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) <ul style="display: flex;"><li style="flex:1">2009 </li><li style="flex:1">2008 </li><li style="flex:1">2009 </li><li style="flex:1">2008 </li></ul><ul style="display: flex;"><li style="flex:1">ASSETS </li><li style="flex:1">LIABILITIES AND STOCKHOLDERS' EQUITY </li></ul><ul style="display: flex;"><li style="flex:1">Current Assets </li><li style="flex:1">Current Liabilities </li></ul>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)) <ul style="display: flex;"><li style="flex:1">$</li><li style="flex:1">531,119 </li></ul>112,700 - 809,476 2,098 170,714 34,420 54,312 9,811 48,660 1,773,310 $387,099 Short-term loans (Note 4(12)) 69,949 Notes payable – third parties 2,201 Accounts payable – third parties 692,093 Accounts payable – related parties (Note 5(2)) 4,949 Income tax payable (Note 4(13)) 100,971 Accrued expenses (Notes 4(17) and 5(2)) 31,139 Other payables – related parties (Note 5(2)) 16,182 Other payables – third parties 11,931 Unearned revenue collected in advance 31,279 Other current liabilities <ul style="display: flex;"><li style="flex:1">$</li><li style="flex:1">-</li><li style="flex:1">$</li><li style="flex:1">50,000 </li></ul>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 <ul style="display: flex;"><li style="flex:1">4,880 </li><li style="flex:1">6,627 </li></ul>928,350 10,018 <ul style="display: flex;"><li style="flex:1">716,102 </li><li style="flex:1">784,296 </li></ul>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 <ul style="display: flex;"><li style="flex:1">-</li><li style="flex:1">44,583 </li></ul>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 <ul style="display: flex;"><li style="flex:1">397,420)Retained earnings </li><li style="flex:1">Less: Accumulated depreciation </li></ul>Construction in progress and prepayments for euipment <ul style="display: flex;"><li style="flex:1">(</li><li style="flex:1">(</li></ul>-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 <ul style="display: flex;"><li style="flex:1">257,544 </li><li style="flex:1">415,843 </li><li style="flex:1">452,147 </li></ul>Intangible Asset Other intangible assets – net (Note 4(9)) 35,674 565) 370,182) 2,553,995 46,084 - 370,182) 2,323,378 <ul style="display: flex;"><li style="flex:1">-</li><li style="flex:1">-</li><li style="flex:1">(</li></ul>(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 <ul style="display: flex;"><li style="flex:1">508,896 </li><li style="flex:1">522,721 </li></ul>TOTAL ASSETS <ul style="display: flex;"><li style="flex:1">$</li><li style="flex:1">3,482,345 </li><li style="flex:1">$</li></ul>3,039,480 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY <ul style="display: flex;"><li style="flex:1">$</li><li style="flex:1">3,482,345 </li><li style="flex:1">$</li><li style="flex:1">3,039,480 </li></ul>The accompanying notes are an integral part of these financial statements. See report of independent accountants dated March 2, 2010. ～ 4 ～ GAMANIA DIGITAL ENTERTAINMENT CO., LTD. STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS) <ul style="display: flex;"><li style="flex:1">2009 </li><li style="flex:1">2008 </li></ul>2,905,147 Operating revenues Sales revenue (Note 5(2)) Sales returns <ul style="display: flex;"><li style="flex:1">$</li><li style="flex:1">3,624,837 $ </li></ul>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 <ul style="display: flex;"><li style="flex:1">(</li><li style="flex:1">1,876,282) ( </li></ul>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 ((<ul style="display: flex;"><li style="flex:1">897) ( </li><li style="flex:1">999) </li></ul>171,920) ( 273) ( -) ( 15,093) ( 188,183) ( 420,697 116,552) 13) 182) 6,972) 124,718) 311,928 51,879) 260,049 (((<ul style="display: flex;"><li style="flex:1">(</li><li style="flex:1">101,889) ( </li></ul><ul style="display: flex;"><li style="flex:1">318,808 $ </li><li style="flex:1">$</li></ul><ul style="display: flex;"><li style="flex:1">2009 </li><li style="flex:1">2008 </li></ul>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 The accompanying notes are an integral part of these financial statements. See report of independent accountants dated March 2, 2010. ～ 5 ～ GAMANIA DIGITAL ENTERTAINMENT CO., LTD. STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS) Common Stock Stock <ul style="display: flex;"><li style="flex:1">Capital Reserve </li><li style="flex:1">Retained Earnings </li></ul>Financial Instruments’ Unrealized Gain Subscription Receive in Advance -<ul style="display: flex;"><li style="flex:1">Capital Surplus from </li><li style="flex:1">Cumulative </li></ul>Translation Adjustments Paid-in Capital in Excess of Par Gain on Disposal of Assets Retained Earnings 371,621 Unrealized <ul style="display: flex;"><li style="flex:1">net loss </li><li style="flex:1">Common Stock </li><li style="flex:1">Legal Reserve </li></ul>24,132 <ul style="display: flex;"><li style="flex:1">Treasury Stock </li><li style="flex:1">Total </li></ul>Balance at January 1, 2008 <ul style="display: flex;"><li style="flex:1">$ 1,530,678 </li><li style="flex:1">$</li><li style="flex:1">$</li><li style="flex:1">740,670 </li><li style="flex:1">$</li><li style="flex:1">221 </li><li style="flex:1">$</li><li style="flex:1">$</li><li style="flex:1">$</li><li style="flex:1">92 </li><li style="flex:1">$</li><li style="flex:1">24,282 </li><li style="flex:1">$</li><li style="flex:1">-</li><li style="flex:1">($ 200,788) </li><li style="flex:1">$ 2,490,908 </li></ul>Distribution of 2007 earnings: Legal reserve <ul style="display: flex;"><li style="flex:1">-</li><li style="flex:1">-</li></ul>------- ----- ----- 37,082 ( - ( 37,082) 7,061) 50,088) 6,678) 268,333) 260,049 - --------<ul style="display: flex;"><li style="flex:1">-</li><li style="flex:1">-</li></ul>---- ------ ---Capital increase from retained earnings Capital increase from employees’ bonuses Directors’ and supervisors’ remuneration Cash dividends <ul style="display: flex;"><li style="flex:1">7,061 </li><li style="flex:1">-</li></ul><ul style="display: flex;"><li style="flex:1">50,088 </li><li style="flex:1">- ( </li><li style="flex:1">-</li></ul>-----<ul style="display: flex;"><li style="flex:1">- ( </li><li style="flex:1">-</li><li style="flex:1">(</li><li style="flex:1">6,678) </li></ul>268,333) 260,049 169,394) 21,802 <ul style="display: flex;"><li style="flex:1">- ( </li><li style="flex:1">-</li><li style="flex:1">(</li></ul>Net income for 2008 --Acquisition of treasury stock Cumulative translation adjustments Effect of change in ownership percentage of investee company -- -- -- --<ul style="display: flex;"><li style="flex:1">(</li><li style="flex:1">169,394) </li></ul>- (<ul style="display: flex;"><li style="flex:1">-</li><li style="flex:1">21,802 </li></ul><ul style="display: flex;"><li style="flex:1">-</li><li style="flex:1">-</li><li style="flex:1">-</li><li style="flex:1">-</li><li style="flex:1">- ( </li><li style="flex:1">4,884) </li><li style="flex:1">-</li><li style="flex:1">-</li><li style="flex:1">-</li><li style="flex:1">-</li><li style="flex:1">(</li></ul>( 4,884) Effect of investee's unrealized loss on financial instruments <ul style="display: flex;"><li style="flex:1">-</li><li style="flex:1">-</li></ul>-<ul style="display: flex;"><li style="flex:1">-</li><li style="flex:1">-</li><li style="flex:1">-</li><li style="flex:1">-</li><li style="flex:1">(</li><li style="flex:1">92) </li></ul>-<ul style="display: flex;"><li style="flex:1">-</li><li style="flex:1">-</li><li style="flex:1">-</li><li style="flex:1">92) </li></ul>Balance at December 31, 2008 <ul style="display: flex;"><li style="flex:1">$ 1,587,827 </li><li style="flex:1">$</li><li style="flex:1">$</li></ul>$<ul style="display: flex;"><li style="flex:1">740,670 </li><li style="flex:1">$</li></ul>$<ul style="display: flex;"><li style="flex:1">221 </li><li style="flex:1">$</li></ul>$ 61,214 61,214 -<ul style="display: flex;"><li style="flex:1">$</li><li style="flex:1">257,544 </li><li style="flex:1">$</li></ul>$ $$<ul style="display: flex;"><li style="flex:1">46,084 </li><li style="flex:1">$</li></ul>$ ---<ul style="display: flex;"><li style="flex:1">($ </li><li style="flex:1">370,182) </li><li style="flex:1">$ 2,323,378 </li></ul>$ 2,323,378 78,207 Balance at January 1, 2009 $ 1,587,827 17,124 <ul style="display: flex;"><li style="flex:1">$</li><li style="flex:1">-</li><li style="flex:1">740,670 </li></ul>48,646 221 -<ul style="display: flex;"><li style="flex:1">$</li><li style="flex:1">257,544 </li></ul>- -- 46,084 - ($ 370,182) -Employee stock options to be exercised Distribution of 2008 earnings (Note): Legal reserve 12,437 ---- ---- ---- ----<ul style="display: flex;"><li style="flex:1">25,516 ( </li><li style="flex:1">25,516) </li></ul>145,807) 318,808 - ---<ul style="display: flex;"><li style="flex:1">-</li><li style="flex:1">-</li></ul>--- ---- - 145,807) 318,808 Cash dividends <ul style="display: flex;"><li style="flex:1">- ( </li><li style="flex:1">-</li></ul>- (Net income for 2009 --Cumulative translation adjustments Effect of change in ownership percentage of investee company <ul style="display: flex;"><li style="flex:1">- ( </li><li style="flex:1">10,410) </li><li style="flex:1">(</li></ul>(( 10,410) 9,616) 565) <ul style="display: flex;"><li style="flex:1">-</li><li style="flex:1">-</li><li style="flex:1">-</li><li style="flex:1">-</li><li style="flex:1">- ( </li><li style="flex:1">9,616) </li><li style="flex:1">-</li><li style="flex:1">-</li><li style="flex:1">-</li><li style="flex:1">-</li></ul>-Effect of investee’s unrecognized pension cost <ul style="display: flex;"><li style="flex:1">-</li><li style="flex:1">-</li><li style="flex:1">-</li><li style="flex:1">-</li><li style="flex:1">-</li><li style="flex:1">-</li><li style="flex:1">-</li></ul>-<ul style="display: flex;"><li style="flex:1">-</li><li style="flex:1">(</li><li style="flex:1">565) </li></ul>Balance at December 31, 2009 <ul style="display: flex;"><li style="flex:1">$ 1,604,951 </li><li style="flex:1">$</li><li style="flex:1">12,437 </li><li style="flex:1">$</li><li style="flex:1">789,316 </li><li style="flex:1">$</li><li style="flex:1">221 </li><li style="flex:1">$</li><li style="flex:1">86,730 </li><li style="flex:1">$</li><li style="flex:1">395,413 </li><li style="flex:1">$</li><li style="flex:1">$</li><li style="flex:1">35,674 </li><li style="flex:1">($ </li><li style="flex:1">565) ($ </li><li style="flex:1">370,182) </li><li style="flex:1">$ 2,553,995 </li></ul>Note: The amount of directors’ and supervisors’remuneration and employees’ bonuses are $4,600 and $23,500 for 2008 had been deducted in the current income statement. The accompanying notes are an integral part of these financial statements. See report of independent accountants dated March 2, 2010. ～ 6 ～ GAMANIA DIGITAL ENTERTAINMENT CO., LTD. STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS) <ul style="display: flex;"><li style="flex:1">2009 </li><li style="flex:1">2008 </li></ul>260,049 Cash flows from operating activities Net income <ul style="display: flex;"><li style="flex:1">$</li><li style="flex:1">318,808 </li><li style="flex:1">$</li></ul>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: <ul style="display: flex;"><li style="flex:1">1,951 ( </li><li style="flex:1">4,673) </li></ul>7,000) 4,239 7,829 ( 7,843 <ul style="display: flex;"><li style="flex:1">171,920 </li><li style="flex:1">116,552 </li></ul>239,340 306,938 <ul style="display: flex;"><li style="flex:1">273 </li><li style="flex:1">13 </li></ul>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 ((<ul style="display: flex;"><li style="flex:1">42,751) </li><li style="flex:1">18,382 </li></ul><ul style="display: flex;"><li style="flex:1">787) </li><li style="flex:1">2,201 ( </li></ul>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 Other payables - third parties 43,987 Other payables - related parties Unearned revenue collected in advance Other current liabilities 567 ( 204,113 31,870 ( 427) Accrued pension liabilities (Net cash provided by operating activities (Continued on next page) <ul style="display: flex;"><li style="flex:1">906,313 </li><li style="flex:1">628,369 </li></ul>～ 7 ～ GAMANIA DIGITAL ENTERTAINMENT CO., LTD. STATEMENTS OF CASH FLOWS (CONTINUED) FOR THE YEARS ENDED DECEMBER 31, (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS)

Gamania Digital Entertainment Co., Ltd. Financial

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