properties, Inc. (SPI), a former subsidiary, now an associate was deconsolidated

as a result of the dilution of the Company's ownership interest in SPI.



CASH FLOW STATEMENTS



SUNTRUST HOME DEVELOPERS, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2008, 2007 AND 2006


1. CORPORATE INFORMATION

Suntrust Home Developers, Inc. (the Company) was incorporated in the Philippines to primarily engage in real estate development. The Company is a publicly listed entity in the Philippine Stock Exchange. As of December 31, 2008 and 2007, Megaworld Corporation (Megaworld), also a publicly listed Company, is the major stockholder with 42.48% ownership interest in the Company.

On November 11, 2005, the Company’s Board of Directors (BOD) approved the change in the Company’s corporate name from Fairmont Holdings, Inc. to Suntrust Home Developers, Inc. It also approved the change in the primary purpose of the business of the Company from investment to real estate operations. The change in corporate name and the primary purpose of the business was approved by the Securities and Exchange Commission (SEC) on May 10, 2006. The registered office of the Company, which is also its principal place of business, is located at the 6th Floor, The World Centre Building, 330 Sen. Gil Puyat Avenue, Makati City. The Company’s administrative functions are being handled by Megaworld. In 2008, the Company’s ownership interest in Suntrust Properties, Inc., formerly Empire East Properties, Inc. (SPI), decreased from 60% to 20%. Consequently, the Company’s control over SPI ceases and as such, SPI is no longer a subsidiary but instead becomes an associate of the Company, which eventually resulted in the deconsolidation of SPI from its financial statements in 2008 (see Note 11).

The financial statements have been prepared on a going concern basis since Megaworld commits to provide continuing financial support on its operating expenses until such time the Company is able to successfully re-start its commercial operations as a real estate developer.

The financial statements of the Company for the year ended December 31, 2008 (including the comparative consolidated financial statements for the years ended December 31, 2007 and 2006) were authorized for issue by the BOD on March 19, 2009.

- 2 - 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The significant accounting policies that have been used in the preparation of these financial statements are summarized in the succeeding paragraphs. The policies have been consistently applied to all years presented, unless otherwise stated.

2.1 Basis of Preparation of Financial Statements

(a) Statement of Compliance with Philippine Financial Reporting Standards

The financial statements have been prepared in accordance with Philippine Financial Reporting Standards (PFRS). PFRS are adopted by the Financial Reporting Standards Council (FRSC) from the pronouncements issued by the International Accounting Standards Board.

The financial statements have been prepared using the measurement bases specified by PFRS for each type of asset, liability, income and expense. These financial statements have been prepared on the historical cost basis. The measurement bases are more fully described in the accounting policies that follow.

(b) Functional and Presentation Currency

These financial statements are presented in Philippine peso, the functional currency of the Company and SPI, and all values represent absolute amounts except when otherwise indicated (see Note 2.14).

(c) Reclassification of Accounts

Certain accounts in the 2007 financial statements have been reclassified to conform to the 2008 financial statement presentation and classification.

2.2 Basis of Consolidation (For the 2007 and 2006 Consolidated Financial

Statements) The consolidated financial statements for 2007 and 2006 comprised the accounts of the Company and its then 60%-owned subsidiary SPI, after the elimination of material intercompany transactions. All intercompany balances and transactions with SPI including income, expenses and dividends, were eliminated in full. Unrealized profits and losses from intercompany transactions that were recognized in assets were also eliminated in full. Intercompany losses that indicated an impairment were recognized in the consolidated financial statements.

A subsidiary is consolidated from the date the Company obtains control until such time that such control ceases. The 2008 financial statements of the Company do not include the accounts of SPI since the Company has no longer control over SPI in 2008. Hence, starting 2008, SPI is no longer a subsidiary of the Company; it is now an associate. On the other hand, the consolidated balance sheet as of December 31, 2007 and the related income statements, changes in equity and cash flow statements for the years ended December 31, 2007 and 2006 included the accounts of SPI because the Company had control over SPI as of that date and during those years.

- 3 -

The financial statements of SPI are prepared for the same reporting period as the Company using consistent accounting principles.

The Company accounts for its investment in a subsidiary, minority interest and interest in joint ventures in 2007 and 2006 as follows:

(a) Investment in a Subsidiary

A subsidiary is an entity over which the Company has the power to control the financial and operating policies. The Company obtains and exercises control through voting rights.

The subsidiary is consolidated from the date the Company obtains control until such time that such control ceases..

The subsidiary is subject to the application of the purchase method for acquisitions. This involves the revaluation at fair value of all identifiable assets and liabilities, including contingent liabilities of the subsidiary, at the acquisition date, regardless of whether or not they were recorded in the financial statements of the subsidiary prior to acquisition. On initial recognition, the assets and liabilities of the subsidiary are included in the consolidated balance sheet at their revalued amounts, which are also used as the bases for subsequent measurement in accordance with the Company accounting policies.

(b) Transactions with Minority Interests

The Company applies a policy of treating transactions with minority interests as transactions with parties external to the Company. Disposals of equity investments to minority interests result in gains and losses for the Company that are recorded in the income statement. Minority interests represent the interests not held by the Company.

(c) Interests in Joint Ventures

SPI has interests in jointly controlled assets that arise from joint development agreements entered into with landowners of certain parcels of land under development.

In jointly controlled assets, SPI’s share of jointly controlled assets and its share of any liabilities incurred jointly with other venturers in relation to the joint venture are recognized in the financial statements. Income from the sale of its share in the developed residential and condominium units are recognized in the books using the percentage of completion method (see Note 2.6). Any expenses incurred related to the joint venture are recorded in the financial statements.

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2.3 Impact of New Amendments and Interpretations to Existing Standards

(a) Effective in 2008 that are relevant to the Company In 2008, the Company adopted for the first time the following new interpretation and amended standards which are mandatory in 2008.

Philippine Interpretation IFRIC 14 : PAS 19 – The Limit on a Defined

Benefit Asset, Minimum Funding Requirements and their Interaction

PAS 39 and PFRS 7 (Amendments) : PAS 39, Financial Instruments: Recognition and Measurements and PFRS 7, Financial Instruments: Disclosures

Discussed below are the impact on the financial statements of the new accounting interpretation and amended standards. (i) Philippine Interpretation IFRIC 14, PAS 19 – The Limit on a Defined

Benefit Asset, Minimum Funding Requirements and their Interaction (effective from January 1, 2008). This Philippine Interpretation provides guidance on assessing the limit in PAS 19, Employee Benefits, on the amount of the surplus that can be recognized as an asset. It also explains how the pension asset or liability may be affected by a statutory or contractual minimum funding requirement. The Company’s adoption of this interpretation does not have any impact on the Company’s financial statements, as it has a retirement benefit obligation and is not subject to any minimum funding requirements.

(ii) PAS 39 (Amendment), Financial Instruments: Recognition and Measurement and PFRS 7 (Amendment), Financial Instruments: Disclosures (effective from July 1, 2008). The amendments permit an entity to:

• Reclassify non-derivative financial assets (other than those designated at fair value through profit or loss by the entity upon initial recognition) out of fair value through profit or loss category in particular circumstances; and,

• Transfer from the available for sale category to the loans and receivable category those financial assets that would have meet the definition of loans and receivables, provided that the entity has the intention and the ability to hold those financial assets for the foreseeable future.

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The amendments are applicable in a partially retrospective manner up to July 1, 2008 provided that the reclassification is made on or before November 15, 2008, the cut-off date set by the FRSC. After the cut-off date, all reclassifications will only take effect prospectively. However, as it did not exercise the option to reclassify its financial assets, the Company determined that the adoption of these amendments has no impact on the 2008 financial statements. The first time application of these interpretation and amendments has not resulted in any prior period adjustments of balance sheet, net income or cash flows line items.

(b) Effective in 2008 but are not relevant to the Company

The following new Philippine Interepretations are not relevant to the Company: Philippine Interpretation IFRIC 12 : Service Concession Arrangements Philippine Interpretation IFRIC 13 : Customer Loyalty Programmes

(c) Effective subsequent to 2008

There are new amended standards that are effective for periods subsequent to 2008. The following amended standards, effective for annual periods beginning on or after January 1, 2009, are relevant to the Company which the Company will apply in accordance with their transitional provisions.

PAS 1 (Revised 2007) : Presentation of Financial Statements PAS 23 (Revised 2007) : Borrowing Costs PAS 32 and PAS 1

(Amendments) : Financial Instruments: Presentation and Presentation of Financial

Statements – Puttable Financial Instruments and Obligations

Arising on Liquidation Philippine Interpretation IFRIC 15 : Agreements for the Construction of Real Estate Various Standards : Annual Improvements to PFRS 2008

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Below is a discussion of the possible impact of these accounting standards. (i) PAS 1 (Revised 2007), Presentation of Financial Statements (effective from

January 1, 2009). The amendment requires an entity to present all items of income and expense recognized in the period in a single statement of comprehensive income or in two statements: a separate income statement and a statement of comprehensive income. The income statement shall disclose income and expense recognized in profit and loss in the same way as the current version of PAS 1. The statement of comprehensive income shall disclose profit or loss for the period, plus each component of income and expense recognized outside of profit and loss classified by nature (e.g., gains or losses on available-for-sale assets or translation differences related to foreign operations). Changes in equity arising from transactions with owners are excluded from the statement of comprehensive income (e.g., dividends and capital increase). An entity would also be required to include in its set of financial statements a statement showing its financial position (or balance sheet) at the beginning of the previous period when the entity retrospectively applies an accounting policy or makes a retrospective restatement. The Company will apply PAS 1 (Revised 2007) in its 2009 financial statements.

(ii) PAS 23 (Revised 2007), Borrowing Costs (effective from January 1, 2009). Under the revised PAS 23, all borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset shall be capitalized as part of the cost of that asset. The option of immediately expensing borrowing costs that qualify for asset recognition has been removed. The Company has initially determined that adoption of this new standard will not have significant effects on the financial statements for 2009, as well as for prior and future periods, as the Company’s current accounting policy is to capitalize all interest directly related to qualifying assets.

(iii) PAS 32 (Amendment), Financial Instruments: Presentation and PAS 1

(Amendment), Presentation of Financial Statements – Puttable Financial Instruments and Obligations Arising on Liquidation (effective from January 1, 2009). The amendments require certain financial instruments that represent a residual interest in the net assets of an entity, which would otherwise be classified as financial liabilities, to be classified as equity, if both the financial instrument and the capital structure of the issuing entity meet certain conditions. The Company does not expect any impact on its financial statements when it applies the amendments in 2009.

(iv) Philippine Interpretation IFRIC 15, Agreements for Construction of Real

Estate, (effective from January 1, 2012). This Interpretation provides guidance on how to determine whether an agreement for the construction of real estate is within the scope of PAS 11, Construction Contracts, or PAS 18, Revenue, and accordingly, when revenue from the construction should be recognized. The main expected change in practice is a shift from recognizing revenue using the percentage of completion method (i.e. as a construction progresses, by reference to the stage of completion of the development) to recognizing revenue at a single time (i.e., at completion upon or after delivery). The Company will adopt this interpretation in 2012 and is currently evaluating the impact of such adoption in the financial statements.

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(v) 2008 Annual Improvements to PFRS. The FRSC has adopted the Improvements to International Financial Reporting Standards 2008. These amendments became effective in the Philippines in annual periods beginning on or after January 1, 2009. The Company expects the amendments to the following standards to be relevant to the Company’s accounting policies:

• PAS 1 (Amendment), Presentation of Financial Statements. The amendment clarifies that financial instruments classified as held for trading in accordance with PAS 39 are not necessarily required to be presented as current assets or current liabilities. Instead, normal classification principles under PAS 1 should be applied. Presently, all held for trading financial assets of the Company are classified as current assets under PAS 1, hence, this amendment will have no impact in the Company’s 2009 financial statements.

• PAS 19 (Amendment), Employee Benefits. The amendment includes the following:

- Clarification that a curtailment is considered to have occurred to

the extent that benefit promises are affected by future salary increases and a reduction in the present value of the defined benefit obligation results in negative past service cost.

- Change in the definition on return of plan assets to require the

deduction of plan administration costs in the calculation of plan assets return only to the extent that such costs have been excluded from measurement of the defined benefit obligation.

- Distinction between short-term and long-term employee

benefits will be based on whether benefits are due to be settled within or after 12 months of employee service being rendered.

- Removal of the reference to recognition in relation to contingent

liabilities in order to be consistent with PAS 37, Provisions, Contingent Liabilities and Contingent Assets, which requires contingent liabilities to be disclosed and not recognized.

The Company’s management assessed that this amendment to PAS 19 will have no impact on its 2009 financial statements.

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• PAS 23 (Amendment), Borrowing Costs. The amendment clarifies the definition of borrowing costs to include interest expense determined using the effective interest method under PAS 39. This amendment will be applied by the Company in 2009; however, management expects its effect to be insignificant.

• PAS 38 (Amendment), Intangible Assets. The amendment clarifies when to recognize a prepayment asset, including advertising or promotional expenditures. In the case of supply of goods, the entity recognizes such expenditure as an expense when it has a right to access the goods. For services, an expense is recognized on receiving the service. Also, prepayment may only be recognized in the event that payment has been made in advance of obtaining right of access to goods or receipt of services. The Company initially determined that adoption of this amendment will not have a material effect on its 2009 financial statements.

• PAS 39 (Amendment), Financial Instruments: Recognition and Measurement. The definition of financial asset or financial liability at fair value through profit or loss as it relates to items that are held for trading was changed. A financial asset or liability that is part of a portfolio of financial instruments managed together with evidence of an actual recent pattern of short-term profit taking is included in such a portfolio on initial recognition. The Company initially determined that adoption of this amendment will not have a material effect on its 2009 financial statements.

• PAS 40 (Amendment), Investment Property. PAS 40 is amended to include property under construction or development for future use as investment property in its definition of investment property. This results in such property being within the scope of PAS 40; previously, it was within the scope of PAS 16. Also, if an entity’s policy is to measure investment property at fair value, but during construction or development of an investment property the entity is unable to reliably measure its fair value, then the entity would be permitted to measure the investment property at cost until construction or development is complete. At such time, the entity would be able to measure the investment property at fair value.

Minor amendments are made to several other standards; however, those amendments are not expected to have a material impact on the Company’s financial statements.

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2.4 Financial Assets

Financial assets include cash and cash equivalents and other financial instruments. Financial assets, other than hedging instruments, are classified into the following categories: financial assets at fair value through profit or loss, loans and receivables, held-to-maturity investments and available-for-sale financial assets. Financial assets are assigned to the different categories by management on initial recognition, depending on the purpose for which the investments were acquired. The designation of financial assets is re-evaluated at every reporting date at which date a choice of classification or accounting treatment is available, subject to compliance with specific provisions of applicable accounting standards.

Cash and cash equivalents are defined as cash on hand, demand deposits and short-term, highly liquid investments readily convertible to known amounts of cash and which are subject to insignificant risk of changes in value. Regular purchase and sales of financial assets are recognized on their trade date. All financial assets that are not classified as at fair value through profit or loss are initially recognized at fair value, plus transaction costs. Financial assets carried at fair value through profit or loss are initially recognized at fair value and transaction costs are expensed in the consolidated income statement. Loans and receivables are nonderivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise when the Company provides money, goods or services directly to a debtor with no intention of trading the receivables. They are included in current assets, except for maturities greater than 12 months after the balance sheet date which are classified as noncurrent assets. Loans and receivables are subsequently measured at amortized cost using the effective interest method, less any impairment losses. Any change in their value is recognized in profit or loss. Impairment loss is provided when there is objective evidence that the Company will not be able to collect all amounts due to it in accordance with the original terms of the receivables. The amount of the impairment loss is determined as the difference between the assets’ carrying amount and the present value of estimated cash flows. The Company’s financial assets classified as loans and receivables are presented as Trade and Other Receivables and Advances to Landowners and Joint Ventures in the balance sheet.

Noncompounding interest, dividend income and other cash flows resulting from holding financial assets are recognized in profit or loss when earned, regardless of how the related carrying amount of financial assets is measured. All income and expense relating to financial assets recognized in profit or loss are presented in the income statement line item Finance Income and Finance Costs, respectively.

Derecognition of financial assets occurs when the rights to receive cash flows from the financial instruments expire or are transferred and substantially all of the risks and rewards of ownership have been transferred.

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2.5 Real Estate Transactions Acquisition costs of land acquired for development, including other costs and expenses incurred to effect the transfer of the title of the property, are charged to the Property Development Costs account. Related property development costs are then accumulated in this account.

Land held for future development are carried at cost less any impairment in value. The

cost of the asset is comprised of its purchase price and any directly attributable acquisition costs. They are transferred to Property Development Cost account once a substantial development of the project occurred.

Revenues on sales of residential units are recognized using the percentage-of-completion method when at least 25% of the total contract price is collected. Under this method, revenue is recognized by reference to the stage of development of the properties, i.e., revenue is recognized in the period in which the work is performed. Revenue relating to the uncompleted portion of residential units sold with at least 25% collection of the total contract price is presented in the Deferred Income on Real Estate Sales account in the balance sheet and is recognized as income under the Realized Gross Profit on Prior Years’ Sales in the income statement by reference to its percentage of completion in such year. Subsequent cancellations of prior years’ real estate sales are deducted from revenues and cost of real estate sold in the year in which such cancellations are made.

For tax purposes, revenue on sales of condominium units is recognized in full in the year of sale when more than 25% of the net selling price is received. Otherwise, the taxable income for the year is computed based on collections from the sales. If the transaction does not qualify yet as sale, the deposit method is applied until all the conditions for recording a sale are met. Pending recognition of sale, cash received from buyers are presented under the Customers’ Deposits account in the current liabilities section of the balance sheet. Cost of real estate property sold before completion of the development is determined based on the actual costs incurred to date plus estimated costs to complete the development of the property. The estimated expenditures for the development of real estate property sold, as determined by the project engineers, are charged to the cost of residential units sold with a corresponding credit to the Reserve for Property Development account presented under liabilities in the balance sheet. The Property Development Costs account, representing the accumulated costs of real estate units for sale, is carried at the lower of cost and net realizable value. Considering the entity’s pricing policies, cost is considerably lower than the net realizable values of the unsold units are higher than their related costs. The effect of revisions in the total estimated project cost of the real estate projects is recognized in the year in which these changes become known. Any impairment losses from the projects are charged to operations in the period in which the losses are determined.

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2.6 Accounting for Interests in Jointly Controlled Assets

Transactions in co-development projects are accounted for using joint venture accounting. These transactions involve the joint control of certain assets. In accounting for the jointly controlled assets, the entity recognizes the following:

(a) its share of the jointly controlled assets;

(b) any liabilities which it has incurred;

(c) its share of any liabilities incurred jointly with the other venturer in relation to the joint venture;

(d) any income from the sale or use of its share of the output of the joint venture,

together with its share of any expenses incurred by the joint venture; and,

(e) any expense which it has incurred in respect of its interest in the joint venture.

Actual disbursements incurred in relation to the joint venture are presented as part of the Property Development Costs account in the balance sheet. 2.7 Investment in an Associate Investment in an associate is initially recognized at cost and subsequently accounted for using the equity method. Changes resulting from the profit or loss generated by the associate are shown as Equity Share in Net Earnings (Losses) of an Associate in the Company’s income statement and therefore affect the net results of the Company. These changes include subsequent depreciation and amortization or impairment of the fair value adjustments of assets and liabilities. Items that have been directly recognized in the associate’s equity, for example, resulting from the associate’s accounting for available-for-sale financial assets, are recognized in the equity of the Company. Any nonincome related equity movements of the associate that arise, for example, from the distribution of dividend or other transactions with the associate’s shareholders are charged against the proceeds received or granted. No effect on the Company’s net result or equity is recognized in the course of these transactions. An associate is an entity over which the Company is able to exert significant influence but which is neither a subsidiary nor an interest in a joint venture. 2.8 Property and Equipment

Leasehold improvements, transportation and communication equipment, office furniture and fixtures and equipment are carried at acquisition cost or construction cost less subsequent depreciation, amortization and impairment losses, if any. The cost of an asset comprises its purchase price and directly attributable costs of bringing the asset to working condition for its intended use. Expenditures for additions, major improvements and renewals are capitalized; expenditures for repairs and maintenance are charged to expense as incurred. When assets are sold, retired or otherwise disposed of, their cost and related accumulated depreciation, amortization and impairment losses are removed from the accounts and any resulting gain or loss is reflected in income for the period.

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Depreciation is computed on the straight-line basis over the estimated useful lives of the assets. The estimated useful lives of the following assets are: Transportation equipment 2-6 years Communication equipment 3-4 years Office furniture, fixtures and equipment 1-4 years Leasehold improvements are amortized over the lives of the assets of one to five years or the term of the lease, whichever is shorter. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount (see Note 2.15). The residual values and estimated useful lives of property and equipment are reviewed, and adjusted if appropriate, at each balance sheet date. Fully depreciated assets are retained in the accounts until they are no longer in use and no further charge for depreciation is made in respect of those assets. An item of property and equipment is derecognized upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the item) is included in the income statement in the year the item is derecognized. 2.9 Investment Property

Investment property, which consists of condominium units and land held for capital appreciation, is stated at cost, less accumulated depreciation and any accumulated impairment losses. Depreciation is computed on a straight-line basis over the estimated useful life of five years. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount (see Note 2.15). Investment property is derecognized upon disposal or when permanently withdrawn from use and no future economic benefit is expected from its disposal. Any gain or loss on the retirement or disposal of an investment property is recognized in the income statement in the year of retirement or disposal. 2.10 Financial Liabilities

Financial liabilities which include trade and other payables, interest-bearing loans and advances from related parties are recognized when the entity becomes a party to the contractual agreements of the instrument. All interest related charges are recognized as an expense in the income statement under the caption Finance Costs. Interest-bearing loans are raised for support of funding operations. They are recognized at proceeds received, net of direct issue cost. Trade and other payables and advances from related parties are recognized initially at their fair value and subsequently measured at amortized cost less settlement payments.

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Financial liabilities are derecognized from the balance sheet only when the obligations are extinguished either through discharge, cancellation or expiration. 2.11 Provisions Provisions are recognized when present obligations will probably lead to an outflow of economic resources and they can be estimated reliably even if the timing or amount of the outflow may still be uncertain. A present obligation arises from the presence of a legal or constructive commitment that has resulted from past events. Provisions are measured at the estimated expenditure required to settle the present obligation, based on the most reliable evidence available at the balance sheet date, including the risks and uncertainties associated with the present obligation. Any reimbursement expected to be received in the course of settlement of the present obligation is recognized, if virtually certain as a separate asset, not exceeding the amount of the related provision. Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. In addition, long-term provisions are discounted to their present values, where time value of money is material. Provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimate. In those cases where the possible outflow of economic resource as a result of present obligations is considered improbable or remote, or the amount to be provided for cannot be measured reliably, no liability is recognized in the financial statements. Probable inflows of economic benefits that do not yet meet the recognition criteria of an asset are considered contingent assets, hence, are not recognized in the financial statements. 2.12 Revenue and Expense Recognition Revenue is recognized to the extent that the revenue can be reliably measured, it is probable that the economic benefits will flow to the Company, and the costs incurred or to be incurred can be measured reliably. In addition, the following specific recognition criteria must also be met before revenue is recognized: (a) Real estate sales – Revenue recognition on sale of real estate property is discussed in

Note 2.5. (b) Forfeited payments and penalties on delinquent accounts – Revenue is recognized in the year

the contract was cancelled or penalties were received from the buyer.

(c) Interest – Revenue is recognized as the interest accrues (taking into account the effective yield on the asset).

(d) Dividends – Revenue is recognized when the stockholders’ right to receive the

payment is established.

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Revenue is measured by reference to the fair value of consideration received or receivable by the entity on house and lots sold, excluding value-added tax (VAT) and trade discounts. Cost and expenses are recognized in the income statement upon utilization of the service or at the date they are incurred. All Finance costs are reported on an accrual basis.

2.13 Leases – Entity as Lessee Leases which do not transfer to the entity substantially all the risks and benefits of ownership of the asset are classified as operating leases. Operating lease payments are recognized as expense in the income statement on a straight-line basis over the lease term. Associated costs, such as maintenance and insurance, are expensed as incurred. The entity determines whether an arrangement is, or contains a lease based on the substance of the arrangement. It makes an assessment of whether the fulfillment of the arrangement is dependent on the use of a specific asset or assets and the arrangement conveys a right to use the asset. 2.14 Functional and Presentation Currency

(a) Functional and Presentation Currency

Items included in the financial statements are measured using the currency of the primary economic environment in which the entity operates (the functional currency). The financial statements are presented in Philippine peso, which is the entity’s functional and presentation currency.

(b) Transactions and Balances

The accounting records are maintained in Philippine peso. Foreign currency transactions during the year are translated into the functional currency at exchange rates which approximate those prevailing on transaction dates. Foreign currency gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognized in the income statement.

2.15 Impairment of Nonfinancial Assets Property and equipment and investment property are subject to impairment testing. All other individual assets are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. For purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows. An impairment loss is recognized for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of fair value, reflecting market conditions less costs to sell, and value in use, based on an internal discounted cash flow evaluation.

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All assets are subsequently reassessed for indications that an impairment loss previously recognized may no longer exist and the carrying amount of the asset is adjusted to the recoverable amount resulting in the reversal of the impairment loss. 2.16 Employee Benefits (a) Retirement Benefit Obligations

Pension benefits are provided to employees through a defined benefit plan. A defined benefit plan is a pension plan that defines an amount of pension benefit that an employee will receive on retirement, usually dependent on one or more factors such as age, years of service and salary. The legal obligation for any benefits from this kind of pension plan remains with the Company, even if plan assets for funding the defined benefit plan have been acquired. Plan assets may include assets specifically designated to a long-term benefit fund, as well as qualifying insurance policies. The Company’s defined benefit pension plan covers all regular full-time employees. The liability recognized in the balance sheet for defined benefit pension plans is the present value of the defined benefit obligation (DBO) at the balance sheet date less the fair value of plan assets, together with adjustments for unrecognized actuarial gains or losses and past service costs. The DBO is calculated annually by independent actuaries using the projected unit credit method. The present value of the DBO is determined by discounting the estimated future cash outflows using interest rates of high quality corporate bonds that are denominated in the currency in which the benefits will be paid and that have terms to maturity approximating to the terms of the related pension liability. Actuarial gains and losses are not recognized as an expense unless the total unrecognized gain or loss exceeds 10% of the greater of the obligation and related plan assets. The amount exceeding this 10% corridor is charged or credited to profit or loss over the employees’ expected average remaining working lives. Actuarial gains and losses within the 10% corridor are disclosed separately. Past-service costs are recognized immediately in the income statement, unless the changes to the pension plan are conditional on the employees remaining in service for a specified period of time (the vesting period). In this case, the past service costs are amortized on a straight-line basis over the vesting period.

(b) Compensated Absences

Compensated absences are recognized for the number of paid leave days (including holiday entitlement) remaining at the balance sheet date. They are included in the Trade and Other Payables account in the balance sheet at the undiscounted amount that the entity expects to pay as a result of the unused entitlement.

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2.17 Borrowing Costs Borrowing costs are recognized as expense in the period in which they are incurred, except to the extent that they are capitalized. Borrowing cost that are attributable to the acquisition of property development cost are capitalized as part of cost of such asset. The capitalization of borrowing cost commences when expenditures for the asset and borrowing costs are being incurred and activities that are necessary to prepare the asset for its intended use or sale are in progress. Capitalization ceases when substantially all such activities are complete. 2.18 Income Taxes Current tax assets or liabilities comprise those claims from, or obligations to, fiscal authorities relating to the current or prior reporting period, that are uncollected or unpaid at the balance sheet date. They are calculated according to the tax rates and tax laws applicable to the fiscal periods to which they relate, based on the taxable profit for the year. All changes to current tax assets or liabilities are recognized as a component of tax expense in the consolidated income statement. Deferred tax is provided, using the balance sheet liability method on temporary differences at the balance sheet date between the tax base of assets and liabilities and their carrying amounts for financial reporting purposes. Under the balance sheet liability method, with certain exceptions, deferred tax liabilities are recognized for all taxable temporary differences and deferred tax assets are recognized for all deductible temporary differences and the carryforward of unused tax losses and unused tax credits to the extent that it is probable that taxable profit will be available against which the deferred tax asset can be utilized. The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilized. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realized or the liability is settled, based on tax rates and tax laws that have been enacted or substantively enacted at the balance sheet date. Most changes in deferred tax assets or liabilities are recognized as a component of tax expense in the income statement. Only changes in deferred tax assets or liabilities that relate to a change in value of assets or liabilities that is charged directly to equity are charged or credited directly to equity. 2.19 Equity Capital stock is determined using the nominal value of shares that have been issued. Subscribed capital represents shares for which partial payments have been made by the stockholder. Deficit includes all current and prior period results as reported in the income statement.

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Minority interest represents the portion of the equity interest in the subsidiary not owned by the Company. 2.20 Loss Per Share Loss per share is computed by dividing net loss by the weighted average number of issued and outstanding common shares during the year after giving retroactive effect to stock dividends declared, stock split and reverse stock split during the current year, if any. No diluted earnings (loss) per share is computed as the Company does not have dilutive potential shares.

3. SIGNIFICANT ACCOUNTING JUDGMENTS AND ESTIMATES

The Company’s financial statements prepared in accordance with PFRS require management to make judgments and estimates that affect amounts reported in the financial statements and related notes. Judgments and estimates are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under circumstances. Actual results may ultimately differ from these estimates. 3.1 Critical Management Judgments in Applying Accounting Policies

In the process of applying the accounting policies, management has made the following judgments, apart from those involving estimation, which have the most significant effect on the amounts recognized in the financial statements. (a) Distinction Between Investment Properties and Owner-managed Properties

The Company determines whether a property qualifies as investment property. In making its judgment, the entity considers whether the property generates cash flows largely independently of the other assets held by an entity. Owner-occupied properties generate cash flows that are attributable not only to property but also to other assets used in the production or supply process. (b) Operating and Finance Leases Critical judgment was exercised by management to distinguish each lease agreement as either an operating or finance lease by looking at the transfer or retention of significant risk and rewards of ownership of the properties covered by the agreements. (c) Provisions and Contingencies Judgment is exercised by management to distinguish between provisions and contingencies. Policies on recognition and disclosure of provision and disclosure of contingencies are discussed in Note 2.11 and relevant disclosures are presented in Notes 10 and 23.

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3.2 Key Sources of Estimation Uncertainty

The following are the key assumptions concerning the future, and other key sources of estimation uncertainty at the balance sheet date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year.

(a) Revenue Recognition using Percentage-of-Completion Method The use of the percentage-of-completion method requires estimate of the portion completed to date as a proportion of the total budgeted cost of the project. Where the proportion of the percentage of completed projects differ from management’s estimates, the amount of realized gross profit recognized would have changed. (b) Determining Net Selling Prices of Property Development Costs In determining the net selling prices of Property Development Costs, management takes into account the most reliable evidence available at the time the estimates are made. Changes in the source of estimates may cause significant adjustments to the real estate properties within the next financial year. (c) Useful Life of Property and Equipment and Investment Property

Estimates on the useful lives of property and equipment and investment property are based on the period over which the assets are expected to be available for use. The estimated useful lives of these assets are reviewed periodically 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 these properties 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 estimates brought about by changes in factors mentioned above. The amounts and timing of recorded expenses for any period would be affected by changes in these factors and circumstances. A reduction in the estimated useful lives of property and equipment and investment property would increase recorded operating expenses and decrease noncurrent assets. The analyses of the carrying amounts of property and equipment and investment property are presented in Notes 9 and 10, respectively. (d) Allowance for Impairment of Trade and Other Receivables Allowance is made for specific and groups of accounts, where objective evidence of impairment exists. These accounts are evaluated based on available facts and circumstances, including, but not limited to, the length of the relationship with the customers, the customers’ current credit status based on third party credit reports and known market forces, average age of accounts, collection experience and historical loss experience. An analysis of the net realizable value of trade and other receivables and the impairment losses on such receivables are presented in Note 5.

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(e) Realizable Amount of Deferred Tax Assets Deferred tax assets are reviewed at each balance sheet date and reduction to the carrying amount are made 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. No deferred tax assets were recognized as of December 31, 2008. The carrying value of deferred tax assets as of December 31, 2007 is disclosed in Note 17. (f) Impairment of Non-financial Assets PFRS requires that an impairment review be performed when certain impairment indicators are present. The policy on estimating the impairment of nonfinancial assets is discussed in detail in Note 2.15. Though management believes that the assumptions used in the estimation of fair values reflected in the financial statements are appropriate and reasonable, significant changes in these assumptions may materially affect the assessment of recoverable values and any resulting impairment loss could have a material adverse effect on the results of operations. (g) Retirement Benefits The determination of retirement benefit obligation and cost of pension depends on the selection of certain assumptions used by actuaries in calculating such amounts. Those assumptions are described in Note 17 and include, among others, discount rates, and salary increase rate. In accordance with PFRS, actual results that differ from the assumptions are accumulated and amortized over future periods and therefore, generally affect the recognized expense and recorded obligation in such future periods. The estimated present value, net unrecognized losses and other relevant assumptions are presented in Note 17.

4. CASH AND CASH EQUIVALENTS

Cash and cash equivalents include the following components as of December 31: 2008 2007 ( Company only) ( Consolidated ) Cash on hand and in banks P 594,676 P 21,510,606 Short-term placements - 242,966 P 594,676 P 21,753,572

Cash in banks generally earn interest at rates based on daily bank deposit rates. Short-term placements represented premium deposit account with a local bank which earn interest at the prevailing interest rates (see Note 15).

- 20 - 5. TRADE AND OTHER RECEIVABLES

These accounts are composed of the following as of December 31, 2007: Current: Trade receivables P 284,842,056 Advances to suppliers 39,644,511 Advances to officers and employees 26,526,815 Others 49,249,759 400,263,141 Allowance for impairment ( 12,094,137 ) 388,169,004 Noncurrent: Trade receivables 197,274,007 Others 1,463,041 198,737,048 Allowance for impairment ( 12,224,936 ) 186,512,112 P 574,681,116

Trade receivables have collection period ranging from 5 to 10 years and bear nominal interest rates, which are also equal to the effective interest rate ranging from 14% to 18% for 2007. The related finance income earned on these sales contracts amounted to P80.4 million in 2007 and P53.7 million in 2006 reported as Interest on In-house Financing under Revenues in the consolidated income statements.

All trade receivables are subject to credit risk exposure. However, there are no concentrations of credit risk with regard to trade and other receivables as the amounts recognized comprise of a large number of receivables from various customers. Furthermore, certain receivables from trade customers are covered by postdated checks. All trade and other receivables as of December 31, 2007 were financial assets of SPI. The Company has no trade and other receivables as of December 31, 2008 and 2007. SPI partially financed its real estate projects and other operations through assignment of trade receivables on a with-recourse basis with certain local banks. The outstanding receivables assigned to the local banks as of December 31, 2007 amounted to P103.9 million and the related liabilities shown as Interest-bearing Loans in the 2007 consolidated balance sheet. The related finance cost incurred on these loans amounted to P13.7 million and P8.8 million in 2007 and 2006, respectively, reported as part of Finance Costs in the consolidated income statements. Advances to officers and employees represent noninterest-bearing cash advances for business-related expenditures that are to be liquidated within 3-7 days from the date the cash advances were released.

- 21 -

The fair values of these financial assets are not individually determined as the carrying amounts are a reasonable approximation of their fair values.

All trade and other receivables have been reviewed for indicators of impairment. Certain trade receivables were found to be impaired and provisions have been recorded accordingly.

A reconciliation of the allowance for impairment at the beginning and end of 2007 is shown below.

Note

Current: Balance at beginning of year P 3,457,562 Impairment losses during the year 16 8,636,575 Balance at end of year 12,094,137 Noncurrent – 12,224,936 Total allowance for impairment P 24,319,073 6. PROPERTY DEVELOPMENT COSTS

The Property Development Costs account represents the accumulated cost incurred, net of recognized cost of sales, on house and lots and condominium units for sale. The subdivision houses include houses that are ready for occupancy, house models and units under construction. They are presented under the Current Assets section of the 2007 consolidated balance sheet. Reserve for Property Development account, shown under Current and Noncurrent Liabilities section of the 2007 consolidated balance sheet, relates to lot units which have already been sold but still uncompleted as of the December 31, 2007. All property development costs and related reserve for property development as of December 31, 2007 are assets and liabilities of SPI, respectively. The Company has no property development costs and reserve for property development as of December 31, 2008 and 2007. In 2007, SPI obtained advances from a related party totalling P191 million in order to finance the construction and development of its housing projects. The related finance costs amounting to P12.3 million were included as part of the Property Development Costs account in the 2007 consolidated balance sheet (see Note 19.2). Management believes that the net realizable values of these assets are higher than their net carrying values considering present market rates; thus, no valuation allowance has been provided in the financial statements.

- 22 - 7. PREPAYMENTS AND OTHER CURRENT ASSETS

The composition of this account is shown below. 2008 2007 ( Company only) ( Consolidated ) Input VAT P 524,743 P 41,617,013 Others 62,401 4,065,714 P 587,144 P 45,682,727

8. LAND HELD FOR FUTURE DEVELOPMENT

This account represents acquisition costs of various parcels of land situated in Cavite area intended for future development. These parcels of land are owned by SPI. No income or loss or direct operating expenses were recognized on these assets during the reporting periods presented. In 2007, SPI transferred costs incurred amounting to P2.6 million on a project being developed from Land Held for Future Development to Property Development Costs.

Management believes that the carrying amount of this asset is reasonable approximation of its fair value; thus, no valuation allowance has been provided in the financial statements.

9. PROPERTY AND EQUIPMENT

The gross carrying amounts and accumulated depreciation and amortization at the beginning and end of 2007 are shown below.

Transportation and Office Furniture, Communication Fixtures and Leasehold Equipment Equipment Improvements Total December 31, 2007 Cost P 13,149,516 P 11,709,781 P 2,631,471 P 27,490,768 Accumulated depreciation and amortization ( 6,051,392 ) ( 8,419,625 ) ( 1,816,850 ) ( 16,287,867 ) Net carrying amount P 7,098,124 P 3,290,156 P 814,621 P 11,202,901 January 1, 2007 Cost P 7,965,522 P 11,199,531 P 2,631,471 P 21,796,524 Accumulated depreciation and amortization ( 4,383,851 ) ( 6,894,033 ) ( 1,492,864 ) ( 12,770,748 ) Net carrying amount P 3,581,671 P 4,305,498 P 1,138,607 P 9,025,776

- 23 -

A reconciliation of the carrying amounts at the beginning and end of 2007, of property and equipment is shown below.

Transportation and Office Furniture, Communication Fixtures and Leasehold Equipment Equipment Improvements Total Balance at January 1, 2007, net of accumulated depreciation and and amortization P 3,581,671 P 4,305,498 P 1,138,607 P 9,025,776 Additions 5,183,993 998,505 - 6,182,498 Reclasification - ( 1,935 ) - ( 1,935 ) Depreciation and amortization charges for the year ( 1,667,540 ) ( 2,011,912 ) ( 323,986 ) ( 4,003,438 ) Balance at December 31, 2007, net of accumulated depreciation and amortization P 7,098,124 P 3,290,156 P 814,621 P 11,202,901

All property and equipment as of December 31, 2007 are nonfinancial assets of SPI. The Company’s fixed assets as of December 31, 2008 and 2007 with net book value of P645 and P1,935, respectively, are presented as part of Other NonCurrent Assets in the balance sheets.

10. INVESTMENT PROPERTY

The gross carrying amounts and accumulated depreciation at the beginning and end of 2008 and 2007 are shown below.

Condominium Units Land Total December 31, 2008 Cost P 1,418,360,485 P 436,848,488 P 1,855,208,973 Accumulated depreciation ( 1,418,360,485 ) - ( 1,418,360,485 ) Net carrying amount P - P 436,848,488 P 436,848,488 December 31, 2007 Cost P 1,418,360,485 P 436,848,488 P 1,855,208,973 Accumulated depreciation ( 1,418,360,485 ) - ( 1,418,360,485 ) Net carrying amount P - P 436,848,488 P 436,848,488 December 31, 2006 Cost P 1,418,360,485 P 436,848,488 P 1,855,208,973 Accumulated depreciation ( 1,134,688,388 ) - ( 1,134,688,388 ) Net carrying amount P 283,672,097 P 436,848,488 P 720,520,585

- 24 -

A reconciliation of the carrying amounts at the beginning and end of 2007 of investment property is shown below.

Condominium Units Land Total Balance at January 1, 2007, net of accumulated depreciation P 283,672,097 P 436,848,488 P 720,520,585 Depreciation charges for the year ( 283,672,097 ) - ( 283,672,097 ) Balance at December 31, 2007, net of accumulated depreciation P - P 436,848,488 P 436,848,488

The Company’s land with a carrying value of P436.8 million was used as a collateral to a loan of Best World Gaming and Entertainment Corporation, a co-venturer, amounting to P600 million to a local bank. The related party had ceased operations but negotiations with the creditor bank are still ongoing to settle the debt. In anticipation of an acceptable arrangement, the Company recorded a provision for losses, shown under the current liabilities section of the balance sheets, equivalent to the carrying value of the land. The Company is liable only up to the extent of the carrying value of the land used as collateral. No income or loss was recognized on the Company’s investment property during the reporting periods presented. There are no direct operating expenses incurred with respect to investment property except for depreciation charges. The fair value of the Investment Property as of December 31, 2008 and 2007 amounted to P445.6 million and P685.2 million, respectively, which was based on appraised values determined by independent appraisers.

11. INVESTMENT IN AN ASSOCIATE

In 2008, SPI increased its authorized capital stock from 200 million shares to 500 million shares. Out of this increase, 262.5 million shares of stock at P1 par value were subscribed and paid-up by another related party. The Company did not exercise its right of pre-emption with regards to the increase in SPI’s authorized capital stock resulting to the decrease in its ownership with SPI from 60% to 20%. This resulted in a loss on dilution in ownership interest in SPI amounting to P51.1 million and is included as part of Loss on Dilution of Interest in a Subsidiary account in the 2008 income statement. Because of this, the accounts of SPI were deconsolidated from the Company’s financial statements in 2008 and the investment was reclassified to this account. The Company’s investment in SPI is now accounted for using the equity method. Subsequent to this transaction, an impairment loss amounting to P20.2 million was recognized using the amount paid by the buyer of the shares as fair value reference which is lower than the remaining carrying value of the investment. Such impairment loss is also included as part of Loss on Dilution of Interest in a Subsidiary account in the 2008 income statement.

- 25 -

The proforma comparative financial statements of the Company, excluding the accounts of SPI, as of December 31, 2008 and 2007 and for each of the three years in the period ended December 31, 2008 are as follows:

Balance Sheets 2008 2007 Assets Cash and cash equivalents P 594,676 P 807,255 Prepayments and other current assets 587,144 539,090 Investment in an associate 83,005,235 155,360,721 Investment property – net 436,848,488 436,848,488 Other noncurrent assets 60,000,645 60,001,935 Total Assets P 581,036,188 P 653,557,489 Liabilities and Equity Trade and other payables P 608,250 P 533,711 Advances from related parties 41,317,052 39,615,047 Provisions 436,848,488 436,848,488 Capital stock 2,062,500,000 2,062,500,000 Deficit ( 1,960,237,602) ( 1, 885,939,757 ) Total Liabilities and Equity P 581,036,188 P 653,557,489 Income Statements 2008 2007 2006 Interest income P 9,716 P 14,431 P 33,525 Loss on dilution of interest in a subsidiary ( 71,265,399 ) - - Administrative expenses ( 1,951,193) ( 1,873,932) ( 7,525,454 ) Equity in net earnings (losses) of an associate ( 1,090,087) 7,626,543 4,072,694 Depreciation of investment property - ( 283,672,097) ( 283,672,097 ) Other operating income expense - ( 44,704) ( 21,706 ) Tax expense ( 882 ) ( 1,258) ( 4,980 ) Net loss P 74,297,845 P 277,951,017 P 287,118,018

- 26 -

The movements in the Company’s Investment in an Associate accounted for under the equity method as of December 31, 2008 and 2007 are as follows:

2008 2007 Balance at beginning of year P 155,360,721 P 147,734,178 Loss on dilution of interest in a subsidiary ( 71,265,399 ) - Equity in net earnings (losses) of a subsidiary

(20% interest from July 1, 2008 and 60% interest in 2007 until June 30, 2008) ( 1,090,087 ) 7,626,543 Balance at end of year P 83,005,235 P 155,360,721

The condensed financial statements of SPI as of and for the year ended December 31, 2008 that were excluded from the Company’s financial statements are as follows:

Balance Sheet

Assets Current assets P1,858,517,770 Noncurrent assets 489,037,871 Total Assets P 2,347,555,641

Liabilities and Equity Current liabilities P1,331,877,572 Noncurrent liabilities 304,743,440 Total liabilities 1,636,621,012 Equity 710,934,629 Total Liabilities and Equity P 2,347,555,641

Income Statement

Revenues P 411,050,604 Costs and expenses ( 384,839,087 ) Tax expense ( 7,782,934 ) Net income P 18,428,583

- 27 - 12. OTHER NON CURRENT ASSETS

This account consists of the following: 2008 2007 Notes ( Company only) ( Consolidated ) Deposits P 60,000,000 P 60,000,000 Deferred tax assets – net 17 - 7,568,135 Others 8 645 5,146,195 P 60,000,645 P 72,714,330

Deposits account pertains to the deposits or downpayments made by the Company for the purchase of additional condominium units from Megaworld. The said amount shall be applied against the total contract price of the condominium units.

The carrying amount of the deposits is the reasonable approximation of its fair value as of December 31, 2008 and 2007.

13. TRADE AND OTHER PAYABLES

The details of this account are as follows:

2008 2007 ( Company only) ( Consolidated ) Accrued expenses P 583,200 P 495,963 Trade payables - 56,321,847 Retention payable - 35,647,368 Due to joint venture - 28,163,297 Others 25,050 11,607,420 P 608,250 P 132,235,895

Significant portion of accrued expenses consists of the Company’s accrued professional fees amounting to P582,400 and P495,000 as of December 31, 2008 and 2007, respectively.

The fair value of trade and other payables, due to their short duration, have not been disclosed as management considers the carrying amounts recognized in the balance sheets to be reasonable approximation of fair values.

- 28 - 14. COST OF REAL ESTATE SALES

The details of this account are shown below (see Note 16).

2007 2006 ( Consolidated ) ( Consolidated ) Property development cost at beginning of year P 990,096,834 P 1,014,912,769 Additions 339,704,916 157,453,988

Decrease in reserve for property development ( 46,387,748 ) ( 86,441,908)

Property development cost at end of year ( 1,139,520,126 ) ( 990,096,834) P 143,893,876 P 95,828,015

Cost of real estate sales for 2007 and 2006 arose from the real estate sales of SPI. The Company had no cost of real estate sales for 2008 and prior years.

15. OTHER OPERATING INCOME

Presented below are the details of this account. 2008 2007 2006 Notes ( Company only) ( Consolidated ) ( Consolidated ) Interest income 4, 22 P 9,716 P 1,852,978 P 1,133,918 Forfeited payments and penalties - 11,774,705 17,919,861 Dividend income - 2,010,676 - Gain from write-off of liability - - 21,167,800 P 9,716 P 15,638,359 P 40,221,579

- 29 - 16. OPERATING EXPENSES BY NATURE

The details of operating expenses by nature are shown below: 2008 2007 2006 Notes ( Company only) ( Consolidated ) ( Consolidated ) Loss on dilution of interest in a subsidiary 11 P 71,265,399 P - P - Equity in net losses of an associate 11 1,090,087 - - Professional fees 665,341 6,260,352 1,961,806 Employee benefits 17 514,350 40,986,885 33,077,999 Registration fees 252,626 203,187 4,250,000 Taxes and licenses 135,188 1,550,787 8,659,593 Depreciation and amortization 9, 10 1,290 287,675,535 286,837,560 Materials, labor and overhead 14 - 143,893,876 95,828,015 Commission - 27,529,627 18,238,795 Advertising - 15,493,225 10,966,976 Impairment losses on trade and other receivables 5 - 8,636,575 15,682,498

Repairs and maintenance - 7,232,196 850,080 Rental - 4,605,632 5,191,904 Utilities - 4,068,025 3,135,496 Office supplies - 3,737,353 3,144,602 Training and development - 3,607,889 9,526,758 Others 382,398 6,694,899 5,913,431

P 74,306,679 P 562,176,043 P 503,265,513

These expenses are classified in the income statements as follows: 2008 2007 2006 Notes ( Company only) ( Consolidated ) ( Consolidated )

Loss on dilution of interest in a subsidiary 11 P 71,265,399 P - P - Equity in net losses of an associate 11 1,090,087 - - Administrative expenses 1,951,193 377,259,611 378,210,020 Cost of real estate sales 14 - 143,893,876 95,828,015 Selling and distribution costs - 40,977,852 29,205,772 Other operating expenses - 44,704 21,706

P 74,306,679 P 562,176,043 P 503,265,513

- 30 - 17. EMPLOYEE BENEFITS

Expenses recognized for employee benefits (see Note 16) are presented below.

2008 2007 2006 ( Company only) ( Consolidated ) ( Consolidated ) Salaries and wages P 346,470 P 27,201,224 P 26,661,741 Short-term medical benefits 125,622 9,137,531 3,415,493 Social security costs 42,258 1,867,925 1,567,127 Retirement benefit expense - 2,780,205 1,433,638

P 514,350 P 40,986,885 P 33,077,999

The Company has not yet established a formal retirement plan and does not accrue retirement benefits due to the insignificance in amount. SPI, on the other hand, accrues its estimated cost of retirement benefits using the projected unit credit method as computed by an independent actuary. The amount of retirement benefit obligation of SPI recognized in the 2007 consolidated balance sheet is determined as follows:

Present value of the obligation P 9,816,774 Unrecognized actuarial losses ( 1,260,729 ) Balance at end of 2007 P 8,556,045

The movements in the present value of the retirement benefit obligation of SPI in 2007 are as follows:

Balance at beginning of year P 6,735,630 Current service cost and interest cost 2,769,604 Actuarial gains 311,540 Balance at end of 2007 P 9,816,774

The amount of retirement benefits recognized in the 2007 and 2006 consolidated income statements is as follows:

2007 2006 ( Consolidated) ( Consolidated ) Current service costs P 1,961,328 P 797,400 Interest costs 808,276 636,238 Net actuarial loss recognized during the year 10,601 - P 2,780,205 P 1,433,638

- 31 -

In determining the retirement benefit obligation, the following actuarial assumptions were used:

2007 2006 Discount rates 8% 12% Expected rate of salary increases 10% 10%

Assumptions regarding future mortality are based on published statistics and mortality tables. The average expected remaining working life of employees retiring at the age of 60 is 27 for both males and females.

18. TAXES

18.1 Current and Deferred Taxes

The components of tax expense reported in the income statements are as follows:

2008 2007 2006 ( Company only) ( Consolidated ) ( Consolidated ) Current tax expense: Regular corporate income tax (RCIT) at 35% P - P 4,701,991 P 9,920,418 Final tax at 20% and 7.5% 882 368,967 225,059 882 5,070,958 10,145,477 Deferred tax income relating to origination and reversal of temporary differences - ( 57,717 ) ( 5,990,648 ) P 882 P 5,013,241 P 4,154,829

The reconciliation of tax on pretax loss computed at the applicable statutory rates to tax expense reported in the income statements is as follows:

2008 2007 2006 ( Company only) ( Consolidated ) ( Consolidated )

Tax on pretax loss at 35% (P 26,003,937 ) ( P 93,748,695 ) ( P 98,086,820 )

Adjustment for income subjected to lower income tax rates ( 4,283 ) ( 279,575 ) ( 171,814 ) Tax effects of: Nondeductible expenses 25,324,420 - 359,966 Unrecognized temporary differences 585,358 99,285,234 101,891,739 Reduction in deferred tax rate 97,560 - - Nontaxable income - ( 1,185,512 ) - Nondeductible interest expense - 941,789 161,758 Tax expense P 882 P 5,013,241 P 4,154,829

- 32 -

The net deferred tax assets of SPI, which is presented under Other Noncurrent Assets in the 2007 consolidated balance sheet (see Note 12), relate to the following:

Consolidated Balance Sheets Income Statements

2007 2007 2006

Retirement benefit expense P 2,994,616 ( P 973,072 ) ( P 501,774 ) Allowance for impairment loss on trade and other receivables 8,511,675 ( 3,022,801 ) ( 5,488,874 ) Deferred income ( 3,938,156) 3,938,156 - Deferred Tax Assets – net P 7,568,135 Deferred Tax Income ( P 57,717 ) ( P 5,990,648 )

The Company did not recognize certain deferred tax assets on deductible temporary differences based on management’s evaluation that such deferred tax assets may not be recovered in the future years. The amount of deductible temporary difference for which the related deferred tax assets have not been recognized by the Company are shown below.

2008 2007 (Company only) (Consolidated) Amount Tax Effect Amount Tax Effect Net operating loss carry-over (NOLCO) P 11,334,041 P 3,400,212 P 13,503,185 P 4,726,115 Unrealized foreign currency losses - - 8,198 2,869 Minimum corporate income tax (MCIT) - - 73 73

P 11,334,041 P 3,400,212 P 13,511,456 P 4,729,057

The details of NOLCO, which can be claimed as deduction by the Company from future taxable income within three years from the year such loss was incurred, are shown below.

Year Original Expired Remaining Valid Incurred Amount Amount Balance Until 2008 P 1,959,391 P - P 1,959,391 2011 2007 1,932,142 - 1,932,142 2010 2006 7,442,508 - 7,442,508 2009 2005 4,128,535 4,128,535 - 2008 P 15,462,576 P 4,128,535 P 11,334,041

The Company and SPI are subject to the MCIT which is computed at 2% of gross income, as defined under the tax regulations. SPI had no MCIT in 2007 and 2006 as SPI’s RCIT was higher than MCIT. Meanwhile, the Company had no MCIT in 2008, 2007 and 2006 as the Company had no taxable revenue. No RCIT was reported in 2008, 2007 and 2006 since the Company was in a taxable loss position in those years. In 2007, the Company’s MCIT amounting to P68,835 which was incurred in 2004 had expired. The remaining balance of MCIT as of December 31, 2007, which relates to 2005 amounted to P73.

- 33 -

18.2 Changes in Tax Regulation

On October 10, 2007, Revenue Regulation (R.R.) No. 12 was signed, amending certain provisions of R.R. No. 9-98 relative to the due date within which to pay MCIT imposed on domestic corporations and resident foreign corporations. These revenue regulations require the quarterly payment of the MCIT. The quarterly MCIT payments shall be creditable against the tax that will be due at the end of the taxable year – whether it be RCIT or MCIT. These take effect beginning on the income tax return for fiscal quarter ending September 30, 2007. Effective July 2008, Republic Act (RA) 9504 was approved giving corporate taxpayers an option to itemized deduction or optional standard deduction (OSD) equivalent to 40% of gross sales. Once the portion to use OSD is made, it shall be irrevocable for that particular taxable year. In 2008, the Company opted to continue claiming itemized deductions.

19. RELATED PARTY TRANSACTIONS

The Company’s transactions with related parties, which include Megaworld, EELHI, and the Company’s key management, are described below. 19.1 Noninterest-bearing Cash Advances

The Company obtains unsecured, noninterest-bearing advances from related parties for working capital purposes and for the settlement of certain liabilities. The fair values of these financial liabilities were not individually determined as the carrying amount is a reasonable approximation of fair value. The noncurrent portion of advances have no definite payment terms. The details of noninterest-bearing advances made to the Company, shown as part of Advances from Related Parties account in the balance sheets, are as follows:

2008 2007 ( Company only) ( Consolidated ) Advances from EELHI: Balance at beginning of year P 787,565,818 P 966,367,227 Additions - 1,250,093 Cash advances of SPI from EELHI (deconsolidated) ( 762,062,072) - Repayments - ( 180,051,502 )

Balance at end of year 25,503,746 787,565,818 Advances from Megaworld:

Balance at beginning of year 24,395,180 22,476,402 Additions 1,702,005 1,918,778 Cash advances of SPI from Megaworld (deconsolidated) ( 10,283,879) - Balance at end of year 15,813,306 24,395,180

P 41,317,052 P 811,960,998

- 34 -

19.2 Interest-bearing Cash Advances

SPI obtained advances from Megaworld and EELHI for working capital purposes and to finance property development. Interest-bearing advances bear annual interest of 12%, subject to repricing and are not supported by collateral. The fair values of these financial liabilities were not individually determined as the carrying amount is a reasonable approximation of fair value. The noncurrent portion of advances have no definite payment terms. The details of interest-bearing advances, shown as part of Advances from Related Parties account in the 2007 consolidated balance sheet, are as follows:

Balance at beginning of year P 78,598,890 Additions 371,261,684 Repayments ( 13,636,086 ) Balance at end of year P 436,224,488

The related finance costs on these advances amounted to P33.6 million in 2007 and P5.2 million in 2006. In 2007, SPI capitalized borrowing costs amounting to P12.3 million on loans obtained during the same year. These loans were obtained to finance the development and construction of its projects and the related finance costs were included in Property Development Costs account (see Note 6). The remaining balance of interest expense pertaining to prior year loans amounting to P21.3 million in 2007 and P5.2 million in 2006 was presented as part of Finance Costs in the consolidated income statements. The Company has no interest-bearing advances from related parties as of December 31, 2008 and 2007.

19.3 Other Advances

The Advances from Related Parties account in 2007 also included SPI’s advances from the EELHI in payment of certain parcels of land for future development. The outstanding liability arising from this transaction as of December 31, 2007 amounted to P43.7 million.

19.4 Key Management Personnel Compensation

As discussed in Note 1, the administrative functions of the Company are being handled by Megaworld, hence, the Company’s key management personnel compensation is nil. Short-term benefits granted to key management personnel of SPI amounted to P1.5 million and P1.2 million as of December 31, 2007 and 2006, respectively. Post-employment benefits for SPI’s key management personnel recognized in 2007 and 2006 amounted to P745,996 and P384,680, respectively.

- 35 - 20. CAPITAL STOCK

Capital stock consists of:

Shares Amount 2008 2007 2006 2008 2007 2006 Common shares – P1 par value Authorized – 3 billion shares Issued and outstanding 2,000,000,000 2,000,000,000 2,000,000,000 P 2,000,000,000 P 2,000,000,000 P 2,000,000,000 Subscribed: Balance at beginning of year 250,000,000 250,000,000 - 250,000,000 250,000,000 - Subscriptions during the year - - 250,000,000 - - 250,000,000 Balance at end of year 250,000,000 250,000,000 250,000,000 250,000,000 250,000,000 250,000,000 Subscriptions receivable: Balance at beginning of year ( 187,500,000)( 187,500,000) - Subscriptions during the year - - ( 250,000,000 ) Application of deposit - - 62,500,000 Balance at end of year ( 187,500,000)( 187,500,000) ( 187,500,000 ) P 2,062,500,000 P 2,062,500,000 P 2,062,500,000

On May 10, 2006, upon the approval of SEC for the increase in authorized capital

stock, the Deposit on Future Stock Subscriptions amounting to P62.5 million was applied to Subscribed Capital Stock.

21. LOSS PER SHARE

The basic loss per share was computed as follows:

2008 2007 2006 ( Company only) ( Consolidated ) ( Consolidated )

Net loss for the year attributable to parent company’s shareholders P 74,297,845 P 277,951,017 P 287,118,018 Divided by the weighted average number of outstanding shares 2,250,000,000 2,250,000,000 2,250,000,000 Loss per share P 0.03 P 0.12 P 0.13

The Company has no dilutive potential shares, hence, no information on diluted loss per share is presented.

- 36 - 22. SEGMENT INFORMATION

The operating businesses of the Company and SPI are organized and managed separately according to the product and services provided, with each segment representing a strategic business unit that offers different products and serves different markets. The Company and SPI are engaged in the development and marketing of affordable and mass housing projects either in the form of condominium communities or house and lot packages, and to a limited extent, commercial and office space and mixed-use complexes. It classifies its projects into high-rise and horizontal. High-rise projects refer to condominiums and other medium scale properties which cater to middle-income market while the horizontal projects refer to house and lot packages and subdivision lots which are intended both for low and middle-income markets.

The corporate and other segment includes general and corporate income and expense items. Segment accounting policies are the same as the policies described in Note 2. The Company and SPI generally accounts for inter-segment sales and transfers as if the sales or transfers were to third parties at current market prices. No segment information is presented for 2008 since the Company is non-operating and all the prior year segment information pertains to SPI operations.

- 37 -

The following tables present revenue and profit information regarding industry segments for the years ended December 31, 2007 and 2006, and certain asset and liability information regarding industry segments as of December 31, 2007 and 2006.

2007

(Consolidated)

High-Rise Horizontal Corporate

Projects Projects and Others Consolidated

TOTAL REVENUES

Sale to external customers P 122,718,631 P 171,650,016 P 13,785,383 P 308,154,030

RESULTS

Segment results P 8,345,047 P 120,488,570 P 13,785,383 P 142,619,000

Unallocated expenses P 377,304,317 ( 377,304,317 )

Loss from operations ( 234,685,317 )

Finance costs P - P 14,958,915 20,062,160 ( 35,021,075 )

Interest income 1,852,978 1,852,978

Loss before tax and minority interest ( 267,853,414 )

Taxes ( 5,013,241 )

Loss before minority interest ( 272,866,655 )

Income applicable to minority interest ( 5,084,362 )

Net loss attributable to parent company shareholders ( P 277,951,017 )

ASSETS AND LIABILITIES

Segment assets P 3,924,145 P 1,693,047,274 P 413,339,905 P 2,110,311,324

Unallocated assets - - 498,196,769 498,196,769

Total assets P 3,924,145 P 1,693,047,274 P 911,536,674 P 2,608,508,093

Segment liabilities P 573,144 P 1,630,934,602 P 253,547,531 P 1,885,055,277

Unallocated liabilities - - 476,997,246 476,997,246

Total liabilities P 573,144 P 1,630,934,602 P 730,544,777 P 2,362,052,523

OTHER SEGMENT INFORMATION

Capital expenditure P - P - P 6,182,498 P 6,182,498

Depreciation and amortization - - 287,675,535 287,675,535

- 38 - 2006

(Consolidated)

High-Rise Horizontal Corporate

Projects Projects and Others Consolidated

TOTAL REVENUES

Sale to external customers P 78,141,619 P 33,097,939 P 124,614,809 P 235,854,367

RESULTS

Segment results P 32,098,404 ( P 16,686,861) P 124,614,810 P 140,026,353

Unallocated expenses P 407,437,498 ( 407,437,498 )

Loss from operations ( 267,411,145 )

Finance costs ( 13,970,833 )

Interest income 1,133,918

Loss before tax and minority interest ( 280,248,060 )

Taxes ( 4,154,829 )

Loss before minority interest ( 284,402,889 )

Income applicable to minority interest ( 2,715,129 )

Net loss attributable to parent company shareholders ( P 287,118,018 )

ASSETS AND LIABILITIES

Segment assets P 14,893,032 P 1,314,372,718 P 628,500,691 P 1,957,766,441

Unallocated assets - - 781,742,129 781,742,129

Total assets P 14,893,032 P 1,314,372,718 P 1,410,242,820 P 2,739,508,570

Segment liabilities P 3,625,562 P 137,071,095 P 1,604,524,643 P 1,745,221,300

Unallocated liabilities - - 474,965,045 474,965,045

Total liabilities P 3,625,562 P 137,071,095 P 2,079,489,688 P 2,220,186,345

OTHER SEGMENT INFORMATION

Capital expenditure P - P - P 10,681,544 P 10,681,544

Depreciation and amortization - - 286,837,560 286,837,560

- 39 - 23. COMMITMENTS AND CONTINGENCIES

The following are the significant commitments and contingencies involving the Company and SPI:

23.1 Joint Venture Agreements

SPI has several joint venture agreements with the landowners of certain parcels of land under development. These agreements were initially entered into by an associate of Megaworld with the landowners and subsequently assigned to SPI. Under the terms and agreements, SPI, in addition to providing specified portion of the total project development costs, also commits to advance mutually agreed-upon amounts to the landowners. Repayment of these advances shall be made upon completion of the project development either in the form of the developed lots corresponding to the owner’s share in saleable lots or in the form of cash to be derived from the sales of the landowners’ share in the saleable lots and residential units. The Company has no joint venture agreements in 2008 and 2007. 23.2 Others There are commitments, guarantees, litigations and contingent liabilities that arise in the normal course of the Company’s operations which are not reflected in the accompanying consolidated financial statements. Management is of the opinion that losses, if any, from these commitments and contingencies will not have material effects on the financial statements.

24. RISK MANAGEMENT OBJECTIVES AND POLICIES

The risk management is coordinated with the BOD. The Company does not actively engage in the trading of financial assets for speculative purposes nor does it write options. The financial risks to which the Company is exposed to are described below. 24.1 Foreign Currency Sensitivity Most of the Company’s transactions are carried out in Philippine peso, its functional currency. Exposures to currency exchange rates arise from the Company’s cash in bank, which are denominated in U.S. dollar. To mitigate the Company’s exposure to foreign currency risk, non-Philippine peso cash flows are monitored. As of December 31, 2008, the Company does not have U.S. dollar cash and cash equivalents, thus there is no foreign currency risk exists. As of December 31, 2007, U.S. dollar cash and cash equivalents amounted to P947,549. If the Philippine peso had strengthened against the U.S. dollar, then this would have decreased net income before tax for the year by P130,904. If the Philippine peso had weakened against the U.S. dollar, then this would have the increased net income before tax for the year by the same amount. This sensitivity of the net results for the year assumes a +/- 13.8% changes of the Philippine peso/U.S. dollar exchange rate for the year ended December 31, 2007. These percentages have been determined based on the average market volatility in exchange rate using standard deviation in the previous 12 months estimated at 95% level of confidence with effect estimated at the beginning of the year. The sensitivity analysis is based on the Company’s foreign currency financial instruments held at December 31, 2007.

- 40 -

Exposures to foreign exchange rates vary during the year depending on the volume of overseas transactions. Nonetheless, the analysis above is considered to be representative of the Company’s foreign currency risk. 24.2 Interest Rate Sensitivity

The Company’s policy is to minimize interest rate cash flow risk exposures on interest-bearing loans and advances to related parties which are subject to intermediary costs. At December 31, 2007, the Company is exposed to changes in market interest rates through its cash advances from related parties and cash and cash equivalents, which are subject to variable interest rates (see Notes 4 and 19). All other financial assets and liabilities have fixed rates. The Philippine peso-denominated cash in bank and cash advances from related parties are tested on a reasonably possible change of +/-346 basis points (bps) in 2007. The calculations are based on Philippine peso-denominated financial instruments held at balance sheet date, estimated at 95% level of confidence with effect from the beginning of the year. On the other hand, U.S. dollar denominated cash in bank is tested on a reasonably possible change of +/- 263 bps in 2007. These changes are considered to be reasonably possible based on the observation of current market conditions. The calculations are based on the Company’s U.S. dollar denominated financial instruments held at December 31, 2007. The changes in bps would affect income before tax by +/- P15.1 million for the year ended December 31, 2007. The sensitivity analysis for 2008 was not performed because the Company has no material account of financial assets denominated in foreign currency. As such, management has assessed that any change in foreign currency rates will not have material impact to the net results for the year.

24.3 Credit Risk

Generally, the maximum credit risk exposure of financial assets is the carrying amount of the financial assets as shown on the face of the consolidated balance sheet as of December 31, 2007.

The Company is also exposed to credit risk to the extent of financial guarantee provided to a related party (see Note 10). The Company continuously monitors defaults of customers and other counterparties, identified either individually or by Company, and incorporate this information into its credit risk controls. Where available at a reasonable cost, external credit ratings and/or reports on customers and other counterparties are obtained and used. In addition, for a significant proportion of sales, advance payments are received to mitigate credit risk. Except for trade receivables under Trade and Other Receivable account, none of the financial assets are secured by collateral or other credit enhancements. Trade receivables are secured by house and lots sold to buyers and post dated checks. In respect of trade and other receivables, the Company is not exposed to any significant credit risk exposure to any single counterparty or any Company of counterparties having similar characteristics.

- 41 -

24.4 Liquidity Risk The Company manages its liquidity needs by carefully monitoring scheduled debt servicing payments for long-term financial liabilities as well as cash outflows due in a day-to-day business. Liquidity needs are monitored in various time bands, on a day-to-day and week-to-week basis, as well as on the basis of a rolling 30-day projection. Long-term liquidity needs for a 6-month and one-year period are identified monthly. The Company maintains cash to meet its liquidity requirements for up to 60-day periods. Excess cash are invested in time deposits or short-term marketable securities. Funding for long-term liquidity needs is additionally secured by an adequate amount of committed credit facilities and the ability to assign long-term financial assets. As at December 31, 2008, the Company’s trade and other payables have contractual maturities of within six months. As at December 31, 2007, the Company’s financial liabilities have contractual maturities which are presented below.

Current Within 6 to 12 6 Months Months Trade and other payables P 65,031,452 P 67,204,443 Interest-bearing loans 20,494,977 83,423,211 Advances from related parties 1,178,895,594 113,000,000 Balance at end of year P 1,264,422,023 P 263,627,654

The above contractual maturities reflect the gross cash flows, which may differ from the carrying values of the liabilities at the consolidated balance sheet dates.

25. CAPITAL MANAGEMENT OBJECTIVES, POLICIES AND PROCEDURES

The Company’s capital management objectives are to ensure the Company’s ability to continue as a going concern and to provide an adequate return to shareholders in the future. The Company monitors capital on the basis of the carrying amount of equity as presented on the face of the consolidated balance sheet. The Company monitors its capital gearing by measuring the ratio of interest-bearing loans to total equity attributable to Parent company’s shareholders. Interest-bearing loan includes all short-term and long-term debt. As of December 31, 2007, the Company’s interest-bearing loans-to-equity ratio is 0.59.


SEC Supplementary Schedules1

December 31, 2008

Table of Contents

Schedule Description Page

A Marketable Securities - (Current Marketable Equity Securities and N/AOther Short-Term Cash Investments)

B Amounts Receivable from Directors, Officers, Employees, Related Parties,and Principal Stockholders (Other than Affiliates) N/A

C Noncurrent Marketable Equity Securities, Other Long-Term Investmentsin Stock and Other Investments 1

D Indebtedness of Unconsolidated Subsidiaries and Affiliates N/A

E Intangible Assets - Other Assets N/A

F Long-Term Debt N/A

G Indebtedness to Affiliates and Related Parties (Short-term Advances) 2

H Guarantees of Securities of Other Issuers N/A

I Capital Stock 3

Supplementary Schedule to Parent Financial Statements(SEC Circular 11)

Reconciliation of Company Retained Earnings for Dividend Declaration 4

Note : N/A - Not Applicable

1 Under SEC Rule 68.1, public companies are required to submit only the schedules that are relevant to thecompany considering the specific requirements for each schedule.

Name of Issuing entity and description of Investee 1

Number of shares or principal

amount of bonds and

notes 2

Amount in Peso

Equity in earnings

(losses) of investee for the

period 3

Other 4 - Note 1Distribution of

earnings by investees 5

Other 6

Number of shares or principal

amount of bonds and

notes 2

Amount in Peso 7

Dividends received from

investments not accounted for by

the equity method

Investment in land and condominium units - Note 1 - - - 436,848,488 - - - - -

Note 1 - This pertains to investment in condominium units which is fully depreciated as of December 31, 2008.

1

2

3

4

5

6

7


1

Non-Current Marketable Equity Securities, Other Long-Term Investments in Stock, and Other InvestmentsDecember 31, 2008

Schedule C

Group separately securities of (a) unconsolidated subsidiaries and (b) other affiliates and (c) other companies, the investment in which is accounted for by the equity method. State separately investments in individual affiliates which, when considered with related advances, exceed two per cent of total assets. Disclose the percentage of ownership interest represented by the shares if material

Disclose the percentage of ownership interest represented by the shares if material.

The total of this column shall correspond to the amount of the related income statement caption.

Briefly describe each item. Explain if the cost represents other than a cash expenditure.

As to any dividends other than in cash, state the basis on which they have been taken up in the accounts, and the justifications for such treatment. If any such dividends received from affiliateshave been credited in an amount different from that charged to retained earnings by the disbursing company, state the amount of differences and explain.

Briefly describe each item and state: (a) cost of securities sold and how determined; (b) amount received (if other than cash, explan); and disposition of resulting profit or loss.

The totals in this column shall correspond to the related balance sheet captions.

Name of related party 1 Balance at beginning of period

Balance at end of period 2

Empire East Land Holdings, Inc. (EELHI) - Note 1 787,565,818 25,503,746

Megaworld Corporation (MC) - Note 1 24,395,180 15,813,306

Total 811,960,998 P 41,317,052 P

Note 1 - The significant decrease in these accounts pertains to the deconsolidated balances of advances of EELHI and MC to Suntrust Properties, Inc.

1

2


December 31, 2008Indebtedness to Related Parties (Short-term advances)

Schedule G

2

The affiliates named shall be grouped as in Schedule D. The information called for shall be stated separately for any persons whose investmentswere shown separately in such related schedule.

For each affiliates named in the first column, explain in a note hereto the nature and purpose of any material increase during the period that is inexcess of 10 percent of the related balance at either the beginning or end of the period.

Title of Issue 2 Number of shares authorized

Number of shares issued and outstanding as shown under the

related balance sheet caption

Number of shares reserved for options,

warrants, coversion and other rights

Related parties 3Directors,

officers and employees

Others

Common 3,000,000,000 2,062,500,000 - 768,334,992 7 1,294,165,001

1

2

3


3

Number of shares held by

Capital Stock1

December 31, 2008

Schedule I

Indicate in a note any significant changes since the date of the last balance sheet filed.

Include in this column each type of issue authorized.

Affiliates referred to include affiliates for which separate financial statements are filed and those included in consolidated financial statements, other than the issuer of the particular security.

TOTAL DEFICIENCY, BEGINNING 1,885,939,757 )( P

Net income (loss) actually incurred during the year 74,297,845 )(

TOTAL DEFICIENCY, END 1,960,237,602 )( P

SUNTRUST HOME DEVELOPERS, INC.6th Floor, The World Centre Building, 330 Sen. Gil Puyat Avenue, Makati City

Reconciliation of Parent Company Retained Earnings for Cash Dividend DeclarationDecember 31, 2008

Unaudited AuditedJune 30, 2009 December 31, 2008

(Company only) (Company only)

CURRENT ASSETSCash and cash equivalents 574,409 P 594,676 P Prepayments and other current assets 693,926 587,144

Total Current Assets 1,268,335 1,181,820

NON-CURRENT ASSETS - Investment in an Associate 83,181,327 83,005,235 Investment property - net 436,848,488 436,848,488 Other non-current assets 60,000,000 60,000,645

Total Non-current Assets 580,029,815 579,854,368

TOTAL ASSETS 581,298,150 P 581,036,188 P

CURRENT LIABILITIESTrade and other payables 32,192 P 608,250 P Advances from related parties 42,717,052 41,317,052 Provisions 436,848,488 436,848,488

Total Liabilities 479,597,732 478,773,790

EQUITYCapital stock 2,062,500,000 2,062,500,000 Deficit 1,960,799,582 )( 1,960,237,602 )(

EQUITY 101,700,418 102,262,398

TOTAL LIABILITIES AND EQUITY 581,298,150 P 581,036,188 P


SUNTRUST HOME DEVELOPERS, INC. BALANCE SHEETS

JUNE 30, 2009 AND DECEMBER 31, 2008


LIABILITIES AND EQUITY

A S S E T S

Unaudited Unaudited Unaudited UnauditedApril 1 - June 30 Jan 1 - Jun 30 April 1 - June 30 Jan 1 - Jun 30(Company only) (Company only) (Consolidated) (Consolidated)

REVENUESReal estate sales - - 78,473,996 P 146,556,390 P Interest on in-house financing - - 13,806,936 23,806,619 Realized gross profit on prior years' sales - - 6,020,504 7,843,518 Equity share in net income of an associate (1,223,622) 176,091 - - Other operating income 352 961 7,627,822 20,012,452

1,223,270 )( 177,052 105,929,258 198,218,979

COSTS AND EXPENSESCost of Real estate sales - - 46,090,425 90,616,316 Deferred gross profit - - 11,131,808 22,123,745 Administrative expenses 245,795 738,840 22,404,647 43,198,423 Selling and distribution costs - - 21,429,004 32,906,198 Finance Cost - - 8,180,352 19,109,623 Income tax expense 70 192 9,634 18,707

245,865 739,032 109,245,871 207,973,012

NET INCOME / (LOSS) 1,469,135 )( P 561,980 )( P 3,316,613 )( P 9,754,033 )( P

Net loss attributable to:

Parent Company's shareholders 1,469,135 )( P 561,980 )( P 2,077,491 )( P 6,190,481 )( P Minority interest - - 1,239,122 )( 3,563,552 )(

1,469,135 )( P 561,980 )( P 3,316,613 )( P 9,754,033 )( P

26,837 )( Loss Per Share Attributable to Parent

Company's Shareholders 0.002 P 0.003P

SUNTRUST HOME DEVELOPERS, INC. INCOME STATEMENTS

FOR THE YEARS ENDED JUNE 30, 2009 AND 2008(Amounts in Philippine Pesos)

2009 2008

Unaudited UnauditedJune 30, 2009 June 30, 2008

(Company only) (Consolidated)

CAPITAL STOCK - P1.00 par valueAuthorized to issue 3,000,000,000 shares 2,062,500,000 2,062,500,000

DEFICITBalance, beginning of year (1,960,237,602) (1,885,939,757)Net income (loss) (561,980) (6,190,481)

Balance, end of year (1,960,799,582) (1,892,130,238)

MINORITY INTERESTBalance, beginning of year - 69,895,327Net loss - (3,563,552)

Balance, end of year - 66,331,775

TOTAL EQUITY 101,700,418 236,701,537

240,018,150

SUNTRUST HOME DEVELOPERS INC.STATEMENTS OF CHANGES IN EQUITY

JUNE 30, 2009 AND JUNE 30, 2008

-See Notes to Financial Statements-

Unaudited UnauditedJune 30, 2009 June 30, 2008

(Company only) (Consolidated)

CASH FLOWS FROM OPERATING ACTIVITIESNet income (loss) (561,980) (6,190,481)Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation 645 2,257,482

Interest Income (961) (95,441) Equity in net earnings of an associate (176,091) Net Changes in Operating Assets & Liabilities

Decrease (Increase) in:Trade receivables - (30,583,158)Property development costs - (82,515,205)Prepayments and other current assets (106,782) (5,673,958)

Increase (Decrease) in:Trade & other payables (576,059) 249,221,821Customers' deposits - 18,837,640Deferred income on real estates sales - 14,280,227Retirement benefit obligation - -

NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES (1,421,228) 159,538,927

CASH FLOWS FROM INVESTING ACTIVITIES 961 (2,164,463)

CASH FLOWS FROM FINANCING ACTIVITIES 1,400,000 (164,530,689)

NET INCREASE (DECREASE) IN CASH & CASH EQUIVALENTS (20,267) (7,156,225)

CASH & CASH EQUIVALENTS - BEGINNING 594,676 21,753,572

CASH & CASH EQUIVALENTS - ENDING 574,409 14,597,347

22,979,774.79 18,950,1910.62 39,296,598

SUNTRUST HOME DEVELOPERS, INC. STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED JUNE 30, 2009 AND 2008

-See Notes to Financial Statements-

SUNTRUST HOME DEVELOPERS, INC. NOTES TO FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2009 and 2008 (UNAUDITED)

(Amounts in Philippine Pesos) 1. CORPORATE INFORMATION

Suntrust Home Developers, Inc. (the Company) was incorporated in the Philippines and is primarily engaged in real estate development. The Company is a publicly listed entity in the Philippine Stock Exchange.

On November 11, 2005, the Company’s Board of Directors (BOD) approved the change in the Company’s corporate name from Fairmont Holdings, Inc. to Suntrust Home Developers, Inc. It also approved the change in the primary purpose of the business of the Company from investment to real estate operations. The change in corporate name and the primary purpose of the business was approved by the Securities and Exchange Commission (SEC) on May 10, 2006. The registered offices of the Company, which is also its principal place of business, is located at the 6th Floor, The World Centre Building, 330 Sen. Gil Puyat Avenue, Makati City. The Company’s administrative functions are being handled by Megaworld Corporation (MC), a major investor. In July 2008, the Company’s ownership interest in Suntrust Properties Inc., formerly Empire East Properties Inc. (SPI) decreased from 60% to 20%. Consequently, the Company’s control over SPI ceases and as such, SPI is no longer a subsidiary but instead becomes an associate of the Company, which eventually resulted in the deconsolidation of SPI from its financial statements starting July 2008 (see Note 4).

The financial statements have been prepared on a going concern basis since MC commits to provide continuing financial support on its operating expenses until such time the Company is able to successfully re-start its commercial operations.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The significant accounting policies that have been used in the preparation of these financial statements are summarized in the succeeding paragraphs. The policies have been consistently applied to all years presented, unless otherwise stated.

2.1 Basis of Preparation of Financial Statements

(a) Statement of Compliance with Philippine Financial Reporting Standards

The financial statements have been prepared in accordance with Philippine Financial Reporting Standards (PFRSs). PFRSs are adopted by the Financial Reporting Standards

Council (FRSC) from the pronouncements issued by the International Accounting Standards Board.

The financial statements have been prepared using the measurement bases specified by PFRS for each type of asset, liability, income and expenses. These financial statements have been prepared on the historical cost basis. The measurement bases are more fully described in the accounting policies that follow.

(b) Functional and Presentation Currency

These financial statements are presented in Philippine peso, the functional currency of the Company and SPI, and all values represent absolute amounts except when otherwise indicated.

2.2 Basis of Consolidation (For the 2008 Comparative Financial Statements) The comparative consolidated financial statements for 2008 comprise the accounts of the Company and its 60%-owned subsidiary SPI, after the elimination of material intercompany transactions.

A subsidiary is consolidated from the date the Company obtains control until such time that such control ceases. The 2008 balance sheet of the Company do not include the accounts of SPI since the Company has no longer control over SPI as of July 2008. Hence, starting July 2008, SPI is no longer a subsidiary of the Company but rather an associate. On the other hand, the comparative consolidated income statements, changes in equity and cash flow statements for the periods ended June 30, 2008 include the accounts of SPI because the Company still holds control over SPI as of that date. The financial statements of SPI are prepared for the same reporting period as the Company using consistent accounting principles. The Company accounts minority interest in 2008 as follows:

(a) Transactions with Minority Interests

The Company applies a policy of treating transactions with minority interests as transactions with parties external to the Company. Disposals of equity investments to minority interests result in gains and losses for the Company that are recorded in the income statement. Minority interests represent the interests not held by the Company.

- 3 -

2.3 Impact of New Standards and Amendments and Interpretations to Existing Standards

(a) Effective in 2009 that are relevant to the Company

The following new standards are relevant to the Company which the Company will apply in accordance with their transitional provisions.

PAS 1 (Revised 2007) : Presentation of Financial Statements

PAS 23 (Revised 2007) : Borrowing Costs PAS 32 and PAS 1

(Amendments) : Financial Instruments: Presentation

And Presentation of Financial Statements – Puttable Financial

Instruments and Obligations Arising on Liquidation

Various Standards : Annual Improvements to PFRS 2008

Below is a discussion of the possible impact of these accounting standards.

(i) PAS 1 (Revised 2007), Presentation of Financial Statements (effective

from January 1, 2009). The amendment requires an entity to present all items of income and expense recognized in the period in a single statement of comprehensive income or in two statements: a separate income statement and a statement of comprehensive income. The income statement shall disclose income and expense recognized in profit and loss in the same way as the current version of PAS 1. The statement of comprehensive income shall disclose profit or loss for the period, plus each component of income and expense recognized outside of profit and loss classified by nature (e.g., gains or losses on available-for-sale assets or translation differences related to foreign operations). Changes in equity arising from transactions with owners are excluded from the statement of comprehensive income (e.g., dividends and capital increase). An entity would also be required to include in its set of financial statements a statement showing its financial position (or balance sheet) at the beginning of the previous period when the entity retrospectively applies an accounting policy or makes a retrospective restatement. The Company will apply PAS 1 (Revised 2007) in its 2009 financial statements.

- 4 -

(ii) PAS 23 (Revised 2007), Borrowing Costs (effective from January 1, 2009). Under the revised PAS 23, all borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset shall be capitalized as part of the cost of that asset. The option of immediately expensing borrowing costs that qualify for asset recognition has been removed. The Company has initially determined that adoption of this new standard will not have significant effects on the financial statements for 2009, as well as for prior and future periods, as the Company’s current accounting policy is to capitalize all interest directly related to qualifying assets.

(iii) PAS 32 (Amendment), Financial Instruments: Presentation and PAS

1 (Amendment), Presentation of Financial Statements – Puttable Financial Instruments and Obligations Arising on Liquidation (effective from January 1, 2009). The amendments require certain financial instruments that represent a residual interest in the net assets of an entity, which would otherwise be classified as financial liabilities, to be classified as equity, if both the financial instrument and the capital structure of the issuing entity meet certain conditions. The Company does not expect any impact on its financial statements when it applies the amendments in 2009.

(iv) 2008 Annual Improvements to PFRS. The FRSC has adopted

the Improvements to International Financial Reporting Standards 2008. These amendments become effective in the Philippines in annual periods beginning on or after January 1, 2009. The Company expects the amendments to the following standards to be relevant to the Company’s accounting policies:

• PAS 23 (Amendment), Borrowing Costs. The amendment clarifies the definition of borrowing costs to include interest expense determined using the effective interest method under PAS 39. This amendment will be applied by the Company in 2009; however, management expects its effect to be insignificant.

• PAS 1 (Amendment), Presentation of Financial Statements. The amendment clarifies that financial instruments classified as held for trading in accordance with PAS 39 are not necessarily required to be presented as current assets or current liabilities. Instead, normal classification principles under PAS 1 should be applied. Presently, all held for trading financial assets of the Company are classified as current assets under PAS 1, hence, this amendment will have no impact in the Company’s 2009 financial statements.

• PAS 19 (Amendment), Employee Benefits. The amendment includes the following:

- 5 -

- Clarification that a curtailment is considered to have occurred to the extent that benefit promises are affected by future salary increases and a reduction in the present value of the defined benefit obligation results in negative past service cost.

- Change in the definition of return of plan assets to require the deduction of

plan administration costs in the calculation of plan assets return only to the extent that such costs have been excluded from measurement of the defined benefit obligation.

- Distinction between short-term and long-term employee benefits will be

based on whether benefits are due to be settled within or after 12 months of employee service being rendered.

- Removal of the reference to recognition in relation to contingent liabilities in

order to be consistent with PAS 37, Provisions, Contingent Liabilities and Contingent Assets, which requires contingent liabilities to be disclosed and not recognized.

The Company’s management assessed that this amendment to PAS 19 will have no impact on its 2009 financial statements. • PAS 38 (Amendment), Intangible Assets. The amendment clarifies when to recognize a prepayment asset, including advertising or promotional expenditures. In the case of supply of goods, the entity recognizes such expenditure as an expense when it has a right to access the goods. For services, an expense is recognized on receiving the service. Also, prepayment may only be recognized in the event that payment has been made in advance of obtaining right of access to goods or receipt of services. The Company initially determined that adoption of this amendment will not have a material effect on its 2009 financial statements.

• PAS 39 (Amendment), Financial Instruments: Recognition and Measurement. The definition of financial asset or financial liability at fair value through profit or loss as it relates to items that are held for trading was changed. A financial asset or liability that is part of a portfolio of financial instruments managed together with evidence of an actual recent pattern of short-term profit taking is included in such a portfolio on initial recognition. The Company initially determined that adoption of this amendment will not have a material effect on its 2009 financial statements.

• PAS 40 (Amendment), Investment Property. PAS 40 is amended to include property under construction or development for future use as investment property in its definition of investment property. This results in such property being within the scope of PAS 40; previously, it was within the scope of PAS 16. Also, if an entity’s policy is to measure investment property at fair value, but during construction or

- 6 -

development of an investment property the entity is unable to reliably measure its fair value, then the entity would be permitted to measure the investment property at cost until construction or development is complete. At such time, the entity would be able to measure the investment property at fair value.

Minor amendments are made to several other standards; however, those amendments are not expected to have a material impact on the Company’s financial statements.

2.4 Financial Assets Financial assets include cash and cash equivalents and other financial instruments. Financial assets, other than hedging instruments, are classified into the following categories: financial assets at fair value through profit or loss, loans and receivables, held-to-maturity investments and available-for-sale financial assets. Financial assets are assigned to the different categories by management on initial recognition, depending on the purpose for which the investments were acquired. The designation of financial assets is re-evaluated at every reporting date at which date a choice of classification or accounting treatment is available, subject to compliance with specific provisions of applicable accounting standards.

Cash and cash equivalents are defined as cash on hand, demand deposits and short-term, highly liquid investments readily convertible to known amounts of cash and which are subject to insignificant risk of changes in value. Regular purchase and sales of financial assets are recognized on their trade date. All financial assets that are not classified as at fair value through profit or loss are initially recognized at fair value, plus transaction costs. Financial assets carried at fair value through profit or loss are initially recognized at fair value and transaction costs are expensed in the consolidated income statement. Derecognition of financial assets occurs when the rights to receive cash flows from the financial instruments expire or are transferred and substantially all of the risks and rewards of ownership have been transferred.

2.5 Investment in an Associate Investment in an associate is initially recognized at cost and subsequently accounted for using the equity method. Changes resulting from the profit or loss generated by the associate are shown as Equity share in net earnings (losses) of an associate in the Company’s income statement and therefore affect the net results of the Company. These changes include subsequent depreciation and amortization or impairment of the fair value adjustments of assets and liabilities. Items that have been directly recognized in the associate’s equity, for example, resulting from the associate’s accounting for available-for-sale financial assets, are recognized in the equity of the Company. Any non-income related equity movements of the associate that arise, for example, from the distribution of dividend

- 7 -

or other transactions with the associate’s shareholders are charged against the proceeds received or granted. No effect on the Company’s net result or equity is recognized in the course of these transactions. An associate is an entity over which the Company is able to exert significant influence but which is neither a subsidiary nor an interest in a joint venture. 2.6 Investment Property

Investment property, which consists of condominium units and land held for capital appreciation, is stated at cost, less accumulated depreciation and any accumulated impairment losses. Depreciation is computed on a straight-line basis over the estimated useful life of five years. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount. Investment property is derecognized upon disposal or when permanently withdrawn from use and no future economic benefit is expected from its disposal. Any gain or loss on the retirement or disposal of an investment property is recognized in the income statement in the year of retirement or disposal. 2.7 Financial Liabilities

Financial liabilities include Trade and other payables and Advances from related parties. Financial liabilities are recognized when the entity becomes a party to the contractual agreements of the instrument. All interest related charges are recognized as an expense in the income statement under the caption Finance Costs. Trade and other payables and advances related parties are recognized initially at their fair value and subsequently measured at amortized cost less settlement payments. Financial liabilities are derecognized from the balance sheet only when the obligations are extinguished either through discharge, cancellation or expiration. 2.8 Provisions Provisions are recognized when present obligations will probably lead to an outflow of economic resources and they can be estimated reliably even if the timing or amount of the outflow may still be uncertain. A present obligation arises from the presence of a legal or constructive commitment that has resulted from past events. Provisions are measured at the estimated expenditure required to settle the present obligation, based on the most reliable evidence available at the balance sheet date, including

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the risks and uncertainties associated with the present obligation. Any reimbursement expected to be received in the course of settlement of the present obligation is recognized, if virtually certain as a separate asset, not exceeding the amount of the related provision. Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. In addition, long-term provisions are discounted to their present values, where time value of money is material. Provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimate. In those cases where the possible outflow of economic resource as a result of present obligations is considered improbable or remote, or the amount to be provided for cannot be measured reliably, no liability is recognized in the financial statements. Probable inflows of economic benefits that do not yet meet the recognition criteria of an asset are considered contingent assets, hence, are not recognized in the financial statements. 2.9 Revenue and Expense Recognition Revenue is recognized to the extent that it is probable that the economic benefits will flow to the entity and the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognized:

(a) Interest – Revenue is recognized as the interest accrues (taking into account the effective yield on the asset).

2.10 Functional and Presentation Currency Items included in the financial statements are measured using the currency of the primary economic environment in which the entity operates (the functional currency). The financial statements are presented in Philippine peso, which is also the entity’s functional and presentation currency. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognized in the income statement. 2.11 Impairment of Non-financial Assets Investment property are subject to impairment testing. All other individual assets are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.

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For purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows. An impairment loss is recognized for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of fair value, reflecting market conditions less costs to sell, and value in use, based on an internal discounted cash flow evaluation. All assets are subsequently reassessed for indications that an impairment loss previously recognized may no longer exist and the carrying amount of the asset is adjusted to the recoverable amount resulting in the reversal of the impairment loss.

2.12 Income Taxes Current income tax assets or liabilities comprise those claims from, or obligations to, fiscal authorities relating to the current or prior reporting period, that are uncollected or unpaid at the balance sheet date. They are calculated according to the tax rates and tax laws applicable to the fiscal periods to which they relate, based on the taxable profit for the year. All changes to current tax assets or liabilities are recognized as a component of tax expense in the consolidated income statement. Deferred tax is provided, using the balance sheet liability method on temporary differences at the balance sheet date between the tax base of assets and liabilities and their carrying amounts for financial reporting purposes. Under the balance sheet liability method, with certain exceptions, deferred tax liabilities are recognized for all taxable temporary differences and deferred tax assets are recognized for all deductible temporary differences and the carryforward of unused tax losses and unused tax credits to the extent that it is probable that taxable profit will be available against which the deferred tax asset can be utilized. The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilized. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realized or the liability is settled, based on tax rates and tax laws that have been enacted or substantively enacted at the balance sheet date. Most changes in deferred tax assets or liabilities are recognized as a component of tax expense in the income statement. Only changes in deferred tax assets or liabilities that relate to a change in value of assets or liabilities that is charged directly to equity are charged or credited directly to equity. 2.13 Equity Capital stock is determined using the nominal value of shares that have been issued.

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Subscribed capital represents shares for which partial payments have been made by the stockholder. Deficit includes all current and prior period results as reported in the income statements. Minority interest represents the portion of the equity interest in the subsidiary not owned by the Company. 2.14 Loss Per Share Loss per share is computed by dividing net loss by the weighted average number of issued and outstanding common shares during the year after giving retroactive effect to stock dividends declared, stock split and reverse stock split during the current year, if any. Diluted earnings per share is computed by adjusting the weighted average number of ordinary shares outstanding to assume conversion of dilutive potential shares. The Company does not have dilutive potential shares.

3. SIGNIFICANT ACCOUNTING JUDGMENTS AND ESTIMATES

The financial statements prepared in accordance with PFRS require management to make judgments and estimates that affect amounts reported in the financial statements and related notes. Judgments and estimates are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under circumstances. Actual results may ultimately differ from these estimates. 3.1 Critical Judgments in Applying Accounting Policies

In the process of applying the accounting policies, management has made the following judgments, apart from those involving estimation, which have the most significant effect on the amounts recognized in the financial statements.

(a) Distinction Between Investment Properties and Owner-managed Properties

The entity determines whether a property qualifies as investment property. In making its judgment, the entity considers whether the property generated cash flows largely independently of the other assets held by an entity. Owner-occupied properties generate cash flows that are attributable not only to property but also to other assets used in the production or supply process. (b) Provisions and Contingencies

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Judgment is exercised by management to distinguish between provisions and contingencies. 3.2 Key Sources of Estimation Uncertainty

The following are the key assumptions concerning the future, and other key sources of estimation uncertainty at the balance sheet date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year. (a) Impairment of Non-financial Assets PFRS requires that an impairment review be performed when certain impairment indicators are present. Though management believes that the assumptions used in the estimation of fair values reflected in the financial statements are appropriate and reasonable, significant changes in these assumptions may materially affect the assessment of recoverable values and any resulting impairment loss could have a material adverse effect on the results of operations.

4. INVESTMENT IN AN ASSOCIATE

In July 2008, SPI increased its authorized capital stock from 200 million shares to 500 million shares. Out of this increase, 262.5 million shares of stock at P1 par value were subscribed and paid-up by another related party. The company did not exercise its right of pre-emption with regards to the increase in SPI’s authorized capital stock resulting to the decrease in its ownership with SPI from 60% to 20%. Because of this, the accounts of SPI were now deconsolidated from the Company’s financial statements in 2008 and the investment was reclassified to this account. The Company’s investment in SPI is accounted using the equity method. The proforma comparative income statement of the Company, excluding the accounts of SPI as of June 30, 2009 and 2008 are as follows:

Income Statements 2009 2008 Interest income P 961 P 5,139 Equity in net income/(loss) of an associate 176,091 ( 5,345,328) Administrative expenses ( 738,840 ) ( 868,098) Other operating Income 18,290 Tax expense ( 192 ) ( 484) Net income/(loss) (P 561,980) (P 6,190,481) 5. RISK MANAGEMENT OBJECTIVES AND POLICIES

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The risk management is coordinated with the BOD. The Company does not actively engage in the trading of financial assets for speculative purposes nor does it write options. The financial risks to which the Company is exposed to are described below. 5.1 Foreign Currency Sensitivity Most of the Company’s transactions are carried out in Philippine peso, its functional currency. Exposures to currency exchange rates arise from the Company’s cash in bank, which are denominated in U.S. dollar. To mitigate the Company’s exposure to foreign currency risk, non-Philippine peso cash flows are monitored. As of December 31, 2008, the Company does not have U.S. dollar cash and cash equivalent, thus there is no foreign currency risk exists. 5.2 Credit Risk

Generally, the maximum credit risk exposure of financial assets is the carrying amount of the financial assets as shown on the face of balance sheet.

The Company is also exposed to credit risk to the extent of financial guarantee provided to a related party. The Company continuously monitors defaults of customers and other counterparties, identified either individually or by Company, and incorporate this information into its credit risk controls. Where available at a reasonable cost, external credit ratings and/or reports on customers and other counterparties are obtained and used. The Company is not exposed to any significant credit risk exposure to any single counterparty or any Company of counterparties having similar characteristics. 5.3 Liquidity Risk The Company manages its liquidity needs by carefully monitoring scheduled debt servicing payments for long-term financial liabilities as well as cash outflows due in a day-to-day business. Liquidity needs are monitored in various time bands, on a day-to-day and week-to-week basis, as well as on the basis of a rolling 30-day projection. Long-term liquidity needs for a 6-month and one-year period are identified monthly. The Company maintains cash to meet its liquidity requirements for up to 60-day periods. Excess cash are invested in time deposits or short-term marketable securities. Funding for long-term liquidity needs is additionally secured by an adequate amount of committed credit facilities and the ability to assign long-term financial assets. At June 30, 2009 and December 31, 2008, the Company’s trade and other payables have contractual maturities of within six months.

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6. CAPITAL MANAGEMENT OBJECTIVES, POLICIES AND PROCEDURES

The Company’s capital management objectives are to ensure the Company’s ability to continue as a going concern and to provide an adequate return to shareholders in the future. The Company monitors capital on the basis of the carrying amount of equity as presented on the face of the balance sheet.

In 2008, as a result of the subscription by EELHI to the increase in authorized capital stock of SPI, the Company'sownership interest in SPI decreased from 60% to 20%. Consequently, the Company's control over SPI ceasedand, as such, SPI is no longer a subsidiary but is now considered an associate of the Company. This eventuallyresulted in the deconsolidation of SPI from the Company's financial statements starting in July 2008 which explains the major decreases in the Company's results of operation.

RESULTS OF OPERATION

Six months ended June 30, 2009 Compared to Six months ended June 30, 2008

FINANCIAL CONDITION

As of June 30, 2009 and December 31, 2008

Material Changes in the Financial Statement Items:Increase/(Decrease) of 5% or more versus 2008

Balance Sheet

Prepayments & Other Current Assets 18.19%

Increase is caused by increase in prepaid taxes during the current period

Trade and other payables (94.71%)

Decrease is brought by payment of accrued expenses during the period.

Income Statement

There is no explanatory comment on the seasonality or cyclicality of interim operations. There are no materialevents subsequent to the end of the interim period that have not been reflected in the financial statements forthe interim period.

As of January 1, 2008, SPI was consolidated in the Company's financial statements, however, starting July 2008, due to the dilution of the Company's interest from 60% to 20%, SPI's financial statement was deconsolidated. This resulted to major decrease in the income statement of the Company.

Cost and expenses also decreased by 99.64% or 207.23 million from 207.97 million in 2008 to 739.03 thousand in 2009.

The net results of the company post a decrease in Net Loss of 94.24% or 9.19 million from 9.75 million in 2008and 561.98 thousand in 2009.

Current assets shows an increase of 7.32% or 86.52 thousand from 1.18 million in 2008 to 1.27 million in 2009.Cash & Cash Equivalents decreased by 3.41% or 20.27 thousand from 594.67 thousand in 2008 to 574.41thousand in 2009. Prepayments increased by 18.19% or 106.78 thousand from 587.14 thousand in 2008 to693.93 thousand in 2009 due to increase in prepaid taxes during the current period.

Total liabilities increased by 823.94 thousand from 478.77 million in 2008 to 479.60 million in 2009. Trade &Other Payables exhibited a decrease of 94.71% or 576.06 thousand from 608.25 thousand in 2008 to 32.19thousand in 2009 brought by payment of accrued expenses during the period.

MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The company's total revenues exhibited a decrease of 99.91% or 198.22 million from 2008 to 2009 of the sameperiod.

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