SECURITIES AND EXCHANGE COMMISSION SEC FORM 17-A, AS AMENDED ANNUAL REPORT PURSUANT TO SECTION 17 OF THE SECURITIES REGULATION

CODE AND SECTION 141 OF THE CORPORATION CODE OF THE PHILIPPINES

1. 2. 4.

For the fiscal year ended: December 31, 2007 SEC Identification Number: Exact name of issuer as specified in its charter SPLASH CORPORATION 3. BIR Tax Identification No. 001-096-221

5.

Philippines Province, Country or other jurisdiction of incorporation or organization

6.

(SEC Use Only) Industry Classification Code:

7. HBC Corporate Centre, 548 Mindanao Ave., corner Quirino, Highway, Quezon City Address of principal officePostal Code 8. (02) 984-5555 Issuer's telephone number, including area code Not Applicable Former name, former address, and former fiscal year, if changed since last report.

9.

10. Securities registered pursuant to Sections 8 and 12 of the SRC, or Sec. 4 and 8 of the RSA Title of Each Class Number of Shares of Common Stock Outstanding and Amount of Debt Outstanding ................................................................................................................................................... ....................................................................................................................................................................... .......................................................................................................................................................................

11. Are any or all of these securities listed on a Stock Exchange. Yes [ X ] No [ ]

If yes, state the name of such stock exchange and the classes of securities listed therein: Philippine Stock ExchangeCommon Stock 12. Check whether the issuer: (a) has filed all reports required to be filed by Section 17 of the SRC and SRC Rule 17.1 thereunder or Section 11 of the RSA and RSA Rule 11(a)-1 thereunder, and Sections 26 and 141 of The Corporation Code of the Philippines during the preceding twelve (12) months (or for such shorter period that the registrant was required to file such reports); Yes [ X ] No [ ]

(b) has been subject to such filing requirements for the past ninety (90) days. Yes [ ] No [ X ]

13. Aggregate market value of the voting stock held by non-affiliates; not applicable

DOCUMENTS INCORPORATED BY REFERENCE

(a) Audited Financial Statements of Splash Corporation attached as Exhibit I and Referred herein as the 2007 Financial Statements (b) Statement of Managements Responsibility for Financial Statements attached As Exhibit II (b) Supplemental Schedules required pursuant to SCR Rule, annex M of the Securities Regulation Code, attached as Exhibit III and referred to herein as The Supplemental Schedules

PART I - BUSINESS AND GENERAL INFORMATION Item 1. Business A. Description of Registrant 1. Business Development

Splash Corporation (the Company) was incorporated in the Philippines and registered with the Philippine Securities and Exchange Commission (SEC) on September 30, 1991 primarily to develop, manufacture, bottle, pack, and market cosmetics and other beauty products, and pharmaceutical products in the Philippines and abroad. Before the Company listed its shares of stock with the Philippine Stock Exchange (PSE) on November 15, 2007, the Company is a whollyowned subsidiary of Splash Holdings, Inc. (SHI). Its registered office address is HBC Corporate Centre, 548 Mindanao Avenue corner Quirino Highway, Quezon City. On November 15, 2007, the Companys shares of stock were listed and traded in the PSE. After the listing, the Company is 70%-owned by SHI, who exercises control over the Company (see Note 16). Status of Planned Merger with Splash Nutraceutical Corporation (SNC) On April 21, 2006, the Board of Directors (BOD) and stockholders of the Company approved the Plan of Merger between the Company and SNC (the Parties) wherein the Company will be the surviving corporation. On September 18, 2006, the Articles of Merger were made and executed by and between SNC and the Company. In favor of the stockholders of SNC, the Company will issue 848,023 shares of the Company as mutually agreed upon by the parties. On November 9, 2006, the SEC approved the Articles and Plan of Merger, whereby the entire assets and liabilities of the SNC were transferred to and absorbed by the Company. On February 28, 2007, the parties amended the Articles of Merger deferring the effectivity of the merger to January 1, 2007. On April 24, 2007, the SEC approved

the amended Articles and Plan of Merger. On August 3, 2007, the SEC approved the deferral of the effectivity of the Merger between the Company and SNC to June 2008. On August 14, 2007, the respective BOD and the stockholders of the Constituent Companies (Splash Corporation and SNC) in the Merger, agreed and resolved to shorten the corporate existence of SNC, after complying with the requirements set forth by law. On September 6, 2007, the SEC approved the petition filed by the Company and SNC to set aside the Articles of Merger which was previously approved by SEC.
2. Business of the Issuer (i) Principal products, markets and revenue contribution

The Companys products and brands are classified into 3 basic categories which, essentially, is based on the individual products and brands specific market positioning. From the perspective of a marketing company, Splash operating managers assess the market performance of these segments primarily revenue and profit performance to make decisions on resource allocation and the appropriate market interventions that must be done. These segments consist of: Naturals a group of products whose active ingredients are derived from natural or herbal sources. Revenues consist of sales of the following brands: Biolink VCO (Virgin Coconut Oil), Biolink Tea Tree Oil, Biolink Green Papaya, Extract (calamansi, papaya, avocado, and cucumber), and Baby Spa (VCO). Skin Care products that are positioned to provide total skin care solution through the innovative use of potent non-herbal active ingredients. Revenues are generated from the sales of the following brands: Maxipeel (exfoliants), SkinWhite (skin whitening), and Extraderm (anti-aging). Hair Care consists of hair care products. Revenues are derived from the sales of the following brands: Kolours (hair dye), Vitress (cuticle coat), and Control (hair dressing). Of the total net sales of P3.010.8 Billion in 2007, the contribution of each category (product group or segment) is as follows:

Product Category Naturals S Carekin Hair Care Total

Contribution to Net Sales 18.60% 58.55% 22.84% 100.00%

As of December 31, 2007, figures from AC Nielsen, an independent market monitoring company, show that Splashs products hold market leadership position in two (2) out of the three (3) categories or segments where the Company plays as shown by the following table:
Market Share

Category / Brand / Product

Market Standing

Skin Care Maxipeel Exfoliant Extraderm Anti-aging Skin White Lotion Skin White Soap Naturals Extract Facial Cleanser

81% 43% 25% 36%

Market Leader Market Leader Market Leader Market Leader

11%

Challenger (2nd to the market leader)

Hair Care Kolours Premium Hair Dye

49%

Market Leader

Source: AC Nielsen Retail Audit, 31 Dec 2007

(ii)

Percentage of revenues and net income contributed by foreign markets

Out of the total gross revenue, 15% comes from foreign operation.
(iii) Distribution Methods

Splashs distribution infrastructure is a combination of in-house and third party distributors. The Company delivers directly to strategic accounts, or what it calls the National Accounts Group. These accounts are Super Value, Inc. and Super SM (of the SM Group), Watsons, Mercury Drug, Inc., Robinsons and HBC. For other key accounts and outlets, Splash utilizes twenty-three (23) third party distributors. Each distributor is assigned to specific regions. Apart from National Accounts, Splash products are also being sold to two other major categories namely Modern Trade and General Trade. Modern Trade consists of all large accounts outside of the National Accounts, such as the Gaisano Group, Ever Gotesco, Puregold, Cherry Foodarama, The Landmark, etc.. General Trade is composed of small retail trade outlets including groceries, stand-alone drugstores, sari-sari stores and market stalls. In Metro Manila, South Luzon, North Luzon, and the Samar-Leyte island groups, goods are delivered over land using third party service providers. For the rest of Visayas and Mindanao regions, delivery is by sea using third party service providers. The Company employs demand-based production planning and inventory management systems. Each distributor

maintains an optimal level of inventory which is automatically replenished whenever inventory levels fall to re-order point. In overseas markets, the Company has established market presence in over 20 countries through its distributors and local exporters. These countries include Algeria, Australia, Bahrain, Canada, Egypt, Hong Kong, India, Indonesia, Iran, Japan, Jordan, Korea, Kuwait, Lebanon, Malaysia, Nigeria, Oman, Pakistan, Qatar, Saudi Arabia, Singapore, Sudan, United Arab Emirates, Vietnam and the United States (Guam and Saipan).

(iv)

Status of publicly announced products

In 2007, the Company introduced 14 new products, namely: Baby Spa line Biolink VCO Shampoo and Hot Oil Treatment Extract Deodorant Extract Papaya/Calamansi Extract Face Cream Extraderm Age Defy line Kolours Shampoo and Conditioner for color-treated hair Maxipeel Face Cream Maxi-peel Soap Maxi-peel Concealing Cream Skin White Deodorant Skin White Face Cream and Solution Tricks Exfocleanser Vitress Cuticle Coat (new variants)

For the calendar year 2007, sales from these new products contributed to 16% to total net sales. In the first quarter of 2008, the aggregate sales of these new products contributed 23% to total net sales.

(v)

Competition

The domestic personal care and toiletries market is highly competitive and is dominated by global multinational corporations (MNCs). The Company faces competition from the following MNCs, which have products competing directly with Splashs core products: Unilever Philippines, Inc. Colgate Palmolive Philippines, Inc. Procter & Gamble Philippines, Inc. Avon Products Manufacturing, Inc. Johnson & Johnson Philippines, Inc. Beiersdorf AG Sara Lee Philippines, Inc. LOreal Philippines, Inc.

(vi)

Sources and availability of raw materials

The Company sources its raw materials, primarily chemicals, fragrances and packaging materials from external suppliers. The Company implements a supplier accreditation process that considers the following as critical performance criteria: quality, pricing, and timely delivery. Splash Corporation buys its raw material requirements locally to improve delivery lead times. Imported raw materials are procured through the local affiliates or representatives of foreign suppliers. Purchases are paid in pesos to mitigate currency risks. As a consequence, cost is slightly higher but this is compensated by lower inventory carrying costs and foreign exchange risk. The Company normally has two (2) or more accredited suppliers for each type of raw and packaging materials, ensuring continuous supply in case of specific supplier issues. The Company enjoys 60- to 90- day payment terms with its suppliers.

(vii)

Dependence on major customers

The Companys customers may be classified as to account type or customer group. Classified per account type, the Companys customers are the National Account Group, Modern Trade and General Trade (defined in paragraph iii Distribution Methods). Customers may also be grouped as National Accounts and Distributors.Under both classifications, customer type contributions to total sales do not indicate dependence on major customers.

Account Group MODERN TRADE GENERAL TRADE NATIONAL ACCOUNTS Total

Contribution to Total Sales 32% 39% 29% 100%

Customer Group NATIONAL ACCOUNTS DISTRIBUTORS Total

Contribution to Total Sales 29% 71% 100%

The National Accounts Groups contribution to total sales of 29% consist of sales generated from six (6) large retail firms. On the other hand, the distributors 71% contribution to total sales came from 23 distributors servicing more than 10,000 retail outlets (Modern and General Trade).

(viii)

Transaction with and/or dependence on related parties

The Company sells to the following affiliates: HBC, Inc. and PT Splash Indonesia. HBC accounts for less than 5% of total Company sales while PT Splash Indonesia accounts for less than 1%. Transactions with these affiliates are strictly on an arms-length basis.
(ix) Patents, trademarks & licenses

The Company owns the following patents:

Patent No. 2-1997- 15095 2-1999-00320 2-1996-8471 Description A Skin Care Composition for Use as a Facial Cleanser Skin Care Composition A Skin Care Composition for the Treatment of Acne & Pigmentary Disorder A Topical Composition for the Treatment of Acne & Pigmentary Disorder Surfactant-based Liquid Cleansing Preparation w/ Whitening Benefit for Face & Body Skin Care Composition A Whitening Food Supplement Composition Glutathone/ Vitamin C/ Alpha Lipoic Acid A Palatable Coconut Oil Food Supplement (VCO with Flavor) Expiration 29-Jun-15 12-Jul-06 26-Jul-16

22-Jul-10

2-2003-000284 2-2001-00091 2-2001-000110 2-2004-000075 1-2005-00239 2-2006-000391 2-2006-000125 2-2006-000126 2-2006-000124 2-2006-000297 3-2007-000070 3-2007-000071

24-Aug-08 12 Jul 2006[1] 11-Mar-11 11-Mar-24

A Skin Lotion Composition with Virgin Coconut Oil A Herbal Tea A Herbal Tea A Herbal Tea A New Soap Composition with Virgin Coconut Oil as Additive A Roll-on Deodorant Container (Hexagonal design)

18-Sep-13 29-Mar-13 29-Mar-13 29-Mar-13 19-Jul-13

1-Feb-22 A Utility Container (hexagonal-shaped jar) 1-Feb-22

[1] Extension for protection of products under 2-1999-00320

The Company owns the following trademarks:

Registration No Reg Date 48537 SR-8360 55239 55158 55238 55782 55778 57063 62088 66513 66414 4-1996-113860 4-1998-008546 4-1998-01241 4-1998-01242 4-1998-007644 4-1999-009264 4-1998-001246 4-1999-002061

Title of Mark

18-Jul-90 Splash Hair Polish & Design 7-Sep-90 Splash Extract Label 28-May-93 Extraderm 28-May-93 Splash Deowhitener 28-May-93 Splash 18-Aug-93 Splash Keratin Emulsion 18-Aug-93 Splash Keratin Wave 23-Feb-94 HIYAS 1-Dec-95 RBH 19-Nov-98 Nutress 4-Nov-98 Deowhitener 22-Jun-02 Extract Mestiza 4-Jul-02 MEDIX 20-Jan-03 Extract and Leaf Device 20-Jan-03 Deowhitener & Device logo 13-Nov-03 Extract Therapy 14-Dec-03 Splash Research Institute Device 18-Jan-04 Skinwhite 5-Dec-04 Versatile

4-2000-002761 4-2000-002759 4-2000-002757 4-2000-005670 4-2002-008760 4-2002-008761 4-2002-007366 4-1997-117079 4-2003-006486 4-2002-000144 4-1996-106926 4-1999-003960 4-1999-003961 4-2005-008940

7-Feb-04 http:/ / splash.spi.com.ph 7-Feb-04 http:/ / splash.sri.com.ph 7-Feb-04 http:/ / splash.sii.com.ph 21-May-04 S Whitekin 21-May-04 Age-Defy 21-May-04 Oil Out 1-Jul-04 Renewhite 3C 10-Feb-05 Kolours Premium & Device 16-Nov-05 Biolink 25-Dec-05 MAXI-PEEL 20-Nov-05 LOGO (Stylized Letters C & S) 18-Sep-06 Extract Ace 18-Sep-06 Extract Aqua (in stylized form) 13-Nov-06 VCO Manila & Device

4-2005-001948 4-2005-009654 4-2004-004210 4-2000-007747

8-Jun-06 Splash Research Institute & Device 11-Dec-06 Tropical Success 25-Jun-06 ILLUMIDERM 30-Jul-06 EXFOSHIELD

Registration No Reg Date 4-2005-009569 4-2005-000922 4-2005-002534 4-2005-002535 4-2005-002536 4-2005-003452 4-2005-007543 4-2005-007544 4-2005-007592 4-2005-009265 4-2005-010100 4-2006-000873 4-2006-002997 4-2006-002998 4-2006-009235 4-2007-002163 4-2007-001829 4-2007-001842 4-2004-011213 4-2004-011583 4-2006-011013 4-2006-011015 4-2006-011016 4-2006-011017 4-2006-011446 4-2006-011447 4-2007-001833 4-2007-001834 4-2007-001835 4-2007-001837 4-2007-003150 4-2007-004518 4-2007-005807 4-2007-005808 4-2007-005809 4-2007-005810 4-2005-002534 4-2006-011014 4-2007-002159 4-2007-002160

Title of Mark

14-May-07 Coconut Manila & Device 28-May-07 Naturally Beautiful 10-Sep-07 ACCUHERB & Device 26-Feb-07 Livemore S Illuminate & Devicekin 26-Mar-07 THERAHERB VCO & Device 21-May-07 Sugarcheck Powered by SCIENCE Inspired by 30-Apr-07 NATURE 30-Apr-07 TheraHerb VCO & Device 26-Mar-07 REJUVI 4-Jun-07 Color & Care for Asian Hair 26-Feb-07 HIYASORGANICS& Device Galing ng Pinoy, Ipagmalaki & Open 25-Jun-07 Hand Device 6-Aug-07 Claritone-D Formula 22-Oct-07 Soothing Naturals 25-Jun-07 Skinwhite & Device 19-Nov-07 Cover and Clean 19-Nov-07 Extraderm and "e" Device 24-Sep-07 SPLAS CONTROL & DeviceH 26-Mar-07 Oil of Beauty & Device 26-Feb-07 LIVEMORE & DEVICE 16-Jul-07 VITRES VITA-INJEKS 25-Jun-07 VITRES HAIRENOVATES 25-Jun-07 VITRES HAIR I-C-US 25-Jun-07 ILLUMINOSITE 16-Jul-07 MULTIDETOX 10-Sep-07 KIKAY Academy & Device 24-Sep-07 HAIR MED 24-Sep-07 HAIR MEDIC 24-Sep-07 PowerCLEANSER 24-Sep-07 PowerCREAMS 10-Sep-07 VCO Hydrolock 24-Sep-07 TEENSPA 19-Nov-07 NutriLock-B5+Moisture 19-Nov-07 ProNourish-E+Moisture 19-Nov-07 VCO Tri-LauriCare 19-Nov-07 Dr. Coconut 10-Sep-07 ACCUHERB & Device S CALP-DETOX27-Aug-07 VITRES S KIN27-Aug-07 S MED KIN27-Aug-07 S MEDIC

Registration No Reg Date 4-2005-009654 4-2005-008940 4-2005-003453 4-2005-005985 4-2006-002996 4-2006-008642 25-Jan-08 25-Jan-08 22-Feb-08 7-Mar-08 7-Mar-08 7-Mar-08

Title of Mark TROPICAL SUCCESS VCO MANILA & dev HEALTHY BLUSH VITRESS NATURAL BABY SPA LAURICO

In addition, the Company registered the trademarks of its core brands (Maxipeel,

Extraderm, Skin White, Biolink, Theraherb) in 22 countries that include the USA, UAE, Canada, Taiwan, Thailand, Vietnam, Brunei Darussalam, Cambodia, China/Hongkong, India, Indonesia, Iran, Jordan, Kuwait, Laos PDR, Malaysia, Myanmar, Qatar, Saudi Arabia, Singapore, South Korea, and the European union (comprising of 29 countries).
(x) Effect of existing or probable governmental regulations on the business

None. The Company regularly monitors the regulatory environment and participates actively in industry associations, namely: CCIP (Chamber of Cosmetic Industry of the Philippines) which is also the Philippine representative organization to the ASEAN Cosmetic Association (ACA); CHIPI (Chamber of Herbal Industry of the Philippines, Inc.); HADSAP (Health and Dietary Supplement Association of the Philippines); and PSCS (Philippine Society for Cosmetic Science, Inc.)

These give the Company a proactive stance particularly in terms of adequate preparations in case of changes in the regulatory environment. The Company complies with all regulatory requirements.

(xi)

Government Regulation

To ensure the safety and well-being of its consumers, Splash complies with the regulatory requirements of the Bureau of Foods and Drugs (BFAD). Before a product can be released to the public, Splash products are registered through the submission of documentary and technical requirements to the BFAD. These include the necessary testing methods and results used. The registration process for cosmetic products may be accomplished in a minimum of thirty (30) working days, depending on the findings and the completeness of requirements. As part of regulatory controls for the Cosmetics Industry, the Department of Health (DOH) has further adopted the ASEAN Harmonized Cosmetic Scheme and ASEAN Technical Documents insofar as they are not in conflict with Philippine National Laws. The scheme aims for the mutual recognition of product registration approvals for cosmetics amongst the Member States, hence, allowing the products to be marketed in these territories. To ensure that product integrity and operations quality are achieved, the following licenses and certifications: License to operate permit from the DOH-BFAD for the Company to operate as manufacturer, trader, distributor, exporter and wholesaler of drug and cosmetic products.

Good Manufacturing Practices (GMP) certificate of conformance to set standards and best practices (both for facility and processes) recognized globally in the manufacturing and quality control of cosmetic and drug products. The DOH-BFAD conducts periodic audit and inspection. Philippine Coconut Authority (PCA) Certificate ensures compliance to local trade regulations for coconut-based products. Halal Certification issued by the Philippine Ulama Congress Organization, Inc. which certifies that the active ingredients and other raw materials used for the Companys products have been clinically tested and found safe and do not contain animal-based ingredients or animal fat.

(xii)

Research and Development

The Company established the Splash Research Institute to continuously develop new products that would satisfy the rapidly growing needs of the personal care market by employing cutting-edge technology. By adopting the open innovation concept, the Company collaborates with its suppliers to come up with new and better product formulations in a cost effective manner. Splash has developed a flexible brand and product creation process that allows Splash to readily respond to changes in consumer preferences. The Company strives to have at least two (2) years worth of new products in the pipeline, at any given time.

The SRIs interdependent departments Product Research and Development,PackagingInnovations,ProductTestingand Documentation, and Skin Research are synergized towards creating innovative products that are relevant to the felt and latent needs of consumers.
(xiii) Cost and effect of compliance with the environmental laws

The company has consistently complied with all environmental laws and regulations and provides costs allocation for such compliance.
(xiv) Total Number of employees

As of December 31, 2007 registrant had 304 full time employees. Out of the total employees, 254 are at the Plant Site and 50 are at the Corporate Office. The company has no plan of hiring additional staff. The Company is non-unionized.
(xv) Major risk/s involved in the business of the Company

Risk of economic slowdown Significant deterioration in the Philippine economy may adversely affect consumer sentiment and lead to a reduction in demand for the Companys products. High inflation rate would result in consumers prioritizing the basic or essential goods. Regulatory risk The products being manufactured, marketed and sold by the Company are subject to standards and regulations set forth by government and regulatory agencies particularly the DOH-BFAD and the DTI which from time-to-time may introduce new rules and regulatory policies or promulgate changes in the interpretation or enforcement of existing laws and regulations, which might directly affect the operations and profitability of the Company and/or may be costly to comply with. Constant monitoring of the regulatory environment and membership to industry associations and lobby groups mitigate this risk [please see paragraph (x)]. Product liability risk In the course of its operations, the Company might inadvertently manufacture and market defective or substandard products which could bring about harmful effects to its customers such as skin irritation and allergies, among others. To mitigate this risk, the Company through its Splash Research Institute, does exhaustive clinical testings before a product is introduced to the market. It also adheres to strict manufacturing standards to avert the production of defective products [please refer to paragraph (xi)]. Risk of product infringement The Company may experience cases of infringement on its products, inventions, processes and proprietary rights from competitor companies or other groups which may result in reduction in sales and profitability. The Company protects and builds its brands by registering its trademarks with the Bureau of Trademarks of the Philippine Intellectual Property Office. Weakening R&D and marketing capabilities The Companys continuous growth hinges largely on the ability of its R&D to develop new innovative products and the ability of its marketing group to create or enhance brand equity. Companys future growth may be adversely affected by the inability of its R&D to introduce develop new value-adding and innovative products and/or its inability to effectively market products. Over the years, Splash has been investing heavily to upgrade and harness its R&D capabilities through investments in new technology, state-of-the-art equipment and developing a roster of competent and seasoned R&D specialists. The Companys Management Training recruits talented new graduates from the countrys top colleges and universities and mold them into top notch marketing and sales professionals who will someday take the leadership helm of the Company. Rising intensity of competition The personal care business is highly competitive with large multi-national companies aggressively competing for market shares. and The and said

Extensive R&D and large investments in brand building serve as high barriers to entry in the beauty and personal care industry. This has limited the number of major players to a few multinational and local companies. Splashs marketing expertise and its responsive R&D infrastructure would be effective in thwarting the threat intensified competition.

Item 2. Properties The Companys industrial plant area, where substantially all of its operations are conducted, is currently situated at F. Lazaro Street, West Canumay, Valenzuela City with an estimated site area of 29,410 square meters and floor area of 20,910 square meters. The properties and structures located in the plant include the following: Production Building, Finished Goods Warehouse, the Splash Research Institute Building, Chemical Storage Building, Soap Plant, Canteen, Power House, Engineering Building, Substation, Recovery Warehouse, Guard House, Multi-purpose Hall, Alcohol Storage and the Waste Water Plant. The Company also has a property located at T. Santiago Street, West Canumay, Valenzuela City with an estimated lot area of 7,243 square meters and floor area of 5,200 square meters, which houses the Splash Foundation Social Development Center. The foregoing properties have no limitations on their ownership by the Company.

Item 3. Legal Proceedings

The Company is a party to some cases and assessments which are pending in courts or are under protest. Management and the Companys legal counsels strongly believe that the liabilities, if any that may result from the final outcome of these cases and assessments will not materially affect the Companys financial position and results of operations.
Item 4. Submission of Matters to a Vote of Security Holders There were no matters submitted to a vote of security holders for the fiscal year ending December 31, 2007

PART II OPERATIONAL AND FINANCIAL INFORMATION Item 5, Market for Issuers Common Equity and Related Stockholder Matters 1. Market Information The companys common shares are traded at the Philippine Stock Exchange The following is the high and low price per share for each week from November 15 to December 31, 2007:

Week # Listing Date 1 2 3 4 5 6

FromTo 15-Nov-07 16-Nov 23-Nov 24-Nov 1-Dec 2-Dec 9-Dec 10-Dec 17-Dec 18-Dec 25-Dec 26-Dec 31-Dec

High 9.00 8.00 7.24 7.24 7.70 8.18 7.97

Low 8.40 7.57 6.75 6.58 7.53 7.88 7.77

2.

Holders

Per data provided by the Companys stock transfer agent (Stock Transfer Service, Inc.), there were 10 named holders of the companys outstanding shares of common stock as of December 31, 2007, 29.99% of which were lodged as PCD Nominee Corp. The details are as follows:
NAME 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Splash Holdings HSBC HSBC SB Equities Inc. Citibank NA Angping & Asso. Securities, Inc. First Metro Securities Brokerage Corp. MBTC-Trust Banking Corp. Abacus Securities Corp. Intra-Invest Securities, Inc. ATR Securities Inc. Asia Sec Securities, Inc. AB Capital Securities Inc. AIG Philam Savings Bank BDO Securities Corp. R. Coyiuto Securities, Inc. RCBC Trust & Investment Division Ran Asia Securities Corp. The First Resources Mngt. & Securities Corp. HDI Securities, Inc. Top 20 Shareholders Others/Various Total Outstanding Shares HOLDINGS 522,312,245 30,613,000 27,903,343 26,023,554 23,420,000 15,824,000 13,569,210 10,072,000 9,429,000 3,977,000 3,808,000 3,406,000 3,138,000 3,021,000 2,659,000 2,533,000 2,227,000 2,167,000 2,145,000 1,651,000 709,898,352 36,262,005 746,160,357 OWNERSHIP 70.0% 4.1% 3.7% 3.5% 3.1% 2.1% 1.8% 1.3% 1.3% 0.5% 0.5% 0.5% 0.4% 0.4% 0.4% 0.3% 0.3% 0.3% 0.3% 0.2% 95.1% 4.9% 100%

3. Dividends Information on the declaration of cash dividends by the Companys Board of Directors follow:
Declaration Date August 31, 2007 December 15, 2007 Dividend per Share Amount Record Date August 31, 2007

P 1.59 P 1.67

P 350,000,000

178,786,584 December 31, 2005

There was no dividend declaration to stockholders in 2006. On August 22, 2007, the Company entered into a Floating Rate Notes Facility Agreement (Notes Facility) for the issuance of P 1,000,000,000 FRNs to a syndicate of lenders in order to pay all its outstanding short-term and long-term obligations. The FRNs were issued on August 31, 2007 and are payable in five annual installments starting August 31, 2007. The Notes Facility provides, among other terms and conditions, that, for as long as the FRNs remain outstanding, the Company is subject to certain negative covenants requiring prior written approval from the majority of the Note Holders for specified acts which include, but is not limited to the declaration or payment of dividends in excess of fifty percent (50%) of the Companys net income.

4.

Recent Sales of Unregistered Securities

There was no issuance of additional shares during the year under review. (B) Description of Registrants Securities The Registrants 223,848,107 common shares are listed in the Philippine Stock Exchange. There are 746,160,357 total shares issued and outstanding.

Item 6. Managements Discussion and Analysis or Plan of Operation Results of Operations: Revenues Net sales registered double digit growth of 25% to reach P3,010.8 million at year-end 2007 on the back of the strong performance of the Naturals segment which registered 59% year-on-year growth. Hair Care segment grew by almost 11% while the Skin Care segment was steady at close to 6% growth. Business Segments and Market Performance The Naturals segment benefited from the launch of new products. Of the 14 new products launched in 2007, five (5) are with the Naturals segments. New products contributed 16% to total sales.

The year 2007 saw the diversification of the Companys product portfolio. In 2006, two-thirds (or almost 66%) of total sales were generated by the Skin Care segment. The year 2007 saw significant increases in the contribution of Hair Care and Naturals segments.

Business Segment

Hair Care S Carekin Naturals Total

Contribution to Total Sales (%) 20072006 18.7%20.1% 58.3%65.7% 23.0%14.1% 100.0%100.0%

The Company, however, is built on its core Skin Care segment. In 2007, the lead brands of the segment continue to maintain market leadership as shown by the December 31, 2007 exit market shares of AC Nielsen:
Market Share

Category / Brand / Product

Market Standing

Skin Care Maxipeel Exfoliant Extraderm Anti-aging Skin White Lotion Skin White Soap

81% 43% 25% 36%

Market Leader Market Leader Market Leader Market Leader

Naturals

Extract Facial Cleanser

11%

Challenger (2nd to the market leader)

Hair Care Kolours Premium Hair Dye

49%

Market Leader

Source: AC Nielsen Retail Audit, 31 Dec 2007

Expenses Total cost of goods sold and operating expenses increased by 23.6% from 2,179 million in 2006 to P2,693 million in 2007. However, in terms of cost-to-sales ratio, total costs and expenses in 2007 was 89% of total sales compared with 91% in 2006 and 91.5% in 2005. Cost of goods sold (COGS) increased to 48.9% of sales which is 3.3% higher than the 45.6% COGS-to-Sales ratio in 2006. This is attributable to the higher COGS of new products which, on the average, are 5 percentage points higher than the Companys standard COGS-to-sales ratio of 45% since new products are generally introduced to the market at lower price points. The higher COGS, however, was offset by the relatively lower operating expenses. While in terms of peso value, operating expenses increased by almost 12% in 2007 vis--vis 2006, costto-sales ratio was down to 4.8% with 40.4% in 2007 and 45.2 in 2006.

The main contributors to this relatively lowering of operating expenses were: Advertising and promotions (where marketing and selling expenses were lumped) which accounted for close to 24% of sales, a significant reduction from the 27% cost-to-sales ratio in 2006 and close to 30% in 2005. This does not mean, however, that the Company has become less aggressive in its marketing and selling initiatives. It continues to be so except that it is applying efficient and therefore cost-effective approaches. As can be seen in 2007, advertising and promotions grew by 11.4% while sales grew by 25.5%. Expenses for outside services was reduced by half from P124.6 million in 2006 to P72.1 million in 2007.
For the Full Year Ended
2007 2006 2005

Net Sales Cost of Goods Sold

Per cent to sales Advertising and promotions Personnel costs Outside services Transportation and travel Taxes and licenses Depreciation and amortization

3,010,832,030 2,399,082,430 1,475,161,099 1,093,979,127 48.9%45.6%

722,012,581 180,573,643 72,136,430 67,327,381 18,070,934 648,144,571 150,258,167 124,681,966 43,680,597 17,338,075

2,693,315,149 1,246,473,809 46.3%

797,461,106 112,831,099 114,329,804 48,520,064 20,094,432

16,278,060 Insurance Rent Communication, light and water Supplies Repairs and maintenance Others 13,663,113 11,939,319 11,894,820 7,548,380 4,256,903 92,217,805 1,217,919,369

32,150,829 10,019,762 8,173,075 6,561,015 5,825,660 3,199,565 35,327,157 1,085,360,439

56,019,169 4,757,749 6,318,937 10,300,599 5,645,055 3,420,677 37,434,957 1,217,133,648

Per cent to sales

40.4%

45.2%

45.2% 2,463,607,457
91.5%

TOTAL COSTS & EXPENSES

Per cent to sales

2,693,080,468 2,179,339,566
89.4% 90.8%

Net Income As a result of top-line growth and the effective management of costs and expenses, the Companys net income grew 32% to P271.2 million from P205.5 million in 2006. Recurring income (income from operations) grew almost 44% from P219.7 million in 2006 to P317.7 million in 2007. The Companys claim for a P47.5 million tax refund which was granted by the Court of Tax Appeals (CTA) on May 6, 2008 resulted in a one-time impact of P46.5 million (amount of tax

refund minus legal expenses).1 Key Indicators

Key Indicators Net Sales Sales of new products EBIT Net Income after Tax

For the Full Year Ended 31 December 31 December YoY Change (%) 20072006 3,010,832,030 2,399,082,43025% 464,933,125174%169,615,12 216,127,55262,602,40321% 4205,484,80271,233,65532% 0

1Market Shares of Core Brands: Maxipeel Exfoliant Extraderm Anti-aging Skin White Lotion Skin White Soap Extract Facial Cleanser Kolours Premium Hair Dye

81% 43% 25% 36% 11% 49%

66%
not launched yet

30% 47% 10% 52% 5.30 5.54 4.65 5.15

23% n/a -17% -23% 10% -6%

Trade receivable turnover Inventory turnover

1

14% 8%

Based on the AC Nielsen Retail Audit as of 31 Dec 2007 / 2006

With its double-digit sales and profit growth, the Companys key indicators understandably showed a pattern of growth. Sales of new products more than doubled, a critical indicator of success for the Companys innovation process. The loss of market share points of some brands were immediately addressed with more aggressive marketing and sales initiatives that were projected to produce positive results in the first quarter of 2008. As measures of supply chain efficiency, trade receivable and inventory turnover ratios both registered marked improvements over that of 2006.

On April 7, 2005, the Company applied with the BIR for administrative claim for refund for excess income taxes paid

for the taxable year 2002 amounting to =47,469,548 arising from its retroactive application of the income taxP exemption incentives under RA No. 7459. On May 29, 2007, the Court of Tax Appeals (CTA) Second Division decided in favor of the Company and ordered the BIR to refund the said claim. The BIR filed a Motion for Reconsideration with the CTA and on October 30, 2007, the said Motion for Reconsideration filed by the BIR was denied. On December 7, 2007, the BIR filed a Petition for Review with the CTA En Banc and on May 6, 2008, the En Banc unanimously decided in favor of the Company. Management and its Legal Counsel believe that the decision of the CTA and CTA En Banc have persuasive effect and usually serve as a judicial guide. They believe that the fact of the CTA are entitled to the highest respect and the Supreme Court generally respects and refrains from setting aside conclusions reached by the CTA, which by the very nature of its function, is exclusively dedicated to the consideration, resolution of tax problems and has developed an expertise on the subject, unless there is a clear showing of abuse or improvident exercise of authority on its part. Based on the above facts, the Company recognized the receivable from the BIR amounting to =47,469,548 andP recognized Benefit from income tax for the same amount in 2007. (Notes from the Companys 2007 Audited Financial Statements)

Liquidity and Capital Resources The Companys financial position remained strong, backed up by solid operating cash flows and liquidity. Total assets at the end of 2007 amounted P4,497.6 million compared to P2,014.4 million in 2006. This translates into an increase of 123%. Cash and short-term placements amounted to P1,975 million at the end of 2007. This is 1,766% higher than that of the year 2006. Net cash flow from operations reached P103.2 million, a 33.9% decrease from last years P156.2 million mainly due to trade receivable and inventory turnovers. Net cash flow from investing activities amounted to (P127.5) million, a 130% increase from last years (P55.5) million due to investment in machinery and equipment. Net cash flow from financing activities amounted to P1,895.9 million, a 2,402.9% increase from last years (P78.9) were due to mostly from the proceeds from sales of shares of stocks. With total debts of P1,785.8 million at year end 2007, the Companys debt-to-equity ratio was 0.66, a dramatic fall from year-end 2007 of 1.77. This level is well within the 1.5:1 debt-to-equity limit prescribed by the FRN Agreement2.
2

On August 22, 2007, the Company entered into a Floating Rate Notes (FRNs) Facility Agreement (Notes Facility) for the issuance of =1,000,000,000 FRNs to a syndicate of lenders (four local financial institutions) inP order to pay all its outstanding short-term and long-term obligations (see Notes 14 and 15). The FRNs were issued on August 31, 2007 and are payable in five (5) annual installments. As of December 31, 2007, the maturities of the FRNs at nominal values, excluding the unamortized debt issuance costs follow: Due in 22008 22009 22010 22011 22012 Amount =50,000,000P 50,000,000 50,000,000 50,000,000 800,000,000 =1,000,000,000P

The FRNs bear interest starting August 31, 2007 and such interest is payable on each interest payment date which falls three months after the preceding interest payment date, in the case of the first interest payment date, after August 31, 2007. The rate of interest for such interest period shall be based on the Interest Rate 1 Setting Date by reference to the three- (3) month Philippine Dealing System Treasury Rate 1 at approximately 11:16 A.M., Manila time, on such date, plus an interest spread of 165 basis points (1.65%) per year. All payments by the Company under the Notes Facility, whether of principal, interest, fees, early redemption or otherwise, shall be made without set-off or counterclaim for indemnifiable taxes, and are free and clear and without any deduction or withholding on account of any indemnifiable taxes, unless such withholding is required by law. The Notes Facility provides, among other terms and conditions, that, for as long as the FRNs remain outstanding, the Company is subject to certain negative covenants requiring prior written approval from

SPLASH CORPORATION
Quezon City

MARKETABLE SECURITIES DECEMBER 31, 2007

Name of issuing entity and description of each issue Short-term Cash Investments: PLANTERS DEV'T BANK BANK OF COMMERCE WORLD PARTNERS BANK METROBANK

Number of shares or principal amount of bonds and notes

Amount shown in the balance sheet

Income received and accrued

3,104,942 10,000,000 300,000,000 1,400,000,000

3,349,142 10,055,019 300,000,000 1,409,642,948

244,200 55,019 39,674 9,642,948

Total

1,713,104,942

1,723,047,109

9,981,841

the majority of the Note Holders for specified acts which include, but are not limited to: amendment of Articles of Incorporation and other organization documents, e.g., materially changing the nature of its present business; entering into merger or consolidation; granting of loans or advances to or investment in which its directors, officers, stockholders and other related persons except those made in the ordinary course of business; creation of lien with respect to any of its properties; sale or lease of assets; guaranteeing indebtedness; prepaying long-term indebtedness except for those provided in Section 2.07 of the Notes Facility; entering into additional loans; entering into any new management contracts; declaration or payment of dividends in excess of fifty percent (50%) of the Companys net income for the most recent fiscal year; purchase, redeem, retire or otherwise acquire for value its capital stock; declare or pay management bonuses or profits sharing; and execute any act which shall have a material adverse effect. In addition, the Notes Facility provides that the Company has to maintain a ratio of current assets to current liabilities of at least 2.0 times and its equity-to-debt ratio should not be more than 1.5 times until final payment date. As of December 31, 2007, the Company is in compliance with the negative debt covenants.

In the event of default as provided under the Note Facility, the default penalty is 2% per month, or a fraction of a year. The Notes Facility also provides for early redemption, at the option of the Company, starting at the end of the thirty-sixth (36th) month from the issue date, without premium or penalty. In addition, the Company has a one-time option, at any interest rate settling date, to convert the interest from a floating interest rate structure to a fixed interest rate structure on the remaining life of the outstanding amount of the Notes. The fixed interest rate shall be based on the applicable Fixed Base Rate plus a spread of 165 basis points (1.65%) per annum subject to certain conditions stipulated in the Notes Facility. Long-term debt to equity ratio, on the other hand, was 0.35, a very slight improvement over 2006s 0.36.

Note: The above pertains to the Company's cash equivalents as of December 31, 2007.

SCHEDULE A

AMOUNTS RECEIVABLE FROM DIRECTORS, OFFICERS, EMPLOYEES, RELATED PARTIES AND PRINCIPAL STOCKHOLDERS December 31, 2007

Name and designation of debtor

Balance at beginning of period

Deductions Additions Amounts collected Amounts written off Current Noncurrent

Balance at end of period

Not Applicable

Note: Receivables from officers, employees and related parties are within the ordinary course of business.

There are no amounts receivable from directors, officers, employees, related parties and principal stockholders other than those arising from the ordinary course of business.

SCHEDULE B

NON-CURRENT MARKETABLE EQUITY SECURITIES, OTHER LONG-TERM INVESTMENTS IN STOCKS AND OTHER INVESTMENTS December 31, 2007

Name of issuing entity and description of investment

BEGINNING BALANCE ADDITIONS No. of shares or principal amount of bonds and notes Amount in pesos No. of shares or principal amount of bonds and notes Amount in pesos DEDUCTIONS

ENDING BALANCE No. of shares or principal amount of bonds and notes Dividends received from investments not accounted for by equity method Amount in pesos

Equity in earnings for the period

Others Unrealized valuation gain

Distribution of earnings by investee

Others Unrealized valuation loss

Available-forsale investments: Wack Wack Golf and Country Clubm, Inc. GMA 7 Professional Services, Inc. Total

13,400,000.00

5,600,000.00

19,000,000.00

13,400,000.00

100,000 50,000

850,000.00 200,000,000.00 200,850,000.00

5,600,000.00

(80,000.00) (80,000.00)

100,000 50,000

770,000.00 200,000,000.00 219,770,000.00

SCHEDULE C

INDEBTEDNESS OF UNCONSOLIDATED SUBSIDIARIES AND AFFILIATES DECEMBER 31, 2007

Name of Affiliate

Balance at beginning of period

Balance at end of period

Not Applicable

SCHEDULE D

PROPERTY, PLANT AND EQUIPMENT DECEMBER 31, 2007

Classification

Beginning balance

Additions at cost

Retirements

Other charges additions (deductions)

Ending balance

Land Building and Improvements Machinery and Equipment Transportation Equipment Office Furniture and Fixtures Other Equipment Assets for Installation

396,570,795.00 419,083,619.00 220,210,291.00 54,232,134.00 15,602,560.00 141,542,080.00 10,839,180.00 713,643.00 1,063,726.00 10,513,377.00 1,170,760.00 1,490,154.00 5,633,467.00

2,634,154.00 -

(246,956,454.00) -

149,614,341.00 419,797,262.00 221,274,017.00 62,111,357.00 16,773,320.00 143,032,234.00 16,472,647.00

Total

1,258,080,659.00

20,585,127.00

2,364,154.00 (246,956,454.00)

1,029,075,178.00

SCHEDULE E

***Reclassed to Land for Development, net of recognized sales (see note 11 to the financial statements for a more detailed discussion).

ACCUMULATED DEPRECIATION December 31, 2007

Description Building and Improvements Machinery and Equipment Transportaion Equipment Office Furniture and Fixtures Other Equipment

Beginning balance 291,687,324.00 204,257,567.00 38,758,162.00 15,256,667.00 135,834,655.00

Additions charged to costs and expenses 27,243,611.00 10,331,534.00 8,248,918.00 898,215.00 4,009,497.00

Retirements 2,024,368.00 -

Other charges additions (deductions) -

Ending balance 318,930,935.00 214,589,101.00 44,982,712.00 16,154,882.00 139,844,152.00

Total

685,794,375.00

50,731,775.00

2,024,368.00

734,501,782.00

SCHEDULE F

INTANGIBLE ASSETS - OTHER ASSETS DECEMBER 31, 2007

Description

Beginning Balance

Additions at cost

Charged to cost and expenses

Charged to other accounts

Other charges additions (deductions)

Ending balance

Not Applicable

SCHEDULE G

LONG TERM DEBT DECEMBER 31, 2007

Title of issue and type of obligation

Amount authorized by indenture

Amount shown under caption "Current portion of floating rate notes payable" in related balance sheet

Amount shown under caption "Floating rate notes payablenet" in related balance sheet

"Debt Issuance Costs - net of amortization" under Other Assets in related balance sheet

Terms

Floating Rate Note (FRN) Payable

1,000,000,000

46,990,002

938,426,801

14,583,197

The FRNs were issued on August 31, 2007 and are payable in five (5) annual installments. The FRNs bear interest starting August 31, 2007 and such interest is payable on each interest payment date which falls three months after the preceding interest payment date, in the case of the first interest payment date, after August 31, 2007. (see Note 13 to the financial statements for more detailed discussion).

SCHEDULE H

INDEBTEDNESS TO AFFILIATES AND RELATED PARTIES DECEMBER 31, 2007

Name of Affiliate

Balance at beginning of period

Balance at end of period

Not Applicable

SCHEDULE I

GUARANTEES OF SECURITIES OF OTHER ISSUERS DECEMBER 31, 2007

Name of issuing entity of securities guaranteed by the company for which this statement is filed

Title of issue of each class of securities guaranteed

Total amount guaranteed and outstanding

Amount owned by person for which statement is filed

Name of guarantee

Not Applicable

SCHEDULE J

CAPITAL STOCK DECEMBER 31, 2007

Title of Issue

Number of shares authorized

Number of shares issued and outstanding

Number of shares reserved for options, warrants conversion and other rights

Number of shares held by affiliates

Directors, officers and employees

Others

Common

1,000,000,000

746,160,357

522,312,245

10,005

223,838,107

SCHEDULE K

COVER SHEET

AS09196206
SEC Registration Number

SPLASH D A( Subs

CORPORATION idiary , Inc . of ) Splash

Holdings

(Companys Full Name)

HBC 548 Qui r

Corporate Mindanao ino Highway,

Centre Avenue

, corner

Quezon

Ci

ty

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

Mr. Emmanuel P. Manucom

(Contact Person)

984-5555
(Company Telephone Number)

12
Month

31
Day

AAFS
(Form Type)

04
Month

19
Day

(Calendar Year)

(Annual Meeting)

Not Applicable
(Secondary License Type, If Applicable)

Dept. Requiring this Doc.

Amended Articles Number/Section Total Amount of Borrowings

153
Total No. of Stockholders Domestic Foreign

To be accomplished by SEC Personnel concerned

File Number

LCU

Document ID

Cashier

STAMPS Remarks: Please use BLACK ink for scanning purposes.

*SGVMC3080 64*

SGV

&

CO

SyCip Gorres Velayo & Co.

6760 Ayala Avenue 1226 Makati City Philippines

Phone: (632) 891-0307 Fax:(632) 819-0872 www.sgv.com.ph BOA/PRC Reg. No. 0001 SEC Accreditation No. 0012-FR-1

INDEPENDENT AUDITORS REPORT

The Stockholders and the Board of Directors Splash Corporation HBC Corporate Centre 548 Mindanao Avenue corner Quirino Highway Quezon City

We have audited the accompanying financial statements of Splash Corporation (a subsidiary of Splash Holdings, Inc.), which comprise the balance sheets as at December 31, 2007 and 2006, and the statements of income, statements of changes in equity and statements of cash flows for each of the three years in the period ended December 31, 2007, and a summary of significant accounting policies and other explanatory notes. Managements Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with Philippine Financial Reporting Standards. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. Auditors Responsibility Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with Philippine Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entitys preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entitys internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

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

SGV & Co is a member practice of Ernst & Young Global

*SGVMC3080 64*

-2-

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

SYCIP GORRES VELAYO & CO.

Teresita M. Baes Partner CPA Certificate No. 27222 SEC Accreditation No. 0065-AR-1 Tax Identification No. 102-081-050 PTR No. 0017574, January 3, 2008, Makati City May 9, 2008

SGV & Co is a member practice of Ernst & Young Global

*SGVMC3080 64*

SPLASH CORPORATION
(A Subsidiary of Splash Holdings, Inc.)

BALANCE SHEETS
December 31 20062007 ASSETS Current Assets Cash and cash equivalents (Notes 4 and 17) Receivables - net (Notes 5, 8, 11 and 17) Current portion of note receivable (Notes 8 and 17) Advances to a stockholder (Notes 10 and 17) Inventories - net (Notes 6 and 11) Prepaid expenses and other current assets (Notes 7 and 22) Total Current Assets Noncurrent Assets Note receivable- net of current portion (Notes 8 and 17) Property, plant and equipment - net (Notes 9, 11, 14 and 15) Available-for-sale investments (Note 10) Land for development (Note 11) Deferred income tax assets (Note 22) Other noncurrent assets Total Noncurrent Assets TOTAL ASSETS

P1,975,037,566= 1,024,454,563 50,030,502 137,370,246 328,675,357 79,624,991 3,595,193,225

=P111,860,452 543,919,691 259,987,715 220,357,825 182,458,658 63,316,113 1,381,900,454

200,122,007 572,286,284 294,573,396 13,400,000 219,770,000 141,956,454 38,221,629 37,045,274 8,627,072 8,952,549 632,534,985 902,419,680 P4,497,612,905==P2,014,435,439

LIABILITIES AND EQUITY Current Liabilities Accounts payable and accrued expenses (Note 12) Current portion of floating rate notes payable (Note 13) Bank loans (Notes 9,13 and 14) Current portion of long-term debt (Notes 9, 13 and 15) Total Current Liabilities Noncurrent Liabilities Floating rate notes payable - net (Note 13) Long-term debt - net of current portion (Notes 9, 13 and 15) Retirement benefits liability (Note 20) Total Noncurrent Liabilities Total Liabilities Equity (Note 16) Capital stock Additional paid-in capital Unrealized valuation gain (loss) on available-for-sale financial assets (Note 10) Retained earnings Total Equity TOTAL LIABILITIES AND EQUITY

P762,491,968= =P513,424,363 46,990,002 360,000,000 105,805,556 979,229,919 809,481,970

938,426,801 37,930,101 976,356,902 1,785,838,872 746,160,357 1,676,712,406

261,368,056 46,999,434 308,367,490 1,287,597,409 107,312,250 257,378,165

(976,900) 4,543,100 363,124,515 284,358,170 2,711,774,033 726,838,030 P4,497,612,905==P2,014,435,439

See accompanying Notes to Financial Statements.

*SGVMC3080 64*

SPLASH CORPORATION
(A Subsidiary of Splash Holdings, Inc.)

STATEMENTS OF CHANGES IN EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005

Capital Stock BALANCES AT JANUARY 1, 2005 Net income for the year Cash dividends - P1.67 per share (Note 16)= BALANCES AT DECEMBER 31, 2005 Net income for the year Recovery in market value of AFS investments (Note 10) Total recognized income and expense for the year BALANCES AT DECEMBER 31, 2006 Net income for the year Recovery in market value of AFS investments (Note 10) Total recognized income and expense for the year Cash dividends - P1.59 per share (Note 16)= Issuance of common stock (Note 16) BALANCES AT DECEMBER 31, 2007 638,848,107

Unrealized Valuation Gain (Loss) on Available-for-Sale AdditionalInvestments Paid-in Capital(Note 10)

Retained Earnings (Note 16)

Total

P107,312,250= P257,378,165= 107,312,250 257,378,165

(P2,376,900)= P139,919,062= P502,232,577= (2,376,900) 196,507,237 (178,786,584) 157,639,715 205,484,800 196,507,237 (178,786,584) 519,953,230 205,484,800

107,312,250

257,378,165

1,400,000 1,400,000 (976,900) 205,484,800

1,400,000 206,884,800 726,838,030 271,233,655

363,124,515 271,233,655

1,419,334,241

5,520,000 5,520,000 271,233,655

5,520,000 276,753,655 (350,000,000) 2,058,182,348

(350,000,000)

P746,160,357 P1,676,712,406==

P4,543,100= P284,358,170 P2,711,774,033==

See accompanying Notes to Financial Statements.

*SGVMC3080 64*

SPLASH CORPORATION
(A Subsidiary of Splash Holdings, Inc.)

STATEMENTS OF INCOME

Years Ended December 31

2007 NET SALES (Notes 11 and 17)

2006

2005

==P3,010,832,030 P2,399,082,430 P2,693,315,149= 1,093,979,127 1,246,473,809 1,446,841,340

COST OF GOODS SOLD (Notes 11 and 18) 1,475,161,239 GROSS PROFIT OPERATING EXPENSES (Notes 17 and 19) INTEREST INCOME (Notes 4, 5, 8, 17 and 21) INTEREST EXPENSE (Notes 13, 14, 15 and 21) OTHER INCOME (CHARGES) Foreign exchange loss - net (Note 7) Reversal of excess provision (Note 12) Others INCOME BEFORE INCOME TAX INCOME TAX EXPENSE (Note 22) NET INCOME Earnings Per Share (Note 24)
See accompanying Notes to Financial Statements.

1,535,670,791 1,305,103,303

(1,217,919,369) (1,085,360,439) (1,217,133,648)

36,022,712 (74,509,990)

2,580,950 (62,655,776)

32,427,866 (53,775,244)

(14,836,325) 7,619,896 272,047,715 814,060

(7,330,087) 60,461,525 3,328,078 216,127,554 10,642,754

(13,713,563) 4,039,666 198,686,417 2,179,180 =P196,507,237 =P1.83

P271,233,655= =P205,484,800 P0.95= =P1.91

*SGVMC3080 64*

SPLASH CORPORATION
(A Subsidiary of Splash Holdings, Inc.)

STATEMENTS OF CASH FLOWS

Years Ended December 31 20062007 CASH FLOWS FROM OPERATING ACTIVITIES Income before income tax Adjustments for: Interest expense (Notes 13, 14, 15 and 21) Depreciation and amortization (Notes 9 and 19) Interest income (Notes 4, 5, 17 and 21) Unrealized foreign exchange loss Gain on sale of property and equipment Reversal of excess provision (Note 12) Operating income before working capital changes Decrease (increase) in: Receivables Inventories Prepaid expenses and other current assets Increase (decrease) in: Accounts payable and accrued expenses Retirement benefits liability (Note 20) Net cash generated from operations Income taxes paid Interest received Net cash flows from operating activities P272,047,715= 74,509,990 50,731,775 (36,022,712) 12,220,520 (814,489) 372,672,799 (329,449,802) (146,216,699) (49,497,453) 274,989,605 (9,069,333) 113,429,117 (13,918,678) 3,756,502 103,266,941 =P216,127,554 62,655,776 78,113,226 (2,580,950) 1,040,176 (736,742) (60,461,525) 294,157,515 (179,231,185) 60,270,048 4,540,752 (34,433,608) 27,837,504 173,141,026 (19,514,404) 2,580,950 156,207,572 2005

=P198,686,417 53,775,244 110,145,075 (32,427,866) 7,669,817 (380,050) 337,468,637 (221,206,263) (5,460,818) 178,161 (13,936,112) (3,531,800) 93,511,805 (8,512,093) 2,996,936 87,996,648

CASH FLOWS FROM INVESTING ACTIVITIES Cash advances to a stockholder Additions to property, plant and equipment (Note 9) Proceeds from sale of property and equipment Increase in other noncurrent assets Decrease in other investments Net cash used in investing activities CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issuance of capital stock - net (Note 16) Proceeds from availment of: Floating rate notes Bank loans Payments of: Bank loans Long-term debt Dividends Interest Net cash flows from (used in) financing activities EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR CASH AND CASH EQUIVALENTS AT END OF YEAR (Note 4) See accompanying Notes to Financial Statements.

(117,012,421) (20,585,127) 1,424,276 (1,175,477) 9,835,205 (127,513,544)

(52,986,905) (2,901,900) 1,067,375 (665,880) (55,487,310)

(167,370,920) (16,456,954) 3,060,783 15,000,000 (165,767,091)

2,058,182,348 985,416,803 280,000,000 (640,000,000) (367,173,612) (350,000,000) (70,431,990) 1,895,993,549

433,500,000 270,000,000 (220,000,000) (499,826,389) (62,655,776) (78,982,165)

100,000,000 300,000,000 (90,000,000) (78,000,000) (178,786,584) (52,744,377) 469,039

(8,569,832) 1,863,177,114 111,860,452 P1,975,037,566=

(137,747) 21,600,350 90,260,102 =P111,860,452

1,325 (77,300,079) 167,560,181 =P90,260,102

*SGVMC3080 64*

SPLASH CORPORATION
(A Subsidiary of Splash Holdings, Inc.)

NOTES TO FINANCIAL STATEMENTS

1. Corporate Information General Splash Corporation (the Company) was incorporated in the Philippines and registered with the Philippine Securities and Exchange Commission (SEC) on September 30, 1991 primarily to develop, manufacture, bottle, pack, and market cosmetics and other beauty products, and pharmaceutical products in the Philippines and abroad. Before the Company listed its shares of stock with the Philippine Stock Exchange (PSE) on November 15, 2007, the Company is a wholly-owned subsidiary of Splash Holdings, Inc. (SHI). Its registered office address is HBC Corporate Centre, 548 Mindanao Avenue corner Quirino Highway, Quezon City. On November 15, 2007, the Companys shares of stock were listed and traded in the PSE. After the IPO wherein the Company offered 30% of outstanding shares (both primary and secondary) to the public, the Company is now 70%-owned by SHI, who exercises control over the Company (see Note 17). The accompanying financial statements were authorized for issuance by the BOD on May 9, 2008. On September 6, 2007, the SEC approved the petition filed by the Company and Splash Nutraceutical Corporation (SNC) on August 21, 2007 to set aside the Articles and Plan of Merger and the Amended Articles and Plan of Merger dated April 24, 2007 and August 3, 2007, respectively, which were previously approved by the SEC. Accordingly, the merger was not effected in the financial statements.

2. Summary of Significant Accounting and Financial Reporting Policies Basis of Financial Statement Preparation The accompanying financial statements have been prepared under the historical cost basis, except for derivative financial instruments and available-for-sale (AFS) financial assets which have been measured at fair value. The financial statements are presented in Philippine peso, which is the Companys functional currency. Statement of Compliance The Companys financial statements have been prepared in conformity with Philippine Financial Reporting Standards (PFRS). Changes in Accounting Policies The accounting policies adopted are consistent with those of the previous years, except for the following new PFRS, amendments to existing Philippine Accounting Standard (PAS) and Philippine Interpretations from International Financial Reporting Interpretations Committee (IFRIC) interpretations which the Company has adopted during the year: Amendments to PAS 1, Presentation of Financial Statements: Capital Disclosures. This amendment requires the Company to make new disclosures to enable users of the financial statements to evaluate the Companys objectives, policies and processes for managing capital. These new disclosures are shown in Note 27.

*SGVMC3080 64*

-2-

PFRS 7, Financial Instruments: Disclosures, introduces new disclosures to improve the information about financial statements. It requires the disclosure of qualitative and quantitative information about exposure to risks arising from financial instruments, including specified minimum disclosures about credit risk, liquidity risk and market risk, as well as sensitivity analysis of market risk. It replaces disclosure requirements of PAS 32, Financial Instruments: Disclosure and Presentation and PAS 30, Disclosure in the Financial Statements of Banks and Similar Financial Institutions. It is applicable to all entities that report under PFRS.

The Company adopted the amendment to the transitional provisions of PFRS 7, as approved by the Financial Reporting Standards Council of the Philippines, which gives transitory relief with respect to the presentation of comparative information for the new risk disclosures about the nature and extent of risks arising from financial instruments. Accordingly, the Company did not present comparative information for the disclosures required by paragraphs 31-42 of PFRS 7, unless the disclosure was previously required either under PAS 32 or PAS 30. Adoption of PFRS 7 resulted in additional disclosures. These disclosures include presenting the different classes of loans and receivables and rollforward of allowance for doubtful accounts (see Note 5), aging of financial assets and credit quality of past due but not impaired financial assets and sensitivity analysis as to changes in interest and foreign exchange rates (see Note 27).

Philippine Interpretation IFRIC 7, Applying the Restatement Approach under PAS 29, Financial Reporting for Hyperinflationary Economies (effective for annual periods beginning on or after March 1, 2006). This Interpretation provides guidance on how to apply the requirements of PAS 29 in a reporting period in which an entity identifies the existence of hyperinflation in the economy of its functional currency, when the economy was not hyperinflationary in the prior period, and the entity therefore restates its financial statements in accordance with PAS 29. This Interpretation has no impact on the Companys financial statements.

Philippine Interpretation IFRIC 8, Scope of PFRS 2. This Interpretation requires PFRS 2 to be applied to any arrangements where equity instruments are issued for consideration which appears to be less than fair value. The Interpretation has no impact on the Company because currently, the Company does not have share-based options. Philippine Interpretation IFRIC 9, Reassessment of Embedded Derivatives.This Interpretation establishes that the date to assess the existence of an embedded derivative is the date an entity becomes a party to the contract, with reassessment only if there is a change to the contract that significantly modifies the cash flows. Adoption of this Interpretation did not have any significant impact on the financial statements. Philippine Interpretation IFRIC 10, Interim Financial Reporting and Impairment. This Interpretation addresses whether the frequency of reporting should affect the amount of any impairment charge recognized in an annual reporting period relating to goodwill, and available-for-sale equity investments. Adoption of this Interpretation did not have any impact on the financial statements.

*SGVMC3080 64*

-3-

Future Changes in Accounting Policies The Company opted not to early adopt the following new and amended accounting standards and Philippine Interpretations that have been approved but not yet effective as of December 31, 2007: PFRS 8, Operating Segments (effective for annual periods beginning on or January 1, 2009). This PFRS adopts a management approach to reporting segment information. PFRS 8 will replace PAS 14, Segment Reporting. The information reported would be that which management uses internally for evaluating the performance of operating segments and allocating resources to those segments. Such information may be different from those reported in the balance sheet and statement of income and companies may need to provide explanations and reconciliations for the differences. The Company will assess the impact of this standard on its current manner of reporting segment information.

PAS 23 (R), Borrowing Costs (effective for annual periods beginning on or after January 1, 2009). The standard has been revised to require capitalization of borrowing costs when such costs relate to a qualifying asset. A qualifying asset is an asset that necessarily takes a substantial period of time to get ready for its intended use or sale. The Company expects that this revised standard will have no impact on the Companys financial statements. Philippine Interpretation IFRIC 11, PFRS 2, Group and Treasury Share Transactions (effective for annual periods beginning on or after March 1, 2007). This Interpretation requires arrangements whereby an employee is granted rights to an entitys equity instrument to be accounted for as an equity-settled scheme by the entity even if (a) the entity chooses or is required to buy those equity instruments (e.g., treasury shares) from another party, or (b) the shareholders of the entity provide the equity instrument needed. It also provides guidance on how subsidiaries, in their separate financial statements, account for such schemes when their employees receive rights to the equity instruments of the parent. The Company currently does not have any stock option plan and therefore, does not expect this Interpretation to have an impact on its financial statements.

Philippine Interpretation IFRIC 12, Service Concession Arrangements (effective for annual periods beginning on or after January 1, 2008). This Interpretation covers contractual arrangements arising from public-to-private service concession arrangements if control of the assets remain in the public hands but the private sector operator is responsible for construction activities as well as for operating and maintaining the public sector infrastructure. This Interpretation is not relevant to the Company.

Philippine Interpretation, IFRIC 13, Customer Loyalty Programmes (effective for annual periods beginning on or after July 1, 2008). This Interpretation addresses accounting by the entity that grants award credits to its customers. This Interpretation applies to customer loyalty award credits that: (a) an entity grants to its customers as part of sales transaction, i.e. a sale of goods, rendering of services or use by a customer of entity assets; and (b) subject to meeting any further qualifying conditions, the customers can redeem in the future for free or discounted goods or services. The Company is currently assessing the impact of this Interpretation when it becomes effective in July 2008.

*SGVMC3080 64*

-4-

Philippine Interpretation, IFRIC 14, PAS 19, Limit of Defined Benefit Asset, Minimum Funding Requirement and their Interaction (effective for annual periods beginning on or after January 1, 2008). This Interpretation provides guidance on how to assess the limit on the amount of surplus in a defined benefit plan that can be recognized as an asset under PAS 19, Employee Benefits. The Company will assess the impact of this Interpretation on its current manner of accounting for its pension assets. PAS 1, Revised Presentation of Financial Statements (effective for financial years beginning on or after January 1, 2009). The standard separates owner and non-owner changes in equity. The statements of changes in equity will include only details of transactions with owners, with all non-owner changes in equity presented as a single line. In addition, the standard introduces the statement of comprehensive income, which presents all items of income and expense recognized in profit or loss, together with all other items of recognized income and expense, either in one single statement, or in two liked statements. The Company is currently assessing the impact of the revised standard on its financial statements.

Cash and Cash Equivalents Cash includes cash on hand and in banks. Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash with original maturities of three months or less from dates of acquisition and that are subject to an insignificant risk of changes in value. Financial Assets and Financial Liabilities Date of recognition The Company recognizes a financial asset or a financial liability in the balance sheet when it becomes a party to the contractual provisions of the instrument. In the case of a regular way purchase or sale of financial assets, recognition and derecognition, as applicable, is done using settlement date accounting. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the period generally established by regulation or convention in the market place.

Initial recognition of financial instruments All financial assets and financial liabilities are recognized initially at fair value. Except for financial instruments measured at fair value through profit or loss (FVPL), the initial measurement of all financial assets includes transaction costs. The Company classifies its financial assets in the following categories: financial assets at FVPL, loans and receivables, heldto-maturity (HTM) investments, and AFS investments. The Company also classifies its financial liabilities into financial liabilities at FVPL and other financial liabilities. The classification depends on the purpose for which the investments were acquired and whether they are quoted in an active market. The Company determines the classification of its financial assets at initial recognition and, where allowed and appropriate, re-evaluates such designation at every reporting date.

Financial instruments are classified as liabilities or equity in accordance with the substance of the contractual arrangement. Interest, dividends, gains and losses relating to a financial instrument or a component that is a financial liability, are reported as expense or income. Distributions to holders of financial instruments classified as equity are charged directly to equity, net of any related income tax benefits.

*SGVMC3080 64*

-5-

The Company has no financial instruments classified as HTM investments. Determination of fair value The fair value of financial instruments that are actively traded in organized financial market is determined by reference to quoted market bid prices at the close of business at the balance sheet date. When the current bid and asking prices are not available, the price of the most recent transaction provides evidence of the current fair value as long as there has not been a significant change in economic circumstances since the time of the transaction. For all other financial instruments not listed in an active market, the fair value is determined by using appropriate valuation methodologies. Valuation methodologies include net present value techniques, comparison to similar instrument for which market observable prices exist and other relevant valuation models. Day 1 profit Where the transaction price in a non-active market is different from the fair value from other observable current market transactions in the same instrument or based on a valuation technique whose variables include only data from observable market, the Company recognizes the difference between the transaction price and fair value (a Day 1 profit) in the statement of income, unless it qualifies for recognition as some other type of asset. In cases where use of data is made which are not observable, the difference between the transaction price and model value is only recognized in the statement of income when the inputs become observable or when the instrument is derecognized. For each transaction, the Company determines the appropriate method of recognizing the Day 1 profit amount.

Financial assets and financial liabilities at FVPL Financial assets and financial liabilities at FVPL include financial assets and liabilities held for trading purposes, derivative financial instruments or those financial assets and liabilities designated upon initial recognition as at FVPL. Financial assets and financial liabilities are classified as held for trading if they are acquired for the purpose of selling or repurchasing in the near term. Derivative instruments, including separated embedded derivatives are also classified as held for trading unless they are designated as effective hedging instruments or a financial guarantee contract. Financial assets and financial liabilities may be designated at initial recognition as at FVPL if any of the following criteria are met: the designation eliminates or significantly reduces the inconsistent treatment that would otherwise arise from measuring the assets or liabilities or recognizing gains or losses on a different basis; or the assets and liabilities are part of a group of financial assets, financial liabilities or both which are managed and their performance are evaluated on a fair value basis in accordance with a documented risk management or investment strategy; or the financial instrument contains an embedded derivative, unless the embedded derivative does not significantly modify the cash flows or it is clear, with little or no analysis, that it would not be separately recorded.

*SGVMC3080 64*

-6-

Financial assets and financial liabilities at FVPL are recorded in the balance sheet at fair value. Changes in fair value are accounted for in the statement of income. Interest earned or incurred is recorded as interest income or expense, respectively. The Companys embedded derivative is included under this category. Embedded Derivative An embedded derivative is separated from the host contract and accounted for as a derivative if all of the following conditions are met: a) the economic characteristics and risks of the embedded derivative are not closely related to the economic characteristics and risks of the host contract; b) a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative; and c) the hybrid or combined instrument is not recognized at FVPL. The Company assesses whether embedded derivatives are required to be separated from the host contracts when the Company first becomes a party to the contract. Subsequent reassessment is prohibited unless there is a change in the terms of the contract that significantly modifies the cash flows that otherwise would be required under the contract, in which case reassessment is required. The Company determines whether a modification to cash flows is significant by considering the extent to which the expected future cash flows associated with the embedded derivative, the host contract or both have changed and whether the change is significant relative to the previously expected cash flows on the contract. The Company has identified certain contracts with embedded third-currency derivatives (see Note 27). Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. After initial recognition measurement, such assets are subsequently carried at amortized cost using the effective interest method, less any allowance for impairment losses. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees that are an integral part of the effective interest rate. Gains and losses are recognized in the statement of income when the loans and receivables are derecognized or impaired, as well as through the amortization process. Loans and receivables are included in current assets if maturity is within 12 months of the balance sheet date. Otherwise, these are classified as noncurrent assets (see Notes 5 and 8). The Companys cash and cash equivalents, receivables, notes receivable and advances to a stockholder are classified under this category. AFS investments AFS investments are non-derivative financial assets that are designated as such or do not qualify to be classified as designated as at FVPL, loans and receivables or HTM investments. They are purchased and held indefinitely, and may be sold in response to liquidity requirements or changes in market conditions.

*SGVMC3080 64*

-7-

After initial recognition, the Company measures its AFS investments at fair value with gains or losses being recognized as a separate component of equity under Unrealized Valuation Gain (Loss) on Available-for-Sale Investments until the investment is derecognized or until the investment is determined to be impaired at which time the cumulative gain or loss previously reported in equity is included in the statement of income. These financial assets are classified as noncurrent assets unless there is intention to dispose such assets within 12 months of the balance sheet date.

When the fair value of AFS investments cannot be measured reliably because of lack of reliable estimates of future cash flows and discount rates necessary to calculate the fair value of unquoted equity instruments, these investments are carried at cost, less any allowance for impairment losses. When the security is disposed of, the cumulative gain or loss previously recognized in equity is recognized in the statement of income. Where the Company holds more than one investment in the same security, these are deemed to be disposed of on a first-in-first-out basis. Interest earned on the AFS investment is reported as interest income using the effective interest rate. Dividends earned are recognized on the statement of income when the right to receive payment is established. The losses arising from impairment investments are recognized in the statement of income.

The Companys AFS investments consist of investments in quoted and unquoted equity shares and are classified under noncurrent assets (see Note 10). Other financial liabilities This category pertains to financial liabilities that are not held for trading or designated as at FVPL upon the inception of the liability. These include liabilities arising from operations (e.g. accounts payable and accrued liabilities) and loans and borrowings. All loans and borrowings are initially recognized at fair value less debt issue costs associated with the borrowings. After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortized cost using the effective interest method. Amortized cost is calculated by taking into account any debt issue costs, and any discount or premium on settlement. Gains and losses are recognized in profit or loss when the liabilities are derecognized as well as through the amortization process. The Companys other financial liabilities consist of accounts payable and accrued expenses, floating-rate notes payable and bank loans. Impairment of Financial Assets The Company assesses at each balance sheet date whether there is objective evidence that a financial asset or group of financial assets may be impaired. A financial asset or group of financial assets is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events that has occurred after the initial recognition of the asset (an incurred loss event) and that loss event or events has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated. Objective

*SGVMC3080 64*

-8-

evidence of impairment may include indications that the borrower is experiencing significant financial difficulty, default or delinquency in payments, the probability that they will enter bankruptcy or other financial reorganization and where observable data indicate that there is measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults. Assets carried at amortized cost If there is objective evidence that an impairment loss on loans and receivables carried at amortized cost has been incurred, the amount of the loss is measured as the difference between the assets carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial assets original effective interest rate (i.e. the effective interest rate computed at initial recognition). The carrying amount of the asset shall be reduced either directly or through the use of an allowance account. The amount of the loss shall be recognized in the statement of income. Loans and receivables, together with the associated allowance accounts, are written off when there is no realistic prospect of future recovery.

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss will be reversed. Any subsequent reversal of an impairment loss is recognized in the statement of income, to the extent that the carrying value of the asset does not exceed its amortized cost at the reversal date. With respect to receivables, the Company performs a regular review of the age and status of these accounts, designed to identify accounts with objective evidence of impairment and provide the appropriate allowance for impairment losses. AFS investments carried at fair value If an AFS investment carried at fair value is impaired, an amount comprising the difference between its cost and its current fair value, less any impairment loss previously recognized in the statement of income, is transferred from equity to the statement of income. In the case of equity investment classified as AFS investments, objective evidence of impairment would include a significant or prolonged decline in the fair value of the investments below its cost. Reversals of impairment losses in respect of equity instruments classified as AFS are not recognized in the statement of income.

Assets carried at cost If there is objective evidence that an impairment loss has been incurred in an unquoted equity instrument that is not carried at fair value because fair value cannot be reliably measured, or on a derivative asset that is linked to and must be settled by delivery of such an unquoted equity instrument, the amount of the loss is measured as the difference between the assets carrying amount and the present value of the estimated future cash flows discounted at the current market rate of return for a similar financial asset.

*SGVMC3080 64*

-9-

Renegotiated receivables The Company seeks to restructure receivables rather than to take further legal actions. This involves extending the payment arrangements and the arrangement of the new receivable conditions. Once the terms have been renegotiated, the receivables are no longer considered past due. Management continuously reviews renegotiated receivables to ensure that future payments are likely to occur. The receivables continue to be subject to individual or collective impairment assessment.

Derecognition of Financial Assets and Financial Liabilities Financial assets A financial asset (or, where applicable a part of a financial asset or part of a group of similar financial assets) is derecognized where: a. the right to receive cash flows from the asset has expired; b. the Company retains the right to receive cash flows from the asset, but has assumed a obligation to pay them in full without material delay to a third party under a pass-through arrangement; or c. the Company has transferred its right to receive cash flows from the asset and either has transferred substantially all the risks and rewards of the asset or has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

Where the Company has transferred its right to receive cash flows from an asset and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognized to the extent of the Companys continuing involvement in the asset. Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Company could be required to repay. Financial liabilities A financial liability is derecognized when the obligation under the liability is discharged, cancelled or has expired. Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognized in the statement of income. Offsetting of Financial Instruments Financial assets and financial liabilities are offset and the net amount reported in the balance sheet if, and only if, there is a currently enforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis, or to realize the asset and settle the liability simultaneously. This is not generally the case with master netting agreements, and the related assets and liabilities are presented gross in the balance sheet.

*SGVMC3080 64*

- 10 -

Inventories Inventories are stated at the lower of cost and net realizable value (NRV). Costs incurred in bringing each inventories to its present location and condition are accounted for as follows: Finished goods and work in process - Cost is determined based on the moving average method. Cost includes direct materials, labor and a proportion of manufacturing overhead costs based on normal operating capacity. - Cost is determined using the moving average method. - Carried at the lower of cost and NRV.

Raw materials

Land for development

NRV is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sale. Property, Plant and Equipment Property, plant and equipment, except land, are carried at cost less accumulated depreciation, amortization and impairment losses. Land is stated at cost less any impairment losses. The initial cost of an item of property, plant and equipment includes its purchase price and any directly attributable costs of bringing the asset to its working condition and location for its intended use. Expenditures incurred after the property, plant and equipment have been put into operation, such as repairs and maintenance costs, are normally charged to income in the period the costs are incurred. In situations where it can be clearly demonstrated that the expenditures have resulted in an increase in the future economic benefits expected to be obtained from the use of an item of property, plant and equipment beyond its originally assessed standard of performance, the expenditures are capitalized as additional costs of the property, plant and equipment.

Assets under installation are carried at cost and transferred to the related property, plant and equipment account when the installation and related activities necessary to prepare the assets for their intended use are complete, and the assets are ready for use. Depreciation commences once the property, plant and equipment are available for use and computed using the straight-line method over the estimated useful lives of the assets as follows: Years 10-15 5 5 2-5 2-5

Buildings and improvements Machinery and equipment Transportation equipment Office furniture and fixtures Other equipment

Fully depreciated assets are retained in the accounts until they are no longer in use and no further depreciation and amortization are credited or charged to current operations.

*SGVMC3080 64*

- 11 -

The assets residual values, useful lives and depreciation method are reviewed periodically to ensure that the residual values, periods and method of depreciation are consistent with the expected pattern of economic benefits from items of property, plant and equipment. When assets are retired or otherwise disposed of, the cost and the related accumulated depreciation and amortization and any impairment loss are removed from the accounts and any resulting gain or loss is credited to or charged against current operations. Impairment of Nonfinancial Assets The Company assesses at each balance sheet date whether there is an indication that the nonfinancial assets, like property, plant and equipment may be impaired. If any such indication exists, the Company makes an estimate of the assets recoverable amount. An assets recoverable amount is the higher of an assets or cash-generating units fair value less costs to sell and its value in use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. Where the carrying amount of an asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In assessing value-in-use, the estimated future cash flows are discounted to their present value using pretax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Impairment losses on continuing operations are recognized in the statement of income.

An assessment is further made at each balance sheet date as to whether there is any indication that previously recognized impairment losses may no longer exist or may have decreased. If such indication exists, the recoverable amount is estimated. A previously recognized impairment loss is reversed only if there has been a change in the estimates used to determine the assets recoverable amount since the last impairment loss was recognized. If that is the case, the carrying amount of the asset is increased to its recoverable amount. That increased amount cannot exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognized for the asset in prior years. Such reversal is recognized in the statement of income.

After such a reversal, the depreciation charge is adjusted in future periods to allocate the assets revised carrying amount, less any residual value, on a systematic basis over its remaining useful life. Debt Issuance Cost Transaction costs paid in relation to the issuance of the floating rate promissory notes issued to a syndicate of lenders, shown as a contra-liability account to the floating rate notes payable, are deferred and being amortized over the term of the notes starting August 1, 2007 until August 31, 2012 using the effective interest rate method. Provisions Provisions are recognized when the Company has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Where the Company expects some or all of a provision to be reimbursed, for example

*SGVMC3080 64*

- 12 under an insurance contract, the reimbursement is recognized as a separate asset but only when the reimbursement is virtually certain. The expense relating to any provision is presented in the statement of income net of any reimbursement. If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognized as interest expense in the statement of income. Revenue Recognition Revenue is recognized when it is probable that the economic benefits associated with the transaction will flow to the enterprise and the amount of revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognized: Sales are recognized upon delivery of goods to customers. Land for development - revenue on sale of land for development is recognized only to the extent cash is received or when the exchange consideration can be measured reliably. Rental income is accounted for on a straight-line basis over the term of the lease. Interest income is recognized as it accrues using the effective interest rate method. Retirement Benefits Cost Retirement benefits cost is actuarially determined using the projected unit credit actuarial valuation method. The projected unit credit method considers each period of service as giving rise to an additional unit of benefit entitlement and measures each separately to build up the final obligation. Past service costs are recognized on a straight-line basis over the average period until the amended benefits become vested. To the extent that the benefits are already vested immediately, upon introduction of a new plan or improvement of an existing plan, past service costs are immediately expensed. Actuarial gains and losses both within and outside the 10% corridor are recognized as income or expense immediately. Gains or losses on the curtailment or settlement of pension benefits are recognized when the curtailment or settlement occurs.

The amount recognized as accrued retirement liability is the net of the present value of the defined benefit obligation at the balance sheet date minus the fair value at the balance sheet date of plan assets out of which the obligations are to be settled directly. The Company applies the ceiling test in measuring the retirement asset, which is the lower of (a) the excess of the fair value of plan assets over the present value of the defined benefit obligation and (b) the total of any cumulative unrecognized net actuarial losses and past service cost and the present value of any economic benefits available in the form of refunds from the plan or reductions in future contributions to the plan. Leases The determination of whether an arrangement is, or contains a lease is based on the substance of the arrangement and requires an assessment of whether the fulfillment of the arrangement is dependent on the use of a specific asset and the arrangement conveys a right to use the asset. Company as a lessor Leases where the Company retains all the risks and benefits of ownership of the asset are classified as operating leases. Initial direct costs incurred in negotiating an operating lease are added to the carrying amount of the leased asset and recognized over the lease term on the same bases as rental income.

*SGVMC3080 64*

- 13 -

Company as lessee Operating lease payments are recognized as expense on a straight-line basis over the terms of the lease contracts. Borrowing Costs Borrowing costs are generally expensed as incurred and are capitalized if they are directly attributable to the acquisition or construction of a qualifying asset. Capitalization of borrowing costs commences when the activities to prepare the asset are in progress and expenditures and borrowing costs are being incurred. Borrowing costs are capitalized until the assets are substantially ready for their intended use. If the carrying amount of the asset exceeds its recoverable amount, an impairment loss is recorded.

Foreign Currency Transactions Transactions in foreign currencies are initially recorded in Philippine peso, the Companys functional currency, based on the exchange rates prevailing at the transaction date. Outstanding foreign currency-denominated monetary assets and liabilities are restated to Philippine peso using the closing exchange rates prevailing at the balance sheet date. Foreign exchange gains or losses arising from the translation or settlement of foreign currency-denominated monetary assets and liabilities at exchange rates different from those at which the assets and liabilities are initially recorded, are taken to the statement of income.

Income Tax Current Income Tax Current income tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted at the balance sheet date. Deferred Income Tax Deferred income tax is provided, using the balance sheet liability method, on all temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred income tax liabilities are recognized for all taxable temporary differences. Deferred income tax assets are recognized for all deductible temporary differences, carryforward benefits of unused tax credits from excess minimum corporate income tax (MCIT) and unused tax losses or net operating loss carry over (NOLCO) to the extent that it is probable that taxable profit will be available against which the deductible temporary differences and carryforward benefits of unused tax credits and unused tax losses can be utilized. Deferred income tax relating to items recognized directly in equity is recognized in equity and not in the statement of income. The carrying amount of deferred income tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilized.

*SGVMC3080 64*

- 14 Deferred income 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. Earnings Per Share (EPS) Basic EPS is determined by dividing net income by the weighted average number of shares issued and outstanding, after giving retroactive adjustments for any stock split and stock dividends or reverse stock splits during the year. The Company does not have dilutive potential common shares. Segment Reporting The Companys major operating business units are the basis upon which the Company reports its primary segment information. The Companys business segments consist of: (1) naturals, (2) skin care and (3) hair care. The Company does not have yet intersegment revenues and expenses. Contingencies Contingent liabilities are not recognized in the financial statements. These are disclosed unless the possibility of an outflow of resources embodying economic benefits is remote. Contingent assets are not recognized in the financial statements but are disclosed when an inflow of economic benefits is probable. Events After the Balance Sheet Date Post year-end events that provide additional information about the Companys position at the balance sheet date (adjusting events) are reflected in the financial statements. Post year-end events that are not adjusting events are disclosed in the notes to financial statements when material.

3. Managements Significant Accounting Judgments and Use of Estimates The preparation of the financial statements in conformity with PFRS requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. In the opinion of management, these financial statements reflect all adjustments necessary to present fairly the results for the periods presented. Actual results could differ from these estimates, and the effect of any change in estimates will be reflected in the financial statements when they become reasonably determinable. Judgments In the process of applying the Companys accounting policies, management has made the following judgments, apart from those involving estimations, which have the most significant effect on the amounts recognized in the financial statements as follows: Determination of the Companys functional currency Based on the economic substance of the underlying circumstances relevant to the Company, the functional currency of the Company has been determined to be the Philippine peso. It is the currency that mainly influences the selling price of goods and cost of producing and selling the goods.

*SGVMC3080 64*

- 15 -

Assessment whether the lease agreement is a finance or operating lease The management assesses at the inception of the lease whether the arrangement is a finance or operating lease based on who bears substantially all the risks and benefits incidental to ownership of the leased item. The Company has entered into a property lease where it has determined that the risks and rewards related to the property are retained with the lessor. As such, the agreement is accounted for as an operating lease. Impairment of AFS investments The Company treats AFS equity investments as impaired when there has been a significant or prolonged decline in the fair value below its cost or where other objective evidence of impairment exists. The determination of what is significant or prolonged requires judgment. The Company treats significant generally as 20% or more of the original cost of investment, and prolonged, greater than 6 months. In addition, the Company evaluates other factors, including normal volatility in share price for quoted equities and the future cash flows and the discount factors for unquoted equities. As of December 31, 2007 and 2006, the carrying value of the Companys AFS investments amounted to P219.77 million and P13.40 million, respectively (see== Note 10).

Estimation Uncertainty 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 are discussed below: Estimation of allowance for doubtful accounts Provisions are made for accounts specifically identified to be doubtful of collection. The level of this allowance is evaluated by management on the basis of factors that affect the collectibility of the accounts. These factors include, but are not limited to, the length of the Companys relationship with its debtors, the debtors payment behavior and known market factors. The amount and timing of recorded expenses for any period would differ if the Company made different judgments or utilized different methodologies. An increase in allowance for doubtful accounts would increase the recorded operating expenses and decrease current assets. Allowance for doubtful accounts amounted to P29.09 million and P11.60 million as of December 31, 2007== and 2006, respectively. The amount of receivables, net of allowance for doubtful accounts, amounted to P1,024.45 million and P543.92 million as of December 31, 2007 and 2006,== respectively (see Note 5).

Estimation of allowance for inventory obsolescence and market decline The Company, in determining the NRV of inventories, considers any adjustments necessary for obsolescence which is generally provided 100% allowance on nonmoving items or expired or near expiring (inventories which will expire within six months) inventories. The Company adjusts the cost of the inventory to its recoverable value at a level considered adequate to reflect market decline in the value of the recorded inventories.

*SGVMC3080 64*

- 16 -

The amount and timing of recorded expenses for any period would differ if different judgments were made or different estimates were utilized. An increase in allowance for inventory obsolescence and market decline would increase recorded operating expenses and decrease current assets. As of December 31, 2007 and 2006, allowance for inventory obsolescence amounted to =P36.00 million and P35.00 million, respectively (see Note 6).= Estimation of the useful lives and residual values of property, plant and equipment The useful life and residual value of each of the item of property, plant and equipment are estimated based on the period over which the asset is expected to be available for use. Such estimation is based on a collective assessment of industry practice, internal technical evaluation and experience with similar assets. The estimated useful life of each asset is reviewed periodically and 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 asset. It is possible, however, that future results of operations could be materially affected by changes in the amounts and timing of recorded expenses brought about by changes in the factors mentioned above. A reduction in the estimated useful life of property, plant and equipment would increase the recorded operating expenses and decrease the noncurrent assets.

There is no change in the estimated useful lives of property, plant and equipment as of December 31, 2007 and 2006. The carrying values of property, plant and equipment amounted to =P294.57 million and P572.29 million as of December 31, 2007 and 2006, respectively (see= Note 9). Asset Impairment The Company assesses impairment of assets (property, plant and equipment) whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The factors that would trigger an impairment review include the following: Significant underperformance relative to the future sales performance and projected operating results. Significant negative industry or market trends. An impairment loss is recognized whenever the carrying amount of an asset exceeds its recoverable amount. The recoverable amount is the higher of an assets net selling price and value-in-use. The net selling price is the amount obtainable from the sale of an asset in an arms length transaction while value-in-use is the present value of the estimated future cash flows expected to arise from the continuing use of an asset and from its disposal at the end of its useful life. Recoverable amounts are estimated for individual assets if it is not possible, for the cashgenerating unit to which the asset belongs. For impairment loss on a specific asset, the recoverable amount represents the net selling price.

Based on the evaluation made by management, as of December 31, 2007, 2006 and 2005, no indication of impairment was noted.

*SGVMC3080 64*

- 17 -

Recognition of deferred income tax assets The Company reviews the carrying amounts of deferred income taxes at each balance sheet date and reduces deferred income tax assets to the extent that it is no longer probable that sufficient taxable income will be available to allow all or part of the deferred income tax assets to be utilized. However, there is no assurance that the Company will generate sufficient taxable income to allow all or part of its recognized deferred income tax assets to be utilized. As of December 31, 2007 and 2006, the Company recognized deferred income tax assets amounting to P37.05 million and P38.22 million, respectively (see Note 22).== Retirement benefits cost and obligation The present value of the pension obligation depends on a number of factors that are determined on an actuarial basis using a number of assumptions. The assumptions used in determining the net cost for pensions include the discount rate, mortality rate and compensation increase. The Company determines the appropriate discount rate at the end of each year. This is the discount rate that should be used to determine the present value of estimated future cash outflows expected to be required to settle the pension obligations. In determining the appropriate discount rate, the Company considers the interest rates on government bonds that are denominated in Philippine peso, and that have terms to maturity approximating the terms of the related pension liability. The details of retirement benefits cost are disclosed in Note 20. Retirement benefits liability recognized by the Company as of December 31, 2007 and 2006 amounted to =P37.93 million and P47.00 million, respectively. Retirement benefits cost amounted to= =P16.80 million, P34.84 million and P8.93 million in 2007, 2006 and 2005, respectively (see== Note 20).

Provisions and contingencies The estimate of probable costs of resolution of possible claims has been developed in consultation with external counsels handling the Companys defense in these matters and is based upon an analysis of potential results. The Company is a party to certain lawsuits or claims arising from the ordinary course of business. However, the Companys management and legal counsel believe that the eventual liabilities under these lawsuits or claims, if any, will not have a material effect on the Companys financial statements. Accordingly, no provision for probable losses has been recognized in the Companys financial statements as of December 31, 2007 and 2006 (see Notes 22 and 28).

Fair value of financial instruments Where the fair values of financial assets and financial liabilities recorded in the balance sheet cannot be derived from active markets, they are determined using internal valuation techniques using generally accepted market valuation models. The inputs to these models are taken from observable market where possible, but where this is not feasible, estimates are used in establishing fair values. The carrying values and fair values of financial instruments, as well as the methods on how the fair values were derived are discussed in Note 26.

*SGVMC3080 64*

- 18 -

4. Cash and Cash Equivalents 2006 2007 P251,990,457= =P97,424,150 14,436,302 1,723,047,109 P1,975,037,566= =P111,860,452

Cash on hand and in banks Short-term placements (Note 17)

Cash in banks earns interest at the respective bank deposit rates. Short-term placements are made for varying periods of up to three months depending on the immediate cash requirements of the Company, and earn interest at the respective short-term placements rates.

5. Receivables 2007 Trade: Related party (Notes 8 and 17) Distributors and other accounts Others: Related parties (Notes 4, 8 and 17) Third parties (Note 4) Receivable from a land developer (Note 11) 2006

P131,288,422= =P137,196,784 305,309,254 626,917,661 72,764,829 187,564,772 40,253,036 32,771,012 75,000,000 555,523,903 1,053,541,867 11,604,212 29,087,304 P1,024,454,563= =P543,919,691

Less allowance for doubtful accounts

Trade receivables from third parties are non-interest bearing and are generally on 30-90 days terms. Receivables from SNC and Splash International, Inc. (SII), recorded under Other receivablesrelated parties amounting to P118.12 million out of P124.56 million and P29.88 million,=== respectively, were subsequently collected on March 31, 2008 (see Note 17). Movements in the allowance for doubtful accounts related to trade receivables - distributors and other accounts are as follows: 2007 P11,604,212= 19,948,367 (2,465,275) P29,087,304= 2006 =P11,647,358 3,000,000 (3,043,146) =P11,604,212

Balance at beginning of year Provisions for the year Write-off Balance at end of year

*SGVMC3080 64*

- 19 -

6. Inventories 2007 At cost: Finished goods Work in process Raw materials At NRV: Finished goods Raw materials Total cost of inventories at lower of cost and NRV 2006

P127,097,325= =P106,091,230 3,595,802 12,654,473 49,469,096 176,842,699 159,156,128 316,594,497 9,424,761 3,746,428 13,877,769 8,334,432 23,302,530 12,080,860 P328,675,357= =P182,458,658

The cost of inventories carried at NRV amounted to P36,000,000 and P58,302,532 as of== December 31, 2007 and 2006, respectively. The inventories valued at NRV in 2007 are fully provided with allowance for obsolescence. Movements in the allowance for inventory obsolescence are as follows: 2007 P35,000,002= 999,998 P36,000,000= 2006 =P32,337,187 2,662,815 =P35,000,002

Balance at beginning of year Provision for the year Balance at end of year

7. Prepaid Expenses and Other Current Assets 2007 P47,469,548= 12,895,127 10,952,092 1,076,940 7,231,284 P79,624,991= 2006 =P 13,609,376 44,140,667 5,566,070 =P63,316,113

Receivable from the BIR (Note 22d) Supplies Prepaid income tax (Note 22) Derivative asset (Note 27) Others

Embedded Derivatives Embedded foreign currency derivative was bifurcated from the Companys purchase contract, which is denominated in a currency that is neither the functional currency of a substantial party to the contract nor the routine currency for the transaction. As of December 31, 2007, the total outstanding notional amount of such embedded foreign currency derivative amounted to US$122,952. The fair value of the embedded derivative as of such date is P 1,076,940.= In 2007, the net mark-to-market gain on the outstanding embedded derivative amounted to =P2,486,462 and was netted against Foreign exchange loss - net account in the 2007 statement of income.

*SGVMC3080 64*

- 20 The net movements in fair value changes of the Companys derivative instruments in 2007 are as follows: Gain =P 2,486,462 2,486,462 1,409,522 =P1,076,940

Balance at beginning of year Net changes in fair value of derivatives not designated as accounting hedges Fair value of settled instruments Balance at the end of the year

8. Note Receivable The noninterest-bearing, due and demandable note receivable issued by P.T. Splash Indonesia (PTSI) in favor of the Company on December 31, 2006 in settlement of PTSIs trade and nontrade accounts with the Company as of December 31, 2006 has been restructured on February 1, 2007, amounting to P250,152,509. The new promissory note is collectible in five (5) equal annual= installments starting December 31, 2008 and is subject to 11.2949% interest per year. The note receivable due within one year amounts to P50,030,502. The note receivable is guaranteed by= SHI.

The interest is collectible annually with the first collection on July 1, 2008, covering all accrued interest starting February 1, 2007. Accrued interest receivable/income amounted to P 25,899,936= in 2007 (see Notes 17 and 21).

9. Property, Plant and Equipment As of December 31, 2007:

Buildings and Improvements Machinery And Equipment Transportation Equipment Office Furniture and Fixtures Other Equipment Assets for Installation

Land Cost: Beginning balances Additions Reclassification (Note 11) Disposals Ending balances Accumulated Depreciation and Amortization: Beginning balances Depreciation and amortization Disposals Ending balances Net Book Values P396,570,795= (246,956,454) 149,614,341

Total

P419,083,619= P220,210,291= 713,643 1,063,726 419,797,262 221,274,017

P54,232,134= 10,513,377 (2,634,154) 62,111,357

P15,602,560= 1,170,760 16,773,320

P141,542,080= 1,490,154 143,032,234

P10,839,180= P1,258,080,659= 5,633,467 20,585,127 (246,956,454) (2,634,154) 16,472,647 1,029,075,178

P149,614,341=

291,687,324 27,243,611 318,930,935 P100,866,327=

204,257,567 10,331,534 214,589,101 P6,684,916=

38,758,162 8,248,918 (2,024,368) 44,982,712 P17,128,644=

15,256,667 898,215 16,154,882 P618,438=

135,834,655 4,009,497 139,844,152 P3,188,082=

P16,472,647=

685,794,375 50,731,775 (2,024,368) 734,501,782 P294,573,396=

As of December 31, 2006:

Buildings and Improvements Machinery And Equipment Transportation Equipment Office Furniture and Fixtures Other Equipment Assets for Installation

Land Cost: Beginning balances Additions Disposals Ending balances

Total

=P396,570,795 396,570,795

=P418,715,437 368,182 419,083,619

=P219,460,064 750,227 220,210,291

=P56,750,679 845,000 (3,363,545) 54,232,134

=P15,602,560 15,602,560

=P140,970,082 655,634 (83,636) 141,542,080

=P10,556,323 282,857 10,839,180

=P1,258,625,940 2,901,900 (3,447,181) 1,258,080,659

(Forward)

*SGVMC3080 64*

- 21 -

Land Accumulated Depreciation and Amortization: Beginning balances Depreciation and amortization Disposals Ending balances Net Book Values

Buildings and Improvements

Machinery And Equipment

Transportation Equipment

Office Furniture and Fixtures

Other Equipment

Assets for Installation

Total

=P =P396,570,795

=P259,981,398 31,705,926 291,687,324 =P127,396,295

=P187,874,314 16,383,252 204,257,566 =P15,952,725

=P32,758,515 9,032,560 (3,032,912) 38,758,163 =P15,473,971

=P14,073,037 1,183,630 15,256,667 =P345,893

=P116,110,433 19,807,858 (83,636) 135,834,655 =P5,707,425

=P

=P610,797,697 78,113,226 (3,116,548) 685,794,375 =P572,286,284

=P10,839,180

The total cost of fully depreciated property, plant and equipment still in use amounted to =P499,177,938 and P432,277,126 as of December 31, 2007 and 2006, respectively.= Upon full payment of the bank loans and the long-term debt in September 2007, the mortgage on the land in Ortigas, Pasig City and Canumay, Valenzuela City where the Companys manufacturing plant is located, which were pledged to secure the loans were released by the financial institutions (see Notes 14 and 15).

10. Available-for-Sale Investments This account consists of investments in: 2007 Shares of stock - cost Unquoted Quoted Unrealized valuation gain (loss) - net P200,000,000= 15,226,900 215,226,900 4,543,100 P219,770,000= 2006 =P 14,376,900 14,376,900 (976,900) =P13,400,000

The cost of unquoted investments in shares of stock amounting to P200.00 million in 2007= represents the cost of the investment in common shares (50,000 shares representing 7.21% ownership) in Professional Services, Inc., the owner and operator of Medical City, previously owned by SHI, which SHI assigned to the Company on September 27, 2007 in settlement of SHIs cash advances from the Company (see Note 17). As of December 31, 2007, the Company has no intention to dispose its investment in common shares of Professional Services, Inc. Movements in the net unrealized valuation gain (loss) on AFS investments are as follows: 2006 2007 (P976,900)= (P2,376,900)= 1,400,000 5,520,000 P4,543,100= (P976,900)= 2005 =P (2,376,900) (P2,376,900)=

Balance at beginning of year Gain (loss) recognized in equity Balance at end of year

*SGVMC3080 64*

- 22 -

11. Land for Development Land for development represents a parcel of land owned by the Company, which is currently held for sale to Crown Asia Properties, Inc. (the developer) under a Memorandum of Agreement (MOA) dated November 28, 2007, executed between the Company and the developer, wherein the developer undertakes to develop the entire parcel of land into a mixed-used residential and commercial condominium project. Under the MOA, the Company receives consideration (1) payable in cash amounting to P105,000,000 and (2) a minimum of 3,383.4 square meters of gross= office/condotel areas and 26 parking slots or 7.5% of the condominium building, whichever is greater. The cash consideration is collectible as follows: November 30, 2007 - P 30 million and= =P18.75 million in each of the quarters ending March 31, 2008, June 30, 2008, September 30, 2008, and December 31, 2008.

Under the MOA, the developer shall have full, exclusive and absolute authority over the implementation of the project, including the planning, conceptualization, design, construction and financing of the Project in accordance with the terms of the Agreement. In 2007, the Company accounted for the cash component of the payment by the developer as sale of land using the cost recovery method. Accordingly, sales and cost of sales amounting to =P105.00 million has been recognized in the 2007 statement of income. The value of the land amounting to P141.96 million is shown as Land for development in the 2007 balance sheet as= the Companys intention is to sell the condominium units. Prior to the MOA, the intention of the Company when it purchased the aforementioned parcel of land with a total cost of P246.96 million is to have its office building constructed thereon.= Accordingly, the land was classified under Property, Plant and Equipment in its December 31, 2006 audited financial statements (see Note 9).

12. Accounts Payable and Accrued Expenses 2006 2007 P637,434,171= =P400,552,849 82,041,118 81,480,424 4,078,000 22,175,057 17,010,549 11,133,496 8,655,339 11,355,329 P762,491,969= =P513,424,363

Trade payables Accrued expenses: Advertising and promotions Interest payable (Note 13) Others VAT payable Other current liabilities

In 2006, the Company reversed excess provision amounting to P60,461,525 (included in the 2005= balance of Accrued expenses - others).

*SGVMC3080 64*

- 23 -

13. Floating Rate Notes On August 22, 2007, the Company entered into a Floating Rate Notes (FRNs) Facility Agreement (Notes Facility) for the issuance of P1,000,000,000 FRNs to a syndicate of lenders (four local= financial institutions) in order to pay all its outstanding short-term and long-term obligations (see Notes 14 and 15). The FRNs were issued on August 31, 2007 and are payable in five (5) annual installments. As of December 31, 2007, the maturities of the FRNs at nominal values, excluding the unamortized debt issuance costs follow: Due in 2008 2009 2010 2011 2012 Amount =P50,000,000 50,000,000 50,000,000 50,000,000 800,000,000 =P1,000,000,000

The FRNs bear interest starting August 31, 2007 and such interest is payable on each interest payment date which falls three months after the preceding interest payment date, in the case of the first interest payment date, after August 31, 2007. The rate of interest for such interest period shall be based on the Interest Rate 1 Setting Date by reference to the three- (3) month Philippine Dealing System Treasury Rate 1 at approximately 11:16 A.M., Manila time, on such date, plus an interest spread of 165 basis points (1.65%) per year. All payments by the Company under the Notes Facility, whether of principal, interest, fees, early redemption or otherwise, shall be made without set-off or counterclaim for indemnifiable taxes, and are free and clear and without any deduction or withholding on account of any indemnifiable taxes, unless such withholding is required by law. The Notes Facility provides, among other terms and conditions, that, for as long as the FRNs remain outstanding, the Company is subject to certain negative covenants requiring prior written approval from the majority of the Note Holders for specified acts which include, but are not limited to: amendment of Articles of Incorporation and other organization documents, e.g., materially changing the nature of its present business; entering into merger or consolidation; granting of loans or advances to or investment in which its directors, officers, stockholders and other related persons except those made in the ordinary course of business; creation of lien with respect to any of its properties; sale or lease of assets; guaranteeing indebtedness; prepaying longterm indebtedness except for those provided in Section 2.07 of the Notes Facility; entering into additional loans; entering into any new management contracts; declaration or payment of dividends in excess of fifty percent (50%) of the Companys net income for the most recent fiscal year; purchase, redeem, retire or otherwise acquire for value its capital stock; declare or pay management bonuses or profits sharing; and execute any act which shall have a material adverse effect. In addition, the Notes Facility provides that the Company has to maintain a ratio of current assets to current liabilities of at least 2.0 times and its equity-to-debt ratio should not be more than 1.5 times until final payment date. As of December 31, 2007, the Company is in compliance with the negative debt covenants.

*SGVMC3080 64*

- 24 -

In the event of default as provided under the Note Facility, the default penalty is 2% per month, or a fraction of a year. The Notes Facility also provides for early redemption, at the option of the Company, starting at the end of the thirty-sixth (36th) month from the issue date, without premium or penalty. In addition, the Company has a one-time option, at any interest rate settling date, to convert the interest from a floating interest rate structure to a fixed interest rate structure on the remaining life of the outstanding amount of the Notes. The fixed interest rate shall be based on the applicable Fixed Base Rate plus a spread of 165 basis points (1.65%) per annum subject to certain conditions stipulated in the Notes Facility.

The total transaction costs of the FRNs, amounting to P15,540,298, is capitalized and is being= amortized over the term of the FRNs using the effective interest rate method. The unamortized portion recorded as Debt Issuance Costs as of December 31, 2007 amounted to P 14,583,197.= As of December 31, 2007, the outstanding balance of the FRNs is as follows: Current =P50,000,000 (3,009,998) =P46,990,002 Long-term =P950,000,000 (11,573,199) =P938,426,801 Total =P1,000,000,000 (14,583,197) =P985,416,803

Nominal amount Unamortized debt issuance costs

14. Bank Loans As discussed in Note 13, part of the proceeds of the FRNs was used to pay in full all seven outstanding unsecured bank loans, with principal amounts totalling P430.00 million and interest,= in September 2007. In 2006, the outstanding bank loans represented five (5) unsecured short- term loans and one secured short-term loan from local banks with interest rates ranging from 6.50% to 9.0%. The secured loan is collateralized by the land in Ortigas, Pasig City and the land in Canumay, Valenzuela City with carrying values totaling to P396.57 million (see Note 9).=

15. Long-term Debt As discussed in Note 13, part of the proceeds of the FRNs was used to pay in full all long-term loans, with principal amounts totalling to P306.77 million and interest in September 2007.= As of December 31, 2006, the long term-debt which was pre-terminated in 2007 consisted of the following: Payable in 18 equal quarterly installments in arrears for 5 years up to March 2011 with six months grace period on principal payment (Forward)

=P322,173,612

*SGVMC3080 64*

- 25 -

Payable in equal quarterly installments in arrears; maturity on April 26, 2008 Less current portion

=P45,000,000 367,173,612 105,805,556 =P261,368,056

The long-term debt bears interest ranging from 6.75% to 11.16% per year in 2006. These loans were collateralized by the Companys land in Ortigas, Pasig City and Canumay, Valenzuela City with carrying values totaling to P396.57 million (see Note 9).=

16. Equity a. The details of capital stock account are shown below: December 31, 2007 Number of SharesAmount Authorized - par value of =P1 per share (Note b) Issued: Balance at beginning of year Additional issuance before the IPO (Notes b and c) Issuances through the IPO Balance at end of year December 31, 2006 Number of SharesAmount

400,000,000 P400,000,000= 1,000,000,000 P1,000,000,000=

107,312,250 P107,312,250= 107,312,250 P107,312,250= 450,000,000450,000,000 188,848,107188,848,107 746,160,357 P746,160,357= 107,312,250 P107,312,250=

b. Increase in authorized capital stock On June 25, 2007, the BOD and stockholders approved the increase in the Companys authorized capital stock from P400 million to P1,000 million, divided into 400 million== common shares with P1.00 par value and 1,000 million common shares with P1.00 par value.== The increase in the Companys authorized capital stock was approved by the SEC on September 20, 2007. Out of the P600 million increase in authorized capital stock, SHI, the= Companys parent, subscribed and paid P112.50 million for 112.50 million shares of stock.= c. On September 4, 2007, SHI subscribed and paid for additional shares amounting to =P337.50 million for 337.50 million shares.

*SGVMC3080 64*

- 26 -

d. Cash dividends Information on the Companys declaration of cash dividends follow: Declaration Date August 31, 2007 December 15, 2005 Dividend per Share P1.59= =P1.67 Amount P350,000,000= =P178,786,584 Record Date August 31, 2007 December 31, 2005

There was no cash dividend declaration to stockholders in 2006. e. IPO The BOD of the PSE, in its regular meeting on October 10, 2007, approved the application of the Company for the initial listing of 746,160,357 common shares, with a par value of P1.00= per share under the First Board of the Stock Exchange. The IPO of the Companys shares with an offer price of P8.98 per share, consists of the= following: Primary offering Secondary offering 188,848,107 shares 35,000,000 shares 223,848,107 shares

On November 6, 2007, the SEC declared the Companys Registration Statement effective and issued the Certificate of Permit to Offer Securities 746,160,357 shares of which 223,848,107 shall be offered to the public. On November 15, 2007, the Company completed its IPO of common shares, at an offer price of P8.98 a share.= The total net proceeds from the Primary Share Offer amounted to P1,608,182,348 (net of IPO= cost of P87,673,652). The excess of net proceeds from par value of the shares issued of= =P1,419,334,241 is credited to additional paid-in capital in the 2007 balance sheet. The net proceeds from the Primary Share Offer are intended to be used by the Company in projects that will further enhance its research and development capabilities, support brand building, new product introductions and future acquisitions. f. Restrictions on retained earnings After the completion of the IPO and subject to the availability of sufficient unrestricted retained earnings, declaration and payment of dividends in the aggregate for any given year shall not exceed fifty percent (50%) of the Companys net income after tax as stated in the Companys audited financial statements for the most recent fiscal year as provided for in the negative covenants of the FRNs (see Note 13).

*SGVMC3080 64*

- 27 -

17. Related Party Transactions The Company has the following significant transactions with related parties: For the year ended December 31, 2007:
Outside Services P28,000,000= 12,000,000 Rent Expense P= 9,562,022 Interest Income Donation (Notes 4 and 8) P= P= 25,899,936 313,843

Sales Parent company: SHI Sister companies: HBC PTSI Splash International, Inc. (SII) World Partners Bank (WPB) Related company: Splash Foundation, Inc. (SFI) P= 148,071,540 5,838,808

P153,910,348=

9,000,000 P40,000,000= P9,562,022= P9,000,000=

P26,213,779=

For the year ended December 31, 2006:

Sales Parent company: SHI Sister companies: HBC PTSI SII WPFC WPB Related company: SFI =P 132,269,969 11,565,763 =P143,835,732 Outside Services =P72,422,916 45,598,508 =P118,021,424 Rent Expense =P 14,363,345 =P14,363,345 Donation =P 9,946,006 =P9,946,006 Interest Income (Note 4) =P 376,293 432,292 =P808,585

For the year ended December 31, 2005:

Outside Services =P75,000,000 29,610,885 =P104,610,885 Rent Expense =P 6,305,874 =P6,305,874 Interest Income (Note 4) =P12,625,668 16,805,262 1,318,272 225,018 =P30,974,220

Sales Parent company: SHI Sister companies: HBC PTSI SII WPFC WPB Total =P 79,294,898 51,841,171 =P131,136,069

*SGVMC3080 64*

- 28 -

The Company has the following account balances with related parties: December 31, 2007:
Cash and Cash Equivalents (Note 4) Parent company: SHI Sister companies: HBC PTSI SII WPFC WPB SNC Related company: SFI P= 28,766,072 Trade Receivables (Note 5) P= 130,647,605 640,817 Other Receivables (Notes 5 and 8) P= 4,255,418 25,899,936 29,881,267 2,870,326 94,444 124,563,381 Note Receivable (Note 8) Advances to a Stockholder (Note 10)

P= P137,370,246= 250,152,509

P28,766,072= P131,288,422= P187,564,772= P250,152,509=P137,370,246=

December 31, 2006:

Cash and Cash Equivalents (Note 4) Parent company: SHI Sister companies: HBC PTSI SII WPFC WPB SNC Related company: SFI =P 2,500,000 5,425,085 =P7,925,085 Advances to a Stockholder (Note 10) =P220,357,825 =P220,357,825

Trade Receivables (Note 5) =P 137,196,784 =P137,196,784

Other Receivables (Note 5) =P 3,052,297 1,473,049 2,709,997 65,358,980 170,506 =P72,764,829

Note Receivable (Note 8) =P 259,987,715 =P259,987,715

a. The Company sells goods to HBC and PTSI, the Companys distributors. b. The Company has a Marketing Services Agreement with SII to market the Companys products and goods in the international market at a monthly fee of P1.50 million. The= agreement is renewable annually under such terms as maybe mutually agreed upon by both parties. Starting September 2007, the Company manages its own international operations. c. The Company has a Management Services Agreement with SHI to provide the Company its expertise and facilities in the conduct and operations of the Company, for a monthly fee of =P3.50 million. The agreement is renewable on an annual basis under such terms as maybe mutually agreed upon by both parties. Starting September 1, 2007, the Company has assumed the functions being done by SHI. d. The Company has a lease agreement with HBC for the lease of its office space for a one year, renewable annually upon mutual agreement of both parties, for a monthly fee of P 768,398.=

*SGVMC3080 64*

- 29 -

e. The Company donates to SFI to support SFIs various outreach programs. f. The Company has bank accounts and short-term cash placements with WPFC and WPB subject to the prevailing interest rates. g. The Company has advances to PTSI as of December 31, 2007 and 2006 amounting to =P250,152,508 and P259,987,715, respectively. The advances are guaranteed by SHI (see= Note 8 for a more detailed discussion). h. The Company extended cash advances to SHI with an outstanding balance of P 137,370,246= and P220,357,825 as of December 31, 2007 and 2006, respectively. These advances do not= have fixed repayment terms. In September 2007, SHI assigned all its rights in SHIs investment in shares of stock in Professional Services, Inc. valued at P200 million as partial= payment for SHIs advances (see Note 10 for a more detailed discussion). i. Compensation of key management personnel of the Company are as follows:
2006 2007 P76,082,019= =P52,678,141 4,008,326 5,669,162 P81,751,181= =P56,686,467 2005 =P45,807,989 3,260,672 =P49,068,661

Short-term employee benefits Post-employment retirement benefits

18. Cost of Goods Sold

2007 Raw materials and changes in inventories (Note 11) Direct and indirect labor (Note 19) Depreciation and amortization (Note 19) Other overhead costs 2006 2005

P1,369,611,637 P962,523,439 P1,101,925,441=== 43,198,61742,353,82249,054,759 45,962,39754,125,90634,453,715 42,294,67448,068,64022,041,128 ==P1,475,161,239 P1,093,979,127 P1,246,473,809=

19. Operating Expenses

20062007 2005 =797,461,106P =P722,012,581 112,831,099 P648,144,571= 114,329,804 180,573,643 150,258,167 48,520,064 72,136,430 124,681,966 20,094,432 43,680,59767,327,381 17,338,07518,070,934 56,019,169 32,150,82916,278,060 456,934 3,000,00019,948,367 4,757,749 10,019,76213,663,113 6,318,937 8,173,07511,939,319 10,300,599 6,561,01511,894,820 2,123,819 6,067,50611,049,536

Advertising and promotions Personnel costs (Note 19b) Outside services (Note 17) Transportation and travel Taxes and licenses Depreciation and amortization (Note 19a) Provision for doubtful accounts (Note 5) Insurance Rent (Note 17) Communication, light and water Research and development

(Forward)

*SGVMC3080 64*

- 30 -

Supplies Product samples and give-aways Membership, dues and subscriptions Repairs and maintenance Others

200620052007 =P5,825,660=P5,645,055P7,548,380= 3,757,0672,642,3437,511,300 1,773,5413,752,2847,173,334 3,199,5653,420,6774,256,903 20,729,04328,459,57746,535,268 ==P1,217,919,369 P1,085,360,439 P1,217,133,648=

a. Depreciation and amortization expense are charged to the following:

2006 2007 P34,453,715= =P45,962,397 32,150,829 16,278,060 P50,731,775= =P78,113,226 2005 =P54,125,906 56,019,169 =110,145,075P

Cost of goods sold (Note 18) Operating expenses

b. Personnel costs are composed of the following:

2006 2007 P160,747,162= =P118,757,492 34,837,504 16,803,151 39,861,788 52,078,089 P229,628,402= =P193,456,784 2005 =109,231,251P 8,933,370 37,020,300 =155,184,921P

Salaries and wages Retirement benefits cost (Note 20) Employees benefits

Personnel costs are charged to the following: 2007

Cost of goods sold (Note 18) Operating expenses

2006

2005
=P42,353,822 112,831,099 =155,184,921P

P49,054,759= =P43,198,617 180,573,643 150,258,167 P229,628,402= =P193,456,784

20. Retirement Benefits The Company has a funded, noncontributory, defined benefit retirement plan covering substantially all its regular employees. The benefits are based on years of service and compensation on the last year of employment. The latest actuarial valuation of the defined benefit retirement plan is as of December 31, 2007. The components of retirement benefits cost (included in Personnel Costs and Direct and Indirect Labor under operating expenses and cost of goods sold, respectively) in the statements of income are as follows: 20062007 2005 =P2,329,226 =P3,713,683P6,526,733= 7,498,7808,230,778 7,486,933 (2,904,683) (4,332,791)(4,478,648) 27,957,8326,524,288 2,021,894 =P8,933,370 =P16,803,151 P34,837,504=

Current service cost Interest cost on benefit obligation Expected return on plan assets Net actuarial loss Retirement benefits cost

*SGVMC3080 64*

- 31 -

The unfunded status shown as Retirement benefits liability in the balance sheets are as follows: 2007 P116,765,841= (78,835,740) P37,930,101= 2006 =P99,623,372 (52,623,938) =P46,999,434

Present value of defined benefit obligation Fair value of plan assets Retirement benefits liability

The following tables present the changes in the present value of defined benefit obligation and fair value of plan assets: Defined benefit obligation 2007 P99,623,372= 6,526,733 8,230,778 (5,570,777) 2,242,689 5,713,046 P116,765,841= 2006 =P62,489,836 3,713,683 7,498,780 (1,329,108) 2,268,203 24,981,978 =P99,623,372

Balance at beginning of year Current service cost Interest cost Benefits paid Transfer from affiliate(s) Actuarial losses Balance at end of year

Fair value of plan assets 2007 P52,623,938= 4,478,648 16,758,424 (5,570,777) 11,356,749 (811,242) P78,835,740= 2006 =P43,327,906 4,332,791 7,000,000 (1,329,108) 2,268,203 (2,975,854) =P52,623,938

Balance at beginning of year Expected return on plan assets Contributions Benefits paid Transfer from affiliate Actuarial losses Balance at end of year

The allocation of the fair value of the plan assets follows: 2007 70% 7 22 1 100% 2006 79% 6 5 10 100%

Government securities Investment in shares of stock Cash and cash equivalents Other receivables and investments

The actual return of plan assets amounted to P3,667,406 and P1,356,937 in 2007 and 2006,== respectively.

*SGVMC3080 64*

- 32 -

The principal actuarial assumptions used to determine the retirement benefits obligation as of January 1 are as follows: 2007 8.08% 9.00% 7.00% 2006 12.00% 7.50% 10.00% 2005 14.47% 7.50% 10.00%

Discount rate Salary increase rate Expected rate of return on plan assets

The discount rate prevailing as of December 31, 2007 is 10.41%. The overall expected rate of return on plan assets is determined based on the market prices prevailing on that date, applicable to the period within which the obligation is to be settled. Amounts for the current and previous three (3) years are as follows:
2007 Defined benefit obligation Plan assets Deficit P116,765,841= (78,835,740) 37,930,101 2006 =P99,623,372 (52,623,938) 46,999,434 2005 =P62,489,836 (43,327,906) 19,161,930 2004 =P51,741,074 (29,046,834) 22,694,240

As of December 31, 2007 and 2006, experience adjustments on plan liabilities amounted to =P2,140,802 loss and P23,640,613 loss, respectively, while experience adjustments on plan assets= amounted to (P811,242) gain and P2,975,854 loss, respectively.== Movements in the retirement benefits liability for 2007 and 2006 are as follows: 2007 P46,999,434= (9,114,060) 16,803,151 (16,758,424) P37,930,101= 2006 =P19,161,930

Balance at beginning of year Transfer from affiliate Retirement benefits cost for the year Contributions paid Balance at end of year

34,837,504 (7,000,000) =P46,999,434

The net actuarial loss as of December 31, 2007 and 2006 are as follows: 2007 Actuarial loss on benefit obligation: Effects of changes in actuarial assumptions Experience adjustments on benefit obligation Actuarial loss (gain) on plan assets: Experience adjustments on plan assets Net actuarial losses P3,572,244= 2,140,802 5,713,046 (811,242) P4,901,804= 2006 =P1,341,365 23,640,613 24,981,978 2,975,854 =P27,957,832

*SGVMC3080 64*

- 33 -

21. Interest Income and Interest Expense a. Interest income was derived from: 2006 2007 =P P25,899,936= 2,580,950 10,122,776 P36,022,712= =P2,580,950 2005 =P 12,865,347 19,562,519 P32,427,866=

Note receivable (Notes 8 and 17) Cash and cash equivalents (Note 4) Trade receivables

b. Interest expense consists of: 2006 2007 P30,165,642==P32,291,488 21,199,044 18,418,069 30,364,288 4,727,235 P74,509,990==P62,655,776 2005 P33,397,687= 20,377,557 P53,775,244=

Long-term debt (Note 15) FRNs (Note 13) Bank loans (Note 14) Amortization of debt issuance cost and others (Note 13)

22. Income Taxes a. The components of the Companys deferred income tax assets represent the deferred income tax effects of the following: 2007 Allowance for: Inventory obsolescence Doubtful accounts Retirement benefits liability Unamortized portion of past service cost Unrealized foreign exchange loss Excess MCIT 2006 2005 P11,318,016= 4,076,575 6,706,676 4,564,276 2,684,436 10,573,368 P39,923,347=

P10,332,000==P12,250,000 4,061,474 9,395,804 16,449,802 9,330,805 5,096,290 5,527,124 364,063 2,459,541 P37,045,274==P38,221,629

The Company applied its excess MCIT incurred in 2005 against its regular corporate income tax liability in 2006.

*SGVMC3080 64*

- 34 -

b. A reconciliation of the income tax expense (benefit) computed by applying the statutory income tax rates to the income before income tax as shown in the statements of income is summarized as follows: 2007 Provision for income tax at 35% =in 2007 and 2006 and 32.5 % in 2005 P95,216,700 P75,644,644= Additions to (reductions) in income tax resulting from: Nontaxable net income under ITH(49,853,979) (43,410,478) Recovery of prior income taxes paid (47,469,548) Nondeductible expenses3,941,241 Interest income subjected to final tax(903,332)(2,590,522) Nondeductible interest expense473,4541,441,741 MTM gain on derivative asset636,294 Reversal of excess provision (21,161,534) Effect of change in income tax rate and others(507,867) Provision for income tax=P814,060 P10,642,754= =P64,573,086 2006 2005

(61,454,817) (974,004) 386,396

(351,481) =P2,179,180

The breakdown of income tax expense follows: 20062007 2005 =P19,996,593 =P47,107,253 (17,817,413) P19,514,404= (8,871,650)1,176,355 (47,469,548) =P2,179,180 =P814,060 P10,642,754=

Currently payable Deferred Recovery of prior income taxes paid

c. The Bureau of Internal Revenue (BIR) on various dates from February 2, 2004 to December 27, 2007 granted the Company income tax exemption under Republic Act (RA) No. 7459, otherwise known as the Inventors and Inventions Incentives Act of the Philippines, for the following patented designs or products: Utility Model No./ Patent Registration No. UM -8471 2 -1997 -15095 2 -1999 -00320 2 -2001 -000110 2 -2001 -000291 Date of First Sale 2001 1997 1999 2006 2006 2005

Products Covered Extraderm Exfoliant Plus 1, 2, 3 & 4 and Maxipeel 2 Maxipeel 3 Extract Therapy with Tea Tree Oil Maxipeel Solution No. 3 Extraderm Exfoliating Facial Wash 1, 2, & 3 Extraderm Oil and Shine Control Purifying Facial Wash, Skinwhite Whitening Body Wash and Biolink Green Papaya Whitening Facial Wash and Facial Scrub

(Forward)

*SGVMC3080 64*

- 35 Utility Model No./ Patent Registration No. 2 -2003 -000284 2 -2004 -000075 2-2000-000161 2-2006-000297 2-2006-000391 Date of First Sale 2003 2006 2005 2002 2007 2007

Products Covered Extraderm Clear Solution # 1, 2 & 3 and Extraderm Age-defy Solutions # 1, 2 & 3 Livermore Illumiderm Glutathione Capsule Vitasoft Cologne Gel Biolink VCO Moisturizing Bath Soap Biolink VCO Moisturizing Lotion

The income tax exemption is granted to promote, encourage, develop and accelerate commercialization of technologies developed by local researchers or adopted locally from foreign sources including invention. Any income derived from these technologies shall be exempted from income taxes during the first ten (10) years from the date of the first sale on a commercial scale. Gross profit and net operating income covered by the income tax exemption amounted to: 2007 - P421.0 million and P191.6 million; 2006 - P489.1 million and=== =P124.0 million; and 2005 - P489.2 million and P189.1 million.== d. On April 7, 2005, the Company applied with the BIR for administrative claim for refund for excess income taxes paid for the taxable year 2002 amounting to P 47,469,548 arising from its= retroactive application of the income tax exemption incentives under RA No. 7459. On May 29, 2007, the Court of Tax Appeals (CTA) Second Division decided in favor of the Company and ordered the BIR to refund the said claim. The BIR filed a Motion for Reconsideration with the CTA and on October 30, 2007, the said Motion for Reconsideration filed by the BIR was denied. On December 7, 2007, the BIR filed a Petition for Review with the CTA En Banc and on May 6, 2008, the En Banc unanimously decided in favor of the Company.

Management and its legal counsel believe that the decision of the CTA and CTA En Banc have persuasive effect and usually serve as a judicial guide. They believe that the fact of the CTA are entitled to the highest respect and the Supreme Court generally respects and refrains from setting aside conclusions reached by the CTA, which by the very nature of its function, is exclusively dedicated to the consideration, resolution of tax problems and has developed an expertise on the subject, unless there is a clear showing of abuse or improvident exercise of authority on its part. Based on the above facts, the Company recognized the receivable from the BIR amounting to =P47,469,548 and recognized Recovery of prior income taxes paid for the same amount in 2007. e. On May 24, 2005, the new Expanded Value-Added Tax (E-VAT) law was signed as RA No. 9337 or the E-VAT Act of 2005. The E-VAT law took effect on November 1, 2005 following the approval on October 19, 2005 of Revenue Regulations (RR) 16-2005 which provides for the implementation of the rules and regulations of the new E-VAT law. Among the relevant provisions of the new E-VAT law are: i. Change in corporate income tax rate from 32% to 35% for the next three years effective on November 1, 2005, and 30% starting on January 1, 2009 and thereafter; ii. A 70% cap on the input VAT that can be claimed against output VAT;

*SGVMC3080 64*

- 36 -

iii. Increase in the VAT rate imposed on goods and services from 10% to 12% effective January 1, 2006 provided that the VAT collection as a percentage of Gross Domestic Product (GDP) of the previous year exceeds 2.8% or the Philippine national government deficit as a percentage of GDP of the previous year exceeds 1.5%; and iv. The amount of interest paid or incurred within a taxable year on indebtedness in connection with the taxpayers profession, trade or business shall be allowed as a deduction from gross income, provided that, the taxpayers otherwise allowable deduction for interest expense shall be reduced by 42% of the interest income subject to final tax, provided that, effective January 1, 2009, the rate shall be 33%.

On January 31, 2006, the President, upon recommendation of the Secretary of Finance, approved the 2% increase in VAT rate effective on February 1, 2006. On November 21, 2006, the President signed into law RA No. 9361 which amends Section 110 (B) of the Tax Code. This law, which became effective on December 13, 2006, provides that if the input tax, inclusive of the input tax carried over from the previous quarter exceeds the output tax, the excess input tax shall be carried over to the succeeding quarter or quarters. The Department of Finance, through the BIR, issued RR No. 2-2007 to implement the provisions of the said law. Based on the regulation, the amendment shall apply to the quarterly VAT returns to be filed after the effectivity of RA No. 9361 except VAT returns covering taxable quarters ending earlier than December 2006.

23. Segment Reporting The Companys reportable segments consist of: Naturals a group of products whose active ingredients are derived from natural or herbal sources. Revenues consist of sales of the following brands: Biolink VCO (Virgin Coconut Oil), Biolink Tea Tree Oil, Biolink Green Papaya, Extract (calamansi, papaya, avocado, and cucumber), and Baby Spa (VCO). Skin Care products that are positioned to provide total skin care solution through the innovative use of potent non-herbal active ingredients. Revenues are generated from the sales of the following brands: Maxipeel (exfoliants), SkinWhite (skin whitening), and Extraderm (antiaging). Hair Care consists of hair care products. Revenues are derived from the sales of the following brands: Kolours (hair dye), Vitress (cuticle coat), and Control (hair dressing). Revenues are directly identifiable per segment. In the case of cost of goods sold, however, some components of the production overhead which cannot be isolated on a per segment basis were allocated based on sales contribution.

*SGVMC3080 64*

- 37 -

The Companys segment information is as follows (in thousands):

December 31, 2007 Unallocated Corporate NaturalsBalances P667,499=P105,000= 385,322105,000 P282,177= P=

Net sales Cost of goods sold Gross profit Other Information Trade receivables Inventories Plant, property and equipment Total Accounts payable and accrued liabilities Capital expenditures Depreciation and amortization

Hair Care Skin Care P543,557= P1,694,776= 261,825 723,014 P281,732= P= 89,047 P89,047= P971,762= P= 117,072 1,699 P118,771=

Total P3,010,832= 1,475,161 P1,535,671=

P= P758,206= P758,206= 122,557 141,956 470,632 292,874 294,573 P122,557= P1,193,036= P1,523,411=

P= P= P=

P= P= P4,937=

P= P= P=

P762,492= P20,585= P45,795=

P762,492= P20,585= P50,732=

December 31, 2006 Unallocated Corporate Balances =P =P

Net sales Cost of goods sold Gross profit Other Information Trade receivables Inventories Plant, property and equipment Total Accounts payable and accrued liabilities Capital expenditures Depreciation and amortization

Hair Care =P483,242 247,710 =P235,532

Skin Care =P1,577,155 652,484 =P924,671

Naturals =P338,685 193,785 =P144,900

Total =P2,399,082 1,093,979 =P1,305,103

=P 33,990 =P33,990

=P 92,752 6,642 =P99,394

=P 55,717 =P55,717

=P442,506 565,644 =P1,008,150

=P442,506 182,459 572,286 =P1,197,251

=P =P =P

=P =P440 =P7,100

=P =P =P

=P513,424 =P2,462 =P71,013

=P513,424 =P2,902 =P78,113

December 31, 2005 Unallocated Corporate Balances =P =P

Net sales Cost of goods sold Gross profit

Hair Care =P396,848 206,545 =P190,303

Skin Care =P1,692,723 736,104 =P956,619

Naturals =P603,744 303,825 =P299,919

Total =P2,693,315 1,246,474 =P1,446,841

*SGVMC3080 64*

- 38 -

December 31, 2005 Unallocated Corporate Balances =P576,640 622,912 =P1,199,552

Hair Care Other Information Trade receivables Inventories Plant, property and equipment Total Accounts payable and accrued liabilities Capital expenditures Depreciation and amortization =P 53,441 =P53,441

Skin Care =P 132,619 24,371 =P156,990

Naturals =P 57,023 =P57,023

Total =P576,640 243,083 647,283 =P1,467,006

=P =P36 =P

=P =P361 =P10,843

=P =P =P

=P608,319 =P16,060 =P99,302

=P608,319 =P16,457 =P110,145

24. Earnings Per Share

December 31, December 31, 2006 2007 P271,233,655= =P205,484,800 284,638,677 P0.95= 107,312,250 =P1.91 December 31, 2005 =P196,507,237 107,312,250 =P1.83

(a) Net income (b) Weighted average number of shares (c) Earnings per share

25. Other Agreements and Commitments Agreements with Toll Manufacturers a. Full Toll Manufacturing The Company has an agreement with a certain contractor for the compounding, processing, and packaging of pure coconut chips, to be converted into the Companys finished products, in accordance with the product specifications and packaging designs provided by the Company. The agreement with the contractor is for a period of one year, renewable at the option of the Company. b. Partial Toll Manufacturing The Company has existing agreements with various contractors for the packaging of the Companys products. The agreements are for the period of one year, renewable at the option of the Company.

*SGVMC3080 64*

- 39 -

Agreements with Suppliers The Company has agreements with various suppliers for the delivery of raw materials and packaging materials. Billings are based on the terms indicated on the purchase orders as mutually agreed between the parties. Agreements with Distributors The Company has agreements with various distributors for the latter to sell the goods of the Company in designated areas as indicated in the contracts. The distributors are given discount packages as stated in the agreement.

26. Financial Instruments Fair values Set out below is a comparison by category of carrying amounts and fair values of all of the Companys financial instruments as of December 31, 2007 and 2006:
2007 Carrying Amount Financial Assets: FVPL- Derivative asset Loans and Receivables: Cash and cash equivalents Receivables - net Trade: Related party Distributors and other accounts Others: Related parties Third parties Receivable from a land developer Note receivable, including current portion - per class Advances to a stockholder CarryingFair AmountValue (In Thousands) P1,077= 1,975,038 =P 111,860 2006 Fair Value

P1,077= 1,975,038

=P 111,860

131,288 626,918 187,565 32,771 75,000 250,153 137,370 3,416,103

131,288 626,918 187,565 32,771 75,000 281,131 137,370 3,447,081

137,197 305,309 72,765 40,253 259,988 220,358 1,147,730

137,197 305,309 72,765 40,253 259,988 220,358 1,147,730 13,400 13,400 =P1,161,130

AFS Investments: Unquoted Quoted

200,000 19,770 219,770 P3,636,950=

200,000 13,400 19,770 13,400 219,770 P3,667,928= =P1,161,130

(Forward)

*SGVMC3080 64*

- 40 -

2007 Carrying Amount Financial Liabilities: Other Financial Liabilities Accounts payable and accrued expenses: Trade payables Accrued expenses Other current liabilities Floating rate notes payable Bank loans Long-term debt CarryingFair AmountValue (In Thousands)

2006 Fair Value

P637,434= 113,702 11,355 985,417 P1,747,908=

=P400,553 P637,434= 104,216 113,702 8,655 11,355 985,417 360,000 367,174 P1,747,908= =P1,240,598

=P400,553 104,216 8,655 360,000 383,709 =P1,257,133

Cash and cash equivalents, receivables, advances to a stockholder, bank loans and accounts payable and accrued expenses The carrying amount of cash and cash equivalents, receivables, advances to a stockholder, bank loans and accounts payable and accrued expenses approximate the fair values due to the shortterm nature of these accounts. Notes receivable The fair value of the notes receivable with fixed interest rate is determined by discounting the future cash flows using the prevailing rate as of the reporting date. Discount rates used range from 7.30% to 7.61% as of December 31, 2007. The carrying value of the notes receivable as of December 31, 2006 approximates its fair value due to the short-term nature of the account. AFS investments The fair value of quoted AFS investments was determined by reference to market bid quotation as of balance sheet date. The fair value of unquoted AFS investments was determined based on the latest sale transaction as of balance sheet date as confirmed by the issuer. Floating rate notes payable The carrying value approximates the fair value because of recent and regular repricing based on market conditions. Long-term debt The fair value of the long-term debt with fixed interest rate is determined by discounting the future cash flows using the prevailing rate as of reporting date. Discount rates used range from 7.85% to 11.16% as of December 31, 2006.

*SGVMC3080 64*

- 41 -

27. Financial Risk Management Objectives and Policies The main purpose of the Companys financial instruments is to fund its operations and capital expenditures. It is, and has been throughout the year under review, the Companys policy that no trading in financial instruments shall be undertaken. The main risks arising from the Companys financial instruments are interest rate risk, foreign currency risk, credit risk and liquidity risk. The BOD reviews and agrees policies for managing each of these risks and they are summarized below. Interest rate risk Interest rate risk is the risk that future cash flows from a financial instrument (cash interest rate risk) or its fair value (fair value interest rate risk) will fluctuate because of changes in market interest rates. The Companys floating rate notes payable is exposed to cash flow interest rate risk (see Note 13). The repricing of the floating rate notes payable are done on intervals of three (3) months. The Company regularly monitors interest rate movements and, on the basis of current and projected economic and monetary data, decides on the best alternative to take. The Company has a one time option under its Notes Facility to convert the interest rate from floating to fixed rate. The Company monitors the interest rate volatility to determine whether the option to change the interest rate to fixed rate has to be exercised, to protect it from spiraling interest costs should interest rates go up. The following table demonstrates the sensitivity of income before income tax as of December 31, 2007 to a reasonably possible change in interest rates, with all other variables held constant. Effect on income before income tax Increase (decrease) (P1.00 million)= 1.00 million

2007

Increase/decrease in market basis points +10bps -10bps

There is no other impact on the Companys equity other than those already affecting profit on loss. Foreign currency risk The Company is exposed to foreign currency exchange risk arising from its exposure to the US dollar rate fluctuation on its trade receivables on export sales and cash and cash equivalents denominated in US dollars.

*SGVMC3080 64*

- 42 It is not considered practical or cost effective at present to use financial instruments or derivatives to the Companys exposure to exchange rate fluctuation. Instead, foreign exchange rates are reviewed and monitored periodically by the Companys BOD. The Company maintains U.S. dollar accounts to manage its foreign currency denominated transactions. The outstanding balance as of December 31, 2007 of the Companys foreign currencydenominated financial assets and liabilities are as follows: In U.S. dollar Financial assets: Cash and cash equivalents Receivables - net Financial liabilities: Accounts payable and accrued expenses $1,144,169 1,613,105 2,757,274 (122,952) $2,634,322 In Php =P47,231,296 66,588,974 113,820,270 (5,075,458) =P108,744,812

The following table demonstrates the sensitivity to a reasonably possible movement of the Philippine peso against the U.S. dollar, with all other variables held constant, of the Companys income before income tax due to changes in fair value of monetary assets and liabilities. Appreciation (depreciation) of Php rate against U.S. dollar +6.73% -6.73%

2007

Effect on profit before tax (P7.32 million)= 7.32 million

Credit risk Credit risk is the risk that the Company will incur a loss because its customers or counterparties failed to discharge their contractual obligations. The Company trades only with recognized, creditworthy customers. It is the Companys policy that all customers who wish to trade on credit terms are subject to credit verification procedures and credit positions are monitored on a regular basis. In addition, receivable balances are monitored on an ongoing basis with the result that the Companys exposure to bad debts is not significant. Outstanding receivables are mostly from big retail store chains which the Company services directly. Credit lines on these accounts are reviewed on a regular basis.

The maximum exposure to credit risk is represented by the carrying amount of each financial asset in the balance sheets.

*SGVMC3080 64*

- 43 -

The table below shows the credit quality of the Companys receivables based on their historical experience with the corresponding third parties.
December 31, 2007 (in Millions) Neither past due nor impaired Past DueSuborStandardStandard ImpairedHigh GradeGradeGrade P1.08=P=P=P= 1,973.43

Derivative asset Cash and cash equivalents Receivables Trade: Related party Distributor and others Others: Related parties Third parties Receivable from land developer Note receivable, including current portion Advances to a stockholder AFS investments: Unquoted Quoted

Total P1.08= 1,973.43

71.60 249.53 2.87 32.77

107.09 184.69

60.53

65.81 232.75

137.41 649.90 187.56 32.77

75.00 137.37 200.00 19.77 P2,763.42=

250.15 P541.93=

P60.53=

P298.56=

75.00 250.15 137.37 200.00 19.77 P3,664.44=

High Grade receivables pertain to those receivables from clients or customers that consistently pay their accounts on or before the due date. Standard grade receivables includes receivables that are collected on their due dates even without an effort from the Company to follow them up while receivables which are collected on their due dates provided that the Company made a persistent effort to collect them are included under Sub-standard Grade receivables. Past due receivables and advances include those that are past due but are still collectible. An analysis of past due receivables, by age, is provided on the next table. The majority of these past due receivables are not considered to be impaired.

The table below shows an aging analysis of receivables:

December 31, 2007 (in Millions) Past due but not impaired 31-6060-9091-120 Over 120 DaysDaysDaysDays =P=P=P=P

Derivative asset Cash and cash equivalents (Forward)

Neither past due nor impaired =P1.08 1,973.43

1-30 Days =P

Subtotal Impaired =P=P

Total =P1.08 1,973.43

*SGVMC3080 64*

- 44 -

Neither past due nor impaired Receivables Trade: Related party Distributor and other Others: Related parties Third parties Receivable from land developer Note receivable, including current portion Advances to a stockholder AFS investments Quoted Unquoted

1-30 Days

December 31, 2007 (in Millions) Past due but not impaired 31-6060-9091-120 Over 120 DaysDaysDaysDays

Subtotal Impaired

Total

=P71.60

=P

=P

=P

=P

=P59.70

=P59.70

=P6.11

=P137.41

417.15

106.52

36.54

5.90

0.49

60.32

209.77

22.98

649.90

187.56 32.77

187.56 32.77

75.00

75.00

250.15 137.37 200.00 19.77 =P3,365.88

=P106.52 =P36.54

=P5.90

=P0.49

=P120.02

=P269.47

=P29.09

250.15 137.37 200.00 19.77 =P3,664.44

Liquidity risk Liquidity risk is the risk the Company will be unable to meet its payment obligations when they fall under normal and stress circumstances. The Companys objective is to always maintain a certain level of cash up to 14 days sales. Receivable monitoring is performed on a daily basis to ensure positive liquidity. Standby credit lines are available from overdraft facilities and omnibus lines provided by banks. Excess funds are deposited in high-interest yield placements with terms of between 7 to 30 days.

The table below summarizes the maturity profile of the Companys financial liabilities as of December 31, 2007 based on undiscounted payments (in thousands): December 31, 2007:
Less than 1 years 1 to 2 years 2 to 3 years 3 to 4 years 4 to 5 years

Total

Floating rate notes payable Accounts payable and accrued expenses: Trade payables Accrued expenses Other current liabilities Total

=P121,014

=P123,689

=P121,468

=P118,311

=P849,925 P1,334,407=

637,434 98,490 11,356 =P868,294

=P123,689

=P121,468

=P118,311

637,434 98,490 11,356 =P849,925 =2,081,687P

*SGVMC3080 64*

- 45 -

Capital Management The primary objective of the Companys capital management is to ensure that it maintains a strong credit rating and healthy capital ratios in order to support its business, continue to provide returns to shareholders and benefits to other stakeholders, and to maintain an optimal capital structure that would reduce the cost of capital. The Company regularly monitors its use of capital using leverage ratios, such as debt-to-equity ratio, and makes adjustments in the light of changes in economic conditions and its own financial position. To maintain or adjust its capital structure, the Company may adjust the dividend payment to shareholders, return capital to shareholders or issue new shares. The following table summarizes the total capital considered by the Company as of December 31: 2006 2007 =P P985,416,803= 107,312,250 746,160,357 1,676,712,406 257,378,165 363,124,515 284,637,501 367,173,612 P3,692,927,067==P1,094,988,542

Floating rate notes payable Capital stock Additional paid-in capital Retained earnings Long-term debt

As described in Note 13-Floating Rate Notes, the Company is subject to certain negative covenants that could affect the Companys capital structure. These include provisions such as contracting additional loans; declaration or payment of dividends in excess of fifty percent (50%) of the Companys previous years net income; purchase, redeem, retire or otherwise acquire for value its capital stock; maintaining a current ratio of at least 2.0 and debt-to-equity ratio of not more than 1.5 until final payment. The Companys debt-to-equity ratio as of December 31, 2007 is 0.66.

28. Contingencies The Company is a party to some cases and assessments which are pending in courts or are under protest. Management and the Companys legal counsels strongly believe that the liabilities, if any that may result from the final outcome of these cases and assessments will not materially affect the Companys financial position and results of operations.

29. Notes to Statements of Cash Flows In September 2007, the Company received shares of stock amounting to P200.00 million= from SHI as payment of its advances from the Company (see Note 10).

*SGVMC3080 64*