This excerpt taken from the NCTY 6-K filed Feb 24, 2005.
9Webzen Operating Expenses
When compared to the third quarter of 2004, operating expenses rose 66.5% to RMB16.3 million (US$2.0 million), while on a year-over-year basis, operating expenses rose 16.5% to RMB45.9 million (US$5.5 million), primarily the result of share-based compensation of RMB5.6 million (US$ 0.68 million) related to stock options granted by The9 to 9Webzens employees.
9Webzens product development expenses consist primarily of payroll compensation to its product development personnel, equipment and software depreciation charges and other expenses for the localization of MU to be tailored to the China market and costs incurred to develop and maintain its website located at www.muchina.com.
The increase in product development expenses for the fourth quarter was mainly due to discretionary bonus granted in the fourth quarter. Compared to 2003, product development costs increased from RMB5.0 million (US$0.61 million) to RMB7.7 million (US$0.93 million), mainly due to the increase in headcount and average employee salaries.
In the fourth quarter, sales and marketing expenses increased RMB1.7 million (US$0.20 million) from RMB4.0 million (US$0.48 million) to RMB5.7 million (US$0.68 million). The increase was mainly due to exhibition costs and additional advertising and promotions relating to the Darklord version upgrade of the MU game which was introduced in the quarter.
On a yearly basis, sales and marketing expenses decreased 15.6%, from RMB22.1 million (US$2.7 million) to RMB18.6 million (US$2.3 million), the result of more sales and promotion expenditures spent in 2003 during its first year of commercial operations.
General and administrative expenses decreased in the fourth quarter by RMB2.1 million (US$0.26 million) to RMB2.3 million (US$0.28 million), mainly the result of reductions in consulting and entertainment expenses. For 2004, general and administrative expenses increased 13.0%, from RMB12.3 million (US$1.49 million) to RMB13.9 million (US$1.68 million) mainly due to increase in headcount and salaries and increased professional expenses compared to 2003.
Share-based compensation expense relate to stock options granted by The9 to 9Webzens employees in December 2004. In accordance with EITF 00-12, Accounting by an Investor for Stock-Based Compensation Granted to Employees of an Equity Investee, 9Webzen recognized share-based compensation expense of RMB5.6 million based on estimated fair value of the options on the grant date.
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