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					The prospectus is being displayed in the website to make the prospectus accessible to
more investors. The PSE assumes no responsibility for the correctness of any of the
statements made or opinions or reports expressed in the Prospectus. Furthermore,
the Stock Exchange makes no representation as to the completeness of the
Prospectus and disclaims any liability whatsoever for any loss arising from or in
reliance in whole or in part on the contents of the Prospectus.
                                                                                                                                               PRELIMINARY PROSPECTUS DATED September 9, 2011
THIS PRELIMINARY PROSPECTUS AND THE INFORMATION CONTACINED HEREIN ARE SUBJECT TO COMPLETION AND AMENDMENT IN THE FINAL PROSPECTUS. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, BUT HAS NOT YET BECOME
EFFECTIVE. THIS DOCUMENT SHALL NOT CONSTITUTE AN OFFER TO SELL OR BE CONSIDERED A SOLICITATION OF AN OFFER TO BUY.




                                                                                                                                         Prospectus relating to the Initial Public Offering of forty two million one
                                                                                                                                           hundred sixty one thousand (42,161,000) shares of the capital stock of
                                                                                                                                         Calapan Ventures, Inc. with a par value of One Peso (PhP1.00) per share
                                                                                                                                            at an Offer Price of Two Pesos (PhP 2.00) to Two Pesos and Fifty
                                                                                                                                          Centavos (PhP 2.50) to be listed and traded on the Second Board of the
                                                                                                                                                             Philippine Stock Exchange, Inc.



                                                                                                                                                              Issue Manager and Underwriter
                                                                                                                                                                  UNICAPITAL, INC.


                                                                                                                                                                    Selling Agents
                                                                                                                                             Trading Participants of the Philippine Stock Exchange, Inc.


                                                                                                                                                           This Prospectus is dated September 9, 2011




                                                                                                                                         THE SECURITIES AND EXCHANGE COMMISSION HAS NOT
                                                                                                                                         APPROVED THESE SECURITIES OR DETERMINED IF THIS
                                                                                                                                         PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION
                                                                                                                                         TO THE CONTRARY IS A CRIMINAL OFFENSE AND SHOULD BE
                                                                                                                                         REPORTED IMMEDIATELY TO THE SECURITIES AND EXCHANGE
                                                                                                                                         COMMISSION.
CALAPAN VENTURES, INC.
4th Floor, 20 Lansbergh Place
170 Tomas Morato Avenue corner Scout Castor Street
Quezon City, Philippines
Telephone No. (632) 373-3038; Facsimile No. (632) 373-8492
www.h2o.ph

This Prospectus relates to the Offer and sale of forty two million one hundred sixty one
thousand (42,161,000) shares (“the Offer Shares”) with a par value of One Peso
(PhP1.00) of Calapan Ventures, Inc. (“CVI” or the “Company”), a corporation
organized and existing under the laws of the Republic of the Philippines at an Offer
price of Two Pesos (PhP 2.00) to Two Pesos and Fifty Centavos (PhP 2.50) per share.
Forty two million one hundred sixty one thousand (42,161,000) new shares are being
issued by the Company from its authorized and unissued capital stock by way of a
primary offer. The Offer Shares shall be listed and traded under the stock symbol
“[H2O]” on the Second Board of the Philippine Stock Exchange.

The Company presently has an authorized capital stock of Two Hundred Million Pesos
(PhP200,000,000.00) divided into two hundred million (200,000,000) common shares
with a par value of One Peso (PhP1.00), of which one hundred twenty million
(120,000,000) shares are issued and outstanding. Upon completion of the offering, the
total outstanding Shares of the Company shall be one hundred sixty two million one
hundred sixty one thousand (162,161,000).

All of the common shares of the Company which have been issued (“Common Shares”)
are unclassified and have identical rights and privileges. The Common Shares may be
owned by any person or entity regardless of citizenship or nationality subject to the
limits prescribed by Philippine laws on foreign ownership for certain types of domestic
companies. See “Terms And Conditions Of The Offer” on page 23 of this Prospectus
and “Philippine Foreign Investment”, “Foreign Ownership and Exchange Controls” on
page 151 of this Prospectus.

The Offer Shares shall be offered at a price of Two Pesos (PhP 2.00) to Two Pesos and
Fifty Centavos (PhP 2.50) per share (the “Offer Price”). The determination of the Offer
Price is further discussed in the section “Determination Of Offer Price” on page 38 of
this Prospectus and is based on a book-building process and discussions between the
Company and the Underwriter.

Through the Offer and based on the Offer Price set forth above, the Company expects
to raise gross proceeds of Eighty Four Million Three Hundred Twenty Two Thousand
Pesos (PhP84,322,000.00) to One Hundred Five Million Four Hundred Two Thousand
Five Hundred Pesos (PhP105,402,500.00). The underwriting and selling fees to be paid
by the Company in relation to the Offer shall be equivalent to Three and a Half Percent
(3.5%) of the gross proceeds from the Offer. The net proceeds from the Offer,
determined by deducting from the gross proceeds the management fees, underwriting
and selling fees, listing fees, taxes and other related fees and expenses, will be used by the
Company to fund the expansion plans of Calapan Water and various zoning works to
reduce Calapan Water‟s NRW. See “Use of Proceeds” on page 36 of this Prospectus.

Up to Sixteen Million Eight Hundred Sixty Four Thousand (16,864,000) Offer Shares are
being offered at the Offer Price to all of the trading participants of the Philippine Stock

                                                                                             2
Exchange, Inc. (the “PSE”) (the “PSE Trading Participants” or “PSE Brokers”) and to
LSI under the Local Small Investors Program in the Philippines (the “Offer”).
Unicapital, Inc. (“Underwriter”) will act as the Underwriter of the Offer. See “Plan Of
Distribution” on page 41 of this Prospectus for details regarding the commission to be
received by the Underwriter. Any allocation of Offer Shares not taken up by the PSE
Trading Participants and the local small investors shall be distributed by the Underwriter
to its respective clients or the general public. Offer Shares not taken up by the PSE
Trading Participants, the Underwriter‟s clients or the general public shall be purchased by
the Underwriter.

Incorporated in the Philippines in 1994, Unicapital, Inc. has an authorized capital of Five
Hundred Million Pesos (PhP 500,000,000.00), of which Four Hundred Twenty Four
Million Seven Hundred Thirteen Thousand Five Hundred Pesos (PhP424,713,500.00)
are issued and outstanding. It obtained its license to operate an investment house in June
29, 1994 and is licensed by the SEC to engage in underwriting or distribution of
securities to the public. Its executives have extensive experience in the capital markets
and were involved in lead roles in a substantial number of major equity and debt issues.
Unicapital‟s Board of Directors is chaired by Menardo R. Jimenez, Sr.

Each holder of Shares will be entitled to such dividends as may be declared by CVI‟s
Board of Directors, provided that any stock dividend declaration requires the approval of
shareholders holding at least two-thirds of the Company‟s total outstanding capital stock.
It is the policy of the Company to declare dividends only from unrestricted retained
earnings. Dividends shall be payable at such time and in such manner and in such
amounts as the Board of Directors may determine depending upon the Company‟s
results of operations, earnings, financial condition, contractual limitations, requirement
for additional capital, and other factors deemed relevant by the Board of Directors.

On 17 November 2010, CVI‟s Board of Directors approved the adoption and
implementation of a dividend policy, wherein dividends equivalent to twenty percent
(20%) of the issued and outstanding shares of stock of the Company will be issued
and/or paid to the stockholders of the Company per annum, provided that the Company
has sufficient unrestricted retained earnings for distribution. See the section on
“Dividends” on page 121 for a more detailed discussion.

The capital of the Company‟s subsidiaries holding lands and water permits and operating
public utilities must be, by mandate of the Philippine Constitution and relevant laws, at
least sixty percent (60%) Filipino-owned. Thus, the Company, which owns almost one
hundred percent (100%) of such subsidiaries, must itself be Filipino.

The Company engages in the trading business. If the company shall engage in retail trade,
it will be subject to capitalization and nationality restrictions imposed on retail trade.

Prior to making an investment decision, investors are advised to carefully consider the
risks associated with an investment in the Offer Shares. See “Risk Factors” on page 28
for a more detailed discussion on the risks associated with an investment in the Offer
shares

On December 6, 2010, the Company filed with the SEC a registration statement (the
“Registration Statement”) relating to the Offer Shares. The SEC issued an order on
______ __, 2011, rendering effective the Registration Statement and a Certificate of

                                                                                         3
Permit to Offer Securities for Sales (the “Certificate of Permit”). The issuance of the
Certificate of Permit is merely permissive and does not constitute a recommendation or
endorsement by the SEC of the Offer Shares.

On December 7, 2010, the Company also filed its application for the listing and trading
of the Common Shares in the PSE. The Board of Directors of the PSE approved the
listing of the Common Shares on August 24, 2011. However, such approval for listing is
merely permissive and does not constitute a recommendation or endorsement of the
Offer by the PSE. The PSE assumes no responsibility for the correctness of any of the
statements made or opinions expressed in this Prospectus. Furthermore, the PSE makes
no representation as to the completeness and expressly disclaims any liability whatsoever
for any loss arising from or in reliance upon the whole or any part of the contents of this
Prospectus.

Unless otherwise stated, the information contained in this document has been supplied
by the Company, which accepts full responsibility for the accuracy of the information
and confirms that to the best of its knowledge and belief, there are no other material
facts the omission of which would make any statement in this document incorrect. Any
subsequent transaction made shall not, under any circumstances, create any implication
that the information contained herein is correct as of any time subsequent to the date
hereof.

No dealer, salesman or other person has been authorized by the Company or the
Underwriter to issue any advertisement or to give any information or make any
representation in connection with the Offer other than those contained in this document,
and if issued, given or made, such advertisement, information or representation must not
be relied upon as having been authorized by the Company or by the Underwriter.

Market data and certain industry information used throughout this Prospectus were
obtained from internal surveys, market research, publicly available information and
industry publications. Industry publications generally state the information contained
therein has been obtained from sources believed to be reliable, but the accuracy and
completeness of such information is not guaranteed. Similarly, internal surveys, industry
forecasts and market research, while believed to be reliable, have not been independently
verified and neither the Company nor the Underwriter makes any representation as to
the accuracy and completeness of such information.

This Prospectus includes forward-looking statements. The Company has based these
forward-looking statements largely on its current expectations and projections about
future events and financial trends affecting its business and operations. Words including,
but not limited to “believes”, “may”,” will”, “estimates”, “continues”,” anticipates”,
“intends”, “expects” and similar words are intended to identify forward-looking
statements. In light of the risks and uncertainties associated with forward-looking
statements, investors should be aware that the forward-looking events and circumstances
in this Prospectus may not occur. The Company‟s actual results could differ significantly
from those anticipated in the Company‟s forward-looking statements.

This document does not constitute an offer or a solicitation by anyone in any jurisdiction
in which such offer or solicitation is not authorized, or to any person to whom it is
unlawful to make such offer or solicitation. Each investor in the Offer Shares must
comply with all applicable laws and regulations in force in the jurisdiction in which it

                                                                                         4
purchases, offers or sells such securities and must obtain the necessary consent, approval
or permission for the purchase, offer or sale of such securities under the laws and
regulations in force in any jurisdiction to which it is subject or in which it makes such
purchase, offer or sales. Foreign investors interested in subscribing to or purchasing the
Offer Shares should apprise themselves as to the applicable legal requirements under the
laws and regulations of the countries of their nationality, residence, or domicile, and as to
any relevant tax or foreign exchange control laws and regulations that may affect them.
Prospective investors to the Offer Shares must conduct their own evaluation of the
Company, and the terms and conditions of the Offer. This Prospectus contains certain
“forward-looking statements”. These forward-looking statements can generally be
identified by use of statements that include words or phrases such as CVI or its
management “believes”, “expects”, “anticipates”, “intends”, “plans”, “projects”,
“foresees”, or other words or phrases of similar import. Similarly, statements that
describe CVI's objectives, plans or goals are also forward-looking statements. All such
forward-looking statements are subject to certain risks and uncertainties that could cause
actual results to differ materially from those contemplated by the relevant forward-
looking statement.

A REGISTRATION STATEMENT RELATING TO THESE SECURITIES
HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION BUT HAS NOT YET BEEN DECLARED EFFECTIVE. NO
OFFER TO BUY THE SECURITIES CAN BE ACCEPTED AND NO PART
OF THE PURCHASE PRICE CAN BE RECEIVED UNTIL THE
REGISTRATION STATEMENT HAS BECOME EFFECTIVE THEREBY,
AND ANY SUCH OFFER MAY BE WITHDRAWN OR REVOKED,
WITHOUT OBLIGATION OR COMMITMENT OF ANY KIND, AT ANY
TIME PRIOR TO NOTICE OF ITS ACCEPTANCE GIVEN AFTER THE
EFFECTIVE DATE. AN INDICATION OF INTEREST IN RESPONSE
HERETO INVOLVES NO OBLIGATION OR COMMITMENT OF ANY
KIND. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO
SELL OR THE SOLICITATION OF AN OFFER TO BUY.




CALAPAN VENTURES, INC.

By:


__________________________                              __________________________
Jolly L. Ting                                           Ortrud T. Yao
Chairman and Chief Executive Officer                    Chief Finance Officer
CTC No 15854878                                         CTC No 15854885
Issued on 01 February 2011                              Issued on 01 February 2011
In Quezon City                                          In Quezon City




                                                                                           5
__________________________
Nanette T. Ongcarranceja
President
CTC No 15854866
Issued on 01 February 2011
In Quezon City



SUBSCRIBED AND SWORN to before me this ______ day of _____ at ________,
affiants exhibiting to me their community tax certificates as indicated above.


                                                      NOTARY PUBLIC

Doc. No.: ______
Page No.: ______
Book No.: ______
Series of 2011.




                                                                            6
                                                  TABLE OF CONTENTS

                                                                                                                                             Page

Glossary Of Terms ........................................................................................................................ 8
Parties Of The Offer ...................................................................................................................11
Summary ........................................................................................................................................12
Summary Financial Information ................................................................................................18
Terms And Conditions Of The Offer ......................................................................................23
Risk Factors...................................................................................................................................28
Use Of Proceeds ..........................................................................................................................36
Determination Of Offer Price ...................................................................................................38
Capitalization ................................................................................................................................39
Dilution..........................................................................................................................................40
Plan Of Distribution ....................................................................................................................41
Selling Security Holders ..............................................................................................................45
Description Of Securities To Be Registered ............................................................................46
Interests Of Named Experts And Counsel ..............................................................................58
Company History – Parents, Subsidiaries And Affiliates .......................................................59
Organization .................................................................................................................................67
Business .........................................................................................................................................75
Regulatory Framework ............................................................................................................. 104
Description Of Properties ....................................................................................................... 115
Litigation And Legal Proceedings........................................................................................... 118
Market Information, Dividends And Related Stockholder Matters .................................. 120
Management‟s Discussion & Analysis Of Financial Condition And Results Of
Operations.................................................................................................................................. 125
Independent Accountants........................................................................................................ 141
Security Ownership Of Certain Record And Beneficial Owners And Management ...... 142
Transactions With And/ Or Dependence On Related Parties .......................................... 144
Corporate Governance ............................................................................................................. 149
Philippine Foreign Investment, Foreign Ownership And Exchange Controls ............... 151
The Philippine Stock Market ................................................................................................... 153
Taxation ...................................................................................................................................... 159
Statement Of Management‟s Responsibility For Financial Statements ............................ 166




                                                                                                                                                  7
GLOSSARY OF TERMS
The following is a listing of some of the terms and abbreviations used throughout this Prospectus.

Banking Day…………………                         A day on which banks and financial institutions are
                                           open for business in Metro Manila.

BIR…………………………..                            Bureau of Internal Revenue.

Board of Directors;
Directors……………………..                        Directors of the Company.

BSP…………………………..                            Bangko Sentral ng Pilipinas, the central monetary
                                           authority of the Philippines.

Calapan Water………………..                      Calapan Waterworks Corporation (formerly,
                                           Calapan Water Works System and Development
                                           Corporation).

CAU………………………….                             Contract Administration Unit.

CG & Co……………………..                          Constantino Guadalquiver & Company.

CGT………………………….                             Capital gains tax.

Common Shares. …………….                      Shares of common stock with a par value of One
                                           Peso (PhP1.00) per share in the share capital of the
                                           Company.

Company or CVI……………..                      Calapan Ventures, Inc.

Constitution………………….                       The Constitution of the Philippines.

Corporation Code……………                      Batas Pambansa Blg. 68, otherwise known as the
                                           Corporation Code of the Philippines.

CPC………………………….                             Certificate of public convenience.

CTA………………………….                             Court of Tax Appeals.

DBP………………………….                             Development Bank of the Philippines.

DENR……………………….                             Department         of     Environment         and         Natural
                                           Resources.

DOH………………………...                            Department of Health.

DOLE……………………….                             Department of Labor and Employment.

DPWH………………………                              Department of Public Works and Highways.


                                                                                                          8
DST………………………….           Documentary stamp tax.

ECC………………………….           Environmental Compliance Certificate issued by the
                         DENR.

EIA…………………………..          Environmental Impact Assessment.

EIS System…………………...     Philippine Environmental Impact Statement System,
                         a system requiring relevant government agencies to
                         prepare an EIA for any project or activity that
                         affects the quality of the environment.

EMB…………………………            Environmental Management Bureau.

EVAT/VAT…………………          Expanded value-added tax/value-added tax.

Government………………….       Government of the Republic of the Philippines.

Kristal Water…………………     Kristal Water Source Corporation.

Issue Manager and        Unicapital, Inc., a corporation organized and existing
Underwiter…………………...     under Philippine law.

IPO…………………………..          Intellectual Property Office.

JGMI………………………....        Jolliville Group Management, Inc.

JOH………………………….           Jolliville Holdings Corporation.

LSI…………………………...         Local Small Investors.

LGUs ………………………..         Local government units.

LWUA……………………….           Local Water Utilities Administration.

MIMAROPA………………...        Occidental    Mindoro,    Oriental          Mindoro,
                         Marinduque, Romblon and Palawan.

MWSS ……………………….          Metropolitan Waterworks and Sewerage System.

NEDA ………………………           National Economic and Development Authority.

NOLCO ………………….…          Net Operating Loss Carry-Over.

NRW………………………...          Non-revenue water.

NWRB……………………….           National Water Resources Board.

ORDC……………………….           Ormina Realty and Development Corporation.

P.D. . . . . .……………………   Presidential Decree.

                                                                             9
P.D. 1067……………………             Presidential Decree No. 1067 or the “Water Code of
                              the Philippines.”

PDTC..………………………               Philippine Depository & Trust Corporation
                              (formerly Philippine Central Depository, Inc.)

PhP or P…….………………             Philippine Peso.

PNSDW……………………...              Philippine National Standards for Drinking Water.

Prospectus…………………...          This document together with all its annexes and
                              attachments.

PSE…………………………..               Philippine Stock Exchange, Inc.

PSC…………………………..               Public Service Commission.

R.A. 9185……………………             Republic Act No. 9185 or the Act granting franchise
                              to Calapan Water.

Shares………………………...            The shares of the Company representing its
                              authorized capital stock, or when the context
                              requires, the Company‟s subscribed and/or
                              outstanding capital stock.

SEC…………………………..               Securities and Exchange Commission.

SRC…………………………..               Republic Act No. 8799 or the “Securities Regulation
                              Code.”

SRC IRR .……………………             Implementing Rules and Regulations of the
                              Securities Regulation Code.

Stock Transfer Agent ………...   [●], a duly authorized corporation organized and
                              existing under the laws of the Republic of the
                              Philippines.

Tabuk Water…………………            Tabuk Water Corporation.

U.S. …………………………               United States.




                                                                              10
PARTIES OF THE OFFER
The Issuer                      :   Calapan Ventures, Inc.
                                    4th Floor, 20 Lansbergh Place
                                    170 Tomas Morato Avenue Corner Scout
                                    Castor Street
                                    Quezon City, Philippines

Underwriter and
Financial Advisor               :   Unicapital, Inc.
                                    3/F Majalco Building,
                                    Benavidez cor. Trasierra Streets,
                                    Legaspi Village,
                                    1229 Makati City, Philippines

Selling Agents                  :   Trading Participants of the
                                    Philippine Stock Exchange, Inc.

Legal Counsel to the Issuer     :   Tan Venturanza Valdez
                                    2704 East Tower
                                    Philippine Stock Exchange Centre
                                    Exchange Road, Ortigas Center
                                    1605 Pasig City, Philippines

Independent Legal Counsel       :   Leynes Acejas & Associates
                                    Suite 3004-A, 33rd Floor, West Tower,
                                    PSE Building, Exchange Road,
                                    Ortigas Center, Pasig City, Philippines

Legal Counsel to the Lead       :   Villaraza Cruz Marcelo & Angangco
Underwriter                         (CVCLAW)
                                    11th Avenue corner 39th Street,
                                    Bonifacio Global City 1634
                                    Metro Manila, Philippines

Auditors                        :   Constantino Guadalquiver & Company
                                    15th Floor Citibank Tower
                                    841 Paseo de Roxas, Salcedo Village
                                    Makati City, Philippines

Stock Transfer Agent            :   [●]

Escrow Agent & Receiving Bank   :   RCBC Trust and Investments Division
                                    9th Floor Yuchengco Tower, RCBC Plaza
                                    6819 Ayala Avenue, Makati City,
                                    Philippines 1226




                                                                              11
SUMMARY
This summary highlights information contained elsewhere in this Prospectus. This summary is qualified in its entirety
by more detailed information and financial statements, including notes thereto, appearing elsewhere in this Prospectus.
For a discussion of certain matters that need to be considered in evaluating an investment in the Offer Shares, see the
section entitled “Risk Factors” beginning on page 28 of this Prospectus. The readers are advised to read this entire
Prospectus carefully, including the financial statements and related notes contained herein.

THE COMPANY

The Company was incorporated on 30 January 2009 (under SEC Company Registration No.
CS200901269) under its original name “Calapan Equity Ventures, Inc.” primarily as an investment
holding company. Upon its incorporation on 30 January 2009, the Company had an authorized
capital stock of Two Hundred Million Pesos (PhP200,000,000.00) divided into two hundred million
(200,000,000) Common Shares with a par value of One Peso (PhP1.00) per share. As of the date of
this Prospectus, the issued and outstanding capital stock of the Company consisted of one hundred
twenty million (120,000,000) Common Shares.

The Company was initially a wholly-owned subsidiary of JOH. However, on 09 July 2009, the
Board of Directors of JOH passed a resolution declaring thirty two percent (32%) property
dividends corresponding to ninety million eighty thousand (90,080,000) shares in the Company held
by it. This declaration of property dividends was approved by JOH‟s stockholders during their
annual stockholders‟ meeting on 18 August 2009.

The Company‟s subsidiaries are Calapan Water and Tabuk Water, through which the Company
conducts its water utility businesses; and Kristal Water, which was established to engage in the
production, marketing and distribution of tube ice products in Oriental Mindoro. To date, however,
Kristal Water and Tabuk Water are pre-operational. The business and operations of each subsidiary
are discussed in further detail on page 82.

On 23 December 2009, the SEC approved the amendment of the Articles of Incorporation and By-
Laws of the Company changing (i) its name from “Calapan Equity Ventures, Inc.” to “Calapan
Ventures, Inc.” and (ii) its primary purpose from a holding company to one that is engaged in the
business of trading, processing, assembling, manufacturing and/or fabricating and exporting and
importing, and dealing in goods, materials, merchandise, commodities, minerals, metals and real and
personal properties of every kind, class and description. It still performs the function as a holding
company as a secondary purpose.

On 28 January 2010, the SEC approved the notice of property dividend declaration of JOH
consisting of ninety million eighty thousand (90,080,000) shares of stock of the Company amounting
to Ninety Million Eighty Thousand Pesos (PhP90,080,000.00) payable to JOH‟s stockholders of
record as of 15 December 2009.




                                                                                                                    12
The Company conducts its water business activities mainly through its subsidiaries:

Calapan Waterworks Corporation. Calapan Water was formally registered with the SEC on 23
May 1991 under the corporate name “Calapan Water Works System and Development Corporation”
with SEC Registration No. AS091-191028 to engage in the business of developing and utilizing
water resources.

JOH, through its subsidiary ORDC, acquired a ninety two percent (92%) controlling equity interest
in Calapan Water in December 1999.

On 24 October 2003, the SEC approved Calapan Water‟s application for increase in authorized
capital stock from seven million five hundred thousand (7,500,000) shares with a par value of One
Peso (P1.00) per share to two hundred million (200,000,000) shares with the same par value per
share. Relative to the increase, additional subscriptions were made by its parent and an affiliate for a
total of forty eight million one hundred twenty five thousand (48,125,000) shares.

On 18 January 2005, the SEC approved the change of name of Calapan Water from “Calapan Water
Works System and Development Corporation” to “Calapan Waterworks Corporation”.

Calapan Water became the Company‟s wholly-owned subsidiary on 31 March 2009 following the
settlement of the subscription payable with JOH wherein, in exchange for the assignment of eighty
six million four hundred thousand seven hundred seventy (86,400,770), Calapan Water shares of
JOH, (i) the unpaid subscription in the Company of JOH as of 30 January 2009 was fully paid; and
(ii) JOH subscribed to an additional seventy million (70,000,000) shares out of the unissued share
capital of the Company.

Kristal Water Source Corporation. Kristal Water was formally registered with the SEC on 11 May
2007 with SEC Registration No. CS200707206. Kristal Water became the Company‟s wholly-owned
subsidiary on 16 December 2009 following the acquisition by the Company of all of the outstanding
shares of stock of Kristal Water from Elgeete Holdings, Inc.

Tabuk Water Corporation. Tabuk Water was formally registered with the SEC on 14 August 2006
with SEC registration no. CS200610521. Tabuk Water became the Company‟s wholly-owned
subsidiary on 16 December 2009 following the acquisition by the Company of all of the outstanding
shares of stock of Tabuk Water from Calapan Water and ORDC.

THE OFFER

The Company is offering for subscription an aggregate of forty two million one hundred sixty one
thousand (42,161,000) Offer Shares at an Offer Price of Two Pesos (PhP 2.00) to Two Pesos and
Fifty Centavos (PhP 2.50) per share through the Underwriter and participating PSE Trading
Participants.

Before the Offer, the Company had an outstanding capital stock of one hundred twenty million
(120,000,000) Common shares. The Offer shares will represent twenty-one percent (21%) of the
Company's authorized capital stock of two hundred million (200,000,000) shares, and twenty-six

                                                                                                     13
percent (26%) of the total issued and subscribed shares of the Company after the Offer.

BRIEF DESCRIPTION OF THE BUSINESS

The Company is directly engaged in the product procurement business. It purchases, on a wholesale
basis, and resells merchandise such as food and beverage items, grooming and personal hygiene
supplies, and cleaning and housekeeping materials and supplies.

Its clients are generally companies that outsource part or all of their purchasing needs to reduce
overhead costs associated with maintaining an in-house purchasing department. The Company
charges a mark up on the goods procured for consideration of its services.

The Company, through its subsidiary Calapan Water, operates a water utility business in Calapan
City and Tabuk City. Its other subsidiaries are Tabuk Water, a water utility company and Kristal
Water, an ice plant business. Tabuk Water is still in the preoperational stage while Kristal Water will
be operating an ice plant facility in Calapan City. The operations of CVI and its subsidiaries are
discussed in the section “Business” on page 75.

COMPETITIVE STRENGTHS

The Company believes that it and its subsidiaries, Calapan Water and Kristal Water, have a number
of competitive strengths that can be used to enhance and leverage each company‟s respective
position in its respective industry.

CVI maintains a good relationship with its suppliers.

The Company understands that the product procurement industry is highly competitive despite
operating with small margins. Maintaining a good credit record with suppliers is crucial to the
business. The Company ensures that payments to suppliers are made in a timely manner in order to
enjoy continuous support from them. The Company also forecasts purchases to be made in order
to enjoy volume discounts given by some suppliers.

Ensures efficient and timely delivery of goods to its customers.

CVI understands that the growth of its product procurement business relies on its clients
satisfaction with its service. The Company ensures efficient and timely delivery of client‟s orders.

Kristal Water has limited competition within its proposed area of operations.

As there are currently no tube ice manufacturing plants in Oriental Mindoro, Kristal Water‟s
competition for business in the area is limited to small scale business operators.

Calapan Water has management expertise to run the business.

The success of the water utility business of Calapan Water is heavily attributable to the management
expertise and competency of its current officers and engineers. Calapan Water‟s management team
has had various management-consulting engagements on business development, systems and

                                                                                                    14
strategic planning for productivity and quality improvement, and have handled relevant projects.

Calapan Water is committed to provide safe water to the Filipino people.

Because of its commitment to provide safe water for all, Calapan Water strived and reversed the
quality of water production and delivery in Calapan City, Oriental Mindoro. Its subscribers currently
enjoy affordable, clean and potable water.

Calapan Water has a long-term franchise.

Calapan Water was granted a 25-year congressional franchise under R.A. 9185 to own and operate
the local waterworks system of Calapan City. A long-term franchise allows Calapan Water to carry
out long-term rehabilitation and expansion programs for the benefit of the population it serves.
Provisions for capital expenditure may not pose a problem because it expects to recover such
investments over the course of its long-term franchise.

Calapan Water was likewise granted leasehold rights to manage, operate and maintain the water
system of Tabuk City until 30 September 2031.

Calapan Water has no existing competitors within its franchise area.

Calapan Water has the right to construct, install, operate and maintain for commercial purposes and
in the public interest, a water supply and sewerage system for the purpose of distributing water for
sale and for sanitation in Calapan City.

Calapan Water benefits from its corporate set up.

Many of the water systems in the Philippines are operated by LGUs or water districts. While some
of these water systems may be properly managed and operate efficiently, some encounter difficulties
due to lack of available financing and poor cost recovery. Many LGU operated systems are not able
to recover the operation and maintenance costs of running their own water system. Water districts
mostly recover recurrent costs but most do not generate enough financial resources to improve their
services. These problems may be less persistent within a private, corporate setup like that of Calapan
Water. Calapan Water is able to tap both public and private financial institutions for its financing
requirements. The NWRB has also set out specific guidelines for tariff setting considering cost
recovery of private operators.

Calapan Water maintains good business relationships with government and private financial institutions.

Calapan Water is in good partnership with both government and private financial institutions.
Calapan Water has availed of a One Hundred Thirty Seven Million Peso (PhP137,000,000.00) loan
facility with the DBP with a long-term repayment period of fifteen (15) years. Should it need or
require a commercial loan, it can easily avail of financing from a pool of private financial institutions.
Calapan Water maintains a healthy debt-to-equity ratio and good credit record.




                                                                                                          15
Calapan Water has a professional relationship with its regulators.

Calapan Water has developed a good working relationship with the NWRB and relevant LGUs. It
has been successful in obtaining appropriate tariff rate adjustments as well as water permits from the
NWRB.

BUSINESS STRATEGY

Calapan Water‟s medium-term and long-term business strategies focus on providing potable water
supply at the most affordable rates, expanding its customer base and being able to capture other
market opportunities.

Calapan Water continues to improve and expand water services within its coverage.

As a producer and distributor of water, Calapan Water has dramatically improved the quality of
water being distributed to households within its service area. Calapan Water‟s average NRW in
Calapan City for the years 2009 and 2010 were at thirty five and 60/100 percent (35.60%) and thirty
three and 10/100 percent (33.10%). Calapan Water‟s goal is to reduce the NRW to twenty percent
(20%) or less by the end of 2012. It is determined to reduce physical water losses through water
pressure management and replacement of old transmission and distribution lines. It is also actively
monitoring water consumption variances that may indicate metering errors and improper
classification of customers. Calapan Water is now serving seventeen (17) urban barangays and fifteen
(15) adjoining rural barangays in Calapan City or eight thousand six hundred thirteen (8,613) out of
twenty five thousand one hundred thirty seven (25,137)1 households in Calapan City. In line with its
immediate development plan, Calapan Water plans to serve two (2) additional barangays with about
one thousand three hundred (1,300) additional households. Aside from Calapan City, Calapan Water
is currently exploring options with other municipalities who have expressed interest in having their
water system developed or operated by Calapan Water. Calapan Water plans to provide water to
every barangay in rural areas where households do not have access to potable water by installing
small and separate water facilities to supply these communities.

Calapan Water continues to expand to other locations.

Calapan Water‟s operations in Tabuk City started in October 2006 and, since then, the number of
customers who enjoy affordable and potable water has grown from about five hundred (500) to two
thousand eight hundred and nine (2,809) on 30 June 2011. Calapan Water is considering entering
into joint venture arrangements or partnerships with other water districts and LGU-owned and
operated water systems within the Province of Oriental Mindoro as well as other parts of the
country.

Calapan Water will provide sewerage and sanitation services under its franchise area.

While its immediate plans are significantly related to water services, Calapan Water‟s long-term goal
is to provide both quality water and sewerage services within its franchise area.


1   National Statistics Office, 2007 Census of the Population.

                                                                                                   16
Calapan Water adopts new technologies.

Calapan Water invests in technology to improve the efficiency of its operations. Calapan Water uses
modern equipment such as an automated barcode billing system, and variable frequency drives in its
water pumping stations.

Calapan Water focuses on small-scale and medium-scale water utility operations.

While profits sustain Calapan Water‟s operations and fuel growth prospects, Calapan Water
considers expansion plans to key cities as well as to small-sized and medium-sized communities.

RISKS OF INVESTING

Before making an investment decision, investors should carefully consider the risks associated with
an investment in the Company's Common Shares. These risks include:

    Risks relating to the Company's business
    - Highly competitive product procurement industry
    - Reliance on performance of its subsidiaries
    - Significant consumption of electricity
    - Dependence on key management personnel
    - Unsuccessful implementation of expansion plans
    - New entrant in the ice production and distribution business
    - Low entry barriers for ice manufacturing and distribution
    - Environmental problems such as water supply contamination

    Risks relating to the Company‟s Offer Shares
    - Potential market volatility and limited liquidity
    - Philippine foreign ownership limitations

● Risks relating to the regulatory environment
   - Highly regulated operations
   - Disapproval of increases in customer tariff
   - Expiration of franchise and permits
   - Changes in legislation

● Risks relating to the Philippines
   - Slowdown in Philippine economic growth coupled with high inflation and interest rates
   - Political instability
   - Temporary control of utility business by the Philippine Government in times of national
       emergency
   - Foreign exchange risk
   - Occurrence of national disasters

Please refer to “Risk Factors” on pages 28 of this Prospectus for a more detailed discussion.


                                                                                                17
SUMMARY FINANCIAL INFORMATION
The selected financial information set forth in the following table has been derived from the Company's pro-forma
financial statements for the fiscal years ended 31 December 2009, 2008 and 2007, the consolidated financial
statements for the fiscal year ended 31 December 2010, and interim reviewed financial statements for the six months
ended June 30, 2010 and 2011, including the related notes, as examined and audited by Constantino Guadalquiver
& Company, in accordance with Philippine Financial Reporting Standards (“PFRS”). All these information should
be read in conjunction with the financial statements and notes thereto contained in this Registration Statement. On
July 25, 2011 the Company filed a request for exemptive relief from the submission of interim audited financial
statements for the periods ended June 30, 2010 and June 30, 2011 with the Securities and Exchange Commission.
The request for exemptive relief was approved during the SEC En Banc meeting on 11 August 2011.

The summary of financial information set out below does not purport to project the results of operations or financial
condition of the Company for any future period or date.

KEY PERFORMANCE INDICATORS

                                For the six
                              months ended                        For the year ended December 31,
Key Performance
                                 June 30,
Indicators
                                   2011                  2010               2009             2008             2007
                                 Reviewed               Audited           Pro-forma        Pro-forma        Pro-forma
Earnings Per Share1           P        0.1211       P        0.2540       P 0.1319        P 0.0806         P 0.0155
Current Ratio2                            0.59                  0.45             0.57             1.17             2.22
Debt-to-Equity Ratio3                     1.22                  1.23             1.38             0.72             0.48
Return on Assets4                       3.51%                 8.12%            5.47%            4.76%            1.03%
Return on Equity5                       7.82%                18.66%          11.35%             7.66%            1.53%

 1 Earnings Per Share is computed as the net profit attributable to equity holders of the parent divided by
 the outstanding number of shares.

 2   Current Ratio is derived through dividing total current assets by the total current liabilities for the period.

 3Debt-to-Equity Ratio is measured as the ratio of total liabilities divided by the total equity attributable to
 equity holders of the parent company.

 4   Return on Assets is net profit as a percentage of average total assets.

 5Return on Equity is net profit as a percentage of average equity attributable to equity holders of the
 parent company.




                                                                                                                    18
SELECTED FINANCIAL DATA
                                                      June 30,                   December 31,
                (In Thousand Pesos)
                                                        2011       2010       2009         2008        2007
                                                       Reviewed   Audited   Pro-forma    Pro-forma   Pro-forma
ASSETS
Current Assets
Cash and cash equivalents                               27,006     15,751     39,045        26,786     23,886
Receivables – net                                       20,936     12,788      9,546         8,276      5,021
Due from related parties                                26,891     19,767     12,624        14,493     15,575
Prepayments and other current assets                     4,687      3,090        220         1,711        902
          Total Current Assets                          79,519     51,396     61,434        51,265     45,383

Noncurrent Assets
Available-for-sale investments                          1,166       1,166     1,000              –          –
Investment property                                    61,133      61,133    46,774         41,152     34,771
Property and equipment – net                          275,065     271,689   228,512        121,124     90,440
Deferred tax assets                                     1,979       1,827     1,768          1,268      1,121
Other noncurrent assets                                12,539      12,539    14,188         12,293      9,552
         Total Noncurrent Assets                      351,882     348,354   292,242        175,838    135,884
TOTAL ASSETS                                          431,401     399,750   353,676        227,103    181,267

LIABILITIES AND EQUITY
Current Liabilities
Accounts payable and accrued expenses                   95,355     77,780     76,062        29,626     11,140
Retirement benefit obligation                            3,250      3,043      3,088         2,094      1,827
Current portion of loan payable                          8,014      8,014      5,557             –          –
Due to related parties                                  22,422     21,495     22,823        13,765      9,321
Income tax payable                                       5,014      3,953      2,489           285          –
         Total Current Liabilities                     134,055    114,285    106,932        43,676     20,461

Noncurrent Liabilities
Loan payable                                            84,144     88,151     81,126        42,169     30,791
Customers' deposits                                      7,292      7,125      5,628         5,281      5,061
Deferred tax liabilities                                11,342     10,210      7,688         1,921        874
       Total Noncurrent Liabilities                    102,779    105,486     97,531        51,465     38,554

Equity
Attributable to Equity Holders of Parent Company
Capital stock – P1 par value
  Authorized – 200,000,000 shares
  Subscribed – 120,000,000 shares         120,000                 120,000    120,000       120,000    120,000
Revaluation surplus in land - net of deferred taxes
                                                         9,438      9,438      9,438             –           –
Unrealized gain on available-for-sale investment           166        166
Retained earnings                                       64,251     49,721     19,240        11,527      1,855
                                                       193,855    179,325    148,678       131,527    121,855

Minority Interest                                          713        655       535            435        396
TOTAL LIABILITIES AND EQUITY                           431,401    399,750   353,676        227,103    181,267

                                                                                                             19
                                                    For the six months          For the year ended December 31,
                                                     ended June 30,
             (In Thousand Pesos)
                                                    2011           2010        2010           2009          2008
                                                   Reviewed       Reviewed    Audited       Pro-forma     Pro-forma
REVENUE
Water service                                        60,066         39,947      90,569         75,573        53,961
Sales                                                13,212         12,874      27,338          2,831             –
Others                                                  304             29         140             33           540
                                                     73,583         52,850     118,047         78,437        54,501

COST OF SALES AND SERVICES                           35,131         32,815     68,361          39,484        29,181
GROSS PROFIT                                         38,451         20,036     49,686          38,953        25,320

OPERATING EXPENSES                                   18,119         12,367     27,426          26,083        21,366

PROFIT FROM OPERATIONS                               20,332          7,669     22,260          12,870         3,954
OTHER INCOME (CHARGES) – Net
Change in fair value of investment property               0         14,359      14,359          5,622         6,381
Interest income                                         538            167         812          1,346           964
Reversal of allowance for impairment loss                 0              0            0           202             –
Receivables written-off                                   0              0            0         (225)             –
Financial charges and interest                            0           (10l)       (16l)          (10)          (58)
Excess of net asset of acquired
subsidiary over cost of investment                        0              0           0              –             –
                                                        538         14,516      15,155          6,935         7,286
PROFIT BEFORE INCOME
TAX EXPENSE                                          20,870         22,186      37,414         19,805        11,240

INCOME TAX EXPENSE
Current                                               5,302          1,133      4,353           2,701           506
Deferred                                                980          1,194      2,462           1,207         1,025
                                                      6,282          2,326      6,815           3,908         1,531
NET PROFIT                                           14,588         19,859     30,599          15,897         9,709

OTHER COMPREHENSIVE INCOME
Unrealized gain on available-for-sale investment              0          0         166              –             –
Revaluation surplus in land                                   0          0              0      13,536             –
Income tax                                                    0          0              0     (4,061)             –
OTHER COMPREHENSIVE
INCOME - Net of tax                                       0              0        166           9,475             –
TOTAL COMPREHENSIVE INCOME                           14,588         19,859     30,766          25,372         9,709

NET PROFIT ATTRIBUTABLE TO:
Equity holders of the parent                         14,530         19,781     30,481          15,834         9,671
Minority interest                                        58             78        119              63            38
                                                     14,588         19,859     30,599          15,897         9,709

EARNINGS PER SHARE                                   0.1211         0.1648     0.2540          0.1319        0.0806

                                                                                                                  20
                                                  For the six months ended        For the year ended December 31,
                                                           June 30,
              (In Thousand Pesos)
                                                    2011           2010           2010         2009          2008
                                                   Reviewed       Reviewed       Audited     Pro-forma     Pro-forma
CASH FLOWS FROM
OPERATING ACTIVITIES
Profit before income tax expense                    20,870          22,186        37,414        19,805       11,240
Adjustments for:
  Depreciation and amortization                       3,479           2,820         7,001        6,334         5,640
  Change in fair value of investment property                      (14,359)      (14,359)      (5,622)       (6,381)
  Interest income                                     (538)           (167)         (812)      (1,346)         (964)
  Written-off accounts                                                                               –             –
  Receivables written-off                                 –                            –           225             –
  Reversal of allowance
   for impairment loss                                    –                             –       (202)                –
  Financial charges and interest                          –              91            16          10               58
  Provisions for:
  Retirement benefits expense
  (pension income)                                      207            205           411          994           267
  Impairment losses                                       –                          170          515             –
  Excess of net asset of acquired
subsidiary over cost of investment                        –                  –         –             –              –

Operating profit before working capital changes      24,018         10,776        29,841        20,714        9,861
Change in operating assets and liabilities
Decrease (increase) in:
  Receivables                                       (8,147)         (1,349)       (3,252)      (1,809)       (3,255)
  Due from related parties                                                                     (6,251)           957
  Prepayments and other current assets              (1,598)         (1,668)       (2,453)        1,467         (791)
Increase (decrease) in:
  Accounts payable and accrued expenses              18,286           9,280         2,429       46,436       18,486
   Retirement benefit obligation                                       (66)         (455)            –             –
   Customers' deposit                                   167             207         1,496            –             –
Cash generated from (used in) operations             32,726         17,181         27,607       60,557       25,258
Income taxes paid                                   (4,240)         (2,733)       (2,889)        (473)         (240)
Interest received                                       538             167           812        1,346           964
Interest paid                                       (4,485)         (4,394)       (9,132)      (5,698)       (3,964)
Net cash provided by (used in) operating
activities                                          24,539          10,221        16,398       55,732        22,018

CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions of:
  Property and equipment               (3,080)                     (38,501)      (41,774)     (94,499)      (32,418)
  Available-for-sale investments             –                            –             –      (1,000)             –
Decrease (increase) in:
  Due from related parties             (7,124)                        2,317       (7,143)            –             –
  Other noncurrent assets                    –                        1,070         1,070      (1,894)       (2,741)
Cash from acquired subsidiaries              –                           –              -            –             –
Net cash used in investing activities (10,205)                     (35,114)      (47,846)     (97,393)      (35,159)

                                                                                                                 21
CASH FLOWS FROM FINANCING
ACTIVITIES
Proceeds from:
  Loan availment                                 –     17,200     17,200    44,514   11,378
  Capital subscriptions                          –          –          –        –        –
Payment of Loan                             (4,007)    (3,711)    (7,718)       –        –
Increase (decrease) in:
  Due to related parties                        927    (4,867)    (1,328)    9,058    4,444
  Customers' deposits                            –           –                 348      220
Net cash provided by financing activities   (3,080)      8,622      8,154   53,920   16,041
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS                   11,255    (16,271)   (23,294)   12,259    2,900

CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR                        15,751     39,045     39,045    26,786   23,886

CASH AND CASH EQUIVALENTS
AT END OF YEAR                              27,006     22,773      15,751   39,045   26,786




                                                                                        22
TERMS AND CONDITIONS OF THE OFFER
Issuer                   Calapan Ventures, Inc., a corporation duly organized and existing
                         under Philippine law.

The Offer                The Company is offering for subscription forty two million one
                         hundred sixty one thousand (42,161,000) primary Offer Shares. The
                         Shares have a par value of One Peso (PhP1.00) per share. After the
                         completion of the Offer, the Offer Shares will comprise twenty-one
                         percent (21%) of the Company‟s authorized capital stock of two
                         hundred million (200,000,000) shares, and twenty six percent (26%)
                         of the Company‟s outstanding capital stock after the completion of
                         the Offer.

Offer Price              The Offer Price is Two Pesos (PhP 2.00) to Two Pesos and Fifty
                         Centavos (PhP 2.50) per share. Prior to the Offer, there has been
                         no public trading market for the Shares. Among the factors
                         considered in determining the Offer Price were the prevailing
                         market conditions, the Company‟s historical performance, estimates
                         of the business potential and earnings prospects of the Company,
                         an assessment of the Company‟s management, and the relationship
                         of the above factors to the market valuation of companies currently
                         listed on the PSE.

Offer Period             The Offer Period shall begin at 9:00 a.m. on [14 November 2011]
                         and end on [18 November 2011] at 12:00 noon, Manila time, or on
                         such other dates as the Company and the Issue Manager and
                         Underwriter may agree to in writing. Duly accomplished
                         “Application to Subscribe” forms and signature cards together with
                         the corresponding payments must be received by the Selling Agents
                         or the Underwriter not later than 12:00 noon Manila time, on [18
                         November 2011].

                         If for any reason the aforementioned date for the end of the Offer
                         Period should fall on a day when Philippine banks are closed, the
                         Offer Period will expire on the Banking Day immediately
                         succeeding the end of the Offer Period.

Listing and Trading of   The Company has filed an application with the PSE for the listing
the Shares               of the Shares on the Second Board. Acceptance of all applications is
                         conditioned on the listing of the Offer Shares with the PSE. It is
                         expected that the Shares will be listed on [24 November 2011] and
                         trading of the Offer Shares is expected to commence on the same
                         date.

                         In the event the Shares are not listed on the PSE for any reason, the

                                                                                            23
                          Company will return within five (5) Banking Days from the end of
                          the Offer Period the payments made under applications, without
                          any interest, to the respective applicants.

Eligible Applicants       The Offer Shares may be subscribed by any individual of legal age,
                          or any corporation, association, partnership or trust, regardless of
                          citizenship or nationality. The transfer of Shares of the Company
                          must comply with nationality restrictions. The capital of the
                          Company‟s subsidiaries holding lands and water permits and
                          operating public utilities must be, by mandate of the Philippine
                          Constitution and relevant laws, at least sixty percent (60%) Filipino-
                          owned. Thus, the Company, which owns almost one hundred
                          percent (100%) of such subsidiaries, must itself be Filipino. The
                          Company engages in the trading business. If the company shall
                          engage in retail trade, it will be subject to capitalization and
                          nationality restrictions imposed on retail trade.

                          See the discussion on “Dividends” in the section on page 121.

Minimum Subscription      Applications shall be for a minimum of One Thousand (1,000)
                          Offer Shares. Applications in excess of this minimum shall be in
                          multiples of One Thousand (1,000) shares. No subscription for
                          multiples of any other number shall be considered.

Procedure for             Application forms and signature cards may be obtained from the
Application               Underwriter or from any participating Trading Participants of the
                          PSE. Applicants shall fill up the application form, indicating all
                          pertinent information such as the applicant‟s name, address,
                          taxpayer‟s identification number, citizenship and all other
                          information as may be required in the application form. Applicants
                          shall undertake to sign all documents and to do all necessary acts to
                          enable them to be registered as holders of the Offer Shares applied
                          for or any portion thereof. Failure to completely fill up the
                          application form may result in the rejection of the application.

Restriction on Disposal   The PSE rules require an applicant company to cause its existing
of Shares                 shareholders owning at least ten percent (10%) of the outstanding
                          shares of the Company not to sell, assign or in any manner dispose
                          of their shares for a period of three hundred sixty five (365) days
                          after the listing of the shares. To implement this lock-up
                          requirement, the PSE requires the applicant company to lodge the
                          shares with the PDTC through a PCD Participant for the electronic
                          lock-up of the shares or to enter into an escrow agreement with the
                          trust department or custodian unit of an independent and reputable
                          financial institution.

                          Existing stockholders have agreed not to offer, sell or otherwise

                                                                                              24
                   dispose of the Shares acquired or subscribed prior to the listing of
                   the Shares in the PSE according to the formula contained in the
                   Listing Rules and Regulations of the PSE applicable to companies
                   applying for listing on the Second Board.

                   The Company shall cause its existing stockholders who own an
                   equivalent of at least ten percent (10%) of the issued and
                   outstanding shares of stock of the company to enter into an
                   agreement with the PSE not to sell, assign or in any manner dispose
                   of their shares or securities for a period of three hundred sixty five
                   (365) days after the listing of the shares.

                   The Revised Listing Rules of the PSE also require that if there is
                   any issuance of shares or securities (i.e., private placements, asset
                   for shares swap or a similar transaction) or instruments which lead
                   to issuance of shares or securities (i.e., convertible bonds, warrants
                   or a similar instrument) done and fully paid for within one hundred
                   eighty (180) days prior to the start of the offering period, and the
                   transaction price is lower than that of the Offer Price in the initial
                   public offering, all shares or securities availed of shall be subject to
                   a lock-up period of at least three hundred sixty five (365) days from
                   full payment of the shares or securities.

                   The Company shall likewise be prohibited from offering additional
                   securities, except offerings for stock dividend and employee stock
                   option plans (ESOPs) within one hundred eighty (180) calendar
                   days from the date of listing.

Payment Terms      The purchase price must be paid in full in Pesos upon the
                   submission of the duly accomplished and signed application form
                   and signature card together with the requisite attachments.

                   Payment for the Offer Shares shall be made either by: (i) a personal
                   or corporate check/s drawn against an account with a BSP
                   authorized bank at any of its branches located in Metro Manila; or
                   (ii) a manager‟s or cashier‟s check issued by such authorized bank.
                   All checks should be made payable to “Calapan Ventures IPO,”
                   crossed “Payee‟s Account Only,” and dated the same date as the
                   application.

                   The applications and the related payments will be received at any of
                   the offices of the Underwriter or the Selling Agents.

Requirements for   If the applicant is an individual, the application form must be
Applications       accomplished in quadruplicate and accompanied by the following
                   documents: (i) corresponding check payments; and (ii) a fully
                   executed signature card.

                                                                                         25
                          If the applicant is a corporation, partnership, or trust account, the
                          application must be accompanied by the following documents: (a)
                          Certified true copy of the applicant‟s Articles of Incorporation or
                          other constitutive document and By-Laws, as amended; (b)
                          Certified true copy of the applicant‟s SEC Certificate of
                          Registration or equivalent document in case of a foreign
                          corporation; and (c) Duly notarized secretary‟s certificate: (i) setting
                          forth the resolutions of the applicant‟s Board of Directors or
                          equivalent body authorizing the subscription to the Offer Shares
                          and designating signatories for the purpose; (ii) specifying the
                          percentage holdings of Filipinos in the corporation; and, (iii)
                          containing specimen signatures of the signatories.

Representation and        Foreign investors, both corporate and individual, shall represent
Warranty of Foreign       and warrant that their purchase of the Offer Shares will not violate
Investors                 the laws of their jurisdiction, and that they have the capacity and
                          authority to acquire, purchase, and hold the Offer Shares.

Registration of Foreign   Registration of foreign investments with the proper government
Investments               authorities shall be the responsibility of the foreign investor. While
                          registration of foreign investments with the BSP is not required, it
                          will be necessary in order to source the foreign exchange needed to
                          service the repatriation of the proceeds of sale of the investments
                          and remittance of dividends and other distributions from the
                          Philippine banking system.

Acceptance or Rejection   “Application to Subscribe” forms are subject to confirmation by the
of Application to         Underwriter and the final approval of the Company. The Company
Subscribe and Reduction   and the Underwriter reserve the right to accept, reject or scale down
of Allotment of Offer     the number and amount of shares covered by any application. The
Shares                    Company and the Underwriter have the right to reallocate available
                          Offer Shares in the event that the Offer Shares are insufficient to
                          satisfy the total applications received. The Offer Shares will be
                          allotted in such a manner as the Company and the Underwriter
                          may, in their sole discretion, deem to be appropriate, subject to the
                          distribution guidelines of the PSE. Applications with checks
                          dishonored upon first presentation and “Application to Subscribe”
                          forms which do not comply with terms of the Offer will be
                          automatically rejected. Notwithstanding the acceptance of any
                          “Application to Subscribe” forms, the actual subscription of the
                          Offer Shares by the applicant will be effective only upon the listing
                          of the Shares at the PSE.

Refunds                   Refunds of payments for any application not accepted in whole or
                          in part shall be made without interest within five (5) Banking Days
                          after the end of the Offer Period. In the event that the conditions

                                                                                                26
                    of the underwriting agreement among the Company, the Issue
                    Manager and Underwriter and the Selling Agent are not fulfilled and
                    are not waived, refunds will be made without interest within five (5)
                    Banking Days from the end of the Offer Period. Each refund check
                    shall be made in favor of the respective applicant, crossed “Payee‟s
                    Account Only,” and mailed by registered mail or delivered, at the
                    applicant‟s risk, to the address specified by the applicant.

Documentary Stamp   All DST on the issuance of the Offer Shares and any other taxes on
Taxes               the Offer shall be for the account of the Company.

PDTC Lodgment or    All of the issued and outstanding Shares, including treasury shares
Issuance            and the Offer Shares will be issued in scripless form through the
                    electronic book-entry system of [●] as Stock Transfer Agent for the
                    Offer, and lodged with PDTC as depository agent on listing date
                    through PSE Trading Participants nominated by the applicants.
                    Applicants shall indicate in the proper space provided for in the
                    application form the name of the PSE Trading Participant under
                    whose name their Shares will be registered. Legal title to the Shares
                    will be shown in an electronic register of shareholders (the
                    “Registry of Shareholders”) which shall be maintained by the Stock
                    Transfer Agent. The Stock Transfer Agent shall send a transaction
                    confirmation advice confirming every receipt or transfer of the
                    Offer Shares that is effected in the Registry of Shareholders (at the
                    cost of the requesting Shareholder). The Stock Transfer Agent shall
                    send (at the cost of the Company) at least once every quarter a
                    statement of account to all shareholders named in the Registry of
                    Shareholders, except certificated shareholders and Depository
                    Participants, confirming the number of Shares held by each
                    shareholder on record in the Registry of Shareholders. Such
                    statement of account shall serve as evidence of ownership of the
                    relevant shareholder as of a given date thereof. Any request by
                    shareholders for certifications, reports or other documents from the
                    Stock Transfer Agent, except as provided herein, shall be for the
                    account of the requesting shareholder.

Timetable           The tentative timetable for the Offer is as follows:

                    Start of the Offer                           [14 November 2011]

                    End of the Offer                             [18 November 2011]

                    Lodgment of Shares with the PDTC             [22 November 2011]

                    Expected Listing Date                        [24 November 2011]




                                                                                       27
RISK FACTORS
Prospective investors should carefully consider the risks described below, in addition to the other information contained
in this Prospectus, including the Company’s consolidated financial statements and notes relating thereto included
herein, before making any investment decision relating to the Offer Shares. However, this section does not purport to
disclose all the risks and other significant aspects of investing in the Offer Shares. Additional risk factors and
uncertainties not at present known to the Company, or which the Company currently deems immaterial, may also
adversely affect the Company’s business, financial condition or results of operations. The Company’s past performance
is not an indication of its future performance. Investors deal in a range of investments, each of which may carry a
different level of risk. The occurrence of any of the events discussed below and any additional risks and uncertainties not
presently known to the Company or that are currently considered immaterial could have a material adverse effect on the
Company’s business, results of operations, financial condition and prospects and cause the market price of the Offer
Shares to fall significantly and investors may lose all or part of their investment.

The following are the risks related to the investment, listed by the order of importance.

GENERAL RISK WARNING

The price of securities can and does fluctuate, and any individual security may experience upward or downward
movements, and may even become valueless. There is an inherent risk that losses may be incurred rather than profit
made as a result of buying and selling securities. Past performance is not a guide to future performance. There is an
extra risk of losing money when securities are bought from smaller companies. There may be a big difference between
the buying price and the selling price of these securities. An investor deals in a range of investments each of which may
carry a different level of risk.

PRUDENCE REQUIRED

The risk disclosure does not purport to disclose all the risks and other significant aspects of investing in these securities.
An investor should undertake its, his or her own research and study on the trading of securities before commencing any
trading activity. Investors may request information on the securities and Issuer thereof from the SEC which are
available to the public.

PROFESSIONAL ADVICE

Investors should seek professional advice regarding any aspect of the securities such as the nature of the risks involved in
the trading of the securities, especially in the trading of high-risk securities. Each investor should consult his own
counsel, accountant and other advisors as to legal, tax, business, financial and related aspects of an investment in the
Offer Shares.




                                                                                                                          28
RISKS RELATING TO COMPANY’S BUSINESS

The risks associated with the Company and its subsidiaries are as follows:

The product procurement industry is highly competitive.

There are many competitors in the trading industry. Goods and merchandise commonly traded by
the Company such as food and beverages, wines and spirits, and housekeeping supplies are widely
available in grocery stores and other wholesale merchants. The Company does not have exclusive
supply contracts with its clients and its clients are free to purchase their requirements from other
merchants or trading companies. The Company is aware that it is a startup company in this highly
competitive industry. It constantly strives to develop price competitiveness of its product offerings,
shorten order turnaround time and improve delivery to keep its clients satisfied.

The Company’s profitability relies on the performance of its subsidiaries.

As the Company only recently entered into the product procurement business, majority of its
revenues and income are derived from the operations of its subsidiaries. Although the Company
generates revenues and profits from its own operations, a decline in its subsidiaries‟ financial
performance would have a significant effect on the Company‟s own profitability. Furthermore, the
Company cannot ensure that its subsidiaries would issue dividends. However, this risk is mitigated
to some extent by virtue of the Company having the same key executive officers with its subsidiaries
and being the majority shareholder of its subsidiaries.

Business operations of its subsidiaries require significant amounts of electricity and
increased power costs may have an adverse effect on its financial performance.

One of Calapan Water‟s highest costs and expenses is power or electricity charges consumed by its
water pumping stations. Power costs constituted twenty five percent (28%) of Calapan Water‟s
expenses as of the first half of the year 2011. The cost of electricity in the Philippines, which is
already one of the highest in the region, continues to increase over the years. Continued increases in
power rates could materially affect Calapan Water‟s net income levels and that of the Company.

Under the recent NWRB approval of Calapan Water‟s request in rate increase for its Calapan
operations, Calapan Water is allowed to charge its customers a power cost adjustment (“PCA”)
which is included in its monthly water bill. This charge passes on power costs associated with
delivery of water to the consumer. Similarly, Calapan Water‟s contract with Tabuk City specifies that
it can charge a standard rate adjustment (“SRA”) to its consumers in Tabuk City, which may be
subject to review by DBP‟s CAU if there are questions regarding the consumer price index data used
in the computation of the SRA. While the SRA does not perfectly capture movements in power
costs, both the PCA and SRA enable Calapan Water to soften its risk exposure to fluctuations in
power costs.

Most of Calapan Water‟s operations are dependent on electricity. In cases where there is electric
power interruption or blackout, Calapan Water purchases fuel for its water supply business. Any
delay in fuel deliveries or disruptions in fuel supply during a prolonged blackout may result in
unplanned shutdowns.


                                                                                                   29
To mitigate this risk, Calapan Water maintains sufficient inventory of fuel to ensure continuous
production and distribution of water within the service areas.

The ice business is expected to consume significant amounts of electricity. Increased electricity
costs over time may translate to lower profit levels for Kristal Water.

The Company depends on key management personnel.

The members of the Company‟s senior management and key employees are important to its success.
The loss of any of the senior management or key employees could have a material adverse effect on
the Company‟s business if it is unable to find suitable replacements in a timely manner.

The Company manages this risk by continuing to exert substantial effort to ensure that it has in
place retention tools, in the form of employee benefits, training and monetary incentives, which will
motivate its personnel to stay with the Company.

Calapan Water may not be able to successfully implement its expansion plans.

Calapan Water‟s growth strategy involves obtaining new subscribers and expanding its services to
other areas in the Philippines. It is probable that Calapan Water may not be successful in identifying
other areas for expansion. Expansion to new areas is largely dependent on the cooperation of
relevant LGUs in each location, as well as the ability of Calapan Water to obtain necessary permits,
licenses and approvals.

Calapan Water manages this risk by putting in place a management team that has the necessary
experience in identifying potential expansion areas.

Kristal Water is a new entrant in the ice production and distribution business.

Kristal Water is a new entrant in the ice business and is exposed to certain risks involved in
operating new business ventures. Such risks include uncertainties surrounding the ice industry,
operational risks and financial risks. Uncertainties in the ice industry involve unexpected factors that
may affect current and future demand and supply patterns. Operational risks include unforeseen
costs in running the business while financial risks involve the accuracy of financial forecasts. These
risks, unless properly addressed, may adversely affect Kristal Water‟s business operations.

Kristal Water plans to mitigate these risks by hiring experienced managers and consultants who have
expertise in operating a start up ice plant business.

Low entry barriers for ice manufacturing and distribution.

Currently, there are no manufacturers of tube ice products in Oriental Mindoro and competition is
limited. However, because the ice manufacturing and distribution business is not capital intensive,
there is no assurance that there will be no new market players in this field that may service the same
location. The entry of other players in the ice manufacturing and distribution business in the same
location may reduce Kristal Water‟s market share and adversely affect the financial viability of its ice
business.


                                                                                                     30
Kristal Water plans to mitigate this risk by ensuring supply is dependable in terms of quality,
quantity and delivery. It aims to provide excellent service in order to earn market share and
customer loyalty.

Potential liability for environmental problems could result in material losses and costs.

Calapan Water is subject to a variety of laws and regulations concerning the protection of health and
the environment. The particular environmental laws and regulations which apply to any given
project development site vary greatly according to the site‟s location, the site‟s environmental
condition, the present and former uses of the site, as well as adjoining properties. Compliance with
environmental laws may result in delays, may cause Calapan Water to incur substantial compliance
and other costs and can prohibit project development activity in environmentally-sensitive areas.

Water contamination may pose threats to Calapan Water‟s operations. The supply of water to end-
users may be subject to water supply contamination which could result in disease, death or
otherwise endanger public health. Any contamination of Calapan Water‟s groundwater sources may
have material adverse effects on Calapan Water‟s operations. As a result of contamination, Calapan
Water may have to interrupt the supply of water to its customers until it can install treatment
equipment or substitute the flow of water from an uncontaminated water production source. If
Calapan Water's water supply becomes contaminated, it could be subject to civil, criminal or
regulatory enforcement actions, private lawsuits and expensive cleanup obligations.

Calapan Water conducts testing of water quality to make sure that it complies with the PNSDW set
by the DOH. Regular testing may also alert and allow Calapan Water to act immediately should
there be any signs of water contamination.

RISKS RELATING TO THE COMPANY’S OFFER SHARES

Potential Market Volatility and Limited Liquidity.

The Shares will be listed and traded on the PSE and, in general, transfers of Shares will be made
solely through the PSE. The securities market in the Philippines is smaller and less liquid than the
securities markets in the United States and in certain European and Asian countries. Philippine
securities may experience significant price fluctuations and no assurance may be made regarding the
liquidity of the market for Philippine securities in general. Although the Shares will be listed on the
PSE, it is not a guarantee that a shareholder will be able to dispose of the Shares in a timely manner.

While the Company does not have any guarantee on the share prices and its liquidity, it will follow
transparent corporate practices to ensure that material information is available and delivered in a
timely matter to all the relevant parties.

CVI’s shares are subject to Philippine foreign ownership limitations.

The Common Shares may be owned by any person or entity regardless of citizenship or nationality
subject to the limits prescribed by Philippine laws on foreign ownership for certain types of
domestic companies. The Company‟s subsidiaries, which are wholly owned by the Company, hold
(or are authorized to hold) water permits or operate (or are authorized to operate) public utilities.
Further, a subsidiary of the Company owns and holds real estate. In this regard, the Company and

                                                                                                    31
its subsidiaries are subject to a foreign nationality restriction of being at least 60.0% Filipino-owned
with an allowable maximum foreign ownership of 40.0%. See section on Regulatory Framework for
further discussion.

Such limitations may restrict the Company‟s access to equity capital financing in the future.
Moreover, there can be no assurance that this limitation will not impair the ability of a holder of the
Company‟s common shares to acquire or dispose of their shares in the future.

EFFECTS OF EXISTING OR PROBABLE GOVERNMENTAL REGULATION

Calapan Water’s operations are highly regulated.

Calapan Water is obligated to abide by the terms of its franchise granted under R.A. 9185 and under
other pertinent laws. The franchise sets out the nature and scope of its operations, the required
permits and licenses, the provisions on right-of-way and construction, the term of franchise, the
rates for services and other provisions. The franchise also requires the franchisee to, among others,
obtain the prior consent of Congress for certain corporate acts, including the transfer of controlling
interest.

Likewise, Calapan Water is subject to laws and regulations relating to the protection of health and
the environment. Water extraction, water potability and environmental compliance relative to water
treatment and disposal are among the activities subject to regulation and supervision by certain
governmental agencies such as the NWRB, the DOH and the DENR.

Calapan Water endeavors to have a transparent and professional relationship with its regulators and
strives to be fully compliant in all of its regulatory commitments.

Calapan Water's financial performance may be adversely affected if its requests for increases
in customer tariffs are not granted.

The franchise of Calapan Water provides that any rate adjustment requires approval of the relevant
regulatory office which is NWRB. Water tariff rate adjustments are formula-driven. Being a public
utility company, the increase in Calapan Water‟s tariff is capped at a rate of return on investment of
twelve percent (12%). Although the determinations of the regulatory office are subject to appeal,
there can be no assurance that any rate increase requested will ultimately be granted.

For its operations in Tabuk City, Calapan Water follows a standard rate adjustment which may be
subject to review by DBP‟s CAU. It may also propose to CAU an extraordinary rate adjustment
where its rates may be adjusted, either upward or downward, depending on the financial
consequences of certain events.

Calapan Water's business is largely dependent on franchise and permits, as well as
agreements with relevant LGU, which have respective expiry periods.

Calapan Water holds the franchise to construct, install, operate and maintain for commercial
purposes and in the public interest a water supply and sewerage system in Calapan City for a period
of twenty five (25) years or up to year 2027. Its CPC was granted on 18 December 2002 and has


                                                                                                     32
validity up to 17 January 2013. There is no assurance that its franchise or CPC will be renewed after
the expiry period.

Under its franchise, the grantee shall not merge with any other corporation or entity, nor shall the
controlling interest of the grantee be transferred, whether as a whole or in parts, and whether
simultaneously or contemporaneously, without the prior approval of the Congress of the
Philippines. However, that the Senate Legal Counsel Office has opined that “controlling interest
means a proportionate share of ownership of the common stocks of a corporation giving one or
more stockholders effective control over the operation of the corporation… It must be emphasized
that „control‟ is the possession, directly or indirectly, of the power to direct or cause the direction of the
management and policies of the corporation.”

Water permits are needed in order to install and draw water from new wells. These permits are
secured from the NWRB. Any delay in approval of water permits may constrain Calapan Water‟s
ability to service more households within the service areas.

Calapan Water manages, operates and maintains the water supply system in Tabuk City by virtue of
a lease agreement with Tabuk City which has an expiry period. While the legislative council of
Tabuk City has extended the lease for another ten (10) years from year 2021 or up to year 2031,
there is a need for continuing authority from the LGU concerned to enable Calapan Water to carry
on its business in the area.

A public utility company remains susceptible to risks associated with changes in legislation,
including changes in taxation laws.

The Company and its subsidiaries are subject to governmental regulation in many aspects of its
operations and are susceptible to changes in the regulatory measures and policy initiatives
implemented by the government, which may include suspending or restricting franchise or permits
on the construction, installation, operation and maintenance of the water supply and sewerage
system, and freezing of water charges by the NWRB.

Any change in the taxation legislation of the Philippines could adversely affect the performance and
tax obligations imposed on the Company and its subsidiaries. The government may make
unfavorable changes in tax laws. The greater the potential impact of a tax law change on the return
of a given security, the greater its tax risk. Undesirable tax law changes include elimination of tax
exempt status, limitation or elimination of tax deductions, and increases in tax rates. By reducing the
tax benefits of investments, the government can increase its tax revenues at the expense of investors
that realize lower after-tax returns and investment values.

GENERAL RISKS

Political and Economic Factors

A slowdown in the economic growth, coupled with high inflation and interest rates in the
Philippines could materially adversely affect the Company’s business.

Historically, the Philippine economy has experienced periods of negative growth and high inflation.
The regional Asian financial crisis in 1997 resulted in, among others, the depreciation of the
                                                                                                           33
Philippine Peso, higher interest rates, slower growth and a reduction in the country‟s credit ratings.
Since the Asian financial crisis, the country experienced a ballooning budget deficit and volatile
exchange rates.

The Company‟s results of operations depend on the performance of the Philippine economy.
Movement in interest rates will affect the Company‟s cost of capital as well as the financial viability
of its projects. Any deterioration in Philippine economy could materially adversely affect the
Company‟s financial condition and results of operations.

The Philippines’ political stability is a major factor to the Company’s business growth.

It is important that the Philippines presents a stable and attractive destination for investment. A
risk to the Company‟s core business would be destabilizing political events (including terrorism) in
the Philippines.

The Philippines has from time to time experienced political, social, and military instability from the
peaceful civilian revolution in February 1986 to impeachment proceedings against former Presidents
Joseph E. Estrada and Gloria Macapagal-Arroyo. Towards the end of the Arroyo administration,
the Philippines concluded a relatively peaceful election on 10 May 2010. It proclaimed Senator
Benigno S. Aquino III and Jejomar Binay as President and Vice President respectively. There is a
growing optimism in the new administration to deliver political and economic reforms.

No assurance can be provided that the future political environment in the Philippines will be stable
or that current or future governments will adopt economic policies conducive to sustaining
economic growth. Political instability in the Philippines could negatively affect the general economic
conditions and operating environment in the country, which could have a material impact on the
business, financial condition and results of the operations of the Company and its subsidiaries.

Political unrest and occasional terrorist threats could negatively affect the general economic
conditions and business environment in the Philippines.

In the event of a national emergency, the Philippine government may temporarily take
control of the businesses of the Company’s subsidiaries.

In times of national emergency, when the public interest so requires, the Philippine Constitution
(Article XII, Section 17) allows the government to temporarily take over or direct the operation of
any business imbued with public interest during the emergency and under reasonable terms
prescribed by it. The term “national emergency” has been interpreted to include threat from
external aggression, calamities or national disasters and strikes of such proportion as would paralyze
government service. In the case of Agan, Jr. vs. Philippine International Air Terminals Co., Inc., 402
SCRA 612, 672-673 (2003), the Philippine Supreme Court held that, in the event of such a
temporary takeover, the government is not required to compensate the private entity-owner of the
business, nor may the private entity-owner affected by the takeover claim compensation. The
Company has no control of this risk.




                                                                                                    34
Foreign Exchange Risk

Any change in the value of the Peso against the U.S. dollar could affect the dollar value of a foreign
investor‟s return on an investment in the Offer Shares. Foreign exchange required for the
repatriation of capital or remittance of dividends may be sourced from the Philippine banking
system provided that the foreign investor registers his investment with the BSP. In certain instances,
the BSP, with the approval of the President of the Philippines, may restrict the availability of foreign
exchange. No assurances can be given that exchange controls and regulations in the future will not
be changed.

As the revenues and expenses of the Company and its subsidiaries are in Peso denomination, CVI
and its subsidiaries are not directly affected by foreign exchange risk. The Company and its
subsidiaries‟ foreign exchange risk exposure is limited to the cost of materials which, although locally
sourced, may be imported.

Occurrence of natural disasters or catastrophes

Natural disasters such as earthquakes, floods, prolonged droughts and typhoons could materially
harm Calapan Water‟s business. Calapan Water is reliant on underground sources for the supply of
water to its customers. Severe drought brought about by the recurring El Nińo weather
phenomenon could harm the replenishment of the water drawn from these underground sources.

Calapan Water conducts regular water level testing of its groundwater sources and these tests have
shown that water levels have not changed despite the current El Nino phenomenon. However,
while Calapan Water is confident that its ground aquifers have sufficient volume of water to supply
its service area and its intended expansion, there can be no assurance that future weather patterns
will not detrimentally affect the water level of its current and future ground sources.




                                                                                                     35
USE OF PROCEEDS
   Offer price per share                                               Php       2.00            Php    2.50
   Number of Offer Shares                                                  42,161,000             42,161,000
   Gross Proceeds                                                      Php 84,322,000        Php 105,402,500

   Underwriting and selling fees for the Offer shares                         2,951,270                3,689,088
   Taxes to be paid by the issuer in connection with
   the IPO                                                                    1,963,245                2,384,855
   Philippine SEC filing and legal research fees
     Registration statement filing fee                                         204,322                  225,403
     Legal research fee                                                          2,043                    2,254
   PSE listing and processing fees
     Listing fee                                                                500,000                 500,000
     Processing fee                                                              50,000                  50,000
   Estimated professional fees                                                2,700,000               2,700,000
   Estimated out-of-pocket and other expenses                                   700,000                 700,000
   Total Expenses                                                      Php    9,070,880          Php 10,251,599

   Net Proceeds                                                         Php 75,251,120           Php 95,150,900

The Offer will raise gross proceeds of Eighty Four Million Three Hundred Twenty Two Thousand
Pesos (PhP84,322,000.00) to One Hundred Five Million Four Hundred Two Thousand Five
Hundred Pesos (PhP105,402,500.00) and is expected to entail expenses in the amount of Nine
Million Seventy Thousand Eight Hundred Eighty Pesos (PhP9,070,880.00) to Ten Million Two
Hundred Fifty One Thousand Six Hundred Pesos (PhP10,251,600.00).

The Offer is expected to generate net proceeds of approximately Seventy Five Million Two
Hundred Fifty One Thousand One Hundred Twenty Pesos (PhP75,251,120.00) to Ninety Five
Million One Hundred Fifty Thousand Nine Hundred Pesos (PhP95,150,900.00). The Offer
proceeds will be used to finance Calapan Water‟s various projects as detailed in the following table.
Fifty Two Million and Five Hundred Thousand Pesos (PhP52,500,000.00) will be used for
expansion of storage facilities, particularly for the construction of one (1) overhead reservoir and the
installation of transmission and distribution lines from the reservoir to the water system. Ninety
Two Million Eight Hundred and Fifty Thousand Pesos (PhP92,850,000.00) will be used for zoning
works to be undertaken in twenty six (26) barangays such as installation of district meters and
isolation valves. Also included in zoning works is the cost of massive meter replacement that will be
implemented in order to reduce non revenue water to its target level of twenty percent (20%).

                                                        Cost                 Timeline
                                                  (In Php Millions)
                   Zoning Works                             92.85     Q4 of 2011 to Q3 of 2012
                   Expansion                                52.50        Q1 to Q2 of 2012
                       Grand Total                         145.35




                                                                                                                   36
The stated amounts include the estimated cost of transmission and distribution pipes, district meters
and isolation valves, and water meters; however, as of the date of this prospectus no specific
supplier has been identified from whom these assets will be bought. None of the proceeds from the
offer will be used to finance the acquisition of other businesses or the acquisition of assets from
affiliates or associates.

Calapan Water has an ongoing rehabilitation, expansion and improvement plan for its waterworks
system in Calapan City, Oriental Mindoro. The purpose of the plan is to bolster water pressure,
improve water quality, and to increase production so as to accommodate more subscribers. The
scope, timing and extent of the works done vary depending on management‟s discretion as to the
economic viability of each component of the overall plan at a definite point in time.

Should the amount raised through the Offer be less than the amounts stated in the above uses of
proceeds, priority shall be given to zoning works and the development of expansion facilities, in that
order. The balance of the amounts stated in the uses of proceeds shall be funded through internally
generated funds.

No part of the Offer proceeds will be used to reimburse any officer, director, employee or
shareholder for service rendered, assets previously transferred, and money loaned or advanced or
otherwise. The Company will not be obtaining funds from other sources to accomplish the specified
purposes or uses discussed above. No part of the Offer proceeds will be used to discharge a debt.

The foregoing discussion represents a best estimate of the use of the net proceeds of the Offer
based on the Company's current plans and anticipated expenditures. Actual use of the net proceeds
may vary from the foregoing discussion and management may find it necessary or advisable to use
portions of the net proceeds of the Offer for other purposes. In the event that there is any change in
the Company‟s use of proceeds, the Company may temporarily reallocate the proceeds for other
interim purposes, taking into consideration the prevailing business climate and the interests of the
Company and the shareholders taken as a whole. In the event of any deviation, adjustment or
reallocation in the planned use of proceeds, the Company will secure the approval of its Board of
Directors for such deviation, adjustment or reallocation and promptly make the appropriate
disclosures to the Philippine SEC and the PSE. The Company shall regularly disclose to the PSE,
through the Online Disclosure System ("ODiSy"), any disbursements from the proceeds generated
from the Offer.




                                                                                                   37
DETERMINATION OF OFFER PRICE
The Offer Price range is PhP2.00 to PhP2.50 per share, as determined through a book-building
process and discussions between the Issuer and the Underwriter. Prior to the Offer, there has been
no public trading market for the Shares.

Among the factors considered in determining the Offer Price range were the prevailing market
conditions, the Company‟s historical performance, the business potential and the ability to generate
earnings and cash flow of the Company, and the prevailing market valuation of companies currently
listed in the PSE engaged in comparable businesses. The Offer Price may not have any correlation
to the actual book value of the Offer Shares.

The final Offer Price shall be determined through a book-building approach.

The Company‟s earnings forecast is based on a number of assumptions about circumstances or
events that have not yet occurred, including, but not limited to certain assumptions relating to the
Company‟s revenue growth, and are subject to significant uncertainties and contingencies, as stated
in the section “Risk Factors” on page 28, that are beyond the Company‟s control. Under no
circumstances should the use of the forecasted values as a basis for pricing the Offer Shares be
regarded as a representation, warranty, promise or prediction with respect to the accuracy of the
underlying assumptions, or that the Company will achieve or is likely to achieve this particular result.




                                                                                                     38
CAPITALIZATION
The following table sets forth the Company‟s audited consolidated short-term and long-term debt
and capitalization as of December 31, 2010 and as adjusted to reflect the sale of the Offer shares.
This table should be read in conjunction with the notes thereto located elsewhere in this Prospectus.

For the purposes of arriving at the effect of the Offer on capitalization, it is estimated that the Offer
will generate net proceeds of Seventy Five Million Two Hundred Fifty One Thousand One
Hundred Twenty Pesos (PhP75,251,120.00) from the sale of Forty Two Million One Hundred Sixty
One Thousand (42,161,000) Offer Shares in the Offer after deducting an estimated aggregate
amount of underwriting commissions, discounts and fees and certain other estimated expenses we
expect to incur in connection with the Offer. This estimate is based on the low end of the Offer
Price range of Two Pesos (PhP2.00). The actual underwriting commission, discounts, fees and other
Offer-related expenses may vary from the estimated amounts. The Offer Price and the estimated
amounts used to determine the estimated net proceeds are presented in this Prospectus for
convenience only.

(In Pesos)                                    As of December 31, 2010            After giving effect to the
                                                      Audited                              Offer
Short Term Debt
Current portion of loan payable                                8,013,747                         8,013,747
    Total Short Term Debt                                      8,013,747                         8,013,747
Long Term Debt
Noncurrent portion of loan payable                            88,151,363                        88,151,363
  Total Long Term Debt                                        88,151,363                        88,151,363

Total Debt                                                    96,165,110                         96,165,110

Attributable to Equity Holders of Parent Company
Capital stock                                                120,000,000                       162,161,000
Additional paid-in capital, net                                        -                        33,090,120
Revaluation surplus in land                                    9,438,247                         9,438,247
Unrealized gain on available-for-sale investment                 165,624                           165,624
Retained earnings                                             49,720,686                        49,720,686
                                                             179,324,557                       254,575,677

Noncontrolling interest                                          654,764                           654,764
Total Equity                                                 179,979,321                       255,230,441

Total Capitalization                                         276,144,431                       351,395,551




                                                                                                        39
DILUTION
As of December 31, 2010, the Company‟s net tangible book value was One Hundred Seventy Nine
Million Nine Hundred Seventy Nine Thousand Three Hundred Twenty One Pesos (PhP
179,979,321) or One Peso and Fifty Centavos (PhP 1.50) per Share. If the net proceeds in the
estimated amount of Seventy Five Million Two Hundred Fifty One Thousand One Hundred
Twenty Pesos (PhP75,251,120.00) to Ninety Five Million One Hundred Fifty Thousand Nine
Hundred Pesos (PhP95,150,900.00) raised from the initial public offering of Forty Two Million One
Hundred Sixty One Thousand (42,161,000) shares of stock are received and recorded, it will result in
an increase in net tangible book value of Seven Centavos (PhP 0.07) to Twenty Centavos (PhP 0.20)
per share to stockholders of the Company before the Offer, and a dilution of Forty Three Centavos
(PhP 0.43) to Eighty (PhP 0.80) per Share to those that will subscribe to the initial public offering.
                  BEFORE THE OFFER
                     Net Tangible Book Value As of Dec. 31, 2010             Php 179,979,321
                     Total No. of Shares Issued and Outstanding                    120,000,000
                     Book Value Per Share                                    Php          1.50
                  Net Proceeds
                     Gross Proceeds
                       At PhP 2.00 per Offer Share                           Php    84,322,000
                       At PhP 2.50 per Offer Share                                 105,402,500
                     Less: Expenses
                       At PhP 2.00 per Offer Share                                   9,070,880
                       At PhP 2.50 per Offer Share                                  10,251,600
                     Net Proceeds
                       At PhP 2.00 per Offer Share                                  75,251,120
                       At PhP 2.50 per Offer Share                                  95,150,900
                  AFTER THE OFFER
                     Net Tangible Book Value plus Net Proceeds
                       At PhP 2.00 per Offer Share                           Php 255,230,441
                       At PhP 2.50 per Offer Share                           Php 275,130,222
                     Total No. of Shares Issued and Outstanding                    162,161,000
                     Book Value Per Share
                       At PhP 2.00 per Offer Share                          Php           1.57
                       At PhP 2.50 per Offer Share                          Php           1.70


The following presents the dilution to the original stockholders as a result of the initial public
offering:
                                                 Before Offer                        After Offer
      Stockholders                      Number of Shares          Percent   Number of Shares       Percent
      Existing shareholders                     120,000,000     100.00%            120,000,000     74.00%
      Public                                                       0.00%             42,161,000    26.00%
      Total Issued and Outstanding              120,000,000     100.00%             162,161,000    100.00%

                                                                                                             40
PLAN OF DISTRIBUTION
UNDERWRITING AGREEMENT

Unicapital, Inc. (“Unicapital”), the Underwriter, will underwrite on a firm basis the Offer Shares.

The Underwriting Agreement entered into between the Company and the Underwriter is subject to
certain conditions and may be terminated if certain conditions are not fulfilled or events, including
force majeure, occur before the Shares are listed on the PSE. Such conditions are as follows:

   i.   In the reasonable opinion of the Underwriter, the Offer would be materially and adversely
        affected by the introduction of any new law or regulation or any change in existing laws or
        regulations; or any force majeure; or the occurrence of any adverse change in the Company‟s
        financial condition and prospects, general financial environment or stock market conditions
        that may have a material adverse effect on the marketability of the Offer Shares;

  ii.   Any material representation or warranty made by the Company or any information given in
        the Prospectus proves to have been false, incorrect or misleading as of the time it was made
        or deemed to have been made;

 iii.   An order canceling, suspending or terminating the Offer or any part thereof issued by any
        competent Philippine governmental authority;

 iv.    The Company shall be adjudicated bankrupt or insolvent, or shall admit in writing its
        inability to pay its debts as they mature, or shall make or threaten to make an assignment for
        the benefit of, or a composition or arrangement with, its creditors or any class thereof, or
        shall declare or threaten to declare a moratorium on its indebtedness or any class thereof; or
        the Company shall apply for or consent to the appointment of any receiver, trustee or similar
        officer for it or for all or any substantial part of its property; or such receiver, trustee or
        similar officer shall be appointed and such appointment shall continue undischarged for a
        period of forty (45) days; or the Company shall institute (by petition, application or
        otherwise howsoever), or consent to the institution of, any bankruptcy, insolvency,
        reorganization, arrangement, readjustment of debt, suspension of payment, dissolution,
        liquidation or similar proceeding relating to it under the laws of any jurisdiction; or any such
        proceeding shall be instituted against it without its consent and shall remain pending for a
        period of ninety (90) days, or any judgment, writ, warrant of attachment or execution or
        similar process shall be issued or levied against any material or substantial asset of the
        Company or any material part thereof and such judgment, writ or similar process shall not
        be released, vacated or fully bonded within ninety (90) days after its issue or levy; or any
        event occurs which under the law of the Philippines or any applicable political subdivision
        thereof has an effect equivalent to any of the foregoing;

  v.    There is a change in any law, rule, regulation, administrative practice or interpretation within
        the Philippines that could, in the reasonable opinion of Underwriter, materially affect any of
        the features, yield, or marketability of the Offer Shares, or materially and adversely affect the
        financial condition, operations, profitability, or business prospects of the Company or the

                                                                                                      41
        ability of the Underwriter to perform lawfully its obligations hereunder, or any court or
        administrative order, ruling, or interpretation which may have a similar effect is issued or is
        threatened to be issued; and

 vi.    A general moratorium on the payment of external indebtedness is declared in the
        Philippines.

The Underwriting Agreement provides that the Underwriter commits to underwrite, on a firm basis,
the public offering, distribution and sale of the Offer Shares, and any portion of the Offer Shares
made available to the Selling Agent remaining unsubscribed as of the last day of the Offer Period
shall be immediately returned to and accepted by the Issue Manager and Underwriter. Under other
provisions in the Underwriting Agreement, the Company has agreed to indemnify the Issue Manager
and Underwriter against certain liabilities and expenses, as well as to pay the latter the pre-agreed fee
of two and a half percent (2.5%) of the total issue size for its services as Underwriter and Issue
Manager as well as the one percent (1.0%) brokers‟ commission of the Selling Agents.

The Company also engaged Unicapital to act as the Company‟s financial advisor for the listing and
registration of the Offer Shares. For its financial advisory services in connection with the filing of
the Registration Statement with the SEC and the application for listing by initial public offer with
the PSE, Unicapital shall be entitled to payment of a fixed retainer fee.

Unicapital and the Company do not have any other business relationships. Unicapital is neither
represented in the Company‟s Board of Directors nor is there a provision in the Underwriting
Agreement which would entitle the Underwriter to a seat in the Company‟s Board of Directors as
part of its compensation for underwriting services.

Incorporated in the Philippines in 1994, Unicapital, Inc. has an authorized capital of Five Hundred
Million Pesos (PhP500,000,000.00), of which Four Hundred Twenty Four Million Seven Hundred
Thirteen Thousand Five Hundred Pesos (PhP424,713,500.00) are issued and outstanding. It
obtained its license to operate an investment house in 29 June 1994 and is licensed by the SEC to
engage in underwriting or distribution of securities to the public. A certificate of registration on the
application for renewal of Unicapital‟s license was issued on 1 January 2009 and is valid for three
years. Unicapital‟s most recent payment for the renewal of its license was on 1 December 2010. Its
executives have extensive experience in the capital markets and were involved in lead roles in a
substantial number of major equity and debt issues. Unicapital‟s Board of Directors is chaired by
Menardo R. Jimenez, Sr.

Unicapital, Inc.
Tel. Nos: 892-0911 to 96

Any questions relating to the initial public offering may be addressed to the Underwriter or the
Company.

QUALIFIED INSTITUTIONAL BUYERS

Offer Shares of Twenty Five Million Two Hundred Ninety Seven Thousand (25,297,000) or a
maximum of Sixty percent (60.00%) of the Offer Shares shall be distributed by the Issue Manager
and Underwriter to institutional buyers through a book-building program for the domestic market,
                                                                                                      42
as per Article V of the Revised PSE Listing and Disclosure Rules. “Qualified Institutional Buyers” as
defined in the PSE Revised Listing Rules are limited to the following: mutual funds, pension or
retirement funds, commercial or universal banks; trust companies; investment houses; insurance
companies; investment companies; finance companies; venture capital firms; government financial
institutions; trust departments of commercial or universal banks, non-bank quasi-banking
institutions, trading participants of the PSE; non-stock savings and loan associations; educational
assistance funds; and other institutions of similar nature.

GENERAL PUBLIC

The Offer Shares will be distributed by the Lead Underwiter, and the participating PSE Trading
Participants directly to their clients/general public. Twelve Million Six Hundred Forty Eight
Thousand (12,648,000) Offer Shares or Thirty percent (30.00%) of the Offer Shares shall be
allocated to the general public. Each PSE Broker shall initially be allocated up to Ninety Four
Thousand (94,000) Offer Shares (computed by dividing the Offer Shares allocated to the PSE
Brokers between one hundred thirty four [134] PSE Brokers) and subject to reallocation as may be
determined by the PSE. Based on the initial allocation for each trading participant of 94,000 Offer
Shares, there will be a total of 52,000 residual Offer Shares to be allocated as may be determined by
the PSE.

LOCAL SMALL INVESTORS

Offer Shares of four million two hundred sixteen thousand (4,216,000) or ten percent (10%) of the
Offer Shares will be distributed to “Local Small Investors” through the Underwriter. The term
„„Local Small Investors‟‟ is defined as a share subscriber or purchaser who is willing to subscribe or
purchase a minimum board lot or whose subscription or purchase does not exceed Twenty Five
Thousand Pesos (PhP25,000.00).

Should the total demand for the Offer Shares in the Local Small Investors‟ subscription exceed the
maximum allocation, the Issue Manager and Underwriter shall allocate the Offer Shares by balloting.
Should the total demand from Local Small Investors be less than the ten percent (10%) allotted to
them, the unsold allocation shall be reallocated back for distribution to the general public.

The Underwriter will underwrite the Offer Shares, on any clawback, clawforward or other such
mechanism, on a firm commitment basis. On or before November 16, 2011, the PSE Trading
Participants shall submit to the PSE Listing Department, or to its designated representative in the
PSE their respective firm orders and commitments to purchase Offer Shares (“Firm Orders”). Offer
Shares not taken up by PSE Trading Paticipants will be distributed by the Underwriter directly to its
clients and the general public and whatever remains will be purchased by the Underwriter. [●], as
Receiving Agent shall receive the commitment-to-purchase forms and the corresponding payments
of each PSE Trading Participant and the Underwriter will be responsible for facilitating the issuance
of the corresponding number of Offer Shares on the Listing Date.

With respect to the LSIs, all applications to purchase or subscribe for the Offer Shares must be
evidenced by a duly accomplished and completed application form. An application to purchase
Offer Shares shall not be deemed as a duly accomplished and completed application unless
submitted with all required relevant information and applicable supporting documents to the
Underwriter or such other financial institutions that may be invited to manage the LSI Program.
                                                                                                   43
Payment for the Offer Shares must be made upon submission of the duly completed application
form.

All of the issued and outstanding Shares, including treasury shares and the Offer Shares are lodged
with the PDTC and shall be issued to the PSE Trading Participants and LSIs in scripless form. They
may maintain the Offer Shares in scripless form or opt to have the stock certificates issued to them
by requesting an upliftment of the relevant Offer Shares from the PDTC‟s electronic system after
the closing of the Offer.




                                                                                                 44
SELLING SECURITY HOLDERS
As Offer Shares will be taken from the Company‟s unissued Common Shares, no public offering of
Offer Shares will be undertaken by the Company‟s security holders.




                                                                                           45
DESCRIPTION OF SECURITIES TO BE REGISTERED
The following is general information relating to the Company’s capital stock, including brief summaries of relevant
provisions of the Corporation Code and implementing regulations adopted by the SEC, as currently in effect, the SRC
and the SRC Rules. The description below does not purport to be a complete listing of all of the rights, obligations or
privileges of the Company’s capital stock nor to give full effect to the provisions of the law and is in all respects
qualified by reference to the applicable provisions of the Company’s amended articles of incorporation and amended by-
laws.

The rights of stockholders described in this section are available only to persons who hold the Company’s shares of
stocks.

SHARE CAPITAL

As of the date of this Prospectus, the Company‟s authorized capital stock is Two Hundred Million
Pesos (PhP200,000,000.00) divided into Two Hundred Million (200,000,000) shares with a par value
of One Peso (PhP1.00) per share, with one hundred twenty million (120,000,000) outstanding
common shares, held by forty three (43) shareholders2.

With the approval of a majority of the Company‟s Board of Directors and the affirmative vote of
stockholders representing at least two-thirds (2/3) of its outstanding capital stock given in a meeting
duly called for the purpose, and subject to the approval of the SEC, it may increase or decrease its
authorized capital stock, change the par value of its shares or reclassify or convert its existing
common shares into preferred or redeemable preferred shares or such other class or series of shares,
with rights, privileges, restrictions, limitations, features or preferences as it deems fit and necessary
for its benefit, provided that there shall be, at all times, a class of shares with complete voting rights.

Share Issuance

The Company can issue shares of stock with such rights, privileges or restrictions as may be
provided for in its Articles of Incorporation.

The Company cannot issue shares for consideration less than the par value of such shares as stated
in Article 7 of its Articles of Incorporation. It may, however, issue shares at a premium for a
consideration in excess of the par value of such shares, in which case the amount equal to the
amount by which the subscription price exceeds the par value is credited to an account designated as
additional paid-in account.

The Company may repurchase its own shares, provided that it has unrestricted retained earnings to
pay for the shares to be acquired or purchased for legitimate corporate purpose or purposes. These
purposes include, but are not limited to, the following:

       To eliminate fractional shares arising out of stock dividends;



2   One of these stockholders, PCD Nominee Corporation, holds interest for various beneficial owners.

                                                                                                                    46
   To purchase shares of dissenting stockholders exercising their appraisal right; and

   To collect or settle indebtedness arising out of unpaid subscription in a delinquency sale to
   purchase delinquent shares sold during sale.

The shares to be repurchased become treasury shares which may be again sold for a reasonable price
fixed by its Board of Directors. These shares do not have voting rights or dividends as long as they
remain in the treasury.

Shares of stock which are offered to the public in the Philippines are required to be registered with
the SEC, except when such shares are among those classified as exempt securities or the offering is
an exempt transaction under Sections 9 and 10 of the SRC. The SEC may deny registration of
shares and refuse to issue a permit to sell shares if the registration statement for the shares is
incomplete or inaccurate in any material respect, includes any untrue statement of material fact, or
omits to state a material fact required to be stated in the registration statement or necessary to make
the statements therein not misleading. The SEC may also deny registration for the shares if the
issuer corporation or any of its officers or directors is not qualified under the standards of the SRC,
the Implementing Rules and Regulations of the SRC (“SRC IRR”) or existing Philippine SEC
regulations.

Pre-Emption Rights

The Company‟s Amended Articles of Incorporation do not grant the stockholders the right to pre-
emption.

The Amended Articles of Incorporation of the Company have denied pre-emptive rights to
stockholders. No stockholder shall have a right to purchase or subscribe to any additional share of
the capital stock of the Company whether such shares of capital stock are now or hereafter
authorized, whether or not such stock is convertible into or exchangeable for any stock of the
Company or of any other class, and whether out of the number of shares authorized by the Articles
of Incorporation of the Company, or by any amendment thereof, or out of shares of the capital
stock of any class of the Company acquired by it after the issue thereof; nor shall any holder of any
such stock of any class, as such holder, have any right to purchase or subscribe for any obligation
which the Company may issue or sell that shall be convertible into, or exchangeable for, any shares
of the capital stock of any class of the Company or to which shall be attached or appertain any
warrant or warrants or any instrument or instruments that shall confer upon the owner of such
obligation, warrant or instrument the right to subscribe for, or to purchase from the Company, any
shares of its capital stock of any class.

Foreign shareholdings in the Company must comply with nationality restrictions provided by law.




                                                                                                    47
Mandatory Offer Requirements

Under the SRC and the SRC IRR, any person or group of persons acting in concert, as follows:

       1. Who intends to acquire thirty five percent (35%) or more of equity shares in a public
          company, or
       2. Who intends to acquire thirty five percent (35%) or more of equity shares in public
          company in one or more transactions within a period of twelve (12) months, or
       3. If any acquisitions of even less than thirty five percent (35%) would result in ownership
          of over fifty one percent (51%) of the total outstanding equity securities of a public
          company, shall make a tender offer to stockholders by filing with the SEC a declaration
          to that effect and shall furnish the issuer with a tender offer report as required by the
          SRC and the SRC IRR and as prescribed by the SEC. Such person or group of persons
          shall publish all requests or invitations for tender, or materials making a tender offer or
          requesting or inviting tenders of such security.

STOCKHOLDERS’ ACTIONS

Meeting of Stockholders

The Corporation Code requires all Philippine corporations to hold an annual general meeting of
stockholders for the principal purpose of electing directors. Article II of the By-Laws of the
Company provides that the annual general meeting of stockholders for the election of directors and
for the transaction of such business shall be held at the principal office of the Company in Quezon
City on the last Friday of June of each year.

A special meeting of the shareholders of the Company, for any purpose or purposes, may be called
any time by (a) the President, or (b) the Chairman of the Board, or (c) at the request in writing
addressed to the President of four (4) members of the Board of Directors, or of two (2) or more
registered stockholders owning at least one-third (1/3) of the issued and outstanding shares entitled
to vote.

Notices for the annual general meeting of stockholders shall be sent by its Corporate Secretary by
mail or by delivering written or printed notice of the same at least fifteen (15) business days prior to
the date of the meeting, with postage and/or delivery charges prepaid, to each of its stockholders of
record at his last known post office address appearing on the corporate books. The notice shall state
the place, date and hour of the meeting and the purpose or purposes for which the meeting was
called.

Quorum

Unless otherwise provided by law, the holders of a majority of the outstanding capital stock of the
Company, in person or by proxy at any meeting of the shareholders shall constitute a quorum for
the transaction of business. If no quorum is constituted, the meeting shall be adjourned until
shareholders who own or hold the requisite amount of capital stock shall be present or represented.
Every decision of the shareholders representing a majority of the outstanding capital stock present
or duly represented at a meeting at which there is a quorum shall be valid as a corporate act, except


                                                                                                     48
in cases where the vote of shareholders representing a higher percentage of outstanding capital stock
is required by law or the Company‟s amended By-Laws.

Voting Rights

Unless otherwise provided by law, each shareholder shall at every meeting of the shareholders be
entitled to one vote, in person or by proxy, for each Common Share held by such shareholder. At
all meetings of the shareholders, all elections and all matters, except as may be otherwise provided
by law or by the Articles of Incorporation of the Company, shall be resolved by a majority vote of
shareholders present, in person or by proxy and entitled to vote thereat, a quorum being present.

Cumulative voting is allowed in the election of members of its Board of Directors. Thus, in the
election of directors, each stockholder is entitled to such number of votes as is equal to the product
of the number of common shares owned by him and the number of directors to be elected. The
stockholder may cumulate his votes in favor of one candidate or distribute these votes in such
proportion and amount between as many of the candidates as the stockholder wishes. The election
of directors may only be held at a meeting convened for that purpose at which stockholders
representing a majority of its outstanding capital stock are present in person or by proxy. However,
any vacancy in its board, other than by removal or expiration of term, may be filled by the majority
of the remaining directors if still constituting a quorum.

A stockholder may vote in person or by proxy at all meetings of the stockholders. Each duly
appointed proxy has the same rights as the stockholder by whom he was appointed to speak and
vote at a meeting, in respect of the number of shares held by the stockholder for which the relevant
proxy is appointed. Unless otherwise provided in the proxy, it shall be valid only for the meeting at
which it has been presented to its Corporate Secretary. Moreover, under the Corporation Code, no
proxy shall be valid and effective for a period longer than five (5) years at any one time. All proxies
must be in the hands of the Corporate Secretary at least four (4) days before the date set for the
meeting.

Matters Requiring Stockholder Approval

Some corporate acts may only be effected with the approval of the Company‟s stockholders. Any
amendment to its By-Laws may only be effected with the approval of its stockholders representing
at least a majority of its outstanding capital stock at a stockholders‟ meeting convened for that
purpose. The approval of its stockholders representing at least two-thirds (2/3) of its outstanding
capital stock is required for each of the following corporate actions:

   Any amendments to its Articles of Incorporation;

   The removal of any director;

   The ratification of contracts entered into by a director by virtue of his office under which
   contract the director acquired a business opportunity which should have belonged to the
   Company;




                                                                                                    49
   The ratification of contracts entered into by the Company with any of its directors if (i) the
   presence of the director in the board meeting at which the contract was approved was necessary
   to constitute a quorum for such meeting; or (ii) the vote of the director was necessary for the
   approval of the contract;

   The sale, lease, exchange, mortgage, pledge or other disposition of all or substantially all of the
   Company‟s assets;

   The investment of funds in any other corporation or business or for any purpose other than the
   primary purpose for which the Company was organized;

   Incurring, creating, or increasing its bonded indebtedness;

   The extension or shortening of its term of corporate existence;

   The declaration of stock dividends;

   The conclusion of management contracts with another corporation in the event that the
   stockholders representing the same interest of both the managing and the managed corporation
   own or control more than one-third (1/3) of the total outstanding capital stock entitled to vote
   of the managing corporation, or a majority of the members of the Board of Directors of the
   managing corporation also constitute a majority of the members of the Board of Directors of
   the managed corporation;

   The delegation to its Board of Directors of the power to amend or repeal the By-Laws or to
   adopt a new By-Laws;

   Any plan or agreement of merger or consolidation with any corporation, including any
   amendment thereof; and

   The Company‟s voluntary dissolution.

Dividends

The Company may pay dividends out of its surplus profits or unrestricted retained earnings. These
represent its net accumulated earnings, with its capital unimpaired, which is not appropriated for any
other purpose. It may pay dividends in cash, by the distribution of property or by the issuance of
shares of stock. Dividends paid in the form of shares may only be paid with the approval of
stockholders representing at least two-thirds (2/3) of all shares of stock then outstanding and
entitled to vote at the annual general stockholders‟ meeting or at a special stockholders‟ meeting
called for such purpose. No dividends shall be declared that will impair the capital of the
corporation.

The Company‟s Board of Directors has the discretion to declare cash or property dividends. The
issuance of property dividends must conform to the following conditions:


                                                                                                   50
   The property to be distributed must consist of property that is no longer intended to be used in
   the operation of its business and practicable to be distributed as dividends;

   The issuance of property dividends must not result in an inequitable distribution of property to
   the stockholders in terms of the book value and market value, if any, of the property distributed;

   When the distribution of dividends is made where some stockholders will receive cash and the
   others will receive property, the prevailing market value of the property, as agreed upon by the
   stockholders, will be considered in determining the equitable distribution of the total dividends;
   and

   The distribution of property dividends must be approved by the SEC. Under the Corporation
   Code, corporations with surplus profits in excess of one hundred percent (100%) of their paid-
   up capital are required to declare and distribute those profits as dividends, except (i) when
   retaining the profits is justified by definite corporate expansion projects or programs approved
   by the Board of Directors, (ii) when the consent of creditors is required under any loan
   agreement and the consent has not been secured, or (ii) when it can be clearly shown that
   retaining the profits is necessary under the special circumstances of the corporation, as when
   special reserves are required for contingent liabilities.

Proxies

At all meetings of the shareholders, a shareholder may vote in person or by proxy. Unless otherwise
provided in the proxy, it shall be valid only for the meeting at which it has been presented to the
secretary of the Company. Under Section 6, Article II of the Company‟s amended By-Laws, all
proxies must be in the hands of the secretary of the Company at least four (4) days before the date
set for the meeting. Such proxies shall be validated at least three (3) days prior to meeting.

Fixing of Record Date

Under Section 4, Article VIII of the Company‟s amended By-Laws, the Board of Directors may
provide that the stock and transfer books of the Company be closed for a period not exceeding
thirty (30) days preceding each annual or special meeting for the purpose of determining the
shareholders entitled to notice of, or to vote at, any meeting of the shareholders or any adjournment
thereof, or to receive payment of any dividend, or making a determination of shareholders for any
other purpose. In lieu of closing the stock and transfer books, the Board of Directors of the
Company may fix in advance a record date which shall in no case be more than thirty (30) days prior
to the date on which the particular action requiring such determination of shareholders is to be
taken, except in instances where applicable rules and regulations provide otherwise.

OTHER RIGHTS OF THE STOCKHOLDERS

Appraisal Right

Under the Corporation Code, any of the Company‟s stockholders, including a minority stockholder,
has the right to dispute and demand payment of the fair value of his shares in any of the following
instances:

                                                                                                  51
   Any amendment to its Articles of Incorporation which has the effect of changing or restricting
   rights attached to his shares or of authorizing preferences superior to those of outstanding
   shares of any class, or of extending or shortening the term of its corporate existence;

   The sale, lease, exchange, transfer, mortgage, pledge, or other disposition of all or substantially
   all of its property and assets;

   The investment of corporate funds for purpose other than to accomplish its primary purpose in
   another corporation or business; and

   A merger or consolidation with another corporation.

The fair value of the sale of shares by a dissenting stockholder may be agreed upon between the
Company and said stockholder. If an agreement cannot be reached, the fair value will be determined
by an independent committee. However, payment for the shares of any dissenting stockholder may
be made only if the Company has unrestricted retained earnings to purchase his shares.

Right to Inspection

All stockholders, including minority stockholders, have the right to inspect the Company‟s corporate
books and records at reasonable hours on business days. These records include minutes of all
meetings of the Board of Directors and of the stockholders, stock registries, and records of its
business transactions. They shall also be furnished with annual reports, including financial
statements, without cost or restrictions.

However, the right of inspection may be denied to stockholders seeking to examine the Company‟s
records if they have improperly used any information obtained through any prior examination of its
records, or did not act in good faith or for a legitimate purpose in making a demand for inspection.

Right to Information

All stockholders shall have access to any and all information relating to matters for which
management is accountable, and shall be provided, upon request, with periodic reports which
disclose personal and professional information about the directors and officers and certain other
matters such as their holdings of its shares, dealings with the Company, relationships among
directors and key officers, and the aggregate compensation of directors and officers.

Right to File Derivative Suits

The right of a stockholder to institute proceedings on the Company‟s behalf in a derivative suit is
recognized under Philippine law. Derivative suits may be filed if the Company is unable or unwilling
to institute the necessary proceedings to redress wrongs committed against the Company or to
vindicate corporate rights. The Regional Trial Court in the place of the Company‟s principal office
has original and exclusive jurisdiction over derivative suits and other intra-corporate disputes.



                                                                                                   52
MANAGEMENT & BOARD OF DIRECTORS

Election

The Amended Articles of Incorporation of the Company provide for the election of seven (7)
directors. The Board of Directors shall be elected during each regular or annual shareholders‟
meeting at which shareholders representing at least a majority of the outstanding capital stock of the
Company are present, either in person or by proxy. At least two (2) members of the Board or at least
twenty percent (20%) of the total number of members thereof, whichever is lesser, shall be
independent. An independent director shall hold no interests or relationships with the Company that
may hinder his independence from the Company or management which would interfere with the
exercise of independent judgment in carrying out the responsibilities of a director and which he shall
certify in a letter of confirmation to the Corporate Secretary.

Quorum

Majority of the number of directors of the Company as fixed in its Articles of Incorporation,
constitute a quorum for the transaction of corporate business. Every decision of at least a majority
of the directors present at a meeting at which there is a quorum shall be valid as a corporate act.

Vacancy

Any vacancy occurring in the Board of Directors, other than by removal of a director by the
shareholders or by expiration of term, may be filled by a vote of at least a majority of the remaining
directors, if still constituting a quorum, upon the nomination of the Nomination Committee;
otherwise, the vacancy must be filled by the shareholders at a meeting duly called for the purpose.
Any director elected in this manner by the Board of Directors shall serve only for the unexpired
term of the director whom such director replaces.

Powers and Functions

The corporate powers of the Corporation shall be exercised, and the property and business of the
Company shall be managed by its Board of Directors. The Board, however, may appoint not less
than three (3) directors who shall constitute the Executive Committee, which Committee shall have
such powers and perform such functions as may be delegated to it by the Board of Directors.

The By-Laws of the Company provide for the creation of an Executive Committee, a Nomination
Committee, a Compensation and Remuneration Committee, an Audit Committee and other
committees as may be determined by the Board of Directors.

Compensation

Based on the Company‟s By-Laws, except for reasonable per diems, directors shall be entitled to
receive only such compensation as may be granted to them by the vote of the stockholders
representing at least a majority of the outstanding capital stock at a regular or special meeting of the
stockholders. In no case shall the total yearly compensation of directors, as such, exceed ten percent
(10%) of the net income before income tax of the Corporation during the preceding year.


                                                                                                     53
Director’s Appointment, Resignation, Disqualification, and Removal

The Company‟s Board of Directors shall be elected during each regular meeting of stockholders and
shall hold office for one (1) year and until their successors are elected and qualified, provided that at
least two (2) members of the Board of Directors or at least twenty percent (20%) of the total
number of members thereof, whichever is lesser, shall be independent. An independent director is
defined by the SRC as a person other than an officer or employee of the corporation, its parent or
subsidiaries, or any other individual having a relationship with the corporation, which would
interfere with the exercise of independent judgment in carrying out the responsibilities of a director.
The independent directors shall have all of the qualifications and none of the disqualifications set
forth in Section 38 of the SRC and the SRC IRR.

Under the Corporation Code, any director of a corporation may be removed from office by a vote
of stockholders holding or representing at least two-thirds (2/3) of the outstanding capital stock at a
regular meeting of the stockholders or at a special meeting called for the purpose and after previous
notice to stockholders of the intention to propose such removal at the meeting has been sent. A
special meeting of the stockholders may also be called for the purpose of removal of directors, by
the secretary on order of the president or on the written demand of the stockholders representing or
holding at least a majority of the outstanding capital stock. Should the secretary fail or refuse to call
the special meeting upon such demand or fail or refuse to give the notice, or if there is no secretary,
the call for the meeting may be addressed directly to the stockholders by any stockholder of the
corporation signing the demand. Notice of the time and place of such meeting, as well as of the
intention to propose such removal, must be given by publication or by written notice prescribed as
provided by its By-Laws.

Removal of a director may be with or without cause. However, removal without cause may not be
used to deprive minority stockholders of the right of representation to which they may be entitled
under the Corporation Code.

Election of Officers

The officers are likewise elected annually by the Board of Directors.           They serve until their
respective successors have been elected and qualified.

Meeting of the Board of Directors

Regular meetings of the Board of Directors shall be held at such places and at such times as the
Chairman, or in his absence, the President shall from time to time determine. If any day fixed for a
regular meeting shall be a legal holiday at the place where the meeting is to be held, then the meeting
which would otherwise be held on that day shall be held at the same hour on the next succeeding
business day which is not a legal holiday. Notice of regular meetings need not be given.

Special meetings of the Board of Directors may be called by or at the request of the President or
Chairman of the Board, or any four directors. The person or persons authorized to call special
meetings of the Board of Directors may fix any place within the city or municipality where the
principal office of the Corporation is located as the place for holding any special meeting of the
Board of Directors called by them.


                                                                                                      54
Directors’ Interest in Contracts

Under Section 32 of the Corporation Code, the Company has the option to declare as void a
contract that it had entered with one or more of its directors, except when all the following
conditions are present:

    That the presence of such director in the board meeting in which the contract was approved was
    not necessary to constitute a quorum for such meeting;

    That the vote of such director was not necessary for the approval of the contract; and

    That the contract is fair and reasonable under the circumstances.

Where any of the first two conditions set forth above is absent, such contract may be ratified by the
vote of its stockholders representing at least two-thirds (2/3) of its outstanding capital stock in a
meeting called for the purpose. However, full disclosure of the adverse interest of the directors shall
be made at such meeting and the contract shall be fair and reasonable under the circumstances.

Liability of Directors

Under Section 31 of the Corporation Code, directors who willfully and knowingly vote for or assent
to patently unlawful acts of the corporation or who are guilty of gross negligence or bad faith in
directing the affairs of the corporation or acquire any personal pecuniary interest in conflict with
their duty as such directors shall be held jointly and severally liable for all damages resulting
therefrom suffered by the corporation, its stockholders and other third persons. Moreover, when a
director or officer attempts to acquire or acquires, in violation of his duty, any interest adverse to the
corporation in respect of any matter which has been reposed in him in confidence, as to which
equity imposes a disability upon him to deal in his own behalf, he shall be liable as trustee for the
corporation and must account for the profit, which otherwise would have accrued to the
corporation.

Disloyalty of a Director

Under Section 34 of the Corporation Code, where a director, by virtue of his office, acquires for
himself a business opportunity, which should belong to the corporation, thereby obtaining profits to
the prejudice of such corporation, he must account for all profits by refunding the same,
notwithstanding the fact that the director risked his own funds in the venture. However, the
corporation‟s right to refund shall not be applicable in case the director‟s act has been ratified by a
vote of the stockholders owning or representing at least two-thirds (2/3) of the outstanding capital
stock.

DISTRIBUTION OF ASSETS ON WINDING-UP

Under the Corporation Code, upon the expiration of its corporate charter or annulment thereof by
forfeiture or otherwise, or upon the termination of its corporate existence for other purposes in any
other manner, it shall nevertheless be continued as a body corporate for three (3) years after the time
when it would have been so dissolved, for the purpose of prosecuting and defending suits by or

                                                                                                       55
against the Company and enabling it to settle and close its affairs, to dispose of and convey its
property and to distribute its assets, but not for the purpose of continuing the business for which it
had been established.

At any time during aforementioned three (3) years, the Company is authorized and empowered to
convey all of its properties to trustees for the benefit of its stockholders, creditors and other persons
in interest. From and after any such conveyance of its property in trust for the benefit of its
stockholders, creditors and others in interest, all its interest in such property terminates, and the legal
interest vests in the aforesaid trustees and the beneficial interest in its stockholders, creditors or
other persons in interest. Upon the winding up of its corporate affairs, any asset distributable to any
creditor or stockholder who is unknown or cannot be found shall be escheated to the city or
municipality where such asset is located.

Except by decrease of its capital stock and otherwise as allowed by the Corporation Code, it shall
not distribute any of its assets or properties except upon lawful dissolution and after payment of all
of its debts and liabilities.

ACCOUNTING AND AUDITING

Philippine corporations are required to file copies of their annual financial statements with the SEC.
Stockholders are entitled to request from the SEC or from the Company copies of its most recent
financial statements, which must include a balance sheet and a profit and loss statement as of the
end of the last fiscal year.

FOREIGN OWNERSHIP RESTRICTIONS

The transfer of Shares of the Company must comply with nationality restrictions. The capital of the
Company‟s subsidiaries holding lands and water permits and operating public utilities must be, by
mandate of the Philippine Constitution and relevant laws, at least sixty percent (60%) Filipino-
owned. Thus, the Company, which owns almost one hundred percent (100%) of such subsidiaries,
must itself be Filipino.

The Company engages in the trading business. If the company shall engage in retail trade, it will be
subject to capitalization and nationality restrictions imposed on retail trade.

SHARE REGISTER

CVI‟s Stock Transfer Agent, [●], with offices at the [●], maintains the Company‟s register of
stockholders. CVI‟s stockholders are allowed to inspect the Company‟s corporate books and records
including the stock registry from 9:00 am to 6:00 pm on business days.

OTHER SECURITIES

CVI has not issued any form of securities (including stock options, warrants, debt securities, and
securities subject to redemption or call) other than the Common Shares.

PROVISIONS IN THE ARTICLES OF INCORPORATION AND BY-LAWS THAT
WOULD DELAY, DETER OR PREVENT CHANGE IN CONTROL
                                                                                                        56
There are no provisions in the Company‟s Articles of Incorporation and By-Laws that may delay,
deter or prevent a change in control of the Company.




                                                                                           57
INTERESTS OF NAMED EXPERTS AND COUNSEL
Certain Philippine legal matters have been passed upon for the Company by Leynes Acejas &
Associates, the Company‟s independent legal counsel.

The services of Leynes Acejas & Associates were not engaged by the Company on a contingent
basis. As such, it does not have, and will not receive, any direct or indirect interest in the Company
or in any of the Company‟s securities (including options, warrants or rights thereto) pursuant to, or
in connection with the Shares. Neither has it acted, nor will it act, as promoter, underwriter, voting
trustee, director, officer or employee of the Company.

The accounting firm of CG & Co. has been the Company‟s independent public accountant since
2009. This auditing firm has been endorsed by the Audit Committee to the Board. The Board, in
turn, approved the endorsement and nominated the appointment of this auditing firm for
stockholders‟ approval during the Company‟s annual meeting of stockholders.

The audit services of CG & Co. for the calendar years ended 31 December 2009 and 2010 included
the examination of the consolidated financial statements of the Company, assistance in the
preparation of annual income tax return and other services related to filing of reports made with the
SEC. CG & Co. was also engaged to review the interim financial statements for the periods ended
30 June 2010 and 2011.

There was no event in the past year where CG & Co. and the Company had any disagreement with
regard to any matter relating to accounting principles or practices, financial statement disclosures or
auditing scope or procedures.

The person who conducted the audit for calendar years 2009 and 2010, and the review for the
periods ended 30 June 2010 and 2011 was Mr. Rogelio M. Guadalquiver, CG & Co.‟s Chairman. The
stockholders approved the engagement of Mr. Guadalquiver and the appointment of CG & Co. as
the external auditor for calendar years 2009 and 2010, and to conduct the review of the interim
financial statements for the periods ended 30 June 2010 and 2011.

CG & Co. will not receive any direct or indirect interest in the Company or in any securities thereof.




                                                                                                    58
COMPANY HISTORY – PARENTS, SUBSIDIARIES AND
AFFILIATES
The Company is duly organized as a corporation under the laws of the Philippines and was
registered with the SEC on 30 January 2009 (under SEC Company Registration No. CS200901269)
under its original name “Calapan Equity Ventures, Inc.”

PRIMARY PURPOSE

On 23 December 2009, the SEC approved the amendment of the Articles of Incorporation and By-
Laws of the Company changing (i) its name from “Calapan Equity Ventures, Inc.” to “Calapan
Ventures, Inc.” and (ii) its primary purpose from a holding company to one that is engaged in the
business of trading, processing, assembling, manufacturing and/or fabricating and exporting and
importing, and dealing in goods, materials, merchandise, commodities, minerals, metals and real and
personal properties of every kind, class and description. It still performs the function of a holding
company as a secondary purpose.

Under Philippine law, a corporation may invest its funds in any other corporation or business for
any purpose other than the primary purpose for which it was organized when approved by a
majority of the Board of Directors and ratified by the shareholders representing at least two-thirds
(2/3) of the outstanding capital stock, at a shareholders‟ meeting duly called for the purpose;
provided, however, that where the investment by the corporation is reasonably necessary to
accomplish its primary purpose, the approval of the shareholders shall not be necessary.

CAPITALIZATION

Upon its incorporation on 30 January 2009, the Company had an authorized capital stock of Two
Hundred Million Pesos (PhP200,000,000.00) divided into two hundred million (200,000,000)
Common Shares with a par value of One Peso (PhP1.00) per share.

As of the date of this prospectus, the issued and outstanding capital stock of the Company consisted
of one hundred twenty million (120,000,000) Common Shares. The Company was initially a wholly-
owned subsidiary of JOH. However, on 09 July 2009, the Board of Directors of JOH passed a
resolution declaring thirty two percent (32%) property dividends corresponding to ninety million
eighty thousand (90,080,000) shares in the Company. This declaration of property dividends was
approved by JOH‟s stockholders during their annual stockholders‟ meeting on 18 August 2009.

REVENUE CONTRIBUTION BY BUSINESS LINE

The Company is directly engaged in the product procurement business. It purchases, on a wholesale
basis, and resells merchandise such as food and beverage items, grooming and personal hygiene
supplies, and cleaning and housekeeping materials and supplies.

Its clients are generally companies that outsource part or all of their purchasing needs to reduce
overhead costs associated with maintaining an in-house purchasing department. The Company
charges a mark up on the goods procured as consideration for its services. See the section on
“Trading Business” on page 81 for a more detailed discussion of CVI‟s trading business.

                                                                                                  59
The Company‟s subsidiaries, particularly Calapan Water and Kristal Water, are in the water and ice
distribution business. See the section on “Water Utility Business” on page 82 for a more detailed
discussion on the business of each subsidiary.

The contribution to revenues of the two (2) different business lines is as follows:

 Revenue Contribution               As of June 30,                As of Dec. 31,                     As of Dec. 31,
 by Business Segment                         2011          %               2010              %                2009        %
 Water Utility Business                 60,066,393    81.97%             90,568,624    76.81%           59,797,701    95.48%
 Product Procurement                    13,212,009    18.03%             27,338,217    23.19%            2,831,259    4.52%

COMPANY STRUCTURE

The following chart presents the Company‟s corporate group structure:



                                                     Calapan Ventures,
                                                           Inc.




                        99.61%                        100%                            100%


                        Calapan Water                  Kristal Water                  Tabuk Water




SUBSIDIARIES

The Company‟s subsidiaries are Calapan Water, Kristal Water and Tabuk Water. Aside from being
the majority stakeholder in its subsidiaries, most of CVI‟s key executive officers are also the key
executive officers of its subsidiaries.

Below is a matrix showing pertinent information about the capital structure of the Company and its
subsidiaries:

Company                     Business        Date Of             Authorized              Subscribed              Ownership
                                            Incorporation       Capital Stock           Capital Stock
Calapan Water               Water Utility   23 May 1991         PhP200,000,000          PhP87,264,425           99.61% owned
Works Corporation                                                                                               by CVI
Kristal Water Source        Ice plant       11 May 2007         PhP1,000,000            PhP250,000              100% owned by
Corporation*                                                                                                    CVI
Tabuk Water                 Water Utility   14 August 2006      PhP10,000,000           PhP10,000,000           100% owned by
Corporation*                                                                                                    CVI
     * preoperating stage



                                                                                                                          60
Calapan Waterworks Corporation

Calapan Water is engaged in the business of developing and utilizing water resources. It currently
operates, manages and maintains the water supply systems in Calapan City and Tabuk City.

Calapan Water was formally registered with the SEC on 23 May 1991 under the corporate name
“Calapan Water Works System and Development Corporation” with SEC registration no. AS091-
191028. It had an initial authorized capital stock of Fifty Million Pesos (PhP50,000,000.00) divided
into five hundred thousand (500,000) shares with a par value of One Hundred Pesos (PhP100.00)
per share.

JOH, through its subsidiary ORDC, acquired a ninety two percent (92%) controlling equity interest
in Calapan Water in December 1999. On 24 March 2003, the SEC approved Calapan Water‟s
application for the reduction of its par value per share from One Hundred Pesos (PhP100.00) to
One Peso (PhP1.00), and increase in number of shares from five hundred thousand (500,000) to
fifty million (50,000,000).

On 06 August 2003, the SEC approved Calapan Water‟s application for quasi-reorganization. The
application was for a reduction of its authorized capital stock from fifty million (50,000,000) shares
with a par value of One Peso (PhP1.00) per share to seven million five hundred thousand
(7,500,000) shares with the same par value per share. The decrease resulted in a decrease in paid-up
capital from Twenty Nine Million One Hundred Twenty Thousand Pesos (PhP29,120,000.00) to
Four Million Three Hundred Sixty Eight Thousand Pesos (PhP4,368,000.00), and created a surplus
of Twenty Four Million Seven Hundred Fifty Two Thousand Pesos (PhP24,752,000.00) which was
used to wipe out the deficit as of 31 December 2002 amounting to Sixteen Million Eight Hundred
Seventy Two Thousand Five Hundred Fifty Five Pesos (PhP16,872,555.00).

On 24 October 2003, the SEC approved Calapan Water‟s application for increase in authorized
capital stock from seven million five hundred thousand (7,500,000) shares with a par value of One
Peso (PhP1.00) per share to two hundred million (200,000,000) shares with the same par value per
share. Relative to the increase, additional subscriptions were made by its parent and an affiliate for a
total of forty eight million one hundred twenty five thousand (48,125,000) shares. Total paid
subscriptions amounted to Thirteen Million Eight Hundred Twenty Two Thousand Six Hundred
Fifty One Pesos (PhP13,822,651.00) which is equivalent to twelve million thirty one thousand two
hundred fifty (12,031,250) shares.

On 18 January 2005, the SEC approved the change of name of Calapan Water from “Calapan Water
Works System and Development Corporation” to “Calapan Waterworks Corporation”.

Currently, Calapan Water has an authorized capital stock of Two Hundred Million Pesos
(PhP200,000,000.00) divided into two hundred million (200,000,000) common shares, with par value
of One Peso (PhP1.00) per share. Out of these, eighty seven million two hundred sixty four
thousand four hundred twenty five (87,264,425) common shares of Calapan Water are subscribed
and fully paid.

Calapan Water became the Company‟s wholly-owned subsidiary on 31 March 2009 following the
settlement of subscription payable with JOH wherein, in exchange for the assignment of eighty six
million four hundred thousand seven hundred seventy (86,400,770), Calapan Water shares of JOH,
                                                                                                     61
(i) the unpaid subscription in the Company of JOH as of 30 January 2009 was fully paid; and (ii)
JOH subscribed to an additional seventy million (70,000,000) shares out of the unissued share
capital of the Company.

Prior regulatory or Congressional approval was not obtained as it was deemed by the Company and
Calapan Water to be unnecessary considering, among others, that Calapan Water continued to be
beneficially owned by JOH. CVI‟s annual report submitted to the House of Representatives on 18
February 2010 and the Senate of the Philippines on 22 February 2010 reflected the change in
ownership. Furthermore, the Senate Legal Counsel Office has opined that Calapan Water has not
violated its franchise, R.A. 9185. The opinion stated, among others, that “[s]ince [JOH] still holds
effective control over [Calapan Water] through [the Company], its subsidiary, we opine that it is not
the prohibitive transfer imposed by law. It must be emphasized that „control‟ is the possession,
directly or indirectly, of the power to direct or cause the direction of the management and policies
of the corporation.”

Calapan Water‟s key officers and shareholders are summarized in the following tables:

                                  Position                              Name
                          Chairman                   :    Jolly L. Ting
                          President                  :    Ortrud T. Yao
                          Vice-President             :    Lourdes G. Ting
                          Corporate Secretary        :    Nanette T. Ongcarranceja
                          Treasurer                  :    Roger T. Ong

          Name Of Shareholder                   No. Of Shares    Price Per Share     Amount Paid      Ownership
                                                 Subscribed         In Pesos                            (%)
Calapan Ventures Inc.                               86,400,770        1.00            86,400,770.00      99.61%
Calapan Waterworks Corporation*                        522,300        1.00               522,300.00          -
Cabase Jaime &/or Concepcion Orda                       75,000        1.00                75,000.00       0.09%
Henry Go Tan &/or Jose Tan Chan                         52,620        1.00                52,620.00       0.06%
Elgeete Holdings Inc                                    38,835        1.00                38,835.00       0.04%
Lalisan, Jose                                           30,150        1.00                30,150.00       0.03%
Ng Tsai, Oscar                                          24,045        1.00                24,045.00       0.03%
Panganiban, Simon                                       22,500        1.00                22,500.00       0.03%
Teng, George                                            15,720        1.00                15,720.00       0.02%
Teng, Hilton                                            15,000        1.00                15,000.00       0.02%
Teng, Wilton                                            15,000        1.00                15,000.00       0.02%
Ting, Jolly L.                                           9,390        1.00                 9,390.00       0.01%
Henry Go Tan                                             8,835        1.00                 8,835.00       0.01%
Goco, Juanita                                            7,995        1.00                 7,995.00       0.01%
Hernandez, Jaime                                         6,195        1.00                 6,195.00       0.01%
Others                                                  20,070        1.00                20,070.00       0.02%
Total                                               87,264,425                        87,264,425.00     100.00%
Note: Others comprised of 42 stockholders.
      * Treasury shares




                                                                                                            62
Kristal Water Source Corporation

Kristal Water will engage in the production and distribution of ice. It intends to set up an ice plant
to service the needs of residential and commercial businesses in Calapan City. Kristal Water‟s ice
plant facility is currently being constructed at Bayanan I, Calapan City, Oriental Mindoro.

Kristal Water was formally registered with the SEC on 11 May 2007 with SEC registration no.
CS200707206. Its primary purpose is to engage in the business of development and utilization of
water resources, including the operation, management and maintenance of plants for the production
and supply of water, and the operation of ice planting and distribution and sale of ice. At present,
Kristal Water has an authorized capital stock of One Million Pesos (PhP1,000,000.00) divided into
one million (1,000,000) common shares, with par value of One Peso (PhP1.00) per share. Currently
two hundred fifty thousand (250,000) shares are subscribed and fully paid.

Kristal Water became the Company‟s wholly-owned subsidiary on 16 December 2009 following the
acquisition by the Company of all of the outstanding shares of stock of Kristal Water from Elgeete
Holdings, Inc. On 16 December 2009, Elgeete Holdings, Inc. assigned its one hundred percent
(100%) ownership in Kristal Water to the Parent Company amounting to Two Hundred Forty Nine
Thousand Nine Hundred Ninety Five (249,995) shares.

Kristal Water‟s key officers and shareholders are summarized in the following tables:

                              Position                             Name
                      Chairman                 :     Jolly L. Ting
                      President                :     Nanette T. Ongcarranceja
                      Vice-President           :     Lourdes G. Ting
                      Corporate Secretary      :     Ortrud T. Yao
                      Treasurer                :     Ortrud T. Yao
                      Director                 :     Roger T. Ong

    Name Of Shareholder            No. Of Shares       Price Per Share          Amount Paid      Ownership
                                    Subscribed            In Pesos                                 (%)
Calapan Ventures, Inc.                     249,995          1.00                    249,995.00      100.00%
Jolly L. Ting                                    1          1.00                          1.00        0.00%
Nanette T. Ongcarranceja                         1          1.00                          1.00        0.00%
Lourdes G. Ting                                  1          1.00                          1.00        0.00%
Ortrud T. Yao                                    1          1.00                          1.00        0.00%
Roger T. Ong                                     1          1.00                          1.00        0.00%
Total                                      250,000                                  250,000.00      100.00%

Tabuk Water Corporation

Tabuk Water was initially set up as a subsidiary of Calapan Water to operate the water system in
Tabuk City. However, since it was Calapan Water which participated and won the bid to lease and
operate the water system in Tabuk City, management decided to create a division within Calapan
Water to operate the Tabuk City water system. Tabuk Water currently has no operations.

Tabuk Water was formally registered with the SEC on 14 August 2006 with SEC registration no.
CS200610521. Its primary purpose is to engage in the business of development and utilization of

                                                                                                        63
water resources, including the operation, management and maintenance of plants for the production
and supply of water. At present, Tabuk Water has an authorized capital stock of Ten Million Pesos
(PhP10,000,000.00) divided into ten million (10,000,000) common shares, with par value of One
Peso (PhP1.00) per share. Currently, the entire capital stock has been subscribed and fully paid.

Tabuk Water became the Company‟s wholly-owned subsidiary on 16 December 2009 following the
acquisition by the Company of all of the outstanding shares of stock of Tabuk Water from Calapan
Water and ORDC. On 16 December 2009, Calapan Water and ORDC assigned their sixty seven
percent (67%) and thirty three percent (33%) ownership, respectively, in Tabuk Water to the
Company amounting to Six Million Seven Hundred Thousand Pesos (PhP6,700,000.00) and Three
Million Two Hundred Ninety Nine Thousand Nine Hundred Ninety Five Pesos (PhP3,299,995.00),
respectively.

Tabuk Water‟s key officers and shareholders are summarized in the following tables:

                              Position                              Name
                      Chairman                 :      Jolly L. Ting
                      President                :      Nanette T. Ongcarranceja
                      Vice-President           :      Lourdes G. Ting
                      Corporate Secretary      :      Ortrud T. Yao
                      Treasurer                :      Ortrud T. Yao
                      Director                 :      Roger T. Ong

    Name Of Shareholder           No. Of Shares         Price Per Share          Amount Paid            Ownership
                                   Subscribed              In Pesos                                       (%)
Calapan Ventures, Inc.                  9,999,995                     1.00            9,999,995.00         100.00%
Jolly L. Ting                                   1                     1.00                    1.00           0.00%
Nanette T. Ongcarranceja                        1                     1.00                    1.00           0.00%
Lourdes G. Ting                                 1                     1.00                    1.00           0.00%
Ortrud T. Yao                                   1                     1.00                    1.00           0.00%
Roger T. Ong                                    1                     1.00                    1.00           0.00%
Total                                  10,000,000                                    10,000,000.00           100.00%

PARENTS AND AFFILIATES

The following are the Parents and Affiliates of the Company:

       Company                  Date Of               Authorized           Subscribed                Relationship
                             Incorporation           Capital Stock        Capital Stock
JOH                        03 September 1986       PhP1,000,000,000.00   PhP281,500,000.00       Parent:
                                                                                                 Owns 36.9% of
                                                                                                 the subscribed
                                                                                                 and outstanding
                                                                                                 shares of CVI3

ORDC                       22 September 1997         200,000,000.00.00           50,000,000.00   Affiliate:
                                                                                                 100% owned by


330.80% certificated under JOH, 6.14% lodged under PCD Nominee Corporation. See discussion on “TOP 20
STOCKHOLDERS” on page 106 for a more detailed discussion.

                                                                                                                    64
                                                                              JOH

JGMI                        09 March 1994     10,000,000.00    5,000,000.00   Affiliate:
                                                                              100% owned by
                                                                              JOH

Servwell BPO                 19 May 2009       5,000,000.00    1,250,000.00   Affiliate:
International (Servwell)*                                                     100% owned by
                                                                              JOH

Granville Ventures Inc.     19 March 2001      1,000,000.00     250,000.00    Affiliate:
(GVI)*                                                                        100% owned by
                                                                              JOH

Jollideal Marketing         10 March 1989      2,000,000.00    1,000,000.00   Affiliate:
Corporation (JMC)*                                                            100% owned by
                                                                              JOH

Jolliville Leisure and      20 March 1995     20,000,000.00    5,000,000.00   Affiliate:
Resort Corporation                                                            100% owned by
(JLRC)*                                                                       JOH
Ormin Holdings              01 March 1994     10,000,000.00    2,500,000.00   Affiliate:
Corporation (OHC)* and                                                        100% owned by
Subsidiaries:                                                                 JOH

    OTY Development         03 March 2008      5,000,000.00    1,250,000.00   Affiliate:
    Corp. (OTY)*                                                              100% owned by
                                                                              JOH

    Melan Properties        03 March 2008      5,000,000.00    1,250,000.00   Affiliate:
    Corp. (MPC)*                                                              100% owned by
                                                                              JOH

    KGT Ventures, Inc.      03 March 2008      5,000,000.00    1,250,000.00   Affiliate:
    (KGT)*                                                                    100% owned by
                                                                              JOH

    Ibayo Island Resort     14 August 2007     5,000,000.00    1,250,000.00   Affiliate:
    Corp. (IIRC)*                                                             100% owned by
                                                                              JOH

    NGTO Resources          03 March 2008      5,000,000.00    1,250,000.00   Affiliate:
    Corp. (NGTO)*                                                             100% owned by
                                                                              JOH
    Ormin Power Inc.        27 April 2009    120,000,000.00   80,000,000.00   Affiliate:
    (OPI)*                                                                    60% owned by
                                                                              JOH


*preoperating stage




                                                                                          65
Following is a table summarizing the names and principal activities of CVI‟s affiliates through
common ownership by JOH:

Name of affiliates                                  Principal activity

JGMI                                                Provide management, investment and technical advice and services
                                                    except the management of funds, securities, portfolio or similar
                                                    assets of the managed entities or corporations.

Servwell BPO International (Servwell)*              Will design, implement, and operate certain business processes;
                                                    assist companies in running their accounting units; provide
                                                    receivables and payables processing, billings and collections,
                                                    treasury, escrow and other related services; provide provident fund
                                                    accounting; and provide human resource-related processes.

ORDC                                                Engages in real estate business including property development,
                                                    sale or lease. Develops, sells and/or leases movable property.

Jolliville Leisure and Resort Corporation (JLRC)*   Will engage in the lease and purchase of marine, aquatic and
Melan Properties Corp. (MPC)*                       environmental resources located in the Philippines and develop
KGT Ventures, Inc. (KGT)*                           and conserve places with tourism value.
OTY Development Corp. (OTY)*
Ibayo Island Resort Corp. (IIRC)*
NGTO Resources Corp. (NGTO)*

Jollideal Marketing Corporation (JMC)*              Will engage in the purchase and sale of construction and other
                                                    related materials.

Granville Ventures Inc. (GVI)*                      Will engage in real estate business including property acquisition,
Ormin Holdings Corporation (OHC)*                   development, sale or lease. Also, will engage in the purchase,
                                                    investment and sale of securities of any kind, without, in any way,
                                                    acting as investment house or security dealer or broker.

Ormin Power Inc. (OPI)*                             Will provide power generation and electricity supply services to
                                                    distribution utilities, including but not limited to, electric
                                                    cooperatives; will install, build, own, lease, maintain or operate
                                                    power generation facilities, using fossil fuel, natural gas, or
                                                    renewable energy.
*preoperating stage




                                                                                                                    66
ORGANIZATION
The Board of Directors exercises the Company‟s corporate powers and leads in the formulation of
corporate strategic policies.

The President is responsible for the execution of the corporate policies and the implementation of
the corporate business plan. He leads and manages the three functional divisions – Finance &
Administration, Supply Chain Division and the Sales Division.

The Finance and Administration Division is responsible for all treasury, accounting and
administration functions. These functions are handled by the appropriate departments.

The Supply Chain Division is responsible for the sourcing and purchase of all goods for trade as
well as the purchase of all materials necessary for the company‟s operations. The division is also
accountable for the warehousing of these goods and materials, and delivery from suppliers and
distribution to external customers.

The Sales Division is responsible for generating revenues from trading of goods, as well as the
facilitation and processing of sales generated.

The organizational chart of the Company is shown below.
                                                             Board of
                                                             Directors



                                                             President




                         Finance and                        Supply Chain
                                                                                               Sales Division
                          Admin                               Division




              Treasury             Accounting   Logistics                Purchasing   Trade Sales         Sales Admin



                                                Warehouse
            Administration




Calapan Water

The Board of Directors exercises Calapan Water‟s corporate powers. Subject to the control of the
Board, the President generally supervises and controls all of the business affairs of Calapan Water.
The Vice President for Operations reports directly to the President. Under him is the treasury
department, which has a division for Calapan City operations and a separate one for Tabuk City
operations.

Calapan Water is organized into four (4) functional groups, namely: (i) Marketing Group for Calapan
division, (ii) Operations Group for Calapan division, (iii) Administrative Group for Calapan division
and (iv) Tabuk division.

                                                                                                                        67
The Marketing Group for the Calapan division is tasked to promote good relations between Calapan
Water and the community it serves. It encourages other barangays to tap into Calapan Water‟s
system. It also educates the community on the health, social and economic benefits of having access
to potable water. The Marketing Group also handles Calapan Water‟s customers‟ concerns and
requests and reports customers‟ feedback to the appropriate department for proper action.

The Operations Group for Calapan division is responsible for developing the infrastructure for the
supply and distribution of water in Calapan City. It handles day-to-day delivery of water to
customers and monitors water demand and NRW levels against available water supply and other
service targets set for Calapan Water. It also maintains Calapan Water‟s facilities such as wells and
pumps to ensure the community a continuous potable water service.

The Administrative Group for Calapan division handles billing and collection, and is also
responsible for the administration and maintenance of common facilities, office services delivery and
the safety of employees and visitors in all offices and facilities.

Finance, accounting and human resources are being handled by CVI‟s management consultant,
JGMI.

The Tabuk Division is divided into the Operations Group and the Administrative Group. These
groups perform the same duties as their Calapan Division counterparts. The Operations Group
performs day-to-day delivery of water to customers and maintenance work. The Administrative
Group handles billing, marketing and other customer services.

Following is the organizational chart of Calapan Water:
                                             Board of
                                             Directors
                                             Chairman



                                             President




                                         VP Operations



                                  Treasury               Treasury
                                  Calapan                 Tabuk

             Marketing    Operations
                                             Administration                          General
             Director      Manager
                                               Calapan                               Manager
             Calapan       Calapan
                                               Division                           Tabuk Division
             Division      Division


             Customer     Maintenance           Billing             Operations                     Administration
              Service     Department          Department             Manager                         Manager


                                                                    Maintenance           Billing              Marketing
                                                                    Department          Department             Department



                                                                                                                Customer
                                                                                                                 Service




                                                                                                                            68
BOARD OF DIRECTORS

None of the members of the Board of Directors directly owns more than two percent (2%) of the
Company‟s total outstanding capital stock.

Listed are the incumbent directors of the Company with their qualifications, which include their
ages, citizenship, current and past positions held, and business experience for the past five (5) years.

                   Name                Age       Nationality                   Position
   Jolly L. Ting                      65      Filipino           Chairman Of The Board and Chief
                                                                 Executive Officer
   Nanette T. Ongcarranceja           37      Filipino           Director And President

   Ortrud T. Yao                      34      Filipino           Director, Secretary/Treasurer And
                                                                 Chief Finance Officer
   Lourdes G. Ting                    62      Filipino           Director And Vice-President
   Dexter E. Quintana                 60      Filipino           Independent Director
   Rodolfo L. See                     69      Filipino           Director
   Ernesto S. Isla                    60      Filipino           Independent Director


Presently, the Directors of the Company are as follows:

Jolly L. Ting, Chairman of the Board of Directors and Chief Executive Officer

Jolly L. Ting has been the Chairman of the Board of Directors of the Company since January 2009.
He has a degree in Bachelor of Science in Business Administration from the University of the East.
He is the founder, Chairman and Chief Executive Officer of JOH since 03 April 1999. He has been
the Chairman of JGMI, ORDC and Uptrend Concepts Management Corp. since 26 April 2002. He
has also been the Chairman of Jolliville Leisure and Resort Corporation since 30 May 2001 and of
Calapan Water since 19 July 1992. He has also been a Director and the Treasurer of Mirage
Resources & Holdings Corp. since 18 May 1994. He has been a member of the Rotary Club,
University Belt District, Manila since 1978 and was the President of the Rotary Club, University Belt
District, Manila from 1991 to 1992.

Nanette T. Ongcarranceja, Director and President

Nanette T. Ongcarranceja has been a Director and the Secretary of the Company since January
2009. She has a degree in Fine Arts Advertising Studies from the College of the Holy Spirit, and has
taken advanced courses from Columbia College, Vancouver Community College and Kwantlen
University. She has been the President of JOH since 15 September 2004, and a Director since 19
April 1999. She has been the President and Director of JGMI since 26 October 2000. She has also
been the Vice President of Jollideal Marketing Corporation since 05 April 2008, and a Director since
06 November 2000. She has been a Director of Ormin Holdings Corporation since 17 August 1999,
Director and Vice President of Monako Wear Corporation since 09 October 2002, Director and
Treasurer of Dollarstore Philippines, Inc. since 15 November 2002 and Director, Secretary, and
Treasurer of Vitanutrition Incorporated since 06 January 2005. She served as Vice President of JOH
from July 2001 to September 2004, Secretary/Treasurer from April 1999 to July 2001, and Assistant


                                                                                                     69
Secretary from March to April 1999. She was also the Treasurer of Jollideal Marketing Corporation
from 06 November 2000 to 04 April 2008.

Ortrud T. Yao, Director, Secretary, Treasurer and Chief Finance Officer

Ortrud T. Yao has been a Director, Treasurer and Chief Finance Officer of the Company since
January 2009. She graduated with honors from the University of British Columbia with a Bachelor‟s
degree in Commerce major in Finance. She has been the Secretary/Treasurer and Chief Finance
Officer of JOH since 20 July 2001, and its Chief Compliance Officer since 17 June 2002. She has
been the President and Director of Calapan Water since 28 September 2005, of Ormin Holdings
Corporation since 15 August 2005, of Vitanutrition Incorporated since 06 January 2005, of
Dollarstore Philippines, Inc. since 15 November 2002 and of Oltru Holdings Corp. since 30 March
1999. She has also been the Secretary and Director of Kenly Resources, Inc. since 12 January 2004,
Secretary/Treasurer and Director of Monako Wear Corporation since 09 October 2002, Treasurer
and Director of Granville Ventures, Inc. since 19 March 2001, and Vice President and Director of
A-Net Resources Corp. since 26 March 1999.

Lourdes G. Ting, Director and Vice-President

Lourdes G. Ting has been a Director and Vice-President of the Company since January 2009. She
has a Bachelor of Science degree in Business Administration from Far Eastern University. She has
been a Director of JOH since 03 September 1986, the President and Director of Elgeete Holdings,
Inc. since 30 March 1999, and the Secretary and Director of A-Net Resources Corp. since 26 March
1999. She has also been the Vice-President and Director of Febra Resources Corp. since 26 March
1999, of Oltru Holdings Corp. since 30 March 1999, and of Kenly Resources, Inc. since 26 March
1999. She also served as the President of JOH from April 1999 to July 2001, and as Treasurer from
1986 to 1999.

Dexter E. Quintana, Independent Director

Dexter E. Quintana has been an Independent Director of the Company since January 2009. He has
a Master‟s degree in Business Administration, Graduate School of Business, University of the
Philippines. He has been an Independent Director of JOH since 20 July 2001. He has also been the
President of First Property Ventures, Inc., a realty development and commercial property leasing
firm, since 1984 and of Quintas Management Insurance Brokers, Inc., a life and non-life
underwriting firm since 1987. He has also been the Managing Director of Strategic Partners Alliance
Inc., a management consultancy and financial intermediation firm, since 2008.

Rodolfo L. See, Director

Rodolfo L. See has been a Director of the Company since January 2009. He has a Bachelor of
Science degree in Business Administration from Far Eastern University. He has been an
Independent Director of JOH since 18 August 2004, the Chairman and President of Gold Prize
Food Manufacturing Corp. since 1980, and of Gold Medal Food Manufacturing Corp. since 1974.
He is also the owner of International Food Snack Corp., an exporter of locally produced dried fruit
products.



                                                                                                70
Ernesto S. Isla, Independent Director

Ernesto S. Isla has been an Independent Director of the Company since January 2009. He has a
Bachelor of Science degree in Architecture from the University of Sto. Tomas. He has been the
President and Chief Executive Officer of both Bitech Systems (Phils.) Inc. and Business
Information Technology Systems since 1996, and of E.I. Construction Co., Inc. since 1973. He is
also a member of the Quezon City Red Cross, Rotary International District 3780 and the Rotary
Club of Kamuning.

The following table summarizes the members of the various committees of the Company. Ms.
Ortrud T. Yao is concurrently the Chief Compliance Officer of CVI.

                Executive              Chair:           Jolly L. Ting
                Committee              Members:         Nanette T. Ongcarranceja
                                                        Ortrud T. Yao

                Nomination             Chair:           Lourdes G. Ting
                Committee              Members:         Dexter E. Quintana
                                                        Nanette T. Ongcarranceja

                Compensation           Chair:           Nanette T. Ongcarranceja
                Committee              Members:         Ortrud T. Yao
                                                        Ernesto S. Isla

                Audit Committee        Chair:           Dexter E. Quintana
                                       Members:         Rodolfo L. See
                                                        Ortrud T. Yao

EXECUTIVE OFFICERS

None of the officers of the Company directly owns more than two percent (2%) of the Company‟s
total outstanding capital stock.

Listed are the incumbent officers of the Company with their qualifications which include their ages,
citizenship, current and past positions held and business experience for the past five (5) years.

             Name              Age     Nationality                           Position
    Jolly L. Ting              65         Filipino        Chairman and Chief Executive Officer
    Nanette T. Ongcarranceja   37         Filipino        President
    Ortrud T. Yao              34         Filipino        Secretary/Treasurer And Chief Finance Officer
    Lourdes G. Ting            62         Filipino        Vice-President

Presently, the executive officers of the Company are:

Jolly L. Ting, Chairman and Chief Executive Officer

See above discussion.



                                                                                                          71
Nanette T. Ongcarranceja, President

See above discussion.

Ortrud T. Yao, Secretary, Treasurer and Chief Finance Officer

See above discussion.

Lourdes G. Ting, Vice-President

See above discussion.

FAMILY RELATIONSHIP

Mr. Jolly L. Ting and Ms. Lourdes G. Ting are spouses. Ms. Ortrud T. Yao and Ms. Nanette T.
Ongcarranceja are siblings and they are both children of Mr. and Mrs. Jolly L. Ting.

INDEPENDENT DIRECTORS

The following independent directors are not officers or substantial shareholders of the Company
nor are they directors or officers of its related companies:

       Dexter E. Quintana
       Ernesto S. Isla

SIGNIFICANT EMPLOYEE

While CVI values the contribution of each executive and non‐executive employee, no single
employee who is not an executive officer is expected to make a significant contribution to the
business. Other than standard employment contracts, there are no arrangements with non‐executive
employees that will assure the continued stay of these employees with the Company.

INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS OF DIRECTORS AND
OFFICERS

To the best of the Company‟s knowledge, there has been no occurrence during the past five years
up to the date of this Prospectus of any of the following events that are material to an evaluation of
the ability or integrity of any of its directors and executive officers:

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

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


                                                                                                   72
    c. Being subject to any order, judgment or decree, not subsequently reversed, suspended or
       vacated, of any court of competent jurisdiction, domestic or foreign, permanently or
       temporarily enjoining, barring, suspending or otherwise limiting such person‟s involvement
       in any type of business, securities, commodities, or banking activities; and

    d. Being found by a domestic or foreign court of competent jurisdiction (in a civil action), the
       SEC or comparable foreign body, or a domestic or foreign exchange or other organized
       trading market or self-regulatory organization, to have violated a securities or commodities
       law or regulation and the judgment has not been reversed, suspended or vacated.

RELATIONSHIPS AND RELATED TRANSACTIONS

The Company was not a party in any transaction in which a Director or Executive Officer of the
Company, any nominees for election as a director, any security holder owning more than ten percent
(10%) of the Company‟s issued and outstanding shares and/or any member of his immediate family
had a material interest thereon.

COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS

For the calendar years ended 31 December 2010 and 2009, the total salaries, allowances and bonuses
paid to the directors and executive officers as well as estimated compensation of directors and
executive officers for calendar year 2011 are as follows:

                                SUMMARY COMPENSATION TABLE
                                     Annual Compensation
              Name and Principal position               Year   Salary (PhP)    Bonus (PhP)    Others
 Jolly L. Ting, Chairman & Chief Executive Officer
 Nanette T. Ongcarranceja, President
 Ortrud T. Yao, Secretary/Treasurer & Chief Financial
 Officer
 Lourdes G. Ting, Vice President
TOTAL                                                   2011      2,508,000         209,000
                                                        2010      2,280,000         190,000     -
                                                        2009      2,255,000         187,917     -
All other officers and directors as a group unnamed     2011        726,000          77,000
                                                        2010        660,000          70,000     -
                                                        2009        505,000          45,909     -

Except for the salaries and bonuses stated above, the directors did not receive other allowances or
per diems for the past and ensuing year. There are no other existing arrangements/agreements under
which directors are to be compensated during the last completed fiscal year and the ensuing year.

EMPLOYMENT CONTRACTS, TERMINATION                                OF     EMPLOYMENT            AND
CHANGE-IN-CONTROL ARRANGEMENTS

There is no existing contract between the Company and the executive officers or any significant
employee.


                                                                                                    73
Under Article VI, Section 2 of the Company‟s By-Laws, the officers of the Company shall hold
office until their successors are chosen and qualified in their stead. Any officer elected or appointed
by the majority of the Board of Directors may be removed by the vote of a majority of the whole
Board of Directors.

COMPENSATORY PLAN OR ARRANGEMENT

The compensation received by officers who are not members of the Board of Directors of the
Company represents salaries and bonuses.

EMPLOYEES

As of 30 June 2011, the Company and its subsidiaries employ a total of one hundred thirty two (132)
employees, with fifteen (15) holding office in Quezon City, seventy-eight (78) assigned at its office in
Calapan City and thirty nine (39) at its office in Tabuk City. Fourteen (14) are executive officers and
managers, while one hundred eighteen (118) are supervisory and rank and file employees. No
significant change in the number of employees is anticipated during the next twelve (12) months.

The Company has no collective bargaining agreement with its employees. Furthermore, the
Company has not experienced any strikes from its employees since its incorporation. There is no
reason for the Company to believe that a strike will occur.

Aside from compensation, the Company‟s employees are given vacation and sick leaves.




                                                                                                     74
BUSINESS
The Company is directly engaged in the product procurement business. It purchases, on a wholesale
basis, and resells merchandise such as food and beverage items, grooming and personal hygiene
supplies, and cleaning and housekeeping materials and supplies.

Its clients are generally companies that outsource part or all of their purchasing needs to reduce
overhead costs associated with maintaining an in-house purchasing department. The Company
charges a mark up on the goods procured for consideration of its services.

The Company, through its subsidiary Calapan Water, operates a water utility business in Calapan
City and Tabuk City. Tabuk Water is still in the preoperational stage while Kristal Water will be
operating an ice plant facility in Calapan City.

COMPETITIVE STRENGTHS AND BUSINESS STRATEGY

Competitive Strengths

The Company believes that along with its subsidiaries Calapan Water and Kristal Water, CVI has a
number of competitive strengths that can be used to enhance and leverage each company‟s position
in its respective industry.

CVI maintains a good relationship with its suppliers.

The Company understands that the product procurement industry is highly competitive despite
operating with small margins. Maintaining a good credit record with suppliers is crucial to the
business. The Company ensures that payments to suppliers are made in a timely manner in order to
enjoy continuous support from them. The Company reviews, purchases, and formulates forecasts in
order to enjoy volume discounts given by some suppliers.

Ensures efficient and timely delivery of goods to its customers.

Calapan Ventures Inc. understands that the growth of its product procurement business relies on
satisfying its clients. The Company ensures efficient and timely delivery of client‟s orders.

Kristal Water has limited competition within its proposed area of operations.

As there are currently no tube ice manufacturing plants in Oriental Mindoro, Kristal Water‟s
competition for business in the area is limited to small scale business operators.

Calapan Water has management expertise to run the business.

The success of the water utility business of Calapan Water is heavily attributable to the management
expertise and competency of its current officers and engineers who have effectively navigated
Calapan Water through challenging business situations. Calapan Water‟s management team is
composed of experienced managers and engineers who have had various management-consulting

                                                                                                 75
engagements on business development, systems and strategic planning for productivity and quality
improvement, and have handled projects such as water mainline extensions and improvement
projects, drilling works and pumping stations, and testing materials for concrete reservoirs, etc.
Three (3) key words make up Calapan Water‟s management philosophy, and these are cost, quality
and delivery.

Calapan Water is committed to provide safe water to the Filipino people.

Before Calapan Water took over the management and operations of the water supply system in
Calapan City in 1997, most households did not have access to clean water. There was insufficient
water supply, causing water to be available only a few hours each day. The quality of water being
delivered to households was brackish, smelly and salty.

Because of its commitment to provide safe water for all, Calapan Water strived and reversed the
quality of water being produced and delivered to its customers. Its customers currently enjoy
affordable, clean and potable water.

Calapan Water currently operates and maintains the water system of Tabuk City. This flexibility is a
result of its commitment to provide water supply to households that have no formal access to safe
water, as well as its expertise from years of managing the water system in Calapan City.

Calapan Water has a long-term franchise.

Calapan Water was granted a 25-year congressional franchise under R.A. 9185, to own and operate
the local waterworks system of Calapan City. The franchise is set to expire on 05 May 2028. The
water utility business is a capital intensive business. Rehabilitation and expansion plans are costly
due to the amount of investment needed for construction and equipment. A long-term franchise
allows Calapan Water to carry out long-term rehabilitation and expansion programs for the benefit
of the population it serves. Provision for capital expenditure may not pose a problem because it
expects to recover such investments over the course of its long-term franchise. Other water utility
companies that merely operate under a CPC may be limited to making short-term investments,
which may constrain the quality of materials and equipment utilized because of the need to recover
investments within a shorter time frame.

Calapan Water was likewise granted a permit or right to manage, operate and maintain the water
system of Tabuk City for a period of fifteen (15) years. This right was extended for another term of
ten (10) years or up to 30 September 2031.

Because of its congressional franchise, Calapan Water has the right to construct, install, operate and
maintain for commercial purposes and in the public interest a water supply and sewerage system for
the purpose of distributing water for sale and for sanitation in Calapan City.

Calapan Water benefits from its corporate set up.

Many of the water systems in the Philippines are operated by LGUs or water districts. While some
of these water systems may be properly managed and operate efficiently, some encounter difficulties
due to lack of available financing and poor cost recovery. Many LGU operated systems are not able
to recover the operation and maintenance costs of running their own water system. Water districts
                                                                                                   76
mostly recover recurrent costs but most do not generate enough financial resources to improve their
services. These problems may be less persistent within a private, corporate setup like that of Calapan
Water. Calapan Water is able to tap both public and private financial institutions for its financing
requirements. The NWRB has also set out specific guidelines for tariff setting considering cost
recovery of private operators.

Calapan Water maintains good business relationships with government and private financial institutions.

Calapan Water has a good partnership with both government and private financial institutions. It
has availed of a One Hundred Thirty Seven Million Peso (PhP137,000,000.00) loan facility from the
DBP with a long-term repayment period of fifteen (15) years. Should it need or require a
commercial loan, it can avail of financing from a pool of private financial institutions. Calapan
Water maintains a healthy debt-to-equity ratio and a good credit record.

Calapan Water has a professional relationship with its regulators.

Calapan Water has developed a good working relationship with the NWRB and relevant LGUs. It
has been successful in obtaining appropriate tariff rate adjustments as well as water permits from the
NWRB. These relationships have been instrumental in mitigating regulatory risks associated with
operating a water utility business.

Business Strategy

Calapan Water‟s medium-term and long-term business strategies focus on providing potable water
supply at the most affordable rates, expanding its customer base and being able to capture other
market opportunities.

Calapan Water continues to improve and expand water services within its coverage.

As a water utility company, Calapan Water has a responsibility to provide its subscribers with quality
water and good service. Calapan Water has dramatically improved the quality of water being
distributed to households within its service area. Moreover, its customer service relations have also
improved. The number of complaints received on a daily basis has remarkably gone down from
about one hundred (100) in 2001 to about six (6) during the first half of 2011.

Before Calapan Water managed the water system in Calapan City, the system‟s NRW was as high as
fifty two percent (52%). NRW comprises both physical water losses due primarily to leakage from
its water system and non-physical water losses due to meter errors, improper classification of
customers, fraud and illegal connections. Calapan Water is determined to reduce physical water
losses through water pressure management and replacement of old transmission and distribution
lines. The Company is also actively monitoring water consumption variances that may indicate
metering errors and improper classification of customers. Calapan Water‟s average NRW in its
Calapan City operations for the year 2009 was at thirty five and 60/100 percent (35.60%) and thirty
three and 10/100 percent (33.1%) for the year 2010. Calapan Water‟s goal is to reduce the NRW to
twenty percent (20%) or less by the end of 2012.




                                                                                                          77
Calapan Water is now serving seventeen (17) urban barangays and fifteen (15) adjoining rural
barangays in Calapan City or eight thousand six hundred thirteen (8,613) out of twenty five
thousand one hundred thirty seven (25,137)4 households in Calapan City. There is room to grow
within its franchise area. There are locations within its franchise area wherein water is not accessible.
Calapan Water plans on implementing a program of providing water to every barangay in rural areas
where households do not have access to potable water by installing small and separate water facilities
to supply these communities.

In line with its immediate development plan, Calapan Water plans to serve two (2) additional
barangays with about one thousand three hundred (1,300) additional households. Calapan Water
plans to service one hundred percent (100%) or all of Calapan City‟s sixty two (62) barangays over
the next ten (10) years. Aside from Calapan City, Calapan Water is currently exploring options with
other municipalities who are interested in having their water system developed or operated by
Calapan Water.

The Company continues to expand to other locations.

Though Calapan Water‟s primary area of operation is in Calapan City, the Company was able to
secure and manage the lease and operation of the water system of Tabuk City, Kalinga. Calapan
Water‟s operations in Tabuk City started in October 2006 and, since then, the number of customers
who enjoy affordable and potable water has grown from about five hundred (500) to two thousand
eight hundred and nine (2,809) on 30 June 2011. With its expansion to an area as far as Tabuk City,
which is approximately four hundred fifty five (455) kilometers away from Calapan City, Calapan
Water has proven that its business operations and management are flexible and that it can replicate
its success not only in the underserved areas within the Province of Oriental Mindoro but also in
many parts of the country. Calapan Water is considering entering into joint venture arrangements or
partnerships with other water districts and LGU-owned and operated water systems.

Calapan Water will provide sewerage and sanitation services in its franchise area.

Under its 25-year congressional franchise, Calapan Water has the right to construct, install, operate
and maintain, for commercial purposes and in the public interest, a water supply and sewerage
system for the purpose of distributing water for sale and for sanitation in Calapan City.

While its immediate plans are significantly related to water services, Calapan Water‟s long-term goal
is to provide both quality water and sewerage services to its subscribers.

Calapan Water adopts new technology.

Calapan Water invests in technology to improve the efficiency of its operations. Calapan Water‟s
operation in the water utility business is small compared to big players like Manila Water and
Maynilad. However, Calapan Water is not limited to sourcing traditional and less efficient
equipment for its operations as it believes that technology will create a level playing field between
big and small players. Calapan Water uses modern equipment such as an automated barcode billing
system, and variable frequency drives in its water pumping stations.


4   National Statistics Office, 2007 Census of Population.

                                                                                                      78
The automated barcode billing system was implemented in Calapan and Tabuk in 2010. All of the
water bills are printed with a unique barcode. When the water bill is presented by the customer for
payment, the barcode is scanned and the customer name and amount due are automatically shown
in the system. This allows for more efficient monitoring and collection of receivables, less clerical
errors and shorter processing time for water bill collections.

Most pumping stations in Calapan are equipped with variable frequency drives (VFDs). Variable
frequency drives control the speed of the pump motors according to the water demand. During
peak hours, the VFDs will increase the speed of the pump motor, drawing more water and
increasing the pressure in the system. Likewise, during off-peak hours when the demand for water is
low, the variable frequency drives will lessen the speed of the pump motors. VFDs have a higher
purchase cost but are beneficial in the long run as these reduce power costs by approximately 30%.

Calapan Water focuses on small-scale and medium-scale water utility operations.

Calapan Water believes in serving both small-sized and medium-sized communities. In the
Philippines, the highest paying water consumers are ironically the poor. Many poor people live in
rural areas, where it is costly for a water company to provide distribution lines. The poor have no
choice but to source water from water haulers that are willing to transport water to their location.
The water delivered is often of unreliable quality and costly. Before Calapan Water managed the
water system in Calapan City, households that do not have access to water pay Five Pesos (PhP5.00)
for twenty (20) liters of water. This is equivalent to Two Hundred Fifty Pesos (PhP250.00) per cubic
meter of water. Currently, subscribers of Calapan Water enjoy quality water at the rate of Twenty
Eight and 8/100 Pesos (PhP28.08) per cubic meter for the minimum consumption residential
bracket.

While profits sustain Calapan Water‟s operations and fuel growth prospects, Calapan Water is open
to expanding its operations not only to key cities but also to small and medium-sized communities.

PHILIPPINE WATER SUPPLY SECTOR

A study commissioned by the NEDA in 2009 showed that Philippine public water supply services
are provided by about five thousand four hundred (5,400) water service providers where, outside
Metro Manila, water districts, LGUs and private operators run urban water systems while
community-based organizations like barangay water and sanitation associations (“BWSA”), rural
water and sanitation associations (“RWSA”) and cooperatives (“COOP”) operate rural water
systems. Citing the World Health Organization and the United Nations Children‟s Fund, the study
revealed that overall access to improved water services in the Philippines declined from eighty seven
percent (87%) in 1990 to eighty five percent (85%) by 2002 and that, for households without formal
access to safe water, the alternatives are self-provision (e.g. private wells, fetching from river/spring
systems) or services of informal providers such as small-scale independent providers, entrepreneurs
with water tankers or neighborhood water vendors.




                                                                                                      79
                                        Population Served                                    Total
              Water         LGU          RWSA/       COOP      MWSS       Private         Population
              District                   BWSA                                               Served
ARMM             123,455      35,740             -         -         -           -             159,195
CAR               18,607       2,914         9,900         -         -       6,024              37,445
CARAGA           166,076      40,368         1671          -         -           -             208,115
Region I         556,479      36,169        24,165     4,794         -         644             622,251
Region II        140,180      51,908         2,334         -         -           -             194,422
Region III       635,905       1,458           923         -         -           -             638,286
Region IV-A    2,286,823     215,957       101,339     2,836    15,818     239,807           2,862,580
Region IV-B       78,501      14,330        24,820         -         -      35,649             153,300
Region V         756,738      83,166        35,551         -         -       2,770             878,225
Region VI        463,161      75,385         4,875       696         -           -             544,117
Region VII       433,489     520,664        15,368    64,229         -       1,113           1,034,863
Region VIII      432,040     113,327             -         -         -           -             545,367
Region IX        135,000     109,590         7,208       510         -           -             252,308
Region X         190,435     157,930        40,146         -         -           -             388,511
Region XI        285,596      47,932        28,586    27,151         -           -             389,265
Region XII       149,002       4,842             -         -         -           -             153,844


Total          6,851,487    1,511,680      296,886   100,216     15,818    286,007           9,062,094


Overall, the extent of water supply coverage and population access to safe drinking water and
sanitation services in the Philippines cannot be fully ascertained due to weak monitoring systems and
linkages.

The Philippine water supply sector is confronted with several issues and challenges, which include,
but are not limited to, disparities in water supply coverage across regions, depletion of groundwater,
lack of cost recovery on investments, institutional weaknesses, low willingness of consumers to pay,
and pollution of water sources. Accordingly, the response to solving these issues and challenges is
weak due to a fragmented institutional environment, a weak regulatory framework, inadequate
support for service providers and utilities resulting in low performance levels, weak access to
financing and investments, low levels of tariff and cost recovery, inadequate support for rural water
suppliers, and lack of reliable and updated sector information.

Added to these is the fact that investments in the water supply sector have been significantly low
relative to overall public infrastructure spending. It is also characterized by bias in favor of Metro
Manila and other urban areas. This phenomenon is attributed to the orientation of the public
infrastructure priorities of the national government and the absence of a coherent financing
framework for the water supply sector.

Water supply regulation is described to be fragmented and lacking agency coordination. The three
(3) primary regulatory agencies are the NWRB, LWUA and LGUs, while the special regulatory units
are the Subic Bay Regulatory Board created by the Subic Bay Metropolitan Authority and the
MWSS. These agencies and units have different regulatory practices, processes and fees with cases
of overlapping functions or jurisdictions.

                                                                                                   80
To address problems, issues and challenges in the industry, the NEDA prepared the Philippine
Water Supply Sector Roadmap (“Roadmap”) aimed at developing the water supply sector in the
country. This Roadmap sets the policy directions to help the country meet the industry‟s challenges
and intended objectives by 2010 and, in the long-term, aims to ensure adequate long-term availability
of, and accessibility to, potable water and sustainable management of wastewater.

Under the Roadmap, the policy directions are focused on (i) institutional strengthening programs
(which include strengthening the NWRB as the central regulatory agency and providing financing
support for water districts and LGU water utilities); (ii) capacity development programs (which
include decentralized planning, monitoring and evaluation of water services); and (iii) strategic
alliance building programs (which include creation of local integrated water resource management).

Priority programs have been formulated, namely: (i) establishing a coherent and integrated sector
baseline for planning and policy-making (ii) strengthening water economic regulation; (iii) water
resources assessment in critical areas; (iv) integrated water supply and sanitation planning framework
and process; (v) strengthening of the LGU institutional framework and advocacy for ensuring water
services provision; (vi) program for the rationalization of sector investment and planning; (vii) sector
assessment and monitoring program; (viii) support program for capacity development of national
government agencies; (ix) support program for water service providers; (x) alliance building
programs; and (xi) adequate infrastructure provision.

TRADING BUSINESS

The Company is directly engaged in the product procurement business.

CVI started its trading business last December 2009. It purchases, on a wholesale basis, and resells
merchandise to its clients with a mark up in consideration for its procurement and delivery services.
Its clients are generally companies that outsource part or all of their purchasing needs to reduce
overhead costs associated with maintaining an in-house purchasing department.

The Company can trade goods or merchandise as well as real properties, but more common goods
being traded include food and beverage items, wines and spirits, grooming and personal hygiene
supplies and cleaning and housekeeping materials and supplies. The Company currently offers its
services primarily to small and medium sized businesses such as restaurants, bars, spas and small
hotels. At present, the Company operates and caters to clients within Metro Manila.

The commonly traded goods and merchandise are not unique and can be found at grocery stores
and other wholesale suppliers. But in some cases, the Company also provides products customized
to clients‟ specifications. These include goods such as linens or consumables that need to be
personalized with clients‟ designs and specifications. The added value that clients realize through
their relationship with the Company includes the efficient turnaround time from ordering to
delivery. The Company‟s clients need not hire personnel to search for suppliers, canvass product
prices, and organize logistics. Clients‟ resources can be directed towards operating their profit
centers while they rely on the Company‟s procurement services.

The Company‟s trading business contributed Thirteen Million Two Hundred Twelve Thousand and
Nine Pesos (PhP13,212,009) or eighteen and 03/100 percent (18.03%) to the Company‟s revenues
for the six months ended June 30, 2011 and Twenty Seven Million Three Hundred Thirty Eight
                                                                                                     81
Thousand Two Hundred Seventeen Pesos (Php 27,338,217) or twenty three and 19/100 percent
(23.19%) to the Company‟s revenues for the year ended December 31, 2010.

WATER UTILITY BUSINESS

The Company, mainly through its subsidiary Calapan Water, operates water utility businesses in
Calapan City and Tabuk City. As of the date of this prospectus, Tabuk Water is still preoperational.

Calapan City Water Supply System

Calapan Water owns and operates the local waterworks system of Calapan City in the Province of
Oriental Mindoro by virtue of its legislative franchise under R.A. 9185 which will expire on 05 May
2028, and a CPC issued by the NWRB on 18 December 2002 and which will expire on 17 January
2013.

In July 1997, ORDC, led by Mr. Jolly M. Ting, envisioned the potential of the water distribution
business and bought out the majority of outstanding stocks of then Calapan Water Works System
and Development Corporation (“CWSDC”). During this time, the subscriber base stood at five
thousand one hundred seventy one (5,171) and NRW was sixty four percent (64%). By December
1999, ORDC had acquired a ninety two percent (92%) controlling equity interest in CWSDC.

On 31 March 2009, the Company purchased all of the shares of JOH in Calapan Water.

The waterworks system of Calapan City is one of the few privately-owned water systems in the
country today.

In 2007, an ECC was issued by the DENR – Regional Office No. IV-B to then CWSDC for the
Calapan City water supply project, which covered the following:

(i)    the construction of seven (7) production wells located at Barangays Bayanan I, Pachoca,
Santa Maria and Tawiran;

(ii)    the construction of seven (7) powerhouses and one (1) warehouse;

(iii)  the installation of seven (7) submersible pumps with corresponding electrical facilities and 60
kVA standby generator set;

(iv)   the construction of four (4) reservoirs located at Barangays Lumang Bayan, Salong, Sapul
and Suqui;

(v)    the laying of one hundred (100) and three hundred (300) mm. diameter transmission lines of
about 28.49 kilometers long;

(vi)   the laying of distribution pipe lines with sizes ranging from fifty (50) mm. to four hundred
(400) mm. diameter PVC pipe with a total length of 80.36 kilometers;

(vii)   the construction of five (5) bridge pipeline crossings;

                                                                                                   82
(viii) the concrete pavement demolition and restoration of nine thousand and five hundred
(9,500) square meters;
(ix)    the installation of thirty (30) residential and thirty (30) commercial fire hydrants;

(x)     the installation of six thousand seven hundred and thirty seven (6,737) additional house
service connections; and

(xi)   the installation of chlorination equipment, electrical control works and other waterworks
appurtenances.




                                          Upgrade of submersible pump, Calapan City

Water Service Coverage

As of 30 June 2011, the water supply system serves seventeen (17) urban barangays and fifteen (15)
adjoining rural barangays with the number of household connections at eight thousand six hundred
and thirteen (8,613) which constituted thirty four and 26/100 percent (34.26%) of the total number
                                                 of twenty five thousand one hundred thirty seven
                                                 (25,137)5 households in Calapan City.

                                                             Calapan City is a third class city in the province of
                                                             Oriental Mindoro. It is the capital city of Oriental
                                                             Mindoro and known as the “Gateway to the
                                                             Golden Isle.” According to the 2007 census, it has
                                                             a population of one hundred sixteen thousand nine
                                                             hundred and seventy six (116,976) people in twenty
                                                             five thousand one hundred thirty seven (25,137)
                                                             households. It has a total land area of twenty five
                                                             thousand and six (25,006) hectares.




5   National Statistics Office, 2007 Census of Population.

                                                                                                               83
Calapan City‟s economy is dependent on agriculture and fishing. However, growth in the industrial
and tourism businesses has contributed well to the city's annual income making it one of the fastest
growing new cities in the last ten (10) years. Calapan City is currently one of the only two (2) cities
(the other being Puerto Princesa City) in the MIMAROPA region of the Philippines.

Water Sources and Facilities
Groundwater is the source of water supply in Calapan City. A total of five (5) wells with depths
ranging from one hundred twenty (120) to one hundred fifty (150) meters are operational and have a
capacity of one hundred forty one and 50/100 (141.50) liters per second. Four (4) of the deep wells
are located in Bayanan while the other one is located in barangay Tawiran. All operational deep
wells have been issued water permits by the NWRB. These water permits continue to be valid as
long as water is beneficially used.

Potential locations of additional wells are already identified based on the results of the geo-resistivity
survey.




        Pumphouse, Calapan City                         Test pumping of well, Calapan City

Water from existing deep wells is conveyed directly to the transmission pipelines which serve
existing service connections.




                                   Pumphouse, Well No. 9, Calapan City


                                                                                                       84
Treatment Facilities

All wells are equipped with hypo chlorinators, which inject the proper dosage of chlorine to the
distribution system. The latest bacteriological and chemical/physical examination conducted by the
Batangas Water District Laboratory indicates that all of Calapan Water‟s water sources conform to
the PNSDW. Calapan Water collects samples on a monthly basis for bacteriological examination of
treated groundwater sources.




Sample hypo chlorinator
installed for each well,
Calapan City




Distribution Facilities

After water from deep wells has been treated, it is conveyed directly to the transmission pipelines
which serve existing service connections. The existing transmission and distribution pipelines are a
combination of old and new pipes. The total length of the pipelines is one hundred eight and
85/100 (108.85) kilometers with pipe sizes ranging from thirty two (32) mm to three hundred and
fifty (350) mm in diameter. Pipe sizes are designed to cope with consumer demand and fire hydrant
water supply requirements.

Pumping stations also play a critical role in water distribution. At present, Calapan Water has five
operational (5) pumping stations. Groundwater is drawn by submersible pumps which directly feed
into the pipe distribution network. These pumps have a combined actual capacity of one hundred
(100) liters per second, more or less, and are operational twenty four (24) hours a day.




        Pumphouse, Calapan City

                                                                                                 85
Calapan Water has two (2) storage reservoirs, with a total capacity of fifty two (52) cu.m., located in
Barangay Ilaya near the Oriental Mindoro Provincial Hospital. These reservoirs serve the water
needs of the hospital and Barangay Ilaya.

Calapan Water intends to operate line boosters in order to reach the fringe areas, which are quite
distant from the central distribution system. Line boosters typically are small facilities aimed at
augmenting water supply for areas that are not sufficiently supplied during the regular pumping
operations of the main boosters.




                 Transmission pipe laying,
                      Calapan City




Distribution pipe laying, Calapan City




                                                                                                    86
Water Rates and Certificate of Public Convenience

On 18 December 2002, the NWRB approved the renewal of Calapan Water‟s CPC with validity up
to 17 January 2013.

In December 2006, the NWRB approved Calapan Water‟s petition for an increase in water tariffs.
The chart below summarizes the approved water rates that were implemented since February 2007
until August 18, 2010.

                          Consumption Bracket                    Water Rates
                         A. Residential
                            0 to 10 cu.m.                       Php 156.00 minimum
                            11 to 20 cu.m.                           16.60 per cu.m.
                            21 to 30 cu.m.                           17.60 per cu.m.
                            31 to 40 cu.m.                           19.60 per cu.m.
                            41 to 50 cu.m.                           22.60 per cu.m.
                            Over 50 cu.m.                            26.60 per cu.m.
                         B. Commercial
                            0 to 25 cu.m.                              780.00 minimum
                            26 to 1,000 cu.m.                           39.20 per cu.m.
                            Over 1,000 cu.m.                            53.20 per cu.m.

In 26 May 2010, the NWRB approved Calapan Water‟s petition for increase of water rates for the
operation and maintenance of water supply system within Calapan City, Oriental Mindoro. The
approved CPC is valid for five (5) years with authority to charge the following rates:

         Consumption Bracket                                      Water Rates
                                         st
                                       1 Stage Implementation                2nd Stage Implementation
                                          (first three years)                 (succeeding two years)
                                       80% increase of the existing           Full implementation of the
                                            rate (12% ROI)                          modified rates
        A. Residential
           0 to 10 cu.m.                        Php 280.80 minimum                 Php 321.00 minimum
           11 to 20 cu.m.                            29.88 per cu.m.                    47.90 per cu.m.
           21 to 30 cu.m.                            31.68 per cu.m.                    59.00 per cu.m.
           31 to 40 cu.m.                            35.28 per cu.m.                    62.60 per cu.m.
           41 to 50 cu.m.                            40.68 per cu.m.                    66.80 per cu.m.
           Over 50 cu.m.                             47.88 per cu.m.                    72.30 per cu.m.
        B. Commercial
           0 to 25 cu.m.                      Php 1,404.00 minimum               Php 1,605.00 minimum
           26 to 1,000 cu.m.                         70.56 per cu.m.                   118.00 per cu.m.
           Over 1,000 cu.m.                          95.76 per cu.m.                   133.60 per cu.m.

The above rates are being implemented beginning 19 August 2010 until present.

Non-Revenue Water

NRW refers to the volume of water lost in the Company‟s distribution system due to leakage,
pilferage and metering errors. NRW is calculated as a percentage of the total volume of water
produced by the Company.

                                                                                                           87
Calapan Water‟s average NRW in Calapan City significantly improved from sixty four percent (64%)
in 1997 to thirty five and 60/100 percent (35.60%) and thirty three and 10/100 percent (33.10%) for
the years 2009 and 2010, respectively. For the first half of 2011, average NRW in Calapan City was
at thirty seven and 40/100 percent (37.4%). In comparison, Manila Water Company, Inc., a listed
Philippine water utility, reported annual NRW ratios of 54%, 52% and 47% prior to listing in 2005.
Since then the Company has reduced its NRW to 30.30% in 2006 and 15.80% in 2009. Maynilad
Water Services, Inc., a private Philippine water utility reported NRW ratios of 66.80% and 59.90% in
2007 and 2008, which was reduced to 56.8% in 2009.

To improve the NRW level, the Company continues to implement effective management of water
supply through replacement and maintenance of pipes to reduce leakage, inspection to determine
any illegal connection, and analysis of customers‟ billed volume of water to identify metering errors.

Expansion Plan

Calapan Water has an ongoing rehabilitation, expansion and improvement plan for its waterworks
system in Calapan City, Oriental Mindoro. The purpose of the plan is to bolster water pressure,
improve water quality, and to increase production so as to accommodate more subscribers. The
scope, timing and extent of the works done vary depending on management‟s discretion as to the
economic viability of each component of the overall plan at a definite point in time.

Originally estimated to cost approximately One Hundred Eighty Seven Million Pesos
(PhP187,000,000.00), as of 31 December 2010, the plan is projected to cost Two Hundred Eighteen
Million Five Hundred Thousand Pesos (PhP218,500,000.00) (overall plan and all phases combined)
to complete due to increases in the cost of materials. Of the projected amount, Eighty One Million
Five Hundred Thousand Pesos (PhP81,500,000.00) will be funded through internally generated
funds and the balance of the amount will be financed through the loan facility from DBP.

On 4 December 2007, Calapan Water received Thirty Million Seven Hundred Ninety One
Thousand Two Hundred Ten and 88/100 Pesos (PhP30,791,210.88) representing its initial
drawdown on its One Hundred Thirty Seven Million Pesos (PhP137,000,000.00) available loan
facility for the above-mentioned plan. As of 30 June 2011, One Hundred Three Million Eight
Hundred Eight Two Thousand Six Hundred Seventy Five and 24/100 Pesos (PhP103,882,675.24)
has been drawn.

Calapan Water entered into a contract with Menakor Corporation (as contractor) for the remaining
works involving the rehabilitation, expansion and improvement plan of the Calapan waterworks
system for the amount of One Hundred Seventy Seven Million Three Hundred Seventy Five
Thousand Eight Hundred Twenty Seven and 42/100 Pesos (PhP177,375,827.42). Below is the
contracted scope of work and status as of 30 June 2011:
                                          % to Total        Item             Amount              Weighted
 Item/Description    Contract Amount       Project     Accomplishment         Spent           Accomplishment
Transmission Line    Php 39,104,007.09        22.05%            88.57%   Php 34,633,632.39             19.53%
Distribution Line        102,094,549.10       57.56%            94.16%        96,135,311.37            54.20%
Pipe Crossing              5,081,198.78        2.86%           100.00%         5,081,198.78             2.75%
Structures                 6,249,609.79        3.52%            78.71%         4,919,049.79             2.77%
Electrical Works          12,302,993.19        6.94%            75.10%         9,240,073.84             5.21%
Pumping Equipment          9,023,469.46        5.09%            76.33%         6,887,887.14             3.88%


                                                                                                    88
Generator Sets                    3,520,000.00           1.98%   72.73%         2,560,000.00            1.98%
TOTAL                       Php 177,375,827.42         100.00%            Php 159,457,143.32           90.32%

As of 30 June 2011, around ninety (90%) of the total contracted work had been accomplished.
For the year 2011, the construction of two (2) new wells (outside the scope of the above contract)
were prioritized in order to immediately augment water supply. One new well has become
operational and another well is currently being constructed and expected to be operational before
the fourth quarter of 2011. The two (2) new wells each have a capacity of thirty two (32) liters per
second. Once the new pipe network is fully operational and the old and worn-out pipes are de-
commissioned, NRW is expected to go down to around twenty five percent (25%) from the present
level of thirty seven and 40/100 percent (37.4%).
Calapan Water expects to finish its ongoing rehabilitation, expansion and improvement plans as
described in the preceding paragraphs before the fourth (4th) quarter of 2011.
Tabuk City Water Supply System

On 06 July 2006, the Company‟s subsidiary, Calapan Water, entered into a lease agreement with the
then Municipality of Tabuk (now, a city), Kalinga in connection with the management, operation
and maintenance of the Tabuk Water Supply System for a term of fifteen (15) years or up to the year
2021. Under this lease agreement, the Tabuk Water Supply System would utilize well/pumping
stations located in Bulanao Public Market, Barangays Bulanao Norte, Dagupan Centro and Appas.
The annual lease fee varies from year to year ranging from One Million Four Hundred Forty Four
Thousand Pesos (PhP1,444,000.00) to Eight Million Eight Hundred Thirty Two Thousand Pesos
(PhP8,832,000.00). In a resolution passed by the legislative council of Tabuk City on 02 February
2010, this lease agreement was extended for another ten (10) years (from the year 2021) or up to 30
September 2031. The extension of the term of the lease agreement is embodied in the Addendum to
Lease Contract for the Management, Operation, and Maintenance of the Tabuk Water Supply
System dated 25 March 2010.
Water Supply
On 01 October 2006, Calapan Water formally took over the operation of the water system of Tabuk
City at which time there were only five hundred thirty two (532) service connections. The subscriber
base stood at two thousand eight hundred and nine (2,809) as of 30 June 2011. The system can
accommodate up to around nine thousand (9,000) subscribers.
Water Service Coverage
As of 30 June 2011, the water supply system served
eight (8) barangays with the number of household
connections at two thousand eight hundred and
nine (2,809) which constituted sixteen and 25/100
percent (16.25%) of the total number of
households in the amount of seventeen thousand
two hundred eighty (17,280)6 in Tabuk City.


6   National Statistics Office, 2007 Census of Population.

                                                                                                 89
Tabuk City is located in the Province of Kalinga in the northern part of the Philippines. It is also
the capital of the province. According to a census made in 2007, it has a population of eighty seven
thousand nine hundred twelve (87,912) people. It consists of forty two (42) barangays.

Tabuk became the Cordillera‟s second city after Baguio City on 23 June 2007, when seventeen
thousand sixty (17,060) voters ratified R.A. 9404 or An Act Converting the Municipality of Tabuk
into a Component City of the Province of Kalinga to be known as the City of Tabuk. In November
2008, the Philippine Supreme Court held that R.A. 9404 is unconstitutional, reverting Tabuk to the
status of a municipality. However, on 10 December 2008, Tabuk and the other fifteen (15) cities
affected, informally known as the League of 16, filed a motion for reconsideration with the Supreme
Court. More than a year later, on 21 December 2009, acting on said motion, the Supreme Court
reversed its earlier ruling. Then again, the Supreme Court on 24 August 2010 again reversed itself
and declared that R.A. 9404, among others, is unconstitutional. On 15 February 2011, the Supreme
Court upheld the constitutionality of R.A. 9404.

The population of Tabuk City is a mix of different Kalinga cultures and languages. The two (2)
ppbarangays of Bulanao and Dagupan are the centers of commerce and trade for Tabuk City, and
the focus of economic activity for most areas of Kalinga. Merchants from Ilocos, Pangasinan,
Cagayan and other nearby provinces go to Bulanao and Dagupan to purchase rice, which is the
major agricultural product of Kalinga. These merchants sell other commodities, especially seafood,
clothing, fabric, metal and plastic manufactures. The language in the area is predominantly Ilocano.

Water Sources and Facilities

Groundwater is the source of water supply in Tabuk City. A total of four (4) wells are operational.
Two (2) wells are located in Bulanao and the other two (2) are in Dagupan and Appas School
Compound.
Pumping stations 2 and 3 are back-up facilities, which are utilized when there is an increase in water
demand.




       Pump Facility, Tabuk City




                                                                                                   90
Storage Reservoir

The water system in Tabuk City has two (2) reservoirs. One is a ground level concrete reservoir
located at the BJMP Compound, Purok 6, Bulanao with a capacity of six hundred fifty (650) cubic
meters. The other one is an elevated steel storage tank located at Pumping Station 1 Compound,
Centro, Dagupan with a capacity of three hundred fifty (350) cubic meters.

.




     Ground Level Reservoir, Tabuk City             Elevated Steel Storage Tank, Tabuk City

Treatment Facilities

The latest bacteriological and chemical/physical examination conducted by Cagayan Valley Medical
Center indicates that all of the water supplied by Calapan Water to its clients in Tabuk City conform
to the PNSDW.

Distribution Facilities

Water distribution in Tabuk City consists of two (2) systems.

System 1 serves Barangays Bulanao Norte, Bulanao Centro, San Juan, Appas and Magsaysay. This
system utilizes Pumping Station No. 4 located at RHU-3 compound in Bulanao which is equipped
with a standby generator set, and conveys water by a fill-and-draw system to a six hundred fifty
cubic meter (650 cu. m.) ground storage tank located at the BJMP Compound through transmission
pipelines. Pumping Station No. 3 is used as back-up source during increase in water demands. Both
pumping stations are provided with pump houses and hypo chlorinators for water treatment. The
water distribution network is composed of unplasticized poly vinyl chloride or uPVC pipes with
sizes ranging from fifty (50) mm to two hundred (200) mm diameter, and thirty eight (38) mm
diameter high density polyethylene or HDPE pipes. The water system is also equipped with
strategically located fire hydrants and valves.

System 2 serves Barangays Laya East, Dagupan Weste, Dagupan Centro and Casigayan. The
components of this system include two (2) pumping stations complete with pump houses, discharge
lines and chlorinating equipments. Pumping Station No. 1 is located at the City Hall Compound
which fills a three hundred fifty (350) cubic meter elevated steel water tank. Pumping Station No. 2
is located at Appas Elementary School Compound which also serves as a back-up direct pumping
                                                                                                  91
system to the distribution pipe network. Pipelines are composed of uPVC pipes with sizes ranging
from fifty (50) mm to two hundred (200) mm diameter, and thirty eight (38) mm diameter HDPE
pipes complete with hydrants and valves.

Water Rates

The Company continued to implement the water rates used by Tabuk Urban Water Utility, which
operated the water system prior to the appointment of Calapan Water. The current rates are as
follows:

                         Consumption Bracket                 Water Rates
                   A. Residential
                       0 to 10 cu.m.                    Php 21.00 per cu.m.
                       11 to 20 cu.m.                       23.15 per cu.m.
                       21 to 30 cu.m.                       25.30 per cu.m.
                       Over 31cu.m.                         27.45 per cu.m.
                   B. Commercial A
                       0 to 10 cu.m.                        31.50 per cu.m.
                       11 to 20 cu.m.                       34.70 per cu.m.
                       21 to 30 cu.m.                       37.95 per cu.m.
                       Over 31 cu.m.                        41.15 per cu.m.
                   C. Commercial B
                       0 to 10 cu.m.                        36.70 per cu.m.
                       11 to 20 cu.m.                       40.50 per cu.m.
                       21 to 30 cu.m.                       44.25 per cu.m.
                       Over 31 cu.m.                        48.00 per cu.m.

The standard rates are adjusted monthly in accordance with the process and formula described in
the lease agreement between Calapan Water and the then municipality of Tabuk dated 06 July 2006,
which takes into consideration the movements in the consumer price index of the Cordillera
Autonomous Region with respect to power, labor and other related costs.

Non-Revenue Water

The NRW for the operations of the Tabuk water supply system for the years 2009 and 2010 had an
average of twenty four and 14/100 percent (24.14%) and twenty six and 90/100 percent (26.9%). As
of the first half of 2011, NRW for Tabuk operations stood at twenty seven and 70/100 percent
(27.7%). In comparison, MWC, a listed Philippine water utility, reported annual NRW ratios of fifty
four percent (54%), fifty two percent (52%) and forty seven percent (47%) prior to listing in 2005.
Since then MWC has reduced its NRW to thirty and 30/100 percent (30.30%) in 2006 and fifteen
and 80/100 percent (15.80%) in 2009. MWSS, a private Philippine water utility reported NRW ratios
of sixty six and 80/100 percent (66.80%) and fifty nine and 90/100 percent (59.90%) in 2007 and
2008, which was reduced to fifty six and 8/100 percent (56.8%) in 2009.




                                                                                                92
EXPANSION PLANS

Calapan Ventures, Inc.

The Company intends to expand its trading business and grow its current customer base. It is
constantly working closely with its existing clients to see if there are other products that it can offer.
Currently, the Company is studying if it can provide the wet market needs of its existing customers.
These include the supply of fresh meat, seafood and vegetables for its clients‟ operations. The
provision of these services will potentially enable the Company to fully service the purchasing needs
of some of its clients.

As a startup company in the industry, the Company also hopes to expand its current client base to
include large businesses. The Company is currently seeking overseas suppliers or local importers
who can provide high quality amenities and linens in bulk and at competitive prices in order to cater
to bigger hotel and restaurant chains.

Calapan Water Waterworks System

As earlier discussed on page 88, Calapan Water has an ongoing rehabilitation, expansion and
improvement plan for its waterworks system in Calapan City, Oriental Mindoro. As of the date of
this prospectus, the Company has no other expansion plans other than the ongoing rehabilitation,
expansion and improvement plan and the planned expansion as discussed in the section on “Use Of
Proceeds” on page 36.

Ice Plant Project

The Company, through its subsidiary Kristal Water, will operate an ice plant facility in Barangay
Bayanan I, Calapan City with an area of five hundred sixty (560) sq.m. situated in a one thousand
(1,000) sq.m. lot, and a production capacity of thirty (30) metric tons per day. The total project cost
is currently estimated at Twenty Seven Million Eight Hundred Thousand Pesos (PhP27,800,000),
which would be financed partly through equity (50%) and partly through bank financing (50%). An
ECC was issued for this project by the DENR – Regional Office No. IV-B on 05 March 2010.

The ice plant is expected to be operational by the second half of 2011. It is expected to produce
around five thousand eight hundred (5,800) metric tons of tube ice in a year.

The Company intends to market and distribute tube ice products to dealers or distributors in all of
the municipalities in the Province of Oriental Mindoro. Currently, three (3) companies manufacture
block ice in the entire province but no company manufactures tube ice products. It will, thus, make
the Company the pioneering manufacturer of this type of ice products in Oriental Mindoro.

STATUS OF NEW PRODUCT OR SERVICE

The Company has not publicly announced any new product or service in 2011 except for the
offerings discussed in the preceding section.




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BREAKDOWN OF REVENUE BASED ON PRINCIPAL PRODUCTS

The following table provides the breakdown of the Company‟s revenues based on products:

 Revenue Contribution         As of June 30,                As of Dec. 31,             As of Dec. 31,
 by Business Segment                   2011          %               2010        %              2009           %
 Water Utility Business          60,066,393     81.97%          90,568,624   76.81%        59,797,701   95.48%
 Product Procurement             13,212,009     18.03%          27,338,217   23.19%         2,831,259   4.52%



BREAKDOWN OF REVENUE CONTRIBUTED BY FOREIGN SALES

CVI‟s revenues are derived from companies registered and operating in the Philippines and
households located in the Philippines. As of the date of this prospectus, the Company‟s revenues are
entirely derived from local sales.

PRINCIPAL SUPPLIERS

Following is a table summarizing the Company‟s principal suppliers and the products and services
supplied to CVI and its subsidiaries as of the date of this prospectus.

              Supplier Name                           Company Supplied To                Products & Services
                                                                                         Typically Supplied
San Miguel Brewery Inc.                        Calapan Ventures, Inc                  Beverage
Philippine Food Service Group Corporation      Calapan Ventures, Inc                  Food
Prima Enterprises                              Calapan Waterworks Corporation         Hardware Materials
Coolut Industrial Marketing                    Calapan Waterworks Corporation         Hardware Materials
Aluminates Metering Supply Co. Inc.            Calapan Waterworks Corporation         Water Meters
Renphil Trading                                Calapan Waterworks Corporation         Pump Supplies
Universal Harvester, Inc                       Calapan Waterworks Corporation         Chlorine
Oriental Mindoro Electric Cooperative          Calapan Waterworks Corporation         Electricity


The Company is not and does not expect to be reliant on one or a few suppliers. Other suppliers
may be sourced for the Company‟s various needs without paralyzing its operations. None of the
Company‟s directors, their associates or its shareholders, owning more than five percent (5.0%) of
CVI‟s issued share capital, has any interest in any of the Company‟s suppliers.

On 03 December 2007, Calapan Water entered into a contract with Menakor Corporation (as
contractor) for the improvement/ rehabilitation/ expansion of the Calapan waterworks system (see
discussion in the section on “Material Contracts” on page 96).

Other than the said contract, the Company and its subsidiaries have no major existing supply
contracts with suppliers as of the date of this prospectus.




                                                                                                               94
DEPENDENCE ON A FEW OR SINGLE CUSTOMER

As of the date of this prospectus, CVI is not and does not expect to become dependent on a single
or few customers, the loss of which may have a material adverse effect on the registrant and its
subsidiaries.

TRADEMARKS, LICENSES AND FRANCHISES

Congressional Franchise

Calapan Water has a Congressional franchise, R.A. 9185, which lapsed into law on 25 January 2003,
and took effect fifteen (15) days after 21 April 2003. The franchise authorizes Calapan Water to
construct, install, operate and maintain for commercial purposes and in the public interest, a water
supply and sewerage system for the purpose of distributing water for sale and for sanitation in the
City of Calapan, Province of Oriental Mindoro. The franchise is for a term of twenty five (25) years.
It is therefore set to expire on 05 May 2028.

Certificate of Public Convenience

A CPC authorizing Calapan Water to install, operate, and maintain the Calapan Waterworks System
was granted by the NWRB to Calapan Waterworks System and Development Corp. on 18
December 2002. The CPC is valid until 17 January 2013.

NWRB Water Permits

Calapan Water also has seven (7) water permits as follows:

 Permit No.       Water Source          Diversion Point        Liters per        Purpose      Date of Issue
                                                                 Second
 011911007       Deepwell No. B1-   Bayanan, Calapan City     20.7 liters per    Municipal   19 January 2011
 (conditional,   B                                               second
 one year
 validity)
 17202           Deepwell No. 9     Bayanan, Calapan City      32 liters per     Municipal    10 April 2000
                                                                  second
 020629          Deepwell No. 10    Bayawan I, Calapan City    32 liters per     Municipal   22 February 2006
                                                                  second
 021453          Deepwell No. 12    Bayanan I, Calapan City    32 liters per     Municipal     18 July 2007
                                                                  second
 18544           Deepwell No. 4     Tawiran, Calapan City     18.93 liters per   Domestic      18 July 2003
                                                                  second
 13717           Deepwell No. 7     Calapan, Oriental         9.00 litters per   Domestic     23 March 1993
                                    Mindoro                       second
                                    (subarea 1-2513)
 14583           Deepwell No. 8     Pachoca, Calapan          15.77 liters per   Domestic    13 January 1993
                                                                  second

The water permits allow Calapan Water to draw water from various water sources.




                                                                                                              95
Environmental Compliance Certificate

Calapan Water was also issued an ECC on 11 January 2008. An ECC is required for Calapan Water
to operate. An ECC was also issued for the ice plant project on 05 March 2010.

Lease Agreement between the Municipality of Tabuk and Calapan Water

On 06 July 2006, Calapan Water entered into a lease agreement with the Municipality of Tabuk,
Kalinga in connection with the management, operation and maintenance of the Tabuk Water Supply
System. This contract initially had a term of fifteen (15) years. In a resolution passed by the
legislative council of Tabuk City on 02 February 2010, this lease agreement was extended for
another ten (10) years (from year 2021) or up to 30 September 2031.

Trademarks

The Company, through its subsidiary Calapan Water, has a registered mark with the Intellectual
Property Office (IPO). The mark consists of the words “Calapan Waterworks Corporation” with a
big circle in blue, white and green color in which three (3) white waves of water is drawn in the
middle. The certificate of registration was issued by the IPO on 10 October 2008. This registration
has a term of ten (10) years from 9 June 2008 or until 9 June 2018.

The registered mark of Calapan Water is required for its marketing activities and brand building.

MATERIAL CONTRACTS

The following are summaries of the material terms of the principal contracts related to the Company’s business and
should not be considered to be a full statement of the terms and provisions of such contract. Accordingly, the following
summaries are subject to the full text of each contract.

The Company, through its subsidiaries, entered into the following contracts and agreements.

1.       Term Loan Agreement between Development Bank of the Philippines and Calapan
         Water

In 2005, the Company‟s subsidiary Calapan Water entered into a Term Loan Agreement with the
DBP where the latter agreed to lend Calapan Water the aggregate principal amount of One Hundred
Thirty Seven Million Pesos (PhP137,000,000.00) to be repaid in fifteen (15) years. The Principal
Amount is payable in one hundred fifty six (156) equal monthly amortizations commencing on the
twenty fifth (25th) month from initial drawdown and every month thereafter until fully paid. The
proceeds of the loan would be used to partially finance (i) phase I of stage I of the proposed master
plan for the rehabilitation and expansion of Calapan Water, which includes development of wells,
installation of pumps, construction of power houses and bridge pipe crossings, installation of
equipment, among others, and (ii) detailed engineering design. Under the Term Loan Agreement,
this loan is to be secured by (i) a real estate mortgage over a parcel of land owned by Calapan Water
with an area of five hundred square meters (500 sq.m.) located in Barrio Tawiran, Calapan City
together with all of the improvements, equipment and machinery installed thereon, (ii) a real estate
mortgage over three (3) parcels of land owned by Jolliville Realty and Development Company, Inc.
and spouses Jolly L. Ting and Lourdes G. Ting with a total area of seventy three thousand two
                                                                                                                     96
hundred three square meters (73,203 sq.m.) located in Barangay San Vicente, Calapan City together
with all of the improvements, equipment and machinery installed thereon, (iii) a chattel mortgage on
machinery and equipment to be acquired for this project, (iv) a real estate mortgage on the lots to be
acquired for this project, (v) a deed of assignment on the reserve fund with hold-out provision, (vi) a
deed of assignment in favor of the DBP on Calapan Water‟s accounts receivables, (vii) a suretyship
executed by spouses Ting and (viii) an endorsement of existing insurance coverage on insurable
assets.

Pursuant to the Term Loan Agreement, Calapan Water is restricted from declaring or paying
dividends to its stockholders, or to retain, retire, purchase or otherwise acquire any class of its capital
stock, or to make any other capital or asset distribution to its owners, without the written consent of
DBP. Calapan Water is likewise prohibited from permitting any material change in ownership or
control of its business or of its capital stock or in the composition of its top-level management. DBP
has provided written consent to the declaration of dividends in 2009.

As security to the loan, Calapan Water executed a Deed of Assignment with Hold-Out Agreement
in favor of DBP whereby Calapan Water assigned its rights and interests in and to: (i) its Reserve
Fund via savings or other investment with DBP in an amount equivalent to five percent (5%) of
Calapan Water‟s gross monthly revenues with a hold-out on the amount equivalent initially to two
(2) monthly interest amortizations during the grace period, the amount held to be increased to an
amount equivalent to two (2) monthly principal and interest amortizations after the grace period
onwards, and (ii) its billed water or accounts receivable.

The Spouses Jolly L. Ting and Lourdes G. Ting likewise executed a Continuing Suretyship on 10
February 2006 whereby the spouses Ting bound themselves to be jointly and severally liable with
Calapan Water for the payment of all sums under the loan agreement and the performance of all the
terms and conditions thereof.

On 11 February 2006, Calapan Water, JOH and the spouses Jolly L. Ting and Lourdes G. Ting
mortgaged certain real properties in favor of DBP to secure a loan accommodation in the principal
amount of Ten Million Nine Hundred Four Thousand Three Hundred Ninety Six Pesos
(PhP10,904,396.00). In particular, Calapan Water mortgaged a parcel of land covered by TCT No.
60383, Registry of Deeds, Calapan, Oriental Mindoro; JOH mortgaged parcels of land covered by
TCT No. T-88783 and TCT No. T-88784, Registry of Deeds, Calapan, Oriental Mindoro; while the
spouses Ting mortgaged a parcel of land covered by TCT No. T-55853, Registry of Deeds Calapan,
Oriental Mindoro. The real estate mortgage includes all improvements constructed or to be
constructed thereon and all equipment and machinery installed or to be installed thereon.

Under a Deed dated 03 October 2007, the following personal properties of Calapan Water are
subject to a chattel mortgage constituted in favor of DBP in order to secure a loan accommodation
in the principal amount of One Hundred Thirty Seven Million Pesos (PhP137,000,000.00):
        Submersible Deepwell Pump (Model SP 95-4-AB)
        Chlorination and System Accessories (Model EK-C20VC-20ER1, year 2006)
        Power Generating Set No. 1 (Model PM57, Serial No. CP29404)
        Submersible Pump (Model SP 95-3)
        Chlorination System and Accessories (Model EK-C20VC-20ER1, year 2005)
        Power Generating Set No. 2 (Model PM57, Serial No. CP1103)

                                                                                                        97
Under Insurance Policy No. 80-115114 issued by Cibeles Insurance Corporation covering assets in
mortgaged properties, a Mortgagee Clause has been attached whereby it is stipulated that loss or
damage, if any, shall be payable to DBP as mortgagee.

2.     Lease Agreement between the Municipality of Tabuk and Calapan Water

On 06 July 2006, Calapan Water entered into a lease agreement with the Municipality of Tabuk,
Kalinga in connection with the management, operation and maintenance of the Tabuk Water Supply
System. This contract initially had a term of fifteen (15) years. The Tabuk Water Supply System
would utilize well/pumping stations located in Bulanao Public Market, and Barangays Laya East,
Dagupan West, Dagupan Centro, Casigayan, Magsaysay and Appas. The annual lease fee varies
from year to year, with the range from One Million Four Hundred Forty Four Thousand Pesos
(PhP1,444,000.00) to Eight Million Eight Hundred Thirty Two Thousand Pesos (PhP8,832,000.00).
In a resolution passed by the legislative council of Tabuk City on 02 February 2010, this lease
agreement was extended for another ten (10) years (from year 2021), or up to 30 September 2031.
The extension of the term of the lease agreement is embodied in the Addendum to Lease Contract
for the Management, Operation, and Maintenance of the Tabuk Water Supply System dated 25
March 2010.

3.     Contract of Lease between Manuel P. Guevarra and Tabuk Water

On 08 September 2006, the Company‟s subsidiary Tabuk Water entered into a contract of lease with
Manuel P. Guevarra over a building owned by Guevarra situated along the Provincial Road corner
Silao Street, Bulanao, Tabuk, Kalinga. This contract has a term of ten (10) years, commencing on 01
July 2006 subject to renewal upon mutual agreement of the parties. The rental fee ranges from
Twelve Thousand Five Hundred Pesos (PhP12,500.00) to Twenty Thousand Pesos (PhP20,000.00)
per month.

4.     Contract for Improvement/Rehabilitation/Expansion of Calapan City Waterworks
       System (Phase I of Implementation Program) between Menakor Corporation and
       Calapan Water

On 03 December 2007, Calapan Water entered into a contract with Menakor Corporation (as
contractor) for the improvement/ rehabilitation/ expansion of the Calapan waterworks system for
the amount of One Hundred Sixty Eight Million Four Hundred Sixty Seven Thousand Two
Hundred Eighty Four and 31/100 Pesos (PhP168,467,284.31). The contractor shall be required to
put warranty security in the form of cash deposit, bond or letter of credit (equivalent to five percent
(5%) of the total contract price), bank guarantee (equivalent to ten percent (10%) of the total
contract price) and surety bond (equivalent to thirty percent (30%) of the total contract price).

5.     Memorandum of Agreement on the Creation of the Multi-Partite Monitoring Team
       and Environmental Monitoring Fund between DENR – Region IV and CWSDC

On 18 April 2008, Calapan Water, under its former name, and the DENR – Region IV entered into
a Memorandum of Agreement on the Creation of the Multi-Partite Monitoring Team and
Environmental Monitoring Fund involving the groundwater resources development, utilization and
installation of a 3.27 km. two hundred fifty millimeter (250 mm.) water transmission line project of
Calapan Water in Calapan City. This agreement was entered into in connection with the ECC
                                                                                                    98
issued for this project, which required (i) the creation of a multi-partite monitoring team and (ii) the
establishment of an environmental monitoring fund to cover the expenses of environmental
monitoring and surveillance activities.

6.      Management and Consultancy Services Agreement between Jolliville Group
        Management, Inc. and Calapan Water

On 19 February 2009, Calapan Water entered into a management and consultancy service agreement
with Jolliville Group Management, Inc. where Calapan Water shall pay a fixed amount equivalent to
One Hundred Thousand Pesos (PhP100,000.00) as management and consultancy fees plus twelve
percent (12%) VAT and the amount equivalent to ten percent (10%) of its actual gross sales and
surcharge. However, this management and consultancy fees would be reviewed quarterly for the
purpose of adjusting rates. This agreement shall commence on 1 January 2009 and expire on 31
December 2009 subject to renewal upon mutual agreement of the parties. It was renewed for one (1)
year, from 01 January 2010 until 31 December 2010, and for another year, from 01 January 2011
until 31 December 2011, under the same terms and conditions.

7.      Management and Consultancy Services Agreement between Jolliville Group
        Management, Inc. and Calapan Water (owner and operator of Tabuk Water)

On 19 February 2009, Calapan Water (owner and operator of Tabuk Water), entered into a
management and consultancy service agreement with Jolliville Group Management, Inc. where
Calapan Water shall pay a fixed amount equivalent to One Hundred Thousand Pesos
(PhP100,000.00) as management and consultancy fees plus twelve percent (12%) VAT and the
amount equivalent to ten percent (10%) of its actual gross sales and surcharge. However, this
management and consultancy fees would be reviewed quarterly for the purpose of adjusting rates.
The agreement shall commence on 01 January 2009 and expire on 31 December 2009 subject to
renewal upon mutual agreement of the parties. It was renewed for one (1) year, from 01 January
2010 until 31 December 2010, and for another year, from 01 January 2011 until 31 December 2011,
under the same terms and conditions.

8.      Contract of Lease between Jollibuild Corporation and Calapan Water

In 2009, Calapan Water entered into a lease covering a parcel of land owned by Jollibuild
Corporation situated at Bayanan I, Calapan City with an area of ten thousand (10,000) square
meters. The lease covers a portion of the land with an approximate area of two hundred (200)
square meters, for a monthly rental of Twenty Thousand Pesos (PhP20,000.00). The lease is for a
term of ten (10) years, from 06 August 2009 until 05 August 2019. Pursuant to the lease contract,
the land is to be used for putting up wells and other activities necessary for the business of Calapan
Water.

9.     Contract for the Implementation of Enterprise Resource Planning System between
       eBiZolution Incorporated and Calapan Waterworks Corporation

On 3 November 2010, Calapan Water entered into a contract with eBiZolution Incorporated
(“eBiZolution”) for the implementation of an Enterprise Resource Planning System. eBiZolution
will provide the software, computer hardware and / or services such as (a) installation, configuration
and product training; (b) data conversion and uploading; (c) report writing pack; (d) on-site user
                                                                                                     99
assistance during the initial run; and (e) off-site technical support for the first year including program
patches. The project is divided into three phases, namely: (a) migrating and integrating business
support systems; (b) implementing an operational support system; and (c) implementing an
executive decision system. Calapan Water shall pay a fixed amount equivalent to Two Million Five
Hundred Thousand Pesos (PhP2,500,000.00). There is a one-year warranty on software and on parts
of hardware.

10.     Memorandum of Understanding between the Municipality of Calaca and Calapan
        Waterworks Corporation

On 11 October 2010, the Municipality of Calaca (“Calaca”) and Calapan Water entered into a
Memorandum of Understanding whereby the latter will conduct a feasibility study for a water supply
and distribution project in order to determine its viability. Calaca and Calapan Water will mutually
assist each other in the research, study and determination of the feasibility and viability of the
project. This Memorandum has a term of six (6) months. On April 2011, Calapan Water informed
Calaca that Calapan Water has obtained the result of the feasibility study and that it has determined
the water supply and distribution project not economically, financially and commercially viable.

11.     Contract of Agreement between Calapan Waterworks Corporation and CEST
        Incorporated

On 24 November 2010, Calapan Water entered into a contract with CEST Incorporated (“CEST”)
for technical assistance in the preparation of a feasibility study to support the proposal of Calapan
Water to develop, construct, operate and maintain a pipe water system for the Municipality of
Calaca. This contract has a term of twelve (12) weeks. Calapan Water will pay Eight Hundred Fifty
Four Thousand Pesos (PhP 854,000.00) for the conduct of study, Seven Hundred Seventy Two
Thousand Eight Hundred Pesos (PhP 772,800.00) for professional fees and Eighty One Thousand
Two Hundred Pesos (PhP 81,200.00) for miscellaneous expenses that will be incurred by CEST. On
April 2011, CEST completed the feasibility study.

12.     Lease Agreement between CVI and ORDC

On 13 July 2010, CVI, as lessee, entered into a contract of lease with ORDC, as lessor, for the lease
of forty (40) sq.m. space in a building unit located at 4/F 20 Lansbergh Place, 170 Tomas Morato
Avenue, Quezon City. This contract expired on 31 December 2010 but was renewed by the parties
for another year or until the midnight of 31 December 2011 pursuant to a Contract of Lease
(Renewal) dated 16 February 2011. The rental fee is Thirty Eight Thousand One Hundred Fifteen
Pesos (PhP 38,115.00) per month, inclusive of association and common dues.

13.   Contract of Lease between Calapan Water and Marietta Juruena for staff houses

On 23 February 2011, Calapan Water (owner and operator of Tabuk Water), as lessee, entered into
a Contract of Lease with Ms. Marietta C. Juruena covering 4 residential townhouse units with a
floor area of 5 ½ by 7 ½ square meters each, located at Poblacion West (Brgy. Dagupan West),
Tabuk, Kalinga. The lease shall be for a period of 2 years from 01 February 2011 to 13 January 2013,
renewable upon the mutual agreement of the parties, and for a monthly rental of Two Thousand
Five Hundred (PhP2,500.00) per unit or an aggregate monthly rent of Ten Thousand Pesos


                                                                                                      100
(PhP10,000.00). The lease is exclusively for residential purposes (the units are actually used as staff
houses) and cannot be diverted to other uses.

14.   Contract for the Drilling of Production Well 010-B1B

On 28 February 2011, Calapan Water entered into a Contract for the Drilling of Production Well
010-B1B with Hydro Engineering Services as contractor for the construction of one (1) production
well located at Calapan City, Oriental Mindoro for an aggregate price of Eight Hundred Thirty
Thousand Pesos (PhP830,000.00). The drilling shall be completed within a period of sixty (60)
calendar days, otherwise the contractor will be liable for a penalty of Three Thousand Pesos
(PhP3,000.00) per day of delay.

15.    Memorandum of Understanding between the Municipality of Bansud and Calapan
       Water

On 31 March 2011, Calapan Water entered into a Memorandum of Understanding with the
Municipality of Bansud (“Bansud”) for the conduct of a feasibility study for a water supply and
distribution project in Bansud. The agreement is for a term of six (6) months and is subject to an
exclusivity clause for the same period in favor of Calapan Water. Upon a finding that the project is
commercially and economically viable, Calapan Water shall submit a final report to Bansud which
shall be deemed as an unsolicited proposal. As of 30 June 2011, Calapan Water is still conducting the
feasibility study.

16.   Memorandum of Understanding between the Municipality of Bongabong and Calapan
       Water

On 31 March 2011, Calapan Water and the Municipality of Bongabong (“Bongabong”) entered into
a Memorandum of Understanding for the conduct of a feasibility study, on an exclusive basis, for a
water supply and distribution project in Bongabong. The agreement is for a term of six (6) months.
Upon a finding that the project is commercially and economically viable, Calapan Water shall be
allowed to submit a final report to Bongabong which shall be deemed as an unsolicited proposal. As
of 30 June 2011, Calapan Water is still conducting the feasibility study.

SUMMARY ACQUISITION OF SUBSIDIARIES

The Company conducts its water business activities mainly through its subsidiaries:

Calapan Waterworks Corporation. Calapan Water was formally registered with the SEC on 23
May 1991 under the corporate name “Calapan Water Works System and Development Corporation”
with SEC Registration No. AS091-191028 to engage in the business of developing and utilizing
water resources. Calapan Water had an initial authorized capital stock of Fifty Million Pesos
(PhP50,000,000.00) divided into five hundred thousand (500,000) shares with a par value of One
Hundred Pesos (PhP100.00) per share.

JOH, through its subsidiary ORDC, acquired a ninety two percent (92%) controlling equity interest
in Calapan Water in December 1999. On 24 March 2003, the SEC approved Calapan Water‟s
application for the reduction of its par value per share from One Hundred Pesos (PhP100.00) to


                                                                                                   101
One Peso (PhP1.00) and increase in number of shares from five hundred thousand (500,000) to fifty
million (50,000,000).

On 6 August 2003, the SEC approved Calapan Water‟s application for quasi-reorganization. The
application was for a reduction of its authorized capital stock from fifty million (50,000,000) shares
with a par value of One Peso (PhP1.00) per share to seven million five hundred thousand
(7,500,000) shares with the same par value per share. The decrease resulted in a decrease in paid-up
capital from Twenty Nine Million One Hundred Twenty Thousand Pesos (PhP29,120,000.00) to
Four Million Three Hundred Sixty Eight Thousand Pesos (PhP4,368,000.00) and created a surplus
of Twenty Four Million Seven Hundred Fifty Two Thousand Pesos (PhP24,752,000.00) which was
used to wipe out the deficit as of 31 December 2002 amounting to Sixteen Million Eight Hundred
Seventy Two Thousand Five Hundred Fifty Five Pesos (PhP16,872,555.00).

On 24 October 2003, the SEC approved Calapan Water‟s application for increase in authorized
capital stock from seven million five hundred thousand (7,500,000) shares with a par value of One
Peso (PhP1.00) per share to two hundred million (200,000,000) shares with the same par value per
share. Relative to the increase, additional subscriptions were made by its parent and an affiliate for a
total of forty eight million one hundred twenty five thousand (48,125,000) shares. Total paid
subscriptions amounted to Twelve Million Thirty One Thousand Two Hundred Fifty Pesos (PhP
12,031,250.00) which is equivalent to twelve million thirty one thousand two hundred fifty
(12,031,250) shares.

On 18 January 2005, the SEC approved the change of name of Calapan Water from “Calapan Water
Works System and Development Corporation” to “Calapan Waterworks Corporation”.

Thus, at present, Calapan Water has an authorized capital stock of Two Hundred Million Pesos
(PhP200,000,000.00) divided into two hundred million (200,000,000) common shares, with par value
of One Peso (PhP1.00) per share. Currently, eighty seven million two hundred sixty four thousand
four hundred twenty five (87,264,425) common shares of Calapan Water are subscribed and fully
paid.

Calapan Water became the Company‟s wholly-owned subsidiary on 31 March 2009 following the
settlement of subscription payable with JOH wherein, in exchange for the assignment of eighty six
million four hundred thousand seven hundred seventy (86,400,770), Calapan Water shares of JOH,
(i) the unpaid subscription in the Company of JOH as of 30 January 2009 was fully paid; and (ii)
JOH subscribed to an additional seventy million (70,000,000) shares out of the unissued share
capital of the Company.

Kristal Water Source Corporation. Kristal Water was formally registered with the SEC on 11 May
2007 with SEC registration no. CS200707206. At present, Kristal Water has an authorized capital
stock of One Million Pesos (PhP1,000,000.00) divided into one million (1,000,000) common shares,
with par value of One Peso (PhP1.00) per share. Currently two hundred fifty thousand (250,000)
shares are subscribed and fully paid.

Kristal Water became the Company‟s wholly-owned subsidiary on 16 December 2009 following the
acquisition by the Company of all of the outstanding shares of stock of Kristal Water from Elgeete
Holdings, Inc.


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Tabuk Water Corporation. Tabuk Water was formally registered with the SEC on 14 August 2006
with SEC registration no. CS200610521. At present, Tabuk Water has an authorized capital stock of
Ten Million Pesos (PhP10,000,000.00) divided into ten million (10,000,000) common shares, with a
par value of One Peso (PhP1.00) per share. Currently, the entire capital stock has been subscribed
and fully paid.
Tabuk Water became the Company‟s wholly-owned subsidiary on 16 December 2009 following the
acquisition by the Company of all of the outstanding shares of stock of Tabuk Water from Calapan
Water and ORDC.
CORPORATE SOCIAL RESPONSIBILITY
Beyond business, the Company looks for ways to support the communities where it operates
through involvement in social projects each year.
The Company has been involved in tree-planting programs in Calapan City since 2002 and in Tabuk
City since 2006, in which employees of the Company plant trees together with people from the
concerned local communities. Its tree-planting program is in line with its corporate and social
activities that aim to increase awareness among local residents and the larger community about the
Company‟s objective to green the environment for future generations. It is also intended to assert
the importance of environmental protection and conservation. The Company seeks to achieve the
success of this campaign by using its influence to promote environment-friendly initiatives.




                                      Tree-planting, Calapan City
In Tabuk City, the Company also participates in the anti-rabies program. The Province of Kalinga,
with Tabuk City as the capital, has a high incidence of rabies with four hundred ninety eight (498)
cases of dog bites reported in 2006. The Company joins other entities in helping local authorities
and the local community in conducting anti-rabies vaccination to intensify the campaign against
rabies.




                                 Anti-rabies vaccination, Tabuk City
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REGULATORY FRAMEWORK
 The Company operates a water utility business and holds parcels of land through its subsidiaries,
subject to the following laws, rules and regulations.

PHILIPPINE CONSTITUTION

In general, a public utility is a business or service engaged in regularly supplying the public with
some commodity or service of public consequence such as electricity, gas, water, transportation,
telephone, or telegraph service.

The Philippine Constitution (in Article XII, Section 11) provides that “no franchise, certificate or
any other form of authorization for the operation of a public utility shall be granted except to
citizens of the Philippines or to corporations or associations organized under the laws of the
Philippines at least sixty percent (60%) of whose capital is owned by such citizens, nor shall such
franchise, certificate or authorization be exclusive in character for a longer period than fifty (50)
years.”

The Supreme Court, in Gamboa vs. Teves, G.R. No. 176570 (28 June 2011), has ruled that the
term “capital” as used in Section 11, Article XII of the Constitution only refers to stocks that have
the right to vote in the election of the members of the Board of Directors because the right to
participate in the management of the corporation can only be exercised through the right to vote in
the election of directors. Thus, if only common shares have voting rights then the term “capital”
would only include such shares and would not refer to the total outstanding stock which also
includes preferred shares which are usually non-voting. However, if the preferred shares are also
given voting rights, then “capital” would be interpreted to include both common and preferred
shares of stock. The Supreme Court also stated that the Constitution required legal and beneficial
ownership, including the right to receive dividends. The decision of the Supreme Court is under
appeal as of the date of this Prospectus.

Further, the Philippine Constitution (in Article XII, Section 7 in relation to Section 2) limits the
ownership of land to: (1) Filipino citizens; (2) corporations and associations at least sixty percent
(60%) of whose capital is owned by Filipinos; and (3) foreigners by hereditary succession.

PUBLIC SERVICE ACT

As a rule, no public service shall operate in the Philippines without possessing a valid and subsisting
certificate known as a “certificate of public convenience,” or “certificate of public convenience and
necessity,” as the case may be, to the effect that the operation of the service and the authorization to
do business will promote the public interests in a proper and suitable manner, except grantees of
legislative franchises expressly exempting such grantees from the requirement of securing such
certificate. 7




7   Public Service Act, as amended, Commonwealth Act No. 146, § 15 (7 November 1936).

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The powers of the old PSC with respect to water supply and distribution services have effectively
been transferred to the NWRB. 8

WATER CODE

In 1976, P.D. 1067 or the “Water Code of the Philippines” was enacted. Based on the principles
that (a) all water belongs to the State, and (b) the State may allow the use or development of its
waters by administrative concession, the NWRB was instituted as a “water resource regulator”
tasked to regulate and control the utilization, exploitation, development, conservation and
protection of all water resources.

National Water Resources Board

The NWRB is the lead government agency in the Philippine water sector, conferred with policy-
making, regulatory and quasi-judicial functions. The NWRB is responsible for ensuring the optimum
exploitation, utilization, development, conservation and protection of the country's water resource,
consistent with the principle of “Integrated Water Resource Management.” Although independent,
insofar as its regulatory and quasi-judicial functions are concerned, the NWRB is under the
administrative supervision of the DENR.

As the economic regulator of private water utilities, the powers and functions of the NWRB can be
traced back to the PSC, which was created under Commonwealth Act No. 146, as amended
(November 1936). In 1972, the PSC was abolished, and its adjudicatory and regulatory functions
over water supply services were transferred to the Board of Power and Waterworks. In 1977, the
powers and functions of the Board of Power and Waterworks were transferred to the National
Water Resources Council (“NWRC”) pursuant to Presidential Decree No. 1206. The NWRC was
later renamed the “National Water Resources Board,” pursuant to Executive Order No. 124 issued
on 30 January 1987.

The scope of NWRB‟s regulatory power over private water utilities covers subdivisions, private
water operators, resettlement areas, economic zones, rural water and sanitation associations, water
cooperatives, locators, small-scale service providers and condominiums in eighty (80) provinces and
one hundred thirty six (136) cities nationwide (as of 31 December 2009 statistics).

The NWRB's functions and responsibilities are three-fold:

     i.    Formulation and coordination of policies, programs and standards relating to the Philippine
           water sector;
     ii.   Management and regulation of all water-related activities; and
    iii.   Regulation and monitoring of water utilities.



8See A Decree Instituting A Water Code, Thereby Revising And Consolidating The Laws Governing The Ownership,
Appropriation, Utilization, Exploitation, Development, Conservation And Protection Of Water Resources [Water
Code], Presidential Decree No. 1067 (31 December 1976) in relation to Reorganizing The Ministry Of Public Works And
Highways, Redefining Its Powers And Functions, And For Other Purposes, E.O. No. 124 (30 January 1987) and
Reconstituting The National Water Resources Board, E.O. No. 123 (12 September 2002).

                                                                                                              105
As a “water resource regulator,” the NWRB (a) issues water permits for the appropriation, and use
of waters, and (b) adjudicates disputes relating to the appropriation, utilization, exploitation,
development, control and conservation, and protection of waters.

In 2002, Executive Order No. 123 was issued by virtue of which the approval of tariffs for water
districts was transferred to the NWRB from the LWUA.

As required under the provisions of P.D. 1067, a permit or authority shall be secured from the
NWRB in the following instances:

      a.   Appropriation of water for any purpose, except for purely domestic purposes, provided that
           such use shall be registered with the NWRB. "Purely domestic purposes" as used in these
           rules is defined as the use of not more than two hundred fifty (250) liters /capita/day of
           water by a single household;

      b.   Change in purpose of the appropriation;

      c.   Amendment of an existing permit, such as change in point or nature of diversion, amount of
           appropriation, period of use, etc;

      d.   Transfer or lease of water right, as evidenced by a water permit;

      e.   Temporary permit to appropriate and use water;

      f.   Developing a stream, lake or spring for recreational purposes;

      g.   Lowering or raising the level of the water of a lake, river or marsh, or draining the same;

      h.   Transbasin diversion;

      i.   Dumping of mine tailings or wastes into a river or a waterway;

      j.   Such other instances that will require a permit as determined by the NWRB. 9

Only the following may file an application with the NWRB for permit or authority:

      a.   Citizens of the Philippines;

      b.   Associations, duly registered cooperatives or corporations organized under the laws of the
           Philippines, at least sixty percent (60%) of the capital of which is owned by citizens of the
           Philippines; and

      c.   Government entities and instrumentalities, including government-owned and controlled
           corporations. 10


9   Water Code Of The Philippines Amended Implementing Rules And Regulations, § 2 (21 March 2005).
10  Id. § 3.

                                                                                                         106
A filing fee, as may be fixed by the NWRB, shall be imposed and collected for all applications and
petitions filed with the NWRB, which shall be paid directly to the NWRB or through its duly
authorized collecting agents. 11

Except when the appropriation is for a purely domestic purpose, all appropriators shall pay to the
NWRB water fees or charges for water resources development. The NWRB may revise the water
fees or charges or impose special water rates as the need arises, taking into consideration, among
others, the following:

     a.    Intended use of water;

     b.    Quantity/rate of water withdrawal vis-à-vis other users taking into account the water bearing
           potential of the source;

     c.    Environmental effects;

     d.    Extent to which water withdrawal will affect the source; and

     e.    Development cost of bringing water from the source. 12

The NWRB may decide to impose raw water charges based on the maximum volume of water that
may be withdrawn using the facilities installed or on the actual volume withdrawn as reflected in the
water abstraction meter in lieu of the existing water extraction charges. 13

Approved applications shall be issued water permits subject to such conditions as the NWRB may
impose. Disapproved applications shall be returned to applicants through the office where the same
was filed within fifteen (15) days of such disapproval, stating the reasons therefore.14

Water permits issued by the NWRB shall be subject to such terms, restrictions and limitations as it
may deem proper to impose, and including any or all of the following conditions:

     a.    Within one (1) year from the receipt of the permit, the applicant shall submit to the NWRB
           for approval, the plans and specifications for the diversion works, pump structure, water
           measuring device, and other required structures, and the implementing schedules of
           construction for private sector projects. No construction work or private sector projects
           shall commence until the plans, specifications and implementing schedules are duly
           approved. When the diversion dam is temporary and less than two (2) meters high, the
           submission of plans for the dam may not be required.

     b.    The construction of the necessary structures and diversion works shall begin within ninety
           (90) days from the date of receipt of the approved plans, specifications and implementing
           schedules, and shall be completed within the approved schedule unless extended by the


11 Id. § 7.
12 Id. § 8.
13 Id.
14 Id. § 14.


                                                                                                    107
     NWRB for valid or justifiable reasons, provided, that water shall not be diverted, pumped or
     withdrawn until after such structures and works shall have been inspected and approved by
     the NWRB, unless otherwise allowed. Except in cases of emergency to save life or property
     or repairs in accordance with the plans originally approved, the alteration or repair of these
     structures shall not be undertaken without the approval of the Board.

c.   The permittee shall inform the NWRB or its deputy concerned, that the necessary structures
     and diversion works required have been completed in accordance with approved plans and
     specifications. In addition, in cases of appropriation of groundwater, the permittee shall
     inform the NWRB as to the depth and diameter of the well, the drilling log, the
     specifications and location of casings, cementing, screens and perforations, and the results of
     tests of capacity, flow, drawdown, and shut-in pressure.

d.   The right of a permittee to the amount of water allowed in the permit is only to the portion
     or extent that he can use beneficially for the purpose stated therein. The diversion of the
     water shall be from the source and only for the purpose indicated in the permit. In no case
     should the said use exceed the quantity and period indicated therein. In gravity diversions,
     regulating gates of the canal shall be closed when water is not needed.

e.   The NWRB may, after due notice and hearing, reduce the quantity of water or adopt a
     system of apportionment, distribution, or rotation thereof, when the facts and circumstances
     in any situation would warrant the same, subject to payment of compensation in proper
     cases, to serve the interest of the public/or legal appropriations.

f.   The NWRB may, after due notice and hearing, revoke the permit in favor of projects for
     greater beneficial use or for multi-purpose development, subject to compensation in proper
     cases.

g.   The NWRB shall revoke or suspend the permit if the permittee violates effluent/water
     quality standards as determined by the DENR.

h.   Non-use of the water for the purpose stipulated in the permit for a period of three (3)
     consecutive years from date of issuance or completion of diversion works and necessary
     structures, shall render said permit null and void, except as the NWRB may otherwise allow
     for reasons beyond the control of the permittee.

i.   Any person in control of a well shall prevent the water waste therefrom and shall prevent
     water from flowing onto the surface of the land or into any surface water without being
     beneficially used, or any porous stratum underneath the surface.

j.   Any person in control of a well shall prevent water containing mineral or other substances
     injurious to the health of humans or animals or to agriculture and vegetation from flowing
     onto the surface of the land or into any surface or into any other aquifer or porous stratum.

k.   The water permit shall continue to be valid as long as water is beneficially used; however, it
     may be suspended based on the following grounds: non-compliance with approved plans
     and specifications or schedule of water distribution; use of water for a purpose other than
     that for which it was granted; non-payment of water charges; wastage; failure to keep records
                                                                                                108
             of water diversion when required; and violation of any term or condition of any permit or of
             rules and regulations promulgated by the NWRB.

       l.    The water permit may be revoked after due notice and hearing based on the following
             grounds: non-use; gross violation of the condition imposed in the permit; unauthorized sale
             of water; willful failure or refusal to comply with rules and regulations or any lawful order;
             pollution; public nuisance or act detrimental to public health and safety; when the
             appropriator is found to be disqualified under the law to exploit and develop natural
             resources of the Philippines; when, in the case of irrigation, the land is converted to non-
             agricultural purposes; and other similar grounds.

       m.    The permittee shall allow the NWRB inspectors/investigators access to the source at any
             time upon notice to monitor compliance with the terms and conditions imposed in the
             permit. Failure to allow said inspectors/investigators access to the source shall cause the
             cancellation of the water permit issued to permittee.

       n.    The permittee shall submit to the NWRB quarterly records of water withdrawal from the
             source. Non-compliance hereof shall be ground for the cancellation/revocation of the water
             permit issued to permittee.

       o.    Wells which are no longer being used shall be properly plugged before abandonment to
             avoid contamination of the aquifer. 15

The NWRB may grant temporary permits for the appropriation and use of water in situations such
as the following:

       a.    Irrigation of an area pending the construction of a larger system to be operated either by the
             government or by any irrigation association which will serve said area. Such permit shall
             automatically expire when water becomes available for the area from the larger system. In
             cases where the supply from the larger system is not adequate, the permit may be modified
             accordingly;

       b.    When there is need to use water for municipal purposes in emergency situations pending the
             availability of an alternative source of supply;

       c.    For special research projects requiring the use of water for certain periods of time;

       d.    For temporary use of water needed for the construction of roads, dikes, buildings and other
             infrastructures;

       e.    When there are unforeseen delays in the approval of the application, and appropriation of
             water is necessary pending the issuance of a water permit unless the application is protested;

       f.    Pending the submission of plans and specifications of diversion works, pump structures,
             water measuring devices, and other required structures and, for private sector projects, the


15   Id. § 15.

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          implementing schedules of construction and any additional requirements as may be required
          by the Board.

Temporary permits shall specify the conditions and the period within which the permit is valid. 16

Retail Trade Law

The Retail Trade Liberalization Act of 2000 limits foreign equity participation in the Retail Trade
Industry. Retail Trade is defined there as “any act, occupation or calling of habitually selling direct to
the general public merchandise, commodities or goods for consumption.” The primary purpose of
the Company allows it “To engage in, operate, conduct and maintain the business of, trading,
processing, assembling, manufacturing, and/or fabricating and exporting, importing, buying,
acquiring, holding, or otherwise disposing of and dealing in goods, wares, supplies, materials,
articles, merchandise, commodities, equipment, hardware, appliances, minerals, metals, timber,
lumber and real and personal properties of every kind, class and description, whether natural or
artificial which may become articles of commerce.” Thus, if the Company shall engage in Retail
Trade (and not wholesale trade), the Company would be subjected to the capitalization and foreign
equity limitations imposed under the Retail Trade Liberalization Act of 2000.

R.A. 9185 or Franchise to Operate Calapan City’s Water Supply and Sewerage System

Calapan Water was granted a franchise to operate the Calapan City water supply and sewerage
system by virtue of R.A. 918517 which lapsed into law and took effect on 16 January 2003.
Specifically, it was granted a franchise to construct, install, operate and maintain for commercial
purposes and in the public interest a water supply and sewerage system for the purpose of
distributing water for sale and for sanitation in Calapan City, Province of Oriental Mindoro18 for a
term of twenty five (25) years from the date of effectivity of R.A. 9185.19

It was given the following rights and privileges:

     a.   To construct, maintain and operate water mains, pipes, conduits, reservoirs or dams on land
          owned or duly acquired or obtained by Calapan Water for said purpose;

     b.   To supply, sell, furnish such water to any person, corporation, or public or private concern
          within the limits of Calapan City for domestic or manufacturing uses and for any other use
          to which water may be put, and to charge and collect a schedule of prices and conventional
          rates for the use of said water, which schedule of prices and rates shall at all times be subject
          to regulation by the NWRB, or any other government agency concerned thereon;

     c.   To construct, maintain and operate such systems of sanitary sewers as may be necessary for
          the proper sanitation of Calapan City; and to charge and collect a schedule of fees which


16 Id. § 28.
17 An Act Granting The Calapan Waterworks System And Development Corporation A Franchise To Construct, Install,
Operate And Maintain A Water Supply And Sewerage System In The City Of Calapan, Province Of Oriental Mindoro,
R.A. No. 9185 (16 January 2003).
18 Id. § 1.
19 Id. § 6.


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          shall at all times be subject to regulation by the government entity in charge of this activity;
          and

     d.   To purify the sources of the water supply, the reservoirs and the dams subject to the
          approval of the DOH and/or any other government agency concerned thereon, and to
          regulate the control and use, and prevent the waste of water. 20

As a requirement under R.A. 9185, Calapan Water shall secure from the DPWH, the LGU
concerned or any other government agency which has jurisdiction over the operation of Calapan
Water, the appropriate permits and licenses for the construction, installation, operation and
maintenance of Calapan City‟s water supply and sewerage system. 21

When rights and easements of temporary occupancy over public land or property including
highways, roads, bridges and other public works are needed by Calapan Water for the purpose of
carrying out works essential to its operation, such right shall be granted by the DPWH which shall
see to it that such easement or temporary occupancy shall cause the least inconvenience to the
general public. 22

The charges and rates for the services that Calapan Water shall offer to the public shall be subject to
the approval of the NWRB. 23

Calapan Water is not allowed to lease, transfer, grant the usufruct of, sell nor assign the franchise or
the rights and privileges acquired thereunder to any person, firm, company, corporation or other
commercial or legal entity, nor merge with any other corporation or entity, nor shall the controlling
interest of Calapan Water be transferred to any such person, firm, company, corporation or entity
without the prior approval of Congress. 24

Calapan Water is subject to a franchise tax of two percent (2%) on gross receipts derived from
business covered by the law granting the franchise.

ENVIRONMENTAL LAWS

The Company‟s water utility operation is subject to various environmental laws and regulations,
which include, among others, DENR Administrative Order No. 2003-30 or the Implementing Rules
and Regulations of the Philippine Environmental Impact Statement System, Republic Act No. 9275
(“R.A. 9275”) or the “Philippine Clean Water Act of 2004,” Republic Act No. 9003 (“R.A. 9003”) or
the “Ecological Solid Waste Management Act of 2000,” Republic Act No. 8749 (“R.A. 8749”) or
the “Philippine Clean Air Act of 1999” and Republic Act No. 6969 (“R.A. 6969”) or the “Toxic
Substances and Hazardous and Nuclear Wastes Control Act of 1998.”




20 Id. § 1.
21 Id. § 2.
22 Id. § 4.
23 Id. § 7 in relation to THE WATER CODE OF THE PHILIPPINES.
24 Id. § 11.


                                                                                                      111
PHILIPPINE ENVIRONMENTAL IMPACT STATEMENT SYSTEM

Projects relating to the development and utilization of water resources are required to comply with
the Philippine EIS System. The EIS System was established by virtue of P.D. 1586 issued by former
President Ferdinand E. Marcos in 1978. The EIS System requires all government agencies,
government-owned or controlled corporations and private companies to prepare an EIA for any
project or activity that affects the quality of the environment. An EIA is a process that involves
evaluating and predicting the likely impacts of a project (including cumulative impacts) on the
environment and includes designing appropriate preventive, mitigating and enhancement measures
to protect the environment and the community‟s welfare. An entity that complies with the EIS
System is issued an ECC, which is a document certifying that, based on the representations of the
project proponent, the proposed project or undertaking will not cause significant negative
environmental impacts and that the project proponent has complied with all of the requirements of
the EIS System.

To strengthen the implementation of the EIS System, Administrative Order No. 42 (“AO 42”) was
issued by the Office of the President of the Philippines in 2002. It provided for the streamlining of
the ECC application processing and approval procedures. Pursuant to AO 42, the DENR
promulgated DENR AO 2003-30, also known as the Implementing Rules and Regulations (“IRR”)
for the Philippine EIS System, in 2003.

Under the IRR, in general, only projects that pose potential significant impact to the environment
would be required to secure ECCs. In determining the scope of the EIS System, two factors are
considered, namely: (i) the nature of the project and its potential to cause significant negative
environmental impacts, and (ii) the sensitivity or vulnerability of environmental resources in the
project area.

Specifically, the criteria used for determining projects to be covered by the EIS System are as
follows:

a.   Characteristics of the project or undertaking -

     i. size of the project;

     ii. cumulative nature of impacts vis-à-vis other projects;

     iii. use of natural resources;

     iv. generation of wastes and environment-related nuisance; and

     v. environment-related hazards and risk of accidents.

b.   Location of the project -

     i. vulnerability of the project area to disturbances due to its ecological importance, endangered
     or protected status;



                                                                                                  112
     ii. conformity of the proposed project to existing land use, based on approved zoning or on
     national laws and regulations; and

     iii. relative abundance, quality and regenerative capacity of natural resources in the area,
     including the impact absorptive capacity of the environment.

c.   Nature of the potential impact -

     i. geographic extent of the impact and size of affected population;

     ii. magnitude and complexity of the impact; and

     iii. likelihood, duration, frequency, and reversibility of the impact.

The ECC of a project not implemented within five (5) years from its date of issuance is deemed
expired. The proponent must apply for a new ECC if it intends to pursue the project. The
reckoning date of project implementation is the date of groundbreaking, based on the proponent's
work plan as submitted to the EMB.

COST AND EFFECTS OF COMPLIANCE WITH ENVIRONMENTAL LAWS

Business entities engaged in water utility projects are mandated to comply with all environmental
laws and rules and regulations in all phases of its operations. ECCs or certificates of non-coverage,
if applicable, are obtained from the EMB.

Water utility projects are subject to extensive national and local laws and regulations. The Company
and its subsidiaries may incur substantial expenditures to comply with these laws and regulations,
which may include permitting costs, adoption and implementation of anti-pollution equipment,
methods and procedures, and payment of taxes.

Under these laws, the Company could be subject to claims for personal injury or property damages,
including damages to natural resources, which may result from the impact of the Company‟s
operations. Failure to comply with these laws may also result in the suspension or termination of the
Company‟s operations and subject it to administrative, civil and criminal penalties. Moreover, these
laws could be modified or reinterpreted in ways that substantially increase the Company‟s costs of
compliance. Any such liabilities, penalties, suspensions, terminations or regulatory changes could
have a material adverse effect on the Company‟s financial condition and results of operations.

In 2007, 2008, 2009 and 2010, the Company and its subsidiaries have spent approximately One
Hundred Twenty Thousand Pesos (PhP120,000.00) for various activities in compliance with
environmental laws.

PHILIPPINE CLEAN WATER ACT

R.A. 9275 or the Philippine Clean Water Act of 2004 provides that the State shall pursue a policy of
economic growth in a manner consistent with the protection, preservation and revival of the quality
of fresh, brackish and marine waters in the Philippines. It also provides that it is the policy of the
government, among others, to streamline processes and procedures in the prevention, control and
                                                                                                  113
abatement of pollution mechanisms for the protection of water resources; to promote
environmental strategies and use of appropriate economic instruments and of control mechanisms
for the protection of water resources; to formulate a holistic national program of water quality
management which recognizes that issues related to this management cannot be separated from
concerns about water sources and ecological protection, water supply, public health and quality of
life; and to provide a comprehensive management program for water pollution focusing on
pollution prevention.

Under this law, the DENR is designated as the primary government agency responsible for its
enforcement and implementation, more particularly the over-all aspects of water quality
management. The DENR is tasked to prepare a National Water Quality Status Report, an
Integrated Water Quality Management Framework, and a ten (10) year Water Quality Management
Area Action Plan that is nationwide in scope.




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DESCRIPTION OF PROPERTIES
The following table sets forth the properties of the Company and its subsidiaries as of 30 June 2011:

                                                                    Area (in square
Properties      Declared Owner                Location                                        Fair Market Value
                                                                   meters/ TCT No.)
Land            Calapan Water          Barangay Tawiran,                 301 sq. m.                      PhP5,418,000
                Corporation            Calapan City, Oriental             T-60382
                                       Mindoro
                Calapan Water          Barangay Tawiran,                 500 sq. m.                      PhP9,000,000
                Corporation            Calapan City, Oriental             T-60383
                                       Mindoro
                Spouses Ting25         Barangay Bayanan,               50,000 sq. m.                   PhP38,109,000
                                       Calapan City, Oriental            T-55853
                                       Mindoro
                Jollivile Holdings     Barangay Bayanan,               20,000 sq. m.                     PhP9,571,000
                Corporation26          Calapan City, Oriental            T-88784
                                       Mindoro
                Jollivile Holdings     Barangay Bayanan,                3,203 sq. m.                   PhP13,453,000
                Corporation27          Calapan City, Oriental             T-88783
                                       Mindoro
                Calapan Water          Barangay Santa Maria              377 sq. m.                      PhP1,131,000
                Corporation            Village, Calapan City,             T-60385
                                       Oriental Mindoro
                Calapan Water          Barangay Pachoca,                 210 sq. m.                       PhP147,000
                Corporation            Calapan City, Oriental             T-60384
                                       Mindoro
                Calapan Water          Barangay Pachoca,                 182 sq.m.                        PhP146,000
                Corporation            Calapan City, Oriental            T-76858
                                       Mindoro
                Calapan Water          Barangay Ilaya, Calapan           205 sq. m.                       PhP512,000
                Corporation            City, Oriental Mindoro             T-70206
                Calapan Water          Barangay Ilaya, Calapan           286 sq. m.                       PhP372,000
                Corporation            City, Oriental Mindoro             T-70205
                Calapan Water          Barangay Lalud, Calapan           200 sq. m.                       PhP140,000
                Corporation            City, Oriental Mindoro             T-64517
Wells                                                                                                     PhP520,000
Building                                                                                                 PhP406,000
Total                                                                                                  PhP78,925,000


25 The Deed of Sale executed between the spouses Ting and Calapan Water assigning in favor of the latter the parcel of
land covered by TCT No. T-55853 is annotated on the transfer certificate of title. However, TCT No. T-55853 has not
been transferred in the name of Calapan Water.
26 The Deed of Sale executed between JOH and Calapan Water assigning in favor of the latter the parcel of land covered

by TCT No. T-88784 is annotated on the transfer certificate of title. However, TCT No. T-88784 has not been
transferred in the name of Calapan Water.
27 The Deed of Sale executed between JOH and Calapan Water assigning in favor of the latter the parcel of land covered

by TCT No. T-88783 is annotated on the transfer certificate of title. However, TCT No. T-88783 has not been
transferred in the name of Calapan Water.

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The lands covered by the following TCTs have been mortgaged:

   1.   TCT No. T-60383;
   2.   TCT No. T-55853;
   3.   TCT No. T-88784; and
   4.   T-88783.

The foregoing lands are located in Barangay Bayanan, Calapan City, Oriental Mindoro. The
mortgage was constituted in favor of DBP to cover the amount of Ten Million Nine Hundred Four
Thousand Four Hundred and Ninety-Six Pesos (PhP10,904,496.00).

The following personal properties of Calapan Water are subject to a chattel mortgage constituted in
favor of DBP pursuant to a deed dated 03 October 2007 in order to secure a loan accommodation
in the principal amount of One Hundred Thirty Seven Million Pesos (PhP137,000,000.00):

   -    Submersible Deepwell Pump (Model SP 95-4-AB)
   -    Chlorination and System Accessories (Model EK-C20VC-20ER1, year 2006)
   -    Power Generating Set No. 1 (Model PM57, Serial No. CP29404)
   -    Submersible Pump (Model SP 95-3)
   -    Chlorination System and Accessories (Model EK-C20VC-20ER1, year 2005)
   -    Power Generating Set No. 2 (Model PM57, Serial No. CP1103)

Moreover there are various lease agreements entered into by the Company and its subsidiaries.

Calapan Water entered into a lease covering a parcel of land owned by Jollibuild Corporation
situated at Bayanan I, Calapan City. The lease covers a portion of the land with an approximate area
of two hundred (200) square meters, for a monthly rental of Twenty Thousand Pesos
(PhP20,000.00). The lease is for a term of ten (10) years and expires on 05 August 2019. Under the
lease contract, the land is to be used for putting up wells and other activities necessary for the
business of Calapan Water.

The Company and ORDC entered into a Contract of Lease dated 13 July 2010, whereby the
Company would lease from ORDC a unit located in Tomas Morato, Quezon City to be used as
office space. The unit is approximately forty (40.00) square meters and the monthly rental amounts
to Thirty Six Thousand Pesos (PhP36,000.00).

Calapan Water also entered into a lease dated 23 February 2011 with Ms. Marietta C. Juruena
covering 4 residential townhouse units with a floor area of 5 ½ by 7 ½ square meters each, located
at Poblacion West (Brgy. Dagupan West), Tabuk, Kalinga. The lease shall be for a period of 2 years
and expires on 13 January 2013, renewable upon the mutual agreement of the parties. Monthly
rentals amount to PhP2,500.00 per unit or an aggregate monthly rent of PhP10,000.00. The lease is
exclusively for residential purposes (the units are actually used as staff houses) and cannot be
diverted to other uses.

Pursuant to the Lease Agreement for the Management, Operation and Maintenance of the Tabuk
Water Supply System dated 06 July 2006 with the Municipality of Tabuk as amended by the
Addendum to the Lease Contract for the Management, Operation and Maintenance of the Tabuk
Water Supply System dated 28 March 2010, the Calapan Water pays an annual lease fee due the
                                                                                                116
LGU in the amount of Eight Million Seven Hundred Eighty Five Thousand Pesos
(PhP8,785,000.00) starting October 2021 to September 2031.

Moreover, on 08 September 2006, Tabuk Water entered into a contract of lease with Manuel P.
Guevarra over a building owned by the latter situated along the Provincial Road corner Silao Street,
Bulanao, Tabuk, Kalinga. The contract of lease has a term of ten (10) years commencing on 01 July
2006 subject to renewal upon mutual agreement of the parties. The rental ranges from Twelve
Thousand Five Hundred Pesos (PhP12,500.00) to Twenty Thousand Pesos (PhP20,000.00) per
month.

Kristal Water intends to lease an area to house its ice plant from ORDC by the last quarter of 2011.
However, terms of the lease are still unavailable as of the date of this prospectus. Calapan Water will
also lease an area from ORDC for the transfer of its corporate offices in Calapan. However, terms
of the lease are still unavailable as of the date of this prospectus. Except as otherwise stated in the
Use of Proceeds Section (see page 36), the Company does not intend to acquire any major property
within the next twelve (12) months.

Aside from the above and as otherwise disclosed in this prospectus, there are no litigation or claims
of material importance known to the Company to be pending or threatened against the Company‟s
properties.

INTELLECTUAL PROPERTY

The Company, through its subsidiary Calapan Water, has a registered mark with the Intellectual
Property Office (IPO). The mark consists of the words “Calapan Waterworks Corporation” with a
big circle in blue, white and green color in which three (3) white waves of water is drawn in the
middle. The certificate of registration was issued by the IPO on 10 October 2008.

This registration has a term of ten (10) years from 9 June 2008 or until 9 June 2018.




                                                                                                   117
LITIGATION AND LEGAL PROCEEDINGS
Except as disclosed below or in this prospectus, there are no pending legal proceedings involving
the Company or any of its subsidiaries or affiliates, or any of their properties which could have a
material adverse effect on the business or financial position of the Company or any of its
subsidiaries or affiliates or any of their properties.

1.     2008 Tax Deficiency

The BIR issued Letter of Authority No. 00025209 dated 21 May 2009 authorizing the examination
of the books of accounts and other accounting records of Calapan Water for the period from 01
January 2008 to 31 December 2008. As a result of the examination Calapan Water made payments
amounting to Twenty Six Thousand Eight Hundred Thirteen and 80/100 Pesos (PhP26,813.80) to
the BIR, as evidenced by BIR Tax Payment Deposit Slips.

2.     JGMI and Show Syndicate Corp. vs. Felicito a.k.a. Chito D. Garcia, doing business
       under the name and style Foxchit Software Solution (Civil Case No. 01101977, RTC
       Manila Branch 10)

On 02 October 2001, Jolliville Group Management Inc. (“JGMI”) and Show Syndicate Corp.
(“SSC”) filed a complaint for breach of contract and damages resulting from the delay in the
completion of the software POS Project and violation of the Exclusivity Clause against defendant.
This stemmed from plaintiffs‟ engagement of defendant for the development of software to aid in
its operations. The complaint specifically prayed that defendant be made to pay One Hundred
Thousand Pesos (PhPP100,000.00) as reimbursement for the service fees paid initially; Five
Hundred Thousand Pesos (PhPP500,000.00) as business losses; Five Hundred Thousand Pesos
(PhPP500,000.00) representing the service fees paid to the new programmer to complete the
installation and customization of the software; Five Hundred Thousand Pesos (PhPP500,000.00) as
moral damages; Five Hundred Thousand Pesos (PhPP500,000.00) as exemplary damages; One
Hundred Thousand Pesos (PhPP100,000.00) attorney's fees plus Two Thousand Five Hundred
Pesos (PhPP2,500.00) for every court appearance; and costs of suit.

The main issue in the case is whether or not defendant committed a breach of contract. On 07
January 2011, the Court issued its Decision finding that defendant breached the contract by failing
to fix reported problems in the system and for violating the exclusivity clause in the contract. The
Court then required defendant to refund plaintiffs the sum of One Hundred Thousand Pesos
(PhPP100,000.00) representing service fees initially paid by plaintiff and to reimburse plaintiffs the
sum of Five Hundred Thousand Pesos (PhPP500,000.00) representing service fees paid to the new
programmer hired to complete the computerization. The counterclaim and all other claims were
dismissed.

On 03 June, 2011, the defendant filed a notice of appeal and on 22 June 2011, the Regional Trial
Court issued an order giving due course to appeal and ordered the transmittal of the records to the
Court of Appeals.




                                                                                                  118
3.     JOH vs. Philippine British Assurance Co., Inc. (Civil Case No. 04-1051, RTC Makati
       City Branch 143)

On 10 September 2004, JOH filed a complaint with application for the issuance of a writ of
preliminary attachment against the defendant with the Regional Trial Court of Makati City, Branch
143, seeking to recover insurance claims amounting to at least Thirty Four Million Eight Hundred
Sixty Thousand Seven Hundred Forty One and 41/100 Pesos (PhP34,860,741.41), exclusive of
interest, in addition to exemplary damages, attorney‟s fees, and litigation expenses.

JOH claimed that the defendant fraudulently solicited premium payments and failed to honor its
obligations under the insurance policies. The defendant asserted that as JOH failed to pay the
premiums on time, the insurance contract was not in force when the damage occurred.

The Regional Trial Court of Makati, Branch 143, denied the application for the issuance of a writ of
preliminary attachment on 20 April 2005. Trial commenced thereafter. As of February 2011, JOH is
in the process of presenting its evidence. On 26 August 2011, the defense is scheduled to cross-
examine Mr. Alejandro Tan-Gatue, a witness of JOH.

4.     ORDC vs. 24K Property Ventures, Inc. (Criminal Case No. Q-06-1401700, RTC
       Quezon City Branch 219)

This is a consolidated complaint for estafa and violation of P.D. 957 otherwise known as the
Subdivision and Condominium Buyers‟ Protective Decree stemming from 24 K Property Ventures‟
alleged failure to deliver three parking lots to ORDC as well as for reimbursement of real property
taxes from 2001 to 2004 amounting to One Million Four Hundred Twenty Four Thousand One
Hundred Sixty Two and 63/100 (PhPP1,424,162.63).

The complaint was for estafa during the preliminary investigation case, but the an information was
filed was for violation of P.D. 957. The dismissal of the estafa charge of estafa was appealed before
the Secretary of Justice.

On 04 November 2010, the parties reached a compromise agreement on the civil aspect of the case
involving the violation of P.D. 957. In consideration of the compromise, private complainant
executed an Affidavit of Desistance. On the manifestation of the prosecution that they could not
prosecute the criminal aspect of the case without the cooperation of the private complainant, the
Judge ordered the dismissal of the case.

The Affidavit of Desistance resulting from the compromise did not include the case for estafa and
the appeal of the dismissal of the estafa charge where the appeal remains pending before the Office
of the Secretary of Justice.




                                                                                                 119
MARKET INFORMATION, DIVIDENDS AND RELATED
STOCKHOLDER MATTERS
STOCK INFORMATION

At present, the Company has an authorized capital stock of Two Hundred Million Pesos
(PhP200,000,000.00) divided into two hundred million (200,000,000) Common Shares with a par
value of One Peso (PhP1.00) per share, out of which One Hundred Twenty Million (120,000,000)
shares are issued and outstanding. The Offer Shares are Forty Two Million One Hundred Sixty One
Thousand (42,161,000) unclassified Common Shares with a par value of One Peso (P1.00) at an
Offer Price of Two Pesos (PhP 2.00) to Two Pesos and Fifty Centavos (PhP 2.50) per share. After
the completion of the Offer, the Company will have a total of one hundred sixty two million one
hundred sixty one thousand (162,161,000) issued and outstanding Common Shares.

Prior to the Offer, the Company‟s Shares are not registered and publicly traded. On December 7,
2010, the Company filed its application for the listing and trading of the Common Shares in the
Second Board of the Philippine Stock Exchange (PSE). The Board of Directors of the PSE
approved the listing of the Common Shares on August 24, 2011. The Common Shares are not
subject to outstanding options or warrants to purchase, or securities convertible into Common
Shares. The Offer Shares shall be listed and traded under the stock symbol “[H2O]” on the Second
Board of the Philippine Stock Exchange.

No stockholder shall have a right to purchase or subscribe to any additional share of the capital
stock of the Company whether such shares of capital stock are now or hereafter authorized, whether
or not such stock is convertible into or exchangeable for any stock of the Company or of any other
class, and whether out of the number of shares authorized by the Articles of Incorporation of the
Company as originally filed, or by any amendment thereof, or out of shares of the capital stock of
any class of the Company acquired by it after the issue thereof; nor shall any holder of any such
stock of any class, as such holder, have any right to purchase or subscribe for any obligation which
the Company may issue or sell that shall be convertible into, or exchangeable for, any shares of the
capital stock of any class of the Company or to which shall be attached or appertain any warrant or
warrants or any instrument or instruments that shall confer upon the owner of such obligation,
warrant or instrument the right to subscribe for, or to purchase from the Company, any shares of its
capital stock of any class.

The Board of Directors may, from time to time, grant stock options, issue warrants or enter into
stock purchase or similar agreements for purposes necessary or desirable for the Company and
allocate, sell or otherwise transfer, convey or dispose of shares of stock of the Company of a class or
classes and to such persons or entities to be determined by the Board of Directors including, but not
limited, to employees, officers and directors of the Company.

Further, no transfer of stock which will reduce the ownership of Filipino citizens to less than the
required percentage of the capital stock as may be required by law shall be allowed or permitted to
be recorded in the proper books of the Company.



                                                                                                   120
TOP 20 STOCKHOLDERS

As of the date of this prospectus, the Company has more than 700 stockholders owning common
shares of the Company. The Company‟s top 20 stockholders, their respective number of shares held,
and the corresponding percentage of these shares out of the total Common Shares outstanding, are
as follows:

                                                         Class of       Number of
        Rank                 Stockholders                                              Percentage
                                                          Shares         Shares
        1       PCD Nominee Corp. - Filipino28           Common           37,775,820      31.48%
        2       Jolliville Holdings Corporation          Common           36,962,590      30.80%
        3       OTY Development Corp                     Common           10,000,000       8.33%
        4       KGT Ventures Inc                         Common           10,000,000       8.33%
        5       NGTO Resources Corp                      Common           10,000,000       8.33%
        6       Melan Properties Corp                    Common            8,400,000       7.00%
        7       Rodolfo L. See                           Common            1,726,273       1.44%
        8       Myron Ventures Corp.                     Common            1,120,000       0.93%
        9       Wilfredo K. Gan Chua                     Common              912,960       0.76%
        10      Genmaco Corp.                            Common              867,040       0.72%
        11      Phyvita Enterprises Corp.                Common              335,104       0.28%
        12      Catalina O. Ting                         Common              309,888       0.26%
        13      Ortrud T. Yao                            Common              288,001       0.24%
        14      Jolly L. Ting                            Common              276,480       0.23%
                Dexter Quintana &/or Rizalinda
        15                                               Common              245,952       0.20%
                Quintana
        16      Nanette T. Ongcarranceja                 Common              144,001       0.12%
        17      Kenrick G. Ting                          Common              144,000       0.12%
        18      Lourdes G. Ting                          Common              138,241       0.12%
        19      Yu Kok See                               Common               70,848       0.06%
        20      Henry O. Ting                            Common               57,600       0.05%

Please refer to section “Security Ownership of Management” on page 143 of this Prospectus for a
detailed discussion on the beneficial ownership of the Company‟s common shares.

DIVIDENDS

Under the Corporation Code and the Company‟s By-Laws, dividends shall be declared only from
surplus profits (representing net accumulated earnings, with capital unimpaired, which is not
appropriated for any other purpose) and shall be payable at such time and in such amounts as the
Board of Directors of the Company shall determine; provided, however, that no stock dividends
shall be issued without the approval of the stockholders representing not less than two thirds (2/3)
of all stock then outstanding and entitled to vote at the Company‟s general meeting or at a special


28Additional shares amounting to 7,369,680 (6.14%) owned by JOH are lodged under PCD Nominee Corporation.
Additional shares amounting to 1,600,000 (1.33%) owned by Melan Properties Corp. are also lodged under PCD
Nominee Corporation.

                                                                                                      121
meeting called for the purpose, and no property dividends shall be issued without the prior approval
of the SEC. No dividends shall be declared that impair the Company‟s capital.

The Company is authorized to pay cash, property or stock dividends or a combination thereof,
subject to approval by the Company‟s Board of Directors and Stockholders. Holders of outstanding
shares on a dividend record date for such shares are entitled to the full dividend declared without
regard to any subsequent transfer of shares.

No stock dividend was declared by the Company for calendar years 2009 and 2010. As of 31
December 2010, the Company‟s retained earnings amounted to Forty Nine Million Seven Hundred
Twenty Thousand Six Hundred Eighty Seven Pesos and 80/100 (PhP 49,720,687.80).

On 17 November 2010, pursuant to a duly made and seconded motion, the Company‟s Board of
Directors agreed that a dividend policy be implemented for the Company and unanimously adopted
the following resolution:

    “RESOLVED, that the Board of Directors of Calapan Ventures, Inc. (“Company”) approve,
    as it hereby approves, as the Dividend Policy of that Company that dividends equivalent to
    twenty-percent (20%) of the issued and outstanding shares of stock of the Company will be
    issued and/or paid to the stockholders of the Company per annum, provided that the
    Company has sufficient unrestricted retained earnings for distribution.”

Pursuant to the Term Loan Agreement between Calapan Water and DBP, the Company‟s
subsidiary, Calapan Water is restricted from declaring or paying dividends to its stockholders, or to
retain, retire, purchase or otherwise acquire any class of its capital stock, or to make any other capital
or asset distribution to its owners, without the written consent of DBP. DBP has provided written
consent to the declaration of dividends in 2009.

RECENT SALES OF UNREGISTERED OR EXEMPT SECURITIES, INCLUDING
RECENT ISSUANCE OF SECURITIES CONSTITUTING AN EXEMPT
TRANSACTION

Sale of Securities to JOH on 31 March 2009

  DATE OF            NAME OF               NO. OF        AMOUNT OF            PRICE PER SHARE IN
SUBSCRIPTION       SHAREHOLDER             SHARES           CAPITAL                  PESOS
                                         SUBSCRIBED      SUBSCRIBED
                                                            IN PESOS
31 March 2009      Jolliville Holdings   70,000,000      70,000,000.00     PhP1.24 CVI shares per Calapan
                   Corporation                                             Water share (based on book value
                                                                           of Calapan Water shares as of
                                                                           December 2008)

In exchange for the assignment of 86,400,770 Calapan Water shares of JOH, (i) the unpaid
subscription in the Company of JOH as of 30 January 2009 was fully paid ; and (ii) JOH subscribed
to an additional 70,000,000.00 Shares out of the unissued share capital of the Company. The
exchange was based on the book value of Calapan Water shares as of December 31, 2008. No
underwriters were engaged in the above private placement of the Company‟s securities.

                                                                                                       122
Assignment of Shares by Elgeete Holdings on 22 December 2009

On 15 December 2009, shares of the Company were distributed by JOH as property dividends.

Subsequently, the following assignment of Shares of the Company were made by an existing
shareholder on 22 December 2009:

  DATE OF         ASSIGNING            ASSIGNEE             NO. OF        PRICE PER    AMOUNT          DATE OF
ASSIGNMENT      SHAREHOLDER                                SHARES         SHARE (IN     PAID             FULL
                                                          ASSIGNED          PESOS)                    PAYMENT
22 Dec 09       Elgeete   Holdings,   OTY                10,000,000.00   1.00         10,000,000.00   22 Dec 09
                Inc.                  Development
                                      Corp.
22 Dec 09       Elgeete   Holdings,   KGT Ventures,      10,000,000.00   1.00         10,000,000.00   22 Dec 09
                Inc.                  Inc.
22 Dec 09       Elgeete   Holdings,   Melan              10,000,000.00   1.00         10,000,000.00   22 Dec 09
                Inc.                  Properties Corp.
22 Dec 09       Elgeete   Holdings,   NGTO               10,000,000.00   1.00         10,000,000.00   22 Dec 09
                Inc.                  Resources Corp.

The above assignments of shares were made in consideration for cash. No underwriters were
engaged in the above transaction of the Company‟s securities.

Assignment of Shares by A-net Resources, Febra Resources, Kenly Resources and Oltru
Holdings on 2 December 2010

Subsequently, the following assignments of Shares of the Company were made to JOH on 2
December 2010:

  DATE OF         ASSIGNING            ASSIGNEE             NO. OF        PRICE PER    AMOUNT          DATE OF
ASSIGNMENT      SHAREHOLDER                                 SHARES        SHARE (IN     PAID             FULL
                                                          ASSIGNED          PESOS)                    PAYMENT
02 Dec 10       A-net     Resources   Jolliville         3,328,000       1.44         4,792,320.00    2 Dec 10
                Corp.                 Holdings, Corp.
02 Dec 10       Febra     Resources   Jolliville         3,328,000       1.44         4,792,320.00    2 Dec 10
                Corp.                 Holdings, Corp.
02 Dec 10       Kenly     Resources   Jolliville         3,328,000       1.44         4,792,320.00    2 Dec 10
                Corp.                 Holdings, Corp.
02 Dec 10       Oltru     Holdings    Jolliville         3,328,000       1.44         4,792,320.00    2 Dec 10
                Corp.                 Holdings, Corp.

The above assignments of shares were made in consideration for cash. No underwriters were
engaged in the above transaction of the Company‟s securities.

RESTRICTION ON DISPOSAL AND ISSUANCE OF SHARE CAPITAL

The Revised Listing Rules of the PSE require an applicant company whose shares are being listed on
the Second Board of the PSE to cause existing shareholders owning at least ten (10%) of the
outstanding shares of the Company not to sell, assign or in any manner dispose of their shares for a
period of 365 days after the listing of the shares. Furthermore, the Revised Listing Rules provide

                                                                                                      123
that should there be any issuance of shares or securities, or instruments which lead to issuance of
shares or securities done and fully paid for within 180 days prior to the start of the offering period,
all shares or securities availed shall be subject to a lock-up period of at least 365 days from full
payment of the shares of securities.

To implement this lock-up requirement, the PSE requires the applicant company to lodge the shares
with the PDTC through a PCD Participant for the electronic lock-up of the shares or to enter into
an escrow agreement with the trust department or custodian unit of an independent and reputable
financial institution. Of the current stockholders of CVI, JOH owns more than ten percent (10%) of
CVI‟s shares.

The Company shall likewise be prohibited from offering additional securities, except offerings for
stock dividend and employee stock option plans (ESOPs) within one hundred eighty (180) calendar
days from the date of listing.

Further, no transfer of stock which will reduce the ownership of Filipino citizens to less than the
required percentage of the capital stock as may be required by law shall be allowed or permitted to
be recorded in the proper books of the Company.




                                                                                                   124
MANAGEMENT’S DISCUSSION & ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following management's discussion and analysis of the Company's financial condition and results of operations
should be read in conjunction with the Company's pro-forma financial statements for the fiscal years ended 31
December 2009, 2008 and 2007, the consolidated financial statements for the fiscal year ended 31 December 2010,
and the interim reviewed financial statements for the six months ended 30 June 2011 and 2010, including the related
notes, as examined and audited by Constantino Guadalquiver & Company, in accordance with Philippine Financial
Reporting Standards (“PFRS”) contained in this Prospectus. On July 25, 2011 the Company filed a request for
exemptive relief from the submission of interim audited financial statements for the periods ended June 30, 2010 and
June 30, 2011 with the Securities and Exchange Commission. The request for exemptive relief was approved during
the SEC En Banc meeting on 11 August 2011. This Prospectus contains forward-looking statements that involve
risks and uncertainties. The Company cautions investors that its business and financial performance is subject to
substantive risks and uncertainties. The Company's actual results may differ materially from those discussed in the
forward-looking statements as a result of various factors, including, without limitation, those set out in "Risk
Factors." In evaluating the Company's business, investors should carefully consider all of the information contained in
"Risk Factors."


KEY PERFORMANCE INDICATORS

                                 For the six
                                months ended                       For the year ended December 31,
Key Performance
                                  June 30,
Indicators
                                    2011                 2010               2009             2008            2007
                                  Reviewed              Audited           Pro-forma        Pro-forma       Pro-forma
Earnings Per Share      1
                                P       0.1211      P        0.2540       P 0.1319        P 0.0806        P 0.0155
Current Ratio   2
                                          0.59                    0.45           0.57            1.17             2.22
Debt-to-Equity Ratio
                            3
                                           1.22                   1.23           1.38            0.72             0.48
Return on Assets    4
                                        3.51%                 8.12%            5.47%           4.76%           1.03%
Return on Equity
                    5
                                        7.82%                18.66%           11.35%           7.66%           1.53%
1Earnings Per Share is computed as the net profit attributable to equity holders of the parent divided by the
outstanding number of shares.
2   Current Ratio is derived through dividing total current assets by the total current liabilities for the period.
3Debt-to-Equity Ratio is measured as the ratio of total liabilities divided by the total equity attributable to
equity holders of the parent company.
4   Return on Assets is net profit as a percentage of average total assets.
5Return on Equity is net profit as a percentage of average equity attributable to equity holders of the parent
company.




                                                                                                                  125
SELECTED FINANCIAL DATA

                                                 June 30,                    December 31,
             (In Thousand Pesos)
                                                   2011        2010       2009         2008        2007
                                                  Reviewed    Audited   Pro-forma    Pro-forma   Pro-forma
ASSETS
Current Assets
Cash and cash equivalents                          27,006      15,751     39,045        26,786     23,886
Receivables – net                                  20,936      12,788      9,546         8,276      5,021
Due from related parties                           26,891      19,767     12,624        14,493     15,575
Prepayments and other current assets                4,687       3,090        220         1,711        902
          Total Current Assets                     79,519      51,396     61,434        51,265     45,383

Noncurrent Assets
Available-for-sale investments                      1,166       1,166     1,000              –          –
Investment property                                61,133      61,133    46,774         41,152     34,771
Property and equipment – net                      275,065     271,689   228,512        121,124     90,440
Deferred tax assets                                 1,979       1,827     1,768          1,268      1,121
Other noncurrent assets                            12,539      12,539    14,188         12,293      9,552
         Total Noncurrent Assets                  351,882     348,354   292,242        175,838    135,884
TOTAL ASSETS                                      431,401     399,750   353,676        227,103    181,267

LIABILITIES AND EQUITY
Current Liabilities
Accounts payable and accrued expenses              95,355      77,780     76,062        29,626     11,140
Retirement benefit obligation                       3,250       3,043      3,088         2,094      1,827
Current portion of loan payable                     8,014       8,014      5,557             –          –
Due to related parties                             22,422      21,495     22,823        13,765      9,321
Income tax payable                                  5,014       3,953      2,489           285          –
         Total Current Liabilities                134,055     114,285    106,932        43,676     20,461

Noncurrent Liabilities
Loan payable                                       84,144      88,151     81,126        42,169     30,791
Customers' deposits                                 7,292       7,125      5,628         5,281      5,061
Deferred tax liabilities                           11,342      10,210      7,688         1,921        874
       Total Noncurrent Liabilities               102,779     105,486     97,531        51,465     38,554

Equity
Attributable to Equity Holders of Parent Company
Capital stock – P1 par value
  Authorized – 200,000,000 shares
  Subscribed – 120,000,000 shares                   120,000   120,000    120,000       120,000    120,000
Revaluation surplus in land - net of deferred taxes   9,438     9,438      9,438             –          –
Unrealized gain on available-for-sale investment        166       166
Retained earnings                                    64,251    49,721     19,240        11,527      1,855
                                                    193,855   179,325    148,678       131,527    121,855

Minority Interest                                     713         655       535            435        396
TOTAL LIABILITIES AND EQUITY                      431,401     399,750   353,676        227,103    181,267

                                                                                                        126
                                                    For the six months          For the year ended December 31,
                                                     ended June 30,
             (In Thousand Pesos)
                                                    2011           2010        2010           2009          2008
                                                   Reviewed       Reviewed    Audited       Pro-forma     Pro-forma
REVENUE
Water service                                        60,066         39,947      90,569         75,573        53,961
Sales                                                13,212         12,874      27,338          2,831             –
Others                                                  304             29         140             33           540
                                                     73,583         52,850     118,047         78,437        54,501

COST OF SALES AND SERVICES                           35,131         32,815     68,361          39,484        29,181
GROSS PROFIT                                         38,451         20,036     49,686          38,953        25,320

OPERATING EXPENSES                                   18,119         12,367     27,426          26,083        21,366

PROFIT FROM OPERATIONS                               20,332          7,669     22,260          12,870         3,954
OTHER INCOME (CHARGES) – Net
Change in fair value of investment property               0         14,359      14,359          5,622         6,381
Interest income                                         538            167         812          1,346           964
Reversal of allowance for impairment loss                 0              0            0           202             –
Receivables written-off                                   0              0            0         (225)             –
Financial charges and interest                            0           (10l)       (16l)          (10)          (58)
Excess of net asset of acquired
subsidiary over cost of investment                        0              0           0              –             –
                                                        538         14,516      15,155          6,935         7,286
PROFIT BEFORE INCOME
TAX EXPENSE                                          20,870         22,186      37,414         19,805        11,240

INCOME TAX EXPENSE
Current                                               5,302          1,133      4,353           2,701           506
Deferred                                                980          1,194      2,462           1,207         1,025
                                                      6,282          2,326      6,815           3,908         1,531
NET PROFIT                                           14,588         19,859     30,599          15,897         9,709

OTHER COMPREHENSIVE INCOME
Unrealized gain on available-for-sale investment              0          0         166              –             –
Revaluation surplus in land                                   0          0              0      13,536             –
Income tax                                                    0          0              0     (4,061)             –
OTHER COMPREHENSIVE
INCOME - Net of tax                                       0              0        166           9,475             –
TOTAL COMPREHENSIVE INCOME                           14,588         19,859     30,766          25,372         9,709

NET PROFIT ATTRIBUTABLE TO:
Equity holders of the parent                         14,530         19,781     30,481          15,834         9,671
Minority interest                                        58             78        119              63            38
                                                     14,588         19,859     30,599          15,897         9,709

EARNINGS PER SHARE                                   0.1211         0.1648     0.2540          0.1319        0.0806

                                                                                                                  127
                                                  For the six months ended        For the year ended December 31,
                                                           June 30,
              (In Thousand Pesos)
                                                    2011           2010           2010         2009          2008
                                                   Reviewed       Reviewed       Audited     Pro-forma     Pro-forma
CASH FLOWS FROM
OPERATING ACTIVITIES
Profit before income tax expense                    20,870          22,186        37,414        19,805       11,240
Adjustments for:
  Depreciation and amortization                       3,479           2,820         7,001        6,334         5,640
  Change in fair value of investment property                      (14,359)      (14,359)      (5,622)       (6,381)
  Interest income                                     (538)           (167)         (812)      (1,346)         (964)
  Written-off accounts                                                                               –             –
  Receivables written-off                                 –                            –           225             –
  Reversal of allowance
   for impairment loss                                    –                             –       (202)                –
  Financial charges and interest                          –              91            16          10               58
  Provisions for:
  Retirement benefits expense
  (pension income)                                      207            205           411          994           267
  Impairment losses                                       –                          170          515             –
  Excess of net asset of acquired
subsidiary over cost of investment                        –                  –         –             –              –

Operating profit before working capital changes      24,018         10,776        29,841        20,714        9,861
Change in operating assets and liabilities
Decrease (increase) in:
  Receivables                                       (8,147)         (1,349)       (3,252)      (1,809)       (3,255)
  Due from related parties                                                                     (6,251)           957
  Prepayments and other current assets              (1,598)         (1,668)       (2,453)        1,467         (791)
Increase (decrease) in:
  Accounts payable and accrued expenses              18,286           9,280         2,429       46,436       18,486
   Retirement benefit obligation                                       (66)         (455)            –             –
   Customers' deposit                                   167             207         1,496            –             –
Cash generated from (used in) operations             32,726         17,181         27,607       60,557       25,258
Income taxes paid                                   (4,240)         (2,733)       (2,889)        (473)         (240)
Interest received                                       538             167           812        1,346           964
Interest paid                                       (4,485)         (4,394)       (9,132)      (5,698)       (3,964)
Net cash provided by (used in) operating
activities                                          24,539          10,221        16,398       55,732        22,018

CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions of:
  Property and equipment               (3,080)                     (38,501)      (41,774)     (94,499)      (32,418)
  Available-for-sale investments             –                            –             –      (1,000)             –
Decrease (increase) in:
  Due from related parties             (7,124)                        2,317       (7,143)            –             –
  Other noncurrent assets                    –                        1,070         1,070      (1,894)       (2,741)
Cash from acquired subsidiaries              –                           –              -            –             –
Net cash used in investing activities (10,205)                     (35,114)      (47,846)     (97,393)      (35,159)

                                                                                                                 128
CASH FLOWS FROM FINANCING
ACTIVITIES
Proceeds from:
  Loan availment                                 –     17,200        17,200       44,514        11,378
  Capital subscriptions                          –          –             –            –            –
Payment of Loan                             (4,007)    (3,711)      (7,718)            –            –
Increase (decrease) in:
  Due to related parties                        927    (4,867)      (1,328)        9,058         4,444
  Customers' deposits                            –           –                       348           220
Net cash provided by financing activities   (3,080)      8,622        8,154       53,920        16,041
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS                   11,255    (16,271)     (23,294)       12,259         2,900

CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR                        15,751     39,045        39,045       26,786        23,886

CASH AND CASH EQUIVALENTS
AT END OF YEAR                              27,006     22,773        15,751       39,045        26,786




RESULTS OF OPERATIONS

30 June 2011 versus 30 June 2010

Water service revenues continue to increase and this is attributed to additional billed volume from
the increase in the number of subscribers which stood at an average of 11,258 at this period‟s end as
against 10,676 for the same period last year. Volume had been augmented as another water source,
Well B1A, was commissioned early part of this year. Furthermore, we were able to implement an
                                                                                      P
80% rate hike for the Calapan operation starting August 2010. Revenues grew by =20,119,110 or
               P             P
50.36% from =39,947,283 to =60,066,393.

                                                      P
Our trading activity grew by 2.62% and now stands at =13,212,009. This endeavor has only been
operational for about one and a half year and the Company is working to expand our customer base
and product portfolio.

Cost of sales and services have been increasing primarily due to higher personnel costs, depreciation
(from capital investments made last year), power costs (due to higher rates and increase in
consumption from well operation including the new Well B1A) of Calapan Water, increase in the
lease rate for the Tabuk operation‟s facilities, and cost of sales of the trading segment. This account
                    P
grew by 7.06% to =35,131,445.

Operating expenses have increased due to higher professional fees and taxes this period. This can
be directly attributed to the increase in revenues as management fees (aside from a fixed monthly
amount) and franchise tax payments are based on it. This account increased considerably by 46.52%
   P
or =5,752,578.


                                                                                                   129
The cash balance as of 30 June 2011 is significantly higher against the balance as of 30 June 2010
                                                P
which explains why interest income increased to =538,456 in 2011 (222.89%).

                                               P
Fair values in 2010 increased by an additional =14,359,000 based on the latest appraisal conducted
by Royal Asia Appraisal Corporation and this was credited to income (included in Interest and
others). The subject properties are land with a total area of 73,203 sq. m. located in Barangay
Bayanan, Calapan City, which were transferred to Calapan Water as additional stock subscriptions.
No such fair value adjustment was recorded in 2011 as our next appraisal shall be conducted near
year-end.

                                                                      P
In 2011, the current provision for income tax increased by 368.08% to =5,301,732 as a result of
increasing profit from operations.

                                                     =
The deferred portion decreased in 2011 by 17.88% (P 213,480). The amount shown for this period
    P
of =980,269 is tied-in to the movement of the related deferred tax asset and liability accounts shown
in the statement of financial position.

Minority interest represents minority stockholders‟ share in the net income or loss of Calapan Water.
The fluctuation in this account is tied-in to the operating results of Calapan Water and to the
Company‟s overall ownership in the former.

2010 versus 2009

Commercial operations commenced when Jolliville Holdings Corporation, parent company,
transferred its 99.61% ownership in Calapan Water to CVI on March 31, 2009. CVI‟s trading
activity started only last December 2009. This is the primary reason for the increase in revenue and
expense accounts related to operations between years.

2009‟s water service revenues of Fifty Nine Million Seven Hundred Ninety Seven Thousand Seven
Hundred One Pesos (PhP59,797,701.00) represent operations from April to December 2009 (nine
months) as Calapan Water was acquired on March 31, 2009. As against the figure for January to
December 2010 (twelve months) of Ninety Million Five Hundred Sixty Eight Thousand Six
Hundred Twenty Four Pesos (PhP90,568,624.00) this represents a 51% increase. Aside from the
difference in the number of months, the increase was also due to additional billed water volume
from the increase in the number of subscribers from an average of 9,402 the previous year to 10,905
this year. Furthermore, Calapan Water implemented an 80% rate increase for our Calapan operation
last August 2010.

Since the trading activity started only last December 2009, sales revenues reported was only Two
Million Eight Hundred Thirty One Thousand Two Hundred Fifty Nine Pesos (PhP2,831,259.00)
while this year Twenty Seven Million Three Hundred Thirty Eight Thousand Two Hundred
Seventeen Pesos (PhP27,338,217.00) was reported.

The start of CVI‟s trading activity is the major reason for the increases in cost of sales and services
and operating expenses between years.

Cost of sales and services increased by one hundred eighteen percent (118%) or Thirty Seven
Million Forty Three Thousand Four Hundred Twenty Nine Pesos (PhP37,043,429.00). Cost of sales
                                                                                                   130
for the trading activity this year alone was Twenty Four Million Eight Hundred Ninety Five
Thousand Four Hundred Ninety Five Pesos (PhP24,895,495.00) as against Two Million Five
Hundred Seventy Three Thousand Eight Hundred Seventy Two Pesos (Php2,573,872.00) last year.
Also contributing are the higher salaries, depreciation (from new capital investments made last year)
and power costs (due to higher rates and slight increase in consumption related to well operations)
of Calapan Water.

Operating expenses increased by forty-five percent (45%) or Eight Million Four Hundred Seventy
Four Thousand Four Hundred Fifty Pesos (PhP8,474,450.00). A major contributor to the increase
are higher professional fees this period. Professional fees increased by Six Million One Hundred
Twenty Five Thousand Eight Hundred Thirty Pesos (PhP6,125,830.00) from Seven Million Eight
Hundred Eighty Four Thousand Six Hundred Seventy One Pesos PhP7,884,671.00) to Fourteen
Million Ten Thousand Five Hundred One Pesos (PhP14,010,501.00). Much of these are for
financial advisors, audit and legal fees related to the planned listing of CVI which are nondeductible
against the IPO proceeds. Also, as sales increased, management fees paid to an affiliate also
increased due to the variable portion involved.

The cash balance as of 2009 is significantly higher against the balance as of 2010 which resulted in
the thirty three percent (33%) decrease in interest income to Eight Hundred Eleven Thousand Nine
Hundred Fifty Pesos (PhP811,952.00) in 2010.

Fair values in 2010 increased by an additional Fourteen Million Three Hundred Fifty Nine
Thousand Pesos (PhP14,359,000.00) based on the latest appraisal conducted by Royal Asia
Appraisal Corporation and this was credited to change in fair value of investment property. The
subject properties are land with a total area of 73,203 sq. m. located in Barangay Bayanan, Calapan
City, which were transferred to Calapan Water as additional stock subscriptions last February 22,
2006.

Excess of net asset of acquired subisidiary over cost of investment of Three Million Eight Hundred
Sixty Two Thousand One Hundred Eighteen Pesos (PhP3,862,118.00) in 2009 represent negative
goodwill from the acquisition of Calapan Water from JOH. This is a one-time credit to income.
There was no movement in receivables written-off and reversal of allowance for impairment loss as
per management‟s judgment and evaluation this year.

In 2010, the current provision for income tax increased by seventy one percent (71%) to Four
Million Three Hundred Fifty Two Thousand Five Hundred Ninety Two Pesos (PhP4,352,592.00)
as a result of increasing profit from operations.

The deferred portion increased in 2010 by one hundred four percent (104%) or One Million Two
Hundred Fifty Five Thousand Eight Hundred Thirty Two Pesos (PhP1,255,832.00) as a result of
additional borrowing costs capitalized.

Minority interest represents minority stockholders‟ share in the net income or loss of Calapan Water.
The fluctuation in this account is tied-in to the operating results of Calapan Water and to the
Company‟s overall ownership in the former.




                                                                                                  131
2009 versus 2008

A 40.05% increase in water revenue was experienced in 2009 as these have now gone up to Seventy
Five Million Five Hundred Seventy Two Thousand Nine Hundred Six Pesos (PhP75,572,906.00).

As was the case last year, growth can be attributed to additional billed volume from the continuing
increase in the number of subscribers, for both the Calapan City and Tabuk City operation
combined. The subscriber base at the end of the year went from 8,892 in 2008 to 10,058 in 2009.

A major contributor for the increase in water revenue in 2009 is the commissioning of a new well,
i.e. Well No. 12 located in Barangay Bayanan, Calapan City, in November 2008. By way of historical
data, this well was operational for only two (2) months in 2008 producing only 86,802 cubic meters,
but, in 2009, it produced 633,704 cubic meters for the entire year.

The sales account is from the trading activity of the parent company CVI. Operation only started in
2009.

Others account decreased even further by 94% to only Thirty Three Thousand One Hundred
Eighty Pesos (PhP33,180.00) in 2009. Repair works for subscribers is the major source of revenue
and these have been declining as connections are relatively new or had been rehabilitated.

For 2009, cost of services increased by Ten Million Three Hundred Three Thousand Seventy Five
Pesos (PhP10,303,075.00) (35.3%) to Thirty Nine Million Four Hundred Eighty Three Thousand
Nine Hundred Seven Pesos (PhP39,483,907.00). Lease fee payments for the Tabuk City water
system once again increased from Four Million Three Hundred Twelve Thousand Six Hundred Fifty
Five Pesos (PhP4,312,655.00) to Seven Million Five hundred Twenty Six Thousand Four Hundred
Forty Eight Pesos (PhP7,526,448.00). Another major cost contributor were power costs, which
increased from Seven Million Four Hundred Seven Thousand Nine Hundred Ninety One Pesos
(PhP7,407,991.00) to Nine Million One Hundred Forty Four Thousand Sixty Two Pesos
(PhP9,144,062.00). Power rates are ever increasing and a new well, Well No. 12, began operation in
November 2008 and its full year effects on costs were felt in 2009. Salaries, depreciation, and repairs
and maintenance also slightly contributed to the increase in costs.

Operating expenses increased by Four Million Seven Hundred Sixteen Thousand Seven Hundred
Ninety One Pesos (PhP4,716,791) (22.08%) to Twenty Six Million Eighty Three Thousand One
Hundred Seventeen Pesos (PhP26,083,117) in 2009. The same expense items are the major
contributors to the increases between this year and the preceding year. Management fees increased
again as revenues have also increased. As a result of increased revenues, franchise tax payments on
the Calapan City operation have also risen. Office spaces being leased, mostly those started in 2008,
have also increased slightly in rates. For 2009, there was an impairment loss recognized on long-
outstanding receivables amounting to Five Hundred Fifteen Thousand Two Hundred Forty Nine
Pesos (PhP515,249); whereas, none was recognized in 2008.

The cash balance as of end-2009 is also significantly higher against the balance as of end-2008 which
explains why interest income increased even further to One Million Three Hundred Forty Six
Thousand One Hundred Fifty Three Pesos (PhP1,346,153) in 2009 (39.67%).

There was a reversal of allowance of impairment loss of Two Hundred One Thousand Five
                                                                                                   132
Hundred Thirty One Pesos (PhP201,531) in 2009 as against none for 2008 and 2007. This pertains
to receivables collected, which had been previously deemed as doubtful and an allowance was set up
in prior years. Meanwhile, accounts finally determined as uncollectible were finally written-off in
2009 amounting to Two Hundred Twenty Five Thousand and Three Pesos (PhP225,003.00),
whereas there were no such accounts in 2008 and 2007.

In 2009, capitalized interest was Five Million Seven Hundred Thousand Pesos (PhP5,700,000.00).
The expense account decreased further to only Nine Thousand Seven Hundred Sixty One Pesos
(PhP9,761.00). The reason for this was the reduction in commitment fees. These are based on a
percentage of the unreleased portion of the loan facility. From 0.85% we were able to negotiate for a
decrease to 0.125%. Further, as the outstanding loan balance had increased from additional
availments, the unreleased portion has decreased, thereby reducing the base for the commitment
fees.

Fair values in 2009 increased by an additional Five Million Six Hundred Twenty One Thousand
Seven Hundred Fifty Pesos (PhP5,621,750.00) based on the latest appraisal conducted by Royal Asia
Appraisal Corporation and this was credited to income. The subject properties are land with a total
area of 73,203 sq. m. located in Barangay Bayanan, Calapan City, which were transferred to Calapan
Water as additional stock subscriptions.

In 2009, the current provision for income tax increased by four hundred thirty three and 43/100
percent (433.43%) to Two Million Seven Hundred One Thousand Three Hundred Five Pesos
(PhP2,701,305.00) again as a result of increasing profit from operations.

The deferred portion increased further in 2009 by seventeen and 76/100 percent (17.76%) or One
Hundred Eighty One Thousand Nine Hundred Seventy Pesos (PhP181,970.00) as a result of
additional borrowing costs capitalized and recognition of the deferred tax liability on fair value
appraisal adjustments in investment property and property and equipment.

Revaluation surplus in property and equipment of Nine Million Four Hundred Seventy Five
Thousand Two Hundred Pesos (PhP9,475,200.00) after deferred tax effects came from land
revalued by an independent appraiser in 2009. No revaluation was made in prior years.

Minority interest represents minority stockholders‟ share in the net income or loss of Calapan Water.
The fluctuation in this account is tied-in to the operating results of Calapan Water and to the
Company‟s overall ownership in the former.

FINANCIAL POSITION

2011 versus 2010

                                          P              P
Total assets increased by 7.92% or about =32 million to =431,401,175 as of 30 June 2011. The
increase is tied-in to improved results of operations as cash and receivables have increased
                                                     P               P
considerably. Receivables had increased by 63.71% or =8,147,353 from =12,788,165 as of year-end
               P
to the present =20,935,518.

                                                                 P
Accounts payable and accrued expenses increased by 22.60% to =95.3 million as of 30 June 2011, a
         P
total of =17.6 million as growth in business activity has caused costs and expenses to rise thereby
                                                                                                 133
contributing to the increase in this account. The Company also exerts effort to lengthen and
maximize credit terms with its suppliers.

The increases and decreases in the net payable with related parties is dependent upon the liquidity
and financial status of the concerned parties at any given point in time. None of the parties involved
is in financial distress and there is no reason to believe that any accounts may be impaired in the
immediate or near future. Also, these accounts have no definite call dates and do not bear interest.
The purpose of these advances is for operating and investing activities.

                                                           P
Prepayments and other current assets increased by 51.7% to =4,687,456. The increase primarily
pertains to excess input taxes of CVI.

The deferred tax effect of the increase in the retirement benefit obligation account and the NOLCO
                                                                                     P
of CVI for the period caused the deferred tax asset account to increase from =1,826,867 to =     P
                                                                            P
1,978,815 (8.32%). The increase in the retirement benefit obligation of =206,934 (6.8%) represent
the expense for the period. The Company‟s retirement plan remains unfunded.

The income tax liability as of December 31, 2010 was paid April, 2011. The income tax liability as
of June 30, 2011 represents accrual for income taxes. Income tax payable has increased by 26.85%
   P
or =1,061,424 from improved results of operations.

                                P
The noncurrent loan payable of =84,144,483 pertains to Calapan Water‟s loan with DBP mentioned
earlier. The grace period on principal payments on the loan expired in 2009. The decrease in this
                     P
account by 4.55% or =4.01 million pertains to principal payments for the period.

                                                      P
The increase in the deferred tax liability account of =1,132,217 (11.09%) pertain to the effects of
capitalized interest.

Minority interest pertains to the share of its minority shareholders in the net assets of Calapan
Water. The change in this account represents the share of minority shareholders in the results of
operations for this period.

2010 versus 2009

Total assets once again increased by thirteen percent (13%) to Three Hundred Ninety Nine Million
Seven Hundred Forty Nine Thousand Nine Hundred Forty Six Pesos (PhP399,749,946.00) as of 31
December 2010. The capital expenditures on the ongoing rehabilitation, expansion and
improvement plan of the waterworks system in Calapan City, Oriental Mindoro are the major
contributors to the increase. The outstanding loan balance and payable to contractor have increased
further in 2010 also due to said capital expenditures.

Stronger financial results caused receivables to increase by thirty four percent (34%) to Twelve
Million Seven Hundred Eighty Eight Thousand One Hundred Sixty Five Pesos (Php12,788,165.00)
at year-end of 2010.

In 2010, though revenues and overall profitability had increased, there were unapplied tax credits
from CVI‟s trading activity which commenced only last December 2009. Thus, prepayments and
other current assets still increased by two hundred eighty seven percent (287%) to Three Million
                                                                                                  134
Eighty Nine Thousand Nine Hundred Thirty Seven Pesos (PhP3,089,937.00) at year-end 2010. This
is due to deposit made to vendors for software installation and increase of unapplied tax credits of
CVI.

The available-for-sale investment amounting to One Million Pesos (PhP1,000,000.00) pertains to a
single payment managed trust fund deposit in an insurance company made in the last quarter of
2009. This fund invests in fixed income securities, money market instruments, and shares listed in
the PSE. Although the amount can be withdrawn anytime, management intends to hold it long-term
for a specific purpose. The increase of One Hundred Sixty Six Thousand Two Hundred Seventy
Two Pesos (PhP166,272.00) or seventeen percent (17%) represent unrealized income on this
investment credited to equity portion of the statements of financial position for the same amount.

The balance of investment property as of 31 December 2010 increased further to Sixty One Million
One Hundred Thirty Three Thousand Pesos (PhP61,133,000.00) as another adjustment to fair value
of Fourteen Million Three Hundred Fifty Nine Thousand Pesos (PhP14,359,000.00) was recorded
based on the latest appraisal made by Royal Asia Appraisal Corporation.

Additions of Fifty Million One Hundred Seventy Eight Thousand Twelve Pesos(PhP50,178,012.00),
mostly pertaining to the Calapan project mentioned earlier, caused the account to increase to Two
Hundred Seventy One Million Six Hundred Eighty Nine Thousand Four Hundred Ten Pesos
(PhP271,689,410.00) at year-end, an increase of Forty Three Million One Hundred Seventy Seven
Thousand Three Hundred Forty Seven Pesos (PhP43,177,347.00) or nineteen percent (19%).

In 2010, the tax effects of additional allowances for impairment losses and NOLCO caused the
balance of the deferred tax asset account to increase by three percent (3%). The balance of this
account now stands at One Million Eight Hundred Twenty Six Thousand Eight Hundred Sixty
Seven Pesos (PhP1,826,867.00).

Other non-current assets decreased by eight percent (8%) to Twelve Million Five Hundred Thirty
Eight Thousand Seven Hundred Ninety Seven Pesos (Php12,538,797.00) in 2010. The decrease
pertains to the withdrawals on the reserve fund mentioned earlier.

Accounts payable and accrued expenses further increased by two percent (2%) to Seventy Seven
Million Seven Hundred Eighty Thousand Three Hundred Ninety Six Pesos (Php 77,780,396.00) as
of 31 December 2010, a total of One Million Seven Hundred Eighteen Thousand Twenty Five
Pesos (Php1,718,025.00). This was due to the increase in costs and expenses which were unpaid at
the end of 2010.

The grace period on principal payments on the loan expired in 2009. The balance of the current
portion of loan payable as of 31 December 2010 of Eight Million Thirteen Thousand Seven
Hundred Forty Seven Pesos (PhP8,013,747.00) is the amount due in a year‟s time from year-end.

In 2010, due to the stronger operating results, the income tax liability increased by fifty nine percent
(59%) to Three Million Nine Hundred Fifty Two Thousand Five Hundred Eighty Five Pesos
(PhP3,952,585.00).

The loan payable of Eighty Eight Million One Hundred Fifty One Thousand Three Hundred Sixty
Three Pesos (PhP88,151,363.00) pertains to the noncurrent portion of Calapan Water‟s loan with
                                                                                                    135
DBP mentioned earlier. The increase in this account are the additional releases, net of principal
payments, during the year.

The customers‟ deposits account increased by twenty seven percent (27%) to Seven Million One
Hundred Twenty Four Thousand Seven Hundred Fifteen Pesos (PhP7,124,715.00) as of 31
December 2010 again as a result of the increase in the subscriber base of Calapan Water for both its
operation in Calapan City and in Tabuk City.

The retirement benefit obligation in 2010 decreased by Forty Four Thousand Nine Hundred Fifty
Four Pesos (PhP44,954.00) or one percent (1%) from Three Million Eighty Seven Thousand Nine
Hundred Forty Six Pesos (PhP3,087,946.00) in 2009 to Three Million Forty Two Thousand Nine
Hundred Ninety Two Pesos (PhP3,042,992.00) due to lower retirement expenses compared from
2009 and there were also retirement benefits paid during 2010. The Company‟s retirement plan is
not yet funded.

As was the case in 2009, the increase in the deferred tax liability account is tied-in to the discussion
on the related provision shown under the statements of income discussed earlier. Once again the
increases pertain mainly to the effects of capitalized interest.

Revaluation surplus in land of Nine Million Four Hundred Thirty Eight Thousand Two Hundred
Forty Seven Pesos (PhP9,438,247.00) as of 31 December 2010 is due to the incremental adjustment
to fair value of land included in property and equipment. The basis was the appraisal report dated 22
December 2009 prepared by Royal Asia Appraisal Corporation.

Minority interest represents the share of minority shareholders in the net assets of subsidiary
Calapan Water. The change in this account is tied-in to the discussion on the related item shown in
the statements of income discussed earlier.

2009 versus 2008

Total assets once again increased by fifty five and 73/100 percent (55.73%) or One Hundred
Twenty Six Million Five Hundred Seventy Three Thousand Four Hundred Fifty Four Pesos
(PhP126,573,454.00) to Three Hundred Fifty Three Million Six Hundred Seventy Six Thousand One
Hundred Forty Two Pesos (PhP353,676,142.00) as of 31 December 2009. The capital expenditures
on the ongoing rehabilitation, expansion and improvement plan of the waterworks system in
Calapan City, Oriental Mindoro is again the major contributor to the increase. The outstanding loan
balance and payable to contractor have increased further in 2009 also due to capital expenditures.

Stronger financial results caused receivables to increase by fifteen and 35/100 percent (15.35%) to
Nine Million Five Gundred Forty Five Thousand Six Hundred Twenty Pesos (PhP9,545,620.00) at
year-end of 2009.

In 2009, as revenues for Tabuk had increased, the excess input taxes from a year ago were applied
against the VAT liability thereby decreasing other current assets by eighty seven and 14/100 percent
(87.14%) to only Two Hundred Nineteen Thousand Nine Hundred Fifty Eight Pesos
(PhP219,958.00) at year-end 2009.



                                                                                                    136
The available-for-sale investment amount of One Million Pesos (PhP1,000,000.00) pertains to a
single payment managed trust fund deposit in an insurance company made in 2009. There was no
such investment made earlier. This fund invests in fixed income securities, money market
instruments, and shares listed in the PSE. Although the amount can be withdrawn anytime,
management intends to hold it long-term for a specific purpose.

The balance of investment property as of 31 December 2009 increased further to Forty Six Million
Seven Hundred Seventy Four Thousand Pesos (PhP46,774,000.00) as another adjustment to fair
value of Five Million Six Hundred Twenty One Thousand Seven Hundred Fifty Pesos
(PhP5,621,750.00) was recorded based on the latest appraisal made by Royal Asia Appraisal
Corporation.

Additions of One Hundred Million One Hundred Eight Six Thousand Six Hundred Thirty Three
Pesos (PhP100,186,633.00), also pertaining to the Calapan project mentioned earlier, net of annual
depreciation, caused the PPE account to increase to Two Hundred Twenty Eight Million Five
Hundred Twelve Thousand Sixty Three Pesos (PhP228,512,063.00) at year-end, an increase of One
Hundred Seven Million Three Hundred Eighty Eight Thousand One Hundred Eighty Five Pesos
(PhP107,388,185.00) or eighty eight and 66/100 percent (88.66%)

The percentage of completion of the Calapan project as of 31 December 2009 is at eighty one and
41/100 percent (81.41%). The One Hundred Thirty Seven Million Peso (PhP137,000,000.00) loan
facility from DBP are earmarked for the contract and the differential between the total contract
price and the loan facility will be funded from internally generated sources.

In 2009, the tax effects of additional accruals for retirement expenses, net of the MCIT from 2008
deducted on regular income tax in 2009, caused the balance of the deferred tax asset account to
increase by 39.41%. The balance of this account now stands at One Million Seven Hundred Sixty
Eight Thousand Twenty Eight Pesos (PhP1,768,028.00).

Other non-current assets increased further by fifteen and 41/100 percent (15.41%) to Fourteen
Million One Hundred Eighty Seven Thousand Five Hundred Eighty Six Pesos (PhP14,187,586) in
2009. The increase again pertains to the reserve fund mentioned earlier.

Accounts payable and accrued expenses further increased by one hundred fifty six and 74/100
percent (156.74%) to Seventy Six Million Sixty Two Thousand Three Hundred Seventy One Pesos
(PhP76,062,371.00) as of 31 December 2009, a total increase of Forty Six Million Four Hundred
Thirty Six Thousand One Hundred Thirty Seven Pesos (PhP46,436,137.00) as the property and
equipment account likewise increased as a result of the Calapan operation‟s development plan.
Growth in business activity has caused costs and expenses to rise thus also contributing to the
increase in this account.

The grace period on principal payments on the loan expired in 2009. The balance of the current
portion of the loan payable account as of 31 December 2009 of Five Million Five Hundred Fifty Six
Thousand Five Hundred Ninety Seven Pesos (PhP5,556,597.00) is the amount due in 2010.

In 2009, since NOLCO had been fully applied and due to the stronger operating results, the income
tax liability increased by seven hundred seventy four percent (774%) to Two Million Four Hundred
Eighty Nine Thousand Three Hundred Twenty Five Pesos (PhP2,489,325.00).
                                                                                              137
The loan payable of Eighty One Million One Hundred Twenty Six Thousand Three Hundred
Twenty Two Pesos (PhP81,126,322.00) pertains to Calapan Water‟s loan with DBP mentioned
earlier. The increase in this account are the additional releases during the year.

The customers‟ deposits account increased by six and 58/100 percent (6.58%) to Five Million Six
Hundred Twenty Eight Thousand Two Hundred Fifty Eight Pesos (PhP5,628,258.00) as of 31
December 2009 again as a result of the increase in the subscriber base of Calapan Water for both its
operation in Calapan City and Tabuk City.

The retirement benefit obligation in 2009 increased by forty seven percent (47%) from Two Million
Ninety Four Thousand Three Hundred Sixty Six Pesos (PhP2,094,366.00) in 2008 to Three Million
Eighty Seven Thousand Nine Hundred Forty Six Pesos (PhP3,087,946.00) or a difference of Nine
Hundred Ninety Three Thousand Five Hundred Eighty Pesos (PhP993,580.00) as a result of
changes in the assumptions for the discount rate and salary increases used in the latest actuarial
valuation.

As was the case in 2008, the increase in the deferred tax liability account is tied-in to the discussion
on the related provision shown under the statement of income discussed earlier. Once again the
increases pertain mainly to the effects of capitalized interest and incremental fair value adjustments
in investment property and property and equipment.

Revaluation surplus in land of Nine Million Four Hundred Thirty Eight Thousand Two Hundred
Forty Seven Pesos (PhP9,438,247.00) as of 31 December 2009 is from the incremental adjustment
to fair value of land included in property and equipment. The basis was the appraisal report dated
22 December 2009 prepared by Royal Asia Appraisal Corporation.

Minority interest pertains to Calapan Water. This represents the share of its minority shareholders in
the net assets of the subsidiary. The change in this account is tied-in to the discussion on the related
item shown in the statement of income discussed earlier.

FINANCIAL RISK

Please refer to Notes 3, 21 and 22 to the Consolidated Pro Forma Financial Statements for the
description, classification and measurements applied for financial instruments and the financial risk
management objectives and policies of the group.

LIQUIDITY AND SOLVENCY

The Company‟s cash balance increased from end-2007 of Twenty Three Million Eight Hundred
Eighty Five Thousand Nine Hundred Thirty One Pesos (PhP23,885,931.00) to Twenty Six Million
Seven Hundred Eighty Five Thousand Eight Hundred Twelve Pesos (PhP26,785,812.00) as of 31
December 2008. This increased further to Thirty Nine Million Forty Four Thousand Eight Hundred
Forty Five Pesos (PhP39,044,845.00) in 2009 but this is mainly from the receipt of proceeds on
additional loan availments nearing year-end. Availments are on the loan facility for the Calapan City
water system projects. Borrowings are used to finance investment and development activities.

The additional drawings on the loan facility has caused our liability to equity ratios to steadily
increase from 0.4843x in 2007 to 0.7233x in 2008 and finally to 1.3752x in 2009.
                                                                                                    138
In 2010, as loan availments were only Seventeen Million One Hundred Ninety Nine Thousand
Seven Hundred Fifty Seven Pesos (PhP17,199,757.00), the cash balance decreased to Fifteen Million
Seven Hundred Fifty Thousand Eight Hundred Seventy Two Pesos (PhP15,750,872.00) as against
the previous year's Thirty Nine Million Forty Four Thousand Eight Hundred Forty Five pesos
(PhP39,044,845.00) when loan availments amounted to Forty Four Million Five Hundred Fourteen
Thousand One Hundred Ninety Six Pesos (PhP44,514,196.00). As the loan availments decreased in
2010 and net profit increased once again to Thirty Million Five Hundred Ninety Nine Thousand
Four Hundred Forty Three Pesos (PhP30,599,443.00), our liability to equity ratio decreased slightly
to 1.2255x in 2010. As of end-2010, the unutilized portion of the loan facility is only Thirty Three
Million One Hundred Seventeen Thousand Three Hundred Twenty Five Pesos (PhP33,117,325.00)
out of the total One Hundred Thirty Seven Million Peso (PhP137,000,000.00).

                                                           P                 P
The Company‟s cash balance increased from end-2010 of =15.8 million to =27.0 million as at 30
June 2011. A significant portion of the cash balance came from operating results which continue to
improve considerably. This also explains the slight decrease in our liability to equity ratios from
1.2211x in 2010 to 1.2172x in 2011. Though a portion of the loan remains unutilized, there were no
drawings made from the start of this year.

The Company seeks to manage its liquidity profile to be able to finance its capital expenditures and
serve its maturing obligations. The Company‟s objective is to maintain a balance between continuity
of funding and flexibility through valuation of projected and actual cashflow infomation. The
Company manages liquidity by maintaining adequate reserves through advances from related parties
and loan facilities with local banks.

CAPITAL EXPENDITURES

The following table summarizes the Company‟s capital expenditures for the years 2010, 2009, 2008,
and 2007:

 (In PhP - based                  Water utilities    Office                  Staff house,                 Equipment
                     Land and                                      Service                 Construction
  on acquisition                       and        furniture and              warehouse                        for          Total
                   improvements                                    vehicles                 in progress
      cost)                        distribution    equipment                  and office                  installation
       2010             –            system
                                        2,258,088        931,210   1,946,245       –           45,042,469             0    50,178,012
       2009                30,408       9,736,726        249,904     140,144       –           86,298,803    3,730,648    100,186,633
       2008             –             11,168,234         155,953     250,917       –           24,749,099      –           36,324,203
       2007               121,631     24,489,984         378,606      –            738,933       –             –           25,729,154


Calapan Water has an ongoing rehabilitation, expansion and improvement plan of its waterworks
system in Calapan City, Oriental Mindoro. The total project cost is One Hundred Seventy Seven
Million Three Hundred Seventy Five Thousand Eight Hundred Twenty Seven and 42/100 Pesos
(PhP177,375,827,42) and below is the accomplishment as of 30 June 2011:

                                                     % to Total            Item                     Amount                   Weighted
 Item/Description         Contract Amount             Project         Accomplishment                 Spent                Accomplishment

Transmission Line         Php      39,104,007.09         22.05%                   88.57%      Php 34,633,632.39                         19.53%
Distribution Line                 102,094,549.10         57.56%                   94.16%          96,135,311.37                         54.20%
Pipe Crossing                       5,081,198.78          2.86%                  100.00%           5,081,198.78                          2.75%
Structures                          6,249,609.79          3.52%                   78.71%           4,919,049.79                          2.77%
Electrical Works                   12,302,993.19          6.94%                   75.10%           9,240,073.84                          5.21%


                                                                                                                                139
Pumping Equipment          9,023,469.46        5.09%             76.33%         6,887,887.14                3.88%
Generator Sets             3,520,000.00        1.98%             72.73%         2,560,000.00                1.98%
TOTAL                Php 177,375,827.42      100.00%                      Php 159,457,143.32               90.32%

As the above-mentioned project is due to be completed shortly, Calapan Water intends to
commence a new project estimated to cost around One Hundred Fifty Five Million Three Hundred
Fifty Thousand Pesos (PhP155,350,000.00). The main components of this project include the
expansion of storage facilities, zoning works (NRW reduction and massive meter replacement
program), and establishment of a water laboratory facility. This will be financed through the IPO
proceeds, internally generated cash and bank borrowings.

There are no other capital expenditures other than those related to the water system operation.
The Company had been subjected to externally imposed capital requirements in 2011 and 2010 due
to loans payable from DBP. The Group has complied with its debt covenant obligations which
include assignment of a portion of CWC‟s reserve fund and billed water/receivables in favor of the
bank.

DEBT

Calapan Water has a One Hundred Thirty Seven Million Peso (PhP137,000,000.00) loan facility with
the Development Bank of the Philippines intended for the rehabilitation, expansion and
improvement of the Calapan City waterworks system mentioned earlier.

There are no other loan facilities and credit lines other than the loan facility mentioned earlier. Cash
from additional equity infusion and from operations are deemed sufficient to finance the Group‟s
projects.

TRENDS, EVENTS, UNCERTAINTIES AND SEASONAL ASPECTS THAT HAVE
MATERIAL EFFECT ON THE FINANCIAL CONDITION OR RESULTS OF
OPERATIONS

As of the date of this prospectus, CVI does not anticipate events that will result in liquidity
increasing or decreasing in a material manner such as cash flow or liquidity problems in the next
twelve months.

CVI is not aware of any off-balance sheet transaction, arrangement, obligation (including contingent
obligations), and other relationship of the Company with unconsolidated entities or other persons
created during the reporting period.

The Company has not publicly announced any new product or service in 2011 except for the
offerings discussed in the “Status Of New Product Or Service” section on page 93. No substantial
product research and development will be undertaken in the next twelve months.

The Company is not aware of any known trend, event or uncertainty that have had or that are
reasonably expected to have a material favorable or unfavorable impact on net sales or revenue or
income from continuing operations. There were no significant elements of income or loss that did
not arise from the Company‟s continuing operations.

                                                                                                    140
INDEPENDENT ACCOUNTANTS
The accounting firm of CG & Co. has been the Company‟s independent public accountant since
2009. This auditing firm has been endorsed by the Audit Committee to the Board of Directors. The
Board of Directors, in turn, approved the endorsement and nominated the appointment of this
auditing firm for stockholders‟ approval during the Company‟s annual meeting of stockholders.

The audit services of CG & Co. for the calendar years ended 31 December 2009 and 2010 included
the examination of the consolidated financial statements of the Company, assistance in the
preparation of annual income tax return and other services related to filing of reports made with the
SEC. CG & Co. was also engaged to review the interim financial statements for the periods ended
30 June 2010 and 2011.

There was no event in the past year where CG & Co. and the Company had any disagreement with
regard to any matter relating to accounting principles or practices, financial statement disclosures or
auditing scope or procedures.

The person who conducted the audit for calendar years 2009 and 2010, and the review for the
periods ended 30 June 2010 and 2011 was Mr. Rogelio M. Guadalquiver, CG & Co.‟s Chairman. The
stockholders approved the engagement of Mr. Guadalquiver and the appointment of CG & Co. as
the external auditor for calendar years 2009 and 2010, and to conduct the review of the interim
financial statements for the periods ended 30 June 2010 and 2011.

CG & Co. will not receive any direct or indirect interest in the Company or in any securities thereof
pursuant to, or in connection with this initial public offering.

EXTERNAL AUDIT FEES

 The following table sets out the aggregate fees billed for each of the last three (3) years for audit and
audit-related services rendered by CG & Co. for 2008, 2009, & 2010.

                                                  2008             2009            2010
            Audit and Audit-Related Fees           100,000          675,000         540,000

The above fees were paid for audit and audit related services rendered to CVI, Calapan Water, and
Kristal Water. Audit related services included the preparation of interim and pro-forma financial
statements, and 2010 projections of CVI. The Company has not engaged CG & Co. for non-audit
related services. Other than the above, no other fees were paid by the Company to CG & Co.

In relation to the audit of the Company‟s annual financial statements, CVI‟s Corporate Governance
Manual provides that the audit committee shall, among other activities, (i) check all financial reports
against its compliance with pertinent auditing and accounting standards and regulations; (ii) pre-
approve all audit plans one month before the conduct of external audit; (iii) ensure that the external
auditor do not at the same time provide internal audit services, and (iv) recommend a qualified
external auditor who shall be appointed by the stockholders.



                                                                                                      141
SECURITY OWNERSHIP OF CERTAIN RECORD AND
BENEFICIAL OWNERS AND MANAGEMENT
The table below shows the persons or groups known to the Company to be the record or beneficial
owners of more than five percent (5%) of the Company‟s voting securities as of the date of this
prospectus:

                                                  Name of
                                                  Beneficial
                  Name, Address of Record
 Title of Class                                  Owner and                       No. of Shares     Percent
                  Owner and Relationship                           Citizenship
of Shares Held                                   Relationship                        Held           Held
                        with Issuer
                                                 with Record
                                                   Owner

Common            PCD Nominee                       Various,         Filipino        37,775,820        31.48%
                  Corporation*,                  No relationship
                  37/F Tower 1, The
                  Enterprise Center,
                  6766 Ayala Avenue cor.
                  Paseo de Roxas, Makati City,
                  no relationship

Common            JOH,                           Various/Public,     Filipino        36,962,590        30.80%
                  4th Floor Lansbergh Place,      Stockholders
                  170 Tomas Morato Avenue,
                  Quezon City, Stockholder

Common            OTY Development Corp**,         JOH, Parent        Filipino        10,000,000         8.33%
                  4th Floor Lansbergh Place,
                  170 Tomas Morato Avenue,
                  Quezon City, Stockholder

Common            KGT Ventures, Inc.** ,          JOH, Parent        Filipino        10,000,000         8.33%
                  4th Floor Lansbergh Place,
                  170 Tomas Morato Avenue,
                  Quezon City, Stockholder

Common            NGTO Resources Corp.** ,        JOH, Parent        Filipino        10,000,000         8.33%
                  4th Floor Lansbergh Place,
                  170 Tomas Morato Avenue,
                  Quezon City, Stockholder

Common            Melan Properties Corp**,         JOH, Parent       Filipino            8,400,000       7.00%
                  4th Floor Lansbergh Place,
                  170 Tomas Morato Avenue,
                  Quezon City, Stockholder
    *Under PCD Nominee Corporation, additional shares amounting to 7,369,680 (6.14%) are owned by JOH.
    Additional shares amounting to 1,600,000 (1.33%) are owned by Melan Properties Corp.
    ** These Corporations are 100% owned by Ormin Holdings Corporation, which is in turn 100% owned by JOH.




                                                                                                          142
PCD Nominee Corporation acts as trustee-nominee for all shares lodged in the PCD system. The
beneficial owners of such shares are PCD‟s participants who hold the shares on their behalf or in
behalf of their clients. PCD is a private institution established in March 1995 to improve operations
in securities transactions. PCD seeks to provide a fast, safe and highly efficient system for securities
settlement. The PCD was organized to implement an automated book-entry system of handling
securities transaction in the Philippines.

SECURITY OWNERSHIP OF MANAGEMENT

The table below shows the securities beneficially owned by all of the directors, nominees and
executive officers of the Company as of 30 June 2011:

Type of Share       Director/Officer        Citizenship   No. of Shares      Type of         Percentage
                                                                            Ownership
Common           Rodolfo L. See             Filipino            1,726,273          Direct          1.44%
Common           Rodolfo L. See             Filipino            1,795,693         Indirect         1.50%
Common           Ortrud T. Yao              Filipino              288,001          Direct          0.24%
Common           Ortrud T. Yao              Filipino            3,345,046         Indirect         2.79%
Common           Jolly L. Ting              Filipino              276,480          Direct          0.23%
Common           Jolly L. Ting              Filipino           19,588,487         Indirect        16.32%
Common           Dexter E. Quintana         Filipino              245,953          Direct          0.20%
Common           Dexter E. Quintana         Filipino              255,843         Indirect         0.21%
Common           Lourdes G. Ting            Filipino              138,241          Direct          0.12%
Common           Lourdes G. Ting            Filipino            6,508,765         Indirect         5.42%
Common           Nanette T. Ongcarranceja   Filipino              144,000          Direct          0.12%
Common           Nanette T. Ongcarranceja   Filipino            3,345,046         Indirect         2.79%
Common           Ernesto S. Isla            Filipino                   1           Direct          0.00%

VOTING TRUST HOLDERS OF 5% OR MORE

The Company has no knowledge of any voting trust agreement or any other similar arrangement
which may result in a change in control of the Company.




                                                                                                    143
TRANSACTIONS WITH AND/ OR DEPENDENCE ON RELATED
PARTIES
The Company has no transactions or proposed transactions with any of its directors or officers. The
only stockholder of the Company that owns ten percent (10%) or more of the total outstanding
shares is JOH.

PROPERTY DIVIDENDS AND ASSIGNMENT OF SHARES

The Company was incorporated as a wholly-owned subsidiary of JOH. On 08 July 2009, JOH
passed a resolution declaring thirty two percent (32%) property dividends amounting to ninety
million eighty thousand (90,080,000) shares of the Company. The notice of property dividend
declaration, which was payable to JOH‟s stockholders of record as of 15 December 2009, was
approved by the SEC on 28 January 2010. On 22 December 2009, a stockholder of JOH, Elgeete
Holdings, Inc., executed a deed of assignment of shares of the Company, equivalent to forty (40)
million shares, in favor of certain subsidiaries of JOH, namely OTY Development Corp., KGT
Ventures, Inc., Melan Properties Corp. and NGTO Resources Corp. On 02 December 2010, each of
A-net Resources Corp., Febra Resources Corp., Kenly Resources Corp., and Oltru Holdings Corp.
assigned to JOH three million three hundred twenty eight thousand (3,328,000) Shares of the
Company.

NON-INTEREST BEARING CASH ADVANCES BETWEEN JOH, ORDC, JOLLY
TING AND THE COMPANY

The Company and its subsidiaries have non-interest bearing cash advances with an affiliate, ORDC,
for investment and working capital purposes. The Company and its subsidiaries also have advances
from its major stockholders (JOH and Jolly L. Ting) and an affiliate (ORDC) for the acquisition of
operating machinery and equipment.

                                                            2010                              2009
Due from:
   Affiliates                                     PhP19,766,626                      PhP9,436,760
   Stockholders                                               -                         3,187,282
                                                  PhP19,766,626                     PhP12,624,042
Due to:
   Affiliates                                      PhP7,816,852                     PhP17,958,386
   Stockholders                                      13,678,239                         4,864,840
                                                  PhP21,495,091                     PhP22,823,226

INVESTMENT IN SUBSIDIARIES

On 31 March 2009, the Company acquired its ninety nine and 01/100 percent (99.61%) ownership
in Calapan Water amounting to eighty six million four hundred thousand seven hundred seventy
(86,400,770) shares as part of JOH‟s investment in the Company.



                                                                                               144
Prior regulatory or Congressional approval was not obtained as it was deemed by the Company and
Calapan Water to be unnecessary considering, among others, that Calapan Water continued to be
beneficially owned by JOH. CVI‟s annual report submitted to the House of Representatives on 18
February 2010 and the Senate of the Philippines on 22 February 2010 reflected the change in
ownership. Furthermore, the Senate Legal Counsel Office has opined that Calapan Water has not
violated its franchise, R.A. 9185. The opinion stated, among others, that “[s]ince [JOH] still holds
effective control over [Calapan Water] through [the Company], its subsidiary, we opine that it is not
the prohibitive transfer imposed by law. It must be emphasized that „control‟ is the possession,
directly or indirectly, of the power to direct or cause the direction of the management and policies of
the corporation.”

Dividends declared by Calapan Water in May 2009 amounted to Fourteen Million Two Hundred
Thousand Pesos (PhP14,200,000.00).

On 16 December 2009, Elgeete Holdings, Inc. assigned its ownership in Kristal Water to the
Company amounting to Two Hundred Forty Nine Thousand Nine Hundred Ninety Five Pesos
(PhP249,995.00) equal to two hundred forty nine thousand nine hundred ninety five (249,995)
shares. Also in 16 December 2009, Calapan Water and ORDC assigned their sixty seven percent
(67%) and thirty three percent (33%) ownership, respectively, in Tabuk Water to the Company
amounting to Six Million Seven Hundred Thousand Pesos (PhP6,700,000.00) and Three Million
Two Hundred Ninety Nine Thousand Nine Hundred Ninety Five Pesos (PhP3,299,995.00),
respectively.

Calapan Water

The details of the related party transactions of Calapan Water are as follows:

                                    2007              2008                2009               2010
Due from:
Stockholder                      PhP628,479.00     PhP968,223.00                    -                  -
Affiliate                          2,214,849.00      2,217,231.00     PhP9,436,925.00    PhP7,875,904.00
                                PhP2,843,328.00   PhP3,185,454.00     PhP9,436,925.00    PhP7,875,904.00
Due to:
Parent Company-CVI                            -                 -    PhP14,237,442.00   PhP14,237,442.00
Former parent company-JHC                     -                 -          858,340.00       1,431,000.00
Affiliates                       PhP794,523.00    PhP4,444,279.00        2,311,576.00       2,535,360.00
Stockholders                      34,005,074.00                 -        3,146,562.00       2,946,409.00
                               PhP34,799,597.00   PhP4,444,279.00    PhP20,553,920.00   PhP21,150,211.00


Calapan Water has the following transactions with related parties:

    a. Cash advances from ORDC and JOH used for the acquisition of operating machinery and
       equipment and for working capital requirements.
    b. Management and consultancy agreement with JGMI. The fee is a fixed amount plus a
       percentage of revenues which is a common practice for such services.



                                                                                                    145
   c. Lease of an office space from its affiliate (ORDC) for a period of one year, renewable upon
      mutual agreement by both parties. The fee was based on prevailing market rates for similar-
      type structures in the same vicinity.
   d. Assignment from JOH and an affiliate (ORDC) of their advances as payment of
      subscriptions payable to Calapan Water amounting to PhP17.3 million and PhP 18.78
      million, respectively.

Kristal Water

Kristal Water has non-interest bearing cash advances from ORDC for the purchase of equipment
that can be used for future operations. It also has non-interest bearing cash advances to Elgeete
Holdings, Inc. for the payment of advance rental and security deposit.

The following are the details of the outstanding balances with related parties:

                                   2007             2008              2009               2010
      Due from:
        Stockholders                       -                 -                  -     PhP187,500.00
      Due to:
       Affiliates            PhP5,958,219.39   PhP5,958,219.36   PhP11,845,942.00   PhP11,800,095.00
        Parent Company-CVI                 -                 -                  -         100,000.00
       Stockholders                        -                 -                  -          45,847.00
                             PhP5,958,219.39   PhP5,958,219.36   PhP11,845,942.00   PhP11,945,942.00


Tabuk Water

Tabuk Water has non-interest bearing and unsecured advances made to or received from
stockholders for investment and working capital requirements. Advances to stockholders amounted
to Nine Million Eight Hundred Eighty Seven Thousand Two Hundred Eighty Two Pesos
(PhP9,887,282.00) in 2010, 2009, 2008, and 2007, while advances from a related party amounted to
One Thousand One Hundred Pesos(PhP1,100.00) in 2010 and (Five Hundred Pesos (PhP500.00) in
2009.

CONTRACT    FOR  IMPROVEMENT/REHABILITATION/EXPANSION  OF
CALAPAN CITY WATERWORKS SYSTEM (PHASE I OF IMPLEMENTATION
PROGRAM) BETWEEN MENAKOR CORPORATION AND CALAPAN WATER

On 03 December 2007, Calapan Water entered into a contract with Menakor Corporation (as
contractor), a related party, for the improvement/ rehabilitation/ expansion of the Calapan
waterworks system for the amount of One Hundred Sixty Eight Million Four Hundred Sixty Seven
Thousand Two Hundred Eighty Four and 31/100 Pesos (PhP168,467,284.31). The contractor shall
be required to put warranty security in the form of cash deposit, bond or letter of credit (equivalent
to five percent (5%) of the total contract price), bank guarantee (equivalent to ten percent (10%) of
the total contract price) and surety bond (equivalent to thirty percent (30%) of the total contract
price).



                                                                                                       146
MANAGEMENT AND CONSULTANCY SERVICES AGREEMENTS

The Company, through its subsidiary, Calapan Water, entered into two (2) separate Management and
Consultancy Services Agreements on 19 February 2009 (with one (1) contract specifically pertaining
to the operations in Tabuk) with JGMI, a subsidiary of JOH. The Agreements had a term of one (1)
year, which is renewable upon mutual agreement of the parties, and which were in fact both renewed
on 24 March 2010 and 22 February 2011 covering the calendar years 2010 and 2011, respectively.

Under the Agreements, the subsidiary engaged JGMI to provide management and consultancy
services, such as the provision of general management services, human resource administration,
procurement and purchasing of inventories, formulation and administration of marketing and
promotion plans, and internal auditing services.

For the abovementioned services, JGMI charged the following fixed amounts as Management &
Consultancy Fees, plus twelve percent (12%) VAT:

                                                              2011            2010             2009
      Calapan Water                                       PhP100,000.00 and 10% of the actual gross sales
      Calapan Water (owner and operator of Tabuk Water)   PhP100,000.00 and 10% of the actual gross sales


CONTRACT OF LEASE

Calapan Water entered into a Contract of Lease with Jollibuild Corporation, wherein the former
leased a portion of a parcel of land with an approximate area of ten thousand (10,000) square
meters, located at Bayanan I, Calapan City, Oriental Mindoro, and evidenced by TCT No. T-148161.
The leased area, with an approximate area of two hundred (200) square meters, shall be used for
putting up wells.

The lease has a term of ten (10) years, from 06 August 2009 until 05 August 2019, which is
renewable on a yearly basis. The monthly rental is Twenty Thousand Pesos (PhP20,000.00).

DEED OF ASSIGNMENT OF REAL PROPERTY BY THE SPOUSES TING

On 22 February 2006, the Spouses Jolly and Lourdes Ting assigned one parcel of land located at
Bayanan I, Calapan City, Oriental Mindoro, which is covered by TCT No. T-55853, in favor of
Calapan Water. The land had an appraised value of Twenty Three Million Seven Hundred Fifty
Thousand Pesos (PhP23,750,000.00). The assignment was made as payment for the additional stock
subscriptions of the spouses in Calapan Water, amounting to twenty three million seven hundred
fifty thousand (23,750,000) shares.

DEED OF ASSIGNMENT OF REAL PROPERTY BY JOH

On 22 February 2006, JOH assigned two parcels of land located at Bayanan I, Calapan City, Oriental
Mindoro, which is covered by TCT Nos. T-88783 and T-88784, in favor of Calapan Water. The land
had the appraised value of Eleven Million Twenty One Thousand Four Hundred Twenty Five Pesos
(PhP11,021,425.00). The assignment was made as payment for new subscriptions of JOH in Calapan


                                                                                                            147
Water, which amounted to Eleven Million Twenty One Thousand Four Hundred Twenty Five
Pesos (PhP11,021,425.00).

REAL ESTATE MORTGAGE OF REAL PROPERTIES BY JOH AND SPOUSES TING

On 11 February 2006, Calapan Water, JOH and the spouses Jolly L. Ting and Lourdes G. Ting
mortgaged certain real properties in favor of DBP to secure a loan accommodation in the principal
amount of Ten Million Nine Hundred Four Thousand Three Hundred Ninety Six Pesos
(PhP10,904,396.00). In particular, JOH mortgaged parcels of land covered by TCT No. T-88783
and TCT No. T-88784, Registry of Deeds, Calapan, Oriental Mindoro, while the spouses Ting
mortgaged a parcel of land covered by TCT No. T-55853, Registry of Deeds Calapan, Oriental
Mindoro.

Except as disclosed in this Prospectus, there are no other transactions during the last two years, or
proposed transactions, involving the Company or any of its subsidiaries in which a director,
executive officer or stockholder owning 10.0% or more of the total outstanding shares and members
of the immediate family of such director, executive officer or stockholder had or is to have a direct
or indirect material interest.




                                                                                                 148
CORPORATE GOVERNANCE
On April 5, 2002, the SEC promulgated the Code of Corporate Governance (SEC Memorandum
Circular No. 2, Series of 2002, as revised by SEC Memorandum Circular No. 6, Series of 2009)
consistent with and in pursuit of the State‟s policy to promote corporate governance reforms aimed
at raising investor confidence, developing the capital market, and helping achieve high, sustained
growth for the corporate sector and the economy. This Code applies to all corporations whose
securities are registered or listed, corporations which are grantees of permits/licenses and secondary
franchise from the SEC. It also applies to public companies and branches or subsidiaries of foreign
corporations operating in the Philippines whose securities are registered or listed. Each of these
corporations is required to promulgate and adopt its corporate governance rules and principles.

The Code of Corporate Governance prescribes the detailed qualifications and disqualifications,
duties, functions and responsibilities of the Board of Directors and each member thereof, the
Chairman, the Chief Executive Officer, and the Corporate Secretary. It also mandates the creation
of specific board committees in aid of good corporate governance, to wit, an Audit and Compliance
Committee, a Nomination Committee and a Compensation or Remuneration Committee, and
requires the Board to commit itself to the protection of the rights of stockholders.

To fully comply with the adopted leading practices on good corporate governance, CVI has
prepared and executed its Corporate Governance Manual which is currently pending review and
evaluation by the SEC. The Company‟s Corporate Governance Manual provides for, among others,
the following:

        Appointment of a compliance officer, who shall hold the position of a Vice President or its
        equivalent, and have direct reporting responsibilities to the Chairman of the Board, and
        monitor compliance with the provisions and requirements of the Corporate Governance
        Manual, among other duties;
        Responsibilities, specific duties and functions of the Board of Directors, which includes
        ensuring that the Company complies with all relevant laws, regulations and codes of best
        business practices, adopting a system of internal checks and balances, and identify key risk
        areas and key performance indicators and monitor these factors with due diligence;
        Creation of Board Committees, such as the Audit Committee, the Nomination Committee
        and the Compensation and Remuneration Committee;
        Responsibilities, specific duties and functions of the Corporate Secretary, which includes
        assisting the Board of Directors in making business judgment in good faith and in the
        performance of their responsibilities and obligations and submitting to the SEC, at the end
        of every fiscal year, an annual certification as to the attendance of the directors during Board
        meetings;
        Qualifications of the Corporation‟s External Auditor and Internal Auditor;
        The conduct of a training process for the purpose of conducting an orientation program or
        workshop to operationalize the Corporate Governance Manual;
        Reportorial or disclosure system of the Corporation‟s corporate governance policies;
        Powers and rights of the shareholders, including the right to elect, remove and replace
        directors and vote on certain corporate acts in accordance with the Corporation Code, pre-

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       emptive rights, power to inspect corporate books and records, right to information, right to
       dividends, and appraisal right;
       Procedures for monitoring and assessing compliance with the Corporate Governance
       Manual; and
       Penalties for non-compliance with the Corporation‟s Corporate Governance Manual.

The Company has adopted the SEC‟s Corporate Governance Self-Rating Form as the basis for
measuring the level of compliance with its Manual on Corporate Governance. The 2009 Corporate
Governance Scorecard for Publicly-Listed Companies undertaken by the Institute of Corporate
Directors in collaboration with the SEC and the PSE was accomplished. This tool was used to find
out where the Company is in its corporate governance practices relative to the practices of others in
the economy, in the region, as well as “globally-regarded” good practices. Based on the results of its
assessment, the Company will gradually improve its corporate governance practices initially focusing
on the areas where it scored a poor rating.

In addition, the Company has undertaken the measures below, among others, to fully comply with
the adopted leading practices on good corporate governance:

   a. Appointment of Compliance Officer to monitor compliance with the Manual on Corporate
      Governance

   b. Adoption of Code of Conduct and Decorum for all directors, officers and employees

   c. Sworn Statement on compliance with policies on selective disclosure of material non-public
      information required annually from each director and officer

   d. Sworn Statement on attendance of each director in Board Meetings for the year

   e. Sworn Statement that the Company substantially adopted all the provisions of its Manual on
      Corporate Governance

   f. Attendance in seminars on Corporate Governance – All directors and key officers have
      attended a half-day seminar on Corporate Good Governance conducted by Philippine
      Institute of Certified Public Accountants

   g. Recorded minutes of the meetings of the Board of Directors and committees, i.e.
      Nomination, Audit, and Compensation and Remuneration

The Company plans to continue adopting the SEC and other reputable organization‟s
recommendations for improved corporate governance. As of the date of this prospectus, there are
no known material deviations to the Company‟s Corporate Governance Manual.




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PHILIPPINE FOREIGN INVESTMENT, FOREIGN OWNERSHIP
AND EXCHANGE CONTROLS
REGISTRATION OF FOREIGN INVESTMENTS AND EXCHANGE CONTROLS

BSP regulations require registration of investments in Philippine securities if the foreign exchange
needed to service the repatriation of capital and the remittance of dividends, profits, and earnings
that accrue on such investments will be sourced from the Philippine banking system. If the foreign
exchange required to service capital repatriation or dividend remittance will be sourced outside the
Philippine banking system, registration is not required. BSP Circular No. 471 (Series of 2005)
subjects foreign exchange dealers and money changers to Republic Act No. 9160 (the Anti–Money
Laundering Act of 2001, as amended) and requires these non-bank sources of foreign exchange to
require foreign exchange buyers to submit, among others, the original BSP registration document in
connection with their application to purchase foreign exchange for purposes of capital repatriation
and remittance of dividends. Registration of Philippine securities listed on the PSE may be done
with the BSP or through an investor‟s custodian bank which shall issue a registration document on
behalf of the BSP. A custodian bank may be any commercial bank or offshore banking unit in the
Philippines appointed by the investor to register the investment, hold shares for the investor, and
represent the investor in all necessary actions in connection with the investment in the Philippines.
Applications for registration must be accompanied by (i) purchase invoice or subscription agreement
and/or proof of listing on the PSE, (ii) credit advice or bank certificate showing the amount of
foreign currency inwardly remitted and converted to pesos through a commercial bank and (iii) in
certain instances, transfer instructions from the shareholder or dealer, as the case may be.

Upon registration of the investment, proceeds of divestments or dividends, the registered
investments may be repatriated or remitted immediately and in full through the Philippine banking
system, net of applicable taxes, without need of BSP approval. Remittance is allowed upon
presentation to the authorized agent bank of the BSP registration document, at the exchange rate
applicable on the date of the actual remittance. Pending repatriation or reinvestment, divestment
proceeds, as well as dividends of registered investments, may be lodged temporarily in interest-
bearing deposit accounts. Interest thereon, net of taxes, may also be remitted in full. Divestment
proceeds or dividends of registered investments may be reinvested in the Philippines if the
investments are registered with the BSP or the investor‟s custodian bank.

The Monetary Board of the BSP may, with the approval of the President of the Philippines,
temporarily suspend or restrict the sale of foreign exchange in the imminence of or during a foreign
exchange crisis, or in times of national emergency. Furthermore, there can be no assurance that BSP
foreign exchange regulations will not be made more restrictive in the future.

The registration with the BSP of all foreign investments in the Subject Shares shall be the
responsibility of the foreign investor.

RESTRICTION ON FOREIGN OWNERSHIP

The Company‟s subsidiaries, which are wholly owned by the Company, hold (or are authorized to
hold) water permits, or operate (or are authorized to operate public utilities. Further, a subsidiary of

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the Company owns and holds real estate. In this regard, the Company and its subsidiaries are subject
to a foreign nationality restriction of being at least 60.0% Filipino-owned with an allowable
maximum foreign ownership of 40.0%.

See section on Regulatory Framework on page 104 for further discussion.




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THE PHILIPPINE STOCK MARKET
THE PHILIPPINE STOCK MARKET

The information presented in this section has been extracted from publicly available documents which have not been
prepared or independently verified by the Company or its advisors in connection with the listing of the Subject Shares.

Brief History

The Philippines initially had two (2) stock exchanges, the Manila Stock Exchange, which was
organized in 1927, and the Makati Stock Exchange, which began operations in 1963. Each exchange
was self-regulating, governed by its respective Board of Directors elected annually by its members.

Several steps initiated by the government have resulted in the unification of the two (2) bourses into
the PSE. The PSE was incorporated in 1992 by officers of both the Makati and the Manila Stock
Exchanges. In March 1994, the licenses of the two (2) exchanges were revoked. While the PSE
maintains two trading floors, one in Makati City and the other in Pasig City, these floors are linked
by an automated trading system which integrates all bids and ask quotations from the bourses.

In June 1998, the SEC granted the PSE a Self-Regulatory Organization (“SRO”) status, allowing it
to impose rules as well as implement penalties on erring trading participants and listed companies.
On 08 August 2001, PSE completed its demutualization, converting from a non-stock member-
governed institution into a stock corporation in compliance with the requirements of SRC. The PSE
has an authorized capital stock, in compliance with the requirements of SRC, of Ninety Seven
Million Eight Hundred Thousand Pesos (PhP97,800,000), of which Thirty Million Seven Hundred
Four Thousand Three Hundred Seventy Pesos (PhP30,704,370) is subscribed and fully paid-up.
Each of the one hundred eighty-four (184) member-brokers was granted fifty thousand (50,000)
shares of the new PSE at a par value of One Peso (PhP1.00) per share. In addition, a trading right
evidenced by a “Trading Participant Certificate” was immediately conferred on each member broker
allowing the use of the PSE‟s trading facilities. As a result of the demutualization, the composition
of the PSE Board of Directors was changed, requiring the inclusion of seven (7) brokers and eight
(8) non-brokers, one of whom is the President. On 15 December 2003, the PSE listed its shares by
way of introduction at its own bourse as part of a series of reforms aimed at strengthening the
Philippines‟ securities industry.

Classified into financial, industrial, holding firms, property, services, mining and oil sectors,
companies are listed either on the PSE‟s First Board, Second Board or the newly created Small and
Medium Enterprises Board. Each index represents the numerical average of the prices of
component stocks. The PSE has an index, referred to as PHISIX, which as at the date hereof
reflects the price movements of thirty four (34) selected stocks listed on the PSE, based on trade
prices of stocks from the various sectors. The PSE shifted from full market capitalization to free
float market capitalization effective 3 April 2006 simultaneous with the migration to the free float
index and the naming of the PHISIX to PSEI. The new PSEI includes 30 selected stocks listed on
the PSE.

With the increasing calls for good governance, PSE has adopted an online daily disclosure system to
improve the transparency of listed companies and to protect the investing public.

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The table below sets forth movements in the composite index from 1995 to 2010, and shows the
number of listed companies, market capitalization, and value of shares traded for the same period:

Selected Stock Exchange Data
                                          Composite   Number of      Aggregate           Combined
                     Year                  Index at     Listed         Market             Value of
                                           Closing    Companies     Capitalization        Turnover
                                                                  (in PhP billions)   (in PhP billions)
     1995   …………………………                     2,594.2       205           1,545.7              379.0
     1996   …………………………                     3,170.6       216           2,121.1              668.9
     1997   …………………………                     1,869.2       221           1,261.3              588.0
     1998   …………………………                     1,968.8       221           1,373.7              408.7
     1999   …………………………                     2,142.9       226           1,938.6              713.9
     2000   …………………………                     1,494.5       230           2,577.6              357.6
     2001   …………………………                     1,168.1       232           2,142.6              159.5
     2002   …………………………                     1,018.4       234           2,083.2              159.7
     2003   …………………………                     1,442.4       236           2,973.8              145.4
     2004   …………………………                     1,822.8       236           4,766.2              206.6
     2005   …………………………                     2,096.0       237           5,948.4              383.5
     2006   …………………………                     2,982.5       240           7,172.8              572.6
     2007   …………………………                     3,261.6       244           7,978.5            1,338.3
     2008   …………………………                     1,872.8       246           4,069.2              763.9
     2009   …………………………                     3,052.68      248           6,029.1              994.2
     2010   …………………………                     4,201.14      253           8,866.1             1,096.5
Source: Philippine Stock Exchange, Inc.

TRADING

The PSE is a double auction market. Buyers and sellers are each represented by stockbrokers. To
trade, bids or ask prices are posted on the PSE‟s electronic trading system. A buy (or sell) order that
matches the lowest asked (or highest bid) price is automatically executed. Buy and sell orders
received by one broker at the same price are crossed at the PSE at the indicated price. Payment of
purchase of listed securities must be made by the buyer on or before the third trading day (the
settlement date) after the trade.

Trading on the PSE starts at 9:30 am and ends at 12:00 pm with a 10-minute extension during which
transactions may be conducted, provided that they are executed at the last traded price and are only
for the purpose of completing unfinished orders. Trading days are Monday to Friday, except legal
and special holidays.

Minimum trading lots range from 5 to 1,000,000 shares depending on the price range and nature of
the security traded. Odd-sized lots are traded by brokers on boards specifically designed for odd-lot
trading.

To maintain stability in the stock market, daily price swings are monitored and regulated. Under
current PSE regulations, when the price of a listed security moves up by 50% or down by 50% in

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one day (based on the last traded price), the price of the security is automatically frozen by the PSE,
unless there is an official statement from the company or a government agency, justifying such price
fluctuation, in which case the affected security can still be traded but only at the frozen price. If a
company fails to submit such explanation, a trading halt is imposed by the PSE on the listed security
the following day. Resumption of trading shall be allowed only when the disclosure of the company
is disseminated, subject again to the trading ban.

SETTLEMENT

The Securities Clearing Corporation of the Philippines (“SCCP”) is a wholly-owned subsidiary of the
PSE and was organized primarily as a clearance and settlement agency for SCCP-eligible trades
executed through the facilities of the PSE. It is responsible for (a) synchronizing the settlement
funds and the transfer of securities through delivery versus payment clearing and settlement of
transactions of Clearing Members, who are also Trading Participants of the Philippine SEC, (b)
guaranteeing the settlement of trades in the event of a Trading Participant‟s default through the
implementation of its Fails Management System and administration of the Clearing and Trade
Guaranty Fund and (c) performance of Risk Management and Monitoring to ensure final and
irrevocable settlement.

The SCCP settles PSE trades on a 3-day rolling settlement environment, which means that
settlement of trades takes place three (3) business days after transaction date (T + 3). The deadline
for settlement of trades is 12:00 noon of T+3. Securities sold should be in scripless form and lodged
under PDTC‟s book entry system. Each Trading Participant maintains a Cash Settlement Account
with one of the two existing Settlement Banks of SCCP which are Banco de Oro Unibank, Inc. and
Rizal Commercial Banking Corporation. Payment for securities bought should be in good, cleared
funds and should be final and irrevocable. Settlement is presently on a broker level.

The SCCP implemented its new clearing and settlement system called Central Clearing and
Settlement System (“CCSS”) on 29 May 2006. CCSS employs multilateral netting whereby the
system automatically offsets “buy” and “sell” transactions on a per issue and per flag basis to arrive
at a net receipt or a net delivery security position for each Clearing Member. All cash debits and
credits are also netted into a single net cash position for each Clearing Member. Novation of the
original PSE trade contract occurs, and SCCP stands between the original trading parties and
becomes the Central Counterparty to each PSE-Eligible trade cleared through it.

SCRIPLESS TRADING

In 1995, the PDTC (formerly the Philippine Central Depository, Inc.) was organized to establish a
central depository in the Philippines and introduce scripless or book-entry trading in the Philippines.
On 16 December 1996, the PDTC was granted a provisional license by the SEC to act as a central
securities depository. All listed securities with the PSE have been converted into book-entry
settlement in the PDTC. The depository service of the PDTC provides the infrastructure for
lodgment and upliftment of securities, pledge of securities, securities lending and borrowing and
corporate action including shareholders‟ meetings, dividend declarations and rights offerings. The
PDTC also provides depository for non-PSE trades of listed equity securities. For transactions on
the PSE, the security element of the trade will be settled through the book-entry system, while the
cash element will be settled through the current banks, Rizal Commercial Banking Corporation and
Banco de Oro Unibank, Inc.
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In order to benefit from the book-entry system, securities must be immobilized into the PDTC
system through a process called lodgment. Lodgment is the process by which shareholders transfer
legal title (but not beneficial title) over their shares of stock in favor of the PCD Nominee, a
corporation wholly-owned by the PDTC whose sole purpose is to act as nominee and legal title
holder of shares of stock lodged into the PDTC. “Immobilization” is the process by which the
warrant or share certificates of lodging holders are cancelled by the transfer agent and the
corresponding transfer of beneficial ownership of the immobilized shares in the account of PCNC
through the PDTC participant will be recorded in the Issuer‟s registry. This trust arrangement
between the participants and PDTC, through the PCD Nominee, is established by and explained in
the PDTC Rules and Operating Procedures approved by the SEC. No consideration is paid for the
transfer of legal title to the PCD Nominee. Once lodged, transfers of legal title of the securities are
accomplished via book-entry settlement. Under the current PDTC system, only participants (e.g.
brokers and custodians) will be recognized by the PDTC as the beneficial owners of the lodged
equity securities. All lodgments, trades and uplifts on these shares will have to be coursed through a
participant. Ownership and transfers of beneficial interests in the shares will be reflected with
respect to the participant‟s aggregate holdings, in the PDTC system, and with respect to each
beneficial owner‟s holdings, in the records of the participants. Beneficial owners are, thus, advised
that in order to exercise their rights as beneficial owners of the lodged shares, they must rely on their
participant-brokers and/or participant-custodian.

Any beneficial owner of shares who wishes to trade his interests in the shares must course the trade
through a participant. The participant can execute PSE trades and non-PSE trades of lodged equity
securities through the PDTC system. All matched transactions on the PSE trading system will be fed
through the SCCP and into the PDTC system. Once it is determined on settlement date (trading
date plus the trading days) that there are adequate securities in the securities settlement account of
the participant-seller and adequate cash or an appropriate bank limit in the system cash account of
the participant-buyer, the PSE trades are automatically settled in the PDTC system, in accordance
with the PDTC Rules and Operating Procedures. Once settled, the beneficial ownership of securities
is transferred from the participant-seller to the participant-buyer without the physical transfer of
stocks certificate covering the traded securities.

If a shareholder wishes to withdraw his stockholdings from the PDTC system, the PDTC has a
procedure of upliftment under which the PCD Nominee will transfer back to the shareholder the
legal title to the shares lodged. The uplifting shareholder shall follow the Rules and Operating
Procedures of the PDTC for the upliftment of shares lodged under the name of PCD Nominee.
The transfer agent shall prepare and send a Registry Confirmation Advice to the PDTC covering the
new number of shares lodged under PCD Nominee. The expenses for upliftment are for the
account of the uplifting shareholder.

As earlier discussed, the SCCP launched its CCSS in May 2006. Under this system, the current
securities in the Philippines are composed of a depository and a registry system wherein listed shares
are traded and settled as book-entry shares. The difference between the depository and the registry
would be on the recording of ownership of the shares in the issuing corporations‟ books.

In the depository set-up, shares are simply immobilized, wherein customers‟ certificates are cancelled
and a confirmation advice is issued in the name of PCD Nominee Corp. to confirm new balances of
the shares lodged with the PDTC . Transfers among/between broker and/or custodian accounts, as
the case may be, will only be made within the book-entry system of PDTC. However, as far as the
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issuing corporation is concerned, the underlying certificates are in the nominee‟s name. In the
registry set-up, settlement and recording of ownership of traded securities will already be directly
made in the corresponding issuing company‟s transfer agents‟ books or system. Likewise, recording
will already be at the beneficiary level (whether it be a client or a registered custodian holding
securities for its clients), thereby removing from the broker its current “de facto” custodianship role.

The option of whether a listed security should be “housed” in the depository or registry is at the
issuer‟s discretion. The migration from the depository to the registry model aims to eliminate the
legal and operational risk brought about by a depository infrastructure. Likewise, the migration is
expected to strengthen measures to protect public investors/shareholders and decrease transactions
costs resulting from additional layers in the settlement process. The move will also prepare the
infrastructure for a complete name-on registry system.

The PSE and the SCCP expect a natural migration to the registry model, with system and cost
efficiency as the catalyst, and the market itself initiating the move. Once the CCSS is in place,
custodians holding Philippine listed equity securities will have the following options:

   Stay with the depositary for all its securities, whereby PDTC acts as their implied “Custodian”.
   For shares under the PDTC, custodians are direct PDTC account holders with the shares still
   recorded in the PCD Nominee‟s name as far as the corporation/transfer agent is concerned; for
   shares under the registry, the custodian appears to be a “client” under “PCD”, such that shares
   are recognized or recorded with PCD as the master/controlling account.

   Be a system participant of the SCCP wherein the CCSS would offer to the custodians the
   interface to both the depositary and registry systems. In this option, for shares under the PDTC,
   custodians will still have the option to maintain their own accounts in the PDTC or have an
   omnibus account together with the broker accounts in the PDTC as shares are accounted for or
   segregated per account holder in the CCSS. This simplifies the custodian‟s interface into only
   one connectivity for both the depositary and the registry systems; for shares under the registry
   system, the custodian will have its own master account, having the control over its own account.
   In the registry scenario, custodians are already recognized as the beneficiary holder of the
   securities on behalf of its clients. The custodian effectively is given a direct relationship with the
   issuing company wherein it receives the annual reports, dividends, and other communications
   and information directly. Prospectively, when the custodian is accredited as an indirect clearing
   member of the SCCP, straight-through processing of trades or settlement can already be done
   directly with the custodian or with its client.

ISSUANCE OF CERTIFICATED SHARES

On or after the listing of the shares on the PSE, any beneficial owner of the shares may apply to
PDTC, through his broker or custodian-participant, for a withdrawal from the book-entry system
and return to the conventional paper-based settlement. If a shareholder wishes to withdraw his
stockholdings from the PDTC System, the PDTC has a procedure of upliftment under which the
PCD Nominee will transfer back to the shareholder the legal title to the shares lodged by
surrendering the PCD Nominee certificate to a transfer agent which then issues a new stock
certificate in the name of the uplifting shareholder and a new PCD Nominee certificate for the


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balance of the lodged shares. The expenses for upliftment are for the account of the uplifting
shareholder.

Upon the issuance of certificated shares in the name of the person applying for upliftment, such
shares shall be deemed to be withdrawn from the PDTC book-entry settlement system, and trading
on such shares will follow the normal process for settlement of certificated securities. The expenses
for upliftment of beneficial ownership in the shares to certificated securities will be charged to the
person applying for upliftment. Pending completion of the upliftment process, the beneficial interest
in the shares covered by the application for upliftment is frozen and no trading and book-entry
settlement will be permitted until certificated shares shall have been issued by the relevant
company‟s transfer agent.

AMENDED RULE ON LODGMENT OF SECURITIES

On 24 June 2009, the PSE apprised all listed companies and market participants through
Memorandum No. 2009-0320 that commencing on 01 July 2009, as a condition for the listing and
trading of the securities of an applicant company, the applicant company shall electronically lodge its
registered securities with the PDTC or any other entity duly authorized by the SEC, without any
jumbo or mother certificate in compliance with the requirements of Section 43 of the SRC. In
compliance with the foregoing requirement, actual listing and trading of securities on the scheduled
listing date shall take effect only after submission by the applicant company of the documentary
requirements stated in Article III, Part A of the Revised Listing Rules.

Further, the PSE apprised all listed companies and market participants on May 21, 2010 through
Memorandum No. 2010-0246 that the Amended Rule on Lodgment of Securities under Section 16
of Article III, Part A of the Revised Listing Rules of the Exchange shall apply to all securities that
are lodged with the PDTC or any other entity duly authorized by the Philippine SEC.

For listing applications, the amended rule on lodgment of securities is applicable to:

   a. The offer shares/securities of the applicant company in the case of an initial public offering;
   b. The shares/securities that are lodged with the PDTC, or any other entity duly authorized by
      the Philippine SEC in the case of a listing by way of introduction;
   c. New securities to be offered and applied for listing by an existing listed company; and
   d. Additional listing of securities of an existing listed company.

Pursuant to the amendment, the PDTC issued an implementing procedure in support thereof. For
new companies to be listed at the PSE as of 01 July 2009, the usual procedure will be observed but
the transfer agent of the companies shall no longer issue a certificate to the PCD Nominee
Corporation but shall issue a Registry Confirmation Advice, which shall be the basis for the PDTC
to credit the holdings of the Depository Participants on the listing date.

On the other hand, for existing listed companies, the PDTC shall wait for the advice of the transfer
agents that they are ready to accept surrender of the jumbo certificates and, upon such advice, the
PDTC shall surrender all the jumbo certificates to the transfer agents for cancellation. The transfer
agents shall issue a Registry Confirmation Advice to PCD Nominee evidencing the total number of
shares registered in the name of PCD Nominee in the Issuer‟s registry as of confirmation date.


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TAXATION
The following is a general description of certain Philippine tax aspects of the investment in the Company. This
discussion is based upon laws, regulations, rulings, income tax conventions, treaties, administrative practices and
judicial decisions in effect at the date of this Prospectus. Subsequent legislative, judicial or administrative changes or
interpretations may be retroactive and could affect the tax consequences to the prospective investor.

The tax treatment of a prospective investor may vary depending on such investor’s particular situation and certain
investors may be subject to special rules not discussed below. This summary does not purport to address all tax aspects
that may be important to an investor.

This general description does not purport to be a comprehensive description of the Philippine tax aspects of the
investment in the Subject Shares and no information is provided regarding the tax aspects of acquiring, owning,
holding or disposing of the Subject Shares under applicable tax laws of other applicable jurisdictions and the specific
Philippine tax consequence in light of particular situations of acquiring, owning, holding and disposing of the Subject
Shares in such other jurisdictions.

EACH PROSPECTIVE INVESTOR SHOULD CONSULT HIS OWN TAX ADVISER AS
TO THE PARTICULAR TAX CONSEQUENCES OF THE ACQUISITION,
OWNERSHIP AND DISPOSITION OF THE SUBJECT SHARES, INCLUDING THE
APPLICABILITY AND EFFECT OF LOCAL AND NATIONAL TAX LAWS.

As used in this Section, the term “resident alien” refers to an individual whose residence is within
the Philippines and who is not a citizen thereof.

A “non-resident alien” is an individual whose residence is not within the Philippines and who is not
a citizen thereof. A non-resident alien who is actually within the Philippines for an aggregate period
of more than 180 days during any calendar year is considered a non-resident alien engaged in trade
or business in the Philippines; otherwise, such non-resident alien who is actually within the
Philippines for an aggregate period of 180 days or less during any calendar year is considered a non-
resident alien not engaged in trade or business in the Philippines.

A “domestic corporation” is a corporation created or organized under the laws of the Philippines;
while a “foreign corporation” is one which is not domestic.

A “resident foreign corporation” is a foreign corporation engaged in trade or business in the
Philippines; and a “non-resident foreign corporation” is a foreign corporation not engaged in trade
or business in the Philippines.

INDIVIDUAL INCOME TAX

A resident citizen is taxed on income from all sources within and without the Philippines (other than
certain passive income and capital gains which are subject to final taxes) at progressive rates ranging
from five percent (5%) to thirty two percent (32%) of net taxable income. A resident alien, non-
resident citizen or non-resident alien engaged in trade or business in the Philippines is generally
subject to an income tax in the same manner and at the same progressive tax rates on taxable



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income from all sources within the Philippines (other than certain passive income and capital gains
which are subject to final taxes).

A non-resident alien not engaged in trade or business in the Philippines is taxed on gross income
from Philippine sources such as interest, cash and/or property dividends, rents, salaries, wages,
premiums, annuities, compensation, remuneration, emoluments, or other fixed or determinable
annual or periodic or casual gains, profits, and income, and capital gains (other than capital gains
from the sale of shares of stock in a domestic corporation and real property) at the rate of twenty
five percent (25%) withheld at source.

A "non-resident citizen" is a citizen of the Philippines who (i) establishes to the satisfaction of the
Commissioner of Internal Revenue the fact of his physical presence abroad with a definite intention
to reside therein, or (ii) leaves the Philippines during the taxable year to reside abroad, either as an
immigrant or for employment on a permanent basis, or (iii) works and derives income from abroad
and whose employment thereat requires him to be physically present abroad most of the time during
the taxable year. A citizen of the Philippines who has been previously considered as a non-resident
citizen and who arrives in the Philippines at any time during the taxable year to reside permanently
in the Philippines shall likewise be treated as a non-resident citizen for the taxable year in which he
arrives in the Philippines with respect to his income derived from sources abroad until the date of
his arrival in the Philippines.

CORPORATE INCOME TAX

Beginning 2009, a domestic corporation is subject to a tax of thirty percent (30%) on its taxable
income (gross income less allowable deductions) from all sources within and outside the Philippines
except, those items of income that are subject to final withholding tax, such as: (a) gross interest
income from Philippine currency bank deposits and yield from deposit substitutes, trust funds and
similar arrangements as well as royalties from sources within the Philippines which are generally
taxed at the lower final withholding tax rate of twenty percent (20%) of the gross amount of such
income; (b) interest income from depository bank under the expanded foreign currency deposit
system which is subject to a final tax at the rate of seven and 50/100 percent (7.50%) of such
income; (c) net capital gains from the sale, exchange or other disposition of shares of stock in a
domestic corporation not traded in the stock exchange; and (d) capital gains presumed to have been
realized on the sale, exchange or disposition of lands and/or buildings which are treated as capital
assets.

A resident foreign corporation (except certain types of corporations enumerated in the Tax Code) is
subject to a tax of thirty percent (30%) of its taxable income (gross income less allowable
deductions) from all sources within the Philippines except those items of income that are subject to
final withholding tax, such as: (a) gross interest income from Philippine currency bank deposits and
yield or any other monetary benefit from deposit substitutes, trust funds, and similar arrangements
as well as royalties from sources within the Philippines that are generally taxed at the lower final
withholding tax rate of twenty percent (20%) of the gross amount of such income; (b) interest
income from a depository bank under the expanded foreign currency deposit system that is subject
to a final tax at the rate of 7.50% of such income; and (c) net capital gains from the sale, exchange or
other disposition of shares of stock in a domestic corporation not traded in the stock exchange.



                                                                                                    160
A minimum corporate income tax of two percent (2%) on gross income as of the end of the taxable
year is imposed on domestic corporations and resident foreign corporations beginning on the fourth
taxable year immediately following the year in which such corporation commenced its business
operations, when the minimum corporate income tax is greater than the ordinary income tax for the
taxable year.

Nevertheless, any excess of the minimum corporate income tax over the ordinary corporate income
tax shall be carried forward and credited against the latter for the three (3) immediately succeeding
taxable years. Further, subject to certain conditions, the minimum corporate income tax may be
suspended with respect to a corporation which suffers losses on account of prolonged labor dispute,
or because of force majeure, or because of legitimate business reverses.

The President of the Philippines may, upon the recommendation of the Secretary of Finance and
upon the occurrence of certain macroeconomic conditions, allow domestic and resident foreign
corporations the option to be taxed on a gross basis at the rate of fifteen percent (15%). This
authority has not been exercised to date.

A final withholding tax of 30% is imposed, as a general rule, upon the gross income received during
each taxable year of a non-resident foreign corporation from all sources within the Philippines,
subject to the provisions of tax treaties between the Philippines and the country of residence of such
foreign corporation.

TAX ON DIVIDENDS

Cash and property dividends received from a domestic corporation by individual shareholders who
are either citizens or residents of the Philippines are subject to income tax at the rate of ten percent
(10%). Cash and property dividends received by non-resident alien individuals engaged in trade or
business in the Philippines from a domestic corporation are subject to a twenty percent (20%) tax
on the gross amount thereof, while cash and property dividends received by non-resident alien
individuals not engaged in trade or business in the Philippines from a domestic corporation are
subject to tax at twenty five percent (25%) of the gross amount, subject, however, to the applicable
preferential tax rates under tax treaties executed between the Philippines and the country of
residence or domicile of such non-resident foreign individuals.

Cash and property dividends received from a domestic corporation by another domestic corporation
or by resident foreign corporations are not subject to tax while those received by non-resident
foreign corporations (i.e., foreign corporations not engaged in trade or business in the Philippines)
are subject to tax at the rate of thirty percent (30%) effective 01 January 2009.

The thirty percent (30%) rate for dividends paid to a non-resident foreign corporation may be
reduced depending on the country of residence of such foreign corporation if it has an existing tax
treaty with the Philippines. A country with a tax treaty may have a reduced preferential tax rate
depending on the provisions of the corresponding tax treaties. The thirty percent (30%) rate may be
reduced to fifteen percent (15%) if (i) the country in which the non-resident foreign corporation is
domiciled imposes no tax on foreign-sourced dividends or (ii) the country of domicile of the non-
resident foreign corporation allows a credit against the tax due from the non-resident foreign
corporation, for taxes deemed to have been paid in the Philippines equivalent to fifteen percent


                                                                                                    161
(15%) beginning on 01 January 2009, which represents the difference between the regular income
tax of thirty percent (30%) and the fifteen percent (15%) tax on dividends.

Stock dividends distributed pro-rata to any holder of shares of stock are not subject to Philippine
income tax. However, the sale, exchange or disposition of shares received as stock dividends by the
holder is subject to the capital gains or stock transaction tax.

Philippine tax authorities have prescribed certain procedures, through an administrative issuance, for
availment of tax treaty relief. Subject to the approval by the BIR of the recipient‟s application for tax
treaty relief, the Company shall withhold taxes at a reduced rate on dividends to be paid to a non--
resident holder, if such non-resident holder provides the Company with proof of residence and, if
applicable, individual or corporate status. Proof of residence for an individual consists of
certification from his embassy, consulate, or other equivalent certifications issued by the proper
government authority, or any other official document proving residence. If the regular tax rate is
withheld by the Company instead of the reduced rates applicable under a treaty, the non-resident
holder of the shares may file a claim for refund from the BIR. The refund process in the Philippines
requires the filing of an administrative claim with the tax authorities and the submission of
supporting information, and may also involve the filing of a judicial appeal.

SALE, EXCHANGE OR DISPOSITION OF SHARES

Capital Gains Tax

Net capital gains realized by a resident or non-resident other than a dealer in securities during each
taxable year from the sale, exchange or disposition of shares of stock outside the facilities of the
PSE, unless an applicable treaty exempts such gains from tax or provides for preferential rates, are
subject to tax as follows:

             Not over P100,000.00                                       Five percent (5%)
        Amount in excess of P100,000.00                                 Ten percent (10%)

The rate of tax is the same for both individual and corporation regardless of nationality and
domicile.

Gains from the sale or disposition of shares in a Philippine corporation may be exempt from capital
gains tax or subject to a preferential rate under a tax treaty as noted above.

The transfer of shares shall not be recorded in the books of the Company unless the BIR certifies
that capital gains tax and documentary stamp tax (“DST”) relating to the transfer have been paid or
other conditions to qualify for exemption or reduction in tax rate have been met.

Taxes on Transfer of Shares Listed and Traded at the Philippine Stock Exchange

A sale or other disposition of shares of stock through the facilities of the PSE by a resident or a
non-resident holder, other than a dealer in securities, is subject to a stock transaction tax at the rate
of 0.50% of the gross selling price or gross value in money of the shares of stock sold or otherwise
disposed, unless an applicable treaty exempts such sale from the stock transaction tax. This tax shall


                                                                                                     162
be paid by the selling stockbroker on behalf of its client. The stock transaction tax is classified as a
percentage tax and is paid in lieu of capital gains tax.

In addition, a VAT of twelve percent (12%) is imposed on the commission earned by the PSE-
registered broker.

Documentary Stamp Tax

The original issue of shares of stock is subject to DST of One Peso (PhP1.00) for each Two
Hundred Pesos (PhP200.00) par value or a fraction thereof, of the shares of stock issued. On the
other hand, the sale, transfer or other disposition of shares of stock (including the re-issuance of
previously redeemed shares of stock) is subject to a DST of 75/100 Pesos (PhP0.75) for each Two
Hundred Pesos (PhP200.00) par value or a fractional part thereof of the shares sold, transferred or
otherwise disposed of.

However, for a period of five (5) years from 20 March 2004, the sale, barter or exchange of shares of
stock listed and traded at the PSE shall be exempt from DST. On 30 June 2009, President Arroyo
signed Republic Act No. 9648 or “An Act Exempting from Documentary Stamp Tax any Sale,
Barter or Exchange of Shares of Stock Listed and Traded through the Stock Exchange, Further
Amending For The Purpose Section 199 of The National Internal Revenue Code of 1997, as
Amended by Republic Act No. 9243, and For Other Purposes” which permanently exempts the
sale, barter or exchange of shares of stock listed and traded through the local stock exchange from
the payment of DST. The application of this exemption was made retroactive to 20 March 2009.

In addition, the borrowing and lending of securities which will be executed under the securities
borrowing and lending program to be implemented by a registered exchange, or which are in
accordance with regulations prescribed by the appropriate regulatory authority, will likewise be
exempt from DST. However, the securities borrowing and lending agreement should be duly
covered by a master securities borrowing and lending agreement acceptable to the appropriate
regulatory authority, and should be duly registered and approved by the BIR. Otherwise, such
agreement would be subject to DST. Otherwise, such agreement would be subject to the
documentary stamp tax on debt instruments at the rate of One Peso (PhP1.00) on each Two
Hundred Pesos (PhP200.00) or the fractional part thereof of the issue price of such debt instrument.

Tax on Initial Public Offering

A sale or other disposition through IPO of shares of stock in closely held corporations as defined in
the Tax Code is subject to a tax based on the gross selling price or gross value in money of the
shares of stock sold or disposed. The tax rates applicable are graduated and dependent upon the
proportion of shares of stock sold or disposed of to the total outstanding shares of stock after the
listing on the PSE. These tax rates are presented below:

              Percentage of Stocks Sold to Outstanding
                                                                             Rate
                            Capital Stock
              Up to 25.00%                                          Four percent (4%)
              Over 25.00% but not over 33 & 1/3%                    Two percent (2%)
              Over 33 & 1/3%                                        One percent (1%)


                                                                                                    163
The Tax Code defines a “closely-held corporation” to mean either: (a) a corporation at least fifty
percent (50%) in value of the outstanding capital stock; or (b) a corporation at least fifty percent
(50%) of the total combined voting power of all classes of stock entitled to vote, is owned directly or
indirectly by or for not more than twenty (20) individuals, to be determined based on certain rules.
The person liable for the payment of the tax is either the issuing corporation in a primary offering or
the selling stockholder in a secondary offering.

Estate and Gift Taxes

The transfer of shares of stock of a Philippine corporation upon the death of an individual holder to
his heirs by way of succession, whether such holder was a citizen of the Philippines or an alien,
regardless of residence, is subject to Philippine taxes at progressive rates ranging from five percent
(5%) to twenty percent (20%), if the net estate is over Two Hundred Thousand Pesos
(PhP200,000.00). Individual and corporate holders, whether or not citizens or residents of the
Philippines, who transfer shares of stock by way of gift or donation are liable to pay Philippine
donors‟ tax on such transfer of shares ranging from two percent (2%) to fifteen percent (15%) of
the net gifts during the year exceeding One Hundred Thousand Pesos (PhP100,000.00). The rate of
tax with respect to net gifts made to a stranger (i.e., one who is not a brother, sister, spouse,
ancestor, lineal descendant or relative by consanguinity within the fourth degree of relationship) is a
flat rate of thirty percent (30%).

Estate and donors‟ taxes, however, shall not be collected in respect of intangible personal property,
such as shares of stock: (a) if the decedent at the time of his death or the donor at the time of the
donation was a citizen and resident of a foreign country which at the time of his death or donation
did not impose a transfer tax of any character, in respect of intangible personal property of citizens
of the Philippines not residing in that foreign country, or (b) if the laws of the foreign country of
which the decedent or donor was a citizen and resident at the time of his death or donation allows a
similar exemption from transfer or death taxes of every character or description in respect of
intangible personal property owned by citizens of the Philippines not residing in that foreign
country.

TAXATION OUTSIDE THE PHILIPPINES

Shares of stock in a domestic corporation are considered under Philippine law as situated in the
Philippines and the gain derived from their sale is entirely from Philippine sources; hence, such gain
is subject to Philippine income tax and capital gains tax and the transfer of such shares by gift
(donation) or succession is subject to the donors‟ or estate taxes stated above. Sales or other
dispositions of shares of stock in a domestic corporation through the facilities of the PSE by a
resident or a non-resident holder, other than a dealer in securities, are, however, subject to a stock
transaction tax at the rate of 0.50% of the gross selling price or gross value in money of the shares of
stock sold or otherwise disposed, unless an applicable treaty exempts such sale from the stock
transaction tax.

The tax treatment of a non-resident holder of shares of stock in jurisdictions outside the Philippines
may vary depending on the tax laws applicable to such holder by reason of domicile or business
activities and such holder‟s particular situation. This Prospectus does not discuss the tax
consideration on non-resident holders of shares of stock under laws other than those of the
Philippines. Each prospective holder should consult his own tax adviser as to the particular tax

                                                                                                    164
consequences to such holder of purchasing, owning and disposing of the Subject Shares, including
the applicability and effect of any state, local and national laws.




                                                                                            165
FINANCIAL STATEMENTS
 1.   Reviewed Consolidated Financial Statements of Calapan Ventures, Inc. for the six months
      ended June 30, 2011
 2.   Audited Consolidated Financial Statements of Calapan Ventures, Inc. for the years ended
      December 31, 2010 and 2009
 3.   Pro Forma Consolidated Financial Statements of Calapan Ventures, Inc. for the years ended
      December 31, 2009, 2008 and 2007




                                                                                           166
                                                                              Constantino Guadalquiver & Co.
                                                                                    Certified Public Accountants

                                                                                        15th Floor Citibank Tower
                                                                                      8741 Paseo de Roxas Street
                                                                          Salcedo Village, Makati City, Philippines
                                                                                     Telephone (+632) 848-1051
                                                                                            Fax (+632) 728-1014
                                                                               E-mail address:mail@cgco.com.ph




REPORT ON REVIEW OF UNAUDITED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS



The Stockholders and Board of Directors
Calapan Ventures, Inc. and Subsidiaries
4th Floor 20 Lansbergh Place Bldg.
170 Tomas Morato, Quezon City



We have reviewed the accompanying interim consolidated financial statements of Calapan Ventures,
Inc. and Subsidiaries, comprising of the interim consolidated statement of financial position as at
June 30, 2011, and the related interim consolidated statements of comprehensive income, interim
consolidated statements of changes in equity and interim consolidated statements of cash flows for the
six months ended June 30, 2011 and 2010, and notes, comprising a summary of significant accounting
policies and other explanatory information. Management is responsible for the preparation and fair
presentation of these interim consolidated financial statements in accordance with Philippine Financial
Reporting Standards. Our responsibility is to express a conclusion on these interim consolidated financial
statements based on our review.

Scope of Review

We conducted our review in accordance with Philippine Standards on Review Engagements 2410,
“Review of Interim Financial Information Performed by the Independent Auditor of the Entity”. A review
of interim financial statements consists of making inquiries, primarily of persons responsible for financial
and accounting matters, and applying analytical and other review procedures. A review is substantially
less in scope than an audit conducted in accordance with Philippine Standards on Auditing and
consequently does not enable us to obtain assurance that we would become aware of all significant
matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
                                                  –2–




Basis for Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the
accompanying interim consolidated financial statements does not present fairly, in all material respects,
the financial position of Calapan Ventures, Inc. and Subsidiaries as at June 30, 2011, and their financial
performance and cash flows for the six months ended June 30, 2011 and 2010 in accordance with
Philippine Financial Reporting Standards.

We have audited the December 31, 2010 consolidated statement of financial position, presented for
comparative purposes, in accordance with Philippine Standards on Auditing, on which we expressed
an unqualified opinion in our report dated February 14, 2011.


CONSTANTINO GUADALQUIVER & CO.


By:




ROGELIO M. GUADALQUIVER
Partner
CPA Certificate No. 13608
PTR No. 2667245, January 5, 2011, Makati City
TIN 123-305-015
SEC Accreditation No. (Partner) 0017-AR-1
SEC Accreditation No. (Firm) 003-FR-1

August 2, 2011
CALAPAN VENTURES, INC. AND SUBSIDIARIES
(Formerly Calapan Equity Ventures, Inc.)
REVIEWED INTERIM CONSOLIDATED STATEMENT OF FINANCIAL POSITION
JUNE 30, 2011
WITH COMPARATIVE FIGURES AS OF DECEMBER 31, 2010
(Amounts in Philippine Pesos)



                                                                                   June 30,       December 31,
                                                                                      2011                2010
                                                                   Notes        (Reviewed)            (Audited)

ASSETS

Current Assets
Cash and cash equivalents                                             4     P    27,005,507   P     15,750,872
Receivables – net                                                     5          20,935,518         12,788,165
Due from related parties                                             13          26,890,964         19,766,626
Prepayments and other current assets                                  6           4,687,456          3,089,937
   Total Current Assets                                                          79,519,445         51,395,600

Noncurrent Assets
Available-for-sale investment                                         7           1,166,272          1,166,272
Investment properties                                                 8          61,133,000         61,133,000
Property and equipment – net                                          9         275,064,846        271,689,410
Deferred tax assets                                                  17           1,978,815          1,826,867
Other noncurrent assets                                              10          12,538,797         12,538,797
   Total Noncurrent Assets                                                      351,881,730        348,354,346

                                                                            P   431,401,175   P    399,749,946


LIABILITIES AND EQUITY

Current Liabilities
Accounts payable and accrued expenses                                11     P    95,354,955   P     77,780,396
Current portion of loan payable                                      12           8,013,747          8,013,747
Due to related parties                                               13          22,422,178         21,495,091
Retirement benefit obligation                                        14           3,249,926          3,042,992
Income tax payable                                                                5,014,009          3,952,585
    Total Current Liabilities                                                   134,054,815        114,284,811

Noncurrent Liabilities
Noncurrent portion of loan payable                                   12          84,144,483         88,151,363
Customers' deposits                                                               7,292,115          7,124,715
Deferred tax liabilities                                             17          11,341,953         10,209,736
   Total Noncurrent Liabilities                                                 102,778,551        105,485,814

Equity                                                               22
Attributable to Equity Holders of Parent Company
Capital stock                                                                   120,000,000        120,000,000
Revaluation surplus in land - net of deferred taxes                   9           9,438,247          9,438,247
Unrealized gain on available-for-sale investment                      7             165,624            165,624
Retained earnings                                                                64,250,891         49,720,686
                                                                                193,854,762        179,324,557

Noncontrolling interest                                                            713,047             654,764

                                                                            P   431,401,175   P    399,749,946

See accompanying Notes to Reviewed Interim Consolidated Financial Statements.
CALAPAN VENTURES, INC. AND SUBSIDIARIES
(Formerly Calapan Equity Ventures, Inc.)
REVIEWED INTERIM CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 2011 AND 2010
(Amounts in Philippine Pesos)




                                                                   Notes             2011             2010

REVENUES
Water service                                                               P   60,066,393   P   39,947,283
Sales                                                                           13,212,009       12,874,337
Others                                                                             304,222           28,781
                                                                                73,582,624       52,850,401

COST OF SALES AND SERVICES                                           15         35,131,445       32,814,527

GROSS PROFIT                                                                    38,451,179       20,035,874

OPERATING EXPENSES                                                   16         18,119,146       12,366,568

PROFIT FROM OPERATIONS                                                          20,332,033        7,669,306

OTHER INCOME (CHARGES) – Net
Interest income                                                      4            538,456           166,759
Change in fair value of investment property                          8                  –        14,359,000
Financial charges                                                                       –            (9,530)
                                                                                  538,456        14,516,229

PROFIT BEFORE INCOME TAX EXPENSE                                                20,870,489       22,185,535

INCOME TAX EXPENSE                                                   17
Current                                                                          5,301,732        1,132,664
Deferred                                                                           980,269        1,193,749
                                                                                 6,282,001        2,326,413

NET PROFIT                                                                  P   14,588,488   P   19,859,122

NET PROFIT ATTRIBUTABLE TO:
Equity holders of the parent                                                P   14,530,205   P   19,781,307
Noncontrolling interest                                                             58,283           77,815
                                                                            P   14,588,488   P   19,859,122

BASIC/DILUTED EARNINGS PER SHARE                                     19     P      0.1211    P      0.1648

See accompanying Notes to Reviewed Interim Consolidated Financial Statements.
CALAPAN VENTURES, INC. AND SUBSIDIARIES
(Formerly Calapan Equity Ventures, Inc.)
REVIEWED INTERIM CONSOLIDATED STATEMENTS OF
CHANGES IN EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 2011 AND 2010
(Amounts in Philippine Pesos)




                                                               Notes                    2011                       2010

CAPITAL STOCK - P1 par value                                      1
  Authorized - 200,000,000 shares*
  Issued - 120,000,000 shares*                                           P      120,000,000         P   120,000,000

REVALUATION SURPLUS IN LAND                                       9               9,438,247                9,438,247

UNREALIZED GAIN ON
  AVAILABLE-FOR-SALE INVESTMENT                                   7                 165,624                           –

RETAINED EARNINGS
   Balance at beginning of period                                                49,720,686               19,240,170
   Net profit during the period                                                  14,530,205               19,781,307
   Balance at end of period                                                      64,250,891               39,021,477

NONCONTROLLING INTEREST
  Balance at beginning of period                                                    654,764                   535,189
  Share in net profit during the period                                              58,283                    77,815
  Balance at end of period                                                          713,047                   613,004

                                                                         P      194,567,809         P   169,072,728

See accompanying Notes to Reviewed Interim Consolidated Financial Statements.


*There was no movement in the Parent Company's authorized and issued capital stock as of June 31, 2011 and 2010.
CALAPAN VENTURES, INC. AND SUBSIDIARIES
(Formerly Calapan Equity Ventures, Inc.)
REVIEWED INTERIM CONSOLIDATED STATEMENTS OF
CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2011 AND 2010
(Amounts in Philippine Pesos)



                                                      Notes             2011               2010

CASH FLOWS FROM OPERATING ACTIVITIES
Profit before income tax expense                              P   20,870,489     P   22,185,535
Adjustments for:
    Depreciation                                        9          3,479,008           2,819,996
    Interest income                                     4           (538,456)           (166,759)
    Provision for retirement                           14            206,934             205,261
    Change in fair value of investment property         8                  –         (14,359,000)
    Financial charges                                                      –              91,230
Operating profit before working capital changes                   24,017,975          10,776,263
Change in operating assets and liabilities
  Increase in:
    Receivables                                                    (8,147,353)        (1,349,110)
    Prepayments and other current assets                           (1,597,519)        (1,668,307)
  Increase (decrease) in:
    Accounts payable and accrued expenses                         18,285,901          9,280,470
    Customers' deposit                                               167,400            207,400
    Retirement benefit obligation                                          –            (65,833)
Cash generated from operations                                    32,726,404         17,180,883
Interest and financial charges paid                               (4,485,398)        (4,393,682)
Income taxes paid                                                 (4,240,308)        (2,733,451)
Interest received                                                    538,456            166,759
Net cash provided by operating activities                         24,539,154         10,220,509

CASH FLOWS FROM INVESTING ACTIVITIES
Decrease (increase) in:
   Due from related parties                                        (7,124,338)         2,316,997
   Other noncurrent assets                                                  –          1,070,399
Acquisitions of property and equipment                             (3,080,388)       (38,501,296)
Net cash used in investing activities                             (10,204,726)       (35,113,900)

CASH FLOWS FROM FINANCING ACTIVITIES
Payment of loan                                                    (4,006,880)       (3,710,686)
Increase (decrease) in due to related parties                         927,087        (4,867,168)
Proceeds from loan availment                                                –        17,199,757
Net cash provided by (used in) financing activities                (3,079,793)        8,621,903

(Forward)
                                                          -2-




(Carryforward)

                                                                                     2011                  2010

NET INCREASE (DECREASE) IN
  CASH AND CASH EQUIVALENTS                                               P     11,254,635   P       (16,271,488)

CASH AND CASH EQUIVALENTS
   AT BEGINNING OF PERIOD                                                       15,750,872           39,044,845

CASH AND CASH EQUIVALENTS
   AT END OF PERIOD                                                 4     P     27,005,507       P   22,773,357

See accompanying Notes to Reviewed Interim Consolidated Financial Statements.
CALAPAN VENTURES, INC. AND SUBSIDIARIES
(Formerly Calapan Equity Ventures, Inc.)
NOTES TO REVIEWED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in Philippine Pesos)




1.   Corporate Information

     Calapan Ventures, Inc. (“CVI” or “the Parent Company” formerly Calapan Equity Ventures,
     Inc.) was incorporated in the Philippines and was registered with the Securities and Exchange
     Commission (SEC) on January 30, 2009.

     The reviewed interim consolidated financial statements include the accounts of the Parent
     Company and the following subsidiaries:

                                                                                    Percentage of
      Name of Subsidiary                                    Date Incorporated          Ownership
      Calapan Waterworks Corporation (CWC)                      May 23, 1991               99.61
      Tabuk Water Corp. (Tabuk Water)*                       August 14, 2006              100.00
      Kristal Water Source Corp. (Kristal Water)*               May 11, 2007              100.00
     * preoperating stage

     On July 8, 2009, Jolliville Holdings Corporation (JOH), a stockholder of the Parent Company,
     passed a resolution declaring 32% property dividends corresponding to 90,080,000 shares of
     the Parent Company. The declaration was approved by JOH’s stockholders during the annual
     stockholders’ meeting on August 18, 2009. On January 28, 2010, the SEC approved the notice
                                                                      P
     of property dividend declaration of JOH amounting to =90,080,000 payable to JOH’s
     stockholders of record as of December 15, 2009. Subsequently on December 22, 2009, a
     stockholder of JOH executed a deed of assignment of shares of stocks of the Parent Company
     equivalent to 40 million shares in favor of certain subsidiaries of JOH.

     On December 16, 2009, Elgeete Holdings, Inc. assigned its 100% ownership in Kristal Water to
                                                P
     the Parent Company amounting to =250,000 equal to 250,000 shares.                  Also, on
     December 16, 2009, CWC and Ormina Realty and Development Corporation (ORDC) assigned
     their 67% and 33% ownership, respectively, in Tabuk Water to the Parent Company amounting
        P                P
     to =6.7 million and =3.3 million, respectively.

     The Parent Company was incorporated primarily to engage in, operate, conduct and maintain
     the business of trading, processing, assembling, manufacturing, and/or fabricating and
     exporting, importing, buying, acquiring, holding, or otherwise disposing of and dealing in
     goods, wares, supplies, materials, articles, merchandise, commodities, equipment, hardware,
     appliances, minerals, metals, timber, lumber and real and personal properties of every kind,
     class and description, whether natural or artificial which may become articles of commerce.
     The principal activities of the subsidiaries are as follows:

      Name of subsidiary    Principal activity

      CWC                   Operates, manages and maintains the general business of
                            development and utilization of water resources to harness, produce
                            and supply water for domestic, municipal, agricultural, industrial,
                            commercial or recreational purposes.
                                                -2-



      Name of subsidiary    Principal activity
      Tabuk Water           Will engage in the operation, management and maintenance of
                            development and utilization of water resources. Also, will acquire,
                            own, lease, construct, install, equip, operate, manage and maintain
                            plants.
      Kristal Water         Will engage in the operation, management and maintenance of
                            development and utilization of water resources. Also, will acquire,
                            own, lease, construct, install, equip, operate, manage and maintain
                            plants as well as operation of ice planting and distribution and sale of
                            ice.

     On October 23, 2002, the 12th Congress of the Republic of the Philippines enacted Republic Act
     No. 9185 whereby CWC was granted a franchise to construct, install, operate, and maintain for
     commercial purposes and in the public interest, a water supply and sewerage system for the
     purpose of distributing water for sale and for sanitation in the City of Calapan, province of
     Oriental Mindoro. The franchise is for a period of 25 years from the date of enactment. The
     act took effect on February 9, 2003.

     CWC was also granted a certificate of public convenience by the National Water Resources
     Board (NWRB) on December 18, 2002 and will expire on January 17, 2013.

     The Parent Company started commercial operations when JOH assigned to CVI its shares in
     CWC on March 31, 2009.

     The registered address of the Parent Company is at 4th Floor 20 Lansbergh Place Bldg., 170
     Tomas Morato, Quezon City.

     The accompanying reviewed interim consolidated financial statements as of and for the six
     months ended June 30, 2011 were approved by the Board of Directors (BOD) for issue on
     August 2, 2011.



2.   Summary of Significant Accounting and Financial Reporting Policies

     The principal accounting policies adopted in preparing the consolidated financial statements of
     the Parent Company and its subsidiaries (the Group) are as follows:

     Basis of Preparation of Financial Statements
     The accompanying interim consolidated financial statements have been prepared on the
     historical cost basis except for certain properties which is measured at revalued amount.
     These interim consolidated financial statements are presented in Philippine Pesos, which is the
     Group’s functional and presentation currency under the Philippine Financial Reporting
     Standards (PFRS). All values are rounded to the nearest peso, except when otherwise
     indicated.

     Statement of Compliance
     The accompanying interim consolidated financial statements of the Group have been prepared
     in compliance with Philippine Financial Reporting Standards (PFRS).
                                            -3-




Basis of Consolidation
The interim consolidated financial statements include the accounts of the Parent Company and
subsidiaries. Subsidiaries are consolidated from the date on which control is transferred to the
Parent Company and cease to be consolidated from the date on which control is transferred out
of the Parent Company. The results of subsidiaries acquired or disposed of during the year are
included in the consolidated statements of comprehensive income from the effective date of
acquisition or up to the effective date of disposal, as appropriate. All significant intercompany
accounts, transactions, and income and expenses and losses are eliminated upon consolidation.

Where necessary, adjustments are made to the financial statements of subsidiaries to bring
their accounting policies in line with those used by other members of the Group.

Noncontrolling interests in the net assets of consolidated subsidiaries are identified separately
from the Group’s equity therein. Noncontrolling interests consist of the amount of those
interests at the date of the original business combination and the minority’s share of changes
in equity since the date of the combination. Losses applicable to the minority in excess of the
minority’s interest in the subsidiary’s equity are allocated against the interest of the Parent
Company except to the extent that the minority has a binding obligation and is able to make an
additional investment to cover losses.

Disposals of equity investments to noncontrolling interests result in gains and losses for the
Group are recorded in the consolidated statement of comprehensive income. Purchase of
equity shares from noncontrolling interests results in goodwill, being the difference between
any consideration paid and the relevant share acquired in the fair value of the net identifiable
assets of the subsidiary.

Changes in Accounting Policies
The accounting policies adopted are consistent with those of the previous financial year except
for the adoption of the amendment to PAS and PFRS and interpretations issued by FRSC, which
became effective on or before January 1, 2011 as follows:

Effective in 2011
   Amendment to PAS 24, Related Party Disclosures, clarifies the definition of a related party
    to simplify the identification of such relationships and to eliminate inconsistencies in its
    application.   The revised standard introduces a partial exemption of disclosure
    requirements for government-related entities.

   Amendment to PAS 32, Financial Instruments: Presentation - Classification of Rights
    Issues, amends the definition of a financial liability in order to classify rights issues (and
    certain options or warrants) as equity instruments in cases where such rights are given
    pro-rata to all of the existing owners of the same class of an entity’s non-derivative equity
    instruments, or to acquire a fixed number of the entity’s own equity instruments for a fixed
    amount in any currency.

   Amendment to Philippine Interpretation IFRIC 14, Prepayments of a Minimum Funding
    Requirement, provides guidance on assessing the recoverable amount of a net pension
    asset. The amendment permits an entity to treat the prepayment of a minimum funding
    requirement as an asset.
                                            -4-




   Philippine Interpretation IFRIC 19, Extinguishing Financial Liabilities with Equity
    Instruments, clarifies that equity instruments issued to a creditor to extinguish a financial
    liability qualify as consideration paid. The equity instruments issued are measured at their
    fair value. In case that this cannot be reliably measured, the instruments are measured at
    the fair value of the liability extinguished. Any gain or loss is recognized immediately in
    the statement of comprehensive income.

The above amendments have no material impact on the Group’s financial statements.

Improvements to Existing Standards
The omnibus amendments to PFRS issued in 2010 were issued primarily with a view to removing
inconsistencies and clarifying wording. The amendments are effective for annual periods
beginning January 1, 2011, except when otherwise stated. The Group has not yet adopted the
following improvements and anticipates that these changes will have no material effect on the
financial statements.

   PFRS 3, Business Combinations
   PFRS 7, Financial Instruments: Disclosures
   PAS 1, Presentation of Financial Statements
   PAS 27, Consolidated and Separate Financial Statements
   Philippine Interpretation IFRIC 13, Customer Loyalty Programmes

Future Changes in Accounting Policies
The Group did not early adopt the following standard and Philippine Interpretation that have
been approved but are not yet effective:

Effective in 2012

   Philippine Interpretation IFRIC 15, Agreements for the Construction of Real Estate

Effective in 2013

   PFRS 9, Financial Instruments

The Group is currently assessing the relevance and impact of the above standards, amendment
to standards and interpretations.     The revised disclosures on the consolidated financial
statements required by the above standard and interpretation will be included in the Group’s
consolidated financial statements when these are adopted.

Revenue and Cost Recognition
Revenue is recognized when it is probable that the economic benefit associated with the
transactions will flow to the Group and the amount can be reliably measured. The following
specific recognition criteria must also be met before revenue is recognized:

   Water service revenues are recognized when the related services are rendered.

   Sales are recognized upon delivery of goods sold, and the transfer of risks and rewards to
    the customer has been completed.
                                              -5-



   Interest income is recognized on a time proportion basis that reflects the effective yield on
    the asset.

   Other income is recorded when the related income is earned.

Cost of services and expenses are recognized in the consolidated statement of comprehensive
income upon utilization of the service or at the date they are incurred. Except for borrowing
costs attributable to qualifying assets, all finance costs are recognized in the consolidated
statement of comprehensive income.

Financial Assets and Liabilities
Financial assets and liabilities are recognized initially at fair value. Transaction costs are
included in the initial measurement of all financial assets and liabilities, except for financial
instruments measured at fair value through profit and loss (FVPL). Fair value is determined by
preference to the transaction price or other market prices. If such market prices are not
reliably determinable, the fair value of the consideration is estimated as the sum of all future
cash payments or receipts, discounted using the prevailing market rates of interest for a similar
instruments with similar maturities.

The Group recognizes a financial asset or liability in the consolidated statement of financial
position when it becomes a party to the contractual provisions of the instrument. A financial
liability (or a part of a financial liability) is derecognized when the obligation is extinguished. In
the case of a regular purchase or sale of financial assets, recognition and derecognition, as
applicable, is done using settlement date accounting.

Financial assets are classified into the following categories: financial assets at FVPL, loans and
receivables, held-to-maturity investments and available-for-sale financial assets, as
appropriate. Financial liabilities are classified into the following categories: financial liabilities
at FVPL and other financial liabilities.       The Group determines the classification at initial
recognition and, where allowance is appropriate, re-evaluates this designation at every
reporting date. As of June 30, 2011 and December 31, 2010, the Group has financial assets
and liabilities under loans and receivables, available-for-sale and other financial liabilities.

   Loans and Receivables
    Loans and receivables are non-derivative financial assets with fixed or determinable
    payments and are not quoted in an active market. They arise when the Group provides
    money, goods or services directly to a debtor with no intention of trading the receivables.
    Such assets are carried at cost or amortized cost in the consolidated statement of financial
    position. Amortization is determined using the effective interest method. Loans and
    receivables are included in current assets if maturity is within 12 months from the end of
    financial reporting period. Otherwise, these are classified as noncurrent assets.

    This category includes cash and cash equivalents, receivables, due from related parties and
    special bank deposits included under Other noncurrent assets (see Notes 4, 5, 10 and 13).

   Available-for-sale financial assets (AFS)
    AFS financial assets are those non-derivative financial assets that are designated as AFS or
    are not classified in any of the three preceding categories. After initial recognition, AFS
    financial assets are measured at fair value with gains or losses being recognized as
    separate component of stockholders’ equity 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 consolidated statement of comprehensive
    income.
                                              -6-




    The fair value of investments that are actively traded in organized financial market is
    determined by reference to quoted market bid prices at the close of business on the end of
    each financial reporting period. For investments where there is no active market, fair value
    is determined using valuation techniques. Such techniques include recent arm’s length
    market transaction; reference to the current market value of another instrument which is
    substantially the same; discounted cash flows analysis and option pricing models.

    This category includes investment in mutual fund managed by an insurance company
    (see Note 7).

   Other Financial Liabilities
    Other financial liabilities pertain to liabilities that are not held for trading or not designated
    as at FVPL upon inception of the liability. A financial liability at FVPL is acquired principally
    for the purpose of repurchasing in the near term or upon initial recognition, it is designated
    by management as at FVPL.

    Other financial liabilities are initially recorded at fair value less directly attributable
    transaction costs. After initial recognition, other financial liabilities are subsequently
    measured at amortized cost using effective interest method. These include liabilities arising
    from operations and borrowings.

    This category includes accounts payable and accrued expenses, loan payable, due to
    related parties and customers’ deposits (see Notes 11, 12 and 13).

Impairment of Financial Assets
The Group assesses at each end of financial reporting period whether a financial asset or group
of financial assets is impaired.

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 asset’s carrying amount and the present value of estimated future cash flows
(excluding future credit losses that have not been incurred) discounted at the financial asset’s
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 use of an
allowance account. The amount of the loss shall be recognized in the Group’s consolidated
statements of comprehensive income.

The Group first assesses whether objective evidence of impairment exists individually for
financial assets that are individually significant, and individually or collectively for financial
assets that are not individually significant. If it is determined that no objective evidence of
impairment exists for an individually assessed financial asset, whether significant or not, the
asset is included in a group of financial assets with similar credit risk characteristics and that
group of financial asset is collectively assessed for impairment. Assets that are individually
assessed for impairment and for which an impairment loss is or continues to be recognized are
not included in a collective assessment of impairment.

If, in a subsequent period, the amount of the impairment loss decrease can be related
objectively to an event occurring after the impairment was recognized, the previously
recognized impairment loss is reversed. Any subsequent reversal of an impairment loss is
recognized in the consolidated statement of comprehensive income to the extent that the
carrying value of the asset does not exceed its amortized cost at the reversal date.
                                            -7-




AFS Financial Asset
If an AFS financial asset is impaired, an amount comprising the difference between its cost (net
of any principal payment and amortization) and its current fair value, less any impairment loss
previously recognized in the consolidated statement of comprehensive income, is transferred
from consolidated statement of equity to the consolidated statement of comprehensive income.
Reversals in respect of equity instruments classified as AFS financial assets are not recognized
in the consolidated statement of comprehensive income. For AFS financial assets, the Group
assesses at each reporting date whether there is objective evidence that an investment or a
group of investments is impaired. In the case of equity investments classified as AFS financial
assets, objective evidence would include a significant or prolonged decline in the fair value of
the investment below its cost. Where there is evidence of impairment, the cumulative loss,
measured as the difference between the acquisition cost and the current fair value, less any
impairment loss on that investment is removed from consolidated statement of equity and
recognized in the consolidated statement of comprehensive income. Impairment losses on
equity investments are not reversed through the consolidated statement of comprehensive
income; increases in their fair value after impairment are recognized directly in consolidated
statement of changes in equity.

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 its 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 asset’s
carrying amount and the present value of estimated future cash flows discounted at the current
market rate of return for a similar financial asset.

Derecognition of Financial Assets and Liabilities
Financial assets
A financial asset is derecognized when (1) the rights to receive cash flows from the financial
instruments expire, (2) the Group retains the right to receive cash flows from the asset, but
has assumed an obligation to pay them in full without material delay to a third party under a
“pass-through” arrangement, or (3) the Group has transferred its rights 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 Group has transferred its rights to receive cash flows from an asset or has entered
into a pass-through arrangement and has neither transferred nor retained substantially all the
risks and rewards of an asset nor transferred control of the assets, the asset is recognized to
the extent of the Group’s continuing involvement in the asset. Continuing involvement that
takes the form of a guarantee over the transferred asset is measured at the lower of the
original carrying amount of the asset and the maximum amount of consideration that the
Group could be required to repay.

Financial Liabilities
A financial liability is derecognized when the obligation under the liability is discharged,
cancelled or expired. Where the 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 consolidated statement of comprehensive income.
                                             -8-




Offsetting Financial Instruments
Financial assets and financial liabilities are offset and the net amount is reported in the
consolidated statement of financial position 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
consolidated statement of financial position.

Merchandise Inventory
Merchandise inventory is valued at lower of cost or net realizable value. Cost is determined by
the first-in, first-out (FIFO) method. Net realizable value is the selling price in the ordinary
course of business, less costs of marketing and distribution.

Prepayments and Other Current Assets
Prepayments are expenses paid in advance and recorded as asset before they are utilized. This
account comprises the following:

   Input Tax. Input tax is recognized when an entity in the Group purchases goods or
    services from a Value Added Tax (VAT)-registered supplier. This account is offset, on a per
    entity basis, against any output tax previously recognized.

   Prepaid Rent and Other Expenses. Prepaid rent and other expenses are apportioned over
    the period covered by the payment and charged to the appropriate account in the
    consolidated statement of comprehensive income when incurred.

   Creditable Withholding Tax. Creditable withholding tax is deducted from income tax
    payable in the same year the revenue was recognized.

Prepayments and other assets that are expected to be realized for no more than 12 months
after the reporting period are classified as current assets. Otherwise, these are classified as
other noncurrent assets.

Investment Properties
Investment properties, which are properties held to earn rentals and/or for capital appreciation,
is carried at fair value at end of financial reporting period. Gains or losses arising from changes
in the fair value of investment properties are included in profit or loss for the period in which
they arise.

A company-occupied property classified under property and equipment account becomes an
investment property when it ends company-occupation. Decrease in the carrying amount is
recognized in consolidated statement of comprehensive income. However, to the extent that
an amount is included in its revaluation surplus, the decrease is charged against that
revaluation surplus. Increase in carrying amount is recognized in consolidated statement of
comprehensive income to the extent that the increase reverses a previous impairment loss for
such property. The amount recognized in consolidated statement of comprehensive income
does not exceed the amount needed to restore the carrying amount that would have been
determined (net of depreciation) had no impairment loss been recognized. Any remaining part
of the increase is credited directly to equity in revaluation surplus. Revaluation surplus
included in equity maybe transferred to accumulated profits. The transfer from revaluation
surplus to accumulated profits is not made through profit or loss.
                                               -9-




Investment property is derecognized on disposal, or when the investment property is
permanently withdrawn from use and no future economic benefit is expected from its disposal.
Any gains or losses on the retirement or disposal of an investment property are recognized in
the consolidated statement of comprehensive income in the year of retirement or disposal.

Where there is clear evidence that the fair value of an investment property is not reliably
determinable on a continuing basis, the cost model under PAS 16 “Property, Plant and
Equipment”, shall be used.

The Group’s investment properties consist of parcels of land located in Calapan, Oriental
Mindoro.

Property and Equipment
Land is carried at appraised values as determined by an independent firm of appraisers on
December 22, 2009. The net appraisal increment resulting from the revaluation was credited
to the “Revaluation Surplus” account shown under “Equity” section in the consolidated
statement of financial position and in the consolidated statement of changes in equity. Any
appraisal decrease is first offset against appraisal increment on earlier revaluation with respect
to the same property and equipment and is thereafter charged to operations. Other property
and equipment are carried at cost less accumulated depreciation, amortization and any
allowance for impairment in value except for land.

Initial cost of property and equipment comprises its construction cost or purchase price and
any directly attributable cost of bringing the assets to its working condition and location for its
intended use. Expenses incurred and paid after the property and equipment have been put
into operation, such as repairs and maintenance and overhaul costs, are normally charged to
consolidated statements of comprehensive income when the costs are incurred. In situation
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 and
equipment beyond its originally assessed standard of performance, the expenditures are
capitalized as an additional cost of property and equipment.

Depreciation is computed using the straight-line method over the following estimated useful
lives:

                                                                          Years
     Land improvements                                                       20
     Water utilities and distribution system                             5 – 50
     Office furniture and equipment                                           5
     Service vehicles                                                         5
     Staffhouse, warehouse and office                                         5

The useful life and depreciation methods are reviewed periodically to ensure that the method
and period of depreciation are consistent with the expected pattern of economic benefits from
items of property and equipment.

Construction in progress and equipment for installation, included in the property and
equipment, is stated at cost. This includes cost of construction, equipments and other direct
costs. Construction in progress and equipment for installation is not depreciated until such
time as the relevant assets are completed or installed and put into operational use.
                                             - 10 -




When assets are retired or otherwise disposed of, the cost and related accumulated
depreciation are eliminated from the accounts, and any gain or loss resulting from their
disposal is credited or charged to current operations.

Goodwill
Goodwill arising from the acquisition of a subsidiary or a jointly controlled entity represents the
excess of the cost of acquisition over the Group’s interest in the net fair value of the identifiable
assets, liabilities and contingent liabilities of the subsidiary or jointly controlled entity
recognized at the date of acquisition. Goodwill is initially recognized as an asset at cost and is
subsequently measured at cost less any accumulated impairment losses. Goodwill is reviewed
for impairment annually or more frequently, if events of changes in circumstances indicate that
the carrying value may be impaired. An impairment loss recognized for goodwill is not
reversed in a subsequent period. Negative goodwill, which is the excess of net fair value of
subsidiaries’ identifiable assets, liabilities and contingent liabilities over the cost of business
combination, is immediately recognized as income.

On disposal of a subsidiary or a jointly controlled entity, the attributable amount of goodwill is
included in the determination of the profit or loss on disposal.

Impairment of Non-financial Assets
The carrying values of long-lived assets are reviewed for impairment when events or changes
in circumstances indicate that the carrying values may not be recoverable. If any such
indication exists and where the carrying values exceed the estimated recoverable amounts, the
assets or cash-generating units are written down to their recoverable amounts.              The
recoverable amount of the asset is the greater of net selling price and value in use. The net
selling price is the amount obtainable from the sale of an asset in an arm’s length transaction
less cost to sell. In assessing value in use, the estimated future cash flows are discounted to
their present value using a pre-tax discount rate that reflects current market assessment of the
time value of money and the risks specific to the asset. For an asset that does not generate
largely independent cash inflows, the recoverable amount is determined for the smallest cash-
generating unit to which the asset belongs.         Impairment losses are recognized in the
consolidated statement of comprehensive income in the period in which it arises unless the
asset is carried at a revalued amount in which case the impairment is charged to the
revaluation surplus of the said asset.

A previously recognized impairment loss is reversed only if there has been a change in the
estimates used to determine the recoverable amount of an asset, however, not to an amount
higher than the carrying amount that would have been determined (net of any depreciation and
amortization) had no impairment loss been recognized for the asset in prior years.

A reversal of an impairment loss is credited to current operations.

Equity
Capital stock is determined using the nominal value of shares that have been issued.

Revaluation surplus accounts for the excess of the fair market value over the carrying amounts
of Land included under the Property and equipment account. Any appraisal decrease is first
offset against appraisal increment on earlier revaluation with respect to the same property and
equipment and is thereafter charged to operations.
                                            - 11 -




Net unrealized gain on available-for-sale investment accounts for the excess of the fair market
value over the carrying amounts of these investments. When fluctuation is deemed
permanent, the gain or loss resulting from such fluctuation will be reversed and charged to
consolidated statement of comprehensive income in the year that the permanent fluctuation is
determined.

Retained earnings include all current and prior period net profit as disclosed in the consolidated
statement of comprehensive income.

Retirement Benefits Costs
The Group’s retirement cost is actuarially determined using the projected unit credit method.
This method reflects service rendered by employees up to the date of valuation and
incorporates assumptions concerning employees’ projected salaries. Actuarial valuations are
conducted with sufficient regularity with option to accelerate when significant changes to
underlying assumptions occur. Retirement expense includes current service cost, interest cost
and amortization of unrecognized past service cost and recognition of actuarial gains or losses.

The current service cost is a level annual amount or a fixed percentage of salary which, when
invested at the rate of interest assumed in the actuarial valuation, is sufficient to provide the
required retirement benefit at the employee’s retirement.

Past service cost is the present value of the excess of the projected retirement benefits over
the amount expected to be provided by future contributions based on the service cost. Past
service cost is recognized immediately to the extent that the benefits are already vested, and
otherwise is amortized on a straight-line basis over the average period until the benefits
become vested.

Actuarial gains and losses that exceed 10% of the greater of the present value of the Group’s
defined benefit obligation and the fair value of plan assets are amortized over the expected
average remaining working lives of the participating employees.

The retirement benefit obligation recognized in the consolidated statement of financial position
represents the present value of the defined benefit obligation as adjusted for unrecognized
actuarial gains and losses and unrecognized past service cost, and as reduced by the fair value
of plan assets, if any. Any assets resulting from this calculation is limited to unrecognized
actuarial losses and past service costs, plus the present value of available refunds and
reductions in future contributions to the plan.

Related Party Transactions
Transactions between related parties are based on terms similar to those offered to non-related
parties. Parties are considered to be related if one party has the ability, directly or indirectly,
to control the other party or exercise significant influence over the other party in making
financial and operating decisions and the parties are subject to common control or common
significant influence. Related parties may be individuals or corporate entities.

Borrowing Costs
Borrowing costs incurred during the construction period on loans and advances used to finance
construction and property development are capitalized as part of construction and development
costs included under “Property and equipment” account in the consolidated statements of
financial position.
                                             - 12 -




Capitalization of borrowing costs commences when the activities to prepare the asset are in
progress and expenditures and borrowing costs are being incurred. Capitalization of borrowing
costs ceases when substantially all the activities necessary to prepare the asset for its intended
use are complete. If the carrying amount of the asset exceeds its recoverable amount, an
impairment loss is recorded. Capitalized borrowing cost is based on applicable weighted
average borrowing rate.

All other borrowing costs are charged to operation in the period in which they are incurred.

Leases
Leases are classified as finance leases whenever the term of the lease transfer substantially all
the risks and rewards of ownership to the lessee. All other leases are classified as operating
leases.

Rental expenses under operating leases are charged to profit or loss on a straight-line basis
over the term of the lease.

The Group determines whether an arrangement is, or contains a lease based on the substance
of the arrangement. It makes an assessment of whether the fulfillment of the arrangement is
dependent on the use of a specific asset or assets and the arrangement conveys a right to use
the asset.

Income Taxes
Income taxes represent the sum of the tax currently due and deferred tax.

The tax currently due is based on taxable income for the year. Taxable income differs from
income as reported in the consolidated statements of comprehensive income because it
excludes items of income or expenses that are taxable or deductible in other years and it
further excludes items that are never taxable or deductible. The Group’s liability for current
income tax is calculated using tax rates that have been enacted or substantively enacted at the
end of financial reporting period.

Deferred tax is provided, using the liability method, on all temporary differences at the end of
financial reporting period between the tax bases of assets and liabilities and their carrying
amounts for financial reporting purposes and carryforward benefits of net operating loss
carryover (NOLCO) and minimum corporate income tax (MCIT). Deferred tax assets are
recognized for all deductible temporary differences to the extent that it is probable that taxable
profit will be available against which the deductible temporary difference can be utilized.
Deferred tax liabilities are recognized for all taxable temporary differences. Deferred tax
assets and liabilities are measured using the tax rate that is expected to apply to the period
when the asset is realized or the liability is settled.

The carrying amount of deferred tax assets is reviewed at each end of financial reporting period
and reduced to the extent that it is not probable that sufficient taxable profit will be available to
allow all or part of the deferred income tax assets to be utilized.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset
current tax assets against current tax liabilities.

Income tax relating to items recognized directly in equity is recognized in consolidated
statement of changes in equity and not in the consolidated statement of comprehensive
income.
                                           - 13 -




Segment reporting
For management purposes, the Group is organized into two major operating businesses which
comprise the bases on which the Group reports its primary segment information. Financial
information on business segments is presented in Note 3.

The Group has no geographical segments as all of the companies primarily operate only in the
Philippines.

Inter-segment assets, liabilities, revenue, expenses and results are eliminated in the
consolidated financial statements.

Earnings per Share (EPS)
EPS is determined by dividing net income for the year by the weighted average number of
shares outstanding during the year including fully paid but unissued shares as of the end of the
year, adjusted for any subsequent stock dividends declared.

Provisions
Provisions are recognized only when the following conditions are met: a) there exists a present
obligation (legal or constructive) as a result of past event; b) it is probable (i.e. more likely
than not) that an outflow of resources embodying economic benefits will be required to settle
the obligation; and, c) reliable estimate can be made of the amount of the obligation.
Provisions are reviewed at each end of financial reporting period and adjusted to reflect the
current best estimate.

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

Events after the End of Financial Reporting Period
Post year-end events that provide additional information about the Group’s position at the end
of financial reporting period (adjusting events) are reflected in the Group’s consolidated
financial statements. Post year-end events that are non-adjusting events are disclosed in the
notes to consolidated financial statements when material.

Management’s Use of Judgments and Estimates
The preparation of the Group’s consolidated financial statements in accordance with PFRS
requires management to make estimates and assumptions that affect the amounts reported in
the consolidated financial statements and accompanying notes.             The estimates and
assumptions used in the accompanying reviewed interim consolidated financial statements are
based upon management’s evaluation of relevant facts and circumstances as of the date of the
reviewed interim consolidated financial statements. Actual results could differ from such
estimates. The effect of any changes in estimates will be recorded in the Group’s consolidated
financial statements when determinable.

Estimates and judgments are continually evaluated and are based on historical experience and
other factors, including expectations of future events that are believed to be reasonable under
the circumstances.
                                            - 14 -




Judgments
In the process of applying the Group’s 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 consolidated financial statements:

   Distinction between Investment Properties and Owner-Occupied Property
    The Group determines whether a property qualifies as investment properties. In making its
    judgments, the Group considers whether the property generates cash flows largely
    independent of the other assets held by an entity. Owner-occupied properties generate
    cash flows that are attributable not only to the property but also other assets used in the
    supply process.

    Some properties are held to earn rentals or for capital appreciation and other properties
    are held for use in rendering of services or for administrative purposes. If the portion
    cannot be sold separately, the property is accounted for as an investment property only if
    an insignificant portion is held for use in the production or supply of goods and services or
    for administrative purposes. Judgment is applied in determining whether ancillary services
    are so significant that a property does not qualify as investment property. The Group
    considers each property separately in making its judgment.

   Classification of Financial Instruments
    The Group classifies a financial instrument, or its component parts, on initial recognition
    financial liability or an equity instrument in accordance with the substance of the
    contractual definitions of a financial asset, a financial liability or an equity instrument. The
    substance rather than its legal form, governs its classification in the consolidated statement
    of financial position.

Estimates
The key assumptions concerning the future and other sources of estimation uncertainty at the
end of financial reporting period 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:

   Impairment of Receivables
    The Group maintains allowance for impairment losses on receivables at a level considered
    adequate to provide for potential uncollectible receivables. The level of this allowance is
    evaluated by the management on the basis of factors that affect the collectibility of the
    accounts.

    The factors include, but are not limited to, the length of relationship with the customer, the
    customer’s payment behavior and known market factors. The Group reviews the age and
    status of receivables, and identifies accounts that are to be provided with allowances on a
    continuous basis.     The Group provides full allowance for receivables that it deems
    uncollectible. The amount and timing of recorded expenses for any period would differ if
    the Group made different judgments or utilized different estimates. An increase in the
    allowance for impairment losses on receivables would increase recorded operating expenses
    and decrease current assets.

                                                                       P
    The Group’s allowance for impairment losses amounted to =1.7 million as of
    June 30, 2011 and December 31, 2010. The carrying value of the Group’s receivables
                  P               P
    amounted to =20.9 million and =12.8 million as of June 30, 2011 and December 31, 2010,
    respectively (see Note 5).
                                           - 15 -




   Determination of Fair Value of Investment Properties and Certain Property and Equipment
    The Group carries investment properties and certain property and equipment at fair value,
    which has been determined based on valuations performed by independent appraisers.
    The fair value represents the amount at which the assets could be exchanged in a current
    transaction between knowledgeable willing parties in an arm’s length transaction at the
    date of valuation.

    The fair value of investment properties and certain property and equipment was arrived at
    using the market data approach. In this approach, the value of investment properties and
    certain property and equipment is based on sales and listing of comparable property
    registered in the vicinity. The technique of this approach requires the establishment of
    comparable property by reducing reasonable comparative sales and listings to a common
    denominator. This is done by adjusting the differences between the subject property and
    those actual sales and listings regarded as comparables. The properties used as bases of
    comparison are situated within the vicinity of the subject property. Any changes in fair
    value of investment properties would affect income and loss while changes in fair value of
    certain property and equipment would affect equity.

    The carrying value Group’s investment properties and property and equipment amounted to
    P                  P                                                    P
    =61.1 million and =275.1 million, respectively as of June 30, 2011 and =61.1 million and
    P
    =271.7 million, respectively as of December 31, 2010 (see Notes 8 and 9).

   Useful Lives of Property and Equipment
    Useful lives of property and equipment are estimated based on the period over which these
    assets are 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. Any reduction in the estimated useful lives of property and equipment
    would increase the Group’s recorded operating expenses and decrease on the related asset
    accounts.

    The carrying value of the Group’s depreciable property and equipment amounted to
    P                 P
    =90.8 million and =91.5 million as of June 30, 2011 and December 31, 2010, respectively
    (see Note 9).

   Impairment of Nonfinancial Assets
    The Group reviews investment properties, property and equipment and other assets for
    impairment of value. This includes considering certains indications of impairment such as
    significant changes in asset usage, significant decline in market value and obsolescence or
    physical damage on an asset. If such indicators are present and where the carrying
    amount of the asset exceeds its recoverable amount, the asset is considered impaired and
    is written down to its recoverable amount. Determining the net recoverable value of assets
    requires the estimation of cash flows expected to be generated from the continued use and
    ultimate disposition of such assets. While it is believed that the assumptions used in the
    estimation of fair values reflected in the consolidated financial statements are appropriate
    and reasonable, significant changes in these assumptions may materially affect the
    assessment of recoverable values and any resulting impairment loss could have a material
    adverse impact on the results of operations.
                                            - 16 -




    Determining whether goodwill is impaired requires an estimation of the value in use of the
    cash-generating units to which goodwill has been allocated. The value in use calculation
    requires the management to estimate the future cash flows expected to arise from the
    cash-generating unit and a suitable discount rate in order to calculate present value.

    The carrying amounts of investment properties, property and equipment and other
    noncurrent assets are disclosed in Notes 8, 9 and 10.

   Retirement and Other Benefits
    The determination of the Group’s obligation and cost for pension and other retirement
    benefits is dependent on management’s selection of certain assumptions used by actuaries
    in calculating such amounts.

    The assumptions for pension costs and other retirement benefits are described in Note 14,
    and include among others, discount and salary increase rates. Actual results that differ
    from the assumptions are accumulated and amortized over future periods and therefore,
    generally affect the Group’s recognized expense and recorded obligation in such future
    periods. While management believes that the assumptions are reasonable and appropriate,
    significant differences in actual experience or significant changes in management
    assumptions may materially affect the Group’s pension and other retirement obligations.

    The Group also estimates other employee benefits obligation and expense, including the
    cost of paid leaves based on historical leave availment of employees, subject to the Group’s
    policy. These estimates may vary depending on the future changes in salaries and actual
    experiences during the year.

    Retirement expense for the six months period ended June 30, 2011 and 2010 amounted to
    P
    =0.2 million in 2011 and 2010. The Group’s retirement benefit obligation amounted to
    P                P
    =3.2 million and =3.0 million as of June 30, 2011 and December 31, 2010, respectively
    (see Note 14).

   Deferred Tax Assets
    The carrying amount of deferred tax assets is reviewed at each end of financial reporting
    period 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 tax assets to be utilized. Management
    expects future operations will generate sufficient taxable profit that will allow all or part of
    the deferred tax assets to be utilized.

                                                     P               P
    The Group’s deferred tax assets amounted to =2.0 million and =1.8 million as of
    June 30, 2011 and December 31, 2010, respectively (see Note 17).

   Financial Assets and Liabilities
    PFRS requires that certain financial assets and liabilities be carried at fair value, which
    requires the use of extensive accounting estimates and judgments. While significant
    components of fair value measurement are determined using verifiable objective evidence
    (i.e. interest rates, volatility rates), the timing and amount of changes in fair value would
    differ with the valuation methodology used. Any change in the fair value of these financial
    assets and liabilities would directly affect income and equity (see Note 20).
                                                - 17 -




3.   Segment Reporting

     The Group derives its source of revenue from its water service segment. The water service
     segment (CWC) is engaged in the operation, maintenance and distribution of water supplies in
     the City of Calapan, province of Oriental Mindoro and town of Tabuk, province of Kalinga. The
     Parent Company is involved in trading of goods.

     The financial information about the operations of these business segments for the periods
     ended June 30, 2011 and 2010 and as of June 30, 2011 and December 31, 2010 is
     summarized as follows:

                                                                     2011
                                            Utilities          Trading    Unallocated      Consolidated
      Segment revenues                P
                                      =60,066,393        =13,212,009
                                                         P                 P
                                                                           =842,678        P
                                                                                           =74,121,080
      Segment cost and expenses         35,914,782         13,856,801               –        49,771,583
      Earnings before depreciation
        and income tax                  24,151,611          (644,792)          842,678       24,349,497
      Depreciation (Note 9)              3,479,008                  –                –        3,479,008
      Income tax expense (benefit)       6,371,868            (89,867)               –        6,282,001
      Net profit                      P
                                      =14,300,735          (=554,925)
                                                            P                P
                                                                             =842,678      P
                                                                                           =14,588,488

      Segment assets                 P
                                     =330,591,972        =10,806,425
                                                         P                 P
                                                                           =90,002,778    P
                                                                                          =431,401,175

      Segment liabilities             P
                                      =98,462,293         =9,198,785
                                                          P               P
                                                                          =129,172,288    P
                                                                                          =236,833,366

      Capital expenditure (Note 9)     P
                                       =6,854,444                 =–
                                                                  P                 P
                                                                                    =–      P
                                                                                            =6,854,444

                                                                      2010
                                            Utilities          Trading     Unallocated     Consolidated
      Segment revenues                P
                                      =39,947,283        =12,874,337
                                                         P               P
                                                                         =14,554,540       P
                                                                                           =67,376,160
      Segment cost and expenses         30,000,354         12,360,745            9,530       42,370,629
      Earnings before depreciation
        and income tax                   9,946,929            513,592        14,545,010      25,005,531
      Depreciation (Note 9)              2,819,996                   –                –       2,819,996
      Income tax expense (benefit)       2,381,571             (55,158)               –       2,326,413
      Net income                       P
                                       =4,745,362           =568,750
                                                            P              P
                                                                           =14,545,010     P
                                                                                           =19,859,122

      Segment assets                 P
                                     =314,412,773         =2,610,680
                                                          P                P
                                                                           =82,726,493    P
                                                                                          =399,749,946

      Segment liabilities             P
                                      =88,689,583           =168,113
                                                            P             P
                                                                          =130,912,929    P
                                                                                          =219,770,625

      Capital expenditure (Note 9)    P
                                      =50,178,012                 =–
                                                                  P                 P
                                                                                    =–     P
                                                                                           =50,178,012
                                              - 18 -




4.   Cash and Cash Equivalents

     This account as of June 30, 2011 and December 31, 2010 consists of:

                                                                         2011                2010
     Short-term time deposits                                     P
                                                                  =18,701,483         P
                                                                                      =11,581,428
     Cash in banks                                                  7,983,524           3,953,944
     Petty cash fund                                                  270,500             165,500
     Revolving fund                                                    50,000              50,000
                                                                  P
                                                                  =27,005,507         P
                                                                                      =15,750,872

     Short-term time deposits are highly liquid investments that are readily convertible to known
     amounts of cash with original maturities of three months or less from dates of acquisition and
     that are subject to an insignificant risk of change in value.

     Cash in banks earn interest at the respective bank deposit rates. Time deposits are made for
     varying periods up to two months depending on the immediate cash requirements of the
     Group, and earn interest at 2.75% to 4.00%. Interest income earned on cash and cash
                              P                P
     equivalents amounted to =0.5 million and =0.2 million for the six months ended June 30, 2011
     and 2010.



5.   Receivables

     This account as of June 30, 2011 and December 31, 2010 consists of:

                                                                          2011               2010
      Trade                                                       P
                                                                  =19,361,434        P
                                                                                     =12,161,814
      Interest receivable                                              146,000            146,000
      Advances to officers and employees                               116,380             63,857
      Others                                                         3,008,562          2,113,352
                                                                    22,632,376         14,485,023
      Less allowance for impairment losses                           1,696,858          1,696,858
                                                                  P
                                                                  =20,935,518        P
                                                                                     =12,788,165



6.   Prepayments and Other Current Assets

     This account as of June 30, 2011 and December 31, 2010 consists of:

                                                                           2011             2010
      Utilities and other deposits                                  P
                                                                    =2,987,800        P
                                                                                      =2,886,154
      Input VAT                                                       1,503,186           10,242
      Prepaid taxes                                                     137,455          134,526
      Prepaid rent                                                       45,000           45,000
      Others                                                             14,015           14,015
                                                                    P
                                                                    =4,687,456        P
                                                                                      =3,089,937
                                                - 19 -




7.   Available-for-Sale Investment

     The rollforward analysis of the net carrying value of this account as of June 30, 2011 and
     December 31, 2010 is shown below:

                                                                           2011              2010
     Cost                                                            P
                                                                     =1,000,000        P
                                                                                       =1,000,000
     Unrealized gain on available-for sale assets:
       Balance at beginning of year                                     166,272                 –
       Additions                                                              –           166,272
       Balance at end of year                                           166,272           166,272
     Net carrying value                                              P
                                                                     =1,166,272        P
                                                                                       =1,166,272

     This account pertains to investment in mutual fund managed by an insurance company. This
     fund seeks to achieve an optimal level of income in the medium term together with long term
     capital growth through investments in fixed income securities and money market instruments
     and shares listed in the Philippine Stock Exchange (PSE).

     Although the amount can be withdrawn anytime, the management intended to hold the fund on
     a long term basis.

     The fund’s fair market value as of June 30, 2011 and December 31, 2010 is not materially
     different from that of the value from the time of acquisition.



8.   Investment Properties

     The rollforward analysis of this account as of July 30, 2011 and December 30, 2010 follows:

                                                                          2011                 2010
     Cost:
       Balance at beginning and end of the period                 P
                                                                  =41,152,250          P
                                                                                       =41,152,250
     Appraisal increase:
       Balance at beginning of the period                           19,980,750            5,621,750
       Additions                                                             –           14,359,000
       Balance at end of the period                                 19,980,750           19,980,750
     Net carrying value                                           P
                                                                  =61,133,000          P
                                                                                       =61,133,000

     The Group’s investment properties consist of parcels of land located in Calapan, Oriental
     Mindoro. In March 2010, land properties were appraised with related appraisal increase
                                                                P
     directly credited to profit and loss which amounted to =14.4 million. These amounts are not
     currently available for distribution as dividends until these are actually realized.

     The fair values of investment properties were determined by an independent appraiser in
     March 27, 2010. The valuation of investment properties was based on market values. The fair
     value represents the amount at which the assets can be exchanged between a knowledgeable,
     willing seller and a knowledgeable, willing buyer in an arm’s length transaction at the date of
     valuation, in accordance with International Valuation Standards.

     Investment properties are not earning income.     Direct operating expense relative to
     investment properties which are not earning income pertains to real property tax which
                 P                    P
     amounted to =159,709 in 2011 and =25,310 in 2010.
                                                                           - 20 -




              There are no investment properties as of June 30, 2011 and December 31, 2010 that are
              pledged as security to liabilities.



        9.    Property and Equipment

              The rollforward analysis of this account as of July 30, 2011 and December 30, 2010 follows:


                                                                                         2011

                                               Water utilities          Office                  Staff house,   Construction
                                   Land and   and distribution   furniture and      Service      warehouse      in progress   Equipment for

                               improvements           system       equipment        vehicles      and office     (Note 13)       installation          Total

Cost:
 Balance at beginning

    of the period                P
                                 =3,799,039    P
                                               =124,909,260       P
                                                                  =3,341,380     =3,761,560
                                                                                 P              P          P
                                                                                                =1,522,896 =156,090,371         P
                                                                                                                                =9,648,867      P
                                                                                                                                                =303,073,373
 Acquisitions                            –         2,313,684         494,330              –               –      4,046,430                 –       6,854,444

 Balance at
    end of the period             3,799,039     127,222,944        3,835,710      3,761,560      1,522,896     160,136,801       9,648,867       309,927,817

Accumulated depreciation:
 Balance at beginning
    of the period                   223,008       40,274,075       2,086,491      1,733,720        602,669                                        44,919,963

 Depreciation                         3,041        2,925,936         211,465        262,421         76,145                                         3,479,008

 Balance at
    end of the period               226,049      43,200,011        2,297,956      1,996,141        678,814                                        48,398,971

Revaluation surplus in land:

 Balance at beginning and
    end of the period            13,536,000                 –               –             –               –                                       13,536,000

Net carrying value             P
                               =17,108,990      P
                                                =84,022,933       P
                                                                  =1,537,754     =1,765,419
                                                                                 P                P        P
                                                                                                  =844,082 =160,136,801         P
                                                                                                                                =9,648,867      P
                                                                                                                                                =275,064,846




                                                                                         2010

                                               Water utilities          Office                  Staff house,   Construction

                                   Land and   and distribution   furniture and      Service      warehouse      in progress   Equipment for
                               improvements           system       equipment        vehicles      and office     (Note 13)       installation          Total

Cost:

  Beginning                      P
                                 =3,799,039    P
                                               =122,651,172       P
                                                                  =2,410,170     =1,815,315
                                                                                 P              P          P
                                                                                                =1,522,896 =111,047,902         P
                                                                                                                                =9,648,867      P
                                                                                                                                                =252,895,361
  Acquisitions                           –         2,258,088         931,210      1,946,245               –     45,042,469                 –      50,178,012

  Ending                          3,799,039     124,909,260        3,341,380      3,761,560      1,522,896     156,090,371       9,648,867       303,073,373

Accumulated depreciation:

  Beginning                         216,926       34,302,735       1,728,834      1,220,423        450,380                                        37,919,298
  Depreciation                        6,082        5,971,340         357,657        513,297        152,289                                         7,000,665

  Ending                            223,008       40,274,075       2,086,491      1,733,720        602,669                                        44,919,963

Revaluation surplus in land:

  Beginning                      13,536,000                 –               –             –               –                                       13,536,000

  Ending                         13,536,000                 –               –             –               –                                       13,536,000

Net carrying value             P
                               =17,112,031      P
                                                =84,635,185       P
                                                                  =1,254,889     =2,027,840
                                                                                 P                P        P
                                                                                                  =920,227 =156,090,371         P
                                                                                                                                =9,648,867      P
                                                                                                                                                =271,689,410
                                               - 21 -




   Land was revalued on December 22, 2009 by an independent appraiser. The valuation of the
   land is based on the fair market values using the Market Data Approach by identification of the
   sales and listings of comparable properties registered in the vicinity.

   The Group’s capitalized borrowing cost for the six months period ended June 30, 2011 and
                      P                 P
   2010 amounted to =3.8 million and =4.3 million, respectively. Total borrowing cost capitalized
                                                                              P
   under construction in progress as of June 30, 2011 and 2010 amounted to =21.8 million and
   P
   =18.0 million, respectively (see Note 12).

   Certain property and equipment under “land and improvements” and “water utilities and
   distribution system” were mortgaged in favor of a creditor bank in connection with the Group’s
   loan availment (see Note 12).

   The Group’s management had reviewed the carrying values of the property and equipment as
   of June 30, 2011 and December 31, 2010 for any impairment. Based on the evaluation, there
   are no indications that the property and equipment might be impaired.

   The depreciation was charged to the following accounts in the consolidated statement of
   comprehensive income for the period ended June 30:

                                                                            2011           2010
    Cost of services (Note 15)                                        P
                                                                      =2,922,309     P
                                                                                     =2,434,874
    Operating expenses (Note 16)                                         556,699        385,122
                                                                      P
                                                                      =3,479,008     P
                                                                                     =2,819,996



10. Other Noncurrent Assets

   This account as of June 30, 2011 and December 31, 2010 consists of:

                                                                            2011              2010
    Special bank deposit (Note 18)                                   P
                                                                     =9,000,000        P
                                                                                      =9,000,000
    Reserve fund (Note 12)                                             3,538,797         3,538,797
                                                                    P
                                                                    =12,538,797      P
                                                                                     =12,538,797



11. Accounts Payable and Accrued Expenses

   This account as of June 30, 2011 and December 31, 2010 consists of:

                                                                           2011             2010
    Trade (Note 13)                                                 P
                                                                    =79,244,097      P
                                                                                     =67,928,279
    Accrued expenses (Note 13)                                        9,223,623        5,504,799
    Government payables                                               6,636,605        4,096,687
    Others                                                              250,630          250,631
                                                                    P
                                                                    =95,354,955      P
                                                                                     =77,780,396

   Accrued expenses include accrual for interest on loan, lease fee and utilities.

   Other payables pertain to government and other nontrade payables.
                                                - 22 -




12. Loan Payable

   This account pertains to a long-term loan availed from a local bank for the rehabilitation,
                                                                  P
   expansion and improvements of waterworks system of CWC for =137 million payable in fifteen
   (15) years on a monthly basis. Interest is fixed at 10.5% per annum, reviewable and subject
   to adjustment annually thereafter but not to exceed 15% per annum. In 2011 and 2010, CWC
   was able to negotiate the interest rate at 9%.

                                                         P
   CWC has drawn for its expansion project the amount of =17.2 million in June 30, 2010.

                                            P                        P
   Interest expense capitalized amounted to =3.8 million in 2011 and =4.3 million in 2010 (see
   Note 9).

   Debt Covenant
   CWC executed a deed of assignment relative to the loan, in favor of the bank of (a) a portion of
   CWC’s Reserve Fund (via Savings or Other Investment Account) equivalent to two monthly
   interest amortization during the grace period, to increase to two monthly principal and interest
   amortization after the grace period onwards. The Reserve Fund shall be maintained for CWC’s
   expenses for maintenance, operation and emergency fund; and (b) billed water/receivables
   until the amount of the loan is fully paid. The reserve fund included under other noncurrent
                        P
   assets amounted to =3.5 million as of June 30, 2011 and December 31, 2010 (see Note 10).

   Also, CWC, JOH and its major stockholders mortgaged their real estate and other equipment all
   situated in Calapan, Oriental Mindoro in favor of the bank (see Note 13). The aggregate
   carrying value of the Group’s property and equipment mortgaged as of June 30, 2011 and
                                     P                  P
   December 31, 2010 amounted to =101.1 million and =101.7 million, respectively (see Note 9).
   The titles of the mortgaged property have already been delivered to the bank.

   As of June 30, 2011 and December 31, 2010, the Group is in compliant with the said
   covenants.



13. Related Party Transactions

   The Group has the following transactions with related parties:

   a.   Unsecured and non-interest bearing cash advances with affiliates for investing and working
        capital purposes. Also, the Group availed unsecured and non-interest bearing cash
        advances from its major stockholder and affiliate for the acquisition of operating machinery
        and equipment. Settlements of these advances are made in cash.

        Affiliates are entities that are owned and controlled by JOH and neither a subsidiary nor
        associate of the Group. These affiliates are effectively sister companies of the Group by
        virtue of ownership of JOH.

        Details of related party balances follow:

                                                                           2011                2010
        Due from:
           Affiliates                                                P
                                                                     =8,717,596          P
                                                                                        =1,093,258
           Stockholders                                               18,173,368         18,673,368
                                                                    P
                                                                    =26,890,964        P
                                                                                       =19,766,626
                                              - 23 -




                                                                           2011                 2010
        Due to:
           Affiliates                                             P
                                                                  =15,203,445              P
                                                                                          =7,816,852
           Stockholders                                             7,218,733              13,678,239
                                                                  P
                                                                  =22,422,178            P
                                                                                         =21,495,091

                                                        P                         P
        Advances made to related parties amounted to =8.4 million in 2011 and =33.7 million in
                                                                       P
        2010. Payments received from related parties amounted to =1.2 million in 2011 and
        P
        =23.4 million in 2010. On the other hand, advances received from related parties
                      P                        P
        amounted to =4.5 million in 2011 and =2.7 million in 2009. Payments to the advances
                                            P                        P
        made to related parties amounted to =3.5 million in 2011 and =12.8 million in 2010.

   b.   The Group has long-term construction agreement with an affiliate for the improvement,
                                                                               P
        rehabilitation and expansion of CWC waterworks system amounting to =168.5 million.
        Construction in progress reported in the consolidated statement of financial position
                         P                    P
        amounted to =160.0 million and =156.1 million as of June 30, 2011 and
        December 31, 2010, respectively.

   c.   Service agreement with an affiliate renewable annually upon such terms and conditions as
        may be mutually agreed upon by both parties. Service fee included in the operating
                                                          P                       P
        expenses under professional services amounted to =4.3 million in 2011 and =5.7 million in
        2010.

   d.   Lease of office space from an affiliate for a period of one year, renewable upon mutual
                                                                     P
        agreement of both parties. Rental expense amounted to =1.0 million for the periods
        ending June 30, 2011 and 2010.

   e.                                                                       P
        The remuneration of key management personnel amounted to =1.4 million in
                             P
        June 30, 2011 and =2.1 million in June 30, 2010, representing compensation and other
        short-term benefits.



14. Retirement Benefit Costs

   The Group operates a noncontributory retirement plan covering all qualifying employees.
   Under the current plan, the employees are entitled to retirement benefits of 60 percent of one
   month’s pay per year on attainment of at least five years of their services with the Group.

   The most recent actuarial valuations of the present value of the defined benefit obligation were
   carried out at March 18, 2010 by independent actuaries. The present value of the defined
   benefit obligation and the related current service cost and past service cost, were measured
   using the projected unit credit method. Actuarial valuations are made with sufficient regularity.

   As of June 30, 2011, the plan has not been funded.

   The principal assumptions used for the purposes of the actuarial valuation follows:

                                                                           2011                2010
    Discount rate                                                          9.5%                9.5%
    Expected rate of salary increase                                       5.0%                5.0%
                                              - 24 -




   Retirement expenses recognized in the consolidated statements of comprehensive income for
   the six months ended June 30, 2011 and 2010 were determined as follows:

                                                                            2011                 2010
    Interest cost                                                       P
                                                                        =126,972              P
                                                                                              =129,107
    Current service cost                                                  79,962                76,154
                                                                        P
                                                                        =206,934              P
                                                                                              =205,261

   The rollforward analysis of retirement benefit obligations as of June 30, 2011 and
   December 31, 2010 follows:

                                                                          2011                    2010
    Balance at beginning of the period                              P
                                                                    =3,042,992             P
                                                                                           =3,087,946
    Retirement expense                                                 206,934                 410,524
    Benefits paid                                                            –                (455,478)
    Balance at end of the period                                    P
                                                                    =3,249,926              P
                                                                                            =3,042,992



15. Cost of Sales and Services

   This account for the periods ending June 30 consists of:

                                                                              2011                 2010
    Cost of services:
      Salaries and employee benefits (Note 13)                      P
                                                                    =6,434,187               P
                                                                                            =4,974,819
      Utilities                                                       6,457,770                5,497,406
      Rental (Note 18)                                                4,416,000                3,762,312
      Depreciation (Note 9)                                           2,922,309                2,434,874
      Repairs and maintenance                                         1,654,263                3,933,046
      Transportation and travel                                         420,068                  199,255
      Materials                                                         307,295                  174,295
      Supervision and regulatory fees (Note 18)                          83,330                   82,805
      Bacteriological test                                               29,925                   49,220
                                                                    22,725,147             P
                                                                                           =21,108,032
    Cost of sales:
      Purchases                                                      12,406,298              11,706,495
                                                                   P
                                                                   =35,131,445             P
                                                                                           =32,814,527

   The Group does not        maintain    merchandise   inventory   as    of   June   30,    2011    and
   December 31, 2010.
                                                 - 25 -




16. Operating Expenses

   This account for the periods ending June 30 consists of:

                                                                        2011                2010
    Professional services (Note 13)                              P
                                                                 =9,750,617          P
                                                                                    =6,675,048
    Taxes and licenses                                             1,981,368             969,496
    Rental (Note 13)                                               1,583,558           1,516,187
    Salaries, wages and employee benefits (Notes 13 and 14)        1,115,489             561,432
    SSS, Philhealth and HDMF contributions                           561,531             363,859
    Depreciation (Note 9)                                            556,699             385,122
    Transportation and travel                                        539,231             460,872
    Repairs and maintenance                                          461,731             108,099
    Office supplies                                                  324,850             307,157
    Security services                                                295,238             187,714
    Communication                                                    234,626             124,403
    Representation and entertainment                                 152,781             123,200
    Advertisement                                                     65,593              95,350
    Insurance                                                         41,973              50,346
    Utilities                                                         28,800             123,041
    Donation and contribution                                         21,420              10,279
    Others                                                           403,641             304,963
                                                                P
                                                                =18,119,146        P
                                                                                   =12,366,568



17. Income Taxes

   a.   The Group’s current income tax expense pertains to normal corporate income tax (NCIT).

   b.   The Group’s deferred tax assets as of June 30, 2011 and December 31, 2010 consist of the
        tax effects of the following:

                                                                       2011               2010
         Accrued retirement benefit obligation                     P
                                                                   =974,978           P
                                                                                      =912,898
         Allowances for:
            Impairment losses                                       509,057             509,057
            Parts obsolescence                                       48,722              48,722
         NOLCO                                                      446,058             356,190
                                                                 P
                                                                 =1,978,815          P
                                                                                     =1,826,867

                                                                                   P
        The Group did not recognize the deferred tax asset on NOLCO amounting to =43,825 since
        management believes this could not be realized prior to its expiration. NOLCO amounting
           P
        to =1.8 million as of June 30, 2011, can be carried forward and claimed as deduction
        against regular taxable income for the next three years as follows:

        Date incurred                                             Amount           Expiry date
        June 30, 2011                                           P
                                                                =445,642        June 30, 2014
        June 30, 2010                                             140,171       June 30, 2013
        December 31, 2009                                       1,171,767   December 31, 2012
                                                              P
                                                              =1,757,580
                                                 - 26 -



   c.   The Group’s deferred tax liabilities consist of the tax effects of the following:

                                                                             2011                  2010
         Capitalized borrowing costs                                   P
                                                                       =6,531,732            P
                                                                                             =5,399,515
         Fair value adjustments and appraisal
            increase in investment properties and
            property and equipment                                      4,810,221             4,810,221
                                                                      P
                                                                      =11,341,953           P
                                                                                            =10,209,736

   d.   Reconciliation between the statutory and the effective income tax rates follows:

                                                                               2011               2010
         At statutory income tax rate                                    P
                                                                         =6,261,146         P
                                                                                            =6,655,660
         Additions to (reductions in) income tax resulting from:
             Deferred tax asset not recognized                               43,825              20,173
             Interest income taxed at lower rate                            (39,099)            (50,028)
             Unallowed expenses                                              16,129               8,308
             Effect of change in fair value of investment properties              –          (4,307,700)
         Effective income tax                                            P
                                                                         =6,282,001         P
                                                                                            =2,326,413

   e.   RA No. 9504 that was enacted in 2008 amended various provisions in the existing 1997
        National Internal Revenue Code. Among the reforms introduced by the said RA was the
        option granted to corporations to avail the optional standard deduction at 40% of gross
        income in lieu of the itemized deduction scheme.

        The Parent Company and its subsidiaries opted for the itemized deduction scheme for its
        income tax reporting in 2011 and 2010.



18. Lease of Water Facilities

   In 2006, CWC entered into a lease agreement with the local government of Tabuk, in the
   province of Kalinga (local government). Items under lease are the water facilities developed
   and owned by the local government. Under the agreement, CWC will manage, operate and
   maintain this water system within a defined service area for 15 years from the day the facilities
   are turned-over by the local government. CWC shall pay lease to the local government based
   on agreed amounts and subject to adjustments depending on the average actual
                                                           P
   consumptions. Also, CWC shall pay supervision fee of =5 per connection on a monthly basis
   subject to adjustment according to the change in general consumer price index of the region
   where the local government belongs.

   CWC maintains a performance security in the form of a bank guarantee. If provided in the
   form of a bank guarantee or an irrevocable letter of credit, security shall be valid for an initial
   period of twelve (12) months and CWC shall ensure that the security shall be renewed
   annually, each renewal to take effect immediately on the expiration of the previous security.
                                          P
   The amount of performance security is =9.0 million per annum from year one (1) to year ten
            P
   (10) and =4.5 million per annum from year eleven (11) to year fifteen (15) of the lease.

   The lease became effective in October 2006.

                                                                               P
   Lease fees for the period ended June 30, 2011 and 2010 amounted to =4.4 million and
   P                                                                       P           P
   =3.8 million, respectively. Supervision and regulatory fees amounted to =83,330 and =82,805
   for the period ended June 30, 2011 and 2010, respectively.
                                               - 27 -




                                                                            P
   CWC’s water revenue from operating the water facilities amounted to =7.5 million for the
                                  P
   period ended June 30, 2011 and =9.0 million for the period ended June 30, 2010.



19. Basic/Diluted Earnings Per Share (EPS)

   Computation of EPS attributable to the equity holders of the Parent Company follows:

                                                                            2011                    2010
    Net profit for the period                                        P
                                                                     =14,530,205             P
                                                                                             =19,781,307
    Divided by the weighted average number
       of common shares                                              120,000,000             120,000,000
                                                                         P
                                                                         =0.1211                 P
                                                                                                 =0.1648

   There were no potential dilutive shares in 2011 and 2010.



20. Financial Instruments

   Set out below is a comparison by category of carrying values and estimated fair values of the
   Group’s financial instruments as of June 30, 2011 and 2010:

                                                    2011                              2010
                                        Carrying value       Fair value   Carrying value         Fair value
    Financial Assets:
       Cash and cash equivalents         P
                                         =27,005,507      =27,005,507
                                                          P                P
                                                                           =15,750,872        P
                                                                                              =15,750,872
       Receivables                         20,935,518       20,935,518       12,788,165         12,788,165
       Due from related parties            26,890,964       26,890,964       19,766,626         19,766,626
       Available-for-sale investments       1,166,272       1,166,272         1,166,272         1,166,272
       Special bank deposits under
         other noncurrent assets            9,000,000       9,000,000         9,000,000         9,000,000
                                         P
                                         =84,998,261      P
                                                          =84,998,261      P
                                                                           =58,471,935        P
                                                                                              =58,471,935


    Financial Liabilities:
        Accounts payable and accrued
          expenses                       P
                                         =95,354,955      =95,354,955
                                                          P                P
                                                                           =77,780,396       P
                                                                                             =77,780,396
       Due to related parties             22,422,178       22,422,178       21,495,091        21,495,091
       Loan payable                       92,158,230       92,158,230       96,165,110        96,165,110
       Customers’ deposits                 7,292,115        7,292,115        7,124,715         7,124,715
                                        P
                                        =217,227,478     P
                                                         =217,227,478     P
                                                                          =202,565,312       P
                                                                                             =202,565,312


   Fair value is defined as the amount at which the financial instrument could be exchanged in a
   current transaction between knowledgeable willing parties in an arm’s length transaction, other
   than in a forced liquidation or sale. Fair values are obtained from quoted market prices,
   discounted cash flow models and option pricing models, as appropriate.

   The carrying values of cash and cash equivalents, receivables, due from related parties,
   accounts payable and accrued expenses and due to related parties approximates their fair
   values due to the short-term nature of the transactions and are considered due and
   demandable.
                                                - 28 -




   Special bank deposit approximates their fair values as this is subject to insignificant risk of
   change in value. This account was only classified under noncurrent due to the restriction
   attached to it by a third party.

   The fair value of customer’s deposits could not be practically determined since they are
   attached to the underlying service and that the cessation of services and the possibility of
   refund are not determinable.      Moreover, the individual balances of this account are
   insignificant.

   Fair Value Hierarchy
   The Group uses the following hierarchy for determining fair value of financial instruments:

   Level 1: Quoted (unadjusted) prices in active markets for identical assets or liabilities;

   Level 2: Other techniques for which all inputs which have a significant effect on the recorded
            fair value that are not based on observable market data;

   Level 3: Techniques which use inputs which have a significant effect on the recorded fair value
            that are not based on observable market data.

                                                                                     P
   As of June 30, 2011 and 2010, the Group has AFS investments amounting to =1.0 million
   pertaining to managed fund in an insurance company which is invested in fixed income
   securities and money market instruments and shares listed in the PSE. Price of the investment
   is posted on a daily basis in the insurance company’s website.



21. Financial Risk Management Objectives and Policies

   The main purpose of the Group’s financial instruments is to fund the Group’s operations and to
   acquire and improve investment properties and property and equipment. The main risks
   arising from the use of financial instruments are liquidity risk, interest rate risk and credit risk.

   The Group’s BOD reviews and agrees with policies for managing each of these risks. These are
   summarized below:

   Liquidity risk
   The Group seeks to manage its liquidity profile to be able to finance its capital expenditures
   and serve its maturing obligations. The Group’s objective is to maintain a balance between
   continuity of funding and flexibility through valuation of projected and actual cash flow
   information. The Group manages liquidity by maintaining adequate reserves through advances
   from related parties and loan facilities with local banks.

   Table below summarizes the maturity profile of the Group’s financial liabilities except for
   customer’s deposit and retirement benefit obligation:

                                                                2011
                                                 Due within    Over 1 year
                                 On demand        one year      to 5 years   Over 5 years          Total
   Due to related parties       =22,422,178
                                P                        P
                                                         =–            =–
                                                                       P              P
                                                                                      =–     P
                                                                                             =22,422,178
   Accounts payable and
      accrued expenses           95,354,955              –              –              –      95,354,955
   Loan payable                           –      8,013,747     40,068,735     44,075,748      92,158,230
                               P
                               =117,777,133     P
                                                =8,013,747    =40,068,735
                                                              P              P
                                                                             =44,075,748    P
                                                                                            =209,935,363
                                            - 29 -




                                                              2010
                                             Due within     Over 1 year
                              On demand       one year       to 5 years     Over 5 years            Total
Due to related parties      =21,495,091
                            P                        P
                                                     =–              =–
                                                                     P                 P
                                                                                       =–    P
                                                                                             =21,495,091
Accounts payable and
   accrued expenses           77,780,396             –               –                –       77,780,396
Loan payable                           –     8,013,747      40,068,737       48,082,626       96,165,110
                            P
                            =99,275,487     P
                                            =8,013,747     =40,068,737
                                                           P               P
                                                                           =48,082,626 =195,440,597
                                                                                       P


Credit risk
Credit risk refers to the risk that a customer/debtor will default on its contractual obligations
resulting in financial loss to the Group.         The Group controls this risk through regular
coordination with the customers. In addition, receivable balances are monitored on an ongoing
basis with the result that the Group’s exposure to bad debts is not significant. The Group also
controls this risk by cutting its services and refusal to reconnect until the customer’s account is
cleared or paid.

The Group’s credit risk is primarily attributable to its trade receivables. An allowance for
impairment is made where there is an identified loss event which, based on previous
experience, is evidence of a reduction in the recoverability of the cash flows.

Given the Group’s diverse base of customers, it is not exposed to large concentration of credit
risk.

Below is the quality per class of not impaired receivables:

                                                              2011
                              Neither past due              Past due
                                  nor impaired    but not impaired       Impaired                   Total
 Trade                            P
                                 =10,934,180           =6,730,396
                                                        P              P
                                                                       =1,696,858           P
                                                                                            =19,361,434
 Due from related parties           8,603,137           18,287,827              –             26,890,964
 Advances and non-trade                      –            3,270,942             –              3,270,942
                                  P
                                 =19,537,317          P
                                                     =28,289,165       P
                                                                       =1,696,858           P
                                                                                            =49,523,340

                                                              2010
                              Neither past due              Past due
                                  nor impaired    but not impaired       Impaired         Total
 Trade                             P
                                   =7,259,250           P
                                                       =3,375,647      P          P
                                                                       =1,526,917 =12,161,814
 Due from related parties               18,500          19,748,126              –   19,766,626
 Advances and non-trade                114,400            2,038,868       169,941    2,323,209
                                   P
                                   =7,392,150         P
                                                     =25,162,641       P          P
                                                                       =1,696,858 =34,251,649

Below is the aging analysis of past due but not impaired receivables:

                                                                2011
                                         30 to               61 to         More than
                                       60 days             90 days          90 days                 Total
Trade                              P
                                   =3,940,305          =977,862
                                                       P                  P
                                                                          =1,812,229          P
                                                                                              =6,730,396
Due from related parties               135,692            169,915         17,982,220          18,287,827
Advances and nontrade                  152,068            105,502          3,013,372            3,270,942
Total                              P
                                   =4,228,065        =1,253,279
                                                     P                 P
                                                                       =22,807,821           P
                                                                                             =28,289,165
                                                - 30 -




                                                                   2010
                                          30 to                61 to      More than
                                        60 days              90 days        90 days                 Total
Trade                                P
                                     =1,429,411            =874,232
                                                           P            P
                                                                        =1,072,004           P
                                                                                             =3,375,647
Due from related parties                      –                    –    19,748,126           19,748,126
Advances and nontrade                    12,953               16,220      2,009,695            2,038,868
Total                                P
                                     =1,442,364            =890,452
                                                           P             P
                                                                         =22,829,825      P
                                                                                          =25,162,641

Below is the credit quality by class of financial assets:

                                                                  2011
                                 Neither past due nor impaired
                                                 Substandard     Past due but
                                   High grade            grade   not impaired     Impaired           Total
Cash and cash equivalents        P
                                 =27,005,507               P
                                                           =–             =–
                                                                          P             P
                                                                                        =–    P
                                                                                              =27,005,507
Receivables                        10,934,180                –    10,001,338     1,696,858      22,632,376
Due from related parties            3,769,132      4,834,005      18,287,827             –     26,890,964
Available-for-sale investments      1,166,272              –               –             –      1,166,272
Special bank deposits               9,000,000              –               –             –      9,000,000
Total                            P
                                 =51,875,091     P
                                                 =4,834,005      =28,289,165 =1,696,858
                                                                 P           P                P
                                                                                              =86,695,119


                                                                  2010
                                        Neither past due nor impaired
                                                    Standard Substandard
                                   High grade          grade       grade          Impaired          Total
Cash and cash equivalents        P
                                 =15,750,872              P
                                                          =–             =–
                                                                         P              P   P
                                                                                        =– =15,750,872
Receivables                        7,044,451       1,384,884      4,358,830      1,696,858    14,485,023
Due from related parties                   –      19,766,626               –              –   19,766,626
Available-for-sale investments      1,166,272               –             –              –     1,166,272
Special bank deposits               9,000,000               –             –              –     9,000,000
Total                            P
                                 =32,961,595    P
                                                =21,151,510      =4,358,830
                                                                 P              P
                                                                                =1,696,858 =60,168,793
                                                                                           P


High grade cash and cash equivalents are short-term placements and working cash fund;
and special bank deposit are placed, invested, or deposited in local banks belonging to the top
ten (10) banks in the Philippines in terms of resources and profitability.

High grade accounts, other than cash and cash equivalents, are accounts considered to be of
high value. The counterparties have a very remote likelihood of default and have consistently
exhibited good paying habits. Substandard grade accounts are accounts which have probability
of impairment based on historical trend. These accounts show propensity to default in payment
despite regular follow-up actions and extended payment terms. AFS investments are assessed
based on financial status of the counterparty and its current share price performance in the
market.

Interest rate risk
The Group’s exposure to market risk for changes in interest rates relates primarily to the
Group’s long-term borrowings. The Group’s policy is to minimize interest rate cash flow risk
exposures. Long-term borrowings are therefore usually at agreed interest rates.
                                              - 31 -




   The carrying amounts, by maturity, of loan payable subject to floating rate as of
   June 30, 2011 and December 31, 2010, that are exposed to interest rate risk are as follows:

    Maturities                                                           2011               2010
    Within one year                                                P
                                                                   =8,013,747         P
                                                                                      =8,013,747
    Two to five years                                               32,054,990        32,054,990
    More than five years                                            52,089,493        56,096,373
                                                                  P
                                                                  =92,158,230         96,165,110

   In 2011 and 2010, the Group was able to negotiate the interest rate at 9% which is below the
   agreed minimum annual fixed rate of 15% in the loan agreement. The following table sets
   forth the impact of the range of reasonably possible changes in the interest rates on the
   Group’s income before income tax and equity in 2011:

    Reasonably possible changes                                 Effect on income        Effect on
      in interest rates                                                before tax          equity
         3%                                                         P
                                                                   (=2,764,747)      P
                                                                                    (=1,935,323)
        (3%)                                                          2,764,747        1,935,323



22. Capital Management

   The Group’s objective in managing capital is to ensure that entities in the Group will be able to
   continue as a going concern while maximizing the return to stakeholders through the
   optimization of the debt and equity balance and to sustain future development of the business.

   In order to maintain or adjust the capital structure, the Group may adjust the dividend
   payment to shareholders, return capital to shareholders or issue new shares.

   The Group considers the following as its capital:

                                                                      2011                  2010
   Capital stock                                              P
                                                              =120,000,000          P
                                                                                    =120,000,000
   Loans payable                                                92,158,230            96,165,110
   Retained earnings                                            64,250,891            49,720,686
   Total                                                      P
                                                              =276,409,121          P
                                                                                    =265,885,796

   The Group had been subjected to externally imposed capital requirements in 2011 and 2010
   due to loans payable from a local bank. The Group has complied with its debt covenant
   obligations which include assignment of a portion of CWC’s reserve fund and billed
   water/receivables in favor of the bank (see Note 12).
                                                                         Constantino Guadalquiver & Co.
                                                                               Certified Public Accountants

                                                                                   15th Floor Citibank Tower
                                                                                 8741 Paseo de Roxas Street
                                                                     Salcedo Village, Makati City, Philippines
                                                                                Telephone (+632) 848-1051
                                                                                       Fax (+632) 728-1014
                                                                          E-mail address:mail@cgco.com.ph




INDEPENDENT AUDITORS’ REPORT




The Stockholders and Board of Directors
Calapan Ventures, Inc.
4th Floor 20 Lansbergh Place Bldg.
170 Tomas Morato, Quezon City


We have audited the accompanying financial statements of Calapan Ventures, Inc. and
Subsidiaries, which comprise the consolidated statements of financial position as of
December 31, 2010 and 2009, and the consolidated statements of comprehensive income,
consolidated statements of changes in equity and consolidated statements of cash flows for the
years then ended, and a summary of significant accounting policies and other explanatory notes.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements
in accordance with Philippine Financial Reporting Standards, and for such internal control as
management determines is necessary to enable the preparation of financial statements that are
free from material misstatement, whether due to fraud or error.

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 entity’s 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 entity’s internal control. An audit also includes
evaluating the appropriateness of accounting policies used and the reasonableness of accounting
estimates made by management, as well as evaluating the overall presentation of the financial
statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a
basis for our audit opinion.
                                                 -2-


Opinion

In our opinion, the consolidated financial statements present fairly, in all material respects, the
financial position of Calapan Ventures, Inc. and Subsidiaries as of December 31,2010 and 2009
and of its financial performance and its cash flows for the years then ended              in
accordance with Philippine Financial Reporting Standards.


CONSTANTINO GUADALQUIVER & CO.

*'fr
             H,
ROGELIO M. GUADALQUIVER
Partner
PTR No. 2567245
January 5, 2011
Makati City

February 74,2OLI
CALAPAN VENTURES, INC. AND SUBSIDIARIES
(Formerly Calapan Equity Ventures, Inc.)
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
DECEMBER 31, 2010 AND 2009
(Amounts in Philippine Pesos)



                                                               Notes             2010            2009

ASSETS

Current Assets
Cash and cash equivalents                                      4       P    15,750,872 P    39,044,845
Receivables – net                                              5            12,788,165       9,545,620
Due from related parties                                       13           19,766,626      12,624,042
Prepayments and other current assets                           6             3,089,937         798,348
   Total Current Assets                                                     51,395,600      62,012,855

Noncurrent Assets
Available-for-sale investment                                  7             1,166,272       1,000,000
Investment property                                            8            61,133,000      46,774,000
Property and equipment – net                                   9           271,689,410     228,512,063
Deferred tax assets                                            17            1,826,867       1,768,028
Other noncurrent assets                                        10           12,538,797      13,609,196
   Total Noncurrent Assets                                                 348,354,346     291,663,287

                                                                       P   399,749,946 P 353,676,142


LIABILITIES AND EQUITY

Current Liabilities
Accounts payable and accrued expenses                          11      P    77,780,396 P  76,062,371
Retirement benefit obligation                                  14            3,042,992     3,087,946
Current portion of loan payable                                12            8,013,747     5,556,597
Due to related parties                                         13           21,495,091    22,823,226
Income tax payable                                                           3,952,585     2,489,325
    Total Current Liabilities                                              114,284,811   110,019,465

Noncurrent Liabilities
Noncurrent portion of loan payable                             12           88,151,363      81,126,322
Customers' deposits                                                          7,124,715       5,628,258
Deferred tax liabilities                                       17           10,209,736       7,688,491
   Total Noncurrent Liabilities                                            105,485,814      94,443,071

Equity                                              22
Attributable to Equity Holders of Parent Company
Capital stock                                                              120,000,000     120,000,000
Revaluation surplus in land - net of deferred taxes 9                        9,438,247       9,438,247
Unrealized gain on available-for-sale investment    7                          165,624               –
Retained earnings                                                           49,720,686      19,240,170
                                                                           179,324,557     148,678,417

Noncontrolling interest                                                       654,764         535,189

                                                                       P   399,749,946 P 353,676,142

See accompanying Notes to Consolidated Financial Statements.
CALAPAN VENTURES, INC. AND SUBSIDIARIES
(Formerly Calapan Equity Ventures, Inc.)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED DECEMBER 31, 2010 AND
  ELEVEN MONTHS ENDED DECEMBER 31, 2009
(Amounts in Philippine Pesos)




                                                   Notes             2010            2009

REVENUES
Water service                                              P    90,568,624    P 59,797,701
Sales                                                           27,338,217       2,831,259
Others                                                             140,214          24,259
                                                               118,047,055      62,653,219

COST OF SALES AND SERVICES                         15           68,361,406      31,317,977

GROSS PROFIT                                                    49,685,649      31,335,242

OPERATING EXPENSES                                 16           27,425,867      18,951,417

PROFIT FROM OPERATIONS                                          22,259,782      12,383,825

OTHER INCOME (CHARGES) – Net
Change in fair value of investment property        8            14,359,000       5,621,750
Interest income                                    4               811,952       1,211,471
Financial charges                                                  (16,293)         (7,836)
Excess of net asset of acquired subsidiary
    over cost of investment                                              –       3,862,118
Receivables written-off                                                  –        (225,003)
Reversal of allowance for impairment loss                                –         201,531
                                                                15,154,659      10,664,031

PROFIT BEFORE INCOME TAX EXPENSE                                37,414,441      23,047,856

INCOME TAX EXPENSE                                 17
Current                                                          4,352,592       2,539,251
Deferred                                                         2,462,406       1,206,574
                                                                 6,814,998       3,745,825

NET PROFIT                                                      30,599,443      19,302,031

OTHER COMPREHENSIVE INCOME - Net of tax
Unrealized gain on available-for-sale investment   7              166,272                –
Revaluation surplus in land                        9                    –       13,536,000
Income tax                                                              –       (4,060,800)
                                                                  166,272        9,475,200

TOTAL COMPREHENSIVE INCOME                                 P    30,765,715    P 28,777,231

NET PROFIT ATTRIBUTABLE TO:
Equity holders of the parent                               P    30,480,516    P 19,240,170
Noncontrolling interest                                            118,927          61,861
                                                           P    30,599,443    P 19,302,031
(Forward)
                                                         -2-




(Carryforward)

                                                                             2010           2009

TOTAL COMPREHENSIVE INCOME ATTRIBUTABLE TO:
Equity holders of the parent                                        P   30,646,788   P 28,678,417
Noncontrolling interest                                                    118,927         98,814
                                                                    P   30,765,715   P 28,777,231

EARNINGS PER SHARE                                             19   P      0.2540    P     0.1603

See accompanying Notes to Consolidated Financial Statements.
CALAPAN VENTURES, INC. AND SUBSIDIARIES
(Formerly Calapan Equity Ventures, Inc.)
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
FOR THE YEAR ENDED DECEMBER 31, 2010 AND
  ELEVEN MONTHS ENDED DECEMBER 31, 2009
(Amounts in Philippine Pesos)




                                                               Notes                  2010                     2009

CAPITAL STOCK - P1 par value                                   1
  Authorized - 200,000,000 shares*
  Issued - 120,000,000 shares*                                         P    120,000,000           P 120,000,000

REVALUATION SURPLUS IN LAND                                    9               9,438,247                 9,438,247

UNREALIZED GAIN ON
  AVAILABLE-FOR-SALE INVESTMENT                                7                  165,624                              –

RETAINED EARNINGS
Balance at beginning of year                                                  19,240,170                         –
Net profit during the year                                                    30,480,516                19,240,170
Balance at end of year                                                        49,720,686                19,240,170

NONCONTROLLING INTEREST
Balance at beginning of year                                                      535,189                  436,375
Share in:
   Net profit during the year                                                     118,927                   61,861
   Unrealized gain on available-for-sale investment                                   648                        –
   Revaluation surplus in land                                                          –                   36,953
Balance at end of year                                                            654,764                  535,189

                                                                       P    179,979,321           P 149,213,606

See accompanying Notes to Consolidated Financial Statements.


*There was no movement in the Parent Company's authorized and issued capital stock as of December 31, 2010 and 2009.
CALAPAN VENTURES, INC. AND SUBSIDIARIES
(Formerly Calapan Equity Ventures, Inc.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2010 AND
  ELEVEN MONTHS ENDED DECEMBER 31, 2009
(Amounts in Philippine Pesos)



                                                  Notes             2010               2009

CASH FLOWS FROM OPERATING ACTIVITIES
Profit before income tax expense                          P   37,414,441     P   23,047,856
Adjustments for:
    Change in fair value of investment property   8           (14,359,000)        (5,621,750)
    Depreciation                                  9             7,000,665          4,762,611
    Interest income                               4              (811,952)        (1,211,471)
    Provision for retirement                      14              410,524            993,580
    Provision for impairment loss                 5               169,941            515,249
    Financial charges                                              16,293              7,836
    Excess of net asset of acquired subsidiary
      over cost of investment                                          –         (3,862,119)
    Receivables written off                                            –            225,003
    Reversal of allowance for impairment loss                          –           (201,531)
Operating profit before working capital changes               29,840,912         18,655,264
Change in operating assets and liabilities
  Decrease (increase) in:
    Receivables                                                (3,251,543)        (3,666,737)
    Prepayments and other current assets                       (2,452,532)           107,762
  Increase (decrease) in:
    Accounts payable and accrued expenses                      2,429,367         57,701,578
    Customers' deposit                                         1,496,457            299,400
    Retirement benefit obligation                               (455,478)                 –
Cash generated from operations                                27,607,183         73,097,267
Interest and financial charges paid                           (9,131,789)        (5,695,747)
Income taxes paid                                             (2,889,332)          (400,646)
Interest received                                                811,952          1,211,471
Net cash provided by operating activities                     16,398,014         68,212,345

CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions of:
    Property and equipment                                    (41,773,858)       (90,462,806)
    Available-for-sale investments                                      –         (1,000,000)
Increase in:
    Due from related parties                                   (7,142,584)       (13,334,748)
    Other noncurrent assets                                     1,070,399         (1,375,156)
Cash acquired from subsidiaries                                         –         13,081,255
Net cash used in investing activities                         (47,846,043)       (93,091,455)

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from:
    Loan availment                                            17,199,757         44,514,196
    Capital subscriptions                                              –         12,500,000
Payment of loan                                               (7,717,566)        (4,046,024)
Increase in due to related parties                            (1,328,135)        10,955,783
Net cash provided by financing activities                      8,154,056         63,923,955
(Forward)
                                                         -2-




(Carryforward)

                                                                             2010              2009

NET INCREASE (DECREASE) IN
  CASH AND CASH EQUIVALENTS                                            (23,293,973)       39,044,845

CASH AND CASH EQUIVALENTS
  AT BEGINNING OF YEAR                                                 39,044,845                  –

CASH AND CASH EQUIVALENTS
  AT END OF YEAR                                               4   P   15,750,872     P   39,044,845

See accompanying Notes to Consolidated Financial Statements.
CALAPAN VENTURES, INC. AND SUBSIDIARIES
(Formerly Calapan Equity Ventures, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in Philippine Pesos)




1. Corporate Information

   Calapan Ventures, Inc. (“CVI” or “the Parent Company” formerly Calapan Equity Ventures, Inc.
   and subsidiaries, collectively referred to as “the Group”), were incorporated in the Philippines
   and were registered with the Securities and Exchange Commission (SEC) on January 30, 2009.

   The Parent Company is a subsidiary of Jolliville Holdings Corporation (JOH), a company
   incorporated in the Philippines and listed in the Philippine Stock Exchange, Inc.

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

                                                                                     Percentage of
    Name of Subsidiary                                     Date Incorporated            Ownership
    Calapan Waterworks Corporation (CWC)                       May 23, 1991                 99.61
    Tabuk Water Corp. (Tabuk Water)*                        August 14, 2006                100.00
    Kristal Water Source Corp. (Kristal Water)*                May 11, 2007                100.00
   * preoperating stage

   The Parent Company was incorporated primarily to engage in, operate, conduct and maintain
   the business of trading, processing, assembling, manufacturing, and/or fabricating and
   exporting, importing, buying, acquiring, holding, or otherwise disposing of and dealing in
   goods, wares, supplies, materials, articles, merchandise, commodities, equipment, hardware,
   appliances, minerals, metals, timber, lumber and real and personal properties of every kind,
   class and description, whether natural or artificial which may become articles of commerce.

   On July 8, 2009, JOH passed a resolution declaring 32% property dividends corresponding to
   90,080,000 shares of the Parent Company.         The declaration was approved by JOH’s
   stockholders during the annual stockholders’ meeting on August 18, 2009.               On
   January 28, 2010, the SEC approved the notice of property dividend declaration of JOH
                  P
   amounting to =90,080,000 payable to JOH’s stockholders of record as of December 15, 2009.
   Subsequently on December 22, 2009, a stockholder of JOH executed a deed of assignment of
   shares of stocks of the Parent Company equivalent to 40 million shares in favor of certain
   subsidiaries of JOH.

   On December 16, 2009, Elgeete Holdings, Inc. assigned its 100% ownership in Kristal Water to
                                              P
   the Parent Company amounting to =250,000 equal to 250,000 shares.                   Also in
   December 16, 2009, CWC and Ormina Realty and Development Corporation (ORDC) assigned
   their 67% and 33% ownership, respectively, in Tabuk Water to the Parent Company amounting
      P                P
   to =6.7 million and =3.3 million, respectively.
                                                 -2-




   The principal activities of the subsidiaries are as follows:

    Name of subsidiary      Principal activity

   CWC                      Operates, manages and maintains the general business of
                            development and utilization of water resources to harness, produce
                            and supply water for domestic, municipal, agricultural, industrial,
                            commercial or recreational purposes.
   Tabuk Water              Will engage in the operation, management and maintenance of
                            development and utilization of water resources. Also, will acquire,
                            own, lease, construct, install, equip, operate, manage and maintain
                            plants.
   Kristal Water            Will engage in the operation, management and maintenance of
                            development and utilization of water resources. Also, will acquire,
                            own, lease, construct, install, equip, operate, manage and maintain
                            plants as well as operation of ice planting and distribution and sale of
                            ice.

   On October 23, 2002, the 12th Congress of the Republic of the Philippines enacted Republic Act
   No. 9185 whereby CWC was granted a franchise to construct, install, operate, and maintain for
   commercial purposes and in the public interest, a water supply and sewerage system for the
   purpose of distributing water for sale and for sanitation in the City of Calapan, province of
   Oriental Mindoro. The franchise is for a period of 25 years from the date of enactment. The
   act took effect on February 9, 2003.

   CWC was also granted a certificate of public convenience by the National Water Resources
   Board on December 18, 2002 and will expire on January 17, 2013.

   The Parent Company started commercial operations when JOH assigned to CVI its shares in
   CWC on March 31, 2009.

   The registered address of the Parent Company is at 4th Floor 20 Lansbergh Place Bldg., 170
   Tomas Morato, Quezon City.

   The consolidated financial statements of the Group as of and for the years ended
   December 31, 2010 and eleven months ended December 31, 2009 were approved by the Board
   of Directors (BOD) for issue on February 14, 2011.



2. Summary of Significant Accounting and Financial Reporting Policies

   The principal accounting policies adopted in preparing the consolidated financial statements of
   the Group are as follows:

   Basis of Preparation of Financial Statements
   The accompanying consolidated financial statements have been prepared on the historical cost
   basis except for revaluation for certain property. These consolidated financial statements are
   presented in Philippine Pesos, which is the Group’s functional and presentation currency under
   Philippine Financial Reporting Standards (PFRS). All values are rounded to the nearest peso,
   except when otherwise indicated.
                                            -3-




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

Basis of Consolidation
The consolidated financial statements include the accounts of the Parent Company and
subsidiaries. Subsidiaries are consolidated from the date on which control is transferred to the
Parent Company and cease to be consolidated from the date on which control is transferred out
of the Parent Company. The results of subsidiaries acquired or disposed of during the year are
included in the consolidated statement of comprehensive income from the effective date of
acquisition or up to the effective date of disposal, as appropriate. All significant intercompany
accounts, transactions, and income and expenses and losses are eliminated upon consolidation.

Where necessary, adjustments are made to the financial statements of subsidiaries to bring
their accounting policies in line with those used by other members of the Group.

Noncontrolling interests in the net assets of consolidated subsidiaries are identified separately
from the Group’s equity therein. Noncontrolling interests consist of the amount of those
interests at the date of the original business combination and the noncontrolling interest’s
share of changes in equity since the date of the combination. Losses applicable to the
noncontrolling interest in excess of the noncontrolling interest’s in the subsidiary’s equity are
allocated against the interest of the Parent Company except to the extent that the minority has
a binding obligation and is able to make an additional investment to cover losses.

Disposals of equity investments to noncontrolling interests result in gains and losses for the
Group are recorded in the consolidated statement of comprehensive income. Purchase of
equity shares from noncontrolling interests results in goodwill, being the difference between
any consideration paid and the relevant share acquired in the fair value of the net identifiable
assets of the subsidiary.

Changes in Accounting Policies
The accounting policies adopted are consistent with those of the previous financial year except
for the adoption of the amendment to PAS and PFRS and interpretations issued by FRSC, which
became effective on or before January 1, 2010 as follows:

Effective in 2010

   Amendment to PFRS 2, Share-based Payment: Group Cash-settled Share-based Payment
    Transactions, clarifies the scope and the accounting for group cash-settled share-based
    payment transactions.

    The revision had no effect in the Group’s consolidated financial statements as there was no
    transaction during the year that would apply such revised standard.
                                             -4-




   Revised PFRS 3, Business Combinations and PAS 27, Consolidated and Separate Financial
    Statements, introduces significant changes in the accounting for business combinations
    occurring after this date. Changes affect the valuation of noncontrolling interests, the
    accounting for transaction costs, the initial recognition and subsequent measurement of a
    contingent consideration and business combinations achieved in stages. These changes will
    impact the amount of goodwill recognized, the reported results in the period that an
    acquisition occurs and future reported results. PAS 27 (Amended) requires that a change in
    the ownership interest of a subsidiary (without loss of control) is accounted for as a
    transaction with owners in their capacity as owners. Therefore, such transactions will no
    longer give rise to goodwill, nor will it give rise to a gain or loss. Furthermore, the amended
    standard changes the accounting for losses incurred by the subsidiary as well as the loss of
    control of a subsidiary. PFRS 3 (Revised) will be applied prospectively while PAS 27
    (Amended) will be applied retrospectively with a few exceptions.

    The changes by PFRS 3 (Revised) and PAS 27 (Amended) will affect future acquisitions or
    loss of control of subsidiaries and transactions with noncontrolling interests.

   Amendment to PAS 39, Financial Instruments: Recognition and Measurement – Eligible
    Hedged Items, clarifies that an entity is permitted to designate a portion of the fair value
    changes or cash flow variability of a financial instrument as a hedged item. This also covers
    the designation of inflation as a hedged risk or portion in particular situations.

    This is currently not applicable to the Group.

   Philippine Interpretation IFRIC 17, Distributions of Non-Cash Assets to Owners, provides
    guidance on how to account for noncash distributions to owners. The interpretation
    clarifies when to recognize a liability, how to measure it and the associated assets, and
    when to derecognize the asset and liability.

    The above interpretation is not relevant to the Group as there was no such arrangement
    made during the year.

   Philippine Interpretation IFRIC 18, Transfers of Assets from Customers, covers accounting
    for transfers of items of property, plant and equipment by entities that receive such
    transfers from their customers. Agreements within the scope of this interpretation are
    agreements in which an entity receives from a customer an item of property, plant and
    equipment that the entity must then use either to connect the customer to a network
    or to provide the customer with ongoing access to a supply of goods or services, or to
    do both. This interpretation also applies to agreements in which an entity receives cash
    from a customer when that amount of cash must be used only to construct or acquire an
    item of property, plant and equipment and the entity must then use the item of property,
    plant and equipment either to connect the customer to a network or to provide the
    customer with ongoing access to a supply of goods or services, or to do both.

    The above interpretation is not relevant to the Group as there was no such arrangement
    made during the year.
                                            -5-




Improvements to Existing Standards
In April 2009, International Accounting Standards Board (IASB) issued amendments to certain
standards, primarily with a view to removing inconsistencies and clarifying wordings. There are
separate transitional provisions for each standard.

   PFRS 2, Share-based Payment, clarifies that the contribution of a business on formation of a
    joint venture and combinations under common control are not within the scope of PFRS 2
    even though they are out of scope of PFRS 3, Business Combinations (Revised).

   PFRS 5, Noncurrent Assets Held for Sale and Discontinued Operations, clarifies that the
    disclosures required in respect of non-current assets and disposal groups classified as held
    for sale or discontinued operations are only those set out in PFRS 5. The disclosure
    requirements of other PFRSs only apply if specifically required for such non-current assets or
    discontinued operations.

   PFRS 8, Operating Segments, clarifies that segment assets and liabilities need only be
    reported when those assets and liabilities are included in measures that are used by the
    chief operating decision maker.

   Amendment to PAS 1, Presentation of Financial Statements, clarifies that the terms of a
    liability that could result at anytime in its settlement by the issuance of equity instruments
    at the option of the counterparty do not affect its classification.

   Amendment to PAS 7, Statement of Cash Flows, clarifies that only an expenditure that
    results in a recognized asset can be classified as a cash flow from investing activities.

   Amendment to PAS 17, Leases, removes the specific guidance on the classification of leases
    of land. Prior to the amendment, leases of land were classified as operating leases. The
    amendment now requires that leases of land are classified as either “finance” or “operating”
    in accordance with the general principles of PAS 17. It also clarifies that when a lease
    includes both land and building elements, an entity assesses the classification of each
    element as finance or an operating lease separately in accordance with the general guidance
    on lease classification set out in PAS 17. The amendments will be applied retrospectively.

   Amendment to PAS 18, Revenue, provides guidance on determining whether an entity is
    acting as a principal or as an agent. The features to consider are whether the Group: a) has
    primary responsibility for providing the goods or services; b) has inventory risk; c) has
    discretion in establishing prices; and d) bears the credit risk.

   Amendment to PAS 36, Impairment of Assets, clarifies that the largest unit permitted for the
    purpose of allocating goodwill to cash-generating units for goodwill impairment is the
    operating segment level defined in PFRS 8 before aggregation.

   PAS 38, Intangible Assets, clarifies that if an intangible asset acquired in a business
    combination is identifiable only with another intangible asset, the acquirer may recognize
    the group of intangible assets as a single asset provided the individual assets have similar
    useful lives. It also clarifies that the valuation techniques presented for determining the fair
    value of intangible assets acquired in a business combination that are not traded in active
    markets are only examples and are not restrictive on the methods that can be used.
                                            -6-




   PAS 39, Financial Instruments: Recognition and Measurement, clarifies the following: (a)
    that a prepayment option is considered closely related to the host contract when the
    exercise price of a prepayment option reimburses the lender up to the approximate present
    value of lost interest for the remaining term of the host contract; (b) that the scope
    exemption for contracts between an acquirer and a vendor in a business combination to buy
    or sell an acquiree at a future date applies only to binding forward contracts, and not
    derivative contracts where further actions by either party are still to be taken; and (c) that
    gains or losses on cash flow hedges of a forecast transaction that subsequently results in the
    recognition of a financial instrument or on cash flow hedges of recognized financial
    instruments should be reclassified in the period that the hedged forecast cash flows affect
    profit or loss.

   Philippine Interpretation IFRIC 9, Reassessment of Embedded Derivatives, clarifies that it
    does not apply to possible reassessment at the date of acquisition, to embedded derivatives
    in contracts acquired in a business combination between entities or businesses under
    common control or the formation of joint venture.

   Philippine Interpretation IFRIC 16, Hedges of a Net Investment in a Foreign Operation,
    states that, in a hedge of a net investment in a foreign operation, qualifying hedging
    instruments may be held by any entity or entities within the group, including the foreign
    operation itself, as long as the designation, documentation and effectiveness requirements
    of PAS 39 that relate to a net investment hedge are satisfied.

The above improvements to existing standards did not have significant impact on the Group’s
consolidated financial statements.

Future Changes in Accounting Policies
The Group did not early adopt the following standard and Philippine Interpretation that have
been approved but are not yet effective:

Effective in 2011

   PAS 24 (Revised), Related Party Disclosures
   Philippine Interpretation IFRIC 19, Extinguishing Financial Liabilities with Equity
   Amendment to PAS 32, Classification of Rights to Issue
   Amendment to Philippine Interpretation IFRIC 14, Prepayments of a Minimum Funding
    Requirement

Effective in 2012

   Philippine Interpretation IFRIC 15, Agreements for the Construction of Real Estate

Effective in 2013

   PFRS 9, Financial Instruments

The Group is currently assessing the relevance and impact of the above standards, amendment
to standards and interpretations.     The revised disclosures on the consolidated financial
statements required by the above standard and interpretation will be included in the Group’s
consolidated financial statements when these are adopted.
                                              -7-




Significant Accounting Policies

Financial Assets and Liabilities
Financial assets and financial liabilities are recognized initially at fair value. Transaction costs
are included in the initial measurement of all financial assets and liabilities, except for financial
instruments measured at fair value through profit and loss (FVPL). Fair value is determined by
preference to the transaction price or other market prices. If such market prices are not
reliably determinable, the fair value of the consideration is estimated as the sum of all future
cash payments or receipts, discounted using the prevailing market rates of interest for a similar
instruments with similar maturities.

The Group recognizes a financial asset or liability in the consolidated statement of financial
position when it becomes a party to the contractual provisions of the instrument. A financial
liability (or a part of a financial liability) is derecognized when the obligation is extinguished. In
the case of a regular purchase or sale of financial assets, recognition and derecognition, as
applicable, is done using settlement date accounting.

Financial assets are classified into the following categories: financial assets at FVPL, loans and
receivables, held-to-maturity investments and available-for-sale financial assets as
appropriate. Financial liabilities are classified into the following categories: financial liabilities
at FVPL and other financial liabilities.       The Group determines the classification at initial
recognition and, where allowance is appropriate, re-evaluates this designation at every
reporting date. As of December 31, 2010 and 2009, the Group has financial assets and
liabilities under loans and receivables, available-for-sale and other financial liabilities.

   Loans and Receivables
    Loans and receivables are non-derivative financial assets with fixed or determinable
    payments and are not quoted in an active market. They arise when the Group provides
    money, goods or services directly to a debtor with no intention of trading the receivables.
    Such assets are carried at cost or amortized cost in the consolidated statements of financial
    position. Amortization is determined using the effective interest method. Loans and
    receivables are included in current assets if maturity is within 12 months from the end of
    financial reporting period. Otherwise, these are classified as noncurrent assets.

    This category includes cash and cash equivalents, trade receivables, due from related
    parties and utilities and other deposits and special bank deposits.

   Available-for-sale financial assets (AFS)
    AFS financial assets are those non-derivative financial assets that are designated as AFS or
    are not classified in any of the three preceding categories. After initial recognition, AFS
    financial assets are measured at fair value with gains or losses being recognized as
    separate component of stockholders’ equity 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 consolidated statement of comprehensive
    income.

    The fair value of investments that are actively traded in organized financial market is
    determined by reference to quoted market bid prices at the close of business on the end of
    each financial reporting period. For investments where there is no active market, fair value
    is determined using valuation techniques. Such techniques include recent arm’s length
    market transaction; reference to the current market value of another instrument which is
    substantially the same; discounted cash flows analysis and option pricing models.
                                              -8-




    This category includes investment in mutual fund managed by an insurance company.

   Other Financial Liabilities
    Other financial liabilities pertain to liabilities that are not held for trading or not designated
    as at FVPL upon inception of the liability. A financial liability at FVPL is acquired principally
    for the purpose of repurchasing in the near term or upon initial recognition, it is designated
    by management as at FVPL.

    Other financial liabilities are initially recorded at fair value less directly attributable
    transaction costs. After initial recognition, other financial liabilities are subsequently
    measured at amortized cost using effective interest method. These include liabilities arising
    from operations and borrowings.

    This category includes accounts payable and accrued expenses, loans payable, due to
    related parties and customers’ deposits.

Impairment of Financial Assets
The Group assesses at each end of financial reporting period whether a financial asset or group
of financial assets is impaired.

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 asset’s carrying amount and the present value of estimated future cash flows
(excluding future credit losses that have not been incurred) discounted at the financial asset’s
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 use of an
allowance account. The amount of the loss shall be recognized in the Group’s consolidated
statement of comprehensive income.

The Group first assesses whether objective evidence of impairment exists individually for
financial assets that are individually significant, and individually or collectively for financial
assets that are not individually significant. If it is determined that no objective evidence of
impairment exists for an individually assessed financial asset, whether significant or not, the
asset is included in a group of financial assets with similar credit risk characteristics and that
group of financial asset is collectively assessed for impairment. Assets that are individually
assessed for impairment and for which an impairment loss is or continues to be recognized are
not included in a collective assessment of impairment.

If, in a subsequent period, the amount of the impairment loss decrease can be related
objectively to an event occurring after the impairment was recognized, the previously
recognized impairment loss is reversed. Any subsequent reversal of an impairment loss is
recognized in the consolidated statement of comprehensive income to the extent that the
carrying value of the asset does not exceed its amortized cost at the reversal date.
                                             -9-




AFS Financial Asset
If an AFS financial asset is impaired, an amount comprising the difference between its cost (net
of any principal payment and amortization) and its current fair value, less any impairment loss
previously recognized in the consolidated statement of comprehensive income, is transferred
from consolidated statement of equity to the consolidated statement of comprehensive income.
Reversals in respect of equity instruments classified as AFS financial assets are not recognized
in the consolidated statement of comprehensive income. For AFS financial assets, the Group
assesses at each reporting date whether there is objective evidence that an investment or a
group of investments is impaired. In the case of equity investments classified as AFS financial
assets, objective evidence would include a significant or prolonged decline in the fair value of
the investment below its cost. Where there is evidence of impairment, the cumulative loss,
measured as the difference between the acquisition cost and the current fair value, less any
impairment loss on that investment is removed from consolidated statement of equity and
recognized in the consolidated statement of comprehensive income. Impairment losses on
equity investments are not reversed through the consolidated statement of comprehensive
income; increases in their fair value after impairment are recognized directly in consolidated
statement of equity.

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 its 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 asset’s
carrying amount and the present value of estimated future cash flows discounted at the current
market rate of return for a similar financial asset.

Derecognition of Financial Assets and Liabilities

Financial assets
A financial asset is derecognized when (1) the rights to receive cash flows from the financial
instruments expire, (2) the Group retains the right to receive cash flows from the asset, but
has assumed an obligation to pay them in full without material delay to a third party under a
“pass-through” arrangement, or (3) the Group has transferred its rights 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 Group has transferred its rights to receive cash flows from an asset or has entered
into a pass-through arrangement and has neither transferred nor retained substantially all the
risks and rewards of an asset nor transferred control of the assets, the asset is recognized to
the extent of the Group’s continuing involvement in the asset. Continuing involvement that
takes the form of a guarantee over the transferred asset is measured at the lower of the
original carrying amount of the asset and the maximum amount of consideration that the
Group could be required to repay.

Financial Liabilities
A financial liability is derecognized when the obligation under the liability is discharged,
cancelled or expired. Where the 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 consolidated statement of comprehensive income.
                                            - 10 -




Offsetting Financial Instruments
Financial assets and financial liabilities are offset and the net amount is reported in the
consolidated statement of financial position 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
consolidated statement of financial position.

Revenue and Cost Recognition
Revenue is recognized when it is probable that the economic benefit associated with the
transactions will flow to the Group and the amount can be reliably measured. The following
specific recognition criteria must also be met before revenue is recognized:

   Water service revenues are recognized when the related services are rendered.

   Sales are recognized upon delivery of goods sold, and the transfer of risks and rewards to
    the customer has been completed.

   Interest income is recognized on a time proportion basis that reflects the effective yield on
    the asset.

   Other income is recorded when the related income is earned.

Cost and expenses are recognized in the consolidated statement of comprehensive income
upon utilization of the service or at the date they are incurred. Except for borrowing costs
attributable to qualifying assets, all finance costs are recognized in the consolidated statement
of comprehensive income.

Merchandise Inventory
Merchandise inventory is valued at lower of cost or net realizable value. Cost is determined by
the first-in, first-out (FIFO) method. Net realizable value is the selling price in the ordinary
course of business, less costs of marketing and distribution

Prepayments and Other Current Assets
Prepayments are expenses paid in advance and recorded as asset before they are utilized. This
account comprises the following:

   Input Tax. Input tax is recognized when an entity in the Group purchases goods or
    services from a Value Added Tax (VAT)-registered supplier. This account is offset, on a per
    entity basis, against any output tax previously recognized.

   Prepaid Rent and Other Expenses. Prepaid rent and other expenses are apportioned over
    the period covered by the payment and charged to the appropriate account in the
    consolidated statement of comprehensive income when incurred.

   Creditable Withholding Tax. Creditable withholding tax is deducted from income tax
    payable in the same year the revenue was recognized.

Prepayments and other assets that are expected to be realized for no more than 12 months
after the reporting period are classified as current asset. Otherwise, these are classified as
other noncurrent asset.
                                            - 11 -




Investment Property
Investment properties consist of properties held to earn rental income, for capital appreciation
or both. These are initially recorded at cost, including transaction cost. The cost of a
purchased investment property comprises its purchase price and any directly attributable
expenditure. Directly attributable expenditure includes, for example, professional fees for legal
services, property transfer taxes and other transaction costs. Subsequent to initial recognition,
investment properties are carried at fair value at end of financial reporting period. Gains or
losses arising from changes in the fair value of investment property are included in profit or
loss for the period in which they arise.

A company-occupied property classified under property and equipment account becomes an
investment property when it ends company-occupation. Decrease in the carrying amount is
recognized in consolidated statement of comprehensive income. However, to the extent that
an amount is included in its revaluation surplus, the decrease is charged against that
revaluation surplus. Increase in carrying amount is recognized in consolidated statement of
comprehensive income to the extent that the increase reverses a previous impairment loss for
such property. The amount recognized in consolidated statement of comprehensive income
does not exceed the amount needed to restore the carrying amount that would have been
determined (net of depreciation) had no impairment loss been recognized. Any remaining part
of the increase is credited directly to equity in revaluation surplus. Revaluation surplus
included in equity maybe transferred to retained earnings. The transfer from revaluation
surplus to retained earnings is not made through profit or loss.

Investment property is derecognized on disposal, or when the investment property is
permanently withdrawn from use and no future economic benefit is expected from its disposal.
Any gains or losses on the retirement or disposal of an investment property are recognized in
the consolidated statement of comprehensive income in the year of retirement or disposal.

Where there is clear evidence that the fair value of an investment property is not reliably
determinable on a continuing basis, the cost model under PAS 16 “Property, Plant and
Equipment”, shall be used.

The Group’s investment property consists of parcels of land located in Calapan, Oriental
Mindoro.

Property and Equipment
Land is carried at appraised values as determined by an independent firm of appraisers on
December 22, 2009. Other property and equipment are carried at cost less accumulated
depreciation, amortization and any allowance for impairment in value except for land.

Initial cost of property and equipment comprises its construction cost or purchase price and
any directly attributable cost of bringing the assets to its working condition and location for its
intended use. Expenses incurred and paid after the property and equipment have been put
into operation, such as repairs and maintenance and overhaul costs, are normally charged to
consolidated statement of comprehensive income when the costs are incurred. In situation
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 and
equipment beyond its originally assessed standard of performance, the expenditures are
capitalized as an additional cost of property and equipment.
                                               - 12 -




Depreciation is computed using the straight-line method over the following estimated useful
lives:

                                                                           Years
     Land improvements                                                        20
     Water utilities and distribution system                              5 – 50
     Office furniture and equipment                                            5
     Service vehicles                                                          5
     Staffhouse, warehouse and office                                          5

The useful life and depreciation methods are reviewed periodically to ensure that the method
and period of depreciation are consistent with the expected pattern of economic benefits from
items of property and equipment.

Construction in progress and equipment for installation, included in the property and
equipment, is stated at cost. This includes cost of construction, equipments and other direct
costs. Construction in progress and equipment for installation is not depreciated until such
time as the relevant assets are completed or installed and put into operational use.

When assets are retired or otherwise disposed of, the cost and related accumulated
depreciation are eliminated from the accounts, and any gain or loss resulting from their
disposal is credited or charged to current operations.

Goodwill
Goodwill arising from the acquisition of a subsidiary or a jointly controlled entity represents the
excess of the cost of acquisition over the Group’s interest in the net fair value of the identifiable
assets, liabilities and contingent liabilities of the subsidiary or jointly controlled entity
recognized at the date of acquisition. Goodwill is initially recognized as an asset at cost and is
subsequently measured at cost less any accumulated impairment losses. Goodwill is reviewed
for impairment annually or more frequently, if events of changes in circumstances indicate that
the carrying value may be impaired. An impairment loss recognized for goodwill is not
reversed in a subsequent period. Negative goodwill, which is the excess of net fair value of
subsidiaries’ identifiable assets, liabilities and contingent liabilities over the cost of business
combination, is immediately recognized as income.

On disposal of a subsidiary or a jointly controlled entity, the attributable amount of goodwill is
included in the determination of the profit or loss on disposal.

Impairment of Non-financial Assets
The carrying values of long-lived assets are reviewed for impairment when events or changes
in circumstances indicate that the carrying values may not be recoverable. If any such
indication exists and where the carrying values exceed the estimated recoverable amounts, the
assets or cash-generating units are written down to their recoverable amounts.              The
recoverable amount of the asset is the greater of net selling price and value in use. The net
selling price is the amount obtainable from the sale of an asset in an arm’s length transaction
less cost to sell. In assessing value in use, the estimated future cash flows are discounted to
their present value using a pre-tax discount rate that reflects current market assessment of the
time value of money and the risks specific to the asset. For an asset that does not generate
largely independent cash inflows, the recoverable amount is determined for the smallest cash-
generating unit to which the asset belongs.         Impairment losses are recognized in the
consolidated statement of comprehensive income in the period in which it arises unless the
asset is carried at a revalued amount in which case the impairment is charged to the
revaluation surplus of the said asset.
                                           - 13 -




A previously recognized impairment loss is reversed only if there has been a change in the
estimates used to determine the recoverable amount of an asset, however, not to an amount
higher than the carrying amount that would have been determined (net of any depreciation and
amortization) had no impairment loss been recognized for the asset in prior years.

A reversal of an impairment loss is credited to current operations.

Equity
Capital stock is determined using the nominal value of shares that have been issued.

Revaluation surplus accounts for the excess of the fair market value over the carrying amounts
of Land included under the Property and equipment account. Any appraisal decrease is first
offset against appraisal increment on earlier revaluation with respect to the same property and
equipment and is thereafter charged to operations.

Net unrealized gain on available-for-sale investment accounts for the excess of the fair market
value over the carrying amounts of these investments. When fluctuation is deemed
permanent, the gain or loss resulting from such fluctuation will be reversed and charged to
consolidated statement of comprehensive income in the year that the permanent fluctuation is
determined.

Retained earnings include all current and prior period net profit as disclosed in the consolidated
statement of comprehensive income.

Retirement Benefits Costs
The Group’s retirement cost is actuarially determined using the projected unit credit method.
This method reflects service rendered by employees up to the date of valuation and
incorporates assumptions concerning employees’ projected salaries. Actuarial valuations are
conducted with sufficient regularity with option to accelerate when significant changes to
underlying assumptions occur. Retirement expense includes current service cost, interest cost
and amortization of unrecognized past service cost and recognition of actuarial gains or losses.

The current service cost is a level annual amount or a fixed percentage of salary which, when
invested at the rate of interest assumed in the actuarial valuation, is sufficient to provide the
required retirement benefit at the employee’s retirement.

Past service cost is the present value of the excess of the projected retirement benefits over
the amount expected to be provided by future contributions based on the service cost. Past
service cost is recognized immediately to the extent that the benefits are already vested, and
otherwise is amortized on a straight-line basis over the average period until the benefits
become vested.

Actuarial gains and losses that exceed 10% of the greater of the present value of the Group’s
defined benefit obligation and the fair value of plan assets are amortized over the expected
average remaining working lives of the participating employees.

The retirement benefit obligation recognized in the consolidated statement of financial position
represents the present value of the defined benefit obligation as adjusted for unrecognized
actuarial gains and losses and unrecognized past service cost, and as reduced by the fair value
of plan assets, if any. Any assets resulting from this calculation is limited to unrecognized
actuarial losses and past service costs, plus the present value of available refunds and
reductions in future contributions to the plan.
                                            - 14 -




Related Party Transactions
Transactions between related parties are based on terms similar to those offered to non-related
parties. Parties are considered to be related if one party has the ability, directly or indirectly,
to control the other party or exercise significant influence over the other party in making
financial and operating decisions and the parties are subject to common control or common
significant influence. Related parties may be individuals or corporate entities.

Borrowing Costs
Borrowing costs incurred during the construction period on loans and advances used to finance
construction and property development are capitalized as part of construction and development
costs included under “Property and equipment” account in the consolidated statement of
financial position.

Capitalization of borrowing costs commences when the activities to prepare the asset are in
progress and expenditures and borrowing costs are being incurred. Capitalization of borrowing
costs ceases when substantially all the activities necessary to prepare the asset for its intended
use are complete. If the carrying amount of the asset exceeds its recoverable amount, an
impairment loss is recorded. Capitalized borrowing cost is based on applicable weighted
average borrowing rate.

All other borrowing costs are charged to operation in the period in which they are incurred.

Leases
Leases are classified as finance leases whenever the term of the lease transfer substantially all
the risks and rewards of ownership to the lessee. All other leases are classified as operating
leases.

Rental expenses under operating leases are charged to profit or loss on a straight-line basis
over the term of the lease.

The Group determines whether an arrangement is, or contains a lease based on the substance
of the arrangement. It makes an assessment of whether the fulfillment of the arrangement is
dependent on the use of a specific asset or assets and the arrangement conveys a right to use
the asset.

Income Taxes
Income taxes represent the sum of the tax currently due and deferred tax.

The tax currently due is based on taxable income for the year. Taxable income differs from
income as reported in the consolidated statement of comprehensive income because it
excludes items of income or expenses that are taxable or deductible in other years and it
further excludes items that are never taxable or deductible. The Group’s liability for current
income tax is calculated using tax rates that have been enacted or substantively enacted at the
end of financial reporting period.
                                             - 15 -




Deferred tax is provided, using the liability method, on all temporary differences at the end of
financial reporting period between the tax bases of assets and liabilities and their carrying
amounts for financial reporting purposes and carryforward benefits of net operating loss
carryover (NOLCO) and minimum corporate income tax (MCIT). Deferred tax assets are
recognized for all deductible temporary differences to the extent that it is probable that taxable
profit will be available against which the deductible temporary difference can be utilized.
Deferred tax liabilities are recognized for all taxable temporary differences. Deferred tax
assets and liabilities are measured using the tax rate that is expected to apply to the period
when the asset is realized or the liability is settled.

The carrying amount of deferred tax assets is reviewed at each end of financial reporting period
and reduced to the extent that it is not probable that sufficient taxable profit will be available to
allow all or part of the deferred income tax assets to be utilized.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to off-set
current tax assets against current tax liabilities.

Income tax relating to items recognized directly in equity is recognized in consolidated
statement of equity and not in the consolidated statement of comprehensive income.

Earnings per Share (EPS)
EPS is determined by dividing net income for the year by the weighted average number of
shares outstanding during the year including fully paid but unissued shares as of the end of the
year, adjusted for any subsequent stock dividends declared.

Provisions
Provisions are recognized only when the following conditions are met: a) there exists a present
obligation (legal or constructive) as a result of past event; b) it is probable (i.e. more likely
than not) that an outflow of resources embodying economic benefits will be required to settle
the obligation; and, c) reliable estimate can be made of the amount of the obligation.
Provisions are reviewed at each end of financial reporting period and adjusted to reflect the
current best estimate.

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

Events after the End of Financial Reporting Period
Post year-end events that provide additional information about the Group’s position at the end
of financial reporting period (adjusting events) are reflected in the Group’s consolidated
financial statements. Post year-end events that are non-adjusting events are disclosed in the
notes to consolidated financial statements when material.

Management’s Use of Judgments and Estimates
The preparation of the Group’s consolidated financial statements in accordance with PFRS
requires management to make estimates and assumptions that affect the amounts reported in
the consolidated financial statements and accompanying notes.              The estimates and
assumptions used in the accompanying financial statements are based upon management’s
evaluation of relevant facts and circumstances as of the date of the consolidated financial
statements. Actual results could differ from such estimates. The effect of any changes in
estimates will be recorded in the Group’s consolidated financial statements when determinable.
                                            - 16 -




Estimates and judgments are continually evaluated and are based on historical experience and
other factors, including expectations of future events that are believed to be reasonable under
the circumstances.

Judgments
In the process of applying the Group’s 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 consolidated financial statements:

   Distinction between Investment Property and Owner-Occupied Property
    The Group determines whether a property qualifies as investment property. In making its
    judgments, the Group considers whether the property generates cash flows largely
    independent of the other assets held by an entity. Owner-occupied properties generate
    cash flows that are attributable not only to the property but also other assets used in the
    supply process.

    Some properties are held to earn rentals or for capital appreciation and other properties
    are held for use in rendering of services or for administrative purposes. If the portion
    cannot be sold separately, the property is accounted for as an investment property only if
    an insignificant portion is held for use in the production or supply of goods and services or
    for administrative purposes. Judgment is applied in determining whether ancillary services
    are so significant that a property does not qualify as investment property. The Group
    considers each property separately in making its judgment.

   Classification of Financial Instruments
    The Group classifies a financial instrument, or its component parts, on initial recognition
    financial liability or an equity instrument in accordance with the substance of the
    contractual definitions of a financial asset, a financial liability or an equity instrument. The
    substance rather than its legal form, governs its classification in the consolidated statement
    of financial position.

Estimates
The key assumptions concerning the future and other sources of estimation uncertainty at the
end of financial reporting period 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:

   Impairment of Receivables
    The Group maintains allowances for impairment losses on receivables at a level considered
    adequate to provide for potential uncollectible receivables. The level of this allowance is
    evaluated by the management on the basis of factors that affect the collectibility of the
    accounts.

    The factors include, but are not limited to, the length of relationship with the customer, the
    customer’s payment behavior and known market factors. The Group reviews the age and
    status of receivables, and identifies accounts that are to be provided with allowances on a
    continuous basis.     The Group provides full allowance for receivables that it deems
    uncollectible. The amount and timing of recorded expenses for any period would differ if
    the Group made different judgments or utilized different estimates. An increase in the
    allowance for impairment losses on receivables would increase recorded operating expenses
    and decrease current assets.
                                           - 17 -




                                                            P                P
    The Group’s allowance for impairment losses amounted to =1.7 million and =1.5 million as
    of December 31, 2010 and 2009, respectively.       The carrying value of the Group’s
                              P                  P
    receivables amounted to =12.8 million and =9.5 million as of December 31, 2010 and
    2009, respectively (see Note 5).

   Useful Lives of Property and Equipment
    Useful lives of property and equipment are estimated based on the period over which these
    assets are 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. Any reduction in the estimated useful lives of property and equipment
    would increase the Group’s recorded operating expenses and decrease on the related asset
    accounts.

    The carrying value of the Group’s depreciable property and equipment amounted to
    P                  P
    =255.6 million and =212.5 million as of December 31, 2010 and 2009, respectively
    (see Note 9).

   Impairment of Nonfinancial Assets
    The Group reviews investment property, property and equipment and other assets for
    impairment of value. This includes considering certains indications of impairment such as
    significant changes in asset usage, significant decline in market value and obsolescence or
    physical damage on an asset. If such indicators are present and where the carrying
    amount of the asset exceeds its recoverable amount, the asset is considered impaired and
    is written down to its recoverable amount. Determining the net recoverable value of assets
    requires the estimation of cash flows expected to be generated from the continued use and
    ultimate disposition of such assets. While it is believed that the assumptions used in the
    estimation of fair values reflected in the consolidated financial statements are appropriate
    and reasonable, significant changes in these assumptions may materially affect the
    assessment of recoverable values and any resulting impairment loss could have a material
    adverse impact on the results of operations.

    Determining whether goodwill is impaired requires an estimation of the value in use of the
    cash-generating units to which goodwill has been allocated. The value in use calculation
    requires the management to estimate the future cash flows expected to arise from the
    cash-generating unit and a suitable discount rate in order to calculate present value.

    The carrying amounts of investment property, property and equipment and other
    noncurrent assets are disclosed in Notes 8, 9 and 10.

   Retirement and Other Benefits
    The determination of the Group’s obligation and cost for pension and other retirement
    benefits is dependent on management’s selection of certain assumptions used by actuaries
    in calculating such amounts.
                                               - 18 -




       The assumptions for pension costs and other retirement benefits are described in Note 14,
       and include among others, discount and salary increase rates. Actual results that differ
       from the assumptions are accumulated and amortized over future periods and therefore,
       generally affect the Group’s recognized expense and recorded obligation in such future
       periods. While management believes that the assumptions are reasonable and appropriate,
       significant differences in actual experience or significant changes in management
       assumptions may materially affect the Group’s pension and other retirement obligations.

       The Group also estimates other employee benefits obligation and expense, including the
       cost of paid leaves based on historical leave availment of employees, subject to the Group’s
       policy. These estimates may vary depending on the future changes in salaries and actual
       experiences during the year.

                                          P                       P
       Retirement expense amounted to =0.4 million in 2010 and =1.0 million in 2009. The
                                                          P               P
       Group’s retirement benefit obligation amounted to =3.0 million and =3.1 million as of
       December 31, 2010 and 2009, respectively (see Note 14).

      Deferred Tax Assets
       The carrying amount of deferred tax assets is reviewed at each end of financial reporting
       period 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 tax assets to be utilized. Management
       expects future operations will generate sufficient taxable profit that will allow all or part of
       the deferred income tax assets to be utilized.

                                                   P
       The Group’s deferred tax assets amounted to =1.8 million as of December 31, 2010 and
       2009 (see Note 17).

      Financial Assets and Liabilities
       PFRS requires that certain financial assets and liabilities be carried at fair value, which
       requires the use of extensive accounting estimates and judgments. While significant
       components of fair value measurement are determined using verifiable objective evidence
       (i.e. interest rates, volatility rates), the timing and amount of changes in fair value would
       differ with the valuation methodology used. Any change in the fair value of these financial
       assets and liabilities would directly affect income and equity (see Note 20).


3. Segment Reporting

   The Group derives its source of revenue from its utilities segment. The utilities segment (CWC)
   is engaged in the operation, maintenance and distribution of water supplies in the City of
   Calapan, province of Oriental Mindoro and town of Tabuk, province of Kalinga. The Parent
   Company is involved in trading of goods.
                                              - 19 -




   The financial information about the operations of these business segments for the periods
   ended December 31, 2010 and 2009 is summarized as follows:

                                                                   2010
                                          Utilities          Trading     Unallocated      Consolidated
    Segment revenues                P
                                    =90,568,624        =27,338,217
                                                       P               P
                                                                      =15,311,166       P
                                                                                        =133,218,007
    Segment cost and expenses         61,196,487         26,520,180       1,086,234        88,802,901
    Earnings before depreciation
      and income tax                  29,372,137            818,037        14,224,932      44,415,106
    Depreciation (Note 9)              7,000,665                   –                –       7,000,665
    Income tax expense (benefit)       6,836,342             (21,344)               –       6,814,998
    Net income                      P
                                    =15,535,130           =839,381
                                                          P              P
                                                                         =14,224,932     P
                                                                                         =30,599,443

    Segment assets                 P
                                   =314,412,773         =2,610,680
                                                        P                P
                                                                         =82,726,493    P
                                                                                        =399,749,946

    Segment liabilities             P
                                    =88,689,583           =168,113
                                                          P             P
                                                                        =130,912,929    P
                                                                                        =219,770,625

    Capital expenditure (Note 9)    P
                                    =50,178,012                 =–
                                                                P                 P
                                                                                  =–     P
                                                                                         =50,178,012

                                                                    2009
                                          Utilities          Trading     Unallocated     Consolidated
    Segment revenues                P
                                    =59,797,701         =2,831,259
                                                        P              P
                                                                       =10,921,130       P
                                                                                         =73,550,090
    Segment cost and expenses         41,043,119          3,948,416         748,088        45,739,623
    Earnings before depreciation
      and income tax                 18,754,582          (1,117,157)       10,173,042      27,810,467
    Depreciation (Note 9)              4,762,611                  –                 –       4,762,611
    Income tax expense (benefit)       4,080,672           (334,847)                –       3,745,825
    Net income                       P
                                     =9,911,299          (=782,310)
                                                          P              P
                                                                         =10,173,042     P
                                                                                         =19,302,031

    Segment assets                 P
                                   =279,382,074        =13,127,998
                                                       P                 P
                                                                         =61,166,070    P
                                                                                        =353,676,142

    Segment liabilities             P
                                    =84,148,863            =31,091
                                                           P            P
                                                                        =120,282,582    P
                                                                                        =204,462,536

    Capital expenditure (Note 9)    P
                                    =96,150,716                 =–
                                                                P                 P
                                                                                  =–     P
                                                                                         =96,150,716



4. Cash and Cash Equivalents

   This account consists of:

                                                                            2010                2009
    Short-term time deposits                                         P
                                                                     =11,581,428        P
                                                                                        =23,637,128
    Cash in banks                                                      3,953,944          15,192,217
    Petty cash fund                                                      165,500             165,500
    Revolving fund                                                        50,000              50,000
                                                                     P
                                                                     =15,750,872        P
                                                                                        =39,044,845

   Short-term time deposits are highly liquid investments that are readily convertible to known
   amounts of cash with original maturities of three months or less from dates of acquisition and
   that are subject to an insignificant risk of change in value.
                                              - 20 -




   Cash in banks earn interest at the respective bank deposit rates. Time deposits are made for
   varying periods up to two months depending on the immediate cash requirements of the
   Group, and earn interest at 2.75% to 4.00% gross. Interest income earned on cash and cash
                            P                        P
   equivalents amounted to =0.8 million in 2010 and =1.2 million in 2009.


5. Receivables

   This account consists of:

                                                                           2010             2009
   Trade                                                           P
                                                                   =12,161,814       P
                                                                                     =9,925,202
   Interest receivable                                                  146,000          218,400
   Others                                                             2,177,209          928,935
                                                                     14,485,023      11,072,537
   Less allowance for impairment losses                               1,696,858        1,526,917
                                                                   P
                                                                   =12,788,165       P
                                                                                     =9,545,620

   Other receivables include advances to employees for business expenses subject to liquidation.

   The rollforward analysis of allowance for impairment losses follows:

                                                                          2010             2009
   Beginning balance                                                P
                                                                    =1,526,917       P
                                                                                     =1,213,199
   Provision for impairment loss (Note 16)                             169,941          515,249
   Reversal of allowance                                                     –         (201,531)
   Ending balance                                                   P
                                                                    =1,696,858       P
                                                                                     =1,526,917



6. Prepayments and Other Current Assets

   This account consists of:

                                                                          2010              2009
   Utilities and other deposits                                     P
                                                                    =2,886,154         P
                                                                                       =578,390
   Prepaid taxes                                                       135,727           160,943
   Prepaid rent                                                         45,000            45,000
   Input tax                                                            10,242                 –
   Others                                                               14,015            14,015
                                                                    P
                                                                    =3,089,937         P
                                                                                       =798,348
                                              - 21 -




7. Available-for-Sale Investment

   The rollforward analysis of the net carrying value of this account is shown below:

                                                                           2010               2009
   Cost                                                              P
                                                                     =1,000,000         P
                                                                                        =1,000,000
   Unrealized gain on available-for sale assets:
     Balance at beginning of year                                             –                  –
     Additions                                                          166,272                  –
     Balance at end of year                                             166,272                  –
   Net carrying value                                                P
                                                                     =1,166,272         P
                                                                                        =1,000,000

   This account pertains to investment in mutual fund managed by an insurance company. This
   fund seeks to achieve an optimal level of income in the medium term together with long term
   capital growth through investments in fixed income securities and money market instruments
   and shares listed in the Philippine Stock Exchange (PSE).

   Although the amount can be withdrawn anytime, the management intended to hold the fund on
   a long term basis.

   The fund’s fair market value as of December 31, 2009 is not materially different from that of
   the value from the time of acquisition.



8. Investment Property

   This account consists of:

                                                                        2010                   2009
    Cost                                                         P
                                                                 =41,152,250            P
                                                                                        =41,152,250
    Appraisal increase:
      Balance at beginning of year                                  5,621,750                     –
      Additions                                                    14,359,000             5,621,750
      Balance at end of year                                       19,980,750             5,621,750
    Net carrying value                                           P
                                                                 =61,133,000            P
                                                                                        =46,774,000

   The Group’s investment property consists of parcels of land located in Calapan, Oriental
                           P                   P
   Mindoro amounting to =61.1 million and =46.8 million as of December 31, 2010 and 2009,
   respectively. In March 2010 and December 2009, land properties were appraised with related
   appraisal increase directly credited to consolidated statements of comprehensive income which
                 P                           P
   amounted to =14.4 million in 2010 and =5.6 million in 2009.

   The fair values of investment properties were determined by an independent appraiser in 2010
   and 2009. The valuation of investment properties was based on market values. The fair value
   represents the amount at which the assets can be exchanged between a knowledgeable, willing
   seller and a knowledgeable, willing buyer in an arm’s length transaction at the date of
   valuation, in accordance with International Valuation Standards.

   Investment properties are not earning income.    Direct operating expense relative to
   investment properties which are not earning income pertains to real property tax which
               P                   P
   amounted to =25,310 in 2010 and =27,873 in 2009.
                                                                                     - 22 -




        9. Property and Equipment

              The rollforward analysis of this account in follows:


                                                                                                       2010

                                                     Water utilities              Office                        Staff house,    Construction

                                     Land and       and distribution       furniture and          Service        warehouse       in progress    Equipment for

                               improvements                 system           equipment            vehicles        and office      (Note 13)       installation            Total

Cost:

   Beginning                       P
                                   =3,799,039        P
                                                     =122,651,172           P
                                                                            =2,410,170         =1,815,315
                                                                                               P                P          P
                                                                                                                =1,522,896 =111,047,902           P
                                                                                                                                                  =9,648,867      P
                                                                                                                                                                  =252,895,361

   Acquisitions                            –             2,258,088             931,210          1,946,245                 –      45,042,469                 –       50,178,012

   Ending                           3,799,039         124,909,260            3,341,380          3,761,560        1,522,896      156,090,371        9,648,867       303,073,373

Accumulated depreciation:

   Beginning                          216,926           34,302,735           1,728,834          1,220,423          450,380                                          37,919,298

   Depreciation                         6,082            5,971,340             357,657            513,297          152,289                                           7,000,665

   Ending                             223,008           40,274,075           2,086,491          1,733,720          602,669                                          44,919,963

Revaluation surplus in land:

   Beginning                       13,536,000                      –                  –                 –                 –                                         13,536,000

   Addition                                –                       –                  –                 –                 –                                                  –

   Ending                          13,536,000                      –                  –                 –                 –                                         13,536,000

Net carrying value                P
                                  =17,112,031         P
                                                      =84,635,185           P
                                                                            =1,254,889         =2,027,840
                                                                                               P                  P        P
                                                                                                                  =920,227 =156,090,371           P
                                                                                                                                                  =9,648,867      P
                                                                                                                                                                  =271,689,410




                                                                                                         2009

                                                        Water utilities             Office                      Staff house,    Construction

                                       Land and       and distribution       furniture and         Service        warehouse       in progress   Equipment for

                                  improvements                 system          equipment           vehicles        and office      (Note 13)       installation           Total

Cost:

  Acquisition from subsidiaries     P
                                    =3,799,039         P
                                                       =112,981,317           P
                                                                              =2,248,612       =1,794,815
                                                                                               P                P
                                                                                                                =1,522,896      P
                                                                                                                                =24,749,099       P
                                                                                                                                                  =9,648,867      P
                                                                                                                                                                  =156,744,645

  Acquisitions                                  –          9,669,855             161,558           20,500                  –     86,298,803                  –      96,150,716

  Ending                              3,799,039         122,651,172            2,410,170         1,815,315        1,522,896     111,047,902         9,648,867      252,895,361

Accumulated depreciation:
  Acquisition from subsidiaries        204,727            30,057,725           1,487,124          994,804           412,307                                         33,156,687

  Depreciation                          12,199             4,245,010             241,710          225,619            38,073                                           4,762,611

  Ending                               216,926            34,302,735           1,728,834         1,220,423          450,380                                         37,919,298

Revaluation surplus in land:

  Beginning                                     –                      –                   –             –                 –                                                  –

  Addition                           13,536,000                        –                   –             –                 –                                        13,536,000

  Ending                             13,536,000                        –                   –             –                 –                                        13,536,000

Net carrying value                 P
                                   =17,118,113          P
                                                        =88,348,437             P
                                                                                =681,336         =594,892
                                                                                                 P              P          P
                                                                                                                =1,072,516 =111,047,902           P
                                                                                                                                                  =9,648,867      P
                                                                                                                                                                  =228,512,063




              Land was revalued on December 22, 2009 by an independent appraiser. The valuation of the
              land is based on the fair market values using the Market Data Approach by identification of the
              sales and listings of comparable properties registered in the vicinity.

                                                                   P                          P
              The Group’s capitalized borrowing cost amounted to =8.4 million in 2010 and =5.7 million in
              2009. Total borrowing cost capitalized under construction in progress as of December 31, 2010
                                     P                P
              and 2009 amounted to =18 million and =9.6 million, respectively (see Note 12).
                                               - 23 -




   Certain property and equipment under “land and improvements” and “water utilities and
   distribution system” were mortgaged in favor of a creditor bank in connection with the Group’s
   loan availment (see Note 12).

   The Group’s management had reviewed the carrying values of the property and equipment as
   of December 31, 2010 and 2009 for any impairment. Based on the evaluation, there are no
   indications that the property and equipment might be impaired.

   The depreciation was charged to the following accounts in the consolidated statements of
   comprehensive income:

                                                                             2010            2009
   Cost of services (Note 15)                                         P
                                                                      =5,964,599       P
                                                                                       =4,248,715
   Operating expenses (Note 16)                                         1,036,066         513,896
                                                                      P
                                                                      =7,000,665       P
                                                                                       =4,762,611



10. Other Noncurrent Assets

   This account consists of:

                                                                            2010              2009
   Special bank deposit (Note 18)                                    P
                                                                     =9,000,000        P
                                                                                      =9,000,000
   Reserve fund (Note 12)                                              3,538,797         4,609,196
                                                                    P
                                                                    =12,538,797      P
                                                                                     =13,609,196



11. Accounts Payable and Accrued Expenses

   This account consists of:

                                                                           2010             2009
   Trade (Note 13)                                                  P
                                                                    =67,928,279      P
                                                                                     =67,374,692
   Accrued expenses                                                   5,504,799        5,925,769
   Government payables                                                4,096,687        2,513,820
   Others                                                               250,631          248,090
                                                                    P
                                                                    =77,780,396      P
                                                                                     =76,062,371

   Accrued expenses include accrual for interest on loan, lease fee and utilities.


12. Loan Payable

   This account pertains to a long-term loan availed by CWC from a local bank for the
   rehabilitation, expansion and improvements of waterworks system of CWC in 2005 amounting
      P
   to =137 million payable in fifteen (15) years on a monthly basis. Interest is fixed at 10.5% per
   annum, reviewable and subject to adjustment annually thereafter but not to exceed 15% per
   annum. In 2010 and 2009, CWC was able to negotiate the interest rate at 9%.

                                                         P
   CWC has drawn for its expansion project the amount of =17.2 million in 2010 and
   P
   =44.5 million in 2009.
                                                - 24 -




                                            P                        P
   Interest expense capitalized amounted to =8.4 million in 2010 and =5.7 million in 2009 (see
   Note 9).

   Debt Covenant
   CWC executed a deed of assignment relative to the loan, in favor of the bank of (a) a portion of
   CWC’s Reserve Fund (via Savings or Other Investment Account) equivalent to two monthly
   interest amortization during the grace period, to increase to two monthly principal and interest
   amortization after the grace period onwards. The Reserve Fund shall be maintained for CWC’s
   expenses for maintenance, operation and emergency fund; and (b) billed water/receivables
                                                                                 P
   until the amount of the loan is fully paid. The reserve fund amounted to =3.5 million and
   P
   =4.6 million as of December 31, 2010 and 2009, respectively.

   Also, CWC, JOH and its major stockholders mortgaged their real estate and other equipment all
   situated in Calapan, Oriental Mindoro in favor of the bank. The aggregate carrying value of the
   Group’s property and equipment mortgaged as of December 31, 2010 and 2009 amounted to
   P                    P
   =101.7 million and =105.5 million, respectively. The titles of the mortgaged property have
   already been delivered to the bank.

   As of December 31, 2010 and 2009, the Group is in compliant with the said covenants.



13. Related Party Transactions

   The Group has the following transactions with related parties:

   a.   Unsecured and non-interest bearing cash advances with affiliates for investing and working
        capital purposes. Also, the Group availed unsecured and non-interest bearing cash
        advances from its major stockholder and affiliate for the acquisition of operating machinery
        and equipment. Settlements of these advances are made in cash.

        Affiliates are entities that are owned and controlled by JOH and neither a subsidiary nor
        associate of the Group. These affiliates are effectively sister companies of the Group by
        virtue of ownership of JOH.

        Details of related party balances follow:

                                                                           2010               2009
        Due from:
            Affiliates                                              P
                                                                    =19,766,626        P
                                                                                      =9,436,760
            Stockholders                                                      –          3,187,282
                                                                    P
                                                                    =19,766,626      P
                                                                                     =12,624,042

        Due to:
            Affiliates                                               P
                                                                     =7,816,852      P
                                                                                     =17,958,386
            Stockholders                                              13,678,239       4,864,840
                                                                    P
                                                                    =21,495,091      P
                                                                                     =22,823,226

                                                  P                       P
        Advances made to affiliates amounted to =33.7 million in 2010 and =10.9 million in 2009.
                                                        P                         P
        Payments received from affiliates amounted to =23.4 million in 2010 and =4.8 million in
                                                                                  P
        2009. On the other hand, advances received from affiliates amounted to =2.7 million in
                  P
        2010 and =18.2 million in 2009. Payments to the advances made to affiliates amounted to
        P                         P
        =12.8 million in 2010 and =4.0 million in 2009.
                                              - 25 -




                                                                P
        In 2010, advances made to stockholders amounted to =0.2 million while payments
                                                 P
        received from stockholders amounted to =3.4 million in 2010. On the other hand,
                                                        P                         P
        advances received from stockholders amounted to =10.0 million in 2010 and =5.5 million
                                                                               P
        in 2009. Payments to the advances made to stockholders amounted to =1.2 million in
        2010. Advances made to and received from stockholders in 2009 were assumed from the
        Group’s subsidiaries.

   b.   The Group has long term construction agreement with an affiliate for the improvement,
                                                                                    P
        rehabilitation and expansion of CWC waterworks system amounting to =168.5 million.
        Construction in progress reported in the consolidated statements of financial position
                       P                   P
        amounted to =156.1 million and =111.0 million as of December 31, 2010 and 2009,
                                                          P                    P
        respectively. Outstanding payable amounted to =54.7 million and =41.9 million as of
        December 31, 2010 and 2009, respectively, and is included under Accounts payable and
        accrued expenses account in the consolidated statements of financial position.

   c.   Service agreement with an affiliate renewable annually upon such terms and conditions as
        may be mutually agreed upon by both parties. Service fee included in the operating
                                                           P                          P
        expenses under professional services amounted to =11.6 million in 2010 and =7.2 million
        in 2009. The related payable balance included under Accounts payable and accrued
        expenses account in the consolidated statements of financial position amounted to
        P                P
        =4.3 million and =4.9 million as of December 31, 2010 and 2009, respectively.

   d.   Lease of office space from an affiliate for a period of one year, renewable upon mutual
                                                                      P
        agreement of both parties. Rental expense amounted to =2.4 million in 2010 and
        P
        =1.3 million. The related payable balance included under Accounts payable and accrued
        expenses account in the consolidated statements of financial position amounted to
        P                P
        =0.3 million and =0.8 million as of December 31, 2010 and 2009, respectively.

   e.                                                                   P
        The remuneration of key management personnel amounted to =3.2 million in 2010 and
        P
        =3.0 million in 2009, representing compensation and other short-term benefits.



14. Retirement Benefit Costs

   The Group operates a noncontributory retirement plan covering all qualifying employees.
   Under the current plan, the employees are entitled to retirement benefits of 60 percent of one
   month’s pay per year on attainment of at least five years of their services with the Group.

   The most recent actuarial valuations of the present value of the defined benefit obligation were
   carried out at March 18, 2010 by independent actuaries. The present value of the defined
   benefit obligation and the related current service cost and past service cost, were measured
   using the projected unit credit method. Actuarial valuations are made with sufficient regularity.

   As of December 31, 2010, the plan has not been funded.

   The principal assumptions used for the purposes of the actuarial valuation follows:

                                                                           2010              2009
   Discount rate                                                           9.5%              9.5%
   Expected rate of salary increase                                        5.0%              5.0%
                                            - 26 -




   Retirement expenses recognized in the consolidated statements of comprehensive income were
   determined as follows:

                                                                      2010             2009
   Interest cost                                                 P
                                                                 =258,215         P
                                                                                  =234,105
   Current service cost                                            152,309          145,056
   Actuarial loss realized                                               –          614,419
                                                                 P
                                                                 =410,524         P
                                                                                  =993,580

   The rollforward analysis of retirement benefit obligations presented in the consolidated
   statements of financial position follows:

                                                                     2010              2009
   Balance at beginning                                        P
                                                               =3,087,946        P
                                                                                 =2,094,366
   Retirement expense                                             410,524           993,580
   Benefits paid                                                 (455,478)                –
   Balance at end                                              P
                                                               =3,042,992        P
                                                                                 =3,087,946



15. Cost of Sales and Services

   This account consists of:

                                                                      2010               2009
   Cost of services
      Salaries and employee benefits (Note 13)               P
                                                             =10,777,772         P
                                                                                =7,624,315
      Utilities                                                10,698,256          7,081,876
      Rental (Note 18)                                          7,851,467          4,390,175
      Repairs and maintenance                                   6,307,977          2,545,691
      Depreciation (Note 9)                                     5,964,599          4,248,715
      Transportation and travel                                   664,840          1,973,365
      Supervision and regulatory fees (Note 18)                   650,572            448,276
      Materials                                                   440,444            339,656
      Bacteriological test                                        109,984             92,036
                                                             P
                                                             =43,465,911       P
                                                                               =28,744,105
   Cost of sales
      Purchases                                                24,895,495        2,573,872
                                                             P
                                                             =68,361,406       P
                                                                               =31,317,977

   The Group does not maintain merchandise inventory as of December 31, 2010 and 2009.



16. Operating Expenses

   This account consists of:

                                                                    2010                2009
   Professional services (Note 13)                           P
                                                             =14,010,501         P
                                                                                 =7,884,671
   Rental (Note 13)                                            3,006,873           1,704,829
   Taxes and licenses                                          2,420,470           2,932,909

   (Forward)
                                                 - 27 -




   (Carryforward)
                                                                              2010                   2009
   Salaries, wages and employee benefits (Notes 13 and 14)             P
                                                                       =1,543,108             P
                                                                                             =1,024,682
   Transportation and travel                                             1,111,635              1,516,027
   Depreciation (Note 9)                                                 1,036,066                513,896
   SSS, Philhealth and HDMF contributions                                  835,918                505,885
   Representation and entertainment                                        674,716                453,910
   Office supplies                                                         571,650                228,761
   Repairs and maintenance                                                 480,990                118,260
   Security services                                                       396,857                296,885
   Advertisement                                                           287,506                203,421
   Communication                                                           231,542                170,759
   Provision for impairment loss (Note 5)                                  169,941                515,249
   Utilities                                                               158,885                      –
   Insurance                                                               120,947                 32,391
   Donation and contribution                                                43,779                 98,850
   Others                                                                  324,483                750,032
                                                                      P
                                                                      =27,425,867           P
                                                                                            =18,951,417



17. Income Taxes

   a.   The Group’s current income tax expense pertains to normal corporate income tax.

   b.   The Group’s deferred tax assets consist of the tax effects of the following:

                                                                             2010                  2009
        Accrued retirement benefit obligation                            P
                                                                         =912,898              P
                                                                                               =926,384
        Allowances for:
            Impairment losses                                             509,057               458,075
            Parts obsolescence                                             48,722                48,722
        NOLCO                                                             356,190               334,847
                                                                       P
                                                                       =1,826,867            P
                                                                                             =1,768,028

                                                                                       P
        The Group did not recognize the deferred tax asset on NOLCO amounting to =124,638
        since management believes this could not be realized prior to its expiration. NOLCO
                     P
        amounting to =1.3 million as of December 31, 2010, can be carried forward and claimed as
        deduction against regular taxable income for the next three years as follows:

        Date incurred                                                 Amount             Expiry date
        December 31, 2009                                          P
                                                                   =1,171,767      December 31, 2012
        December 31, 2010                                             140,171      December 31, 2013
                                                                   P
                                                                   =1,311,938

   c.   The Group’s deferred tax liabilities consist of the tax effects of the following:

                                                                             2010                  2009
        Capitalized borrowing costs                                    P
                                                                       =5,399,515            P
                                                                                             =2,878,270
        Fair value adjustments and appraisal
           increase in property and equipment                           4,810,221              4,810,221
                                                                      P
                                                                      =10,209,736            P
                                                                                             =7,688,491
                                               - 28 -




   d.   Reconciliation between the statutory and the effective income tax rates follows:

                                                                          2010                2009
        At statutory income tax rate                               P
                                                                   =11,224,332          P
                                                                                        =6,914,357
        Additions to (reductions in) income tax resulting from:
             Effect of change in fair value of investment
                property                                             (4,307,700)         (1,686,525)
             Interest income taxed at lower rate                       (243,586)           (363,441)
             Unallowed expenses                                         121,244              40,069
             Deferred tax assets not recognized                          20,708                   –
             Non-taxable income                                               –          (1,158,635)
        Effective income tax                                         P
                                                                     =6,814,998         P
                                                                                        =3,745,825

   e.   RA No. 9504 that was enacted in 2008 amended various provisions in the existing 1997
        National Internal Revenue Code. Among the reforms introduced by the said RA was the
        option granted to Corporations to avail the optional standard deduction at 40% of gross
        income in lieu of the itemized deduction scheme.

        The Group opted for the itemized deduction scheme for its income tax reporting in 2010
        and 2009.



18. Lease of Water Facilities

   In 2006, CWC entered into a lease agreement with the local government of Tabuk, in the
   province of Kalinga (local government). Items under lease are the water facilities developed
   and owned by the local government. Under the agreement, CWC will manage, operate and
   maintain this water system within a defined service area for 15 years from the day the facilities
   are turned-over by the local government. CWC shall pay lease to the local government based
   on agreed amounts and subject to adjustments depending on the average actual
                                                           P
   consumptions. Also, CWC shall pay supervision fee of =5 per connection on a monthly basis
   subject to adjustment according to the change in general consumer price index of the region
   where the local government belongs.

   CWC maintains a performance security in the form of a bank guarantee. If provided in the
   form of a bank guarantee or an irrevocable letter of credit, security shall be valid for an initial
   period of twelve (12) months and CWC shall ensure that the security shall be renewed
   annually, each renewal to take effect immediately on the expiration of the previous security.
                                          P
   The amount of performance security is =9.0 million per annum from year one (1) to year ten
             P
   (10) and =4.5 million per annum from year eleven (11) to year fifteen (15) of the lease.

   The lease became effective in October 2006.

                                             P                 P
   Lease and supervision fees amounted to =7.9 million and =0.65 million in 2010, respectively
       P                P
   and =4.4 million and =0.4 million in 2009, respectively (Note 15).

                                                                       P
   CWC’s water revenue from operating the water facilities amounted to =19.1 million in 2010
       P
   and =13.7 million in 2009.
                                             - 29 -




19. Earnings Per Share (EPS)

   Computation of EPS attributable to the equity holders of the Parent Company follows:

                                                                          2010               2009
    Net profit                                                     P
                                                                   =30,480,516        P
                                                                                      =19,240,170
    Divided by weighted average number
       of common shares                                            120,000,000            120,000,000
                                                                       P
                                                                       =0.2540                P
                                                                                             =0.1603

   There were no potential dilutive shares in 2010 and 2009.



20. Financial Instruments

   Set out below is a comparison by category of carrying values and estimated fair values of the
   Group’s financial instruments as of December 31, 2010 and 2009:

                                                   2010                            2009
                                       Carrying value       Fair value   Carrying value       Fair value
    Financial Assets:
      Loans and Receivables
        Cash and cash equivalents        P
                                         =15,750,872     =15,750,872
                                                         P                P
                                                                          =39,044,845      P
                                                                                           =39,044,845
        Receivables                        12,788,165      12,788,165        9,545,620        9,545,620
        Due from related parties           19,766,626      19,766,626       12,624,042       12,624,042
        Utilities and other deposits        2,886,154       2,886,154          578,390          578,390
        Special bank deposits               9,000,000       9,000,000        9,000,000        9,000,000
      Available-for-sale investments        1,166,272       1,166,272        1,000,000        1,000,000
                                         P
                                         =61,358,089     P
                                                         =61,358,089      P
                                                                          =71,792,897      P
                                                                                           =71,792,897
    Financial Liabilities:
        Accounts payable and accrued
          expenses                       P
                                         =77,780,396     =77,780,396
                                                         P                P
                                                                          =76,062,371      P
                                                                                           =76,062,371
        Due to related parties             21,495,091      21,495,091       22,823,226       22,823,226
        Loan payable                       96,165,110      96,165,110       86,682,919       86,682,919
        Customers’ deposits                 7,124,715       7,124,715        5,628,258        5,628,258
                                        P
                                        =202,565,312    P
                                                        =202,565,312     P            P
                                                                         =191,196,774 =191,196,774


   Fair value is defined as the amount at which the financial instrument could be exchanged in a
   current transaction between knowledgeable willing parties in an arm’s length transaction, other
   than in a forced liquidation or sale. Fair values are obtained from quoted market prices,
   discounted cash flow models and option pricing models, as appropriate.

   The carrying values of cash and cash equivalents, receivables, due from related parties,
   accounts payable and accrued expenses and due to related parties approximates their fair
   values due to the short-term nature of the transactions and are considered due and
   demandable.

   Special bank deposit approximates their fair values as this is subject to insignificant risk of
   change in value. This account was only classified under noncurrent due to the restriction
   attached to it by a third party.
                                               - 30 -




   The fair value of customer’s deposits could not be practically determined since they are
   attached to the underlying service and that the cessation of services and the possibility of
   refund are not determinable.      Moreover, the individual balances of this account are
   insignificant.

   Fair Value Hierarchy
   The Group uses the following hierarchy for determining fair value of financial instruments:

   Level 1: Quoted (unadjusted) prices in active markets for identical assets or liabilities;

   Level 2: Other techniques for which all inputs which have a significant effect on the recorded
            fair value that are not based on observable market data;

   Level 3: Techniques which use inputs which have a significant effect on the recorded fair value
            that are not based on observable market data.

                                                                                       P
   As of December 31, 2010 and 2009, the Group has AFS investments amounting to =1.2 million
        P
   and =1.0 million, respectively pertaining to managed fund in an insurance company which is
   invested in fixed income securities and money market instruments and shares listed in the PSE.
   Price of the investment is posted on a daily basis in the insurance company’s website.



21. Financial Risk Management Objectives and Policies

   The main purpose of the Group’s financial instruments is to fund the Group’s operations and to
   acquire and improve property and equipment. The main risks arising from the use of financial
   instruments are liquidity risk, interest rate risk and credit risk.

   The Group’s BOD reviews and agrees with policies for managing each of these risks. These are
   summarized below:

   Liquidity risk
   The Group seeks to manage its liquidity profile to be able to finance its capital expenditures
   and serve its maturing obligations. The Group’s objective is to maintain a balance between
   continuity of funding and flexibility through valuation of projected and actual cash flow
   information.

   Table below summarizes the maturity profile of the Group’s financial liabilities except for
   customer’s deposit and retirement benefit obligation:

                                                               2010
                                                Due within    Over 1 year
                                 On demand       one year      to 5 years   Over 5 years         Total
   Due to related parties       =21,495,091
                                P                       P
                                                        =–            =–
                                                                      P              P
                                                                                     =–    P
                                                                                           =21,495,091
   Accounts payable and
      accrued expenses           77,780,396              –             –              –     77,780,396
   Loan payable                           –      8,013,747    40,068,737     48,082,626     96,165,110
                                P
                                =99,275,487    P
                                               =8,013,747    =40,068,737
                                                             P              P           P
                                                                            =48,082,626 =195,440,597
                                            - 31 -




                                                              2009
                                              Due within      Over 1 year
                               On demand       one year        to 5 years    Over 5 years         Total
Due to related parties       =22,823,226
                             P                        P
                                                      =–                =–
                                                                        P             P
                                                                                      =–    P
                                                                                            =22,823,226
Accounts payable and
   accrued expenses            76,062,371               –              –               –     76,062,371
Loan payable                            –       5,556,597     33,339,584      47,786,738     86,682,919
                             P
                             =98,885,597     P
                                             =5,556,597     =33,339,584
                                                            P                P           P
                                                                             =47,786,738 =185,568,516


Credit risk
Credit risk refers to the risk that a customer/debtor will default on its contractual obligations
resulting in financial loss to the Group.         The Group controls this risk through regular
coordination with the customers. In addition, receivable balances are monitored on an ongoing
basis with the result that the Group’s exposure to bad debts is not significant. The Group also
controls this risk by cutting its services and refusal to reconnect until the customer’s account is
cleared or paid.

The Group’s credit risk is primarily attributable to its trade receivables. An allowance for
impairment is made where there is an identified loss event which, based on previous
experience, is evidence of a reduction in the recoverability of the cash flows.

Given the Group’s diverse base of customers, it is not exposed to large concentration of credit
risk.

Below is the quality per class of not impaired receivables:

                                                               2010
                              Neither past due               Past due
                                  nor impaired     but not impaired        Impaired         Total
 Trade                             P
                                   =7,259,250            P
                                                        =3,375,647       P          P
                                                                         =1,526,917 =12,161,814
 Due from related parties               18,500           19,748,126               –   19,766,626
 Advances and non-trade                114,400             2,038,868        169,941    2,323,209
                                   P
                                   =7,392,150          P
                                                      =25,162,641        P          P
                                                                         =1,696,858 =34,251,649

                                                               2009
                               Neither past due              Past due
                                   nor impaired    but not impaired        Impaired              Total
 Trade                              P
                                    =1,191,055          =7,207,230
                                                         P               P
                                                                         =1,526,917       P
                                                                                         =9,925,202
 Due from related parties             3,188,132            9,435,910              –       12,624,042
 Advances and non-trade                       –            1,147,335              –         1,147,335
                                    P
                                    =4,379,187         P
                                                      =17,790,475        P
                                                                         =1,526,917     P
                                                                                        =23,696,579

Below is the aging analysis of past due but not impaired receivables:

                                                              2010
                                        30 to              61 to         More than
                                      60 days            90 days          90 days               Total
Trade                             P
                                  =1,429,411           =874,232
                                                       P                P
                                                                        =1,072,004      P
                                                                                        =3,375,647
Due from related parties                   –                  –         19,748,126      19,748,126
Advances and nontrade                 12,953             16,220           2,009,695       2,038,868
Total                             P
                                  =1,442,364           =890,452
                                                       P             P
                                                                     =22,829,825       P
                                                                                       =25,162,641
                                               - 32 -




                                                                  2009
                                          30 to               61 to      More than
                                        60 days             90 days        90 days                 Total
Trade                                 P
                                      =337,735            =247,904
                                                          P            P
                                                                       =6,621,591           P
                                                                                            =7,207,230
Due from related parties              1,700,000           2,500,000      5,235,910            9,435,910
Advances and nontrade                    13,366                   –      1,133,969            1,147,335
Total                               P
                                    =2,051,101          =2,747,904
                                                        P                P
                                                                         =12,991,470       P
                                                                                           =17,790,475

Below is the credit quality by class of financial assets:

                                                                  2010
                                     Neither past due nor impaired
                                                  Standard Substandard
                                  High grade         grade       grade         Impaired            Total
Cash and cash equivalents        P
                                 =15,750,872         P
                                                     =–               =–
                                                                      P              P
                                                                                     =–     P
                                                                                            =15,750,872
Receivables                        7,044,451 1,384,884         4,358,830      1,696,858       14,485,023
Due from related parties                   – 19,766,626                 –              –      19,766,626
Available-for-sale investments     1,166,272           –                –              –       1,166,272
Utilities and other deposits       2,886,154           –                –              –       2,886,154
Special bank deposits              9,000,000           –                –              –       9,000,000
Total                            P
                                 =35,847,749 21,151,510      =4,358,830
                                                             P              P
                                                                            =1,696,858      P
                                                                                            =63,054,947


                                                                  2009
                                  Neither past due nor impaired
                                                        Substandard
                                     High grade               grade           Impaired              Total
Cash and cash equivalents          P
                                   =39,044,845                   =–
                                                                 P                  P
                                                                                    =–       P
                                                                                             =39,044,845
Receivables                          1,191,055            8,354,565          1,526,917         11,072,537
Due from related parties             7,388,132            5,235,910                            12,624,042
Available-for-sale investments       1,000,000                     –                            1,000,000
Utilities and other deposits           578,390                     –                 –            578,390
Special bank deposits                9,000,000                     –                            9,000,000
Total                              P
                                   =58,202,422          =13,590,475
                                                        P                   P
                                                                            =1,526,917       P
                                                                                             =73,319,814


High grade cash and cash equivalents are short-term placements and working cash fund;
and special bank deposit are placed, invested, or deposited in local banks belonging to the top
ten (10) banks in the Philippines in terms of resources and profitability.

High grade accounts, other than cash and cash equivalents, are accounts considered to be of
high value. The counterparties have a very remote likelihood of default and have consistently
exhibited good paying habits. Substandard grade accounts are accounts which have probability
of impairment based on historical trend. These accounts show propensity to default in payment
despite regular follow-up actions and extended payment terms. AFS investments are assessed
based on financial status of the counterparty and its current share price performance in the
market.

Interest rate risk
The Group’s exposure to market risk for changes in interest rates relates primarily to the
Group’s long-term borrowings. The Group’s policy is to minimize interest rate cash flow risk
exposures. Long-term borrowings are therefore usually at agreed interest rates.
                                              - 33 -




   The carrying amounts, by maturity, of loan payable subject to floating rate as of
   December 31, 2010 and 2009, that are exposed to interest rate risk are as follows:

   Maturities                                                            2010                2009
   Within one year                                                 P
                                                                   =8,013,747          P
                                                                                      =5,556,597
   Two to five years                                                32,054,990         27,782,987
   More than five years                                             56,096,373         53,343,335
                                                                  P
                                                                  =96,165,110        P
                                                                                     =86,682,919

   In 2010 and 2009, the Group was able to negotiate the interest rate at 9% which is below the
   agreed minimum annual fixed rate of 15% in the loan agreement. The following table set forth
   the impact of the range of reasonably possible changes in the interest rates on the Group’s
   income before income tax and equity on December 31, 2010 and 2009:

    Reasonably possible changes                                 Effect on income         Effect on
      in interest rates                                                before tax           equity
         3%                                                         P
                                                                   (=2,884,953)       P
                                                                                     (=2,884,953)
        (3%)                                                          2,884,953         2,884,953



22. Capital Management

   The Group’s objective in managing capital is to ensure that entities in the Group will be able to
   continue as a going concern while maximizing the return to stakeholders through the
   optimization of the debt and equity balance and to sustain future development of the business.

   In order to maintain or adjust the capital structure, the Group may adjust the dividend
   payment to shareholders, return capital to shareholders or issue new shares.

   The Group considers the following as its capital:

                                                                      2010                  2009
   Capital stock                                              P
                                                              =120,000,000          P
                                                                                    =120,000,000
   Retained earnings                                            49,720,686            19,240,170
   Total                                                      P
                                                              =169,720,686          P
                                                                                    =139,240,170
                                                                          Constantino Guadalquiver & Co.
                                                                             SEC Accreditation No. 003-FR-1
                                                                            PRC-BOA Accreditation No. 0213
                                                                                    15th Floor Citibank Tower
                                                                                  8741 Paseo de Roxas Street
                                                                      Salcedo Village, Makati City, Philippines
                                                                                 Telephone (+632) 848-1051
                                                                                        Fax (+632) 728-1014
                                                                           E-mail address:mail@cgco.com.ph




INDEPENDENT AUDITORS’ REPORT




The Stockholders and the Board of Directors
Calapan Ventures, Inc.
4th Floor 20 Lansbergh Place Bldg.
170 Tomas Morato
Quezon City



We have examined the pro forma adjustments reflecting the transactions as described in Note 2 to
the pro forma consolidated financial statements and the application of those adjustments to the
historical amounts in the assembly of the accompanying pro forma consolidated statements of
financial position of Calapan Ventures, Inc. (formerly Calapan Equity Ventures Inc.) and
Subsidiaries (the Group) as of December 31, 2009, 2008 and 2007, and the pro forma consolidated
statements of comprehensive income, changes in equity and cash flows for each of the three years
in the period ended December 31, 2009. The pro forma consolidated financial statements are
derived from the financial statements of Calapan Ventures, Inc. as of December 31, 2009, and the
historical financial statements of Subsidiaries as of and for the years ended December 31, 2009,
2008 and 2007, which were audited by us and other auditors. Such pro forma adjustments are
based on management’s assumptions described in Note 2 to the pro forma consolidated financial
statements. The Group’s management is responsible for the pro forma financial information. Our
responsibility is to express an opinion on the pro forma financial information based on our
examination.

Our examination was conducted in accordance with Philippine Standard on Assurance Engagements
(PSAE) 3000, Assurance Engagements Other than Audits or Review of Historical Financial
Information and Philippine Securities and Exchange Commission Memorandum Circular No. 2,
Series of 2008, Guidelines on Reporting and Attestation of Pro Forma Financial Information and,
accordingly, included such procedures that we considered necessary under the circumstances. We
believe that our examination provides a reasonable basis for our opinion.

The objective of this pro forma financial information is to show what the significant effects on the
historical information might have been had the transactions described in Note 2 to the pro forma
consolidated financial statements occurred at an earlier date. However, the pro forma consolidated
financial statements are not necessarily indicative of the results of operations or related effects on
financial position that would have been attained had the above-mentioned transaction actually
occurred earlier.
CALAPAN VENTURES, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
DECEMBER 31, 2009, 2008 AND 2007
(Amounts in Philippine Pesos)




                                                                               2009            2008            2007

ASSETS

Current Assets
Cash and cash equivalents (Notes 5, 21 and 22)                   P        39,044,845 P    26,785,812 P    23,885,931
Receivables – net (Notes 6, 21 and 22)                                     9,545,620       8,275,698       5,020,824
Due from related parties (Notes 14, 21 and 22)                            12,624,042      14,493,136      15,574,580
Other current assets (Note 7)                                                219,958       1,710,531         901,516
   Total Current Assets                                                   61,434,465      51,265,177      45,382,851

Noncurrent Assets
Available-for-sale investment (Notes 8, 21 and 22)                         1,000,000               –               –
Investment property (Notes 9 and 13)                                      46,774,000      41,152,250      34,771,425
Property and equipment – net (Note 10)                                   228,512,063     121,123,878      90,439,666
Deferred tax assets (Note 18)                                              1,768,028       1,268,229       1,120,936
Other noncurrent assets (Notes 11, 13, 19, 21 and 22)                     14,187,586      12,293,154       9,551,690
   Total Noncurrent Assets                                               292,241,677     175,837,511     135,883,717

                                                                 P       353,676,142 P   227,102,688 P   181,266,568


LIABILITIES AND EQUITY

Current Liabilities
Accounts payable and accrued expenses
   (Notes 12, 14, 21 and 22)                         P                    76,062,371 P    29,626,234 P    11,140,435
Current portion of loan payable (Notes 13, 21 and 22)                      5,556,597               –               –
Due to related parties (Notes 14, 21 and 22)                              22,823,226      13,764,998       9,320,719
Income tax payable (Note 18)                                               2,489,325         284,698               –
   Total Current Liabilities                                             106,931,519      43,675,930      20,461,154

Noncurrent Liabilities
Loan payable (Notes 13, 21 and 22)                                        81,126,322      42,168,722      30,791,211
Customers' deposits (Note 22)                                              5,628,258       5,280,658       5,060,958
Retirement benefit obligation (Note 15)                                    3,087,946       2,094,366       1,827,069
Deferred tax liabilities (Note 18)                                         7,688,491       1,921,318         874,325
   Total Noncurrent Liabilities                                           97,531,017      51,465,064      38,553,563

Equity (Note 2)
Attributable to Equity Holders of Parent Company
Capital stock – P1 par value
  Authorized – 200,000,000 shares
  Subscribed – 120,000,000 shares                                        120,000,000     120,000,000     120,000,000
Revaluation surplus in land
   - net of deferred taxes (Notes 10 and 18 )                              9,438,247               –               –
Accumulated profits                                                       19,240,170      11,526,927       1,855,470
                                                                         148,678,417     131,526,927     121,855,470
Minority Interest                                                           535,189         434,767         396,381

                                                                 P       353,676,142 P   227,102,688 P   181,266,568

See accompanying Notes to Pro Forma Consolidated Financial Statements.
CALAPAN VENTURES, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 2009, 2008 AND 2007
(Amounts in Philippine Pesos)




                                                                2009           2008           2007

REVENUE
Water service (Note 19)                                P   75,572,906 P   53,961,429 P   43,043,115
Sales                                                       2,831,259              –              –
Others                                                         33,180        539,607      1,298,162
                                                           78,437,345     54,501,036     44,341,277

COST OF SALES AND SERVICES
  (Notes 10, 14, 16 and 19)                                39,483,907     29,180,832     21,968,506

GROSS PROFIT                                               38,953,438     25,320,204     22,372,771

OPERATING EXPENSES (Notes 6, 10, 14, 15 and 17)            26,083,117     21,366,326     18,868,347

PROFIT FROM OPERATIONS                                     12,870,321      3,953,878      3,504,424

OTHER INCOME (CHARGES) – Net
Change in fair value of investment property (Note 9)        5,621,750      6,380,825              –
Interest income (Note 5)                                    1,346,153        963,806        660,335
Reversal of allowance for impairment loss (Note 6)            201,531              –              –
Receivables written-off                                      (225,003)             –              –
Financial charges and interest (Notes 13)                      (9,761)       (58,146)    (1,470,427)
                                                            6,934,670      7,286,485       (810,092)

PROFIT BEFORE INCOME TAX EXPENSE                           19,804,991     11,240,363      2,694,332

INCOME TAX EXPENSE (Note 18)
Current                                                     2,701,305        506,404        97,246
Deferred                                                    1,206,574      1,024,604       734,266
                                                            3,907,879      1,531,008       831,512

NET PROFIT                                                 15,897,112      9,709,355      1,862,820

OTHER COMPREHENSIVE INCOME
Revaluation surplus in land (Note 10)                      13,536,000              –              –
Income tax (Note 18)                                       (4,060,800)             –              –

OTHER COMPREHENSIVE INCOME - Net of tax                     9,475,200              –              –

TOTAL COMPREHENSIVE INCOME                             P   25,372,312 P    9,709,355 P    1,862,820

NET PROFIT ATTRIBUTABLE TO:
Equity holders of the parent                           P   15,833,643 P    9,671,457 P    1,855,470
Minority interest                                              63,469         37,898          7,350
                                                       P   15,897,112 P    9,709,355 P    1,862,820
(Forward)
                                                                 -2-




                                                  2009                                      2008          2007
TOTAL COMPREHENSIVE INCOME ATTRIBUTABLE TO:
Equity holders of the parent                25,271,890 P                                9,671,457 P   1,855,470
Minority interest                              100,422                                     37,898         7,350
                                                                 P       25,372,312 P   9,709,355 P   1,862,820
EARNINGS PER SHARE (Note 20)                                                0.1319        0.0806        0.0155

See accompanying Notes to Pro Forma Consolidated Financial Statements.
CALAPAN VENTURES, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
DECEMBER 31, 2009, 2008 AND 2007
(Amounts in Philippine Pesos)



                                                      Attributable to Equity Holders of the Parent
                                                               Revaluation
                                                             surplus in land     Accumulated                            Minority
                                          Capital stock (Notes 10 and 18)               profits            Total        interest

Balance as of December 31, 2006        P 120,000,000      P              – P                –   P    120,000,000    P   389,031

Net profit in 2007                                                                 1,855,470           1,855,470          7,350

Balance as of December 31, 2007           120,000,000                    –         1,855,470         121,855,470        396,381

Effect of change in tax rate                                                                                   –            488

Net profit in 2008                                                                 9,671,457           9,671,457         37,898

Balance as of December 31, 2008           120,000,000                    –       11,526,927          131,526,927        434,767

Net profit in 2009                                                               15,833,643           15,833,643         63,469

Other comprehensive income
  - net of tax in 2009                                           9,438,247                             9,438,247         36,953
                                                                                                             -
Dividends declared (Note 2)                                                       (8,120,400)         (8,120,400)

Balance as of December 31, 2009        P 120,000,000      P      9,438,247 P     19,240,170     P    148,678,417    P   535,189


See accompanying Notes to Pro Forma Consolidated Financial Statements.
CALAPAN VENTURES, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED CASH FLOW STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2009, 2008 AND 2007
(Amounts in Philippine Pesos)




                                                                2009           2008           2007

CASH FLOWS FROM OPERATING ACTIVITIES
Profit before income tax expense                      P   19,804,991 P   11,240,363 P    2,694,332
Adjustments for:
   Depreciation and amortization                            6,334,448     5,639,991      4,323,428
        (Notes 10, 16 and 17)
   Change in fair value of investment property
        (Note 9)                                           (5,621,750)    (6,380,825)            –
   Interest income (Note 5)                                (1,346,153)      (963,806)     (660,335)
   Receivables written-off                                    225,003              –             –
   Reversal of allowance
         for impairment loss (Note 6)                       (201,531)             –              –
   Financial charges and interest (Note 13)                    9,761         58,146      1,470,427
   Provisions for:
        Retirement benefits expense
            (pension income) (Note 15)                       993,580        267,297       (466,330)
        Impairment losses (Notes 6 and 17)                   515,249              –        418,737
Operating profit before working capital changes           20,713,598      9,861,166      7,780,259
Change in operating assets and liabilities
Decrease (increase) in:
   Receivables (Note 6)                                    (1,808,643)    (3,254,874)    (2,121,113)
   Due from related parties (Note 14)                      (6,251,306)       957,028     (2,842,828)
   Other current assets (Note 8)                            1,467,389       (790,768)      (770,777)
Increase (decrease) in accounts payable
   and accrued expenses (Note 12)                         46,436,137     18,485,799      (8,767,702)
Cash generated from (used in) operations                  60,557,175     25,258,351      (6,722,161)
Income taxes paid                                           (473,494)      (239,953)       (284,973)
Interest received                                          1,346,153        963,806         660,335
Interest paid                                             (5,697,671)    (3,964,467)     (1,470,427)
Net cash provided by (used in) operating activities       55,732,163     22,017,737      (7,817,226)

CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions of property and equipment (Note 10)          (94,498,723)   (32,417,882)   (25,729,154)
Increase in:
   Other noncurrent assets (Note 11)                       (1,894,432)    (2,741,464)    (6,946,690)
   Available-for-sale investments (Note )                  (1,000,000)             –              –
Cash from acquired subsidiary                                       –              –     10,906,904
Net cash used in investing activities                     (97,393,155)   (35,159,346)   (21,768,940)

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from:
   Loan availment (Note 13)                               44,514,197     11,377,511     30,910,527
   Capital subscriptions (Note 2)                                  –              –     12,500,000
Increase (decrease) in:
   Due to related parties (Note 14)                        9,058,228      4,444,279      9,844,512
   Customers' deposits                                       347,600        219,700        217,058
Net cash provided by financing activities                 53,920,025     16,041,490     53,472,097

(Forward)
                                                                 -2-




                                                                              2009           2008           2007
NET INCREASE IN CASH
   AND CASH EQUIVALENTS                                                  12,259,033      2,899,881     23,885,931

CASH AND CASH EQUIVALENTS
  AT BEGINNING OF YEAR                                                   26,785,812     23,885,931             –

CASH AND CASH EQUIVALENTS
  AT END OF YEAR (Notes 5 and 22)                                P       39,044,845 P   26,785,812 P   23,885,931

See accompanying Notes to Pro Forma Consolidated Financial Statements.
CALAPAN VENTURES, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in Philippine Pesos)




1. Corporate Information

   Calapan Ventures, Inc. (“CVI” or “the Parent Company”, formerly named Calapan Equity
   Ventures Inc.) and subsidiaries, collectively referred to as “the Group” were organized and
   incorporated in the Philippines and were registered with the Securities and Exchange
   Commission (SEC).

   The pro forma consolidated financial statements include the accounts of the Parent Company
   and the following subsidiaries:

                                                                                    Percentage of
    Name of Subsidiary                                  Date of Incorporation          Ownership
    Calapan Waterworks Corporation (CWC)                        May 23, 1991               99.61
    Tabuk Water Corp. (Tabuk Water)*                        August 14, 2006               100.00
    Kristal Water Source Corp. (Kristal Water)*                 May 11, 2007              100.00
   * preoperating stage

   The Parent Company was incorporated primarily to operate, conduct and maintain the business
   of trading, processing, assembling, manufacturing, and/or fabricating and exporting, importing,
   buying, acquiring, holding, or otherwise disposing of and dealing in goods, wares, supplies,
   materials, articles, merchandise, commodities, equipment, hardware, appliances, minerals,
   metals, timber, lumber and real and personal properties of every kind, class and description,
   whether natural or artificial which may become articles of commerce.

   The amendment in Articles of Incorporation on the Parent Company’s change in name and
   primary purpose in December 23, 2009 was given retroactive effect to January 1, 2007.

   On July 8, 2009, Jolliville Holdings Corporation (JOH) passed a resolution declaring 32%
   property dividends corresponding to 90,080,000 shares of the Parent Company.          The
   declaration was approved by JOH’s stockholders during the annual stockholders’ meeting on
   August                    18,                  2009.                                   On
   January 28, 2010, the SEC approved the notice of property dividend declaration of JOH
                  P
   amounting to =90,080,000 payable to JOH’s stockholders of record as of December 15, 2009.
   Subsequently on December 22, 2009, a stockholder of JOH executed a deed of assignment of
   shares of stocks of the Parent Company equivalent to 40 million shares in favor of certain
   subsidiaries of JOH.

   On December 16, 2009, Elgeete Holdings, Inc. assigned its 100% ownership in Kristal Water to
                                              P
   the Parent Company amounting to =250,000 equal to 250,000 shares.                   Also in
   December 16, 2009, CWC and Ormina Realty and Development Corporation (ORDC) assigned
   their 67% and 33% ownership, respectively, in Tabuk Water to the Parent Company amounting
      P                P
   to =6.7 million and =3.3 million, respectively.
                                                 -2-




   The principal activities of the subsidiaries are as follows:

    Name of subsidiary      Principal activity

    CWC                     Operates, manages and maintains the general business of
                            development and utilization of water resources to harness, produce
                            and supply water for domestic, municipal, agricultural, industrial,
                            commercial or recreational purposes.
    Tabuk Water             Will engage in the operation, management and maintenance of
                            development and utilization of water resources. Also, will acquire,
                            own, lease, construct, install, equip, operate, manage and maintain
                            plants.
    Kristal Water           Will engage in the operation, management and maintenance of
                            development and utilization of water resources. Also, will acquire,
                            own, lease, construct, install, equip, operate, manage and maintain
                            plants as well as operation of ice planting and distribution and sale of
                            ice.

   On October 23, 2002, the 12th Congress of the Republic of the Philippines enacted Republic Act
   No. 9185 whereby CWC was granted a franchise to construct, install, operate, and maintain for
   commercial purposes and in the public interest, a water supply and sewerage system for the
   purpose of distributing water for sale and for sanitation in the City of Calapan, province of
   Oriental Mindoro. The franchise is for a period of 25 years from the date of enactment. The
   act took effect on February 9, 2003.

   CWC was also granted a certificate of public convenience by the National Water Resources
   Board on December 18, 2002 and will expire on January 16, 2028.

   The registered address of the Parent Company is at 4th Floor 20 Lansbergh Place Bldg., 170
   Tomas Morato, Quezon City.

   The pro forma consolidated financial statements of the Group for the years ended
   December 31, 2009, 2008 and 2007 were approved by the Board of Directors (BOD) for issue
   on March 24, 2010.


2. Preparation and Purpose of Pro Forma Presentation and Management Assumptions

   Basis of Preparation of Financial Statements
   The accompanying pro forma consolidated financial statements have been prepared in
   compliance with Philippine Financial Reporting Standards (PFRS).

   The accompanying pro forma consolidated financial statements have been prepared on the
   historical cost basis except for revaluation of certain property.
                                           -3-




Basis of Consolidation
The pro forma consolidated financial statements include the accounts of the Parent Company,
CWC, Tabuk Water and Kristal Water. Subsidiaries are consolidated from the date on which
control is transferred to the Parent Company and cease to be consolidated from the date on
which control is transferred out of the Parent Company. The results of subsidiaries acquired or
disposed of during the year are included in the pro forma consolidated statement of
comprehensive income from the effective date of acquisition or up to the effective date of
disposal, as appropriate. All significant intercompany accounts, transactions, and income and
expenses and losses are eliminated upon consolidation.

Where necessary, adjustments are made to the financial statements of subsidiaries to bring
their accounting policies in line with those used by other members of the Group.

Minority interests in the net assets of consolidated subsidiaries are identified separately from
the Group’s equity therein. Minority interests consist of the amount of those interests at the
date of the original business combination and the minority’s share of changes in equity since
the date of the combination. Losses applicable to the minority in excess of the minority’s
interest in the subsidiary’s equity are allocated against the interest of the Parent Company
except to the extent that the minority has a binding obligation and is able to make an
additional investment to cover losses.

Disposals of equity investments to minority interests result in gains and losses for the Group
are recorded in the pro forma consolidated statement of comprehensive income. Purchase of
equity shares from minority interests results in goodwill, being the difference between any
consideration paid and the relevant share acquired in the fair value of the net assets of the
subsidiary.

Management Assumptions and Pro Forma Adjustments
The accompanying pro forma financial statements have been prepared as if the inception of the
Parent Company and the acquisition of its investment in CWC occurred in January 1, 2007.

The accompanying pro forma consolidated financial statements are for informational purposes
only and do not purport to present what the financial position, financial performance and cash
flows would have been had the acquisition actually occurred on January 1, 2007 or purport to
project the financial position, financial performance and cash flows for any future period.

The accompanying pro forma consolidated financial statements were based on the financial
statements of the Parent Company as of December 31, 2009, which is after the inception of the
Parent Company and acquisition of CWC, and the historical financial statements of CWC, Tabuk
Water and Kristal Water as of and for the years ended December 31, 2007 and 2008, after
giving effect to the assumptions and adjustments described in the succeeding paragraphs.
                                           -4-




The pro forma adjustments arising from the transactions described in the succeeding
paragraphs represent the significant effects directly attributable to those transactions which
have been determined based upon available information and certain assumptions that
management believes to be reasonable.

a.   The following transactions of the former stockholders of CWC involving their ownership in
     CWC in order for JOH to achieve the 99.61% ownership assigned to the Parent Company
     had been given retroactive effect to January 1, 2007.

       i.    In February 2008, a major stockholder of CWC assigned his 23,750,000 shares to
             Ormina Realty and Development Corporation (ORDC), a subsidiary of JOH.

       ii.   In 2008, ORDC and JOH paid their remaining subscriptions payable amounting to
             P                  P
             =18,784,380 and =17,309,370, respectively, by way of assignment of advances.
             Subsequently, ORDC assigned its investment to JOH equivalent to 52,300,185
             shares which increased JOH’s ownership interest in CWC to 99.61%.

b.   The assignment of Tabuk Water and Kristal Water in December 16, 2009 from former
     stockholders to the Parent Company was given retroactive effects to January 1, 2007.
     Also, the full subscription of the Parent Company to Kristal Water on December 16, 2009
     was given retroactive effects to January 1, 2007 (see Note 1).

c.   Excess of the cost of investment of the Parent Company to the Subsidiaries over the net
     assets of the Subsidiaries computed on January 1, 2007 is assumed as receivable of the
     Parent Company from former stockholders.

d.   The Parent Company is assumed to have declared cash dividend amounting to
     P
     =8,120,400 in 2009, the dividend was not paid in cash but opted to have been offset
     against the receivables from former stockholders.

e.   The pro forma consolidated financial statements in 2009 includes the actual operation of
     CWC from the periods April 1 to December 31, 2009 under the ownership of the parent
     company, and the period January 1 to March 31, 2009 which is still under the ownership of
     the former stockholder.
                                           -5-




 The following tables show the effects of the pro forma adjustments on the audited statement of
 financial positions of Subsidiaries as of December 31, 2009, 2008 and 2007 combined with the
 audited statement of financial position of the Parent Company as of December 31, 2009 for
 each of the three years relative to the Parent Company’s ownership in the subsidiaries which
 has been given retroactive effect to January 1, 2007. There are no pro forma adjustments
 affecting the pro forma consolidated statements of comprehensive income of the Group.

                                                               2009
                                          Combined           Pro forma             Pro Forma
                                           Amounts         Adjustments              Amounts

 ASSETS
 Current Assets
 Cash and cash equivalents             P
                                       =39,044,845                               P
                                                                                 =39,044,845
 Receivables – net                        9,545,620                                 9,545,620
 Due from affiliates                     33,562,499       (=20,938,457)(1)
                                                           P                       12,624,042
 Other current assets                       219,958                                   219,958
    Total Current Assets                 82,372,922        (20,938,457)            61,434,465
 Noncurrent Assets
 Available-for-sale investment           1,000,000                                 1,000,000
 Investments in subsidiaries           124,262,500        (124,262,500)(2)                 –
 Investment property                    46,774,000                                46,774,000
 Property and equipment – net          228,512,063                               228,512,063
 Deferred tax assets                     1,768,028                                 1,768,028
 Other assets                           14,187,586                                14,187,586
     Total Noncurrent Assets           416,504,177        (124,262,500)          292,241,677
                                      P
                                      =498,877,099       P
                                                        (=145,200,957)         P
                                                                               =353,676,142

 LIABILITIES AND EQUITY
 Current Liabilities
 Accounts payable and accrued
     expenses                          P
                                       =76,062,371                               P
                                                                                 =76,062,371
 Current portion of loan payable          5,556,597                                 5,556,597
 Due to related party                    50,517,426       (=27,694,200)(1)
                                                           P                       22,823,226
 Income tax payable                       2,489,325                                 2,489,325
     Total Current Liabilities         134,625,719         (27,694,200)          106,931,519
 Noncurrent Liabilities
 Loans payable                          81,126,322                                81,126,322
 Customers’ deposits                     5,628,258                                 5,628,258
 Retirement benefit obligation           3,087,946                                 3,087,946
 Deferred tax liability                  7,688,491                                 7,688,491
     Total Noncurrent Liabilities       97,531,017                                97,531,017
(Forward)
                                               -6-




                                                                    2009
                                             Combined             Pro forma                 Pro Forma
                                              Amounts           Adjustments                  Amounts

Equity
Capital stock                             217,326,925           (97,326,925)(2)          120,000,000
Additional paid-in capital                  1,791,401            (1,791,401)(2)                    –
Revaluation surplus in land                11,223,849            (1,785,602)(2)            9,438,247
Accumulated profits                        36,900,488           (17,660,318)(3)           19,240,170
Treasury shares                              (522,300)              522,300 (2)                    –
                                          266,720,363          (118,041,946)             148,678,417

Minority Interest                                                    535,189   (4)            535,189
                                        P
                                        =498,877,099           P
                                                              (=145,200,957)           P
                                                                                       =353,676,142

(1) Elimination of intercompany accounts
(2) Elimination of the equity balances of subsidiaries against investment cost of the Parent Company and
    minority interest
(3) Represents the net effect of the following adjustments:
    (a) Elimination of the equity balances of subsidiaries against investment
          cost of the Parent Company and minority interest                                    P
                                                                                              =4,697,528
    (b) Elimination of dividend received from a subsidiary                                   (14,237,442)
    (c) Dividend declared by the Parent Company                                               (8,120,400)
                                                                                           =17,660,314)
                                                                                          (P
(4) Set-up of minority interest

                                                                    2008
                                             Combined             Pro forma                 Pro Forma
                                              Amounts           Adjustments                  Amounts

ASSETS
Current Assets
Cash and cash equivalents                 P
                                          =26,785,812                                    P
                                                                                         =26,785,812
Receivables – net                            8,275,698                                      8,275,698
Due from affiliates                         13,072,736           =1,420,400
                                                                 P             (1)         14,493,136
Other current assets                         1,710,531                                      1,710,531
   Total Current Assets                     49,844,777             1,420,400               51,265,177
Noncurrent Assets
Investments in subsidiaries               124,262,500         (=124,262,500)(2)
                                                               P                                   –
Investment property                        41,152,250                                     41,152,250
Property and equipment – net              121,123,878                                    121,123,878
Deferred tax assets                         1,268,229                                      1,268,229
Other assets                               12,293,154                                     12,293,154
   Total Noncurrent Assets                300,100,011          (124,262,500)             175,837,511
                                        P
                                        =349,944,788           P
                                                              (=122,842,100)           P
                                                                                       =227,102,688
                                               -7-




                                                                    2008
                                             Combined             Pro forma                Pro Forma
                                              Amounts           Adjustments                 Amounts

LIABILITIES AND EQUITY
Current Liabilities
Accounts payable and accrued
    expenses                             P
                                         =29,626,234                                    P
                                                                                        =29,626,234
Due to related parties                     27,164,998        (=13,400,000)
                                                              P                 (3)       13,764,998
Income tax payable                            284,698                                        284,698
    Total Current Liabilities              57,075,930         P
                                                             (=13,400,000)                43,675,930
Noncurrent Liabilities
Loans payable                              42,168,722                                     42,168,722
Customers’ deposits                         5,280,658                                      5,280,658
Retirement benefit obligation               2,094,366                                      2,094,366
Deferred tax liability                      1,921,318                                      1,921,318
    Total Noncurrent Liabilities           51,465,064                                     51,465,064

Equity
Capital stock                             217,326,925          (=97,326,925)(2)
                                                                P                       120,000,000
Additional paid-in capital                  1,791,401             (1,791,401)(2)                  –
Revaluation reserve in land                 1,748,649             (1,748,649)(2)                  –
Accumulated profits                        21,059,119             (9,532,192)(2)         11,526,927
Treasury shares                              (522,300)               522,300 (2)                  –
                                          241,403,794          (109,876,867)            131,526,927

Minority Interest                                      –             434,767    (4)          434,767
                                        P
                                        =349,944,788          P
                                                             (=122,842,100)            P
                                                                                       =227,102,688

(1) Represents the net effect of the following adjustments:
    (a) Set up of receivable from the excess of the cost of investment of the
         Parent Company over the net asset of the Subsidiaries computed in
         January 1, 2007                                                                   P
                                                                                           =8,120,400
    (b) Elimination of intercompany accounts                                               (6,700,000)
                                                                                              P
                                                                                              =1,420,400
(2) Elimination of the equity balances of subsidiaries against investment cost of the Parent Company and
    minority interest
(3) Assignment of a subsidiary from another subsidiary to the Parent Company in 2009 given retroactive
    effect in 2008
(4) Set-up of minority interest
                                        -8-




                                                         2007
                                      Combined         Pro Forma            Pro Forma
                                       Amounts       Adjustments             Amounts

ASSETS
Current Assets
Cash and cash equivalents           P
                                    =23,885,931                           P
                                                                          =23,885,931
Receivables – net                      5,020,824                             5,020,824
Due from affiliates                   12,735,610     =2,838,970
                                                     P             (1)      15,574,580
Other current assets                     901,516                               901,516
   Total Current Assets               42,543,881       2,838,970            45,382,850
Noncurrent Assets
Investments in a subsidiary         124,262,500     (124,262,500)(2)                –
Investment property                  34,771,425                            34,771,425
Property and equipment – net         90,439,666                            90,439,666
Deferred tax assets                   1,120,936                             1,120,936
Other assets                          9,551,690                             9,551,690
   Total Noncurrent Assets          260,146,217     (124,262,500)         135,883,717
                                   P
                                   =302,690,098     P
                                                   (=121,423,530)        P
                                                                         =181,266,568

LIABILITIES AND EQUITY
Current Liabilities
Accounts payable and accrued
   expenses                         P
                                    =11,140,435                           P
                                                                          =11,140,435
Due to related party                  57,520,316     (48,199,597)(3)         9,320,719
   Total Current Liabilities          68,660,751     (48,199,597)           20,461,154
Noncurrent Liabilities
Loans payable                        30,791,211                            30,791,211
Customer’s deposits                   5,060,958                             5,060,958
Retirement benefit obligation         1,827,069                             1,827,069
Deferred tax liability                  874,325                               874,325
    Total Noncurrent Liabilities     38,553,563                            38,553,563
                                                   -9-




                                                                        2007
                                                  Combined            Pro Forma                Pro Forma
                                                   Amounts          Adjustments                 Amounts

   Equity
   Capital stock                              181,233,175            (61,233,175)(4)        120,000,000
   Additional paid-in capital                   1,791,401             (1,791,401)(2)                  –
   Revaluation reserve in land                  1,623,745             (1,623,745)(2)                  –
   Accumulated profits                         11,349,763             (9,494,293)(2)          1,855,470
   Treasury shares                               (522,300)               522,300 (2)                  –
                                              195,475,784            (73,620,314)           121,855,470

   Minority Interest                                       –             396,381   (5)           396,381
                                             P
                                             =302,690,098         P
                                                                 (=121,423,530)           P
                                                                                          =181,266,568

   (1) Represents the net effect of the following adjustments:
       (a) Set up of receivable from former stockholders of CWC from difference of
            (3) and (4)(b) below.                                                              P
                                                                                               =1,294,153
       (b) Set up of receivable from the excess of the cost of investment of the Parent
            Company to CWC over the net asset of CWC computed in January 1, 2007                 8,244,817
       (c) Elimination of intercompany accounts                                                 (6,700,000)
                                                                                                  P
                                                                                                 =2,838,970
   (2) Elimination of the equity balances of Subsidiaries against investment cost of the Parent Company and
       minority interest
   (3) Represents the net effect of the following adjustments:
       (a) Advances from former stockholders of CWC offset against subscription
             receivable                                                                         =34,799,597)
                                                                                               (P
       (b) Elimination of intercompany accounts                                                 (13,400,000)
                                                                                              =48,199,597)
                                                                                             (P
   (4) Represents the net effect of the following adjustments:
       (a) Elimination of the equity balance of Subsidiaries                                  =97,326,925)
                                                                                             (P
       (b) Paid up balance of subscription receivable                                           36,093,750
                                                                                              =61,233,175)
                                                                                             (P
   (5) Set-up of minority interest



3. Summary of Significant Accounting and Financial Reporting Policies

   Adoption of New Standards, Amendments to Standards and Interpretations

   Amendment to Standard and Interpretation Adopted in 2007

   The Group adopted the following new PFRS, amendment to PAS and Philippine Interpretation
   on International Financial Reporting Interpretation (IFRIC) that are relevant to the Group
   effective in 2007:

      PAS 1, “Presentation of Financial Statements”, which requires the Group to make additional
       disclosures to enable the users of the financial statements to evaluate the Group’s
       objectives, policies and processes for managing capital.
                                           - 10 -




   PFRS 7, “Financial Instruments: Disclosures”, introduces new disclosures to improve the
    information about financial instruments. It requires the disclosures 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 to market risk. It replaces PAS 32, “Financial Instruments:
    Disclosures and Presentation”.

The adoption of the above amendments to the PAS and PFRS did not have significant impact on
the Group’s financial statements but gave rise to additional disclosures.

Amendment to Interpretation Adopted in 2008

The Group adopted Philippine Interpretation IFRIC 14, PAS 19 - The Limit on a Defined Benefit
Asset, Minimum Funding Requirements and their Interaction which provides guidance on how
to assess the limit on the amount surplus in a defined benefit scheme that can be recognized
as an asset under PAS 19, Employee Benefits. The adoption of this interpretation did not have
significant impact on the financial statements for currently the Group does not maintain a fund
asset.

The following new and amendments to PFRS, Philippine Accounting Standards (PAS) and
Interpretations issued by International Financial Reporting Interpretations Committee (IFRIC)
became effective in 2008 but are not relevant to the Group:

    IFRIC 11, PFRS 2             – Group and Treasury Share Transactions
    IFRIC 12                     – Service Concession Arrangements

Amendment to Standards Adopted in 2009

The Group adopted the following amendment to PAS and PFRS, which became effective on or
before January 1, 2009 as follows:

   Amendments to PAS 1, Presentation of Financial Statements, which introduces a new
    statement of comprehensive income that combines all items of income and expenses
    recognized in the profit or loss together with ‘other comprehensive income’. Entities may
    choose to present all items in one statement, or to present two linked statements, a
    separate statement of income and a statement of comprehensive income.                 This
    Amendment also requires additional requirements in the presentation of the balance sheet
    and owner’s equity as well as additional disclosures to be included in the financial
    statements.

   Amendment to PFRS 7, Financial Instruments: Disclosures, requires additional disclosure
    about fair value measurement and liquidity risk. Fair value measurements related to items
    recorded at fair value are to be disclosed by source of inputs using a three level hierarchy
    for each class of financial instrument.

Adoption of the above amendment to standard and PFRS, have no material effect on the
financial statements. The additional disclosures required by the new standards, however, were
included in financial statements, where applicable.

Also, the following new and revised PFRS, amended PAS and interpretations issued by
International Financial Reporting Interpretations Committee (IFRIC) became effective in 2009
but are not relevant to the Group:
                                             - 11 -




   PFRS 1, First-time Adoption of Philippine Financial Reporting Standards - Cost of an
    Investment in a Subsidiary, Jointly Controlled Entity or Associate, allows an entity, in its
    separate financial statements, to determine the cost of investments in subsidiaries, jointly
    controlled entities or associates (in its opening PFRS financial statements) as one of the
    following amounts: a) cost; b) at the fair value; or c) previous carrying amount (both b and
    c at date of transition to PFRS).

   Amendments to PFRS 2, Share-based Payment - Vesting Condition and Cancellations,
    clarifies the definition of a vesting condition and prescribes the treatment for an award that
    is effectively cancelled. It defines a vesting condition as a condition that includes an
    explicit or implicit requirement to provide services.

   PFRS 8, Operating Segments, will replace PAS 14, Segment Reporting, and adopts a full
    management approach to identifying, measuring and disclosing the results of an entity’s
    operating segments.

   Amendments to PAS 23, Borrowing Costs, 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.

   Amendments to PAS 27, Consolidated and Separate Financial Statements - Cost of
    an Investment in a Subsidiary, Jointly Controlled Entity or Associate, which has changes in
    respect of the holding companies’ separate financial statements.

   Amendment to PAS 32, Financial Instruments: Presentation and PAS 1, Presentation of
    Financial Statements - Puttable Financial Instruments and Obligations Arising on
    Liquidation, specify, among others, that puttable financial instruments will be classified as
    equity if they have certain specified features.

   Philippine Interpretation IFRIC 13, Customer Loyalty Programmes, requires customer
    loyalty award credits to be accounted for as a separate component of the sales transaction
    in which they are granted and therefore part of the fair value of the consideration received
    is allocated to the award credits and realized in income over the period that the award
    credits are redeemed or expire.

   Philippine Interpretation IFRIC 16, Hedges of a Net Investment in a Foreign Operation,
    provides guidance on identifying foreign currency risks that qualify for hedge accounting in
    the hedge of net investment.

Improvements to Existing Accounting Standards
On May 2008, the International Accounting Standards Board (IASB) issued its first omnibus of
amendments to certain standards effective on or before January 1, 2009, primarily with a view
to removing inconsistencies and clarifying wordings. There are separate transitional provisions
for each standard.

   PFRS 5, Noncurrent Assets Held for Sale and Discontinued Operations, when a subsidiary is
    held for sale, all of its assets and liabilities will be classified as held for sale under PFRS 5,
    even when the entity retains a noncontrolling interest in the subsidiary after the sale.
                                             - 12 -




   PAS 1, Presentation of Financial Statements, assets and liabilities classified as held for
    trading are not automatically classified as current in the balance sheet.

   PAS 16, Property, Plant and Equipment, replaces the term ‘net selling price’ with ‘fair value
    less costs to sell’, to be consistent with PFRS 5, Noncurrent Assets Held for Sale and
    Discontinued Operations and PAS 36, Impairment of Assets.

   PAS 19, Employee Benefits, revises the definition of ‘past service costs’ to include reduction
    in benefits related to past services (‘negative past service costs’) and to exclude reduction
    in benefits related to future services that arise from plan amendments. Amendments to
    plans that result in a reduction in benefits related to future services are accounted for as a
    curtailment.

   PAS 20, Accounting for Government Grants and Disclosure of Government Assistance,
    provides that loans granted in the future with no or low interest rates will not be exempt
    from the requirement to impute interest.

   PAS 23, Borrowing Costs, revises the definition of borrowing costs to consolidate the types
    of items that are considered components of ‘borrowing costs’, i.e., components of the
    interest expense calculated using the effective interest rate method.

   PAS 28, Investments in Associates, if an associate is accounted for at fair value in
    accordance with PAS 39, only the requirement of PAS 28 to disclose the nature and extent
    of any significant restrictions on the ability of the associate to transfer funds to the entity in
    the form of cash or repayment of loans applies.

    An investment in an associate is a single asset for the purpose of conducting the
    impairment test. Therefore, any impairment test is not separately allocated to the goodwill
    included in the investment balance.

   PAS 29, Financial Reporting in Hyperinflationary Economies, revises the reference to the
    exception that assets and liabilities should be measured at historical cost, such that it notes
    property, plant and equipment as being an example, rather than implying that it is a
    definitive list.

   PAS 31, Interests in Joint Ventures, if a joint venture is accounted for at fair value in
    accordance with PAS 39, only the requirements of PAS 31 to disclose the commitments of
    the venturer and the joint venture, as well as summary financial information about the
    assets, liabilities, income and expense will apply.

   PAS 36, Impairment of Assets, when discounted cash flows are used to estimate ‘fair value
    less costs to sell’, additional disclosure is required about the discount rate, consistent with
    disclosures required when the discounted cash flows are used to estimate ‘value in use’.

   PAS 38, Intangible Assets, expenditure on advertising and promotional activities is
    recognized as an expense when the Company either has the right to access the goods or
    has received the services. Advertising and promotional activities now specifically include
    mail order catalogues.

   PAS 39, Financial Instruments: Recognition and Measurement, changes in circumstances
    relating to derivatives, specifically derivatives designated or de-designated as hedging
    instruments after initial recognition are not reclassifications.
                                           - 13 -




   PAS 40, Investment Properties, it revises the scope (and the scope of PAS 16) to include
    property that is being constructed or developed for future use as an investment property.

   PAS 41, Agriculture, removes the reference to the use of a pre-tax discount rate to
    determine fair value, thereby allowing use of either a pre-tax or post-tax discount rate
    depending on the valuation methodology used.

Future Changes in Accounting Policies
The Group did not early adopt the following standards and Philippine Interpretations that have
been approved but are not yet effective:

Effective in 2010
   Amendment to PFRS 2, Share-based Payment: Group Cash-settled Share-based Payment
    Transactions.
   Revised PFRS 3, Business Combinations and PAS 27, Consolidated and Separate Financial
    Statements.
   Amendment to PAS 39, Financial Instruments: Recognition and Measurement – Eligible
    Hedged Items.
   Philippine Interpretation IFRIC 17, Distributions of Non-Cash Assets to Owners.
   Philippine Interpretation IFRIC 18, Transfers of Assets from Customers.

Improvements to Existing Standards
On April 2009, IASB issued amendments to certain standards, primarily with a view to
removing inconsistencies and clarifying wordings. There are separate transitional provisions for
each standard.

   PFRS 2, Scope of PFRS 2 and Revised PFRS 3
   PFRS 5, Disclosures of Noncurrent Assets Classified as Held for Sale or Discontinued
    Operations
   PFRS 8, Disclosure of Information About Segment Assets
   PAS 1, Current/Noncurrent Classification of Convertible Instruments
   PAS 7, Classification of Expenditures on Unrecognised Assets
   PAS 17, Classification of Leases of Land and Buildings
   PAS 18, Determining Whether an Entity is Acting as a Principal or as an Agent
   PAS 36, Unit of Accounting for Goodwill Impairment Test
   PAS 38, Additional Consequential Amendments Arising from Revised PFRS 3
    -   Measuring the fair value of an intangible asset acquired in a business combination
   PAS 39, Treating Loan Prepayment Penalties as Closely Related Embedded Derivatives
    –   Scope exemption for business combination contracts - Cash flow hedge accounting
   IFRIC 9, Scope of Philippine Interpretation IFRIC 9 and Revised PFRS 3
   IFRIC 16, Amendment to the Restriction on the Entity that Can Hold Hedging Instruments

Effective in 2012
   Philippine Interpretation IFRIC-15, Agreements for the Construction of Real Estate

Effective in 2013
   PFRS 9 Financial Instruments

The Group is currently assessing the relevance and impact of the above standards, amendment
to standards and interpretations. The revised disclosures on the financial statements required
by the above standards and interpretations will be included in the Group’s financial statements
when these are adopted.
                                             - 14 -




Reporting Currency
The financial statements are presented in Philippine pesos, which is the Group’s functional and
presentation currency under PFRS.

Financial Assets and Liabilities
Recognition
The Group recognizes a financial asset or liability in the pro forma consolidated statement of
financial position when it becomes a party to the contractual provisions of the instrument.

Financial assets and liabilities are recognized initially at fair value of consideration given or
received less directly attributable transaction costs. Transaction costs are included in the initial
measurement of all financial assets and liabilities, except for financial instruments measured at
fair value through profit and loss.

Determination of fair value
Fair value is determined by preference to the transaction price or other market prices. If such
market prices are not reliably determinable, the fair value is determined by using appropriate
valuation techniques. Valuation techniques include net present value model where the fair
value of the consideration is estimated as the sum of all future cash payments or receipts,
discounted using the prevailing market rates of interest for a similar instruments with similar
maturities. Other valuation techniques include comparing to similar instruments for which
market observable prices exist; recent arm’s length market transaction; option pricing model
and other relevant valuation models.

Financial Assets
The Group classifies its financial assets in the following categories: financial assets at fair value
through profit or loss, loans and receivables, held-to-maturity investments, and available-for-
sale financial assets as appropriate. The classification depends on the purpose for which the
investments are acquired and whether they are quoted in an active market. The Group
determines the classification at initial recognition and, where allowance is appropriate, re-
evaluates this designation at every reporting date.

Loans and Receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments
and are not quoted in an active market. They arise when the Group provides money, goods or
services directly to a debtor with no intention of trading the receivables. Such assets are
carried at cost or amortized cost in the pro forma consolidated statement of financial position.
Amortization is determined using the effective interest method. Loans and receivables are
included in current assets if maturity is within 12 months from the end of financial reporting
period. Otherwise, these are classified as noncurrent assets.

Classified under this category are the Group’s receivables and related party advances and
special bank deposits.

Available-for-sale financial assets
Available-for-sale (AFS) financial assets are those non-derivative financial assets that are
designated as available-for-sale or are not classified in any of the three preceding categories.
After initial recognition, AFS financial assets are measured at fair value with gains or losses
being recognized as separate component of stockholders’ equity 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 statements of comprehensive
income.
                                             - 15 -




The fair value of investments that are actively traded in organized financial market is
determined by reference to quoted market bid prices at the close of business on the end of
each financial reporting period. For investments where there is no active market, fair value is
determined using valuation techniques. Such techniques include recent arm’s length market
transaction; reference to the current market value of another instrument which is substantially
the same; discounted cash flows analysis and option pricing models.

This category includes investment in mutual fund managed by an insurance company.

Financial Liabilities
Other Financial Liabilities
This category pertains to financial liabilities that are not held for trading or not designated as at
FVPL upon inception of the liability. A financial liability at FVPL is acquired principally for the
purpose of repurchasing in the near term or upon initial recognition, it is designated by
management as at fair value through profit or loss.

The financial liabilities are recognized initially at fair value and are subsequently carried at
amortized cost, taking into account the impact of applying the effective interest method of
amortization (or accretion) for any related premium, discount and any directly attributable
transaction costs. These include liabilities arising from operations and borrowings.

This category includes loan payable, accounts payable and accrued expenses, due to related
parties, loan payable and customers deposits.

Impairment of Financial Assets
The Group assesses at each end of financial reporting period whether a financial asset or group
of financial assets is impaired.

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 asset’s carrying amount and the present value of estimated future cash flows
(excluding future credit losses that have not been incurred) discounted at the financial asset’s
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 use of an
allowance account. The amount of the loss shall be recognized in the Group’s pro forma
consolidated statements of comprehensive income.

The Group first assesses whether objective evidence of impairment exists individually for
financial assets that are individually significant, and individually or collectively for financial
assets that are not individually significant. If it is determined that no objective evidence of
impairment exists for an individually assessed financial asset, whether significant or not, the
asset is included in a group of financial assets with similar credit risk characteristics and that
group of financial asset is collectively assessed for impairment. Assets that are individually
assessed for impairment and for which an impairment loss is or continues to be recognized are
not included in a collective assessment of impairment.

If, in a subsequent period, the amount of the impairment loss decrease can be related
objectively to an event occurring after the impairment was recognized, the previously
recognized impairment loss is reversed. Any subsequent reversal of an impairment loss is
recognized in the pro forma consolidated statements of comprehensive income to the extent
that the carrying value of the asset does not exceed its amortized cost at the reversal date.
                                            - 16 -




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 its 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 asset’s
carrying amount and the present value of estimated future cash flows discounted at the current
market rate of return for a similar financial asset.

Derecognition of Financial Assets and Liabilities
Financial assets
A financial asset is derecognized when (1) the rights to receive cash flows from the financial
instruments expire, (2) the Group retains the right to receive cash flows from the asset, but
has assumed an obligation to pay them in full without material delay to a third party under a
“pass-through” arrangement, or (3) the Group has transferred its rights 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 Group has transferred its rights to receive cash flows from an asset or has entered
into a pass-through arrangement and has neither transferred nor retained substantially all the
risks and rewards of an asset nor transferred control of the assets, the asset is recognized to
the extent of the Group’s continuing involvement in the asset. Continuing involvement that
takes the form of a guarantee over the transferred asset is measured at the lower of the
original carrying amount of the asset and the maximum amount of consideration that the
Group could be required to repay.

Financial Liabilities
A financial liability is derecognized when the obligation under the liability is discharged,
cancelled or expired. Where the 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 pro forma consolidated statements of comprehensive income.

Offsetting Financial Instruments
Financial assets and financial liabilities are offset and the net amount is reported in the pro
forma consolidated statements of financial position 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 pro forma consolidated statements of financial position.

Revenue and Cost Recognition
Revenue is recognized when it is probable that the economic benefit associated with the
transactions will flow to the Group and the amount can be reliably measured. The following
specific recognition criteria must also be met before revenue is recognized:

   Water revenues are recognized when the related water services are rendered.

   Sales is recognized upon delivery of goods sold, and the transfer of risks and rewards to the
    customer has been completed
                                            - 17 -




   Interest income is recognized on a time proportion basis that reflects the effective yield on
    the asset.

   Other income is recorded when the related income service is earned.

Cost and expenses are recognized upon utilization of the service or at the date they are
incurred. Except for borrowing costs attributable to qualifying assets, all finance costs are
reported on an accrual basis.

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
change in value.

Receivables
Trade and other receivables are carried at original invoice amount less any allowance for
impairment in value.

Investment Property
Investment property, which is property held to earn rentals and/or for capital appreciation, is
carried at fair value at end of financial reporting period. Gains or losses arising from changes
in the fair value of investment property are included in profit or loss for the period in which
they arise.

A company-occupied property classified under property and equipment account becomes an
investment property when it ends company-occupation. Decrease in the carrying amount is
recognized in pro forma consolidated statement of comprehensive income. However, to the
extent that an amount is included in its revaluation surplus, the decrease is charged against
that revaluation surplus. Increase in carrying amount is recognized in pro forma consolidated
statement of comprehensive income to the extent that the increase reverses a previous
impairment loss for such property.       The amount recognized in pro forma consolidated
statement of comprehensive income does not exceed the amount needed to restore the
carrying amount that would have been determined (net of depreciation) had no impairment
loss been recognized. Any remaining part of the increase is credited directly to equity in
revaluation surplus. Revaluation surplus included in equity maybe transferred to accumulated
profits. The transfer from revaluation surplus to accumulated profits is not made through profit
or loss.

Investment property is derecognized on disposal, or when the investment property is
permanently withdrawn from use and no future economic benefit is expected from its disposal.
Any gains or losses on the retirement or disposal of an investment property are recognized in
the pro forma consolidated statement of comprehensive income in the year of retirement or
disposal.

Where there is clear evidence that the fair value of an investment property is not reliably
determinable on a continuing basis, the cost model under PAS 16 “Property, Plant and
Equipment”, shall be used.

The Company’s investment property consists of parcels of land located in Calapan, Oriental
Mindoro.
                                               - 18 -




Property and Equipment
Land is carried at appraised values as determined by an independent firm of appraisers on
December 22, 2009.        Property and equipment are carried at cost less accumulated
depreciation, amortization and any allowance for impairment in value except for land.

Initial cost of property and equipment comprises its construction cost or purchase price and
any directly attributable cost of bringing the assets to its working condition and location for its
intended use. Expenses incurred and paid after the property and equipment have been put
into operation, such as repairs and maintenance and overhaul costs, are normally charged to
income when the costs are incurred. In situation 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 and equipment beyond its originally assessed
standard of performance, the expenditures are capitalized as an additional cost of property and
equipment.

Depreciation is computed using the straight-line method over the following estimated useful
lives:

                                                                           Years
     Land improvements                                                        20
     Water utilities and distribution system                              5 – 50
     Office furniture and equipment                                            5
     Service vehicles                                                          5
     Staffhouse, warehouse, and office                                         5

The useful life and depreciation methods are reviewed periodically to ensure that the method
and period of depreciation are consistent with the expected pattern of economic benefits from
items of property and equipment.

Construction in progress and equipment for installation, included in the property and
equipment, is stated at cost. This includes cost of construction, equipments and other direct
costs. Construction in progress and equipment for installation is not depreciated until such
time as the relevant assets are completed or installed and put into operational use.

When assets are retired or otherwise disposed of, the cost and related accumulated
depreciation are eliminated from the accounts, and any gain or loss resulting from their
disposal is credited or charged to current operations.

Goodwill
Goodwill arising from the acquisition of a subsidiary or a jointly controlled entity represents the
excess of the cost of acquisition over the Group’s interest in the net fair value of the identifiable
assets, liabilities and contingent liabilities of the subsidiary or jointly controlled entity
recognized at the date of acquisition. Goodwill is initially recognized as an asset at cost and is
subsequently measured at cost less any accumulated impairment losses. Goodwill is reviewed
for impairment annually or more frequently, if events of changes in circumstances indicate that
the carrying value may be impaired. An impairment loss recognized for goodwill is not
reversed in a subsequent period. Negative goodwill, which is the excess of net fair value of
subsidiaries’ identifiable assets, liabilities and contingent liabilities over the cost of business
combination, is immediately recognized as income.

On disposal of a subsidiary or a jointly controlled entity, the attributable amount of goodwill is
included in the determination of the profit or loss on disposal.
                                           - 19 -




Impairment of Non-financial Assets
The carrying values of long-lived assets are reviewed for impairment when events or changes
in circumstances indicate that the carrying values may not be recoverable. If any such
indication exists and where the carrying values exceed the estimated recoverable amounts, the
assets or cash-generating units are written down to their recoverable amounts.              The
recoverable amount of the asset is the greater of net selling price and value in use. The net
selling price is the amount obtainable from the sale of an asset in an arm’s length transaction
less cost to sell. In assessing value in use, the estimated future cash flows are discounted to
their present value using a pre-tax discount rate that reflects current market assessment of the
time value of money and the risks specific to the asset. For an asset that does not generate
largely independent cash inflows, the recoverable amount is determined for the smallest cash-
generating unit to which the asset belongs. Impairment losses are recognized in the pro forma
consolidated statement of comprehensive income in the period in which it arises unless the
asset is carried at a revalued amount in which case the impairment is charged to the
revaluation surplus of the said asset.

A previously recognized impairment loss is reversed only if there has been a change in the
estimates used to determine the recoverable amount of an asset, however, not to an amount
higher than the carrying amount that would have been determined (net of any depreciation and
amortization) had no impairment loss been recognized for the asset in prior years.

A reversal of an impairment loss is credited to current operations.

Retirement Benefits Costs
The Group’s retirement cost is actuarially determined using the Projected Unit Credit Method.
This method reflects service rendered by employees up to the date of valuation and
incorporates assumptions concerning employees’ projected salaries. Actuarial valuations are
conducted with sufficient regularity with option to accelerate when significant changes to
underlying assumptions occur. Retirement expense includes current service cost, interest cost
and amortization of unrecognized past service cost and recognition of actuarial gains or losses.

The current service cost is a level annual amount or a fixed percentage of salary which, when
invested at the rate of interest assumed in the actuarial valuation, is sufficient to provide the
required retirement benefit at the employee’s retirement.

Past service cost is the present value of the excess of the projected retirement benefits over
the amount expected to be provided by future contributions based on the service cost. Past
service cost is recognized immediately to the extent that the benefits are already vested, and
otherwise is amortized on a straight-line basis over the average period until the benefits
become vested.

Actuarial gains and losses that exceed 10% of the greater of the present value of the Group’s
defined benefit obligation and the fair value of plan assets are amortized over the expected
average remaining working lives of the participating employees.

The retirement benefit obligation recognized in the pro forma consolidated statement of
financial position represents the present value of the defined benefit obligation as adjusted for
unrecognized actuarial gains and losses and unrecognized past service cost, and as reduced by
the fair value of plan assets, if any. Any assets resulting from this calculation is limited to
unrecognized actuarial losses and past service costs, plus the present value of available
refunds and reductions in future contributions to the plan.
                                            - 20 -




Related Party Transactions
Transactions between related parties are based on terms similar to those offered to non-related
parties. Parties are considered to be related if one party has the ability, directly or indirectly,
to control the other party or exercise significant influence over the other party in making
financial and operating decisions and the parties are subject to common control or common
significant influence. Related parties may be individuals or corporate entities.

Borrowing Costs
Borrowing costs are generally expensed as incurred. Borrowing costs incurred during the
construction period on loans and advances used to finance construction and property
development are capitalized as part of construction and development costs included under
“Property and Equipment” account in the pro forma consolidated statement of financial
position.

Capitalization of borrowing costs commences when the activities to prepare the asset are in
progress and expenditures and borrowing costs are being incurred. Capitalization of borrowing
costs ceases when substantially all the activities necessary to prepare the asset for its intended
use are complete. If the carrying amount of the asset exceeds its recoverable amount, an
impairment loss is recorded. Capitalized borrowing cost is based on applicable weighted
average borrowing rate.

All other borrowing costs are charged to operation in the period in which they are incurred.

Leases
Leases are classified as finance leases whenever the term of the lease transfer substantially all
the risks and rewards of ownership to the lessee. All other leases are classified as operating
leases.

Rental expenses under operating leases are charged to profit or loss on a straight-line basis
over the term of the lease.

The Group determines whether an arrangement is, or contains a lease based on the substance
of the arrangement. It makes an assessment of whether the fulfillment of the arrangement is
dependent on the use of a specific asset or assets and the arrangement conveys a right to use
the asset.

Income Taxes
Income taxes represent the sum of the tax currently payable and deferred tax.

The tax currently payable is based on taxable income for the year. Taxable income differs from
income as reported in the pro forma consolidated statement of comprehensive income because
it excludes items of income or expenses that are taxable or deductible in other years and it
further excludes items that are never taxable or deductible. The Group’s liability for current
income tax is calculated using tax rates that have been enacted or substantively enacted at the
end of financial reporting date.
                                             - 21 -




Deferred tax is provided, using the balance sheet liability method, on all temporary differences
at the end of financial reporting period between the tax bases of assets and liabilities and their
carrying amounts for financial reporting purposes and carryforward benefits of net operating
loss carryover (NOLCO) and minimum corporate income tax (MCIT). Deferred tax assets are
recognized for all deductible temporary differences to the extent that it is probable that taxable
profit will be available against which the deductible temporary difference can be utilized.
Deferred tax liabilities are recognized for all taxable temporary differences. Deferred tax
assets and liabilities are measured using the tax rate that is expected to apply to the period
when the asset is realized or the liability is settled.

The carrying amount of deferred tax assets is reviewed at each end of financial reporting date
and reduced to the extent that it is not probable that sufficient taxable profit will be available to
allow all or part of the deferred income tax assets to be utilized.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to off-set
current tax assets against current tax liabilities.

Income tax relating to items recognized directly in equity is recognized in equity and not in the
pro forma consolidated statement of comprehensive income.

Provisions
Provisions are recognized only when the following conditions are met: a) there exists a present
obligation (legal or constructive) as a result of past event; b) it is probable (i.e. more likely
than not) that an outflow of resources embodying economic benefits will be required to settle
the obligation; and, c) reliable estimate can be made of the amount of the obligation.
Provisions are reviewed at each end of financial reporting date and adjusted to reflect the
current best estimate.

Contingencies
Contingent liabilities are not recognized in the pro forma consolidated financial statements.
They are disclosed unless the possibility of an outflow of resources embodying economic
benefits is remote.      A contingent asset is not recognized in the consolidated financial
statements but disclosed when an inflow of economic benefit is probable.

Events after the End of Financial Reporting Period
Post year-end events that provide additional information about the Group’s position at the end
of financial reporting date (adjusting events) are reflected in the Group’s financial statements.
Post year-end events that are non-adjusting events are disclosed in the notes to financial
statements when material.

Earnings per Share (EPS)
EPS is determined by dividing net income for the year by the weighted average number of
shares outstanding during the year including fully paid but unissued shares as of the end of the
year, adjusted for any subsequent stock dividends declared.

Management’s Use of Judgments and Estimates
The preparation of the Group’s financial statements in accordance with PFRS requires
management to make estimates and assumptions that affect the amounts reported in the
financial statements and accompanying notes. The estimates and assumptions used in the
accompanying financial statements are based upon management’s evaluation of relevant facts
and circumstances as of the date of the financial statements. Actual results could differ from
such estimates. The effect of any changes in estimates will be recorded in the Group’s financial
statements when determinable.
                                           - 22 -




Estimates and judgments are continually evaluated and are based on historical experience and
other factors, including expectations of future events that are believed to be reasonable under
the circumstances.

Judgments
In the process of applying the Group’s 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 pro forma consolidated financial statements:

   Distinction between Investment Property and Owner-Occupied Property
    The Group determines whether a property qualifies as investment property. In making its
    judgments, the Group considers whether the property generates cash flows largely
    independent of the other assets held by an entity. Owner-occupied properties generate
    cash flows that are attributable not only to the property but also other assets used in the
    supply process.

    Some properties are held to earn rentals or for capital appreciation and other properties
    are held for use in rendering of services or for administrative purposes. If the portion
    cannot be sold separately, the property is accounted for as an investment property only if
    an insignificant portion is held for use in the production or supply of goods and services or
    for administrative purposes. Judgment is applied in determining whether ancillary services
    are so significant that a property does not qualify as investment property. The Group
    considers each property separately in making its judgment.

Estimates
The key assumptions concerning the future and other sources of estimation uncertainty at the
end of financial reporting 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:

   Impairment of Receivables
    The Group maintains allowances for impairment losses on receivables at a level considered
    adequate to provide for potential uncollectible receivables. The level of this allowance is
    evaluated by the management on the basis of factors that affect the collectibility of the
    accounts.

    The factors include, but are not limited to, the length of relationship with the customer, the
    customer’s payment behavior and known market factors. The Group reviews the age and
    status of receivables, and identifies accounts that are to be provided with allowances on a
    continuous basis.     The Group provides full allowance for receivables that it deems
    uncollectible. The amount and timing of recorded expenses for any period would differ if
    the Group made different judgments or utilized different estimates. An increase in the
    allowance for impairment losses on receivables would increase recorded operating expenses
    and decrease current assets.

                                                              P             P
    The carrying value of the Group’s receivables amounted to =9.5 in 2009, =8.3 million in
              P
    2008 and =5.0 million in 2007 (see Note 6).
                                           - 23 -




   Useful Lives of Property and Equipment
    Useful lives of property and equipment are estimated based on the period over which these
    assets are 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. Any reduction in the estimated useful lives of property and equipment
    would increase the Group’s recorded operating expenses and decrease on the related asset
    accounts.

    The carrying value of the Group’s depreciable property and equipment amounted to
    P                       P                          P
    =228.5 million in 2009, =121.1 million in 2008 and =90.4 million in 2007 (see Note 10).

   Retirement and Other Benefits
    The determination of the Group’s obligation and cost for pension and other retirement
    benefits is dependent on management’s selection of certain assumptions used by actuaries
    in calculating such amounts.

    The assumptions for pension costs and other retirement benefits are described in Note 15,
    and include among others, discount and salary increase rates. Actual results that differ
    from the assumptions are accumulated and amortized over future periods and therefore,
    generally affect the Group’s recognized expense and recorded obligation in such future
    periods. While management believes that the assumptions are reasonable and appropriate,
    significant differences in actual experience or significant changes in management
    assumptions may materially affect the Group’s pension and other retirement obligations.

    The Group also estimates other employee benefits obligation and expense, including the
    cost of paid leaves based on historical leave availments of employees, subject to the
    Group’s policy. These estimates may vary depending on the future changes in salaries and
    actual experiences during the year.

                                                            P                     P
    The Company’s retirement benefit obligation amounted to =3.1 million in 2009, =2.1
                        P
    million in 2008 and =1.8 million in 2007 (see Note 15).

   Impairment of Non-Financial Assets
    Impairment review is performed when certain impairment indicators are present. Such
    indicators would include significant changes in asset usage, significant decline in market
    value and obsolescence or physical damage on an asset. If such indicators are present and
    where the carrying amount of the asset exceeds its recoverable amount, the asset is
    considered impaired and is written down to its recoverable amount. Determining the net
    recoverable value of assets requires the estimation of cash flows expected to be generated
    from the continued use and ultimate disposition of such assets. While it is believed that the
    assumptions used in the estimation of fair values reflected in the financial statements are
    appropriate and reasonable, significant changes in these assumptions may materially affect
    the assessment of recoverable values and any resulting impairment loss could have a
    material adverse impact on the results of operations.
                                                 - 24 -



         Determining whether goodwill is impaired requires an estimation of the value in use of the
         cash-generating units to which goodwill has been allocated. The value in use calculation
         requires the management to estimate the future cash flows expected to arise from the
         cash-generating unit and a suitable discount rate in order to calculate present value.

        Deferred Income Tax Assets
         The carrying amount of deferred tax assets is reviewed at each end of financial reporting
         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 tax assets to be utilized. Management
         expects future operations will generate sufficient taxable profit that will allow all or part of
         the deferred income tax assets to be utilized.

                                                     P                     P
         The Group’s deferred tax assets amounted to =1.8 million in 2009, =1.3 million in 2008
             P
         and =1.1 million in 2007 (see Note 18).

        Financial Assets and Liabilities
         PFRS requires that certain financial assets and liabilities be carried at fair value, which
         requires the use of extensive accounting estimates and judgments. While significant
         components of fair value measurement are determined using verifiable objective evidence
         (i.e. interest rates, volatility rates), the timing and amount of changes in fair value would
         differ with the valuation methodology used. Any change in the fair value of these financial
         assets and liabilities would directly affect income and equity (see Note 22).


4. Segment Reporting

   The Group derives its source of revenue from its utilities segment. The utilities segment (CWC)
   is engaged in the operation, maintenance and distribution of water supplies in the City of
   Calapan, province of Oriental Mindoro and town of Tabuk, province of Kalinga. The Parent
   Company is engaged in trading of goods.

   The financial information about the operations of these business segments is summarized as
   follows:

                                                                      2009
                                                          Utilities          Trading             Total
       Revenues
         Segment revenues                          P
                                                   =75,606,086         P
                                                                       =2,831,259        P
                                                                                         =78,437,345
         Unallocated revenues                                                              7,169,434
         Consolidated revenues                                                           P
                                                                                         =85,606,779
       Costs and expense
         Segment costs and expenses                P
                                                   =54,768,911         P
                                                                       =3,948,416        P
                                                                                         =58,717,327
         Unallocated costs and expenses                                                        9,761
         Consolidated costs and expenses                                                 P
                                                                                         =58,727,088
    Earnings before depreciation and
       amortization                                 20,837,175          (1,117,157)       26,879,691
    Depreciation and amortization
       (Note 10)                                      6,334,448                    –        6,334,448
    Noncash expenses other than
       depreciation and amortization
       (Notes 6 and 17)                                740,252                   –           740,252
    Segment results before income tax              P
                                                   =13,762,475          P
                                                                       (=1,117,157)      P
                                                                                         =19,804,991
   (Forward)
                                     - 25 -




                                                          2009
                                              Utilities          Trading           Total
Assets
   Segment assets                    P
                                     =279,382,074         P
                                                          =13,127,998      P
                                                                           =292,510,072
   Unallocated assets                                                        61,166,070
   Consolidated total assets                                               P
                                                                           =353,676,142
Liabilities
   Segment liabilities                P
                                      =84,148,862         P
                                                          =11,417,065       P
                                                                            =95,565,927
   Unallocated liabilities                                                   108,896,609
   Consolidated total liabilities                                          P
                                                                           =204,462,536
Other segment information:
   Capital expenditure (Note 10)     P
                                     =100,186,633

                                                          2008
                                              Utilities          Trading           Total
Revenues
  Segment revenues                    P
                                      =54,501,036                    P
                                                                     =–     P
                                                                            =54,501,036
   Unallocated revenues                                                       7,344,631
   Consolidated revenues                                                    P
                                                                            =61,845,667
Costs and expense
  Segment costs and expenses          P
                                      =44,907,168                    P
                                                                     =–     P
                                                                            =44,907,168
   Unallocated costs and expenses                                                58,146
   Consolidated costs and expenses                                          P
                                                                            =44,965,314
Earnings before depreciation and
   amortization                          9,593,868                    –      16,880,353
Depreciation and amortization
   (Note 10)                             5,639,991                     –      5,639,991
Segment results before income tax      P
                                       =3,953,877                    P
                                                                     =–     P
                                                                            =11,240,362
Assets
   Segment assets                    P
                                     =157,689,073         P
                                                          =12,500,000      P
                                                                           =170,189,073
   Unallocated assets                                                        56,913,615
   Consolidated total assets                                               P
                                                                           =227,102,688
Liabilities
   Segment liabilities                P
                                      =35,191,590                    P
                                                                     =–     P
                                                                            =35,191,590
   Unallocated liabilities                                                    59,949,404
   Consolidated total liabilities                                           P
                                                                            =95,140,994
Other segment information:
   Capital expenditure (Note 10)      P
                                      =36,324,203
                                            - 26 -




                                                                 2007
                                                     Utilities          Trading           Total
    Revenues
      Segment revenues                       P
                                             =44,341,277                    P
                                                                            =–     P
                                                                                   =44,341,277
       Unallocated revenues                                                            660,335
       Consolidated revenues                                                       P
                                                                                   =45,001,612
    Costs and expense
      Segment costs and expenses             P
                                             =36,094,689                    P
                                                                            =–     P
                                                                                   =36,094,689
       Unallocated costs and expenses                                                1,470,427
       Consolidated costs and expenses                                             P
                                                                                   =37,565,116
    Earnings before depreciation and
       amortization                             8,246,588                    –       7,436,496
    Depreciation and amortization
       (Note 10)                                4,323,428                    –       4,323,428
    Noncash expenses other than
       depreciation and amortization
       (Note 6 and 17)                           418,737                      –        418,737
    Segment results before income tax         P
                                              =3,504,423                    P
                                                                            =–      P
                                                                                    =2,694,331
    Assets
       Segment assets                       P
                                            =117,299,627         P
                                                                 =12,500,000      P
                                                                                  =129,799,627
       Unallocated assets                                                           51,466,941
       Consolidated total assets                                                  P
                                                                                  =181,266,568
    Liabilities
       Segment liabilities                   P
                                             =28,859,612                    P
                                                                            =–     P
                                                                                   =28,859,612
       Unallocated liabilities                                                       30,155,105
       Consolidated total liabilities                                              P
                                                                                   =59,014,717
    Other segment information:
       Capital expenditure (Note 10)         P
                                             =25,729,154



5. Cash and Cash Equivalents

   This account consists of:

                                                     2009                2008              2007
    Short-term time deposit                  P
                                             =21,536,835           P
                                                                  =8,855,718         P
                                                                                    =8,447,409
    Cash in banks                              17,292,510          17,714,594        15,166,095
    Petty cash fund                               165,500             165,500            80,000
    Revolving fund                                 50,000              50,000           156,906
    Cash on hand                                        –                   –            35,521
                                             P
                                             =39,044,845         P
                                                                 =26,785,812       P
                                                                                   =23,885,931

   Cash in banks earn interest at the respective bank deposit rates. Time deposits are made for
   varying periods up to two months depending on the immediate cash requirements of the
   Group, and earn interest at 4.0% to 6.5% gross. Interest income earned amounted to
   P                                  P
   =1.3 million in 2009 and 2008 and =1.0 million in 2007
                                              - 27 -




6. Receivables

   This account consists of:

                                                        2009             2008             2007
    Trade                                        P
                                                 =9,925,202       P
                                                                  =6,765,880       P
                                                                                   =5,744,376
    Advances to officers and employees                36,399          455,339          229,147
    Others                                         1,110,936        2,267,678          260,500
                                                 11,072,537         9,488,897        6,234,023
    Less allowance for impairment losses           1,526,917        1,213,199        1,213,199
                                                 P
                                                 =9,545,620       P
                                                                  =8,275,698       P
                                                                                   =5,020,824

   The rollforward analysis of impairment losses follows:

                                                       2009             2008              2007
    Balance at beginning of year                 P
                                                 =1,213,199       P
                                                                  =1,213,199         P
                                                                                     =794,462
    Additions (Note 17)                             515,249                –           418,737
    Reversal                                       (201,531)               –                 –
    Balance at end of year                       P
                                                 =1,526,917       P
                                                                  =1,213,199       P
                                                                                   =1,213,199



7. Other Current Assets

   This account consists of:

                                                       2009               2008            2007
    Prepaid taxes                                  P
                                                   =160,943           P
                                                                     =94,921          P
                                                                                     =76,674
    Prepaid rent                                     45,000             45,000          12,500
    Input tax                                             –         1,556,595         784,927
    Others                                           14,015             14,015          27,415
                                                   P
                                                   =219,958       P
                                                                  =1,710,531        P
                                                                                    =901,516



8. Available-for-Sale Investment

   This account pertains to investment in mutual fund (fund) managed by an insurance company.
   This fund seeks to achieve an optimal level of income in the medium term together with long
   term capital growth through investments in fixed income securities and money market
   instruments and shares listed in the Philippine Stock Exchange.

   Although the amount can be withdrawn anytime, the management intended to hold the fund on
   a long term basis.

   The fund’s fair market value as of December 31, 2009 is not materially different from that of
   the value from the time of acquisition.
                                                                          - 28 -




        9. Investment Property

             This account consists of:

                                                                                       2009                    2008                     2007
             Cost                                                               P
                                                                                =41,152,250             P
                                                                                                        =34,771,425              P
                                                                                                                                 =34,771,425
             Appraisal increase                                                   5,621,750               6,380,825                        –
                                                                                P
                                                                                =46,774,000             P
                                                                                                        =41,152,250              P
                                                                                                                                 =34,771,425

             The Group’s investment property consists of parcels of land located in Calapan, Oriental
             Mindoro.

             In 2008 and 2009, certain land properties were appraised with related appraisal increase
             credited to pro forma consolidated statement of comprehensive income amounting to
             P                P
             =6.4 million and =5.6 million, respectively.

             The fair values of investment properties were determined by an independent appraiser in 2009
             and later in 2007 but with report released only in 2008. The valuation of investment properties
             was based on market values. The fair value represents the amount at which the assets can be
             exchanged between a knowledgeable, willing seller and a knowledgeable, willing buyer in an
             arm’s length transaction at the date of valuation, in accordance with International Valuation
             Standards.



        10. Property and Equipment

             The rollforward analysis of this account follows:


                                                                                         2009

                                              Water utilities          Office                   Staff house,

                                   Land and and distribution    furniture and       Service      warehouse     Construction   Equipment for

                               improvements          system       equipment         vehicles      and office    in progress     installation         Total

Cost:

  January 1, 2009               P
                                =1,270,561    P
                                              =112,914,446      P
                                                                =2,160,266       =1,675,171
                                                                                 P              P
                                                                                                =1,522,896     P
                                                                                                               =24,749,099      P          P
                                                                                                                                =5,918,219 =150,210,658

  Acquisitions                      30,408       9,736,726          249,904        140,144                –     86,298,803       3,730,648     100,186,633

  At December 31, 2009           1,300,969     122,651,172        2,410,170       1,815,315      1,522,896     111,047,902       9,648,867     250,397,291

Accumulated depreciation:

  January 1, 2009                  200,764      28,830,643        1,360,463         894,889        298,091               –                –     31,584,850

  Depreciation and

        amortization                16,162       5,472,092          368,371         325,534        152,289               –                –      6,334,448

  At December 31, 2009             216,926      34,302,735        1,728,834       1,220,423        450,380               –                –     37,919,298

Revaluation surplus in land:

  January 1, 2009                2,498,070                 –               –              –               –              –                –      2,498,070

  Addition                      13,536,000                 –               –              –               –              –                –     13,536,000

  At December 31, 2009          16,034,070                 –               –              –               –              –                –     16,034,070

Net carrying value             P
                               =17,118,113     P
                                               =88,348,437        P
                                                                  =681,336        =594,892
                                                                                  P             P          P
                                                                                                =1,072,516 =111,047,902         P          P
                                                                                                                                =9,648,867 =228,512,063
                                                                            - 29 -



                                                                                              2008

                                               Water utilities                                        Staff house,

                                    Land and and distribution    Office furniture       Service        warehouse      Construction       Equipment for

                                improvements           system    and equipment          vehicles         and office     in progress         installation              Total

Cost:

  January 1, 2008               P
                                =1,270,561     P
                                               =101,746,212         P          P
                                                                    =2,004,313 =1,424,254             =1,522,896
                                                                                                      P                            P
                                                                                                                                   =–      P
                                                                                                                                           =5,918,219         P
                                                                                                                                                              =113,886,455

  Acquisitions                            –        11,168,234            155,953       250,917                   –     24,749,099                        –      36,324,203

  At December 31, 2008            1,270,561       112,914,446           2,160,266     1,675,171         1,522,896      24,749,099          P
                                                                                                                                           =5,918,219          150,210,658

Accumulated depreciation:

  January 1, 2008                  184,914         23,964,538           1,039,016      610,590            145,801                                        –      25,944,859

  Depreciation and

         amortization               15,850          4,866,105            321,447       284,299            152,290                                        –       5,639,991

  At December 31, 2008             200,764         28,830,643           1,360,463      894,889            298,091                                        –      31,584,850

Revaluation surplus in land       2,498,070                                                                                                                      2,498,070

Net carrying value              P
                                =3,567,867        P
                                                  =84,083,803           P
                                                                        =799,803      =780,282
                                                                                      P               P          P
                                                                                                      =1,224,805 =24,749,099               P          P
                                                                                                                                           =5,918,219 =121,123,878




                                                                                              2007

                                                      Water utilities                                             Staff house,

                                      Land and       and distribution     Office furniture           Service    warehouse and           Equipment for

                                  improvements               system       and equipment              vehicles             office          installation             Total

  Cost:

        January 1, 2007             P
                                    =1,148,930         P
                                                       =77,256,228           P
                                                                             =1,625,707       =1,424,254
                                                                                              P                       P
                                                                                                                      =783,963            P          P
                                                                                                                                          =5,918,219 =88,157,301

        Acquisitions                   121,631          24,489,984               378,606                   –            738,933                     –         25,729,154

        At December 31, 2007         1,270,561         101,746,212             2,004,313           1,424,254          1,522,896           P
                                                                                                                                          =5,918,219         113,886,455

  Accumulated depreciation:

        January 1, 2007                169,064          20,366,921               733,688            351,758                   –                     –         21,621,431

        Depreciation and

            amortization                 15,850            3,597,617                305,328         258,832             145,801                     –          4,323,428

        At December 31, 2007           184,914          23,964,538             1,039,016            610,590             145,801                     –         25,944,859

                                     1,085,647          77,781,674               965,297            813,664           1,377,095           P
                                                                                                                                          =5,918,219          87,941,596

  Revaluation surplus in land        2,498,070                                                                                                                 2,498,070

  Net carrying value                =3,583,717
                                    P                  P
                                                       =77,781,674             =965,297
                                                                               P                   =813,664
                                                                                                   P                 P
                                                                                                                     =1,377,095           P          P
                                                                                                                                          =5,918,219 =90,439,666



            Land was revalued on December 22, 2009 by an independent appraiser. The valuation of the
            land is based on the fair market values using the Market Data Approach by identification of the
            sales and listings of comparable properties registered in the vicinity.

                                                                           P               P
            Total borrowing cost capitalized in 2009 and 2008 amounted to =5.7 million and =3.9 million,
            respectively, included under construction in progress (see Note 13). No borrowing cost was
            capitalized in 2007.

            Certain property and equipment under “land and improvements” and “water utilities and
            distribution system” were mortgaged in favor of a creditor bank in connection with the Group’s
            loan availment (see Note 13).

            The depreciation was charged to the following accounts in the statements of comprehensive
            income:

                                                                                          2009                          2008                          2007
              Direct costs (Note 16)                                                P
                                                                                    =5,488,254                    P
                                                                                                                  =4,866,106                    P
                                                                                                                                                =3,597,618
              Operating expenses (Note 17)                                             846,194                       773,885                       725,810
                                                                                    P
                                                                                    =6,334,448                    P
                                                                                                                  =5,639,991                    P
                                                                                                                                                =4,323,428
                                              - 30 -




11. Other Noncurrent Assets

   This account consists of:

                                                        2009                2008           2007
    Special bank deposit (Note 22)               P
                                                 =9,000,000          P
                                                                    =9,000,000       P
                                                                                     =9,000,000
    Reserve fund (Note 13)                         4,609,196           2,729,363              –
    Utilities and other deposits                     578,390             563,791        551,690
                                                P
                                                =14,187,586        P
                                                                   =12,293,154       P
                                                                                     =9,551,690



12. Accounts Payable and Accrued Expenses

   This account consists of:

                                                      2009               2008               2007
    Trade                                      P
                                               =67,408,636        P
                                                                  =22,668,636         P
                                                                                     =5,304,788
    Accrued expenses                             1,678,037          1,678,037          1,678,037
    Others                                       6,975,698          5,279,561          4,157,610
                                               P
                                               =76,062,371        P
                                                                  =29,626,234       P
                                                                                    =11,140,435

   Carrying values of this account approximate the fair values at end of financial reporting period
   due to the short term nature of the transactions.



13. Loan Payable

   This account pertains to a long-term loan availed from a local bank for the rehabilitation,
                                                                P
   expansion and improvements of waterworks system of CWC for =137 million payable in fifteen
   (15) years on a monthly basis inclusive of a maximum of two years grace period on the loan
   principal. Interest is fixed at 10.5% per annum, reviewable and subject to adjustment
   annually thereafter but not to exceed 15% per annum. For 2009, 2008 and 2007, the Group
   was able to negotiate the interest rate at 9%.

   CWC executed a deed of assignment relative to the loan, in favor of the bank of (a) a portion of
   CWC’s Reserve Fund (via Savings or Other Investment Account) equivalent to two monthly
   interest amortization during the grace period, to increase to two monthly principal and interest
   amortization after the grace period onwards. The Reserve Fund shall be maintained for CWC’s
   expenses for maintenance, operation and emergency fund; and (b) billed water/receivables
   until the amount of the loan is fully paid.

                                P                        P
   The reserve fund amounted to =4.6 million in 2009 and =2.7 million in 2008.

   Also, CWC, JOH and its major stockholders mortgaged their real estate and other equipment all
   situated in Calapan, Oriental Mindoro in favor of the bank. The aggregate carrying value of the
                                                  P
   assets as of December 31, 2009 amounted to =41.2 million.

                                                           P                    P
   CWC has drawn for its expansion projects the amounts of =45 million in 2009, =11 million in
            P
   2008 and =31 million in 2007.

                                                                    P
   Interest expense capitalized as of December 31, 2009 amounted to =9.6 million.          Interest
                                             P
   charged to operations in 2007 amounted to =119,316.
                                               - 31 -



14. Related Party Transactions

   The Group has the following transactions with related parties:

   a.   Non-interest bearing cash advances to/from affiliates for working capital purposes. Also,
        the Group availed non-interest bearing cash advances from its major stockholder and
        affiliate for the acquisition of operating machinery and equipment.

   b.   In 2008, ORDC and JOH assigned their advances as payment of their subscriptions payable
                                P                 P
        to the CWC amounting to =17.3 million and =18.8 million, respectively (see Note 2(a)(ii)).

   Details of related party balances follow:

                                                         2009              2008             2007
    Due from:
      Stockholders                                 P
                                                   =3,187,282       P
                                                                    =12,275,905     P
                                                                                    =13,172,231
      Affiliates                                     9,436,760        2,217,231       2,402,349
                                                  P
                                                  =12,624,042       P
                                                                    =14,493,136     P
                                                                                    =15,574,580

    Due to:
      Affiliates                                  P
                                                  =18,976,253       P
                                                                    =13,764,998      P
                                                                                     =9,320,719
      Stockholders                                  3,846,973                 –               –
                                                  P
                                                  =22,823,226       P
                                                                    =13,764,998      P
                                                                                     =9,320,719

   c.   Management and consultancy agreement with an affiliate renewable annually upon such
        terms and conditions as may be mutually agreed upon by both parties. Management
                                  P                    P                          P
        service fee amounted to =9.6 million in 2009, =7.6 million in 2008 and =4.8 million in
                                                               P                     P
        2007. Outstanding payable to the affiliate amounted to =0.9 million in 2009, =6.8 million
                     P
        in 2008 and =2.4 million in 2007.

   d.   Lease of office space from an affiliate for a period of one year, renewable upon mutual
                                                                 P                   P
        agreement of both parties. Rental expense amounted to =1.8 million in 2009, =1.6 million
                     P                                                                 P
        in 2008 and =0.5 million in 2007. Outstanding payable to affiliate amounted to =564,960
                     P
        in 2008 and =256,800 in 2007.

                                                                 P              P
   The remuneration of key management personnel amounted to =2.8 in 2009, =1.7 million in
            P
   2008 and =0.8 million in 2007, representing compensation and short-term benefits.



15. Retirement Benefit Costs

   The Group operates a noncontributory retirement plan covering all qualifying employees.
   Under the current plan, the employees are entitled to retirement benefits of 60 percent of one
   month’s pay per year on attainment of at least five years of their services with the Group.

   The most recent actuarial valuations of present value of the defined benefit obligation were
   carried out at March 18, 2010 by independent actuaries. The present value of the defined
   benefit obligation and the related current service cost and past service cost, were measured
   using the Projected Unit Credit Method.

   As of December 31, 2009, the plan has not been funded.
                                                - 32 -




   The principal assumptions used for the purposes of the actuarial valuation follows:

                                                             2009           2008              2007
    Discount rate                                            9.5%           7.0%              7.0%
    Expected rate of salary increase                         5.0%           5.5%              5.5%

   Retirement expenses recognized in the statements of comprehensive income were determined
   as follows:

                                                              2009          2008               2007
    Interest cost                                        P
                                                         =234,105      P
                                                                       =127,895           P
                                                                                          =110,884
    Current service cost                                   145,056       139,402            132,135
    Net actuarial loss (gain) realized                     614,419             –          (709,349)
                                                         P
                                                         =993,580      P
                                                                       =267,297           P
                                                                                         (=466,330)

   The rollforward of retirement benefit obligations follows:

                                                          2009              2008               2007
    Balance at beginning of year                    P
                                                    =2,094,366        P
                                                                      =1,827,069         P
                                                                                         =2,293,399
    Retirement expense (pension income)                993,580           267,297           (466,330)
    Balance at end of year                          P
                                                    =3,087,946        P
                                                                      =2,094,366         P
                                                                                         =1,827,069



16. Cost of Sales and Services

   This account consists of:

                                                          2009              2008              2007
    Cost of sales                                   P
                                                    =2,573,872                P
                                                                              =–                P
                                                                                                =–
    Salaries and employee benefits
       (Note 14)                                         9,969,753     8,467,560       5,578,174
    Utilities                                            9,144,062     7,407,991       6,124,298
    Rental (Note 19)                                     7,526,448     4,312,655       1,379,582
    Depreciation and amortization (Note 10)              5,488,254     4,866,106       3,597,618
    Repairs and maintenance                              3,182,879     2,095,716       3,976,091
    Supervision and regulatory fees (Note 19)              592,706       553,509         440,494
    Transportation and travel                              503,682       968,366         490,250
    Materials                                              383,881       430,826         330,135
    Bacteriological test                                   118,370        78,103          51,864
                                                   P
                                                   =39,483,907       P
                                                                     =29,180,832     P
                                                                                     =21,968,506
                                               - 33 -




17. Operating Expenses

   This account consists of:

                                                          2009              2008           2007
    Professional services (Note 14)                P
                                                   =10,702,272       P
                                                                     =8,653,415     P
                                                                                    =7,113,202
    Transportation and travel                        3,974,686         4,126,698      4,509,545
    Taxes and licenses                               3,389,672         1,788,991      1,558,739
    Rental (Note 14)                                 2,224,418         1,901,577        789,750
    Salaries, wages and employee benefits
        (Note 15)                                    1,710,583        1,036,267        692,924
    Depreciation (Note 10)                             846,194          773,885        738,199
    Impairment losses (Note 6)                         515,249                –        418,737
    Representation and entertainment                   462,959          407,363        481,272
    Security services                                  433,600          546,857        511,143
    Office supplies                                    278,613          220,493        246,812
    Advertisement                                      258,621          218,330        161,920
    Communication                                      210,580          168,323         33,198
    Donation and contribution                          103,950          283,639        171,975
    Repairs and maintenance                            179,754          533,063        698,108
    Insurance                                           63,436           66,198         76,322
    Others                                             728,530          641,227        666,501
                                                   P
                                                   =26,083,117      P
                                                                    =21,366,326    P
                                                                                   =18,868,347



18. Income Taxes

   a.   The Group’s current income tax expense pertains to regular corporate income tax in 2009
        and 2007 and MCIT in 2008.

   b.   The Group’s deferred tax assets consist of the following:

                                                            2009           2008            2007
         Tax effect of:
           Accrued retirement expenses                  P
                                                        =926,384      P
                                                                      =628,310        P
                                                                                      =639,474
           Allowances for:
              Impairment losses                        458,075          363,960        424,620
              Parts obsolescence                        48,722           48,722         56,842
           NOLCO                                       334,847                –              –
         Carryforward benefits of MCIT                       –          227,237              –
                                                    P
                                                    =1,768,028       P
                                                                     =1,268,229     P
                                                                                    =1,120,936

                                               P
        NOLCO incurred in 2009 amounting to =1,116,157 can be claimed as deduction against
        regular corporate income until December 31, 2012.

                              P
        MCIT amounting to =227,237 as of December 31, 2008 was claimed as deduction to
        regular corporate income tax in 2009.
                                                 - 34 -




     The Group’s deferred tax liabilities consist of the following:

                                                               2009          2008           2007
         Tax effect of:
           Capitalized borrowing costs                P
                                                      =2,878,270        P
                                                                        =1,171,896             P
                                                                                               =–
           Appraisal adjustment in land                 4,810,221          749,422        874,325
                                                      P
                                                      =7,688,491        P
                                                                        =1,921,318      P
                                                                                        =874,325

b.   Reconciliation between the statutory and the effective income tax rates follows:

                                                            2009              2008          2007
         At statutory income tax rate                 P
                                                      =5,941,497        P
                                                                        =3,934,127      P
                                                                                        =943,016
         Additions to (reductions in) income
           tax resulting from:
             Effect of change in fair value of
                investment property                       (1,686,525)
             Interest income taxed at lower
                rate                                       (403,846)      (337,332)     (231,117)
             Unallowable expenses                            40,070        186,065       111,726
             Effect of change in fair value of
                investment property not
                subjected to tax                                   –    (2,233,289)            –
             Effect of change in tax rate                          –       (21,817)            –
         Increase in deferred tax asset not
           recognized                                     16,683             3,254         7,887
         Effective income tax                         P
                                                      =3,907,879        P
                                                                        =1,531,008      P
                                                                                        =831,512

c.   On May 24, 2005, Republic Act No. 9337 entitled “An Act of Amending Sections 27, 28, 34,
     106, 107, 108, 109, 110, 111, 112, 113, 114, 116, 119, 121, 148, 151, 236, 237, and 288
     of the National Internal Revenue Code of 1997, as amended, and for other purposes” (Act),
     was passed into law effective November 1, 2005. Among others, the Act includes the
     following significant revisions to the rules of taxation:

          Change in the regular corporate income tax from 32% in 2004 to 35% starting
           November 1, 2005 up to December 31, 2008, and 30% starting January 1, 2009 and
           onwards; and

          Reduction of the interest expenses allowed as a deductible expense by an amount
           equivalent to a certain percentage of the interest income subjected to final tax from
           38% in 2004 to 42% starting November 1, 2005 and 33% starting January 1, 2009 and
           onwards.
                                               - 35 -




19. Lease of Water Facilities

   In 2006, the Company entered into a lease agreement with the local government of Tabuk, in
   the province of Kalinga (local government). Items under lease are the water facilities
   developed and owned by the local government. Under the agreement, the Company will
   manage, operate and maintain this water system within a defined service area for 15 years
   from the day the facilities are turned-over by the local government. The Company shall pay
   lease to the local government based on agreed amounts and subject to adjustments depending
                                                                                       P
   on the average actual consumptions. Also, the Company shall pay supervision fee of =5 per
   connection on a monthly basis subject to adjustment according to the change in general
   consumer price index of the region where the local government belongs.

   The Company maintains a performance security in the form of a bank guarantee. If provided
   in the form of a bank guarantee or an irrevocable letter of credit, security shall be valid for an
   initial period of twelve (12) months and the Company shall ensure that the security shall be
   renewed annually, each renewal to take effect immediately on the expiration of the previous
                                                    P
   security. The amount of performance security is =9.0 million per annum from year one (1) to
                        P
   year ten (10) and =4.5 million per annum from year eleven (11) to year fifteen (15) of the
   lease.

   The lease became effective in October 2006.

                                                    P                 P
   Lease and supervision fees paid amounted to =7.5 million and =0.15 million in 2009,
                 P                  P                                      P
   respectively; =4.3 million and =0.14 million in 2008, respectively; and =1.38 million and
   P
   =0.12 million in 2007, respectively.

                                                                               P
   The Company’s water revenue from operating the water facilities amounted to =17.0 million in
         P                         P
   2009, =12.8 million in 2008 and =8.3 million in 2007.



20. Earnings Per Share (EPS)

   Computation of EPS attributable to the equity holders of the parent company is as follows:

                                                         2009                2008              2007
    Net profit                                    P
                                                  =15,833,643          P
                                                                       =9,671,457        P
                                                                                         =1,855,470
    Divided by weighted average number
       of common shares                           120,000,000         120,000,000       120,000,000
                                                      P
                                                      =0.1319             P
                                                                         =0.0806            P
                                                                                           =0.0155

   There were no potential dilutive shares in 2009, 2008 and 2007.


21. Financial Risk Management Objectives and Policies

   The Group’s principal financial instruments comprise of cash, receivables, short-term bank
   deposits, available-for-sale investments, bank loans, trade payables and due to related parties.
   The main purpose of the Group’s financial instruments is to fund the Group’s operations and to
   acquire and improve property and equipment. The main risks arising from the use of financial
   instruments are liquidity risk, credit risk and interest rate risk.
                                            - 36 -




The main objectives of the Group’s financial risk management are as follows:

   To identify and monitor such risks on an ongoing basis;
   To minimize and mitigate such risks; and
   To provide a degree of certainty about costs.

The Group’s Board reviews and agrees with policies for managing each of these risks. These
are summarized below:

Liquidity risk
The Group seeks to manage its liquid funds through cash planning on a regular basis. The
Group uses historical figures and experiences and forecasts from its collections and
disbursements. The Group’s objective is to maintain a balance between continuity of funding
and flexibility through valuation of projected and actual cash flow information.

Table below summarizes the maturity profile of the Group’s financial liabilities except for
customer’s deposit and retirement benefit obligation:

                                                              2009
                                  On demand          1 to 5 years    Over 5 years           Total
Accounts payables and
   accrued expenses             P
                                =76,062,371                    =
                                                               P               P
                                                                               =     P
                                                                                     =76,062,371
Due to related parties            22,823,226                   –               –      22,823,226
Loan payable                       5,556,597         33,339,584       47,786,737      86,682,918
                               P
                               =104,442,194       P
                                                  =33,339,584        P
                                                                     =47,786,737    P
                                                                                    =185,568,515


                                                              2008
                                  On demand          1 to 5 years    Over 5 years           Total
Accounts payables and
   accrued expenses             P
                                =29,626,235                   =–
                                                              P               P
                                                                              =–     P
                                                                                     =29,626,235
Due to related parties            13,764,998                   –               –      13,764,998
Loan payable                                         10,745,288       31,423,434      42,168,722
                                P
                                =43,391,233       P
                                                  =10,745,288        P
                                                                     =31,423,434     P
                                                                                     =85,559,955


                                                              2007
                                  On demand          1 to 5 years    Over 5 years           Total
Accounts payables and
   accrued expenses             P
                                =11,140,435                   =–
                                                              P               P
                                                                              =–     P
                                                                                     =11,140,435
Due to related parties             9,320,719                   –               –       9,320,719
Loan payable                               –          9,474,219       21,316,992      30,791,211
                                P
                                =20,461,154          P
                                                     =9,474,219      P
                                                                     =21,316,992      51,252,365


Credit risk
Credit risk refers to the risk that a customer/debtor will default on its contractual obligations
resulting in financial loss to the Group.         The Group controls this risk through regular
coordination with the customers. In addition, receivable balances are monitored on an ongoing
basis with the result that the Group’s exposure to bad debts is not significant. The Group also
controls this risk by cutting its services and refusal to reconnect until the customer’s account is
cleared or paid.
                                               - 37 -




The Group’s credit risk is primarily attributable to its trade receivables. An allowance for
impairment is made where there is an identified loss event which, based on previous
experience, is evidence of a reduction in the recoverability of the cash flows.

Given the Group’s diverse base of customers, it is not exposed to large concentration of credit
risk.

Below is the quality per class of receivables:

                                                                    2009
                                         Neither past due                  Past due
                                             nor impaired          but not impaired               Total
 Trade                                       P
                                             =1,191,055                  P
                                                                         =7,408,761         P
                                                                                            =8,599,816
 Due from related parties                      8,424,042                   4,200,000        12,624,042
 Advances and non-trade                                –                     945,804           945,804
                                             P
                                             =9,615,097                 P
                                                                        =12,554,565        P
                                                                                           =22,169,662


                                                                    2008
                                         Neither past due                  Past due
                                             nor impaired          but not impaired               Total
 Trade                                       P
                                             =4,223,155                  P
                                                                         =1,531,057         P
                                                                                            =5,754,212
 Due from related parties                    11,307,652                    3,185,484        14,493,136
 Advances and non-trade                         267,571                    2,253,915          2,521,486
                                            P
                                            =15,798,378                  P
                                                                         =6,970,456        P
                                                                                           =22,768,834


                                                                    2007
                                         Neither past due                  Past due
                                             nor impaired          but not impaired               Total
 Trade                                        P
                                              =292,538                   P
                                                                         =4,440,170         P
                                                                                            =4,732,708
 Due from related parties                    15,574,580                           –         15,574,580
 Advances and non-trade                         219,184                      68,932            288,116
                                            P
                                            =16,086,302                  P
                                                                         =4,509,102        P
                                                                                           =20,595,404


Below is the aging analysis of receivables:

                                                            2009
                                             Past due or individually impaired
                                             30 to              61 to         More than
                              Current      60 days            90 days          90 days            Total
Trade                   P
                        =1,191,055       P
                                         =930,666           =247,904
                                                            P                P
                                                                             =7,555,577     P
                                                                                            =9,925,202
Due from related
  parties                   8,424,042    1,700,000          2,500,000                  –    12,624,042
Advances and
  nontrade                         –        13,367                  –         1,133,969      1,147,336
Total                   P
                        =9,615,097      P
                                        =2,644,033      =2,747,904
                                                        P                    P
                                                                             =8,689,546    P
                                                                                           =23,696,580
                                             - 38 -




                                                         2008
                                            Past due or individually impaired
                                           30 to              61 to           More than
                            Current      60 days            90 days            90 days              Total
Trade                   P
                        =4,223,155     P
                                       =502,221          =127,264
                                                         P                  P
                                                                            =1,913,240        P
                                                                                              =6,765,880
Due from related
  parties               11,307,652             –                   –          3,185,484       14,493,136
Advances and
  nontrade                  267,571      244,673            260,820           1,949,953        2,723,017
Total                 P
                      =15,798,378      P
                                       =746,894          =388,084
                                                         P                  P
                                                                            =7,048,677       P
                                                                                             =23,982,033


                                                         2007
                                            Past due or individually impaired
                                           30 to              61 to           More than
                            Current      60 days            90 days            90 days              Total
Trade                     =292,538
                          P            P
                                       =222,120                  =–
                                                                 P          P
                                                                            =5,229,718        P
                                                                                              =5,744,376
Due from related
  parties               15,574,580             –                   –                          15,574,580
Advances and
  nontrade                  219,184       22,082                   –            248,381          489,647
Total                 P
                      =16,086,302      P
                                       =244,202                    =
                                                                   P        P
                                                                            =5,748,099       P
                                                                                             =21,808,603


Below is the credit quality by class of financial assets:

                                                                   2009
                                         Neither Past due nor              Past due or
                                                     impaired              individually
                                                   High grade                 impaired              Total
Cash and cash equivalents                       P
                                                =39,044,845                       P
                                                                                  =–         P
                                                                                             =39,044,845
Receivables                                       1,191,055                 8,734,147           9,925,202
Due from related parties                          7,388,132                 5,235,910          12,624,042
Available-for-sale investments                    1,000,000                         –           1,000,000
Special bank deposits                             9,000,000                         –           9,000,000
Total                                           P
                                                =57,624,032            P
                                                                       =13,970,057           P
                                                                                             =71,594,089


                                                                 2008
                                        Neither Past due nor impaired         Past due or
                                                                              individually          Total
                                         High grade    Standard grade            impaired
Cash and cash equivalents              P
                                       =26,785,812                   =–
                                                                     P               P
                                                                                     =–      P
                                                                                             =26,785,812
Receivables                               4,223,155             267,571        4,998,171        9,488,897
Due from related parties                 11,307,652                    –       3,185,383       14,493,035
Special bank deposits                     9,000,000                    –                        9,000,000
Total                                  P
                                       =51,316,619           =267,571
                                                             P               P
                                                                             =8,183,554      P
                                                                                             =59,767,744
                                                       - 39 -




                                                                               2007
                                                   Neither Past due nor impaired        Past due or
                                                                                        individually                  Total
                                                    High grade     Standard grade          impaired
    Cash and cash equivalents                    P
                                                 =23,885,931                   =–
                                                                               P               P
                                                                                               =–            P
                                                                                                             =23,885,931
    Receivables                                       292,538             219,184        5,722,301              6,234,023
    Due from related parties                       15,574,580                    –                             15,574,580
    Special bank deposits                           9,000,000                    –                    –         9,000,000
    Total                                        P
                                                 =48,753,049            =219,184
                                                                        P              P
                                                                                       =5,722,301            P
                                                                                                             =54,694,534


    High grade cash and cash equivalents are short-term placements and working cash fund;
    and special bank deposit are placed, invested, or deposited in local banks belonging to the top
    ten (10) banks in the Philippines in terms of resources and profitability. The counterparties
    have a very remote likelihood of default and have consistently exhibited good paying habits. AFS
    investments are assessed based on financial status of the counterparty and its current share
    price performance in the market.

    Standard grade accounts are active accounts with propensity of deteriorating to mid-range age
    buckets. These accounts are typically not impaired as the counterparties generally respond to
    credit actions and update their payments accordingly.

    Interest rate risk
    The Group’s exposure to market risk for changes in interest rates relates primarily to the
    Group’s long-term borrowings. The Group’s policy is to minimize interest rate cash flow risk
    exposures. Long-term borrowings are therefore usually at agreed interest rates.

    In 2009, the Group was able to negotiate the interest rate at 9% which is below the agreed
    minimum annual fixed rate in the loan agreement. If the interest rate had been agreed to be
    at the maximum of 15% per annum as stated in the loan agreement, the profit before income
                                                                P
    tax for the year ended December 31, 2009 would decrease by =3.5 million.



22. Financial Instruments

    Set out below is a comparison by category of carrying values and estimated fair values of
    Group’s financial instruments:

                                            2009                               2008                                  2007
                                Carrying value        Fair value   Carrying value        Fair value       Carrying value       Fair value
 Financial Assets:
    Cash and cash equivalents    P
                                 =39,044,845       P
                                                   =39,044,845      =26,785,812
                                                                    P                 P
                                                                                      =26,785,812          P
                                                                                                           =23,885,931      P
                                                                                                                            =23,885,931
    Receivables                     9,545,620         9,545,620        8,275,698        8,275,698             5,020,824        5,020,824
    Due from related parties       12,624,042        12,624,042       14,493,136       14,493,136           15,574,580        15,574,580
    Available-for-sale
        investment                  1,000,000         1,000,000                –                 –                    –                –
    Special bank deposits           9,000,000         9,000,000        9,000,000        9,000,000             9,000,000        9,000,000
                                 P
                                 =71,214,507       P
                                                   =71,214,507      P
                                                                    =58,554,646       =58,554,646
                                                                                      P                    P
                                                                                                           =53,481,335      P
                                                                                                                            =53,481,335
                                                    - 40 -




                                         2009                               2008                              2007
                             Carrying value        Fair value   Carrying value        Fair value   Carrying value      Fair value
Financial Liabilities:
    Accounts payable and
      accrued expenses        P
                              =76,062,371       P
                                                =76,062,371      =29,626,234
                                                                 P                 P
                                                                                   =29,626,234      P
                                                                                                    =11,140,435      P
                                                                                                                     =11,140,435
    Due to related parties     22,823,226        22,823,226       13,764,998        13,764,998         9,320,719       9,320,719
    Loan payable               86,682,919        86,682,919       42,168,722        42,168,722       30,791,211       30,791,211
    Customers’ deposits          5,628,258        5,628,258         5,280,658        5,280,658         5,060,958       5,060,958
                             P
                             =191,196,774     P
                                              =191,196,774       P
                                                                 =90,840,612       =90,840,612
                                                                                   P                P
                                                                                                    =56,313,323      P
                                                                                                                     =56,313,323


    Fair value is defined as the amount at which the financial instrument could be exchanged in a
    current transaction between knowledgeable willing parties in an arm’s length transaction, other
    than in a forced liquidation or sale. Fair values are obtained from quoted market prices,
    discounted cash flow models and option pricing models, as appropriate.

    The carrying value of cash, receivables, due from related parties, accounts payable and accrued
    expenses and due to related parties balances approximate their fair values due to the short-
    term nature of the transactions and are considered due and demandable.

    Special bank deposit approximates their fair values as this is subject to insignificant risk of
    change in value. This account was only classified under noncurrent due to the restriction
    attached to it by a third party.

    The fair value of customer’s deposits could not be practically determined since they are
    attached to the underlying service and that the cessation of services and the possibility of
    refund are not determinable.      Moreover, the individual balances of this account are
    insignificant.

    Fair Value Hierarchy
    The Group uses the following hierarchy for determining fair value of financial instruments:

    Level 1: Quoted (unadjusted) prices in active markets for identical assets or liabilities;

    Level 2: Other techniques for which all inputs which have a significant effect on the recorded
             fair value that are not based on observable market data;

    Level 3: Techniques which use inputs which have a significant effect on the recorded fair value
             that are not based on observable market data.

                                                                            P
    As of December 31, 2009, the Group has AFS investments amounting to =1.0 million pertaining
    to managed fund in an insurance company which is invested in fixed income securities and
    money market instruments and shares listed in the Philippine Stock Exchange. Price of the
    investment is posted on a daily basis in the insurance company’s website.



23. Capital Risk Management

    The Group’s objective in managing capital is to ensure that entities in the Group will be able to
    continue as a going concern while maximizing the return to stakeholders through the
    optimization of the debt and equity balance and to sustain future development of the business.
                                           - 41 -




In order to maintain or adjust the capital structure, the Group may adjust the dividend
payment to shareholders, return capital to shareholders or issue new shares.

The Group considers the following as its capital:

                                                    2009           2008           2007
 Capital stock                              P
                                            =120,000,000   P
                                                           =120,000,000   P
                                                                          =120,000,000
 Accumulated profits                          19,240,170     11,526,927      1,855,471
                CALAPAN VENTURES, INC.
                  4th Floor, 20 Lansbergh Place
        170 Tomas Morato Avenue corner Scout Castor Street
                    Quezon City, Philippines


          ISSUE MANAGER AND UNDERWRITER

                          Unicapital, Inc.
         3/F, Majalco Bldg., Benavidez corner Trasierra Sts.,
           Legaspi Village, Makati City, Philippines 1229


             LEGAL COUNSEL TO THE ISSUER

                     Tan Venturanza Valdez
         2704 East Tower, Philippine Stock Exchange Centre
                   Exchange Road, Ortigas Center
                    1605 Pasig City, Philippines


LEGAL COUNSEL TO THE ISSUE MANAGER AND UNDERWRITER

         Villaraza Cruz Marcelo & Angangco (CVCLAW)
                   11th Avenue corner 39th Street,
                     Bonifacio Global City 1634
                      Metro Manila, Philippines


                            AUDITOR

             Constantino Guadalquiver & Company
                   15th Floor Citibank Tower
               841 Paseo de Roxas, Salcedo Village
                    Makati City, Philippines

				
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