Gamania Digital Entertainment Co., Ltd. Financial

GAMANIA DIGITAL ENTERTAINMENT CO., LTD. FINANCIAL STATEMENTS AND REPORT OF INDEPENDENT ACCOUNTANTS

DECEMBER 31, 2009 AND 2008

For the convenience of readers and for information purpose only, the auditors’ report and the accompanying financial statements have been translated into English from the original Chinese version prepared and used in the Republic of China. In the event of any discrepancy between the English version and the original Chinese version or any differences in the interpretation of the two versions, the Chinese-language auditors’ report and financial statements shall prevail.

Report of Independent Accountants Translated from Chinese

PWCR09000120 To the Board of Directors and Stockholders of Gamania Digital Entertainment Co., Ltd. We have audited the accompanying balance sheets of Gamania Digital Entertainment Co., Ltd. as of December 31, 2009 and 2008, and the related statements of income, of

changes in stockholders’ equity and of cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our

responsibility is to express an opinion on these financial statements based on our audits. As described in Note 4(7), we did not audit the financial statements of certain investees accounted for under the equity method. These long-term investments amounted to $691,506 thousand and $662,757 thousand as of December 31, 2009 and 2008, respectively, and the related investment loss was $33,714 thousand and $28,140 thousand for the years then ended, respectively. The financial statements of these companies were audited by other auditors whose reports thereon have been furnished to us, and our opinion expressed herein, insofar as it relates to long-term investments in these companies, is based solely on the reports of the other auditors.

We conducted our audits in accordance with the “Rules Governing Examination of Financial Statements by Certified Public Accountants” and generally accepted auditing

standards in the Republic of China. Those rules and standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the reports of the other auditors provide a reasonable basis for our opinion.

In our opinion, based on our audits and the reports of the other auditors, the financial statements referred to above present fairly, in all material respects, the financial position of Gamania Digital Entertainment Co., Ltd. as of December 31, 2009 and 2008, and the results of its operations and its cash flows for the years then ended in conformity with the “Guidelines Governing the Preparation of Financial Reports by Securities Issuers”, “Business Entity Accounting Law”, “Regulation on Business Entity Accounting

Handling” and generally accepted accounting principles in the Republic of China.

～ 2 ～

As described in Note 3, Gamania Digital Entertainment Co., Ltd. adopted EITF 96-052,

“Accounting for Employees’ Bonuses and Directors’ and Supervisors’ Remuneration”

issued by the Accounting Research and Development Foundation in Taiwan on January 1, 2008. The Company recognizes the expense and the related liability when the obligation can be measured reliably.

We have also audited the consolidated financial statements of Gamania Digital Entertainment Co., Ltd. and subsidiaries (not presented herein) as of and for the years ended December 31, 2009 and 2008. In our report dated March 2, 2010, we expressed a modified unqualified opinion on the consolidated financial statements based on our audits and the reports of the other auditors.

PricewaterhouseCoopers, Taiwan March 2, 2010

The accompanying financial statements are not intended to present the financial position and results of operations and cash flows in accordance with accounting principles generally accepted in countries and jurisdictions other than the Republic of China. The standards, procedures and practices in the Republic of China governing the audit of such financial statements may differ from those generally accepted in countries and jurisdictions other than the Republic of China. Accordingly, the accompanying financial statements and report of the independent accountants are not intended for use by those who are not informed about the accounting principles or auditing standards generally accepted in the Republic of China, and their applications in practice. As the financial statements are the responsibility of the management, PricewaterhouseCoopers cannot accept any liability for the use of, or reliance on, the English translation or for any errors or misunderstandings that may derive from the translation.

～ 3 ～

GAMANIA DIGITAL ENTERTAINMENT CO., LTD.
BALANCE SHEETS DECEMBER 31,
(EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS)

2009

2008

2009

2008

ASSETS

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Assets

Current Liabilities

Cash and cash equivalents (Note 4(1)) Notes receivable – third parties – net (Note 4(2)) Notes receivable – related parties – net (Note 5(2)) Accounts receivable – third parties – net (Note 4(3)) Accounts receivable – related parties – net (Note 5(2)) Other receivables – third parties – net (Notes 4(4) and (13)) Other receivables – related parties (Note 5(2)) Inventories – net (Note 4(5))

$

531,119

112,700
-
809,476
2,098
170,714
34,420 54,312
9,811
48,660
1,773,310
$

387,099 Short-term loans (Note 4(12))
69,949 Notes payable – third parties
2,201 Accounts payable – third parties
692,093 Accounts payable – related parties (Note 5(2))
4,949 Income tax payable (Note 4(13))
100,971 Accrued expenses (Notes 4(17) and 5(2))
31,139 Other payables – related parties (Note 5(2)) 16,182 Other payables – third parties 11,931 Unearned revenue collected in advance 31,279 Other current liabilities

$

-

$

50,000

7,713
119,785
-
3,827
64,706 35,952 55,558
234,685
50,556
101,826
83,088 25,886
706,084
4,050
241,344
51,123
152,751 287,201
57,756
921,723

Prepaid expenses Deferred income tax assets – current (Note 4(13))

1,347,793

Long-term Investments Financial asset carried at cost – non-current (Note 4(6))

22,841

22,841 Other Liabilities
Accrued pension liabilities (Note 4(14))
688,978 Guarantee deposits

5,000
3,494 3,133
3,921 6,097

Long-term investments – accounted for under the equity method (Note 4(7)) Prepayments for long-term investments (Note 4(7))

756,575

4,880

6,627

928,350
10,018

716,102

784,296

716,819 Total Liabilities
Property, Plant and Equipment (Notes 4(8) and 6) Cost Land Buildings Machinery and equipment Office equipment Leasehold improvements Other equipment

147,751 159,552 407,544
47,051 25,198
1,024

147,751 Stockholders' Equity 157,216 Common stock

474,722

Common stock (Note 1)

1,604,951
12,437
1,587,827

-

44,583

Stock subscriptions received in advance (Note 4(20))
24,330 Capital reserve (Note 4(15))
965 Paid-in capital in excess of par

789,316
221
740,670
221

Cost

788,120 374,118)
1,841

849,567 Gain on disposal of property, plant and equipment

397,420)Retained earnings

Less: Accumulated depreciation

Construction in progress and prepayments for euipment

(

-

Legal reserve (Note 4(16)) Retained earnings (Notes 4(13) and (17))

Other adjustments to stockholders’ equity

Cumulative translation adjustments Unrealized net loss

86,730
395,413
61,214

257,544

415,843

452,147

Intangible Asset Other intangible assets – net (Note 4(9))

35,674
565)
370,182)
2,553,995
46,084
-
370,182)
2,323,378

-

(

Treasury stock (Note 4(19)) Total Stockholders' Equity

(

Other Assets Refundable deposits

9,291
450,700
41,747
7,158
10,663

Deferred charges (Notes 4(10) and 5(2)) Deferred income tax assets – non-current (Note 4(13)) Other assets –- other (Note 4(14))
347,011 Commitments and Contingent Liabilities (Notes 5(2) and 7)

158,891
6,156

508,896

522,721

TOTAL ASSETS

$

3,482,345

$

3,039,480 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

$

3,482,345

$

3,039,480

The accompanying notes are an integral part of these financial statements.
See report of independent accountants dated March 2, 2010.

～ 4 ～

STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31,

2009

2008

2,905,147

Operating revenues Sales revenue (Note 5(2)) Sales returns

$

3,624,837 $

64,420) ( 12,518) (
3,547,899
128,448
((
80,116) 31,296)
2,793,735
88,375
2,882,110

Sales allowances Net sales revenue Service revenue (Note 5(2)) Operating revenues

3,676,347

Operating costs Cost of goods sold (Notes 4(5), 4(21),
5(2) and 10(1))
Gross profit

(

1,876,282) (

1,800,065
1,531,362) 1,350,748

Operating expenses (Notes 4(21),5(2) and 10(1)) Selling expenses General and administrative expenses Research and development expenses Total operating expenses
Operating income

((((
448,444) ( 572,464) ( 195,737) (
1,216,645) (
583,420
367,444) 473,880) 168,826)
1,010,150)
340,598

Non-operating income Interest income Gain on adjustment of financial assets Foreign exchange gain

540 445
1,006 8,721
-
8,585 3,006
-
4,878 7,000
18,033 54,546 96,048

Rental income (Note 5(2)) Gain on recovery of bad debts Gain on recovery of impairment (Note 4(11)) Miscellaneous income (Note 5(2)) Total non-operating income
Non-operating expenses Interest expense Investment loss accounted for under the equity method (Note 4(7)) Loss on disposal of property, plant and equipment ( Foreign exchange loss Miscellaneous losses Total non–operating expenses
Income before income tax Income tax expense (Note 4(13)) Net income

-
14,748 25,460

((

897) (

999)

171,920) (
273) (
-) (
15,093) (
188,183) ( 420,697
116,552)
13)
182)
6,972)
124,718) 311,928
51,879)
260,049
(((

(

101,889) (

318,808 $

$

2009

2008

Before income tax After income tax Before income tax After income tax
Basic earnings per share
(in dollars) (Note 4(18)) Net income

$$
2.87 $ 2.76 $
2.18 $ 2.09 $
2.04 $ 2.02 $
1.70 1.69

Diluted earnings per share
(in dollars) (Note 4(18)) Net income

～ 5 ～

STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS)

Common Stock
Stock

Capital Reserve

Retained Earnings

Financial

Instruments’

Unrealized
Gain
Subscription Receive in Advance

-

Capital Surplus from

Cumulative

Translation Adjustments
Paid-in Capital in Excess of Par
Gain on Disposal of Assets
Retained Earnings

371,621

Unrealized

net loss

Common Stock

Legal Reserve

24,132

Treasury Stock

Total

Balance at January 1, 2008

$ 1,530,678

$

740,670

$

221

$

92

$

24,282

$

-

($ 200,788)

$ 2,490,908

Distribution of 2007 earnings: Legal reserve

-

-------
-----
-----
37,082 (
- (
37,082)
7,061)
50,088)
6,678)
268,333) 260,049
-
--------

-

----
------
---

Capital increase from retained earnings

Capital increase from employees’ bonuses Directors’ and supervisors’ remuneration

Cash dividends

7,061

-

50,088

- (

-

-----

- (

-

(

6,678)

268,333) 260,049 169,394)
21,802

- (

-

(

Net income for 2008

--

Acquisition of treasury stock Cumulative translation adjustments Effect of change in ownership percentage of investee company

--
--
--
--

(

169,394)

-
(

-

21,802

-

- (

4,884)

-

(

(
4,884)

Effect of investee's unrealized loss on financial instruments

-

(

92)

-

92)

Balance at December 31, 2008

$ 1,587,827

$

740,670

$

221

$

$
61,214 61,214
-

$

257,544

$

$
$$

46,084

$

$
---

($

370,182)

$ 2,323,378

$ 2,323,378
78,207

Balance at January 1, 2009

$ 1,587,827
17,124

$

-

740,670

48,646
221
-

$

257,544

-
--
46,084
-
($ 370,182)
-

Employee stock options to be exercised Distribution of 2008 earnings (Note): Legal reserve

12,437
----
----
----
----

25,516 (

25,516)

145,807) 318,808
-
---

-

---
----
-
145,807) 318,808

Cash dividends

- (

-

-
(

Net income for 2009

--

Cumulative translation adjustments Effect of change in ownership percentage of investee company

- (

10,410)

(

((
10,410)
9,616)
565)

-

- (

9,616)

-

Effect of investee’s unrecognized pension

cost

-

(

565)

Balance at December 31, 2009

$ 1,604,951

$

12,437

$

789,316

$

221

$

86,730

$

395,413

$

35,674

($

565) ($

370,182)

$ 2,553,995

Note: The amount of directors’ and supervisors’remuneration and employees’ bonuses are $4,600 and $23,500 for 2008 had been deducted in the current income statement.

～ 6 ～

STATEMENTS OF CASH FLOWS

2009

2008

260,049

Cash flows from operating activities Net income

$

318,808

$

Adjustments to reconcile net income to net cash provided by operating activities: Provision (reversal of allowance) for sales returns Provision (reversal of allowance) for doubtful accounts Provision for decline in market value of inventories Investment loss accounted for under the equity method Depreciation and amortization Loss on disposal of property, plant and equipment Deferred charges charged to other loss Changes in assets and liabilities
(Increase) decrease in:

1,951 (

4,673)

7,000) 4,239
7,829 ( 7,843

171,920

116,552

239,340
306,938

273

13

5,191 1,352
18,963 99,763

Notes receivable - third parties Notes receivable - related parties Accounts receivable - third parties Accounts receivable - related parties Other receivables - third parties Other receivables - related parties Inventories

((

42,751)

18,382

787)

2,201 (

124,688) (
2,851 (
72,218) (
3,281) (
45,973) (
1,388) ( 1,002) (
5,149) 4,270) 5,270)
13,825) 11,408)
1,410) 3,274)
(((((

Prepaid expenses Deferred income tax assets
Increase (decrease) in:
Notes payable - third parties

3,886 (
55,079 ( 35,952) ( 51,508)
115,866)
20,229)
4,614)
48,181 80,188 25,151
9,691)
38,671
2,146)
672

Accounts payable - third parties Accounts payable - related parties Income tax payable

((

Accrued expenses

6,659