##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 20-F
  o
    
    REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934
 or
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2010.
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 or
 o
    
    SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 Date of event requiring this shell company report
 Commission file number: 001-34454
 Shanda Games Limited
 (Exact name of Registrant as specified in its charter)
 N/A  (Translation of Registrants name into English)
 Cayman Islands  (Jurisdiction of incorporation or organization)
 No. 1 Office Building
No. 690 Bibo Road
Pudong New Area
Shanghai, China 201203
The Peoples Republic of China  (Address of principal executive offices)
 Qunzhao Tan, Chief Executive Officer
No. 1 Office Building
No. 690 Bibo Road
Pudong New Area
Shanghai, China 201203
The Peoples Republic of China
Telephone: +(86 21) 5050-4740
Facsimile: +(86 21) 5080-5132
 (Name, Telephone, Email and/or Facsimile number and Address of Company Contact Person)
 Securities registered or to be registered pursuant to Section 12(b) of the Act:
 Title of Each Class
    
    Name of Each Exchange on Which RegisteredClass A ordinary shares, par value US$0.01 per share
    
    The NASDAQ Stock Market*
(The NASDAQ Global Select Market)
 *
    
    Not for trading, but only in connection with the listing on the
NASDAQ Global Select Market of American Depositary Shares representing
such Class A Ordinary Shares
 Securities registered or to be registered pursuant to Section 12(g) of the Act:
None  (Title of Class)
 Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
None  (Title of Class)
  o Yes þ No
 o þ
 þ o
  o Large accelerated filer
    
    þ Accelerated filer
    
    o Non-accelerated filer
  þ U.S. GAAP
    
    International Financial Reporting Standards as issued by the International Accounting Standard Boards
    
    o Other
 o o
 o þ




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##### 



TABLE OF CONTENTS
 PageSpecial Note Regarding Forward-Looking Statements
    
    
    3Certain Conventions
    
    
    3Part IItem 1. Identity of Directors, Senior Management and Advisors
    
    
    5Item 2. Offer Statistics and Expected Timetable
    
    
    5Item 3. Key Information
    
    
    5Item 4. Information on the Company
    
    
    34Item 4A. Unresolved Staff Comments
    
    
    49Item 5. Operating and Financial Review and Prospects
    
    
    49Item 6. Directors, Senior Management and Employees
    
    
    67Item 7. Major Shareholders and Related Party Transactions
    
    
    71Item 8. Financial Information
    
    
    76Item 9. The Offer and Listing
    
    
    76Item 10. Additional Information
    
    
    77Item 11. Quantitative and Qualitative Disclosures About Market Risk
    
    
    83Item 12. Description of Securities Other Than Equity Securities
    
    
    84Part IIItem 13. Defaults, Dividend Arrearages and Delinquencies
    
    
    84Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds
    
    
    84Item 15. Controls and Procedures
    
    
    84Item 16A. Audit Committee Financial Expert
    
    
    85Item 16B. Code of Ethics
    
    
    85Item 16C. Principal Accountant Fees and Services
    
    
    85Item 16D. Exemptions from the Listing Standards for Audit Committees
    
    
    85Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers
    
    
    86Item 16F. Change in Registrants Certifying Accountant
    
    
    86Item 16G. Corporate Governance
    
    
    86Part IIIItem 17. Financial Statements
    
    
    86Item 18. Financial Statements
    
    
    86Item 19. Exhibits
    
    
    87Exhibit 4.25Exhibit 4.26Exhibit 8.1Exhibit 12.1Exhibit 12.2Exhibit 13.1Exhibit 13.2Exhibit 15.1Exhibit 15.2
   2




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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
  
    
    our goals and strategies;
 
    
    our future business development, financial condition and results of operations;
 
    
    our projected revenues, earnings, profits and other estimated financial information;
 
    
    expected changes in our margins and certain costs or expenditures;
 
    
    our plans to expand and diversify the sources of our revenues;
 
    
    expected changes in the respective shares of our revenues from particular sources;
 
    
    our plans for staffing, research and development and regional focus;
 
    
    the projected economic lifespan of our current games, and our plans to launch games and
to develop new games in-house or license additional games from third parties, including the
timing of any such launches, development or licenses;
 
    
    our plans for strategic partnerships with other businesses;
 
    
    our acquisition strategy, and our ability to successfully integrate past or future
acquisitions with our existing operations;
 
    
    competition in the PRC online game industry;
 
    
    the outcome of ongoing, or any future, litigation or arbitration;
 
    
    the outcome of our annual evaluation as to our status as a passive foreign investment
company;
 
    
    the expected growth in the number of Internet and broadband users in China, growth of
personal computer penetration and developments in the ways most people in China access the
Internet;
 
    
    changes in PRC governmental preferential tax treatment and financial incentives we
currently qualify for and expect to qualify for; and
 
    
    PRC governmental policies relating to media and the Internet and Internet content
providers and to the provision of advertising over the Internet.
  
 CERTAIN CONVENTIONS
  
 
  3




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
 
 
 
 
 
 
    4




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PART I
 
 Item 1.
    
    IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS
  
 Item 2.
    
    OFFER STATISTICS AND EXPECTED TIMETABLE
  
 Item 3.
    
    KEY INFORMATION
 A. SELECTED FINANCIAL DATA
  For the Year Ended December 31,2007
    
    
    2008
    
    
    2009
    
    
    2010(in millions)RMB
    
    
    RMB
    
    
    RMB
    
    
    RMB
    
    
    US$(1)Consolidated Statements of Operation and Comprehensive Income Data:Net revenues:MMORPG revenues(2)
    
    
    1,996.9
    
    
    
    2,948.5
    
    
    
    4,422.1
    
    
    
    4,018.3
    
    
    
    608.8Advanced casual game
revenues(3)
    
    
    278.9
    
    
    
    355.8
    
    
    
    305.6
    
    
    
    300.6
    
    
    
    45.5Other revenues(4)
    
    
    47.0
    
    
    
    72.5
    
    
    
    79.0
    
    
    
    185.8
    
    
    
    28.2Total net revenues
    
    
    2,322.8
    
    
    
    3,376.8
    
    
    
    4,806.7
    
    
    
    4,504.7
    
    
    
    682.5Cost of revenues:Third parties
    
    
    (492.0
    )
    
    
    (768.3
    )
    
    
    (1,049.3
    )
    
    
    (1,032.7
    )
    
    
    (156.4
    )Related parties
    
    
    (769.1
    )
    
    
    (721.1
    )
    
    
    (884.2
    )
    
    
    (804.5
    )
    
    
    (121.9
    )Total cost of revenues
    
    
    (1,261.1
    )
    
    
    (1,489.4
    )
    
    
    (1,933.5
    )
    
    
    (1,837.2
    )
    
    
    (278.3
    )Gross profit
    
    
    1,061.7
    
    
    
    1,887.4
    
    
    
    2,873.2
    
    
    
    2,667.5
    
    
    
    404.2Operating expenses:Product development
    
    
    (136.4
    )
    
    
    (238.8
    )
    
    
    (339.8
    )
    
    
    (465.8
    )
    
    
    (70.6
    )Sales and marketingThird parties
    
    
    (125.4
    )
    
    
    (124.4
    )
    
    
    (206.7
    )
    
    
    (275.3
    )
    
    
    (41.7
    )Related parties
    
    
    
    
    
    
    (80.1
    )
    
    
    (226.2
    )
    
    
    (226.5
    )
    
    
    (34.3
    )General and administrative
    
    
    (175.2
    )
    
    
    (287.2
    )
    
    
    (366.1
    )
    
    
    (367.0
    )
    
    
    (55.6
    )Total operating expenses
    
    
    (437.0
    )
    
    
    (730.5
    )
    
    
    (1,138.8
    )
    
    
    (1,334.6
    )
    
    
    (202.2
    )Income from operations
    
    
    624.7
    
    
    
    1,156.9
    
    
    
    1,734.4
    
    
    
    1,332.9
    
    
    
    202.0Interest income
    
    
    26.3
    
    
    
    33.4
    
    
    
    26.3
    
    
    
    61.7
    
    
    
    9.3Investment income
    
    
    
    
    
    
    
    
    
    
    0.2
    
    
    
    0.2
    
    
    
    *Other income, net
    
    
    28.7
    
    
    
    6.1
    
    
    
    169.4
    
    
    
    215.6
    
    
    
    32.7Income before income tax expenses,
equity in earnings (loss) of
affiliated companies
    
    
    679.7
    
    
    
    1,196.4
    
    
    
    1,930.3
    
    
    
    1,610.4
    
    
    
    244.0Income tax expenses
    
    
    (67.1
    )
    
    
    (249.9
    )
    
    
    (428.7
    )
    
    
    (300.3
    )
    
    
    (45.5
    )Equity in earnings (loss) of
affiliated companies
    
    
    (13.6
    )
    
    
    0.9
    
    
    
    (30.0
    )
    
    
    (5.4
    )
    
    
    (0.8
    )Net income
    
    
    599.0
    
    
    
    947.4
    
    
    
    1,471.6
    
    
    
    1,304.7
    
    
    
    197.7Less: Net income attributable to
non-controlling interests
    
    
    (7.1
    )
    
    
    (11.9
    )
    
    
    (18.6
    )
    
    
    (15.9
    )
    
    
    (2.4
    )Net income attributable to Shanda
Games Limited
    
    
    591.9
    
    
    
    935.5
    
    
    
    1,453.0
    
    
    
    1,288.8
    
    
    
    195.3
 *
    
    Less than 0.1  5




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For the Year Ended December 31,2007
    
    
    2008
    
    
    2009
    
    
    2010RMB
    
    
    RMB
    
    
    RMB
    
    
    RMB
    
    
    US$(1)Earnings per share data:Earnings per share, basic
    
    
    1.08
    
    
    
    1.70
    
    
    
    2.61
    
    
    
    2.26
    
    
    
    0.34Earnings per share, diluted
    
    
    1.08
    
    
    
    1.70
    
    
    
    2.60
    
    
    
    2.26
    
    
    
    0.34Earnings per ADS, basic(5)
    
    
    2.16
    
    
    
    3.40
    
    
    
    5.22
    
    
    
    4.52
    
    
    
    0.68Earnings per ADS, diluted(5)
    
    
    2.16
    
    
    
    3.40
    
    
    
    5.20
    
    
    
    4.52
    
    
    
    0.68
 As of December 31,2007
    
    
    2008
    
    
    2009
    
    
    2010(in millions)RMB
    
    
    RMB
    
    
    RMB
    
    
    RMB
    
    
    US$(1)Consolidated Balance Sheets Data:Total current assets
    
    
    904.4
    
    
    
    1,582.7
    
    
    
    3,297.3
    
    
    
    3,394.5
    
    
    
    514.3Total assets
    
    
    1,857.3
    
    
    
    2,444.1
    
    
    
    4,327.4
    
    
    
    6,779.6
    
    
    
    1,027.2Total current liabilities
    
    
    606.9
    
    
    
    1,178.0
    
    
    
    1,261.0
    
    
    
    2,142.5
    
    
    
    324.6Total long term liabilities
    
    
    34.0
    
    
    
    30.2
    
    
    
    40.9
    
    
    
    378.3
    
    
    
    57.3Total liabilities
    
    
    640.9
    
    
    
    1,208.2
    
    
    
    1,301.9
    
    
    
    2,520.8
    
    
    
    381.9Total Shanda Games Limited
shareholders equity
    
    
    1,001.2
    
    
    
    1,097.0
    
    
    
    2,819.6
    
    
    
    4,020.0
    
    
    
    609.1Non-controlling interests
    
    
    215.2
    
    
    
    138.9
    
    
    
    205.9
    
    
    
    238.8
    
    
    
    36.2Total equity
    
    
    1,216.4
    
    
    
    1,235.9
    
    
    
    3,025.5
    
    
    
    4,258.8
    
    
    
    645.3Total liabilities and equity
    
    
    1,857.3
    
    
    
    2,444.1
    
    
    
    4,327.4
    
    
    
    6,779.6
    
    
    
    1,027.2
 (1)
    
    Translations of RMB into U.S. dollars were made at a rate of RMB6.600 to US$1.00,
the noon buying rate in New York City for cable transfers as certified for customs purposes by
the Federal Reverse Bank of New York on December 31, 2010.(2)
    
    Represents net revenues generated from the operation of MMORPGs in China.(3)
    
    Represents net revenues generated from the operation of advanced casual games in
China.(4)
    
    Represents net revenues generated primarily outside of China from game licensing,
game operations, and advertising.(5)
    
    Each American Depositary Share, or ADS, represents two Class A ordinary shares. EXCHANGE RATE INFORMATION
   Renminbi per U.S. Dollar Noon Buying RatePeriodAverage(1)
    
    
    Low
    
    
    High
    
    
    End2007
    
    
    7.5806
    
    
    
    7.8127
    
    
    
    7.2946
    
    
    
    7.29462008
    
    
    6.9193
    
    
    
    7.2946
    
    
    
    6.7800
    
    
    
    6.82252009
    
    
    6.8295
    
    
    
    6.8176
    
    
    
    6.8470
    
    
    
    6.60002010
    
    
    6.7696
    
    
    
    6.8330
    
    
    
    6.6330
    
    
    
    6.6000October 2010
    
    
    6.6678
    
    
    
    6.6912
    
    
    
    6.6397
    
    
    
    6.6707November 2010
    
    
    6.6538
    
    
    
    6.6892
    
    
    
    6.6330
    
    
    
    6.6670December 2010
    
    
    6.6497
    
    
    
    6.6745
    
    
    
    6.6000
    
    
    
    6.60002011January 2011
    
    
    6.5964
    
    
    
    6.6364
    
    
    
    6.5809
    
    
    
    6.6017February 2011
    
    
    6.5761
    
    
    
    6.5965
    
    
    
    6.5520
    
    
    
    6.5713March 2011
    
    
    6.5660
    
    
    
    6.5743
    
    
    
    6.5510
    
    
    
    6.5568April 2011
    
    
    6.5267
    
    
    
    6.5477
    
    
    
    6.4900
    
    
    
    6.4900May 2011 (through May 13, 2011)
    
    
    6.4939
    
    
    
    6.4986
    
    
    
    6.4915
    
    
    
    6.4977
 
 Source:
     Federal Reserve Statistical Release(1)
    
    Annual averages are calculated using month-end rates. Monthly averages are calculated using
the average of the daily rates during the relevant period.  6




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B. CAPITALIZATION AND INDEBTEDNESS
  C. REASONS FOR THE OFFER AND USE OF PROCEEDS
  D. RISK FACTORS
 Risks Relating to Our Business and Our Industry
 If we are unable to successfully develop and source new online games, our business prospects,
financial condition and results of operations would be materially and adversely affected.
  
    
    In-house development of new online games and introduction of expansion packs for our
existing online games
    
    
    Maintaining good relationships with our licensors, extending licenses for our existing
licensed online games and licensing new online games
   7




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
    
    Investments in and acquisitions of other businesses that we believe may benefit our
business
  
    
    Sourcing of new online games through co-operation
  We depend substantially on two massively multi-player online role-playing games, or
MMORPGs, which accounted for approximately 78.2% and 66.8% of our net revenues in 2009 and
2010, respectively, and have finite commercial lifespans.
  
    
    any reduction in purchases of virtual items by Mir II or Woool players;
 
    
    a decrease in the popularity of either game in China due to increased competition or
other factors;
 
    
    failure to improve, update or enhance Mir II or Woool in a timely manner; or
 
    
    any lasting or prolonged server interruption due to network failures or other factors or
any other adverse developments specific to Mir II or Woool.
   Our new games may not be commercially successful, and we may fail to launch new games
according to our timetable, or at all.
   8




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Our new games may attract game players away from our existing games, which may have a material
adverse effect on our business, financial condition and results of operations.
  Changes or adjustments we make to our existing or new games may not be well received by our game
players.
  There are risks that the revenue models we adopt for our online games may not be suitable.
  Our business could suffer if we do not successfully manage our current growth and potential future
growth.
   9




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There are risks associated with our pursuit of growth through acquisitions and strategic
investments.
  We face risks associated with the licensing of our games internationally, and if we are unable to
effectively manage these risks, our ability to expand our business internationally could be
impaired.
   
    
    identifying and maintaining good relations with game operators who are knowledgeable in,
and can effectively distribute and operate our games in, international markets;
 
    
    negotiating licensing agreements with game operators on terms that are commercially
acceptable to us and enforcing the provisions of those agreements;
 
    
    developing games, updates and expansion packs catering to overseas markets and renewing
our license agreements with game operators upon expiration;
 
    
    maintaining the reputation of our company and our games, given that our games are
operated by game operators in the international markets with different standards;
 
    
    protecting our intellectual property rights overseas and managing the related costs;
 
    
    receiving and auditing the royalties we are entitled to receive;
 
    
    complying with the different commercial and legal requirements of the international
markets in which our games are offered, such as game import regulatory procedures, taxes and
other restrictions and expenses; and
 
    
    managing our foreign currency risks.
  We or our licensors, co-operators or investees may be subject to intellectual property
infringement claims, which may force us to incur substantial legal expenses and, if determined
adversely against us or our licensors, co-operators or investees, may materially disrupt our
business.
   10




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Unauthorized use of our intellectual property by third parties, and the expenses incurred in
protecting our intellectual property rights, may adversely affect our business.
     Our business may be materially harmed if our online games are not featured prominently in a
sufficient number of Internet cafes in China.
   11




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We depend on certain VIEs of Shanda Online to provide services that are critical to our business.
The termination of either or both of these service agreements or any failure of or significant
quality deterioration in these services could have a material adverse effect on our business,
financial condition and results of operations.
     Shanda Networking provides integrated platform services to some of our competitors, which may have
a material adverse effect on our business.
  We could be liable for any failure, service interruption or security breach of Shanda Networkings
online payment platform, and the reduction in sales made through those channels may have a material
adverse impact on our revenues.
   12




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We face the risks of uncertainties in the growth of the online game industry and market acceptance
of our online games.
  
    
    the growth rate in the number of users of personal computers, Internet and broadband in
China and other markets in which our online games are offered;
 
    
    whether the online game industry, particularly in China and the rest of the Asia-Pacific
region, continues to grow and the rate of any such growth;
 
    
    changes in consumer demographics, tastes or preferences;
 
    
    the popularity and price of new online games and virtual items that we and our
competitors launch and distribute;
 
    
    our ability to timely upgrade and improve our existing games to extend their commercial
lifespan and to maintain or expand their market share in the online game industry;
 
    
    the availability and popularity of other forms of entertainment, particularly console
system games such as those made by Microsoft, Nintendo and Sony, which are already popular
in many other countries and may gain popularity in China and other countries or regions in
which we market our online games; and
 
    
    general economic conditions, particularly economic conditions that impact the level of
discretionary consumer spending.
  We may not be able to adapt to the rapidly evolving online game industry in China.
  We face significant competition which could reduce our market share and materially and adversely
affect our business, financial condition and results of operations.
   13




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We depend on our key personnel, and our business and growth prospects may be severely disrupted if
we lose their services or are unable to attract new key employees.
   The global financial and economic crisis, particularly the slowdown in the Chinese economy, may
adversely affect our business, results of operations and financial condition.
  If we fail to anticipate or successfully implement new technologies, our games may become obsolete
or uncompetitive, and our business prospects and results of operations could be materially and
adversely affected.
  Errors or defects in our online games and the proliferation of cheating programs could materially
and adversely affect our business prospects and results of operations.
   14




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Network interruptions, security breaches or computer virus attacks could have a material adverse
effect on our business prospects and results of operations.
   
    
    any break-downs or system failures resulting in a sustained shutdown of all or a material
portion of our servers, including failures which may be attributable to sustained power
shutdowns, or efforts to gain unauthorized access to our systems causing loss or corruption
of data or malfunctions of software or hardware; and
 
    
    any disruption or failure in the national backbone network, which would prevent our
players outside Shanghai from logging on to any of our games, or playing games for which the
servers are all located in Shanghai.
  The successful operation of our business and implementation of our growth strategies, including our
ability to accommodate additional game players in the future, depend upon the performance and
reliability of the Internet infrastructure and fixed line and wireless telecommunications networks
in China.
  The limited use of personal computers in China and the relatively high cost of Internet access may
limit the development of the Internet in China and thus impede our growth.
  We may need to record impairment charges to earnings if our acquisition goodwill, investments
in affiliate companies or acquired intangible assets are determined to be impaired, which would
adversely affect our results of operations.
   15




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We have limited business insurance coverage in China.
  While we believe that we currently have adequate internal control procedures in place, we are still
exposed to potential risks from legislation requiring companies to evaluate controls under Section
404 of the Sarbanes-Oxley Act of 2002.
  You may not be able to rely on our quarterly operating results as an indication of our future
performance because our quarterly operating results may be subject to significant fluctuations.
  
    
    our ability to retain existing users, attract new game players at a steady rate and
maintain user satisfaction;
 
    
    the announcement or introduction of new games or updates or expansion packs to existing
games by us or our competitors;
 
    
    the range, number and pricing of virtual items available for sale;
 
    
    technical difficulties, system downtime or Internet failures;
 
    
    the amount and timing of operating costs and capital expenditures relating to expansion
of our business, operations and infrastructure;
 
    
    the adoption of new, or changes to existing, governmental regulations;
 
    
    seasonality effect during holidays in the second quarter and the fourth quarter, when
generally, fewer game players play our games;
 
    
    a shortfall in our revenues relative to our forecasts and a decline in our operating
results;
 
    
    the introduction and nationwide roll-out of the third-generation wireless
telecommunication network in China; and
 
    
    economic conditions in general and specific to the online game industry and to China.
    16




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Risks Relating to the Reorganization and Our Continued Relationship with Shanda Interactive
 We have limited experience operating as a standalone company.
   Our financial information included in this annual report may not be representative of our results
as a standalone company.
    We may not be able to continue to receive the same level of support from Shanda Interactive.
  Some of the terms of our agreements with Shanda Interactive and its affiliates may be less
favorable to us than similar agreements negotiated between unaffiliated third parties.
   17




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##### Table of Contents



The Amended and Restated Non-Compete and Non-Solicitation Agreement with Shanda Interactive
contains certain exceptions and may not be effective in preventing Shanda Interactive from engaging
in certain transactions that directly or indirectly may compete with (or be perceived to be in
competition with) our online game business.
  Shanda Interactive will control the outcome of shareholder actions in our company.
    18




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##### Table of Contents



We may have conflicts of interest with Shanda Interactive. Because of Shanda Interactives
controlling ownership interest in our company, we may not be able to resolve such conflicts on
terms favorable to us.
  
    
    Indemnification arrangements with Shanda Interactive.In connection with the
reorganization, we have agreed to indemnify Shanda Interactive with respect to liabilities
relating to our online game business, including operations of that business when it was a
business unit of Shanda Interactive prior to the reorganization. These indemnification
arrangements could result in our having interests that are adverse to those of Shanda
Interactive, such as different interests with respect to settlement arrangements in the
event of litigation.
 
    
    Non-compete agreement with Shanda Interactive.Shanda Interactive has agreed not to
compete with us in the online game business anywhere in the world for a five-year period
commencing July 1, 2008, subject to certain exceptions that may present conflicts of
interests. See  Risks Relating to the Reorganization and Our Continued Relationship with
Shanda Interactive  The Amended and Restated Non-Compete and Non-Solicitation Agreement
with Shanda Interactive contains certain exceptions and may not be effective in preventing
Shanda Interactive from engaging in certain transactions that directly or indirectly may
compete with (or be perceived to be in competition with) our online game business.
 
    
    Employee recruitment and retention.Because both Shanda Interactive and we operate
primarily in Shanghai and are engaged in the interactive entertainment business, we may
compete with Shanda Interactive in the hiring of new employees, in particular with respect
to those involved in interactive entertainment content development and operation. While the
Amended and Restated Non-Compete and Non-Solicitation Agreement restricts Shanda Interactive
from inducing any of our employees to terminate his or her employment with us, we cannot
assure you that Shanda Interactive will not breach this agreement.
 
    
    Our board members or executive officers may have conflicts of interest.Mr. Qunzhao Tan,
our chairman and chief executive officer, currently also serves as a member of the board of
directors of Shanda Interactive. In addition, Mr. Tianqiao Chen, Mr. Danian Chen, and Ms.
Grace Wu, all of whom are our directors, currently also serve as Shanda Interactives
chairman and chief executive officer, chief operating officer, and chief financial officer,
respectively, and as a member of the board of directors of Shanda Interactive. A majority of
our directors and executive officers also own shares and/or options to purchase shares in
Shanda Interactive. Shanda Interactive may continue to grant incentive share compensation to
our board members and executive officers from time to time. These relationships could create
perceived or actual conflicts of interest when these persons are faced with decisions with
potentially different implications for Shanda Interactive and us.
 
    
    Transfer of assets.In connection with the reorganization, Shanda Interactive
transferred substantially all of its assets and liabilities related to its online game
business to us. However, there may be assets (such as intellectual property rights) that are
required for our business but were not part of the assets transferred to us pursuant to the
Master Separation Agreement or otherwise have not been transferred to us. If Shanda
Interactive refuses to transfer such assets to us or if we are not able to secure similar
assets on terms acceptable to us or at all, our business, financial condition and results of
operations may be materially and adversely affected.
 
    
    Sale of shares in our company.Shanda Interactive may decide to sell all or a portion of
the Class B ordinary shares that it holds to a third party, including to one of our
competitors, thereby giving that third party substantial influence over our business and our
affairs. Such a sale could be contrary to the interests of certain of our shareholders,
including our employees and our public shareholders, and affect the implementation of our
business strategy.
 
    
    Allocation of business opportunities.Business opportunities may arise that both we and
Shanda Interactive find attractive, and which would complement our respective businesses.
Although Shanda Interactive has agreed in the Amended and Restated Non-Compete and
Non-Solicitation Agreement with us not to acquire equity interests in third-party online
game businesses without first using its reasonable best efforts to make such investment
opportunities available to us, subject to certain limited exceptions, we may not be able to
pursue the business opportunities effectively if Shanda Interactive decides to take
advantage of such opportunities itself notwithstanding such agreement.
  19




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##### Table of Contents




    
    Services provided by Shanda Networking to our competitors.Shanda Networking provides
integrated services to other online game companies that compete with us. These commercial
relationships are beyond our control and may negatively affect our business. See  Risks
Relating to Our Business and Our Industry  Shanda Networking provides integrated platform
services to some of our competitors, which may have a material adverse effect on our
business.
 
    
    Developing business relationships with Shanda Interactives competitors.So long as
Shanda Interactive remains our controlling shareholder, we may be limited in our ability to
do business with its competitors, such as other interactive entertainment media companies in
China.
  Risks Relating to Regulation of Our Business and to Our Structure
 If the PRC government finds that the agreements that establish the structure for operating our
business do not comply with its restrictions on foreign investment in the online game industry, we
could be subject to severe penalties.
     20




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##### Table of Contents



The contractual arrangements related to critical aspects of our operations with our PRC operating
companies and their shareholders may not be as effective in providing operational control as direct
ownership.
   Our arrangements with our PRC operating companies may be reviewed by the PRC tax authorities for
transfer pricing adjustments.
   21




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##### Table of Contents



Our holding company structure may restrict our ability to receive dividends from, or transfer funds
to, our PRC subsidiaries and our PRC operating companies, which could restrict our ability to act
in response to changing market conditions and reallocate funds among our Chinese entities timely.
   We are one of Chinas leading online game providers and cooperate closely with Shanda Online, which
through its VIEs operates a leading online service platform in China. Some of our competitors and
our users may institute claims against us and Shanda Online under the new Anti-Monopoly Law and as
a result we may have to terminate our relationship with Shanda Online, which may have a material
adverse effect on our business, financial conditions and results of operations.
   Our operations may be adversely affected by implementation of anti-fatigue-related regulations.
   22




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##### Table of Contents



The PRC government has tightened its regulation of Internet cafes, which are currently one of the
primary venues for our users to play online games. Intensified government regulation of Internet
cafes could restrict our ability to maintain or increase our revenues and expand our game player
base.
  The PRC government may prevent us from distributing, and we may be subject to liability for,
content deemed to be inappropriate.
    We may be required to reapply for approvals for online games licensed from overseas licensors.
 Xin Chu Lian
   23




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##### Table of Contents



Currently there is no law or regulation specifically governing virtual asset property rights and
therefore, it is not clear what liabilities, if any, online game operators may have for virtual
assets.
  Restrictions on virtual currency may adversely affect our game operations revenues.
      24




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##### Table of Contents



Our business may be adversely affected by public opinion and governmental policies in China as
well as in other jurisdictions where we license our games to third parties.
     The laws and regulations governing the online game industry and related businesses in China are
developing and subject to future changes. If we or any of our PRC operating companies fail to
obtain or maintain all applicable permits and approvals, our business and operations would be
materially and adversely affected.
   25




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##### Table of Contents



Further strengthened supervision of the online game industry may adversely affect our online game
operation.
    Our business may be adversely affected if Shanda Networking cannot obtain a payment service
license.
   26




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##### Table of Contents



We may be subject to, and may expend significant resources in defending against, government
actions and civil suits based on the advertising content provided in our virtual advertising space;
we may also be penalized by the governmental authority for such content.
  Risks Relating to the Peoples Republic of China
 Adverse changes in economic and political policies of the PRC government could have a material
adverse effect on the overall economic growth of China, which could adversely affect our business.
   The PRC legal system embodies uncertainties which could limit the legal protections available to
us.
  Regulations relating to offshore investment activities by PRC residents may subject us to fines or
sanctions imposed by the PRC government, including restrictions on our PRC subsidiaries abilities
to pay dividends or make distributions to us and our ability to increase our investment in our PRC
subsidiaries.
    27




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Restrictions on currency exchange may limit our ability to utilize our capital effectively.
     Fluctuations in exchange rates could result in foreign currency exchange losses.
    28




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##### Table of Contents



The discontinuation, reduction or delay of any of the preferential tax treatments or the government
financial incentives currently available to us in the PRC could materially and adversely affect our
business, financial condition and results of operations.
    There are significant uncertainties under the New EIT Law relating to our PRC enterprise income tax
liabilities.
   We face risks related to health epidemics and other outbreaks of contagious diseases, including
avian flu, SARS and H1N1 flu, and natural disasters.
   29




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##### Table of Contents



We may be subject to fines and legal sanctions if we or our Chinese employees fail to comply with
recent PRC regulations relating to employee stock options granted by overseas listed companies to
PRC citizens.
  Risks Relating to Our ADSs
 The price of our ADSs has been volatile historically and may continue to be volatile, which may
make it difficult for holders to resell the ADSs when desired or at attractive prices.
  Our ADS price may fluctuate in response to a number of events and factors, including among
other factors:
 
    
    announcements of technological or competitive developments;
 
    
    regulatory developments in our target markets affecting us, our customers or our
competitors;
 
    
    announcements regarding intellectual property rights litigation;
 
    
    actual or anticipated fluctuations in our quarterly operating results;
 
    
    changes in financial estimates by securities research analysts;
 
    
    changes in the economic performance or market valuations of our products;
 
    
    addition or departure of our executive officers and key research personnel; and
 sales or perceived sales of additional ordinary shares or ADSs.
   30




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##### Table of Contents



We may need additional capital and may sell additional ADSs or other equity securities or incur
indebtedness, which could result in additional dilution to our shareholders or increase our debt
service obligations.
  We may be required to withhold PRC income tax on the dividends we pay you (if any), and any gain
you realize on the transfer of our ordinary shares and/or ADSs may also be subject to PRC
withholding tax.
   Your right as a holder of ADSs to participate in any future rights offerings may be limited, which
may cause dilution to your holdings and they may not receive cash dividends if it is impractical to
make them available to such holders.
    31




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##### Table of Contents



You may be subject to limitations on transfer of your ADSs.
  As we are a Cayman Islands company, you may face difficulties in protecting your interests, and
our ability to protect our rights through the U.S. federal courts may be limited.
   The Cayman Islands courts are also unlikely:
 
 
    You may have difficulties in enforcing judgments obtained against us.
   32




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##### Table of Contents



We are a controlled company within the meaning of the NASDAQ Listing Rules and, as a result, rely
on exemptions from certain corporate governance requirements that provide protection to
shareholders of other companies, and we may also rely on the foreign private issuer exemption from
most of the corporate governance requirements under the NASDAQ Listing Rules.
  
 
 
 
   We may be classified as a passive foreign investment company, which could result in adverse U.S.
federal income tax consequences to U.S. holders of our ADSs or Class A ordinary shares.
  Our dual-class ordinary share structure with different voting rights could discourage others from
pursuing any change of control transactions that holders of our Class A ordinary shares and ADSs
may view as beneficial.
    33




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##### Table of Contents



Our amended and restated articles of association contain anti-takeover provisions that could
adversely affect the rights of holders of our ordinary shares and ADSs.
   
 
 
 
 
 The voting rights of holders of ADSs are limited by the terms of the deposit agreement.
  
 Item 4.
    
    INFORMATION ON THE COMPANY
 A. HISTORY AND DEVELOPMENT OF THE COMPANY
    34




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##### Table of Contents



There were an aggregate of 567,389,254 ordinary shares outstanding as of December 31, 2010.
  B. BUSINESS OVERVIEW
        35




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##### Table of Contents



Our Games
 MMORPGs
   Game
    
    Genre
    
    Visual Dimensions
    
    Game Source
    
    Launch DateMir II
    
    Martial arts adventure
    
    2D
    
    License(1)
    
    November 2001Woool(2)
    
    Martial arts adventure
    
    2D
    
    In-house
    
    October 2003The Sign
    
    Martial arts adventure
    
    3D
    
    In-house
    
    May 2004The Age
    
    Martial arts adventure
    
    2D
    
    In-house
    
    June 2004Magical Land
    
    Fantasy
    
    2D
    
    In-house
    
    July 2005R.O.
    
    Fantasy
    
    2D
    
    License
    
    September 2005Archlord
    
    Fantasy
    
    3D
    
    License
    
    July 2006Latale
    
    Side-scrolling combat
    
    2D
    
    In-house
    
    April 2007Fengyun Online
    
    Martial arts adventure
    
    3D
    
    Acquisition
    
    July 2007World Hegemony
    
    Strategy web game
    
    2D
    
    In-house
    
    November 2007Might & Hero
    
    Strategy web game
    
    2D
    
    Investment
    
    May 2008Lineage
    
    Fantasy
    
    2D
    
    License
    
    June 2008Lineage II
    
    Fantasy
    
    3D
    
    License
    
    June 2008Tales of Dragons
    
    Fantasy
    
    2D
    
    In-house
    
    July 2008A Thousand Years III
    
    Martial arts adventure
    
    2D
    
    In-house
    
    November 2008AION
    
    Fantasy
    
    3D
    
    License
    
    April 2009JX Online World
    
    Martial arts adventure
    
    2D
    
    Co-operation
    
    June 2009Ghost Fighter Online
    
    Side-scrolling action
    
    3D
    
    Investment
    
    August 2009Luvinia Online
    
    Fantasy
    
    3D
    
    Acquisition
    
    August 2009ZU Online
    
    Martial arts adventure
    
    3D
    
    Investment
    
    August 2009Yuyan Online
    
    Martial arts adventure
    
    2.5D(3)
    
    Co-operation
    
    September 2009TS2 Online
    
    Turn-based
    
    2D
    
    License
    
    December 2009Hades Realm
    
    Martial arts adventure
    
    2D
    
    Acquisition
    
    January 2010Zodiac Tales
    
    Turn-based
    
    2D
    
    Acquisition
    
    January 2010Dukes and Lords
    
    Martial arts adventure
    
    2D
    
    Acquisition
    
    January 2010Dragon Nest
    
    Action
    
    3D
    
    Acquisition
    
    July 2010JX3 Online
    
    Martial arts adventure
    
    3D
    
    Co-operation
    
    August 2010Hades Realm II
    
    Martial arts adventure
    
    3D
    
    Acquisition
    
    November 2010
 (1)
    
    We license Mir II from Actoz, which is our majority-owned subsidiary. While Actoz controls
the licensing of Mir II in China, we continue to classify Mir II as a licensed game because
Actoz shares a portion of the ongoing licensing fees we pay to Actoz with a third party
that co-owns the intellectual property rights relating to the game.(2)
    
    Including Woool: Legend of Heroes and Woool: Raider of Gems, which are the sequels to Woool.(3)
    
    2.5D refers to a game with 3D-rendered characters but a 2D game environment.  For the Three Months Ended,March 31,
    
    
    June 30,
    
    
    September 30,
    
    
    December 31,2010
    
    
    2010
    
    
    2010
    
    
    2010Quarterly active paying
accounts (in
thousands)(1)
    
    
    9,578
    
    
    
    9,608
    
    
    
    9,191
    
    
    
    9,464Average monthly revenues
per active paying account
(in RMB)(2)
    
    
    35.0
    
    
    
    34.7
    
    
    
    35.2
    
    
    
    36.7
 
 (1)
    
    Quarterly active paying accounts refers to the aggregate number of active paying
accounts for our MMORPGs operated in China during a given quarter.(2)
    
    Average monthly revenues per active paying account refers to our revenues from the
operation of MMORPGs in China during a given quarter divided by quarterly active paying
accounts, further divided by three.  36




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##### Table of Contents



Advanced Casual Games
   Game
    
    Genre
    
    Visual Dimensions
    
    Game Source
    
    Launch DateBNB
    
    Battle
    
    2D
    
    License
    
    August 2003GetAmped
    
    Fighting
    
    3D
    
    License
    
    May 2004Maple Story
    
    Side-scrolling combat
    
    2D
    
    License
    
    August 2004Crazy Kart
    
    Racing
    
    3D
    
    In-house
    
    March 2006Kongfu Kids
    
    Fighting
    
    3D
    
    In-house
    
    June 2007Tales Runner
    
    Racing
    
    3D
    
    License
    
    July 2007
  For the Three Months EndedMarch 31,
    
    
    June 30,
    
    
    September 30,
    
    
    December 31,2010
    
    
    2010
    
    
    2010
    
    
    2010Quarterly active paying
accounts (in
thousands)(1)
    
    
    1,075
    
    
    
    923
    
    
    
    834
    
    
    
    746Average monthly revenues
per active paying account
(in RMB)(2)
    
    
    28.6
    
    
    
    25.3
    
    
    
    30.5
    
    
    
    27.7
 
 (1)
    
    Quarterly active paying accounts refers to the aggregate number of active paying
accounts for our advanced casual games operated in China during a given quarter.(2)
    
    Average monthly revenues per active paying account refers to our online game
revenues from the operation of advanced casual games in China during a given quarter divided
by quarterly active paying accounts, further divided by three.  Access to Our Games
  Our Online Game Development and Sourcing Model
  In-House Development
    37




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##### Table of Contents




    
    formulate a new game proposal based on a preliminary market study;
 
    
    conduct an in-depth feasibility study;
 
    
    establish a project team to draft a new game development plan;
 
    
    develop the game story and overall game design;
 
    
    design the game style, characters and environments;
 
    
    develop the server-end and user-end software;
 
    
    conduct intermediate management review after the fundamental game structure has been
developed; and
 
    
    conduct final management review upon completing the development of the new game.
   Game Licensing
    Investment and Acquisition
   Co-Operation
   38




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##### Table of Contents



Our Game Performance Evaluation and Testing Systems
 Our Game Performance Evaluation System for Game Sourcing
  
    
    Stage 1.We evaluate a game based upon a number of criteria, including game and artistic
design, technology and infrastructure requirements and operational metrics, if any. Of the
thousands of games evaluated over our years of operation, only a small number have been
submitted to our steering committee, which is comprised of personnel from our game
development and operations, quality management, finance, marketing and other departments,
for further evaluation.
 
    
    Stage 2.The steering committee assesses these games and approves a select number of
games, which are then passed on to the game management, business development and quality
management divisions for testing and final evaluation.
 
    
    Stage 3.These divisions evaluate the games to identify those with the highest potential
for commercial success and allocate our marketing and other resources to such games.
 Our Pre-Launch Game Testing System
  Our Game Operation Model
 Game Management
  
    
    conduct cost/benefit analyses and form operational plans;
 
    
    coordinate internal resources and interact with our other departments such as game
design, artistic design, quality management, marketing, and technological services to ensure
a smooth daily operation of the online game;
 
    
    control the timing of the release of updates and expansion packs; and
 
    
    manage the games virtual community on an ongoing basis by, for example, organizing
in-game events.
  Network and Technology Infrastructure
     39




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##### Table of Contents



Anti-Cheating and Anti-Hacking
  Marketing
  In-game events and announcements.
 Online and traditional advertising.
 Offline promotions.
  40




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##### Table of Contents



Our Revenue Models
 Revenue Models for the Games that We Operate
     Licensing of Our Games to Third Parties
  In-Game Advertising
  Online Billing and Payment, Distribution and Customer Service
  Online Billing and Payment and Distribution
   41




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##### Table of Contents




    
    Direct online sales.Game players can purchase prepaid cards directly online and payment
can be made using certain commercial bank cards and other online payment service providers.
 
    
    Indirect e-sales. Distributors order prepaid cards through a central e-sales computer
system and resell the cards to game players through Internet cafes or other retail points of
sale.
 
    
    Indirect offline distribution. Game players can purchase physical prepaid cards from
retail points of sale, which primarily consist of news stands, convenience stores, software
stores and book stores.
 Customer Service
    Competition
    Intellectual Property and Proprietary Rights
   42




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##### Table of Contents



Government Regulations
  
 
 
 
 
 
 
 
 
 
 
 Foreign Ownership Restrictions
    43




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##### Table of Contents



Licenses
  ICP License.
  Internet Culture Operation License.
 Internet Publishing License.
 Regulation of Internet Content
    44




---



##### Table of Contents



Regulation of Information Security
   Technology Import and Export
  Intellectual Property Rights
  Software Copyright.
 Copyright
 Trademark.
 Patent.
  45




---



##### Table of Contents



Internet Cafe Regulation
  Privacy Protection
  Anti-fatigue Compliance System and Real-name Registration System
    Payment and Clearance By Non-financial Institutions
   Virtual Currency
   46




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##### Table of Contents



C. ORGANIZATIONAL STRUCTURE
  
 
 
 
 
  47




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##### Table of Contents




 
 
 
    48




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##### Table of Contents



D. PROPERTY, PLANTS AND EQUIPMENT
  
 Item 4A.
    
    UNRESOLVED STAFF COMMENTS
  
 Item 5.
    
    OPERATING AND FINANCIAL REVIEW AND PROSPECTS
 You should read the following discussion and analysis of our financial condition and results
of operations in conjunction with our consolidated financial statements and the related notes
included elsewhere in this annual report on Form 20-F . This discussion may contain forward-looking
statements based upon current expectations that involve risks and uncertainties. Our actual results
may differ materially from those anticipated in these forward- looking statements as a result of
various factors, including those set forth under Item 3. Key InformationD. Risk Factors or in
other parts of this annual report on Form 20-F .
 Overview
       49




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##### Table of Contents



The Reorganization and the Basis of Preparation
      Our Agreements with Shanda Online
    50




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##### Table of Contents



Factors Affecting Results of Operations
  Our ability to continue to successfully introduce new online games and expansion packs for
existing games
 Our ability to maintain and expand our community of loyal game players
 Game content sourcing costs
 The reliability and quality of Shanda Networkings integrated service platform and
Shengfutongs distribution services
 Competition in Chinas online game industry
 The growth of our international business
 Revenues
   For the Year Ended December 31,2008
    
    
    2009
    
    
    2010% of Net
    
    
    
    
    
    
    % of Net
    
    
    
    
    
    
    % of NetRMB
    
    
    Revenues
    
    
    RMB
    
    
    Revenues
    
    
    RMB
    
    
    Revenues(audited)(in millions, except percentages)Net revenues:MMORPG revenues(1)
    
    
    2,948.5
    
    
    
    87.3
    %
    
    
    4,422.1
    
    
    
    92.0
    %
    
    
    4,018.3
    
    
    
    89.2
    %Advanced casual game revenues(2)
    
    
    355.8
    
    
    
    10.5
    
    
    
    305.6
    
    
    
    6.4
    
    
    
    300.6
    
    
    
    6.7Other revenues(3)
    
    
    72.5
    
    
    
    2.2
    
    
    
    79.0
    
    
    
    1.6
    
    
    
    185.8
    
    
    
    4.1Total net revenues
    
    
    3,376.8
    
    
    
    100.0
    %
    
    
    4,806.7
    
    
    
    100.0
    %
    
    
    4,504.7
    
    
    
    100.0
    %
 (1)
    
    Represents net revenues generated from the operation of MMORPGs in China.(2)
    
    Represents net revenues generated from the operation of advanced casual games in China.(3)
    
    Represents net revenues generated primarily outside of China from game licensing, game
operations, and advertising.  51




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Cost of Revenues
  For the Year Ended December 31,2008
    
    
    2009
    
    
    2010% of Net
    
    
    
    
    
    
    % of Net
    
    
    
    
    
    
    % of NetRMB
    
    
    Revenues
    
    
    RMB
    
    
    Revenues
    
    
    RMB
    
    
    Revenues(audited)(in millions, except percentages)Net revenues
    
    
    3,376.8
    
    
    
    100.0
    %
    
    
    4,806.7
    
    
    
    100.0
    %
    
    
    4,504.7
    
    
    
    100.0
    %Cost of revenues:Platform fees
    
    
    864.9
    
    
    
    25.6
    
    
    
    1,018.5
    
    
    
    21.2
    
    
    
    909.8
    
    
    
    20.2Upfront and ongoing
licensing fees
    
    
    520.9
    
    
    
    15.4
    
    
    
    797.1
    
    
    
    16.6
    
    
    
    730.3
    
    
    
    16.2Others
    
    
    103.6
    
    
    
    3.1
    
    
    
    117.9
    
    
    
    2.4
    
    
    
    197.1
    
    
    
    4.4Total cost of revenues
    
    
    1,489.4
    
    
    
    44.1
    
    
    
    1,933.5
    
    
    
    40.2
    
    
    
    1,837.2
    
    
    
    40.8Gross profit/margin
    
    
    1,887.4
    
    
    
    55.9
    %
    
    
    2,873.2
    
    
    
    59.8
    %
    
    
    2,667.5
    
    
    
    59.2
    %
  52




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##### Table of Contents



Platform fees.
 Upfront and ongoing licensing fees.
 Others.
 Gross profit/margin.
 Operating Expenses
  For the Year Ended December 31,2008
    
    
    2009
    
    
    2010% of Net
    
    
    
    
    
    
    % of Net
    
    
    
    
    
    
    % of NetRMB
    
    
    Revenues
    
    
    RMB
    
    
    Revenues
    
    
    RMB
    
    
    Revenues(audited)(in millions, except percentages)Net revenues:
    
    
    3,376.8
    
    
    
    100.0
    %
    
    
    4,806.7
    
    
    
    100.0
    %
    
    
    4,504.7
    
    
    
    100.0
    %Operating expenses:Product development
    
    
    238.8
    
    
    
    7.1
    
    
    
    339.8
    
    
    
    7.1
    
    
    
    465.8
    
    
    
    10.3Sales and marketing
    
    
    204.5
    
    
    
    6.1
    
    
    
    432.9
    
    
    
    9.0
    
    
    
    501.8
    
    
    
    11.1General and administrative
    
    
    287.2
    
    
    
    8.4
    
    
    
    366.1
    
    
    
    7.6
    
    
    
    367.0
    
    
    
    8.2Total operating expenses
    
    
    730.5
    
    
    
    21.6
    
    
    
    1,138.8
    
    
    
    23.7
    
    
    
    1,334.6
    
    
    
    29.6Operating profit/margin
    
    
    1,156.9
    
    
    
    34.3
    %
    
    
    1,734.4
    
    
    
    36.1
    %
    
    
    1,332.9
    
    
    
    29.6
    %
 Product development expenses.
 Sales and marketing expenses.
  53




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General and administrative expenses.
 Operating profit/margin.
 Non-Operating Income
  Interest Income.
 Other Non-Operating Income.
  
    
    generating more than a minimum level of revenues from high-tech related sales or
services, determined as a percentage of total revenues;
 
    
    employing more than a minimum number of employees in product development; and
 
    
    expending more than a minimum amount on product development, determined as a percentage
of total revenues.
  Taxation
   PRC Enterprise Income Tax
    54




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Korean Corporate Income Tax
   Equity in Earning (Loss) of Affiliated Companies
  Non-Controlling Interest
  Critical Accounting Policies
  Basis of Preparation
   55




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Revenue Recognition
        56




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Consolidation of Variable Interest Entities
  Property and Equipment, Intangible Assets, and Other Long-lived Assets
   Impairment of Investment in Affiliated Companies
  Impairment of Goodwill
   57




---



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Share-Based Compensation
  Accounting for stock-based compensation
       58




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Income Taxes and Valuation Allowance
  Accounting for Uncertainty in Income Taxes  An interpretation of FASB Statement No. 109
 Results of Operations
 Year Ended December 31, 2010 Compared to Year Ended December 31, 2009
 Net revenues.
   59




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For the Three Months EndedMarch 31,
    
    
    June 30,
    
    
    September 30,
    
    
    December 31,
    
    
    March 31,
    
    
    June 30,
    
    
    September 30,
    
    
    December 31,2009
    
    
    2009
    
    
    2009
    
    
    2009
    
    
    2010
    
    
    2010
    
    
    2010
    
    
    2010Quarterly active paying
accounts (in
thousands)(1)
    
    
    7,153
    
    
    
    8,552
    
    
    
    9,031
    
    
    
    9,384
    
    
    
    9,578
    
    
    
    9,608
    
    
    
    9,191
    
    
    
    9,464Monthly average revenues
per active paying
account (in
RMB)(2)
    
    
    43.5
    
    
    
    41.6
    
    
    
    43.1
    
    
    
    44.6
    
    
    
    35.0
    
    
    
    34.7
    
    
    
    35.2
    
    
    
    36.7
 
 (1)
    
    Quarterly active paying accounts refers to the aggregate number of active
paying accounts for our MMORPGs operated in China during a given quarter.(2)
    
    Average monthly revenues per active paying account refers to our revenues from the
operation of MMORPGs in China during a given quarter divided by quarterly active paying
accounts, further divided by three.  For the Three Months EndedMarch 31,
    
    
    June 30,
    
    
    September 30,
    
    
    December 31,
    
    
    March 31,
    
    
    June 30,
    
    
    September 30,
    
    
    December 31,2009
    
    
    2009
    
    
    2009
    
    
    2009
    
    
    2010
    
    
    2010
    
    
    2010
    
    
    2010Quarterly active paying
accounts (in
thousands)(1)
    
    
    1,052
    
    
    
    1,149
    
    
    
    1,209
    
    
    
    1,014
    
    
    
    1,075
    
    
    
    923
    
    
    
    834
    
    
    
    746Monthly average revenues
per active paying
account (in
RMB)(2)
    
    
    27.4
    
    
    
    20.6
    
    
    
    23.7
    
    
    
    20.4
    
    
    
    28.6
    
    
    
    25.3
    
    
    
    30.5
    
    
    
    27.7
 
 (1)
    
    Quarterly active paying accounts refers to the aggregate number of active paying
accounts for our advanced casual games operated in China during a given quarter.(2)
    
    Average monthly revenues per active paying account refers to our revenues from the
operation of advanced casual games in China during a given quarter divided by quarterly active
paying accounts, further divided by three.  Cost of revenues.
 
 
 
 Gross profit.
  60




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Operating expenses.
 
 
 
 Income from operations.
 Income before income tax expenses and equity in earning (loss) of affiliated companies.
 Income tax expenses.
 Equity in earning (loss) of affiliated companies
 Net income attributable to non-controlling interest
 Net income attributable to our company
  61




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Year Ended December 31, 2009 Compared to Year Ended December 31, 2008
 Net revenues.
   For the Three Months EndedMarch 31,
    
    
    June 30,
    
    
    September 30,
    
    
    December 31,
    
    
    March 31,
    
    
    June 30,
    
    
    September 30,
    
    
    December 31,2008
    
    
    2008
    
    
    2008
    
    
    2008
    
    
    2009
    
    
    2009
    
    
    2009
    
    
    2009Quarterly active paying
accounts (in
thousands)(1)
    
    
    4,078
    
    
    
    4,218
    
    
    
    5,162
    
    
    
    5,864
    
    
    
    7,153
    
    
    
    8,552
    
    
    
    9,031
    
    
    
    9,384Monthly average revenues
per active paying
account (in
RMB)(2)
    
    
    51.9
    
    
    
    54.2
    
    
    
    49.0
    
    
    
    49.4
    
    
    
    43.5
    
    
    
    41.6
    
    
    
    43.1
    
    
    
    44.6
 
 (1)
    
    Quarterly active paying accounts refers to the aggregate number of active
paying accounts for our MMORPGs operated in China during a given quarter.(2)
    
    Average monthly revenues per active paying account refers to our revenues from the
operation of MMORPGs in China during a given quarter divided by quarterly active paying
accounts, further divided by three.  For the Three Months EndedMarch 31,
    
    
    June 30,
    
    
    September 30,
    
    
    December 31,
    
    
    March 31,
    
    
    June 30,
    
    
    September 30,
    
    
    December 31,2008
    
    
    2008
    
    
    2008
    
    
    2008
    
    
    2009
    
    
    2009
    
    
    2009
    
    
    2009Quarterly active paying
accounts (in
thousands)(1)
    
    
    1,661
    
    
    
    1,421
    
    
    
    1,380
    
    
    
    961
    
    
    
    1,052
    
    
    
    1,149
    
    
    
    1,209
    
    
    
    1,014Monthly average revenues
per active paying
account (in
RMB)(2)
    
    
    19.7
    
    
    
    20.6
    
    
    
    23.6
    
    
    
    25.1
    
    
    
    27.4
    
    
    
    20.6
    
    
    
    23.7
    
    
    
    20.4
 
 (1)
    
    Quarterly active paying accounts refers to the aggregate number of active paying
accounts for our advanced casual games operated in China during a given quarter.(2)
    
    Average monthly revenues per active paying account refers to our revenues from the
operation of advanced casual games in China during a given quarter divided by quarterly active
paying accounts, further divided by three.  62




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Cost of revenues.
 
 
 
 Gross profit.
 Operating expenses.
 
 
 
 Income from operations.
 Income before income tax expenses and equity in earning (loss) of affiliated companies.
  63




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Income tax expenses.
 Equity in earning (loss) of affiliated companies.
 Net income attributable to non-controlling interest.
 Net income attributable to our company.
 B. LIQUIDITY AND CAPITAL RESOURCES
 Cash Flows and Working Capital
   Year Ended December 31,2008
    
    
    2009
    
    
    2010RMB
    
    
    RMB
    
    
    RMB
    
    
    US$(in millions)Net cash provided by operating activities
    
    
    1,144.5
    
    
    
    2,010.5
    
    
    
    1,745.3
    
    
    
    264.4Net cash used in investing activities
    
    
    (144.2
    )
    
    
    (1,904.2
    )
    
    
    (1,950.1
    )
    
    
    (295.5
    )Net cash used in financing activities
    
    
    (748.3
    )
    
    
    1,050.5
    
    
    
    (20.6
    )
    
    
    (3.1
    )Effect of exchange rate changes on cash
    
    
    (16.7
    )
    
    
    13.5
    
    
    
    (2.0
    )
    
    
    (0.2
    )Net increase in cash and cash equivalents
    
    
    235.3
    
    
    
    1,170.3
    
    
    
    (227.4
    )
    
    
    (34.4
    )Cash, beginning of the period
    
    
    393.6
    
    
    
    628.9
    
    
    
    1,799.2
    
    
    
    272.6Cash, end of the period
    
    
    628.9
    
    
    
    1,799.2
    
    
    
    1,571.8
    
    
    
    238.2
    64




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65




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Capital Expenditures
   C. RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES, ETC.
  Our research and development efforts and plans consist of:
 
    
    outsourcing and in-house development of updates, expansions and sequels of our existing
online game;
 
    
    sourcing new games via investment and in-house development; and
 
    
    improving our server management and control systems.
  D. TREND INFORMATION
  E. OFF-BALANCE SHEET ARRANGEMENTS
  F. CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS
  Payments Due by PeriodMore Than 3Total
    
    
    Less than 1 Year
    
    
    1-3 Years
    
    
    Years(RMB in millions)Operating lease obligations:Office premises
    
    
    81.5
    
    
    
    43.0
    
    
    
    38.5
    
    
    
    Computer servers, software and equipment
    
    
    20.9
    
    
    
    20.0
    
    
    
    0.9
    
    
    
    Total contractual obligations
    
    
    102.4
    
    
    
    63.0
    
    
    
    39.4
    
    
    
    
    66




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##### Table of Contents



Item 6.
    
    DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
 A. DIRECTORS AND SENIOR MANAGEMENT
  Name
    
    Age
    
    PositionQunzhao Tan(1)
    
    
    35
    
    
    Chairman of the Board of Directors and Chief Executive OfficerTianqiao Chen(1)
    
    
    37
    
    
    DirectorDanian Chen(1)
    
    
    32
    
    
    DirectorGrace Wu
    
    
    40
    
    
    DirectorLai Xing Cai(2)
    
    
    68
    
    
    Independent DirectorAndy Lin(2)
    
    
    37
    
    
    Independent DirectorHeng Wing Chan(2)
    
    
    64
    
    
    Independent DirectorHai Ling
    
    
    41
    
    
    PresidentRichard Wei
    
    
    48
    
    
    Chief Financial OfficerXiangdong Zhang
    
    
    35
    
    
    Chief ProducerJisheng Zhu
    
    
    38
    
    
    Chief Technology Officer and Acting Chief Operating OfficerWilliam Chen
    
    
    38
    
    
    Vice PresidentThomas Yih
    
    
    37
    
    
    General Counsel
 
 (1)
    
    Member of the compensation committee.(2)
    
    Member of the audit committee. Qunzhao Tan
 Tianqiao Chen
 Danian Chen
 Grace Wu
 Lai Xing Cai
 Andy Lin
  67




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##### Table of Contents



Heng Wing Chan
 Hai Ling
 Richard Wei
 Xiangdong Zhang
 Jisheng Zhu
 William Chen
 Thomas Yih
 Duties of Directors
   68




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
    
    convening shareholders meetings and reporting its work to shareholders at such meetings;
 
    
    implementing shareholders resolutions;
 
    
    determining our business plans and investment proposals;
    
    formulating our profit distribution plans and loss recovery plans;
 
    
    determining our debt and finance policies and proposals for the increase or decrease in
our registered capital and the issuance of debentures;
 
    
    formulating our major acquisition and disposition plans, and plans for merger, division
or dissolution;
 
    
    proposing amendments to our amended and restated memorandum and articles of association;
and
 
    
    exercising any other powers conferred by the shareholders meetings or under our amended
and restated memorandum and articles of association
 Terms of Directors and Executive Officers
  B. COMPENSATION
  Equity Compensation Plans
    Exercise PriceNumber of Class A
    
    
    per Class AOrdinary Shares to be
    
    
    OrdinaryIssued Upon Exercise of
    
    
    Share (in
    
    
    Date of
    
    
    Date ofName
    
    Options
    
    
    US$)
    
    
    Grant
    
    
    ExpirationQunzhao Tan
    
    
    *
    
    
    
    3.40
    
    
    March 19, 2010
    
    March 19, 2020*
    (1)
    
    
    
    
    
    September 7, 2009
    
    September 7, 2019Tianqiao Chen
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Danian Chen
    
    
    *
    (1)
    
    
    
    
    
    September 7, 2009
    
    September 7, 2019Grace Wu
    
    
    *
    (1)
    
    
    
    
    
    September 7, 2009
    
    September 7, 2019Lai Xing Cai
    
    
    *
    (1)
    
    
    
    
    
    September 7, 2009
    
    September 7, 2019Andy Lin
    
    
    *
    (1)
    
    
    
    
    
    September 7, 2009
    
    September 7, 2019Heng Wing Chan
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Hai Ling
    
    
    *
    
    
    
    3.20
    
    
    November 14, 2008
    
    November 14, 2018Richard Wei
    
    
    *
    
    
    
    3.20
    
    
    April 1, 2009
    
    April 1, 2019Xiangdong Zhang
    
    
    *
    
    
    
    3.20
    
    
    November 14, 2008
    
    November 14, 2018Jisheng Zhu
    
    
    *
    
    
    
    3.20
    
    
    November 14, 2008
    
    November 14, 2018William Chen
    
    
    *
    
    
    
    2.98
    
    
    December 15, 2010
    
    December 15, 2020Thomas Yih
    
    
    *
    (1)
    
    
    
    
    
    September 7, 2009
    
    September 7, 2019
 
 *
    
    Upon exercise of all options granted, would beneficially own less than
1% of our outstanding ordinary shares.(1)
    
    Restricted shares  69




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C. BOARD PRACTICES
 Term and Severance Provisions of Directors and Executive Officers
   Board Committees
  Audit Committee.
  
    
    selecting independent auditors and pre-approving all auditing and non-auditing services
permitted to be performed by the independent auditors;
 
    
    setting clear hiring policies for employees or former employees of the independent
auditors;
 
    
    reviewing with the independent auditors any audit problems or difficulties and
managements response;
 
    
    reviewing and approving all proposed related-party transactions;
 
    
    discussing the annual audited financial statements with management and the independent
auditors;
 
    
    discussing with management and the independent auditors major issues regarding accounting
principles and financial statement presentations;
 
    
    reviewing reports prepared by management or the independent auditors relating to
significant financial reporting issues and judgments;
 
    
    reviewing with management and the independent auditors related-party transactions and
off-balance sheet transactions and structures;
 
    
    reviewing with management and the independent auditors the effect of regulatory and
accounting initiatives and actions;
 
    
    reviewing policies with respect to risk assessment and risk management;
 
    
    reviewing our disclosure controls and procedures and internal control over financial
reporting;
 
    
    timely reviewing reports from the independent auditors regarding all critical accounting
policies and practices to be used by our company, all alternative treatments of financial
information within GAAP that have been discussed with management and all other material
written communications between the independent auditors and management;
 
    
    establishing procedures for the receipt, retention and treatment of complaints received
from our employees regarding accounting, internal accounting controls or auditing matters
and the confidential, anonymous submission by our employees of concerns regarding
questionable accounting or auditing matters;
  70




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
    
    annually reviewing and reassessing the adequacy of our audit committee charter;
 
    
    such other matters that are specifically delegated to our audit committee by our board of
directors from time to time; and
 
    
    meeting separately, periodically, with management, the internal auditors and the
independent auditors.
 Compensation Committee.
  
    
    making and reviewing recommendations to our board of directors regarding our compensation
policies and forms of compensation provided to our directors and officers;
 
    
    determining and reviewing bonuses for our officers and other employees;
 
    
    determining and reviewing stock-based compensation for our directors, officers, employees
and consultants;
 
    
    administering our equity incentive plans in accordance with the terms thereof; and
 
    
    such other matters that are specifically delegated to the compensation committee by our
board of directors from time to time.
 D. EMPLOYEES
  Number of
    
    
    PercentageEmployees
    
    
    of TotalProduct development(1)
    
    
    1,991
    
    
    
    70.3
    %Sales and marketing
    
    
    276
    
    
    
    9.7
    %General and administration
    
    
    218
    
    
    
    7.7
    %Technical support and customer service
    
    
    349
    
    
    
    12.3
    %Total
    
    
    2,834
    
    
    
    100.0
    %
 
 (1)
    
    Includes game development personnel.  E. SHARE OWNERSHIP
  
 Item 7.
    
    MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
 A. MAJOR SHAREHOLDERS
  
    
    each person known to us to own beneficially more than 5% of our ordinary shares; and
 
    
    each of our directors and executive officers who beneficially own ordinary shares
within the meaning of Rule 13d-3 of the Exchange Act.
  71




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Shares BeneficiallyOwnedPercentageofName
    
    Number
    
    
    TotalShanda Interactive Entertainment Limited(1)
    
    
    409,087,000
    
    
    
    72.1
    %Qunzhao Tan
    
    
    *
    
    
    
    *Tianqiao Chen
    
    
    
    
    
    
    Danian Chen
    
    
    *
    
    
    
    *Grace Wu
    
    
    *
    
    
    
    *Lai Xing Cai
    
    
    *
    
    
    
    *Andy Lin
    
    
    *
    
    
    
    *Heng Wing Chan
    
    
    
    
    
    
    Hai Ling
    
    
    *
    
    
    
    *Richard Wei
    
    
    *
    
    
    
    *Xiangdong Zhang
    
    
    *
    
    
    
    *Jisheng Zhu
    
    
    *
    
    
    
    *Willam Chen
    
    
    *
    
    
    
    *Thomas Yih
    
    
    *
    
    
    
    *
 
 *
    
    Upon exercise of all options currently exercisable or vesting within 60 days of the date of
this table, would beneficially own less than 1% of our ordinary shares.(1)
    
    Consists of 409,087,000 Class B ordinary shares held by Shanda SDG Investment
Limited, a British Virgin Islands corporation and a direct wholly-owned subsidiary of Shanda
Interactive Entertainment Limited. Shanda Interactive Entertainment Limited is a publicly
listed company whose ADSs trade on the Nasdaq Global Market under the symbol SNDA. Shanda
SDG Investment Limiteds address is No. 208 Juli Road, Pudong New Area, Shanghai 201203,
Peoples Republic of China.   B. RELATED PARTY TRANSACTIONS
 Contractual Arrangements with Our PRC Operating Companies and Their Shareholders
  
    
    Loan Agreements, between a PRC subsidiary and the shareholders of a PRC operating
company. Pursuant to these loan agreements, the PRC subsidiary provides a loan to the
shareholders of the PRC operating to acquire and make contributions to the registered
capital of a PRC operating company in exchange for their equity interests in the PRC
operating company. The loans are interest free and are repayable on demand, but the
shareholders may not repay all or any part of the loans without the PRC subsidiarys prior
written consent.
 
    
    Equity Entrustment Agreement, between a PRC subsidiary and the shareholders of a PRC
operating company, pursuant to which the shareholders acknowledge their status as
shareholders of the PRC operating company.
 
    
    Equity Pledge Agreement, among a PRC subsidiary, a PRC operating company and the
shareholders of the PRC operating company, pursuant to which the shareholders of the PRC
operating company pledge their entire equity interests in the PRC operating company to the
PRC subsidiary to secure the performance of their respective obligations and the PRC
operating companys obligations under the various VIE agreements, including the Equity
Entrustment Agreement, the Business Operation Agreement and the Exclusive Consulting and
Service Agreement. Without the PRC subsidiarys prior written consent, the shareholders of
the PRC operating company may not transfer any equity interests in the PRC operating
company.
 
    
    Equity Disposition Agreement, among a PRC subsidiary, a PRC operating company and the
shareholders of the PRC operating company. Pursuant to this agreement, the PRC subsidiary
and any third party designated by the PRC subsidiary have the right, exercisable at any time
during the term of the agreement, if and when it is legal to do so under PRC laws and
regulations, to purchase from the shareholders of the PRC operating company, all or any part
of their equity interests in the PRC operating company at a purchase price equal to the
lowest price permissible by the then-applicable PRC laws and regulations. The agreement is
for an initial term of 20 years and renewable upon the PRC subsidiarys request.
  72




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
    
    Business Operation Agreement, among a PRC subsidiary, a PRC operating company and the
shareholders of the PRC operating company. This agreement sets forth the rights of the PRC
subsidiary to control the actions of the shareholders of the PRC operating company,
including without limitation, the right to manage the PRC operating companys daily
operation and appoint and remove the PRC operating companys directors.
 
    
    Exclusive Consulting and Service Agreement, between a PRC subsidiary and a PRC operating
company. Pursuant to this agreement, the PRC subsidiary has the exclusive right to provide
technology support and business consulting services to the PRC operating company for a fee.
 
    
    Proxies, executed by the shareholders of the PRC operating company in favor of a PRC
subsidiary. These irrevocable proxies grant the PRC subsidiary or its designees the power to
exercise the rights of the shareholders of the PRC operating company, including the right to
appoint directors, general manager and other senior management of the PRC operating company.
 Transactions and Agreements with Shanda Interactive
   Master Separation Agreement
  Contribution and Transfer.
 Indemnification.
 Liability Release.
 No Representations or Warranties.
 New VIE Agreements and New Game Licensing Agreements.
   73




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Amended and Restated Non-Compete and Non-Solicitation Agreement
   Amended and Restated Cooperation Agreement
    Amended and Restated Sales Agency Agreement
    Domain Names and Trademarks License Agreement
   74




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Deferred Revenues Transfer Agreement
   Lease of Office Facilities
  Transfer of Actoz
  Loans Outstanding
   Payment of Dividend
  Other Related Party Transactions
 Game License Agreement
 Others.
   75




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Item 8.
    
    FINANCIAL INFORMATION
 A. CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION
 Consolidated Financial Statements
  Legal Proceedings
    Dividend Policy
    B. SIGNIFICANT CHANGES
  
 Item 9.
    
    THE OFFER AND LISTING
 A. OFFER AND LISTING DETAILS
 Price Range of American Depositary Shares
   76




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##### Table of Contents



Market Price(US$)High
    
    
    LowYearly high and lowsYear 2009 (from September 25, 2009)
    
    $
    11.70
    
    
    $
    8.79Year 2010Quarterly highs and lows:Third quarter 2009 (from September 25, 2009)
    
    $
    11.70
    
    
    $
    10.75Fourth quarter 2009
    
    $
    11.40
    
    
    $
    8.79First quarter 2010
    
    $
    10.90
    
    
    $
    6.41Second quarter 2010
    
    $
    7.51
    
    
    $
    5.00Third quarter 2010
    
    $
    7.36
    
    
    $
    5.24Fourth quarter 2010
    
    $
    6.90
    
    
    $
    5.39First quarter 2011
    
    $
    7.15
    
    
    $
    5.69Second
quarter 2011 (through May 23, 2011)
    
    $
    7.64
    
    
    $
    6.32Monthly highs and lows:November 2010
    
    $
    6.65
    
    
    $
    5.60December 2010
    
    $
    6.64
    
    
    $
    5.74January 2011
    
    $
    6.59
    
    
    $
    5.81February 2011
    
    $
    6.16
    
    
    $
    5.69March 2011
    
    $
    7.15
    
    
    $
    5.74April 2011
    
    $
    7.64
    
    
    $
    6.32May 2011
(through May 23, 2011)
    
    $
    7.43
    
    
    $
    6.62
 B. PLAN OF DISTRIBUTION
  C. MARKETS
  D. SELLING SHAREHOLDER
  E. DILUTION
  F. EXPENSES OF THE ISSUE
  
 Item 10.
    
    ADDITIONAL INFORMATION
 A. SHARE CAPITAL
  B. MEMORANDUM AND ARTICLES OF ASSOCIATION
  C. MATERIAL CONTRACTS
   77




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##### Table of Contents



D. EXCHANGE CONTROLS
     E. TAXATION
 The following is a general summary of certain Cayman Islands, the Peoples Republic of China
and U.S. federal income tax considerations relevant to holders of our Class A ordinary shares or
ADSs. The discussion is not intended to be, nor should it be construed as, legal or tax advice to
any prospective holder of our Class A ordinary shares or ADSs. The discussion is based on laws and
relevant interpretations thereof in effect as of the date hereof, all of which are subject to
change or different interpretations, possibly with retroactive effect. The discussion does not
address U.S. state or local tax laws, or tax laws of jurisdictions other than the Cayman Islands,
the Peoples Republic of China and the United States.
 Cayman Islands Taxation
  Peoples Republic of China Taxation
 PRC taxation of us and our corporate group
    78




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##### Table of Contents



PRC taxation of our overseas shareholders
   United States Federal Income Tax Considerations
  
    
    certain financial institutions;
 
    
    dealers or traders in securities who use a mark-to-market method of tax accounting;
 
    
    persons holding Class A ordinary shares or ADSs as part of a hedging transaction,
straddle, wash sale, conversion transaction or integrated transaction or persons entering into
a constructive sale with respect to the Class A ordinary shares or ADSs;
 
    
    persons whose functional currency for U.S. federal income tax purposes is not the U.S.
dollar;
 
    
    entities classified as partnerships for U.S. federal income tax purposes;
 
    
    tax-exempt entities, including an individual retirement account or Roth IRA;
 
    
    persons that own or are deemed to own Class A ordinary shares or ADSs representing ten
percent or more of our voting stock;
 
    
    persons who acquired Class A ordinary shares or ADSs pursuant to the exercise of an
employee stock option or otherwise as compensation; or
 
    
    persons holding Class A ordinary shares or ADSs in connection with a trade or business
conducted outside of the United States.
  79




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##### Table of Contents




    
    a citizen or resident of the United States;
 
    
    a corporation, or other entity taxable as a corporation, created or organized in or
under the laws of the United States, any state therein or the District of Columbia; or
 
    
    an estate or trust the income of which is subject to U.S. federal income taxation
regardless of its source.
    Taxation of Distributions. pro rata
   80




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##### Table of Contents



Sale or Other Disposition of Ordinary Shares or ADSs.
  Passive Foreign Investment Company Rules.
      81




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##### Table of Contents



de minimis
      Information Reporting and Backup Withholding.
   F. DIVIDENDS AND PAYING AGENTS
  G. STATEMENTS BY EXPERTS
  H. DOCUMENTS ON DISPLAY
   82




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##### Table of Contents



I. SUBSIDIARY INFORMATION
  
 Item 11.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Interest Rate Risk
  Foreign Currency Risk
    83




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##### Table of Contents



Item 12.
    
    DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
  Service
    
    FeeIssuance or delivery of an ADR, including
issuances against deposit of shares, issuances
in respect of distributions, rights or other
distributions, surrendering of an ADR for
delivery of a Class A ordinary share,
cancellation of an ADR, including issuance,
delivery, surrendering or cancellation in
connection with share distributions, stock
splits, rights and mergers.
    
    US$5.00 for each 100 ADRs (or portion thereof), to
be paid to the depositaryAny cash distribution (other than cash dividend)
    
    Up to US$0.05 per ADSDepositary services
    
    US$0.02 per ADSA fee equivalent to the fee that would have been
payable if securities distributed to you had
been shares and the shares had been deposited
for issuance of ADSs
    
    Distribution of securities distributed to holders of
deposited securities which are distributed by the
depositary to ADS holdersRegistration or transfer fees
    
    Transfer and registration of shares on our share
register to or from the name of the depositary or its
agent when you deposit or withdraw sharesExpenses of the depositary
    
    Cable, telex and facsimile transmissions
Converting foreign currency to U.S. dollars
  
 PART II
 
 Item 13.
    
    DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
  
 Item 14.
    
    MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
 A.  D. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS
  E. USE OF PROCEEDS
  
 Item 15.
    
    CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
  Managements Report on Internal Control over Financial Reporting
    84




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Internal Control  Integrated Framework
 Internal
Control  Integrated Framework
   Changes in Internal Control over Financial Reporting
  
 Item 16A.
    
    AUDIT COMMITTEE FINANCIAL EXPERT
   
 Item 16B.
    
    CODE OF ETHICS
  
 Item 16C.
    
    PRINCIPAL ACCOUNTANT FEES AND SERVICES
  For the year ended December 31,2009
    
    
    2010RMB
    
    
    RMB
    
    
    US$(in thousands)Audit fees(1)
    
    
    11,540
    
    
    
    8,486
    
    
    
    1,491Total
    
    
    11,540
    
    
    
    8,486
    
    
    
    1,491
 (1)
    
    Audit fees means the aggregate fees in each of the fiscal years listed for
professional services rendered by our principal auditors for the audit of our annual consolidated
financial statements or services that are normally provided by the auditors in connection with
statutory and regulatory filings or engagements. Services comprising the fees disclosed under this
category also involve principally limited reviews performed on our consolidated financial
statements and the audits of the annual financial statements of our subsidiaries and affiliated
companies. 
 Item 16D.
    
    EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
   85




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Item 16E.
    
    PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
  (d) Maximum(c) Total
    
    
    ApproximateNumber of
    
    
    U.S. dollarADS
    
    
    Value of(b) Average
    
    
    Purchased
    
    
    ADSPrice
    
    
    as
    
    
    that May YetPaid
    
    
    Part of
    
    
    Be(a) Total
    
    
    per ADS
    
    
    Publicly
    
    
    PurchasedNumber of ADS
    
    
    in
    
    
    Announced
    
    
    Under thePeriod
    
    Purchased
    
    
    US$ (1)
    
    
    Plan
    
    
    PlanMarch 8  March 31, 2010
    
    
    2,554,500
    
    
    $
    6.79
    
    
    
    2,554,500
    
    
    $
    132,645,440April 1  April 30, 2010
    
    
    358,379
    
    
    $
    7.38
    
    
    
    2,912,879
    
    
    $
    130,000,044June 30  July 30, 2010
    
    
    350,000
    
    
    $
    5.76
    
    
    
    3,262,879
    
    
    $
    127,984,984August 1  August 31, 2010
    
    
    216,001
    
    
    $
    5.76
    
    
    
    3,478,880
    
    
    $
    126,741,777September 1  September 30, 2010
    
    
    1,721,005
    
    
    $
    5.45
    
    
    
    5,199,885
    
    
    $
    117,370,744October 1  October 31, 2010
    
    
    282,304
    
    
    $
    5.26
    
    
    
    5,482,189
    
    
    $
    115,774,122November 1  November 30, 2010
    
    
    400,000
    
    
    $
    5.78
    
    
    
    5,882,189
    
    
    $
    113,460,747December 1  December 31, 2010
    
    
    178,802
    
    
    $
    5.82
    
    
    
    5,899,991
    
    
    $
    112,420,566
 (1)
    
    Average price paid per ADS repurchased is the execution price, excluding commissions paid
to brokers. 
 Item 16F.
    
    CHANGE IN REGISTRANTS CERTIFYING ACCOUNTANT
  
 Item 16G.
    
    CORPORATE GOVERNANCE
  
 
 
 
  
 PART III
 
 Item 17.
    
    FINANCIAL STATEMENTS
  
 Item 18.
    
    FINANCIAL STATEMENTS
   86




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Item 19.
    
    EXHIBITS
 Number
    
    Description1.1
    
    
    Amended and Restated Memorandum and Articles of Association of
Shanda Games Limited (incorporated by reference to Exhibit 3.1 to
our Registration Statement on Form F-1 (file no. 333-161708) filed
with the Securities and Exchange Commission on September 30, 2009).2.1
    
    
    Specimen Certificate for Class A Ordinary Shares (incorporated by
reference to Exhibit 4.1 to our Registration Statement on Form F-1
(file no. 333-161708) filed with the Securities and Exchange
Commission on September 3, 2009).2.2
    
    
    Specimen of American Depositary Receipt (incorporated by reference
to Exhibit A to Exhibit 1 to our Registration Statement on Form F-6
(file no. 333-161901) filed with the Securities and Exchange
Commission on September 14, 2009).2.3
    
    
    Form of Deposit Agreement (incorporated by reference to Exhibit 1
to the Form F-6 (file no. 333-161901) filed with the Securities and
Exchange Commission on September 14, 2009).4.1
    
    
    Amended and Restated 2008 Equity Compensation Plan (incorporated by
references to Exhibit 10.1 to our Registration Statement on Form
F-1 (file no. 333-161708) filed with the Securities and Exchange
Commission on September 3, 2009).4.2
    
    
    Form of Indemnification Agreement with the Registrants directors
and officers (incorporated by references to Exhibit 10.2 to our
Registration Statement on Form F-1 (file no. 333-161708) filed with
the Securities and Exchange Commission on September 3, 2009).4.3
    
    
    Form of Employment Agreement (incorporated by references to Exhibit
10.3 to our Registration Statement on Form F-1 (file no.
333-161708) filed with the Securities and Exchange Commission on
September 3, 2009).4.4
    
    
    Master Separation Agreement between Shanda Interactive
Entertainment Limited and Shanda Games Limited dated July 1, 2008
(incorporated by references to Exhibit 10.4 to our Registration
Statement on Form F-1 (file no. 333-161708) filed with the
Securities and Exchange Commission on September 3, 2009).4.5
    
    
    English translation of Amended and Restated Cooperation Agreement
among Shanghai Shanda Networking Co., Ltd., Nanjing Shanda
Networking Co., Ltd., Shanghai Shulong Technology Development Co.,
Ltd., Nanjing Shulong Computer Technology Co., Ltd. and Shanghai
Shulong Computer Technology Co., Ltd. dated September 10, 2009
(incorporated by references to Exhibit 10.5 to Amendment No. 1 to
our Registration Statement on Form F-1 (file no. 333-161708) filed
with the Securities and Exchange Commission on September 14, 2009).4.6
    
    
    English translation of Domain Names and Trademarks License
Agreement between Shanda Computer (Shanghai) Co., Ltd. and Shengqu
Information Technology (Shanghai) Co., Ltd. dated July 1, 2008
(incorporated by references to Exhibit 10.6 to our Registration
Statement on Form F-1 (file no. 333-161708) filed with the
Securities and Exchange Commission on September 3, 2009).4.7
    
    
    Amended and Restated Non-Compete and Non-Solicitation Agreement
between Shanda Interactive Entertainment Limited and Shanda Games
Limited dated September 10, 2009 (incorporated by references to
Exhibit 10.7 to Amendment No. 1 to our Registration Statement on
Form F-1 (file no. 333-161708) filed with the Securities and
Exchange Commission on September 14, 2009).4.8
    
    
    English translation of Amended and Restated Sales Agency Agreement
among Shanghai Shengfutong Electronic Commerce Co., Ltd., Shanghai
Shulong Technology Development Co., Ltd., Nanjing Shulong Computer
Technology Development Co., Ltd. and Shanghai Shulong Computer
Technology Development Co., Ltd. dated September 10, 2009
(incorporated by references to Exhibit 10.7 to Amendment No. 1 to
our Registration Statement on Form F-1 (file no. 333-161708) filed
with the Securities and Exchange Commission on September 14, 2009).4.9
    
    
    English translation of Framework Agreement on Disposition of Shanda
Point Cards Inventories among Shanghai Shengfutong Electronic
Commerce Co., Ltd., Shanghai Shanda Networking Co., Ltd., Nanjing
Shanda Networking Development Co., Ltd., Hangzhou Bianfeng
Networking Technology Co., Ltd., Shanghai Shulong Technology Co.,
Ltd., Nanjing Shulong Computer Technology Co., Ltd. and Shanghai
Shulong Computer Technology Co., Ltd. dated July 1, 2008
(incorporated by references to Exhibit 10.9 to our Registration
Statement on Form F-1 (file no. 333-161708) filed with the
Securities and Exchange Commission on September 3, 2009).4.10
    
    
    English translation of Share Entrustment Agreement among Dongxu
Wang, Yingfeng Zhang and Shengqu Information Technology (Shanghai)
Co., Ltd. dated July 1, 2008 (incorporated by references to Exhibit
10.10 to our Registration Statement on Form F-1 (file no.
333-161708) filed with the Securities and Exchange Commission on
September 3, 2009).
  87




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##### Table of Contents



Number
    
    Description4.11
    
    
    English translation of Share Pledge Agreement among Dongxu Wang,
Yingfeng Zhang and Shengqu Information Technology (Shanghai) Co.,
Ltd. dated July 1, 2008 (incorporated by references to Exhibit
10.11 to our Registration Statement on Form F-1 (file no.
333-161708) filed with the Securities and Exchange Commission on
September 3, 2009).4.12
    
    
    English translation of Power of Attorney to Business Operating
Agreement executed by Dongxu Wang in favor of Shengqu Information
Technology (Shanghai) Co., Ltd. dated July 1, 2008 (incorporated by
references to Exhibit 10.12 to our Registration Statement on Form
F-1 (file no. 333-161708) filed with the Securities and Exchange
Commission on September 3, 2009).4.13
    
    
    English translation of Power of Attorney to Business Operating
Agreement executed by Yingfeng Zhang in favor of Shengqu
Information Technology (Shanghai) Co., Ltd. dated July 1, 2008
(incorporated by references to Exhibit 10.13 to our Registration
Statement on Form F-1 (file no. 333-161708) filed with the
Securities and Exchange Commission on September 3, 2009).4.14
    
    
    English translation of Share Disposition Agreement among Dongxu
Wang, Yingfeng Zhang, Shengqu Information Technology (Shanghai)
Co., Ltd. and Shanghai Shulong Technology Development Co., Ltd.
dated July 1, 2008 (incorporated by references to Exhibit 10.14 to
our Registration Statement on Form F-1 (file no. 333-161708) filed
with the Securities and Exchange Commission on September 3, 2009).4.15
    
    
    English translation of Business Operation Agreement among Dongxu
Wang, Yingfeng Zhang, Shengqu Information Technology (Shanghai)
Co., Ltd. and Shanghai Shulong Technology Development Co., Ltd.
dated July 1, 2008 (incorporated by references to Exhibit 10.15 to
our Registration Statement on Form F-1 (file no. 333-161708) filed
with the Securities and Exchange Commission on September 3, 2009).4.16
    
    
    English translation of Exclusive Consulting and Service Agreement
between Shengqu Information Technology (Shanghai) Co., Ltd. and
Shanghai Shulong Technology Development Co., Ltd. dated July 1,
2008 (incorporated by references to Exhibit 10.16 to our
Registration Statement on Form F-1 (file no. 333-161708) filed with
the Securities and Exchange Commission on September 3, 2009).4.17
    
    
    English translation of Loan Agreement between Shengqu Information
Technology (Shanghai) Co., Ltd. and Dongxu Wang dated July 1, 2008
(incorporated by references to Exhibit 10.17 to our Registration
Statement on Form F-1 (file no. 333-161708) filed with the
Securities and Exchange Commission on September 3, 2009).4.18
    
    
    English translation of Loan Agreement between Shengqu Information
Technology (Shanghai) Co., Ltd. and Yingfeng Zhang dated July 1,
2008 (incorporated by references to Exhibit 10.18 to our
Registration Statement on Form F-1 (file no. 333-161708) filed with
the Securities and Exchange Commission on September 3, 2009).4.19
    
    
    Mir II License Agreement among Actoz Soft Co., Ltd., Shanghai
Shanda Internet Development Co., Ltd. and Shanghai Pudong New Area
Imp. & Exp. Corp. dated June 29, 2001 (incorporated by references
to Exhibit 10.19 to our Registration Statement on Form F-1 (file
no. 333-161708) filed with the Securities and Exchange Commission
on September 3, 2009).4.20
    
    
    Mir II Amendment Agreement among Actoz Soft Co., Ltd., Shanghai
Shanda Internet Development Co., Ltd., and Shanghai Pudong Imp. &
Exp. Co., Ltd. dated August 19, 2003 (incorporated by references to
Exhibit 10.20 to our Registration Statement on Form F-1 (file no.
333-161708) filed with the Securities and Exchange Commission on
September 3, 2009)4.21
    
    
    Mir II Extension Agreement among Actoz Soft Co., Ltd., Shanghai
Shanda Internet Networking Co., Ltd. and Shanghai Pudong Imp. &
Exp. Co., Ltd. dated September 22, 2005 (incorporated by references
to Exhibit 10.21 to Amendment No. 1 to our Registration Statement
on Form F-1 (file no. 333-161708) filed with the Securities and
Exchange Commission on September 14, 2009).4.22
    
    
    Mir II Extension Agreement among Actoz Soft Co., Ltd., Shengqu
Information Technology (Shanghai) Co., Ltd. and Shanghai Pudong IMP
& EXP Co., Ltd. dated November 26, 2008 (incorporated by references
to Exhibit 10.22 to Amendment No. 1 to our Registration Statement
on Form F-1 (file no. 333-161708) filed with the Securities and
Exchange Commission on September 14, 2009)4.23
    
    
    Assignment Agreement of Mir II among Actoz Soft Co., Ltd, Shanghai
Shanda Internet Development Co., Ltd. and Shengqu Information
Technology (Shanghai) Co., Ltd. dated July 1, 2008 (incorporated by
references to Exhibit 10.22 to our Registration Statement on Form
F-1 (file no. 333-161708) filed with the Securities and Exchange
Commission on September 3, 2009)4.24
    
    
    Share Purchase Agreement between Shanda Interactive Entertainment
Limited and Shanda Games Korean Investment Limited dated May 2009
(incorporated by references to Exhibit 10.23 to our Registration
Statement on Form F-1 (file no. 333-161708) filed with the
Securities and Exchange Commission on September 3, 2009)4.25
    *
    
    Agreement and Plan of Merger between Shanda Games Limited, M
Acquisition Corporation, Mochi Media, Inc., Jameson Hsu and Bob
Ippolito, Shasta Ventures II, L.P., as shareholder representative,
and US Bank National Association, as escrow agent, dated as of
December 30, 20094.26
    *
    
    Sale and Purchase Agreement between Shanda Games International PTE.
Ltd., all of the shareholders of Eyedentity Games, Inc., and Eun
Sang Lee, as the sellers representative, dated as of September 7,
20108.1
    *
    
    List of Subsidiaries
  88




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##### Table of Contents



Number
    
    Description11.1
    
    
    Code of Ethics (incorporated by references to Exhibit 99.11 to our
Registration Statement on Form F-1 (file no. 333-161708) filed with
the Securities and Exchange Commission on September 3, 2009).12.1
    *
    
    Certification of Chief Executive Officer Required by Rule 13a-14(a).12.2
    *
    
    Certification of Chief Financial Officer Required by Rule 13a-14(a).13.1
    *
    
    Certification of Chief Executive Officer Required by Rule
13(a)-14(b) and Section 1350 of Chapter 63 of Title 18 of the
United States Code.13.2
    *
    
    Certification of Chief Financial Officer Required by Rule
13(a)-14(b) and Section 1350 of Chapter 63 of Title 18 of the
United States Code.15.1
    *
    
    Consent of PricewaterhouseCoopers Zhong Tian CPAs Limited Company15.2
    *
    
    Consent of Jade & Fountain PRC Lawyers
 *
    
    filed herewith  89




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SIGNATURE
  SHANDA GAMES LIMITEDBy:
    /s/ Qunzhao TanName:
    Qunzhao TanTitle:
    Chairman and Chief Executive Officer   90




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PageReport of Independent Registered Public Accounting Firm
    
    
    F-2Consolidated Statements of Operations and Comprehensive Income for the Years
Ended December 31, 2008, 2009 and 2010
    
    
    F-3Consolidated Balance Sheets as of December 31, 2009 and 2010
    
    
    F-4Consolidated Statements of Changes in Shareholders Equity for the Years
Ended December 31, 2008, 2009 and 2010
    
    
    F-5Consolidated Statements of Cash Flows for the Years Ended December 31, 2008,
2009 and 2010
    
    
    F-6Notes to the Consolidated Financial Statements for the Years Ended December
31, 2008, 2009 and 2010
    
    
    F-7
  F-1




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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF SHANDA GAMES LIMITED:
 Internal Control -
Integrated Framework
   F-2




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##### Table of Contents



F-3




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##### Table of Contents



SHANDA GAMES LIMITED
 
 CONSOLIDATED
STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
 (Amounts expressed in thousands, except share and per share data and where otherwise stated)
 For the Years Ended December 31,Notes
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    2010RMB
    
    
    RMB
    
    
    RMB
    
    
    US$ (Note 2(5))Net revenues:*
    
    
    2
    (18)MMORPG revenues
    
    
    
    
    
    
    2,948,501
    
    
    
    4,422,138
    
    
    
    4,018,284
    
    
    
    608,831Advanced casual game revenues
    
    
    
    
    
    
    355,841
    
    
    
    305,576
    
    
    
    300,609
    
    
    
    45,547Other revenues
    
    
    
    
    
    
    72,414
    
    
    
    78,991
    
    
    
    185,815
    
    
    
    28,154Total net revenues
    
    
    
    
    
    
    3,376,756
    
    
    
    4,806,705
    
    
    
    4,504,708
    
    
    
    682,532Cost of revenuesThird parties
    
    
    2
    (21)
    
    
    (768,241
    )
    
    
    (1,049,281
    )
    
    
    (1,032,639
    )
    
    
    (156,461
    )Related parties
    
    
    2(21), 19
    
    
    
    (721,119
    )
    
    
    (884,193
    )
    
    
    (804,543
    )
    
    
    (121,900
    )Total cost of revenues
    
    
    
    
    
    
    (1,489,360
    )
    
    
    (1,933,474
    )
    
    
    (1,837,182
    )
    
    
    (278,361
    )Gross profit
    
    
    
    
    
    
    1,887,396
    
    
    
    2,873,231
    
    
    
    2,667,526
    
    
    
    404,171Operating expenses:Product development
    
    
    2
    (23)
    
    
    (238,786
    )
    
    
    (339,754
    )
    
    
    (465,793
    )
    
    
    (70,575
    )Sales and marketingThird parties
    
    
    2
    (24)
    
    
    (124,484
    )
    
    
    (206,739
    )
    
    
    (275,267
    )
    
    
    (41,707
    )Related parties
    
    
    2(24), 19
    
    
    
    (80,057
    )
    
    
    (226,239
    )
    
    
    (226,542
    )
    
    
    (34,325
    )General and administrative
    
    
    2
    (22)
    
    
    (287,224
    )
    
    
    (366,136
    )
    
    
    (367,029
    )
    
    
    (55,610
    )Total operating expenses
    
    
    
    
    
    
    (730,551
    )
    
    
    (1,138,868
    )
    
    
    (1,334,631
    )
    
    
    (202,217
    )Income from operations
    
    
    
    
    
    
    1,156,845
    
    
    
    1,734,363
    
    
    
    1,332,895
    
    
    
    201,954Interest income
    
    
    
    
    
    
    33,436
    
    
    
    26,262
    
    
    
    61,706
    
    
    
    9,349Investment income
    
    
    
    
    
    
    
    
    
    
    214
    
    
    
    214
    
    
    
    32Other income, net
    
    
    5
    
    
    
    6,118
    
    
    
    169,444
    
    
    
    215,580
    
    
    
    32,664Income before income tax expenses and equity in
earning (loss) of affiliated companies
    
    
    
    
    
    
    1,196,399
    
    
    
    1,930,283
    
    
    
    1,610,395
    
    
    
    243,999Income tax expenses
    
    
    6
    
    
    
    (249,909
    )
    
    
    (428,676
    )
    
    
    (300,352
    )
    
    
    (45,507
    )Equity in (loss) earning of affiliated companies
    
    
    10
    
    
    
    918
    
    
    
    (30,071
    )
    
    
    (5,376
    )
    
    
    (815
    )Net income
    
    
    
    
    
    
    947,408
    
    
    
    1,471,536
    
    
    
    1,304,667
    
    
    
    197,677Less: Net income attributable to
non-controlling interest
    
    
    
    
    
    
    (11,924
    )
    
    
    (18,564
    )
    
    
    (15,846
    )
    
    
    (2,401
    )Net income attributable to Shanda Games Limited
    
    
    
    
    
    
    935,484
    
    
    
    1,452,972
    
    
    
    1,288,821
    
    
    
    195,276Net income
    
    
    
    
    
    
    947,408
    
    
    
    1,471,536
    
    
    
    1,304,667
    
    
    
    197,677Other comprehensive income:Unrealized (loss) gain of marketable securities
    
    
    
    
    
    
    
    
    
    
    6,389
    
    
    
    (3,842
    )
    
    
    (583
    )Currency translation adjustments of the Company
    
    
    2
    (4)
    
    
    
    
    
    
    183
    
    
    
    17,409
    
    
    
    2,638Currency translation adjustments of an affiliated
company/subsidiaries
    
    
    2
    (4)
    
    
    (144,702
    )
    
    
    42,642
    
    
    
    6,277
    
    
    
    951Comprehensive income
    
    
    
    
    
    
    802,706
    
    
    
    1,520,750
    
    
    
    1,324,511
    
    
    
    200,683Comprehensive (income) loss attributable to
non-controlling interest
    
    
    
    
    
    
    60,282
    
    
    
    (39,569
    )
    
    
    (17,658
    )
    
    
    (2,675
    )Comprehensive income attributable to Shanda
Games Limited
    
    
    
    
    
    
    862,988
    
    
    
    1,481,181
    
    
    
    1,306,853
    
    
    
    198,008Earnings per ordinary share
    
    
    2(30), 7Basic
    
    
    
    
    
    
    1.70
    
    
    
    2.61
    
    
    
    2.26
    
    
    
    0.34Diluted
    
    
    
    
    
    
    1.70
    
    
    
    2.60
    
    
    
    2.26
    
    
    
    0.34Weighted average ordinary shares used in per share
calculation
    
    
    7Basic
    
    
    
    
    
    
    550,000,000
    
    
    
    556,575,353
    
    
    
    570,645,594
    
    
    
    570,645,594Diluted
    
    
    
    
    
    
    550,000,000
    
    
    
    559,600,871
    
    
    
    570,795,057
    
    
    
    570,795,057Share-based compensation included in:
    
    
    2(25), 17Cost of revenue
    
    
    
    
    
    
    (858
    )
    
    
    (1,175
    )
    
    
    (761
    )
    
    
    (115
    )Product development
    
    
    
    
    
    
    (1,866
    )
    
    
    (2,113
    )
    
    
    (29,778
    )
    
    
    (4,512
    )Sales and marketing
    
    
    
    
    
    
    (1,001
    )
    
    
    (948
    )
    
    
    (293
    )
    
    
    (44
    )General and administrative
    
    
    
    
    
    
    (17,065
    )
    
    
    (121,575
    )
    
    
    (75,095
    )
    
    
    (11,378
    )
 *
    
    Begnining from January 1, 2010, the Group presents overseas revenues generated from
game licensing and game operations, which was previously presented under net revenues from
MMORPGs and advanced casual games, as applicable, under other revenues. The
year-over-year comparison of net revenues from MMORPGs, net revenues from advanced casual
games and other revenues has been reclassified to conform to this presentation.   F-4




---



##### Table of Contents



SHANDA GAMES LIMITED
 
 CONSOLIDATED BALANCE SHEETS
 (Amounts expressed in thousands, except share and per share data and where otherwise stated)
 Notes
    
    
    December 31, 2009
    
    
    December 31, 2010
    
    
    December 31, 2010RMB
    
    
    RMB
    
    
    US$ (Note 2(5))ASSETSCurrent assets:Cash and cash equivalents
    
    
    2(6), 8
    
    
    
    1,799,151
    
    
    
    1,571,771
    
    
    
    238,147Restricted cash
    
    
    2
    (7)
    
    
    54,471
    
    
    
    5,432
    
    
    
    823Short-term investments
    
    
    2
    (8)
    
    
    757,955
    
    
    
    597,614
    
    
    
    90,548Marketable securities
    
    
    2
    (9)
    
    
    9,219
    
    
    
    5,378
    
    
    
    815Accounts receivable, net of allowance for doubtful accounts
    
    
    2(10), 9
    
    
    
    18,503
    
    
    
    48,386
    
    
    
    7,331Accounts receivable due from related parties
    
    
    19
    
    
    
    405,932
    
    
    
    389,890
    
    
    
    59,074Deferred licensing fees and related costs
    
    
    2
    (20)
    
    
    53,550
    
    
    
    44,455
    
    
    
    6,736Prepayments and other current assets
    
    
    
    
    
    
    112,794
    
    
    
    132,766
    
    
    
    20,116Other receivables due from related parties
    
    
    19
    
    
    
    6,184
    
    
    
    531,888
    
    
    
    80,589Deferred tax assets
    
    
    6
    
    
    
    79,575
    
    
    
    66,884
    
    
    
    10,134Total current assets
    
    
    
    
    
    
    3,297,334
    
    
    
    3,394,464
    
    
    
    514,313Time deposits with maturity over one year
    
    
    2
    (8)
    
    
    
    
    
    
    1,215,274
    
    
    
    184,132Investment in affiliated companies
    
    
    2(11), 10
    
    
    
    8,703
    
    
    
    31,452
    
    
    
    4,765Property and equipment
    
    
    2(12), 11
    
    
    
    139,834
    
    
    
    195,420
    
    
    
    29,609Intangible assets
    
    
    2(13), 12
    
    
    
    517,248
    
    
    
    1,269,664
    
    
    
    192,373Goodwill
    
    
    2(14), 13
    
    
    
    170,075
    
    
    
    486,907
    
    
    
    73,774Long-term rental deposits
    
    
    
    
    
    
    64,759
    
    
    
    62,355
    
    
    
    9,448Other long term assets
    
    
    2
    (15)
    
    
    113,400
    
    
    
    104,484
    
    
    
    15,832Non-current deferred tax assets
    
    
    6
    
    
    
    16,091
    
    
    
    19,603
    
    
    
    2,970Total assets
    
    
    
    
    
    
    4,327,444
    
    
    
    6,779,623
    
    
    
    1,027,216LIABILITIESCurrent liabilities:Short-term borrowings
    
    
    
    
    
    
    15,000
    
    
    
    
    
    
    
    Accounts payable
    
    
    
    
    
    
    27,315
    
    
    
    64,609
    
    
    
    9,789Accounts payable due to related parties
    
    
    19
    
    
    
    70,770
    
    
    
    65,284
    
    
    
    9,892Licensing fees payable
    
    
    
    
    
    
    224,497
    
    
    
    245,988
    
    
    
    37,271Taxes payable
    
    
    
    
    
    
    142,536
    
    
    
    146,446
    
    
    
    22,189Deferred revenue
    
    
    2
    (19)
    
    
    250,934
    
    
    
    233,743
    
    
    
    35,416Other payables and accruals
    
    
    14
    
    
    
    433,442
    
    
    
    366,050
    
    
    
    55,461Other payables due to related parties
    
    
    19
    
    
    
    19,937
    
    
    
    950,743
    
    
    
    144,052Deferred tax liabilities
    
    
    6
    
    
    
    76,589
    
    
    
    69,684
    
    
    
    10,558Total current liabilities
    
    
    
    
    
    
    1,261,020
    
    
    
    2,142,547
    
    
    
    324,628Long-term liabilities
    
    
    
    
    
    
    6,090
    
    
    
    30,894
    
    
    
    4,681Non-current deferred tax liabilities
    
    
    6
    
    
    
    31,244
    
    
    
    297,200
    
    
    
    45,030Non-current deferred revenue
    
    
    2
    (19)
    
    
    3,546
    
    
    
    50,168
    
    
    
    7,602Total liabilities
    
    
    
    
    
    
    1,301,900
    
    
    
    2,520,809
    
    
    
    381,941Commitments and contingencies
    
    
    22
    
    
    
    
    
    
    
    
    
    
    
    EQUITYClass A ordinary shares (US$0.01 par value, 16,000,000,000
shares authorized, 167,000,000 and 158,302,254 issued and
outstanding as of December 31, 2009 and 2010)
    
    
    15
    
    
    
    1,782
    
    
    
    1,190
    
    
    
    180Class B ordinary shares (US$0.01 par value, 4,000,000,000
shares authorized, 409,087,000 and 409,087,000 issued and
outstanding as of December 31, 2009 and 2010)
    
    
    15
    
    
    
    40,193
    
    
    
    40,193
    
    
    
    6,090Additional paid-in capital
    
    
    
    
    
    
    1,229,189
    
    
    
    1,419,666
    
    
    
    215,101Statutory reserves
    
    
    2
    (28)
    
    
    127,034
    
    
    
    141,563
    
    
    
    21,449Accumulated other comprehensive loss
    
    
    
    
    
    
    (58,765
    )
    
    
    (40,734
    )
    
    
    (6,172
    )Retained earnings
    
    
    
    
    
    
    1,480,225
    
    
    
    2,458,072
    
    
    
    372,435Total Shanda Games Limited shareholders equity
    
    
    
    
    
    
    2,819,658
    
    
    
    4,019,950
    
    
    
    609,083Non-controlling interests
    
    
    
    
    
    
    205,886
    
    
    
    238,864
    
    
    
    36,192Total equity
    
    
    
    
    
    
    3,025,544
    
    
    
    4,258,814
    
    
    
    645,275Total liabilities and equity
    
    
    
    
    
    
    4,327,444
    
    
    
    6,779,623
    
    
    
    1,027,216
   F-5




---



##### Table of Contents



SHANDA GAMES LIMITED
 
 CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY
 (Amounts expressed in thousands, except share and per share data and where otherwise stated)
 Ordinary Share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total Shanda(US$0.01 Par Value)
    
    
    Additional
    
    
    
    
    
    
    Accumulated Other
    
    
    
    
    
    
    Games Limited
    
    
    Non-controllingNumber of Shares
    
    
    Par Value
    
    
    Paid-in Capital
    
    
    Statutory Reserves
    
    
    Comprehensive Loss
    
    
    Retained Earnings
    
    
    Shareholders Equity
    
    
    interests
    
    
    Total  EquityRMB
    
    
    RMB
    
    
    RMB
    
    
    RMB
    
    
    RMB
    
    
    RMB
    
    
    RMB
    
    
    RMBBalance as of January 1, 2008
    
    
    550,000,000
    
    
    
    40,193
    
    
    
    741,605
    
    
    
    110,341
    
    
    
    (14,478
    )
    
    
    123,508
    
    
    
    1,001,169
    
    
    
    215,249
    
    
    
    1,216,418Contribution from Shanda (Note 15)
    
    
    
    
    
    
    
    
    
    
    21,917
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    21,917
    
    
    
    (11,127
    )
    
    
    10,790Corporate expense allocation (Note 2(1))
    
    
    
    
    
    
    
    
    
    
    31,346
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    31,346
    
    
    
    
    
    
    
    31,346Share-based compensation (Note 17)
    
    
    
    
    
    
    
    
    
    
    17,622
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17,622
    
    
    
    3,169
    
    
    
    20,791Cumulative currency translation adjustments of an
affiliated company/a subsidiary
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (72,496
    )
    
    
    
    
    
    
    (72,496
    )
    
    
    (72,206
    )
    
    
    (144,702
    )Equity pick-up of the equity movement in an affiliated
company of a subsidiary
    
    
    
    
    
    
    
    
    
    
    842
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    842
    
    
    
    839
    
    
    
    1,681Repurchase of own shares by a subsidiary
    
    
    
    
    
    
    
    
    
    
    (8,951
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,951
    )
    
    
    (8,915
    )
    
    
    (17,866
    )Appropriations to statutory reserves
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,528
    
    
    
    
    
    
    
    (3,528
    )
    
    
    
    
    
    
    
    
    
    
    Distribution to Shanda
    
    
    
    
    
    
    
    
    
    
    (327,131
    )
    
    
    
    
    
    
    
    
    
    
    (502,820
    )
    
    
    (829,951
    )
    
    
    
    
    
    
    (829,951
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    935,484
    
    
    
    935,484
    
    
    
    11,924
    
    
    
    947,408Balance as of December 31, 2008
    
    
    550,000,000
    
    
    
    40,193
    
    
    
    477,250
    
    
    
    113,869
    
    
    
    (86,974
    )
    
    
    552,644
    
    
    
    1,096,982
    
    
    
    138,933
    
    
    
    1,235,915Issuance of ordinary shares upon initial public offering
    
    
    26,087,000
    
    
    
    1,782
    
    
    
    1,039,371
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,041,153
    
    
    
    
    
    
    
    1,041,153Corporate expense allocation (Note 2(1))
    
    
    
    
    
    
    
    
    
    
    14,351
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,351
    
    
    
    
    
    
    
    14,351Share-based compensation (Note 17)
    
    
    
    
    
    
    
    
    
    
    112,450
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    112,450
    
    
    
    13,361
    
    
    
    125,811Exercise of share option of a foreign subsidiary
    
    
    
    
    
    
    
    
    
    
    1,932
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,932
    
    
    
    14,023
    
    
    
    15,955Cumulative currency translation adjustments of the Company
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    183
    
    
    
    
    
    
    
    183
    
    
    
    
    
    
    
    183Cumulative currency translation adjustments of subsidiaries
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    21,637
    
    
    
    
    
    
    
    21,637
    
    
    
    21,005
    
    
    
    42,642Unrealized gain of marketable securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,389
    
    
    
    
    
    
    
    6,389
    
    
    
    
    
    
    
    6,389Appropriations to statutory reserves
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,165
    
    
    
    
    
    
    
    (13,165
    )
    
    
    
    
    
    
    
    
    
    
    Distribution to Shanda
    
    
    
    
    
    
    
    
    
    
    (416,165
    )
    
    
    
    
    
    
    
    
    
    
    (512,226
    )
    
    
    (928,391
    )
    
    
    
    
    
    
    (928,391
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,452,972
    
    
    
    1,452,972
    
    
    
    18,564
    
    
    
    1,471,536Balance as of December 31, 2009
    
    
    576,087,000
    
    
    
    41,975
    
    
    
    1,229,189
    
    
    
    127,034
    
    
    
    (58,765
    )
    
    
    1,480,225
    
    
    
    2,819,658
    
    
    
    205,886
    
    
    
    3,025,544Share Repurchase of the Company
    
    
    (12,123,982
    )
    
    
    (821
    )
    
    
    (21,112
    )
    
    
    
    
    
    
    
    
    
    
    (233,992
    )
    
    
    (255,925
    )
    
    
    
    
    
    
    (255,925
    )Corporate expense allocation (Note 2(1))
    
    
    
    
    
    
    
    
    
    
    8,183
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,183
    
    
    
    
    
    
    
    8,183Restricted stocks granted to subsidiary employees in
connection with acquisition(Note 4)
    
    
    
    
    
    
    
    
    
    
    24,050
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    24,050
    
    
    
    
    
    
    
    24,050Share-based compensation (Note 17)
    
    
    
    
    
    
    
    
    
    
    100,907
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    100,907
    
    
    
    5,020
    
    
    
    105,927Exercise of share option of the Company
    
    
    3,426,236
    
    
    
    229
    
    
    
    24,299
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    24,528
    
    
    
    
    
    
    
    24,528Exercise of share option of a foreign subsidiary
    
    
    
    
    
    
    
    
    
    
    439
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    439
    
    
    
    3,848
    
    
    
    4,287Cumulative currency translation adjustments of the Company
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17,409
    
    
    
    
    
    
    
    17,409
    
    
    
    
    
    
    
    17,409Cumulative currency translation adjustments of subsidiaries
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,464
    
    
    
    
    
    
    
    4,464
    
    
    
    1,813
    
    
    
    6,277Unrealized loss of marketable securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,842
    )
    
    
    
    
    
    
    (3,842
    )
    
    
    
    
    
    
    (3,842
    )Appropriations to statutory reserves
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,529
    
    
    
    
    
    
    
    (14,529
    )
    
    
    
    
    
    
    
    
    
    
    Distribution to Shanda
    
    
    
    
    
    
    
    
    
    
    53,711
    
    
    
    
    
    
    
    
    
    
    
    (62,453
    )
    
    
    (8,742
    )
    
    
    
    
    
    
    (8,742
    )Non-controlling interests arising from acquisition
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,451
    
    
    
    6,451Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,288,821
    
    
    
    1,288,821
    
    
    
    15,846
    
    
    
    1,304,667Balance as of December 31, 2010
    
    
    567,389,254
    
    
    
    41,383
    
    
    
    1,419,666
    
    
    
    141,563
    
    
    
    (40,734
    )
    
    
    2,458,072
    
    
    
    4,019,950
    
    
    
    238,864
    
    
    
    4,258,814
   F-6




---



##### Table of Contents



SHANDA GAMES LIMITED
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Amounts expressed in thousands, except share and per share data and where otherwise stated)
 For the Years Ended December 312008
    
    
    2009
    
    
    2010
    
    
    2010RMB
    
    
    RMB
    
    
    RMB
    
    
    US$ (Note 2(5))Cash flows from operating activities:Net income
    
    
    947,408
    
    
    
    1,471,536
    
    
    
    1,304,667
    
    
    
    197,677Adjustments for:Share-based compensation expenses
    
    
    20,790
    
    
    
    125,811
    
    
    
    105,927
    
    
    
    16,050Corporate expenses allocated from Shanda
    
    
    31,346
    
    
    
    14,351
    
    
    
    8,183
    
    
    
    1,240Depreciation of property and equipment
    
    
    52,339
    
    
    
    44,797
    
    
    
    57,017
    
    
    
    8,639Amortization of intangible assets
    
    
    104,897
    
    
    
    151,852
    
    
    
    246,579
    
    
    
    37,360Amortization of land use right
    
    
    113
    
    
    
    
    
    
    
    
    
    
    
    Provision for losses on receivables
    
    
    10,426
    
    
    
    3,411
    
    
    
    14,933
    
    
    
    2,263Loss from disposal of fixed assets
    
    
    84
    
    
    
    3,613
    
    
    
    2,566
    
    
    
    389Investment income
    
    
    
    
    
    
    (214
    )
    
    
    (214
    )
    
    
    (32
    )Impairment of trademark licensing fee in other long term assets
    
    
    
    
    
    
    
    
    
    
    10,173
    
    
    
    1,541Foreign exchange loss / (gain)
    
    
    (5,159
    )
    
    
    5,290
    
    
    
    5,164
    
    
    
    782Other Income
    
    
    
    
    
    
    
    
    
    
    (4,742
    )
    
    
    (718
    )Deferred taxes and change of withholding tax
    
    
    (20
    )
    
    
    33,572
    
    
    
    (9,297
    )
    
    
    (1,409
    )Equity in loss/(earnings) of affiliated companies
    
    
    (918
    )
    
    
    30,071
    
    
    
    5,376
    
    
    
    815Changes in assets and liabilities, net of acquisitions:Accounts receivable
    
    
    (37,016
    )
    
    
    (12,085
    )
    
    
    24,113
    
    
    
    3,653Receivables due from related parties
    
    
    (233,748
    )
    
    
    130,455
    
    
    
    13,339
    
    
    
    2,021Deferred licensing fees and related costs
    
    
    (19,762
    )
    
    
    (2,265
    )
    
    
    9,082
    
    
    
    1,376Prepayments and other current assets
    
    
    (11,896
    )
    
    
    (40,718
    )
    
    
    (2,813
    )
    
    
    (426
    )Upfront licensing fee paid in intangible assets
    
    
    (31,353
    )
    
    
    (105,749
    )
    
    
    (2,300
    )
    
    
    (348
    )Prepayment for upfront license fee in other long term assets
    
    
    (44,179
    )
    
    
    (19,754
    )
    
    
    (22,746
    )
    
    
    (3,446
    )Other long-term deposits
    
    
    (12,919
    )
    
    
    (9,384
    )
    
    
    4,905
    
    
    
    743Accounts payable
    
    
    18,309
    
    
    
    6,440
    
    
    
    13,913
    
    
    
    2,108Licensing fees payable
    
    
    60,146
    
    
    
    31,744
    
    
    
    4,757
    
    
    
    721Taxes payable
    
    
    48,173
    
    
    
    51,909
    
    
    
    2,699
    
    
    
    409Deferred revenue
    
    
    111,242
    
    
    
    (77,332
    )
    
    
    (15,712
    )
    
    
    (2,381
    )Payables due to related parties
    
    
    32,299
    
    
    
    12,620
    
    
    
    (3,182
    )
    
    
    (482
    )Other payables, accruals and other long-term liabilities
    
    
    103,888
    
    
    
    160,536
    
    
    
    (27,055
    )
    
    
    (4,101
    )Net cash provided by operating activities
    
    
    1,144,490
    
    
    
    2,010,507
    
    
    
    1,745,332
    
    
    
    264,444Cash flows from investing activities:Decrease /(increase) in restricted cash for foreign currency forward contract
    
    
    
    
    
    
    (702,075
    )
    
    
    702,075
    
    
    
    106,375Payment for the transfer of equity interest in a subsidiary from Shanda
    
    
    
    
    
    
    (479,661
    )
    
    
    
    
    
    
    Proceeds from income of marketable securities
    
    
    
    
    
    
    214
    
    
    
    214
    
    
    
    32Proceeds from disposal of short-term investment
    
    
    52,599
    
    
    
    
    
    
    
    
    
    
    
    Purchase of marketable securities
    
    
    (2,830
    )
    
    
    
    
    
    
    
    
    
    
    Increase of short-term investments and time deposits with maturity over one year
    
    
    (99,297
    )
    
    
    (502,350
    )
    
    
    (1,034,983
    )
    
    
    (156,816
    )(Increase) / decrease in loan receivable
    
    
    (14,006
    )
    
    
    18
    
    
    
    
    
    
    
    Increase of other receivables due from related parties
    
    
    
    
    
    
    
    
    
    
    (523,000
    )
    
    
    (79,242
    )Purchase of property and equipment
    
    
    (46,989
    )
    
    
    (96,668
    )
    
    
    (79,298
    )
    
    
    (12,015
    )Proceeds from disposal of fixed assets
    
    
    2,338
    
    
    
    480
    
    
    
    3,006
    
    
    
    455Purchase of intangible assets
    
    
    (11,947
    )
    
    
    (11,944
    )
    
    
    (6,708
    )
    
    
    (1,016
    )Acquisition of subsidiaries, net of cash acquired
    
    
    
    
    
    
    (93,626
    )
    
    
    (979,635
    )
    
    
    (148,430
    )Repurchase of own shares by a subsidiary
    
    
    (17,866
    )
    
    
    
    
    
    
    
    
    
    
    Investment in affiliated companies
    
    
    (6,193
    )
    
    
    (18,606
    )
    
    
    (31,900
    )
    
    
    (4,832
    )Net cash used in investing activities
    
    
    (144,191
    )
    
    
    (1,904,218
    )
    
    
    (1,950,229
    )
    
    
    (295,489
    )Cash flows from financing activities:Net proceeds from issuance of ordinary shares upon IPO
    
    
    
    
    
    
    1,041,153
    
    
    
    
    
    
    
    Proceeds from loans borrowed
    
    
    
    
    
    
    1,077,670
    
    
    
    
    
    
    
    Increase of other payables due to related parties
    
    
    
    
    
    
    
    
    
    
    947,049
    
    
    
    143,492Repayment of loans
    
    
    
    
    
    
    (375,595
    )
    
    
    (717,075
    )
    
    
    (108,648
    )Repurchase of own shares by the Company
    
    
    
    
    
    
    
    
    
    
    (255,925
    )
    
    
    (38,777
    )Proceeds from issuance of ordinary shares under stock option plan of the Company
    
    
    
    
    
    
    
    
    
    
    1,106
    
    
    
    168Proceeds from issuance of ordinary shares under stock option plan of a subsidiary
    
    
    
    
    
    
    15,955
    
    
    
    4,287
    
    
    
    650Net distribution to Shanda
    
    
    (748,271
    )
    
    
    (708,729
    )
    
    
    
    
    
    
    Net cash (used in) / provided by financing activities
    
    
    (748,271
    )
    
    
    1,050,454
    
    
    
    (20,558
    )
    
    
    (3,115
    )Effect of exchange rate changes on cash
    
    
    (16,699
    )
    
    
    13,517
    
    
    
    (1,925
    )
    
    
    (292
    )Net (decrease) / increase in cash and cash equivalents
    
    
    235,329
    
    
    
    1,170,260
    
    
    
    (227,380
    )
    
    
    (34,452
    )Cash and cash equivalents, beginning of year
    
    
    393,562
    
    
    
    628,891
    
    
    
    1,799,151
    
    
    
    272,599Cash and cash equivalents, end of year
    
    
    628,891
    
    
    
    1,799,151
    
    
    
    1,571,771
    
    
    
    238,147Supplemental disclosure of cash flow information:Cash paid during the year for income taxes
    
    
    232,669
    
    
    
    323,937
    
    
    
    264,981
    
    
    
    40,149Cash paid for interest expenses
    
    
    
    
    
    
    814
    
    
    
    419
    
    
    
    63Supplemental disclosure of non-cash investing activities:Acquisition related obligation
    
    
    
    
    
    
    48,800
    
    
    
    61,826
    
    
    
    9,368Issuance of restricted stocks to acquire Mochi
    
    
    
    
    
    
    
    
    
    
    24,050
    
    
    
    3,644Accounts payable related to purchase of property and equipment
    
    
    
    
    
    
    3,046
    
    
    
    23,628
    
    
    
    3,580Supplemental disclosure of non-cash financing activities:Restricted cash relating to the exercise of employee stock options
    
    
    
    
    
    
    54,471
    
    
    
    5,432
    
    
    
    823Other receivables from issuance of ordinary shares under stock option plan of the Company
    
    
    
    
    
    
    
    
    
    
    23,442
    
    
    
    3,552
   F-7




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##### Table of Contents



SHANDA GAMES LIMITED
 
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
 (Amounts expressed in thousands unless otherwise stated)
 1. ORGANIZATION AND NATURE OF OPERATIONS
 Nature of operations
  The Reorganization
     
    
    Establishment of Shanda Games. Shanda Games was incorporated in the
Cayman Islands on June 12, 2008 as a direct wholly-owned subsidiary of
Shanda, to be the holding company for the online game business.
Pursuant to a share exchange, Shanda Games became a direct
wholly-owned subsidiary of Shanda, and Shanda Games (HK) became a
direct wholly-owned subsidiary of Shanda Games.
    
    Assignment of Certain Original VIE Agreements. Shengqu assigned all of
the Original VIE Agreements with Shanda Networking, Nanjing Shanda and
Hangzhou Bianfeng (other than those relating to the operations of the
online game business, which were cancelled) to Shanda Computer
(Shanghai) Co., Ltd., or Shanda Computer, an indirect wholly-owned
subsidiary of Shanda, thereby making Shanda Computer the primary
beneficiary of Shanda Networking.
  F-8




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##### Table of Contents



SHANDA GAMES LIMITED
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(Amounts expressed in thousands unless otherwise stated)
 
    
    Transfer of Equity Interests. Shanda Networking transferred the equity
interests of Shanghai Shulong to two nominee shareholders, both of
whom are PRC citizens.
    
    New VIE Agreements. The PRC subsidiaries entered into various
agreements, including contracts relating to the transfer of assets,
the provision of services and software licenses and equipment with the
PRC operating companies and contracts relating to certain shareholder
rights and corporate governance matters with PRC operating companies
and their nominee shareholders (collectively, the New VIE
Agreements).
    
    Separation Agreement. Pursuant to a Master Separation Agreement,
Shanda transferred all of its assets and liabilities related to its
online game business (including applicable equity investments and
intellectual property rights) to Shanghai Shulong. Concurrently, all
assets and liabilities unrelated to the online game business,
including certain real property interests, intellectual property
rights and personal tangible properties were transferred to Shanda.
    
    Game Licensing Agreements. Prior to the Reorganization, Shengqu had
licensed certain rights to online games from various third parties,
which rights were sublicensed to Shanda Networking and its
subsidiaries. As a part of the Reorganization, Shengqu amended such
third party license agreements to allow Shengqu to sublicense its
rights to the Shulong entities. Following the Reorganization, the
Company conducts its online game business through the PRC operating
companies.
   2. PRINCIPAL ACCOUNTING POLICIES
 (1) Basis of preparation
      F-9




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##### Table of Contents



SHANDA GAMES LIMITED
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(Amounts expressed in thousands unless otherwise stated)
       (2) Use of estimates
   (3) Consolidation
  Consolidation of Variable Interest Entities, an Interpretation of ARB No.
51
  F-10




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##### Table of Contents



SHANDA GAMES LIMITED
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(Amounts expressed in thousands unless otherwise stated)
   
    
    Equipment leasing agreements, pursuant to which Shanda Networking, Nanjing Shanda and
Hangzhou Bianfeng leased a substantial majority of their operating assets from Shengqu;
 
    
    Technical support agreements, pursuant to which Shengqu provided technical support for
Shanda Networking Nanjing Shanda and Hangzhou Bianfengs operations;
 
    
    Software license agreements, pursuant to which Shengqu licensed certain game related
software to Shanda Networking, Nanjing Shanda and Hangzhou Bianfeng;
 
    
    A strategic consulting agreement, pursuant to which Shengqu provided strategic
consulting services to Shanda Networking, Nanjing Shanda and Hangzhou Bianfeng; and
 
    
    Online game license agreements, pursuant to which Shanda Networking, Nanjing Shanda and
Hangzhou Bianfeng operated certain online games that are licensed or owned by Shengqu.
    Loan Agreements
  F-11




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##### Table of Contents



SHANDA GAMES LIMITED
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(Amounts expressed in thousands unless otherwise stated)
 Equity Entrust Agreement
 Equity Pledge Agreement
 Equity Disposition Agreement
 Business Operation Agreement
 Exclusive Consulting and Service Agreement
 Proxies
    (4) Foreign currency translation
    F-12




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##### Table of Contents



SHANDA GAMES LIMITED
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(Amounts expressed in thousands unless otherwise stated)
  (5) Convenience translation
  (6) Cash and cash equivalents
  (7) Restricted cash
  (8) Short-term investments and time deposits with maturity over one year
   (9) Marketable securities
     F-13




---



##### Table of Contents



SHANDA GAMES LIMITED
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(Amounts expressed in thousands unless otherwise stated)
 (10) Allowances for doubtful accounts
   (11) Investment in affiliated companies
   (12) Property and equipment
  Computer equipment
    
    5 yearsLeasehold improvements
    
    Lesser of the term of the lease or the estimated useful lives of the assetsFurniture and fixtures
    
    5 yearsMotor vehicles
    
    5 years
  (13) Intangible assets
 Online game product development costs
 Accounting
for Costs of Computer Software to be Sold, Leased or Otherwise Marketed
  F-14




---



##### Table of Contents



SHANDA GAMES LIMITED
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(Amounts expressed in thousands unless otherwise stated)
 Website and internally used software development costs
 Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use
 Upfront licensing fees
  Software and copyrights
  Software technology, game engine, non-compete agreements, customer database and trademark
acquired through business combinations
 Business Combinations
 Software technology
    
    0.5 to 7.5 yearsGame engine
    
    3 to 10 yearsNon-compete agreements
    
    2.5 to 5 yearsCustomer database
    
    2 to 5.5 yearsTrademarks
    
    7.5 or 20 yearsIn-process research and development
    
    Prior to January 1, 2009, written
off immediately. Beginning from
January 1, 2009, indefinite life
and subject to impairment testing
until completed or abandoned
 (14) Goodwill
   F-15




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##### Table of Contents



SHANDA GAMES LIMITED
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(Amounts expressed in thousands unless otherwise stated)
 Goodwill and other
intangible assets
 (15) Other long-term assets
  (16) Impairment of long-lived assets and intangible assets
  (17) Financial instruments
  (18) Revenue recognition
 Online game revenue
    F-16




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##### Table of Contents



SHANDA GAMES LIMITED
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(Amounts expressed in thousands unless otherwise stated)
 Reporting revenue gross as
a principal versus net as an agent
   Other Revenues
       F-17




---



##### Table of Contents



SHANDA GAMES LIMITED
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(Amounts expressed in thousands unless otherwise stated)
 (19) Deferred revenue
  (20) Deferred licensing fees and related costs
  (21) Cost of revenue
  (22) General and administrative
  (23) Product development
  (24) Sales and marketing
  (25) Share-based compensation
 Accounting for stock-based
compensation
  F-18




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##### Table of Contents



SHANDA GAMES LIMITED
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(Amounts expressed in thousands unless otherwise stated)
  (26) Leases
  (27) Taxation
  Income Taxes
 Accounting for Uncertainty in Income Taxes  An interpretation of FASB
Statement No. 109
 (28) Statutory reserves
 China
      F-19




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##### Table of Contents



SHANDA GAMES LIMITED
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(Amounts expressed in thousands unless otherwise stated)
   Korea
  (29) Dividends
    (30) Earnings per share
  (31) Comprehensive income
  (32) Segment reporting
 Disclosures about Segments of an Enterprise and Related Information
 (33) Fair value measurements
   F-20




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##### Table of Contents



SHANDA GAMES LIMITED
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(Amounts expressed in thousands unless otherwise stated)
      Fair Value Measurements at Reporting Date UsingQuoted Prices in
    
    
    Significant Other
    
    
    SignificantDecember 31,
    
    
    Active Markets for
    
    
    Observable
    
    
    Unobservable2009
    
    
    Identical Assets
    
    
    Inputs
    
    
    Inputs(Level 1)
    
    
    (Level 2)
    
    
    (Level 3)RMB
    
    
    RMB
    
    
    RMB
    
    
    RMBMarketable securities  Common stock
    
    
    9,219
    
    
    
    9,219
    
    
    
    
    
    
    
    Short-term investments  Bank time deposits
    
    
    757,955
    
    
    
    
    
    
    
    757,955
    
    
    
    
 Quoted Prices in
    
    
    Significant Other
    
    
    SignificantDecember 31,
    
    
    Active Markets for
    
    
    Observable
    
    
    Unobservable2010
    
    
    Identical Assets
    
    
    Inputs
    
    
    Inputs(Level 1)
    
    
    (Level 2)
    
    
    (Level 3)RMB
    
    
    RMB
    
    
    RMB
    
    
    RMBMarketable securities  Common stock
    
    
    5,378
    
    
    
    5,378
    
    
    
    
    
    
    
    Short-term investments  Bank time deposits
    
    
    597,614
    
    
    
    
    
    
    
    597,614
    
    
    
    Time deposits with maturity over one year
    
    
    1,215,274
    
    
    
    
    
    
    
    1,215,274
    
    
    
    
  Fair Value Measurements at Reporting Date UsingSignificantQuoted Prices in
    
    
    Other
    
    
    SignificantActive Markets
    
    
    Observable
    
    
    UnobservableDecember
    
    
    for Identical
    
    
    Inputs
    
    
    InputsNote
    
    
    31, 2010
    
    
    Assets (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)
    
    
    Total LossesRMB
    
    
    RMB
    
    
    RMBOther long term assets
    
    
    2
    (16)
    
    
    104,484
    
    
    
    
    
    
    
    
    
    
    
    104,484
    
    
    
    (10,173
    )
   F-21




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##### Table of Contents



SHANDA GAMES LIMITED
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(Amounts expressed in thousands unless otherwise stated)
 (34) Business combinations and non-controlling interests
  Business combinations
  Non-controlling Interests in Consolidated Financial Statements-an amendment of ARB No.51
 3. RECENT ACCOUNTING PRONOUNCEMENTS
 Revenue Recognition (Topic 605): Multiple-Deliverable Revenue
Arrangements
 Consolidations (Topic 810): Improvements
to Financial Reporting by Enterprises Involved with Variable Interest Entities Amendments to FASB Interpretation No. 46
(R) Consolidation  Overall  Disclosure 
Variable Interest Entities
  F-22




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##### Table of Contents



SHANDA GAMES LIMITED
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(Amounts expressed in thousands unless otherwise stated)
 Fair Value Measurements and Disclosures
(Topic 820)  Improving Disclosures about Fair Value Measurements Fair Value
Measurements and Disclosures  Overall,
 Subsequent Events  Amendments to Certain
Recognition and Disclosure Requirements.
 Effect of Denominating the Exercise Price
of a Share-Based Payment Award in the Currency of the Market in Which the Underlying Equity
Security Trades CompensationStock Compensation
 Receivables (Topic 310)  Disclosures about the
Credit Quality of Financial Receivables and the Allowance for Credit Losses"
 Business
Combinations (Topic 805): Disclosure of Supplementary Pro Forma Information for Business
Combinations
  F-23




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##### Table of Contents



SHANDA GAMES LIMITED
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(Amounts expressed in thousands unless otherwise stated)
 4. BUSINESS COMBINATIONS
  Acquisition completed in 2010
     AmortizationRMB
    
    
    PeriodCash
    
    
    26,730Other assets
    
    
    14,817Identifiable intangible assetsTrademark
    
    
    9,410
    
    
    20 yearsSoftware technology
    
    
    41,560
    
    
    3~6 yearsCustomer database
    
    
    6,370
    
    
    5 yearsPurchased in-progress research and development
    
    
    23,870Deferred tax liabilities
    
    
    (17,084
    )Goodwill
    
    
    25,077Current liabilities
    
    
    (10,750
    )Purchase price
    
    
    120,000
     F-24




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##### Table of Contents



SHANDA GAMES LIMITED
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(Amounts expressed in thousands unless otherwise stated)
   AmortizationRMB
    
    
    PeriodCash
    
    
    35,193Other assets
    
    
    17,470Identifiable intangible assetsTrademark
    
    
    218,442
    
    
    20 yearsSoftware technology
    
    
    184,310
    
    
    7 yearsDeferred tax liabilities
    
    
    (161,101
    )Goodwill
    
    
    163,617Current liabilities
    
    
    (15,220
    )Long term liabilities
    
    
    (4,118
    )Purchase price
    
    
    438,593
      AmortizationRMB
    
    
    PeriodCash
    
    
    25,600Other assets
    
    
    55,752Identifiable intangible assetsSoftware technology
    
    
    356,189
    
    
    6~10 yearsNon-compete arrangement
    
    
    13,621
    
    
    3 yearsPurchased in-progress research and development
    
    
    89,218Deferred tax liabilities
    
    
    (102,693
    )Goodwill
    
    
    123,425Current liabilities
    
    
    (40,313
    )Purchase price
    
    
    520,799
  F-25




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##### Table of Contents



SHANDA GAMES LIMITED
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(Amounts expressed in thousands unless otherwise stated)
     Year Ended
    
    
    Year EndedDecember 31,
    
    
    December 31,2009
    
    
    2010Unaudited
    
    
    UnauditedRMB
    
    
    RMBNet revenues:
    
    
    4,891,796
    
    
    
    4,525,472Net income
    
    
    1,371,506
    
    
    
    1,285,234Earnings per ordinary shareBasic
    
    
    2.46
    
    
    
    2.25Diluted
    
    
    2.45
    
    
    
    2.25
       F-26




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##### Table of Contents



SHANDA GAMES LIMITED
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(Amounts expressed in thousands unless otherwise stated)
 Acquisition completed in 2009
 Chengdu Simo
   RMBCash
    
    
    6,374Other assets
    
    
    26,885Identifiable intangible assets
    
    
    104,300Purchased in-progress research and development
    
    
    6,000Deferred tax liabilities
    
    
    (11,723
    )Goodwill
    
    
    53,532Current liabilities
    
    
    (36,568
    )Purchase price
    
    
    148,800
   Year Ended(in thousands, except per share data)
    
    December 31, 2009unauditedRMBNet revenues
    
    
    4,835,256Net income
    
    
    1,413,837Earnings per ordinary shareBasic
    
    
    2.54Diluted
    
    
    2.53
   F-27




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##### Table of Contents



SHANDA GAMES LIMITED
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(Amounts expressed in thousands unless otherwise stated)
 5. OTHER INCOME
 For the years ended December 31,2008
    
    
    2009
    
    
    2010RMB
    
    
    RMB
    
    
    RMBGovernment financial incentives
    
    
    18,421
    
    
    
    177,020
    
    
    
    232,302Foreign exchange (loss) gain
    
    
    10,756
    
    
    
    (5,290
    )
    
    
    (5,164
    )Donation expense
    
    
    (16,084
    )
    
    
    
    
    
    
    (5,812
    )Others
    
    
    (6,975
    )
    
    
    (2,286
    )
    
    
    (5,746
    )6,118
    
    
    
    169,444
    
    
    
    215,580
  6. TAXATION
 Cayman Islands
  Hong Kong
  China
     F-28




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##### Table of Contents



SHANDA GAMES LIMITED
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(Amounts expressed in thousands unless otherwise stated)
   Korea
   United States
  Composition of income tax expense
  For the years ended December 31,2008
    
    
    2009
    
    
    2010RMB
    
    
    RMB
    
    
    RMBCurrent income tax expenses
    
    
    205,704
    
    
    
    358,104
    
    
    
    310,118Deferred income tax expenses (benefits)
    
    
    7,205
    
    
    
    937
    
    
    
    (9,766
    )Withholding taxes
    
    
    37,000
    
    
    
    69,635
    
    
    
    Income tax expenses
    
    
    249,909
    
    
    
    428,676
    
    
    
    300,352
  F-29




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##### Table of Contents



SHANDA GAMES LIMITED
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(Amounts expressed in thousands unless otherwise stated)
 Reconciliation of the differences between statutory tax rate and the effective tax rate
  For the years ended December 31,2008
    
    
    2009
    
    
    2010RMB
    
    
    RMB
    
    
    RMBStatutory income tax rate
    
    
    25
    %
    
    
    25
    %
    
    
    25
    %Tax differential from statutory rate
applicable to the subsidiaries and the
VIE subsidiaries
    
    
    (11
    )%
    
    
    (12
    )%
    
    
    (7
    )%Enacted tax rate change
    
    
    (1
    )%
    
    
    
    
    
    
    Effect of tax holidays
    
    
    
    
    
    
    
    
    
    
    (5
    )%Effect of the withholding taxes
    
    
    3
    %
    
    
    4
    %
    
    
    Effect of change in valuation allowance
    
    
    4
    %
    
    
    4
    %
    
    
    4
    %Non-deductible expenses incurred in PRC
    
    
    1
    %
    
    
    1
    %
    
    
    1
    %Others
    
    
    
    
    
    
    
    
    
    
    1
    %Effective income tax rate
    
    
    21
    %
    
    
    22
    %
    
    
    19
    %
  For the years ended December 31,(in thousands, except per share data)
    
    2008
    
    
    2009
    
    
    2010RMB
    
    
    RMB
    
    
    RMBThe aggregate effect
    
    
    
    
    
    
    
    
    
    
    84,367Basic ordinary share effect
    
    
    
    
    
    
    
    
    
    
    0.15Diluted ordinary share effect
    
    
    
    
    
    
    
    
    
    
    0.15
  Significant components of deferred tax assets and deferred tax liabilities are as follows:
 December 31, 2009
    
    
    December 31, 2010RMB
    
    
    RMBDeferred tax assetsLicensing fees and related costs and deferred revenues
    
    
    31,208
    
    
    
    29,268Other temporary differences
    
    
    61,025
    
    
    
    69,693Foreign tax credit of Actoz and Eyedentity
    
    
    117,557
    
    
    
    156,940Development cost
    
    
    9,825
    
    
    
    10,755Less: Valuation allowance
    
    
    (123,949
    )
    
    
    (180,169
    )Total deferred tax assets, net of valuation allowance
    
    
    95,666
    
    
    
    86,487Deferred tax liabilitiesIntangible assets arising from business combination
    
    
    38,149
    
    
    
    297,200Withholding taxes
    
    
    69,684
    
    
    
    69,684Total deferred tax liabilities
    
    
    107,833
    
    
    
    366,884
 Movement of valuation allowances
 For the years ended December 31,2008
    
    
    2009
    
    
    2010RMB
    
    
    RMB
    
    
    RMBBalance at beginning of year
    
    
    3,118
    
    
    
    41,610
    
    
    
    123,949Current year additions
    
    
    38,492
    
    
    
    82,339
    
    
    
    56,220Balance at end of year
    
    
    41,610
    
    
    
    123,949
    
    
    
    180,169
   F-30




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##### Table of Contents



SHANDA GAMES LIMITED
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(Amounts expressed in thousands unless otherwise stated)
  7. EARNINGS PER SHARE
  For the years ended December 31,(in thousands, except share and per share data)
    
    2008
    
    
    2009
    
    
    2010RMB
    
    
    RMB
    
    
    RMBNumerator:Net income per ordinary share attributable to
Shanda Games Limited for basic and diluted
earnings
    
    
    935,484
    
    
    
    1,452,972
    
    
    
    1,288,821Denominator:Weighted-average ordinary shares outstanding
for basic calculation
    
    
    550,000,000
    
    
    
    556,575,353
    
    
    
    570,645,594Dilutive effect of share options
    
    
    
    
    
    
    2,986,054
    
    
    
    149,463Dilutive effect of restricted shares
    
    
    
    
    
    
    39,464
    
    
    
    Denominator for diluted calculation
    
    
    550,000,000
    
    
    
    559,600,871
    
    
    
    570,795,057Net income per ordinary share attributable
to Shanda Games Limiteds shareholders-basic
    
    
    1.70
    
    
    
    2.61
    
    
    
    2.26Net income per ordinary share attributable
to Shanda Games Limiteds shareholders-diluted
    
    
    1.70
    
    
    
    2.60
    
    
    
    2.26
  8. CASH AND CASH EQUIVALENTS
   9. ACCOUNTS RECEIVABLE
 December 31, 2009
    
    
    December 31, 2010RMB
    
    
    RMBAccounts receivable
    
    
    20,544
    
    
    
    52,305Less: Allowance for doubtful accounts
    
    
    (2,041
    )
    
    
    (3,919
    )18,503
    
    
    
    48,386
  F-31




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##### Table of Contents



SHANDA GAMES LIMITED
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(Amounts expressed in thousands unless otherwise stated)
  For the years ended December 31,2009
    
    
    2010RMB
    
    
    RMBBalance at beginning of year
    
    
    8,853
    
    
    
    2,041Add: Current year additions
    
    
    1,673
    
    
    
    3,420Less: Current year reversal
    
    
    
    
    
    
    (30
    )Current year write-offs
    
    
    (8,485
    )
    
    
    (1,512
    )Balance at end of year
    
    
    2,041
    
    
    
    3,919
 10. INVESTMENTS IN AFFILIATED COMPANIES
  December31, 2009
    
    
    December 31, 2010PercentageRMB
    
    
    RMB
    
    
    OwnershipAnipark Co., Ltd. (Anipark)
    
    
    6,751
    
    
    
    3,023
    
    
    
    12.78
    %Shanghai Qiyu Information Technology Co., Ltd. (Shanghai Qiyu)
    
    
    829
    
    
    
    829
    
    
    
    20
    %Xiamen Lianyu Science and Technology Co., Ltd. (Xiamen Lianyu)
    
    
    505
    
    
    
    297
    
    
    
    30
    %Fuzhou Lingyu Computer Technology Co., Ltd. (Fuzhou Lingyu)
    
    
    319
    
    
    
    319
    
    
    
    30
    %Shenzhen Youyou Digital Technology Co., Ltd.(Shenzhen Youyou)
    
    
    123
    
    
    
    2,197
    
    
    
    30
    %Chongqing Xiaoheiwu Technology Co., Ltd. (Chongqing Xiaoheiwu)
    
    
    
    
    
    
    151
    
    
    
    23
    %Shijiazhuang Hailan Online Game Development Co., Ltd. (Shijiangzhuang Hailan)
    
    
    
    
    
    
    3,661
    
    
    
    23
    %Shanghai Lantian Information Technology Co.,Ltd. (Shanghai Lantian)
    
    
    
    
    
    
    2,866
    
    
    
    23
    %Beijing Yicheng Tianxia Technology Co.,Ltd. (Beijing Yicheng Tianxia)
    
    
    
    
    
    
    7,842
    
    
    
    40
    %Shanghai Maishi Information Technology Co.,Ltd. (Shanghai Maishi)
    
    
    
    
    
    
    5,229
    
    
    
    20
    %Chengdu Awata Network Technology Co.,Ltd. (Chengdu Awata)
    
    
    
    
    
    
    5,000
    
    
    
    20
    %Others
    
    
    176
    
    
    
    38
    
    
    
    23
    %Total
    
    
    8,703
    
    
    
    31,452
  Share of
    
    
    AmortizationProfit/(Loss)
    
    
    of IdentifiableBalances at
    
    
    
    
    
    
    on Affiliated
    
    
    Intangible
    
    
    
    
    
    
    Transferred
    
    
    Balances atJanuary 1,
    
    
    
    
    
    
    Companies
    
    
    Assets, Net of
    
    
    Other Equity
    
    
    Out to Related
    
    
    December 31,2009
    
    
    Investments
    
    
    Investments
    
    
    Tax
    
    
    Movement
    
    
    Party
    
    
    2009RMB
    
    
    RMB
    
    
    RMB
    
    
    RMB
    
    
    RMB
    
    
    RMB
    
    
    RMBShanghai Weilai Information
Technology Co., Ltd.
    
    
    3,333
    
    
    
    11,667
    
    
    
    (15,000
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Beijing Zhongcheng Cooperation and
Technology Development Co., Ltd.
    
    
    6,069
    
    
    
    5,731
    
    
    
    (11,800
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Anipark
    
    
    3,910
    
    
    
    
    
    
    
    2,194
    
    
    
    
    
    
    
    647
    
    
    
    
    
    
    
    6,751Shanghai Caiqu Network Technology
Co., Ltd.
    
    
    4,000
    
    
    
    
    
    
    
    340
    
    
    
    (340
    )
    
    
    
    
    
    
    (4,000
    )
    
    
    Shanghai Qiyu
    
    
    960
    
    
    
    
    
    
    
    (71
    )
    
    
    (60
    )
    
    
    
    
    
    
    
    
    
    
    829Xiamen Lianyu
    
    
    374
    
    
    
    
    
    
    
    142
    
    
    
    (11
    )
    
    
    
    
    
    
    
    
    
    
    505Fuzhou Lingyu
    
    
    
    
    
    
    1,000
    
    
    
    (681
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    319Chengdu Sunray Technology Co., Ltd.
    
    
    4,570
    
    
    
    
    
    
    
    (4,570
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Beijing Chuanyue Shidai Information
Co., Ltd.
    
    
    178
    
    
    
    
    
    
    
    (178
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Shenzhen Youyou
    
    
    127
    
    
    
    
    
    
    
    (4
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    123Others
    
    
    
    
    
    
    208
    
    
    
    (32
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    176Total
    
    
    23,521
    
    
    
    18,606
    
    
    
    (29,660
    )
    
    
    (411
    )
    
    
    647
    
    
    
    (4,000
    )
    
    
    8,703
  F-32




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##### Table of Contents



SHANDA GAMES LIMITED
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(Amounts expressed in thousands unless otherwise stated)
 Share of
    
    
    AmortizationProfit/(Loss)
    
    
    of IdentifiableBalances at
    
    
    
    
    
    
    on Affiliated
    
    
    Intangible
    
    
    
    
    
    
    Transferred
    
    
    Balances atJanuary 1,
    
    
    
    
    
    
    Companies
    
    
    Assets, Net of
    
    
    Other Equity
    
    
    Out to Related
    
    
    December 31,2010
    
    
    Investments
    
    
    Investments
    
    
    Tax
    
    
    Movement
    
    
    Party
    
    
    2010RMB
    
    
    RMB
    
    
    RMB
    
    
    RMB
    
    
    R RMB
    
    
    RMB
    
    
    RMBAnipark
    
    
    6,751
    
    
    
    
    
    
    
    (3,851
    )
    
    
    
    
    
    
    123
    
    
    
    
    
    
    
    3,023Shanghai Qiyu
    
    
    829
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    829Xiamen Lianyu
    
    
    505
    
    
    
    
    
    
    
    (208
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    297Fuzhou Lingyu
    
    
    319
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    319Shenzhen Youyou
    
    
    123
    
    
    
    3,000
    
    
    
    (926
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,197Chongqing Xiaoheiwu
    
    
    
    
    
    
    
    
    
    
    151
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    151Shijiazhuang hailan
    
    
    
    
    
    
    4,000
    
    
    
    (339
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,661Shanghai Lantian
    
    
    
    
    
    
    3,000
    
    
    
    (134
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,866Beijing Yicheng Tianxia
    
    
    
    
    
    
    8,000
    
    
    
    (158
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,842Shanghai Maishi
    
    
    
    
    
    
    4,800
    
    
    
    429
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,229Chengdu Awata
    
    
    
    
    
    
    5,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,000Others
    
    
    176
    
    
    
    202
    
    
    
    (340
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    38Total
    
    
    8,703
    
    
    
    28,002
    
    
    
    (5,376
    )
    
    
    
    
    
    
    123
    
    
    
    
    
    
    
    31,452
 11. PROPERTY AND EQUIPMENT
  December 31, 2009
    
    
    December 31, 2010RMB
    
    
    RMBComputer equipment
    
    
    297,660
    
    
    
    376,864Leasehold improvements
    
    
    6,934
    
    
    
    13,745Furniture and fixtures
    
    
    26,069
    
    
    
    30,842Motor vehicles
    
    
    10,919
    
    
    
    12,663Less: Accumulated depreciation
    
    
    (201,748
    )
    
    
    (238,694
    )Net book value
    
    
    139,834
    
    
    
    195,420
  12. INTANGIBLE ASSETS
  December 31, 2009
    
    
    December 31, 2010RMB
    
    
    RMBGross carrying amount:Upfront licensing fee paid
    
    
    479,704
    
    
    
    503,308Software, copyrights and others
    
    
    107,565
    
    
    
    117,510Intangible assets arising from business combinations Software technology
    
    
    201,523
    
    
    
    802,809 Non-compete arrangement
    
    
    21,227
    
    
    
    34,848 Trademarks
    
    
    54,666
    
    
    
    294,270 In-progress research and development
    
    
    9,073
    
    
    
    122,160Customer database
    
    
    
    
    
    
    6,370873,758
    
    
    
    1,881,275
  F-33




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##### Table of Contents



December 31, 2009
    
    
    December 31, 2010RMB
    
    
    RMBLess: accumulated amortizationUpfront licensing fee paid
    
    
    (165,018
    )
    
    
    (294,459
    )Software, copyrights and others
    
    
    (93,460
    )
    
    
    (105,677
    )Intangible assets arising from business combinations Software technology
    
    
    (64,307
    )
    
    
    (153,689
    ) Non-compete arrangement
    
    
    (2,327
    )
    
    
    (8,040
    ) Trademarks
    
    
    (8,230
    )
    
    
    (23,315
    ) In-progress research and development
    
    
    (3,073
    )
    
    
    (5,062
    )Customer database
    
    
    
    
    
    
    (1,274
    )(336,415
    )
    
    
    (591,516
    )Less: Impairment for upfront licensing fee paid
    
    
    (20,095
    )
    
    
    (20,095
    )Net book value
    
    
    517,248
    
    
    
    1,269,664
   AmortizationRMB2011
    
    
    267,9942012
    
    
    218,7542013
    
    
    157,6872014
    
    
    142,9602015
    
    
    129,118Total
    
    
    916,513
 13. GOODWILL
  Chengdu
    
    
    Shanghai
    
    
    ChengduActoz
    
    
    Aurora
    
    
    Shulong
    
    
    Simo
    
    
    Goldcool
    
    
    Mochi
    
    
    Eyedentity
    
    
    Others
    
    
    TotalRMBBalance as of December
31, 2008
    
    
    86,479
    
    
    
    26,130
    
    
    
    3,934
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    116,543Acquisitions in 2009
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    53,532
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    53,532Balance as of
December 31, 2009
    
    
    86,479
    
    
    
    26,130
    
    
    
    3,934
    
    
    
    53,532
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    170,075Acquisitions in 2010
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    25,077
    
    
    
    163,617
    
    
    
    123,425
    
    
    
    4,713
    
    
    
    316,832Balance as of
December 31, 2010
    
    
    86,479
    
    
    
    26,130
    
    
    
    3,934
    
    
    
    53,532
    
    
    
    25,077
    
    
    
    163,617
    
    
    
    123,425
    
    
    
    4,713
    
    
    
    486,907
   F-34




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##### Table of Contents



SHANDA GAMES LIMITED
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(Amounts expressed in thousands unless otherwise stated)
 14. OTHER PAYABLES AND ACCRUALS
 December 31, 2009
    
    
    December 31, 2010RMB
    
    
    RMBSalary and welfare payable
    
    
    4,619
    
    
    
    15,523Accrued bonus
    
    
    89,860
    
    
    
    81,407Unpaid rental for server software
    
    
    47,609
    
    
    
    1,044Accrued professional service fee
    
    
    8,695
    
    
    
    6,717Acquisition related obligation (Note 4)
    
    
    48,800
    
    
    
    61,826Unpaid advertisement and promotion fee
    
    
    146,054
    
    
    
    146,320Payables to employees relating to exercise of options (Note 2(7))
    
    
    54,471
    
    
    
    5,432Other payables
    
    
    33,334
    
    
    
    47,781Total
    
    
    433,442
    
    
    
    366,050
 15. ORDINARY SHARES
      F-35




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##### Table of Contents



SHANDA GAMES LIMITED
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(Amounts expressed in thousands unless otherwise stated)
 16. REPURCHASE OF SHARES
  17. SHARE OPTION PLAN
  Share-based compensation allocated from Shanda
 Shandas 2003 Share Incentive Plan
   Shandas 2005 Equity Compensation Plan
    F-36




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##### Table of Contents



SHANDA GAMES LIMITED
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(Amounts expressed in thousands unless otherwise stated)
  WeightedWeighted
    
    
    AverageOptions
    
    
    Average
    
    
    Remaining
    
    
    AggregateOutstanding
    
    
    Exercise Price
    
    
    Contractual Life
    
    
    Intrinsic ValueUS$
    
    
    
    
    
    
    US$Outstanding at January 1, 2008
    
    
    1,462,008
    
    
    
    8.05Granted
    
    
    20,000
    
    
    
    17.60Exercised
    
    
    (117,322
    )
    
    
    8.42Forfeited or Expired
    
    
    
    
    
    
    Outstanding at December 31, 2008
    
    
    1,364,686
    
    
    
    8.16
    
    
    
    6.49
    
    
    
    10,979Vested and expected to vest at December 31, 2008
    
    
    1,221,245
    
    
    
    8.08
    
    
    
    6.52
    
    
    
    9,925Vested and exercisable at December 31, 2008
    
    
    551,862
    
    
    
    7.25
    
    
    
    6.55
    
    
    
    4,930Granted
    
    
    
    
    
    
    Exercised
    
    
    (735,616
    )
    
    
    7.66Forfeited or Expired
    
    
    
    
    
    
    Outstanding at December 31, 2009
    
    
    629,070
    
    
    
    8.73
    
    
    
    5.24
    
    
    
    11,055Vested and expected to vest at December 31, 2009
    
    
    591,410
    
    
    
    8.69
    
    
    
    5.26
    
    
    
    10,415Vested and exercisable at December 31, 2009
    
    
    187,820
    
    
    
    8.15
    
    
    
    5.24
    
    
    
    3,410Granted
    
    
    
    
    
    
    Exercised
    
    
    (343,822
    )
    
    
    8.01Forfeited or Expired
    
    
    
    
    
    
    Outstanding at December 31, 2010
    
    
    285,248
    
    
    
    9.60
    
    
    
    3.69
    
    
    
    2,914,448Vested and expected to vest at December 31, 2010
    
    
    279,831
    
    
    
    9.56
    
    
    
    3.71
    
    
    
    2,870,137Vested and exercisable at December 31, 2010
    
    
    193,998
    
    
    
    8.34
    
    
    
    4.30
    
    
    
    2,227,576
      F-37




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##### Table of Contents



SHANDA GAMES LIMITED
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(Amounts expressed in thousands unless otherwise stated)
  For the years ended December 31,2008Risk-free interest rate(1)
    
    
    3.28
    %Expected life (in years)(2)
    
    5 yearsExpected dividend yield(3)
    
    
    0
    %Expected volatility(4)
    
    
    58
    %Fair value per option at grant date (in RMB)
    
    
    61.97
 
 (1)
    
    The risk-free interest rate for periods within the contractual life of the share option is
based on the U.S. Treasury yield curve in effect at the time of grant for a term consistent
with the expected term of the awards.(2)
    
    The expected term of stock options granted under the Plan is developed giving consideration
to vesting period, contractual term and historical exercise pattern.(3)
    
    Shanda has no history or expectation of paying dividends on its ordinary shares.(4)
    
    Expected volatility is estimated based on the historical volatility of comparable companies
stocks and of Shandas ordinary shares for a period equivalent to the expected term preceding
the grant date. Share-based compensation of the Company
 2008 Equity Compensation Plan
       F-38




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##### Table of Contents



SHANDA GAMES LIMITED
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(Amounts expressed in thousands unless otherwise stated)
       WeightedAverageWeighted
    
    
    Remaining
    
    
    AggregateOptions
    
    
    Average
    
    
    Contractual
    
    
    IntrinsicOutstanding
    
    
    Exercise Price
    
    
    Life
    
    
    ValueUS$
    
    
    
    
    
    
    US$Granted
    
    
    21,857,500
    
    
    
    3.2Exercised
    
    
    
    
    
    
    Forfeited
    
    
    
    
    
    
    Expired
    
    
    
    
    
    
    Outstanding at December 31, 2008
    
    
    21,857,500
    
    
    
    3.2
    
    
    
    9.87
    
    
    
    Vested and expected to vest at December 31, 2008
    
    
    3,213,101
    
    
    
    3.2
    
    
    
    9.87
    
    
    
    Vested and exercisable at December 31, 2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Granted
    
    
    3,889,000
    
    
    
    3.4Exercised
    
    
    
    
    
    
    Forfeited
    
    
    (191,300
    )
    
    
    3.2Expired
    
    
    
    
    
    
    Outstanding at December 31, 2009
    
    
    25,555,200
    
    
    
    3.2
    
    
    
    8.94
    
    
    
    47,589
  F-39




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##### Table of Contents



SHANDA GAMES LIMITED
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(Amounts expressed in thousands unless otherwise stated)
 WeightedAverageWeighted
    
    
    Remaining
    
    
    AggregateOptions
    
    
    Average
    
    
    Contractual
    
    
    IntrinsicOutstanding
    
    
    Exercise Price
    
    
    Life
    
    
    ValueUS$
    
    
    
    
    
    
    US$Vested and expected to vest at December 31, 2009
    
    
    25,178,284
    
    
    
    3.2
    
    
    
    8.94
    
    
    
    46,956Vested and exercisable at December 31, 2009
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Granted
    
    
    7,768,163
    
    
    
    2.99Exercised
    
    
    (1,403,548
    )
    
    
    2.63Forfeited
    
    
    (8,708,587
    )
    
    
    3.25Expired
    
    
    
    
    
    
    Outstanding at December 31, 2010
    
    
    23,211,228
    
    
    
    3.18
    
    
    
    8.34
    
    
    
    2,224,590Vested and expected to vest at December 31, 2010
    
    
    21,863,951
    
    
    
    3.17
    
    
    
    8.33
    
    
    
    2,198,980Vested and exercisable at December 31, 2010
    
    
    5,182,199
    
    
    
    3.21
    
    
    
    7.96
    
    
    
    175,564
     For the years ended December 312008
    
    
    2009Exercise Price
    
    US$
    3.2
    
    
    US$
    3.20~US$3.98Fair value of ordinary shares
    
    US$
    3.13
    
    
    US$
    3.90~US$6.25Risk-free interest rate(1)
    
    
    3.94
    %
    
    
    3.31%~4.44
    %Exercise multiple(2)
    
    
    1.8
    
    
    
    1.8Expected dividend yield(3)
    
    
    0
    %
    
    
    0
    %Expected volatility(4)
    
    
    50
    %
    
    
    50
    %Fair value per option at grant date (in RMB)
    
    
    10.4~11.8
    
    
    
    14.1~26.8
 
 (1)
    
    The risk-free interest rate for periods within the contractual life of the share option is
based on the U.S. Treasury yield curve over the contractual term of the option in effect at
the time of grant.(2)
    
    The management estimates the options will be exercised when the spot price reaches 1.8 times
of strike price after becoming exercisable.(3)
    
    The Company has no history or expectation of paying dividends on its ordinary shares.(4)
    
    Expected volatility is estimated based on the historical volatility of comparable companies
stocks and of Shandas ordinary shares for a period equivalent to the expected term preceding
the grant date.  F-40




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##### Table of Contents



SHANDA GAMES LIMITED
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(Amounts expressed in thousands unless otherwise stated)
  For the year ended December 312009
    
    
    2010Exercise Price
    
    US$
    5.29~US$5.38
    
    
    US$
    0.23~US$3.40Fair value of ordinary shares
    
    US$
    5.12~US$5.16
    
    
    US$
    2.50~US$5.21Risk-free interest rate(1)
    
    
    2.13%~2.48
    %
    
    
    1.00%~2.50
    %Expected life (in years)(2)
    
    
    5
    
    
    
    5Expected dividend yield(3)
    
    
    0
    %
    
    
    0
    %Expected volatility(4)
    
    
    50
    %
    
    
    50
    %Fair value per option at grant date (in RMB)
    
    
    15.82~15.84
    
    
    
    7.31~33.52
 (1)
    
    The risk-free interest rate for periods within the contractual life of the share option is
based on the U.S. Treasury yield curve in effect at the time of grant for a term consistent
with the expected term of the awards.(2)
    
    The expected term of stock options granted is developed giving consideration to vesting
period, contractual term and historical exercise pattern of options granted by Shanda.(3)
    
    The Company has no history or expectation of paying dividends on its ordinary shares.(4)
    
    Expected volatility is estimated based on the historical volatility of comparable companies
stocks and of Shandas ordinary shares for a period equivalent to the expected term preceding
the grant date.     Weighted AverageUnvested Restricted Shares
    
    Number of Shares
    
    
    Grant-date Fair ValueUS$Granted
    
    
    407,770
    
    
    
    3.2Vested
    
    
    
    
    
    
    Forfeited
    
    
    
    
    
    
    Unvested at December 31, 2008
    
    
    407,770
    
    
    
    3.2Expected to vest at December 31, 2008
    
    
    252,067
    
    
    
    3.2Granted
    
    
    6,320,420
    
    
    
    6.2Vested
    
    
    
    
    
    
    Forfeited
    
    
    (3,000
    )
    
    
    6.3Unvested at December 31, 2009
    
    
    6,725,190
    
    
    
    6.0Expected to vest at December 31, 2009
    
    
    5,479,864
    
    
    
    6.0Granted
    
    
    5,413,279
    
    
    
    4.1Vested
    
    
    (2,022,688
    )
    
    
    5.5Forfeited
    
    
    (489,549
    )
    
    
    5.5Unvested at December 31, 2010
    
    
    9,626,232
    
    
    
    5.2Expected to vest at December 31, 2010
    
    
    8,473,034
    
    
    
    5.1
  F-41




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##### Table of Contents



SHANDA GAMES LIMITED
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(Amounts expressed in thousands unless otherwise stated)
   Share-based compensation of Actoz
       For the years ended December 312008
    
    
    2010Risk-free interest rate
    
    
    4.80-5.39
    %
    
    
    4.56
    %Expected life (in years)
    
    4.7-4.9 years
    
    4.5-4.9 yearsExpected dividend yield
    
    
    0
    %
    
    
    0
    %Expected volatility
    
    
    63%-87
    %
    
    
    65%-67
    %Fair value per option at grant date( in KRW)
    
    
    4,531~6,355
    
    
    
    7,504~7,668
  F-42




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##### Table of Contents



SHANDA GAMES LIMITED
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(Amounts expressed in thousands unless otherwise stated)
 Activities of share options
  Weighted AveragedOptions
    
    
    Weighted Average
    
    
    Remaining
    
    
    AggregateOutstanding
    
    
    Exercise Price
    
    
    Contractual Life
    
    
    Intrinsic ValueKRW
    
    
    
    
    
    
    KRWJanuary 1, 2008
    
    
    702,920
    
    
    
    9,535Granted
    
    
    104,040
    
    
    
    8,603Exercised
    
    
    
    
    
    
    Forfeited
    
    
    (44,410
    )
    
    
    9,700December 31, 2008
    
    
    762,550
    
    
    
    9,398
    
    
    
    5.54
    
    
    
    611,557Vested and expected to vest as of
December 31, 2008
    
    
    648,736
    
    
    
    9,375
    
    
    
    5.51
    
    
    
    534,923Vested and exercisable as of
December 31, 2008
    
    
    68,280
    
    
    
    8,300
    
    
    
    4.57
    
    
    
    129,732December 31, 2008
    
    
    762,550
    
    
    
    9,398
    
    
    
    5.54
    
    
    
    611,557Granted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Exercised
    
    
    (300,700
    )
    
    
    9,397
    
    
    
    
    
    
    
    Forfeited
    
    
    (49,360
    )
    
    
    9,406
    
    
    
    
    
    
    
    December 31, 2009
    
    
    412,490
    
    
    
    9,398
    
    
    
    4.66
    
    
    
    3,156,394Vested and expected to vest as of
December 31, 2009
    
    
    392,849
    
    
    
    9,390
    
    
    
    4.65
    
    
    
    3,009,071Vested and exercisable as of
December 31, 2009
    
    
    123,261
    
    
    
    9,390
    
    
    
    4.65
    
    
    
    949,448Granted
    
    
    102,666
    
    
    
    14,250
    
    
    
    
    
    
    
    Exercised
    
    
    (75,551
    )
    
    
    9,378
    
    
    
    
    
    
    
    Forfeited
    
    
    (56,443
    )
    
    
    9,532
    
    
    
    
    
    
    
    December 31, 2010
    
    
    383,162
    
    
    
    10,682
    
    
    
    4.38
    
    
    
    301,206Vested and expected to vest as of
December 31, 2010
    
    
    368,502
    
    
    
    10,542
    
    
    
    4.30
    
    
    
    301,094Vested and exercisable as of
December 31, 2010
    
    
    214,000
    
    
    
    9,346
    
    
    
    3.63
    
    
    
    236,267
     18. EMPLOYEE BENEFITS
   F-43




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##### Table of Contents



SHANDA GAMES LIMITED
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(Amounts expressed in thousands unless otherwise stated)
 19. RELATED PARTY TRANSACTIONS
  For the years ended December 31,2008
    
    
    2009
    
    
    2010RMB
    
    
    RMB
    
    
    RMBPlatform service
fees and sales agent fees
paid to companies under
common control by
Shanda(1)
    
    
    791,702
    
    
    
    1,099,201
    
    
    
    1,020,534Promotion service fee
paid to companies under
common control by Shanda
    
    
    9,474
    
    
    
    11,230
    
    
    
    10,551Online game licensing
fees received from
companies under common
control by Shanda
    
    
    (11,244
    )
    
    
    (7,091
    )
    
    
    (6,672
    )Online game upfront fee
received from a company
under common control by
Shanda
    
    
    (3,441
    )
    
    
    (12,088
    )
    
    
    Corporate general
administrative expenses
allocated from Shanda
    
    
    31,346
    
    
    
    14,351
    
    
    
    8,183Rental fee paid to
companies under common
control by Shanda
    
    
    
    
    
    
    10,394
    
    
    
    13,796Consulting service fee
paid to companies under
common control by Shanda
    
    
    
    
    
    
    2,260
    
    
    
    2,260Interest expense for loan
from Shanda and companies
under common control by
Shanda
    
    
    
    
    
    
    
    
    
    
    11,059Interest income from loan
to companies under common
control by Shanda
    
    
    
    
    
    
    
    
    
    
    1,997
 
 (1)
    
    Prior to the Reorganization, these services were provided by Shandas various subsidiaries
and VIEs, and the service fees were incurred based on the contractual arrangement entered
prior to the Reorganization. For the five-year period beginning after the Reorganization, the
Group has agreed to continue to use services provided by companies under common control of
Shanda based on new services agreements.  December 31, 2009
    
    
    December 31, 2010RMB
    
    
    RMBAccounts receivables
from companies under common
control by Shanda
    
    
    405,932
    
    
    
    389,890Other receivables from
companies under common
control by Shanda
    
    
    6,184
    
    
    
    531,888
 December 31, 2009
    
    
    December 31, 2010RMB
    
    
    RMBAccounts payables to companies under common control by Shanda
    
    
    70,770
    
    
    
    65,284Other payables to Shanda
    
    
    
    
    
    
    501,765Other payables to companies under common control by Shanda
    
    
    19,937
    
    
    
    448,978
     F-44




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##### Table of Contents



SHANDA GAMES LIMITED
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(Amounts expressed in thousands unless otherwise stated)
 20. DERIVATIVE
  21. CERTAIN RISKS AND CONCENTRATIONS
        F-45




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##### Table of Contents



SHANDA GAMES LIMITED
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(Amounts expressed in thousands unless otherwise stated)
 22. COMMITMENTS AND CONTINGENCIES
 Operating lease agreements
  ComputerOffice Premise
    
    
    Equipment
    
    
    TotalRMB
    
    
    RMB
    
    
    RMB2011
    
    
    43,023
    
    
    
    20,015
    
    
    
    63,0382012
    
    
    33,032
    
    
    
    838
    
    
    
    33,8702013
    
    
    5,490
    
    
    
    77
    
    
    
    5,56781,545
    
    
    
    20,930
    
    
    
    102,475
     Capital commitments
  Contingencies
 Accounting for Loss Contingencies
   F-46




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##### Table of Contents



SHANDA GAMES LIMITED
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(Amounts expressed in thousands unless otherwise stated)
 23. LITIGATION
  24. SUBSEQUENT EVENTS
  25. RESTRICTED NET ASSETS
   F-47