Philippines Founding Father Emilio Aguinaldo, while in exile from Spain in Hong Kong, conceived the flag. The flag incorporated various components of other Filipino flags and was designed to represent the Filipino rebellion against their Spanish colonizers. Aguinaldo soon came back to the Philippines with the flag, and upon the country's declaration of independence from Spain, Aguinaldo appeared on his balcony and let his rebel flag fly, a scene reenacted throughout the Philippines on its independence day. Spain gave the Philippines to America, the Filipinos rebelled against America, war broke out, and Aguinaldo was captured along with the flag. What happened to it is unknown, although speculation is that Gen. Frederick Funston, he of Fort Funston fame, captured the flag and brought it back with him. You know, kind of like when Greg Brady stole his rival high school's mascot and brought it back to his groovy bachelor pad in the attic.
Well, one day, Rudy Asercion, a member of the War Memorial Commission of the American Legion, was looking through a rarely used trophy case when he stumbled upon the faded red, white and blue banner that just might be the flag. When he began to suspect what he had found was the original, he quickly notified Philippine officials, the Board of Supervisors passed a resolution, and a bunch of experts flew out to examine it. Most clues point to it being the one, but tests still need to be run to make sure. For obvious reasons, the throwing of it into the fire to see if it has Elven script is being ruled out.
Image of Rudy & the piece of cloth from SFGate