1. business and industrial
2. company
3. merger and acquisition

COVER SHEET
1
6 6 0 9
SEC Registration Number
P A X Y S ,
I N C .
(Company’s Full Name)
1 8 F ,
6 7 5 0
A Y A L A
A Y A L A
A V E N U E ,
O F F I C E
M A K A T I
T OW E R ,
C I T Y
(Business Address: No. Street City/Town/Province)
Mr. Nelson T. Yap
856-8241
(Contact Person)
(Company Telephone Number)
1 2
3 1
Month
Day
1 7 - Q
(Form Type)
(Calendar Year)
0 6
2 7
Month
Day
(Annual Meeting)
(Secondary License Type, If Applicable)
Dept. Requiring this Doc.
Amended Articles Number/Section
Total Amount of Borrowings
721
P1,089.89 million
P805.90 million
Domestic
Foreign
Total No. of Stockholders
To be accomplished by SEC Personnel concerned
File Number
LCU
Document ID
Cashier
STAMPS
Remarks: Please use BLACK ink for scanning purposes.
2
SECURITIES AND EXCHANGE COMMISSION
SEC FORM 17-Q
QUARTERLY REPORT PURSUANT TO SECTION 17 OF THE SECURITIES
REGULATION CODE AND SRC RULE 17(2)(b) THEREUNDER
1.
For the quarterly period ended: June 30, 2008
2.
SEC Identification Number 6609
4.
Exact Name of the registrant as specified in its charter:
5.
Province, country or other jurisdiction of Incorporation or organization: Manila, Philippines
6.
Industry Classification Code:
7.
Address of registrant’s principal office:
3.
BIR Tax Identification No. 000-233-218
PAXYS, INC.
(SEC Use Only)
Postal Code:1226
18th Floor, 6750 Ayala Office Tower, Ayala Avenue, Makati City
8.
Registrant’s telephone number, including area code:
(632) 856-8201
9.
Former name, former address, and former fiscal year, if changed since last report
9th Floor, Citibank Center, 8741 Paseo de Roxas, Salcedo Village, Makati City
10. Securities registered pursuant to Sections 8 and 12 of the Code, or Sections 4 and 8 of the RSA
a) Authorized Capital Stock
Common shares, P1.00 par value
1,200,000,000 shares
b) Issued and Outstanding Shares
Common shares, P1.00 par value
950,952,389 shares
c) Amount of Debt Outstanding as of June 30, 2008
Short-term and Long-term loans
Php1,895,788,714.43
11. Are any or all of the securities listed on the Philippine Stock Exchange.
Yes [ x ]
No [
]
3
12. Indicate by check mark whether the registrant:
(a) has filed all reports required to be filed by Section 17 of the SRC and SRC Rule 17 thereunder or
Section 11 of the Revised Securities Act (RSA) Rule 11(a) – 1 thereunder and Sections 26 and 141 of
the Corporation Code of the Philippines during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports);
Yes [ x ]
No [
]
(b) has been subject to such filing requirements for the past 90 days.
Yes [ x ]
No [
]
4
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
The consolidated financial statements include the accounts of Paxys, Inc. (Paxys or the “Parent Company”) and
the following subsidiaries (collectively referred to as “the Group”):
Subsidiaries
Advanced Contact Solutions, Inc. (ACS)
Paxys, N.V. and Subsidiary1
ScopeWorks Asia, Inc. (SWA)
Global Idealogy Corporation (GIC) and subsidiary2
Stellar Global Solutions Philippines, Inc. (SGSPI)
Nature of Business
Call Center
Holding/Salary Packaging
Data Transcription
Software Solutions
Call Center
Ownership
Interest
100.00%
100.00%
100.00%
50.45%
50.00%
The unaudited consolidated financial statements for the six months ended June 30, 2008 have been prepared in
accordance with Philippine Accounting Standard 34, Interim Financial Reporting. Accordingly, the unaudited
consolidated financial statements do not include all of the information and footnotes required by generally
accepted accounting principles in the Philippines (“Philippine GAAP”) for complete financial statements as set
forth in the Philippine Financial Reporting Standards (PFRS) and are filed as Annex A of this report.
Item 2. Management Discussion and Analysis of Financial Condition and Results of Operations
(“MD&A”)
The MD&A is a discussion and analysis of Paxys and its Subsidiaries’ financial performance for the six months
ended June 30, 2008. The prime objective of this MD&A is to help the readers understand the dynamics of the
Company’s business and the key factors underlying the Company’s financial results.
The MD&A for the six months ended June 30, 2008 should be read in conjunction with the unaudited
consolidated financial statements and the accompanying notes, and are filed as Annex B of this report.
Item 3. Aging of Accounts Receivables
Please see Annex C.
PART II. OTHER INFORMATION
There were no disclosures made by the Company that were not made under SEC Form 17-C.
1
2
Paxys N.V. owns 100% interest in Paxys Australia which in turn owns 100% interest in SmartSalary Pty Ltd.
GIC owns 100% interest in Medi Data, Inc.
6
Annex A
PAXYS, INC.
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2008 and December 31, 2007
and for the Six Months Ended June 30, 2008 and 2007
7
PAXYS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in Thousands)
ASSETS
Current Assets
Cash and cash equivalents (Note 4)
Trade and other receivables – net (Note 5)
Advances to related parties
Derivative Assets
Input tax and other current assets
Total Current Assets
Noncurrent Assets
Property and equipment - net (Note 6)
Goodwill and other intangibles (Note 7)
Advances to related parties
Other noncurrent assets – net
Deferred tax assets
Total Noncurrent Assets
LIABILITIES AND EQUITY
Current Liabilities
Short-term loans (Note 8)
Accounts payable and other current liabilities
Advances from related parties
Income tax payable
Current portion of long-term loans (Note 8)
Cash dividends payable
Total Current Liabilities
Noncurrent Liabilities
Long-term loans – net (Note 8)
Advances from related parties
Accrued Retirement Cost (Note 13)
Total Noncurrent Liabilities
Equity
Capital stock (Note 10)
Additional paid-in capital
Retained earnings
Cumulative translation adjustments
Total Equity attributable to Equity holders of Parent
Minority interests
Total Equity
June 30,
2008
(Unaudited)
December 31,
2007
(Audited)
P
=782,474
932,315
90,196
5,896
323,217
2,134,098
P
=537,335
1,049,214
54,754
101,317
249,872
1,992,492
1,128,260
2,004,704
55,404
48,061
25,858
3,262,287
1,231,521
1,733,119
52,785
42,595
20,224
3,080,244
P
=5,396,385
=5,072,736
P
P
=1,089,894
717,044
13,224
76,263
6,554
1,902,979
=1,211,657
P
536,713
12,790
13,600
57,173
6,554
1,838,487
729,632
30,235
759,867
648,190
3,803
30,235
682,228
950,952
429,867
1,208,155
111,390
2,700,364
33,175
2,733,539
P
= 5,396,385
950,952
425,014
1,204,535
(59,658)
2,520,843
31,178
2,552,021
=5,072,736
P
See accompanying Management Discussion and Analysis and Selected Notes to Consolidated Financial Statements.
8
PAXYS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Amounts in Thousands except Earnings per share)
SERVICE INCOME
For the Three Months Ended June 30,
(April-June)
2008
2007
P 838,772
P790,194
For the Six Months Ended June 30,
(January-June)
2008
2007
P 1,680,838
P1,598,442
COST OF SERVICES
435,126
427,790
891,546
835,293
GROSS PROFIT
403,646
362,404
789,292
763,149
OPERATING EXPENSES
387,858
254,946
711,314
480,143
15,788
107,458
77,978
283,006
(47,996)
23,222
(22,557)
17,010
(595)
(30,916)
(37,691)
13,032
979
(111)
1,472
1,703
(20,616)
(93,046)
42,651
(6,749)
31,682
(96)
(25,558)
(73,779)
24,458
313
5,453
3,162
(25)
(40,418)
(15,128)
86,842
52,420
242,588
26,025
11,212
46,804
27,975
(41,153)
75,630
5,616
214,613
(42,404)
1,251
P (41,153)
76,575
(945)
P75,630
3,619
1,997
P 5,616
216,183
(1,570)
P 214,613
(P 0.04)
P0.08
P 0.004
P0.23
INCOME (LOSS) FROM OPERATIONS
OTHER INCOME (CHARGES)
Interest Expense
Interest Income
Equity in net earnings of GIC
Foreign exchange gain (loss)
Other Income
Other expenses
INCOME BEFORE INCOME TAX
PROVISION FOR INCOME TAX (Note 14)
NET INCOME
ATTRIBUTABLE TO:
Equity holders of the Parent
Minority Interest
Basic Earnings (Loss) per share (Note 12)
See accompanying Management Discussion and Analysis and Selected Notes to Consolidated Financial Statements.
9
PAXYS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDERS’ EQUITY
(Unaudited)
(Amounts in Thousands except Par Value)
For the Six Months Ended June 30,
2008
2007
CAPITAL STOCK - P
=1 par value
Authorized – 1,200,000,000 shares in 2007 and 2006
Issued – 950,952,389 in 2007 and 933,230,389 in 2006
ADDITIONAL PAID-IN CAPITAL
Issuance of shares of stocks
Stock Options
RETAINED EARNINGS
Balance, beginning of period
Net income
Balance, end of period
CUMULATIVE TRANSLATION ADJUSTMENT
TOTAL EQUITY ATTRIBUTABLE TO EQUITY HOLDERS OF
PARENT
MINORITY INTERESTS
P950,952
P950,952
344,189
85,678
429,867
344,189
70,356
414,545
1,204,536
3,619
1,208,155
971,229
216,183
1,187,412
111,390
(3,882)
2,700,364
2,549,027
33,175
(9,205)
P 2,733,539
P2,539,822
See accompanying Management Discussion and Analysis and Selected Notes to Consolidated Financial Statements.
10
PAXYS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Amounts in Thousands)
For the Six Months Ended June 30, 2008
2007
2008
CASH FLOWS FROM OPERATING
ACTIVITIES
Income before income tax
Adjustments for:
Depreciation and amortization
Employee benefits – stock option expense
Interest expense
Unrealized foreign exchange loss (gain) - net
Equity in an associate
Interest income
Operating income before working capital changes
Decrease (increase) in:
Receivables
Input tax and other current assets
Increase (decrease) in:
Accounts payable and other current liabilities
Other current liabilities
Income Tax Payable
Cash generated from (used for) operations
Interest paid
Interest received
Net cash provided by (used in) operating activities
P 52,420
P242,588
231,021
24,987
93,046
42,297
(42,651)
401,120
170,212
18,797
73,779
(5,453)
(313)
(24,458)
475,152
116,899
(73,345)
(325,194)
(66,396)
180,331
(13,600)
611,405
(93,046)
42,651
561,010
6,922
27,641
(2,031)
116,094
(73,779)
24,458
66,773
CASH FLOWS FROM INVESTING
ACTIVITIES
Acquisition of property and equipment
Acquisition of Investment in associates
Acquisition of Intangibles
Proceeds from sale of property and equipment
Advances to related parties
Decrease (increase) in other noncurrent assets
Net cash used in investing activities
(118,265)
(1,055)
(5,215)
178
(35,442)
(5,466)
(165,265)
(164,449)
(3,125)
(8,100)
(6,677)
(182,351)
CASH FLOWS FROM FINANCING
ACTIVITIES
Increase (decrease) in advances from related parties
Payment of Bank loans
Proceeds from bank loans
Increase (decrease) in obligations under capital lease
Increase (decrease) in minority interest
Net cash provided by (used in) financing activities
(3,369)
(208,749)
1,997
(210,121)
(5,538)
(48,953)
229,962
(568)
(1,571)
173,332
11
Forward
For the Six Months Ended June 30
2007
2008
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH
EQUIVALENTS
59,514
42,867
NET INCREASE IN CASH AND CASH EQUIVALENTS
245,139
100,622
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD
537,335
254,446
CASH AND CASH EQUIVALENTS
AT END OF PERIOD
P 782,474
P355,068
See accompanying Management Discussion and Analysis and Selected Notes to Consolidated Financial Statements.
12
PAXYS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.
Corporate Information
Paxys, Inc. (Paxys or the “Parent Company”) was incorporated in the Philippines. The Parent Company and its
subsidiaries (collectively referred to as “the Company”) is engaged in business process outsourcing. The Parent
Company’s principal activity is on investment holding. Its subsidiaries and associate are involved in call center business
that offers an integrated mix of call center solutions including inbound (customer-initiated) and outbound teleservicing, as
well as email and web-based tools; transcription, editing and proofreading services; salary packaging; and software
development.
The ultimate parent company is All Asia Customer Services Holdings Ltd. (ACSH), a company incorporated in Hong Kong,
who owns 73.71% interest in the Parent Company.
The registered office address of the Parent Company is 18th Floor, 6750 Ayala Office Tower, Ayala Avenue, Makati City.
2.
Basis of Financial Statement Preparation
The accompanying consolidated financial statements (unaudited) have been prepared in accordance with Philippine
Accounting Standard (PAS) 34, Interim Financial Reporting. Accordingly, the consolidated financial statements (unaudited)
do not include all of the information and footnotes required by generally accepted accounting principles in the Philippines
(Philippine GAAP) for complete financial statements as set forth in Philippine Financial Reporting Standards (PFRS).
The consolidated financial statements have been prepared on a historical cost basis. The consolidated financial
statements are presented in Philippine peso, which is the Company’s functional currency, and all values are rounded off to
the nearest peso, except when otherwise indicated.
3.
Summary of Significant Accounting Policies
Basis of Consolidation
The consolidated financial statements include the Parent Company and the following subsidiaries:
Subsidiaries
Place of Incorporation
Principal Activities
Percentage of
Ownership
2008
2007
Advanced Contact Solutions, Inc. (ACS) Philippines
Call Center
100.00%
100.00%
Paxys, N.V.
Netherlands, Antilles
Investment Holding
100.00%
100.00%
Paxys Australia Pty Ltd (Paxys A.U.)
Sydney, Australia
Investment Holding
100.00%(a)
100.00%(a)
(b)
SmartSalary Pty Ltd (SmartSalary)
Sydney, Australia
Salary Packaging
100.00%
100.00%(b)
Scopeworks Asia, Inc. (SWA)
Philippines
Data Transcription
100.00%
60.00%
Global Idealogy Corporation (GIC)
Philippines
Electronic Data Encoding
and Processing
50.45%
50.45%
Medi Data Inc. (Medi)
Philippines
Electronic Data Encoding
and Processing
50.45%(c)
50.45%(c)
(a)
(b)
(c)
Indirectly-owned through Paxys, N.V.
Indirectly-owned through Paxys A.U.
Indirectly-owned through GIC
The consolidated financial statements are prepared using uniform accounting policies for like transactions and other events
in similar circumstances. All significant intercompany accounts, transactions and balances including intercompany profits
unrealized profits and losses are eliminated in the consolidated financial statements.
A subsidiary is consolidated from the date on which control is transferred to the Parent Company and ceases to be
consolidated from the date on which control is transferred out of the Parent Company.
13
Minority Interest. Minority interests represent the portion of profit or loss and net assets in SWA and GIC, not held by the
Company and are presented separately in the consolidated statement of income and within equity in the consolidated
balance sheet, separate from equity attributable to equity holders of Parent.
Functional and Presentation Currency. The consolidated financial statements are presented in Philippine peso, which is
Paxys’ functional and presentation currency. Each entity in the Company determines its own functional currency, which is
the currency that best reflects the economic substance of the underlying events and circumstances relevant to that entity,
and items included in the financial statements of each entity are measured using that functional currency.
The functional currency of the Parent Company, ACS, SWA, GIC and Subsidiary are in Philippine Peso. The functional
currency of Paxys N.V. and Subsidiary is the Australian Dollar (AU$).
At the reporting date, the assets and liabilities of subsidiaries whose functional currency is not the Philippine peso are
translated into the presentation currency of Paxys using the Philippine Dealing System (PDS) closing rate or Bangko
Sentral ng Pilipinas (BSP) rate at balance sheet date and, their statement of income are translated at the PDS or BSP
weighted average daily exchange rates for the year. The exchange differences arising on the translation are taken directly
to a separate component of equity, under “Cumulative translation adjustments” account. On disposal of a foreign entity,
the deferred cumulative amount recognized in equity relating to that particular foreign operation is recognized in the
consolidated statement of income.
Cash and Cash Equivalents
Cash includes cash on hand and in banks. Cash equivalents are short-term, highly liquid deposits that are readily
convertible to known amounts of cash with original maturities of three months or less and that are subject to an insignificant
risk of change in value.
Software and Office Supplies Inventory
Software and office supplies inventory, presented under “Input tax and other current assets” account in the consolidated
balance sheet, is valued at the lower of cost and net realizable value. Cost is determined using the moving average
method. Net realizable value is the replacement cost.
Financial Assets and Financial Liabilities
Date of Recognition. The Company recognizes a financial asset or a financial liability in the consolidated balance sheet
when it becomes a party to the contractual provisions of the instrument. In the case of a regular way purchase or sale of
financial assets, recognition and derecognition, as applicable, is done using trade date accounting.
Initial Recognition of Financial Assets and Financial Liabilities. Financial assets and financial liabilities are recognized
initially at fair value, which is the fair value of the consideration given (in case of an asset) or received (in case of a liability).
The fair value of the consideration given or received is determined by reference 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 similar instruments with
similar maturities. The initial measurement of financial instruments, except for those designated at fair value through profit
and loss (FVPL), includes transaction cost.
The Company classifies its financial instruments in the following categories: financial assets and financial liabilities at
FVPL, loans and receivables, held-to-maturity (HTM) investments, available-for-sale (AFS) financial assets and other
financial liabilities. The classification depends on the purpose for which the instruments are acquired and whether they are
quoted in an active market. Management determines the classification at initial recognition and, where allowed and
appropriate, re-evaluates this classification at every reporting date.
The Company has no financial liabilities at FVPL, HTM investments and AFS financial assets as of June 30, 2008 and
December 31, 2007.
Financial Assets at Fair Value through Profit or Loss. Financial assets at fair value through profit or loss include financial
assets held for trading and financial assets designated upon initial recognition as at fair value through profit or loss.
Financial assets are classified as held for trading if they are acquired for the purpose of selling in the near term.
Derivatives, including separated embedded derivatives, are also classified as held for trading unless they are designated
as effective hedging instruments or a financial guarantee contract. Gains or losses on investments held for trading are
recognized in the consolidated statement of income.
Financial assets may be designated by management at initial recognition as at fair value through profit or loss on initial
recognition when any of the following criteria is met:
14

The designation eliminates or significantly reduces the inconsistent treatment that would otherwise arise from
measuring the assets or liabilities or recognizing gains or losses on them on a different basis; or

The assets and liabilities are part of a group of financial assets, financial liabilities or both which are managed and
their performance are evaluated on a fair value basis, in accordance with a documented risk management or
investment strategy; or

The financial instrument contains an embedded derivative, unless the embedded derivative does not significantly
modify the cash flows or it is clear, with little or no analysis, that it would not be separately recorded.
The Company’s derivative financial instruments are classified under this category.
Loans and Receivables. Loans and receivables are nonderivative financial assets with fixed or determinable payments
that are not quoted in an active market. They are not entered into with the intention of immediate or short-term resale and
are not designated as AFS or financial asset at FVPL. Loans and receivable are carried at cost or amortized cost, less
impairment in value. Amortization is determined using the effective interest method. Loans and receivables are included in
current assets if maturity is within twelve months from the balance sheet date. Otherwise, these are classified as
noncurrent assets.
This category includes Company’s cash and cash equivalents, trade and other receivables, advances to related parties
and rental and security deposits.
Other Financial Liabilities. This category pertains to financial liabilities that are not held for trading or not designated as at
FVPL upon the inception of the liability. These include liabilities arising from operations or borrowings.
The financial liabilities are recognized initially at fair value and are subsequently carried at amortized cost, taking into
account the impact of applying the effective interest method of amortization (or accretion) for any related premium,
discount and any directly attributable transaction costs.
This category includes the Company’s short-term loans, accounts payable and other current liabilities (except for statutory
payables), dividends payable, long-term loans and advances from related parties.
Classification of Financial Instruments Between Debt and Equity
A financial instrument is classified as debt if it provides for a contractual obligation to:

deliver cash or another financial asset to another entity; or

exchange financial assets or financial liabilities with another entity under conditions that are potentially unfavorable to
the Company; or

satisfy the obligation other than by the exchange of a fixed amount of cash or another financial asset for a fixed
number of own equity shares.
If the Company does not have an unconditional right to avoid delivering cash or another financial asset to settle its
contractual obligation, the obligation meets the definition of a financial liability.
Derecognition of Financial Assets and Financial Liabilities
Financial Assets. A financial asset (or, where applicable a part of a financial asset or part of a group of similar financial
assets) is derecognized when:

the rights to receive cash flows from the asset have expired;

the Company retains the right to receive cash flows from the asset, but has assumed an obligation to pay them in full
without material delay to a third party under a “pass-through” arrangement; or

the Company has transferred its rights to receive cash flows from the asset and either (a) has transferred substantially
all the risks and rewards of the asset, or (b) has neither transferred nor retained substantially all the risks and rewards
of the asset, but has transferred control of the asset.
When the Company has transferred its rights to receive cash flows from an asset and has neither transferred nor retained
substantially all the risks and rewards of the asset, the asset is recognized to the extent of the Company’s continuing
involvement in the asset.
15
Financial Liabilities. A financial liability is derecognized when the obligation under the liability is discharged or cancelled or
has expired.
When an existing financial liability is replaced by another from the same lender on substantially different terms, or the
terms of an existing liability are substantially modified, such modification is treated as a derecognition of the original liability
and the recognition of a new liability, and the difference in the respective carrying amounts is recognized in the
consolidated statement of income.
Impairment of Financial Assets
The Company assesses at each balance sheet date whether a financial asset or a 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). Cash flows from short-term placements and receivables are not discounted if the effect of discounting is
immaterial. The carrying amount of the asset shall be reduced through the use of an allowance account. The amount of
the loss shall be recognized in the consolidated statement of income.
The Company first assesses whether objective evidence of impairment exists individually for financial assets that are
individually significant and collectively for financial assets that are not individually significant. If it is determined that no
objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, the asset is
included in a group of financial assets with similar credit risk characteristics and that group of financial assets is collectively
assessed for impairment. Assets that are individually assessed for impairment and for which an impairment loss is or
continues to be recognized are not included in a collective assessment of impairment.
If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an
event occurring after the impairment was recognized, the previously recognized impairment loss is reversed. Any
subsequent reversal of an impairment loss is recognized in the consolidated statement of income, to the extent that the
carrying value of the asset does not exceed its amortized cost at the reversal date.
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.
Offsetting Financial Assets and Financial Liabilities
Financial assets and financial liabilities are offset and the net amount is reported in the consolidated balance sheet if, and
only if, there is a currently enforceable legal right to offset the recognized amounts and there is an intention to settle on a
net basis, or to realize the asset and settle the liability simultaneously. This is not generally the case with master netting
agreements, and the related assets and liabilities are presented gross in the consolidated balance sheet.
Determination of Fair Value. The fair value for financial instruments traded in active markets at the balance sheet date is
based on their quoted market price or dealer price quotations (bid price for long positions and ask price for short positions),
without any deduction for transaction costs. When current bid and asking prices are not available, the price of the most
recent transaction provides evidence of the current fair value as long as there has not been a significant change in
economic circumstances since the time of the transaction.
For all other financial instruments not listed in an active market, the fair value is determined by using appropriate valuation
techniques. Valuation techniques include net present value techniques, comparison to similar instruments for which
market observable prices exist, options pricing models, and other relevant valuation models.
Day 1 Profit. Where the transaction price in a non-active market is different from the fair value of other observable current
market transactions in the same instrument or based on a valuation technique whose variables include only data from
observable market, the Company recognizes the difference between the transaction price and fair value (a Day 1 profit) in
the consolidated statement of income unless it qualifies for recognition as some other type of asset. In cases where use is
made of data which is not observable, the difference between the transaction price and model value is only recognized in
the consolidated statement of income when the inputs become observable or when the instrument is derecognized. For
each transaction, the Company determines the appropriate method of recognizing the ‘Day 1’ profit amount.
Derivative Financial Instruments
A derivative is a financial instrument or other contract with all three of the following characteristics:
16

Its value changes in response to the change in a specified interest rate, financial instrument price, commodity price,
foreign exchange rate, index of prices or rates, credit rating or credit index, or other variable, provided in the case of a
nonfinancial variable that the variable is not specific to a party to the contract (sometimes called the “underlying”);

It requires no initial net investment or an initial net investment that is smaller than would be required for other types of
contracts that would be expected to have a similar response to changes in market factors; and

It is settled at a future date.
Embedded derivatives. An embedded derivative is separated from the host contract and accounted for as a derivative if all
of the following conditions are met:
a.
the economic characteristics and risks of the embedded derivative are not closely related to the economic
characteristics and risks of the host contract;
b.
a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative; and
c.
the hybrid or combined instrument is not recognized at fair value through profit and loss.
Subsequent reassessment is prohibited unless there is a change in the terms of the contract that significantly modifies the
cash flows that otherwise would be required under the contract, in which case reassessment is required. The Company
determine whether a modification to cash flows is significant by considering the extent to which the expected future cash
flows associated with the embedded derivative, the host contract or both have changed and whether the change is
significant relative to the previously expected cash flow on the contract.
Property and Equipment
Property and equipment is stated at cost, excluding the costs of day-to-day servicing, less accumulated depreciation and
any impairment in value. The cost of property and equipment consists of its purchase price and any costs directly
attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner
intended by management. The cost of replacing a part of an item of property and equipment is included in the carrying
amount of such an item when that cost is incurred if the recognition criteria are met.
Depreciation is calculated on a straight-line basis over the estimated useful life of the asset.
Construction in-progress is stated at cost. Construction in-progress is not depreciated until such time that the relevant
assets are completed and available for its intended use.
An item of property and equipment is derecognized upon disposal or when no future economic benefits are expected from
its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net
disposal proceeds and the carrying amount of the item) is included in the consolidated statement of income in the year the
item is derecognized.
The assets’ residual values, useful lives and depreciation method are reviewed and adjusted if appropriate, at each
financial year end.
Impairment of Nonfinancial Assets
The Company assesses at each reporting date whether there is an indication that an asset may be impaired. If any such
indication exists, or when annual impairment testing for an asset is required, the Company makes an estimate of the
asset’s recoverable amount. An asset’s recoverable amount is the higher of an asset’s or cash-generating unit’s fair value
less costs to sell and its value in use and is determined for an individual asset, unless the asset does not generate cash
inflows that are largely independent of those from other assets or groups of assets. Where the carrying amount of an asset
exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In
assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate
that reflects current market assessments of the time value of money and the risks specific to the asset. Impairment losses
are recognized in the consolidated statement of income in those expense categories consistent with the function of the
impaired asset.
An assessment is made at each reporting date as to whether there is any indication that previously recognized impairment
losses may no longer exist or may have decreased. If such indication exists, the recoverable amount is estimated. A
previously recognized impairment loss is reversed only if there has been a change in the estimates used to determine the
asset’s recoverable amount since the last impairment loss was recognized. If that is the case, the carrying amount of the
asset is increased to its recoverable amount. That increased amount cannot exceed the carrying amount that would have
been determined, net of depreciation, had no impairment loss been recognized for the asset in prior years. Such reversal
is recognized in the consolidated statement of income unless the asset is carried at revalued amount, in which case the
17
reversal is treated as a revaluation increase. After such a reversal, the depreciation charge is adjusted in future periods to
allocate the asset’s revised carrying amount, less any residual value, on a systematic basis over its remaining useful life.
Investment in an Associate
The Company’s investment in an associate is accounted for under the equity method of accounting. An associate is an
entity in which the Company has significant influence and which is neither a subsidiary nor a joint venture.
Under the equity method, the investment in an associate is carried in the consolidated balance sheet at cost plus postacquisition changes in the Company’s share of net assets of the associate. Goodwill relating to an associate is included in
the carrying amount of the investment and is not amortized.
After application of the equity method, the Company determines whether it is necessary to recognize any additional
impairment loss with respect to the Parent Company’s net investment in the associate. The consolidated statement of
income reflects the share of the results of operations of the associate. Where there has been a change recognized directly
in the equity of the associate, the Company recognizes its share of any changes and discloses this, when applicable, in the
consolidated statement of changes in equity. The reporting dates of the associate and the Parent Company are identical
and the associates’ accounting policies conform to those used by the Parent Company for like transactions and events in
similar circumstances.
Interest in a Joint Venture
The Company has an interest in joint venture which is a jointly controlled entity. A joint venture is a contractual
arrangement whereby two or more parties undertake an economic activity that is subject to joint control, and a jointly
controlled entity is a joint venture that involves the establishment of a separate entity in which each venturer has an
interest.
The Company recognizes its interest in joint venture using proportionate consolidation, which involves recognizing a
proportionate share of the joint venture’s assets, liabilities, income and expenses with similar items in the consolidated
financial statements on a line-by-line basis. The financial statements of the joint venture are prepared for the same
reporting year as the Company using consistent accounting policies.
The joint venture is proportionately consolidated until the date when the Company ceases to have joint control over the
joint venture.
Business Combinations and Goodwill
Business combinations are accounted for using the purchase method of accounting. This involves recognizing identifiable
assets (including previously unrecognized intangible assets) and liabilities (including contingent liabilities and excluding
future restructuring) of acquired business at fair value.
Goodwill acquired in a business combination is initially measured at cost being the excess of the cost of business
combination over the Company’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent
liabilities. If the initial accounting for business combination can be determined only provisionally by the end of the period by
which the combination is effected because either the fair values to be assigned to the acquiree’s identifiable assets,
liabilities or contingent liabilities or the cost of the combination can be determined only provisionally, the Company
accounts the combination using provisional values. Adjustments to those provisional values as a result of completing the
initial accounting shall be made within twelve months from the date of acquisition. The carrying amount of an identifiable
asset, liability or contingent liability that is recognized as a result of completing the initial accounting shall be calculated as
if its fair value at the acquisition date had been recognized from that date and goodwill or any gain recognized shall be
adjusted from the acquisition date by an amount equal to the adjustment to the fair value at the acquisition date of the
identifiable asset, liability or contingent liability being recognized or adjusted.
Following initial recognition, goodwill is measured at cost less any accumulated impairment losses. For purpose of
impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the
Company’s cash-generating units, or groups of cash-generating units, that are expected to benefit from the synergies of
the combination, irrespective of whether other assets or liabilities of the Company are assigned to those units or group of
units. Each unit or group of units to which the goodwill is allocated:

represents the lowest level within the Company at which the goodwill is monitored for internal management purposes;
and

is not larger than a segment based on the Company’s format determined in accordance with
PAS 14, “Segment Reporting.”
Where, goodwill forms part of a cash-generating unit (group of cash-generating units) and part of the operation within that
unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the
operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in this circumstance is
measured based on the relative values of the operation disposed of and the portion of the cash-generating unit retained.
18
When subsidiaries are sold, the difference between the selling price and the net assets plus cumulative translation
differences and unamortized goodwill is recognized in the consolidated statement of income.
Goodwill is shown as part of “Goodwill and other intangibles” account in the consolidated balance sheet.
Other Intangibles
Other intangibles are composed of the Company’s website and specialized software packages.
An asset meets the identifiability criterion in the definition of an intangible asset when:

it is separable, that is, capable of being separated or divided from the entity and sold, transferred, licensed, rented or
exchanged, either individually or together with a related contract, asset or liability; or

it arises from contractual or other legal rights, regardless of whether those rights are transferable or separable from
the entity or from other rights and obligations.
Intangibles are initially measured at cost. The cost of a separately acquired intangible asset comprises its purchase price,
including non-refundable purchase taxes, after deducting trade discounts and rebates; and any directly attributable cost of
preparing the asset for its intended use.
Amortization of website and software packages is computed using the straight-line method over its estimated useful life of
5 years.
Software Development Cost
Software development costs incurred on an individual project are carried forward when the project’s future recoverability
can be foreseen with reasonable assurance, and amortised over a suitable period in line with the sales from the related
project. All other development expenditures are written off in the year of expenditure. Software development costs
represent typical internally generated intangible assets of relevance to the company. Costs incurred in relation to individual
projects are capitalized only when the future economic benefit of the project is probable and the following main conditions
are met: (i) the development costs can be measured reliably, (ii) the technical feasibility of the product has been
ascertained and (iii) therefore it is the intention of the management to complete the intangible asset and use or sell it.
Given the type of business and cumulative experience gained by the company, usually the fact that the intangible asset will
generate probable future economic benefits is reasonably certain only shortly before a product is launched into the market.
Costs incurred before that point in time is not reinstated. Internally generated intangible assets primarily relate to internally
developed software. Research costs are expensed as incurred.
Provisions
Provisions are recognized when the Company has a present obligation (legal or constructive) as a result of a past event, it
is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable
estimate can be made of the amount of the obligation. Where the Company expects some or all of a provision to be
reimbursed, for example under an insurance contract, the reimbursement is recognized as a separate asset but only when
the reimbursement is virtually certain. The expense relating to any provision is presented in the consolidated statement of
income, net of any reimbursement. If the effect of the time value of money is material, provisions are discounted using a
current pre-tax rate that reflects, where appropriate, the risks specific to the liability. Where discounting is used, the
increase in the provision due to the passage of time is recognized as an interest expense.
Revenue Recognition
Revenue is recognized to the extent that it is probable that the economic benefits associated with the transaction will flow
to the Company and the amount of revenue can be reliably measured. The following specific recognition criteria must also
be met before revenue is recognized.
Service Income. Revenue is recognized as services are rendered. Service income received in advance is recognized as
income upon the customers’ availment of the service. The unused portion of service income received in advance is
reflected as unearned income included in “Accounts payable and other current liabilities” in the consolidated balance sheet.
Interest Income. Revenue is recognized as the interest accrues using the effective interest method, that is the rate that
exactly discounts estimated future cash receipts through the expected life of the financial instrument to the net carrying
amount of the financial asset.
Rental Income. Income from the use of the Company’s facilities is recognized when facilities are used.
Recruitment Fees. Income is recognized when recruitment services has been rendered.
Leases
19
The determination of whether an arrangement is, or contains a lease is based on the substance of the arrangement at
inception date of whether the fulfillment of the arrangement is dependent on the use of a specific asset or assets or the
arrangement conveys a right to use the asset. A reassessment is made after inception of the lease only if one of the
following applies:

there is a change in contractual terms, other than a renewal or extension of the arrangement;

a renewal option is exercised or extension granted, unless the term of the renewal or extension was initially included
in the lease term;

there is a change in the determination of whether fulfillment is dependent on a specified asset; or

there is substantial change to the asset.
Where a reassessment is made, lease accounting shall commence or cease from the date when the change in
circumstances gave rise the reassessment for scenarios a, c, or d and at the date of renewal or extension period for
scenario b.
Company as a Lessee. Operating lease payments are recognized as expenses in the consolidated statement of income
on a straight-line basis over the lease terms.
Company as a Lessor. Leases where the Company retains substantially all the risks and benefits of ownership of the
asset are classified as operating leases. Initial direct costs incurred in negotiating an operating lease are added to the
carrying amount and recognized over the lease term on the same basis as rental income.
Borrowing Costs
Borrowing costs are recognized as an expense when incurred.
Share-based Payment Transactions
Under the Fil-Hispano Employee Equity Plan (EEP), employees and executives (including directors) of the Company,
receive remuneration in the form of share-based payment transactions, whereby employees render services as
consideration for equity instruments (“equity-settled transactions”) of the Parent Company. Such transactions are handled
centrally by the Parent Company.
Equity-settled transactions. Share-based transactions in which the Parent Company grants rights to equity on its
instruments to the Company’s employees and executives (including directors) are accounted for as equity-settled
transactions.
The cost of equity-settled transactions is measured by reference to the fair value at the date on which they are granted.
The fair value is determined using the Black-Scholes-Merton Option Pricing Model, further details of which are given in
Note 16. In valuing equity-settled transactions, no account is taken of any performance conditions, other than linked to the
price of the shares of the Parent Company (“market condition”), if applicable. The cost of EEP is measured by reference to
the market price at the time of the grant less subscription price.
The cost of equity-settled transactions is recognized, together with a corresponding increase in equity, over the period in
which the performance and/or service conditions are fulfilled, ending on the date on which the relevant employees become
fully entitled to the award (“the vesting date”). The cumulative expense recognized equity-settled transactions at each
reporting date until the vesting date reflects the extent to which the vesting period has expired and the Company’s best
estimate of the number of equity instruments that will ultimately vest. The consolidated statement of income charge for the
year represents expense recognized for the current year.
No expense is recognized for awards that do not ultimately vest, provided that all other performance conditions are
satisfied.
Where the terms of a share-based award are modified, as a minimum, an expense is recognized as if the terms had not
been modified. In addition, an expense is recognized for any modification, which increases the total fair value of the sharebased payment arrangement, or is otherwise beneficial to the employee as measured at the date of modification.
Where an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any expense not
yet recognized for the award is recognized immediately.
However, if a new award is substituted for the cancelled award, and designated as a replacement award on the date that it
is granted, the cancelled and new awards are treated as if they were a modification of the original award, as described in
the previous paragraph.
20
Retirement Cost
The Company has an unfunded, noncontributory defined benefit plan. The cost of providing benefits under the defined
benefit plan is determined using the projected unit credit method. Actuarial gains and losses are recognized as income or
expense when the net cumulative unrecognized actuarial gains and losses for the plan at the end of the previous reporting
year exceeded 10% of the higher of the defined benefit obligation and the fair value of plan assets at that date. These
gains or losses are recognized over the expected average remaining working lives of the employees participating in the
plan.
The past service cost is recognized as an expense on a straight-line basis over the average period until the benefits
become vested. If the benefits are already vested immediately following the introduction of, or changes to, a retirement
plan, past service cost is recognized immediately.
The defined benefit liability is the aggregate of the present value of the defined benefit obligation and actuarial gains and
losses not recognized reduced by past service cost not yet recognized and the fair value of plan assets out of which the
obligations are to be settled directly. If such aggregate is negative, the asset is measured at the lower of such aggregate
or the aggregate of cumulative unrecognized net actuarial losses and past service cost and the present value of any
economic benefits available in the form of refunds from the plan or reductions in the future contributions to the plan. For
income tax purposes, deductible retirement cost consists of payments covering the current service cost for the year plus
payments toward funding the actuarial accrued liability.
Income Tax
Current tax assets and liabilities are measured at the amount expected to be recovered from or paid to the tax authorities.
The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted at the balance
sheet date.
Deferred income tax is provided, using the balance sheet liability method, on all temporary differences at the balance sheet
date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred
tax liabilities are recognized for all taxable temporary differences, except:

where the deferred tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction
that is not a business combination and, at the time of the transaction, affects neither the accounting income nor
taxable income or loss; and

in respect of taxable temporary differences associated with investments in subsidiaries, associates and interests in
joint ventures, when the timing of the reversal of the temporary differences can be controlled and it is probable that
the temporary differences will not reverse in the foreseeable future.
Deferred tax assets are recognized for all deductible temporary differences. Deferred income tax, however, is not
recognized when it arises from the initial recognition of an asset or liability in a transaction that is not a business
combination and, at the time of the transaction, affects neither the accounting profit nor taxable income or loss.
The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no
longer probable that sufficient taxable income will be available to allow all or part of the deferred tax asset to be utilized.
Unrecognized deferred tax assets are reassessed at each balance sheet date and are recognized to the extent that it has
become probable that future taxable profit will allow the deferred tax asset to be recovered.
Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the
asset is realized or the liability is settled, based on tax rate (and tax laws) that have been enacted or substantively enacted
at the balance sheet date.
Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to set off current tax assets
against current tax liabilities and the deferred tax assets relate to the taxable entity and the same tax authority.
Segment Reporting
The Company’s operating businesses are organized and managed separately according to the nature of the services
provided, with each segment representing a strategic business unit that offers different services and serves different
markets.
Earnings Per Share
Basic earnings per share (EPS) is determined by dividing net income by the weighted average number of common shares
outstanding during the year, with retroactive adjustments for any stock dividends declared.
Diluted earnings per common share is computed in the same manner, adjusted for the effect of the shares issuable to
qualified directors, officers and employees under the Parent Company’s stock option plan which are assumed to be
exercised at the date of grant.
21
Where the effect of the exercise of stock options is anti-dilutive, basic and diluted earnings per share are stated at the
same amount.
Contingencies
Contingent liabilities are not recognized in the consolidated financial statements but are disclosed unless the possibility of
an outflow of resources embodying economic benefits is remote. Contingent assets are not recognized in the consolidated
financial statements but disclosed when an inflow of economic benefits is probable.
Events after the Balance Sheet Date
Post year-end events that provide additional information about the Company’s financial position at the balance sheet date,
if any, (adjusting events) are reflected in the consolidated financial statements. Post year-end events that are not adjusting
events are disclosed in the notes to consolidated financial statements when material.
4.
Cash and Cash Equivalents
This account consists of:
Cash on hand and in banks
Short-term deposits
June 30,
2008
P
= 474,488
307,986
P
= 782,474
December 31,
2007
P
= 278,648
258,687
P
= 537,335
Cash in banks earn interest at the prevailing bank deposit rates. Short-term deposits are made for varying periods of up to
three months depending on the immediate cash requirements of the Company, and earn interest at the respective shortterm deposit rates.
5.
Trade and Other Receivables
This account consists of:
Trade
Advances to officers and employees
Advances to suppliers and contractors
Statutory receivables
Others
Less allowance for doubtful accounts
June 30,
2008
P
= 684,843
123,005
66,437
14,434
51,173
939,892
7,577
P
= 932,315
December 31,
2007
P
= 807,008
119,401
84,031
3,313
43,828
1,057,581
8,367
P
= 1,049,214
22
6.
Property and Equipment
The movement of this account follows:
Computer
Equipment
Cost
Balance at beginning of year
Additions
Disposals
Reclassifications
Translation adjustments
Balance at end of year
Accumulated Depreciation, Amortization
and Impairment Losses
Balance at beginning of year
Depreciation and amortization
for the year
Translation adjustments
Balance at end of year
Net Book Value
P
= 807,877
67,279
5,713
880,869
P
= 426,507
855
(27)
427,335
P
= 697,124
11,856
7,712
716,692
P
= 169,043
12,807
(151)
2,342
184,041
Transportation
Equipment
Software Pool
Construction
In-Progress
P
= 14,585
1,074
15,659
P
= 13,900
12,287
2,577
28,764
P
= 24,165
12,106
36,271
Total
P
= 2,153,201
118,264
(178)
18,344
2,289,631
381,256
211,629
233,540
74,399
7,608
13,248
-
921,680
83,541
4,908
469,705
P
= 411,164
44,843
256,472
P
= 170,863
79,594
2,516
315,650
P
= 401,042
17,737
1,529
93,665
P
= 90,376
1,282
8,890
P
= 6,769
1,190
2,551
16,989
P
= 11,775
P
= 36,271
228,187
11,504
1,161,371
P
= 1,128,260
December 31, 2007
Office Furniture,
Leasehold
Fixtures and
Improvements
Equipment
Transportation
Equipment
Software Pool
Construction
In-Progress
Computer
Equipment
Cost
Balance at beginning of year
Additions
Disposals
Reclassification
Translation adjustments
Effect of consolidation of subsidiaries
Balance at end of year
Accumulated Depreciation, Amortization and
Impairment Losses
Balance at beginning of year
Depreciation and amortization
for the year
Disposals
Translation adjustments
Effect of consolidation of subsidiaries
Balance at end of year
Net Book Value
Communication
Equipment
June 30, 2008
Office Furniture,
Leasehold
Fixtures and
Improvements
Equipment
P
= 690,642
119,815
(540)
Communication
Equipment
(2,040)
807,877
P
= 371,329
39,780
(46)
15,444
–
–
426,507
P
= 385,451
250,379
–
62,427
(2,156)
1,023
697,124
P
= 150,235
37,489
(27,962)
(1,386)
10,667
169,043
P
= 9,391
1,561
(841)
–
4,474
14,585
P
= 14,476
344
-
233,656
127,398
129,934
56,953
2,693
12,953
151,515
(387)
(3,528)
381,256
P
= 426,621
84,255
(24)
–
–
211,629
P
= 214,878
104,782
–
(2,097)
921
233,540
P
= 463,584
30,159
(16,130)
(5,565)
8,982
74,399
P
= 94,644
2,697
(434)
–
2,652
7,608
P
= 6,977
2,409
–
(2,114)
13,248
P
= 652
(920)
13,900
P
= 79,584
22,452
–
(77,871)
–
–
24,165
–
–
–
–
–
P
= 24,165
Total
P
= 1,701,108
471,820
(29,389)
(6,502)
16,164
2,153,201
563,587
375,817
(16,975)
(13,304)
12,555
921,680
P
= 1,231,521
23
7.
Goodwill and Other Intangibles
This account consists of:
June 30,
2008
P
= 1,976,948
8,880
27,107
2,012,935
(8,231)
P
= 2,004,704
Goodwill
Website and software packages
Software development cost
Less accumulated amortization:
8.
December 31,
2007
P
= 1,707,757
6,465
24,307
1,738,529
(5,410)
P
= 1,733,119
Bank Loans
Short-term Loans
This account consists of:
June 30,
2008
P
= 1,089,894
–
P
= 1,089,894
Dollar-denominated
Peso-denominated
December 31,
2007
P
= 1,211,657
–
P
= 1,211,657
Dollar-denominated loans are obtained from various foreign and local branches of foreign banks. These loans bear
average annual interest rates ranging from 7.4% to 9.0%. The purpose of the facility is to provide ACS the normal working
capital financing and extend short-term loans for capacity expansion of the call center business. The facility is covered by
an agreement whereby cash remittances from a major customer of not less than US$0.20 million each month shall be
credited to ACS’ foreign currency-denominated unit account maintained in the said local branch of a foreign bank.
Long-term Loans
This account consists of:
Long-term loan
Less current portion
Long-term loan - net of current portion
2008
AU$18,727
1,772
AU$16,955
P
= 805,895
76,263
P
= 729,632
2007
AU$19,429
1,575
AU$17,854
P
= 705,363
57,173
P
= 648,190
On May 31, 2006, Paxys A.U. obtained a bridge loan of AU$18.9 million from an Australian bank to partly finance its
acquisition of SmartSalary. The loan was for a period of nine months subject to interest of AU$ Base Rate plus a spread of
3.5% per annum. Before its term expired, the loan was refinanced on October 10, 2006 into two facilities: an amortizing
facility of AU$14.9 million (Tranche A) and a non-amortizing facility of AU$4.0 million (Tranche B) and will mature in
5 years. The non-amortizing facility is subject to bullet repayment at maturity.
On August 24, 2007, the Tranche A and Tranche B were amended. The amended facility agreement (Tranche A-revised),
will now include (1) the Tranche A of AU$14.1 million, as re-valued, (2) the existing Tranche B amounting to AU$4.0
million, and (3) ancillary facility related to the NSW contract amounting to AU$2.0 million.
The amended facility agreement is subject to quarterly principal repayments as follows:
Year
1
2
3
4
5
Repayment Amount
AU$1,000
1,500
1,800
2,200
1,818
The balance of the amended facility agreement will be paid at the termination date.
Quarterly Repayments
AU$250
375
450
550
606
24
The amended facility agreement is subject to interest rate of the Bank Bill Swap Rate - Average Bid (“BBSY”) + Margin.
For the first 12 months after the First Draw Date, the Margin will be 2.75% per annum. Thereafter the Margin will be
determined in accordance with the following grid based on the leverage ratio as follows:
Leverage Ratio
= 2.50 times and < 3.25 times
= 2.00 times and < 2.50 times
< 2.00 times
Margin
1.85%
1.50%
1.25%
The loan is subject to financial covenants (leverage ratio, interest cover ratio and debt service coverage ratio) which will be
tested quarterly on a rolling 12 month basis.
Paxys A.U. has been in compliance with the above financial covenants as certified by the creditor bank.
9.
Share-based Payment Plan
On June 2, 2005 and May 27, 2005, the Board of Directors and Stockholders of the parent company, respectively,
approved the “Fil-Hispano Employee Equity Plan” (the “EEP” or the “Plan”) to be availed of by the executives and key
employees (“Employees” or “Recipient” or Participant”) of the Company. The Plan is being managed by a committee
appointed by the Parent Company’s BOD. Recipients will be determined on the basis of their service years, position/role in
the Company and performance. The Committee, in its sole discretion, shall determine the number and other parameters of
options granted to eligible employees. The maximum number of shares that may be issued under the EEP is 50 million
shares (authorized but unissued, reacquired, or both or acquired from a third party). The Plan shall terminate on the 10th
anniversary after the effective date on May 1, 2005. The employees may not claim any eligibility or other legal rights for
future grants or other benefits after the Company terminates the EEP. The employees have no voting rights and are not
entitled to receive dividend payments until the shares are transferred to them after exercising the option or until the shares
have been fully paid. Any taxes or contributions arising from the stock transactions shall be borne by employees. Vested
stock options may be exercised at any time, up to a maximum of four (4) years from the date of grant, depending on the
program type. The Committee has the authority to grant options with a shorter duration than four (4) years. All
unexercised stock options after this period are considered forfeited. On June 1, 2006, the Plan was approved by the SEC.
Launch Grant Program. This program is a one-time grant of shares during the first year launching of the EEP, given to
executives and key employees of the Company in recognition of their past services. The salient features of the program
are as follows:
a.
b.
c.
d.
Shares may be granted to executives and key employees as of November 28, 2004, as designated by the Committee.
Levels of grant will be determined based on employees’ years of service, and position/role and performance in the
Company.
Shares granted shall be deemed to have been fully vested at the time of grant and therefore not subject to any
blocking period.
Employee shall have full shareholder rights upon allocation of the shares.
On November 3, 2005, the Committee approved the launch grant program for the Company’s eleven (11) executives and
twelve (12) key employees amounting to P
= 11.87 million , equivalent to 2,422,000 shares based on the market value of P
=
4.90 per share. All shares granted under the Launch Grant Program were accepted by the Company’s executives and
employees as of December 31, 2005.
Stock Option Grant Program. Under this program, options may be granted to executives and key employees of the Parent
Company and ACS, as designated by the Committee, once a year after the announcement of the Company’s final results,
usually May of each year. The options shall be granted for four (4) years starting from the Grant Date, until termination of
employment. The duration of the option includes exercise periods. At the end of the exercise period, all unexercised
options expire without any compensation. The options are not transferable during the whole term of the option. The
employee has no voting right and is not entitled to receive dividend payments until the shares are transferred to him after
exercising the option.
The option has a vesting period of three (3) years from the Grant Date with the following percentages, rounded down to the
next whole number, vesting on each anniversary of the Grant Date:
60% - first year
20% - second year
20% - third year
At the end of each anniversary date, the proportionate number of options corresponding to the above percentages shall
become vested.
25
During the vesting period, the options cannot be exercised and are subject to forfeiture rules. Once the options have
vested, the recipient has the right to exercise the options during the exercise period. The exercise period can be
shortened, upon termination of employment of the executives and key employees.
The options may be exercised for a period of one (1) year after the vesting period for each anniversary date, the exercise
price shall be determined by the committee on Grant Date. The following methods will be used for options exercised
during the exercise period:
Cash Purchase Exercise Method. The employee must pay the exercise price to acquire the shares. Any income/social
security tax and brokerage cost shall be paid by the employee separately. In return, the employee becomes entitled to
receive the number of shares for which the options are exercised.
Cashless Exercise Method. The employee exercises the options and sells all the resulting shares. After covering the
exercise price, income/social security taxes and brokerage costs, the balance of the proceeds are paid to the employee in
cash.
Sell to Cover Method. The employee exercises the options and sells only enough shares to pay for the exercise price, any
income/social security and brokerage costs. The employee keeps the remaining shares.
On November 3, 2005, the Committee approved option grant for the Company’s 5 executives and 15 key employees
amounting to P
= 23.78 million, equivalent to 8,200,000 shares based on an exercise price of P
= 2.90 per share.
On June 1, 2006, the Committee approved option grant for the Company’s 10 executives and 15 key employees
amounting to P
= 115.44 million, equivalent to 14,800,000 shares based on an exercise price of P
= 7.80 per share.
A summary of the Stock Option Grant Program and related information for Parent Company and ACS follows:
Parent Company
Date of Grant
Vesting date
Vesting shares
Attrition rate
Shares expected to be
exercised
May 31,
2007
4,200,000
10%
June 1, 2006
May 31,
2008
1,400,000
10%
May 31,
2009
1,400,000
10%
November 3, 2005
May 31,
May 31,
2006
2007
1,800,000
600,000
–
10%
May 31,
2008
600,000
10%
3,780,000
1,260,000
1,260,000
1,800,000
540,000
May 31,
2007
4,680,000
15%
June 1, 2006
May 31,
2008
1,560,000
15%
May 31,
2009
1,560,000
15%
November 3, 2005
May 31,
May 31,
May 31,
2006
2007
2008
3,120,000
1,040,000
1,040,000
–
15%
15%
P
= 3,978,000
P
= 1,326,000
P
= 1,326,000
ACS
Date of Grant
Vesting date
Vesting shares
Attrition rate
Shares expected to be
exercised
P
= 3,120,000
540,000
P
= 884,000
P
= 884,000
Stock Purchase Program. Under this program, regular and project employees of the Company, with at least one (1) year
of service, shall be given the opportunity to purchase shares on installment. The maximum number of shares that may be
purchased by each eligible person on installment shall be established each year by the BOD or the Committee. The
shares may be acquired at their fair market value on the allocation date, the next trading day following the approval of the
Participant’s Purchase Agreement Form. The purchase price of the shares acquired by the Participant shall be advanced
by the Company and paid off by way of payroll deductions, without any interest. Shares acquired under this Program may
not be disposed of, sold, donated or transferred until they are fully paid. Upon full payment of the shares, the Participant
may freely dispose of the shares without any restriction. The employee shall have full shareholder rights upon allocation of
the shares, except the right of disposal.
As of June 30, 2008, there were no options granted under the stock purchase program.
10. Stockholders’ Equity
On May 1, 2006, the Parent Company entered into a Share Sale Agreement involving the acquisition of shares of
SmartSalary. The selling shareholders of SmartSalary were advised that they could elect to receive a portion of their
acquisition consideration in the form of the Parent Company’s new shares. Accordingly, three SmartSalary shareholders
elected to receive their acquisition consideration equivalent to 33,230,389 Parent Company shares.
On July 11, 2006, the Company issued 2,422,000 shares related to the launch grant program approved in November 3,
2005.
26
On May 31, 2007 and September 13, 2006, the Company issued 10,440,000 and 4,860,000 shares related to the exercise
of the option under the stock option grant program
11. Segment Information
Business segment information is reported on the basis that is used internally for evaluating segment performance and
deciding how to allocate resources among operating segments. Accordingly, the primary segment reporting format is
business segment. Secondary information is reported geographically.
The industry segments where the company operates are as follows:

Call Center - The call center segment offers an integrated mix of call center solutions including inbound (customerinitiated) and outbound teleservicing as well as email and web-based tools.

Salary Packaging - The salary packaging segment provides services to company employees to effectively structure
their income through a combination of cash and approved employee benefits. The segment’s services ensure the
implementation of a well-aligned salary packaging policy and the delivery of a comprehensive tax management
reporting suite.
Business Segment Data
The following table present revenues and expenses information and certain assets and liabilities information regarding the
business segments for the three months ended June 30, 2008:
Call Center
Results of operations
Segment revenues from external
customers
Segment expenses
Other segment operating income
(expense)
Segment result
Interest income
Interest expense
Foreign exchange gain (loss) - net
Provision for income tax
Net income
Salary
Packaging
Others
P
= 1,119,809
(1,207,916)
P
= 493,382
(350,568)
P
= 67,647
(78,975)
73,919
(14,188)
2,079
(46,173)
27,352
(P
= 30,930)
142,814
39,186
(42,791)
(46,803)
P
= 92,406
146
(11,182)
10,341
(14,745)
(25,563)
(P
= 41,149)
Eliminations
P
=
34,599
(42,479)
(7,880)
(8,955)
10,662
(8,538)
(P
= 14,711)
Consolidated
P
= 1,680,838
(1,602,860)
31,586
109,564
42,651
(93,047)
(6,749)
(46,803)
P
= 5,616
Assets and liabilities
Segment assets
P
= 2,618,766
P
= 2,247,074
P
= 2,911,968
(P
= 2,381,423)
P
= 5,396,385
Segment liabilities
P
= 1,459,416
P
= 1,308,575
P
= 893,792
(P
= 998,937)
P
= 2,662,846
Geographical Segment Data
The following table present the revenue and expenditure and certain asset information regarding geographical segments
for the three months ended June 30, 2008:
Revenue
External Sales
Other segment information
Segment assets
Capital Expenditures
Property and equipment
Intangibles
Philippines
Australia
Eliminations
Consolidated
P
= 1,187,456
P
= 493,382
P
=–
P
= 1,680,838
4,745,661
3,032,147
96,808
5,215
21,458
-
(2,381,423)
-
5,396,385
118,266
5,215
27
12. Earnings (Loss) Per Share
Earnings (loss) per share were computed as follows:
Net earnings attributable to Parent (a)
Weighted average number of common
shares outstanding (b)
Earnings (loss) per share (a/b)
For the Three Months Ended June 30
2008
2007
2006
P
= 3,619
P
= 216,183
P
= 407,847
950,952,389
942,300,455
904,589,833
P
= 0.004
P
= 0.23
P
= 0.24
2008
P
= 22,129
8,106
P
= 30,235
2007
P
= 22,129
8,106
P
= 30,235
13. Retirement Benefits
This account consists of:
Accrued retirement costs
Other long-term employee benefits
Accrued Retirement Costs
ACS and SWA has an unfunded, noncontributory defined benefit plan covering all of its regular and full time employees.
The plan provides for a lump sum benefit payment upon retirement. Contributions and costs are determined in accordance
with the actuarial study made for the plan which is normally obtained every year.
14. Income Tax
The provision for income tax in 2008 represents provision for income tax of SmartSalary in Australia and is based on
Australian Tax Law.
15. Contingencies
The parent company is currently contesting tax assessments of the BIR dated December 8, 2004, for alleged deficiency
creditable withholding tax and documentary stamp tax totaling P
= 13.32 million arising from its sale of real properties in 2003
and 2001. The BIR believes that the parent company erroneously declared the real properties sold as industrial properties
instead of commercial properties. Hence, the tax base declared was alleged to be low. As advised by its external legal
counsel, the parent company filed a “Petition for Review” with the Court of Tax Appeals on September 30, 2005 to contest
the tax assessments. The parent company and its counsel have estimated that the eventual liabilities of these tax
assessments are estimated at P
= 3.8 million. A provision for probable losses arising from tax assessments was recognized
and is presented as part of “Accounts payable and accrued expenses”.
On June 25, 2007, the Second Division of the CTA rendered a Decision dismissing the Parent Company’s “Petition for
Review” dated September 30, 2005 on the ground of lack of jurisdiction. The Parent Company filed a Motion for
Reconsideration (Motion) on July 18, 2007. The CTA Second Division (2nd Div.) in a Resolution dated November 20, 2007
denied said Motion. On December 20, 2007, the Parent Company filed a Petition with the CTA En Banc questioning the
aforementioned Decision and Resolution of the 2nd Div. The said Petition is still pending as of May 15, 2008. Pursuant to
an Application for Compromise Settlement with the BIR, the Parent Company in 2007 paid BIR the amount of P
= 3.84 million
which is equivalent to 40% of the basic taxes assessed, which amount is also equal to the amount accrued in prior year.
16. Other Matters
Detailed schedules have been omitted for purposes of preparing this interim financial statements as allowed by SRC Rule
68.
28
Annex B
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF
OPERATIONS
INTRODUCTION
The following discussion should be read in conjunction with the attached unaudited consolidated financial statements of the
Company as of and for the period ended June 30, 2008 (with comparative figures as of December 31, 2007 and for the period
ended June 30, 2007). All necessary adjustments to present fairly the consolidated financial condition, results of operations,
and cash flows of the Company for the six months ended June 30, 2008, and for all the other periods presented, have been
made. Certain information and footnote disclosure normally included in the audited financial statements prepared in
accordance with generally accepted accounting principles have been omitted.
Overview of Our Business
Below is the Group’s organizational structure as of June 30, 2008
Paxys, Inc.
(Parent Company)
Advanced Contact
Solutions, Inc. (ACS)*
100% owned by Paxys, Inc.
Paxys N.V.**
100% owned by Paxys,
Inc.
ScopeWorks Asia Inc.
(SWA)*
100% owned by Paxys, Inc.
Paxys Australia Pty
Ltd***
100% owned by Paxys
NV
Global Idealogy Corp.
(GIC)*
50.45% owned by Paxys,
Inc.
SmartSalary Pty. Ltd.***
100% owned by Paxys
Australia Pty Ltd
Stellar Global Solutions
Phil., Inc. (SGSPI)*
50% owned by Paxys, Inc.
*These companies are registered in the Philippines.
**Paxys N.V. (“PNV”) is established at Curacao, Netherlands Antilles.
***Paxys Australia and SmartSalary are Australian registered companies.
29
Paxys or the Parent Company’s business was changed to that of a holding company in 1997 from manufacturing ceramic
tiles.
ACS, one of the pioneers in the Philippine call enter industry, provides inbound customer management services such as order
taking, help desk and technical support; outbound services such as telemarketing, telecollection, and sales verification; and
other BPO services such as research, financial administration and HR functions. ACS services both Philippine and foreign
clients. Its U.S.-based clients belong to diverse industries ranging from financial services, telecommunications, retail,
broadcasting and transport.
SmartSalary is an Australian company engaged in salary packaging and other HR outsourcing services. It is the second
largest but fastest growing provider of outsourced salary packaging administration services in Australia. The services of
SmartSalary ensure the implementation of a well-aligned salary packaging policy and the delivery of a comprehensive tax
management reporting suite. SmartSalary also provides other associated services for its clients, such as financial planning,
car lease finance broking, and other related employee benefits.
ScopeWorks Asia provides high quality and cost effective outsourced transcription, editing and proofreading services. It is
one of the pioneers in the legal scoping industry in the Philippines servicing court reporters in the U.S.
GIC is a Philippine-based software solutions provider that focuses on the use of new technologies in creating software
products and applications that help transform the way organizations operate and manage their business. GIC has a suite of
proven enterprise software solutions that are completely web-based, superseding older client-server based applications.
Stellar Global Solutions Philippines, incorporated January 2007 in the Philippines, is a 50/50 joint venture between Stellar
Holdings Inc. and Paxys. The joint venture brings together two world-class companies, combining contact centre and
business process outsourcing experience with local capabilities to deliver exceptional offshore service outcomes from the
Philippines. Stellar Global Solutions Philippines was established to provide a cost-effective Philippine offshore
outsourcing solution for the Australian and UK outsourcing clients of the Stellar Community.
RESULTS OF OPERATIONS
 For 2nd quarter 2008 vs 2007 (April to June)
Summary Profit and Loss
For the three months ended June 30
In Million Pesos
Service Income
Gross Profit
EBITDA
Income from Operations
Net Income (loss)3
2nd Quarter (April – June)
2008
2007
Amount
% to Sales
Amount
% to Sales
839
100%
790
100%
404
48%
362
46%
134
16%
198
25%
16
2%
107
14%
(42)
-5%
77
10%
% Change
6.20%
11.60%
-32.32%
-85.05%
-154.55%
The Company reported Consolidated Service Income of P839 million for the 2nd quarter of 2008, or a growth of 6%
compared to P790 million in the same period last year. Gross profit margin is up to 48% this 2nd quarter from 46% same
quarter last year. There are no direct costs associated with the provision of salary packaging services and as such salary
packaging costs are booked in operating expenses.
3
This is net income attributable to equity holders.
30
For the six months ended June 30, 2008 compared to June 30, 2007

Summary Profit and Loss
For the six months ended June 30
In Million Pesos
Service Income
Gross Profit
EBITDA
Income from Operations
Net Income4
Amount
1,681
789
309
78
4
Six months ended June 30
2008
2007
% to Sales
Amount
% to Sales
100%
1,598
100%
47%
763
48%
18%
453
28%
5%
283
18%
0.2%
216
14%
% Change
5.19%
3.41%
-31.79%
-72.44%
-98.15%
Consolidated Service income for the six months ended 2008 increased by 5% to P1,681 million from P1,598 million in 2007
of the same period.
Gross Profit increased slightly by 3% to P789 million this year while Income from Operations for the six month ended June
30, 2008 dropped by 72% compared to 2007 of the same period. Gross profit margin decreased by 1% to 47%. EBITDA
margin and Operating Income margin for 2008 decreased by 36% and 72% to 18% and 5%, respectively.
Consolidated net income for the six months reported P4 million or 98% lower than last year. Net income ratio dropped to
0.2% from 14% last year.
Earnings per share (EPS) for 2008 declined by 98% to P0.004 per share from last year’s P0.24 per share.
The following are the highlights of the performance of the individual business entities:
A.
Advanced Contact Solutions, Inc.
The call center business, which accounted for 61% of the Paxys Group’s revenues, reported service revenues of P1.02
billion or an 18% decrease from last year’s P1.24 billion. This is due to decrease in volume hours to 2.6 million in 2008
from 4.0 million in 2007.
Gross Profit and Income from Operations for the 1st half of 2008 dropped by 43% and 143%, respectively, compared to
2007 of the same period due to decline in service income of ACS. Gross profit margin reduced to 23% from 33%.
EBITDA margin and Operating Income margin for 2008 dropped also by 57% and 156% to 13% and -9%, respectively.
ACS posted Net Loss of (P30) million in 2008 which is 115% lower than the net income achieved the previous year.
B. SmartSalary Pty. Ltd.
SmartSalary posted revenue of AUD12.4 million for the first half of 2008 or a 38% increase from last year’s AUD9.0
million. The growth in revenue is mainly driven by increase in number of clients to 75,086 from 67,472 last year.
Revenue from salary packaging accounted for 29% of the consolidated service income for the six months ended June 30,
2008, as compared to 22% in the same period in 2007.
EBITDA margin and Operating Income margin increased to 43% and 40% from 41% and 38%, respectively.
Net income ratio dropped to 26% from 27%. The slight decrease was due to incentives given to employees during the
first half of the year.
4
This is net income attributable to equity holders.
31
C. ScopeWorks Asia, Inc.
SWA revenue grew by 233% to P29.7 million from P9.3 million of the same period last year. The increase was due to
voice-to-text project which started late last year.
D. Stellar Global Solutions Phils., Inc.
SGSPI started its commercial operation on September 2007. It posted a service income of P199 million for the six
months ended 2008. Paxys recognized 50% of its equity which contributed to about 6% of the consolidated revenue.
FINANCIAL CONDITION
(In Thousand Pesos unless otherwise stated)
As of June 30,
As of December
2008
31, 2007
Balance Sheet Data:
Total Current Assets
Total Noncurrent Assets
Total Assets
Total Current Liabilities
Total Noncurrent Liabilities
Total Stockholders’ Equity
2,134,099
3,262,286
5,396,385
1,902,979
759,867
2,733,539
1,992,492
3,080,244
5,072,736
1,838,487
682,228
2,552,021
Y08 vs Y07
% change
7.11%
5.91%
6.38%
3.51%
11.38%
7.11%
The major changes in the balance sheet items from December 31, 2007 to June 30, 2008 are as follows:

Cash and cash equivalents increased by 46% or P245 million coming mainly from operations.

Trade and other receivables decreased by 11% or P117 million due to collections of the receivables related to chapter 11
of our marketing partner as previously reported. As of June 30, 2008, it has emerged from chapter 11.

Advances to related parties - current increased by 64% or P35 million due to charges made by ACS to Stellar relating to
the latter’s use of ACS facilities.

Input Tax and other current assets increased by 29% or P73 million due to input VAT from various purchases of ACS.

Property and equipment – net of accumulated depreciation decreased by 8% or P103 million. This was attributable to
increase in depreciation to P231 million in 2008 from P170 million in 2007 and decrease in acquisitions to P117 million
in 2008 from P164 million in 2007.

Intangibles which are principally Goodwill from acquisition of SmartSalary, increased by 16% or P272 million due to
appreciation of the AUD to P43.0346 from P36.3039. Increase was also due to addition in software development cost of
GIC amounting to P27 million.

Advances to related parties – noncurrent portion increased by 5% or P2.6 million due to accretion of interest.

Other noncurrent assets increased by 13% or P5 million from refundable deposits, creditable withholding taxes and
other investments of GIC.

The decrease in short-term loans by 10% or P123 million was due to payment of loan made by ACS.

Current portion of long-term loans increased by 33% or P19 million from the AUD loan of Paxys Australia that are
maturing in one year. Also contributing to the increase was the appreciation of the AUD.

Accounts payable and other current liabilities increased by 34% or P180 million due to increase in accrued expenses and
statutory payables of ACS to P209 million and P59 million in 2008 from P163 million and 39 million in 2007,
respectively. The increase is also attributable to increase in short term provisions made by SmartSalary.
32
LIQUIDITY AND CAPITAL RESOURCES
The Company’s primary source of liquidity is the cash generated from operations. A brief summary of cash flow movements
is shown below:
(In Thousand Pesos unless otherwise stated)
For the six months ended 30 June
Other Data:
Net Cash provided by Operating Activities
Net Cash used in Investing Activities
Net Cash used in Financing Activities
2008
2007
561,010
(165,265)
(210,121)
Y08 vs Y07
% change
66,773
(182,352)
173,333
740%
-9.37%
-221%
Net cash provided by operating activities for the period amounting to P561 million basically consists of the income for the
period less the non-cash items and the changes in non-cash current assets and current liabilities.
Net cash used in investing activities includes the following:
a)
acquisitions of equipment used in operations and renovations of leased properties;
b)
acquisition of additional 40% investment in SWA;
c)
advances to related parties; and
d)
increase in refundable deposits for new leased properties.
Net cash used in financing activities in the first half of 2008 includes payment of loans made by ACS and Paxys Australia.
The Company’s management believes that the current level of cash generated from operations and the borrowing capability
are sufficient to meet the Company’s immediate future cash needs. The Company does not anticipate any liquidity problems
that may arise from its operating activities in the near future.
Key Performance Indicators (KPI’s)
The Company’s management uses the following KPIs:
1) Net Service Income
:
Service Income less discounts and allowances
2) Gross Profit Margin
:
Gross profit/Service Income
3) EBITDA
:
Earnings Before Interest, Taxes, Depreciation and Amortization
4) EBITDA Margin
:
EBITDA/Service Income
5) Income from Operations
:
Gross Profit – Operating Expenses
6) Net Income Margin
:
Net Income/Service Income
7) Return on Equity
:
Net Income/(Equity end + Equity beg – Net Income)/2
8) Current Ratio
:
Current Assets/Current Liabilities
33
The following are the major financial ratios of the Company for the three months ended June 30, 2008 and year ended
December 31, 2007:
2008
(Six months)
Financial Ratios:
Current Ratio
Debt to Equity Ratio
Return on Equity5
EBITDA Margin
Net Profit margin
1.12:1
49:51
0.43%
18%
0.2%
2007
(full year)
1.08:1
50:50
10%
18%
7%
Y08 vs Y07
% change
4%
-2%
-96%
-%
-97%
OTHER MATTERS
a.
Contingencies
Paxys or formerly known as Fil-Hispano has on September 30, 2005 filed a Petition for Review with the Court of Tax
Appeals to contest the BIR’s assessments for alleged deficiency withholding and documentary stamp taxes in
connection with two (2) Deeds of Sale of real property which Fil-Hispano executed in favor of Ellimac Prime Holdings,
Inc., on December 14, 2001 and March 4, 2003, respectively.
The amounts assessed, inclusive of penalties accrued to date, are P2,445,039.65 and P10,874,055.71, on the first and
second sale, respectively. The BIR Regional Office No. 5, which issued the assessments, asserts that deficiency
withholding taxes and DST are due on the ground that the properties sold were commercial rather than industrial; hence,
the zonal value for commercial property should have been applied in the computation of the taxes due on the sales.
The Company and its legal counsel estimated that the eventual liabilities of these assessments are estimated at P3.8
million.
On June 25, 2007, the Second Division of the CTA rendered a Decision dismissing the Parent Company’s “Petition for
Review” dated September 30, 2005 on the ground of lack of jurisdiction. The Parent Company filed a Motion for
Reconsideration (Motion) on July 18, 2007. The CTA Second Division (2nd Div.) in a Resolution dated November 20,
2007 denied said Motion. On December 20, 2007, the Parent Company filed a Petition with the CTA En Banc
questioning the aforementioned Decision and Resolution of the 2nd Div. The said Petition is still pending as of May 15,
2008. Pursuant to an Application for Compromise Settlement with the BIR, the Parent Company in 2007 paid BIR the
amount of P
=3.84 million which is equivalent to 40% of the basic taxes assessed, which amount is also equal to the
amount accrued in prior year.
b.
Commitments
On March 18, 2008, the Company entered into Investment Agreement (the Agreement) with Ubaldo Reidenbach
Solutions, Inc. (URSI) and its key employee.
URSI is primarily a vendor of retail point of sales solutions. In 2006, it shifted its core business into Information and
Technology consultancy. Its main business now involves training, implementation and/or support in these technologies.
On March 18, 2008, the Company has agreed to subscribe for and URSI has agreed to sell, issue and deliver to Paxys
41,670 shares of the capital stock of URSI representing 62.50% of the total issued and outstanding capital stock of
URSI. Subscription shall be divided into two (2) Tranche (Tranche A and B). Under Tranche A, the Company shall
subscribe to 27,100 shares at P
=240 per share. Under Tranche B, the Company shall subscribe to 14,570 shares at P
=240
per share. The number of shares under Tranche B shall be decreased to 8,742 shares and the subscription price shall be
5
Annualized based on June 30, 2008 Results.
34
subject to post-closing price adjustment upon URSI achieving the gross profit of P
=5.15 million for the year ended
December 31, 2008
Also, on March 31, 2008, the Company signed a joint venture agreement with WNS Global Services Netherlands
Cooperative U.A. Netherlands, a member of the WNS (Holdings) Limited Group (WNS Group). The WNS Group is a
global business process outsourcing provider based in Mumbai, India with presence in the United States of America,
United Kingdom, Sri Lanka, and Romania. WNS (Holdings) Limited is listed in the New York Stock Exchange. The
joint venture agreement is for the formation and operation of a BPO joint venture company in the Philippines. To be
known as WNS Philippines, Inc., the joint venture company shall offer an entire range of BPO services to global clients
across industries. The WNS Group is initially putting in about US$300,000.00 million representing 65% in the joint
venture company while the Company’s investment is around US$170,000.00 million, equivalent to a 35% stake.
These will be funded by operations and short-term loans as needed.
c.
There were no material off-balance sheet transactions, arrangements, obligations (including contingent obligations), and
other relationship of the Company with unconsolidated entities or other persons during the reporting period.
d.
There are no unusual items as to nature and amount affecting assets, liabilities, equity, net income or cash flows, except
those stated in Management’s Discussion and Analysis of Financial Conditions and Results of Operations.
e.
There were no known trends, demands, commitments, events or uncertainties that will have a material impact on the
Company’s liquidity.
f.
There were no known trends, events or uncertainties that have had or that are reasonably expected to have a favorable or
an unfavorable impact on net sales or revenue or income from continuing operation.
g.
The causes for any material change from period to period are stated under Management’s discussion and analysis
section “financial condition”.
h.
The effects of seasonality or cyclicality on the operations of the Company’s business are not material.
i.
There were no material changes in estimates of amounts reported in interim periods of the current year or changes in
estimates of amounts reported in prior financial years.
Key Variable and Other Qualitative and Quantitative Factors
Trends, Events, Uncertainties or Contingent Financial Obligation with Material Impact on Liquidity
The Company does not anticipate having liquidity problem within the next twelve (12) months since it has adequate amount
of cash to pay its maturing obligations and to support its working capital requirements.
35
Annex C
PAXYS, INC. And SUBSIDIARIES
CONSOLIDATED TRADE RECEIVABLES AGING SCHEDULE
As of June 30, 2008
Local
International
Less: Allowance for
Doubtful accounts
Net
Balance
06.30.08
=46,365,600
P
0-30 days
8,411,752
31-60 days
14,711,721
61-90 days
5,776,064
Over 90 days
17,466,063
588,065,116
634,430,716
229,303,142
237,714,894
201,073,018
215,784,739
156,942,301
162,718,365
746,655
18,212,718
(6,797,494)
=627,633,222
P
237,714,894
215,784,739
162,718,365
(6,797,494)
11,415,224