SCIENTIFIC GAMES CORP - FORM 10-K/A - EX-99.12

Attached files

file	filename
10-K/A - 10-K/A - SCIENTIFIC GAMES CORP	a201210ka.htm
EX-23.3 - EX-23.3 - SCIENTIFIC GAMES CORP	a233clnconsent.htm
EX-23.5 - EX-23.5 - SCIENTIFIC GAMES CORP	a235glbconsent.htm
EX-23.4 - EX-23.4 - SCIENTIFIC GAMES CORP	a234csgconsent.htm
EX-99.3 - EX-99.3 - SCIENTIFIC GAMES CORP	a993clnauditreport.htm
EX-32.1 - EX-32.1 - SCIENTIFIC GAMES CORP	a321certificationbyceo.htm
EX-31.1 - EX-31.1 - SCIENTIFIC GAMES CORP	a311certificationbyceo.htm
EX-32.2 - EX-32.2 - SCIENTIFIC GAMES CORP	a322certificationbycfo.htm
EX-31.2 - EX-31.2 - SCIENTIFIC GAMES CORP	a312certificationbycfo.htm
EX-99.10 - EX-99.10 - SCIENTIFIC GAMES CORP	a9910csgauditopinion2011.htm
EX-99.9 - EX-99.9 - SCIENTIFIC GAMES CORP	a999clnfinancialstatements.htm
EX-99.11 - EX-99.11 - SCIENTIFIC GAMES CORP	a9911csgfinancialstatements.htm

Exhibit 99.12

BEIJING GUARD LIBANG TECHNOLOGY CO., LTD.

FINANCIAL STATEMENTS

DECEMBER 31, 2012

Independent Auditors' Report

The Board of Directors

Beijing Guard Libang Technology Co., Ltd.

We have audited the accompanying statement of financial position of Beijing Guard Libang Technology Co., Ltd. as at December 31, 2011 and the related statement of comprehensive income, changes in equity, and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the

purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe

that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Beijing Guard Libang Technology Co., Ltd. as at December 31, 2011, and the results of its operations and its cash flows for the year then ended, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.

/s/ KPMG Huazhen

Beijing, People's Republic of China

June 26, 2012

Beijing Guard Libang Technology Co., Ltd.

Statement of financial position

(Expressed in Renminbi Yuan)



		December 31,	December 31,
	Note	2012	2011
		(unaudited)

ASSETS

Non-current assets
Property, plant and equipment	8	124,586,454	104,021,494
Deferred tax assets	14	4,098,941	3,813,656
Other non-current assets	9	—	2,199,281
Total non-current assets		128,685,395	110,034,431

Current assets
Inventories	10	7,511,866	4,672,869
Advances to suppliers	11	40,138,622	31,667,372
Trade and other receivables	12	54,490,556	51,038,557
Cash and cash equivalents	13	23,573,711	37,465,341
Total Current Assets		125,714,755	124,844,139

Total assets		254,400,150	234,878,570

Liabilities

Current liabilities
Trade and other payables		13,076,688	13,920,064
Income tax payable		734,601	1,616,142
Total current liabilities		13,811,289	15,536,206

Total liabilities		13,811,289	15,536,206

Equity
Registered capital	15	89,180,000	89,180,000
Retained earnings		151,408,861	130,162,364
Total equity		240,588,861	219,342,364

Total liabilities and equity		254,400,150	234,878,570

The notes on pages 5 to 24 form part of these financial statements.

Beijing Guard Libang Technology Co., Ltd.

Statement of comprehensive income

(Expressed in Renminbi Yuan)



		For the year ended December 31,
	Note	2012		2011		2010
		(unaudited)				(unaudited)

Revenue	5	122,846,532		151,609,111		119,723,890
Cost of sales		(55,132,326	)	(58,865,231	)	(45,092,092	)

Gross profit		67,714,206		92,743,880		74,631,798

Other (expense)/income, net		(283,516	)	338,155		(587,881	)
Selling and marketing expenses		(30,419,383	)	(35,421,782	)	(24,263,011	)
Administrative expenses		(12,083,624	)	(13,393,189	)	(12,899,262	)

Results from operating activities		24,927,683		44,267,064		36,881,644

Finance income		175,924		200,108		116,727
Finance costs		—		(11,135	)	(13,654	)

Net finance income		175,924		188,973		103,073

Profit before income tax		25,103,607		44,456,037		36,984,717

Income tax expense	7	(3,857,110	)	(6,382,740	)	(5,836,997	)

Profit and total comprehensive income for the year		21,246,497		38,073,297		31,147,720

The notes on pages 5 to 24 form part of these financial statements.

Beijing Guard Libang Technology Co., Ltd.

Statement of changes in equity

(Expressed in Renminbi Yuan)



	Registered capital	Retained earnings	Total equity

Balance at January 1, 2010 (unaudited)	89,180,000	60,941,347	150,121,347
Profit and total comprehensive income for the year (unaudited)	—	31,147,720	31,147,720
Balance at December 31, 2010 (unaudited)	89,180,000	92,089,067	181,269,067

Balance at January 1, 2011 (unaudited)	89,180,000	92,089,067	181,269,067
Profit and total comprehensive income for the year	—	38,073,297	38,073,297
Balance at December 31, 2011	89,180,000	130,162,364	219,342,364

Balance at January 1, 2012 (unaudited)	89,180,000	130,162,364	219,342,364
Profit and total comprehensive income for the year (unaudited)	—	21,246,497	21,246,497
Balance at December 31, 2012 (unaudited)	89,180,000	151,408,861	240,588,861

The notes on pages 5 to 24 form part of these financial statements.

Beijing Guard Libang Technology Co., Ltd.

Statement of cash flows

(Expressed in Renminbi Yuan)



		For the year ended December 31,
	Note	2012		2011		2010
		(unaudited)				(unaudited)
Cash flows from operating activities:

Profit for the year		21,246,497		38,073,297		31,147,720

Adjustments for:
Depreciation	8	55,467,717		59,536,507		44,453,038
Losses on disposal of property, plant and equipment		12,489		80,577		197,634
Financial income		(175,924	)	(200,108	)	(116,727	)
Income tax expense	7	3,857,110		6,382,740		5,836,997

Changes in:
Inventories		(2,838,997	)	428,376		(1,453,404	)
Trade and other receivables		(1,252,718	)	(13,480,963	)	(13,476,791	)
Advances to suppliers		(8,471,250	)	(12,793,474	)	(784,939	)
Trade and other payables		(843,376	)	772,882		4,054,861

Income tax paid		(5,023,935	)	(8,129,876	)	(5,089,121	)

Net cash from operating activities		61,977,613		70,669,958		64,769,268

Cash flows from investing activities:
Interest received		175,924		200,108		116,727
Net cash received from disposal of property, plant and equipment		—		—		53,190
Payments for acquisition of property, plant and equipment		(76,045,167	)	(63,452,160	)	(72,256,091	)

Net cash used in investing activities		(75,869,243	)	(63,252,052	)	(72,086,174	)

Net (decrease)/increases in cash and cash equivalents		(13,891,630	)	7,417,906		(7,316,906	)
Cash and cash equivalents at January 1		37,465,341		30,047,435		37,364,341
Cash and cash equivalents at December 31	13	23,573,711		37,465,341		30,047,435

The notes on pages 5 to 24 form part of these financial statements.

Beijing Guard Libang Technology Co., Ltd.

Notes to the financial statements

(Expressed in Renminbi Yuan)


1	REPORTING ENTITY

Beijing Guard Libang Technology Co., Ltd. (the “Company”) is a limited liability company established in Beijing in the People's Republic of China (the “PRC”). The address of the Company's registered office is No.2 Zhongguancun South Avenue, Haidian District, Beijing, the PRC.

The Company is a leading provider of customized computer software, software support, equipment and data communication services to China Welfare Lottery Center (“CWLC”) and its provincial welfare lottery centers. The principal activity of the Company primarily consists of the provision of transaction processing software for the accounting and validation of instant lottery tickets, technical services of communication technology and solution, system integration, installation and testing, ongoing support and maintenance, consulting and training, and the provision of lottery equipment such as point-of-sale terminals and central site computers.


2	BASIS OF PREPARATION


(a)	Statement of compliance

As a Chinese company, the Company currently prepares its financial statements in accordance with the requirements of “Accounting Standards for Business Enterprises - Basic Standard” and 38 Specific Standards issued by the Ministry of Finance (MOF) of the People's Republic of China (PRC) on 15 February 2006, and application guidance, bulletins and other relevant accounting regulations issued subsequently.

Starting from the year ended 31 December 2011, the Company prepared a separate annual financial statements for the purpose of satisfying a regulatory reporting requirement of its significant investor, Scientific Games Corporation (see note 17(a)). This set of financial statements has been prepared in accordance with International Finance Reporting Standards (“IFRSs”) as issued by the International Accounting Standards Board. The financial statements for the year ended 31 December 2011 have been audited by KPMG Huazhen with an audit opinion issued on 26 June 2012. The financial statements for the year ended 31 December 2012 have not been audited.

The financial statements were authorised for issue by the Board of Directors on May 24, 2013.

2 BASIS OF PREPARATION (CONTINUED)


(b)	Basis of measurement

Unless otherwise stated, the financial statements have been prepared on historical cost basis.


(c)	Functional and presentation currency

These financial statements are presented in Renminbi (“RMB”), which is the Company's functional currency.


(d)	Use of estimates and judgments

The preparation of financial statements in conformity with IFRSs requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.

Information about critical judgments in applying accounting policies that have the most significant effect on the amounts recognised in the financial statements is included in the following notes:


•	Note 8 - Property, plant and equipment: determination of the estimated useful life of property, plant and equipment


•	Note 14 - Deferred tax assets: the realizability of deferred tax assets


•	Note 16 - Financial instruments: credit risk


3	SIGNIFICANT ACCOUNTING POLICIES

These accounting policies set out below have been applied consistently to all periods presented in these financial statements unless otherwise indicated.


(a)	Financial Instruments

The Company initially recognises loans and receivables and deposits on the date that they are originated. All other financial assets are recognised initially on the trade date at which the Company becomes a party to the contractual provisions of the instrument.


3	SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)


(a)	Financial Instruments (continued)

The Company derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. Any interest in transferred financial assets that is created or retained by the Company is recognised as a separate asset or liability.

Financial assets and liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Company has a legal right to offset the amounts and intends either to settle on a net basis or to realise the asset and settle the liability simultaneously.

The Company's non-derivative financial assets include trade and other receivables.

Trade and other receivables

Trade and other receivables are financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are recognized initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, trade and other receivables are measured at amortised cost using the effective interest method, less any allowance for impairment of doubtful debts (see note 3(f)).

Cash and cash equivalents comprise cash balances and demand deposits with original maturities of three months or less. Bank overdrafts that are repayable on demand and form an integral part of the Company's cash management are included as a component of cash and cash equivalents for the purpose of the statement of cash flows.


(b)	Property, plant and equipment


(i)	Recognition and measurement

Items of property, plant and equipment are measured at cost less accumulated depreciation and accumulated impairment losses (see note 3(f)).


3	SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)


(b)	Property, plant and equipment (continued)


(i)	Recognition and measurement (continued)

Cost includes expenditure that is directly attributable to the acquisition of the asset. The cost of self-constructed assets includes the following:


•	the cost of materials and direct labour;


•	any other costs directly attributable to bringing the assets to a working condition for their intended use;


•	when the Company has an obligation to remove the asset or restore the site, an estimate of the costs of dismantling and removing the items and restoring the site on which they are located; and


•	capitalised borrowing costs.

When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment.

Any gain or loss on disposal of an item of property, plant and equipment (calculated as the difference between the net proceeds from disposal and the carrying amount of the item) is recognised in profit or loss.


(ii)	Subsequent costs

Subsequent expenditure is capitalised only when it is probable that the future economic benefits associated with the expenditure will flow to the Company. Ongoing repairs and maintenance is expensed as incurred.


(iii)	Depreciation

Items of property, plant and equipment are depreciated on a straight-line basis in statement of comprehensive income over the estimated useful lives of each component.

Items of property, plant and equipment are depreciated from the date that they are ready for use, or in respect of internally constructed assets, from the date that the asset is completed and ready for use.

The estimated useful life for the Company's property, plant and equipment are as follows:



Lottery system equipment		1-5 years
Office equipment		5 years
Office furniture		5 years
Motor vehicles		5 years


3	SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)


(b)	Property, plant and equipment (continued)

The estimated useful life of lottery system equipment is 60 months, however the Company is obliged to transfer the lottery system equipment, free of charges, to the customers at the end of the service contracts, therefore the lottery system equipment is depreciated over the shorter of the useful life and the term of the service contracts.

Depreciation methods, useful lives and residual values are reviewed at each reporting date and are adjusted if appropriate.


(c)	Research and development

Expenditure on research activities, undertaken with the prospect of gaining new scientific or technical knowledge and understanding, is recognised in profit or loss as incurred.

Development activities involve a plan or design for the production of new or substantially improved products and processes. Development expenditure is capitalised only if development costs can be measured reliably, the product or process is technically and commercially feasible, future economic benefits are probable, and the Company intends to and has sufficient resources to complete development and to use or sell the asset. The expenditure capitalised includes the cost of materials, direct labour, overhead costs that are directly attributable to preparing the asset for its intended use, and capitalised borrowing costs. Capitalised development expenditure is measured at cost less accumulated amortisation and accumulated impairment losses. Other development expenditure is recognised in profit or loss as incurred.

In 2012, the unaudited research and development expenditure recognised in statement of comprehensive income is RMB 4,236,686 (2011: RMB 8,130,950, 2010 (unaudited): RMB 2,397,319).


(d)	Leased assets

Assets held under operating leases are not recognised in the Company's statement of financial position.

3 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)


(e)	Inventories

Inventories are carried at the lower of cost and net realizable value. Cost represents purchase cost of spare parts calculated using the specific identification method. Net realizable value is determined by reference to the sales proceeds of items sold or services rendered in the ordinary course of business or to management's estimates based on prevailing market conditions.

When spare parts are sold or used, the carrying amount of those inventories is recognized as costs of sales and expenses. The amount of any write-down of inventories to net realizable value and all losses of inventories are recognized as an expense in the period the write-down or loss occurs. The amount of any reversal of any write-down of inventories, arising from an increase in net realizable value, is recognized as a reduction in the amount of inventories recognized as an expense in the period in which the reversal occurs. No reversal of any write-down of inventories occurred during the years presented.


(f)	Impairment


(i)	Non-derivative financial assets

A financial asset not classified as at fair value through profit or loss is assessed at each reporting date to determine whether there is objective evidence that it is impaired. A financial asset is impaired if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset, and that loss events had an impact on the estimated future cash flows of that asset that can be estimated reliably.

Objective evidence that financial assets are impaired includes default or delinquency by a debtor, restructuring of an amount due to the Company on terms that the Company would not consider otherwise, indications that a debtor or issuer will enter bankruptcy, adverse changes in payment status of borrowers or issuers, economic conditions that correlate with defaults or the disappearance of an active market for a security. In addition, for an investment in an equity security, a significant or prolonged decline in its fair value below its cost is objective evidence of impairment.

3 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)


(f)	Impairment (continued)


(i)	Non-derivative financial assets (continued)

•Financial assets measured at amortised cost

The Company considers evidence of impairment for financial assets measured at amortised cost at a specific asset level. All individual significant assets are assessed for specific impairment. Those found not to be specifically impaired are then collectively assessed for any impairment that has been incurred but not yet identified. Assets are not individually significant are collectively assessed for impairment by grouping together assets with similar risk characteristics.

In assessing collective impairment, the Company uses the historical trends of the probability of default, the timing of recoveries and the amount of loss incurred, adjusted for management's judgment as to whether current economic and credit conditions are such that the actual loss are likely to be greater or less than suggested by historical trends.

An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying amount and the present value of the estimated future cash flows discounted at the asset's original effective interest rate. Losses are recognised in profit or loss and reflected in an allowance account against the related financial assets. When an event occurring after the impairment was recognised causes the amount of impairment loss to decrease, the decrease in impairment loss is reversed through profit or loss.

•Impairment of doubtful debts

Receivables are assessed for impairment on an individual basis. The provision for bad and doubtful debts is estimated by management based on individual accounts receivable which show signs of un-collectability and an aging analysis. Provision for other receivables is determined based on their specific nature and management's estimate of their collectability.


(ii)	Non-financial assets

The carrying amounts of the Company's non-financial assets, other than inventories and deferred tax assets, are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset's recoverable amount is estimated. An impairment loss is recognised if the carrying amount of an asset or cash generating unit (“CGU”) exceeds its recoverable amount.

3 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)


(f)	Impairment (continued)


(ii)	Non-financial assets (continued)

The recoverable amount of an asset is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For the purpose of impairment testing, assets are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or CGUs.

Impairment losses are recognised in profit or loss. Impairment losses recognised in respect of CGUs are allocated first to reduce the carrying amount of any goodwill allocated to the CGU (group of CGUs), and then to reduce the carrying amounts of the other assets in the CGU (group of CGUs) on a pro rata basis.

An impairment loss in respect of goodwill is not reversed. For other assets, impairment loss is reversed only to the extent that the asset's carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.


(g)	Employee benefits


(i)	Defined contribution plans

Pursuant to the relevant laws and regulations in the PRC, the Company has joined a defined contribution retirement plan for the employees arranged by a governmental organisation. A defined contribution plan is a post-employment benefit plan under which an entity pays fixed contributions into a separate entity and has no legal or constructive obligation to pay further amounts. The Company makes contributions to the retirement scheme at the applicable rates based on the employees' salaries.

Obligations for contribution to defined contribution plans are recognised as an employee benefit expense in profit or loss in the periods during which related services are rendered by employees. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in future payments is available. Contributions to a defined contribution plan that are due more than 12 months after the end of the period in which the employees render the service are discounted to their present value.

3 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)


(g)	Employee benefits (continued)


(ii)	Short-term employee benefits

Short-term employee benefits are measured on an undiscounted basis and are expensed as the related service is provided. A liability is recognised for the amount expected to be paid under short-term cash bonus or profit-sharing plans if the Company has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee, and the obligation can be estimated reliably.


(h)	Provisions

A provision is recognised if, as a result of a past event, the Company has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. The unwinding of the discount is recognised as finance cost.

Where it is not probable that an outflow of economic benefits will be required, or the amount cannot be estimated reliably, the obligation is disclosed as a contingent liability, unless the probability of outflow of economic benefits is remote. Possible obligations, whose existence will only be confirmed by the occurrence or non-occurrence of one or more future events, are also disclosed as contingent liabilities unless the probability of outflow of economic benefits is remote.


(i)	Revenue

Revenue is recognized to the extent that it is probable the economic benefits associated with the transaction will flow to the Company and the amount of revenue can be reliably measured. Revenue is measured at the fair value of the consideration received, excluding discounts and taxes. Specific recognition criteria must also be met before revenue is recognised as discussed below.

3 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)


(i)	Revenue (continued)

The Company's revenue is derived from the lottery system service contracts with CWLC and its provincial welfare lottery centers in the PRC. Under these service contracts, the Company provides transaction processing software for the accounting and validation of instant lottery tickets, technical services of communication technology and solution, system integration, installation and testing, ongoing support and maintenance, consulting and training, and the provision of lottery equipment such as point-of-sale terminals and central site computers. The service contracts provide for a service fee based on a percentage of the retail lottery tickets sales. Since the total service fee from each contract cannot be estimated reliably during the contract term, revenue is recognized based on actual retail lottery ticket sales on a monthly basis. Fees earned under the service contracts are recognized as revenue in the period when all of the following criteria are met:


•	Persuasive evidence of an arrangement exists, which is typically when a customer contract has been signed;


•	Services have been rendered;


•	The fee is deemed to be fixed or determinable and free of contingencies or significant uncertainties; and


•	Collectability is reasonably assured.


(j)	Leases


(i)	Lease payments

Payments made under operating leases are recognised in profit or loss on a straight-line basis over the term of the lease. Lease incentives received are recognised as an integral part of the total lease expense, over the term of the lease.

Minimum lease payments made under finance leases are apportioned between the finance expense and the reduction of the outstanding liability. The finance expense is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability.


(ii)	Determining whether an arrangement contains a lease

At inception of an arrangement, the Company determines whether such an arrangement is or contains a lease. This will be the case if the following two criteria are met:


•	the fulfilment of the arrangement is dependent on the use of a specific asset or assets; and


•	the arrangement contains a right to use the asset(s).

3 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)


(j)	Leases (continued)


(ii)	Determining whether an arrangement contains a lease (continued)

At inception or on reassessment of the arrangement, the Company separates payments and other consideration required by such an arrangement into those for other elements on the basis of their relative fair values. Subsequently the liability is reduced as payments are made and an imputed finance cost on the liability is recognised using the Company's incremental borrowing rate.


(k)	Finance income and finance costs

Finance income comprises interest income on funds invested. Interest income is recognised as it accrues in profit or loss, using the effective interest method.

Finance costs comprise interest expense on borrowings, unwinding of the discount on provisions and contingent consideration.


(l)	Income tax

Income tax expense comprises current and deferred taxes. Current tax and deferred tax are recognised in profit or loss except to the extent that they relate to business combinations, or items recognised directly in equity and other comprehensive income.

Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years.

Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognised for:


•	Temporary difference on the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit of loss;


•	Temporary differences related to investments in subsidiaries and jointly controlled entities to the extent that it is probable that they will not reverse in the foreseeable future; and


•	Taxable temporary differences arsing on the initial recognition of goodwill.

3 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)


(l)	Income tax (continued)

Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, using tax rates enacted or substantively enacted at the reporting date.

In determining the amount of current and deferred tax, the Company take into account the impact of uncertain tax positions and whether additional taxes and interest may be due. The Company believes that its accruals for tax liabilities are adequate for all open tax years based on its assessment of many factors, including interpretations of tax law and prior experience. This assessment relies on estimates and assumptions and may involve a series of judgments about future events. New information may become available that causes the Company to change its judgment regarding the adequacy of existing tax liabilities; such changes to tax liabilities will impact tax expense in the period that such a determination is made.

Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to taxes levied by the same tax authority on the same taxable entity, or on different entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realised simultaneously.

A deferred tax asset is recognised for unused tax losses, tax credits and deductible temporary difference to the extent that it is probable that future taxable profits will be available against which they can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised. Deferred tax assets and liabilities are not discounted.


(m)	Related parties


(i)	A person, or a close member of that person's family, is related to the Company if that person:


•	has control or joint control over the Company;


•	has significant influence over the Company; or


•	is a member of the key management personnel of the Company or the Company's parent.

3 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)


(m)	Related parties (continued)


(ii)	An entity is related to the Company if any of the following conditions applies:


•	The entity and the Company are members of the same group (which means that each parent, subsidiary and fellow subsidiary is related to the others).


•	One entity is an associate or joint venture of the other entity (or an associate or joint venture of a member of a Company of which the other entity is a member).


•	Both entities are joint ventures of the same third party.


•	One entity is a joint venture of a third entity and the other entity is an associate of the third entity.


•	The entity is a post-employment benefit plan for the benefit of employees of either the Company or an entity related to the Company.


•	The entity is controlled or jointly controlled by a person identified in (i).


•	A person identified in the first point in (i) has significant influence over the entity or is a member of the key management personnel of the entity (or of a parent of the entity).

Close members of the family of a person are those family members who may be expected to influence, or be influenced by, that person in their dealings with the entity.

4 NEW STANDARDS AND INTERPRETATIONS NOT YET ADOPTED

A number of new standards, amendments to standards and interpretations are effective for annual periods beginning after January 1, 2012, and have not been applied in preparing these financial statements. None of these is expected to have significant effect on the financial statements of the Company.

5 REVENUE

The principal activity of the Company primarily consists of the provision of transaction processing software for the accounting and validation of instant lottery tickets, technical services of communication technology and solution, system integration, installation and testing, ongoing support and maintenance, consulting and training, and the provision of lottery equipment such as point-of-sale terminals and central site computers.


6	PROFIT BEFORE TAXATION

Profit before taxation is arrived at after charging:

(a) Personnel expenses



	2012	2011	2010
	(unaudited)		(unaudited)

Salaries, wages and other benefits	11,785,100	12,074,870	10,721,289
Contribution to defined contribution plans	635,484	552,595	506,638
	12,420,584	12,627,465	11,227,927

(b) Operating lease charges



2012	2011	2010
(unaudited)		(unaudited)

1,576,532	1,353,422	1,337,712


7	INCOME TAX IN THE STATEMENT OF COMPREHENSIVE INCOME

Under the Enterprise Income Tax Law, the PRC statutory income tax is 25%. In 2008, the Company was recognised by Chinese government as a “High and New Technology Enterprise” (“HNTE”) under the Enterprise Income Tax Law and its relevant regulations, and was entitled to the preferential income tax rate of 15% from 2008 to 2010. In 2011, the Company renewed its HNTE qualification, which entitled it to the preferential income tax rate of 15% for another 3 years from 2011 to 2013.

(a) Income tax in the statements of comprehensive income represents:



	2012		2011		2010
	(unaudited)				(unaudited)

Current tax expenses
PRC Enterprise Income Tax	4,142,394		7,648,742		6,406,406

Deferred tax expenses
Origination and reversal of temporary differences	(285,284	)	(1,266,002	)	(569,409	)

Total income tax expense	3,857,110		6,382,740		5,836,997


(b)	Reconciliation of effective tax rate



	2012		2011		2010
	(unaudited)				(unaudited)

Profit before tax	25,103,607		44,456,037		36,984,717

Income tax calculated at statutory tax rate of 25%	6,275,902		11,114,009		9,246,179
Effect of non-deductible expenses	91,569		210,193		257,191
Effect of tax rate differential and preferential tax rate	(2,510,361	)	(4,941,462	)	(3,666,373	)

Total tax expense	3,857,110		6,382,740		5,836,997

8PROPERTY, PLANT AND EQUIPMENT



	Lottery system equipment		Office equipment		Office furniture		Motor vehicles		Total

Cost
As at January 1, 2010 (unaudited)	118,314,079		1,263,463		145,518		2,015,971		121,739,031
Additions	71,244,605		1,011,486		—		—		72,256,091
Disposals	(29,784,848	)	(246,431	)	—		—		(30,031,279	)
As at December 31, 2010 (unaudited)	159,773,836		2,028,518		145,518		2,015,971		163,963,843

As at January 1, 2011	159,773,836		2,028,518		145,518		2,015,971		163,963,843
Additions	63,244,532		207,628		—		—		63,452,160
Disposals	(35,656,381	)	(174,697	)	(142,050	)	—		(35,973,128	)
As at December 31, 2011	187,361,987		2,061,449		3,468		2,015,971		191,442,875

As at January 1, 2012 (unaudited)	187,361,987		2,061,449		3,468		2,015,971		191,442,875
Additions	75,677,090		204,077		164,000		—		76,045,167
Disposals	(42,336,076	)	(73,105	)	—		—		(42,409,181	)
As at December 31, 2012 (unaudited)	220,703,001		2,192,421		167,468		2,015,971		225,078,861

Depreciation
As at January 1, 2010 (unaudited)	(47,207,361	)	(594,759	)	(56,503	)	(825,014	)	(48,683,637	)
Charge for the year	(43,809,773	)	(233,447	)	(27,590	)	(382,228	)	(44,453,038	)
Written back on disposal	29,181,083		178,167		—		—		29,359,250
As at December 31, 2010 (unaudited)	(61,836,051	)	(650,039	)	(84,093	)	(1,207,242	)	(63,777,425	)

As at January 1, 2011	(61,836,051	)	(650,039	)	(84,093	)	(1,207,242	)	(63,777,425	)
Charge for the year	(58,770,268	)	(358,665	)	(25,346	)	(382,228	)	(59,536,507	)
Written back on disposal	35,638,155		148,191		106,205		—		35,892,551
As at December 31, 2011	(84,968,164	)	(860,513	)	(3,234	)	(1,589,470	)	(87,421,381	)

As at January 1, 2012 (unaudited)	(84,968,164	)	(860,513	)	(3,234	)	(1,589,470	)	(87,421,381	)
Charge for the year	(54,829,074	)	(352,429	)	(23,382	)	(262,832	)	(55,467,717	)
Written back on disposal	42,336,076		60,615		—		—		42,396,691
As at December 31, 2012 (unaudited)	(97,461,162	)	(1,152,327	)	(26,616	)	(1,852,302	)	(100,492,407	)

Carrying amounts
As at December 31, 2012 (unaudited)	123,241,839		1,040,094		140,852		163,669		124,586,454

As at December 31, 2011	102,393,823		1,200,936		234		426,501		104,021,494

As at December 31, 2010 (unaudited)	97,937,785		1,378,479		61,425		808,729		100,186,418

As at January 1, 2010 (unaudited)	71,106,718		668,704		89,015		1,190,957		73,055,394

9OTHER NON-CURRENT ASSETS

As at December 31, 2011, other long-term assets represented the amount paid on behalf of a former investor. As at December 31, 2012, part of other non-current assets has been settled and the remaining balance was transferred to trade and other receivables as management believe that it will be settled within one year.


10	INVENTORIES



	December 31,	December 31,
	2012	2011
	(unaudited)

Spare parts	7,511,866	4,672,869

In 2012, the unaudited cost of inventories recognised as costs of sales and expenses amounted to RMB 259,850 (2011: RMB 526,713).


11	ADVANCES TO SUPPLIERS

Advances to suppliers represent prepayments for lottery service equipment, which were purchased but not yet received by the Company as at December 31, 2012 and 2011.

According to the terms of purchase contracts, the Company is normally required to pay 15% of the purchase price in advance. The Company makes the prepayments without any collaterals. As a result, the Company's claims for such prepayments would rank only as an unsecured claim, which exposes the Company to credit risks of the suppliers.


12	TRADE AND OTHER RECEIVABLES



	December 31,	December 31,
	2012	2011
	(unaudited)

Trade receivables	52,613,051	50,546,911
Other receivables	1,877,505	491,646

Total	54,490,556	51,038,557

As at December 31, 2012 and 2011, all trade receivables are due from CWLC and its provincial welfare lottery centers. No bad debt provision is made for trade receivables because management believe that the risk of uncollectibility is remote.

The Company's exposure to credit risk and impairment losses related to trade and other receivables is disclosed in note 16.


13	TRADE AND OTHER RECEIVABLES



	December 31,	December 31,
	2012	2011
	(unaudited)

Demand deposits	23,573,590	37,464,080
Cash on hand	121	1,261

Total	23,573,711	37,465,341


14	DEFERRED TAX ASSETS

Deferred tax assets are attributable to the following:



	December 31,	December 31,
	2012	2011
	(unaudited)

Depreciation of property, plant and equipment	3,028,753	2,256,265
Accrued expenses	1,070,188	1,557,391

Total	4,098,941	3,813,656


15	PAID-IN CAPITAL

As at December 31, 2012 and 2011, the Company's registered capital of RMB 89,180,000 was fully paid by its immediate parent company, Shenzhen Leli Technology Development Co., Ltd.


16	FINANCIAL INSTRUMENTS

Exposure to credit, liquidity and interest rate risks arises in the normal course of the Company's business. The Company's exposure to these risks and the financial risk management policies and practices used by the Company to manage these risks are described below:

(a) Credit risk

The Company's credit risk is primarily attributable to trade and other receivables. Management has a credit policy in place and the exposures to these credit risks are monitored on an ongoing basis.

The Company evaluates customers' credit status and their ability to guarantee payment primarily through its business evaluation system. The Company generally requires customers to settle progress billings in accordance with contracted terms. Credit terms are granted to customers, based on credit assessment carried out by management on an individual basis.

The Company currently has only one customer, the CWLC and its provincial welfare lottery centers, which gives rise to significant concentration of credit risk.


16	FINANCIAL INSTRUMENTS (CONTINUED)

(b) Liquidity risk

The Company's objective in managing liquidity risk is to maintain a balance between continuity of funding and flexibility through the use of cash generated by operating activities. Management believe that the Company's ability to generate sufficient cash from operations to reinvest in its business is one of its fundamental financial strengths, and combined with the Company's business cash generating capacity, management expect to meet the Company's financial obligations and operating needs in the foreseeable future.

The Company does not have any financial liabilities, or derivatives, with maturity dates that exceed 12 months.

The Company did not enter into any lines of credit or borrowing arrangements with banks.

The Company does not have financing arrangements with banks. Consequently, changes in market interest rates would not have a significant effect on the Company's net income and net equity.


17	RELATED PARTY RELATIONSHIPS AND TRANSACTIONS

(a) Parent and controlling parties

The Company is wholly owned by Shenzhen Leli Technology Development Co., Ltd. (“Shenzhen Leli”), which is ultimately 50% owned by Scientific Games China Holdings Limited and 50% owned by Rexcapital Financial Holding Limited. Scientific Games China Holdings is an indirect wholly owned subsidiary of Scientific Games Corporation.

Shenzhen Leli is located in Shenzhen and its principal activities are technical development and consultancy, with a registered capital of RMB 54,606,000.

(b) Key management personnel compensation

Key management personnel are those persons holding positions with authority and responsibility for planning, directing and controlling the activities of the Company.

Key management personnel compensation comprised the following:



	2012	2011	2010
	(unaudited)		(unaudited)

Short-term employee benefits	2,906,088	3,651,950	4,215,669
Post-employment benefits	39,520	32,406	35,898


17.	RELATED PARTY RELATIONSHIPS AND TRANSACTIONS (CONTINUED)


(c)	The significant related-party transactions and outstanding balances of the Company are summarised as follows:



	2012	2011	2010
	(unaudited)		(unaudited)

Receiving services from Scientific Games (China) Co., Ltd.	670,993	576,000	525,000



	December 31,	December 31,
	2012	2011
	(unaudited)

Other payables due to Scientific Games (China) Co., Ltd.	320,993	—

Scientific Games (China) Co., Ltd. is a fellow subsidiary of the Company. The transactions with related parties are priced on an arm's length basis.


18.	OPERATING LEASE COMMITMENTS

As at December 31, the future minimum lease payments under non-cancellable operating leases rentals were as follows:



	2012	2011
	(unaudited)

Within 1 year	1,546,300	1,380,488
After 1 year but within 2 years	1,081,521	970,864
Total	2,627,821	2,351,352

The Company leases a number of office facilities under operating leases. These operating leases do not contain provision for contingent lease rentals.


19.	DISTRIBUTIONS OF PROFIT IN CASH APPROVED AFTER 31 DECEMBER 2012

The Board of Directors approved on 20 April, 2013 a distribution of profit in cash totalling RMB24,750,000 (2011: nil; 2010: nil). This distribution of profit in cash has not been recognised as a liability as at 31 December 2012.

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