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    • April 5, 2011 Industry ReportThink Entertainment: Gaming Reason for Report:China Gaming: Server Checks Suggest Continued Industry Update Atul BaggaIndustry Momentum 415-249-6362, abagga@thinkequity.comTHINK SUMMARY:We believe that server checks could directionally give a good sense toinvestors about the games performance in any given period; in our analysis wefound 70% correlation to server count and APA for the four publically listedgaming companies. Our server checks suggest that Q1 was likely a strongquarter for most of the games companies in China. Given continuedmomentum in the gaming industry, coupled with some of the strong gameslaunches scheduled for 2011, leads us to believe that the overall Chinesegaming industry could see a rebound in 2011, which we believe could allaysome investors concern around an industry slowdown and help drive multipleexpansion for Chinese gaming shares.KEY POINTS:• While we acknowledge that server data alone cannot accurately predict the game performance; our analysis finds approximately 70% correlation of server count with the usage (APA), and we believe that server data could be a good directional indicator of the health of games.• Our server checks suggest that a few of Perfect Worlds games have made a healthy comeback in 1Q11 after declining usage in 2H10. Similarly, Shandas Legend of Mir 2 and World of Legend seem to have stabilized in 1Q11 after steep decline in 1H10. ChangYous TLBB and Giants ZT series games seem to have seen stable server growth in 1Q11.• Valuation multiple on Chinese game shares seem to bake in a lot of negativity around a potential slowdown in the space and potential government regulations changes. We like investment in CYOU shares ahead of the DMD release and in NTES shares driven by, in our view, a strong pipeline of games.Please see analyst certification (Reg. AC) and other important disclosures on pages 11-12 of this report.
    • April 5, 2011 Industry ReportWhile we acknowledge that server count alone may not accurately predict the game usage in a given period, we believethat server data gives a good sense directionally about the game usage during a given period. Based on our server countdata and the companies’ reported data around APA, we found 70% correlation between the two.Exhibit 1: Correlation Between APA And Server Count Q/Q Growth 3Q10 Q/Q Growth 3Q10 GAME PWRD GA CYOU GAME PWRD GA CYOUAPA Growth -5% -11% 4% -6% 2% 10% 13% 3%Server Count Growth 2% -7% 6% 5% 3% 11% 6% 14%R2: 47%;Correlation: 69%Source: Company reports, ThinkEquity LLC Proprietary Server ChecksWe conduct server counts in China every couple of weeks. During 1Q11, the game usages seemed to have improvedacross all games. Our checks suggest that a few of Perfect World’s games had what we viewed as a nice rebound in 1Qafter declining usage in 2H10. Likewise, Shanda’s Legend of Mir series and World of Legend usage seem to be stabilizingas well after a steep decline in 2010. ChangYou’s TLBB and Giant’s ZT Series games seem to have remained stable in1Q11. Page 2
    • April 5, 2011 Industry ReportExhibit 2: Server Count On Select GamesOperator Key Games Number of Servers As On Average Number of Servers Q/Q Server Count Growth 2-Jan 9-Jan 23-Jan 13-Feb 27-Feb 13-Mar 27-Mar 2Q10 3Q10 4Q10 1Q11 3Q10 4Q10 1Q11Shanda Legend of Mir2 172 169 170 170 169 169 170 157 164 167 170 4% 2% 2% Woool 142 144 141 142 141 141 142 137 140 143 142 2% 2% 0% Mirs 20 20 20 20 22 22 22 19 17 18 20 -11% 8% 11% Mir Returns 19 19 19 19 21 21 21 17 16 17 19 -9% 12% 11% Aion 96 96 102 102 103 103 103 91 94 96 100 4% 2% 4% Maple Story 44 44 46 46 47 47 47 42 42 43 45 1% 2% 5% BNB 5 5 5 5 5 5 5 5 5 5 5 0% 0% 0% JX World 25 25 25 28 28 28 26 23 23 25 26 1% 6% 6% Dragon Nest 111 105 104 102 94 82 73 109 116 103 6% -11% 491 611 630 631 24% 3% 0%NetEase FWJ 408 408 395 397 398 399 400 434 419 407 401 -3% -3% -1% WWJ3 79 79 80 81 82 77 78 61 66 75 80 8% 14% 6% WWJ2 175 176 177 178 179 183 183 177 172 177 177 -3% 3% 0% TX2 78 78 79 79 78 76 75 59 61 76 78 4% 23% 4% WoW 365 365 367 367 367 363 357 354 359 363 366 1% 1% 1% Fly for Fun 24 24 21 21 21 21 21 23 25 24 22 9% -5% -8% WWJ Genesis 22 1,108 1,102 1,122 1,125 -1% 2% 0%Perfect World LOMA 36 36 36 36 36 35 34 37 36 36 36 -3% -1% 0% Zhu Xian 94 94 96 96 91 93 93 100 87 89 94 -14% 3% 6% PW2 84 87 86 86 85 87 81 80 81 79 86 1% -2% 8% Chi Bi 26 26 26 26 26 26 27 33 37 29 26 13% -21% -12% Foresaken World 46 46 46 46 48 48 50 NM 39 46 NM NM NM HDP 9 FZX 55 56 56 57 51 55 58 38 35 50 55 -6% 41% 11% World of Immortals 33 39 39 38 41 56 37 Dragon Excalibur 26 28 28 28 28 26 28 BOI 28 25 28 27 26 25 26 45 43 30 27 -4% -31% -11% 342 319 353 435 -7% 11% 23%Continued… Page 3
    • April 5, 2011 Industry ReportOperator Key Games Number of Servers As On Average Number of Servers Q/Q Server Count Growth 2-Jan 9-Jan 23-Jan 13-Feb 27-Feb 13-Mar 27-Mar 2Q10 3Q10 4Q10 1Q11 3Q10 4Q10 1Q11Giant ZT Online 66 63 63 63 63 63 66 67 61 62 64 -9% 2% 2% Giant 25 25 22 22 22 23 24 24 23 22 23 -5% -5% 5% KOK3 32 32 33 32 33 33 33 12 27 30 32 122% 13% 7% ZT Classic 25 21 20 23 23 23 23 19 18 20 22 -4% 11% 10% ZT Green 35 35 29 31 31 26 26 41 41 38 32 2% -9% -15% ZT2 10 10 10 9 12 13 15 NM 9 10 NM NM NM ZT Green Tencent 10 10 10 10 10 10 10 8 10 10 10 25% 0% 0% 171 180 192 194 6% 6% 1%Sohu TLBB 508 509 513 513 513 513 523 454 476 500 511 5% 5% 2% Blade 78 78 78 78 78 80 80 65 68 74 78 5% 8% 6% ZHYX 31 31 31 31 31 31 31 28 30 31 9% 3% Jiu Ding Chuan Shuo 54 53 54 54 56 56 56 NM 53 54 NM NM NM 519 572 657 674 10% 15% 3%Tencent DNF 116 116 116 116 116 116 116 CF 37 37 37 37 37 37 37 DMLQ 18 18 18 18 18 18 18 Xunxian 48 48 48 48 48 48 48 QQ Fantasy 50 51 47 47 37 33 49 QQ Dancer 27 31 31 31 31 27 30 279The9 FIFA Online 2 16 16 16 16 16 16 16 15 16 16 16 6% 0% 0% GE 12 12 12 12 12 12 12 11 12 12 12 8% 1% 0% SUN 31 31 31 31 31 31 31 31 31 31 31 0% 0% 0% WoF 90 90 90 90 90 90 110 156 129 94 90 -17% -27% -4% 213 188 153 149 -12% -19% -2%Source: ThinkEquity LLC Proprietary Checks Page 4
    • April 5, 2011 Industry ReportExhibit 3: Server Count Of Key Games – ChangYou 600 500 400 TLBB 300 Blade Online ZHYX 200 100 0 Nov-10 Jun-10 Jul-10 Jan-11 Mar-10 Apr-10 May-10 Aug-10 Sep-10 Oct-10 Dec-10 Feb-11 Mar-11Source: ThinkEquity LLC Proprietary ChecksExhibit 4: Server Count Of Key Games – Giant Interactive 80 70 60 ZT Online 50 ZT Classic 40 ZT Green 30 ZT2 ZT Green Tencent 20 10 0 Nov-10 Jun-10 Jul-10 Jan-11 Mar-10 Apr-10 May-10 Aug-10 Sep-10 Oct-10 Dec-10 Feb-11 Mar-11Source: ThinkEquity LLC Proprietary Checks Page 5
    • April 5, 2011 Industry ReportExhibit 5: Server Count Of Key Games – NetEase 500 450 400 FWJ 350 WWJ3 300 WWJ2 250 TX2 200 WoW 150 Fly for Fun 100 WWJ Genesis 50 0 Nov-10 Jun-10 Jul-10 Jan-11 Mar-10 Apr-10 May-10 Aug-10 Sep-10 Oct-10 Dec-10 Feb-11 Mar-11Source: ThinkEquity LLC Proprietary ChecksExhibit 6: Server Count Of Key Games – Perfect World 140 LOMA 120 Zhu Xian 100 PW2 80 Chi Bi Foresaken World 60 Fantasy Zhu Xian 40 World of Immortals Dragon Excalibur 20 Battle of Immortals 0 Nov-10 Jun-10 Jul-10 Jan-11 Mar-10 Apr-10 May-10 Aug-10 Sep-10 Oct-10 Dec-10 Feb-11 Mar-11Source: ThinkEquity LLC Proprietary Checks Page 6
    • April 5, 2011 Industry ReportExhibit 7: Server Count Of Key Games – Shanda Games 300 250 200 Legend of Mir 2 AION 150 Maple Story 100 Dragon Nest 50 0 Nov-10 Jun-10 Jul-10 Jan-11 Mar-10 Apr-10 May-10 Aug-10 Sep-10 Oct-10 Dec-10 Feb-11 Mar-11Source: ThinkEquity LLC Proprietary ChecksVALUATIONGiven what we view as strong server data, we believe that the gaming industry has maintained momentum in 1Q11.Additionally, we expect industry growth to pick up with the launch of a few highly anticipated games, including DMD, Worldof Warcraft Cataclysm, Swordsman Online, among others. On the other hand, Chinese gaming shares trade at asignificant discount to the U.S. gaming and Chinese internet media multiples—Chinese gaming shares trade at anaverage 11x PE on 2011E EPS with 37% expected revenue growth in 2011 (7.7x for the shares that trade on U.S.exchanges, per FactSet data); versus U.S. gaming companies’ shares trading at 12x with a flat revenue growth projectionin 2011; versus Chinese Internet companies’ shares trading at a 35x PE with a 40% revenue growth projection in 2011,which we believe reflects the negative sentiment toward the gaming shares (see Exhibit 8). We believe that an industrygrowth rebound in 2011 could allay some of the investors’ concerns around the growth potential and drive multipleexpansions for the Chinese gaming shares. Page 7
    • April 5, 2011 Industry ReportExhibit 8: Comp Table Stock Price ($) EV/Rev P/E PE (Net of Cash) EV/CFO y/y Rev y/y EPS Market Cap Ticker 4/04/2011 ($ million) 2010 E 2011 E 2010E 2011E 2010E 2011E 2010E 2011E 2011E 2011EChina Online GamesChangYou CYOU 33.42 1,776 4.4x 3.5x 10.2x 8.7x 8.2x 7.0x 7.9x 5.9x 25% 17%Giant GA 7.38 1,723 4.0x 3.2x 13.9x 12.1x 6.5x 5.7x 5.9x 4.8x 28% 15%Kingsoft 3888-HK 0.58 673 NM NM 11.9x 12.1x NM NM NM NM 13% -2%NetDragon 777-HK 0.49 259 NM NM 39.0x 35.7x NM NM NM NM 3% 9%NetEase NTES 51.71 6,755 6.3x 5.0x 19.9x 15.9x 15.6x 12.5x 17.3x 11.8x 27% 25%Perfect World PWRD 22.36 1,181 2.5x 2.1x 9.0x 8.6x 6.9x 6.6x 4.9x 5.2x 18% 5%Shanda Games GAME 6.32 1,800 2.2x 1.9x 9.1x 8.5x 7.4x 6.9x 5.6x 5.5x 16% 7%Tencent 700-HK 25.26 46,957 11.5x 8.4x 37.1x 27.8x 27.1x 20.3x 28.3x 17.2x 37% 33%The9 NCTY 6.62 166 NM NM NM NM NM NM NM NM 177% -27%Average 6,810 5.1x 4.0x 18.8x 14.5x 11.9x 9.8x 11.6x 8.4x 38% 9%Median 1,723 4.2x 3.3x 12.9x 12.1x 7.8x 6.9x 6.9x 5.7x 25% 9%US GamesActivision Blizzard Inc. ATVI 11.01 13,190 2.0x 2.4x 13.9x 15.1x 10.2x 11.1x 8.2x 7.4x -15% -8%Majesco COOL 3.90 147 1.7x 1.3x NM 15.1x NM 14.3x NM NM 35% NMElectronic Arts Inc. ERTS 19.69 6,537 1.2x 1.2x 32.2x 24.4x 22.3x 17.0x 39.1x 20.1x 1% 32%Konami KNM 18.46 2,464 NM NM 15.6x 13.1x NM NM NM NM 6% 19%THQ Inc. THQI 4.48 304 0.1x 0.1x NM 23.9x NM 8.7x NM NM 9% NMTake-Two TTWO 15.10 1,190 NM NM 15.1x 21.4x NM NM NM NM -23% -30%Glu Mobile Inc. GLUU 4.28 154 2.3x 2.8x NM NM NM NM NM NM -18% 156%Sony SNE 31.45 31,613 NM NM 42.8x 19.3x NM NM NM NM 3% 122%Nintendo NTDOY 33.05 NA NM NM 24.4x 22.3x NM NM NM NM 1% 9%ZOO Entertainment ZOOG 4.44 33 0.5x 0.4x 7.5x 5.0x NM NM NM NM 35% 49%Average 6,950 1.5x 1.5x 24.0x 19.3x 16.3x 12.7x 23.6x 13.7x 0% 43%Median 1,827 1.7x 1.3x 20.0x 20.3x 16.3x 12.7x 23.6x 13.7x 1% 19%Chinese Internet51Jobs JOBS 67.07 1,916 12.0x 8.5x NM NM NM 35.1x NM 35.0x 40% 164%Baidu BIDU 143.11 50,005 40.6x 25.5x NM NM NM 54.7x NM NM 59% 62%Ctrip CTRP 42.84 6,550 13.8x 10.9x 63.0x 40.4x 37.1x 32.3x 38.1x 37.9x 27% 15%eLong LONG 14.42 NA NM NM NM NM NM NM NM NM 21% 158%SINA Corp. SINA 116.56 7,673 17.4x 14.0x NM 66.9x 60.1x 58.9x 59.0x NM 25% 2%Sohu.com Inc. SOHU 97.30 3,734 5.0x 4.0x 24.4x 23.1x 18.9x 16.1x 13.1x 15.5x 25% 18%Yoku YOKU 48.84 4,221 67.8x 36.3x NM NM NM NM NM NM 87% -53%Tencent 700-HK 25.26 46,957 11.5x 8.4x 61.1x 37.1x 27.1x 20.3x 28.3x 17.2x 37% 33%Average 17,294 24.0x 15.4x 49.5x 41.9x 35.8x 36.2x 34.6x 26.4x 40% 50%Median 6,550 13.8x 10.9x 61.1x 38.8x 32.1x 33.7x 33.2x 26.1x 32% 26%Source: FactSet Page 8
    • April 5, 2011 Industry ReportVALUATIONValuation for CYOU SharesWe maintain our Buy rating on CYOU shares, with a $40 price target, based on a 9.1x PE (net of cash) on our 2011E EPSversus 7.7x average for shares of the peer group. We believe that a premium multiple is appropriate given our view of thecompanys strong positioning (strong development capability and strong platform from its association with SOHU).Valuation for NTES SharesWe maintain our Buy rating on NTES shares with a $55 price target, based on a 14x PE (net of cash) on our 2011 EPSestimate (versus 7.7x average for the shares of the Chinese gaming peer group, 19x for the diversified Chinese gamingand Internet group shares, and 35x for the broader Chinese internet and media group shares), which we believe isappropriate, given what we view as the companys strong pipeline and strong publishing platform.Valuation for GAME SharesWe are incrementally positive on stabilizing Mir 2 performance and a healthy pipeline, and we reiterate our Buy rating onGAME shares with a price target of $8, which is based on an approximate 8x PE (net of cash) on our 2011 EPS estimate.We believe that an 8x multiple (roughly in line with an average multiple of 7.7x for shares of the peer group multiple) isappropriate given slightly higher risks with existing franchises.Valuation for GA SharesWe are positive on an investment in GA shares given our view of a stabilizing ZT franchise and maintain our Hold ratingwith a price target to $8, which is predicated at a 13x PE on our 2011E EPS of $0.62 (6x PE net of cash) versus 14x forthe peer group (7.7x net of cash). We believe that a small discount to the peer group shares is appropriate given thecompany’s dependence on a major franchise.Valuation for PWRD SharesWe are optimistic about the companys international strategy and the longer-term prospect, given what we believe is astrong pipeline for 2011/2012—Swordsman Online, Sword Heaven Dragon Saber, Empire of Immortals, Torchlight,Meteor Online, and a couple unnamed games. We reiterate are Hold rating on PWRD shares with a price target of $24predicated on a P/E multiple of approximately 8x our 2011E EPS (net of cash), roughly in line with an average 7.7x PEmultiple for shares of companies in the Chinese gaming group, which we believe is appropriate given higher risks relatedto disruption in the companys existing franchises.Valuation for NCTY SharesTrading below cash (cash in hand at $9.15 per share), NCTY shares may look inexpensive. However, given our view ofthe companys relatively weaker positioning in China (no track record of a successful game over the last 12 months and arelatively weaker pipeline) and potential for more distraction stemming from its global strategy and given our expectationof cash burn, we base our price target of $4.50 per share on about 50% of the cash in hand. Page 9
    • April 5, 2011 Industry ReportRISKS TO PRICE TARGETS • Gaming continues to be a hit-or-miss-driven business, and predicting successful titles versus unsuccessful titles is extremely difficult. The risk is especially high for the new and unproven IPs, and a companys reliance on the new IPs and the titles in the established franchises to reach the revenue target opens it to risk of a revenue miss. • Macro headwinds and popularity of the used games and free-to-play online games. Given the current macro headwinds, used games and free-to-play online games create higher substitute competition for video games. • The industry is dependent on the console cycle; unexpected start of the new console cycle will likely constrain the revenue growth and affect profitability of gaming vendors. • Foreign currency exchange risk. These companies generate revenue from international operations, which exposes the companies to foreign currency exchange risk Page 10
    • April 5, 2011 Industry ReportCOMPANIES MENTIONED IN THIS REPORT:Company Exchange Symbol Price RatingActivision Blizzard, Inc. NASDAQ ATVI $11.01 BuyAmazon.com, Inc. NASDAQ AMZN $182.94 BuyApple Inc. NASDAQ AAPL $341.19 BuyBaidu, Inc. NASDAQ BIDU $143.11 BuyChangyou.com Limited NASDAQ CYOU $33.42 BuyCtrip.com International, Ltd. NASDAQ CTRP $42.84 BuyElectronic Arts Inc. NASDAQ ERTS $19.69 BuyExpedia, Inc. NASDAQ EXPE $22.43 HoldGiant Interactive Group, Inc. NYSE GA $7.38 HoldGoogle, Inc. NASDAQ GOOG $587.68 BuyNetEase.com, Inc. NASDAQ NTES $51.71 BuyNetflix, Inc. NASDAQ NFLX $244.72 BuyOpenTable, Inc. NASDAQ OPEN $108.87 HoldOrbitz Worldwide, Inc. NYSE OWW $3.55 HoldPerfect World Co., Ltd. NASDAQ PWRD $22.36 Holdpriceline.com Incorporated NASDAQ PCLN $518.59 BuyShanda Games NASDAQ GAME $6.32 BuyShanda Interactive Entertainment Limited NASDAQ SNDA $43.83 HoldShutterfly, Inc. NASDAQ SFLY $50.09 HoldSINA Corporation NASDAQ SINA $116.56 HoldTake-Two Interactive Software NASDAQ TTWO $15.10 BuyThe9 Limited NASDAQ NCTY $6.62 SellTHQ, Inc. NASDAQ THQI $4.48 HoldTravelzoo Inc. NASDAQ TZOO $76.29 BuyVistaPrint Ltd. NASDAQ VPRT $52.90 BuyYahoo! NASDAQ YHOO $16.87 BuyZoo Entertainment, Inc. NASDAQ ZOOG $4.44 BuyImportant Research DisclosuresAnalyst CertificationI, Atul Bagga, hereby certify that all of the views expressed in this research report accurately reflect my personal views about the subjectsecurities and issuers. I also certify that no part of my compensation was, is, or will be directly or indirectly related to the specificrecommendations or views expressed in this research report.The analyst(s) responsible for preparing this report has/have received compensation based on various factors, including the firms totalrevenues, a portion of which is generated by investment banking activities.ThinkEquity LLC and/or an affiliate managed or co-managed a public offering of securities for Zoo Entertainment, Inc. in the past 12months.ThinkEquity LLC makes a market in Activision Blizzard, Inc., Changyou.com Limited, Electronic Arts Inc., Giant Interactive Group, Inc.,Shanda Games, The9 Limited, NetEase.com, Inc., Perfect World Co., Ltd., Shanda Interactive Entertainment Limited, THQ, Inc.,Take-Two Interactive Software, Zoo Entertainment, Inc., Google, Inc., Apple Inc., Baidu, Inc., Ctrip.com International, Ltd., SINACorporation, Amazon.com, Inc., Expedia, Inc., OpenTable, Inc., Netflix, Inc., Orbitz Worldwide, Inc., priceline.com Incorporated, Shutterfly,Inc., Travelzoo Inc., VistaPrint Ltd., and Yahoo! securities; and/or associated persons may sell to or buy from customers on a principalbasis.ThinkEquity LLC has made affirmative disclosures concerning each of the covered securities mentioned in this report, including analystholdings (if any), rating definitions and overall ratings distributions. These disclosures can be found in the most recent complete researchreport for each of the respective companies. Reports are available upon request.Rating Definitions Page 11
    • April 5, 2011 Industry ReportEffective October 7, 2009, ThinkEquity LLC moved from a four-tier Buy/Accumulate/Source of Funds/Sell rating system to a three-tierBuy/Hold/Sell system. The new ratings appear in our Distribution of Ratings, Firmwide chart. To request historical information, includingpreviously published reports or statistical information, please call: 866-288-8206, or write to: Director of Research, ThinkEquity LLC, 600Montgomery Street, San Francisco, California, 94111.Buy: ThinkEquity expects the stock to generate positive risk-adjusted returns of more than 10% over the next 12 months. ThinkEquityrecommends initiating or increasing exposure to the stock.Hold: ThinkEquity expects the stock to generate risk-adjusted returns of +/-10% over the next 12 months. ThinkEquity believes the stockis fairly valued.Sell: ThinkEquity expects the stock to generate negative risk-adjusted returns of more than 10% during the next 12 months. ThinkEquityrecommends decreasing exposure to the stock. Distribution of Ratings, Firmwide ThinkEquity LLC IB Serv./Past 12 Mos.Rating Count Percent Count PercentBUY [B] 149 66.80 24 16.11HOLD [H] 72 32.30 0 0.00SELL [S] 2 0.90 0 0.00This report does not purport to be a complete statement of all material facts related to any company, industry, or security mentioned. Theinformation provided, while not guaranteed as to accuracy or completeness, has been obtained from sources believed to be reliable. Theopinions expressed reflect our judgment at this time and are subject to change without notice and may or may not be updated. Pastperformance should not be taken as an indication or guarantee of future performance, and no representation or warranty, express orimplied, is made regarding future performance. This notice shall not constitute an offer to sell or the solicitation of an offer to buy, nor shallthere be any sale of these securities in any state in which said offer, solicitation, or sale would be unlawful prior to registration orqualification under the securities laws of any such state. This research report was originally prepared and distributed to institutional clientsof ThinkEquity LLC. Recipients who are not market professionals or institutional clients of ThinkEquity LLC should seek the advice of theirpersonal financial advisors before making any investment decisions based on this report. Additional information on the securitiesreferenced is available upon request. In the event that this is a compendium report (covers more than six ThinkEquity LLC-coveredsubject companies), ThinkEquity LLC may choose to provide specific disclosures for the subject companies by reference. To requestmore information regarding these disclosures, please call: 866-288-8206, or write to: Director of Research, ThinkEquity LLC, 600Montgomery Street, San Francisco, California, 94111. Stocks mentioned in this report are not covered by ThinkEquity LLC unlessotherwise mentioned. Member of FINRA and SIPC. Copyright 2011 ThinkEquity LLC, A Panmure Gordon Company Page 12