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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
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<DIV align="center" style="font-size: 14pt; margin-top: 12pt"><B>UNITED STATES SECURITIES AND EXCHANGE COMMISSION</B>
</DIV>

<DIV align="center" style="font-size: 12pt"><B>WASHINGTON, D.C. 20549</B>
</DIV>

<DIV align="center" style="font-size: 18pt; margin-top: 12pt"><B>FORM 20-F</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>(Mark One)</B>
</DIV>

<DIV align="center">
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%" style="font-size: 12pt">
<TR style="font-size: 6pt">
    <TD width="7%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="88%">&nbsp;</TD>
</TR>
<TR valign="top">
    <TD align="center"><FONT face="Wingdings">&#111;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD><B>REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g)
OF THE SECURITIES EXCHANGE ACT OF 1934</B></TD>
</TR>
</TABLE>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 12pt"><B>OR</B></DIV>

<DIV align="center">
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%" style="font-size: 12pt">
<TR style="font-size: 6pt">
    <TD width="7%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="88%">&nbsp;</TD>
</TR>
<TR valign="top">
    <TD align="center"><FONT face="Wingdings">&#254;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD><B>ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934</B></TD>
</TR>
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 12%"><B>For the fiscal year ended December&nbsp;31, 2005
</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 12pt"><B>OR</B></DIV>

<DIV align="center">
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%" style="font-size: 12pt">
<TR style="font-size: 6pt">
    <TD width="7%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="88%">&nbsp;</TD>
</TR>
<TR valign="top">
    <TD align="center"><FONT face="Wingdings">&#111;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD><B>TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934</B></TD>
</TR>
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 12%"><B>For the transition period from<U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U>to<U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U>.
</B>
</DIV>

<DIV align="center">
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%" style="font-size: 12pt">
<TR style="font-size: 6pt">
    <TD width="7%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="88%">&nbsp;</TD>
</TR>
<TR valign="top">
    <TD align="center"><FONT face="Wingdings">&#111;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD><B>SHELL COMPANY REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934</B></TD>
</TR>
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 12%"><B><B>Date
of event requiring this shell company report</B><U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U>.
</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 12%"><B><B>For the transition period from</B><U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U><B>to</B><U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U>.
</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 12pt"><B>Commission file number: 000-50705</B></DIV>

<DIV align="center" style="font-size: 20pt; margin-top: 12pt"><B>SHANDA INTERACTIVE ENTERTAINMENT LIMITED</B>
</DIV>

<DIV align="center" style="font-size: 10pt">(Exact name of Registrant as specified in its charter)</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 12pt"><B>N/A</B><BR>
(Translation of Registrant&#146;s name into English)</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 12pt"><B>Cayman Islands</B><BR>
(Jurisdiction of incorporation or organization)</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 12pt"><B>No.&nbsp;1 Office Building<BR>
No.&nbsp;690 Bibo Road<BR>
Pudong New Area<BR>
Shanghai 201203, People&#146;s Republic of China</B><BR>
(Address of principal executive offices)</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 12pt">Securities registered or to be registered pursuant to Section&nbsp;12(b) of the Act:</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
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<TR valign="bottom">
    <TD align="center" valign="top"><B>(Title of each class)</B>
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">(Name of each exchange on which registered)</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top">None
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">None</TD>
</TR>
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</TABLE>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 12pt">Securities registered or to be registered pursuant to Section&nbsp;12(g) of the Act:</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 12pt"><B>American Depositary Shares, each representing 2 ordinary shares, par value<BR>
$0.01 per share</B><BR>
(Title of each class)</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 12pt">Securities for which there is a reporting obligation pursuant to Section&nbsp;15(d) of the Act:<BR>
<B>None</B></DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Indicate the number of outstanding shares of each of the issuer&#146;s classes of capital or common
stock as of the close of the period covered by the annual report: 141,982,766 ordinary shares, par
value $0.01 per share.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule&nbsp;405 of
the Securities Act.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="Wingdings">&#111;</FONT>&nbsp;&nbsp; Yes &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <FONT face="Wingdings">&#254;</FONT> &nbsp;&nbsp; No
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">If this report is an annual or transaction report, indicate by check mark if the registrant is not
required to file reports pursuant to Section&nbsp;13 or 15(d) of the Securities Exchange Act of 1934.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="Wingdings">&#111;</FONT> &nbsp;&nbsp; Yes &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <FONT face="Wingdings">&#254;</FONT> &nbsp;&nbsp; No
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Indicate by check mark whether the registrant (1)&nbsp;has filed all reports required to be filed by
Section&nbsp;13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12&nbsp;months (or for
such shorter period that the registrant was required to file such reports), and (2)&nbsp;has been
subject to such filing requirements for the past 90&nbsp;days.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="Wingdings">&#254;</FONT>&nbsp;&nbsp; Yes &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <FONT face="Wingdings">&#111;</FONT>&nbsp;&nbsp; No
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,
or a non-accelerated filer.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <FONT face="Wingdings">&#111;</FONT>&nbsp;&nbsp; Large accelerated filer &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="Wingdings">&#254;</FONT>&nbsp;&nbsp; Accelerated filer &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="Wingdings">&#111;</FONT>&nbsp;&nbsp; Non-accelerated filer
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Indicate by check mark which financial statement item the registrant has elected to follow:
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="Wingdings">&#111;</FONT>&nbsp;&nbsp;Item&nbsp;17 &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="Wingdings">&#254;</FONT>&nbsp;&nbsp;Item&nbsp;18
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">If this is an annual report, indicate by check mark whether the registrant is a shell company (as
defined in Rule&nbsp;12b-2 of the Exchange Act).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="Wingdings">&#111;</FONT> &nbsp;&nbsp; Yes&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="Wingdings">&#254;</FONT>&nbsp;&nbsp;No
</DIV>


<DIV style="width: 100%; border-bottom: 1pt solid black; margin-top: 10pt; font-size: 1pt">&nbsp;</DIV>
<DIV style="width: 100%; border-bottom: 2pt solid black; font-size: 1pt">&nbsp;</DIV>





<P align="center" style="font-size: 10pt">&nbsp;
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<A name="tocpage"></A>
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<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>TABLE OF CONTENTS</B>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
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<TR valign="bottom">
    <TD width="7%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
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    <TD width="2%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
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<TR valign="bottom">
    <TD colspan="3" align="left"><A href="#101">Introduction</A></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom">3</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD colspan="5" align="center"><B>Part I.</B><BR></TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#102">Item&nbsp;1.</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><A href="#102">Identity of Directors, Senior Management and Advisors</A></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom">N/A</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#103">Item&nbsp;2.</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><A href="#103">Offer Statistics and Expected Timetable</A></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom">N/A</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#104">Item&nbsp;3.</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><A href="#104">Key Information</A></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom">5</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#105">Item&nbsp;4.</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><A href="#105">Information on the Company</A></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom">32</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#106">Item&nbsp;5.</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><A href="#106">Operating and Financial Review and Prospects</A></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom">53</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#107">Item&nbsp;6.</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><A href="#107">Directors, Senior Management and Employees</A></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom">80</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#108">Item&nbsp;7.</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><A href="#108">Major Shareholders and Related Party Transactions</A></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom">90</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#109">Item&nbsp;8.</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><A href="#109">Financial Information</A></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom">100</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#110">Item&nbsp;9.</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><A href="#110">The Offer and Listing</A></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom">102</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#111">Item&nbsp;10.</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><A href="#111">Additional Information</A></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom">104</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#112">Item&nbsp;11</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><A href="#112">Quantitative and Qualitative Disclosures About Market Risk</A></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom">111</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#113">Item&nbsp;12.</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><A href="#113">Description of Securities Other Than Equity Securities</A></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom">N/A</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD colspan="5" align="center"><A href="#114"><B>Part II.</B><BR></A></TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#115">Item&nbsp;13.</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><A href="#115">Defaults, Dividend Arrearages and Delinquencies</A></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom">N/A</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">

<TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#116">Item&nbsp;14.</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><A href="#116">Material Modifications to the Rights of Security Holders and Use of Proceeds</A></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom">N/A</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#117">Item&nbsp;15.</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><A href="#117">Controls and Procedures</A></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom">112</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#118">Item&nbsp;16A.</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><A href="#118">Audit Committee Financial Expert</A></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom">114</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#119">Item&nbsp;16B.</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><A href="#119">Code of Ethics</A></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom">114</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#120">Item&nbsp;16C.</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><A href="#120">Principal Accountant Fees and Services</A></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom">115</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#121">Item&nbsp;16D.</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><A href="#121">Exemptions from the Listing Standards for Audit Committees</A></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom">115</TD>
</TR>
<TR valign="bottom">

<TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#122">Item&nbsp;16E.</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><A href="#122">Purchases of Equity Securities by the Issuer and Affiliated Purchasers</A></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom">115</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD colspan="5" align="center"><B>Part III.</B><BR></TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#123">Item&nbsp;17.</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><A href="#123">Financial Statements</A></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom">N/A</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#124">Item&nbsp;18.</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><A href="#124">Financial Statements</A></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom">116</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#125">Item&nbsp;19.</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><A href="#125">Exhibits</A></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom">117</TD>
</TR>
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<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="h00616exv4w8.txt">EX-4.8 ARENA SOFTWARE I LICENSE AGREEMENT</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="h00616exv4w9.txt">EX-4.9 ARENA SOFTWARE II LICENSE AGREEMENT</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="h00616exv4w10.txt">EX-4.10 XINTIANYOU SOFTWARE LICENSING AGREEMENT</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="h00616exv4w11.txt">EX-4.11 E-SALES SOFTWARE LICENSING AGREEMENT</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="h00616exv4w21.txt">EX-4.21 EXTENSION AGREEMENT DATED SEPTEMBER 22, 2005</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="h00616exv4w24.txt">EX-4.24 RESEARCH AND DEVELOPMENT AGREEMENT DATED OCTOBER 31, 2005</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="h00616exv4w25.txt">EX-4.25 ONLINE GAME DISTRIBUTION AND LICENSE AGREEMENT</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="h00616exv4w26.txt">EX-4.26 ONLINE GAME DISTRIBUTION AND LICENSE AGREEMENT</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="h00616exv4w27.txt">EX-4.27 ONLINE GAME DISTRIBUTION AND LICENSE AGREEMENT</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="h00616exv4w28.txt">EX-4.28 ONLINE GAME DISTRIBUTION AND LICENSE AGREEMENT</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="h00616exv4w29.txt">EX-4.29 ONLINE GAME DISTRIBUTION AND LICENSE AGREEMENT</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="h00616exv4w30.txt">EX-4.30 ONLINE GAME DISTRIBUTION AND LICENSE AGREEMENT</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="h00616exv4w31.txt">EX-4.31 ONLINE GAME DISTRIBUTION AND LICENSE AGREEMENT</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="h00616exv4w32.txt">EX-4.32 ONLINE GAME DISTRIBUTION AND LICENSE AGREEMENT</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="h00616exv4w33.txt">EX-4.33 ONLINE GAME DISTRIBUTION AND LICENSE AGREEMENT</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="h00616exv4w34.txt">EX-4.34 ONLINE GAME DISTRIBUTION AND LICENSE AGREEMENT</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="h00616exv4w44.txt">EX-4.44 BILLING TECHNOLOGY LICENSE AGREEMENT</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="h00616exv4w45.txt">EX-4.45 BILLING TECHNOLOGY LICENSE AGREEMENT</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="h00616exv4w46.txt">EX-4.46 BILLING TECHNOLOGY LICENSE AGREEMENT</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="h00616exv4w53.txt">EX-4.53 AMENDMENT II TO STRATEGIC CONSULTING SERVICE AGREEMENT</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="h00616exv4w54.txt">EX-4.54 AMENDMENT III TO STRATEGIC CONSULTING SERVICE AGREEMENT</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="h00616exv4w56.txt">EX-4.56 ENTRUSTED LOAN AGREEMENT</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="h00616exv4w57.txt">EX-4.57 LOAN AGREEMENT</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="h00616exv4w58.txt">EX-4.58 ENTRUSTED LOAN AGREEMENT</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="h00616exv4w59.txt">EX-4.59 LOAN AGREEMENT</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="h00616exv4w60.txt">EX-4.60 ENTRUSTED LOAN AGREEMENT</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="h00616exv4w61.txt">EX-4.61 LOAN AGREEMENT</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="h00616exv4w62.txt">EX-4.62 LOAN AGREEMENT</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="h00616exv4w63.txt">EX-4.63 ENTRUSTED LOAN AGREEMENT</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="h00616exv4w64.txt">EX-4.64 LOAN AGREEMENT</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="h00616exv4w65.txt">EX-4.65 ENTRUSTED LOAN AGREEMENT</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="h00616exv4w66.txt">EX-4.66 LOAN AGREEMENT</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="h00616exv4w67.txt">EX-4.67 COOPERATION AGREEMENT</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="h00616exv8w1.txt">EX-8.1 LIST OF SUBSIDIARIES</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="h00616exv12w1.txt">EX-12.1 CERTIFICATION OF CEO</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="h00616exv12w2.txt">EX-12.2 CERTIFICATION OF CFO</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="h00616exv13w1.txt">EX-13.1 CERTIFICATION OF CEO AND CFO</A></FONT></TD></TR>
</TABLE>
</DIV>

<DIV align="left">
<!-- /TOC -->
</DIV>

<P align="center" style="font-size: 10pt">2
</DIV>

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<P><HR noshade><P>
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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left">
<A name="101"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>Introduction</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>CONVENTIONS WHICH APPLY TO THIS FORM</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Except where the context otherwise requires and for purposes of this form only:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>&#147;we,&#148; &#147;us,&#148; &#147;our company&#148; and &#147;our&#148; refer to Shanda Interactive Entertainment
Limited, its predecessor entities and subsidiaries, and, in the context of describing our
operations, also include our PRC-incorporated affiliates, including Shanghai Shanda
Networking Co., Ltd., or Shanda Networking, Nanjing Shanda Networking Co., Ltd., or
Nanjing Shanda, and Hangzhou Bianfeng Networking Co., Ltd., or Hangzhou Bianfeng;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>in certain instances, Shanda Networking, Nanjing Shanda, and Hangzhou Bianfeng are
referred to collectively as &#147;our PRC operating companies&#148;;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>in certain instances, Shanda Networking is referred to as &#147;Shanghai Shanda Internet
Development Co., Ltd.&#148;, which is an alternative English translation of its Chinese name;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>&#147;China&#148; or &#147;PRC&#148; refers to the People&#146;s Republic of China, excluding Taiwan, Hong
Kong and Macau; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>all references to &#147;RMB&#148; or &#147;Renminbi&#148; are to the legal currency of China and all
references to &#147;U.S. dollars,&#148; &#147;dollars&#148; and &#147;US$&#148; are to the legal currency of the United
States.</TD>
</TR>
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This form contains translations of Renminbi amounts into U.S. dollars at specified rates solely for
the convenience of the reader. Unless otherwise noted, all translations from Renminbi to U.S.
dollars were made at the noon buying rate in The City of New York for cable transfers in Renminbi
per U.S. dollar as certified for customs purposes by the Federal Reserve Bank of New York, or the
noon buying rate, as of December&nbsp;30, 2005 which was RMB8.0702 to US$1.00. We make no representation
that the Renminbi amounts referred to in this form could have been or could be converted into U.S.
dollars at any particular rate or at all. On June&nbsp;26, 2006, the noon buying rate was RMB 7.9995 to
US$1.00.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This form contains forward-looking statements that are based on our current expectations,
assumptions, estimates and projections about us and our industry. All statements other than
statements of historical fact in this form are forward-looking statements. These forward-looking
statements can be identified by words or phrases such as &#147;may&#148;, &#147;will&#148;, &#147;expect&#148;,
</DIV>

<P align="center" style="font-size: 10pt">3
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&#147;anticipate&#148;,
&#147;estimate&#148;, &#147;plan&#148;, &#147;believe&#148;, &#147;is/are likely to&#148; or other similar expressions. The forward-looking
statements included in this form relate to, among others:
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>our goals and strategies;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>our future business development, financial condition and results of operations;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>our projected revenues, earnings, profits and other estimated financial
information;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>expected changes in our margins and certain costs or expenditures;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>expected acceptance of our new revenue model;</TD>
</TR>


<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>our plans to expand and diversify the sources of our revenues;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>expected changes in the respective shares of our revenues from particular
sources;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>our plans for staffing, research and development and regional focus;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>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;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>our plans to launch new products, including the new EZ series products, EZ
content and services, movies and music content;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>our plans for strategic partnerships with other businesses;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>our acquisition strategy, and our ability to successfully integrate past or
future acquisitions with our existing operations;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>our estimates of earn-out payments and other obligations relating to our
acquisitions and investments;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the development of other delivery platforms for online games and other
interactive entertainment content and services, including the new EZ series products,
online game consoles and mobile phones;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>competition in the PRC online game industry;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the outcome of ongoing, or any future, litigation or arbitration;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the outcome of our annual PFIC evaluations;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>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;</TD>
</TR>


</TABLE>
</DIV>
<P align="center" style="font-size: 10pt">4
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV style="margin-top: 6pt"><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">


<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>changes in PRC governmental preferential tax treatment and financial incentives
we currently qualify for and expect to qualify for; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>PRC governmental policies relating to media and the Internet and Internet content providers
and to the provision of advertising over the Internet.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;These forward-looking statements involve various risks and uncertainties. Although we believe
that our expectations expressed in these forward-looking statements are reasonable, we cannot
assure you that our expectations will turn out to be correct. Our actual results could be
materially different from and worse than our expectations. Important risks and factors that could
cause our actual results to be materially different from our expectations are generally set forth
in the &#147;Risk Factors&#148; section of Item&nbsp;3 and elsewhere in this form.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The forward-looking statements made in this form relate only to events or information as of
the date on which the statements are made in this form. We undertake no obligation to update any
forward-looking statements to reflect events or circumstances after the date on which the
statements are made or to reflect the occurrence of unanticipated events.
</DIV>
<DIV align="left">
<A name="102"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>Item&nbsp;1. Identity of Directors, Senior Management and Advisors</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt">Not Applicable
</DIV>

<DIV align="left">
<A name="103"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>Item&nbsp;2. Offer Statistics and Expected Timetable</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt">Not Applicable
</DIV>

<DIV align="left">
<A name="104"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>Item&nbsp;3. Key Information</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>A. SELECTED FINANCIAL DATA</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following summary consolidated financial information has been derived from our
consolidated financial statements included elsewhere in this annual report and from consolidated
financial statements previously filed with the United States Securities and Exchange Commission, or
the SEC. The summary consolidated financial information for those
periods and as of those dates should be read in conjunction with those statements and the
accompanying notes and the discussion set forth in Item&nbsp;5, &#147;Operating and Financial Review and
Prospects&#148;.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our consolidated financial statements are prepared and presented in accordance with generally
accepted accounting principles in the United States, or U.S. GAAP, reflect our recent
reorganization, and have been prepared as if our current corporate structure had been in existence
throughout the relevant periods.
</DIV>

<P align="center" style="font-size: 10pt">5
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="28%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="23" style="border-bottom: 1px solid #000000"><B>For the year ended December 31,</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2001</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2002</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 0px solid #000000"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 0px solid #000000"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 0px solid #000000"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 0px solid #000000"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 0px solid #000000"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 0px solid #000000"><B>US$</B><SUP style="font-size: 85%; vertical-align: text-top"><B>1</B></SUP></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="23"><B>(in thousands)</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Consolidated Statements of Operations and
Comprehensive Income Data</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net revenues:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Online game net revenues:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">MMORPGs</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,871</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">326,127</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">580,315</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">994,664</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,255,341</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">155,552</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Casual</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,313</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">214,513</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">402,968</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">49,933</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Other revenues</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">681</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">94</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,352</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">89,548</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">238,302</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">29,529</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total net revenues</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,552</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">326,221</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">599,980</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,298,725</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,896,611</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">235,014</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cost of revenue</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,970</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(122,081</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(233,701</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(471,184</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(614,427</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(76,134</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Gross profit</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,582</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">204,140</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">366,279</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">827,541</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,282,184</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">158,880</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Operating expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(8,917</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(41,516</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(153,106</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(316,579</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(660,285</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(81,818</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income (loss)&nbsp;operations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(6,335</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">162,624</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">213,173</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">510,962</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">621,899</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">77,062</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Interest income and investment income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">205</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,112</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,531</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">63,171</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23,127</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,866</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Amortization of convertible debt issuance
cost</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(3,524</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(18,492</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2,291</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other income (expense), net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(18</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,371</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">61,152</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">83,656</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">174,903</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21,672</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income (loss)&nbsp;before income tax benefits
(expenses), equity in loss of affiliated companies,
minority interests extraordinary gain</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(6,148</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">162,365</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">287,856</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">654,265</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">801,437</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">99,309</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income tax benefits (expenses)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">87</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(23,077</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(18,647</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(38,941</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(96,711</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(11,984</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Equity in loss of affiliated companies</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(4,180</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(544,268</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(67,441</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Minority interests</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,781</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,641</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,661</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,825</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">597</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Extraordinary gain arising from acquisition of a
company</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,516</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,236</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">139,288</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">272,850</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">609,483</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">165,283</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20,481</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">6
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="28%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="23" style="border-bottom: 1px solid #000000"><B>For the year ended December 31,</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2001</B></TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2002</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2003</B></TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 0px solid #000000"><B>RMB</B></TD>
    <TD style="border-bottom: 0px solid #000000">&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 0px solid #000000"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 0px solid #000000"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 0px solid #000000"><B>RMB</B></TD>
    <TD style="border-bottom: 0px solid #000000">&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 0px solid #000000"><B>RMB</B></TD>
    <TD style="border-bottom: 0px solid #000000">&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 0px solid #000000"><B>US$</B><SUP style="font-size: 85%; vertical-align: text-top"><B>1</B></SUP></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="23"><B>(in thousands except for per share data)</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Earnings per Share Data:</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Accretion for preferred
shares</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(24,963</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income attributable to preferred shareholders</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(48,358</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(82,479</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income attributable to ordinary shareholders</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,236</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">139,288</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">199,529</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">527,004</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">165,283</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20,481</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Earnings per share, basic</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.03</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.39</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.14</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4.32</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.17</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.14</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Earnings per share, diluted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.03</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.39</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.07</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4.05</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.13</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.14</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Earnings per ADS<SUP style="font-size: 85%; vertical-align: text-top">2</SUP>, basic</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.06</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.78</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4.28</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.64</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.34</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.28</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Earnings per
ADS<SUP style="font-size: 85%; vertical-align: text-top">2</SUP>, diluted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.06</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.78</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4.14</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.10</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.26</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.28</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="28%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="23" style="border-bottom: 1px solid #000000"><B>As of December 31,</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2001</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2002</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2004</B><SUP style="font-size: 85%; vertical-align: text-top">4</SUP></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 0px solid #000000"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 0px solid #000000"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 0px solid #000000"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 0px solid #000000"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 0px solid #000000"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 0px solid #000000"><B>US$</B><SUP style="font-size: 85%; vertical-align: text-top"><B>1</B></SUP></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="23"><B>(in thousands)</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Consolidated Balance
Sheets Data:</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cash and cash
equivalents</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,791</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">177,040</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">598,922</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,123,971</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">949,622</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">117,670</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Working
capital<SUP style="font-size: 85%; vertical-align: text-top">3</SUP></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,841</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">99,080</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">459,445</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,200,918</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,742,420</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">339,821</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total
assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16,300</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">404,695</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">928,978</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,291,164</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,470,453</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">553,945</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total
liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,353</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">258,629</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">303,661</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,774,386</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,829,205</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">350,574</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Minority
interests</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,716</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,879</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,389</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">420</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total shareholders&#146;
equity</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,947</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">146,066</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">622,601</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,509,899</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,637,859</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">202,951</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV align="left">
<DIV style="font-size: 3pt; margin-top: 16pt; width: 18%; border-top: 1px solid #000000">&nbsp;</DIV>
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96"></TD>
</TR>

<TR valign="top">
    <TD nowrap align="left"><SUP style="font-size: 85%; vertical-align: text-top">1</SUP></TD>
    <TD>&nbsp;</TD>
    <TD>Translations of RMB amounts into U.S. dollars were made at a rate of
RMB8.0702 to US$1.00, the noon buying rate in New York City for cable transfers as
certified for customs purposes by the Federal Reserve Bank of New York on December&nbsp;30,
2005.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left"><SUP style="font-size: 85%; vertical-align: text-top">2</SUP></TD>
    <TD>&nbsp;</TD>
    <TD>Each ADS represents two ordinary shares.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left"><SUP style="font-size: 85%; vertical-align: text-top">3</SUP></TD>
    <TD>&nbsp;</TD>
    <TD>Working capital represents total current assets less total current liabilities.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left"><SUP style="font-size: 85%; vertical-align: text-top">4</SUP></TD>
    <TD>&nbsp;</TD>
    <TD> Certain reclassifications have been made to the consolidated financial
statements of the year ended December&nbsp;31, 2004 to conform to the current year
presentation.</TD>
</TR>

</TABLE>





<P align="center" style="font-size: 10pt">7
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>EXCHANGE RATE INFORMATION</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table sets forth information regarding the noon buying rates in Renminbi and
U.S. dollars for the periods indicated.
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="52%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="15" style="border-bottom: 1px solid #000000"><B>Renminbi per U.S. Dollar Noon Buying Rate</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Average</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 0px solid #000000"><B>High</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 0px solid #000000"><B>Low</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 0px solid #000000"><B>Period End</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2001</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.2770</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.2786</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.2676</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.2766</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2002</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.2770</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.2800</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.2669</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.2800</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2003</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.2770</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.2800</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.2272</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.2769</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2004</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.2770</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.2773</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.2765</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.2765</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2005</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.1826</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.2765</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.0702</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.0702</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000"><B>Renminbi per U.S. Dollar Noon Buying Rate</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>High</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Low</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">December&nbsp;2005</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.0808</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.0702</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">January&nbsp;2006</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.0702</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.0596</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">February&nbsp;2006</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.0616</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.0415</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">

<TD><DIV style="margin-left:15px; text-indent:-15px">March&nbsp;2006</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.0505</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.0167</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">

<TD><DIV style="margin-left:15px; text-indent:-15px">April&nbsp;2006</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.0248</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.004</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">

<TD><DIV style="margin-left:15px; text-indent:-15px">May&nbsp;2006</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.03</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.0005</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Source: Federal Reserve Bank of New York
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">On June&nbsp;26, 2006, the noon buying rate was RMB7.9995 to US$1.00.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>B. CAPITALIZATION AND INDEBTEDNESS</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Not Applicable
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>C. REASONS FOR THE OFFER AND USE OF PROCEEDS</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Not Applicable
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>D. RISK FACTORS</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Risks Relating to our Business</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>We are substantially dependent on two online games, which accounted for approximately 63.4% of our
net revenues in 2005 and which may have a finite commercial lifespan.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are dependent upon The Legend of Mir II, or Mir II, and The World of Legend, or Woool, for
the majority of our revenue. In 2005, Mir II and Woool accounted for approximately 35.3% and 28.1%
of our net revenues, respectively. These and other online games may, however, have finite
commercial lifespans. We believe that Mir II, which we commercially launched in the fourth quarter
of 2001, has already entered the mature stages of its lifecycle. Woool, which we commercially
</DIV>

<P align="center" style="font-size: 10pt">8
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">launched in the fourth quarter of 2003, may also be entering the mature stages of its lifecycle. We
believe that the revenue generated by Mir II and Woool will generally continue to decline but may
fluctuate in absolute amounts as the games continue to age and as we and our competitors release
new games on the market. Nonetheless, we expect to continue to derive a substantial portion of our
net revenues from Mir II and Woool through at least 2006. Accordingly, our business, financial
condition and results of operations would be materially and adversely affected by any occurrence
that leads to a more rapid decline in revenue generated by Mir II and Woool, including but not
limited to:
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>any reduction in purchases of in-game items or value-added services by Mir II or
Woool users or any decrease in the popularity of either game in the China market due to
intensifying competition or other factors;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>loss of our rights to operate either of these games due to a
termination of necessary licenses or other reasons;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>failure to make improvements, updates or enhancements to Mir II or Woool in a timely manner; or</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>any lasting or prolonged server interruption due to network failures or other
factors or any other adverse developments specific to Mir II or Woool.</TD>
</TR>

</TABLE>
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>If we are unable to consistently license or develop additional successful online games, our
business, financial condition and results of operations may be materially and adversely affected.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In order to maintain our long-term profitability and operational success, we must continually
license or develop new online games that are attractive to our users to replace our existing online
games as they reach the end of their commercial lifespan, which we believe is typically four to
five years for successful online games, and two to three years for most other online games.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our ability to license successful online games will depend on our ability to identify games
that will appeal to our users, the availability of such games at acceptable costs, our ability to
compete effectively to attract the licensors of such games, and our ability to obtain government
approvals required for the licensing and operation of such games. It is, however, difficult at the
testing phase to determine which online games will appeal to our users. In addition, many of the
games that are licensed by overseas developers were not designed specifically for China&#146;s online
game market, further complicating the task of identifying or implementing games that will appeal to
our users. Moreover, due to increased competition among online game operators in China, upfront
license fees for licensed games have increased and some licensors are demanding guaranteed minimum
royalty payments. We may be unable to fully recover upfront and minimum royalty licensing costs if
a licensed game is not popular among users. In 2006, for example, we expect to commercially launch
Dungeons and Dragons Online, an MMORPG based upon a well-known American role playing board game.
Dungeons and Dragons Online is not, however, as well-known in China as in the United States and the
online version of the game, which was designed primarily for the North American market, may not be
popular among Chinese online game players.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our ability to internally develop successful online games will depend on our ability to
anticipate changing consumer tastes and preferences, to adopt new technologies, to attract, retain
and motivate talented online game developers and to effectively execute online game development
plans. Internal online game development requires substantial initial investment prior to commercial
launch of the games as well as a significant commitment of future resources to produce
</DIV>

<P align="center" style="font-size: 10pt">9
</DIV>

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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">upgrades and
expansion packs. As with the licensing costs for third-party games, we may be unable to fully
recover development costs if the games are not popular among users.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We cannot be certain that the games we license from third parties or internally develop will
be attractive to users, will be viewed by the regulatory authorities as complying with content
restrictions, will be launched as scheduled or will be able to compete with games operated by our
competitors. If we are not able to consistently license or develop online games with continuing
appeal to users, our future profitability and growth prospects will decline.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>If we are unable to maintain stable relationships with the overseas licensors of our online games,
we may experience difficulties in the continued operation of our existing licensed games, the
extension of existing licenses and the granting of licenses for new games.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We need to maintain stable working relationships with our overseas licensors in order to
ensure the continued smooth operation of our licensed online games and our continued access to new
online game licenses. In 2005, we derived approximately 55.1% of our net revenues from online games
that were licensed from third parties. We are dependent upon our licensors for the provision of
technical support necessary for the operation of the licensed games as well as expansion packs and
upgrades that help to sustain interest in a game among online users. In addition, certain marketing
activities often require the consent of our licensors. Moreover, certain of our licenses may be
terminated upon the occurrence of certain events, such as our material breach of the license. If a
licensed game is successful during its initial term of operation, we may be required to negotiate
with our licensors to extend that term of operation. Our ability to maintain stable working
relationships with our overseas licensors also influences our ability to license new online games
developed by the same or other licensors. If we are unable to maintain stable relationships with
our overseas licensors, our financial condition and results of operations may be materially and
adversely affected.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>We or our licensors 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, may
materially disrupt our business. In particular, we are currently subject to copyright infringement
and unfair competition claims by Wemade and Actoz with respect to Woool, which if determined
adversely against us, could cause us to stop operating Woool.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We cannot be certain that internally developed or licensed online games and other interactive
entertainment content do not and will not infringe upon patents, copyrights, trademarks or other
intellectual property rights held by third parties. Of the twelve games that we commercially
operated as of December&nbsp;31, 2005, six are internally developed and six are licensed form third parties. In connection with
our EZ initiative, we also cooperate with numerous service and content providers that supply
interactive entertainment content, such as movies, music, news and information. We or any of our
licensors may become subject to legal proceedings and claims from time to time relating to the
intellectual property of others. If we or our licensors are found to have violated the intellectual
property rights of others, we may be required to pay damages and be enjoined from using such
intellectual property, and we may incur new or additional licensing fees if we wish to continue
using the infringing content, or be forced to develop or license alternatives. In addition, we may
incur substantial expenses in defending against these third party infringement claims, regardless
of their merit.
</DIV>

<P align="center" style="font-size: 10pt">10
</DIV>

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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On October&nbsp;8, 2003, Wemade Entertainment Co., Ltd. (&#147;Wemade&#148;) filed claims against us in the
Beijing First Intermediate People&#146;s Court, or the Beijing Court, with respect to our operation of
Woool. Wemade has alleged, among other things, that Woool copied Mir II and elements of the Legend
of Mir III, or Mir III, which is another online game that Wemade developed, thereby infringing
Wemade&#146;s copyrights in these games. In addition, Wemade has alleged that our operation of Woool
violates the PRC Anti-Unfair Competition Law. In particular, Wemade has alleged that the Chinese
name for Woool, which includes two characters from the Chinese name for Mir II, misleads users and
that we previously encouraged users to switch from Mir II to Woool by permitting the transfer of
game characters developed in Mir II to Woool. Wemade has requested the Beijing Court to, among
other things, order us to stop our operation of Woool, and to pay its legal fees and related costs
incurred in connection with this litigation. On May&nbsp;24, 2004,
the Beijing Court informed us that
Actoz Soft Co., Ltd. (&#147;Actoz&#148;) had been joined as a co-plaintiff in these proceedings. On October
14, 2005, the Beijing Court completed a series of hearings in connection with this matter and the
parties are now awaiting a decision from the Beijing Court.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If the Beijing court determines that we have violated the Mir II or Mir III copyrights, we may
be required to pay damages as well as the plaintiffs&#146; legal fees and related costs, each of which
may be material. In addition, we may be required to modify portions of Woool or to completely cease
operation of Woool, which accounted for approximately 28.1% of our net revenues in 2005.
Furthermore, if the Beijing Court determines that we have violated the PRC Anti-Unfair Competition
Law, we may be required to modify the Chinese name for Woool. Any lapse in our right to operate
Woool in China, or any modifications to the game itself, as a result of this litigation, may have a
material adverse effect on our business, financial condition and results of operations.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Negative publicity in China regarding online games could lead to additional government regulations
that may have a material and adverse impact on our business, financial condition and results of
operations.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The media in China has
reported incidents of violent crimes allegedly inspired by online
games, including theft of online game virtual items among users. In addition, incidences of
excessive online game playing and allegations that online games distract students and interfere
with their education have also been reported in the media. This negative publicity regarding the
online game industry has led to several regulatory initiatives and could lead to additional
regulation in the future. For example, in July&nbsp;2005, the Ministry of Culture and the Ministry of
Information Industry jointly issued an opinion which requires online game operators to develop
systems and softwares for indentity certification, to implement anti-addiction modifications to
game rules and to restrict players under eighteen years of age from playing certain games. In August
2005, for example, the State Administration of Press and Publications, or SAPP, proposed an online
game anti-addiction system that would have reduced and eliminated experience points that a user can
accumulate after three and five hours of consecutive playing, respectively. In March&nbsp;2006, SAPP
amended its proposal to require players to register with their real names and identity card numbers
and to apply the anti-addiction system only to players under eighteen years of age. Although the
proposal has not yet been formally adopted and compliance is not yet compulsory for online game
operators, these and other regulations may be implemented in response to negative publicity and
such regulations could have a material and adverse impact on our business, financial condition and
results of operations.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>We face significant competition which could reduce our market share and adversely affect our
business, financial condition and results of operations.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The online game market in China is increasingly competitive. Our results of operations to date
may be a result, in part, of a first-mover advantage which may not continue to be available to us.
A significant number of competitors have
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">entered the online game business in China. We expect more
companies to enter the market and we expect a wider range of online games to be introduced to the
China market. Competition from other online game operators, both based in China as well as
overseas, is likely to increase in the future. Other online game operators or developers, such as China-based Netease and
The9, as well as overseas-based Electronic Arts and NCsoft, are current, or potential future,
competitors. As the online game industry in China is relatively new and constantly evolving, our
current or future competitors may compete more successfully as the industry matures. In particular,
any of these competitors may offer products and services that provide significant performance,
price, creativity or other advantages over those offered by us. These products and services may
weaken the market strength of our brand name and achieve greater market acceptance than ours.
Furthermore, any of our current or future competitors may be acquired by, receive investments from
or enter into other commercial relationships with, larger, well-established and well-financed
companies and therefore obtain significantly greater financial, marketing and game licensing and
development resources than we have. In addition, increased competition in the online game industry
in China could make it difficult for us to retain existing users and attract new users. Moreover,
game consoles that have achieved
significant successes in markets other than China have not yet formally entered the market in
China due to regulatory and other concerns. If these game consoles, many of which are strengthening
their online game features, formally enter the market in China, we would face additional
competition. We also compete with other forms of entertainment, such as television and movies. If
we are unable to compete effectively in China&#146;s online game market as well as China&#146;s entertainment
market, our business, financial condition and results of operations could be materially and
adversely affected.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>We may not be able to successfully implement our growth strategies, including our EZ initiative,
which may materially and adversely affect our business, financial condition and results of
operations.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In 2005, as part of our transition from a pure online game operator to an interactive
entertainment media company, we introduced the EZ initiative as an integral part of our home
strategy. The EZ initiative involves broadening our interactive entertainment services and content
offerings as well as introducing new media platforms over which to deliver our expanded service and
content offerings to end users. Our EZ initiative includes introducing new products and services
for which there are no established markets. Our ability to successfully implement our EZ initiative
will depend upon our success in educating consumers on the value of these new products and
services. Many consumers in China may, nonetheless, regard some of the new products as too
expensive. In addition, we lack experience and expertise with respect to some of the EZ series
products and services. For example, we do not have experience or expertise in distribution,
marketing, inventory management or warranty support for consumer electronic products. Although in
executing the EZ initiative we will cooperate with consumer electronics manufactures that do have
such experience and expertise, our lack of such knowledge internally may prove to be a material
disadvantage. We cannot assure you that we will be able to deliver the new EZ series products and
services on a commercially viable basis or in a timely manner, or at all. Moreover, execution of
the EZ initiative requires a significant amount of managerial time and energy. Pursuit of the EZ
initiative, and other growth strategies, may divert senior management&#146;s focus away from our core
online game business to the detriment of such business. If we are unable to successfully implement
our growth strategies, our revenue and profitability will not grow as we expect, which may have a
material and adverse effect on our business, financial condition and results of operations.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>The recent change to the revenue model for our leading MMORPGs may reduce the amount of revenue
that otherwise would have been generated by these games, thereby negatively affecting our financial
condition and results of operations.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In late November&nbsp;2005, we replaced the pay-to-play revenue model with a free-to-play and
pay-for in-game value-added services revenue model for three of our leading MMORPGs: Mir II, Woool
and Magical Land. Going forward,
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">we will consider adopting this new revenue model for our other
existing MMORPGs, depending on the game type and lifecycle. We have also adopted this revenue
model for our casual games. Under the new model, end users are able to play the basic functions of
these MMORPGs for free and may choose to purchase in-game value-added services, including certain
in-game items and premium features, which enhance the game
experience. Unaudited revenue generated by these
three MMORPGs declined from RMB 320.2&nbsp;million in the third quarter of 2005, to RMB 220.9&nbsp;million in
the fourth quarter of 2005, to RMB 216.8&nbsp;million in the first
quarter of 2006. Unaudited deferred revenues,
which represents cash received from the purchase of pre-paid cards that have not yet been used to
play our games or purchase in-game items and value-added services, declined from RMB 267.2&nbsp;million
in the third quarter of 2005, to RMB 172.5&nbsp;million in the fourth quarter of 2005 and increased to
RMB 206.0&nbsp;million in the first quarter of 2006. Although we believe that adopting this new revenue
model will benefit our company in the long run, we cannot assure that the new revenue model will be
successful, or that it will not have a negative impact on our financial condition and results of
operations. Any material reduction in revenue would have a material and adverse affect on our
financial condition and results of operations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>There are risks associated with our pursuit of growth through acquisitions and strategic
investments.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In recent years we have pursued, and in the future we may continue to pursue, growth through
acquisitions and strategic investments. We acquired or invested in eight businesses in 2004 and
2005 with a total value of US$421.0&nbsp;million. In May&nbsp;2005, we completed the second step of a
two-step acquisition of Shanghai Haofang Online Information
Technology Co., Ltd., or Haofang, at a
total purchase price of US$56.0 million. In February&nbsp;2005, we completed our purchase of an
approximately 19.5% stake in Sina Corp, or Sina, at a total purchase
price of US$227.6&nbsp;million. In
February&nbsp;2005, we also completed the purchase of a 29% stake in Actoz, increasing our total stake to
approximately 38.1%, at a total purchase price at US$106.1&nbsp;million. In July&nbsp;2004, we acquired
Hangzhou Bianfeng Software Co., Ltd., or Bianfeng, at a total purchase price of US$20.0&nbsp;million.
For more information on our acquisitions, see &#147;Recent Acqusitions&#148; in Item&nbsp;5 &#147;Operating and
Financial Review and Prospects&#148; and &#147; History and Development of the Company &#148; in Item&nbsp;4
&#147;Information on the Company&#148;. These acquired or invested companies operate businesses that
complement our core online game business or represent related but new lines of business. We may,
however, fail to realize the synergies contemplated at the time of executing these transactions,
which could negatively impact our financial condition and results of operations. For example, we
completed the purchase of our controlling stake in Actoz, the co-owner of Mir II, in February&nbsp;2005,
for a total consideration of RMB878.0&nbsp;million (US$106.1&nbsp;million), which represented an 81% premium
over the open market price at the time that we entered into the purchase agreement in October&nbsp;2004.
In the fourth quarter of 2005, however, we recorded a non-cash impairment charge of RMB521.5
million (US$64.6&nbsp;million) to reflect the fair value of our 38.1% stake in Actoz. We recognized the
impairment charge primarily as a result of the continued decline in royalties payable to Actoz from
our operation of Mir II in China. The decision to recognize impairment was also influenced by the
decline in market price for shares of Actoz, which in the fourth quarter of 2005 was determined to be other
than temporary, mainly due to the continued decline in Mir II royalties. Additional risks
associated with acquisitions and strategic investments include the following:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>It may be difficult to assimilate the operations and personnel of an acquired
business into our own business;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Management information and accounting systems of an acquired business must be
integrated into our current systems;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Our management must devote its attention to assimilating the acquired business,
which diverts attention from other business concerns; and</TD>
</TR>

</TABLE>
</DIV>
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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV style="margin-top: 6pt"><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">


<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>We may be unable to complete transactions that we initiate.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We cannot assure you that we will have the ability to effectively integrate the operation of
the acquired companies into our own and achieve the synergies contemplated at the time of entering
into these transactions. If we are unable to achieve the synergies contemplated at the time of
acquiring these businesses, the carrying value of the acquired companies may not be recoverable. We
are required by U.S.&nbsp;GAAP to review the impairment at least on an annual basis. If an impairment is
determined and charged to the earnings in our financial statements, our financial condition and
results of operations may be materially and adversely affected.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>There have been historical deficiencies with our internal controls, including material weaknesses,
and our internal controls require significant improvement. If we fail to maintain an effective
system of internal controls, we may be unable to accurately report our financial results or prevent
fraud or restatement of previously reported financial results, and investor confidence and the
market price of our ADSs may be adversely impacted.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In the course of their audit of our 2005 operating results, our auditors identified a number
of control deficiencies. The substantial majority of these control deficiencies constituted
material weaknesses and significant deficiencies in the design or operation of our internal
controls that, in our management and independent auditors&#146; judgment, could adversely affect our
ability to record, process, summarize and report financial data consistent with the assertions of
management in the financial statements. For a description of these deficiencies and material
weaknesses, see Item&nbsp;15 &#147;Controls and Procedures&#148;.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We must continue to improve our internal controls. If we fail to timely implement solutions to
these control deficiencies and other weaknesses in our internal controls or fail to maintain an
effective system of internal controls in the future, we may be unable to accurately report our
financial results or prevent fraud or prevent potential restatements of or adjustments to
previously reported or announced operating results and investor confidence and the market price of
our ADSs may be adversely impacted.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition, at the end of 2006, we will become subject to Section&nbsp;404 of the Sarbanes-Oxley
Act of 2002 with respect to the evaluation of the effectiveness of our internal control over
financial reporting. We cannot be certain as to the timing of completion of our evaluation, testing
and any remedial actions with respect to our internal control over financial reporting or the
impact of the same on our operations. If we fail to implement the requirements of Section&nbsp;404 in a
timely manner or with adequate compliance, our independent auditors may be unable to provide a
written attestation as to the effectiveness of our internal controls over financial reporting and
we may be subject to sanctions or investigation by regulatory authorities, such as the Securities
and Exchange Commission. As a result, there could be a negative reaction in the financial markets
due to a loss of confidence in the reliability of our financial statements. In addition, we may be
required to incur significant costs in improving our internal control system and the hiring of
additional personnel. Any such action could increase our costs relative to our revenues, thereby
reducing our operating margins and could negatively affect the market price of our ADSs.
</DIV>



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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Operation of pirate game servers and the expenses incurred in protecting our intellectual property
rights, may adversely affect our business.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We continue to face challenges from pirate game servers, which are game servers that operate
unauthorized copies of our online games and permit users to play those games without purchasing
pre-paid game cards from us. We have detected the operation by pirate servers of unauthorized
copies of various of our leading games. In September&nbsp;2002, for example, we discovered that the
server-end software of Mir II was unlawfully released into the China market. This software leak
enabled unauthorized third parties to set up local server networks to operate Mir II, which we
believe continue to divert a significant number of users of one of our most popular online games
away from us. Although we have made efforts to shutdown pirate servers across China, the
intellectual property enforcement regime in China is not as robust as that of the United States,
and we continue to face considerable challenges when attempting to enforce our intellectual
property rights. Enforcement actions generally require cooperation from local authorities, which
are not always willing to use their limited resources to enforce the intellectual property rights
of national corporations against individuals or companies in their districts. In addition, detailed
comparisons of software codes and litigation proceedings are often necessary to enforce our
intellectual property rights, which sometimes result in substantial costs. Despite our efforts to
shutdown pirate servers, we believe that a
significant number of pirate game servers continue to operate unauthorized copies of our
online games. The continued operation of our leading games by pirate game servers, or the operation
of any new games that we may introduce by pirate servers, may materially and adversely affect our
business, financial condition and results of operations.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Undetected programming errors or defects in our games and the proliferation of cheating programs
could materially and adversely affect our business, financial condition and results of operations.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our games may contain undetected programming errors or other defects. In addition, parties
unrelated to us may develop Internet cheating programs that enable our users to acquire superior
features for their game characters that they would not have otherwise. Furthermore, certain
cheating programs could cause the loss of a character&#146;s superior features acquired by a user. The
occurrence of undetected errors or defects in our games, and our failure to discover and disable
cheating programs affecting the fairness of our game environment, could disrupt our operations,
damage our reputation and detract from the game experience of our users. As a result, such errors,
defects and cheating programs could materially and adversely affect our business, financial
condition and results of operations.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Unexpected network interruptions, security breaches or computer virus attacks could have a material
adverse effect on our business, financial condition and results of operations.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Any failure to maintain the satisfactory performance, reliability, security and availability
of our network infrastructure may cause significant harm to our reputation and our ability to
attract and maintain users. We maintain a distributed server network architecture with third party
service providers hosting servers in more than one hundred cities throughout China. Most of the
servers handling log in, and all servers handling billing and data backup matters for us, are
hosted and maintained by third party service providers in Shanghai. We do not maintain full backup
for our server network hardware. Major risks involved in such network infrastructure include:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>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</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>any disruption or failure in the national backbone network, which would prevent our
users outside Shanghai from logging on to any of our games or other content, or playing
the games, for which the servers are all located in Shanghai.</TD>
</TR>

</TABLE>
</DIV>
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</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In the past, our server network has experienced unexpected outages for several hours and
occasional slower performance in a number of locations in China as a result of failures by third
party service providers. Our network systems are also vulnerable to damage from fire, flood, power
loss, telecommunications failures, computer virus, hackings and similar events. Any network
interruption or inadequacy that causes interruptions in the availability of our games or
deterioration in the quality of access to our games could reduce our users&#146; satisfaction. In
addition, any security breach caused by hacking, which involve efforts to gain unauthorized access
to information or systems, or to cause intentional malfunctions or loss or corruption of data,
software, hardware or other computer equipment, and the inadvertent transmission of computer
viruses could have a material adverse effect on our business, financial condition and results of
operations. We do not maintain insurance policies covering losses relating to our systems and we do
not have business interruption insurance.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Any failure to maintain a stable and efficient distribution and payment network could have a
material and adverse impact on our business, financial condition and results of operations.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Online payment systems in China are in a developmental stage and are not as widely available
or acceptable to consumers in China as in the United States. As a result, we rely heavily on a
multi-layer distribution and payment network composed of third party distributors for our sales to,
and collection of payment from, our users. As we do not enter into long-term agreements with any of
our distributors, we cannot assure you that we will continue to maintain favorable relationships
with them. If we fail to maintain a stable and efficient distribution and payment network, our
business, financial condition and results of operations could be materially and adversely affected.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>The limited use of personal computers in China and the relatively high cost of Internet access with
respect to per capita gross domestic product may limit the development of the Internet in China and
impede our growth.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Although the use of personal computers in China has increased in recent years, the penetration
rate for personal computers in China is much lower than in the United States. In addition, despite
a decrease in the cost of Internet access in China due to a decrease in the cost of personal
computers and the introduction and expansion of broadband access, the cost of personal Internet
access, in contrast with Internet access through Internet cafes, remains relatively high in
comparison to the average per capita income in China. The limited use of personal computers in
China and the relatively high cost of personal Internet access may limit the growth of our
business. Furthermore, any Internet access or telecommunications fee increase could reduce the
number of users that play our online games.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Our business could suffer if we do not successfully manage our growth.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our recent growth has placed significant strain on our management, operational, financial and
other resources. For example, the total number of our employees increased from 562 as of December
31, 2003 to 1429 as of December&nbsp;31, 2004, and to 2392 as of December&nbsp;31, 2005. In addition, certain
of our directors, officers and key employees that have recently joined our company will need time
to learn our business and successfully integrate themselves into our company. In addition, as a
result of our growth we need to continue to develop and expand our financial and management
controls and our reporting systems and procedures. We cannot assure you that we will be able to
efficiently or effectively manage the growth of our operations, and any failure to do so may limit
our future growth and materially and adversely affect our business, financial condition and results
of operations.
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>We depend on our key personnel, and our business and growth prospects may be severely disrupted if
we lose their services.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our future success is heavily dependent upon the continued service of our key executives and
other key employees. In particular, we rely on the expertise, experience and leadership ability of
Tianqiao Chen, our founder, controlling shareholder and chief executive officer, in our business
operations, and rely on his personal relationships with our employees, the relevant regulatory
authorities, our game and service suppliers and Shanda Networking. We also rely on a number of key
technology officers and staff for the development and operation of our online games. In addition,
as we expect to focus increasingly on the development of our own online games, we will need to
continue attracting and retaining skilled and experienced online game developers to maintain our
competitiveness.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If one or more of our key personnel are unable or unwilling to continue in their present
positions, we may not be able to easily replace them and may incur additional expenses to recruit
and train new personnel, our business could be severely disrupted, and our financial condition and
results of operations could be materially and adversely affected. Furthermore, since our industry
is characterized by high demand and intense competition for talent, we may need to offer higher
compensation and other benefits in order to attract and retain key personnel in the future. We
cannot assure you that we will be able to attract or retain the key personnel that we will need to
achieve our business objectives. Furthermore, we do not maintain key-man life insurance for any of
our key personnel.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>The discontinuation 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.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Certain of our PRC companies, including Shengqu, Shanda Networking, Hangzhou Bianfeng and
Nanjing Shanda, enjoy preferential tax treatments, in the form of reduced tax rates or tax
holidays, provided by the PRC government or its local agencies or bureaus. These four subsidiaries,
Shengqu, Shanda Networking, Hangzhou Bianfeng and Nanjing Shanda benefit from a 15% preferential
income tax rate. In addition, Shengqu was granted an income tax
exemption for 2003 and 2004, followed by a three year tax holiday
during which it is subject to a 7.5% preferential income
tax rate; Hangzhou Bianfeng was granted an income tax exemption in the second quarter of 2006 for
2005; and Nanjing Shanda was granted an income tax exemption in the third quarter of 2005 for 2005
and 2006. After receiving approval for tax exemption treatment, income tax already paid in 2005 by
Hangzhou Bianfeng and Nanjing Shanda prior to receipt of approval has been refunded in
the second quarter of 2006 and in the third quarter of 2005, respectively. As a result of these
preferential tax treatments, our effective income tax rate for 2005 was 12.1%. Nanjing Shanda must
continue to meet a number of financial and non-financial criteria to qualify as a new high
technology company for its current and future tax holidays.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
2004 and 2005 we also received aggregate government financial
incentives of RMB88.1 million and RMB137.3&nbsp;million
(US$17.0&nbsp;million), respectively, which were calculated with reference to taxable revenue and taxable income. For
Shengqu and Shanda Networking, these incentives have a term of 3&nbsp;years with respect to incentives
granted with reference to taxable revenue on which we pay business tax and 8&nbsp;years for incentives
granted with reference to taxable income on which we pay income tax. Eligibility for the government
financial incentives we receive requires that we continue to meet a number of financial and
non-financial criteria and our continued qualification is further subject to the
discretion of the municipal government. Moreover, the central government or municipal government
could determine at any time to immediately eliminate or reduce these government financial
incentives, generally with prospective effect. If we had not received these government financial
incentives in 2004, our income before income tax expenses, equity in
loss of affiliated companies, and minority interests would have been
RMB566.2&nbsp;million, a decrease of 13.5% from the
reported amount. If
</DIV>

<P align="center" style="font-size: 10pt">17
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">we had not
received these government financial incentives in 2005, our income
before income tax expenses, equity in loss of affiliated companies,
and minority interests would have been RMB664.1&nbsp;million
(US$82.3&nbsp;million), a decrease of 17.1% from the reported
amount. As the receipt of these government financial incentives are subject to periodic time lags
and inconsistent municipal government practice on payment times, for so long as we continue to
receive these government financial incentives, our net income in a particular quarter may be higher
or lower relative to other quarters based on the potentially uneven receipt by us of these
government financial incentives in addition to any business or operating related factors we may
otherwise experience.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We cannot assure you that we will continue to enjoy these preferential tax treatments or
government financial incentives in the future. The discontinuation of these preferential tax
treatments or government financial incentives could materially and adversely affect our business,
financial condition and results of operations. Please see Item&nbsp;5 for a discussion of the duration
of these preferential tax treatments or government financial incentives.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The PRC government is now reviewing China&#146;s tax policies and it is possible that in the near
future, the different income tax rates imposed on enterprises of different ownership natures (i.e.
state owned, collectively owned, privately owned and foreign-invested) may be unified, which reform
may result in higher income tax rates applicable to our PRC companies and therefore could
materially and adversely affect our business, financial condition and results of operations.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>We may become a passive foreign-investment company, or PFIC, which could result in adverse U.S. tax
consequences to U.S. investors.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Depending upon the value of our ordinary shares and ADSs and the nature of our assets and
income over time, we could be classified as a passive foreign-investment company, or PFIC, by the
United States Internal Revenue Service, or IRS, for U.S. federal income tax purposes. If we are
classified as a PFIC in any taxable year in which you hold our ADSs and you are a U.S. investor,
you would generally be taxed at higher ordinary income, rather than lower capital gain rates, if
you dispose of ADSs at a gain in a later year, even if we are not a PFIC in that year. In addition,
a portion of the tax imposed on your gain would be increased by an interest charge. Moreover, if we
were classified as a PFIC in any taxable year, you would not be able to benefit from any
preferential tax rate with respect to any dividend distribution that you may receive from us in
that year or in the following year. Finally, you would also be subject to special U.S. tax
reporting requirements.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We believe that we were not a PFIC for the taxable year 2005. Although in the past we have
operated our business, and in the future we intend to operate our business, so as to minimize the
risk of being classified as a PFIC, there can be no assurance that we will not be a PFIC for the
taxable year 2006 and/or later taxable years, as PFIC status is re-tested each year and depends on
our assets and income in such year. For example, we would be a PFIC for the taxable year 2006 if
the sum of our average market capitalization, which is our share price multiplied by the total
amount of our outstanding shares, and our liabilities over that taxable year is not more than twice
the value of our cash, cash equivalents, and other assets that are readily converted into cash. We
could also be a PFIC for any taxable year if the gross income that we and our subsidiaries earn
from investing the portion of the cash raised in our initial public offering and debt offerings
that exceed the immediate capital needs of our active online business is substantial in comparison
with the gross income from our business operations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We cannot assure you that we will not be a PFIC for 2006 or any future taxable year. For more
information on the U.S. tax consequences to you that would result from our classification as a
PFIC, please, see the subsection &#147;Taxation&#148; included in Item&nbsp;10 &#147;Additional Information&#148;.
</DIV>

<P align="center" style="font-size: 10pt">18
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>We may be required to take significant actions that are contrary to our business objectives to
avoid being deemed an investment company as defined under the Investment Company Act.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Generally, the Investment Company Act provides that a company is not an investment company and
is not required to register under the Investment Company Act as an investment company if:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the company is primarily engaged, directly or through a wholly-owned subsidiary or
subsidiaries, in a business or businesses other than those of investing, reinvesting,
owning, holding or trading in securities; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>40% or less of the fair market value of the company&#146;s assets is represented by
investment securities.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We believe that we are engaged primarily in the businesses of, among other things, developing
and operating online games. In addition, less than 40% of the fair market value of our assets is
represented by investment securities. As a result, we believe, that we are not an investment
company as that term is defined under the Investment Company Act. We may, however, be required to
take significant actions that are contrary to our business objectives to avoid being deemed an
investment company in the future. We may, for example, need to hold a significant portion of our
assets and invest portions of our cash flows in low-yielding investments or we may need to acquire
additional income or loss generating assets that we might not otherwise have acquired. In addition,
we may need to sell all or a portion of our minority investments in Actoz or Sina, or forego
opportunities to acquire minority interests in other companies that could be important to our
strategy.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Investment Company Act also contains substantive regulations with respect to investment
companies including restrictions on their capital structure, operations, transactions with
affiliates and other matters which would be incompatible with our operations. If we were to be
deemed an investment company in the future, we would, among other things, effectively be precluded
from making public offerings in the United States. We could also be subject to other adverse
consequences.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Changes to existing accounting pronouncements, including SFAS 123R, or practices may adversely
affect our reported results of operations or how we conduct our business.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A change in accounting pronouncements or practices can have a significant effect on our
reported results and may even affect our reporting of transactions completed before the change is
effective. Pursuant to SEC rules, we are required to implement the Statement of Financial
Accounting Standards No.&nbsp;123 (revised 2004), &#147;Accounting
for Share Based Compensation&#148; (&#147;SFAS 123R&#148;) starting in the
first quarter of 2006. SFAS 123R requires us to measure compensation costs for all share-based
compensation at fair value and take compensation charges equal to that value. The requirement to
measure compensation costs for all share-based compensation under SFAS 123R could negatively affect
our profitability and the trading price of our ADSs. SFAS 123R and the impact of
expensing on our reported results could also limit our ability to continue to use stock options as
an incentive and retention tool, which could, in turn, hurt our ability to recruit employees and
retain existing employees. Other new accounting pronouncements and varying interpretations of
accounting pronouncements have occurred and may occur in the future. This change to existing rules,
future changes, if any, or the questioning of current practices may adversely affect our reported
financial results or the way we conduct our business.
</DIV>




<P align="center" style="font-size: 10pt">19
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>We have limited business insurance coverage in China.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The insurance industry in China is still at an early stage of development. In particular, PRC
insurance companies do not offer extensive business insurance products. As a result, we do not have
any business liability or disruption insurance coverage for our operations in China. Any business
disruption, litigation or natural disaster might result in our incurring substantial costs and the
diversion of resources.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Risks Relating to Regulation of the Internet and to Our Structure</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>If the PRC government finds that the agreements that establish the structure for operating our
China business do not comply with PRC government restrictions on foreign investment in the online
game industry, we could be subject to severe penalties.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;PRC regulations currently limit foreign ownership of companies that provide Internet content
services, which includes operating online games, to 50%. In addition, foreign and foreign-invested
enterprises are currently not able to apply for the licenses required to operate online games in
China or to provide Internet information content, such as online advertising. We are a Cayman
Islands exempted company and we conduct our operations in China primarily through Shengqu, our
indirectly wholly owned subsidiary. We and Shengqu are foreign or foreign-invested enterprises
under PRC law and accordingly are ineligible to apply for a license to operate online games or to
sell online advertising. In order to comply with foreign ownership restrictions, we operate our
online game business in China through Shanda Networking, which is wholly owned by Tianqiao Chen,
our chairman and chief executive officer, and Danian Chen, our executive senior vice president,
both of whom are PRC citizens, and through Nanjing Shanda and Hangzhou Bianfeng, which are
subsidiaries of Shanda Networking. Shanda Networking, Nanjing Shanda, Hangzhou Bianfeng, or our PRC
operating companies, and other subsidiaries of Shanda Networking hold the licenses and approvals
that are required to operate our online game business and to sell online advertising on our web
pages and Shengqu owns the substantial majority of physical assets. Shengqu has entered into a
series of contractual arrangements with Shanda Networking and its shareholders. As a result of
these contractual arrangements, we are considered the primary beneficiary of Shanda Networking and
accordingly we consolidate the results of operations of Shanda Networking and its subsidiaries in
our financial statements. For a description of these contractual arrangements, see &#147;Organizational
Structure&#148; in Item&nbsp;4, &#147;Information on the Company&#148; and Item&nbsp;7 &#147;Major Shareholders and Related Party
Transactions&#148;.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We believe that (1)&nbsp;the ownership structures of our company, Shengqu, and our PRC operating
companies are in compliance with existing PRC laws and regulations; (2)&nbsp;our contractual
arrangements with Shanda Networking and its shareholders are valid, binding and enforceable, and
will not result in any violation of PRC laws or regulations currently in effect; and (3)&nbsp;the
business operations of our company, Shengqu, and our PRC operating companies, as described in this
annual report, are in compliance with existing PRC laws and regulations in all material aspects.
There are, however, substantial uncertainties regarding the interpretation and application of
current or future PRC laws and regulations. Accordingly, we cannot assure you that the PRC
regulatory authorities will not ultimately take a view that is contrary to our view. If we,
Shengqu, or any of our PRC operating companies are found to be in violation of any existing or
future PRC laws or regulations, the relevant regulatory authorities would have broad discretion in
dealing with such violations, including:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="5%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>revoking Shengqu&#146;s or any of our PRC operating companies&#146; business and operating licenses;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="5%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>discontinuing or restricting our, Shengqu&#146;s or our PRC operating companies&#146; operations;</TD>
</TR>

</TABLE>
</DIV>
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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV style="margin-top: 6pt"><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">


<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="5%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>imposing conditions or requirements with which we, Shengqu or our PRC operating
companies may not be able to comply;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="5%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>requiring us, Shengqu or our PRC operating companies to restructure the relevant
ownership structure or operations; or</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="5%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>taking other regulatory or enforcement actions, including levying fines, that could
be harmful to our business.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Any of these actions could cause our business, financial condition and results of operations
to suffer and the price of our ADSs to decline.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>The contractual arrangements related to critical aspects of our operations with Shanda Networking
and its shareholders, Tianqiao Chen and Danian Chen, may not be as effective in providing
operational control as direct ownership.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We rely on contractual arrangements with Shanda Networking and its shareholders, Tianqiao Chen
and Danian Chen, to operate our business. These contractual arrangements may not be as effective as
direct ownership in providing us control over PRC operating companies. Direct ownership would allow
us, for example, to directly exercise our rights as a shareholder to effect changes in the board of
Shanda Networking, which, in turn, could effect changes, subject to any applicable fiduciary
obligations, at the management level. However, under the current contractual arrangements, as a
legal matter, if Shanda Networking or Tianqiao Chen or Danian Chen fails to perform its, his or her
respective obligations under these contractual arrangements, we may have to incur substantial costs
and expend significant resources to enforce those arrangements and rely on legal remedies under
PRC law. These remedies may include seeking specific performance or injunctive relief, and claiming
damages, any of which may not be effective.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All of these contractual arrangements are governed by PRC laws and provide for the resolution
of disputes through either arbitration or litigation in the PRC. Accordingly, these contracts would
be interpreted in accordance with PRC laws and any disputes would be
resolved in accordance with
PRC legal procedures. The legal environment in the PRC is not as developed as in other
jurisdictions, such as the United States. As a result, uncertainties in the PRC legal system could
limit our ability to enforce these contractual arrangements. In the event we are unable to enforce
these contractual arrangements, we may be unable to exert effective control over our PRC operating
companies, and our ability to conduct our business may be negatively affected.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>The entire share capital of Shanda Networking is held by our controlling shareholders, who may
cause the agreements between our company and Shanda Networking to be amended in a manner that is
adverse to us.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We conduct substantially all of our operations, and generate substantially all of our
revenues, through our PRC operating companies. Our control over these entities is based upon
contractual arrangements with Shanda Networking and its shareholders that provide us with the
substantial ability to control Shanda Networking. The two shareholders of Shanda Networking,
Tianqiao Chen and Danian Chen, are also our controlling shareholders. As a result, Tianqiao Chen
and Danian Chen may be able to cause these agreements to be amended in a manner that will be
adverse to our company, or may be able to prevent these agreements from being renewed, even if
their renewal would be beneficial for us. Although we have entered into an agreement that prevents
the amendment of these agreements without the approval of our audit committee, which is comprised
of independent directors, we can provide no assurances that these agreements will not be amended in
the future to contain terms that may be adverse to our interests.
</DIV>

<P align="center" style="font-size: 10pt">21
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Our arrangements with our PRC operating companies may be subject to scrutiny by the PRC tax
authorities for transfer pricing adjustments.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We also could face material and adverse tax consequences if the PRC tax authorities determine
that our contracts with our PRC operating companies were not entered into based on arm&#146;s length
negotiations. Although we based our contractual arrangements on those of similar businesses, if the
PRC tax authorities determine that these contracts were not
entered into on an arm&#146;s length basis, they may adjust our income and expenses for PRC tax
purposes in the form of a transfer pricing adjustment. A transfer pricing adjustment could result
in a reduction, for PRC tax purposes, of deductions recorded by our PRC operating companies, which
could adversely affect us by:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="5%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>increasing our PRC operating companies&#146; tax liability without reducing Shengqu&#146;s
tax liability, which could further result in late payment fees and other penalties to our
PRC operating companies for under-paid taxes; or</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="5%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>limiting Shengqu&#146;s ability to maintain preferential tax treatments and government
financial incentives, which if the transfer pricing adjustment is significant, could
result in Shengqu failing to qualify for those preferential tax treatments and government
financial incentives.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As a result, any transfer pricing adjustment could have a material and adverse impact
upon our financial condition.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Our corporate structure may restrict our ability to receive dividends from, and transfer funds to,
our PRC subsidiary and our PRC operating companies, which could restrict our ability to act in
response to changing market conditions and reallocate funds from one Chinese affiliated entity to
another in a timely manner.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are a Cayman Islands holding company and substantially all of our operations are conducted
through our subsidiary, Shengqu, and our PRC operating companies. We rely principally on dividends
and other distributions on equity paid by Shengqu for our cash requirements, including the funds
necessary to allow us to pay dividends on the shares underlying our ADSs and the funds necessary to
service any debt we may incur, or financing we may need for operations other than through Shengqu.
If Shengqu incurs debt on its own behalf in the future, the instruments governing the debt may
restrict Shengqu&#146;s ability to pay dividends or make other distributions to the intermediate holding
company and thus to us. We generate substantially all of our revenues through contractual
arrangements with our PRC operating companies. However, PRC governmental authorities may require us
to amend these contractual arrangements in a manner that would materially and adversely affect
Shengqu&#146;s ability to pay dividends and other distributions to us. Furthermore, PRC legal
restrictions permit payments of dividends by Shengqu only out of its retained earnings, if any,
determined in accordance with PRC accounting standards and regulations. Under PRC law, Shengqu is
also required to set aside a portion of its net income each year to fund certain reserve funds.
These reserves are not distributable as cash dividends. As a result of these and other restrictions
under PRC laws and regulations, our PRC subsidiary and our affiliated PRC entities are restricted
in their ability to transfer a portion of their net assets to us in the form of dividends, loans or
advances, which restricted portion amounted to approximately RMB1,081.6&nbsp;million (US$134.0&nbsp;million),
or 66.0%, of our total consolidated net assets as of December&nbsp;31, 2005. Any limitation on the
ability of our PRC subsidiary and our affiliated PRC entities to transfer funds to
</DIV>

<P align="center" style="font-size: 10pt">22
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">us in the form
of dividends, loans or advances could materially and adversely limit our ability to grow, make
investments or acquisitions that could be beneficial to our businesses, pay debt or dividends, and
otherwise fund and conduct our business.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition, any transfer of funds from us to our PRC subsidiary, either as a shareholder loan
or as an increase in registered capital, is subject to registration or approval of Chinese
governmental authorities, including the relevant administration of foreign exchange and/or the
relevant examining and approval authority. It is not permitted under PRC law for our PRC subsidiary
and our PRC operating companies to directly lend money to each other. Therefore, it is difficult to
change our capital expenditure plans once the relevant funds have been remitted from our company to
our PRC subsidiary and PRC operating companies. These limitations on the free flow of funds
between us and our PRC entities could restrict our ability to act in response to changing market
conditions and reallocate funds from one Chinese entity to another in a timely manner.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Recent PRC regulations relating to offshore investment activities by PRC residents may increase the
administrative burden we face and create regulatory uncertainties that could restrict our overseas
and cross border investment activity, and a failure by our shareholders who are PRC residents to
make any required applications and filings pursuant to such regulations may prevent us from being
able to distribute profits and could expose us and our PRC resident shareholders to liability under
PRC law.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Regulations were recently promulgated by the State Administration of Foreign Exchange, or
SAFE, that require registration with local SAFE offices in connection with direct or indirect offshore
investment by PRC residents, including PRC individual residents and PRC corporate entities. These
regulations apply to our shareholders who are PRC residents and also apply to our prior and future
offshore acquisitions. In particular, the SAFE regulations require PRC Residents to file with
competent SAFE offices information about offshore companies in which they have directly or
indirectly invested and to make follow-up filings in connection with certain material transactions
involving such offshore companies, such as increases or decreases in investment amount, transfers
or exchanges of shares, mergers or divisions, long-term equity or debt investments, or external
guarantees, or other material events that do not involve return investment.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The SAFE regulations retroactively require registration by March&nbsp;31, 2006 of direct or
indirect investments previously made by PRC residents in offshore companies. If a PRC resident
with a direct or indirect stake in an offshore parent company fails to make the required SAFE
registration, the PRC subsidiaries of such offshore parent company may be prohibited from making
distributions of profit to the offshore parent and from paying the offshore parent proceeds from
any reduction in capital, share transfer or liquidation in respect of the PRC subsidiaries.
Further, failure to comply with various SAFE registration requirements described above could result
in liability under PRC law for foreign exchange evasion.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our major shareholders who are PRC residents, or whose shares are beneficially owned by PRC
residents, have completed foreign exchange registration with the local Shanghai Foreign Exchange
Bureau according to these SAFE regulations. As a result of the newness of the regulations and
uncertainty concerning the reconciliation of the new regulations with other approval requirements,
it remains unclear how the regulations, and any future legislation concerning offshore or
cross-border transactions, will be interpreted, amended and implemented by the relevant government
authorities. We are committed to complying and to ensuring that our shareholders who are subject to
the regulations comply with the relevant rules. However, we cannot assure you that all of our
shareholders who are PRC residents will comply with our request to make or obtain any applicable
registrations or approvals required by the regulations or other related legislation. The failure or
inability of our PRC resident shareholders to receive any required approvals or make any required
registrations may subject us to fines and legal sanctions, restrict our overseas or cross border
investment activities, limit our
</DIV>

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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">PRC subsidiary, Shengqu, to make distributions or pay dividends or
affect our ownership structure, as a result of which our acquisition strategy and business
operations and our ability to distribute dividend to you could be materially and adversely
affected.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>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.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Internet industry, including the operation of online games, in China is highly regulated
by the PRC government. Various regulatory authorities of the central PRC government, such as the
State Council, the Ministry of Information Industry, the State Administration of Industry and
Commerce, the Ministry of Culture, the State Press and Publication
Administration, the State Administration of Radio, Film and
Television, and the Ministry of Public Security, are empowered to issue and implement
regulations governing various aspects of the Internet and online game industries.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our PRC operating companies are required to obtain applicable permits or approvals from
different regulatory authorities in order to provide their services. For example, an Internet
content provider, or ICP, must obtain an ICP license from the Ministry of Information Industry in
order to engage in any commercial ICP operations within China. An online game operator must also
obtain a license from the Ministry of Culture and a license from the State Press and Publication
Administration in order to distribute games through the Internet. In addition, in connection with
our launch of certain EZ series products, which offer video and audio content, such as music and
movies, our PRC operating companies may need to obtain a license from the State Administration of
Radio, Film and Television. We understand, however, that companies that are not state-owned may not
be able to obtain such license. If any of our PRC operating companies fails to obtain or maintain
any of the required permits or approvals, they may be subject to various penalties, including fines
and the discontinuation or restriction of their operations. Any such disruption in business
operations would materially and adversely affect our financial condition and results of operations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We currently operate a large number of websites, the domain names of which are registered
under the names of Shengqu and our other PRC-incorporated affiliates. In order to streamline and
optimize our Internet publication businesses, we have started to put
all of our Internet publication
businesses, including our editing, content supervision, publication, and other related businesses,
under Shanda Networking. We have reported to the Ministry of Information Industry of the change and
Shanda Networking has applied to the State Press and Publications Administration for expanding its
Internet publication license from the publication of online games to encompass books, newspapers,
periodicals, music and video products, works in the fields of literature, art, natural science,
social science, engineering, and other electronic publications. We believe that Shanda Networking
has satisfied all qualifications required to obtain the permission for license expansion and we do
not believe that, while its application is pending, the regulatory authorities will take any action
against it. However, we cannot assure you that it will obtain this approval or that the regulatory
authority will not take any action against it.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As the online game industry is at an early stage of development in China, new laws and
regulations may be adopted in the future to address new issues that arise from time to time, such
as online advertising. Also, different regulatory authorities may have different opinions with
regard to the licensing requirements imposed on online game operators. As a result, substantial
uncertainties exist regarding the interpretation and implementation of current and any future PRC
laws and regulations applicable to the online game industry and related businesses. While we
believe that we are in compliance in all material respects with all applicable PRC laws and
regulations currently in effect, we cannot assure you that we will not be found in violation of any
current or future PRC laws and regulations.
</DIV>

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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>The PRC government may prevent us from distributing, and we may be subject to liability for,
content that it believes is inappropriate.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;China has enacted laws and regulations governing Internet access and the distribution of news,
information or other content, as well as products and services, through the Internet. In the past,
the PRC government has stopped the distribution of information through the Internet that it
believes violates PRC law. The Ministry of Information Industry, the State Press and Publication
Administration and the Ministry of Culture have promulgated regulations that prohibit games from
being distributed through the Internet if the games contain content that is found to, among other
things, propagate obscenity,
gambling or violence, instigate crimes, undermine public morality or the cultural traditions
of the PRC, or compromise State security or secrets. In addition, certain PRC social organizations
have recently discussed the possibility of implementing a rating system for online games. The
effect that such a system could have on our business is unclear.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If any games we offer were deemed to violate any such content restrictions, we would not be
able to continue such offerings and could be subject to penalties, including confiscation of
income, fines, suspension of business and revocation of our license for operating online games,
which would materially and adversely affect our business, financial condition and results of
operations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We may also be subject to potential liability for unlawful actions of our users or for content
we distribute that is deemed inappropriate. Furthermore, we may be required to delete content that
violates the laws of the PRC and report content that we suspect may violate PRC law. It may be
difficult to determine the type of content that may result in liability for us, and if we are
wrong, we may be prevented from operating our games or other services in China.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>The PRC government has announced its intention, and has begun, to intensify its regulation of
Internet cafes, which are currently the primary venue 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 customer base.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In April&nbsp;2001, the PRC government began tightening its regulation and supervision of Internet
cafes. In particular, a large number of unlicensed Internet cafes have been closed. The PRC
government has also imposed higher capital and facility requirements for the establishment of
Internet cafes. Furthermore, the PRC government&#146;s policy, which encourages the development of a
limited number of national and regional Internet cafe chains and discourages the establishment of
independent Internet cafes, may slow down the growth of Internet cafes. Moreover, the State
Administration of Industry and Commerce, one of the government agencies in charge of Internet cafe
licensing, and other government agencies jointly issued a notice in February&nbsp;2004 suspending the
issuance of new Internet cafe licenses for a period of six months. Although the six-month period is
over, in practice, to obtain a license for setting up a new Internet caf&#233; remains very difficult.
It is unclear when this suspension will be lifted, if at all. So long as Internet cafes are the
primary venue for our users to play online games, any reduction in the number, or slowdown in the
growth, of Internet cafes in China, or any new regulatory restrictions on their operations, could
limit our ability to maintain or increase our revenues and expand our customer base, thereby
reducing our profitability and growth prospects.
</DIV>




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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Currently there are no laws or regulations in the PRC specifically governing virtual asset property
rights and therefore, it is not clear what liabilities, if any, online game operators may have for
virtual assets.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In the course of playing online games, some virtual assets, such as special equipment, player
experience grades and other features of our users&#146; game characters, are acquired and accumulated.
Such virtual assets can be important to online game players and in
some cases are exchanged between
players for monetary value. In practice, virtual assets can be lost for various reasons, often
through unauthorized use of the game account of one user by other users and occasionally through
data loss caused by a delay of network service or by a network crash. Currently there are no PRC laws
and regulations specifically governing virtual asset property rights. As a result, it is unclear
who is the legal owner of virtual assets and whether and how the ownership of virtual assets is
protected by law. In case of a loss of virtual assets, we may be sued by online game players and
may be held liable for damages, which may negatively affect our business, financial condition and
results of operations.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Risks Relating to the People&#146;s Republic of China</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Substantially all of our assets are located in China and substantially all of our revenues are
derived from our operations in China. Accordingly, our business, financial condition, results of
operations and prospects are subject, to a significant extent, to economic, political and legal
developments in China.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>The PRC&#146;s economic, political and social conditions, as well as government policies, could affect
our business.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The PRC economy differs from the economies of most developed countries in many respects,
including in the amount of government involvement, level of development, growth rate, control of
foreign exchange and allocation of resources. While the PRC economy has experienced significant
growth over the past twenty-five years, growth has been uneven, both geographically and among
various sectors of the economy. The PRC government has implemented numerous measures to encourage
economic growth and to guide the allocation of resources. Some of these measures may benefit the
overall PRC economy, but also have a negative effect on us. For example, our financial condition
and results of operations may be adversely affected by government control over capital investments
or changes in tax regulations that are applicable to us.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The PRC economy has been transitioning from a planned economy to a more market-oriented
economy. Although the PRC government has implemented measures since the late 1970s emphasizing the
utilization of market forces for economic reform, the reduction of state ownership of productive
assets and the establishment of sound corporate governance in business enterprises, a substantial
portion of productive assets in China is still owned by the PRC government. In addition, the PRC
government continues to play a significant role in regulating industry development by imposing
industrial policies. The PRC government also exercises significant control over China&#146;s economic
growth through the allocation of resources, controlling payment of foreign currency denominated
obligations, setting monetary policy and providing preferential treatment to particular industries
or companies. These actions, as well as future actions and policies of the PRC government, could
materially affect general economic conditions in China and could have a material adverse effect on
our business and results of operations.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>The PRC legal system embodies uncertainties which could limit the legal protections available to
you and us.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The PRC legal system is a civil law system based on written statutes. Unlike common law
systems, it is a system in which decided legal cases have little precedential value. In 1979, the
PRC government began to promulgate a comprehensive system of laws and regulations governing general
economic and business matters. The overall effect of
</DIV>

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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">legislation over the past 26&nbsp;years has been a
significant enhancement of the protections afforded to various forms of foreign-invested
enterprises in mainland China. Our PRC operating subsidiary, Shengqu, is a wholly foreign owned
enterprise, or WFOE, which is an enterprise incorporated in mainland China and wholly-owned by
foreign investors. Shengqu is subject to laws and regulations applicable to foreign investment in
mainland China in general and laws and regulations applicable to WFOEs in particular. However,
these laws, regulations and legal requirements are constantly changing, and their interpretation
and enforcement involve uncertainties. These uncertainties could limit the legal protections
available to us and other foreign investors, including you. In addition, we cannot predict the
effect of future developments in the PRC legal system, particularly with regard to the Internet,
including the promulgation of new laws, changes to existing laws or the interpretation or
enforcement thereof, or the preemption of local regulations by national laws.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Restrictions on currency exchange may limit our ability to utilize our revenues effectively.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Substantially all of our revenues and operating expenses are denominated in Renminbi. The
Renminbi is currently freely convertible under the &#147;current account&#148;, which includes dividends,
trade and service-related foreign exchange transactions, but not under the &#147;capital account&#148;, which
includes foreign direct investment and loans.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Currently, Shengqu may purchase foreign exchange for settlement of &#147;current account
transactions&#148;, including payment of dividends to us and payment of license fees to foreign game
licensors, and our PRC operating companies may purchase foreign exchange for payment of license
fees to foreign game licensors without the approval of the State Administration for Foreign
Exchange. Shengqu may also retain foreign exchange in its current account, subject to a ceiling
approved by the State Administration for Foreign Exchange, to satisfy foreign exchange liabilities
or to pay dividends. However, we cannot assure you that the relevant PRC governmental authorities
will not limit or eliminate our ability to purchase and retain foreign currencies in the future.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Since a significant amount of our future revenues will be denominated in Renminbi, the
existing and any future restrictions on currency exchange may limit our ability to utilize revenues
generated in Renminbi to fund our business activities outside China, if any, or expenditures
denominated in foreign currencies.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Foreign exchange transactions under the capital account are subject to limitations and require
registration with or approval by the relevant PRC governmental authorities. In particular, if we
finance Shengqu by means of foreign currency loans, those loans cannot exceed certain statutory
limits and must be registered with the State Administration for Foreign Exchange, and if we finance
Shengqu by means of capital contributions, those capital contributions must be approved by the
Ministry of Commerce. Our ability to use the U.S. dollar proceeds of the sale of our equity or debt
to finance our business activities conducted through Shengqu will depend on our ability to obtain
these governmental registrations or approvals. In addition, because of the regulatory issues
related to foreign currency loans to, and foreign investment in, domestic PRC enterprises, we may
not be able to finance Shanda Networking or its subsidiaries&#146; operations by loans or capital
contributions. We cannot assure you that we can obtain these governmental registrations or
approvals on a timely basis, if at all.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Fluctuations in exchange rates could result in foreign currency exchange losses.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Substantially all of our revenues are denominated in Renminbi, while a portion of our
expenditures are denominated in foreign currencies, primarily the U.S. dollar. Fluctuations in
exchange rates, particularly those involving the U.S. dollar,
</DIV>

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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">may affect our costs and operating
margins. In addition, these fluctuations could result in exchange losses and increased costs in
Renminbi terms. Where our operations conducted in Renminbi are reported in dollars, such
fluctuations could result in changes in reported results which do not reflect changes in the
underlying operations. Since January&nbsp;1, 1994, the PRC government has used a unitary managed
floating rate system. Under that system, the People&#146;s Bank of China, or PBOC, publishes a daily
base exchange rate with reference primarily to the supply and demand of Renminbi against U.S.
dollar and other foreign currencies in the market during the previous day. Authorized banks and
financial institutions are allowed to quote buy and sell rates for Renminbi within a specified bank
around the central bank&#146;s daily exchange rate. On July&nbsp;21, 2005, PBOC announced an adjustment of
the exchange rate of the U.S. dollar to Renminbi from 1:8.27 to 1:8.11 and modified the system by
which the exchange rates are determined. This adjustment has resulted in an approximate 3.0%
appreciation of the Renminbi against the U.S. dollar as of
March&nbsp;21, 2006 when compared with the exchange rate in effect in
March,&nbsp;2005. While the international
reaction to the Renminbi revaluation has generally been positive, there remains significant
international pressure on the PRC government to adopt an
even more flexible currency policy, which could result in a further reevaluation and a
significant fluctuation of the exchange rate of the Renminbi against the U.S. dollar, including
possible devaluations. As substantially all of our revenues are denominated in Renminbi, such a
potential future devaluation of Renminbi against the U.S. dollars could negatively impact our
results of operations. Moreover, we do have material monetary assets and liabilities denominated in U.S. dollars,
which mainly consists of the investments in marketable securities, affiliated companies and the convertible notes
payable. The fluctuation of foreign exchange rate affects the value of these monetary assets and liabilities denominated
in U.S. dollars. Generally, appreciation of Renminbi against U.S. dollars results in a foreign exchange loss for monetary
assets denominated in U.S. dollars, and a foreign exchange gain for monetary liabilities denominated in U.S. dollars. On
the contrary, devaluation of Renminbi against U.S. dollars results in a foreign exchange gain for monetary assets
denominated in U.S. dollars, and a foreign exchange loss for monetary liabilities denominated in U.S. dollars.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Very limited hedging transactions are available in China to reduce our exposure to exchange
rate fluctuations. To date, we have not entered into any hedging transactions in an effort to
reduce our exposure to foreign currency exchange risk. While we may decide to enter into hedging
transactions in the future, the availability and effectiveness of these hedges may be limited and
we may not be able to successfully hedge our exposure at all.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition, our currency exchange losses may be magnified by PRC exchange control regulations
that restrict our ability to convert Renminbi into U.S. dollars. Conversely, an increase in the
value of the Renminbi could increase our reported earnings in U.S. dollar terms without a
fundamental change in our business or operating performance.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Since our revenues are primarily denominated in Renminbi, our valuation could be materially
and adversely affected by the devaluation of the Renminbi if U.S. investors analyze our value based
on the U.S. dollar equivalent of our financial condition and results of operations. In addition,
certain of our acquisitions may expose us to additional currency fluctuations that would affect our
reported valuation of those holdings. Actoz, which we will account for under the equity method, is
a South Korean company; changes in its valuation as a consequence of fluctuations in the Korean Won
would be reflected in our valuation.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Inflation in China could negatively affect our profitability and growth.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;While the PRC economy has experienced rapid growth, such growth has been uneven among various
sectors of the economy and in different geographical areas of the country. Rapid economic growth
can lead to growth in the money supply and rising inflation. If prices for our products and
services rise at a rate that is insufficient to compensate for the rise in our costs, our business
may be materially and adversely affected. In order to control inflation in the past, the PRC
government has imposed controls on bank credits, limits on loans for fixed assets, and restrictions
on state bank lending. Such austerity measures can lead to a slowing of economic growth. A slow
down in the PRC economy could also materially and adversely affect our business and prospects.
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>You may experience difficulties in effecting service of process, enforcing foreign judgments or
bringing original actions in China based on United States or other foreign laws against us, our
management or the experts named in the prospectus.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We conduct substantially all of our operations in China and substantially all of our assets
are located in China. In addition, most of our directors and executive officers reside within
China. As a result, it may not be possible to effect service of process within the United States or
elsewhere outside China upon some of our directors and senior executive officers, including with
respect to matters arising under U.S. federal securities laws or applicable state securities laws.

Moreover, the PRC does not have treaties with the United States or many other countries
providing for the reciprocal recognition and enforcement of judgment of courts.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Any future outbreak of avian flu or severe acute respiratory syndrome in China or similar adverse
public health developments may severely disrupt our business and operations.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Adverse public health epidemics or pandemics could disrupt businesses and national economies
in China. For example, from December&nbsp;2002 to June&nbsp;2003, China and certain other countries
experienced an outbreak of a new and highly contagious form of atypical pneumonia now known as
severe acute respiratory syndrome, or SARS. During May and June of 2003, many businesses in China
were closed by the PRC government to prevent transmission of SARS. The World Health Organization
has announced that there is a high likelihood of an outbreak of avian flu, with the potential to be
as disruptive if not more disruptive than SARS. Any recurrence of the SARS outbreak, an avian flu
outbreak, or development of a similar health hazard in China, may have disruptive effects on
consumer spending. In addition, health or other government regulation may require temporary closure
of our offices and operations. Such outbreak may also cause the sickness or death of our key
management and employees. Any of such occurrences would adversely affect our business and results
of operations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Risks Relating to our ADSs</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>One shareholder has significant control over the outcome of our shareholder votes.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of March&nbsp;31, 2006, Skyline Media beneficially owned approximately 57% of our outstanding
equity interests. Accordingly, Skyline Media has and is expected to maintain significant control
over the outcome of any corporate transaction or other matter submitted to our shareholders for
approval, including mergers, consolidations and the sale of all or substantially all of our assets.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>If our controlling shareholder, Skyline Media ,which holds approximately 57% of our ordinary
shares, chose to dispose of a material portion of the ordinary shares that it holds, the prevailing
market price for our securities may decline.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of March&nbsp;31, 2006, Skyline Media beneficially owned 81,070,090 of our ordinary shares,
representing approximately 57% of our outstanding ordinary shares. The beneficial owners of Skyline
Media are Tianqiao Chen, our chairman and chief executive officer, Danian Chen, our executive
senior vice president and the brother of Tianqiao Chen, and Qianqian Luo, our director and the wife
of Tianqiao Chen. Tianqiao Chen and Qianqian Luo beneficially own an additional 1,866,338 of our
ordinary shares through DBS Trustees Ltd as trustee for the Jade Trust and Danian Chen beneficially
owns an additional 951,170 of our ordinary shares through DBS Trustees Ltd as trustee for the
Chifeng Trust.
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In June&nbsp;2005, Jade Trust adopted pre-arranged stock trading plans in accordance with
Rule10b5-1 under the U.S. Securities Exchange Act of 1934, as amended, and the Company&#146;s trading
policy with respect to sales of the Company&#146;s securities by insiders. As of March&nbsp;31, 2006, 322,000
ordinary shares had been sold pursuant to the 10b5-1 plan, which will expire on August&nbsp;15, 2006 if
it is not renewed. If Skyline Media chooses to sell a material portion of the ordinary shares that
it holds, or indicate its intention to do so, the prevailing market price for our securities may
decline.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>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.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The trading price of our ADSs has been and may continue to be subject to wide fluctuations.
Since we completed our initial public offering in May&nbsp;2004, the sale prices of our ADSs on the
Nasdaq National Market ranged from US$10.58 to US$45.40 per ADS and the last reported sale price on
June&nbsp;26, 2006 was US$13.71. Our ADS price may fluctuate in response to a number of events and
factors. In addition, the financial markets in general, and the market prices for Internet-related
companies in particular, have experienced extreme volatility that often has been unrelated to the
operating performance of such companies. These broad market and industry fluctuations may adversely
affect the price of our ADSs, regardless of our operating performance. In addition, the existence
of our Zero Coupon Senior Convertible Notes due 2014 that we issued in October&nbsp;2004, or the
convertible notes, may encourage short selling in our ADSs by market participants because the
conversion of the convertible notes could depress the price of our ADSs.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>You may face difficulties in protecting your interests, and our ability to protect our rights
through the U.S. federal courts may be limited, because we are incorporated under Cayman Islands
law.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our corporate affairs are governed by our memorandum and articles of association and by the
Companies Law (2004 Revision) and common law of the Cayman Islands. The rights of our shareholders
and the fiduciary responsibilities of our directors under Cayman Islands law are not as clearly
established as they would be under statutes or judicial precedents in the United States. In
particular, the Cayman Islands has a less developed body of company law as compared to the U.S.,
and provides significantly less protection to investors. Therefore, our shareholders may have more
difficulties in protecting their interests in the face of actions by our management, directors or
controlling shareholders than would shareholders of a corporation incorporated in a jurisdiction in
the United States. In addition, Cayman Islands companies may not have standing to sue before the
federal courts of the United States. As a result, our ability to protect our interests if we are
harmed in a manner that would otherwise enable us to sue in a United States federal court may be
limited.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Anti-takeover provisions in our organizational documents may discourage our acquisition by a third
party, which could limit your opportunity to sell your shares at a premium.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our amended and restated memorandum and articles of association include provisions that could
limit the ability of others to acquire control of us, modify our structure or cause us to engage in
change of control transactions, including, among other things, the following:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>provisions that restrict the ability of our shareholders to call meetings and to
propose special matters for consideration at shareholder meetings; and</TD>
</TR>


</TABLE>
</DIV>
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<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>provisions that authorize our board of directors, without action by our
shareholders, to issue preferred shares and to issue additional ordinary shares,
including ordinary shares represented by ADSs.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;These provisions could have the effect of depriving you of an opportunity to sell your ADSs at
a premium over prevailing market prices by discouraging third parties from seeking to acquire
control of us in a tender offer or similar transactions.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>The voting rights of holders of ADSs are limited by the terms of the deposit agreement.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A holder of our ADSs may only exercise the voting rights with respect to the underlying
ordinary shares in accordance with the provisions of the deposit agreement. Upon receipt of voting
instructions of a holder of ADSs in the
manner set forth in the deposit agreement, the depositary will endeavor to vote the underlying
ordinary shares in accordance with these instructions. Under our amended and restated memorandum
and articles of association and Cayman Islands law, the minimum notice period required for
convening a general meeting is ten days. When a general meeting is convened, you may not receive
sufficient notice of a shareholders&#146; meeting to permit you to withdraw your ordinary shares to
allow you to cast your vote with respect to any specific matter. In addition, the depositary and
its agents may not be able to send voting instructions to you or carry out your voting instructions
in a timely manner. We will make all reasonable efforts to cause the depositary to extend voting
rights to you in a timely manner, but we cannot assure you that you will receive the voting
materials in time to ensure that you can instruct the depositary to vote your shares. Furthermore,
the depositary and its agents will not be responsible for any failure to carry out any instructions
to vote, for the manner in which any vote is cast, or for the effect of any such vote. As a result,
you may not be able to exercise your right to vote and you may lack recourse if your ordinary
shares are not voted as you requested.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>You may be subject to limitations on transfer of your ADSs</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Your
ADSs represented by American Depositary Receipts are transferable on the books of the
depositary. However, the depositary may close its books at any time or from time to time when it
deems expedient in connection with the performance of its duties. The depositary may close its
books for a number of reasons, including in connection with corporate events such as a rights
offering, during which time the depositary needs to maintain an exact number of ADS holders on its
books for a specified period. The depositary may also close its books in emergencies, and on
weekends and public holidays. The depositary may refuse to deliver, transfer, or register transfers
of our ADSs generally when our books or the books of the depositary are closed, or at any time if
we or the depositary thinks it is advisable to do so because of any requirement of law or any
government or governmental body, or under any provision of the deposit agreement, or for any other
reason.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Your right as a holder of ADSs to participate in any future rights offerings may be limited, which
may cause dilution to your holdings.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We may from time to time distribute rights to our shareholders, including rights to acquire
our securities. However, we cannot make rights available to our ADS holders in the United States
unless we register the rights and the securities to which the rights relate under the Securities
Act or an exemption from the registration requirements is available. In addition, the deposit
agreement provides that the depositary bank will not make rights available to you unless the
distribution to ADS holders of both the rights and any related securities are either registered
under the Securities Act or exempted from registration under the Securities Act. We are under no
obligation to file a registration statement with respect to any such rights or securities or to
endeavor to cause such a registration statement to be declared effective. Moreover, we may not be
</DIV>

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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">able to establish an exemption from registration under the Securities Act. Accordingly, ADS holders
may be unable to participate in our rights offerings and may experience dilution in their holdings.
In addition, if the depositary is unable to sell rights that are not exercised or not distributed
or if the sale is not lawful or reasonably practicable, it will allow the rights to lapse, in which
case you will receive no value for these rights.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Risks Relating to our Zero Coupon Senior Convertible Notes</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>We may not have the ability to repurchase our Zero Coupon Senior Convertible Notes in cash if
holders exercise their repurchase rights on October&nbsp;15, 2007.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In October&nbsp;2004, we issued US$275&nbsp;million Zero Coupon Senior Convertible Notes, or the
convertible notes. The holders of the notes have the right to require us to repurchase all or a
portion of their notes on October&nbsp;15, 2007 at a repurchase price equal to 100% of the principal
amount of notes to be repurchased, plus accrued and unpaid interest and liquidated damages, if any.
As of March&nbsp;31, 2006, we had RMB817.3&nbsp;million (US$101.3&nbsp;million) in cash and cash equivalents,
RMB68.1&nbsp;million (US$8.4&nbsp;million) in short-term investment and RMB2,211.8&nbsp;million (US$274.1
million)in marketable securities, which includes our minority investments in Sina
Corporation, or Sina. The trading prices for the securities have been and may
continue to be subject to wide fluctuations. Financial markets in general, and the market price for
Internet-related companies in particular, have experienced extreme volatility that is often
unrelated to the operating performance of such companies. In addition, the relatively large size of
our investments in Sina may inhibit our ability to sell as many of these securities as we might
want to sell at an acceptable price or at all. If our resources are insufficient to satisfy our
cash requirements for repurchase of the notes, we may seek to sell additional equity or debt
securities or obtain a credit facility. The sale of additional equity securities could result in
additional dilution to our shareholders. The incurrence of indebtedness would result in increased
interest rate risk and debt service obligations and could result in operating and financing covenants that would restrict
our operations. We cannot assure you, however, that future financing will be available in amounts
or on terms acceptable to us, if at all. As a result, we may not have sufficient funds to make the
required repurchase in cash. Our failure to repurchase tendered notes would constitute an event of
default under the Indenture for the notes, which might constitute a default under any other
obligations we may have at that time.
</DIV>
<DIV align="left">
<A name="105"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>Item&nbsp;4.
Information on the Company</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>A. HISTORY AND DEVELOPMENT OF THE COMPANY</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our business was founded in December&nbsp;1999 when Tianqiao Chen and Danian Chen established
Shanda Networking, initially focusing on investments relating to the development and operation of a
Chinese language online virtual community. In November&nbsp;2004, we incorporated Shanda Interactive
Entertainment Limited in the Cayman Islands.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our principal executive offices are located at No.&nbsp;1 Office Building, No.&nbsp;690 Bibo Road,
Pudong New Area, Shanghai 201203, China. Our telephone number is (86-21) 5050 4740. Our agent for
service of process in the United States is CT Corporation System, located at 111 Eighth Avenue, New
York, Now York 10011.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In November&nbsp;2001, we commercially launched Mir II, our first massively multiplayer online
role-playing game, or MMORPG. In March&nbsp;2003, we commercially launched Fortress II, our first casual
game, and in October&nbsp;2003, we launched Woool, our first in-house developed online game. As of
December&nbsp;31, 2005, Shanda commercially operates twelve online
</DIV>

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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">games, including seven MMORPGs and
five casual games. In 2005, total peak concurrent users for all Shanda games in commercial service
reached 2.68&nbsp;million.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition to our comprehensive online game portfolio, in 2005 Shanda introduced the EZ
Center platform, a unified software solution on top of our service platform that integrates
entertainment and informational content from the Internet and provide
users with access to such content through a user-friendly
interface. For more information on the EZ initiative, see also &#147;Business Overview&#148; in Item&nbsp;4
&#147;Information on the Company, Item&nbsp;5 &#147;Operating and Financial Review and Prospects,&#148; and Item&nbsp;3
&#147;Risk Factors&#148;.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In the fourth quarter of 2005, we adopted a free-to-play and
pay-for in-game value-added services revenue model for three of our MMORPGs: Mir II, Magical Land
and Woool. Going forward, we will consider adopting this new revenue model for our other existing
MMORPGs, depending on the game type and lifecycle. For more information on the new revenue
model, see also &#147;Business Overview&#148; in Item&nbsp;4
&#147;Information on the Company&#148;, Item&nbsp;5 &#147;Operating
and Financial Review and Prospects,&#148; and Item&nbsp;3 &#147;Risk
Factors&#148;.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As part of our efforts to further broaden our content offerings and expedite our growth, we
have developed our business through a number of strategic acquisitions and investments, including
the following:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>In November&nbsp;2005, we acquired Wenzhou Chuangjia Technology Co., Ltd., or Gametea,
which develops chess and board games and operates Gametea, a casual game platform in
China;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>In May&nbsp;2005, we completed the second step of a two-step acquisition of Shanghai
Haofang Online Information Technology Co. Ltd., or Haofang, the operator of the largest
network PC game platform in China;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>In February&nbsp;2005, we completed our purchase of an approximately 19.5% stake in
Sina Corp, or Sina, an online media company and value-added service provider in China;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>In February&nbsp;2005, we also completed the purchase of a 29% stake in Actoz, a Korean
developer, operator and publisher of online games, increasing our total stake to
approximately 38.1%;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>In October&nbsp;2004, we completed the second step of a two-step acquisition of Beijing
Digital Red Software Application Technology Co., Ltd., or Digital Red, a developer of
mobile phone games;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>In September&nbsp;2004, we acquired Shanghai Xuanting Entertainment Information
Technology Co., Ltd., which operates Qidian, an online literature forum; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>In July&nbsp;2004, we acquired Hangzhou Bianfeng Software Co. Ltd., or Bianfeng, a
developer and operator of online chess and board games in China.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>B. BUSINESS OVERVIEW</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Shanda Interactive Entertainment Limited is an interactive entertainment company and one of
the largest operators of online games in China. In addition to our portfolio of online games that
users play over the Internet, we provide users with access to additional content and services
through our EZ Center platform, including literature, music, movies, radio, finance, e-commerce,
travel, news and educational programs.
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our core online game business includes the operation of online games that are either licensed
from third-parties or developed in-house. In 2005, our commercially launched games had
approximately 2.68&nbsp;million peak concurrent users and 1.38&nbsp;million average concurrent users. In
2005, we commercially launched three new MMORPGs, Magical Land, D.O. and R.O and two new casual
games, Three Kingdoms and Shanda Richman. In 2005, we also acquired Wenzhou Chuangjia Technology
Co., Ltd., or Gametea, a casual game platform offering more than 90 online games, including poker
games, board games, mahjong and other contest games. Gametea, together with Bianfeng, a developer
and operator of online chess and board games that we acquired in July&nbsp;2004, had approximately
500,000 peak concurrent users in 2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In late November&nbsp;2005, we introduced a free-to-play and pay-for in-game value-added services
revenue model for three of our leading MMORPGs, Mir II, Woool, and Magical Land. Under the new
revenue model, users are able to play the basic functions of an MMORPG for free and may choose to
purchase in-game value-added services, including certain in-game items and premium features, which
enhance the game experience.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In 2005, in connection with our transition from a pure online game operator to an interactive
entertainment company, we introduced EZ Center platform as the unified software solution on top of
our service platform. It integrates entertainment and informational
content from the Internet and provide users with access to such
content through a user-friendly interface that has simple intuitive menus, large text and clear graphics.
The EZ Pod, which is the first product launched off our EZ Center platform, enables PC users to
navigate and access the aggregated Internet content over our EZ Center platfrom using a remote
control. As of March&nbsp;31, 2006, EZ Center platform is still at the trial run stage and we have not
yet charged users subscription fees.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our operating platform includes our technology infrastructure, distribution and payment
system, customer service center, game content management and marketing platform. Our technology
infrastructure consists of a nation-wide server network with the capacity to accommodate
approximately 6.6&nbsp;million concurrent online users. Our nation-wide distribution and payment network
includes approximately 310,000 distribution points for our pre-paid cards. Our customer service
system includes a 24-hour call center and a walk-in customer service center. In addition, for each
of our online games we have a separate game content management team which manages the operation of
the game and the online community for the game.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Our Content</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our content offerings primarily consist of online games, including MMORPGs and casual games,
as well as online chess and board games, a network PC game platform and wireless games. In
addition, through our EZ Center platform we provide users with access to additional content and
services including movies, music, literature works, finance and
investment information, travel information, news
and educational programs. As of March&nbsp;31, 2006, we have not yet started to charge users for access
to content or services over the EZ Center platform.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>MMORPGs</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our MMORPGs are action-adventure based, and draw upon martial arts and combat themes. Each
MMORPG creates a virtual world within which players interact with one another inside
the game. Typical features of our MMORPGs include the following:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>players may assume the ongoing role, or alter-ego, of a particular game character,
each with different strengths and weaknesses;</TD>
</TR>


</TABLE>
</DIV>
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<DIV style="margin-top: 6pt"><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">


<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>each game character may gain experience and collect certain game features and items, such as
weapons and points, which increases the status and power of the game character and, in the process,
builds a strong game identity; the variety of features that are available means that a
player is unlikely to &#147;meet&#148; anyone in the virtual world exactly like his or her game
character;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>although each game character may be unique, groups of players may, and often must,
form teams or alliances to fulfill certain game objectives, such as quests and missions;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>game features and items may be &#147;traded&#148; or &#147;sold&#148; within the game, and game characters may
take on life-like social experiences such as getting married and forming master/disciple
relationships with other players. In addition,
players may communicate with each other through our instant messaging service or our chat
room during the game on our operation platform which supports all of our online games;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>special events are held from time to time to stimulate group interest, such as
&#147;fortress raids&#148; where players are encouraged to form groups and attack a particular
fortress at a specified time; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the game is ultimately never won or lost, but instead continues through a game
story that is interactively written by the game developer and players and does not have a natural ending.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We use two different revenue models to charge users of our MMORPGs. The first revenue model is
the traditional subscription-based pay-to-play revenue model, where users purchase pre-paid cards
to play for a fixed number of hours or for an unlimited amount of time within a specified number of
days. In the fourth quarter of 2005, we adopted a free-to-play and pay-for in-game value-added
services revenue model for three of our MMORPGs: Mir II, Woool and Magical Land. Under the new
revenue model, users are able to play the basic functions of a MMORPG for free and may choose to
purchase in-game value-added services, as well as certain in-game items and premium features, which
enhance the game experience. Same as our traditional subscription-based pay-to-play revenue model,
payment is collected upon the sale of our pre-paid cards under the new revenue model. However, game
points are consumed as users purchase value-added services and in-game items, instead of as users
play the games.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In preparation for the commercial launch of a new game, we conduct closed beta testing of the
game in an effort to eliminate technical problems. This closed beta testing is followed by open
beta testing in which we allow our registered users to play without charge in open market
conditions to ensure performance consistency and stability of operation systems.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of December&nbsp;31, 2005, the following table summarizes the MMORPGs or other massively
multiplayer online games that we offer.
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="10%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="30%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="20%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="20%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B>Game</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B>Description</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B>Game Source</B></TD>
    <TD>&nbsp;</TD>

<TD nowrap align="center" style="border-bottom: 1px solid #000000"><B>Date
of Commercial Launch</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Mir II
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Martial arts adventure
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Licensed
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">November&nbsp;2001</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Woool
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Martial arts adventure
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">In-house developed
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">October&nbsp;2003</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">The Sign
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">3D martial arts adventure
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">In-house developed
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">May&nbsp;2004</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">The Age
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Society simulation
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">In-house developed
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">June&nbsp;2004</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Magical Land
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Fantasy role-playing
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">In-house developed
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">July&nbsp;2005</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">D.O.
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">3D martial arts adventure
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Licensed
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">August&nbsp;2005</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">R.O.
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Fantasy role-playing
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Licensed
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">September&nbsp;2005</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition to the MMORPGs listed above, we have entered into license agreements to
operate two other MMORPGs in China. In April&nbsp;2005, we entered into a license agreement for the
China operation of Dungeons &#038; Dragons Online, a 3-D
</DIV>

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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">fantasy role-playing game based on the Hasbro
and Wizards of the Coast Dungeons and Dragons franchise, and Archlord, a 3-D martial arts adventure
game. We began open beta testing of ArchLord on June&nbsp;18, 2006, and started closed beta
testing of Dungeons &#038; Dragons Online on June&nbsp;28, 2006.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In 2005, our MMORPGs in commercial service had approximately 1.03&nbsp;million peak concurrent
users and 672,000 average concurrent users.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Our Casual Games</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Casual games are easier to play than MMORPGs. Casual games are typically session based,
meaning that a game can be played to a conclusion within a short period of time. Generally, fewer
than ten players may interact with each other in an online casual game. Casual games are an
important component of our overall home strategy because casual games attract a broader range of
users than MMORPGs, as well as more home users. We believe that casual games provide us with
certain benefits and opportunities not typically available through MMORPGs, including:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>casual games, due to their lower level of complexity and typically shorter
duration, provide less-experienced online game players with a means to become familiar
with both online game playing and the online game culture without making substantial
commitments of time and resources; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>casual games are well-suited to use at home, due to their shorter duration and
reduced demand for a player&#146;s full attention for prolonged periods, as compared to
MMORPGs; as a result, we believe that casual games may contribute to the expansion of the
online game culture beyond the Internet cafes and into the homes of users.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We use the free-to-play and pay-for in-game value-added services revenue model to charge users
of our casual games. As a result, users are able to play the basic functions of our casual games
for free and may choose to purchase in-game items and premium features, which enhance the game
experience.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of December&nbsp;31, 2005, the following table summarizes the casual games that we offer.
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="10%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="30%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="20%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="20%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center"><B>Date of Commercial</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B>Game</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B>Description</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B>Game Source</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B>Launch</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">BNB
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Battle
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Licensed
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">August&nbsp;2003</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">GetAmped
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">3D fighting game
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Licensed
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">May&nbsp;2004</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Maple Story
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Side-scrolling combat game
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Licensed
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">August&nbsp;2004</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Three Kingdoms
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Strategy combat
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">In-house developed
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">September&nbsp;2005</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Shanda Richman
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">3D Strategy Operation
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">In-house developed
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">December&nbsp;2005</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition to the casual games listed above, we have entered into license agreements to
operate DJ Max and Kong Kong, two South Korean casual games. In February&nbsp;2006, we also entered into
an agreement with Walt Disney Internet Group pursuant to which we have agreed to develop,
distribute and operate in China a online casual game based on the magical worlds of Disney and
featuring some of Disney&#146;s most popular animated characters. In March&nbsp;2006, we commercially
launched our in-house developed car racing game, Crazy Kart. In addition to these games, we also
have a number of casual games under in-house development, which we hope to introduce during 2006.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In 2005, our commercially launched casual games, excluding the casual games operated by or
played on the platforms provided by Bianfeng, Haofang and Gametea, had approximately 825,000 peak
concurrent users.
</DIV>



<P align="center" style="font-size: 10pt">36
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Our Online Chess and Board Games</I>
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our casual games also include online chess and board games offered through Bianfeng, which we
acquired in 2004, and Gametea, which we acquired in 2005. Through Bianfeng and Gametea, we offer a
variety of casual games, including card games, board games, mahjong and simple arcade games. In
2005, the casual games operated by Bianfeng and Gametea had approximately 500,000 peak concurrent
users.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Network PC Games Platform</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Through
Haofang, which we completed the two-step acquisition of in May&nbsp;2005, we provide a
personal computer game network to our end users. Through this platform, users of PC games are able
to find and connect through the Internet with other players of the
same PC games. This enables users
to form a large network through which to interact with others virtually, using software that has
network capability. Without such an Internet based network, users of PC games would generally be
limited to playing with other users that are either at the same PC or connected through a local
area network. Unlike with our MMORPGs and casual games, we do not own or license the content that
PC game players use over the Haofang network. Nonetheless, we believe
that the Haofang PC game
network enhances our overall online game platform. In 2005, the Haofang PC game network had
approximately 535,000 peak concurrent users.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Wireless Games</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Through Digital Red, which we completed the two-step acquisition of in October&nbsp;2004, we
develop and offer wireless games to end users of mobile phones. Digital Red has developed
approximately 600 wireless games, approximately 400 of which were in distribution as of December
31, 2005. Digital Red primarily distributes its wireless games by
pre-loading the games on handsets
produced by mobile phone manufacturers and by
downloading the games from game portal of the mobile phone service
providers.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>EZ Content</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition to our core online game content, we offer additional content through our EZ Center
platform. Through cooperation with more than 100 Internet content and service providers, we provide
users with access to an array of content and services that can be grouped into three broad
categories:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Entertainment, including radio, movies, music, karaoke and literature;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Life, including finance, e-commerce, travel and communication programs; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Info-learning, including news and educational programs.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Sources of Content</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>Game Licensing</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We license games from developers in various countries where online game use is relatively
established. We monitor each of the South Korean, Japanese, United States and European markets to
identify and source new online games. Prior to negotiating a license agreement with an overseas
game developer, we evaluate games in our game testing center.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The cost of licensing games from developers generally consists of an upfront licensing fee,
which we normally pay in several installments, and ongoing licensing fees, which are equal to a
percentage of revenues generated from operation of the game. The ongoing licensing fee payments for
games which have been commercially launched range from 20% to 30% of revenues for MMORPGs, and 17%
to 40% of revenues for casual games<B>. </B>Each of our licenses provides us with the
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">exclusive right to
operate the game in China. Most developers agree to timely provide us, without any additional
charge, with updates, enhancements and improvements developed for the games licensed to us. The
majority of our game licenses require the licensors to provide us with technical support. As of
December&nbsp;31, 2005, six of the twelve online games that we commercially operate are licensed from
overseas developers.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have also obtained rights or control to certain licenses through the acquisition of, or
investment in, other businesses. Please see the section &#147;Recent Acquisitions&#148; in Item&nbsp;5 &#147;Operating
and Financial Review and Prospects&#148;.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Game Development</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We both develop online games at our in-house game development studios and fund the development
of games at independent game development studios. Our initial in-house game development efforts
focused upon MMORPGs. In 2005, as part of our home strategy and EZ initiative, we have shifted the
focus of our in-house game development efforts away from MMORPGs and toward casual games. In
addition to the development of traditional online games, through Bianfeng and Gametea we develop
online chess and board games, and through Digital Red we develop wireless games for mobile phone
users. As of December&nbsp;31, 2005, approximately 580 employees were engaged in our in-house game
development efforts. In addition, as of December&nbsp;31, 2005, six of the twelve online games that we
commercially operate were in-house developed, including two casual games.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Other Content</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We offer other content to users both through our Internet platform and through our EZ Center
platform. This additional content is generally provided in partnership with third party service and
content providers. We have entered into strategic partnerships with Universal Music and EMI, for
example, to provide their music content to end users through our EZ Center platform as well as our
online interactive entertainment portal. In addition, through Qidian, a Chinese language original
literature portal that we acquired in 2004, we publish works of independent writers, including
magic fantasy works, science fiction works and works based upon the story lines of online games. As
of December&nbsp;31, 2005, we have entered into agreements with over 100 content and service providers
to offer non-game content over our EZ Center platform.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Our Operating Platform</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We believe that our operating platform contributes to the experience of our users and enhances
user loyalty. Our operating platform encompasses a variety of elements, including our product
management system, distribution and payment network, unified billing platform, marketing, customer
service and technological infrastructure.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Game Product Management</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have a separate product management team for each of our MMORPGs and casual games. Each
product team acts as a product specialist in interaction with our functional departments, such as
research and development, marketing, sales and distribution, technology support and customer
services. Our product teams:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>conduct the cost/return analysis and form operational plans before the launch of
each game;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>coordinate internal resources and interact with the other departments to secure the
smooth operation of the game on a day-to-day basis;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>control the timing of the release of new game versions and enhancements; and</TD>
</TR>


</TABLE>
</DIV>
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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV style="margin-top: 6pt"><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">


<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>manage the online game&#146;s virtual community on an hour-by-hour basis including, for
example, by organizing in-game events.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of December&nbsp;31, 2005, our product management teams consisted of 254 employees.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Pricing, Distribution and Payment</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In order to play our games or in order to purchase in-game value-added services, users must
purchase pre-paid cards, which are sold in both virtual and physical form. Each pre-paid card
contains a unique access code and password that
enables users to add value to their account for one of our online games. Currently, each
pre-paid card may only be used to play one of our online games, although a user may choose which
game account, among all accounts held by the user, to apply the
pre-paid card&#146;s value to. Charges
based on the number of hours of playtime, unlimited playtime for a specified number of days or the
value and amount of in-game value-added services purchased are deducted against the value provided
in the pre-paid cards.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We generally develop a pricing curve to set the retail prices for the games we offer. Pricing
curves are developed primarily based on the game cost, user game playing and payment patterns and
the pricing of competing games in the market. Since the launch of our first online game in 2001, we
have tracked and accumulated user data generated from our user base, which provides us with an
extensive database to analyze user patterns and establish pricing curves for particular types of
games. Once a game&#146;s pricing is set, it is difficult to increase prices during the game&#146;s
commercial lifecycle. We have generally maintained stable pricing curves for our games.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We distribute our pre-paid cards through three principal channels:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>our e-sales system for virtual pre-paid cards;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>our offline distribution system for physical pre-paid cards; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>direct online sales.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other than direct online sales, we generally operate by selling pre-paid cards to a group of
regional distributors from whom we generally collect payment on a prepaid basis. These distributors
resell the cards to sub-distributors who, in turn, distribute the cards directly to Internet cafes
and other retail points of sale. We estimate, based on a survey we conducted among our regional
distributors in December&nbsp;2005 and sales records in our e-sales system, that our e-sales and offline
distribution networks include approximately 134,000 and 174,000
points of sale in China,
respectively. Our data center and servers maintain user information, including user registration
information and data relating to usage patterns, and we do not rely on distributors for such
information.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table sets forth the percentage of pre-paid card sales from each of these
distribution channels in 2005:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>Prepaid Card Sales in</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B>Distribution Channel</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">E-sales</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">44.7</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">48.6</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Offline Distribution</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">44.1</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">36.9</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Direct Online Sales</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">5.7</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">13.8</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">5.4</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">0.7</TD>
    <TD nowrap>%</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">100</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">100</TD>
    <TD nowrap>%</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">39
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In 2005, we offered average sales discounts of approximately 23.8% and 16.7% to our
e-sales distributors and offline distributors, respectively. The sales discount represents the
difference between the price at which we sell pre-paid cards to distributors and the face value of the
pre-paid cards. We generally offer a larger discount to our e-sales distributors than our offline
physical card distributors because we intend to facilitate the expansion of our e-sales system,
which provides us with control over the distribution process. In addition, the cost of distributing
virtual pre-paid cards through our e-sales system is lower than the costs involved in offline
distribution of physical pre-paid cards. In addition, we are actively promoting direct online
sales of our pre-paid cards through credit and debit card payments. For more information on our
sales discount policy, please also see subsection &#147;A. Operating Results-Net Revenue&#148; in Item&nbsp;5
&#147;Operating and Financial Review and Prospects &#148;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Our Unified User Platform</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Through our unified user and billing verification system, users can access our various online
games and other interactive entertainment content through a single Shanda account. We believe that
our unified user platform helps us to leverage the value of our user base within any given
application, to build user loyalty and to have an efficient means to manage our billing and user
data as well as to organize promotional events for new products and services.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Marketing</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Due to the group interaction appeal of online games, word-of-mouth is a major medium for
promoting our games. Our marketing strategy includes utilizing our large user base and nationwide
distribution network to retain our existing users and attract new users. We employ a variety of
traditional and online marketing programs and promotional activities, including in-game events,
in-game marketing, open beta testing and offline efforts.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We frequently organize in-game events for our users, which we believe encourages the
development of virtual communities among our users and increases user interest in our games.
Examples of in-game events include special challenges or features, such as fortress raids,
introduced to the game environments for a scheduled period. In addition, we use in-game events to
introduce users to new features of our games. Moreover, we frequently post announcements in the
game environment of our MMORPGs to promote new features, other improvements to the games, and
in-game events. We generally use these announcements to promote the game in which they are
displayed.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our open beta testing system both tests the operation of new games under open market
conditions and introduces new games to users. During open beta testing, we do not charge users to
play the new game. Open beta testing provides an initial user base and creates initial excitement
and word-of-mouth publicity to support the commercial launch of the game.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We also market new games through offline efforts. We promote new games by placing game posters
in Internet cafes. In addition, we place advertisements
in traditional print media as well as on billboards and city buses. In connection with the
commercial launch of Magical Land, for example, we placed advertisements in over 100 newspapers and
magazines, over 600 billboards in nine major cities and on over 200 websites. We also cooperated
with other businesses, such as soft drink manufacturers in
co-marketing projects. In addition, we organize
promotional events at Internet cafes, distribution points, school campuses and other locations
frequented by game players. We also sponsor select media events to promote our brand name and our
games.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Customer Service</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We regard customer service as one of our key marketing tools and we are committed to providing
superior customer service to our users. We provide service to our customers through three principal
channels:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>our call center, which serves our customers 24 hours per day, seven days per week;</TD>
</TR>

</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">40
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>our walk-in customer service center, located in Shanghai; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>e-mail and facsimile letters.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition, we offer bulletin board services that allow users to post questions to, and
receive responses from, other users.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Technology Infrastructure</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have developed an extensive technology infrastructure to support the operation of our
games, including a nation-wide server network. Due to the real-time interaction among thousands of users,
the stable operation of our MMORPGs requires a large number of servers and a significant amount of
connectivity bandwidth. Due to China&#146;s large geographical area and limitations on bandwidth, we
have located game servers for our MMORPGs in a number of regions throughout China. As a result, our
MMORPG users can play our games using servers located in their region and without exchanging data
across the national network, thereby increasing the speed at which our games operate and enhancing
the user experience.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of December&nbsp;31, 2005, our server network for our game operations consisted of approximately
13,400 servers and 2,500 server annex equipment units with the capacity to accommodate up to 6.6
million concurrent online users. As of December&nbsp;31, 2005, we owned approximately 57.7% of the
servers in our network, and we leased the remainder from telecommunications operators. All of the
servers in our server network are located on the premises of our hosting telecommunications
operators.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Our EZ Initiative</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In 2005 we introduced our EZ Center platform as an integral part of our home strategy, which
aims to provide home users with a broad range of interactive entertainment content from the
Internet and display them in a user-friendly interface that has simple intuitive menus,
large text and clear graphics. Through cooperation with a variety of Internet content and service
providers, we offer an array of content and services to users over our EZ Center platform,
including literature, music, movies, radio, finance, e-commerce, travel, news and education
programs.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The EZ Center platform is supported by our integrated operating platform, including our
unified user account authorization system, payment system and customer service center. Users that
purchase an EZ series product and access the EZ Center platform will, after a free or reduced rate
introductory period, be able to purchase EZ content and services on an a-la-carte basis or on a
monthly subscription basis. As of March&nbsp;31, 2006, we have not yet started to charge users for
access to content or services over the EZ Center platform.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The debut of the EZ Pod was our first step to bring the interactive entertainment content
offerings on the EZ Center platform to home users in China. The EZ Pod includes a remote control,
an inferred dongle and the EZ Center software. The EZ Center software
solution transforms an average PC into an entertainment PC, thus changes the way users navigate the
online media content from an information-based Internet portal model to an application-based new
entertainment portal model.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The EZ Pod is a Shanda in-house developed product and we are actively managing its
marketing and distribution. We commercially launched the EZ Pod on December&nbsp;1, 2005 and are
distributing the EZ Pod primarily through two channels. The first is our own distribution channel,
including the distribution channel for our pre-paid cards, which will target existing personal
computer owners encouraging them to transform their computers into an entertainment PC by
purchasing and installing an EZ Pod. The second channel is through partnerships with PC
manufactures, targeting new PC purchasers by
</DIV>

<P align="center" style="font-size: 10pt">41
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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">bundling and pre-installing EZ Center software on new
computers. In addition, we are actively exploring other opportunities in partnerships, such as
collaboration with telecom operators.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As part of our EZ initiative, we are also exploring additional products that would allow users
to access the EZ Center platform through various delivery channels. If we introduce additional
products, we do not intend to be responsible for hardware manufacturing, inventory, sales and
distribution of those products. Instead, we intend to license the hardware and software solutions
to consumer electronic manufactures. We will focus not upon the hardware component of the EZ
initiative, but upon providing content and services to users over the EZ Center platform.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Competition</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We compete primarily with other online game operators based in China. We believe that domestic
operators, including us, are likely to have a competitive advantage over international service
providers who enter the China market, as these international service providers are likely to lack
operational infrastructure in China and content localization experience for the China market. We
cannot assure you, however, that this competitive advantage will continue to exist, particularly if
international operators establish joint ventures or form alliances with, or acquire, domestic
operators. In addition, we compete for users against various offline games, such as console games,
arcade games and handheld games, as well as various other forms of traditional or other online
entertainment.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Intellectual Property and Proprietary Rights</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We rely on copyright, trademark, patent, trade secret and other intellectual property law, as
well as non-competition, confidentiality and license agreements with our employees, suppliers,
business partners and others to protect our intellectual property rights. Our employees are
generally required to sign agreements acknowledging that all inventions, trade secrets, works of
authorship, developments and other processes generated by them on our behalf are our property, and
assigning to us any ownership rights that they may claim in those works. Despite our precautions,
it may be possible for third parties to obtain and use intellectual property that we own or license
without our consent. Unauthorized use of our intellectual property by third parties, and the expenses
incurred in protecting our intellectual property rights, may adversely affect our business.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of December&nbsp;31, 2005, we own 35 software copyrights, each of which we have registered with
the State Copyright Bureau of the PRC.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of December&nbsp;31, 2005, we own 28 trademarks, each in various classes, each of which we have
registered with the China Trademark Office, and had 70 trademark applications, each in various
classes, pending with the China Trademark Office. We have also filed applications to register
certain trademarks in a number of other jurisdictions, including Taiwan, Hong Kong,
South Korea, the United States, India, Japan, Canada, Singapore and New Zealand.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As
of December&nbsp;31, 2005, we hold six patents granted by the State
Intellectual Property Office of the
PRC and we have eleven patent applications pending with the
State Intellectual Property Office. In addition, we hold two patents
that have been granted by select jurisdictions outside of China,
including the European Union, South Korea and Singapore.
</DIV>

<P align="center" style="font-size: 10pt">42
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Regulatory Matters</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The online game industry in China operates under a legal regime that consists of the State
Council, which is the highest authority of the executive branch of the PRC central government, and
the various ministries and agencies under its leadership. These ministries and agencies mainly
include:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the Ministry of Information Industry;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the Ministry of Culture;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the State Press and Publications Administration;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the State Copyright Bureau;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the State Administration for Industry and Commerce;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the Ministry of Public Security; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the Bureau of State Secrecy.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The State Council and these ministries and agencies have issued a series of rules that
regulate a number of different substantive areas of our business, which are discussed below.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Foreign Ownership Restrictions</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;PRC regulations currently limit foreign ownership of companies that provide Internet content
services, which includes operating online games, to 50%. In addition, foreign and foreign-invested
enterprises are currently not able to apply for the required licenses for operating online games in
China. In order to comply with foreign ownership restrictions, we operate our online game business
in China through Shanda Networking, which is wholly owned by Tianqiao Chen, our chairman and chief
executive officer, and Danian Chen, our executive senior vice president, both of whom are PRC
citizens, and through Nanjing Shanda and Hangzhou Bianfeng, which are subsidiaries of Shanda
Networking. Under PRC law, we cannot hold the licenses and approvals necessary to operate our
online games because those licenses and approvals can only be held by domestic PRC persons and we
are not considered to be a domestic PRC person for this purpose. We believe that (1)&nbsp;the ownership
structures of our company, Shengqu and our PRC operating companies are in compliance with existing
PRC laws and regulations, (2)&nbsp;our contractual arrangements with Shanda Networking and its
shareholders are valid and binding, and will not result in any violation of PRC laws or regulations
currently in effect; and (3)&nbsp;the business operations of our company, Shengqu and our PRC operating
companies, as described in this annual report, are in compliance with existing PRC laws and
regulations in all material aspects. There are, however, substantial uncertainties regarding the
interpretation and application of current or future PRC laws and regulations. Accordingly, we
cannot assure you that the PRC regulatory authorities will not ultimately take a view that is
contrary to our view. If the PRC government finds that the agreements that establish the structure
for operating our China business do not comply with PRC government restrictions on foreign
investment in the online game industry, we could be subject to severe penalties.
</DIV>

<P align="center" style="font-size: 10pt">43
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Licenses</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;There are a number of aspects of our business which require us to obtain licenses from a
variety of PRC regulatory authorities.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As ICP service providers, our PRC operating companies are required to either hold value-added
telecommunications business operation licenses, or ICP licenses, issued by the Ministry of
Information Industry or its local offices or be sublicensed by qualified ICP license holders.
Moreover, ICP operators providing ICP services in multiple provinces, autonomous regions and
centrally administered municipalities may be required to obtain an Inter-regional ICP license.
Shanda Networking and Shanghai Shulong Technology Development Co., Ltd. have already obtained
inter-regional ICP licenses, which both cover SMS service. Shanda Networking&#146;s license also covers
online bulletin board service. Nanjing Shanda and Hangzhou Bianfeng currently conduct ICP
businesses by having sublicensing arrangements with Shanda Networking.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Each ICP license holder that engages in the supply and servicing of Internet cultural
products, which include online games, must obtain an additional Internet culture business
operations license from the Ministry of Culture. Shanda Networking holds an Internet culture
business operations license issued by the Ministry of Culture. In connection with our launch of
certain EZ series products, which offer video and audio content, such as music and movies, we may
need to obtain a license from the State Administration of Radio, Film and Television. We understand
that non-State-owned companies may not be able to obtain such a
license and, accordingly, if it is determined that such a license is
required our E2 initiative may be materially and adversely affected.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The State Press and Publications Administration and the Ministry of Information Industry
jointly impose a license requirement for any company that intends to engage in online publishing,
defined as any act by an Internet information service provider to select, edit and process content
or programs and to make such content or programs publicly available on the Internet. Shanda
Networking holds an online publishing license issued by the State Press and Publications
Administration. In addition, the Ministry of Culture requires us to submit for its content review
and approval any online games we would like to import. If we import games without that approval,
the Ministry of Culture may impose penalties on us, including revoking our Internet culture
business operations license required for the operation of online games in China.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Ministry of Public Security imposes a license requirement for any company that intends to
engage in the development and sales of computer and information system safety guard products.
Shanda Networking holds a computer and information system safety guard products sales license
issued by the Ministry of Public Security.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>ICP License Sublicensing</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;According to rules promulgated by the Ministry of Information Industry, an ICP service
provider that has obtained an inter-regional ICP license shall conduct its business operations in
provinces, autonomous regions and centrally administered municipalities as covered by its license
within one year after acquiring the license. An inter-regional ICP service provider may authorize
its subsidiaries or its branches to conduct an ICP business in licensed regions. If it authorizes
its subsidiaries, the ICP service provider&#146;s shareholding in such subsidiaries must be greater than
51%. Moreover, an ICP service provider shall not authorize two or more subsidiaries or branches to
conduct the same ICP business in the same region. Shanda Networking has authorized Nanjing Shanda
and Hangzhou Bianfeng to conduct ICP business in several regions. Nanjing Shanda is responsible for
the east and central-south of China. Hangzhou Bianfeng is responsible for north-east China.
</DIV>

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</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Shanda
Networking will continue to conduct online game business in residual regions, with its Xian branch,
Beijing branch and its subsidiary Chengdu Jisheng Technology Co., Ltd. being respectively
responsible for north-west China, north China and south-west China. Shanghai Shulong Technology
Development Co., Ltd has set up five branches and authorized them to conduct ICP business in five
regions of north China, north-east China, central-south China, south-west China and north-west
China. Shanghai Shulong Technology Development Co., Ltd. is responsible for east China.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Regulation of Internet Content</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The PRC government has promulgated measures relating to Internet content through a number of
ministries and agencies, including the Ministry of Information Industry, the Ministry of Culture
and the State Press and Publications Administration. These measures specifically prohibit Internet
activities, which includes the operation of online games that result in the publication of any
content which is found to, among other things, propagate obscenity, gambling or violence, instigate
crimes, undermine public morality or the cultural traditions of the PRC, or compromise State
security or secrets. If an ICP license holder violates these measures, the PRC government may
revoke its ICP license and shut down its websites.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Regulation of Information Security</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Internet content in China is also regulated and restricted from a State security standpoint.
The Standing Committee of the National People&#146;s Congress, China&#146;s national legislative body, issued
a decision in December&nbsp;2000, according to which following conducts in China may be subject to
criminal punishment in China any effort to: (1)&nbsp;gain improper entry into a computer or system of
strategic importance; (2)&nbsp;disseminate politically disruptive information; (3)&nbsp;leak state secrets;
(4)&nbsp;spread false commercial information; or (5)&nbsp;infringe intellectual property rights.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Ministry of Public Security has promulgated measures that prohibit use of the Internet in
ways which, among other things, result in a leakage of state secrets or a spread of socially
destabilizing content. The Ministry of Public Security has supervision and inspection rights in
this regard, and we may be subject to the jurisdiction of the local security bureaus. If an ICP
license holder violates these measures, the PRC government may revoke its ICP license and shut down
its websites.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Import Regulation</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our ability to license online games from abroad and import them into China is regulated in
several ways. We are required to register with the Ministry of Commerce any license agreement with
a foreign licensor that involves an import of technologies, including online game software into
China. Without that registration, we cannot remit licensing fees out of China to any foreign game
licensor. Furthermore, the State Copyright Bureau requires us to register copyright license
agreements relating to imported software. Without the State Copyright Bureau registration, we
cannot remit licensing fees out of China to any foreign game licensor and are not allowed to
publish or reproduce the imported game software in China. In addition, imported online game
software is also required to pass a content examination by the Ministry of Culture. Any imported
online game software, which has not been examined and approved by the
Ministry of Culture or is not
registered with the Ministry of Information Industry, is not allowed to be put into operation in
China.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Publishing Regulation</I>
</DIV>



<P align="center" style="font-size: 10pt">45
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our publishing activities include both online publishing and offline publishing. In order to
engage in the online publishing business, we have obtained licenses from both the State Press and
Publications Administration and the Ministry of Culture. We do not hold the required license to
engage in offline publishing, so in order to conduct our game related content publishing business, we
cooperate with companies that are licensed to conduct such businesses.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Advertising Regulation</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;According to PRC laws and regulations, in order to conduct advertising and related business, a
company must have an approved business scope that covers such businesses. Currently, we conduct our
advertising and related businesses primarily through our subsidiary, Shanghai Shengyue
Advertisement Co., Ltd., which is licensed to conduct these businesses.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Intellectual Property Rights</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The State Council and the State Copyright Bureau have promulgated various regulations and
rules relating to protection of software in China. Under these regulations and rules, software
owners, licensees and transferees may register their rights in software with the State Copyright
Bureau or its local branches and obtain software copyright registration certificates. Although such
registration is not mandatory under PRC law, software owners, licensees and transferees are
encouraged to go through the registration process and registered
software rights may be entitled to better
protections. We have registered all of our commercially launched in-house developed online games with
the State Copyright Bureau.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Internet Cafe Regulation</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Internet cafes are required to obtain a license from the Ministry of Culture and the State
Administration of Industry and Commerce, and are subject to requirements and regulations with
respect to location, size, number of computers, age limit of customers and business hours. Although
we do not own or operate any Internet cafes, many Internet cafes distribute our virtual pre-paid
cards. The PRC government has announced its intention, and has begun, to intensify its regulation
of Internet cafes, which are currently the primary venue for our users to play online games. In
February&nbsp;2004, the State Administration of Industry and Commerce and other related government
agencies issued a notice to suspend issuance of new Internet cafe licenses for a six month period.
While the specified suspension period is nominally over, in practice, to obtain a license for
setting up a new Internet caf&#233; remains very difficult. Intensified government regulation of
Internet cafes could restrict our ability to maintain or increase our revenues and expand our
customer base.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Privacy Protection</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;PRC law does not prohibit Internet content providers from collecting and analyzing personal
information from their users. We require our users to accept a user agreement whereby they agree to
provide certain personal information to us. PRC law prohibits Internet content providers from
disclosing to any third parties any information transmitted by users through their networks unless
otherwise permitted by law. If an Internet content provider violates these regulations, the
Ministry of Information Industry or its local bureaus may impose penalties and the Internet content
provider may be liable for damages caused to its users.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>C. ORGANIZATIONAL STRUCTURE</B>
</DIV>



<P align="center" style="font-size: 10pt">46
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are a holding company with no operations of our own. We are a Cayman Islands exempted
company and we conduct our operations in China primarily through Shengqu, our indirectly wholly
owned subsidiary. We and Shengqu are foreign or foreign-invested enterprises under PRC law and
accordingly are ineligible to apply for a license to operate online games. In order to comply with
foreign ownership restrictions, we operate our online game business in China through Shanda
Networking, which is wholly owned by Tianqiao Chen, our chairman and chief executive officer, and
Danian Chen, our executive senior vice president, both of whom are PRC citizens, and through
Nanjing Shanda and Hangzhou Bianfeng, which are subsidiaries of Shanda Networking. Shanda
Networking, Nanjing Shanda, Hangzhou Bianfeng, collectively referred to as our PRC operating
companies, and other subsidiaries of Shanda Networking hold the licenses and approvals that are
required to operate our online game business and to sell online advertising on our web pages, and
Shengqu owns the substantial majority of physical assets. Shengqu has entered into a series of
contractual arrangements with Shanda Networking and its shareholders. As a result of these
contractual arrangements, we are considered the primary beneficiary of Shanda Networking and its
subsidiaries (including the other PRC operating companies) and accordingly we consolidate the
results of operations of Shanda Networking and its subsidiaries in our financial statements.
However, neither we nor Shengqu owns the equity of the PRC operating companies, and, although we
consolidate the results of the PRC operating companies in our consolidated financial statements and
we can utilize their cash and cash equivalents in our operations through our contractual
arrangements with Shanda Networking, we do not have direct access to the cash and cash equivalents
or future earnings of the PRC operating companies. As of March&nbsp;31, 2006, we had approximately
RMB817.3&nbsp;million (US$101.3&nbsp;million)in cash and cash equivalents, of which RMB442.0&nbsp;million (US$54.8
million)was held by Shanda Networking and its subsidiaries.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant to our contractual arrangements with Shanda Networking and the other PRC operating
companies, we provide services, software licenses and equipment to the PRC operating companies in
exchange for fees. The principal service, software license and equipment lease agreements that we
have entered into are:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>equipment leasing agreements, pursuant to which Shanda Networking, Nanjing Shanda
and Hangzhou Bianfeng lease a substantial majority of their operating assets from
Shengqu;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>a technical support agreement, pursuant to which Shengqu provides technical support
for Shanda Networking&#146;s operations;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>technology licensing agreements, pursuant to which Shengqu licenses certain billing
technology to Shanda Networking, Nanjing Shanda and Hangzhou Bianfeng;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>software license agreements, pursuant to which Shengqu licenses certain software to
Shanda Networking, Nanjing Shanda and Hangzhou Bianfeng;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>a strategic consulting agreement, pursuant to which Shengqu provides strategic
consulting services to Shanda Networking; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>online game distribution and service agreements, pursuant to which Shanda
Networking, Nanjing Shanda and Hangzhou Bianfeng distributes and services certain online
games that are licensed or owned by Shengqu.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition, we have entered into agreements with Shanda Networking and its shareholders that
provide us with the substantial ability to control Shanda Networking. Pursuant to these contractual
arrangements:
</DIV>

<P align="center" style="font-size: 10pt">47
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the shareholders of Shanda Networking have granted an irrevocable proxy to
individuals designated by Shengqu to exercise the right to appoint directors, the general
manager and other senior management of Shanda Networking;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Shanda Networking will not enter into any transaction that may materially affect
its assets, liabilities, equity or operations without our prior written consent;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Shanda Networking will not distribute any dividend;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Shengqu may purchase the entire equity interest in, or all the assets of, Shanda
Networking for a purchase price of the lower of RMB10&nbsp;million or the lowest price
permitted under PRC law when and if such purchase is permitted by PRC law or when the
current shareholders of Shanda Networking cease to be directors or employees of Shanda
Networking;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the shareholders of Shanda Networking have pledged their equity interest in Shanda
Networking to Shengqu to secure the payment obligations of Shanda Networking under all of
the agreements between Shanda Networking and Shengqu; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the shareholders of Shanda Networking will not transfer, sell, pledge, dispose of
or create any encumbrance on their equity interest in Shanda Networking without the prior
written consent of Shengqu.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Each of Shengqu&#146;s contractual arrangements with Shanda Networking and its shareholders may
only be amended with the approval of our audit committee or another independent body of our board
of directors.
</DIV>

<P align="center" style="font-size: 10pt">48
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following diagram illustrates our corporate and share ownership structure as of March&nbsp;31,
2006:
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><IMG src="h00616h0061601.gif" alt="(FLOW CHART)">
</DIV>



<P align="center" style="font-size: 10pt">49
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">





<DIV align="left">
<DIV style="font-size: 3pt; margin-top: 16pt; width: 18%; border-top: 1px solid #000000">&nbsp;</DIV>
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96"></TD>
</TR>

<TR valign="top">
    <TD nowrap align="left"><SUP style="font-size: 85%; vertical-align: text-top">1</SUP></TD>
    <TD>&nbsp;</TD>
    <TD>Skyline Media Limited is 100% owned by Skyline Capital International
Limited, which is in turn 40% owned by Tianqiao Chen through Shanda Media Limited, a
company wholly owned by him, 30% owned by Danian Chen through Shanda Investment
International Limited, a company wholly owned by him, and 30% owned by Qianqian Luo
through Fortune Capital Holdings Enterprise Limited, a company wholly owned by her.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left"><SUP style="font-size: 85%; vertical-align: text-top">2</SUP></TD>
    <TD>&nbsp;</TD>
    <TD>Shanda Interactive Entertainment Limited holds a beneficial ownership interest in
a number of subsidiaries and investee companies, a list of which is set forth below.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left"><SUP style="font-size: 85%; vertical-align: text-top">3</SUP></TD>
    <TD>&nbsp;</TD>
    <TD>Shanda Networking holds a beneficial ownership interests in a number of
subsidiary and investee companies established in the PRC. Although we consolidate our
results of operations with those of Shanda Networking and its majority beneficially owned
subsidiaries, we do not own these entities. Shanda Networking&#146;s beneficial ownership
interests in its subsidiaries and investee companies are listed in the table set forth
below.</TD>
</TR>

</TABLE>


<P align="center" style="font-size: 10pt">50
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">






<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Subsidiaries and Investee Companies</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table sets forth the direct and indirect subsidiaries and investee companies of
Shanda Interactive Entertainment Limited.
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="30%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="16%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Shanda Interactive</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Entertainment&#146;s</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Beneficial Ownership</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center"><B>Jurisdiction of</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Percentage</B><SUP style="font-size: 85%; vertical-align: text-top"><B>1</B></SUP></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B>Incorporation</B></TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B>Business</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Shengqu Information Technology
(Shanghai) Co., Ltd.
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">100</TD>
    <TD nowrap valign="top">%</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">PRC
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Provider of information technology-related
services and developer of software</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Shanda Computer (Shanghai)
Co., Ltd.
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">100</TD>
    <TD nowrap valign="top">%</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">PRC
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Developer of software, hardware and composite
systems for end-users</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Grandpro Technology Ltd.
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">100</TD>
    <TD nowrap valign="top">%</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">BVI
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Network PC game platform operator</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Shanda Zona LLC
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">100</TD>
    <TD nowrap valign="top">%</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Delaware
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Developer and provider of server infrastructure</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Shanda Zona Limited
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">100</TD>
    <TD nowrap valign="top">%</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">BVI
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Developer and provider of server infrastructure</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Actoz Soft Co., Ltd.
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">38.1</TD>
    <TD nowrap valign="top">%</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Korea
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Developer, operator and publisher of online
games</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Sina Corporation
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" valign="top">18.4
</TD>
    <TD valign="top">%<SUP style="font-size: 85%; vertical-align: text-top"><B>3</B></SUP></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Cayman Islands
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Online media company and value-added
information service provider for China and
Chinese communities worldwide</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Grandpro Technology
(Shanghai) Co., Ltd.
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">100</TD>
    <TD nowrap valign="top">%</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">PRC
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Network PC game platform operator</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table sets forth the direct and indirect subsidiaries and investee
companies of Shanda Networking. Although we consolidate our results of operations with those of
Shanda Networking and its majority beneficially owned subsidiaries, we do not own Shanda Networking
or such subsidiaries.
</DIV>

<P align="center" style="font-size: 10pt">51
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="30%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="16%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Shanda Networking&#146;s</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Beneficial Ownership</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center"><B>Jurisdiction of</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Percentage</B><SUP style="font-size: 85%; vertical-align: text-top"><B>1</B></SUP></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B>Incorporation</B></TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B>Business</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Nanjing Shanda Networking Co.,
Ltd.
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">100</TD>
    <TD nowrap valign="top">%</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">PRC
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Operation of online games</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Hangzhou Bianfeng Networking
Co., Ltd.
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">100</TD>
    <TD nowrap valign="top">%</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">PRC
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Operation of online games</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Shanghai Shengjin Software
Development Co., Ltd.
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">51.0</TD>
    <TD nowrap valign="top">%</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">PRC
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Development of online games</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Shanghai Shengpin Network
Technology Development Co.,
Ltd.
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">62.5</TD>
    <TD nowrap valign="top">%</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">PRC
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Development of online games</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Shanghai Shanda Xinhua
Network Development Co.,
Ltd.
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">56.0</TD>
    <TD nowrap valign="top">%</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">PRC
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Development and distribution of game
publications and Products</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Shanghai Orient Youth
Culture Development Co., Ltd.
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" valign="top">16.8
</TD>
    <TD valign="top">%<SUP style="font-size: 85%; vertical-align: text-top">2</SUP></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">PRC
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Expo services, consulting services
related to international cultural
activities, and advertising business</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Chengdu Jisheng Technology Co.,
Ltd.
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">100.0</TD>
    <TD nowrap valign="top">%</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">PRC
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Development and distribution of management
software for Internet cafes</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Shanghai Shulong Technology
Development Co., Ltd.
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">100.0</TD>
    <TD nowrap valign="top">%</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">PRC
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Short messaging services</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Shanghai Haofang Online
Information Technology Co.,
Ltd.
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">100</TD>
    <TD nowrap valign="top">%</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">PRC
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Operation of network PC game platform</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Hangzhou Bianfeng Software Co.,
Ltd.
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">100</TD>
    <TD nowrap valign="top">%</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">PRC
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Development and operation of online chess and
board games</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Beijing Manyou Tiandi Networking
Service Co., Ltd.
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">100</TD>
    <TD nowrap valign="top">%</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">PRC
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Development of virtual community website</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Shanghai Xuanting Entertainment
Information Technology Co.,
Ltd.
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">100</TD>
    <TD nowrap valign="top">%</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">PRC
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Publication of original literature online</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Beijing Digital Red Software
Technology Co., Ltd.
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">100</TD>
    <TD nowrap valign="top">%</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">PRC
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Development of mobile phone-based wireless games</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Shanghai Shengyue Advertisement
Co., Ltd.
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">100</TD>
    <TD nowrap valign="top">%</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">PRC
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Provider of online advertising services</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Beijing Shengkai Interactive
Entertainment Technology Co.,
Ltd.
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">75</TD>
    <TD nowrap valign="top">%</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">PRC
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Development of video games.</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Shanghai Qipai Computer
Technology Co., Ltd.
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">100</TD>
    <TD nowrap valign="top">%</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">PRC
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Development and operation of online chess and
board games.</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Shanghai Shanda Family Culture
Communication Co., Ltd.
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">49</TD>
    <TD nowrap valign="top">%</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">PRC
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Distributer of magazines</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">52
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="30%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="16%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Shanda Networking&#146;s</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Beneficial Ownership</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center"><B>Jurisdiction of</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Percentage</B><SUP style="font-size: 85%; vertical-align: text-top"><B>1</B></SUP></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B>Incorporation</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B>Business</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Shanghai Shengci Network
Technology Co., Ltd.
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">75</TD>
    <TD nowrap valign="top">%</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">PRC
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Developer of instant message software</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Wenzhou Chuangjia Technology
Co., Ltd.
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">100</TD>
    <TD nowrap valign="top">%</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">PRC
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Development and operation of online chess and
board games.</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV align="left">
<DIV style="font-size: 3pt; margin-top: 16pt; width: 18%; border-top: 1px solid #000000">&nbsp;</DIV>
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96"></TD>
</TR>

<TR valign="top">
    <TD nowrap align="left"><SUP style="font-size: 85%; vertical-align: text-top">1</SUP></TD>
    <TD>&nbsp;</TD>
    <TD>For purposes of reporting beneficial ownership, we include interests held by
controlled subsidiaries and nominee shareholders. Due to certain restrictions under PRC
Company Law and practices, most PRC limited liability companies, including Shanda
Networking, were required to have two or more shareholders. A common practice in cases
where a subsidiary would otherwise be wholly-owned is to realize ownership and control
via connected companies or organize a second, nominee shareholder through whom control
and beneficial ownership are maintained by contractual arrangements. PRC Company Law was
amened on October&nbsp;27, 2005, which came into effect on January&nbsp;1, 2006. According to the
amended Company Law, limited liability companies are no longer required to have two or
more shareholders. We may change our current shareholding structure accordingly.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left"><SUP style="font-size: 85%; vertical-align: text-top">2</SUP></TD>
    <TD>&nbsp;</TD>
    <TD>The figure 16.8% is derived from the fact that Shanda Networking owns 56% of
Shanghai Xinhua Networking Development Co., Ltd., which in turn owns 30% of Shanghai
Orient Youth Culture Development Co., Ltd.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left"><SUP style="font-size: 85%; vertical-align: text-top">3</SUP></TD>
    <TD>&nbsp;</TD>
    <TD>We currently hold 9,821,765 ordinary shares of Sina Corporation, or Sina. The
figure 18.4% is based on the 53,289,232 ordinary shares outstanding as of March&nbsp;10, 2006,
as reported by Sina Corporation on its 10-K annual report, filed with the Securities and
Exchange Commission on March&nbsp;15, 2006. The figure 19.5% we disclosed in February&nbsp;2005 is
based on the 50,477,694 ordinary shares outstanding as of October&nbsp;30, 2004, as reported
by Sina Corporation on its 10-Q quarterly report, filed with the Securities and Exchange
Commission on November&nbsp;11, 2004.</TD>
</TR>

</TABLE>



<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>D. PROPERTY, PLANTS AND EQUIPMENT</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our principal executive offices are located in approximately 14,500 square meters of office
space in the No.&nbsp;1 Office Building in Shanghai under a lease that expires in December&nbsp;2008. In the
fourth quarter of 2005, we acquired a property located at Guoshoujing Road 356, Shanghai, with
approximately 10,197.70 square meters of office spaces in Shanghai for office use. We occupy
approximately 2,000 square meters of additional leased office space and warehouse space in a number
of locations in Shanghai and approximately 6,500 square meters of additional leased office space in
Beijing, Shenzhen, Chengdu, Hangzhou, Guangzhou and Wuhan, China; Tokyo, Japan; and Santa Clara,
California. We believe that our existing facilities are adequate for our current requirements and
that additional space can be obtained on commercially reasonable terms to meet our future
requirements.
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>Item&nbsp;4A. Unresolved Staff Comments</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt">Not applicable
</DIV>

<DIV align="left">
<A name="106"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>Item&nbsp;5. Operating and Financial Review and Prospects</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>The following discussion of our financial condition and results of operations is based upon
and should be read in conjunction with our consolidated financial statements and their related
notes included in this annual report on </I><I>Form 20-F</I><I>. This report contains forward-looking statements
within the meaning of Section&nbsp;27A of the Securities Act of 1933 and Section&nbsp;21E of the Securities
and Exchange Act of 1934, or the Exchange Act, including, without limitation, statements regarding</I>
</DIV>

<P align="center" style="font-size: 10pt">53
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<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>our expectations, beliefs, intentions or future strategies that are signified by the words
&#147;expect&#148;, &#147;anticipate&#148;, &#147;intend&#148;, &#147;believe&#148;, or similar language. All forward-looking statements
included in this annual report are based on information available to us on the date hereof, and we
assume no obligations to update any such forward-looking statements. Actual results could differ
materially from those projected in the forward-looking statements. In evaluating our business, you
should carefully consider the information provided under the caption &#147;Risk Factors&#148; in this annual
report on </I><I>Form 20-F</I><I>. We caution you that our businesses and financial performance are subject to
substantial risks and uncertainties.</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Our consolidated financial statements and the financial data included in this annual report
reflect our reorganization and have been prepared as if our current corporate structure had been in
existence throughout the relevant periods. See note 1 to our audited consolidated financial
statements.</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Overview</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are an interactive entertainment company and one of the largest operators of online games
in China. In 2005, our commercially launched games had approximately 2.68&nbsp;million peak concurrent
users and 1.38&nbsp;million average concurrent users, which refer to the highest number and average
number, respectively, of users playing our games at the same time during that period. Immediately
below is a summary of our net revenue and net income over the past two years:
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>&#149;</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; In 2005, our net revenues increased by 46.0% to RMB1,896.6&nbsp;million (US$235.0&nbsp;million) from
RMB1,298.7&nbsp;million in 2004; but our net income decreased by 72.9% to RMB165.3&nbsp;million (US$20.5
million) in 2005 from RMB609.5&nbsp;million in 2004. The decrease in net income is primarily due to a
provision of RMB521.5&nbsp;million (US$64.6&nbsp;million) for impairment of the investment in Actoz Soft
Co., Ltd., or Actoz, an associated company in which we own its 38.1%
equity interest; and
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>&#149;</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Our net revenues increased by 116.5% to RMB1,298.7&nbsp;million in 2004 from RMB600.0&nbsp;million in
2003; our net income increased by 123.4% to RMB609.5&nbsp;million in
2004 from RMB272.9&nbsp;million in 2003.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Significant factors affecting our financial condition and results of operations include:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The commercial lifespan of the online games and other content that we offer, and
our ability to replace such content with new popular online games during that lifespan;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The arrival of additional competition into our markets and its erosion of any
first-mover advantage that we might have benefited from by having been one of the first
entrants into the online game market in China, and any effect on market prices and the
costs of our services and operations;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Our ability to successfully grow through the identification and acquisition of
complementary businesses and our ability to successfully integrate acquired companies and
realize synergies envisioned at the time of acquisition;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Our ability to successfully develop the EZ initiative and transition from a pure
online game company to an interactive entertainment media platform, content and service
provider.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The cost of researching, developing and marketing new products, including the EZ initiative.</TD>
</TR>


</TABLE>
</DIV>
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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV style="margin-top: 6pt"><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">



</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Our traditional subscription based pay-to-play revenue model;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The willingness of users to purchase in-game value-added services following the
introduction of a new free-to-play and pay-for-in-game-value-added services revenue model
for our leading MMORPGs.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The costs of licensing and in-house development of new games;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The future availability of preferential tax treatments and government financial
incentives in China;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The effect of PRC regulations on the conduct of our operations; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The growth of Internet and personal computer use and the popularity of these
media as a source of entertainment.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In late November&nbsp;2005, we adopted a free-to-play and pay-for in-game value-added services
revenue model for three of our MMORPGs: Mir II, Magical Land and Woool. Going forward, we will
consider adopting this new revenue model for our other existing MMORPGs, depending on the game type
and lifecycle. Under this new revenue model, which is also used for our casual games, playing the
basic features of the game is free and users are able to purchase in-game value-added services,
including in-game items and premium features, that enhance the game experience. This new revenue
model was introduced primarily in response to the changes in consumption patterns of online game
players, as well as market conditions of online game industry in China since we first standardized
the pay-to-play revenue model for MMORPGs more than four years ago.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In 2005, as part of our transition from a pure online game operator to an interactive
entertainment media company, we introduced the EZ initiative as an integral part of our home
strategy. This initiative aims to provide home users with a broad range of entertainment content
and services in a convenient and easy-to-use format. We intend to generate revenues from the EZ
initiative from the sale of content and services over the EZ Center platform as well as from the
sale or licensing of EZ Series products, and  we continue efforts in
building better partnerships and developing the distribution models for our EZ Pod products.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Recent Acquisitions</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In 2004 as well as 2005, we developed and expanded our business through strategic acquisitions
and investments. Since the completion of our initial public offering and listing on Nasdaq in May
2004, we have completed acquisitions and investments in businesses that specialize in, among other
things, online chess and board games, infrastructure platforms for online and network PC games,
mobile phone games, online games and online media, wireless value-added services and Internet
portal services. These investments helped us to expand our product offerings and to grow our user
base.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our recent purchases and acquisitions have included the following:
</DIV>

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<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>In July&nbsp;2004, we completed the acquisition of Hangzhou Bianfeng Software Co. Ltd., or
Bianfeng, a developer and operator of online chess and board games in China. The total
purchase price for the entire equity interest in Bianfeng and an affiliated company was
US$20.0&nbsp;million in cash.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>In September&nbsp;2004, we completed the acquisition of Shanghai Xuanting Entertainment
Information Technology Co., Ltd., which operates Qidian, an online forum where
independent writers publish their original literature online. The total purchase price
for the entire equity interest in Qidian was RMB16.5&nbsp;million (US$2.0&nbsp;million).</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>In October&nbsp;2004, we completed the second step of a two-step acquisition of Beijing
Digital Red Software Application Technology Co., Ltd., or Digital Red, a developer of
mobile phone games. The total purchase price for the entire equity interest in Digital
Red was RMB19.2&nbsp;million (US$2.4&nbsp;million).</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>In February&nbsp;2005, we completed our purchase of an approximately 29% stake in Actoz
Soft Co., Ltd., or Actoz, a Korean developer, operator and publisher of online games from
certain shareholders of Actoz for approximately US$91.7&nbsp;million in cash. Prior to the shares transfer, we had purchased approximately 9% of Actoz&#146;s issued and outstanding shares from KOSDAQ market at an aggregate cost of approximately US$14.4&nbsp;million. As a
result, our ownership in equity interest of Actoz raised to 38.1%. Actoz owns 50% of the
copyright for Mir II, the operation of which has generated a significant portion of our
revenue.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>In February&nbsp;2005, we completed the purchase of an approximately 19.5% stake in
Sina, an online media company, wireless value-added services provider and Internet portal
in China, the shares of which are publicly traded on Nasdaq, at a purchase price of
US$227.6&nbsp;million.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>In May&nbsp;2005, we completed the second step of a two-step acquisition of Shanghai
Haofang Online Information Technology Co. Ltd., or Haofang, the operator of the largest
network PC game platform in China. The total purchase price for the entire equity
interest in Haofang and two affiliated companies, including earn-out payments, which was
made in February&nbsp;2006 based on the audited earnings of 2005, was US$56.0&nbsp;million.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>In November&nbsp;2005, we completed the acquisition of Wenzhou Chuangjia Technology Co.,
Ltd., or Gametea, a developer and operator of online chess and board games in China. The
total purchase price for the entire equity interest in Gametea and an affiliated company
was US$4.9&nbsp;million in cash, of which approximately US$ 3.6&nbsp;million was paid up, and the
remaining consideration shall be paid by two installments in the next two years.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;From time to time, we may engage in discussions with third parties with respect to additional
acquisitions or investments. Our reported financial results may be affected by any such
acquisitions and/or investments, including any acquisitions or dispositions undertaken by us in
anticipation of or in connection with any such acquisitions and/or investments. See &#147;Risk Factors&#148;
in Item&nbsp;3 &#147;Key Information&#148;.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Related Party Arrangements</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In order to comply with current foreign ownership restrictions, we operate our online game
business in China through Shanda Networking, a company wholly owned by Tianqiao Chen, our chairman
and chief executive officer, and Danian Chen, our executive senior vice president, both of whom are
PRC citizens, and through Nanjing Shanda and Hangzhou
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Bianfeng, which are subsidiaries of Shanda
Networking. Tianqiao Chen and Danian Chen, together with Qianqian Luo, also own all of the shares
of Skyline Media Limited, our controlling shareholder. We have entered into a series of contractual
arrangements with Shanda Networking, Nanjing Shanda, Hangzhou Bianfeng and the shareholders of
Shanda Networking. Pursuant to these contractual arrangements, we provide services, software
licenses and equipment to the PRC operating companies in exchange for fees, and we have undertaken
to provide financial support to the PRC operating companies to the extent necessary for their
operations. As a result of these contractual arrangements, we are considered the primary
beneficiary of the PRC operating companies and accordingly we consolidate the results of operations
of the PRC operating companies in our financial statements. For a description of our contractual
arrangements with Shanda Networking and its shareholders and with Nanjing Shanda and Hangzhou
Bianfeng, see &#147;Organizational Structure&#148; in Item&nbsp;4 and &#147;Major Shareholders and Related Party
Transactions&#148; in Item&nbsp;7.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>A. OPERATING RESULTS</B>
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Net Revenues</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In 2005, we had net revenues of RMB1,896.6&nbsp;million (US$235.0&nbsp;million), of which net revenues
from our online games were RMB1,658.3&nbsp;million (US$205.5&nbsp;million), accounting for approximately
87.4% of total net revenues, and net revenues from other sources were RMB238.3&nbsp;million (US$29.5
million), accounting for approximately 12.6% of total net revenues. Our online game revenues are
net of a sales discount, which in 2005 averaged approximately 23.8% and 16.7% of the face value of
our pre-paid cards that we sell to our e-sales distributors and offline distributors, respectively.
The sales discounts represent the difference between the price at which we sell pre-paid cards to
distributors and the face value of the pre-paid cards. In April&nbsp;2006, we adopted a new discount
policy, which cuts the sales discount rates, while alternatively gives distributors more rebate and
incentive, based on how much they sell and what kinds of pre-paid game card they sell. Under the
new policy, we are able to encourage our distributors to promote games and thus have more control
over the distributors.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our net revenues reflect a deduction from our revenues for business taxes and related
surcharges incurred in connection with our China operations. Since Shanda Networking and its
subsidiaries operate in China, their revenues are subject to a business tax, at an effective rate
of 4.3%, on revenues earned from services provided in the PRC. We deduct these amounts from our
revenues to arrive at our net revenues. Due to the preferential treatments for qualified high
technology companies in China and the incentive from local government to encourage regional
business development, a portion of our revenues for which we previously paid business taxes in
connection with our operations in China are currently refunded to us in the form of government
financial incentives, but the amount of the financial incentives and the timing to grant them are
subject to determination of the government authorities. Upon receipt, these government financial
incentives are recognized as other income in our statements of operations and comprehensive income.
Please see &#147;Taxation&#148; in Item&nbsp;10 &#147;Additional Information&#148; and note 7 to our consolidated financial
statements.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Sources of Revenues</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Online game revenues. </I>We derive our online game revenues, which constitute substantially all
of our revenues, from online game usage fees paid by users of our MMORPGs and casual games. Mir II
and Woool are our two most popular MMORPGs and together have historically accounted for most of our
revenues. In the second half of 2005, revenues from Mir II and Woool declined as each game entered
the later stages of its lifecycle. We expect Mir II and Woool still to be significant contributors
to our revenues during the remainder of their respective lifecycles, and we have taken various
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">measures to stabilize the revenue from these two games under the free-to-play and pay-for in-game
value-added services revenue model, including upgrade of game version and provision of various
customized virtual items and value-added services to game players. Revenues from casual games are
primarily derived from BNB and Maple Story. In 2005, the revenue contribution from casual games
increased to 21.2% of total net revenue from 16.5% of total net revenue in 2004. The revenue
contributed from BNB did, however, begin to decline during 2005 and we expect this downward trend
to continue in 2006. As a general matter, online games have a relatively short commercial
lifecycle, typically four to five years for successful games. According to our game pipeline, we
plan to commercially launch two licensed MMORPGs, Dungeons &#038; Dragons Online and ArchLord, in the
second half of 2006. Dungeons &#038; Dragons Online is licensed from a US game developer. We will
operate Dungeons &#038; Dragons Online using the pay-to-play revenue model. ArchLord is a 3D MMORPG
developed by a leading South Korean game developer and will be
operated under the free-to-play and
pay-for in-game value-added services model. Within casual games, following the successful commercial
launch of our in-house developed car racing game Crazy Kart in March&nbsp;2006, we plan to commercialize
two new casual games, including one South Korean music game DJ Max and one in-house developed casual
game in the second half of 2006. We expect that these new games will start to contribute revenue
beginning in the third or fourth quarter of 2006.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Other net revenues. </I>Our other net revenues primarily consist of net revenues from
online advertising, sales of our user password protection product, sales of EZ Pod, short messaging
services, or SMS, technical service and cooperation on our network PC game platform and our online
literature portal. In 2005, the contribution from other revenues increased to 12.6% of total net
revenue from 6.9% of total net revenue in 2004. In the last quarter of 2005, we commenced the sale
of EZ-Pod products, which is a software-based upgrade that allows users to access our interactive
entertainment content. For the year ended December&nbsp;31, 2005, the revenue from sale of EZ Pod
amounted to RMB22.5&nbsp;million (US$2.8&nbsp;million). As of March&nbsp;31, 2006, Shanda&#146;s EZ platform is still at
the trial run stage and we have not yet charged users subscription fee.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Significant Factors</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Pay-to-play
revenue model. </I>Prior to late November 2005, our MMORPG online game revenues were
primarily derived from the purchase and utilization of playing time by our users. Accordingly, the
two significant factors that affect our MMORPG online game revenues have been:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the number of hours that users play our games, or total user-hours; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>our average revenue per user-hour.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We calculate our total user-hours based on our average concurrent users, which is a commonly
used industry statistic. In a given period, the number of total user-hours equals the average
concurrent users for that period multiplied by the number of hours in that period. In measuring
average concurrent users, we determine the number of users logged on to each of our commercially
launched games at one minute intervals, then average that data over the course of a day to derive
daily averages. Average daily information is further averaged over a particular period to determine
average concurrent users for that period. For a discussion of factors that might affect total
user-hours, see &#147;Risk Factors&#148; in Item&nbsp;3, &#147;Key Information&#148;.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our effective revenue per user-hour is derived by taking the revenues from our online games
for a period and dividing this number by total user-hours in that period. This provides us with a
measure of the average revenue per user-hour that we receive from users that play our games.
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Free-to-play and pay-for in-game value-added services revenue model.</I>In late November&nbsp;2005, we
adopted a free-to-play and pay-for in-game value-added services revenue model for three of our
MMORPGs: Mir II, Magical Land and Woool.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The free-to-play and pay-for in-game value-added services revenue model is also used for our
casual games. Under this model, users acquire in-game items by converting game points from pre-paid
cards. Because playing the basic features of the game is free and the purchase of in-game items is
optional, average concurrent users is not a significant revenue factor under this model. The most
significant factors that affect MMORPG and casual game revenue under the free-to-play and pay-for
in-game value-added services revenue model are:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the number of active paying accounts; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>our average revenue per active paying account.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The number of active paying accounts for any given period is equal to the number of accounts
from which game points are utilized during such period. Our average revenue per paying account is
equal to our revenue for the given period divided by our active paying accounts in that period. For
a discussion of factors that might affect the number of active paying casual game account and the
average revenue per active paying account, see &#147;Risk Factors&#148; in Item&nbsp;3, &#147;Key Information&#148;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Revenue Collection</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our online game revenues are collected through the sale of pre-paid cards, which we sell in
both virtual and physical form, to third party distributors and retailers, including Internet
cafes, as well as through our direct online payment systems. In most cases, we receive cash
payments from these parties in exchange for delivery of the pre-paid cards. We do not provide
refunds to these distributors or retailers with respect to unsold inventories of pre-paid cards. We
also collect online game revenues through certain telecommunications service operators that bundle
broadband access services for home users with our online games.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our other revenues are collected through mobile telecommunications service operators, in the
case of certain of our SMS services, and through traditional sales channels in the case of our
game-related publications, derivative products, online advertising sales, sales of our user
password protection product and sales of EZ Pod.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In 2005, we recorded doubtful debts in the amount of RMB55.7&nbsp;million (US$6.9&nbsp;million), which
was mainly due to overdue receivables from online advertising and sales of our user password
protection product. As of December&nbsp;31, 2005, we had net accounts receivable of RMB81.1&nbsp;million
(US$10.1&nbsp;million), which were also mainly due from purchasers of online advertising and sales of
our user password protection product.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Revenue Recognition and Deferred Revenue</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In the case of pay-to-play games, we recognize revenues based on the time units actually
consumed by our users, and, in the case of pay-for-items games, we recognize revenues over the life
of the in-game premium features users purchase or as the premium features are consumed. We also
recognize revenues when our users who had previously purchased playing time and/or points are no
longer entitled to access the online games in accordance with our published expiration policy. We
</DIV>

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</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">account for the amounts received upon the sale of pre-paid cards, but prior to usage or expiration
of the value sold, as deferred revenue in our consolidated balance sheets. Deferred revenue is
reduced as revenues are recognized. As our online game business has grown, our deferred revenue
balances have increased from RMB197.5&nbsp;million as of December&nbsp;31, 2003, to RMB247.3&nbsp;million as of
December&nbsp;31, 2004. In 2005, however, our deferred revenue balance decreased to RMB172.5&nbsp;million
(US$21.4&nbsp;million) as of December&nbsp;31, 2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Sales Tax</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our PRC affiliates are subject to PRC business tax. We primarily pay business tax on gross
revenues generated from online game operations, rentals, service fees and license fees. Shanda
Networking, Nanjing Shanda and Hangzhou Bianfeng pay business tax on their gross revenues derived
from online game operations at a rate ranging from 3% to 5%, and this business tax is deducted from
total revenues. In addition, Shengqu pays a 5% business tax on the gross revenues derived from its
contractual arrangements with Shanda Networking, Nanjing Shanda and Hangzhou Bianfeng, and these
taxes are primarily recorded in operating expenses in accordance with
our accounting policy.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Cost of Revenue</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our cost of revenue primarily consists of ongoing licensing fees for online games,
amortization of upfront licensing fees, server leasing and maintenance fees, salary and benefits,
depreciation of property, equipment and software, and manufacturing costs of pre-paid cards, our
user password protection product and EZ Pod.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Upfront and ongoing licensing fees. </I>The cost of licensing games from developers consists of
upfront licensing fees, which are generally paid in several installments, and ongoing licensing
fees, which are equal to a percentage of our revenues from the relevant licensed game. The ongoing
licensing fee payments range from 20% to 30% of revenues for our commercially launched MMORPGs, and
from 17% to 40% of our revenues for our commercially launched casual games. The cost of licensing
games was equal to 21.3% of our net revenues in 2004 and 17.7% of our net revenues in 2005, and
constituted the largest component of our cost of revenue in each such period. Six of the twelve
online games we offer commercially are licensed from third parties. The decrease of the percentage
of cost of licensing games in our net revenue is primarily due to the increase of percentage of net
revenue generated by Woool, an in-house developed game in total net revenue and the increase in our
non-game revenue.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Server leasing and maintenance fees. </I>Server leasing and maintenance fees was equal to 6.2% of
our net revenues in 2004 and 4.7% of our net revenues in 2005. As of December&nbsp;31, 2005, we leased
approximately 42.3% of our servers, primarily from telecommunications companies. These companies
host our server network, and receive maintenance fees from us in addition to the lease payments.
The majority of our server leases have variable payment obligations based on the number of our
users logging on to each relevant server. We expect our costs for servers to increase in the
future, due to the purchase of additional servers in connection with our introduction of new games
and due to our recent change in revenue model, which resulted in an increase in the average number
of users playing our games. For a discussion of our change in revenue model, see Item&nbsp;5 &#147;Operating
and Financial Review and Prospects &#150; A. Operating Results &#150; Net Revenues &#150; Significant Factors.&#148;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Depreciation of property, equipment and software. </I>Depreciation of property, equipment and
software, which consisted primarily of servers and other computer equipment, was equal to 2.2% of
our net revenues in 2004 and 2.3% of our net revenues in 2005. We include depreciation expenses
within our cost of revenue when the relevant assets are directly
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">related to the operations of our
online game network and provision of online game services. Depreciation expenses are characterized
as operating expenses in all other cases. In 2005, the increase in our depreciation expense was
primarily due to the acquisition of additional servers. As we expect to continue to purchase
additional servers in connection with the introduction of new games, we believe that our depreciate
costs will continue to increase in 2006.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Salary and benefits. </I>Salary and benefits expense was equal to 1.8% of our net revenues in 2004
and 2.2 % of our net revenues in 2005. Salary and benefits expense includes employee wages and
welfare benefits, such as medical insurance, housing subsidies, unemployment insurance and pension
benefits. Salary and benefits expense included in our cost of revenue primarily relates to
employees involved in the operation of our online games, including network maintenance, billing
systems and our call center. In 2004 and 2005, approximately 18.2% and 18.6%, respectively, of our
salary and benefits expense was included in our cost of revenue, with the remainder constituting
operating expenses. We do not expect an increase in the number of employees involved in the
operation of our games in 2006. In the second quarter of 2006, we adopted a new compensation
structure for employees that operate our games, pursuant to which an employee&#146;s bonus is tied to
the financial performance of the game that his group operates. As this compensation structure is
untested, we are unsure what impact the new system will have on cost
of revenue salary and
benefits expense.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Gross profit/margin. </I>Gross profit represented 63.7% of our net revenues in 2004 and 67.6% of
our net revenues in 2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Operating Expenses</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our operating expenses consist of product development expenses, sales and marketing expenses,
general and administrative expenses.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Product development expenses. </I>Product development expenses were equal to 5.5% of our net
revenues in 2004 and 8.7% of our net revenues in 2005. Our product development expenses primarily
consist of salary and benefits expenses of personnel engaged in the research and development of our
products, amortization of software used by our research and development center, rental and
management fees for office space used by our research and development
center, share-based compensation, and depreciation of
equipment used in research and development activities. We expect our product development expenses
to continue to increase in the future, as we continue research and development projects related to
our EZ initiative and our in-house casual games.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Sales
and marketing expenses. </I>Sales and marketing expenses were equal to 7.0% of our net
revenues in 2004 and 12.4% of our net revenues in 2005. Our sales and marketing expenses primarily
consist of promotion, advertising and sponsorship of media events,
share-based compensation, and salary and benefits of our
sales and marketing department. We have taken various measures to improve the budget control
procedure. Going forward, we will focus on the effective usage of the budget, with emphasis on
promoting new games launched as well as our EZ initiative. We expect that sales and marketing
expenses will decline in 2006.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>General and administrative expenses. </I>General and administrative expenses were equal to 11.8%
of our net revenues in 2004 and 13.7% of our net revenues in 2005. General and administrative
expenses primarily consist of salary and benefits for general management, finance and
administrative personnel, professional service fees, business tax
expense, share-based compensation, and provision for
doubtful debts. Our business tax expense primarily relates to services and licensing fees paid by
our PRC operating companies to Shengqu. Provisions of RMB 55.7&nbsp;million (US$ 6.9&nbsp;million) for
doubtful debts were made in 2005 for the
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">overdue receivables from online advertising and sales of
our user password protection product. As a result of tightening of credit controls and other cost
control procedures, we expect general and administrative expenses to decline in 2006. See the
sections entitled &#147;Our Corporate Structure&#148; and &#147;Related Party Transactions&#148; in Item&nbsp;7 &#147;Major
Shareholders and Related Party Transactions&#148; for additional description of the relationship between
Shengqu and our PRC operating companies.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Income from operations/margin. </I>In 2004, our income from operations accounted for 39.3% of our
net revenues. In 2005, our income from operations accounted for 32.8% of our net revenues.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Other Income</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our other income consists primarily of government financial incentives that certain of our PRC
incorporated affiliates receive from municipal governments and that are calculated with reference
to taxable income and revenues, as the case may be. In 2004 and 2005, we received aggregate
government financial incentives of RMB88.1&nbsp;million and RMB137.3&nbsp;million (US$17.0&nbsp;million),
respectively, from municipal governments. We expect to continue receiving government financial
incentives relating to our 2005 taxable income and revenues in 2006, until those 2005 financial
incentives are completed. Going forward, eligibility for the government financial incentives we
are to receive requires that we continue to meet a number of government financial and non-financial
criteria to continue to qualify for these government financial incentives. Generally, which
include:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>at least a minimum level of revenues must be generated from high-tech related sales
or services, determined as a percentage of total revenues;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>at least a minimum number of employees must be engaged in research and
development; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>at least a minimum amount must be expended on research and development, determined
as a percentage of total revenues.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The continued qualification is further subject to the discretion of the municipal government.
Moreover, the central government or municipal government could determine at any time to immediately
eliminate or reduce these financial incentives. Upon expiration of these government financial
incentives, we will consider available options, in accordance with applicable law, that would
enable us to qualify for further government financial incentives to the extent they are then
available to us.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In 2005, other income also includes a foreign exchange gain of RMB48.9&nbsp;million
(US$6.1&nbsp;million) arising from a revaluation of monetary assets and liabilities
denominated in US dollar following the appreciation of the RMB against the U.S. dollar in 2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Income Tax Expense</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under the current laws of the Cayman Islands and the British Virgin Islands, neither Shanda
Interactive Entertainment Limited nor Shanda Holdings Limited, our wholly owned subsidiary
incorporated in the British Virgin Islands, is subject to tax on its income or capital gains. In
addition, payment of dividends by either company is not subject to withholding tax in those
jurisdictions.
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>PRC enterprise income tax. </I>Our PRC incorporated affiliates, including Shengqu, Shanda
Networking, Nanjing Shanda, Hangzhou Bianfeng and Shanda Computer, are subject to PRC enterprise
income tax on the taxable income as reported in their respective statutory financial statements,
adjusted in accordance with the Enterprise Income Tax Law and the Income Tax Law of the People&#146;s
Republic of China concerning Foreign Investment Enterprise and Foreign Enterprises (collectively
the &#147;PRC Income Tax Laws&#148;), respectively. Pursuant to the PRC Income Tax Laws, our PRC incorporated
affiliates are generally subject to PRC enterprise income tax at a statutory rate of 33%, among
which Shengqu, Shanda Networking and Shanda Computer, because of incorporation in the Pudong New
District of Shanghai, are however, subject to a 15% preferential income tax rate pursuant to the
local tax preferential treatment. Shengqu, as a software development enterprise, has been granted a
two year income tax exemption to be followed by a three year 50% income tax reduction on its taxable
income, commencing the year ended December&nbsp;31, 2003 (&#147;tax holiday&#148;). Nanjing Shanda, as a result of
receiving government&#146;s recognition as a technologically advanced enterprise in the third quarter of
2005, has been entitled to a full income tax exemption for two years effective from January&nbsp;1, 2005
and will be subject to a preferential tax rate of 15% after
January&nbsp;1, 2007 due to its residence in
a national high-tech development zone. As a result of this recognition, Nanjing Shanda received the refund for the
income tax it previously paid in 2005. Hangzhou Bianfeng was in the process of apply for
recognition as a technologically advanced enterprise in 2005 and was then subject to income tax at the
statutory rate of 33%. In the second quarter of 2006<B>, </B>Hangzhou Bianfeng received an approval from
local tax authorities in respect of the preferencial treatment as a technologically advanced
enterprise and is thus entitled to a reduced income tax rate of 15% effective from January&nbsp;1, 2006.
Moreover, the income tax previously paid by Hangzhou Bianfeng for the year ended December&nbsp;31, 2005
will be refunded to it in 2006. The qualifications of Shengqu, Shanda Networking, Nanjing Shanda
and Hangzhou Bianfeng as a software development enterprise or a technologically advanced enterprise
are required to be reassessed on an annual basis. Shanda Computer was still in a loss-making
position as of December&nbsp;31, 2005, and thus no PRC enterprise income tax was due for the year then
ended.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Critical Accounting Policies</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We prepare our financial statements in conformity with US GAAP, which requires us to make
estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of
contingent assets and liabilities on the date of the financial statements and the reported amounts
of revenues and expenses during the financial reporting period. We continually evaluate these
estimates and assumptions based on the most recently available information, our own historical
experience and on various other assumptions that we believe to be reasonable under the
circumstances. Since the use of estimates is an integral component of the financial reporting
process, actual results could differ from those estimates. Some of our accounting policies require
higher degrees of judgment than others in their application. We consider the policies discussed
below to be critical to an understanding of our financial statements as their application places
the most significant demands in our management&#146;s judgment.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Revenue Recognition</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Substantially all of our revenues are collected through the sales of pre-paid cards, which we
sell in both virtual and physical form, to third party distributors and retailers. Prior to late
November&nbsp;2005, we operated all MMORPGs under a pay-to-play model. Under this model, the
subscription fees from distributors or retailers are deferred when received and revenue is
recognized based upon the actual usage of time units by the end users. In late November&nbsp;2005, we
changed the revenue model of certain MMORPGs from the pay-to-play model to a free-to-play and
pay-for in-game value-added services revenue model. Under the new model, players can access the
game free of charge but may pay for in-game premium features. Under
the new model, subscription fee is deferred
when received and revenue is recognized over the life of the premium
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">features
users purchase or as the premium
features are consumed. For casual games, which can also be accessed
for free and in-game premium
features are provided users purchase with charges, we deferred the subscription fee received and recognize it as
revenue over the life of the premium features or as they are consumed.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Revenue is recognized when our users who had previously purchased playing time and/or points
are no longer entitled to use that playing time and/or points in accordance with our published
expiration policy. Our users must &#147;activate&#148; their pre-paid cards by using access codes and
passwords to transfer the value of those cards to their personal game accounts. Under our current
expiration policy, for MMORPGs, if a user&#146;s personal game account remains unused and the user does
not transfer additional value to the account over a period of six months, we suspend the use of
that account. Users may reactivate their suspended accounts by purchasing a new card and
transferring its value to that account within one month after suspension. For MMORPGs, after the
one month suspension, the account expires and any unused balance in that account may no longer be
used. For casual games, if a user&#146;s personal game account remains unused and the user does not
transfer additional value to the account over a period of three months, the account expires
immediately and reactivation is not allowed. Moreover,starting from January&nbsp;2005, we recognize
revenues for pre-paid cards which are sold but not yet activated over certain time after the pre-paid
cards are sold to distributors. We account for the amounts received upon the sale of pre-paid
cards, but prior to usage and expiration of the value sold, these amounts are accounted for as
deferred revenue in our consolidated balance sheets. Deferred revenue is reduced as revenues are
recognized.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Portions of our deferred revenue are composed of the value from pre-paid cards which are
activated but not fully used, or not used at all, and the value from cards which are sold to
distributors, retailers or end users, for which we have received payment, but which have not yet
been activated by users. In accordance with our published expiration policy described above and
because we believe that the likelihood of our being required to render online game services in
connection with certain inactive accounts are remote, we recognize revenues and related amounts of
deferred expenses with respect to game accounts that have neither been utilized nor had value added
to them for seven months in MMORPGs, and for three months in casual games. Moreover, starting from
January&nbsp;2005, we recognize revenues for pre-paid cards which are sold but not yet activated six or
twelve months after the pre-paid cards are sold, pacticularly six months for virtual pre-paid card
and twelve months for physical pre-paid card. As a result of this policy, we recognized additional
net revenues of RMB40.8&nbsp;million in 2004 and additional net revenues of RMB86.1&nbsp;million (US$10.7
million) in 2005. We also recognized related expenses, mainly licensing costs, of RMB10.3&nbsp;million
and RMB18.9&nbsp;million (US$2.3&nbsp;million) in 2004 and 2005, respectively. Future usage may differ from
the historical usage patterns on which we based our revenue recognition policy. The sales of our
pre-paid cards to distributors and retailers include certain discounts from the face value of the
cards. As we do not have control over, and generally do not know the ultimate selling prices of,
these pre-paid cards, we recognize revenues from these transactions net of the discounts provided
to the distributors.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Consolidation of Variable Interest Entities</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;PRC regulations currently limit foreign ownership of companies that provide Internet content
services, which includes the operation of online games, to 50%. In addition, foreign and
foreign-invested enterprises are currently not able to apply for the licenses required to operate
online games in China or to provide Internet information content (such as online advertising). We
are a Cayman Islands exempted company and we conduct our operations in China primarily through
Shengqu, our indirect wholly owned subsidiary. We and Shengqu are foreign or foreign-invested
enterprises under PRC law and accordingly are ineligible to apply for a license to operate online
games or to sell online advertising. In order to comply with foreign ownership restrictions, we
operate our online games business in China through Shanda Networking, which is wholly owned by
Tianqiao Chen, our chairman and chief executive officer, and Danian Chen, our executive senior vice
</DIV>

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</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">president, both of whom are PRC citizens, and through Nanjing Shanda and Hangzhou Bianfeng, which
are subsidiaries of Shanda Networking. Shanda Networking, Nanjing Shanda and Hangzhou Bianfeng hold
the licenses and approvals that are required to operate our online game business and to sell online
advertising on our web pages and Shengqu owns the substantial majority of physical assets. Shengqu
has entered into a series of contractual arrangements with Shanda Networking and its shareholders.
As a result of these contractual arrangements, we are considered the primary beneficiary of Shanda
Networking and accordingly we consolidate Shanda Networking&#146;s results of operations in our
financial statements.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Property, Equipment and Software, Intangible Assets and Long-Lived Assets</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our accounting for long-lived assets, including property, equipment and software, and
intangible assets, is described in notes 12, 14 and 15 to our consolidated financial statements.
The recorded values of long-lived assets, including property, equity investments, equipment and
software, and intangible assets, are affected by a number of management estimates, including
estimated useful lives and residual values and impairment charges. We assess impairment for
long-lived assets whenever events or changes in circumstances indicate that the applicable carrying
amount may not be recoverable. During the years ended December&nbsp;31, 2003, 2004 and 2005, we did not
record any impairment charges, except for the investment in Actoz as disclosed in the paragraph
&#147;Impairment of Investment in Affiliate Companies&#148;.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Impairment of Investment in Affiliated Companies</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We continually review our investments in affiliated companies to determine whether a decline
in fair value below the cost basis is other than temporary. The primary factors we consider in its
determination are the length of time that the fair value of the investment is below its carrying
value; and the financial condition, operating performance and near term prospects of the investee.
In addition, we consider the reasons for the decline in fair value, be it general market
conditions, industry specific or investee specific; analysts&#146; ratings and estimates of 12&nbsp;month
share price targets for the investee; changes in stock market price or valuation subsequent to the
balance sheet date; and our intent and ability to hold the investment for a period of time
sufficient to allow for a recovery in fair value. In determination of whether a decline in value is
other than temporary requires significant judgment. If
the decline in fair value is deemed to be other than temporary, the cost basis of the security is
written down to fair value. Write-downs for equity method investments are included in equity in
earning (loss)&nbsp;of affiliated companies. In the fourth quarter of 2005, we recorded a non-cash
impairment charge of RMB521.5&nbsp;million (US$64.6&nbsp;million) to reflect the fair value of our 38.1%
stake in Actoz, the co-owner of Mir II. We completed the purchase of our controlling stake in
February&nbsp;2005 for a total consideration of RMB878.0&nbsp;million (US$106.1&nbsp;million). We recognized the impairment charge primarily as a result of the continued decline
in royalties payable to Actoz from our operation of Mir II in China. The decision to recognize
impairment was also influenced by the decline in market price for share of Actoz, which in the
fourth quarter was determined to be other than temporary mainly due to the continued decline in Mir
II royalties.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Allowances for Doubtful Accounts</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We determines the allowance for doubtful accounts when facts and circumstances indicate that
the receivable is unlikely to be collected. If the financial condition of our customers are to
deteriorate, resulting in an impairment of their ability to make payments, we consider making
additional allowances. During the years ended December&nbsp;31, 2003, 2004 and
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">2005, we made provisions
of nil, nil and RMB55.7&nbsp;million (US$ 6.9&nbsp;million) for doubtful accounts, respectively.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Share-Based Compensation</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have equity compensation plans, which allow for the granting of stock options to certain
senior executives, management, employees and directors. Prior to January&nbsp;1, 2006, we accounted for
any grants made pursuant to the plans in accordance with Accounting Principles Board Opinion No.
25, <I>&#147;Accounting for Stock Issued to Employees&#148;</I>, or APB No.&nbsp;25, the intrinsic value approach, with
the required disclosures under the related accounting guidance described in note 2(22) to our
consolidated financial statements.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under APB No.&nbsp;25, intrinsic value, if any, is determined as the difference between estimated
fair value of our ordinary shares on the grant date of an option and the exercise price for the
option. On March&nbsp;31, 2003, we granted options to purchase 7,320,436 of our ordinary shares to some
of our directors and officers at an exercise price of US$1.516 per share, which approximated the
estimated fair value of our ordinary shares on the grant date. When estimating the fair value of
our ordinary shares, we review both internal and external sources of information. The sources
utilized to determine the fair market value of the underlying shares at the date of measurement
were, prior to our initial public offering in May&nbsp;2004, subjective in nature. For our March&nbsp;2003
option grants, the estimated fair value of our ordinary shares was based on, among other factors,
our (1)&nbsp;financial condition as of the date of grant, (2)&nbsp;operating history and (3)&nbsp;financial and
operating prospects at that time with reference to our issuance of convertible preferred shares in
March&nbsp;2003. On December&nbsp;18, 2003, we granted options to purchase an additional 1,537,367 of our
ordinary shares to some of our officers and managers at the same exercise price. Compensation
expense was recognized based on the intrinsic value of our ordinary shares measured on that date.
Estimated fair value of the Company&#146;s ordinary shares on December&nbsp;18, 2003 was determined with
reference to the initial public offering price of our ordinary shares. In 2004 and 2005, we granted
options to purchase an additional 4,826,234 ordinary shares to some of our officers, directors and
other employees, which have an exercise price equal to the market value of our ordinary shares at
the time of grant. Accordingly, no share-based compensation expenses have been incurred in
connection with our 2004 and 2005 option grants prior to January&nbsp;1, 2006. For purposes of 2004
grants made prior to our initial public offering in May of 2004, the fair value of our shares was
equal to the initial public offering price of our ordinary shares. For purposes of 2004 grants made
after the initial public offering, the fair value of our ordinary shares equaled the market value
of such shares (in the form of ADS equivalents) on the Nasdaq at the time of grant.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We recognized compensation expense of RMB28.8&nbsp;million in 2004 and RMB13.7&nbsp;million (US$1.7
million) in 2005 with respect to the options granted in December&nbsp;2003. These options had the same
exercise price as the options granted to our directors and officers
in March&nbsp;2003. See note 2(22) to our consolidated financial
statements.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Beginning on January&nbsp;1, 2006, we account for grants made pursuant to the plans in accordance
with the Financial Accounting Standards Board&#146;s Statement No.&nbsp;123R <I>&#147;Accounting for Share Based
Compensation&#148;</I>, or SFAS 123R, which establishes a fair value based method of accounting for
share-based compensation plans. Under the fair value method, compensation cost is measured at the
grant date based on the fair value or minimum value, as applicable, of the shares granted and is
recognized over the service period, which is usually the vesting period. Had we determined the
share-based compensation expenses for the options granted based upon the fair value at their grant
date in accordance with SFAS 123, the net income attributable to ordinary shareholders for the
years ended December&nbsp;31, 2003, 2004 and 2005 would have been reduced by RMB7.3&nbsp;million, RMB35.6
million and RMB36.5&nbsp;million (US$4.5 million), respectively. On
June 28, 2006, we granted options to purchase an additional 3,000,000
of ordinary shares to some of our directors, officers and other
employees. Based on unvested options as of the date of this annual
report, and excluding any new options that may be granted, we
estimate the share-based compensation expenses to be approximately
RMB13.0 million (US$1.6 million) in each of the following quarters in
2006. See note 2(22) to our consolidated
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">financial statements
for a discussion of these changes in accounting standards. For a description of our equity
compensation plans, see Item&nbsp;6 &#147;Directors, Senior Manage and Employees &#150; B. Compensation &#150; Equity
Compensation Plans.&#148;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Income Taxes</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We account for income taxes under the provisions of SFAS No.&nbsp;109, <I>&#147;Accounting for Income
Taxes&#148;</I>, with the required disclosures as described in note 7 to our consolidated financial
statements. Accordingly, we record valuation allowances to reduce our deferred tax assets when we
believe it is more likely than not that we will not be able to utilize the deferred tax asset
amounts based on our estimates of future taxable income and prudent and feasible tax planning
strategies. As of December&nbsp;31, 2004 and 2005, valuation allowances recognized were RMB3.8&nbsp;million
and RMB7.0&nbsp;million (US$0.9&nbsp;million), respectively. Valuation allowances were provided for because
it was more likely than not that we would not be able to utilize certain tax loss carryforwards
generated by certain indirectly held subsidiaries. As of December&nbsp;31, 2004 and 2005, we have
recorded deferred tax assets, net of valuation allowances, of RMB29.6&nbsp;million and RMB17.1&nbsp;million
(US$2.1&nbsp;million) respectively. We do not believe any further valuation allowances to reduce our net
deferred tax assets are necessary as we currently anticipate future taxable profits which will
allow us to fully utilize our net deferred tax assets in the foreseeable future. If, however,
events were to occur in the future which are not currently contemplated, that would not allow us to
realize all or part of our net deferred tax assets in the future, an adjustment would result by way
of a charge to income tax expense in the period in which such determination was made.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Contingencies</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We account for loss contingencies under the provisions of SFAS No.&nbsp;5, <I>&#147;Accounting for
Contingencies&#148;</I>, with the required disclosures as described in note 25 to our consolidated financial
statements. We record loss contingencies when, based on information available, it is likely that a
loss has been incurred and the amount of the loss can be reasonably estimated. Based on our current
knowledge, which includes consultation with outside counsel handling our defense in these matters,
we believe that we have made adequate provisions for current or unasserted claims. It is possible,
however, that our future results of operations could be materially affected by changes in our
estimates or in the effectiveness of our strategies relating to these proceedings. As of December
31, 2005, we did not have any accruals for loss contingencies. We are, however, currently involved
in various legal proceedings. See &#147;Legal Proceedings&#148; in Item&nbsp;8, &#147;Financial Information&#148;.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Results of Operations</B>
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Year Ended December&nbsp;31, 2005 Compared to Year Ended December&nbsp;31, 2004</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Net revenues. </I>Our net revenues increased from RMB1,298.7&nbsp;million in 2004 to RMB1,896.6&nbsp;million
(US$235.0&nbsp;million) in 2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our online game net revenues increased from RMB1,209.2&nbsp;million in 2004 to RMB1,658.3&nbsp;million
(US$205.5&nbsp;million) in 2005. Net revenues from MMORPGs increased by 26.2% from RMB994.7&nbsp;million in
2004 to RMB1,255.3&nbsp;million (US$155.6&nbsp;million) in 2005. Net revenues from casual games increased
from RMB214.5&nbsp;million in 2004 to RMB403.0&nbsp;million (US$49.9&nbsp;million) in 2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The increase in our net revenues from MMORPGs was primarily due to an increase in revenues
from Woool as well as Mir II. Average concurrent users for our MMORPGs decreased from 736,000 in
2004 to 672,000 in 2005. Average revenue per user-hour increased from RMB 0.16 in 2004 to RMB 0.21
in 2005. Peak concurrent users for our MMORPGs
</DIV>

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</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">increased from 1,006,000 in 2004 to 1,028, 000 in
2005. In late November 2005, we adopted the free-to-play and pay-for in-game value-added
services revenue model for our leading MMORPGs. Under the free-to-play and pay-for in-game
value-added services revenue model, which is also used for our casual games, playing the basic
features of the game is free and users are able to purchase in-game items and value-added services
that enhance the game experience. Under the free-to-play and pay-for in-game value-added services
revenue model, the most significant factors effecting revenue are the number of active paying
accounts and the average revenue per paying account.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Increase
in our net revenues from our casual games were primarily due to an increase in
revenues from Maple Story and BNB. Peak concurrent users for our casual games increased from
878,000 in 2004 to 1,661,000 in 2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our other net revenue also increased from RMB89.5&nbsp;million in 2004 to RMB238.3&nbsp;million (US$29.5
million) in 2005. This increase in other net revenue was primarily due to increases in online
advertising sales, which we commenced in 2004, and user password protection products sales as well
as revenue generated by EZ Pod sales and by Haofang&#146;s PC game network platform. The increase in
other net revenue was partially offset by a decrease in revenue from the sale of game related
merchandise products and our SMS services.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Cost of revenue. </I>Our cost of revenue increased 30.4% from RMB471.2&nbsp;million in 2004 to RMB614.4
million (US$76.1&nbsp;million) in 2005. This increase was primarily due to increases in our ongoing
licensing fees for online games, amortization of upfront licensing fees, server leasing and
maintenance fees, depreciation of property, equipment and software, salary and benefits of
employees directly engaged in provision of our online games services, and manufacturing costs for
our user password protection products and EZ Pod.
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Ongoing licensing fees for online games increased 20.0% from RMB249.3&nbsp;million in
2004 to RMB299.2&nbsp;million (US$37.1&nbsp;million) in 2005. This increase was principally a
result of the continued increase in our revenues attributable to licensed games,
particularly MapleStory, which we launched commercially in the third quarter of 2004, and
Mir II. Additional games, including Archlord and Dungeons &#038; Dragons Online, each of which
we expect to commercially launch in 2006, will further contribute to this expense.
Ongoing licensing fees for online games totaled approximately 19.2% of our net revenues
in 2004 compared to approximately 15.8% of our net revenues in 2005. This decrease was
primarily due to the increase in revenue generated by Woool, an in-house developed game,
and the increase in our non-game revenue.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Amortization of upfront online game licensing fees increased 36.9% from RMB27.2
million in 2004 to RMB37.3&nbsp;million (US$4.6&nbsp;million) in 2005. This increase was
principally due to the amortization of an upfront fee that we paid for the license of
R.O. and D.O. to Gravity Co,, Ltd. and Cr-Space Co., Ltd., respectively, and of an
upfront fee that we paid to Nexon Corporation in connection with our extension of our BNB
license. Additional games, including Archlord and Dungeons &#038; Dragons Online, which we
expect to commercially launch in 2006, are expected to further increase these
amortization expenses. Amortization of upfront online game licensing fees totaled
approximately 2.1% and 2.0% of our net revenues in 2004 and 2005, respectively.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Aggregate server leasing fees and server maintenance fees increased 11.2% from
RMB79.9&nbsp;million in 2004 to RMB88.9&nbsp;million (US$11.0&nbsp;million) in 2005. This increase was
primarily due to the increase of average concurrent user, acquiring of additional servers
and increased maintenance fees.The number of servers we leased</TD>
</TR>

</TABLE>
</DIV>
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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV style="margin-top: 6pt"><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR valign="top" style="font-size: 10pt; color: #textcolor#; background: #bgcolor#">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>as of December&nbsp;31, 2005
was approximately 5665. Aggregate server leasing and maintenance fees totaled
approximately 6.2% and 4.7% of our net revenues in 2004 and 2005, respectively.</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Depreciation of property, equipment and software increased 55.0% from RMB28.4
million in 2004 to RMB44.0&nbsp;million (US$5.5&nbsp;million) in 2005. This increase was primarily
due to our acquiring of additional servers to meet the needs of our increased user
base.Depreciation of property, equipment and software totaled approximately 2.2% and 2.3%
of our net revenues in each of 2004 and 2005.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Salary and benefits increased 71.8% from RMB23.8&nbsp;million in 2004
to RMB40.9&nbsp;million (US$5.1&nbsp;million) in 2005. This increase was primarily due to the
increase in the number of employees directly engaged in provision of our online games
services from approximately 500 as of December&nbsp;31, 2004 to approximately 720 as of
December&nbsp;31, 2005, as well as a merit-based salary raise throughout the company during
the third quarter of 2005. Salary and benefits attributable to costs
of revenue totaled
approximately 1.8% and 2.2% of our net revenues in 2004 and 2005, respectively.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Other cost of revenue, which includes manufacturing costs for our user password
protection product, derivative products, pre-paid cards and EZ Pods, rental and
management fees, technical service fees (including commissions paid to telecommunications
providers) and inventory provisions, increased from RMB62.6&nbsp;million in 2004 to RMB104.1
million (US$12.8&nbsp;million) in 2005. This increase was primarily due to an increase in
manufacturing costs of our user protection product as a result of increased production
costs due to increased sales, and costs of manufacturing EZ Pod, which was commercially
launched in the fourth quarter of 2005. The increase was partially offset by a decrease
in manufacturing costs for derivative products as a result of a decrease in production
due to the slowdown of derivative product sales. Other expenses totaled approximately
4.8% and 5.5% of our net revenues in 2004 and 2005, respectively.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Gross profit. </I>As a result of the foregoing, our gross profit increased 54.9% from RMB827.5
million in 2004 to RMB1,282.2&nbsp;million (US$158.9&nbsp;million) in 2005. Our gross profit margin, which is
equal to our gross profit divided by our net revenues, increased from 63.7% in 2004 to 67.6% in
2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Operating expenses. </I>Our operating expenses increased from RMB316.6&nbsp;million in 2004 to RM660.3
million (US$81.8&nbsp;million) in 2005. This increase was due to increases in our product development,
sales and marketing and general and administrative expenses.
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Our product development expenses increased from RMB71.8&nbsp;million in 2004 to
RMB164.8&nbsp;million (US$20.4&nbsp;million) in 2005. This increase was primarily due to an
increase in salary and benefits expenses of personnel engaged in the research and
development of our products, as well as depreciation and rental and management fees
attributable to our research and development efforts. The number of our employees engaged
in the development of online games, our EZ initiative and technology supporting our
operations increased from approximately 550 as of December&nbsp;31, 2004 to approximately 810
as of December&nbsp;31, 2005. These increases were principally a result of our focus on the EZ
initiative in 2005. Product development expenses totaled approximately 5.5% and 8.7% of
our net revenues in 2004 and 2005, respectively. We expect that our product development
expenses will increase as we plan to increase expenditures relating to the research and
development of our EZ initiative and in-house casual games.</TD>
</TR>


</TABLE>
</DIV>
<P align="center" style="font-size: 10pt">69
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV style="margin-top: 6pt"><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">



</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Our sales and marketing expenses increased from RMB91.2&nbsp;million in 2004 to
RMB235.4&nbsp;million (US$29.2&nbsp;million) in 2005. This increase was mainly due to the following
factors:</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B><font face="wingdings">&#119;</font></B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The significant increase in advertisement fees and marketing promotion
expenses from RMB57.7&nbsp;million in 2004 to RMB168.6&nbsp;million (US$20.9&nbsp;million) in 2005,
which is primarily attributable to the expansion of our game offerings, introduction
of the EZ Pod and advertising efforts to build awareness of our brand;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B><font face="wingdings">&#119;</font></B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The growth of our sales and marketing personnel from approximately 215 as
of December&nbsp;31, 2004 to approximately 340 as of December&nbsp;31, 2005, along with a
merit-based salary raise throughout the company during the third quarter of 2005,
resulted in an increase in our salary and benefit expense increasing from RMB19.0
million in 2004 to RMB34.6&nbsp;million (US$4.3&nbsp;million) in 2005; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">


<TD colspan="4" align="left"><DIV style="margin-left:35px">Sales and marketing expenses accounted for approximately 7.0% and 12.4% of
our net revenues in 2004 and 2005, respectively. We expect that sales and marketing
expenses will decline in 2006.</div></TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Our general and administrative expenses increased by 69.4% from RMB153.6&nbsp;million
in 2004 to RMB260.1&nbsp;million (US$32.2&nbsp;million) in 2005. This increase was primarily due to
the following factors:</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B><font face="wingdings">&#119;</font></B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The increase in provisions for doubtful debts from RMB0.8&nbsp;million in 2004
to RMB55.7&nbsp;million (US$6.9&nbsp;million) in 2005. The provisions for doubtful debt in 2005
are due to RMB48.0&nbsp;million (US$5.9&nbsp;million) recorded in the fourth quarter of 2005,
which was mainly due to overdue receivables from online advertising and sales of our
user password protection product.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B><font face="wingdings">&#119;</font></B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The 56.7% increase in salary and benefits expenses from RMB27.1&nbsp;million in
2004 to RMB42.4&nbsp;million (US$5.3&nbsp;million) in 2005, which was primarily attributable to
the increase in the number of employees engaged in general and administrative work
from approximately 180 as of December&nbsp;31, 2004 to approximately 201 as of December
31, 2005, as well as a merit-based salary raise throughout the company during the
third quarter of 2005.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B><font face="wingdings">&#119;</font></B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The 50.1% increase in business taxes from RMB38.5&nbsp;million in 2004 to
RMB57.8&nbsp;million (US$7.2&nbsp;million) in 2005, which primarily relate to business taxes
incurred by Shengqu from revenues collected from our operating companies: Shanda
Networking, Nanjing Shanda and Hangzhou Bianfeng; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B><font face="wingdings">&#119;</font></B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The increase in other general and administrative expenses from RMB87.2
million in 2004 to RMB104.2&nbsp;million (US$12.8&nbsp;million) in 2005, which relate primarily
to consulting, legal and audit fees, rental and management fees and amortization of
intangible assets-reevaluation.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;General and administrative expenses accounted for approximately 11.8% and 13.7% of our net
revenues in 2004 and 2005, respectively. Due to a tightening of our credit controls and other cost
control measures, we expect general and administrative expenses to decline in 2006.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Income from operations. </I>As a result of the foregoing, our operating income increased from
RMB511.0&nbsp;million in 2004 to RMB621.9&nbsp;million (US$77.1&nbsp;million) in 2005. Our operating margin, which
is equal to our operating profit divided by our net revenues, decreased from 39.3% in 2004 to 32.8%
in 2005.
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Income before minority interests and income tax expenses. </I>Our income before minority interests
and income tax expenses increased 22.5% from RMB654.3&nbsp;million in 2004 to RMB801.4&nbsp;million (US$99.3
million) in 2005. This increase was primarily the result of the increase in income from operations,
as well as the following:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><I>Interest income. </I>Our interest income increased from RMB19.7&nbsp;million in 2004 to
RMB29.0&nbsp;million (US$3.6&nbsp;million) in 2005. This increase was primarily due to the increase
in our average cash and cash equivalents balances in 2005 relative to those in 2004.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><I>Amortization of convertible debt insurance cost</I>. Amortization of convertible debt
issuance costs increased from RMB3.5&nbsp;million in 2004 to RMB18.5&nbsp;million (US$2.3&nbsp;million)
in 2005 due to the full year effect from the amortization of costs incurred in connection
with the issuance of our convertible notes in October&nbsp;2004.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><I>Investment income (loss). </I>We had investment income of RMB43.5&nbsp;million in 2004 and
an investment loss of RMB5.9&nbsp;million (US$0.7&nbsp;million) in 2005. The investment gain in
2004 primarily related to gains on trading marketable securities, while the loss in 2005
primarily related to loss on disposition of investment in Bothtec Inc. and Shenzhen
Fenglin Huoshan Computer Technology Co., Ltd.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><I>Other income. </I>Our other income increased from RMB83.7&nbsp;million in 2004 to RMB174.9
million (US$21.7&nbsp;million) in 2005. Our other income during 2005 was primarily
attributable to government financial incentives of RM137.3&nbsp;million (US$17.0&nbsp;million) we
received in 2005 from a local government authority in China relating to business taxes we
paid in the PRC. The increase in our government financial incentives in 2005 is due to an
increase in the amount of business taxes we have paid as a result of our increased
revenues. See the sections of this Item&nbsp;5 entitled &#147;A. Operating Results-Other Income&#148;.
In 2005, we also recorded a foreign exchange gain of RMB48.9&nbsp;million (US$6.1&nbsp;million) due
to the appreciation of the RMB against the U.S. dollar during 2005.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Income tax expenses. </I>Our income tax expenses increased from RMB38.9&nbsp;million in 2004 to RMB96.7
million (US$12.0&nbsp;million) in 2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Equity in loss of affiliates</I>. Our equity in loss of an affiliate increased from RMB4.2&nbsp;million
in 2004 to RMB544.3&nbsp;million (US$67.4&nbsp;million) in 2005. This increase was primarily due to the
recognition of a non-cash impairment charge of RMB521.5&nbsp;million (US$64.6&nbsp;million) in the fourth
quarter of 2005 to reflect the fair value of our 38.1% stake in Actoz. We completed the purchase of
our 38.1% controlling stake in February&nbsp;2005 for a total consideration of RMB878.0&nbsp;million
(US$106.1&nbsp;million), which represents a premium over the then quoted market price. We recognized an
impairment charge on our investment in Actoz primarily as a result of the continued decline in
royalties payable to Actoz from our operation of Mir II in China. The decision to recognize
impairment was also influenced by the decline in the market price for shares of Actoz.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Net income</I>. As a result of the foregoing, our net income decreased by 72.9% from RMB609.5
million in 2004 to RMB165.3&nbsp;million (US$20.5&nbsp;million) in 2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Year Ended December&nbsp;31, 2004 Compared to Year Ended December&nbsp;31, 2003</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Net revenues. </I>Our net revenues increased from RMB600.0&nbsp;million in 2003 to RMB1,298.7&nbsp;million
in 2004.
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our online game net revenues increased from RMB588.6&nbsp;million in 2003 to RMB1,209.2&nbsp;million in
2004. Net revenues from MMORPGs increased by 71.4% from RMB580.3&nbsp;million in 2003 to RMB994.7
million in 2004. Net revenues from casual games increased from RMB8.3&nbsp;million in 2003 to RMB214.5
million in 2004.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The increase in our net revenues from MMORPGs was primarily due to an increase in our average
concurrent users. The average concurrent users of our MMORPGs increased by 73.1% from approximately
425,000 in 2003 to approximately 736,000 in 2004, although the average revenue per user-hour for
our MMORPGs decreased 5.9% from RMB0.17 in 2003 to RMB0.16 in 2004.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The increase in net revenue from casual games was primarily due to an increase in the number
of active paying accounts and average revenue per paying account, in particular with our casual
game BNB. The number of active paying accounts for our casual games increased by 51.6% from
approximately 2,044,000 in the first quarter of 2004 to approximately 3,100,000 in the fourth
quarter of 2004.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our other net revenue increased from RMB11.4&nbsp;million in 2003 to RMB89.5&nbsp;million in 2004. This
increase in other net revenue was primarily due to increases in sales of user password protection
products, SMS services, and to a significantly lesser extent, the commencement of online
advertising sales in 2004.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Cost of revenue. </I>Our cost of revenue increased from RMB233.7&nbsp;million in 2003 to RMB471.2
million in 2004. This increase was primarily due to increases in our ongoing licensing fees for
online games, amortization of upfront licensing fees, server leasing and maintenance fees,
depreciation of property, equipment and software, salary and benefits, and manufacturing costs for
pre-paid games cards, all of which were generally attributable to the significant increase in our
business activity in 2004 relative to 2003.
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Ongoing licensing fees for online games increased 85.3% from RMB134.5&nbsp;million in
2003 to RMB249.3&nbsp;million in 2004. This increase was principally a result of the continued
increase in our revenues attributable to licensed games, particularly BNB, which we
launched commercially in the third quarter of 2003, and Mir II. Ongoing licensing fees
for online games totaled approximately 22.4% of our net revenues in 2003 compared to
approximately 19.2% of our net revenues in 2004.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Amortization of upfront online game licensing fees increased from RMB11.7&nbsp;million
in 2003 to RMB27.2&nbsp;million in 2004. This increase was principally due to the amortization
of an upfront fee that we paid for the license of BNB in the second quarter of 2003 and
of an upfront fee that we paid to Actoz in connection with our extension of our Mir II
license in the third quarter of 2003. Amortization of upfront online game licensing fees
totaled approximately 1.9% and 2.1% of our net revenues in 2003 and 2004, respectively.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Aggregate server leasing fees and server maintenance fees increased from RMB39.7
million in 2003 to RMB79.9&nbsp;million in 2004. This increase was primarily due to the
continued increase in our user base, which required that we increase the number of our
servers, and, to a significantly lesser extent, increased fees under renewals of expiring
server leases. The number of servers we leased as of December&nbsp;31, 2004 was approximately
5,500. Aggregate server leasing and maintenance fees totaled approximately 6.6% and 6.2%
of our net revenues in 2003 and 2004, respectively.</TD>
</TR>


</TABLE>
</DIV>
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<DIV style="margin-top: 6pt"><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">


<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Depreciation of property, equipment and software increased from RMB14.1&nbsp;million
in 2003 to RMB28.4&nbsp;million in 2004. This increase was principally a result of our
acquiring additional servers and related operating and data security software to meet the
needs of our increased user base. The number of the servers we own, including servers for
game operations and for office use, increased from approximately 4,100 as of December&nbsp;31,
2003 to approximately 5,600 as of December&nbsp;31, 2004. Depreciation of property, equipment
and software totaled approximately 2.3% and 2.2% of our net revenues in 2003 and 2004,
respectively.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Salary and benefits increased 73.7% from RMB13.7&nbsp;million in 2003 to RMB23.8
million in 2004. This increase was primarily due to increases in personnel employed to
maintain our server network, billing system and customer service center from 297 as of
December&nbsp;31, 2003 to approximately 500 as of December&nbsp;31, 2004 as a result of the
expansion of our user base and network infrastructure. Salary and benefits attributable
to costs of services totaled approximately 2.3% and 1.8% of our net revenues in both 2003
and 2004, respectively.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Other expenses, which includes manufacturing costs for our user password
protection product, derivative products and pre-paid cards, share-based compensation
costs, rental and management fees and technical service fees (including commissions paid
to telecommunications providers), increased from RMB20.1&nbsp;million in 2003 to RMB62.5
million in 2004. This increase was primarily due to increases in (1)&nbsp;manufacturing costs
of derivative products, (2)&nbsp;manufacturing costs of our user password protection product,
(3)&nbsp;manufacturing costs of pre-paid cards, and (4)&nbsp;charges by telecommunications
providers in connection with SMS services. Other expenses totaled approximately 3.3% and
4.8% of our net revenues in 2003 and 2004, respectively.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Gross profit. </I>As a result of the foregoing, our gross profit increased from RMB366.3&nbsp;million
in 2003 to RMB827.5&nbsp;million in 2004. Our gross profit margin, which is equal to our gross profit
divided by our net revenues, was 63.7% in 2004 compared to 61.1% in 2003.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Operating expenses. </I>Our operating expenses increased from RMB153.1&nbsp;million in 2003 to RMB316.6
million in 2004. This increase was primarily due to increases in our product development, sales and
marketing and general and administrative expenses as a result of the continued growth of our
business in 2004.
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Our product development expenses increased from RMB33.0&nbsp;million in 2003 to
RMB71.8&nbsp;million in 2004. This increase was primarily due to an increase in salary and
benefits expenses of personnel engaged in the research and development of our products,
as well as amortization of intangibles relating to the purchase of software used in
research and development efforts. The number of our employees engaged in the development
of online games and software and technology supporting our operations increased from
approximately 225 as of December&nbsp;31, 2003 to approximately 550 as of December&nbsp;31, 2004.
These increases were principally a result of our increased focus on in-house game
development in 2004. Product development expenses, including the amortization of related
intangibles such as software used in our research and development center, totaled
approximately 5.5% and 5.5% of our net revenues in 2003 and 2004, respectively.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Our sales and marketing expenses increased from RMB44.1&nbsp;million in 2003 to
RMB91.2&nbsp;million in 2004. This increase was mainly due to the following factors:</TD>
</TR>


</TABLE>
</DIV>
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</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B><font face="wingdings">&#119;</font></B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The significant increase in advertisement fees and marketing promotion
expenses from RMB26.4&nbsp;million in 2003 to RMB57.7&nbsp;million in 2004, which is primarily
attributable to the expansion of our game offerings and advertising efforts to build
awareness of our brand; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B><font face="wingdings">&#119;</font></B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The growth of our sales and marketing personnel from approximately 140 as
of December&nbsp;31, 2003 to approximately 215 as of December&nbsp;31, 2004, which resulted in
an increase in our salary and benefit expense increasing from RMB6.3&nbsp;million in 2003
to RMB19.0&nbsp;million in 2004.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B><font face="wingdings">&#119;</font></B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Sales and marketing expenses accounted for approximately 7.4% and 7.0% of
our net revenues in 2003 and 2004, respectively.</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Our general and administrative expenses increased by 102.0% from RMB76.0&nbsp;million in
2003 to RMB153.6&nbsp;million in 2004. This increase was primarily due to the following
factors:</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>

<TD width="3%" nowrap align="left"><B><font face="wingdings">&#119;</FONT></B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The increase in salary and benefits expenses from RMB19.6&nbsp;million in 2003 to
RMB27.1&nbsp;million in 2004, which was primarily attributable to the increase in the number
of employees engaged in general and administrative work from approximately 120 as of
December&nbsp;31, 2003 to approximately 180 as of December&nbsp;31, 2004 as a result of the
continued growth of our business in 2003 and 2004 and, to a lesser extent, to an increase
in the average salary and expense per employee;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>

<TD width="3%" nowrap align="left"><B><font face="wingdings">&#119;</font></B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The increase in business taxes from RMB19.8&nbsp;million in 2003 to RMB38.5&nbsp;million in
2004, which primarily relate to business taxes incurred by Shengqu from revenues
collected from Shanda Networking since our restructuring in March&nbsp;2003; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>

<TD width="3%" nowrap align="left"><B><font face="wingdings">&#119;</FONT></B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The increase in other general and administrative expenses from RMB9.2&nbsp;million in
2003 to RMB18.8&nbsp;million in 2004, which relate primarily to the costs of increased
obligations stemming from compliance costs associated with our status as a registered
public company, and costs related to our acquisitions.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;General and administrative expenses accounted for approximately 12.7% and 11.8% of our net
revenues in 2003 and 2004, respectively.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Income from operations. </I>As a result of the foregoing, our operating income increased from
RMB213.2&nbsp;million in 2003 to RMB511.0&nbsp;million in 2004. Our operating margin, which is equal to our
operating profit divided by our net revenues, increased from 35.5% in 2003 to 39.3% in 2004.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Income before minority interests and income tax expenses. </I>Our income before minority interests
and income tax expenses increased from RMB287.9&nbsp;million in 2003 to RMB654.3&nbsp;million in 2004. This
increase was primarily the result of a significant increase in income from operations, as well as
the following:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><I>Investment income. </I>Our investment income increased from RMB6.6&nbsp;million in 2003 to
RMB43.5&nbsp;million in 2004, which reflected gains in trading of marketable securities,
including the realization of a gain on the sale of shares of Sina in December&nbsp;2004.</TD>
</TR>

</TABLE>
</DIV>
<P align="center" style="font-size: 10pt">74
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV style="margin-top: 6pt"><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">



</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><I>Other income. </I>Our other income increased from RMB61.2&nbsp;million in 2003 to RMB83.7
million in 2004. Our other income during 2004 was primarily attributable to government
financial incentives of RMB88.1&nbsp;million we received in 2004 from a local government
authority in China relating to business taxes we paid in the PRC. The increase in our
government financial incentives relative to 2003 results from our having paid more
business taxes as our revenues have increased and the imposition of business tax on
Shengqu following our restructuring in March&nbsp;2003, which tax only applied during a
portion of 2003. See the sections of this Item&nbsp;5 entitled &#147;PRC Enterprise Income Tax&#148; and
&#147;PRC Business Tax and Financial Incentives&#148;.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><I>Interest income. </I>Our interest income increased from RMB7.0&nbsp;million in 2003 to
RMB19.7&nbsp;million in 2004. This increase was primarily due to a significant increase in our
cash and cash equivalents balances resulting from operations, our initial public offering
in May&nbsp;2004 and our private placement of convertible notes in October&nbsp;2004.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Income tax expenses. </I>Our income tax expenses increased from RMB18.6&nbsp;million in 2003 to RMB38.9
million in 2004.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Net income. </I>As a result of the foregoing, our net income increased by RMB336.6&nbsp;million from
RMB272.9&nbsp;million in 2003 to RMB609.5&nbsp;million in 2004.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>B. LIQUIDITY AND CAPITAL RESOURCES</B>
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Cash Flows and Working Capital</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;To date, we have financed our operations through internally generated cash, the sale of our
preferred shares to an investor in March&nbsp;2003, our initial public offering of ADSs in May&nbsp;2004 and
the offering of the convertible notes in October&nbsp;2004. As of December&nbsp;31, 2005, we had
approximately RMB949.6&nbsp;million (US$117.7&nbsp;million) in cash and cash equivalents, of which RMB665.6
million (US$82.5&nbsp;million) was held by Shanda Networking and its subsidiaries. As of the same date,
we had outstanding debt of RMB2,219.3&nbsp;million (US$275.0&nbsp;million) pursuant to the convertible notes.
Our cash and cash equivalents primarily consist of cash on hand, demand deposits, and liquid
investments with original maturities of three months or less that are placed with banks and other
financial institutions. Although we consolidate the results of Shanda Networking and its
subsidiaries in our consolidated financial statements and we can
utilize the cash and cash
equivalents of Shanda Networking and its subsidiaries in our operations, we do not have direct access to the cash and cash equivalents or
future earnings of Shanda Networking or any of its subsidiaries. However, these cash balances can
be utilized by us for our normal operations pursuant to our agreements with Shanda Networking and
its subsidiaries that provide us with the substantial ability to control these companies and their
operations. See &#147;Organizational Structure&#148; in Item&nbsp;4 and &#147;Exchange Controls&#148; in Item&nbsp;10.
</DIV>

<P align="center" style="font-size: 10pt">75
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table shows our cash flows with respect to operating activities, investing
activities and financing activities in the years ended December&nbsp;31, 2003, 2004 and 2005:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="52%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="15" style="border-bottom: 1px solid #000000"><B>For the years ended December 31,</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 0px solid #000000"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 0px solid #000000"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 0px solid #000000"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 0px solid #000000"><B>US$</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="15"><B>(in thousands)</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net cash provided by operating
activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">278,355.5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">807,330.8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">649,787.9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">80,516.9</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net cash used in
investing activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(21,515.4</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(615,675.0</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2,831,460.3</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(350,853.8</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net cash provided by financing
activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">165,042.3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,333,392.9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17,900.5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,218.1</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Effect of exchange rate change on cash</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(10,577.6</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,310.7</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net increase (decrease)&nbsp;in cash and
cash equivalents</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">421,882.4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,525,048.7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2,174,349.5</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(269,429.5</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cash beginning of period</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">177,040.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">598,922.4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,123,971.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">387,099.6</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cash, end of period</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">598,922.4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,123,971.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">949,621.6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">117,670.1</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We had net cash provided by operating activities of RMB649.8&nbsp;million (US$80.5&nbsp;million) in
2005 compared to RMB 807.3&nbsp;million in 2004. The cash provided by operating activities primarily
derived from our online games operations, advertising, sales of user password protection product
and EZ Pod. The decrease of cash provided by operating activities in 2005 is primarily a result
of a decline in the operating profit margin in online game operations, and the increase of account
receivable and inventories attributable to manufacturing and sales of user password protection
product and EZ Pod product. We had net cash provided by operating activities of RMB807.3&nbsp;million in
2004 compared to RMB278.4&nbsp;million in 2003. This increase was primarily attributable to an increase
in our net income derived from our online games with additional contribution from advertising
revenues, wireless value-added services revenue, and revenues from sales of game related
merchandise.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
had net cash used in investing activities of RMB2,831.5&nbsp;million
(US$350.9&nbsp;million) in 2005. Our net cash used
in investing activities in 2005 was principally attributable to the payment of RMB1,559.5&nbsp;million
(US$193.2&nbsp;million) for purchase of the stake in Sina, the payment of RMB759.1&nbsp;million
(US$91.7&nbsp;million) for purchase of the issued and outstanding shares of Actoz, the payment of
RMB218.9 <B>(</B>US$27.1&nbsp;million<B>) </B>for purchase of property, equipment, software, intangible assets and
land use right, the net increase in time deposit of RMB
126.4&nbsp;million (US$15.7&nbsp;million), <B>t</B>he payment of RMB165.5
million (US$20.5&nbsp;million<B>) </B>for acquisition of 100% equity interest in Haofang and the payment of
RMB29.2&nbsp;million (US$3.6&nbsp;million) for acquisition of 100% equity interest in Gametea. We had net
cash used in investing activities of RMB615.7&nbsp;million in 2004. This was primarily due to our
purchase of marketable securities, our purchase of property, equipment, software and intangible
assets, and our acquisitions and investments in associated companies. This amount was partially
offset by the repayment of an outstanding loan to an unrelated party and the proceeds from the
disposition of short-term investments. We had net cash used in investing activities of RMB21.5
million in 2003. This was primarily attributable to our purchase of property, equipment and
software, principally servers, a loan made by us, and the acquisition by Shanda Networking of two
subsidiaries. This amount was partially offset by a decrease in our short-term investments.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We had net cash provided by financing activities of RMB17.9&nbsp;million (US$2.2&nbsp;million) in 2005,
which was comprised of RMB72.5 millon (US$9.0&nbsp;million) in connection with stock option exercises by our officers,
directors and employees, and partially offset by RMB54.9&nbsp;million (US$6.8&nbsp;million)
used for share repurchases. We had net cash provided by financing
</DIV>

<P align="center" style="font-size: 10pt">76
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">activities of RMB2,333.4&nbsp;million
in 2004. This was primarily attributable to the net proceeds from our initial public offering in
May&nbsp;2004 of RMB875.5&nbsp;million (US$105.8&nbsp;million) and the net proceeds of our offering of the
convertible notes in October&nbsp;2004 of approximately RMB2,225.4&nbsp;million (US$268.9&nbsp;million). This
amount was partially offset by a special dividend of RMB192.1&nbsp;millon paid to our shareholders in
March&nbsp;2004 and the repurchase of 5,326,250 of our ordinary shares from SB Asia Infrastructure Fund
for US$75.0&nbsp;million, or $14.08 per ordinary share. We had net cash provided by financing activities
of RMB165.0&nbsp;million in 2003. This was primarily attributable to the proceeds from the sale of our
preferred stock to an investor in March&nbsp;2003, which was partially offset by deemed capital
distributions related to the acquisition in March&nbsp;2003 of substantially all of the business and
operations of a related company.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We believe that our current cash and cash equivalents, and cash flow from operations will be
sufficient to meet our anticipated cash needs, including for working capital and capital
expenditures, for at least the next twelve months. We may, however, require additional cash
resources due to changed business conditions or other future developments. In particular, the
holders of our US$275&nbsp;million Zero Coupon Senior Convertible Notes, or the convertible notes, have
the right to require us to repurchase all or a portion of their notes on October&nbsp;15, 2007 at a
repurchase price equal to 100% of the principal amount of notes to be repurchased, plus accrued and
unpaid interest and liquidated damages, if any. If our current cash and cash equivalents as well as
cash flow from operations are insufficient to satisfy our cash requirements, including the
repurchase of the convertible notes, we may seek to sell additional debt securities or equity
securities or obtain a credit facility. We cannot assure you that financing will be available in
amounts or on terms acceptable to us, if at all. Please see Item&nbsp;3 &#147;Key Information&#148;, &#151;&#147;Risk
Factors&#148;&#151;, &#147;We may not have the ability to repurchase our Zero Coupon Senior Convertible Notes in
cash if holders exercise their repurchase right on October&nbsp;15, 2007.&#148; Please also see &#147;Exchange
Controls&#148; in Item&nbsp;10 for a discussion of impediments to capital flows in and out of China.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;From time to time, we evaluate possible investments, acquisitions or divestments and may, if a
suitable opportunity arises, make an investment or acquisition or conduct a divestment, which may
have a material effect upon our liquidity and capital resources. Please see &#147;Recent Acquisitions&#148;
in this Item&nbsp;5 for a description of our significant investments, acquisitions and divestments.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Certain transactions out of the ordinary course of business have occurred since December&nbsp;31,
2005 and have affected our liquidity and capital resources. On February&nbsp;28, 2006, we made the final
earn out payment in an amount of US$31&nbsp;million to the former shareholders of Haofang in connection
with our two-step acquisition of Haofang. As a result of this payment, as of March&nbsp;31, 2006, our
cash and cash equivalents were RMB 817.3&nbsp;million (US$101.3&nbsp;million), of which RMB 442.0&nbsp;million
(US$54.8&nbsp;million) was held by Shanda Networking and its subsidiaries.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Capital Expenditures</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We made capital expenditure of RMB78.2&nbsp;million, RMB97.4&nbsp;million and RMB218.9&nbsp;million (US$27.1
million) in 2003, 2004 and 2005. To date, the capital expenditures
have primarily consisted of
purchases of online game network infrastructure, software, copyrights
as well as office premises. We
expect the capital expenditure in 2006 to increase as we will continue to make technological
improvement of our network infrastructure along with the continuous expansion of our online game
business and development of EZ initiative, and to acquire new office premises on commercially
reasonable terms to reduce our reliance on the existing leased office facilities.
</DIV>

<P align="center" style="font-size: 10pt">77
</DIV>

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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>C. RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES, ETC.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We focus our research and development activities principlly on the in-house development of
casual games and on the EZ initiative.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our research and development efforts and plans consist of:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>development of casual online games, including chess and board games, for use on
our Internet game portal and our EZ Center platform;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>design and development of the EZ Center software platform and the EZ Series products;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>localization of games licensed from abroad for commercialization in China;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>design and development of the EZ Center software platform and the EZ Series products;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>development of wireless games for mobile phones;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>improving our unified user platform, including our unified billing and user
authentication system; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>improving our server management and control systems.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our research and development expenditures were RMB 33,0&nbsp;million, RMB71,8&nbsp;million, and RMB
164,8&nbsp;million (US$ 20.4&nbsp;million) in 2003, 2004 and 2005, respectively.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>D. TREND INFORMATION</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other than as disclosed elsewhere in this annual report, we are not aware of any trends,
uncertainties, demands, commitments or events for the period from January&nbsp;1, 2003 to December&nbsp;31,
2005 that are reasonably likely to have a material effect on our net revenues, income,
profitability, liquidity or capital resources, or that caused the disclosed financial information
to be not necessarily indicative of future operating results or financial conditions.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>E. OFF-BALANCE SHEET ARRANGEMENTS</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other than our operating lease arrangements, we have not entered into any off-balance sheet arrangements other than our operating lease
arrangements:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>We have not entered into any financial guarantees or other commitments to
guarantee the payment obligations of any unconsolidated entity;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>We have not entered into any obligations under any derivative contracts that are
indexed to our own shares and classified as shareholder&#146;s equity, or that are not
reflected in our consolidated financial statements;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>We do not have any retained or contingent interest in assets transferred to an
unconsolidated entity that serves as credit, liquidity or market risk support to such
entity; and</TD>
</TR>

</TABLE>
</DIV>
<P align="center" style="font-size: 10pt">78
</DIV>

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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV style="margin-top: 6pt"><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">



</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>We do not have any variable interest in any unconsolidated entity that provides
financing, liquidity, market risk or credit support to us or engages in leasing, hedging
or research and development services with us.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>F. CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table sets forth our contractual obligations as of December&nbsp;31, 2005:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="28%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="23" style="border-bottom: 1px solid #000000"><B>Payments Due by Period</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>January 1, 2006 to</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>January 1, 2007 to</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>January 1, 2008 to</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>January 1, 2009 to</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Total</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>December 31, 2006</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>December 31, 2007</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>December 31, 2008</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>December 31, 2009</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Thereafter</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="23"><B>(RMB in thousands)</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Operating lease obligations:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Office premises</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">26,220.5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">22,399.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,142.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">422.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">257.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Computer equipment and others</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,533.6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,031.9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">501.7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Obligations relating to
upfront licensing fees for
licensed games</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16,543.9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16,543.9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Obligations
relating to property, plant and equipment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,168.5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,457.5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,711.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Obligation relating to
considerations to be paid for
acquisition of Haofang</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">249,286.5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">249,286.5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total contractual obligations.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">315,753.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">309,719.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,354.7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">422.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">257.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of December&nbsp;31, 2005, substantially all of our operating lease arrangements for servers and
related services provide for the calculation of lease payments based on formulas that reference the
actual number of users of the relevant servers. Our rental expenses under these operating leases
were RMB25.0&nbsp;million, RMB55.7&nbsp;million and RMB43.9&nbsp;million (US$5.4&nbsp;million) in 2003, 2004 and 2005,
respectively. As future lease payments for these arrangements are based on the actual number of
users and thus cannot be reasonably estimated, they are not included in the minimum lease payments
shown above.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of December&nbsp;31, 2005, we did not have any material capital lease obligations.
</DIV>

<P align="center" style="font-size: 10pt">79
</DIV>

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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Apart from the foregoing, as of December&nbsp;31, 2005, we did not have any other long-term debt
obligations, operating lease obligations or purchase obligations. However, pursuant to the
contractual arrangements between Shengqu, Shanda Networking and the shareholders of Shanda
Networking, Shengqu has an option, exercisable at such time, if any, as it is legally permissible,
to acquire 100% of the equity interest in Shanda Networking for RMB10.0&nbsp;million or such lower
amount as permitted by applicable law. In addition, Shengqu has agreed to indemnify the
shareholders of Shanda Networking to the extent that they are subject to any legal or economic
liabilities as a result of performing their obligations pursuant to their agreements with Shengqu.
Furthermore, Shengqu has undertaken to provide financial support to Shanda Networking and its
subsidiaries to the extent necessary for its operations. See Item&nbsp;7 &#147;Major Shareholders and Related
Party Transactions&#148; and &#147;Organizational Structure&#148; in Item&nbsp;4.
</DIV>
<DIV align="left">
<A name="107"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>Item&nbsp;6. Directors, Senior Management and Employees</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>A. DIRECTORS AND SENIOR MANAGEMENT</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table sets forth certain information relating to our directors and executive
officers as of June&nbsp;25, 2006. The business address of each of our directors and executive officers
is No.&nbsp;1 Office Building, No.&nbsp;690 Bibo Road, Pudong New Area, Shanghai 201203, China.
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="30%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="10%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="58%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B>Name</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B>Age</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B>Position</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Tianqiao Chen<SUP style="font-size: 85%; vertical-align: text-top">1</SUP></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">33</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Chairman of the Board and Chief Executive Officer</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Jun Tang</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">43</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Director and President</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Danian Chen</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">28</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Director and Executive Senior Vice President</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Qianqian Luo<SUP style="font-size: 85%; vertical-align: text-top">1</SUP></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">30</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Director</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">W. Mark Evans<SUP style="font-size: 85%; vertical-align: text-top">2</SUP></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">48</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Director</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Jingsheng Huang<SUP style="font-size: 85%; vertical-align: text-top">2</SUP></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">48</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Director</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Chengyu Xiong<SUP style="font-size: 85%; vertical-align: text-top">2</SUP></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">52</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Director</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Haibin Qu</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">31</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Director and Executive Senior Vice President</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Shujun Li<SUP style="font-size: 85%; vertical-align: text-top">3</SUP></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">34</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Director, Senior Vice President and Chief Financial Officer</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Qunzhao Tan</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">30</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Senior Vice President and Chief Technology Officer</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Yanmei Zhang</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">42</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Senior Vice President</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Jingying Wang</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">35</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Senior Vice President</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Hai Ling</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">36</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Senior Vice President</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Xiangdong Zhang</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">30</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Senior Vice President</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Daniel Zhang<SUP style="font-size: 85%; vertical-align: text-top">3</SUP></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">34</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Financial Controller</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV align="left">
<DIV style="font-size: 3pt; margin-top: 16pt; width: 18%; border-top: 1px solid #000000">&nbsp;</DIV>
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96"></TD>
</TR>

<TR valign="top">
    <TD nowrap align="left"><SUP style="font-size: 85%; vertical-align: text-top">1</SUP></TD>
    <TD>&nbsp;</TD>
    <TD>Member of the compensation committee.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left"><SUP style="font-size: 85%; vertical-align: text-top">2</SUP></TD>
    <TD>&nbsp;</TD>
    <TD>Member of the audit committee.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left"><SUP style="font-size: 85%; vertical-align: text-top">3</SUP></TD>
    <TD>&nbsp;</TD>
    <TD>Effective June&nbsp;30, 2006, Shujun Li will resign from his position as Senior Vice
President and Chief Financial Officer and Daniel Zhang shall be promoted from financial
controller to Vice President and Chief Financial Officer. Shujun Li will continue to
serve as a director.</TD>
</TR>

</TABLE>




<P align="center" style="font-size: 10pt">80
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Tianqiao Chen</I></B>, one of our co-founders, has served as the chairman of our board of
directors and our chief executive officer since our inception in December&nbsp;1999. Mr.&nbsp;Chen
established Shanda Networking with Danian Chen in December&nbsp;1999. Prior to establishing Shanda
Networking, Mr.&nbsp;Tianqiao Chen served as the vice director of the office of the president of
Kinghing Trust &#038; Investment Co., Ltd. from 1998 to 1999. From 1994 to 1998, Mr.&nbsp;Chen served in
various management positions with Shanghai Lujiazui Group. Mr.&nbsp;Tianqiao Chen holds a bachelor&#146;s
degree in economics from Fudan University. Mr.&nbsp;Tianqiao Chen is the brother of Danian Chen, our
co-founder, and is married to Qianqian Luo, one of our directors.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Jun Tang </I></B>has served as our president since February&nbsp;2004 and as our director since April&nbsp;2004.
Prior to joining us, Mr.&nbsp;Tang served as the president of Microsoft China Co., Ltd. from March&nbsp;2002
to January&nbsp;2004 and the general manager of Microsoft Asia product support and service and Microsoft
Global Technical Engineering Center from January&nbsp;1998 to March&nbsp;2002. In 2002, he founded Intertex
Company, a software and entertainment company, in California. Mr.&nbsp;Tang received his doctorate
degree, master&#146;s degree and bachelor&#146;s degree in the U.S., Japan and China, respectively.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Danian Chen</I></B>, one of our co-founders, established Shanda Networking with Tianqiao Chen in
December&nbsp;1999. Mr Danian Chen has served as our executive senior vice president since August&nbsp;2005.
Mr.&nbsp;Danian Chen served as a senior vice president from July&nbsp;2003 to August&nbsp;2005, after serving as
our director of products until July&nbsp;2003, Mr.&nbsp;Danian Chen has served on our board of directors
since our inception. Prior to co-founding Shanda Networking, Mr.&nbsp;Danian Chen worked as an employee
in Xinghui International Transport Company, Haijie Shipping Agency Company and Jinyi Network from
September&nbsp;1996 to November&nbsp;1999. Mr.&nbsp;Danian Chen is Tianqiao Chen&#146;s brother.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Qianqian Luo </I></B>has served as our director since our inception in December&nbsp;1999. Ms.&nbsp;Luo
previously served as our director of administration from November&nbsp;1999 to July&nbsp;2003 and vice
president from July&nbsp;2003 to February&nbsp;2004. Ms.&nbsp;Luo served as a project manager at the investment
banking department of Kinghing Trust &#038; Investment Co., Ltd. from 1998 to 1999. Ms.&nbsp;Luo holds a
bachelor&#146;s degree in economics from Financial &#038; Banking Institute of China. Ms.&nbsp;Luo is married to
Tianqiao Chen.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>W. Mark Evans </I></B>has served as our director since April&nbsp;2004. Mr.&nbsp;Evans has been a General
Partner of Benchmark Capital, a U.K. based venture capital firm, since 2002 and currently serves on
the boards of a number of private companies. Mr.&nbsp;Evans previously held a variety of senior
management positions within Goldman Sachs, including serving as the Chairman of Goldman Sachs Asia
from 1993 to 1997. Mr.&nbsp;Evans holds an MLitt in economics from the University of Oxford and a BA in
economics from Queen&#146;s University in Canada.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Jingsheng Huang </I></B>has served as our director since October&nbsp;2005. Since October&nbsp;2005, Mr.&nbsp;Huang
has served as Managing Director at Bain Capital. From January&nbsp;2002 to September&nbsp;2005, he was
Managing Director China at SOFTBANK Asia Infrastructure Fund, or SAIF, and served as a director on
the board of twelve SAIF portfolio companies in the technology, telecommunications and media
sectors. Prior to joining SAIF, Mr.&nbsp;Hunag was a partner at SUNeVision Ventures. Mr.&nbsp;Huang has also
served as Senior Manager of Strategic Investments at Intel Capital, Director of Asia Pacific
Research Operations at Gartner Group and Vice President of Marketing of Mtone Wireless. Mr.&nbsp;Huang
holds an MBA degree from Harvard Business School, a master&#146;s degree in sociology from Stanford
University and a bachelor&#146;s degree in English from Beijing Foreign Studies University.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Chengyu Xiong </I></B>has served as our director since October&nbsp;2005. Dr.&nbsp;Xiong is a professor and
deputy dean of the School of Journalism and Communication at Tsinghua University. In addition, Dr.
Xiong serves as the director of both the
</DIV>


<P align="center" style="font-size: 10pt">81
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">New Media Studies Center and the Cultural Industries Center at the School of Journalism. Dr.
Xiong received his doctorate degree from Brigham Young University. Dr Xiong has written, edited and
translated numerous books and articles.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Haibin Qu </I></B>has served as our executive senior vice president since August&nbsp;2005 and as our
director since April&nbsp;2004. Prior to serving as our senior vice president from July&nbsp;2003 to August
2005, Mr.&nbsp;Qu served as our vice president from September&nbsp;2002 to June&nbsp;2003 and as our director of
business development from February&nbsp;2000 to August&nbsp;2002. Previously, Mr.&nbsp;Qu served as a vice
president of Shanghai Fuwei Technology Development Co., Ltd. from September&nbsp;1996 to December&nbsp;1999.
Mr.&nbsp;Qu holds a bachelor&#146;s degree in mechanics from Fudan University.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Shujun Li </I></B>has served as our senior vice president since August&nbsp;2005 and as our chief financial
officer since November&nbsp;2003 and vice president from July&nbsp;2003 to August&nbsp;2005. Mr.&nbsp;Li became a
member of our board of directors in April&nbsp;2005 after leading our initial public offering in May
2004. Mr.&nbsp;Li previously served as our director of investment and overseas business from March&nbsp;2002
to July&nbsp;2003. Prior to joining us, Mr.&nbsp;Li served as a fund manager responsible for the
establishment of Zhongrong Fund Management Company from January&nbsp;2001 to October&nbsp;2001 and a senior
manager at the international business department of China Southern Securities Co., Ltd. from August
1997 to December&nbsp;2000. Mr.&nbsp;Li holds a master&#146;s degree in economics from Nankai University and a
bachelor&#146;s degree in English from Hebei Normal University.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Qunzhao Tan </I></B>has served as our senior vice president since August&nbsp;2005 and as our vice
president from July&nbsp;2003 to August&nbsp;2005 and chief technology officer since July&nbsp;2003. Mr.&nbsp;Tan
previously served as our director of research and development from November&nbsp;1999 to July&nbsp;2003.
Prior to joining us, Mr.&nbsp;Tan worked as an assistant in the Institute of Clean Coal Technology of
East China University of Science and Technology from July&nbsp;1996 to November&nbsp;1999. Mr.&nbsp;Tan holds a
bachelor&#146;s degree in chemical engineering from East China University of Science and Technology.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Yanmei Zhang </I></B>has served as our senior vice president since August&nbsp;2005 and as our vice
president from January&nbsp;2005 to August&nbsp;2005. Prior to joining us, Ms.&nbsp;Zhang served as Vice President
at Sony China Corp. from January&nbsp;1994 until December&nbsp;2004. Ms.&nbsp;Zhang joined Sony America in New
York in 1991 as international Human Resources specialist and served in that position until 1993.
Ms.&nbsp;Zhang holds a master&#146;s degree in Business Administration from University of South Carolina and
a bachelor&#146;s degree in English from Shanxi University.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Jingying Wang </I></B>has served as our senior vice president since August&nbsp;2005. Ms.&nbsp;Wang previously
served as our vice president from January&nbsp;2005 to August&nbsp;2005 and as our director of customer
services from May&nbsp;2002 to July&nbsp;2003. Prior to joining us, Ms.&nbsp;Wang served as the customer services
manager of Shanghai Waterman Drinks Co., Ltd. from December&nbsp;2000 to May&nbsp;2002, and the customer
services supervisor of Hangzhou Marykay Cosmetics Co., Ltd. from 1998 to December&nbsp;2000. Ms.&nbsp;Wang
holds a bachelor&#146;s degree in radio technology from Shanghai University.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Hai Ling </I></B>has served as our senior vice president since August&nbsp;2005. Mr.&nbsp;Ling previously served
as our vice president from August&nbsp;2003 to August&nbsp;2005 and as our director of sales. Prior to
joining us, Mr.&nbsp;Ling served as general manager of Powerise Technology Co. from 1997 to 2003. Mr.
Ling holds a bachelor&#146;s degree in computer science and technology from the National University of
Defense Technology.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Xiangdong Zhang </I></B>was promoted to senior vice president in June&nbsp;2006. Prior to serving as our
vice president from July&nbsp;2005 to June&nbsp;2006, Mr.&nbsp;Zhang served as director of our product management
center from 2001 to July&nbsp;2005. Prior to joining us, Mr.&nbsp;Zhang served as the editor-in-chief of the
game channel at China.com from 1999 to 2001. Mr.&nbsp;Zhang holds a bachelor&#146;s degree in engineering
from Dalian Institute of Light Industry.
</DIV>


<P align="center" style="font-size: 10pt">82
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Daniel Zhang </I></B>joined Shanda in September&nbsp;2005 as Financial Controller. Prior to
joining Shanda, Mr.&nbsp;Zhang served as senior manager of PricewaterhouseCoopers&#146; Audit and Business
Advisory Division in Shanghai, China from 2002 to 2005. Prior to PricewaterhouseCoopers&#146; he served
for seven years with Arthur Andersen, departing as an audit manager of the firm&#146;s Shanghai office.
Mr.&nbsp;Zhang holds a bachelor&#146;s degree in finance from Shanghai University of Finance and Economics.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Duties of Directors</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under Cayman Islands law, our directors have a duty of loyalty to act honestly in good faith
with a view to our best interests. Our directors also have a duty to exercise the care, diligence
and skills that a reasonably prudent person would exercise in comparable circumstances. In
fulfilling their duty of care to us, our directors must ensure compliance with our amended and
restated memorandum and articles of association. A shareholder has the right in certain
circumstances in a derivative action in the name of the company to seek damages if a duty owed by
our directors is breached.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The functions and powers of our board of directors include, among others:
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="5%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>convening shareholders&#146; meetings and reporting its work to shareholders at such meetings;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="5%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>implementing shareholders&#146; resolutions;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="5%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>determining our business plans and investment proposals;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="5%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>formulating our profit distribution plans and loss recovery plans;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="5%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>determining our debt and finance policies and proposals for the increase or
decrease in our registered capital and the issuance of debentures;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="5%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>formulating our major acquisition and disposition plans, and plans for merger, division or dissolution;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="5%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>proposing amendments to our amended and restated memorandum and articles of association; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="5%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>exercising any other powers conferred by the shareholders&#146; meetings or under our
amended and restated memorandum and articles of association.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Terms of Directors and Executive Officers</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Each of our directors holds office until a successor has been duly elected and qualified
unless the director was appointed by the board of directors, in which case such director holds
office until the next following annual meeting of shareholders at which time such director is
eligible for reelection. All of our executive officers are appointed by and serve at the discretion
of our board of directors.
</DIV>


<P align="center" style="font-size: 10pt">83
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>B. COMPENSATION</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In 2005, the aggregate cash compensation paid to our directors and executive officers as a
group was RMB 11.86&nbsp;million (US$1.47&nbsp;million). In addition, options to acquire an aggregate of
163,078 ordinary shares were granted to our directors and executive officers in 2005. We have no
service contracts with any of our directors or executive officers that provide benefits to them
upon termination.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Equity Compensation Plans</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In order to promote our success and to increase shareholder value by providing an additional
means to attract, motivate, retain and reward selected directors, employees and other eligible
persons, we have adopted our 2003 Incentive Plan, or the 2003 Plan and our 2005 Equity Compensation
Plan, or the 2005 Plan. In March&nbsp;2003, our board of directors adopted the 2003 Plan. An aggregate
of 13,309,880 ordinary shares, which is equal to approximately 9.4% of our issued and outstanding
ordinary shares as of March&nbsp;31, 2006, were reserved for issuance under the 2003 Plan.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The table set forth below summarizes stock option activity under the 2003 Plan for the years
ended December&nbsp;31, 2003, 2004 and 2005:
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="28%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000"><B>2003</B></TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Options</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Weighted Average</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Options</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Weighted Average</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Options</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Weighted Average</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Outstanding</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Exercise Price (US$)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Outstanding</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Exercise Price (US$)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Outstanding</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Exercise Price (US$)</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Outstanding at beginning of
year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,857,803</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.516</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,883,402</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3.42</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Granted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,857,803</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.516</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,258,503</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5.57</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">567,731</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15.63</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Exercised</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(4,116,074</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.55</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2,762,438</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.70</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Forfeited</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(116,830</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3.51</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(467,920</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5.33</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Outstanding at end of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,857,803</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.516</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,883,402</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3.42</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,220,775</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4.71</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Vested and exercisable at end
of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,214,451</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.516</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">397,091</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.53</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,164,853</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3.97</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">84
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of December&nbsp;31, 2005, approximately 210,594 options were available for granted under
the 2003 Plan. The table set forth below summarizes outstanding and exercisable stock options under
the 2003 Plan as of December&nbsp;31, 2005
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="15%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11"><B>Options Outstanding at</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>Options Exercisable at</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11" style="border-bottom: 1px solid #000000"><B>December 31, 2005</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000"><B>December 31, 2005</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Weighted Average</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Number</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Remaining Contractual</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Weighted Average</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Number</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Weighted Average</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>Exercise Prices US$</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Outstanding</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Life (years)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Exercise Price (US$)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Outstanding</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Exercise Price (US$)</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">1.516</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,561,319</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7.25</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.516</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">480,690</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.516</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:55px; text-indent:-15px">5.5</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,086,031</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.15</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5.5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">638,313</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5.5</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:50px; text-indent:-15px">8.00</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">35,850</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.58</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.00</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">35,850</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.00</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:50px; text-indent:-15px">9.95</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">40,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.63</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9.95</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9.95</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">15.33</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">163,078</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9.07</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15.33</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">15.55</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">240,940</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9.08</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15.55</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">14.89</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">40,295</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9.13</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14.89</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:40px; text-indent:-15px">16.945</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23,606</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9.38</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16.945</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">16.86</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">29,656</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9.42</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16.86</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,220,775</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,164,853</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In October&nbsp;2005, shareholders approved the 2005 plan at our annual general meeting of
shareholders. An aggregate of 7,449,235 ordinary shares, which is equal to approximately 5.2% of
our issued and outstanding ordinary shares as of March&nbsp;31, 2006, were reserved for issuance under
the 2005 Plan. On June 28, 2006, we granted options under the 2005
plan to purchase 3,000,000 of our ordinary shares to some of our
directors and officers and other employees at an exercise price equal
to the average market value in the previous three months.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Both the 2003 Plan and the 2005 Plan are administered by our compensation committee, which has
wide discretion to award equity compensation grants. Subject to the provisions of the 2003 Plan and
the 2005 Plan, including the limits upon the number of ordinary shares reserved for issuance under
these plans, our compensation committee determines who will receive equity compensation awards, the
type and timing of awards to be granted, vesting schedules, exercise prices and other terms and
conditions of the awards.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For a description of our past stock option compensation expense and recent accounting changes,
see Item&nbsp;5 &#147;Operating and Financial Review and Prospects &#150; A. Operating Results &#150; Operating
Expenses &#150; Share-based Compensation.&#148;
</div>

<P align="center" style="font-size: 10pt">85
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The table below sets forth the option grants made to our directors and executive officers
pursuant to the 2003 Plan as of June 28, 2006:
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="52%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Number of Shares</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Per Share</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Underlying</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Exercise Price</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B>Name</B></TD>
    <TD>&nbsp;</TD>

<TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Options
Granted</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>(in US$)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Date of Grant</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Date of Expiration</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Tianqiao Chen</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">266,198</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.516</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="right">March 31, 2003</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="right">March 31, 2013</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Danian Chen</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">266,198</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.516</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="right">March 31, 2003</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="right">March 31, 2013</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Jun Tang</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,661,976</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5.5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="right" nowrap>February 12, 2004</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="right" nowrap>February 12, 2014</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Qianqian Luo</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">266,198</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.516</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="right">March 31, 2003</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="right">March 31, 2013</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">W. Mark Evans</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">*</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="right">July 26, 2004</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="right">July 26, 2014</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Jingsheng Huang</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">*</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.516</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="right">March 31, 2003</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="right">March 31, 2013</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Haibin Qu</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,863,383</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.516</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="right">March 31, 2003</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="right">March 31, 2013</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Shujun Li</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,330,988</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.516</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="right">March 31, 2003</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="right">March 31, 2013</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Qunzhao Tan</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,129,581</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.516</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="right">March 31, 2003</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="right">March 31, 2013</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Jingying Wang</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">*</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.516</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="right">March 31, 2003</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="right">March 31, 2013</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Yanmei Zhang</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">*</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15.33</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="right">January 25, 2005</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="right">January 25, 2015</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Hai Ling</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">*</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.516</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="right">March 31, 2003</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="right">March 31, 2013</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Hai Ling</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">*</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5.5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="right">April 1, 2004</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="right">April 1, 2014</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Xiangdong Zhang</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">*</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.516</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="right">March 31, 2003</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="right">March 31, 2013</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Xiangdong Zhang</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">*</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5.5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="right">April 1, 2004</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="right">April 1, 2014</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
table below sets forth the option grants made to our directors and
executive officers pursuant to the 2005 plan as of June 28, 2006:
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="52%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Number of Shares</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Per Share</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Underlying</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Exercise Price</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B>Name</B></TD>
    <TD>&nbsp;</TD>

<TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Options
Granted</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>(in US$)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Date of Grant</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Date of Expiration</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Qunzhao Tan</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">150,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6.8505</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="right">June 28, 2006</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="right">June 28, 2016</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Jingying Wang</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">*</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6.8505</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="right">June 28, 2006</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="right">June 28, 2016</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Yanmei Zhang</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">*</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6.8505</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="right" nowrap>June 28, 2006</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="right" nowrap>June 28, 2016</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Hai Ling</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">*</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6.8505</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="right">June 28, 2006</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="right">June 28, 2016</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Xiangdong
Zhang</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">*</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6.8505</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="right">June 28, 2006</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="right">June 28, 2016</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Daniel Zhang</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">*</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6.8505</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="right">June 28, 2006</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="right">June 28, 2016</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left">
<DIV style="font-size: 3pt; margin-top: 16pt; width: 18%; border-top: 1px solid #000000">&nbsp;</DIV>
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96"></TD>
</TR>

<TR valign="top">
    <TD nowrap align="left">*</TD>
    <TD>&nbsp;</TD>
    <TD>Upon exercise of all options granted, would beneficially own less than 1% of our
outstanding ordinary shares.</TD>
</TR>

</TABLE>



<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>C. BOARD PRACTICES</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Term and Severance Provisions of Directors and Executive Officers</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Each of our directors holds office until a successor has been duly elected and qualified
unless the director was appointed by the board of directors, in which case such director holds
office until the next following annual meeting of shareholders at which time such director is
eligible for reelection. All of our executive officers are appointed by and serve at the discretion
of our board of directors. We have no service contracts with any of our directors or executive
officers that provide benefits to them upon termination.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Board Committees</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our board of directors has established an audit committee and a compensation committee.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Audit Committee</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our audit committee currently consists of W. Mark Evans, Jingsheng Huang and Chengyu Xiong.
Our board of directors has determined that all of our audit committee members are independent
directors within the meaning of Nasdaq

<P align="center" style="font-size: 10pt">86
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Marketplace Rule&nbsp;4200(a)(15) and meet the criteria for
independence set forth in Section&nbsp;10A(m)(3)(B)(i) of the Exchange Act.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our audit committee is responsible for, among other things:
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="5%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>selecting the independent auditors and pre-approving all auditing and non-auditing
services permitted to be performed by the independent auditors;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="5%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>annually reviewing an independent auditors&#146; report describing the auditing firm&#146;s
internal quality-control procedures, any material issues raised by the most recent
internal quality-control review, or peer review, of the independent auditors and all
relationships between the independent auditors and our company;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="5%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>setting clear hiring policies for employees or former employees of the independent auditors;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="5%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>reviewing with the independent auditors any audit problems or difficulties and management&#146;s response;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="5%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>reviewing and approving all proposed related-party transactions, as defined in Item&nbsp;404 of Regulation&nbsp;S-K;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="5%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>discussing the annual audited financial statements with management and the independent auditors;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="5%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>discussing with management and the independent auditors major issues regarding
accounting principles and financial statement presentations;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="5%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>reviewing reports prepared by management or the independent auditors relating to
significant financial reporting issues and judgments;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="5%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>discussing earnings press releases, as well as financial information and earnings
guidance provided to analysts and rating agencies;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="5%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>reviewing with management and the independent auditors the effect of regulatory and
accounting initiatives, as well as off-balance sheet structures on our financial
statements;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="5%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>discussing policies with respect to risk assessment and risk management;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="5%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>reviewing major issues as to the adequacy of our internal controls and any special
audit steps adopted in light of material control deficiencies;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="5%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>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;</TD>
</TR>

</TABLE>
</DIV>
<P align="center" style="font-size: 10pt">87
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV style="margin-top: 6pt"><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">



</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="5%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>establishing procedures for the receipt, retention and treatment of complaints
received from our employees regarding accounting, internal controls or auditing matters
and the confidential, anonymous submission by our employees of concerns regarding
questionable accounting or auditing matters;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="5%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>annually reviewing and reassessing the adequacy of our audit committee charter;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="5%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>such other matters that are specifically delegated to our audit committee by our
board of directors from time to time;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="5%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>meeting separately, periodically, with management, the internal auditors and the independent auditors; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="5%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>reporting regularly to the full board of directors.</TD>
</TR>

</TABLE>
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>Compensation Committee</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our current compensation committee consists of Tianqiao Chen and Qianqian Luo.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our compensation committee is responsible for:
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="5%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>reviewing and making recommendations to our board of directors regarding our
compensation policies and forms of compensation provided to our directors and officers;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="5%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>reviewing and determining bonuses for our officers and other employees;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="5%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>reviewing and determining stock-based compensation for our directors, officers, employees and consultants;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="5%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>administering our equity incentive plans in accordance with the terms thereof; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="5%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>such other matters that are specifically delegated to the compensation committee by
our board of directors from time to time.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Controlled Company</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are a controlled company as defined under Nasdaq Marketplace Rule&nbsp;4350(c)(5). As a result,
for so long as we remain a controlled company as defined in that rule, we are exempt from some of
the requirements of Nasdaq Marketplace Rule&nbsp;4350(c), including the requirements that:
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="5%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>a majority of our board of directors must be independent directors;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="5%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the compensation of our chief executive officer must be determined or recommended
by a majority of the independent directors or a compensation committee comprised solely
of independent directors; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="5%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the director nominees must be selected or recommended by a majority of the
independent directors or a nomination committee comprised solely of independent
directors.</TD>
</TR>

</TABLE>
</DIV>
<P align="center" style="font-size: 10pt">88
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV style="margin-top: 6pt"><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">



</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Corporate Governance</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our board of directors has adopted a code of ethics, which is applicable to our senior
executive and financial officers. In addition, our board of directors has adopted a code of
conduct, which is applicable to all of our directors, officers and employees. We have made our code
of ethics and our code of conduct publicly available on our website. See also Item&nbsp;16B &#147;Code of
Ethics&#148;.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition, our board of directors has adopted a set of corporate governance guidelines. The
guidelines reflect certain guiding principles with respect to our board&#146;s structure, procedure and
committees. The guidelines are not intended to change or interpret any law or our amended and
restated memorandum and articles of association.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We also have established a disclosure committee, which is comprised of certain members of
senior management. Pursuant to the disclosure committee&#146;s charter, which was ratified by our board
of directors, the disclosure committee is responsible for adopting, evaluating and overseeing our
disclosure controls and procedures and internal financial controls.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>D. EMPLOYEES</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of December&nbsp;31, 2005, we had 2392 full-time employees. The following table sets forth the
number of our employees by department as of December&nbsp;31, 2004 and 2005:
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="52%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000"><B>As of December 31, 2004</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000"><B>As of December 31, 2005</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Number</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Percent</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Number</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Percent</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Senior Management</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">40</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">32</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.3</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Customer Service</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">284</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19.9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">419</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17.5</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Technology Support</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">202</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">301</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12.6</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Game Development</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">398</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">27.9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">818</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">34.2</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Product
Management</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">154</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10.8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">254</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10.6</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Sales, Marketing and Public
Relations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">155</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10.9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">345</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14.4</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Finance and Administration /
Investment and Overseas
Business</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">138</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9.6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">223</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9.4</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">New Business</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">58</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1429</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">100.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2392</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">100.0</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As required by PRC regulations, we participate in various employee benefit plans that are
organized by municipal and provincial governments, including housing, pension, medical and
unemployment benefit plans. We are required under PRC law to make contributions to the employee
benefit plans at specified percentages of the salaries, bonuses and certain allowances of our
employees, up to a maximum amount specified by the local government from time to time. Members of
the retirement plan are entitled to a pension equal to a fixed proportion of the salary prevailing
at the member&#146;s retirement date. In addition to the benefits that we are required to provide to our
employees pursuant to PRC regulations, we also
provide life insurance and supplemental medical insurance. The total amount of contributions
we made to employee benefit plans in 2003, 2004 and 2005 was RMB5.4&nbsp;million, RMB13.7&nbsp;million and
RMB 24.2&nbsp;million (US$3.0&nbsp;million) respectively.
</DIV>


<P align="center" style="font-size: 10pt">89
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our employees who are PRC citizens are members of a labor union that represents employees with
respect to labor disputes and other employee matters. The labor union does not, however, represent
employees for the purpose of collective bargaining. We believe that we maintain a good working
relationship with our employees and we have not experienced any significant labor disputes or any
difficulty in recruiting staff for our operations.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We enter into a standard annual employment contract with most of our officers, managers and
employees. These contracts include a covenant that prohibits the officer, manager or employee from
engaging in any activities that compete with our business during, and for one to two years after
the period of their employment with us.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>E. SHARE OWNERSHIP</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Please see Item&nbsp;7.A.</B>

</DIV>
<DIV align="left">
<A name="108"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>Item&nbsp;7. Major Shareholders and Related Party Transactions</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>A. MAJOR SHAREHOLDERS</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table sets forth information with respect to the beneficial ownership, within
the meaning of Rule&nbsp;13d-3 of the U.S. Securities Exchange Act of 1934, as amended, or the Exchange
Act, of our ordinary shares, as of March&nbsp;31, 2006:
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="5%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>each person known to us to own beneficially more than 5% of our ordinary shares;
and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="5%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>each of our directors and executive officers who beneficially own ordinary shares
within the meaning of Rule&nbsp;13d-3 of the Exchange Act;</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Beneficial ownership includes voting or investment power with respect to the securities.
Except as indicated below, and subject to applicable community property laws, the persons named in
the table have sole voting and investment power with respect to all ordinary shares shown as
beneficially owned by them. Percentage of beneficial ownership is based on 142,181,048 ordinary
shares outstanding as of March&nbsp;31, 2006.
</DIV>


<P align="center" style="font-size: 10pt">90
</DIV>

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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000"><B>Shares Beneficially Owned</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center" style="border-bottom: 1px solid #000000">Name</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Number</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Percentage of Total</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Tianqiao
Chen<SUP style="font-size: 85%; vertical-align: text-top">1</SUP></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">83,202,628</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">58.5</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Danian Chen<SUP style="font-size: 85%; vertical-align: text-top">2</SUP></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">82,154,360</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">57.8</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Qianqian Luo<SUP style="font-size: 85%; vertical-align: text-top">3</SUP></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">83,202,628</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">58.5</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Skyline Media
Limited<SUP style="font-size: 85%; vertical-align: text-top">4</SUP></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">81,070,090</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">57.0</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cisco Systems, Inc<SUP style="font-size: 85%; vertical-align: text-top">5</SUP></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,855,499</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">9.7</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Jun Tang</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,035,186</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">0.7</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Jingsheng Huang</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">*</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">*</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">W. Mark Evans</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">*</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">*</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Qunzhao Tan<SUP style="font-size: 85%; vertical-align: text-top">6</SUP></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,576,281</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">1.1</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Haibin Qu<SUP style="font-size: 85%; vertical-align: text-top">7</SUP></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,446,661</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">1.0</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Shujun Li
<SUP style="font-size: 85%; vertical-align: text-top">8</SUP></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">398,748</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">0.3</TD>
    <TD nowrap>%</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Yanmei Zhang
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>


<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Jingying
Wang<SUP style="font-size: 85%; vertical-align: text-top">9</SUP></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">*</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">*</TD>
    <TD>&nbsp;</TD>
</TR>


<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Hai Ling</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">*</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">*</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Xiangdong Zhang</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">*</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">*</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV align="left">
<DIV style="font-size: 3pt; margin-top: 16pt; width: 18%; border-top: 1px solid #000000">&nbsp;</DIV>
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96"></TD>
</TR>

<TR valign="top">
    <TD nowrap align="left">*</TD>
    <TD>&nbsp;</TD>
    <TD>Upon exercise of all options currently exercisable or vesting within 60&nbsp;days of the
date of this table, would beneficially own less than 1% of our ordinary shares.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left"><SUP style="font-size: 85%; vertical-align: text-top">1</SUP></TD>
    <TD>&nbsp;</TD>
    <TD>Represents 81,070,090 ordinary shares owned by Skyline Media Limited, 1,866,338
ordinary shares held by DBS Trustees Limited acting as trustees of the Jade Trust and
266,200 ordinary shares that may be issued upon exercise of stock options that are held
by DBS Trustees Limited acting as trustees of the Jade Trust. The 1,866,338 ordinary
shares held by DBS Trustees Limited do not include 322,000 ordinary shares that had been
sold as of March&nbsp;31, 2006 pursuant to a pre-arranged stock trading plan adopted in June
2005 in accordance with Rule&nbsp;10b5-1 under the Securities Exchange Act of 1934. Tianqiao
Chen is the sole shareholder of Shanda Media Limited, which is a director and owns 40% of
Skyline Capital International Limited, the sole shareholder of Skyline Media Limited.
Tianqiao Chen is also a director of Skyline Media Limited. Tianqiao Chen disclaims
beneficial ownership of all of our ordinary shares owned by Skyline Media Limited.
Ordinary shares and stock options held by DBS Trustees Limited acting as trustees of the
Jade Trust are held for the benefit of Tianqiao Chen and his family members.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left"><SUP style="font-size: 85%; vertical-align: text-top">2</SUP></TD>
    <TD>&nbsp;</TD>
    <TD>Represents 81,070,090 ordinary shares owned by Skyline Media Limited, 951,170
ordinary shares owned by DBS Trustees Limited acting as trustees of the Chi Feng Trust
and 133,100 ordinary shares that may be issued upon exercise of stock options that are
held by DBS Trustees Limited acting as trustees of the Chi Feng Trust. Danian Chen is the
sole shareholder of Shanda Investment International Limited, which is a director and owns
30% of Skyline Capital International Limited, the sole shareholder of Skyline Media
Limited. Danian Chen is also a director of Skyline Media Limited. Danian Chen disclaims
beneficial ownership of all of our ordinary shares owned by Skyline Media Limited.
Ordinary shares and stock options held by DBS Trustees Limited acting as trustees of the
Chi Feng Trust are held for the benefit of Danian Chen and his family members.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left"><SUP style="font-size: 85%; vertical-align: text-top">3</SUP></TD>
    <TD>&nbsp;</TD>
    <TD>Represents 81,070,090 ordinary shares owned by Skyline Media Limited, 1,866,338
ordinary shares owned by DBS Trustees Limited acting as trustees of the Jade Trust and
266,200 ordinary shares that may be issued upon </TD>
</TR>

</TABLE>


<P align="center" style="font-size: 10pt">91
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96"></TD>
</TR>

<TR valign="top">
    <TD nowrap align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>exercise of stock options held by DBS
Trustees Limited acting as trustees of the Jade Trust. The 1,866,338 ordinary shares held
by DBS Trustees Limited do not include 322,000 ordinary shares that had been sold as of
March&nbsp;31, 2006 pursuant to a pre-arranged stock trading plan adopted in June&nbsp;2005 in
accordance with Rule&nbsp;10b5-1 under the Securities Exchange Act of 1934. Qianqian Luo is
the sole shareholder of Fortune Capital Holdings Enterprises Limited, which is a director
and owns 30% of Skyline Capital International Limited, the sole shareholder of Skyline
Media Limited. Ms.&nbsp;Luo is also a director of Skyline Media Limited. Ms.&nbsp;Luo disclaims
beneficial ownership of all of our ordinary shares owned by Skyline Media Limited.
Ordinary shares and stock options held by DBS Trustees Limited acting as trustees of the
Jade Trust are held for the benefit of Ms.&nbsp;Luo and her family members.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left"><SUP style="font-size: 85%; vertical-align: text-top">4</SUP></TD>
    <TD>&nbsp;</TD>
    <TD>Tianqiao Chen, Danian Chen and Qianqian Luo indirectly own 40%, 30% and 30%,
respectively, of Skyline Media and may be deemed to beneficially own all of our shares
held by Skyline Media Limited.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left"><SUP style="font-size: 85%; vertical-align: text-top">5</SUP></TD>
    <TD>&nbsp;</TD>
    <TD>The number of shares was taken from Schedule&nbsp;13G filed with the SEC by Cisco
Systems, Inc. on February&nbsp;14, 2006, the file number is 005-80297. The percentage of
beneficial ownership was calculated based on the amount of our ordinary shares
outstanding as of March&nbsp;31, 2006.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left"><SUP style="font-size: 85%; vertical-align: text-top">6</SUP></TD>
    <TD>&nbsp;</TD>
    <TD>These ordinary shares, or stock options to purchase ordinary shares, are held by
DBS Trustees Limited acting as Trustees of the Three Gorges Trust for the benefit of
Qunzhao Tan and his family members.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left"><SUP style="font-size: 85%; vertical-align: text-top">7</SUP></TD>
    <TD>&nbsp;</TD>
    <TD>These ordinary shares, or stock options to purchase ordinary shares, are held by
DBS Trustees Limited acting as Trustees of the Hub Trust for the benefit of Haibin Qu and
his family members.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left"><SUP style="font-size: 85%; vertical-align: text-top">8</SUP></TD>
    <TD>&nbsp;</TD>
    <TD>These ordinary shares, or stock options to purchase ordinary shares, are held by
DBS Trustee Limited acting as Trustees of the Nature Trust for the benefit of Shujun Li
and his family members.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left"><SUP style="font-size: 85%; vertical-align: text-top">9</SUP></TD>
    <TD>&nbsp;</TD>
    <TD>These ordinary shares, or stock options to purchase ordinary shares, are held by
DBS Trustee Limited acting as Trustees of the Fly Trust for the benefit of Jingying Wang
and his family members</TD>
</TR>

</TABLE>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;None of our existing shareholders have voting rights that differ from the voting rights of
other shareholders. We are not aware of any arrangement that may, at a subsequent date, result in a
change of control of our company. As of December&nbsp;31, 2005, of the 141,982,766 issued and
outstanding ordinary shares, approximately 16.26% of those ordinary shares are held in the US by 50
institutional holders of record
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>B. RELATED PARTY TRANSACTIONS</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Shengqu/Shanda Networking Arrangements</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In order to comply with PRC regulations, through the date of this annual report, we have
operated our online game business in China through Shanda Networking, a company wholly owned by
Tianqiao Chen and Danian Chen, our founders and controlling shareholders, who are also PRC
citizens. We have entered into a series of contractual arrangements with Shanda Networking and its
shareholders, including contracts relating to the transfer of assets, the provision of services,
software licenses and equipment, and certain shareholder rights and corporate governance matters.
</DIV>


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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Each of Shengqu&#146;s contractual arrangements with Shanda Networking and its shareholders may
only be amended with the approval of our audit committee or another independent body of our board
of directors.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In December&nbsp;2004, with an effective date of January&nbsp;2005, we reorganized our online game
operations in China, splitting such operations between three different companies, Shanda
Networking, Nanjing Shanda and Hangzhou Bianfeng. Nanjing Shanda and Hangzhou Bianfeng are
subsidiaries of Shanda Networking. Following this reorganization, each of these companies operates
our online games in distinct provinces and regions across China. In connection with this
reorganization, we entered into a series of contractual arrangements with Shanda Networking,
Nanjing Shanda and Hangzhou Bianfeng and modified certain existing contractual arrangements with
Shanda Networking.
</DIV>


<P align="center" style="font-size: 10pt">93
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following is a summary of the material provisions of these agreements. For more complete
information you should read these agreements in their entirety. Directions of how to obtain copies
of those agreements are provided in this annual report under &#147;Documents on Display&#148; included in
Item&nbsp;10 &#147;Additional Information&#148;.
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="8%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="13%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="24%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center"><B>No</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center"><B>Agreement</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center"><B>Date</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center"><B>Parties</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center"><B>Purpose</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center"><B>Payment</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR style="font-size: 1px">
    <TD colspan="11" valign="top" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">1
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Research and
Development
Agreement
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">October&nbsp;31, 2005
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Shengqu and Shengjin
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Shengjin to develop
Shanda Richman, an
online casual game
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Shengqu to make: (i)
recoupable installment
payments of totaling 2
million over 24&nbsp;months; and
(ii)&nbsp;monthly royalty
payments equal to 16%</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">2
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Research and
Development
Agreement
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">July&nbsp;14, 2004
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Shengqu and Shengjin
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Shengjin to develop
The Sign, a MMORPG
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Shengqu to make: (i)
recoupable installment
payments of totaling 2
million over 24&nbsp;months; and
(ii)&nbsp;monthly royalty
payments between 5% and 10%.</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">3
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Purchase<BR>
Agreement
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">December&nbsp;21, 2004
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Shengqu and Shengpin
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Shengqu to purchase
from Shengpin
copyright for The
Age, a MMORPG
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">RMB2.7&nbsp;million</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Mir II License<BR>
Agreement Extension
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">September&nbsp;28, 2005
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Shengqu and PRC
operating companies
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Shengqu extends
term Mir II
operating license
to the PRC
operating companies
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">RMB23,799,400 and 26% royalty</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">5
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">BNB License<BR>
Agreement Extension
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">October&nbsp;1, 2005
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Shengqu and PRC
operating companies
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Shengqu extends
term BNB operating
license to the PRC
operating companies
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">RMB12,138,000 and 45% royalty</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">6
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">The Woool<BR>
License Agreement<BR>
Extension
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">January&nbsp;1, 2006
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Shengqu and PRC
operating companies
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Shengqu extends
term Woool
operating license
to the PRC
operating companies
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">RMB15,000,000 and 26% royalty</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">7
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">The Age License<BR>
Agreement Extension
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">January&nbsp;1, 2006
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Shengqu and PRC
operating companies
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Shengqu extends
term The Age
operating license
to the PRC
operating companies
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">RMB1,080,000 and 26% royalty</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">8
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">The Sign<BR>
License Agreement<BR>
Extension
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">January&nbsp;1, 2006
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Shengqu and PRC
operating companies
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Shengqu extends
term The Sign
operating license
to the PRC
operating companies
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">RMB1,080,000 and 26% royalty</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">9
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">R.O. License
Agreement
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">September&nbsp;1, 2005
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Shengqu and PRC
operating companies
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Shengqu licenses
right to operate
R.O. to the PRC
operating companies
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">RMB5,669,860 and 35% royalty</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">10
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">3G Hero License<BR>
Agreement
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">September&nbsp;1, 2005</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Shengqu and PRC
Operating Companies
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Shengqu licenses
right to operate 3G
Hero to the PRC
operating companies
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">RMB2,000,000 and 35% royalty</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">11
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Shanda Richman<BR>
License Agreement
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">December&nbsp;8, 2005
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Shengqu and PRC
operating companies
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Shengqu licenses
right to operate
Shanda Richman to
the PRC operating
companies
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">RMB1,500,000 and 35% royalty</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">94
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="8%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="13%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="12%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="22%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center"><B>No</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center"><B>Agreement</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center"><B>Date</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center"><B>Parties</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center"><B>Purpose</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center"><B>Payment</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR style="font-size: 1px">
    <TD colspan="11" valign="top" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">12
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Crazy Kart<BR>
License Agreement
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">March&nbsp;18, 2006
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Shengqu and PRC
operating companies
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Shengqu licenses
right to operate
Crazy Kart to the
PRC operating
companies
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">RMB1,200,000 and 35% royalty</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">13
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Doudizhu<BR>
License Agreement
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">May&nbsp;1, 2006
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Grandpro and
Haofang Online
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Grandpro licenses
right to operate
Doudizhu to Haofang Online</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">35% royalty</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">14
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">The Woool<BR>
License Agreement
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">December&nbsp;28, 2004
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Shengqu and PRC
operating companies
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Shengqu licenses
right to operate
Woool to the PRC
operating companies
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">RMB30,000,000 and 26% royalty</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">15
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">The Age License<BR>
Agreement
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">December&nbsp;28, 2004
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Shengqu and PRC
operating companies
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Shengqu licenses
right to operate
the Age to the PRC
operating companies
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">RMB3,300,000 and 26% royalty</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">16
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">The Sign<BR>
License Agreement
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">December&nbsp;28, 2004
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Shengqu and PRC
operating companies
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Shengqu licenses
right to operate
The Sign to the PRC
operating companies
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">RMB2,900,000 and 26% royalty</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">17
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">D.O. License
Agreement
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">December&nbsp;28, 2004
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Shengqu and PRC
operating companies
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Shengqu licenses
right to operate
D.O. to the PRC
operating companies
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">RMB6,621,600 and 25% royalty</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">18
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Maple Story<BR>
License Agreement
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">December&nbsp;28, 2004
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Shengqu and PRC
operating companies
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Shengqu licenses
right to operate
Maple Story to the
PRC operating
companies
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">RMB3,972,960 and 35% royalty</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">19
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Mir II License<BR>
Agreement
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">December&nbsp;28, 2004
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Shengqu and PRC
operating companies
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Shengqu licenses
right to operate
Mir II to the PRC
operating companies
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">RMB11,035,733 and 26% royalty</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">20
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">BNB License<BR>
Agreement
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">December&nbsp;28, 2004
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Shengqu and PRC
operating companies
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Shengqu licenses
right to operate
BNB to the PRC
operating companies
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">RMB1,308,701 and 35% royalty</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">21
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">GetAmped<BR>
License Agreement
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">December&nbsp;28, 2004
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Shengqu and PRC
operating companies
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Shengqu licenses
right to operate
GetAmped to the PRC
operating companies
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">RMB958,222 and 25% royalty</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">22
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Buzzer Beater<BR>
License Agreement
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">December&nbsp;28, 2004
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Shengqu and PRC
operating companies
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Shengqu licenses
right to operate
Buzzer Beater to
the PRC operating
companies
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">RMB830,000 and between 18%
to 21% royalty</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">95
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="9%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="13%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="17%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="16%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center"><B>No</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center"><B>Agreement</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center"><B>Date</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center"><B>Parties</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center"><B>Purpose</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center"><B>Payment</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR style="font-size: 1px">
    <TD colspan="11" valign="top" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">23
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Arena Software<BR>
I License Agreement
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">May&nbsp;1, 2006
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Grandpro and
Haofang Online
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Grandpro licenses
right to use Arena
Software I to
Haofang Online
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">35% royalty</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">24
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Arena Software<BR>
II License<BR>
Agreement
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">May&nbsp;1, 2006
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Grandpro and
Haofang Online
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Grandpro licenses
right to use Arena
Software II to
Haofang Online
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">35% royalty</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">25
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">New E-sales<BR>
System License
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">December&nbsp;9, 2005
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Shengqu and PRC
operating companies
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Shengqu licenses
right to use
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">The PRC operating
companies to make:</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Agreement
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">E-Sales System
software to the PRC
operating companies
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">(i) installment
payments of
RMB3,250,000 over
12&nbsp;months; and (ii)
monthly royalty
payments equal to
15%</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">26
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">New Xintianyou<BR>
License Agreement
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">January&nbsp;1, 2006
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Shengqu and PRC
operating companies
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Shengqu licenses
right to use
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">The PRC operating
companies to make:</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Xintianyou to the
PRC operating
companies
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">(i) one installment
payments of
RMB3,600,000 over
12&nbsp;months, and (ii)
monthly royalty
equal to 5%</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">27
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">E-sales System<BR>
License Agreement
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">December&nbsp;28, 2004
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Shengqu and PRC
operating companies
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Shengqu licenses
right to use
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">The PRC operating
companies to make:</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">E-Sales System
software to the PRC
operating companies
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">(i) one installment
payments of
RMB6,000,000 over
12&nbsp;months, and (ii)
monthly royalty
equal to 15%</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">28
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Xintianyou<BR>
License Agreement
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">December&nbsp;28, 2004
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Shengqu and PRC
operating companies
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Shengqu licenses
right to use
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">The PRC operating
companies to make:</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Xintianyou to the
PRC operating
companies
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">(i) one installment
payments of
RMB3,600,000 over
12&nbsp;months, and (ii)
monthly royalty
equal to 5%</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">29
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">New Billing<BR>
Technology License<BR>
Agreement
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">January&nbsp;1, 2006
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Shengqu and Shanda
Networking
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Shengqu licenses
right to use
billing technology
in South-west
China, North-west
China and North
China to Shanda
Networking
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Shanda Networking
to make monthly
royalty payments
equal to the number
of monthly average
concurrent users
multiplied by RMB10
for 2006</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">30
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">New Billing<BR>
Technology License<BR>
Agreement
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">January&nbsp;1, 2006
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Shengqu and Nanjing
Shanda
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Shengqu licenses
right to use
billing technology
in East China and
South-central China
to Nanjing Shanda
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Nanjing Shanda to
make monthly
royalty payments
equal to the number
of monthly average
concurrent users
multiplied by RMB10
for 2006</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">31
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">New Billing<BR>
Technology License<BR>
Agreement
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">January&nbsp;1, 2006
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Shengqu and
Hangzhou Bianfeng
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Shengqu licenses
right to use
billing technology
in North-east China
to Hangzhou
Bianfeng
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Hangzhou Bianfeng
to make monthly
royalty payments
equal to the number
of monthly average
concurrent users
multiplied by RMB10
for 2006</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">32
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Amendment to
the Amended and
Restated Billing
Technology License
Agreement
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">December&nbsp;28, 2004
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Shengqu and Shanda
Networking
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Shengqu licenses
right to use
billing technology
in South-west
China, North-west
China and North
China to Shanda
Networking
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Shanda Networking
to make monthly
royalty payments
equal to the number
of monthly average
concurrent users
multiplied by
RMB13.46 for 2005</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">96
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="9%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="16%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="13%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="16%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="17%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="14%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center"><B>No</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center"><B>Agreement</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center"><B>Date</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center"><B>Parties</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center"><B>Purpose</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center"><B>Payment</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR style="font-size: 1px">
    <TD colspan="11" valign="top" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">33
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Billing<BR>
Technology License<BR>
Agreement
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">December&nbsp;28, 2004
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Shengqu and Nanjing
Shanda
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Shengqu licenses
right to use
billing technology
in East China and
South-central China
to Nanjing Shanda
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Nanjing Shanda to
make monthly
royalty payments
equal to the number
of monthly average
concurrent users
multiplied by
RMB13.46 for 2005</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">34
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Billing<BR>
Technology License<BR>
Agreement
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">December&nbsp;28, 2004
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Shengqu and
Hangzhou Bianfeng
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Shengqu licenses
right to use
billing technology
in North-east China
to Hangzhou
Bianfeng
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Nanjing Shanda to
make monthly
royalty payments
equal to the number
of monthly average
concurrent users
multiplied by
RMB13.46 for 2005</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">35
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">The Amended and
Restated Billing
Technology License
Agreement
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">December&nbsp;9, 2003
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Shengqu and Shanda
Networking
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Shengqu licenses
right to use
billing technology
in China to Shanda
Networking
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Shanda Networking
to make monthly
royalty payments
equal to the number
of monthly average
concurrent users
multiplied by
RMB13.46 for 2004
and RMB 15.3 for
2003</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">36
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Equipment Lease<BR>
Agreement
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">December&nbsp;28, 2004
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Shengqu and Nanjing
Shanda
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Shengqu leases
certain equipment
to Nanjing Shanda
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Nanjing Shanda to
pay monthly rent
equal to 4.2% of
the original value
of the leased
equipment.</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">37
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Equipment Lease<BR>
Agreement
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">December&nbsp;28, 2004
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Shengqu and
Hangzhou Bianfeng
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Shengqu leases
certain equipment
to Hangzhou
Bianfeng
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Hangzhou Bianfeng
to pay monthly rent
equal to 4.2% of
the original value
of the leased
equipment.</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">38
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Amended<BR>
Strategic<BR>
Consulting Service<BR>
Agreement II
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">December&nbsp;28, 2004
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Shengqu and Shanda
Networking
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Shengqu provides
strategic
consulting service
to Shanda
Networking
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Shanda Networking
to pay: (i)
standard monthly
fee of RMB150.00
per user; and (ii)
RMB1,900,000 for
2005</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">39
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Amended<BR>
Strategic<BR>
Consulting Service<BR>
Agreement III
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">December&nbsp;28, 2005
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Shengqu and Shanda
Networking
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Shengqu provides
strategic
consulting service
to Shanda
Networking
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Shanda Networking
to pay: (i)
standard monthly
fee of RMB92.00 per
user; and (ii)
RMB1,600,000 for
2006</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">40
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Amended<BR>
Strategic<BR>
Consulting Service<BR>
Agreement
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">December&nbsp;28, 2004
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Shengqu and Shanda
Networking
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Shengqu provides
strategic
consulting service
to Shanda
Networking
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Shanda Networking
to pay: (i)
standard monthly
fee of RMB86.00 per
user; and (ii)
RMB1,900,000 for
2004</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">41
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Entrusted Loan<BR>
Agreement
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">March&nbsp;19, 2006
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Nanjing Shanda and
China Merchants
Bank Dongfang
Branch
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Nanjing Shanda<BR>
provides Shanda<BR>
Computer with a<BR>
loan through<BR>
services provided<BR>
by China Merchants<BR>
Bank
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Nanjing Shanda to
provide Shanda
Computer a loan of
RMB38,000,000</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">42
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Loan Agreement
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">March&nbsp;19, 2006
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">China Merchants
Bank Dongfang
Branch and Shanda
Computer
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Nanjing Shanda<BR>
provides Shanda<BR>
Computer with a<BR>
loan through<BR>
services provided<BR>
by China Merchants<BR>
Bank
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Nanjing Shanda to
provide Shanda
Computer a loan of
RMB38,000,000</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">97
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="9%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="12%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="12%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="19%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="17%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="16%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center"><B>No</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center"><B>Agreement</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center"><B>Date</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center"><B>Parties</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center"><B>Purpose</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center"><B>Payment</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR style="font-size: 1px">
    <TD colspan="11" valign="top" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">43
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Entrusted Loan<BR>
Agreement
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">March&nbsp;19, 2006
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Hangzhou Bianfeng
and China Merchants
Bank Dongfang
Branch
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Hangzhou Bianfeng<BR>
provides Shanda<BR>
Computer with a<BR>
loan through<BR>
services provided<BR>
by China Merchants<BR>
Bank
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Hangzhou Bianfeng
to provide Shanda
Computer a loan of
RMB27,000,000</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">44
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Loan Agreement
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">March&nbsp;19, 2006
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">China Merchants
Bank Dongfang
Branch and Shanda
Computer
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Hangzhou Bianfeng<BR>
provides Shanda<BR>
Computer with a<BR>
loan through<BR>
services provided<BR>
by China Merchants<BR>
Bank
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Hangzhou Bianfeng to
provide Shanda
Computer a loan of
RMB27,000,000</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">45
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Entrusted Loan<BR>
Agreement
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">March&nbsp;24, 2006
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Shanda Networking
and China
Industrial &#038;
Commercial Bank
Pudong Branch
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Shanda Networking<BR>
provides Shanda<BR>
Computer with a<BR>
loan through<BR>
services provided<BR>
by China Industrial<BR>
&#038; Commercial Bank
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Shanda Networking
to provide Shanda
Computer a loan of
RMB35,000,000</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">46
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Loan Agreement
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">March&nbsp;24, 2006
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Shanda Networking,
Shanda Computer and
China Industrial &#038;
Commercial Bank
Pudong Branch
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Shanda Networking<BR>
provides Shanda<BR>
Computer with a<BR>
loan through<BR>
services provided<BR>
by China Industrial<BR>
&#038; Commercial Bank
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Shanda Networking
to provide Shanda
Computer a loan of
RMB35,000,000</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">47
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Loan Agreement
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">January&nbsp;4, 2006
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Shanda Networking,
Shanghai Bank
Xujiahui Branch and
Shegnqu
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Shanda Networking<BR>
provides Shengqu<BR>
with a loan through<BR>
services provided<BR>
by Shanghai Bank
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Shanda Networking
to provide Shengqu
a loan of
RMB100,000,000</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">48
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Entrusted Loan<BR>
Agreement
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">January&nbsp;4, 2006
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Shanda Networking
and China Merchants
Bank Dongfang
Branch
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Shanda Networking<BR>
provides Shengqu<BR>
with a loan through<BR>
services provided<BR>
by China Merchants<BR>
Bank
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Shanda Networking
to provide Shengqu
a loan of
RMB100,000,000</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">49
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Loan Agreement
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">January&nbsp;4, 2006
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">China Merchants
Bank Dongfang
Branch and Shengqu
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Shanda Networking<BR>
provides Shengqu<BR>
with a loan through<BR>
services provided<BR>
by China Merchants<BR>
Bank
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Shanda Networking
to provide Shengqu
a loan of
RMB100,000,000</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">50
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Entrusted Loan<BR>
Agreement
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">January&nbsp;4, 2006
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Nanjing Shanda and
China Merchants
Bank Dongfang
Branch
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Nanjing Shanda<BR>
provides Shengqu<BR>
with a loan through<BR>
services provided<BR>
by China Merchants<BR>
Bank
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Nanjing Shanda to
provide Shengqu a
loan of
RMB100,000,000</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">51
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Loan Agreement
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">January&nbsp;4, 2006
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">China Merchants
Bank Dongfang
Branch and Shengqu
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Nanjing Shanda<BR>
provides Shengqu<BR>
with a loan through<BR>
services provided<BR>
by China Merchants<BR>
Bank
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Nanjing Shanda to
provide Shengqu a
loan of
RMB100,000,000</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">52
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Cooperation<BR>
Agreement
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">January&nbsp;1, 2005
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Shengqu and Shengyue
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Shengqu to plan,
design and create
media content and
prepare such
materials for
Shengyue
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Shengyue to pay a
service fee equal
to 80% of the
revenue realized
through the
distribution of
media content</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">98
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Shareholder Rights and Corporate Governance</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Transfer of Ownership when Permitted by Law. </I>Pursuant to a purchase option and cooperation
agreement, or the purchase option agreement, entered into among Shengqu, Tianqiao Chen, Danian Chen
and Shanda Networking on December&nbsp;30, 2003, Tianqiao Chen and Danian Chen jointly granted Shengqu
an exclusive option to purchase all of their equity interest in Shanda Networking, and Shanda
Networking granted Shengqu an exclusive option to purchase all of its assets if and when (1)&nbsp;such
purchase is permitted under applicable PRC law or (2)&nbsp;to the extent permitted by law, with respect
to his individual interest, either Tianqiao Chen and Danian Chen ceases to be a director or
employee of Shanda Networking or desires to transfer his equity interest in Shanda Networking to a
third party. Shengqu may purchase such interest or assets by itself or designate another party to
purchase such interest or assets. The exercise price of the option will be equal to the lower of
RMB10&nbsp;million or the lowest price permitted by PRC law, or a pro rata portion thereof for a
purchase of a portion of the equity interest in, or assets of, Shanda Networking. Shengqu will bear
the tax consequences of Tianqiao Chen and Danian Chen caused by any exercise by Shengqu of the
option to purchase the equity interest in Shanda Networking. Following any exercise of the option,
the parties will enter into a definitive share or asset purchase agreement and other related
transfer documents within 30&nbsp;days after written notice of exercise is delivered. Pursuant to the
purchase option agreement, at all times before Shengqu acquires 100% of Shanda Networking&#146;s shares
or assets, Shanda Networking may not (1)&nbsp;sell, transfer, assign, dispose of in any manner or create
any encumbrance in any form on any of its assets unless such sale, transfer, assignment, disposal
or encumbrance is relating to the daily operation of Shanda Networking or has been disclosed to and
consented to in writing by Shengqu; (2)&nbsp;enter into any transaction which may have a material effect
on Shanda Networking assets, liabilities, operations, equity or other legal interests unless such
transaction relates to the daily operation of Shanda Networking or has been disclosed to and
consented to in writing by Shengqu; and (3)&nbsp;distribute any dividends to its shareholders in any
manner, and Tianqiao Chen and Danian Chen may not cause Shanda Networking to amend its articles of
association to the extent such amendment may have a material effect on Shanda Networking&#146;s assets,
liabilities, operations, equity or other legal interests except for pro rata increases of
registered capital required by law.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Voting Arrangement. </I>Pursuant to two proxies executed and delivered by Tianqiao Chen and Danian
Chen to Haibin Qu and Qunzhao Tan, respectively, on December&nbsp;30, 2003, Tianqiao Chen and Danian
Chen have granted Haibin Qu and Qunzhao Tan, who are employees of Shengqu, the power to exercise
their rights as the shareholders of Shanda Networking to appoint directors, the general manager and
other senior managers of Shanda Networking. Under the purchase option agreement, Tianqiao Chen and
Danian Chen have agreed that (1)&nbsp;they will only revoke the proxies granted to Haibin Qu or Qunzhao
Tan when either of the two individuals ceases to be an employee of Shengqu or Shengqu delivers a
written notice to Tianqiao Chen and Danian Chen requesting such revocation, and (2)&nbsp;they, or either
of them, as the case may be, will execute and deliver another proxy in the same format as the one
dated December&nbsp;30, 2003 to any other individual as instructed by Shengqu. Tianqiao Chen and Danian
Chen have agreed that they will cause their successors to continue to fulfill such undertaking if
and when either ceases to be a shareholder or director of Shanda Networking.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Share Pledge Agreement. </I>Pursuant to a share pledge agreement, dated December&nbsp;30, 2003,
Tianqiao Chen and Danian Chen have pledged all of their equity interest in Shanda Networking to
Shengqu to secure the payment obligations of Shanda Networking under all of the agreements between
Shanda Networking and Shengqu. Under this agreement, Tianqiao Chen and Danian Chen have agreed not
to transfer, assign, pledge or in other manner dispose of their interests in Shanda Networking or
create any other encumbrance on their interests in Shanda Networking which may have a material
effect on Shengqu&#146;s interests without the written consent of Shengqu.
</DIV>

<P align="center" style="font-size: 10pt">99
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Financing Support. </I>Pursuant to the purchase option agreement, Shengqu has agreed to provide or
designate one of its affiliates to provide financing to Shanda Networking to the extent Shanda
Networking needs such financing. To the extent that Shanda Networking is unable to repay the
financing due to its losses, Shengqu agrees to waive or cause other relevant parties to waive all
recourse against Shanda Networking with respect to the financing.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Indemnifications. </I>Shengqu has agreed to provide necessary support to and to indemnify Tianqiao
Chen and Danian Chen to the extent that they are subject to any legal or economic liabilities as a
result of performing their obligations pursuant to their agreements with Shengqu.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Other Related Party Transactions</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Authorization of Skyline Media Limited, Skyline Capital International Limited and Shanda Media
Limited to purchase shares of Sina on behalf of the Company. </I>On February&nbsp;14, 2005, we entered into
an agreement to purchase 688,015 shares of Sina Corp, an online media company, value-added service
provider and Internet portal in China, at an aggregate purchase price of US$10.7&nbsp;million from
Skyline Media Limited, Skyline Capital International Limited and Shanda Media Limited, in
connection with our strategic investment in Sina. This aggregate purchase price is equivalent to a
US$15.59 per share purchase price, which represents the actual cost incurred by the sellers in
purchasing the Sina shares less certain past profits realize by the sellers on behalf of us in
connection with trading Sina shares.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>C. INTEREST OF EXPERTS AND COUNSEL</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Not applicable.
</DIV>
<DIV align="left">
<A name="109"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>Item&nbsp;8. Financial Information</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>A. CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Consolidated Financial Statements</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Please see Item&nbsp;18 &#147;Financial Statements&#148; for our audited consolidated financial statements
filed as a part of this annual report.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Legal Proceedings</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;From time to time we may initiate legal proceedings in order to protect our contractual and
property rights and becoming involved in legal proceedings in which others allege that we have
breached their contractual or property rights.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Actoz / Wemade</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On July&nbsp;3, 2003, we initiated an arbitration in Singapore, under the auspices of the
International Chamber of Commerce, or the ICC, against Actoz and Wemade, which are two online game
developers based in South Korea, in order to resolve, among other things, certain disputes relating
to the software license agreement between Shanda Networking and Actoz for Mir II. In August&nbsp;2003,
we settled the disputes regarding the Mir II license agreement with Actoz and requested
discontinuance of the arbitration. Wemade, however, objected to the discontinuation request and
filed claims against Shanda

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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">and Actoz, alleging, among other things, that Wemade validly terminated the Mir II license in
November&nbsp;2002. In October&nbsp;2005, the arbitrator appointed by the ICC to decide the dispute issued
its award. The tribunal found that Actoz was fully authorized to enter into the settlement with
Shanda on behalf of Wemade and that Wemade had no legitimate interest to object to the withdrawal
of the arbitration. Accordingly, the claims made by Wemade against Shanda and Actoz were dismissed.
In addition, Wemade shall bear and pay the costs incurred by Shanda and Actoz from August&nbsp;29, 2003
in defending against such claims.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On October&nbsp;8, 2003, Wemade filed a claim with the Beijing First Intermediate People&#146;s Court,
or the Beijing Court, against us and Beijing Lian Jin Century Scientific and Commercial Centre, a
Beijing based distributor of our games, which alleged that we have infringed upon Wemade&#146;s
copyright and violated the PRC Anti-Unfair Competition Law with respect to Mir II in connection
with our development and operation of Woool. In particular, Wemade has alleged that the Chinese
name for Woool, which includes two characters from the Chinese name for Mir II, misleads users and
that we previously encouraged users to switch from Mir II to Woool by permitting the transfer of
game characters developed in Mir II to Woool. The claim was served to us on December&nbsp;29, 2003.
Wemade has alleged, among other things, that we have copied Mir II and elements of the Legend of
Mir III, another game developed by Wemade, in developing Woool and that customers have been misled
into thinking that Woool is a new version of Mir II. Wemade has requested the court to order us to
stop operating Woool, destroy all data relating to Woool, stop distributing and marketing products
related to Woool, take down the Woool website, stop selling pre-paid cards and related products
with respect to Woool, and pay Wemade&#146;s legal fees and related costs incurred by Wemade in
connection with this litigation.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On May&nbsp;24, 2004, the Beijing court informed us that Actoz joined Wemade as a co-plaintiff in
these proceedings. In October&nbsp;2005, the Beijing Court completed a series of hearings in connection
with the allegations. The parties are awaiting a decision from the Beijing Court.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We believe that we have valid defenses to Wemade&#146;s claims. There are, however, uncertainties
associated with any litigation, and we cannot assure you that the Beijing court will determine the
issues in our favor.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In late March&nbsp;2004, we received notice from Actoz relating to an audit on Mir II royalty fees
prepared on behalf of Actoz pursuant to the settlement agreement. The audit alleged certain
potential underpayments of royalty fees in respect of the period from July&nbsp;1, 2002 to September&nbsp;30,
2003 amounting to approximately RMB35&nbsp;million. In addition, we received notice from Actoz relating
to an audit of Mir II royalty fees prepared on behalf of Actoz for royalties accrued during the
fourth quarter of 2003. The audit alleged certain potential underpayments of royalty fees for such
period in an amount of approximately RMB2&nbsp;million. In September&nbsp;2005, in connection with the
extension of the software license agreement for Mir II, we settled the alleged underpayment of
royalty fees with Actoz and agreed to pay RMB20.6&nbsp;million of RMB37&nbsp;million alleged underpayment.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>China Cyberport</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On April&nbsp;25, 2006, China Cyberport Co. Ltd., or China Cyberport, filed a claim with the
Shanghai First Intermediate People&#146;s Court against our affiliate company Haofang. The claim alleges
that Haofang, which operates a PC game network platform that allows users to play PC games against
each other through the Internet, infringed upon China Cyberport&#146;s exclusive distribution rights for
certain PC games. China Cyberport has requested that the Shanghai Court order Haofang to cease
operation of its PC game network, to pay damages in the amount of RMB120&nbsp;million and to reimburse
China Cyberport for costs incurred in connection with the dispute. We believe that Haofang has
valid defenses to China

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<DIV style="font-family: 'Times New Roman',Times,serif">

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Cyberport&#146;s claims and we intend to assist Haofang in defending vigorously against such
claims. There are, however, uncertainties associated with any litigation, and we cannot assure you
that the Shanghai court will determine the issues in favor of Haofang.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Dividend Policy</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We declared a special cash dividend in the first quarter of 2004, that was paid on April&nbsp;29,
2004, pro-rata out of available cash to our existing shareholders. We do not, however, expect to
pay dividends on our ordinary shares in the foreseeable future. We currently intend to retain all
available funds and any future earnings for use in the operation and expansion of our business, and
do not anticipate paying any cash dividends on our ordinary shares, or indirectly on our ADSs, for
the foreseeable future.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Future cash dividends, if any, will be declared at the discretion of our board of directors
and will depend upon our future operations and earnings, capital requirements and surplus, general
financial condition, contractual restrictions and other factors as our board of directors may deem
relevant.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Holders of ADSs will be entitled to receive dividends, subject to the terms of the deposit
agreement, to the same extent as the holders of our ordinary shares, less the fees and expenses
payable under the deposit agreement. Cash dividends will be paid by the depositary to holders of
ADSs in U.S. dollars, subject to the terms of the deposit agreement. Other distributions, if any,
will be paid by the depositary to holders of ADSs in any means it deems legal, fair and practical.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>B. SIGNIFICANT CHANGES</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Since the date of the audited financial statements included as a part of this annual report,
the following significant changes have occurred:
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On February&nbsp;28, 2006, we made the final earn out payment in the amount of US$ 31&nbsp;million to
the former shareholders of Haofang in connection with our two-step acquisition of Haofang.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On May&nbsp;17, 2006, we announced our unaudited financial results for the first quarter of 2006,
ended March&nbsp;31,2006.
</DIV>

<DIV align="left">
<A name="110"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>Item&nbsp;9. The Offer and Listing</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>A. OFFER AND LISTING DETAILS</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Price Range of American Depositary Shares</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our ADSs, each representing two of our ordinary shares, have been listed on The Nasdaq
National Market since May&nbsp;13, 2004. Our ADSs trade under the symbol &#147;SNDA.&#148; The following table
provides the high and low sale prices for our ADSs on The Nasdaq National Market for (1)&nbsp;the year
of 2004 and the year of 2005, (2)&nbsp;each of the quarters since the second quarter of 2004, and (3)
each of the most recent six months. On June&nbsp;26, 2006, the last reported sale price for our ADSs was
US$13.71 per ADS.
</DIV>


<P align="center" style="font-size: 10pt">102
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000"><B>Sale Price (US$)</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>High</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Low</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Yearly highs and lows</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Year 2004 (from May&nbsp;13, 2004)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">45.40</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10.58</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Year 2005</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">43.55</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14.80</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Quarterly highs and lows:</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Second quarter 2004</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17.88</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10.58</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Third quarter 2004</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25.30</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13.52</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Fourth quarter 2004</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">45.40</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23.62</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">First quarter 2005</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">43.55</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">27.80</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Second quarter 2005</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">42.24</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">28.98</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Third quarter 2005</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">41.18</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">26.67</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Fourth quarter 2005</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">28.30</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14.80</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">First quarter 2006</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18.40</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12.58</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Monthly highs and lows:</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">December&nbsp;2005</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17.47</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14.80</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">January&nbsp;2006</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18.40</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14.95</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">February&nbsp;2006</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17.00</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13.47</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">March&nbsp;2006</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14.49</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12.58</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">April&nbsp;2006</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14.55</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12.23</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">May&nbsp;2006</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15.30</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12.30</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">B. PLAN OF DISTRIBUTION
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Not applicable
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">C. MARKETS
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our ADSs, each representing two of our ordinary shares, have been listed on The Nasdaq National
Market since May&nbsp;13, 2004 under the symbol &#147;SNDA.&#148;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">D. SELLING SHAREHOLDERS
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Not applicable
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">E. DILUTION
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Not applicable
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">F. EXPENSES OF THE ISSUE
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Not applicable
</DIV>


<P align="center" style="font-size: 10pt">103
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left">
<A name="111"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>Item&nbsp;10. Additional Information</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>A. SHARE CAPITAL</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Not applicable.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>B. MEMORANDUM AND ARTICLES OF ASSOCIATION</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We incorporate by reference into this annual report the description of our amended and
restated memorandum and articles of association contained in our registration statement on Form F-1
(File No.&nbsp;333-114177) filed with the Securities and Exchange Commission on May&nbsp;7, 2004.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>C. MATERIAL CONTRACTS</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have not entered into any material contracts other than in the ordinary course of business
or other than those described in Item&nbsp;4 &#147;Information on the Company&#148; and elsewhere in this annual
report.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>D. EXCHANGE CONTROLS</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Substantially all of our revenues are denominated in Renminbi, while a portion of our
expenditures are denominated in foreign currencies, primarily the U.S. dollar. Fluctuations in
exchange rates, particularly those involving the U.S. dollar and the Japanese yen, may affect our
costs and operating margins. In addition, these fluctuations could result in exchange losses and
increased costs in Renminbi terms. Where our operations conducted in Renminbi are reported in
dollars, such fluctuations could result in changes in reported results which do not reflect changes
in the underlying operations. Since January&nbsp;1, 1994, the PRC government has used a unitary managed
floating rate system. Under that system, the People&#146;s Bank of China, or PBOC, publishes a daily
base exchange rate with reference primarily to the supply and demand of Renminbi against U.S.
dollar and other foreign currencies in the market during the previous day. Authorized banks and
financial institutions are allowed to quote buy and sell rats for Renminbi within a specified bank
around the central bank&#146;s daily exchange rate. On July&nbsp;21, 2005, PBOC announced an adjustment of
the exchange rate of the U.S. dollar to Renminbi from 1:8.27 to 1:8.11 and modified the system by
which the exchange rates are determined. This adjustment has resulted in an approximate 3.0%
appreciation of the Renminbi against the U.S. dollar as of March&nbsp;21, 2006. While the international
reaction to the Renminbi revaluation has generally been positive, there remains significant
international pressure on the PRC government to adopt an even more flexible currency policy, which
could result in a further reevaluation and a significant fluctuation of the exchange rate of
Renminbi against the U.S. dollar, including possible devaluations. As substantially all of our
revenues are denominated in Renminbi, such a potential future devaluation of Renminbi against the
U.S. dollars could negatively impact our results of operations.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In October&nbsp;2005, the State Administration of Foreign Exchange, or SAFE, promulgated
regulations that require registration with local SAFE in connection with direct or indirect
offshore investment by PRC residents, including PRC individual residents and PRC corporate
entities. These regulations apply to our shareholders who are PRC residents and also apply to our
prior and future offshore acquisitions.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The SAFE regulations retroactively require registration by March&nbsp;31, 2006 of direct or
indirect investments previously made by PRC residents in offshore companies. If a PRC resident
with a direct or indirect stake in an offshore

<P align="center" style="font-size: 10pt">104
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">parent company fails to make the required SAFE registration, the PRC subsidiaries of such
offshore parent company may be prohibited from making distributions of profit to the offshore
parent and from paying the offshore parent proceeds from any reduction in capital, share transfer
or liquidation in respect of the PRC subsidiaries. Further, failure to comply with various SAFE
registration requirements described above could result in liability under PRC law for foreign
exchange evasion.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For more information about foreign exchange control and other foreign exchange regulations in
China, see &#147;Risk Factors&#148; in Item&nbsp;3 &#147;Key Information.&#148;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>E. TAXATION</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>The following is a general summary of certain material Cayman Islands and U.S. federal income
tax considerations. The discussion is not intended to be, nor should it be construed as, legal or
tax advice to any particular prospective shareholder. 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 United
States state or local tax laws, or tax laws of jurisdictions other than the Cayman Islands and the
United States.</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Cayman Islands Taxation</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Cayman Islands currently levies no taxes on individuals or corporations based upon
profits, income, gains or appreciation and there is no taxation in the nature of inheritance tax or
estate duty or withholding tax applicable to us or to any holder of our securities. There are no
other taxes likely to be material to us levied by the Government of the Cayman Islands except for
stamp duties which may be applicable on instruments executed in, or after execution brought within
the jurisdiction of the Cayman Islands. No stamp duty is payable in the Cayman Islands on transfers
of shares of Cayman Islands companies except those which hold interests in land in the Cayman
Islands. The Cayman Islands is not party to any double tax treaties. There are no exchange control
regulations or currency restrictions in the Cayman Islands.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant to Section&nbsp;6 of the Tax Concessions Law (1999 Revision) of the Cayman Islands, the
Company has obtained an undertaking from the Governor-in-Council:
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="5%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(1)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>that no law which is enacted in the Cayman Islands imposing any tax to be levied on
profits or income or gains or appreciation shall apply to the Company or its operations;
and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="5%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(2)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>that the aforesaid tax or any tax in the nature of estate duty or inheritance tax
shall not be payable on the shares, debentures or other obligations of the Company.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The undertaking for the Company is for a period of twenty years from November&nbsp;25, 2003.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>United States Federal Income Taxation</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This discussion describes the material U.S. federal income tax consequences of the purchase,
ownership and disposition of our ADSs. This discussion does not address any aspect of U.S. federal
gift or estate tax, or the state, local or foreign tax consequences of an investment in our ADSs.
This discussion applies to you only if you hold and beneficially own our ADSs as capital assets for
tax purposes. This discussion does not apply to you if you are a member of a class of holders
subject to special rules, such as:
</DIV>


<P align="center" style="font-size: 10pt">105
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="5%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>dealers in securities or currencies;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="5%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>traders in securities that elect to use a mark-to-market method of accounting for
securities holdings;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="5%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>banks or other financial institutions;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="5%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>insurance companies;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="5%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>tax-exempt organizations;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="5%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>partnerships and other entities treated as partnerships for U.S. federal income
tax purposes or persons holding ADSs through any such entities;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="5%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>persons that hold ADSs as part of a hedge, straddle, constructive sale,
conversion transaction or other integrated investment;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="5%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>U.S. Holders (as defined below) whose functional currency for tax purposes is not the U.S. dollar;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="5%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>persons liable for alternative minimum tax; or</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="5%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>persons who actually or constructively own 10% or more of the total combined voting
power of all classes of our shares (including ADSs) entitled to vote.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This discussion is based on the U.S. Internal Revenue Code of 1986, as amended, which we refer
to in this discussion as the Code, its legislative history, existing and proposed regulations
promulgated thereunder, published rulings and court decisions, all as currently in effect. These
laws are subject to change, possibly on a retroactive basis. In addition, this discussion relies on
our assumptions regarding the projected value of our shares and the nature of our business.
Finally, this discussion is based in part upon the representations of the depositary and the
assumption that each obligation in the deposit agreement and any related agreement will be
performed in accordance with its terms. For U.S. federal income tax purposes, as a holder of ADSs,
you are treated as the owner of the underlying ordinary shares represented by such ADSs.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;You should consult your own tax advisor concerning the particular U.S. federal income tax
consequences to you of the purchase, ownership and disposition of our ADSs, as well as the
consequences to you arising under the laws of any other taxing jurisdiction.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For purposes of the U.S. federal income tax discussion below, you are a &#147;U.S. Holder&#148; if you
beneficially own ADSs and are:
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="5%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>a citizen or resident of the United States for U.S. federal income tax purposes;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="5%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>a corporation, or other entity taxable as a corporation, that was created or
organized in or under the laws of the United States or any political subdivision thereof;</TD>
</TR>

</TABLE>
</DIV>
<P align="center" style="font-size: 10pt">106
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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV style="margin-top: 6pt"><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">



</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="5%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>an estate the income of which is subject to U.S. federal income tax regardless of
its source; or</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="5%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>a trust if (a)&nbsp;a court within the United States is able to exercise primary
supervision over its administration and one or more U.S. persons have the authority to
control all substantial decisions of the trust, or (b)&nbsp;the trust has a valid election in
effect to be treated as a U.S. person.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If you are not a U.S. person, please refer to the discussion below under &#147;Non-U.S. Holders.&#148;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For U.S. federal income tax purposes, income earned through a foreign or domestic partnership
or other flow-through entity is attributed to its owners. Accordingly, if a partnership or other
flow-through entity holds ADSs, the tax treatment of the holder will generally depend on the status
of the partner or other owner and the activities of the partnership or other flow-through entity.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>U.S. Holders</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Dividends on ADSs. </I>We do not anticipate paying dividends on our ordinary shares or indirectly
on our ADSs, in the foreseeable future. See &#147;Dividend Policy&#148; in Item&nbsp;8.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Subject to the &#147;Passive Foreign Investment Company&#148; discussion below, if we do make
distributions and you are a U.S. Holder, the gross amount of any distributions you receive on your
ADSs will generally be treated as dividend income if the distributions are made from our current or
accumulated earnings and profits, calculated according to U.S. federal income tax principles.
Dividends will generally be subject to U.S. federal income tax as ordinary income on the day you
actually or constructively receive such income. However, if you are an individual and have held
your ADSs for a sufficient period of time, dividend distributions on our ADSs will generally
constitute qualified dividend income taxed at a preferential rate (generally 15% for dividend
distributions before January&nbsp;1, 2011) as long as our ADSs continue to be readily tradable on the
Nasdaq National Market. You should consult your own tax adviser as to the rate of tax that will
apply to you with respect to dividend distributions, if any, you receive from us.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We do not intend to calculate our earnings and profits according to U.S. tax accounting
principles. Accordingly, distributions on our ADSs, if any, will generally be taxed to you as
dividend distributions for U.S. tax purposes. You will not be entitled to claim a
dividends-received deduction with respect to distributions you receive from us even if you are a
corporation. Dividends generally will constitute foreign source passive income for purposes of the
U.S. foreign tax credit rules.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Sales and other dispositions of ADSs. </I>Subject to the &#147;Passive Foreign Investment Company&#148;
discussion below, when you sell or otherwise dispose of ADSs, you will generally recognize capital
gain or loss in an amount equal to the difference between the amount realized on the sale or other
disposition and your adjusted tax basis in the ADSs, both as determined in U.S. dollars. Your
adjusted tax basis will generally equal the amount you paid for the ADSs. Any gain or loss you
recognize will be long term capital gain or loss if your holding period in our ADSs is more than
one year at the time of disposition. If you are an individual, any such long-term capital gain will
be taxed at preferential rates (generally 15% for capital gain recognized before January&nbsp;1, 2011).
Your ability to deduct capital losses will be subject to various limitations.
</DIV>


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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Passive Foreign Investment Company. </I>If we were a Passive Foreign Investment Company, or
&#147;PFIC&#148;, in any taxable year in which you hold our ADSs, as a U.S. Holder, you would generally be
subject to adverse U.S. tax consequences in the form of increased tax liability and special U.S.
tax reporting requirements.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We will be classified as a PFIC in any taxable year if either: (1)&nbsp;the average percentage
value of our gross assets during the taxable year that produce passive income or are held for the
production of passive income is at least 50% of the value of our total gross assets or (2)&nbsp;75% or
more of our gross income for the taxable year is passive income (such as certain dividends,
interest or royalties). For purposes of the first test: (1)&nbsp;any cash, cash equivalents, and cash
invested in short-term, interest bearing, debt instruments, or bank deposits that are readily
convertible into cash, will generally count as producing passive income or held for the production
of passive income and (2)&nbsp;the total value of our assets is calculated based on our market
capitalization.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We believe that we were not a PFIC for the taxable year 2005. Although in the past we have
operated our business and in the future we intend to operate our business so as to minimize the
risk of being classified as a PFIC, there can be no assurance that we will not be a PFIC for the
taxable year 2006 and/or later taxable years, as PFIC status is re-tested each year and depends on
our assets and income in such year. For example, we would be a PFIC for the taxable year 2006 if
the sum of our average market capitalization, which is our share price multiplied by the total
amount of our outstanding shares, and our liability over the taxable year is not more than twice
the value of our cash, cash equivalents, and other assets that are readily converted into cash.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If we were a PFIC, you would generally be subject to additional taxes and interest charges on
certain &#147;excess&#148; distributions we make and on any gain realized on the disposition or deemed
disposition of your ADSs, regardless of whether we continue to be a PFIC in the year in which you
receive an &#147;excess&#148; distribution or dispose of or are deemed to dispose of your ADSs. Distributions
in respect of your ADSs during a taxable year would generally constitute &#147;excess&#148; distributions if,
in the aggregate, they exceed 125% of the average amount of distributions in respect of your ADSs
over the three preceding taxable years or, if shorter, the portion of your holding period before
such taxable year.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;To compute the tax on &#147;excess&#148; distributions or any gain, (1)&nbsp;the &#147;excess&#148; distribution or the
gain would be allocated ratably to each day in your holding period, (2)&nbsp;the amount allocated to the
current year and any tax year before we became a PFIC would be taxed as ordinary income in the
current year, (3)&nbsp;the amount allocated to other taxable years would be taxable at the highest
applicable marginal rate in effect for that year, and (4)&nbsp;an interest charge at the rate for
underpayment of taxes for any period described under (3)&nbsp;above would be imposed with respect to any
portion of the &#147;excess&#148; distribution or gain that is allocated to such period. In addition, if we
were a PFIC, no distribution that you receive from us would qualify for taxation at the
preferential rate discussed in the &#147;Dividends on ADSs&#148; section above.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If we were a PFIC in any year, as a U.S. Holder, you would be required to make an annual
return on IRS Form&nbsp;8621 regarding your ADSs. However, we do not intend to generate, or share with
you, information that you might need to properly complete IRS Form&nbsp;8621. You should consult with
your own tax adviser regarding reporting requirements with regard to your ADSs.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If we were a PFIC in any year, you would generally be able to avoid the &#147;excess&#148; distribution
rules described above by making a timely so-called &#147;mark-to-market&#148; election with respect to your
ADSs, provided our ADSs are &#147;marketable&#148;. If you made this election in a timely fashion, you would
generally recognize as ordinary income or ordinary loss the difference between the fair market
value of your ADSs on the first day of any taxable year and their value on the last day of that

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<DIV style="font-family: 'Times New Roman',Times,serif">

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">taxable year. Any ordinary income resulting from this election would generally be taxed at
ordinary income rates and would not be eligible for the reduced rate of tax applicable to qualified
dividend income. Any ordinary losses would be limited to the extent of the net amount of previously
included income as a result of the mark-to-market election, if any. Your basis in the ADSs would be
adjusted to reflect any such income or loss. You should consult with your own tax adviser regarding
potential advantages and disadvantages to you of making a &#147;mark-to-market&#148; election with respect to
your ADSs. Separately, if we were a PFIC in any year, you would be able to avoid the &#147;excess&#148;
distribution rules by making a timely election to treat us as a so-called &#147;Qualified Electing Fund&#148;
or &#147;QEF.&#148; You would then generally be required to include in gross income for any taxable year (1)
as ordinary income, your pro rata share of our ordinary earnings for the taxable year, and (2)&nbsp;as
long-term capital gain, your pro rata share of our net capital gain for the taxable year. However,
we do not intend to provide you with the information you would need to make or maintain a &#147;QEF&#148;
election and you will, therefore, not be able to make or maintain such an election with respect to
your ADSs.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Non-U.S. Holders</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If you beneficially own ADSs and are not a U.S. Holder for U.S. federal income tax purposes (a
&#147;Non-U.S. Holder&#148;), you generally will not be subject to U.S. federal income tax or withholding on
dividends received from us with respect to ADSs unless that income is considered effectively
connected with your conduct of a U.S. trade or business and, if an applicable income tax treaty so
requires as a condition for you to be subject to U.S. federal income tax with respect to income
from your ADSs, such dividends are attributable to a permanent establishment that you maintain in
the United States. You generally will not be subject to U.S. federal income tax, including
withholding tax, on any gain realized upon the sale or exchange of ADSs, unless:
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="5%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>that gain is effectively connected with the conduct of a U.S. trade or business
and, if an applicable income tax treaty so requires as a condition for you to be subject
to U.S. federal income tax with respect to income from your ADSs, such gain is
attributable to a permanent establishment that you maintain in the United States; or</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="5%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>you are a nonresident alien individual and are present in the United States for at
least 183&nbsp;days in the taxable year of the sale or other disposition and either (1)&nbsp;your
gain is attributable to an office or other fixed place of business that you maintain in
the United States or (2)&nbsp;you have a tax home in the United States.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If you are engaged in a U.S. trade or business, unless an applicable tax treaty provides
otherwise, the income from your ADSs, including dividends and the gain from the disposition of
ADSs, that is effectively connected with the conduct of that trade or business will generally be
subject to the rules applicable to U.S. holders discussed above. In addition, if you are a
corporation, you may be subject to an additional branch profits tax at a rate of 30% or any lower
rate under an applicable tax treaty.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>U.S. information reporting and backup withholding rules</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In general, dividend payments with respect to the ADSs and the proceeds received on the sale
or other disposition of those ADSs may be subject to information reporting to the IRS and to backup
withholding (currently imposed at a rate of 28%). Backup withholding will not apply, however, if
you (1)&nbsp;are a corporation or come within certain other exempt categories and, when required, can
demonstrate that fact or (2)&nbsp;provide a taxpayer identification number, certify as to no loss of
exemption from backup withholding and otherwise comply with the applicable backup withholding
rules. To establish your status as an exempt person, you will generally be required to provide
certification on IRS Form W-9, W-8BEN or

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<DIV style="font-family: 'Times New Roman',Times,serif">

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">W-8ECI, as applicable. Any amounts withheld from payments to you under the backup withholding
rules will be allowed as a refund or a credit against your U.S. federal income tax liability,
provide that you furnish the required information to the IRS.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;HOLDERS OF OUR ADSS SHOULD CONSULT WITH THEIR OWN TAX ADVISORS REGARDING THE APPLICATION OF
THE U.S. FEDERAL INCOME TAX LAWS TO THEIR PARTICULAR SITUATION AS WELL AS ANY TAX CONSEQUENCES
RESULTING FROM PURCHASING, HOLDING OR DISPOSING OF THE ADSS, INCLUDING THE APPLICABILITY AND EFFECT
OF THE TAX LAWS OF ANY STATE, LOCAL OR FOREIGN JURISDICTION AND INCLUDING ESTATE, GIFT, AND
INHERITANCE LAWS.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>F. DIVIDENDS AND PAYING AGENTS</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Not applicable
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>G. STATEMENTS BY EXPERTS</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Not applicable
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>H. DOCUMENTS ON DISPLAY</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have filed with the SEC a registration statement on Form F-1, a registration statement on
Form F-6, a registration statement on Form F-3, and a registration statement on Form 8-A, including
relevant exhibits and schedules under the Securities Act, covering the ordinary shares represented
by the ADSs, as well as the ADSs. You should refer to our registration statements and their
exhibits and schedules if you would like to find out more about us and about the ADSs and the
ordinary shares represented by the ADSs. This annual report summarizes material provisions of
contracts and other documents to which we refer you. Since the annual report may not contain all
the information that you may find important, you should review a full text of these documents.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The SEC also maintains a website that contains reports, proxy statements and other information
about issuers, such as us, who file electronically with the SEC. The address of that site is
http://www.sec.gov. The information on that website is not a part of this annual report.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We will furnish to The Bank of New York, as depositary of our ADSs, our annual reports. When
the depositary receives these reports, it will upon our request promptly provide them to all
holders of record of ADSs. We will also furnish the depositary with all notices of shareholders&#146;
meetings and other reports and communications in English that we make available to our
shareholders. The depositary will make these notices, reports and communications available to
holders of ADSs and will upon our request mail to all holders of record of ADSs the information
contained in any notice of a shareholders&#146; meeting it receives.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are subject to periodic reporting and other informational requirements of the Exchange Act
as applicable to foreign private issuers. Accordingly, we will be required to file reports,
including annual reports on Form 20-F, and other information with the SEC. As a foreign private
issuer, we are exempt from the rules of the Exchange Act prescribing the furnishing and content of
proxy statements to shareholders. The registration statements, reports and other information so
filed can be inspected and copied at the public reference facilities maintained by the SEC at Room
1024, Judiciary Plaza,
</DIV>


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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">450 Fifth Street, N.W., Washington, D.C. 20549. You can request copies of these documents upon
payment of a duplicating fee, by writing to the SEC. Please call the SEC at 1-800-SEC-0330 for
further information on the operation of the public reference rooms.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>I. SUBSIDIARY INFORMATION</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Not applicable
</DIV>

<DIV align="left">
<A name="112"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>Item&nbsp;11. Quantitative and Qualitative Disclosures About Market Risk</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Interest Rate Risk</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our exposure to interest rate risk primarily relates to the interest income generated by
excess cash invested in demand deposits, investments in fixed deposits with maturity over three
months, PRC government and PRC corporate bonds, and interest expenses
to be incurred, if we seek to obtain a credit facility to satisfy our
cash requirement for repurchase of our convertible notes. We have not used derivative financial
instruments in our investment portfolio in order to reduce interest rate risk. Interest earning
instruments carry a degree of interest rate risk. However, our future
interest income may change, subject to market interest rate movement.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Inflation</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In recent years, China has not experienced significant inflation, and thus inflation has not
had a significant effect on our business during the past two years. According to the China
Statistical Bureau, China&#146;s overal national inflation rate, as represented by the general consumer
price index, was approximately 1.2%, 3.9% and 1.8%, in 2003, 2004 and 2005 respectively. Sustained
or increased inflation in China may have an adverse impact on China&#146;s economy, which could affect
demand for our products or services or increase our cost of services or operating expenses. As we
have not previously operated during a period of significant inflation, we cannot predict with
confidence the effect that such inflation may have on our business. See &#147;Risk Factors&#148;&#151;&#147;Risks
Relating to the People&#146;s Republic of China &#151; Inflation in China could negatively affect our
profitability and growth&#148; in Item&nbsp;3, &#147;Key Information&#148;.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Foreign Currency Risk</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our business is operated in
the PRC, and its value is effectively denominated in Renminbi, while our ADSs will be traded in U.S. dollars. The fluctuation of foreign exchange
rate between U.S. dollars and Renminbi affects the value of your investment in our ADSs. All our revenues and most of expenses are substantially denominated
in Renminbi, their exposure to foreign exchange risks should generally be limited. However, as at the release date of our annual report, we do have material
monetary assets and liabilities denominated in U.S. dollars, which mainly consist of the investments in marketable securities and affiliated companies and
the convertible notes payable. The fluctuation of foreign exchange rate affects the value of these monetary assets and liabilities denominated in
U.S. dollars. Generally, appreciation of Renminbi against U.S. dollars will devaluate the assets and liabilities denominated in U.S. dollar, while
devaluation of Renminbi again U.S. dollars will appreciate the assets and liabilities denominated in U.S. dollar. In 2005, a
foreign exchange gain of RMB48.9 million (US$6.1 million) incurred as a result of revaluation of monetary assets and liabilities denominated in US dollar
following the appreciation of Renminbi against the U.S. dollar. In China, very limited hedging transactions are available to reduce our exposure to exchange
rate fluctuations. To date, we have not entered into any hedging transactions in an effort to reduce our exposure to foreign currency exchange risk. While
we may decide to enter into hedging transactions in the future, the availability and effectiveness of these hedges may be limited and we may not be able
to successfully hedge our exposure at all. See &#147;Exchange Controls&#148; in
Item&nbsp;10, &#147;Additional Information&#148;.
</DIV>


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<DIV align="left">
<A name="113"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>Item&nbsp;12. Description of Securities Other Than Equity Securities</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Not Applicable
</DIV>

<DIV align="left">
<A name="114"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>Part II</B>
</DIV>

<DIV align="left">
<A name="115"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>Item&nbsp;13. Defaults, Dividend Arrearages and Delinquencies</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Not Applicable
</DIV>

<DIV align="left">
<A name="116"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>Item&nbsp;14. Material Modifications to the Rights of Security Holders and Use of Proceeds</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>A. &#150; D. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Not Applicable
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>E. USE OF PROCEEDS</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Not Applicable
</DIV>

<DIV align="left">
<A name="117"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>Item&nbsp;15. Controls and Procedures</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Evaluation of Disclosure Controls and Procedures</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of the end of the period covered by this report, our principal executive officer and
principal financial officer have performed an evaluation of the effectiveness of our disclosure
controls and procedures within the meaning of Rules&nbsp;13a-15(e) and 15d-15(e) of Exchange Act. Based
upon that evaluation, and in light of the material weaknesses described below, they have concluded
that our disclosure controls and procedures were not effective in ensuring that the information
required to be disclosed by us in the reports that we file and furnish under the Exchange Act is
recorded, processed, summarized and reported, within the time periods specified in by the
Securities and Exchange Commission&#146;s rules and regulations.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Internal Controls</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are aware of the importance of maintaining controls and procedures and are working towards
improving our controls and procedures. Beginning with the fiscal year ending December&nbsp;31, 2006,
Section&nbsp;404 of the Sarbanes-Oxley Act of 2002, or Section&nbsp;404, will require us to include an
internal control report of management with our annual report on Form 20-F. The internal control
report must contain (i)&nbsp;a statement of management&#146;s responsibility for establishing and maintaining
adequate internal control over financial reporting, (ii)&nbsp;a statement identifying the framework used
by management to conduct the required evaluation of the effectiveness of our internal control over
financial reporting, (iii)&nbsp;management&#146;s assessment of the effectiveness of our internal control
over financial reporting as of the end of our most recent fiscal year, including a statement as to
whether or not our internal control over financial reporting is effective and (iv)&nbsp;a statement that
our independent auditors have issued an attestation report on management&#146;s assessment of our
internal control over financial reporting.
</DIV>


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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In the course of their audit of our 2005 operating results, our independent auditors,
PricewaterhouseCoopers Zhong Tian CPAs Limited Company, or PricewaterhouseCoopers, have identified
a number of control deficiencies, some of which constitute material weaknesses and significant
deficiencies. A control deficiency exits when the design of operation of a control does not enable
management or employees, in the normal course of performing their assigned functions, to prevent or
detect misstatements on a timely basis; a significant deficiency is a control deficiency, or
combination of control deficiencies, that adversely affects the company&#146;s ability to initiate,
authorize, record, process, or report external financial data reliably in accordance with generally
accepted accounting principles such that there is more than a remote likelihood that a misstatement
of the company&#146;s annual or interim financial statements that is more than inconsequential will not
be prevented or detected; a material weakness is a control deficiency, or combination of control
deficiencies, that result in more than a remote likelihood that a material misstatement of the
financial statements will not be prevented or detected. Specifically our auditors noted that we had
material weaknesses which consist of: (1)&nbsp;lack of an enterprise risk management system, including
internal audit or like functions to address enterprise risk and internal policies over company
level controls are not formalized, (2)&nbsp;lack of sufficient personnel with appropriate knowledge,
experience and training in the application of accounting principles generally accepted in the US
(&#147;US GAAP&#148;), commensurate with the financial reporting requirements, (3)&nbsp;lack of policies to select
and evaluate the design and implementation with regards to US GAAP accounting policies and critical
accounting estimates. In addition, significant deficiency identified is lack of policies and
procedures over data security and access, segregation of duties, data backup and system change.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We consulted with our Audit Committee and undertook or are undertaking remedial measures to
make improvements as soon as practicable. Our board of directors and the audit committee have been
advised of these material weaknesses and significant deficiencies.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;To comply with our Section&nbsp;404 obligations described above, we are currently performing the
system and process evaluation and testing (and any required remediation) of our internal control
over financial reporting by the effective date for compliance. Our efforts to implement
standardized internal control procedures and develop the internal tests necessary to verify the
proper application of the internal control procedures and their effectiveness will be a key area of
focus for our Board of Directors, our Audit Committee and our senior management, particularly in
light of the above material weaknesses and significant deficiencies. As this process continues, we
and our auditors may identify other conditions that may result in significant deficiencies or
material weaknesses in the future.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In response to the above material weaknesses and significant deficiencies, in cooperation with
our Board and under the supervision of our audit committee, we have taken a number of actions.
These measures include formalization of internal audit team and enhancement of internal audit
function, with clearer internal audit objective and work plan; recruitment of executive officers
and staff with US GAAP expertise; standardization of timely review procedures over the critical
accounting policies and critical accounting estimates. In addition, we plan to take the following
measures in order to address these material weaknesses and the significant deficiencies in our
internal controls<B>:</B>
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>arrange training for financial and accounting personnel on a periodical basis to
furnish them with adequate knowledge of US GAAP and SEC rules and disclosure requirement;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>reinforce existing controls over data security and system change;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>implement additional monitoring controls that are designed to improve upon the
accuracy and timely preparation of our financial statements and related SEC filings; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="5%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>standardize internal policies over the design and implementation of company level
controls</TD>
</TR>

</TABLE>
</DIV>
<P align="center" style="font-size: 10pt">113
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV style="margin-top: 6pt"><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">



</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The foregoing measures are in addition to measures we have implemented during 2005 in
connection with the requirements of the Sarbanes-Oxley Act of 2002. In particular, during 2005, we
undertook a number of actions to strengthen our internal controls, including the formalization and
adoption of accounting and management policies, including policies relating to credit controls,
inventory pricing and management, sales with multiple elements, and continuous impairment
assessment of investments and other long-lived assets, and the hiring and training of personnel as
required to implement these policies and those which will be required for compliance with Section
404 upon its effectiveness.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Inherent Limitation on the Effectiveness of Internal Controls</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The effectiveness of any system of internal control over financial reporting, including
Shanda&#146;s, is subject to inherent limitations, including the exercise of judgment in designing,
implementing, operating, and evaluating the controls and procedures, and the inability to eliminate
misconduct completely. Accordingly, any system of internal control over financial reporting,
including Shanda&#146;s, can only provide reasonable, not absolute assurances. In addition, projections
of any evaluation of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate. We intend to continue to monitor and upgrade our internal
controls as necessary or appropriate for our business, but cannot assure you that such improvements
will be sufficient to provide us with effective internal control over financial reporting.
</DIV>

<DIV align="left">
<A name="118"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Item&nbsp;16A. AUDIT COMMITTEE FINANCIAL EXPERT</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our board of directors has determined that Mr.&nbsp;W. Mark Evans qualifies as an Audit Committee
Financial Expert as defined by the applicable rules of the SEC.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our board of directors has determined that Mr.&nbsp;W. Mark Evans is independent as such term is
defined by Rule&nbsp;4200 of the NASD Marketplace Rules.
</DIV>

<DIV align="left">
<A name="119"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Item&nbsp;16B. CODE OF ETHICS</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our board of directors has adopted a code of ethics, which is applicable to our senior
executive and financial officers. In addition, our board of directors has adopted a code of
conduct, which is applicable to all of our directors, officers and employees. We have made our code
of ethics and our code of conduct publicly available on our website.
</DIV>


<P align="center" style="font-size: 10pt">114
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left">
<A name="120"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Item&nbsp;16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table sets forth the aggregate fees by categories specified below in connection
with certain professional services rendered by our principal external auditors for the periods
indicated. We did not pay any other fees to our principal external auditors during the periods
indicated below.
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="52%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="15" style="border-bottom: 1px solid #000000"><B>For the year ended December 31,</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 0px solid #000000"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 0px solid #000000"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 0px solid #000000"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 0px solid #000000"><B>US$</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="15"><B>(in thousands)</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Audit
fees<SUP style="font-size: 85%; vertical-align: text-top">1</SUP></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,756.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,327.6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,084.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">630.0</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Audit-related
fees<SUP style="font-size: 85%; vertical-align: text-top">2</SUP></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">69.9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,858.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,679.3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">332.0</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other
fees<SUP style="font-size: 85%; vertical-align: text-top">3</SUP></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">517.9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">703.5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,001.4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">248.0</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV align="left">
<DIV style="font-size: 3pt; margin-top: 16pt; width: 18%; border-top: 1px solid #000000">&nbsp;</DIV>
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96"></TD>
</TR>

<TR valign="top">
    <TD nowrap align="left"><SUP style="font-size: 85%; vertical-align: text-top">1</SUP></TD>
    <TD>&nbsp;</TD>
    <TD>Audit fees means the aggregate fees billed in each of the fiscal years
listed for professional services rendered by our principal auditors for the audit of our
annual financial statements or services that are normally provided by the auditors in
connection with statutory and regulatory filings or engagements.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left"><SUP style="font-size: 85%; vertical-align: text-top">2</SUP></TD>
    <TD>&nbsp;</TD>
    <TD>Audit-related fees means the aggregate fees billed in each of the fiscal years
listed for assurance and related services by our principal auditors that are reasonably
related to the performance of the audit or review of our financial statements and are not
reported under &#147;Audit fees&#148;. Services comprising the fees disclosed under the category of
&#147;Audit-related fees&#148; involve principally limited reviews performed on our consolidated
financial statements and the audits of the annual financial statements of our
subsidiaries and affiliated companies. .</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left"><SUP style="font-size: 85%; vertical-align: text-top">3</SUP></TD>
    <TD>&nbsp;</TD>
    <TD>Other fees means the aggregate fees billed for (i)&nbsp;the issuance of agreed-upon
procedures reports by our principal auditors as part of the due diligence work relating
to our merger and acquisition projects and (ii)&nbsp;compliance, advisory and other tax
related service.</TD>
</TR>

</TABLE>


<DIV align="left">
<A name="121"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Item&nbsp;16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have not been granted an exemption from the applicable listing standards for the audit
committee of our board of directors.
</DIV>

<DIV align="left">
<A name="122"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Item&nbsp;16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS</B>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="52%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>(c ) Total Number of ADS</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>(d) Maximum Approximate Dollar</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>(a) Total Number</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>(b) Average Price</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Purchased as Part of</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Value of ADS that May Yet</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B>Period</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>of ADS Purchased</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Paid per ADS</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Publicly Announced Plan</B><SUP style="font-size: 85%; vertical-align: text-top"><B>1</B></SUP></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Be Purchased Under the Plan</B><SUP style="font-size: 85%; vertical-align: text-top"><B>1</B></SUP></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">November 1 &#150;
November&nbsp;30, 2005</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">260,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">19.14</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">260,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">45,023,600</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">December 1 &#150;
December&nbsp;31, 2005</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">110,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">16.57</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">110,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">43,200,900</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">115
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left">
<DIV style="font-size: 3pt; margin-top: 16pt; width: 18%; border-top: 1px solid #000000">&nbsp;</DIV>
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96"></TD>
</TR>

<TR valign="top">
    <TD nowrap align="left"><SUP style="font-size: 85%; vertical-align: text-top">1</SUP></TD>
    <TD>&nbsp;</TD>
    <TD>On October&nbsp;24, 2005, we announced a share repurchased plan, under the plan,
we are approved to repurchase up to US$50&nbsp;million worth of our outstanding ADS from time
to time over the next 12&nbsp;months.</TD>
</TR>

</TABLE>


<DIV align="left">
<A name="123"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>Item&nbsp;17. Financial Statements</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Not Applicable
</DIV>

<DIV align="left">
<A name="124"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>Item&nbsp;18. Financial Statements</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The consolidated financial statements for the Company and its subsidiaries are included at the
end of this annual report.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant
to Rule&nbsp;3-09 of SEC Regulation&nbsp;S-X, financial statements of
Actoz Soft Co., Ltd., in which we own 38.1% stake, are included at
the end of this annual report.
</DIV>

<P align="center" style="font-size: 10pt">116
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left">
<A name="125"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>Item&nbsp;19. Exhibits</B>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="8%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="90%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B>Exhibit Number</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B>Description</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">1.1
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Amended and Restated Memorandum and Articles of
Association of Shanda Interactive Entertainment
Limited (incorporated by reference to Exhibit&nbsp;3.1 to
our Registration Statement on Form&nbsp;F-1 (file no.
333-114177) filed with the Securities and Exchange
Commission on May&nbsp;7, 2004).</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">2.1
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Specimen Ordinary Share Certificate (incorporated by
reference to Exhibit&nbsp;4.1 to our Registration
Statement on Form&nbsp;F-1 (file no. 333-114177) filed
with the Securities and Exchange Commission on May&nbsp;7,
2004).</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">2.2
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Specimen of American Depositary Receipts
(incorporated by reference to Exhibit&nbsp;A to Exhibit&nbsp;1
to our Registration Statement on Form&nbsp;F-6 POS (file
no. 333-114759) filed with the Securities and
Exchange Commission on June&nbsp;9, 2004).</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">2.3
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Form of Deposit Agreement (incorporated by reference
to Exhibit&nbsp;1 to our Post-Effective Amendment No.&nbsp;1 to
the Form&nbsp;F-6 (file no. 333-114759) filed with the
Securities and Exchange Commission on June&nbsp;9, 2004).</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">2.4
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Registration Rights Agreement, dated October&nbsp;20,
2004, between Shanda Interactive Entertainment
Limited and the parties named herein (incorporated by
reference to Exhibit&nbsp;4.7 to our Registration
Statement on Form&nbsp;F-1 (file no. 333-122029) filed
with the Securities and Exchange Commission on
January&nbsp;13, 2005).</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">2.5
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Indenture, dated October&nbsp;20, 2004, between Shanda
Interactive Entertainment Limited, and The Bank of
New York, as Trustee, relating to the Company&#146;s Zero
Coupon Senior Convertible Notes due 2014
(incorporated by reference to Exhibit&nbsp;4.6 to our
Registration Statement on Form&nbsp;F-1 (file no.
333-122029) filed with the Securities and Exchange
Commission on January&nbsp;13, 2005).</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">2.6
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Shareholders Agreement of Shanda Interactive
Entertainment Limited among Shanda Interactive
Entertainment Limited, Shanghai Shanda Internet
Development Co., Ltd., Shanda Media Limited, Shanda
Investment International Limited, Tianqiao Chen,
Danian Chen and SB Asia Infrastructure Fund L.P.,
dated December&nbsp;19, 2003, (incorporated by reference
to Exhibit&nbsp;4.2 to our Registration Statement on Form
F-1 (file no. 333-114177) filed with the Securities
and Exchange Commission on April&nbsp;2, 2004).</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">2.7
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Sale and Purchase Agreement, among Shanda Interactive
Entertainment Limited, Jong Hyun Lee, Il Wang Park,
Byung Chan Park, Jin Ho Lee, Sang Jun Roh, Sung Gon
Bae and Yong Sung Cho, dated November&nbsp;29, 2004 in
connection with the sale of shares of Actoz Soft Co.,
Ltd. to Shanda Interactive Entertainment Limited
(incorporated by reference to Exhibit&nbsp;2.7 to our 2004
annual report on Form&nbsp;20-F (file no. 000-50705) filed
with the Securities and Exchange Commission on May
31, 2005).
</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.1
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Employee Stock Option Plan and form of share option
agreement (incorporated by reference to Exhibit&nbsp;10.1
to our Registration Statement on Form&nbsp;F-1 (file no.
333-114177) filed with the Securities and Exchange Commission on April&nbsp;2, 2004).</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.2
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Employee Equity Compensation Plan (incorporated by
reference to Exhibit&nbsp;99.2 to our press release on
Form&nbsp;6-K (file no.000-50705) filed with the
Securities and Exchange Commission on September&nbsp;22,
2005)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.3
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Share Purchase Agreement among Shanda Media Limited,
Shanda Investment International Limited, SB Asia
Infrastructure Fund L.P., Shanda Interactive
Entertainment Limited and Shanda Holdings Limited,
dated December&nbsp;19, 2003, (incorporated by reference
to Exhibit&nbsp;4.3 to our Registration Statement on Form
F-1 (file no. 333-114177) filed with the Securities
and Exchange Commission on April&nbsp;2, 2004).</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.4
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Purchase Option and Cooperation Agreement among
Shengqu Information Technology (Shanghai) Co., Ltd.,
Shanghai Shanda Networking Co., Ltd., Tianqiao Chen
and Danian Chen, dated December&nbsp;30, 2003,
(incorporated by reference to Exhibit&nbsp;10.2 to our
Registration Statement on Form&nbsp;F-1 (file no.
333-114177) filed with the Securities and Exchange
Commission on April&nbsp;2, 2004).</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">117
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="8%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="90%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>Exhibit Number</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B>Description</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.5
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Share Pledge Agreement among Tianqiao Chen, Danian
Chen and Shengqu Information Technology (Shanghai)
Co., Ltd., dated December&nbsp;30, 2003, (incorporated by
reference to Exhibit&nbsp;10.3 to our Registration
Statement on Form&nbsp;F-1 (file no. 333-114177) filed
with the Securities and Exchange Commission on April
2, 2004).</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.6
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Amended and Restated Equipment Leasing Agreement
between Shanghai Shanda Networking Co., Ltd. and
Shengqu Information Technology (Shanghai) Co., Ltd.,
dated December&nbsp;9, 2003, (incorporated by reference to
Exhibit&nbsp;10.8 to our Registration Statement on Form
F-1 (file no. 333-114177) filed with the Securities
and Exchange Commission on April&nbsp;2, 2004).</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.7
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Amended and Restated Technical Support Agreement
between Shanghai Shanda Networking Co., Ltd. and
Shengqu Information Technology (Shanghai) Co., Ltd.,
dated December&nbsp;9, 2003, (incorporated by reference to
Exhibit&nbsp;10.9 to our Registration Statement on Form
F-1 (file no. 333-114177) filed with the Securities
and Exchange Commission on April&nbsp;2, 2004).</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.8
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Arena Software I License Agreement between Grandpro
Information Technology (Shanghai) Co., Ltd. and
Shanghai Haofang Online Information Technology Co.,
Ltd. with respect to Arena Software I, dated May&nbsp;1,
2006.</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.9
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Arena Software II License Agreement between Grandpro
Information Technology (Shanghai) Co., Ltd. and
Shanghai Haofang Online Information Technology Co.,
Ltd. with respect to Arena Software II, dated May&nbsp;1,
2006.</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.10
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Software Licensing Agreement among Shanghai Shanda
Networking Co., Ltd., Shengqu Information Technology
(Shanghai) Co., Ltd., Nanjing Shanda Networking Co.,
Ltd. and Hangzhou Bianfeng Networking Co., Ltd. with
respect to Shanda Xintianyou 1.0 software system,
dated January&nbsp;1, 2006.</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.11
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Software Licensing Agreement among Shanghai Shanda
Networking Co., Ltd., Shengqu Information Technology
(Shanghai) Co., Ltd., Nanjing Shanda Networking Co.,
Ltd. and Hangzhou Bianfeng Networking Co., Ltd. with
respect to E-sales System 2.0 Software, dated
December&nbsp;9, 2005.</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.12
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Software Licensing Agreement among Shanghai Shanda
Networking Co., Ltd., Shengqu Information Technology
(Shanghai) Co., Ltd., Nanjing Shanda Networking Co.,
Ltd. and Hangzhou Bianfeng Networking Co., Ltd. with
respect to Shanda Xintianyou 1.0 software system,
dated December&nbsp;28, 2004, (incorporated by reference
to Exhibit&nbsp;4.11 to our 2004 annual report on Form
20-F (file no. 000-50705) filed with the Securities
and Exchange Commission on May&nbsp;31, 2005).</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.13
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Software Licensing Agreement among Shanghai Shanda
Networking Co., Ltd., Shengqu Information Technology
(Shanghai) Co., Ltd., Nanjing Shanda Networking Co.,
Ltd. and Hangzhou Bianfeng Networking Co., Ltd. with
respect to E-sales System 2.0 Software, dated
December&nbsp;28, 2004, (incorporated by reference to
Exhibit&nbsp;4.12 to our 2004 annual report on Form&nbsp;20-F
(file no. 000-50705) filed with the Securities and
Exchange Commission on May&nbsp;31, 2005).</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.14
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Sample of Provincial General Distribution and
City-level Distribution Agreement (incorporated by
reference to Exhibit&nbsp;10.16 to our Registration
Statement on Form&nbsp;F-1 (file no. 333-114177) filed
with the Securities and Exchange Commission on April
2, 2004).</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.15
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Software Licensing Agreement among Shanghai Shanda
Internet Development Co., Ltd., Shanghai Pudong New
Area Imp. &#038; Exp. Corp. and Actoz Soft Co., Ltd.,
dated June&nbsp;29, 2001, (incorporated by reference to
Exhibit&nbsp;10.17 to our Registration Statement on Form
F-1 (file no. 333-114177) filed with the Securities
and Exchange Commission on April&nbsp;20, 2004).</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.16
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Supplemental Agreement among Shanghai Shanda
Networking Development Co., Ltd., Actoz Soft Co.,
Ltd. and Wemade Entertainment Co., Ltd., dated July
14, 2002, (incorporated by reference to Exhibit&nbsp;10.18
to our Registration Statement on Form&nbsp;F-1 (file no.
333-114177) filed with the Securities and Exchange
Commission on April&nbsp;2, 2004).</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">118
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="8%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="90%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>Exhibit Number</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B>Description</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.17
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Pre-lease Contract between Shengqu Information Technology (Shanghai) Co., Ltd. and Shanghai
Zhangjiang Micro-electronics Harbor Co., Ltd., dated August&nbsp;29, 2003, for offices located at
No.&nbsp;1 (temporary)&nbsp;Building, No.&nbsp;690 Bibo Road, Zhangjiang High-Tech Area, Shanghai, PRC
(incorporated by reference to Exhibit&nbsp;10.20 to our Registration Statement on Form&nbsp;F-1 (file
no. 333-114177) filed with the Securities and Exchange Commission on April&nbsp;2, 2004).</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.18
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Articles of Association of Shengqu Information Technology (Shanghai) Co., Ltd. (incorporated
by reference to Exhibit&nbsp;10.21 to our Registration Statement on Form&nbsp;F-1 (file no. 333-114177)
filed with the Securities and Exchange Commission on April&nbsp;2, 2004).</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.19
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Settlement Agreement between Shanghai Shanda Internet Development Co., Ltd. and Actoz Soft
Co., Ltd., dated August&nbsp;19, 2003, (incorporated by reference to Exhibit&nbsp;10.22 to our
Registration Statement on Form&nbsp;F-1 (file no. 33-114177) filed with the Securities and Exchange
Commission on April&nbsp;20, 2004).</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.20
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Amendment Agreement among Shanghai Shanda Internet Development Co., Ltd., Actoz Soft Co., Ltd,
Shanghai Pudong Import &#038; Export Co., Ltd. and Shengqu Information Technology (Shanghai) Co.,
Ltd., dated August&nbsp;19, 2003, (incorporated by reference to Exhibit&nbsp;10.23 to our Registration
Statement on Form&nbsp;F-1 (file no. 333-114177) filed with the Securities and Exchange Commission
on April&nbsp;20, 2004).</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.21
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Extension Agreement among Actoz Soft Co., Ltd, Shanghai Shanda Internet Development Co., Ltd.
and Shanghai Pudong Imp.&#038; Exp. Co., Ltd., dated September&nbsp;22, 2005.</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.22
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Form of Indemnification Agreement for Directors and Officers (incorporated by reference to
Exhibit&nbsp;10.24 to our Registration Statement on Form&nbsp;F-1 (file no. 333-114177) filed with the
Securities and Exchange Commission on April&nbsp;2, 2004).</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.23
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Form of Employment Contract of Shengqu Information Technology (Shanghai) Co., Ltd.
(incorporated by reference to Exhibit&nbsp;10.25 to our Registration Statement on Form&nbsp;F-1 (file
no. 333-114177) filed with the Securities and Exchange Commission on April&nbsp;2, 2004).</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.24
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Research and Development Agreement between Shengqu Information Technology (Shanghai) Co., Ltd.
and Shanghai
Shengjin Software Development Co., Ltd. with respect to Shanda Richman, dated October&nbsp;31, 2005.</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.25
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Online Game Distribution and License Agreement among Shengqu Information Technology (Shanghai)
Co., Ltd., Shanghai Shanda Networking Co., Ltd., Nanjing Shanda Networking Co., Ltd. and
Hangzhou Bianfeng Networking Co., Ltd. with respect to Legend of Mir II, dated September&nbsp;28,
2005.</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.26
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Online Game Distribution and License Agreement among Shengqu Information Technology (Shanghai)
Co., Ltd., Shanghai Shanda Networking Co., Ltd., Nanjing Shanda Networking Co., Ltd. and
Hangzhou Bianfeng Networking Co., Ltd. with respect to BNB, dated October&nbsp;1, 2005.</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.27
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Online Game Distribution and License Agreement among Shengqu Information Technology (Shanghai)
Co., Ltd., Shanghai Shanda Networking Co., Ltd., Nanjing Shanda Networking Co., Ltd. and
Hangzhou Bianfeng Networking Co., Ltd. with respect to Woool, dated January&nbsp;1, 2006.</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.28
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Online Game Distribution and License Agreement among Shengqu Information Technology (Shanghai)
Co., Ltd., Shanghai Shanda Networking Co., Ltd., Nanjing Shanda Networking Co., Ltd. and
Hangzhou Bianfeng Networking Co., Ltd. with respect to The Age, dated January&nbsp;1, 2006.</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.29
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Online Game Distribution and License Agreement among Shengqu Information Technology (Shanghai)
Co., Ltd., Shanghai Shanda Networking Co., Ltd., Nanjing Shanda Networking Co., Ltd. and
Hangzhou Bianfeng Networking Co., Ltd. with respect to The Sign, dated January&nbsp;1, 2006.</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">119
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="8%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="90%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>Exhibit Number</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B>Description</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.30
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Online Game Distribution and License Agreement among Shengqu Information Technology (Shanghai) Co., Ltd.,
Shanghai Shanda Networking Co., Ltd., Nanjing Shanda Networking Co., Ltd. and Hangzhou Bianfeng
Networking Co., Ltd. with respect to R.O., dated September&nbsp;1, 2005.</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.31
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Online Game Distribution and License Agreement among Shengqu Information Technology (Shanghai) Co., Ltd.,
Shanghai Shanda Networking Co., Ltd., Nanjing Shanda Networking Co., Ltd. and Hangzhou Bianfeng
Networking Co., Ltd. with respect to 3G Hero, dated September&nbsp;1, 2005.</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.32
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Online Game Distribution and License Agreement among Shengqu Information Technology (Shanghai) Co., Ltd.,
Shanghai Shanda Networking Co., Ltd., Nanjing Shanda Networking Co., Ltd. and Hangzhou Bianfeng Networking
Co., Ltd. with respect to Shanda Richman, dated December&nbsp;8, 2005.</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.33
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Online Game Distribution and License Agreement among Shengqu Information Technology (Shanghai) Co., Ltd.,
Shanghai Shanda Networking Co., Ltd., Nanjing Shanda Networking Co., Ltd. and Hangzhou Bianfeng Networking
Co., Ltd. with respect to Crazy Kart, dated March&nbsp;18, 2006.</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.34
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Online Game Distribution and License Agreement between Grandpro and Haofang Online with respect to
Doudizhu, dated May&nbsp;1, 2006.</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">

<TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.35
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Online Game Distribution and Service Agreement among Shengqu Information Technology (Shanghai) Co., Ltd.,
Shanghai Shanda Networking Co., Ltd., Nanjing Shanda Networking Co., Ltd. and Hangzhou Bianfeng
Networking Co., Ltd. with respect to The Age, dated December&nbsp;28, 2004, (incorporated by reference Exhibit
4.22 to our 2004 annual report on Form&nbsp;20-F (file no. 000-50705) filed with the Securities and Exchange
Commission on May&nbsp;31, 2005).</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">

<TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.36
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Online Game Distribution and Service Agreement among Shengqu Information Technology (Shanghai) Co., Ltd.
Shanghai Shanda Networking Co., Ltd., Nanjing Shanda Networking Co., Ltd. and Hangzhou Bianfeng
Networking Co. Ltd. with respect to The Sign, dated December&nbsp;28, 2004, (incorporated by reference to
Exhibit&nbsp;4.23 to our 2004 annual report on Form&nbsp;20-F (file no. 000-50705) filed with the Securities and
Exchange Commission on May&nbsp;31, 2005).</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">

<TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.37
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Online Game Software Distribution and License Agreement among Shengqu Information Technology (Shanghai)
Co., Ltd., Shanghai Shanda Networking Co., Ltd. Nanjing Shanda Networking Co., Ltd. and Hangzhou Bianfeng
Networking Co., Ltd. with respect to Woool, dated December&nbsp;28, 2004, (incorporated by reference to
Exhibit&nbsp;4.24 to our 2004 annual report on Form&nbsp;20-F (file no. 000-50705) filed with the Securities and
Exchange Commission on May&nbsp;31, 2005).</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">

<TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.38
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Online Game Software Distribution and License Agreement among Shengqu Information Technology (Shanghai)
Co., Ltd., Shanghai Shanda Networking Co., Ltd. Nanjing Shanda Networking Co., Ltd. and Hangzhou Bianfeng
Networking Co., Ltd. with respect to D.O., dated December&nbsp;28, 2004, (incorporated by reference to Exhibit
4.25 to our 2004 annual report on Form&nbsp;20-F (file no. 000-50705) filed with the Securities and Exchange
Commission on May&nbsp;31, 2005).</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">

<TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.39
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Online Game Software Distribution and License Agreement among Shengqu Information Technology (Shanghai)
Co., Ltd., Shanghai Shanda Networking Co., Ltd. Nanjing Shanda Networking Co., Ltd. and Hangzhou Bianfeng
Networking Co., Ltd. with respect to Maple Story, dated December&nbsp;28, 2004, (incorporated by reference to
Exhibit&nbsp;4.26 to our 2004 annual report on Form&nbsp;20-F (file no. 000-50705) filed with the Securities and
Exchange Commission on May&nbsp;31, 2005).</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">

<TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.40
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Online Game Software Distribution and License Agreement among Shengqu Information Technology (Shanghai)
Co., Ltd., Shanghai Shanda Networking Co., Ltd. Nanjing Shanda Networking Co., Ltd. and Hangzhou Bianfeng
Networking Co., Ltd. with respect to Legend of Mir II, dated December&nbsp;28, 2004, (incorporated by
reference to Exhibit&nbsp;4.27 to our 2004 annual report on Form&nbsp;20-F (file no. 000-50705) filed with the
Securities and Exchange Commission on May&nbsp;31, 2005).</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">120
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="8%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="90%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>Exhibit Number</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B>Description</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">

<TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.41
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Online Game Software Distribution and License
Agreement among Shengqu Information Technology
(Shanghai) Co., Ltd., Shanghai Shanda Networking Co.,
Ltd. Nanjing Shanda Networking Co., Ltd. and Hangzhou
Bianfeng Networking Co., Ltd., Shanda Networking with
respect to BNB dated December&nbsp;28, 2004 (incorporated
by reference to Exhibit&nbsp;4.28 to our 2004 annual
report on Form&nbsp;20-F (file no. 000-50705) filed with
the Securities and Exchange Commission on May&nbsp;31,
2005) .</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">

<TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.42
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Online Game Software Distribution and License
Agreement among Shengqu Information Technology
(Shanghai) Co., Ltd., Shanghai Shanda Networking Co.,
Ltd., Nanjing Shanda Networking Co., Ltd. and
Hangzhou Bianfeng Networking Co., Ltd. with respect
to GetAmped dated December&nbsp;28, 2004 (incorporated by
reference to Exhibit&nbsp;4.29 to our 2004 annual report
on Form&nbsp;20-F (file no. 000-50705) filed with the
Securities and Exchange Commission on May&nbsp;31, 2005).</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">

<TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.43
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Online Game Software Distribution and License Agreement among Shengqu Information Technology (Shanghai) Co.,
Ltd., Shanghai Shanda Networking Co., Ltd., Nanjing Shanda Networking Co., Ltd. and Hangzhou Bianfeng Networking
Co., Ltd. with respect to Buzzer Beater dated December&nbsp;28, 2004 (incorporated by reference to Exhibit&nbsp;4.32 to our
2004 annual report on Form&nbsp;20-F (file no. 000-50705) filed with the Securities and Exchange Commission on May&nbsp;31,
2005).</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">

<TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.44
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Billing Technology License Agreement between Shengqu Information Technology (Shanghai) Co., Ltd. and Shanghai
Shanda Networking Co., Ltd. dated January&nbsp;1, 2006.</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">

<TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.45
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Billing Technology License Agreement between Shengqu Information Technology (Shanghai) Co., Ltd. and Nanjing
Shanda Networking Co., Ltd. dated January&nbsp;1, 2006.</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">

<TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.46
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Billing Technology License Agreement between Shengqu Information Technology (Shanghai) Co., Ltd. and Hangzhou
Bianfeng Networking Co., Ltd. dated January&nbsp;1, 2006.</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">

<TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.47
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Amendment to Billing Technology License Agreement between Shanghai Shanda Networking Co., Ltd. and Shengqu
Information Technology Co., Ltd., dated December&nbsp;28, 2004 (incorporated by reference to Exhibit&nbsp;4.33 to our 2004
annual report on Form&nbsp;20-F (file no. 000-50705) filed with the Securities and Exchange Commission on May&nbsp;31,
2005) .</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">

<TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.48
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Billing Technology License Agreement between Shengqu Information Technology (Shanghai) Co., Ltd. and Nanjing
Shanda Networking Co., Ltd. dated December&nbsp;28, 2004 (incorporated by reference to Exhibit&nbsp;4.34 to our 2004 annual
report on Form&nbsp;20-F (file no. 000-50705) filed with the Securities and Exchange Commission on May&nbsp;31, 2005) .</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">

<TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.49
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Billing Technology License Agreement between Shengqu Information Technology (Shanghai) Co., Ltd. and Hangzhou
Bianfeng Networking Co., Ltd. dated December&nbsp;28, 2004 (incorporated by reference to Exhibit&nbsp;4.35 to our 2004
annual report on Form&nbsp;20-F (file no. 000-50705) filed with the Securities and Exchange Commission on May&nbsp;31,
2005)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">

<TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.50
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Equipment Lease Agreement between Shengqu Information Technology (Shanghai) Co., Ltd. and Nanjing Shanda
Networking Co., Ltd. dated December&nbsp;28, 2004 (incorporated by reference to Exhibit&nbsp;4.36 to our 2004 annual report
on Form&nbsp;20-F (file no. 000-50705) filed with the Securities and Exchange Commission on May&nbsp;31, 2005).</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">

<TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.51
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Equipment Lease Agreement between Shengqu Information Technology (Shanghai) Co., Ltd. and Hangzhou Bianfeng
Networking Co., Ltd. dated December&nbsp;28, 2004 (incorporated by reference to Exhibit&nbsp;4.37 to our 2004 annual report
on Form&nbsp;20-F (file no. 000-50705) filed with the Securities and Exchange Commission on May&nbsp;31, 2005).</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">

<TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.52
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Amendment to Strategic Consulting Service Agreement between Shanghai Shanda Networking Co., Ltd. and Shengqu
Information Technology Co., Ltd. dated December&nbsp;28, 2004 (incorporated by reference to Exhibit&nbsp;4.38 to our 2004
annual report on Form&nbsp;20-F (file no. 000-50705) filed with the Securities and Exchange Commission on May&nbsp;31,
2005).</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">

<TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.53
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Amendment II to Strategic Consulting Service Agreement between Shengqu Information Technology (Shanghai) Co.,
Ltd. and Shanghai Shanda Networking Co., Ltd. dated December&nbsp;28, 2004.</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">121
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="8%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="90%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>Exhibit Number</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B>Description</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">

<TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.54
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Amendment III to Strategic Consulting Service Agreement between Shengqu Information Technology (Shanghai) Co.,
Ltd. and Shanghai Shanda Networking Co., Ltd. dated December&nbsp;28, 2005.</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">

<TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.55
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Technology Transfer Agreement between Shengqu Information Technology (Shanghai) Co., Ltd. and Shanghai Shengpin
Networking, dated November&nbsp;30, 2004 (incorporated by reference to Exhibit&nbsp;10.30 to our Registration Statement on
Form&nbsp;F-1 (file no. 333-122029) filed with the Securities and Exchange Commission on January&nbsp;13, 2005).</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">

<TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.56
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Entrusted Loan Agreement between Nanjing Shanda Networking Co., Ltd. and China Merchants Bank Dongfang Branch
with respect to a loan of RMB38,000,000 dated March&nbsp;19, 2006.</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">

<TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.57
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Loan Agreement between China Merchants Bank Dongfang Branch and Shanda Computer (Shanghai) Co., Ltd. with respect
to a loan of RMB38,000,000 dated March&nbsp;19, 2006.</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">

<TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.58
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Entrusted Loan Agreement between Hangzhou Bianfeng Networking Co., Ltd. and China Merchants Bank Dongfang Branch
with respect to a loan of RMB27,000,000 dated March&nbsp;19, 2006.</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">

<TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.59
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Loan Agreement between China Merchants Bank Dongfang Branch and Shanda Computer (Shanghai) Co., Ltd. with respect
to a loan of RMB27,000,000 dated March&nbsp;19, 2006.</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">

<TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.60
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Entrusted Loan Agreement between Shanghai Shanda Networking Co., Ltd. and China Industrial and Commercial Bank
Pudong Branch with respect to a loan of RMB35,000,000 dated March&nbsp;24, 2006.</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">

<TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.61
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Loan Agreement among Shanghai Shanda Networking Co., Ltd., China Industrial and Commercial Bank Pudong Branch and
Shanda Computer (Shanghai) Co., Ltd. with respect to a loan of RMB35,000,000 dated March&nbsp;24, 2006.</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">

<TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.62
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Loan Agreement among Shanghai Shanda Networking Co., Ltd., Shanghai Bank Xujiahui Branch and Shengqu Information
Technology (Shanghai) Co., Ltd. with respect to a loan of RMB100,000,000 dated January&nbsp;4, 2006.</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">

<TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.63
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Entrusted Loan Agreement between Shanghai Shanda Networking Co., Ltd. and China Merchants Bank Dongfang Branch
with respect to a loan of RMB100,000,000 dated January&nbsp;4, 2006.</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">

<TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.64
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Loan Agreement between China Merchants Bank Dongfang Branch and Shengqu Information Technology (Shanghai) Co.,
Ltd. with respect to a loan of RMB100,000,000 dated January&nbsp;4, 2006.</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">

<TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.65
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Entrusted Loan Agreement between Nanjing Shanda Networking Co., Ltd. and China Merchants Bank Dongfang Branch
with respect to a loan of RMB100,000,000 dated January&nbsp;4, 2006.</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">

<TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.66
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Loan Agreement between China Merchants Bank Dongfang Branch and Shengqu Information Technology (Shanghai) Co.,
Ltd. with respect to a loan of RMB100,000,000 dated January&nbsp;4, 2006.</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">

<TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.67
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Cooperation Agreement between Shengqu Information Technology (Shanghai) Co., Ltd. and Shanghai Shengyue
Advertisement Co., Ltd. dated January&nbsp;1, 2005.</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">

<TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.68
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Stock Purchase Agreement between Shanda Interactive Entertainment Limited and SB Asia Infrastructure Fund L.P.
dated October&nbsp;15, 2004 (incorporated by reference to Exhibit&nbsp;10.31 to our Registration Statement on Form&nbsp;F-1
(file no. 333-122029) filed with the Securities and Exchange Commission on January&nbsp;13, 2005).</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">8.1
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">List of Subsidiaries.</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">11.1
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Code of Ethics (incorporated by reference to Exhibit&nbsp;11.1 to our 2004 annual report on Form&nbsp;20-F (file no.
000-50705) filed with the Securities and Exchange Commission on May&nbsp;31, 2005).</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">12.1
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Certification of Chief Executive Officer Required by Rule&nbsp;13a-14(a).</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">12.2
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Certification of Chief Financial Officer Required by Rule&nbsp;13a-14(a).</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">13.1
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Certification of Chief Executive Officer and Chief Financial Officer Required by Rule&nbsp;13(a)-14(b) and Section
1350 of Chapter&nbsp;63 of Title 18 of the United States Code.</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">122
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left">
<A name="126"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>SIGNATURE</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The registrant hereby certifies that it meets all of the requirements for filing its annual
report on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual
report on its behalf.
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="48%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="36%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="10%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">SHANDA INTERACTIVE</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">ENTERTAINMENT LIMITED</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">/s/ Tianqiao Chen</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>

<TD align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Name: Tianqiao Chen</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Title: Chairman and Chief Executive Officer</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">

<TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><B>Date: June&nbsp;29, 2006</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt">123
</DIV>

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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>SHANDA INTERACTIVE ENTERTAINMENT LIMITED</B>
</DIV>


<DIV align="Center" style="font-size: 10pt; margin-top: 6pt"><B>INDEX TO CONSOLIDATED FINANCIAL STATEMENTS</B>

</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="88%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#300">Report of Independent Registered Public Accounting Firm</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap>F2</TD>
</TR>
<TR valign="bottom">

<TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#301">Consolidated
statement of operations and comprehensive income for the years ended
December&nbsp;31, 2003, 2004 and 2005</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap>F3</TD>
</TR>
<TR valign="bottom">

<TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#302">Consolidated
balance sheets for the years ended December&nbsp;31, 2004 and 2005</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap>F4</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#303">Consolidated statements of changes in shareholders&#146; equity</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap>F5</TD>
</TR>
<TR valign="bottom">

<TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#304">Consolidated
statements of cash flows for the years ended December&nbsp;31, 2003,
2004 and 2005</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap>F6</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#305">Notes to the consolidated financial statements</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap>F7</TD>
</TR>
<TR valign="bottom">

<TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#306">Additional information &#151; financial statement Schedule&nbsp;I</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap>F50</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 32pt"><B>ACTOZ
SOFT CO., LTD.</B>
</DIV>


<DIV align="Center" style="font-size: 10pt; margin-top: 6pt"><B>INDEX
TO FINANCIAL STATEMENTS</B>

</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="88%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Report of
Independent Auditor&#146;s Report</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap>F52</TD>
</TR>
<TR valign="bottom">

<TD><DIV style="margin-left:15px; text-indent:-15px">Statements of
Income for the years ended December 31, 2005 and 2004</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap>F54</TD>
</TR>
<TR valign="bottom">

<TD><DIV style="margin-left:15px; text-indent:-15px">Balance sheets
for the years ended December 31, 2005 and 2004</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap>F55</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Statements
of appropriations of related earnings for the years ended December
31, 2005 and 2004</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap>F57</TD>
</TR>
<TR valign="bottom">

<TD><DIV style="margin-left:15px; text-indent:-15px">Statements of
cash flows for the years ended December 31, 2005 and 2004</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap>F58</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Notes to
financial statements</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap>F60</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<P align="center" style="font-size: 10pt">F-1
</DIV>

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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left">
<A name="300"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF<BR>
SHANDA INTERACTIVE ENTERTAINMENT LIMITED:</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In our opinion, the accompanying consolidated balance sheets and the related consolidated
statements of operations and comprehensive income, of changes in shareholders&#146; equity and of cash
flows expressed in Renminbi present fairly, in all material respects, the financial position of
Shanda Interactive Entertainment Limited (the &#147;Company&#148;) and its subsidiaries as of December&nbsp;31,
2004 and 2005, and the results of their operations and their cash flows for each of the three years
ended December&nbsp;31, 2003, 2004 and 2005 in conformity with accounting principles generally accepted
in the United States of America. In addition, in our opinion, the related Financial Statement
Schedule&nbsp;I presents fairly, in all material respects, the information set forth therein when read
in conjunction with the related consolidated financial statements. These financial statements and
Financial Statement Schedule&nbsp;I are the responsibility of the Company&#146;s management. Our
responsibility is to express an opinion on these financial statements and Financial Statement
Schedule&nbsp;I based on our audits. We conducted our audits of these statements in accordance with the
standards of the Public Company Accounting Oversight Board (United States). 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 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 and evaluating the overall
financial statement presentation. We believe that our audits provide a reasonable basis for our
opinion.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">PricewaterhouseCoopers Zhong Tian CPAs Limited Company<BR>
Shanghai, People&#146;s Republic of China<BR>
May&nbsp;18, 2006

</DIV>

<P align="center" style="font-size: 10pt">F-2
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>SHANDA INTERACTIVE ENTERTAINMENT LIMITED</B>
</DIV>

<DIV align="left">
<A name="301"></A>
</DIV>

<DIV align="Center" style="font-size: 10pt; margin-top: 6pt"><B>CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME</B>

</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="40%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="15" style="border-bottom: 1px solid #000000"><B>For the years ended December 31</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Note</B></TD>
    <TD>&nbsp;</TD>
        <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 0px solid #000000"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 0px solid #000000"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>US$</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Restated (Note 12)</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>(Note 2(3))</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net revenues:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Online MMORPGs game revenue</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">580,314,901</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">994,663,760</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,255,340,380</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">155,552,574</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Online casual game revenue</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,312,973</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">214,513,007</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">402,968,774</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">49,932,935</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Other revenues</DIV></TD>
    <TD>&nbsp;</TD>
<TD colspan="3" align="center">5</TD>

    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,352,574</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">89,548,104</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">238,301,952</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">29,528,630</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total net revenues</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">599,980,448</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,298,724,871</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,896,611,106</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">235,014,139</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cost of revenue</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(233,701,419</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(471,183,798</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(614,427,273</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(76,135,322</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Gross profit</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">366,279,029</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">827,541,073</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,282,183,833</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">158,878,817</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Operating expenses:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Product development</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(32,957,833</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(71,838,477</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(164,756,024</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(20,415,358</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Sales and marketing</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(44,136,587</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(91,175,636</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(235,437,664</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(29,173,709</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">General and administrative</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(76,011,278</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(153,564,436</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(260,091,615</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(32,228,645</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total operating expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(153,105,698</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(316,578,549</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(660,285,303</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(81,817,712</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income from operations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">213,173,331</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">510,962,524</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">621,898,530</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">77,061,105</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Interest income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,979,927</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19,676,978</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">29,025,897</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,596,676</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Amortization of convertible debt issuance cost</DIV></TD>
    <TD>&nbsp;</TD>

<TD colspan="3" align="center" nowrap>2(13)</TD>

    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(3,523,935</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(18,492,523</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2,291,457</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Investment income (loss)</DIV></TD>
    <TD>&nbsp;</TD>

<TD colspan="3" align="center">13</TD>

    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,551,259</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">43,494,032</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(5,898,971</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(730,957</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other income (expense), net</DIV></TD>
    <TD>&nbsp;</TD>

<TD colspan="3" align="center">6</TD>

    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">61,151,579</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">83,655,918</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">174,904,598</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21,672,895</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income before income tax expenses, equity in loss of
affiliated companies, and minority interests</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">287,856,096</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">654,265,517</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">801,437,531</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">99,308,262</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income tax expenses</DIV></TD>
    <TD>&nbsp;</TD>
<TD colspan="3" align="center">7</TD>

    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(18,646,877</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(38,940,924</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(96,711,992</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(11,983,841</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Equity in loss of affiliated companies</DIV></TD>
    <TD>&nbsp;</TD>
<TD colspan="3" align="center">12</TD>

    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(4,180,283</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(544,268,271</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(67,441,733</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Minority interests</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,640,950</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,661,422</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,825,541</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">597,946</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">272,850,169</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">609,482,888</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">165,282,809</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20,480,634</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Accretion for Series&nbsp;A and Series&nbsp;A-1 Preferred
Shares</DIV></TD>
    <TD>&nbsp;</TD>

<TD colspan="3" align="center">18</TD>

    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(24,962,571</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income attributable to Series&nbsp;A and Series&nbsp;A-1
Preferred Shareholders</DIV></TD>
    <TD>&nbsp;</TD>

<TD colspan="3" align="center">18</TD>

    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(48,358,328</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(82,478,882</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income attributable to ordinary shareholders</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">199,529,270</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">527,004,006</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">165,282,809</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20,480,634</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other comprehensive income:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Unrealized appreciation (depreciation)&nbsp;of marketable
securities</DIV></TD>
    <TD>&nbsp;</TD>

<TD colspan="3" align="center">2(6)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">284,506</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">133,698,934</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(102,482,869</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(12,698,926</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cumulative currency translation adjustments of an
affiliated company</DIV></TD>
    <TD>&nbsp;</TD>

<TD colspan="3" align="center">2(3)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,150,365</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(142,545</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Comprehensive income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">199,813,776</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">660,702,940</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">61,649,575</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,639,163</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Earnings per share</DIV></TD>
    <TD>&nbsp;</TD>

<TD colspan="3" align="center">8</TD>

    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Basic</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.14</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4.32</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.17</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.14</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Diluted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.07</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4.05</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.13</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.14</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Earnings per ADS</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Basic</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4.28</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.64</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.34</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.28</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Diluted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4.14</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.10</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.26</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.28</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Weighted average ordinary shares outstanding</DIV></TD>
    <TD>&nbsp;</TD>
<TD colspan="3" align="center">8</TD>

    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Basic</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">93,246,726</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">122,136,580</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">141,338,480</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">141,338,480</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Diluted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">96,325,957</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">130,167,656</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">146,347,595</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">146,347,595</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Weighted average ADS outstanding</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Basic</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">46,623,363</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">61,068,290</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">70,669,240</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">70,669,240</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Diluted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">48,162,979</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">65,083,828</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">73,173,798</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">73,173,798</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">* Share-based compensation was related to the
associated operating expense categories as follows:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Product development</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(4,206,797</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(6,899,138</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(4,038,525</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(500,424</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Sales and marketing</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(386,231</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(633,421</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(370,787</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(45,945</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">General and administrative</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(10,463,032</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(16,479,254</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(8,122,615</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,006,495</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Share-based compensation expense included in cost of
revenue</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(3,102,922</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(4,816,015</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,165,950</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(144,476</TD>
    <TD nowrap>)</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt">The accompanying notes are an integral part of these financial statements.
</DIV>


<P align="center" style="font-size: 10pt">F-3
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>SHANDA INTERACTIVE ENTERTAINMENT LIMITED</B>
</DIV>

<DIV align="left">
<A name="302"></A>
</DIV>

<DIV align="Center" style="font-size: 10pt; margin-top: 6pt"><B>CONSOLIDATED BALANCE SHEETS</B>

</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="52%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>December 31,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>December 31,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>December 31,</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Note</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 0px solid #000000"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>US$</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Restated (Note 12)</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>(Note 2(3))</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>ASSETS</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Current assets:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Cash and cash equivalents</DIV></TD>
    <TD>&nbsp;</TD>

<TD colspan="3" align="center">9</TD>

    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,123,971,173</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">949,621,601</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">117,670,145</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Restricted cash </DIV></TD>
    <TD>&nbsp;</TD>
 <TD colspan="3" align="center">12</TD>

    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">150,778,672</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,683,387</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Short-term investment </DIV></TD>
    <TD>&nbsp;</TD>

<TD colspan="3" align="center">2(5)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">126,360,137</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,657,621</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Marketable securities</DIV></TD>
    <TD>&nbsp;</TD>
 <TD colspan="3" align="center" nowrap>2(6), 12, 13</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">422,326,939</TD>
    <TD>&nbsp;</TD>

    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,933,673,748</TD>
    <TD>&nbsp;</TD>

    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">239,606,670</TD>
    <TD>&nbsp;</TD>

    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Accounts receivable, net of allowance for
doubtful accounts</DIV></TD>
    <TD>&nbsp;</TD>
 <TD colspan="3" align="center">10</TD>

    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">39,307,718</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">81,127,164</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,052,683</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Inventories</DIV></TD>
    <TD>&nbsp;</TD>
 <TD colspan="3" align="center">11</TD>

    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,039,188</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">28,480,970</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,529,153</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Due from related parties</DIV></TD>
    <TD>&nbsp;</TD>
 <TD colspan="3" align="center">&nbsp;</TD>

    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,514,798</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Deferred licensing fees and related costs</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">48,716,255</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">24,067,061</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,982,214</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Prepayments and other current assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">27,621,265</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">41,085,629</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,091,030</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Deferred tax assets</DIV></TD>
    <TD>&nbsp;</TD>


    <TD align="center" colspan="3">7</TD>

    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">29,631,926</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17,124,664</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,121,963</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total current assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,699,129,262</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,352,319,646</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">415,394,866</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Investment in affiliated companies</DIV></TD>

    <TD>&nbsp;</TD>
        <TD align="center" colspan="3">12</TD>

    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">155,935,548</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">328,581,623</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">40,715,425</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Property and equipment</DIV></TD>
    <TD>&nbsp;</TD>
        <TD align="center" colspan="3">14</TD>

    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">137,725,518</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">258,352,452</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">32,013,141</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Intangible assets</DIV></TD>
    <TD>&nbsp;</TD>
        <TD align="center" colspan="3">15</TD>

    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">111,378,046</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">212,314,772</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">26,308,489</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Goodwill</DIV></TD>
    <TD>&nbsp;</TD>
        <TD align="center" colspan="3">16</TD>

    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">133,958,922</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">245,092,242</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">30,370,033</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Long-term deposits</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,363,404</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,862,802</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">354,738</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Long-term prepayments </DIV></TD>
    <TD>&nbsp;</TD>
        <TD align="center" colspan="3">14</TD>

    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,157,950</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,250,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other long-term assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">50,673,309</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">52,771,434</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,539,049</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Total assets</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,291,164,009</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,470,452,921</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">553,945,741</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>LIABILITIES</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Current liabilities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Accounts payable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">47,342,259</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">65,390,260</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,102,681</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Licensing fees payable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,092,590</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,157,692</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,249,968</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Taxes payable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">40,197,333</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">37,044,920</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,590,335</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Deferred revenue</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">247,281,633</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">172,455,470</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21,369,417</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Licensing fees payable to a related party</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" colspan="3">23</TD>

    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">52,272,515</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,830,197</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,713,737</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Due to related parties</DIV></TD>
    <TD>&nbsp;</TD>
        <TD align="center" colspan="3">23</TD>

    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,757,572</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,040,380</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">376,742</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Acquisition related obligation</DIV></TD>
    <TD>&nbsp;</TD>
        <TD align="center" colspan="3">12</TD>

    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">158,430,162</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19,631,504</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Other payables and accruals</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">91,267,534</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">141,551,334</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17,540,003</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total current liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">498,211,436</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">609,900,415</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">75,574,387</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Convertible debt</DIV></TD>
    <TD>&nbsp;</TD>
        <TD align="center" colspan="3">17</TD>

    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,276,175,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,219,305,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">275,000,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,774,386,436</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,829,205,415</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">350,574,387</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Minority interests</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,878,858</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,388,896</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">419,927</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Commitments and contingencies</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" colspan="3">25</TD>

    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Shareholders&#146; equity</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Ordinary shares (US$0.01 par value,
186,000,000 shares authorized, 139,960,328
issued and outstanding as of December&nbsp;31,
2004; and 141,982,766 issued and
outstanding as of December&nbsp;31, 2005)</DIV></TD>
    <TD>&nbsp;</TD>
        <TD align="center" colspan="3">19</TD>

    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,584,515</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,751,186</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,456,121</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Additional paid-in capital</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,300,453,557</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,397,092,348</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">173,117,438</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Statutory reserves</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">40,025,479</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">87,619,085</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,857,114</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Deferred share-based compensation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(20,623,032</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(3,595,349</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(445,509</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Accumulated other comprehensive gain</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">133,814,940</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">30,181,706</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,739,895</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Retained earnings</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">44,643,256</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">114,809,634</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,226,368</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total shareholders&#146; equity</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,509,898,715</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,637,858,610</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">202,951,427</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Total liabilities and shareholders&#146; equity</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,291,164,009</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,470,452,921</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">553,945,741</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt">The accompanying notes are an integral part of these financial statements.
</DIV>



<P align="center" style="font-size: 10pt">F-4
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>


<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><!-- LANDSCAPE -->
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>SHANDA INTERACTIVE ENTERTAINMENT LIMITED</B>
</DIV>

<DIV align="left">
<A name="303"></A>
</DIV>

<DIV align="Center" style="font-size: 10pt; margin-top: 6pt"><B>CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS&#146; EQUITY</B>

</DIV>
<DIV align="center">
<TABLE style="font-size: 7pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="15%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>Series A and Series</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>A-1 Convertible Preferred</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>Ordinary shares</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>Shares</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Accumulated</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>

    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000"><B>(US$0.01 par value)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000"><B>(US$0.01 par value)</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Additional</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Deferred</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>other</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Total</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Shanda</B></TD>
    <TD>&nbsp;</TD>


    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Group equity</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Number</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Par</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Number</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Par</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Subscription</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>paid-in</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Statutory</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>share-based</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>comprehensive</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Retained</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>shareholders&#146;</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Networking</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Heng Kang</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Total</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>of shares</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>value</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>of shares</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>value</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>receivables</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>capital</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>reserves</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>compensation</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>gain</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>earnings</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Equity</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>RMB</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:0px; text-indent:-0px">Balance as of January&nbsp;1, 2003</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,500,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">500,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,000,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,000,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">414,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(414,000</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,370,585</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(168,500</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">138,864,190</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">146,066,275</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD nowrap><DIV style="margin-left:0px; text-indent:-0px">Issuance of additional ordinary shares</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">95,000,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,863,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(7,863,000</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:2px; text-indent:-2px">Transfer group equity to additional
paid-in capital upon the
Reorganization</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,500,000</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,500,000</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,500,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:0px; text-indent:-0px">Increase in group equity (Note 19)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,500,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(10,625,000</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2,125,000</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:0px; text-indent:-0px">Deemed dividend upon issuance of
Series&nbsp;A-1 Preferred Shares</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(4,947,230</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(409,483</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(24,421,517</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(24,831,000</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:0px; text-indent:-0px">Deemed dividend upon issuance of
Series&nbsp;A Preferred Shares</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(5,323,952</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(440,664</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(57,498,336</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(57,939,000</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:0px; text-indent:-0px">Accretion for Series&nbsp;A and Series&nbsp;A-1
Preferred Shares</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(24,962,571</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(24,962,571</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:0px; text-indent:-0px">Reclassification upon removal of
redemption rights of Series&nbsp;A and
Series&nbsp;A-1 Preferred Shares</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">30,060,100</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,488,074</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">345,830,170</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">348,318,244</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:0px; text-indent:-0px">Dividends to ordinary shareholders</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,277,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(8,277,000</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:0px; text-indent:-0px">Deemed capital distribution to
shareholders of Heng Kang (Note 1)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(500,000</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(500,000</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(250,000</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(52,469,452</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(53,219,452</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:0px; text-indent:-0px">Deferred share-based compensation
relating to issuance of share option</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">69,730,490</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(69,730,490</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:0px; text-indent:-0px">Amortization of deferred share-based
compensation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,158,982</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,158,982</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:0px; text-indent:-0px">Unrealized net appreciation of
marketable securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">284,506</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">284,506</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:0px; text-indent:-0px">Net income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">272,850,169</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">272,850,169</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:0px; text-indent:-0px">Appropriations to statutory reserves
(Note 2(25))</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">22,191,988</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(22,191,988</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:0px; text-indent:-0px">Balance as of December&nbsp;31, 2003</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">89,728,818</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,426,853</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">30,060,100</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,488,074</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">425,560,660</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">27,312,573</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(51,571,508</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">116,006</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">211,268,495</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">622,601,153</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:0px; text-indent:-0px">Issuance of common share upon IPO
(Note 19)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21,381,586</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,769,754</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">873,737,944</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">875,507,698</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:0px; text-indent:-0px">Exercise of share option (Note 21)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,116,074</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">340,687</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">52,296,796</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">52,637,483</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:0px; text-indent:-0px">Conversion of Series&nbsp;A and A-1
Preferred Shares upon completion of
the IPO</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">30,060,100</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,488,074</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(30,060,100</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2,488,074</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:0px; text-indent:-0px">Repurchase of share (Note 20)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(5,326,250</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(440,853</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(49,021,195</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(571,312,952</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(620,775,000</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:0px; text-indent:-0px">Dividends to ordinary shareholders</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(143,869,619</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(143,869,619</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:0px; text-indent:-0px">Dividends to preferred shareholders</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(48,212,650</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(48,212,650</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:0px; text-indent:-0px">Forfeited share option (Note 21)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2,120,648</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,120,648</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:0px; text-indent:-0px">Amortization of deferred share-based
compensation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">28,827,828</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">28,827,828</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:0px; text-indent:-0px">Unrealized net appreciation of
marketable securities (Restated (Note
12))</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">133,698,934</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">133,698,934</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:0px; text-indent:-0px">Net income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">609,482,888</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">609,482,888</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:0px; text-indent:-0px">Appropriations to statutory reserves
(Note 2(25))</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,712,906</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(12,712,906</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:0px; text-indent:-0px">Balance as of December&nbsp;31, 2004
(Restated (Note 12))</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">139,960,328</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,584,515</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,300,453,557</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">40,025,479</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(20,623,032</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">133,814,940</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">44,643,256</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,509,898,715</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:0px; text-indent:-0px">Exercise of share option (Note 21)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,762,438</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">227,917</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">61,257,423</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">61,485,340</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:0px; text-indent:-0px">Repurchase of share (Note 20)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(740,000</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(61,246</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(7,277,215</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(47,522,825</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(54,861,286</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:0px; text-indent:-0px">Forfeited share option (Note 21)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(3,329,806</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,329,806</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:0px; text-indent:-0px">Amortization of deferred share-based
compensation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,697,877</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,697,877</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:0px; text-indent:-0px">Unrealized net depreciation of
marketable securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(102,482,869</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(102,482,869</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:0px; text-indent:-0px">Cumulative currency translation
adjustments of an affiliated company</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,150,365</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,150,365</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:0px; text-indent:-0px">Net income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">165,282,809</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">165,282,809</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:0px; text-indent:-0px">Shareholder&#146;s contribution (Note 13)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">45,988,389</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">45,988,389</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:0px; text-indent:-0px">Appropriations to statutory reserves
(Note 2(25))</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">47,593,606</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(47,593,606</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:0px; text-indent:-0px">Balance as of December&nbsp;31, 2005</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">141,982,766</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,751,186</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,397,092,348</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">87,619,085</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(3,595,349</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">30,181,706</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">114,809,634</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,637,858,610</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt">The accompanying notes are an integral part of these financial statements.
</DIV>


<P align="center" style="font-size: 10pt">F-5
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>SHANDA INTERACTIVE ENTERTAINMENT LIMITED</B>
</DIV>

<DIV align="left">
<A name="304"></A>
</DIV>

<DIV align="Center" style="font-size: 10pt; margin-top: 6pt"><B>CONSOLIDATED STATEMENTS OF CASH FLOWS</B>

</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="52%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="15" style="border-bottom: 1px solid #000000"><B>For the years ended December 31,</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 0px solid #000000"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 0px solid #000000"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>US$</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Restated (Note 12)</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>(Note2(3))</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Cash flows from operating activities:</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">272,850,169</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">609,482,888</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">165,282,809</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20,480,634</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Adjustments for:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Share-based compensation costs</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,158,982</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">28,827,828</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,697,877</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,697,340</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Depreciation of property and equipment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,688,392</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">29,059,685</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">46,671,567</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,783,198</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Amortization of intangible assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17,347,105</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">52,843,104</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">67,460,912</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,359,262</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Provision for losses on receivables</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">842,270</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">55,675,931</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,898,953</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Provision for losses on inventories</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,794,286</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,337,549</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Loss from disposal of fixed assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">803,217</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">662,160</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">82,050</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Investment loss(income)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(6,551,259</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(43,494,032</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,898,971</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">730,957</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Interest income on loan receivable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,752,083</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(730,678</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Interest income on restricted cash</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2,750,995</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(340,883</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Purchased in-progress research and development</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,147,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">513,866</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Foreign Exchange gain </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(46,254,419</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(5,731,508</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Amortization of convertible debt issuance cost</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,523,935</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,492,523</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,291,458</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Other income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,222,699</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Deferred tax assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(7,049,837</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(7,544,269</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,660,475</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,568,793</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Equity in loss of affiliated companies</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,180,283</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">544,268,271</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">67,441,733</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Minority interests</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(3,640,950</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,661,422</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(4,825,541</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(597,946</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Changes in assets and liabilities, net of acquisitions:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Accounts receivable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(6,199,809</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(32,372,698</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(84,098,143</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(10,420,825</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Inventories</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(6,039,188</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(33,189,092</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(4,112,549</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Due from related parties</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2,114,691</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,349,893</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Deferred licensing fees and related costs</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(19,920,207</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,425,964</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">24,893,734</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,084,649</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Prepayments and other current assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(7,075,010</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(3,387,526</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(23,446,948</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2,905,374</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Upfront licensing fee paid</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(38,061,203</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(11,587,800</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(42,107,260</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(5,217,623</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Prepayment for upfront license fee</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(22,523,080</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2,790,895</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Other long-term deposits</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2,025,066</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(14,464</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(499,398</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(61,882</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Accounts payable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,067,772</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,802,808</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21,204,583</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,627,516</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Licensing fees payable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(26,881,371</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23,313,660</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(38,377,217</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(4,755,423</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Taxes payable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(37,453,196</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">26,817,958</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(4,487,054</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(556,003</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Deferred revenue</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">86,272,373</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">49,801,190</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(87,664,935</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(10,862,796</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Due to related parties</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,757,572</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(7,491,973</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(928,350</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Other payables and accruals</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,695,509</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">64,230,449</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">55,692,882</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,901,054</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net cash provided by operating activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">278,355,620</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">807,330,772</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">649,787,926</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">80,516,955</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Cash flows from investing activities:</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">(Increase) decrease of short-term investments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">120,000,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(126,360,137</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(15,657,621</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Purchase of marketable securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,829,473,857</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(432,524,942</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,574,695,967</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(195,124,777</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Proceeds from disposal of marketable securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,829,431,841</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">196,221,753</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,661,458</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">949,352</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Proceeds from income of other investment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,130,935</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">989,677</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">122,634</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">(Increase) decrease in loan receivable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(55,870,000</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">58,352,761</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Purchase of property and equipment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(55,914,721</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(74,025,031</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(160,318,006</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(19,865,431</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Prepayment for purchase of land use right</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(18,157,950</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2,250,000</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Proceeds from disposal of fixed assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">269,095</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">469,193</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">58,139</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Purchase of intangible assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(22,288,513</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(23,379,233</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(40,450,554</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(5,012,336</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net cash paid for purchase of subsidiaries and VIE subsidiaries</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(5,538,055</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(182,444,474</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(161,517,636</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(20,014,081</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Proceeds from disposal of other long-term assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">453,103</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">56,145</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Proceeds from disposal of a VIE subsidiary, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,593,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(129,265</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(16,018</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Investment in affiliated companies</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(3,455,125</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(160,275,860</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(759,404,237</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(94,099,804</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net cash used in investing activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(21,515,430</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(615,674,996</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2,831,460,321</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(350,853,798</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Cash flows from financing activities:</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Proceeds from issuance of common stock upon IPO, net of IPO issuance costs</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">875,507,698</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Proceeds from issuance of common stock under stock option plan</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">41,587,542</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">72,516,739</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,985,742</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Proceeds from issuance of convertible debt, net of issuance cost</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">240,585,510</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,225,430,331</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Repurchase of stock</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(620,775,000</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(54,861,286</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(6,798,008</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cash injection in VIE subsidiaries by minority shareholders</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,356,435</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,724,650</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">245,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">30,359</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Dividends to ordinary shareholders</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2,125,000</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(143,869,619</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Dividends to preferred shareholders</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(48,212,650</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Deemed capital distribution to the founders of Heng Kang</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(24,831,000</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Deemed capital distribution from deconsolidation of Heng Kang</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(54,943,653</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net cash provided by financing activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">165,042,292</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,333,392,952</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17,900,453</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,218,093</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Effect of exchange rate changes on cash</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(10,577,630</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,310,703</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net increase (decrease)&nbsp;in cash and cash equivalents</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">421,882,482</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,525,048,728</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2,174,349,572</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(269,429,453</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cash, beginning of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">177,039,963</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">598,922,445</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,123,971,173</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">387,099,598</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cash, end of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">598,922,445</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,123,971,173</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">949,621,601</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">117,670,145</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Supplemental disclosure of cash flow information:</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cash paid during the year for income tax</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">55,238,262</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">33,121,613</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">101,307,276</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,553,255</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Supplemental disclosure of investing activities:</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total consideration for purchase of subsidiaries</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,720,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">198,580,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">246,539,225</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">30,549,332</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Consideration paid in previous year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(41,384,900</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(5,128,113</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Acquisition related obligation at December&nbsp;31, 2005</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(10,402,485</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,289,000</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Contingent consideration paid for the acquisitions in 2004</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,600,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">817,824</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cash paid for purchase of subsidiaries</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,720,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">198,580,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">201,351,840</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">24,950,043</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cash acquired</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(8,181,945</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(16,135,526</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(39,834,204</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(4,935,962</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cash paid for business acquisition, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,538,055</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">182,444,474</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">161,517,636</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20,014,081</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Supplemental disclosure of non-cash investing and financing activities:</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Accrual related to purchase of property and equipment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,828,993</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20,469,415</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25,671,372</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,181,008</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Accounts payable assumed by founders of Heng Kang upon deconsolidation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">26,555,201</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Conversion of Series&nbsp;A and A-1 Preferred Shares to ordinary shares</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,488,074</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD nowrap><DIV style="margin-left:15px; text-indent:-15px">Dividends distributed for settlement of subscription receivables (Note 19)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,277,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD nowrap><DIV style="margin-left:15px; text-indent:-15px">Dividends distributed for reinvestment in Shanda Networking (Note 19)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,500,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt">The accompanying notes are an integral part of these financial statements.
</DIV>


<P align="center" style="font-size: 10pt">F-6
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>SHANDA INTERACTIVE ENTERTAINMENT LIMITED</B>
</DIV>

<DIV align="left">
<A name="305"></A>
</DIV>

<DIV align="Center" style="font-size: 10pt; margin-top: 6pt"><B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS</B><BR>
(AMOUNTS EXPRESSED IN Renminbi (RMB)&nbsp;UNLESS OTHERWISE STATED)

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>1. ORGANIZATION AND NATURE OF OPERATIONS</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The accompanying consolidated financial statements include the financial statements of Shanda
Interactive Entertainment Limited (the &#147;Company&#148; or &#147;Shanda Interactive&#148;), its subsidiaries, which
mainly include Shanda Holdings Limited (the &#147;Shanda BVI&#148;) and Shengqu Information Technology
(Shanghai) Co., Ltd. (&#147;Shengqu&#148;) and certain variable interest entities (&#147;VIEs&#148; or &#147;VIE
subsidiaries&#148;), which include Shanghai Shanda Networking Co., Ltd. (&#147;Shanda Networking&#148;) and its
subsidiaries. The Company, its subsidiaries and the VIE subsidiaries are collectively referred to
as the &#147;Group&#148;.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Shanda BVI, formerly known as Spirit High Ventures Ltd., was incorporated in British Virgin
Islands as a limited liability company on July&nbsp;2, 2002. Shengqu and Shanda Networking were
incorporated in the PRC on January&nbsp;21, 2003 and December&nbsp;29, 1999, respectively. Shanda Interactive
was incorporated in the Cayman Islands on November&nbsp;17, 2003 and became the holding company of the
Group through a share purchase agreement in December&nbsp;2003.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Group is principally engaged in the development and operation of online games and related
businesses in the People&#146;s Republic of China (the &#147;PRC&#148;). The Group develops and operates online
games primarily through Shengqu, Shanda Networking, Nanjing Shanda Networking Co., Ltd. (&#147;Nanjing
Shanda&#148;) and Hangzhou Bianfeng Networking Co., Ltd. (&#147;Hangzhou Bianfeng&#148;), which are subsidiaries
of Shanda Networking.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Shanda Networking was the predecessor of the Group and operated substantially all of the
businesses of the Group prior to March&nbsp;2003. It is wholly owned by Tianqiao Chen and Danian Chen,
the Company&#146;s Chief Executive Officer and Senior Vice President, respectively, who are PRC
citizens. Tianqiao Chen and Danian Chen, together with Qianqian Luo, a director of the Company and
spouse of Tianqiao Chen, also own all of the shares of Skyline Media Limited (&#147;Skyline&#148;), the
Company&#146;s controlling shareholder.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In March&nbsp;2003, the Group undertook a restructuring and reorganization (the &#147;Reorganization&#148;)
immediately prior to the issuance of Series&nbsp;A and A-1 Preferred Shares (Note 18) to a foreign
investor. The Reorganization was necessary to comply with PRC law and regulations that limit
foreign ownership of companies that provide Internet content services, which includes operating
online games.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As part of the Reorganization, Shanda BVI established Shengqu, a wholly foreign owned
enterprise, and Shengqu entered into a series of agreements with Shanda Networking. Pursuant to
these agreements, Shanda Networking transferred substantially all of its operating assets to
Shengqu, except for certain assets that an online game operator must own to qualify to be an
Internet content provision license holder, and Shengqu provides services, software licenses and
equipment to Shanda Networking in exchange for fees. As a result of these agreements, the Company
is considered the primary beneficiary of Shanda Networking (Note 2(2)) and accordingly Shanda
Networking&#146;s results are consolidated in the financial statements of the Company.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Following the Reorganization, Shanda Networking acquired substantially all of the business and
operations of Shanghai Heng Kang Networking Co., Ltd. (&#147;Heng Kang&#148;), a related company owned by
immediate family members of
</DIV>

<P align="center" style="font-size: 10pt">F-7
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Tianqiao Chen and Danian Chen. The principal business of Heng Kang was the distribution of
pre-paid cards for Shanda Networking&#146;s online game business. The acquisition was a transaction
among a common control group and the accompanying consolidated financial statements have been
prepared as if the Group had acquired Heng Kang on August&nbsp;21, 2000, the date of Heng Kang&#146;s
incorporation. The cash consideration paid of RMB24,831,000 and the carrying value of net assets
not acquired as part of the acquisition of RMB28,388,452, mainly comprising of cash and accounts
payable, have been recognized as a deemed capital distribution.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In December&nbsp;2003, Shanda Interactive entered into a share purchase agreement with Shanda BVI
and the preferred and ordinary shareholders of Shanda BVI (the &#147;Share Swap&#148;), pursuant to which
Shanda Interactive purchased all of the preferred and ordinary shares of Shanda BVI. As
consideration for the purchase, Shanda Interactive issued the same number of preferred and ordinary
shares to the selling preferred and ordinary shareholders of Shanda BVI. The rights of the
preferred and ordinary shares issued by Shanda Interactive are the same as those originally issued
by Shanda BVI. As the Reorganization and the Share Swap were among common shareholders, the
accompanying consolidated financial statements have been prepared as if the Group had been in
operation since the incorporation of Shanda Networking, which was the predecessor of the Group.
Prior to the Reorganization, Shanda BVI was an investment holding company with no other operations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In May&nbsp;2004, Shanda Interactive completed an initial public offering of American Depository
Shares (ADSs). ADSs of the Company are traded from May&nbsp;13, 2004 on NASDAQ National Market under the
symbol &#147;SNDA&#148; in the United States.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In October&nbsp;2004, pursuant to a repurchase agreement between the Company and SB Asia
Infrastructure Fund L.P., or SAIF, the Company used US$75.0&nbsp;million, equivalent to RMB620.7
million, to purchase 5,326,250 ordinary shares (which was equal to 2,663,125 ADSs) from SAIF. After
the repurchase, those shares were retired (Note 20).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In October&nbsp;2005, pursuant to a share repurchase plan, under which the Company is authorized to
repurchase up to US$50&nbsp;million worth of outstanding ADs from time to time over the next 12&nbsp;months
(Note 20).
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>2. PRINCIPAL ACCOUNTING POLICIES</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>(1)&nbsp;Basis of presentation</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The accompanying consolidated financial statements have been prepared in accordance with
generally accepted accounting principles in the United States of America (&#147;US GAAP&#148;).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The preparation of financial statements in conformity with US GAAP requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures
of contingent assets and liabilities at the balance sheet dates and the reported amounts of
revenues and expenses during the reporting periods. Actual results could materially differ from
those estimates.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>(2)&nbsp;Consolidation</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The consolidated financial statements include the financial statements of the Company, its
subsidiaries and VIE subsidiaries for which the Company is the primary beneficiary. All
transactions and balances among the Company, its subsidiaries and VIE subsidiaries have been
eliminated upon consolidation. Investments in equity securities which the
</DIV>

<P align="center" style="font-size: 10pt">F-8
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Company can exercise significant influence are accounted for by the equity method of
accounting.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Group has adopted FASB Interpretation No.&nbsp;46R, <I>&#147;Consolidation of Variable Interest
Entities, an Interpretation of ARB No.&nbsp;51&#148; </I>(&#147;FIN 46R&#148;). FIN 46R requires certain variable interest
entities to be consolidated by the primary beneficiary of the entity if the equity investors in the
entity do not have the characteristics of a controlling financial interest or do not have
sufficient equity at risk for the entity to finance its activities without additional subordinated
financial support from other parties.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;To comply with PRC laws and regulations that restrict foreign ownership of companies that
operate online games, the Company operates its online games mainly through Shanda Networking, which
is wholly owned by Tianqiao Chen and Danian Chen, and Nanjing Shanda and Hangzhou Bianfeng, which
are subsidiaries of Shanda Networking. These three companies hold the license and approvals to
operate online games in the PRC.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant to the contractual arrangements with Shanda Networking, Nanjing Shanda and Bianfeng
Networking, Shengqu provides services, software licenses and equipment to Shanda Networking,
Nanjing Shanda and Bianfeng Networking, in exchange for fees, determined according to certain
agreed formulas. During the year ended December&nbsp;31, 2004 and 2005, the total amount of such fees
was approximately RMB646.1&nbsp;million and RMB1,034.5&nbsp;million, which represented the substantial
majority operating profit of Shanda Networking, Nanjing Shanda and Bianfeng Networking. Shengqu has
also undertaken to provide financial support to Shanda Networking to the extent necessary for its
operations. The principal services, software license and equipment lease agreements that Shengqu
has entered into with Shanda Networking, Nanjing Shanda and Bianfeng Networking are:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Equipment leasing agreements, pursuant to which Shanda Networking, Nanjing Shanda and
Bianfeng Networking lease a substantial majority of their operating assets from Shengqu;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>A technical support agreement, pursuant to which Shengqu provides technical support for
Shanda Networking&#146;s operations;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Technology licensing agreements, pursuant to which Shengqu licenses certain billing
technology to Shanda Networking, Nanjing Shanda and Bianfeng Networking;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Software license agreements, pursuant to which Shengqu licenses certain software to
Shanda Networking, Nanjing Shanda and Bianfeng Networking;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>A strategic consulting agreement, pursuant to which Shengqu provides strategic
consulting services to Shanda Networking; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Online game distribution and service agreements, pursuant to which Shanda Networking,
Nanjing Shanda and Bianfeng Networking distribute and service certain online games that are
licensed or owned by Shengqu.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition, Shengqu has entered into agreements with Shanda Networking and its equity owners
with respect to certain shareholder rights and corporate governance matters that provide Shengqu
with the substantial ability to control Shanda Networking. Pursuant to these contractual
arrangements:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The equity owners of Shanda Networking have granted an irrevocable proxy to individuals
designated by</TD>
</TR>

</TABLE>
</DIV>
<P align="center" style="font-size: 10pt">F-9
</DIV>

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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV style="margin-top: 6pt"><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR valign="top" style="font-size: 10pt; color: #textcolor#; background: #bgcolor#">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Shengqu to exercise the right to appoint directors, general manager and other senior
management of Shanda Networking;</TD>
</TR>
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Shanda Networking will not enter into any transaction that may materially affect its
assets, liabilities, equity or operations without the prior written consent of Shengqu;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Shanda Networking will not distribute any dividend;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Shengqu may purchase the entire equity interest in, or all the assets of, Shanda
Networking for a purchase price equal to the lower of RMB10&nbsp;million or the lowest price
permitted under PRC law when and if such purchase is permitted by PRC law or the current
equity owners of Shanda Networking cease to be directors or employees of Shanda Networking
or desire to transfer their interest in Shanda Networking to a third party;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The equity owners of Shanda Networking have pledged their equity interest in Shanda
Networking to Shengqu to secure the payment obligations of Shanda Networking under all of
the agreements between Shanda Networking and Shengqu; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The equity owners of Shanda Networking will not transfer, sell, pledge or dispose of
their equity interest in Shanda Networking without the prior written consent of Shengqu.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As a result of these agreements, the Company is considered the primary beneficiary of Shanda
Networking and accordingly Shanda Networking&#146;s results are consolidated in the Company&#146;s financial
statements.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>(3)&nbsp;Foreign currency translation</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company&#146;s reporting currency is the Renminbi (&#147;RMB&#148;). The functional currency of the
Company, its subsidiaries and VIE subsidiaries is RMB. Transactions denominated in currencies other
than RMB are translated into RMB at the exchange rates quoted by the People&#146;s Bank of China
prevailing at the dates of the transactions. Gains and losses resulting from foreign currency
transactions are included in the consolidated statements of operations and comprehensive income.
Monetary assets and liabilities denominated in foreign currencies are translated into RMB using the
applicable exchange rates quoted by the People&#146;s Bank of China at the balance sheet dates. All such
exchange gains and losses are included in the statements of operations and comprehensive income.
The exchange differences for translation of group companies&#146; balances where RMB is not their
functional currency are included in cumulative translation adjustments, which is a separate
component of shareholders&#146; equity on the consolidated financial statements.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Translations of amounts from RMB into United States dollars (&#147;US$&#148; or &#147;U.S. dollars&#148;) are
solely for the convenience of the reader and were calculated at the rate of US$1.00 = RMB8.0702,
representing the noon buying rate in the City of New York for cable transfers of RMB, as certified
for customs purposes by the Federal Reserve Bank of New York, on December&nbsp;31, 2005. This
convenient translation is not intended to imply that the RMB amounts could have been, or could be,
converted, realized or settled into U.S. dollars at that rate on December&nbsp;31, 2005, or at any other
rate.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>(4)&nbsp;Cash and cash equivalents</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Cash and cash equivalents represent cash on hand, demand deposits and highly liquid
investments placed with
</DIV>

<P align="center" style="font-size: 10pt">F-10
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">banks or other financial institutions, which have original maturities less than three months.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>(5)&nbsp;Short-term investments</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Short-term investments represent the bank time deposits with the maturities between three
months and six months.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>(6)&nbsp;Marketable securities</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Marketable securities primarily consist of available-for-sale marketable equity securities,
marketable corporate bonds, or mutual funds. Marketable securities are classified as short-term
based on their liquid nature and because such securities are available for current operations.
Marketable securities are carried at fair market value with unrealized appreciation (depreciation)
reported as a component of accumulated other comprehensive gain (loss)&nbsp;in shareholders&#146; equity. The
specific identification method is used to determine the cost of securities. Realized gains and
losses are reflected as investment income.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During the years ended December&nbsp;31, 2003, 2004 and 2005, the Company recorded unrealized
(losses)/gains on its marketable securities of approximately, RMB 0.3&nbsp;million and RMB 133.7&nbsp;million
and RMB(102.5) million, respectively, as a component of comprehensive income.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>(7)&nbsp;Allowances for doubtful accounts</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Group determines the allowance for doubtful accounts when facts and circumstances indicate
that the receivable is unlikely to be collected. If the financial condition of the Group&#146;s
customers were to deteriorate, resulting in an impairment of their ability to make payments,
additional allowances may be required.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>(8)&nbsp;Inventories</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Inventories are valued at the lower of cost or market value. The value of inventories is
determined using the weighted average method. The Group provides estimated inventory allowance for
excessive, slow moving and obsolete inventories as well as inventory whose carrying value is in
excess of net realized value.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>(9)&nbsp;Investment in affiliated companies</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Affiliated companies are entities over which the Company has significant influence, but which
it does not control. Investments in affiliated companies are accounted for by the equity method of
accounting. Under this method, the Company&#146;s share of the post-acquisition profits or losses of
affiliated companies is recognized in the income statement and its share of post-acquisition
movements in reserves is recognized in reserves. Unrealized gains on transactions between the
Company and its affiliated companies are eliminated to the extent of the Company&#146;s interest in the
affiliated companies; unrealized losses are also eliminated unless the transaction provides
evidence of an impairment of the asset transferred. When the Company&#146;s share of losses in an
affiliated company equals or exceeds its interest in the affiliated company, the Company does not
recognize further losses, unless the Company has incurred obligations or made payments on behalf of
the affiliated company.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company continually reviews its investments in affiliated companies to determine whether a
decline in fair
</DIV>

<P align="center" style="font-size: 10pt">F-11
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">value below the carrying value is other than temporary. The primary factors the Company
considers in its determination are the length of time that the fair value of the investment is
below the Company&#146;s carrying value; and the financial condition, operating performance and near
term prospects of the investee. In addition, the Company considers the reason for the decline in
fair value, be it general market conditions, industry specific or investee specific; analysts&#146;
ratings and estimates of 12&nbsp;month share price targets for the investee; changes in stock market
price or valuation subsequent to the balance sheet date; and the Company&#146;s intent and ability to
hold the investment for a period of time sufficient to allow for a recovery in fair value. If the
decline in fair value is deemed to be other than temporary, the carrying value of the security is
written down to fair value. During the years ended December&nbsp;31, 2004 and 2005, the Company recorded
impairment loss of approximately Nil and RMB521,486,000, respectively. These write-downs for equity
method investments are included in equity in loss of affiliated companies.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>(10)&nbsp;Property and equipment</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Property and equipment are stated at cost less accumulated depreciation. Depreciation is
computed using the straight-line method over the following estimated useful lives:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="88%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Computer equipment
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">5&nbsp;years</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Leasehold improvements
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top" nowrap>Lesser of the term of the lease or
the estimated useful lives of the
assets</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Furniture and fixtures
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">5&nbsp;years</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Motor vehicles
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">5&nbsp;years</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Office buildings
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">20&nbsp;years</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>(11)&nbsp;Intangible assets</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Online game product development costs</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Group recognizes costs to develop its online game products in accordance with SFAS No.&nbsp;86,
<I>&#147;Accounting for Costs of Computer Software to be Sold, Leased or Otherwise Marketed&#148; </I>(&#147;SFAS
No.86&#148;)<I>. </I>Costs incurred for the development of online game products prior to the establishment of
technological feasibility are expensed when incurred and are included in product development
expense. Once an online game product has reached technological feasibility, all subsequent online
game product development costs are capitalized until the product is available for marketing.
Technological feasibility is evaluated on a product-by-product basis, but typically encompasses
both technical design and game design documentation and only occurs when the online game has a
proven ability to operate in online game environment in the PRC market. Since the inception of the
Group, the amount of online game development costs qualifying for capitalization was approximately
RMB1,292,000, which is being amortized over the estimated life of the online game.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Website and internally used software development costs</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Group recognizes website and internally used software development costs in accordance with
Statement of Position (&#147;SOP&#148;) No.&nbsp;98-1, <I>&#147;Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use"</I>. As such, the Group expenses all costs that are incurred in connection
with the planning and implementation phases of development and costs that are associated with
repair or maintenance of the existing websites and software. Costs incurred in the development
phase are capitalized and amortized over the estimated product life. Since the inception of
</DIV>

<P align="center" style="font-size: 10pt">F-12
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">the Group, the amount of costs qualifying for capitalization has been immaterial and as a
result all website and internally used software development costs have been expensed as incurred.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Upfront licensing fees</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Upfront licensing fees paid to third party licensors are capitalized and amortized on a
straight-line basis over the shorter of the useful economic life of the relevant online game or
license period, which is usually 2 to 3&nbsp;years.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Software and copyrights</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Software and copyrights purchased from third parties are initially recorded at cost and
amortized on a straight-line basis over the shorter of the useful economic life or stipulated
period in the contract, which is usually 2 to 5&nbsp;years.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 3%"><I>Software technology, game engine, non-compete agreements and customer base acquired through
business combinations</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;An intangible asset is required to be recognized separately from goodwill based on its
estimated fair value if such asset arises from contractual or legal right or if it is separable as
defined by SFAS No.&nbsp;141 <I>&#147;Business Combinations&#148; </I>(&#147;SFAS No.&nbsp;141&#148;). Software technology, game engine,
non-compete agreements and customer base arising from the acquisitions of subsidiaries and VIE
subsidiaries are initially recognized and measured at estimated fair value upon acquisition.
Amortization is computed using the straight-line method over the following estimated useful lives:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="88%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Software technology</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top" nowrap>3 to 5.5 years</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Game engine</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">3 years</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Non-compete agreements</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">2 years</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Customer base</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top" nowrap>5 or 5.5 years</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>(12)&nbsp;Goodwill</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Goodwill is measured as the excess of the purchase price over the fair value assigned to the
individual assets acquired and liabilities assumed. In a business combination, any acquired
intangible assets that do not meet separate recognition criteria as specified in SFAS No.&nbsp;141
should be recognized as goodwill.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In accordance with SFAS No.142 <I>&#147;Goodwill and other intangible assets&#148; </I>(&#147;SFAS No.&nbsp;142&#148;), no
amortization is recorded for goodwill. Goodwill is tested for impairment annually or more
frequently if events or changes in circumstances indicate that it might be impaired. In October of
each year, the Company tests impairment of goodwill at the reporting unit level and recognizes
impairment in the event that the carrying value exceeds the fair value of each reporting unit.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>(13)Other long-term assets</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other long-term assets mainly include the issuance costs, amounting to RMB52.1&nbsp;million, of the
Company&#146;s Zero Coupon Senior Convertible Notes due 2014 (&#147;Convertible Notes&#148;). The issuance costs
of its Convertible Notes is deferred and being amortized on a straight-line basis over a period of
three years from the date of issuance, which is October&nbsp;15, 2004, to the first date when the
Company may be required to repurchase all or any portion of their principal amount. The
amortization expense for the year ended December&nbsp;31, 2004 and 2005 were RMB3.5&nbsp;million and RMB
</DIV>

<P align="center" style="font-size: 10pt">F-13
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">18.5&nbsp;million respectively.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>(14)&nbsp;Impairment of long-lived assets and intangible assets</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Long-lived assets and intangible assets are reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company
assesses the recoverability of the long-lived assets and intangible assets (other than goodwill) by
comparing the carrying amount to the estimated future undiscounted cash flow associated with the
related assets. The Company recognizes impairment of long-lived assets and intangible assets in the
event that the net book value of such assets exceeds the estimated future undiscounted cash flows
attributable to such assets. No impairment of long-lived assets and intangible assets was
recognized for any of the years presented.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>(15)&nbsp;Financial instruments</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Financial instruments of the Company primarily comprise of cash and cash equivalents,
short-term investment, marketable securities, accounts receivable, prepayments and other current
assets, amount due from/to related parties, accounts payable and other payables. As of December&nbsp;31,
2004 and 2005, their carrying values approximated their fair values.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>(16)&nbsp;Revenue recognition</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Online game revenue</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Prior to November&nbsp;28, 2005, the Group operated all Massively Multiplayer Online Role-Playing
Games (&#147;MMORPGs&#148;) under a pay-to-play model. Under this model, the Group receives subscription fees
from distributors for the sale of time units, which allow end users to access its online game
products. The distribution of time units to the end users typically is made by sales of pre-paid
game cards, in physical or virtual form. The pre-paid game cards entitle the end users to access
the Group&#146;s online game products for a specified period of time in accordance with the Group&#146;s
published expiration policy. All subscription fees are deferred when received and revenue is
recognized based upon the actual usage of time units by the end users, or when the end users are no
longer entitled to access the online game products in accordance with the Group&#146;s published
expiration policy.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Starting from November&nbsp;28, 2005, the Group changed the operation of certain MMORPGs from the
pay-to-play model to a free-to-pay model. Under the new model, players can access the games free of
charges but may purchase points for in-game premium features. The distribution of points to the end
users typically is made by sales of pre-paid game cards, in physical or virtual forms. The unused
time units as of November&nbsp;28, 2005 were converted into point units immediately. Subscription fees
are deferred when received and revenue is recognized over the life of the premium features or as
the premium features is consumed.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For casual online games, which are typically less complex and have shorter play duration than
MMORPGs, the Group receives subscription fee from distributors for the sales of points, which allow
end users to purchase premium features. Casual games can be accessed and played by end users free
of charge and without the purchase of premium features. Subscription fee is deferred when received
and revenue is recognized over the life of the premium features or as the premium features is
consumed.
</DIV>

<P align="center" style="font-size: 10pt">F-14
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Other Revenues</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other revenues principally comprise of advertising revenues, Mobile valued-added services
revenue, revenues from sale of E-Key, EZ Pod, and other online game auxiliary products.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Advertising revenues are derived principally from online advertising arrangements, sponsorship
arrangements, or a combination of both. Online advertising arrangements allow advertisers to place
advertisements on particular areas of the Group&#146;s websites, in particular formats and over
particular period of time. Advertising revenues from online advertising arrangements are recognized
ratably over the displayed period of the contract when the collectibility is reasonably assured.
Revenue from advertisement was reported as other revenues for all periods presented.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Mobile value-added services revenue are derived from providing mobile phone users with
services for recharging value of their prepaid cards and subscribing other game related content via
short messaging services, or SMS. Revenues from SMS are charged based on usage and recognized in
the period in which the service is performed, provided that collection of the receivables is
reasonably assured, the amounts can be accurately estimated, and there are no future service
obligations by the Company.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;EZ Pod is an output device of Shanda Home Entertainment Platform (&#147;Platform&#148;). By using EZ
Pod, users can have access to the Platform and pay subscription fee to subscribe various online
contents, such as games, music and films. As of December&nbsp;31, 2005, the Platform was still in the
trial operation period and no subscription fee was charged to users. Revenue from sale of EZ Pod
was recognized upon delivery as the EZ Pod had separate value to the users and the Company had no
future legal or constructive obligation related to the sale of EZ Pod.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Group sells E-Key, a secure ID product and other on-line game auxiliary products to
customers. Revenues derived from the sale of E-Key and other on-line game auxiliary products are
recognized when the titles of such products are transferred to the customers and collections are
reasonably assured.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Group&#146;s subsidiaries and its VIE subsidiaries are subject to business tax and related
surcharges and value added tax on the revenues earned for services provided and products sold in
the PRC. The applicable business tax rate varies from 3% to 5% and the rate of value added tax
varies from 6% to 17%. In the accompanying statements of operations and comprehensive income,
business tax and related surcharges for revenues derived from on-line games, advertisement, mobile
valued-added services are deducted from gross receipts to arrive at net revenues.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>(17)&nbsp;Deferred revenue</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Deferred revenue represents subscription fees received from customers that cover online game
services to be rendered in the future. Deferred revenue is stated at the amount of subscription
fees received less the amount previously recognized as revenue upon the rendering of online game
services or expiration of the time units or expiration of game cards in accordance with the Group&#146;s
published expiration policy.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>(18)&nbsp;Deferred licensing fees and related costs</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Upon the receipt of subscription fees from the distributors, the Group is obligated to pay
on-going licensing fees and other costs related to such subscription fees, including business tax
and related surcharges. As subscription fees are deferred (Note 2(17)), the related on-going
licensing fees and costs are also deferred. The deferred licensing fees and
</DIV>

<P align="center" style="font-size: 10pt">F-15
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">related costs are recognized in the statements of operations and comprehensive income in the
period in which the related online game subscription fees are recognized as revenue.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>(19)&nbsp;Cost of revenue</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Cost of services rendered</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Cost of services rendered consists primarily of online game licensing fees, depreciation,
maintenance and rental of computer equipment, amortization of upfront licensing fees, manufacturing
costs for prepaid game cards and other overhead expenses directly attributable to the provision of
online game services. Cost of services rendered amounted to approximately RMB233,701,000,
RMB443,558,000 and RMB567,267,000, during the years ended December&nbsp;31, 2003, 2004 and 2005,
respectively.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Cost of goods sold</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Cost of goods sold primarily consists of direct and indirect costs of EZ Pod, E-Key and other
on-line game auxiliary products, as well as the corresponding shipping and handling costs for the
products sold. Cost of goods sold amounted to approximately 0, RMB27,626,000 and RMB47,160,000,
during the years ended December&nbsp;31, 2003, 2004 and 2005, respectively.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>(20)&nbsp;Product development</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Product development costs consist primarily of payroll, depreciation expense and other
overhead expenses incurred by the Group to develop, maintain, monitor and manage the Group&#146;s online
gaming products, software and websites, and are recorded on an accrual basis.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>(21)&nbsp;Sales and marketing</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Sales and marketing costs consist primarily of advertising and market promotion expenses,
payroll and other overhead expenses incurred by the Group&#146;s sales and marketing personnel, and are
recorded on an accrual basis. Advertising expenses amounted to approximately RMB13,147,000,
RMB16,015,000 and RMB66,248,000, during the years ended December&nbsp;31, 2003, 2004 and 2005,
respectively.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>(22)&nbsp;Share-based compensation</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company accounts for share-based compensation plans under the intrinsic-value method
prescribed by Accounting Principles Board (&#147;APB&#148;) Opinion No.&nbsp;25, &#147;Accounting for Stock Issued to
Employees&#148; (&#147;APB No.&nbsp;25&#148;), as interpreted, with pro forma disclosures of net income attributable to
ordinary shareholders and earnings per share, as if the fair value method of accounting defined in
Statement of Financial Accounting Standards No.&nbsp;123, &#147;Accounting for Stock-Based Compensation&#148;
(&#147;SFAS No.&nbsp;123&#148;). In general, compensation cost under APB No.&nbsp;25 is recognized based on the
difference, if any, between the estimated fair value of the Company&#146;s ordinary shares and the
amount an employee is required to pay to acquire the ordinary shares, as determined on the date the
option is granted. Compensation cost, if any, is recorded in shareholders&#146; equity as additional
paid-in capital with an offsetting entry recorded as deferred share-based compensation. Deferred
share-based compensation is amortized and charged to expense based on the vesting terms of the
underlying options.
</DIV>

<P align="center" style="font-size: 10pt">F-16
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SFAS No.&nbsp;123 establishes a fair value based method of accounting for share-based compensation
plans. Under the fair value method, compensation cost is measured at the grant date based on the
fair value or minimum value, as applicable, of the award and is recognized over the service period,
which is usually the vesting period. Had the Company determined the share-based compensation
expense for the Company&#146;s share options based upon the minimum value/fair value at the grant date
for share options awards in 2003, 2004 and 2005, consistent with the provisions of SFAS No.&nbsp;123,
the Company&#146;s net income attributable to ordinary shareholders and earnings per share would have
been reduced to the pro forma amounts indicated below.
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>RMB</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income attributable
to ordinary shareholders
as reported</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">199,529,270</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">527,004,006</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">165,282,809</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Add: Share-based
compensation expenses
under APB No.&nbsp;25</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,158,928</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">28,827,828</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,697,877</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Less: Share-based
compensation expenses
under SFAS No.&nbsp;123</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(27,315,276</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(67,612,681</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(50,192,400</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Add: Allocation to
participating
shareholders</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,847,982</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,184,018</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Pro forma net income
attributable to ordinary
shareholders</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">192,220,904</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">491,403,171</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">128,788,286</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Basic earnings per share</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">As reported</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.14</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4.32</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.17</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Pro forma</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.06</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4.02</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.91</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Basic earnings per ADS</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">As reported</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4.28</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.64</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.34</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Pro forma</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4.12</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.04</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.82</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Diluted earnings per share</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">As reported</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.07</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4.05</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.13</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Pro forma</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.00</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3.78</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.88</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Diluted earnings per ADS</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">As reported</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4.14</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.10</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.26</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Pro forma</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4.00</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7.56</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.76</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The effects of applying SFAS No.&nbsp;123 methodologies in this pro forma disclosure are not
indicative of future earnings or earnings per share. Additional share option awards in future years
are expected.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Prior to January&nbsp;1, 2004, the Company was considered a non-public company and calculated the
minimum value of share options on the date of grant as (i)&nbsp;the estimated fair value of the shares
reduced to exclude the present value of any expected dividends during the term of the option minus
(ii)&nbsp;the present value of the exercise price using the assumptions in the following table.
Subsequent to January&nbsp;1, 2004, the Company calculated the fair value of each option granted on the
date of grant using the Black-Scholes pricing method based on the following assumptions:
</DIV>

<P align="center" style="font-size: 10pt">F-17
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Risk-free interest rate</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">2.65</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD nowrap align="right">2.8-4.0</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD nowrap align="right">3.9-4.2</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Term of share option/Expected life (in years)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" nowrap align="right">10 years</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" nowrap align="right">5 years</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" nowrap align="right">6.25 years </TD>
    <TD align="left">*</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Expected dividend yield</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">0</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">0</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">0</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Volatility</DIV></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" nowrap align="right">NA</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD nowrap align="right">58%-71</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD nowrap align="right">58%-60</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Minimum value/fair value per option at grant
date</DIV></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" nowrap align="right">RMB2.91-RMB48.28</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" nowrap align="right">RMB23.66-RMB49.26</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" nowrap align="right">RMB73.39-RMB82.59</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV align="left">
<DIV style="font-size: 3pt; margin-top: 16pt; width: 18%; border-top: 1px solid #000000">&nbsp;</DIV>
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96"></TD>
</TR>

<TR valign="top">
    <TD nowrap align="left">*</TD>
    <TD>&nbsp;</TD>
    <TD>The Company&#146;s historical share option exercise experience does not provide a reasonable basis
upon which to estimate expected term. As a result, according to Staff Accounting Bulletin No.
107 <I>&#147;SAB 107&#148;</I>, considering the Company&#146;s stock option awards have the characteristics of &#147;plain
vanilla&#148; option, the Company uses a &#147;simplified&#148; method to determine the expected term of the
options granted in 2005.</TD>
</TR>

</TABLE>



<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>(23)&nbsp;Leases</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Leases where substantially all the rewards and risks of ownership of assets remain with the
leasing company are accounted for as operating leases. Other leases are accounted for as capital
leases. Payments made under operating leases, net of any incentives received by the Group from the
leasing company, are charged to the statements of operations and comprehensive income on a
straight-line basis over the lease periods or based on certain formulas, as specified in the lease
agreements, with reference to the actual number of users of the leased assets, as appropriate.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>(24)&nbsp;Taxation</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Deferred income taxes are provided using the liability method. Under this method, deferred
income taxes are recognized for the tax consequences of temporary differences by applying enacted
statutory rates applicable to future years to differences between the financial statement carrying
amounts and the tax bases of existing assets and liabilities. The tax base of an asset or liability
is the amount attributed to that asset or liability for tax purposes. The effect on deferred taxes
of a change in tax rates is recognized in income in the period of change. A valuation allowance is
provided to reduce the amount of deferred tax assets if it is considered more likely than not that
some portion of, or all of, the deferred tax assets will not be realized.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>(25)&nbsp;Statutory reserves</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Shengqu, Shanda Computer (Shanghai) Co., Ltd., Grandpro Technology (Shanghai) Co., Ltd. and
the Group&#146;s VIE subsidiaries incorporated in the PRC are required on an annual basis to make
appropriations of retained earnings set at certain percentage of after-tax profit determined in
accordance with PRC accounting standards and regulations (&#147;PRC GAAP&#148;) to statutory reserve fund and
statutory welfare fund. The statutory reserve fund can be used to increase the registered capital
and eliminate future losses of the companies, it cannot be distributed to shareholders except in
the event of a solvent liquidation of the companies. The statutory welfare fund can only be used
for the collective benefits and facilities of the employees. The Group&#146;s VIE subsidiaries are
required to make an appropriations of retained earnings equal to, at least, 10% and 5%, of the PRC
GAAP after-tax profit, to the statutory reserve fund and the statutory welfare fund, respectively.
Shengqu, Shanda Computer (Shanghai) Co., Ltd. and Grandpro Technology (Shanghai) Co., Ltd., as
wholly foreign owned enterprises incorporated in the PRC, is required to make appropriation of
retained earnings equal to at least 10% of the PRC GAAP after-tax profit to the statutory reserve
fund. Once the level of these funds reaches 50% of the registered capital of the respective
companies, further appropriations are discretionary.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Appropriations to these funds are classified in the consolidated balance sheets as statutory
reserves. During the year ended December&nbsp;2003, 2004 and 2005, the Group made total appropriations
to these statutory reserves of
</DIV>

<P align="center" style="font-size: 10pt">F-18
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">approximately RMB22,192,000, RMB12,713,000 and RMB47,594,000 respectively.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;There are no legal requirements in the PRC to fund these reserves by transfer of cash to any
restricted accounts, and the Group does not do so.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>(26)&nbsp;Dividends</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Dividends are recognized when declared.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On March&nbsp;5, 2004, a cash dividend of US$23&nbsp;million (equivalent to RMB192&nbsp;million) was declared
by the Company to its holders of ordinary shares and preferred shares in proportion to their
respective share ownership, on an as-converted basis, which is approximately 74.9% and 25.1%,
respectively.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Relevant PRC laws and regulations permit payments of dividends by the PRC subsidiaries and
affiliated companies only out of their retained earnings, if any, as determined in accordance with
PRC accounting standards and regulations (see Note 2(25)).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition, since a significant amount of the Group&#146;s future revenues will be denominated in
RMB, the existing and any future restrictions on currency exchange may limit the Group&#146;s ability to
utilize revenues generated in RMB to fund the Group&#146;s business activities outside China, if any, or
expenditures denominated in foreign currencies.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>(27)&nbsp;Earnings per share</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In accordance with SFAS No.&nbsp;128, &#147;<I>Computation of Earnings Per Share</I>&#148; (&#147;SFAS No.&nbsp;128&#148;) and EITF
Issue 03-06, &#147;<I>Participating Securities and the Two-Class&nbsp;Method under FASB Statement No.&nbsp;128</I>&#148;,
basic earnings per share is computed by dividing net income attributable to common shareholders by
the weighted average number of unrestricted ordinary shares outstanding during the year using the
two-class method. Under the two class method, net income is allocated between ordinary shares and
other participating securities based on their participating rights. The Company&#146;s Series&nbsp;A and
Series&nbsp;A-1 Convertible Redeemable Preferred Shares (Note 18) are participating securities. Diluted
earnings per share is calculated by dividing net income attributable to common shareholders as
adjusted for the effect of dilutive ordinary equivalent shares, if any, by the weighted average
number of ordinary and dilutive ordinary equivalent shares outstanding during the year. Ordinary
equivalent shares consist of the ordinary shares issuable upon the conversion of the Convertible
Redeemable Preferred Shares and Convertible Debt (using the as-converted method) and ordinary
shares issuable upon the exercise of outstanding share options (using the treasury share method).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Earnings per share has been computed as if the current corporate structure, after the
Reorganization and Share Swap (Note 1), the 1:100 share split (Note 19) and the share issuance for
nominal value (Note 19), had occurred at the beginning of the relevant periods.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>(28)&nbsp;Segment reporting</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Group operates and manages its business as a single segment. As the Group primarily
generates its revenues from customers in the PRC, no geographical segments are presented.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>(29)&nbsp;Reclassifications</B>
</DIV>


<P align="center" style="font-size: 10pt">F-19
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Certain reclassifications have been made to all years presented in the consolidated financial
statements to conform to the current year presentation.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>3. Recent accounting pronouncements</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In December&nbsp;2004, the FASB issued SFAS No.&nbsp;123R, <I>&#147;Share-Based Payment&#148;</I>, which replaced SFAS
No.&nbsp;123 and superseded APB No.&nbsp;25. SFAS No.&nbsp;123R requires all share-based payments to employees,
including grants of employee stock options, to be recognized in the financial statements based on
their grant date fair values. Under SFAS No.&nbsp;123R, the pro forma disclosures previously permitted
no longer will be an alternative to financial statement recognition. In March&nbsp;2005, the SEC issued
SAB 107 regarding the SEC&#146;s interpretation of SFAS No.&nbsp;123R and the valuation of share-based
payments for public companies.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company will adopt SFAS No.&nbsp;123R and related FASB Staff Position (&#147;FSPs&#148;) on January&nbsp;1,
2006. The Company will apply the Black-Scholes valuation model in determining the fair value of
share-based payments to employees, and will recognize compensation expense on an accelerated basis
over the requisite service period. The Company will apply the modified prospective method, which
requires that compensation expense be recorded for all unvested stock options upon adoption of SFAS
No.&nbsp;123R. The stock option compensation expense for the first quarter of 2006, due to the effect of
adoption of SFAS No.&nbsp;123R, approximated RMB 11,988,000.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In November&nbsp;2004, the FASB issued SFAS 151, <I>&#147;Inventory Costs, an amendment of ARB No.&nbsp;43,
Chapter&nbsp;4&#148;</I>, (&#147;SFAS 151&#148;). SFAS 151 clarifies that abnormal inventory costs such as costs of idle
facilities, excess freight and handling costs, and wasted materials (spoilage)&nbsp;are required to be
recognized as current period charges. The provisions of SFAS 151 are effective for the fiscal year
beginning after June&nbsp;15, 2005. The Company believes the adoption of EITF No.&nbsp;05-06 will not have a
significant impact on its financial statements.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In December&nbsp;2004, the FASB issued SFAS No.&nbsp;153, <I>&#147;Exchanges of Non-monetary Assets, an
amendment of APB Opinion No.&nbsp;29&#148;</I>, (&#147;SFAS 153&#148;). SFAS 153 addresses the measurement of exchanges of
non-monetary assets and redefines the scope of transactions that should be measured based on the
fair value of the assets exchanged. SFAS 153 is effective for non-monetary asset exchanges
occurring in fiscal periods beginning after June&nbsp;15, 2005. The Company believes the adoption of
EITF No.&nbsp;05-06 will not have a significant impact on its financial statements.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In June&nbsp;2005, the FASB issued SFAS No.&nbsp;154, <I>&#147;Accounting Changes and Error Corrections&#148; </I>which
replaces APB Opinion No.&nbsp;20, Accounting Changes, and FASB Statement No.&nbsp;3, Reporting Accounting
Changes in Interim Financial Statements, and changes the requirements for the accounting for and
reporting of a change in accounting principle. Opinion 20 previously required that most voluntary
changes in accounting principle be recognized by including in net income of the period of the
change the cumulative effect of changing to the new accounting principle. SFAS No.&nbsp;154 requires
retrospective application to prior periods&#146; financial statements of changes in accounting
principle, unless it is impracticable to determine either the period-specific effects or the
cumulative effect of the change. This statement will be effective for accounting changes and
corrections of errors made in fiscal years beginning after December&nbsp;15, 2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In June&nbsp;2005, the FASB&#146;s Emerging Issues Task Force (&#147;EITF&#148;) issued EITF Issue No.&nbsp;05-02 <I>&#147;The
Meaning of &#145;Conventional Convertible Debt Instrument&#146; in EITF Issue 00-19 &#147;Accounting for
Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company&#146;s Own Stock&#148;&#148;</I>,
which retains the exception in paragraph 4 of EITF
</DIV>

<P align="center" style="font-size: 10pt">F-20
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Issue No.&nbsp;00-19 for conventional convertible debt instruments. Those instruments in which the
holder has an option to convert the instrument into a fixed number of shares (or a corresponding
amount of cash at the issuer&#146;s discretion) and its ability to exercise the option is based on
either (a)&nbsp;the passage of time or (b)&nbsp;a contingent event, should be considered &#147;conventional&#148; for
purposes of applying that exception. The consensus should be applied on a prospective basis for new
or modified instruments starting from the third quarter of 2005. The Company believes the adoption
of EITF No.&nbsp;05-02 will not have a significant impact on its financial statements.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In June&nbsp;2005, the FASB ratified the EITF Issue No.&nbsp;05-06, <I>&#147;Determining the Amortization Period
for Leasehold Improvements&#148;. </I>EITF No.&nbsp;05-06 provides that the amortization period used for
leasehold improvements acquired in a business combination or purchased after the inception of a
lease be the shorter of (a)&nbsp;the useful life of the assets or (b)&nbsp;a term that includes required
lease periods and renewals that are reasonably assured upon the acquisition or the purchase. The
provisions of EITF No.&nbsp;05-06 should be applied to leasehold improvements (within the scope of this
issue) that are purchased or acquired in reporting periods beginning after June&nbsp;29, 2005. The
Company believes the adoption of EITF No.&nbsp;05-06 will not have a significant impact on its financial
statements.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>4. BUSINESS COMBINATIONS</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Group accounts for its business combinations using the purchase method of accounting. This
method requires that the acquisition cost to be allocated to the assets, including separately
identifiable intangible assets, and liabilities the Group acquired based on their estimated fair
values. The Company makes estimates and judgments in determining the fair value of the acquired
assets and liabilities based on independent appraisal reports as well as its experience with
similar assets and liabilities in similar industries. If different judgments or assumptions were
used, the amounts assigned to the individual acquired assets or liabilities could be materially
different.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Acquisition completed in 2005</B>
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">(1)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Shanghai Haofang Online Information Technology Co., Ltd. and Grandpro Technology Limited
(collectively &#147;Haofang&#148;)</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In October&nbsp;2004, the Group acquired a 17.86% equity interest for the consideration of US$5.0
million in cash (equivalent to RMB41.4&nbsp;million) in Haofang, the operator of the largest network PC
game platform in China. The Company accounted for the investment in Haofang using the equity method
of accounting as the Company had significant influence over Haofang in 2004.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In May&nbsp;2005, the Group acquired the remaining 82.14% equity interest of Haofang for the
consideration of US$20.0&nbsp;million in cash (equivalent to RMB 165.5&nbsp;million). As a result, Haofang
became a wholly-owned subsidiary of the Group. Pursuant to the purchase agreement, the Group was
required to make contingent payment to the selling shareholders if 2005 earnings of Haofang
exceeded a pre-set target. The contingent payment of US$31.0&nbsp;million (equivalent to Rmb249.3
million) was subsequently paid and recorded as an adjustment to goodwill by the Group in February
2006 (Note 26).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The purchase price, before the contingent consideration payment of US$31.0&nbsp;million, was
allocated as follows:
</DIV>

<P align="center" style="font-size: 10pt">F-21
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="88%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 0px solid #000000"><B>RMB</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cash</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">39,399,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17,359,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Identifiable intangible assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">75,614,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Purchased in-progress research and development</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,147,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Goodwill</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">97,296,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Current liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(26,887,000</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Purchase price</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">206,928,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Identifiable intangible assets acquired, including software technology of RMB46.0&nbsp;million and
customer base of RMB29.6&nbsp;million, have estimated useful lives of 5.5&nbsp;years. Purchased in-progress
research and development of RMB4.1&nbsp;million were written off at the date of acquisition in
accordance with FASB Interpretation No.4 <I>&#147;Applicability of FASB Statement No.&nbsp;2 to Business
Combinations Accounted for by the Purchase Method&#148; </I>(&#147;FASB Interpretation No.&nbsp;4&#148;) because the
technological feasibility of the in-progress technology has not yet been established and that the
technology has no alternative future use. Those write-offs are included in product development
expenses.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Goodwill of RMB97.3&nbsp;million represents the excess of the purchase price over the estimated
fair value of the net tangible and identifiable intangible assets acquired, and is not deductible
for tax purposes. In accordance with SFAS No.&nbsp;142, goodwill is not amortized but is tested for
impairment. The purchase allocation for Haofang acquisition is primarily based on an appraisal
performed by an independent appraisal firm together with the management assessment based on their
experience in online game business in the PRC.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following unaudited pro forma consolidated financial information reflects the results of
operations for the year ended December&nbsp;31, 2004 and 2005, as if the acquisition of Haofang had
occurred on January&nbsp;1, 2004 and 2005, and after giving effect to purchase accounting adjustments.
These pro forma results have been prepared for comparative purposes only and do not purport to be
indicative of what operating results would have been had the acquisition actually taken place on
the beginning of the periods presented, and may not be indicative of future operating results.
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2"><B>2005</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2" style="border-bottom: 0px solid #000000"><B>Unaudited in RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2" style="border-bottom: 0px solid #000000"><B>Unaudited in RMB</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net revenue</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,305,724,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,930,396,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">555,004,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">180,130,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income attributable to ordinary
shareholders</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">472,525,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">180,130,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Earnings per share</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Basic</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3.87</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.27</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Diluted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3.63</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.23</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The pro forma net income for 2004 and 2005 includes RMB13.7&nbsp;million in each year for the
amortization of identifiable intangible assets, and was determined using at the actual effective
income tax rate of Haofang in each year.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">(2)&nbsp;Gametea
</DIV>


<P align="center" style="font-size: 10pt">F-22
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In November&nbsp;2005, the Company acquired 100% equity interest of Wenzhou Chuangjia Technology
Co., Ltd. and Shanghai Qipai Computer Technology Co., Ltd. (collectively &#147;Gametea&#148;), a leading
online casual game platform that develops and operates chess and board games in China. Pursuant to
the acquisition agreement, the total purchase consideration was US$4.9&nbsp;million (equivalent to
RMB39.6&nbsp;million), of which US$3.6&nbsp;million (equivalent to RMB29.1&nbsp;million) was paid in 2005, and the
remaining purchase consideration will be paid in two installments in 2006 and 2007, respectively.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The purchase price of Gametea was allocated as follows:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="88%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 0px solid #000000"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cash</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">435,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,059,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Identifiable intangible assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20,213,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Goodwill</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17,387,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Current liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(484,000</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Purchase price</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">39,610,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Identifiable intangible assets acquired, including software technology of RMB14.7&nbsp;million and
customer base of RMB5.5&nbsp;million, have estimated useful lives of 5&nbsp;years. Goodwill of RMB17.4
million represents the excess of the purchase price over the estimated fair value of the net
tangible and identifiable intangible assets acquired, and is not deductible for tax purposes. In
accordance with SFAS No.&nbsp;142, goodwill is not amortized but is tested for impairment.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Acquisition completed in 2004</B>
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">(1)&nbsp;Bianfeng
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In July&nbsp;2004, the Group acquired 100% equity interest in Hangzhou BianFeng Software Technology
Co., Ltd. and BianFeng Networking (collectively &#147;Bianfeng&#148;), companies incorporated in the PRC and
engaged in the operation of online chess and board games. As a result of such acquisition, Bianfeng
became a wholly-owned subsidiary of Shanda Networking. Total purchase price for this acquisition is
US$20.0&nbsp;million in cash, equivalent to RMB164.5&nbsp;million. Pursuant to the purchase agreement, the
Group was required to make contingent payment to the selling shareholders if 2004 earnings of
Bianfeng exceeded the pre-set target. Based on 2004 earnings, the Company was not required to make
contingent payment as the earnings target set out in the purchase agreement was not achieved.
</DIV>

<P align="center" style="font-size: 10pt">F-23
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The purchase price of Bianfeng was allocated as follows:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="88%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 0px solid #000000"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cash</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,744,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,272,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Identifiable intangible assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">44,631,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Goodwill</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">106,170,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Current liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(277,000</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR><TD>&nbsp;</TD></TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Purchase price</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">164,540,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Identifiable intangible assets acquired, including software technology and non-compete
arrangements with certain Bianfeng selling shareholders, have estimated useful lives ranging from
two to five years. Goodwill of RMB106&nbsp;million represents the excess of the purchase price over the
estimated fair value of the net tangible and identifiable intangible assets acquired, and is not
deductible for tax purposes. In accordance with SFAS No.&nbsp;142, goodwill is not amortized but is
tested for impairment. The purchase allocation for Bianfeng acquisition is primarily based on an
appraisal performed by an independent appraisal firm together with the management assessment based
on their experience in online game business in the PRC.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Other business combinations</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In fiscal 2004, the Company also incurred an aggregate upfront cash consideration of
approximately RMB39,798,000 to the sellers to acquire additional businesses including server
infrastructure developer, publication of original online literature, mobile phone-based wireless
game developer and virtual community website. These acquisitions resulted in approximately
RMB15,313,000 of goodwill. Intangible assets acquired of approximately RMB24,485,000 consist of
game engine, software technology which are being amortized on a straight-line basis over economic
lives of three to five years estimated by the Company.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>5. OTHER NET REVENUES</B>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>RMB</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Advertising</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,044,832</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">80,105,525</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">E-Keys</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25,479,708</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">76,838,512</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">EZ Pod</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">22,533,424</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Mobile value-added services</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,142,752</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19,078,242</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,512,057</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Technology service and cooperation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,622,838</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Others</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,209,822</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">32,945,322</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">30,689,596</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR><TD>&nbsp;</TD></TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,352,574</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">89,548,104</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">238,301,952</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt">F-24
</DIV>

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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>6. OTHER INCOME (EXPENSES)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other income primarily consists of government financial incentives. During the years ended
December&nbsp;31, 2003, 2004 and 2005, the Group received incentives of approximately RMB62,901,000,
RMB88,083,000 and RMB137,282,000, respectively, from local government authorities and such amounts
were recorded as other income in the statements of operations and comprehensive income.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The government financial incentives are granted by the municipal government upon the
qualification of a company as a new-high technology enterprise. These government financial
incentives are calculated with reference to either the group companies&#146; taxable income or revenue,
as the case may be. Eligibility for the government financial incentives the group companies receive
requires that the group companies continue to meet a number of government financial and
non-financial criteria to continue to qualify for these government financial incentives and its
continued qualification is further subject to the discretion of the municipal government. Moreover,
the central government or municipal government could determine at any time to immediately eliminate
or reduce these financial incentives. There is no guarantee that the Group will continue to receive
these government financial incentives in the future. Accordingly, government financial incentives
are recognized as other income when received.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In 2005, other income also includes a foreign exchange gain of RMB48.9&nbsp;million mainly arising
from a revaluation of monetary assets and liabilities denominated in US dollar following the
appreciation of RMB in July&nbsp;2005 (Note 24).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>7. TAXATION</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Cayman Islands</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under the current laws of Cayman Islands, the Group is not subject to tax on its income or
capital gains. In addition, upon payments of dividends by the Group to its shareholders, no Cayman
Islands withholding tax will be imposed.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>British Virgin Islands</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under the current laws of British Virgin Islands, the Group is not subject to tax on its
income or capital gains. In addition, upon payments of dividends by the Group to its shareholders,
no British Virgin Islands withholding tax will be imposed.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>China</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Group&#146;s subsidiaries and VIE subsidiaries that are incorporated in the PRC are subject to
Enterprise Income Tax (&#147;EIT&#148;) on the taxable income as reported in their respective statutory
financial statements adjusted in accordance with the Enterprise Income Tax Law and the Income Tax
Law of the People&#146;s Republic of China concerning Foreign Investment Enterprise and Foreign
Enterprises (collectively the &#147;PRC Income Tax Laws&#148;), respectively. Pursuant to the PRC Income Tax
Laws, the Group is generally subject to EIT at a statutory rate of 33%. Group companies that are
registered in the Pudong New District of Shanghai are, however, subject to a 15% preferential EIT
rate pursuant to the local tax preferential treatment. Shengqu, as a software development
enterprise,
</DIV>

<P align="center" style="font-size: 10pt">F-25
</DIV>

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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">has been granted a two year EIT exemption and followed by a three year 50% EIT reduction on
its taxable income, commencing the year ended December&nbsp;31, 2003 (&#147;tax holiday&#148;). Shengqu&#146;s
qualifications as a software development enterprise or a technology advanced enterprise are
required to be reassessed on an annual basis. Nanjing Shanda, as a result of receiving government&#146;s
recognition as a technology advanced enterprise, has been entitled to a full income tax exemption
for two years effective from January&nbsp;1, 2005 and will be subject to a preferential tax rate of 15%
after January&nbsp;1, 2007.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Composition of income tax expense</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The current and deferred portion of income tax expense included in the consolidated statements
of operations and comprehensive income for the years ended December&nbsp;31, 2003, 2004 and 2005 are as
follows:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>RMB</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Current income tax expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(25,696,714</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(46,485,395</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(84,204,730</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Change in deferred tax assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,356,905</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,690,988</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(9,365,576</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Change in valuation allowance</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(307,068</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,146,517</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(3,141,686</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income tax expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(18,646,877</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(38,940,924</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(96,711,992</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Reconciliation of the differences between statutory tax rate and the effective tax rate</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The reconciliation between the statutory EIT rate and the Group&#146;s effective tax rate for the
years ended December&nbsp;31 2003, 2004 and 2005 is as follows:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Statutory income
tax rate</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">33</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">33</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">33</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Tax differential
from statutory rate
applicable to the
subsidiaries and
the VIE
subsidiaries in the
PRC</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(19</TD>
    <TD nowrap>%)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(20</TD>
    <TD nowrap>%)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(18</TD>
    <TD nowrap>%)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Effect of tax
holidays</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(11</TD>
    <TD nowrap>%)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(11</TD>
    <TD nowrap>%)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(7</TD>
    <TD nowrap>%)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Others</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">3</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">4</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">4</TD>
    <TD nowrap>%</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Effective EIT
rate</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">6</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">6</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">12</TD>
    <TD nowrap>%</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">F-26
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Significant components of deferred tax assets</I>
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>December 31,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>December 31,</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>RMB</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Licensing fees and related costs and revenue deferred</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">29,267,929</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,857,898</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Tax losses carried forward</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,831,944</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,973,630</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other temporary differences</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">363,997</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,266,766</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Less: Valuation allowance</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(3,831,944</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(6,973,630</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Deferred tax assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">29,631,926</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17,124,664</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Movement of valuation allowances</I>
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>RMB</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">At beginning of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,685,225</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,831,944</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Current year addition</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,544,041</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,318,048</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Current year reversal</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,397,322</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(3,176,362</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">At end of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,831,944</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,973,630</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Valuation allowances have been provided on the net deferred tax assets due to the
uncertainty surrounding their realization. As of December&nbsp;31, 2004 and 2005, valuation allowances
were provided because it was more likely than not that the Group will not be able to utilize
certain tax losses carryforwards generated by certain VIE subsidiaries. Tax losses carry forward
in the amount of approximately RMB338,000 and RMB1,867,000 and RMB31,696,000 incurred in 2003, 2004
and 2005 will expire in the year ending December&nbsp;31, 2009, 2010 and 2011, respectively.
Alternatively, if events occur in the future that allow the Group to realize more of its deferred
tax assets than the presently recorded amount, an adjustment to the valuation allowances will
increase income when those events occur.
</DIV>

<P align="center" style="font-size: 10pt">F-27
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>8. EARNINGS PER SHARE</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Basic earnings per share and diluted earnings per share have been calculated in accordance
with SFAS No.&nbsp;128 and EITF No.&nbsp;03-06 for the years ended December&nbsp;31 2003, 2004 and 2005 as
follows:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Numerator:</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">272,850,169</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">609,482,888</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">165,282,809</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Accretion for Series&nbsp;A and Series&nbsp;A-1
Prefer Shares (Note 18)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(24,962,571</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Dividends to Series&nbsp;A and Series
A-1Prefer Shareholders (Note
18)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(48,212,650</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Earnings allocated to participating
Preferred Shareholders</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(48,358,328</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(34,266,232</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Numerator for basic and diluted
earnings per share</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">199,529,270</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">527,004,006</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">165,282,809</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Denominator:</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Denominator for basic earnings per
share
- Weighted-average ordinary shares
outstanding</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">93,246,726</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">122,136,580</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">141,338,480</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Dilutive effect of share options</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,079,231</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,031,076</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,009,115</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Denominator for diluted earnings per
share</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">96,325,957</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">130,167,656</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">146,347,595</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Basic earnings per share</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.14</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4.32</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.17</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Diluted earnings per share</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.07</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4.05</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.13</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net income, after deducting accretion and dividends to holders of Preferred Shareholders,
has been allocated to the ordinary share and Preferred Shares based on their respective rights to
share in dividends.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Potential dilutive securities, consisted of Series&nbsp;A and A-1 Preferred Shares in 2003 and
Series&nbsp;A and A-1 Preferred Shares and Convertible Notes in 2004, were not included in the
computation of earnings per share for 2003, 2004 and 2005 because of their anti-dilutive effects.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>9. CASH AND CASH EQUIVALENTS</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Cash and cash equivalents as of December&nbsp;31, 2005 include cash balances held by the Company&#146;s
VIE subsidiaries of approximately RMB665,604,000. These cash balances cannot be transferred to the
Company by dividend, loan or advance according to existing PRC laws and regulations (Note 27).
However, these cash balances can be utilized by the Company for its normal operations pursuant to
various agreements which enable the Company to substantially control these VIE subsidiaries as
described in Note 2(2) for its normal operations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Included in the cash and cash equivalents are cash balances denominated in U.S. dollars of
approximately
</DIV>

<P align="center" style="font-size: 10pt">F-28
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">US$281,006,000 and US$20,749,000 (equivalent to approximately RMB2,325,898,000 and
RMB167,449,000) as of December&nbsp;31, 2004 and 2005, respectively.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>10. ACCOUNTS RECEIVABLE</B>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>December 31,</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>December 31,</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Accounts receivable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">39,855,575</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">131,553,747</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Less: Allowance for doubtful accounts</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(547,857</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(50,426,583</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">39,307,718</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">81,127,164</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The movement of the allowance for doubtful accounts during the years is as follow:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Balance as beginning of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">547,857</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Add: Current year additions</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">547,857</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">53,849,939</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Less: Current year write-offs</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(3,971,213</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Balance at end of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">547,857</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">50,426,583</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>11. INVENTORIES</B>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>December 31,</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>December 31,</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Finished goods</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,039,188</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,857,526</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Raw materials</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,623,444</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total inventories</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,039,188</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">28,480,970</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">F-29
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>12. INVESTMENTS IN AFFILIATED COMPANIES</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table includes the Group&#146;s carrying amount and percentage ownership of the
investments in affiliated companies at December&nbsp;31, 2005 and the carrying amount at December&nbsp;31,
2004:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>December 31,</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6"><B>December 31,</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 0px solid #000000"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 0px solid #000000"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Percentage</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>ownership</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>%</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Actoz Soft
Co., Ltd.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">118,890,960</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">849,760,675</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">38.14</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Shanghai
Orient Youth Culture Co., Ltd.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">306,836</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">30</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Shanghai Haofang Online Information
Technology Co., Ltd. and Grandpro
Technology Limited (collectively
&#147;Haofang&#148;)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">37,044,588</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Less: provision for other-than-temporary
impairment of the investment in
affiliates companies</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(521,485,888</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">155,935,548</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">328,581,623</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The movement of the investments in affiliated companies is as follows:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="52%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Actoz Soft</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Shanghai Orient</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 0px solid #000000">Haofang</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 0px solid #000000">Total</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 0px solid #000000">Co., Ltd.</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Youth Culture Co.,</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Ltd.</TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>

    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>RMB&#146;000</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>RMB&#146;000</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>RMB&#146;000</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>RMB&#146;000</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Balances at December&nbsp;31, 2003</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Investments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">118,891</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">41,385</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">160,276</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Share of loss on affiliated companies investments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(4,180</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(4,180</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Amortization of identifiable intangible assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(160</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(160</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Balances at December&nbsp;31, 2004</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">118,891</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">37,045</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">155,936</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Investments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">759,105</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">300</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">165,543</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">924,948</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Share of
profit on affiliated companies investments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,710</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,416</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,133</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other equity movement</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,296</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,296</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Amortization of identifiable intangible assets,
net of tax</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(22,189</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(266</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(22,455</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Immediate write off of purchased in-progress
research and development</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(15,460</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(15,460</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other-than-temporary impairment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(521,486</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(521,486</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Transferred out for consolidation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(206,738</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(206,738</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Balances at December&nbsp;31, 2005</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">328,275</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">307</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">328,582</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">F-30
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Investment in Actoz Soft Co., Ltd.</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In November&nbsp;2004, the Company entered into a share purchase agreement with certain
shareholders of Actoz Soft Co., Ltd, or Actoz, a Korean developer, operator and publisher of online
games listed on the KOSDAQ, to acquire approximately 29% of the shares of Actoz by the Company from
these shareholders for approximately US$91.7&nbsp;million, equivalent to RMB759.1&nbsp;million. The
acquisition of the 29% interest has been completed in February&nbsp;2005 and such date was determined to
be the date of acquisition for accounting purposes.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In December&nbsp;2004, the Company purchased approximately 9% of the shares in Actoz for
approximately US$14.4&nbsp;million, equivalent to RMB118.9&nbsp;million, in the open market. The management
of the Company considered that prior to the completion of the acquisition of the 29% interest, the
Company was not able to exercise significant influence on the operation of Actoz, accordingly, the
investment was recorded as marketable securities and carried out at fair market value with
unrealized depreciation of approximately RMB9.1&nbsp;million originally reported as a component of other
comprehensive income in shareholders&#146; equity as at December&nbsp;31, 2004.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;After this acquisition of the 29% interest in February&nbsp;2005, the Company owns in total
approximately 38% of Actoz and will account for the investment in Actoz under equity method of
accounting in 2005. As a result, as required by APB 18 &#147;The Equity Method of Accounting for
Investments in Common Stock&#148;, the Company has retroactively applied the equity method of accounting
to account for the 9% investment in Actoz for the year ended December&nbsp;31, 2004.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant to the share purchase agreement, an escrow amount of US$18.3&nbsp;million (equivalent to
RMB151.8&nbsp;million) was required to be set aside in an escrow account which would be released against
the remaining portion of purchase consideration in 365 calendar days after the completion date of
the acquisition. As at December&nbsp;31, 2005, the escrow amount was recorded as restricted cash in the
financial statements, and was subsequently released in February&nbsp;2006.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The purchase price of Actoz was allocated as follows:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="88%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 0px solid #000000"><B>RMB</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Fair value of net assets acquired</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">128,419,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Identified intangible assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">183,884,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Purchased in-progress research and development</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,460,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Deferred tax liabilities arising from the acquisition</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(50,567,000</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Goodwill</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">600,800,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">877,996,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Identifiable intangible assets acquired include trademarks of RMB54.5&nbsp;million that was
determined to have infinite life and thus not subject to amortization. The remaining identifiable
intangible assets acquired include completed technology of RMB63.7&nbsp;million with estimated
weighted-average useful life of 6.3&nbsp;years, core technology of RMB35.7&nbsp;million with estimated useful
life of 4&nbsp;years, customer database of RMB23.2&nbsp;million with estimated useful life of 2&nbsp;years, and
non-compete agreement of RMB6.8&nbsp;million with estimated useful life of 2.5&nbsp;years. Purchased
in-progress research and development of RMB15.5&nbsp;million was written off at the date of acquisition
in accordance with FASB Interpretation No.&nbsp;4 because the technological feasibility of the
in-progress technology has
</DIV>

<P align="center" style="font-size: 10pt">F-31
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">not yet been established and the technology has no alternative future use. Those write-offs
are included in equity in earnings (loss)&nbsp;of affiliated companies.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In the fourth quarter of 2005, the Company recognized an other-than-impairment charge of US$
64.6&nbsp;million, equivalent to RMB 521.5&nbsp;million, on its investment in Actoz based on the quoted
market price. The impairment charge was made primarily as a result of (1)&nbsp;the continued decline in
Actoz&#146;s quoted market price on the KOSDAQ; (2)&nbsp;a continued decline in royalties generated for Actoz
by Shanda&#146;s operation of Mir II, a MMORPG licensed from Actoz, in the PRC, which was mainly due to
the continued aging of Mir II and adoption of the free-to-play model (Note 2(16)) for Mir II; and
(3)&nbsp;intensified competition.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As at December&nbsp;31, 2005, the value of the investment in Actoz based on the quoted market price
was RMB328.3&nbsp;million, which is equal to its carrying amount.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The financial information for Actoz as of and for the year ended December&nbsp;31, 2005 is disclosed
below:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="88%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 0px solid #000000"><B>RMB</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Current assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">232,708,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Non-current assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">188,483,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Current Liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">43,789,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Non-current liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16,015,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">361,387,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">33,394,000</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 3%">The net assets of Actoz as of December&nbsp;31, 2005 is reconciled to the Group&#146;s carrying amount of
the investments in Actoz as of December&nbsp;31, 2005 as below:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="88%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 0px solid #000000"><B>RMB</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net assets of Actoz as of December&nbsp;31, 2005</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">361,387,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">The Group&#146;s approximate percentage ownership of the investments in Actoz</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">38</TD>
    <TD nowrap>%</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net assets of Actoz shared by the Group as of December&nbsp;31, 2005</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">137,833,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Add: Purchase price allocation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">190,442,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">328,275,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 3%">The purchase price allocation includes identified intangible assets, deferred tax liabilities
arising from the acquisition and goodwill, netting off against the amortization of identified
intangible assets and deferred tax liabilities, and the recognition of an other-than-impairment
charge.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>13. MARKETABLE SECURITIES</B>
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 3%">Marketable securities as of December&nbsp;31, 2004 and 2005 comprised of:
</DIV>

<P align="center" style="font-size: 10pt">F-32
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Cost</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Unrealized gain</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Fair value</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>RMB</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Mutual funds</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,013,526</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,013,526</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Listed securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&#151; SINA Corporation (&#147;SINA&#148;)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">278,605,129</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">133,698,934</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">412,304,063</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&#151; Others</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,350</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,350</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">288,628,005</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">133,698,934</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">422,326,939</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Cost</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Unrealized gain</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Fair value</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>RMB</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Mutual funds</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,102,028</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">546,681</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,648,709</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Listed securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&#151; SINA Corporation
(&#147;SINA&#148;)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,884,084,977</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">30,930,712</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,915,015,689</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&#151;
Others</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,350</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,350</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,902,196,355</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">31,477,393</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,933,673,748</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Investment in SINA</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During the year of 2004, the Group purchased shares in SINA, a NASDAQ listed online media
company and value-added information service provider for China and the global Chinese communities,
in the open market. A portion of the shares were disposed of in 2004 with realized gain of
approximately RMB40.6&nbsp;million.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On February&nbsp;18, 2005, the Company; Skyline, the holder of 60.4% of the outstanding ordinary
shares of the Company; Skyline Capital International Limited (&#147;SCIL&#148;), a British Virgin Islands
limited company and the sole shareholder of Skyline; Shanda Media Limited (&#147;SML&#148;), a British Virgin
Islands limited company and holder of 40% of the outstanding share capital of SCIL and Mr.&nbsp;Tianqiao
Chen (&#147;Mr.&nbsp;Chen&#148;), the sole shareholder of SML, made series of purchases of shares of SINA, an
online media company and value-added information service provider for China and the global Chinese
communities, listed on NASDAQ, in open market transactions.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant to an Agency Purchase Agreement the Company signed on February&nbsp;14, 2005 with Skyline,
SCIL and SML (collectively referred as &#147;Agents&#148;), the Agents agreed to purchase the shares of SINA
respectively on behalf of the Company, and the Company agrees to purchase the shares held by the
Agents, after it has allocated appropriate funds, at a purchase price equal to the price paid by
the Agents for the acquisition of such shares less any past profits realized by the Agents from any
transactions of SINA shares made after August&nbsp;31, 2004. In addition, each of the Agents has granted
to Shanda an irrevocable proxy with respect to the voting and disposition of any shares held by
them on behalf of the Company. The difference of US$5.6&nbsp;million (equivalent to RMB46.0&nbsp;million)
between the market value of SINA&#146;s shares of US$16.3&nbsp;million (equivalent to RMB134.8&nbsp;million) as of
the date of the Agency Purchase Agreement and the purchase price of US$10.7&nbsp;million (equivalent to
RMB88.8&nbsp;million) was recognized as capital contribution in 2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;After the series of purchases and the completion of the Agency Purchase Agreement, the Group
held approximately 19.5% of the issued and outstanding shares of SINA at an aggregate cost of
approximately US$227.6
</DIV>

<P align="center" style="font-size: 10pt">F-33
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">million, equivalent to RMB1,884.1&nbsp;million. The investment was recorded in marketable
securities and carried at fair market value with unrealized appreciation of approximately RMB30.9
million reported as a component of accumulated other comprehensive gain in shareholders&#146; equity as
at December&nbsp;31, 2005.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>14. PROPERTY AND EQUIPMENT</B>
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 3%">Property and equipment and its related accumulated depreciation as of December&nbsp;31, 2004 and 2005
are as follows:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>RMB</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Computer equipment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">154,264,543</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">274,359,255</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Leasehold improvements</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,420,332</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">27,000,475</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Furniture and fixtures</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,743,477</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,195,430</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Motor vehicles</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,697,145</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,610,393</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Office buildings</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">34,607,050</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Less: Accumulated
depreciation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(46,399,979</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(92,420,151</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net book value</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">137,725,518</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">258,352,452</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Land use right, associated with the purchase of office buildings, was recorded in
long-term prepayments.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Depreciation expense for the years ended December&nbsp;31, 2003, 2004 and 2005 was approximately
RMB13,688,000, RMB29,060,000 and RMB46,672,000, respectively.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>15. INTANGIBLE ASSETS</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Intangible assets consist of upfront licensing fees paid to online game licensors, software
and copyrights, and intangible assets arising from business combinations. Gross carrying amount,
accumulated amortization and net book value of the Group&#146;s intangible assets as of December&nbsp;31,
2004 and 2005 are as follows:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>RMB</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Gross carrying amount:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Upfront licensing fee paid</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">64,157,124</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">106,264,384</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Software, copyrights and others</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">50,973,502</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">81,436,559</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Intangible assets arising from business combinations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">&#151; Software technology</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">51,587,361</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">112,360,179</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">&#151; Game engine</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,898,060</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,898,060</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">&#151; Non-compete arrangement</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,626,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,626,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">&#151; Customer base</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">35,054,504</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">&#151; Other</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,332</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,332</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">184,247,379</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">352,645,018</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Less: accumulated amortizations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">F-34
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>RMB</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Upfront licensing fee paid</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(39,429,908</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(60,345,243</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Software, copyrights and others</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(28,907,642</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(46,671,228</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Intangible assets arising from business combinations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(4,531,783</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(33,313,775</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(72,869,333</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(140,330,246</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net book value</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">111,378,046</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">212,314,772</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Amortization expense for the years ended December&nbsp;31, 2003, 2004 and 2005 amounted to
approximately RMB17,347,000, RMB 52,683,000 and RMB67,460,000, respectively.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The estimated aggregate amortization expense for each of the five succeeding fiscal years is
as follows:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="88%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Amortization</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>RMB</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">2006
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">70,551,876</TD>
    <TD nowrap valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">2007
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">57,400,640</TD>
    <TD nowrap valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">2008
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">42,915,103</TD>
    <TD nowrap valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">2009
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">24,608,736</TD>
    <TD nowrap valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">2010
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">16,613,856</TD>
    <TD nowrap valign="top">&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD nowrap valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">212,090,211</TD>
    <TD nowrap valign="top">&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD nowrap valign="top">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>16. GOODWILL</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The changes in the carrying amount of goodwill are as follows:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="40%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Haofang</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Bianfeng</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Gametea</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Others</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Total</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>RMB&#146;000</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>RMB&#146;000</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>RMB&#146;000</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>RMB&#146;000</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>RMB&#146;000</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Balance as of December&nbsp;31, 2003</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,476</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,476</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Acquisitions</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">106,170</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,313</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">121,483</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR><TD>&nbsp;</TD></TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Balance as of December&nbsp;31, 2004</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">106,170</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">27,789</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">133,959</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Acquisitions</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">97,296</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17,387</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">114,683</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Disposal of a subsidiary</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(4,193</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(4,193</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Others</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">643</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">643</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Balance as of December&nbsp;31, 2005</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">97,296</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">106,170</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17,387</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">24,239</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">245,092</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In 2005, the Company performed a goodwill impairment test relating to goodwill arising from
its acquisition and concludes that there was no impairment as to the carrying value of goodwill as
of December&nbsp;31, 2004 and 2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>17. CONVERTIBLE DEBT</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In October&nbsp;2004, the Company issued US$200&nbsp;million in aggregate principal amount of Zero
Coupon Senior Convertible Notes due 2014 (&#147;Convertible Notes&#148; or &#147;Notes&#148;). The offering size was
increased to US$275&nbsp;million when the underwriters exercised in full their option to purchase
additional notes. The Notes were issued at par and
</DIV>

<P align="center" style="font-size: 10pt">F-35
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">bears no interest. The Notes will be convertible into ordinary shares of the Company, upon
satisfaction of certain conditions, subject to adjustments for certain events. The terms of the
Notes are further described in Convertible Notes Offering Memorandum dated October&nbsp;15, 2004.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The notes will mature on October&nbsp;15, 2014. The notes will not accrue interest unless specified
events of default under the registration rights agreement occur.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The notes may be converted at any time prior to maturity (unless earlier redeemed, repurchased
or exchanged) at the option of the holder into the consideration described below at the initial
conversion rate of 50.3816 ordinary shares per US$1,000 principal amount of notes, which is equal
to an initial conversion price of US$19.85 per ordinary share (or US$39.70 per ADS). The initial
conversion price is higher as compared to the market price of the Company&#146;s ADS at the date of
issuance. In respect of each US$1,000 in principal amount of notes, the conversion consideration
will consist of (a)&nbsp;cash in an amount equal to the principal amount of each note, subject to
certain limitation; and (b)&nbsp;a number of the holder&#146;s ordinary shares based on market value of the
five consecutive trading days beginning on the third trading day following the conversion date.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company will have the right to redeem the Notes in whole or in part, at any time or from
time to time, on or after October&nbsp;15, 2007 at a redemption price equal to 100% of the principal
amount of the Notes to be redeemed, plus accrued and unpaid interest and liquidated damages, if
any, to the redemption date.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The holders have the right to require the Company to repurchase all or a portion of their
notes on October&nbsp;15, 2007 at a repurchase price equal to 100% of the principal amount of Notes to
be repurchased, plus accrued and unpaid interest and liquidated damages, if any, to the repurchase
date.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company has filed its registration statement with U.S. Securities and Exchange Commission
under the Security Act of 1933 in Form F-3 on July&nbsp;8, 2005 to cause the shelf registration
statement declared effective.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>18. SERIES A AND A-1 CONVERTIBLE REDEEMABLE PREFERRED SHARES</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In 2003, the Group issued certain convertible preferred shares to strategic investors. Such
preferred shares were converted on a 1:1 basis to ordinary shares upon the completion of the
Company&#146;s initial public offering in May&nbsp;2004.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In February&nbsp;2003, Shanda BVI entered into the Plan of Restructuring and Securities Purchase
Agreement (&#147;February Purchase Agreement&#148;), whereby the Company authorized 30,000,000 preferred
shares and issued 19,788,918 Series&nbsp;A Convertible Redeemable Preferred Shares (&#147;Series&nbsp;A Preferred
Shares&#148;) and 4,947,230 Series&nbsp;A-1 Convertible Redeemable Preferred Shares (&#147;Series&nbsp;A-1 Preferred
Shares&#148;) to an investor. The purchase closed in March&nbsp;2003. The stated per share issuance prices of
the Series&nbsp;A Preferred Shares and Series&nbsp;A-1 Preferred Shares were US$1.5160 and US$0.6064,
respectively. The issuance of the Series&nbsp;A Preferred Shares and the Series&nbsp;A-1 Preferred Shares are
collectively referred to as the &#147;February Issuance&#148;.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As part of the February Issuance, the shareholders of Shanda BVI, namely Tianqiao Chen, Danian
Chen and Qianqian Luo (&#147;Shanda BVI shareholders&#148;), sold 4,947,230 ordinary shares to the investor
for total proceeds of US$3&nbsp;million or US$0.6060 per share. Immediately following the sale of the
ordinary shares and pursuant to the February Purchase Agreement, Shanda BVI issued Series&nbsp;A-1
Convertible Preferred Shares to the investor in exchange for the ordinary shares purchased from
Shanda BVI shareholders on a 1:1 basis. The US$3&nbsp;million (RMB 24.8&nbsp;million) was
</DIV>

<P align="center" style="font-size: 10pt">F-36
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">recognized as a deemed dividend to the ordinary shareholders.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Series&nbsp;A Preferred Shares were convertible into ordinary shares on a 1:1 basis, subject to
Shanda BVI achieving certain performance goals in 2003. The Series&nbsp;A-1 Preferred Shares were
convertible into ordinary shares on a 1:1 basis, and such conversion ratio was not subject to any
contingent terms.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition, as part of the February Issuance, the preferred shareholder received a warrant to
purchase an additional 5,074,082 Series&nbsp;A Preferred Shares at an exercise price of $1.9708 per
share. Under the terms of the February Purchase Agreement, the warrant would have expired upon the
earlier of (i)&nbsp;March&nbsp;4, 2007, (ii)&nbsp;the consummation of an initial public offering meeting minimum
conditions as to offering proceeds to the Group and market capitalization, or (iii)&nbsp;the redemption
of all of the issued and outstanding Series&nbsp;A and Series&nbsp;A-1 Preferred Shares. The estimated fair
value of the warrant was determined to be RMB 3.6&nbsp;million using the Black-Scholes valuation method.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total consideration paid by the investor for the February Issuance was US$33&nbsp;million, which
was allocated between the estimated fair value of the warrant and the Series&nbsp;A and Series&nbsp;A-1
Preferred Shares.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In August&nbsp;2003, Shanda BVI increased its authorized preferred shares to 30,060,100 and entered
into an additional securities purchase agreement (&#147;August Purchase Agreement&#148;) with the same
investor, whereby the investor acquired from Shanda BVI shareholders 5,323,952 ordinary shares for
US$7&nbsp;million. Immediately following the sale of the ordinary shares and pursuant to the August
Purchase Agreement, Shanda BVI issued Series&nbsp;A Convertible Preferred Shares to the investor in
exchange for the ordinary shares purchased from Shanda BVI shareholders on a 1:1 basis. The US$7
million (RMB57.9&nbsp;million) was recognized as a deemed dividend to the ordinary shareholders. The
subsequent issuance of Series&nbsp;A Preferred Shares is referred to as the &#147;August Issuance&#148;.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition to the US$7&nbsp;million cash consideration, as part of the August Issuance, the
investor agreed to cancel the warrant issued in connection with the February Issuance and to waive
the right to adjust the conversion ratio of the Series&nbsp;A Preferred Shares.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All of the Series&nbsp;A Preferred Shares and the Series&nbsp;A-1 Preferred Shares issued are
collectively referred to as the &#147;Preferred Shares&#148; of the Company. While the Series&nbsp;A Preferred
Shares and the Series&nbsp;A-1 Preferred Shares are legally distinct securities, they have essentially
the same features with the exception of their stated issuance price. Accordingly, the Preferred
Shares are presented in aggregate on the Consolidated Balance Sheets and the related accretion
charges are presented in aggregate on the Consolidated Statements of Operations and Comprehensive
Income.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The holders of the Preferred Shares were entitled to receive, when and as declared, a
cumulative dividend per share at a rate equal to the 6% of the Preferred Shares&#146; stated issuance
price of US$1.5160, US$1.3148 and US$0.6064 for the February Series&nbsp;A Preferred Shares, August
Series&nbsp;A Preferred Shares and the Series&nbsp;A-1 Preferred Shares, respectively, per annum, prior to
and in preference to the ordinary shareholders.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Each Preferred Share was convertible into one ordinary share at the option of the holders of
the Preferred Shares. Each Preferred Share automatically converted into one ordinary share, upon
the closing of the Company&#146;s first qualified public offering. No beneficial conversion feature
charge was recognized in connection with the February Issuance as the estimated fair value of the
ordinary share was less than the effective conversion price of each class of
</DIV>

<P align="center" style="font-size: 10pt">F-37
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">preferred shares based upon the allocation of the proceeds received on the commitment date. No
beneficial conversion feature charge was recognized for the August Issuance as the consideration
surrendered by the investor, including the cancellation of the warrants and the forfeiture of the
right to adjust the conversion ratio of the Series&nbsp;A Preferred Shares, was in excess of the
estimated fair value of the ordinary shares on the commitment date.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At any time on or after the fourth anniversary date on which Preferred Share was first
allotted and issued, the Company would have been required, at the election of the holders of the
Preferred Shares, to redeem all or part of the Preferred Shares. The redemption price was equal to
150% of the stated issuance price of US$1.5160, US$1.3148 and US$0.6064 for the February Series&nbsp;A
Preferred Shares, August Series&nbsp;A Preferred Shares and the Series&nbsp;A-1 Preferred Shares,
respectively. Accordingly, the carrying value of the respective series of Preferred Shares was
being accreted to their redemption value through charges to retained earnings based on the interest
method over a four-year period from the date of issuance. In November&nbsp;2003, the preferred
shareholder forfeited its redemption rights for no consideration in anticipation of the public
offering of the Company&#146;s ordinary shares. As a result, no accretion charge will be recognized for
any period after the date on which the redemption right was waived.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All the Series&nbsp;A and A-1 Preferred Shares of 30,060,100 shares were converted to ordinary
shares upon the completion of the company&#146;s initial public offering as at May&nbsp;12, 2004.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>19. SHAREHOLDERS&#146; EQUITY</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Upon incorporation, Shanda BVI issued 50,000 ordinary shares at a par value of US$1.00 per
share. In March&nbsp;2003, Shanda BVI split its ordinary shares at a ratio of 1:100 resulting in
5,000,000 ordinary shares outstanding with a par value of US$0.01 per share. The share split has
been reflected as if it occurred upon incorporation of Shanda BVI. Subsequent to the share split
and prior to the Reorganization as described in Note 1, Shanda BVI issued an additional 95,000,000
ordinary shares at par value. In November&nbsp;2003, a special dividend of RMB8,277,000 (US$1,000,000)
was distributed by the Company to its ordinary shareholders and the amount was immediately used to
settle the promissory notes, recorded as subscription receivables, owed by the ordinary
shareholders to Shanda BVI. Upon the Reorganization, paid in capital of the VIE subsidiaries
recognized as group equity was transferred to represent the Group&#146;s additional paid-in capital.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During the year ended December&nbsp;31, 2003, as a result of regulatory requirements, a dividend of
RMB10,625,000 was distributed to the equity owners and the amount, net of income taxes paid by
Shanda BVI on behalf of the equity owners, at an amount of RMB8,500,000 was immediately used to
reinvest into Shanda Networking.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On May&nbsp;13, 2004, the Company completed an underwritten initial public offering of 13,854,487
American Depositary Shares (ADSs), consisting of 9,642,857 ADSs offered by the Company and
4,211,630 ADSs offered by its selling shareholders, which was priced at US$11 per ADS. Each ADS
represents two ordinary shares, and has par value of US$0.01 per share. Subsequent to the initial
public offering and on June&nbsp;2, 2004, the Company held the closing for the over-allotment option in
connection with its initial public offering. At this closing, an additional 1,047,936 ADSs were
purchased from the Company and 457,698 ADSs were purchased from its selling shareholders. Total
proceeds, net of direct offering expenses, of approximately RMB875.5&nbsp;million were received as a
result of the initial public offering and subsequent over-allotment.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>20. REPURCHASE OF SHARES</B>
</DIV>


<P align="center" style="font-size: 10pt">F-38
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In October&nbsp;2004, the Company entered into a repurchase agreement with SB Asia Infrastructure
Fund L.P., or SAIF, and had used US$75&nbsp;million, equivalent to RMB620.7&nbsp;million, to purchase
5,326,250 ordinary shares (which was equal to 2,663,125 ADSs) from SAIF. The purchase price of
US$14.08 per share was lower than the then market price of the Company&#146;s shares. After the
repurchase, those shares were retired. The excess of US$74.9&nbsp;million of purchase price over par
value, equivalent to RMB620.3&nbsp;million, was allocated between additional paid-in capital and
retained earnings of US$5.9&nbsp;million and US$69.0&nbsp;million, respectively (equivalent to RMB49.0
million and RMB571.3&nbsp;million, respectively), based on the pro rata portion of additional paid-in
capital on the ordinary shares.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In October&nbsp;2005, the Board of Directors approved a share repurchase plan, under which the
Company is authorized to repurchase up to US$50.0&nbsp;million worth of outstanding ADSs from time to
time over the next 12&nbsp;months. As of December&nbsp;31, 2005, the Company used US$6.8&nbsp;million, equivalent
to RMB54.9&nbsp;million, to purchase 740,000 ordinary shares (which was equal to 370,000 ADSs) from the
open market. After the repurchase, those shares were retired. The excess of US$6.8&nbsp;million of
purchase price over par value, equivalent to RMB54.8&nbsp;million, was allocated between additional
paid-in capital and retained earnings of US$0.9million and US$5.9&nbsp;million, respectively (equivalent
to RMB7.3&nbsp;million and RMB47.5&nbsp;million, respectively), based on the pro rata portion of additional
paid-in capital on the ordinary shares.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>21. SHARE OPTION PLAN</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>2003 Share Incentive Plan</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On March&nbsp;31, 2003, Shanda BVI authorized a share option plan (the &#147;2003 Share Incentive Plan&#148;)
that provides for the issuance of options to purchase up to 13,309,880 ordinary shares. Under the
2003 Share Incentive Plan, the directors may, at their discretion, grant any officers (including
directors) and employees of Shanda BVI and/or its subsidiaries, and individual consultant or
advisor (i)&nbsp;options to subscribe for ordinary shares, (ii)&nbsp;share appreciation rights to receive
payment, in cash and/or the Company&#146;s ordinary shares, equals to the excess of the fair market
value of the Company&#146;s ordinary shares, or (iii)&nbsp;other types of compensation based on the
performance of the Company&#146;s ordinary shares. On March&nbsp;31, 2003, Shanda BVI granted options to
purchase 7,320,436 ordinary shares under the 2003 Share Incentive Plan at an exercise price of
US$1.5160 per share. On December&nbsp;18, 2003, the Company granted additional options to purchase
1,537,367 ordinary shares to certain executive officers under the 2003 Share Incentive Plan at an
exercise price of US$1.5160. The options can be exercised within 10&nbsp;years from the award date.
These awards vest over a three year period, with 25% of the options to vest immediately upon
granting, and an additional 25% to vest on each of the first, second and third anniversaries of the
award date as stipulated in the share option agreement. The exercise price for the share options
granted on December&nbsp;18, 2003 was not determined based on the fair value of the Company&#146;s ordinary
shares. Accordingly, compensation expense will be recognized over vesting terms of the options
based on the difference between the estimated fair value of the Company&#146;s ordinary shares and the
exercise price of the options granted. The estimated fair value of the Company&#146;s ordinary shares
was determined with reference to the Company&#146;s expected initial public offering price. The total
share-based compensation expense of approximately RMB69,730,000 relating to the options granted on
December&nbsp;18, 2003 will be recognized based on the vesting terms. Accordingly, share-based
compensation expense of approximately RMB18,159,000, RMB28,828,000 and RMB13,698,000 were
recognized in the consolidated statements of operations and comprehensive income in 2003, 2004 and
2005, respectively.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Following the Share Swap, pursuant to the share purchase agreement, Shanda Interactive has
undertaken to
</DIV>

<P align="center" style="font-size: 10pt">F-39
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">assume all obligations for share options, whether vested or unvested, previously granted by
Shanda BVI subject to the same terms and conditions as the 2003 Share Incentive Plan as adopted by
Shanda BVI.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;From January&nbsp;1, 2004 through May&nbsp;12, 2004, the Company has issued additional options, under
the 2003 Share Incentive Plan to purchase 4,170,853 ordinary shares, at an exercise price that was
equal to the price per ordinary share of US$5.50 in the Company&#146;s initial public offering, to
certain officers of the Company. Of the total options granted, options to purchase 2,661,976
ordinary shares were vested over a four year period, with 40% of the options to vest on the first
anniversary of the date of grant, and an additional 20% to vest on each of the second, third and
fourth anniversaries of the date of grant. Options to purchase 215,000 ordinary shares were vested
over a three year period, with 25% of the options to vest immediately upon granting and an
additional 25% to vest on each of the first, second and third anniversaries of the date of grant.
The rest of options to purchase 1,293,877 ordinary shares will vest in four year installments on
the first, second, third and fourth anniversaries of the date of grant.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On July&nbsp;26, 2004 and August&nbsp;17, 2004, the Company has issued additional options under the 2003
Share Incentive Plan to purchase 87,650 ordinary shares, at an exercise price that was equal to the
market price per ordinary share at the date of grant, to certain officers of the Company.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During the year ended December&nbsp;31, 2005, the Company issued additional options under the 2003
Share Incentive Plan to purchase 567,731 ordinary shares, at an exercise price that was equal to
the market price per ordinary share at the date of grant, to certain officers of the Company. These
awards will vest in four year installments on the first, second, third and fourth anniversaries of
the date of grant.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>2005 Equity Compensation Plan</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In October&nbsp;2005, the Company authorized an equity compensation plan (the &#147;2005 Equity
Compensation Plan&#148;) that provides for the issuance of options to purchase up to 7,449,235 ordinary
shares, plus ordinary shares reserved for issuance, but not yet issued, under the Company&#146;s 2003
Share Incentive Plan. Under the 2005 Equity Compensation Plan, the directors may, at their
discretion, grant any officers (including directors) and employees of the Company and/or its
subsidiaries, and individual consultant or advisor (i)&nbsp;options to subscribe for ordinary shares,
(ii)&nbsp;share appreciation rights to receive payment, in cash and/or the Company&#146;s ordinary shares,
equals to the excess of the fair market value of the Company&#146;s ordinary shares, or (iii)&nbsp;other
types of compensation based on the performance of the Company&#146;s ordinary shares. As of December&nbsp;31,
2005, the Company has not yet made any award grants under the 2005 Equity Compensation Plan.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Activities of share options</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company&#146;s share option activities as of and for the years ended December&nbsp;31, 2003, 2004
and 2005 are set out below:
</DIV>

<P align="center" style="font-size: 10pt">F-40
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="28%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Weighted</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Weighted</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Weighted</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Options</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Average</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Options</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Average</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Options</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Average</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Outstanding</B></TD>

<TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Exercise Price</B></TD>
<TD nowrap align="center" colspan="2" style="border-bottom: 0px solid #000000">&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Outstanding</B></TD>
<TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Exercise Price</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Outstanding</B></TD>
<TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Exercise Price</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>US$</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>US$</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>US$</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Outstanding at
beginning of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,857,803</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.516</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,883,402</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3.42</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Granted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,857,803</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.516</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,258,503</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5.57</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">567,731</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15.63</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Exercised</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(4,116,074</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.55</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,762,438</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.70</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Forfeited</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(116,830</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3.51</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(467,920</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5.33</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Outstanding at end
of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,857,803</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.516</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,883,402</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3.42</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,220,775</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4.71</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Vested and
exercisable at end
of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,214,451</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.516</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">397,091</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.53</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,164,853</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3.97</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="19%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11" style="border-bottom: 1px solid #000000"><B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center"><B>Exercise</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center"><B>Prices</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Weighted</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Weighted</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Weighted</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center"><B>( &#147;EP&#148; ) and</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Average</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Average</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Average</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center"><B>Grant-date</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Weighted</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Grant-date</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Weighted</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Grant-date</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Grant-date</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center"><B>Market</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Average</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Fair Value</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Average</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Fair Value</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Weighted</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Fair Value</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center"><B>Prices</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Options</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Exercise</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>of Stock</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Options</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Exercise</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>of Stock</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Options</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Average</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>of Stock</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">

<TD nowrap align="center" style="border-bottom: 0px solid #000000"><B>( &#147;MP&#148; )</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 0px solid #000000"><B>Granted</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Price</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Options</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 0px solid #000000"><B>Granted</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Price</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Options</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 0px solid #000000"><B>Granted</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Exercise Price</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Options</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 0px solid #000000"><B>US$</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 0px solid #000000"><B>US$</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 0px solid #000000"><B>US$</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 0px solid #000000"><B>US$</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 0px solid #000000"><B>US$</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 0px solid #000000"><B>US$</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">EP&#060;MP</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,537,367</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.516</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5.83</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">EP=MP</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,320,436</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.516</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.35</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,258,503</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5.57</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.97</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">567,731</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15.63</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9.31</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="40%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11"><B>Options Outstanding at</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>Options Exercisable at</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11" style="border-bottom: 1px solid #000000"><B>December 31, 2005</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000"><B>December 31, 2005</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Weighted</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Average</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Weighted</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Weighted</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Remaining</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Average</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Average</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Number</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Contractual</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Exercise</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Number</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Exercise</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center" style="border-bottom: 1px solid #000000">Exercise Prices US$</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Outstanding</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Life (years)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Price US$</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Outstanding</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Price US$</TD>
</TR>

<TR style="font-size: 8pt" valign="bottom">

<TD nowrap align="center" style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>

<TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>

<TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>

<TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>

<TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>

<TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">1.516</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,561,319</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7.25</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.516</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">480,690</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.516</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">5.5</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,086,031</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.15</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5.5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">638,313</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5.5</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">8.00</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">35,850</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.58</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.00</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">35,850</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.00</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">9.95</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">40,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.63</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9.95</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9.95</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">15.33</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">163,078</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9.07</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15.33</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">15.55</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">240,940</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9.08</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15.55</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">14.89</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">40,295</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9.13</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14.89</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">16.945</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23,606</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9.38</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16.945</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">16.86</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">29,656</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9.42</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16.86</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,220,775</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,164,853</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>22. EMPLOYEE BENEFITS</B>
</DIV>


<P align="center" style="font-size: 10pt">F-41
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The full-time employees of the Company&#146;s subsidiaries and VIE subsidiaries that are
incorporated in the PRC are entitled to staff welfare benefits, including medical care, welfare
subsidies, unemployment insurance and pension benefits. These companies are required to accrue for
these benefits based on certain percentages of the employees&#146; salaries in accordance with the
relevant regulations, and to make contributions to the state-sponsored pension and medical plans
out of the amounts accrued for medical and pension benefits. The total amounts charged to the
statements of operations and comprehensive income for such employee benefits amounted to
approximately RMB5,386,000, RMB13,741,000 and RMB 24,234,000 for the years ended December&nbsp;31, 2003,
2004 and 2005, respectively. The PRC government is responsible for the medical benefits and
ultimate pension liability to these employees.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>23. RELATED PARTY TRANSACTIONS</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During the years ended December&nbsp;31, 2003, 2004 and 2005, significant related party
transactions were as follows:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>RMB</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Online game
licensing fees paid
to Actoz, an
affiliated company</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">173,855,652</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">167,593,961</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Purchase of SINA
shares from related
parties (Note
13)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">88,797,021</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Online game upfront
licensing fee paid
to Actoz</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">24,299,400</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Purchase of game
content related
merchandise from
minority
shareholder of a
VIE subsidiary
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,900,118</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,359,333</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Provision of
advertising and
promotion services
to an affiliated
company</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,900,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Technical service
fees from minority
shareholders of VIE
subsidiaries</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,820,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,100,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Sales of prepaid
game cards to a
related
party</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,884,600</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Gain from disposal
of VIE
subsidiary</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">590,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,294,600</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">181,755,770</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">282,049,715</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During the year ended December&nbsp;31, 2003, the Group sold certain prepaid game cards to a
related company owned by an immediate family member of Tianqiao Chen and Danian Chen. The sales
transactions were not based on any written agreements and the Company has received full payment in
cash. In September&nbsp;2003, the Group sold its entire ownership interest in Stamedotcom to Heng Kang
and Shanghai Yixi Information Technology Co., Ltd., both related parties, for cash consideration of
RMB1,593,000. As a result, a disposal gain of RMB590,000 was recognized as investment income.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of December&nbsp;31, 2004 and 2005, the Group had licensing fees payable to Actoz of
approximately RMB52,273,000 and RMB13,830,000, respectively.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of December&nbsp;31, 2004 and 2005, the Group had amounts due to related parties of
approximately RMB1,758,000 and RMB3,040,000 respectively, mainly arising from purchase of game
related merchandise from certain minority shareholders of VIE subsidiaries.
</DIV>

<P align="center" style="font-size: 10pt">F-42
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All amounts due to related parties are unsecured, interest-free and have no definite terms.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>24. CERTAIN RISKS AND CONCENTRATIONS</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Financial instruments that potentially subject the Group to significant concentrations of
credit risk consist primarily of cash and cash equivalents, short-term investments, marketable
securities, accounts receivable, due from/to related parties and prepayments and other current
assets. As of December&nbsp;31, 2004 and 2005 substantially all of the Group&#146;s cash and cash
equivalents, short-term investments and marketable securities were held by major financial
institutions located in the PRC, in Hong Kong and in the Switzerland, which management believes are
of high credit quality.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition, 88.6%, 47.4% and 35.3% of the Group&#146;s net revenue for the years ended December
31, 2003, 2004 and 2005, respectively, was derived from a single online game.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;No individual customer accounted for more than 10% of net revenues during the years ended
December&nbsp;31, 2003, 2004 and 2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On July&nbsp;21, 2005, the People&#146;s Bank of China, or PBOC, announced an adjustment of the exchange
rate of the US dollar to RMB from 1:8.27 to 1:8.11 and modified the system by which the exchange
rates are determined. This adjustment has resulted in an appreciation of the RMB against the US
dollar. While the international reaction to the RMB revaluation has generally been positive, there
remains significant international pressure on the PRC government to adopt an even more flexible
currency policy, which could result in a further reevaluation and a significant fluctuation of the
exchange rate of RMB against the US dollar.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>25. COMMITMENTS AND CONTINGENCIES</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Operating lease agreements</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Group has entered into leasing arrangements relating to office premises and computer
equipment that are classified as operating leases. Future minimum lease payments for non-cancelable
operating leases as of December, 31, 2005 are as follows:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Computer</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Office premise</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>equipment</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Total</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>RMB</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2006</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">22,399,185</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,031,880</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">40,431,065</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2007</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,141,989</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">501,700</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,643,689</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2008</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">422,091</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">422,091</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2009</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">257,206</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">257,206</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2010</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">26,220,471</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,533,580</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">44,754,051</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of December&nbsp;31, 2005, the Group had leased servers under operating lease arrangements
where the lease
</DIV>

<P align="center" style="font-size: 10pt">F-43
</DIV>

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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">payments are calculated based on certain formulas, as specified in the agreements, with
reference to the actual number of users of the leased assets. The server leasing rental expenses
under these operating leases amounted to approximately RMB24,969,000, RMB55,699,000 and
RMB43,909,000 during the years ended December&nbsp;31, 2003, 2004 and 2005, respectively. As the future
lease payments for these arrangements are based on the actual number of users and thus cannot be
reasonably estimated, they are not included in the minimum lease payments as disclosed above.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total rental expenses including server leasing rental, office rental and server maintenance
were approximately RMB47,686,000, RMB94,665,000 and RMB115,975,000 during the years ended December
31, 2003, 2004 and 2005, respectively, and were charged to the statements of operations and
comprehensive income when incurred.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Capital commitment</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Capital commitments for purchase of property and equipment, and game license as of December
31, 2005 were approximately RMB21,712,000.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In February&nbsp;2006, the Group paid US$31.0&nbsp;million (equivalent to RMB249.3&nbsp;million) to the
selling shareholders of Haofang to settle the contingent payment based on the audited 2005 earnings
(Note 26).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Contingencies</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Group accounts for loss contingencies in accordance with SFAS 5 &#147;Accounting for Loss
Contingencies&#148;, and other related guidance. Set forth below is a description of certain loss
contingencies as well as the opinion of management as to the likelihood of loss in respect of each
loss contingency.
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">a.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>PRC regulations currently limit foreign ownership of companies that provide Internet
content services, which include operating online games, to 50%. In addition, foreigners or
foreign invested enterprises are currently not able to apply for the required licenses for
operating online games in the PRC. The Company is incorporated in the Cayman Islands and
accordingly Shengqu is considered as a foreign invested enterprise under PRC law. In order
to comply with foreign ownership restrictions, the Group operates its online games business
in the PRC through Shanda Networking, which is wholly owned by Tianqiao Chen and Danian
Chen, both of whom are PRC citizens. Shanda Networking holds the licenses and approvals
that are required to operate the online games business and to sell online advertising on
Shanda&#146;s web pages and Shengqu owns the substantial majority of the physical assets
required to operate the online games business. Shengqu has entered into a series of
contractual arrangements with Shanda Networking, Nanjing Shanda and Hangzhou Bianfeng,
pursuant to which Shengqu provides Shanda Networking, Nanjing Shanda and Hangzhou Bianfeng
with services, software licenses and equipment in exchange for fees, and Shengqu undertakes
to provide financial support to Shanda Networking, Nanjing Shanda and Hangzhou Bianfeng to
the extent necessary for their operations. In addition, Shengqu has entered into agreements
with Shanda Networking and its shareholders that provide it with the substantial ability to
control Shanda Networking. In the opinion of management and the Company&#146;s PRC legal
counsel, (i)&nbsp;the ownership structure of the Company, Shengqu and Shanda Networking are in
compliance with existing PRC laws and regulations; (ii)&nbsp;the contractual arrangements with
Shanda Networking and its shareholders are valid and binding, and will not result in any
violation of PRC laws or regulations currently in effect; and (iii)&nbsp;the Group&#146;s business
operations are in compliance with existing PRC laws and regulations in all material</TD>
</TR>

</TABLE>
</DIV>
<P align="center" style="font-size: 10pt">F-44
</DIV>

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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV style="margin-top: 6pt"><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR valign="top" style="font-size: 10pt; color: #textcolor#; background: #bgcolor#">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>respects. However, there are substantial uncertainties regarding the interpretation and
application of current and future PRC laws and regulations. Accordingly, the Company cannot
be assured that PRC regulatory authorities will not ultimately take a contrary view to its
opinion. If the current ownership structure of the Group and its contractual arrangements
with Shanda Networking were found to be in violation of any existing or future PRC laws and
regulations, the Group may be required to restructure its ownership structure and operations
in the PRC to comply with the changing and new PRC laws and regulations. In the opinion of
management, the likelihood of loss in respect of the Group&#146;s current ownership structure or
the contractual arrangements with Shanda Networking is remote.</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">b.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>On October&nbsp;8, 2003, the developer of the Group&#146;s primary online game filed claims
against the Group in the Beijing First Intermediate People&#146;s Court (the &#147;Beijing Court&#148;)
with respect to the Group&#146;s development and operation of a new online game. The developer
has alleged, among other things, that the online game which was developed by the Group
internally copied certain elements of games owned by the developer, thereby infringing upon
the copyrights of these games. In addition, the developer has alleged that the operation of
the Group&#146;s internally developed online game violates the PRC Anti-Unfair Competition Law.
The developer has requested that the Beijing Court order the Group to stop operation of its
game and to pay the developer&#146;s legal fees and related costs incurred in connection with
this litigation. The developer has not made any claim for damages against the Group. The
case is now pending for decision by the Beijing Court.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>In the opinion of management, it is reasonably possible that the Group could incur a loss
with respect to this litigation, whether through reaching a final judgment on the merits or
through settlement. However, as of the date of the report, it is not possible to estimate
the range of such loss, if any. Accordingly, no provision has been made as of December&nbsp;31,
2005.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">c.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>On April&nbsp;25, 2006, China Cyber Port Co., Ltd. (&#147;China Cyber Port&#148;) filed a lawsuit
against Shanghai Haofang Online Technology Co. Ltd. (&#147;Shanghai Haofang&#148;) in the Shanghai
No.1 Intermediate People&#146;s Court (the &#147;Shanghai Court&#148;) with respect to a dispute regarding
the alleged copyright infringement of the certain Internet games exclusively distributed by
China Cyber Port in the PRC. China Cyber Port has requested that the Shanghai Court order
Shanghai Haofang to stop infringing the copyright of the games and to pay China Cyber Port
the damage, legal fees and related costs incurred in connection with this litigation. The
Shanghai Court accepted the case, and Shanghai Haofang received the Notice of Litigation
on, April&nbsp;27, 2006. The evidence exchange proceeding will be held on June&nbsp;14, 2006.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>In the opinion of management, it is reasonably possible that the Group could incur
a loss with respect to this litigation, whether through reaching a final judgment on
the merits or through settlement. However, as of the date of the report, it is not
possible to estimate the range of such loss, if any. Accordingly, no provision has been
made as of December&nbsp;31, 2005.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>26. SUBSEQUENT EVENTS</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant to the purchase agreement entered into with the selling shareholders of Haofang, the
Group was required to make contingent payment to the selling shareholders if 2005 earnings of
Haofang exceeded certain pre-set target (Note 4(1)). In February&nbsp;2006, the Group paid US$31.0
million (equivalent to RMB249.3&nbsp;million) to the selling shareholders of Haofang to settle the
contingent payment based on the audited 2005 earnings.
</DIV>

<P align="center" style="font-size: 10pt">F-45
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>27. RESTRICTED NET ASSETS</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Relevant PRC laws and regulations permit payments of dividends by our PRC subsidiaries and
affiliates only out of their retained earnings, if any, as determined in accordance with PRC
accounting standards and regulations. In addition, the statutory general reserve fund requires
annual appropriations of 10% of net after-tax income should be set aside prior to payment of any
dividends. As a result of these and other restrictions under PRC laws and regulations, our PRC
subsidiaries and affiliates are restricted in their ability to transfer a portion of their net
assets to us either in the form of dividends, loans or advances, which restricted portion amounted
to approximately RMB1,081.6&nbsp;million, or 66.0% of our total consolidated net assets as of December
31, 2005. Even though we currently do not require any such dividends, loans or advances from our
PRC subsidiaries and affiliates for working capital and other funding purposes, we may in the
future require additional cash resources from our PRC subsidiaries and affiliates due to changes in
business conditions, to fund future acquisitions and developments, or merely declare and pay
dividends to or distributions to our shareholders. See &#147;Financial Statement Schedule&nbsp;I&#148;.
</DIV>

<P align="center" style="font-size: 10pt">F-46
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>ADDITIONAL
INFORMATION &#151; FINANCIAL STATEMENT SCHEDULE I<BR>
SHANDA INTERACTIVE ENTERTAINMENT LIMITED<BR>
CONDENSED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME</B>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="40%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="14" style="border-bottom: 1px solid #000000"><B>For the years ended December 31</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Note</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 0px solid #000000"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 0px solid #000000"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 0px solid #000000"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>US$</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>(Note 3)</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net revenues</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cost of services</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Gross profit</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total operating expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(19,895,199</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(37,565,204</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(50,557,257</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(6,264,685</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Loss from operations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(19,895,199</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(37,565,204</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(50,557,257</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(6,264,685</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Interest income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,144,602</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,877,054</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,244,779</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,145,545</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Amortization of convertible debt issuance cost</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(3,523,935</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(18,492,523</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,291,458</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Foreign exchange gain</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">63,337,152</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,848,276</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Investment income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">40,579,577</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">596,100</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">73,864</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income before income tax expense and equity in
profit of subsidiaries and equity in loss of
affiliated companies</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(18,750,597</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,367,492</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,128,251</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">511,542</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income tax expense</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Equity in profit of subsidiaries</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">291,600,766</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">598,115,396</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">709,579,577</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">87,925,898</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Equity in loss of affiliated companies</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(548,425,019</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(67,956,806</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">272,850,169</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">609,482,888</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">165,282,809</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20,480,634</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Accretion for Series&nbsp;A and Series&nbsp;A-1 Preferred
Shares</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(24,962,571</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income attributable to Series&nbsp;A and Series&nbsp;A-1
Preferred Shareholders</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(48,358,328</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(82,478,882</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income attributable to ordinary shareholders</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">199,529,270</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">527,004,006</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">165,282,809</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20,480,634</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">F-47
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>ADDITIONAL
INFORMATION &#151; FINANCIAL STATEMENT SCHEDULE I<BR>
SHANDA INTERACTIVE ENTERTAINMENT LIMITED<BR>
CONDENSED BALANC SHEETS</B>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 0px solid #000000"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>US$</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Restated (Note 12 of</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 0px solid #000000"><B>(Note 3)</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>the notes to the</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>consolidated</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>financial</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>statements)</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>ASSETS</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Current assets:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Cash and cash equivalents</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,223,987,984</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">59,405,976</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,361,153</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Restricted cash</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">150,778,672</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,683,387</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Marketable securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">355,583,230</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,871,632,968</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">231,919,031</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Due from subsidiaries</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">69,169,007</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Prepayments and other current assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,758,680</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,480,414</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">307,355</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total current assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,661,498,901</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,084,298,030</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">258,270,926</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Investment in subsidiaries</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">960,483,662</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,820,041,365</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">225,526,179</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Investment in affiliate companies</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">118,890,960</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">328,274,788</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">40,677,404</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other long-term assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">47,220,734</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">30,248,354</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,748,154</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Total assets</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,778,094,257</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,262,862,537</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">528,222,663</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>LIABILITIES</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Current liabilities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Due to subsidiaries</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">239,486,587</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">29,675,422</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Acquisition related
obligation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">148,027,677</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,342,504</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Other payable and accruals</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,020,542</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,184,663</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,253,310</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Convertible debt</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,276,175,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,219,305,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">275,000,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Total liabilities</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,278,195,542</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,625,003,927</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">325,271,236</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Shareholders&#146; equity</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Ordinary shares (US$0.01 par value,
186,000,000 shares authorized, 139,960,328
issued and outstanding as of December&nbsp;31,
2004, and 141,982,766 issued and outstanding
as of December&nbsp;31,
2005)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,584,515</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,751,186</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,456,121</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Additional paid-in capital</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,300,453,557</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,397,092,348</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">173,117,438</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Deferred share-based compensation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(20,623,032</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(3,595,349</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(445,509</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Accumulated other comprehensive gain</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">133,814,940</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">30,181,706</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,739,895</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Retained earnings</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">84,668,735</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">202,428,719</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25,083,482</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total shareholders&#146; equity</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,509,898,715</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,637,858,610</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">202,951,427</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Total liabilities and shareholders&#146; equity</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,788,094,257</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,262,862,537</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">528,222,663</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">F-48
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>ADDITIONAL
INFORMATION &#151; FINANCIAL STATEMENT SCHEDULE<BR>
SHANDA INTERACTIVE ENTERTAINMENT LIMITED<BR>
CONDENSED CASH FLOW STATEMENT</B>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="52%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="14" style="border-bottom: 1px solid #000000"><B>For the years ended December 31</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 0px solid #000000"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 0px solid #000000"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 0px solid #000000"><B>RMB</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>US$</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>(Note 3)</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net cash provided by (used in) operating activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(3,250,908</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,790,095</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(5,561,372</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(689,124</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net cash used in investing activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(86,222,577</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(236,896,202</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,172,229,862</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(269,166,794</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net cash provided by financing activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">216,899,274</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,329,668,302</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17,655,453</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,187,734</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Effect of foreign exchange rate changes on cash</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(4,446,227</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(550,944</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net increase (decrease)&nbsp;in cash</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">127,425,789</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,096,562,195</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,164,582,008</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(268,219,128</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cash, beginning of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">127,425,789</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,223,987,984</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">275,580,281</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cash, end of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">127,425,789</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,223,987,984</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">59,405,976</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,361,153</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">F-49
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left">
<A name="306"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>ADDITIONAL
INFORMATION &#151; FINANCIAL STATEMENT SCHEDULE I</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 6pt"><B>SHANDA INTERACTIVE ENTERTAINMENT LIMITED</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 6pt"><B>NOTES TO THE CONDENSED FINANCIAL STATEMENTS</B><BR>
(AMOUNTS EXPRESSED IN Renminbi (RMB)&nbsp;UNLESS OTHERWISE STATED)
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>1. BASIS OF PRESENTATION</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The condensed financial statements of Shanda Interactive Entertainment Limited (the &#147;Company&#148;)
have been prepared in accordance with accounting principles generally accepted in the United States
of America except for accounting of the Company&#146;s subsidiaries and certain footnote disclosures as
described below.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Shanda Holding Limited, formerly known as Spirit High Ventures Ltd., was incorporated in
British Virgin Islands as a limited liability company on July&nbsp;2, 2002. Shanda Interactive
Entertainment Limited was incorporated in Cayman Islands on November&nbsp;17, 2003 and became the
holding company through a share purchase agreement in December&nbsp;2003. Shanda Holding Limited was
considered the predecessor of the Company. The Company is generally a holding company of certain
subsidiaries and variable interest entities (collectively &#147;subsidiaries&#148;).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company records its investment in subsidiaries under the equity method of accounting as
prescribed in APB Opinion No.&nbsp;18, &#147;<I>The Equity Method of Accounting for Investments in Common
Stock</I>&#148;. Such investment is presented on the balance sheet as &#147;Investment in subsidiaries&#148; and the
subsidiaries&#146; profit or loss are recognized based on the effective shareholding percentage as
&#147;Equity in profit of subsidiary companies&#148; on the statement of operations and comprehensive income.
The beginning retained earnings for the periods presented include equity in earnings of all
subsidiaries from their respective date of incorporation or date of purchase, as the case maybe.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The subsidiaries paid a cash dividend of approximately RMB192.1&nbsp;million to the Company in 2004
and no cash dividend was paid in 2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Certain information and footnote disclosures normally included in financial statements
prepared in accordance with accounting principles generally accepted in the United States have been
condensed or omitted. The footnote disclosures contain supplemental information relating to the
operations of the Company and, as such, these statements should be read in conjunction with the
notes to the consolidated financial statements of the Company.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Operating expenses for the Company for the years ended December&nbsp;31, 2003, 2004 and 2005
include share-based compensation expense as a result of the options granted to employees in
December&nbsp;2003. Total share-based compensation expense for the years ended December&nbsp;31, 2003, 2004
and 2005 was approximately RMB18,159,000, RMB28,828,000 and RMB13,698,000, respectively.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>2. COMMITMENTS</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company has long term obligations arising from the issuance of Zero Coupon Senior
Convertible Notes due 2014 in October&nbsp;2004 (See Note 17 of the notes to the consolidated financial
statements). There are no other long-term obligations or significant commitments.
</DIV>

<P align="center" style="font-size: 10pt">F-50
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>3. FOREIGN CURRENCIES</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The unaudited United States dollar (&#147;US$&#148;) amounts disclosed in the financial statement are
presented solely for the convenience of the readers. Translations of amounts from RMB into United
States dollars for the convenience of the reader were calculated at the noon buying rate of US$1.00
= RMB8.0702 on December&nbsp;31, 2005 in The City of New York for cable transfers of RMB as certified
for customs purposes by the Federal Reserve Bank of New York. No representation is made that the
RMB amounts could have been, or could be, converted into US$ at that rate on December&nbsp;31, 2005, or
at any other certain rate.
</DIV>

<P align="center" style="font-size: 10pt">F-51
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><U><B>INDEPENDENT AUDITORS&#146; REPORT</B></U>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">To the Board of Directors and Shareholders of
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Actoz Soft Co., Ltd.

</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We have audited the accompanying balance sheets of Actoz Soft Co., Ltd.(the &#147;Company&#148;) as of
December&nbsp;31, 2005 and 2004, and the related statements of income, appropriation of retained
earnings and cash flows for the years then ended(all expressed in Korean won). These financial
statements are the responsibility of the Company&#146;s management. Our responsibility is to express an
opinion on these financial statements based on our audit. We did not audit Wemade Entertainment
Co., Ltd.. The Company&#146;s investment in this company which was accounted for under the equity
method, is stated at <strike>W</strike> 10,698&nbsp;million, 18% of total assets, as of December&nbsp;31, 2005 and <strike>W</strike> 12,043
million, 21% of total assets, as of December&nbsp;31, 2004, respectively and equity pick up amounted to
<strike>W</strike> 668&nbsp;million, 33% of income before income
taxes, in 2005 and <BR>
<strike>W</strike> 4,051&nbsp;million, 37% of income
before income taxes, in 2004, respectively, in the accompanying financial statements. Wemade
Entertainment Co., Ltd. was examined by other auditors whose reports thereon have been furnished to
us, and our opinion expressed herein, insofar as it relates to the amounts included for those
investment accounts, is based solely upon the reports of the other auditors.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">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
examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In our opinion, the financial statements referred to above present fairly, in all material
respects, the financial position of the Company as of December&nbsp;31, 2005 and 2004 and the results of
its operations, the changes in its retained earnings and its cash flows for the years then ended in
accordance with the financial accounting standards generally accepted in the Republic of Korea.
</DIV>


<P align="center" style="font-size: 10pt">F-52
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Accounting principles and auditing standards and their application in practice vary among
countries. The accompanying financial statements are not intended to present the financial
position, results of operations and cash flows in accordance with accounting principles and
practices generally accepted in countries other than the Republic of Korea.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Accounting principles generally accepted in the Republic of Korea vary in certain significant
respects from accounting principles generally accepted in the United States of America. Information
relating to the nature and effect of such differences is presented in Note 23 to the financial
statements.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">April&nbsp;14, 2006
</DIV>



<P align="center" style="font-size: 10pt">F-53
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>ACTOZ SOFT CO., LTD.</B><BR>
<U><B>STATEMENTS OF INCOME</B></U><BR>
<B>YEARS ENDED DECEMBER 31, 2005 AND 2004</B>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000">Thousands of Korean won</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2005</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2004</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Sales(Noote 8)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">29,168,255</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">39,219,123</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cost of sales(Note 8)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19,843,130</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23,237,951</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Gross profit</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,325,125</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,981,172</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Selling and administrative expenses(Note 14)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,816,010</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,904,070</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Operating income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,509,115</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,077,102</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other income(expenses):</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Interest income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">817,055</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">734,959</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Gain on disposal of investment securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">360,431</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21,855</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Reversal of allowance for doubtful accounts</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">180,393</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">109,052</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Refund of income taxes(Note 15)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">116,475</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">180,424</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Gain on foreign exchange transactions and translation, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">62,143</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Loss on
foreign exchange transactions and translation, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(388,137</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Equity in earnings of investees, net(Note 5)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,027,505</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Equity in
losses of investees, net(Note 5)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,683,890</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Loss on disposal of property and equipments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(568,332</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Impairment loss on investments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(103,011</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Impairment loss on intangible assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,482,083</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Other bad debt</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(102,411</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(147,265</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Loss on contract termination</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(241,000</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Contribution(Note 18)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(30,000</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(55,000</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Other, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">438,256</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(24,899</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(512,891</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,735,411</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income before income taxes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,996,224</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,812,513</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income tax expenses (benefits) (Note 15)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(166,729</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,692,850</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income(Note 16)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">2,162,953</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">8,119,663</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income per share in Korean won(Note 16)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">243</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">911</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt">See accompanying Notes to Financial Statements.
</DIV>


<P align="center" style="font-size: 10pt">F-54
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>ACTOZ SOFT CO., LTD.</B><BR>
<U><B>BALANCE SHEETS</B></U><BR>
<B>DECEMBER 31, 2005 and 2004</B>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000">Thousands of Korean won</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2005</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2004</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">ASSETS</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">CURRENT ASSETS :</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Cash and cash equivalents(Notes 2 and 3)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">801,378</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">810,448</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Short-term financial instruments(Notes 2 and 3)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">22,000,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16,500,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Accounts receivable &#151; trade, net of allowance for
doubtful accounts of <strike>W</strike>1,584,503 thousand
in 2005 and <strike>W</strike>640,964 thousand in 2004(Notes 2 and 10)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,634,880</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,683,088</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Accounts receivable &#151; other, net of allowance for
doubtful accounts of <strike>W</strike>18,924 thousand in 2005
and 16,851 thousand in 2004</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,270</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,569,225</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Short-term loans, net of allowance for doubtful
accounts of <strike>W</strike>120,416 thousand in 2005 and
<strike>W</strike>123,479 thousand in 2004(Note 8)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">89,850</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">584,451</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Prepayments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">322,791</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">224,026</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Prepaid value added taxes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">315,589</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">497,416</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Prepaid expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,249,520</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,145</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Short-term deferred income tax assets(Notes 2 and 15)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">463,276</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Accrued income and other current assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">213,772</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">91,608</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Total Current Assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">29,103,326</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">28,963,407</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">NON-CURRENT ASSETS :</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Marketable securities(Notes 2 and 4)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">713,011</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">356,023</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Investment securities(Notes 2 and 5)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,116,354</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,577,657</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Rental deposits</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,914,800</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,083,050</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Deferred income tax asset(Notes 2 and 15)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,505,273</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">521,582</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Other investments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">975,047</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Property and equipment, net(Notes 2, 6 and 9)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">872,841</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,375,873</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Intangible assets(Notes 2 and 7)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,999,713</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,325,345</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Total Non-Current Assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">30,097,039</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">28,239,530</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">TOTAL ASSETS</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">59,200,365</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">57,202,937</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">(Continued)
</DIV>


<P align="center" style="font-size: 10pt">F-55
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>ACTOZ SOFT CO., LTD.</B><BR>
<U><B>BALANCE SHEETS (CONTINUED)</B></U><BR>
<B>DECEMBER 31, 2005 and 2004</B>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000">Thousands of Korean won</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2005</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2004</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">LIABILITIES AND SHAREHOLDERS&#146; EQUITY</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">CURRENT LIABILITIES :</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Accrued expenses(Notes 8 and 10)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">3,386,721</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">6,758,656</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Income taxes payable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">182,442</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Withholdings</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">80,801</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">71,229</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Advance receipts</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,376,093</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">28,284</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:90px; text-indent:-15px">Total Current Liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,843,615</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,040,611</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">LONG-TERM LIABILITIES :</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Total Liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,843,615</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,040,611</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">COMMITMENTS AND CONTINGENCIES(Note 20)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">SHAREHOLDERS&#146; EQUITY :</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:105px; text-indent:-15px">Common stock, par value <strike>W</strike>500(Note 11)

</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:105px; text-indent:-15px">Authorized: 50,000,000 shares
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:105px; text-indent:-15px">Issued: 8,914,500 shares</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,457,250</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,457,250</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Capital surplus(Note 11):</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:105px; text-indent:-15px">Paid-in capital in excess of par</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19,169,186</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19,169,186</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Retained earnings(Note 12)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:105px; text-indent:-15px">Reserve for business rationalization(Note 12)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">170,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">170,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:105px; text-indent:-15px">Reserve for technology development(Note 12)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16,667</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:105px; text-indent:-15px">Change in retained earnings of valuation(Note 5)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(166,285</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:105px; text-indent:-15px">Unappropriated retained earnings</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">27,648,409</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25,468,789</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Capital adjustments(Note 13)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,078,190</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">880,434</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Total Shareholders&#146; Equity</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">52,356,750</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">50,162,326</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">TOTAL LIABILITIES AND SHAREHOLDERS&#146; EQUITY</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">59,200,365</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">57,202,937</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt">See accompanying Notes to Financial Statements.
</DIV>


<P align="center" style="font-size: 10pt">F-56
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>ACTOZ SOFT CO., LTD.</B><BR>
<U><B>STATEMENTS OF APPROPRIATIONS OF RETAINED EARNINGS</B></U><BR>
<B>YEARS ENDED DECEMBER 31, 2005 AND 2004</B>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000">Thousands of Korean won</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2005</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2004</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">RETAINED EARNINGS BEFORE APPROPRIATIONS</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">

<TD><DIV style="margin-left:30px; text-indent:-15px">Unappropriated
retained earnings carried over from prior year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">25,485,456</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">17,620,626</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Prior period adjustments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(271,500</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Net income for the year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,162,953</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,119,663</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">27,648,409</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25,468,789</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">TRANSFER OF VOLUNTARY RESERVES</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Reserve for technology development(Note 12)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16,667</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">27,648,409</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25,485,456</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">UNAPPROPRIATED RETAINED EARNINGS
TO BE CARRIED FORWARD TO NEXT YEAR</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">27,648,409</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">25,485,456</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt">See accompanying Notes to Financial Statements.
</DIV>


<P align="center" style="font-size: 10pt">F-57
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>ACTOZ SOFT CO., LTD.</B><BR>
<U><B>STATEMENTS OF CASH FLOWS</B></U><BR>
<B>YEARS ENDED DECEMBER 31, 2005 AND 2004</B>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000">Thousands of Korean won</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2005</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2004</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">CASH FLOWS FROM OPERATING ACTIVITIES</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Net income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">2,162,953</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">8,119,663</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Addition of expenses not involving cash outflows :</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Depreciation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">411,656</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">670,980</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Amortization of intangible assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">542,592</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">540,173</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Loss on disposal of property and equipment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">568,332</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">201</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Stock compensation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">169,768</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Other bad debts</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">102,411</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">652,952</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Loss on impairment of investment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">103,011</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Loss on impairment of intangible assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,482,083</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Equity in losses of investees</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,351,917</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">862,509</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,249,687</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,208,898</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Deduction of revenues not involving cash inflows :</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Reversal of allowance for doubtful accounts</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,400</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">109,052</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Gain on disposal of investment securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">360,431</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21,855</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Equity in earnings of investees</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">668,026</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,890,014</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,031,857</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,020,921</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Changes in assets and liabilities resulting from operations:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:75px; text-indent:-15px">Decrease(increase) in accounts receivable-trade</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,419,839</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(179,730</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:75px; text-indent:-15px">Decrease(increase) in prepayments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(98,765</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(209,981</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:75px; text-indent:-15px">Decrease(increase) in prepaid value added taxes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">181,827</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(359,628</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:75px; text-indent:-15px">Decrease(increase) in accrued income and other current assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(122,164</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(5,649</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:75px; text-indent:-15px">Decrease in prepaid income taxes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">120,736</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:75px; text-indent:-15px">Decrease(increase) in prepaid expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,246,375</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(3,145</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:75px; text-indent:-15px">Decrease(increase) in deferred income tax asset</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(6,357,354</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(418,599</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:75px; text-indent:-15px">Increase in withholdings</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,572</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,452</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:75px; text-indent:-15px">Increase(decrease) in accrued expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(3,371,935</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(20,684,718</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:75px; text-indent:-15px">Increase in income taxes payable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(182,442</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">182,442</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:75px; text-indent:-15px">Increase(decrease) in advance receipts</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,347,809</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(18,441</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:75px; text-indent:-15px">Decrease in deferred income tax liability</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,438,755</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(9,327</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(981,233</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(21,582,588</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Net cash provided by(used in) operating activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">4,399,550</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left"><strike>W</strike></TD>
    <TD align="right">(14,274,948</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">(Continued)
</DIV>


<P align="center" style="font-size: 10pt">F-58
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>ACTOZ SOFT CO., LTD.</B><BR>
<U><B>STATEMENTS OF CASH FLOWS(CONTINUED)</B></U><BR>
<B>YEARS ENDED DECEMBER 31, 2005 AND 2004</B>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000">Thousands of Korean won</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2005</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2004</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">CASH FLOWS FROM INVESTING ACTIVITIES</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Cash inflows from investing activities :</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Decrease in short-term financial instruments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">69,500,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">61,000,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Decrease in short-term loans</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">608,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">550,392</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Decrease in accounts receivable-other</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,830,604</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,602,025</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Disposal of marketable securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">150,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Disposal of equity method valued investment securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">650,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Dividend income from equity method valuation of
investment securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,000,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,400,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Decrease in rental deposits</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,100,550</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,916,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Disposal of property and equipment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,210,737</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,272</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">83,399,891</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">76,120,689</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Cash outflows from investing activities :</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Acquisition of short-term financial instruments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">75,000,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">57,500,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Acquisition of marketable securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">610,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">206,023</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Increase in short-term loans</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">110,336</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">814,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Increase in accounts receivable-other</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,275,723</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,105,834</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Acquisition of equity method valued investment securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,201,150</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Increase in other investment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">975,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Increase in rental deposits</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,932,300</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,316,400</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Acquisition of property and equipment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">687,693</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,938,587</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Disbursement of development cost</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,818,477</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,363,241</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Acquisition of other intangible assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">398,482</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">148,013</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">87,808,511</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">81,593,248</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Net cash used in investing activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(4,408,620</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(5,472,559</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">CASH FLOWS FROM FINANCING ACTIVITIES :</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Cash inflows from financing activities :</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Increase in short-term borrowings</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,167,227</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,167,227</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Cash outflows from financing activities :</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Repayment of short-term borrowings</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,167,227</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,167,227</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Net cash used in financing activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">NET INCREASE(DECREASE) IN CASH AND CASH EQUIVALENTS</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(9,070</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(19,747,507</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">810,448</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20,557,955</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">CASH AND CASH EQUIVALENTS AT END OF YEAR</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">801,378</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">810,448</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt">See accompanying Notes to Financial Statements.
</DIV>


<P align="center" style="font-size: 10pt">F-59
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><U><B>ACTOZ SOFT CO., LTD.</B></U><BR>
<U><B>NOTES TO FINANCIAL STATEMENTS</B></U><BR>
<B>YEARS ENDED DECEMBER 31, 2005 AND 2004</B>
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">1.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>General</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Actoz Soft Co., Ltd. (the &#147;Company&#148;) was incorporated on October&nbsp;29, 1996 under the laws of the
Republic of Korea. The Company is engaged in developing and distributing online game software
products. The Company is registered as a venture business at the Korean Small and Medium
Enterprise Service in accordance with the special law for the promotion of venture businesses.
The Company&#146;s capital stock as of December&nbsp;31, 2005 amounts to <strike>W</strike>4,457,250 thousand. The
Company&#146;s shares were listed on the Korea Securities Dealers Automated Quotation (KOSDAQ)&nbsp;market
since August&nbsp;14, 2001.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">2.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Summary of Significant Accounting Policies</TD>
</TR>

</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 3%">a. Basis of Presentation of Financial Statements
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">The Company maintains its official accounting records in Korean won and prepares financial
statements in the Korean language (Hangul) in conformity with the accounting principles
generally accepted in the Republic of Korea including the statements of Korean financial
accounting standards No.&nbsp;1 through No.&nbsp;17(excluding No.&nbsp;11 and No.14). Certain accounting
principles applied by the Company that conform with financial accounting standards and
accounting principles in the Republic of Korea may not conform with generally accepted
accounting principles in other countries. Accordingly, these financial statements are
intended for use by those who are informed about Korean accounting principles and practices.
The accompanying financial statements have been condensed, restructured and translated into
English from the Korean language financial statements.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">Certain information attached to the Korean language financial statements, but not required for
a fair presentation of the Company&#146;s financial position, results of operations or cash flows,
is not presented in the accompanying financial statements.
</DIV>

<P align="center" style="font-size: 10pt">F-60
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">The accounts of Onlineworks Co., Ltd., a wholly owned subsidiary, were not consolidated into
the accounts of the Company as allowed under the financial accounting standards generally
accepted in the Republic of Korea Financial. The investment in the subsidiary was accounted
under the equity method (see note 5)
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 3%">b. Cash and Cash Equivalents
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">The Company records in cash and cash equivalents account, currencies, currency
substituting securities such as third party issued checks, current deposits, ordinary
deposits, and marketable securities and short-term financial instruments which maturities
or repayments are due within three months when acquired and easily convertible into cash
without incurring material transaction costs and which have no material risks of the value
changes due to the change of interest rates.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 3%">c. Financial Instruments
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">Short-term financial instruments are time deposits and installment deposits of financial
institutes which are held for the purpose of short-term operations of the funds and which
maturities are due within one year. Long-term financial instruments are financial
instruments not classified as current assets.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 3%">d. Allowance for Doubtful Accounts
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">The Company provides an allowance for doubtful accounts to cover estimated losses on
receivables, based on collection experience and analysis of the collectibility of individual
outstanding receivables.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 3%">e. Marketable Securities
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">Marketable securities bought and held for the purpose of selling them in the near term are
classified as short-term trading securities and debt securities which repayment amounts are
fixed or can be fixed and which the Company has the intent and ability to hold to maturity are
classified as held-to-maturity securities and marketable securities not classified as either
short-term trading securities or held-to-maturity securities are classified as available- for-
sale securities.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">Marketable securities are initially carried at cost, using the moving average method. The
following paragraphs describe the subsequent accounting for securities by the type of
security.
</DIV>

<P align="center" style="font-size: 10pt">F-61
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">Held-to-maturity securities are carried at cost, adjusted for the amortization or accretion of
premiums or discounts. Short-term trading securities and available- for-sale securities are
reported at fair value. Available-for-sale equity securities that do not have readily
determinable market or fair values are reported at cost.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">Unrealized gains or losses arising from the differences between the fair value and the
acquisition cost are recorded in current operations for short-term trading securities, and
are reported as a capital adjustment in shareholders&#146; equity for available-for-sale securities
which accumulated amounts in shareholders&#146; equity are reflected in current operations when
disposing the securities or recognizing impairment losses.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">When estimated recoverable values from marketable securities are less than acquisition costs
of equity securities or debt securities adjusted for the amortization or accretion of premiums
or discounts, impairment losses are recorded in current operation<BR>
Subsequent recoveries are also recorded in current operations up to the original
cost of the securities.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 3%">f. Investment Securities Valued Using the Equity Method of Accounting
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">Investments in equity securities of companies, over which the Company exercises significant
influence, are reported using the equity method of accounting.<BR>
Under the equity method of accounting, the Company records changes in its proportionate equity
of the book value of the investee as current operations, capital adjustments or adjustments to
retained earnings, depending on the nature of the underlying change in book value of the
investee.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">Differences between the purchase cost and the Company&#146;s proportionate equity in net asset
value of the investee are amortized over five years using the straight-line method.
Unrealized profits arising from sales by the Company to equity-method investees are fully
eliminated. The Company&#146;s proportionate unrealized profits arising from sales by
equity-method investees to the Company or transactions between equity-method investees are
also eliminated.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">For overseas affiliates whose financial statements are prepared in foreign currency, assets
and liabilities are translated at the exchange rate on the balance sheet date, shareholders&#146;
equity is translated at the historical exchange rate, and statement of income items are
recorded at the weighted average exchange rate of the reporting period. Net translation
adjustments are recorded as a component of shareholders&#146; equity.
</DIV>

<P align="center" style="font-size: 10pt">F-62
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 3%">g. Property and Equipment
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">Property and equipment are stated at acquisition cost. Major renewals and betterments, which
prolong the useful life or enhance the value of assets, are capitalized; expenditure for
maintenance and repairs are charged to expense as incurred. Depreciation is computed using
the declining balance method over the following useful lives:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="88%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">

<TD nowrap align="left" style="border-bottom: 1px solid #000000"><DIV style="margin-left:55px; text-indent:-15px">Description</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Useful lives (years)</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Machinery and equipment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Furniture and fixtures</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Vehicles</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">Depreciation expenses on the long-term idle facilities are recorded in other expenses. When
the recoverable amount is significantly less than the carrying value of property and equipment
due to obsolescence, physical damage, decline in market value or other causes, an impairment
loss in the amount of the difference between the recoverable amount and the carrying value is
recorded in the current operations with the carrying amount of the asset adjusted reflecting
the impairment.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 3%">h. Intangible Assets
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">Development costs resulting from developing new products in which the elements of costs
satisfy the certain conditions required and future economic benefits are clearly expected, are
capitalized and amortized over a five year period beginning in the year the related products
are first saleable or usable. When the recoverable amount is significantly less than the
carrying value of development costs due to the uncertainty of their future economic benefits,
an impairment loss in the amount of the difference between the recoverable amount and the
carrying value is recorded in the current operations with the carrying amount of the asset
adjusted reflecting the impairment.<BR>
Other intangible assets including industrial property rights are stated at cost and amortized
on a straight-line basis over a five year period.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 3%">i. Deferred Income Taxes
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">Deferred tax assets and liabilities are recorded for future tax consequences of operating loss
carryforwards, tax credits and temporary differences between the financial statement carrying
</DIV>

<P align="center" style="font-size: 10pt">F-63
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">amounts of existing assets and liabilities and their respective tax bases. Deferred tax
assets are recognized to the extent that they are expected to be realizable. Deferred tax
assets and liabilities are presented on the balance sheet as a single non-current net number.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 3%">j. Severance Indemnity
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">In accordance with the Company&#146;s policy, the Company pays severance indemnity on a yearly
basis to all employees with more than one year of service with the Company.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 3%">k. Foreign Currency Transactions and Translation
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">Transactions denominated in foreign currencies are recorded in Korean won translated at the
exchange rate prevailing on the transaction date. Monetary assets and liabilities denominated
in foreign currency are translated into Korean won at the Base Rates announced by Seoul Money
Brokerage Services Limited on the balance sheet date. Gains or losses arising from the
settlement of foreign currency transactions and the translation of foreign currency assets and
liabilities are charged or credited to current operations.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 3%">l. Revenue Recognition
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">Service revenue is recognized by reference to the stage of completion of the transaction
at the balance sheet date. The percentage of completion method for the service revenue can be
employed when the following conditions are met: (a)&nbsp;the amount of revenue can be measured
reliably; (b)&nbsp;it is probable that the economic benefits will flow to the Company; (c)&nbsp;the
stage of completion of the transaction at the balance sheet date can be measured reliably; and
(d)&nbsp;the costs incurred for the transaction and the costs to complete the transaction and be
measured reliably. For sales of merchandises and finished goods, revenue is recognized based
on the delivery of goods for domestic sales and on the shipping dates for export.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 3%">m. Stock Options
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">The stock option program allows the Company&#146;s officers to acquire shares of the Company.
The option exercise price is generally fixed at above the market price of underlying shares at
the date of the grant. The Company values stock options based upon an option-pricing model
(Black-Scholes model) under the fair value method and recognizes this value as an expense over
the period in which the options vest.
</DIV>

<P align="center" style="font-size: 10pt">F-64
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 3%">n. Net Income Per Share
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">Net income per share is calculated by dividing net income by the weighted-average number
of shares of common stock outstanding during each period.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 3%">o. Use of Estimates
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">The preparation of financial statements in accordance with accounting principles
generally accepted in the Republic of Korea requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and related notes to
financial statements. Actual results could differ from those estimates.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 3%">p. Contingent Liabilities
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">Contingent losses are recorded in liabilities if it is certain that net assets have
decreased as of the balance sheet date and the loss amount can be reasonably estimated.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 3%">q. Reclassification of Certain Accounts
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">Certain amounts in 2004 financial statements have been reclassified to conform with the 2005
financial statement presentation. These reclassifications did not have an effect on the
financial position of the Company as of December&nbsp;31, 2004, or the results of its
operations for the year then ended.
</DIV>

<P align="center" style="font-size: 10pt">F-65
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">3.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Cash and Cash Equivalents and Short-term Financial Instruments</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Details of cash and cash equivalents and short-term financial instruments as of December&nbsp;31,
2005 and 2004 are as follows:</TD>
</TR>

</TABLE>
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10" style="border-bottom: 1px solid #000000">Thousands of Korean won</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Annual interest</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">rate(%)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2005</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2004</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&#060;Cash and cash equivalents &#062;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Cash</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">1,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Ordinary deposit</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">86,862</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">101,141</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Cash Management Account(&#147;CMA&#148;)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3.5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">713,516</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">709,307</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">801,378</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">810,448</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&#060;Short-term financial instruments&#062;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Time deposits</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">3.8<font face="symbol">&#126;</font> 4.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">22,000,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">16,500,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">22,000,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">16,500,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 3%">4. Marketable Securities
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">Marketable securities of the Company at December&nbsp;31, 2005 and 2004 are classified as
available-for-sale securities according to its purpose of acquisition and intent of holding and
consist of the following :
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&#060;2005&#062;
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="52%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10" style="border-bottom: 1px solid #000000">Thousands of Korean won</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Ownership</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Acquisition</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Fair value or</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Book</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">

<TD nowrap align="left" style="border-bottom: 1px solid #000000"><DIV style="margin-left:150px; text-indent:-15px">Investee</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">percentage</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">cost</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">net asset value</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">value</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&#060;Equity securities&#062;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Joyspell Co., Ltd.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">5.08</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">206,023</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">49,252</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">103,011</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&#060;Debt securities&#062;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Onlineworks
Co.,Ltd.- convertible
debenture(1<SUP style="font-size: 85%; vertical-align: text-top">st</SUP>
series non-guaranteed
privately placed)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">350,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">350,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">350,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Onlineworks Co.,
Ltd.- convertible
debenture(2<SUP style="font-size: 85%; vertical-align: text-top">st</SUP>
series non-guaranteed
privately placed)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">260,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">260,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">260,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:75px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">816,023</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">659,252</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">713,011</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">F-66
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">The Company recognized an impairment loss amounting to <strike>W</strike>103,011 thousand on marketable
securities relating to Joyspell due to the decrease of the net asset of Joyspell.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&#060;2004&#062;
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="52%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10" style="border-bottom: 1px solid #000000">Thousands of Korean won</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Ownership</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Acquisition</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Fair value or</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Book</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">

<TD nowrap align="left" style="border-bottom: 1px solid #000000"><DIV style="margin-left:175px; text-indent:-15px">Investee</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">percentage</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">cost</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">net asset value</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">value</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&#060;Equity securities&#062;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Joyspell Co., Ltd.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">5.08</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">206,023</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">33,258</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">206,023</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&#060;Debt securities&#062;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Vivabox
Co.,Ltd.- convertible
debenture(1<SUP style="font-size: 85%; vertical-align: text-top">st</SUP>
series non-guaranteed
privately placed)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">150,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">150,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">150,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:50px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">356,023</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">183,258</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">356,023</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 3%">5. Investment Securities
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">Investment securities stated by the equity method of accounting at December&nbsp;31, 2005 and 2004
are as follows:
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 3%">(1)&nbsp;Detail of investment securities
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="28%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="14" style="border-bottom: 1px solid #000000">Thousands of Korean won</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000">Book value</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Percentage</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">No. of</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">of</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Acquisition</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Net Asset</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">

<TD nowrap align="left" style="border-bottom: 1px solid #000000"><DIV style="margin-left:85px; text-indent:-15px">Investee</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">shares</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">ownership</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">cost</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">value</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2005</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2004</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Wemade Entertainment
Co., Ltd.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">56,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">40.0</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">280,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">10,697,586</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">10,697,586</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">12,043,171</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Anipark Co., Ltd.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">900,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">24.8</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">563,850</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">893,086</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">896,028</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">989,244</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Onlineworks Co., Ltd.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">60,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">100.0</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">300,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">518,447</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">522,740</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,437,841</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Beijing Oriental
Interactive Science and
Technology Development
Co., Ltd.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">50.0</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,201,150</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(453</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,107,401</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">3,345,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">12,108,666</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">12,116,354</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">15,577,657</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">F-67
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 3%">(2)&nbsp;Detail of valuation by the equity method
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&#060;2005&#062;
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="28%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="22" style="border-bottom: 1px solid #000000">Thousands of Korean won</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Capital</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Retained</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Other</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Beginning</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Earnings</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">adjustments</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">earnings of</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">increase</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Balance at end</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">

<TD nowrap align="left" style="border-bottom: 1px solid #000000"><DIV style="margin-left:80px; text-indent:-15px">Investee</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">balance</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">(loss) P/L</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">of valuation</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">valuation</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">(decrease)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">of 2004</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Wemade Entertainment
Co., Ltd.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">12,043,171</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">668,026</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left"><strike>W</strike></TD>
    <TD align="right">(13,611</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left"><strike>W</strike></TD>
    <TD align="right">(2,000,000</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">10,697,586</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Anipark Co., Ltd.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">989,244</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(460,298</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">22,675</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(16,024</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">360,431</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">896,028</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Onlineworks Co., Ltd.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,437,841</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(783,609</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,769</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(150,261</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">522,740</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Beijing Oriental
Interactive Science and
Technology Development
Co., Ltd.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,107,401</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,108,010</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">156</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">15,577,657</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,683,891</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">27,989</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(166,285</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,639,569</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">12,116,354</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For Wemade entertainment Co., Ltd., other decrease was a result of dividends receipts.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For Anipark Co., Ltd., other increase was recorded as a gain on disposal of investment
securities for the change in the equity interest arising from the capital increases.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For Beijing Oriental Interactive Science and Technology Development Co., Ltd., <strike>W</strike>453 thousand
of a valuation loss was recorded as allowance for doubtful accounts.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&#060;2004&#062;
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="28%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="22" style="border-bottom: 1px solid #000000">Thousands of Korean won</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Capital</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Other</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Beginning</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">adjustments</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Earnings</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">increase</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Balance at end</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><DIV style="margin-left:80px; text-indent:-15px">Investee</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">balance</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">of valuation</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">(loss) P/L</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Disposal</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">(decrease)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">of 2004</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Wemade Entertainment
Co., Ltd.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">10,378,114</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">13,611</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">4,051,446</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left"><strike>W</strike></TD>
    <TD align="right">(2,400,000</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">12,043,171</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Anipark Co., Ltd.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">859,244</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">331,380</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">173,104</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(374,484</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">989,244</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Actoznet Co., Ltd.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">631,536</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(3,391</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(628,145</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Onlineworks Co., Ltd.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">364,714</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">407,663</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">665,464</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,437,841</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Beijing Oriental
Interactive Science and
Technology Development
Co., Ltd.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,201,150</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(234,631</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(859,118</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,107,401</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">14,434,758</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">518,023</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">4,027,505</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left"><strike>W</strike></TD>
    <TD align="right">(628,145</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left"><strike>W</strike></TD>
    <TD align="right">(2,774,484</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">15,577,657</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">F-68
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 3%">6. Property and Equipment
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">Property and equipment as of December&nbsp;31, 2005 and 2004 are as follows:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000">Thousands of Korean won</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2005</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2004</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Land</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">4,733,497</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Machinery</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,365,713</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,316,528</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Furniture and fixture</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,301,143</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,193,200</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Vehicles</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">31,349</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">31,349</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total acquisition cost</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,698,205</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,274,574</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Less accumulated depreciation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,825,364</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,898,701</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Property and equipment, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">872,841</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">5,375,873</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 3%">7. Intangible Assets
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">Details of development cost and other intangible assets for the years ended December&nbsp;31, 2005
and 2004 are as follows:
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&#060;2005&#062;
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="52%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="14" style="border-bottom: 1px solid #000000">Thousands of Korean won</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Development</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Industrial</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">

<TD nowrap align="left" style="border-bottom: 1px solid #000000"><DIV style="margin-left:40px; text-indent:-15px">Description</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">cost</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">property right</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Others</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Total</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Beginning balance</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">3,929,807</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">5,275</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">390,263</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">4,325,345</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Increase in the year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,818,478</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,232</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">388,249</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,216,959</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Amortization</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(340,052</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,905</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(199,634</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(542,591</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Ending balance</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">6,408,233</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">12,602</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">578,878</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">6,999,713</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">F-69
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&#060;2004&#062;
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="52%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="14" style="border-bottom: 1px solid #000000">Thousands of Korean won</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Development</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Industrial</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">

<TD nowrap align="left" style="border-bottom: 1px solid #000000"><DIV style="margin-left:40px; text-indent:-15px">Description</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">cost</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">property right</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Others</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Total</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Beginning balance</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">3,431,757</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">4,665</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">399,926</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">3,836,348</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Increase in the year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,363,241</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,465</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">145,547</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,511,253</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Amortization</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(383,108</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,855</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(155,210</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(540,173</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other decrease</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,482,083</TD>
    <TD nowrap>)*</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,482,083 </TD>
    <TD nowrap>)*</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Ending balance</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">3,929,807</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">5,275</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">390,263</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">4,325,345</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV align="left">
<DIV style="font-size: 3pt; margin-top: 16pt; width: 18%; border-top: 1px solid #000000">&nbsp;</DIV>
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96"></TD>
</TR>

<TR valign="top">
    <TD nowrap align="left">*</TD>
    <TD>&nbsp;</TD>
    <TD><strike>W</strike>1,482,083 thousand of impairment loss for development costs was recognized in 2004.</TD>
</TR>

</TABLE>




<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 3%">8. Transactions with Related Parties
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">Major transactions and account balances with related parties as of and for the years ended
December&nbsp;31, 2005 and 2004 are as follows:
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&#060;2005&#062;
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="28%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="22" style="border-bottom: 1px solid #000000">Thousands of Korean won</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Commission</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Related</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Related</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">

<TD nowrap align="left" style="border-bottom: 1px solid #000000"><DIV style="margin-left:80px; text-indent:-15px">Company</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Sales</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Investment</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Outsourcing</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">paid</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">receivables</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">payables</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Wemade
Entertainment Co.,
Ltd.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">481,070</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">18,272,535</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">2,746,291</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Anipark Co., Ltd.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">77,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,017,173</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">496,365</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Shanda
Interactive
Entertainment Ltd.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">22,386,381</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,729,671</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Beijing Oriental
Interactive Science
and Technology
Development Co.,
Ltd.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">520,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">520,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">22,944,951</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">520,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">19,289,708</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">2,250,171</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">3,242,656</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">F-70
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&#060;2004&#062;
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="28%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="22" style="border-bottom: 1px solid #000000">Thousands of Korean won</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Cost of</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Commission</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Related</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Related</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">

<TD nowrap align="left" style="border-bottom: 1px solid #000000"><DIV style="margin-left:75px; text-indent:-15px">Company</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Sales</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">sales</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Outsourcing</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">paid</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">receivables</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">payables</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Wemade Entertainment
Co., Ltd.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">1,910,150</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">89,384</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">20,286,948</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">403,363</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">5,490,491</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Anipark Co., Ltd.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">109,300</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,402,886</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,980</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">651,909</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Onlineworks Co., Ltd.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">108,561</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Actozinworld Co., Ltd.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">317,582</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">2,019,450</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">89,384</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">22,689,834</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">426,143</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">405,343</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">6,142,400</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">Short-term housing loan to shareholders, officers and employees at December&nbsp;31, 2005 and 2004
amounted to <strike>W</strike>210,266 thousand and <strike>W</strike>363,930 thousand, respectively, and the related
interest income recognized in 2005 and 2004 amounted to <strike>W</strike>14,089 thousand and 46,256
thousand, respectively.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">There is no collateral or guarantee provided by the Company or received from the related
parties as of December&nbsp;31, 2005.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 3%">9. Insurance
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">As of December&nbsp;31, 2005 the Company has fire insurance for its machinery with Samsung Fire
Insurance Co., Ltd. with the coverage amount totaling <strike>W</strike>2,200,417 thousand.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">In addition, the Company&#146;s vehicles are insured for comprehensive coverage.
</DIV>


<P align="center" style="font-size: 10pt">F-71
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">10.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Assets and Liabilities Denominated in Foreign Currencies</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Details of assets and liabilities denominated in foreign currencies as of December&nbsp;31, 2005 and
2004 are as follows:</TD>
</TR>

</TABLE>
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="52%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="14" style="border-bottom: 0px solid #000000">(In U.S. dollars, JPY, EUR, GBP and thousands of Korean won)</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000">Foreign currency</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000">Korean won equivalent</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000">Account</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2005</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2004</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2005</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2004</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Assets:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Accounts receivable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">USD</TD>
    <TD align="right">3,804,690</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">USD</TD>
    <TD align="right">7,482,139</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">3,854,151</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">7,809,856</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">JPY</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">JPY</TD>
    <TD align="right">18,802,658</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">190,296</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">EUR</TD>
    <TD align="right">16,317</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">EUR</TD>
    <TD align="right">5,322</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19,583</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,573</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">GBP</TD>
    <TD align="right">3,720</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">GBP</TD>
    <TD align="right">1,545</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,492</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,104</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">3,880,226</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">8,010,829</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Liabilities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Accrued expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">USD</TD>
    <TD align="right">1,586,613</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">USD</TD>
    <TD align="right">4,250,217</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">1,607,239</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">4,436,377</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">EUR</TD>
    <TD align="right">11,422</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">EUR</TD>
    <TD align="right">3,725</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,708</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,301</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">JPY</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">JPY</TD>
    <TD align="right">1,521,063</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,394</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">1,620,947</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">4,457,072</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">11.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Capital Stock</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Capital stock of the Company as of December&nbsp;31, 2005 and 2004 is as follows;</TD>
</TR>

</TABLE>
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2005</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2004</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Number of shares authorized</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">50,000,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">50,000,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Number of shares issued:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Common stock</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,914,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,914,500</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Par value</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">500</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">There was no change in capital stock or capital surplus in 2005.
</DIV>

<P align="center" style="font-size: 10pt">F-72
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">12.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Retained Earnings</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(1)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Reserve for business rationalization</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Until end of 2002, in accordance with the Tax Exemption and Reduction Control Law, the amount of
tax benefit associated with certain tax deductions and tax credits must be appropriated as a
reserve for business rationalization. The reserve for business rationalization might not be
utilized for cash dividends, but might be used to offset a future deficit, if any, or might be
transferred to capital stock. However, in December&nbsp;2002, this law was revised and the clauses
relevant to the above reserve was rescinded. Accordingly, at December&nbsp;31, 2004 a reserve of
<strike>W</strike>170,000 thousand for business rationalization was transferred to voluntary reserve.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(2)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Other reserve</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Reserve for technology development was appropriated in accordance with the relevant tax laws, and
may be transferred to voluntary reserve and be utilized for dividends.</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">13.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Capital Adjustments</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(1)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Treasury stock</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The Company has 480 shares of treasury stock (common stock) as of December&nbsp;31, 2005 and 2004
purchased in the process of issuing additional shares in 2003 and plans to resell the stock.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(2)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Stock options</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The Company granted stock options to its representative director as follows.</TD>
</TR>

</TABLE>
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">

<TD nowrap align="left" style="border-bottom: 1px solid #000000"><DIV style="margin-left:63px; text-indent:-15px">Exercise period</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Number of shares</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Exercise price</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Within 5&nbsp;years from grant date</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">267,420</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center">9,470 Won</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The Company values stock options based upon an option-pricing model (Black-Scholes model) under
the fair value method and recognizes this value as an expense over the period in which the options
vest. The expense for 2005 amounted to <strike>W</strike>169,768 thousand.
</DIV>


<P align="center" style="font-size: 10pt">F-73
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">14.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Selling and Administrative Expenses</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Selling and administrative expenses in 2005 and 2004 consist of the following:</TD>
</TR>

</TABLE>
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000">Thousands of Korean won</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2005</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2004</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Salaries and wages</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">1,787,499</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">2,399,194</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Severance benefits</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">141,387</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">184,943</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Stock compensation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">169,768</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Employee benefits</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">208,430</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">281,826</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Travel</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">62,474</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">230,920</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Entertainment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">73,490</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">82,051</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Communications</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,709</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">33,417</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Utilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">27,731</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">49,762</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Taxes and dues</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">59,991</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">42,957</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Depreciation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">159,094</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">390,465</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Rent</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">111,042</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">169,931</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Repairs</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,612</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">22,923</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Vehicles</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,419</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,364</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Books and printing</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,345</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,936</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Supplies</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,070</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,200</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Education and training</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">24,149</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,549</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Bad debt</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,057,467</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">505,687</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Commissions</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,347,665</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,402,412</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Advertising</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">727,192</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">525,755</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Insurance</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">43,094</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">545</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Amortization</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">542,592</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">540,173</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Ordinary R&#038;D</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">204,241</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Others</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21,593</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,060</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">6,816,010</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">7,904,070</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">F-74
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">15.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Income Taxes</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(1)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Components of income tax expense(benefit) for the year ended December&nbsp;31, 2005 are as
follows;</TD>
</TR>

</TABLE>
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="88%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>

<TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Thousands of Korean won</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">

<TD nowrap align="left" style="border-bottom: 1px solid #000000"><DIV style="margin-left:120px; text-indent:-15px">Description</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Amount</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Current</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">3,280,238</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Deferred:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Change in cumulative temporary differences</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(915,068</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Change in tax credit carryforwards</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,531,899</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income tax expense(benefit)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left"><strike>W</strike></TD>
    <TD align="right">(166,729</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(2)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Reconciliations of accounting income and taxable income for the year ended December
31, 2005 are as follows;</TD>
</TR>

</TABLE>
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000">Thousands of Korean won</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Temporary differences</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Permanent differences</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Additions:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Accrued income recorded in prior year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">91,607</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Allowance for doubtful accounts</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,672,533</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Bad debt</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">37,019</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Development cost</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,407</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Investment securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,714,741</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Impairment loss on marketable securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">103,011</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Entertainment expense in excess of limit</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">37,699</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Stock compensation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">169,768</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Contribution</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">30,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Capital adjustments relating to equity
method</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">59,138</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">7,621,318</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">296,605</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Deductions:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Accrued income in current year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">96,845</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Allowance for doubtful accounts</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">150,181</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Investment securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,087,596</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Development cost</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">479,964</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Dividend income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">600,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Refund of income taxes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">116,476</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Income tax expense</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">638,361</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Change in retained earnings of valuation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">503,558</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">1,814,586</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">1,858,395</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">F-75
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(3)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Changes in temporary differences during the year ended December&nbsp;31, 2005 and deferred
tax assets as of December&nbsp;31, 2005 are as follows;</TD>
</TR>

</TABLE>
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="52%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="14" style="border-bottom: 1px solid #000000">Thousands of Korean won</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">

<TD nowrap align="left" style="border-bottom: 1px solid #000000"><DIV style="margin-left:90px; text-indent:-15px">Description</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">January 1, 2005</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Decrease</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Increase</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">December 31, 2005</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Allowance for doubtful accounts</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">150,181</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">150,181</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,672,533</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,672,533</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Bad debt</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">71,935</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">37,019</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">108,954</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Development cost</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,465,805</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">479,964</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,407</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">988,248</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Available-for-sale securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">200,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">103,011</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">303,011</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Accrued income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(91,608</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(91,608</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(96,845</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(96,845</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Investment securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(13,398,499</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(5,714,741</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,087,596</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(8,771,354</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top:1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top:1px solid  #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Sub-total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(11,602,185</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(5,176,203</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(630,529</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(5,795,453</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Deferred taxes from tax credit
carryforwards</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,562,299</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Tax effect of temporary differences:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,593,750</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Short-term deferred income taxes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">463,276</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Deferred income taxes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">3,505,273</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">The future income tax rate of 27.5% has been used in computing deferred income taxes.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">The beginning balances are based on the previous year&#146;s amendment tax return and the
difference in amount between the tax return and audited financial report of the previous year
was recorded as income tax refunds in current year.
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">16.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Income Per Share</TD>
</TR>

</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">Net income per share amounts for the years ended December&nbsp;31, 2005 and 2004 are as follows:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(1)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Basic income per share</TD>
</TR>

</TABLE>
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000">Korean won(in thousands except for income per share)</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2005</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2004</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">2,162,953</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">8,119,663</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Extraordinary gains</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Extraordinary losses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income taxes relating to extraordinary items</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Ordinary income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,162,953</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,119,663</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Weighted average number of shares outstanding</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,914,020</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,914,020</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Ordinary income per share in Korean won</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">243</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">911</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income per share in Korean won</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">243</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">911</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">F-76
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(2)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Weighted average number of shares outstanding</TD>
</TR>

</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 6%">&#060;2005&#062;
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Numbers</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Weighted number of</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">of shares</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Days</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">shares</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Beginning balance</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,914,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Treasury stock</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(480</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,914,020</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">366</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,253,617,300</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#247;366</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Weighted average number of shares</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,914,020</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 6%">&#060;2004&#062;
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Numbers</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Weighted number of</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">of shares</TD>
    <TD>&nbsp;</TD>

 <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Days</TD>

    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">shares</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Beginning balance</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,914,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Treasury stock</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(480</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,914,020</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">366</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,262,531,320</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#247;366</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Weighted average number of shares</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,914,020</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">F-77
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">17.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Value Added Information</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Details of value added information for the years ended December&nbsp;31, 2005 and 2004 are as
follows:</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>&#060;2005&#062;</TD>
</TR>

</TABLE>
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="52%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="14" style="border-bottom: 1px solid #000000">Thousands of Korean won</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Selling and</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Development cost</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">administrative</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">and its impairment</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Cost of sales</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">expense</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">loss</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Total</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Salaries</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">355,930</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">1,787,499</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">1,762,769</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">3,906,198</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Provision for retirement
and severance benefits</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">24,304</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">141,387</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">108,002</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">273,693</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Employee benefits</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">33,840</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">208,430</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">189,203</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">431,473</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Rent</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20,618</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">111,042</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">116,599</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">248,259</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Depreciation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">36,916</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">159,094</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">195,262</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">391,272</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Taxes and dues</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">59,991</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">59,991</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">471,608</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">2,467,443</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">,371,835</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">5,310,886</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&#060;2004&#062;
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="52%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="14" style="border-bottom: 1px solid #000000">Thousands of Korean won</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Selling and</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Development cost</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">administrative</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">and its impairment</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Cost of sales</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">expense</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">loss</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Total</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Salaries</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">267,287</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">2,399,194</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">1,366,085</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">4,032,566</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Provision for retirement
and severance benefits</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,456</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">184,943</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">89,179</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">284,578</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Employee benefits</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">33,037</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">281,826</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">171,236</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">486,099</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Rent</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,530</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">169,930</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">96,045</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">281,505</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Depreciation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">42,970</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">390,465</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">237,545</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">670,980</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Taxes and dues</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">42,957</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">42,957</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">369,280</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">3,469,315</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">1,960,090</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">5,798,685</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">F-78
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">18.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Employees&#146; Benefits and Contribution to Society</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The Company provides various employee benefits such as a national pension, a medical
insurance, workmen&#146;s accident compensation and a paid vacation. The Company paid <strike>W</strike>441,820
thousand for such employee benefits in 2005.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The Company contributed <strike>W</strike>30,000 thousand to the Korea Game Industry Association in 2005.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">19.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Supplementary Cash Flow Information</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Major transactions not involving the inflow or outflow of cash for the years ended December
31, 2005 and 2004 are as follows:</TD>
</TR>

</TABLE>
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Thousands of Korean won</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center" style="border-bottom: 1px solid #000000">Description</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">2005</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">2004</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Transfer of marketable securities into
intangible assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">150,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">20.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Commitments and Contingencies</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>At December&nbsp;31, 2005, two legal proceedings were pending in the courts where the Company
was the claimant against Shanghai Shanda Internet Development Co., Ltd. One legal case was
pending for arbitration in the International Chamber of Commerce in Singapore and the other case
was pending in the 1<SUP style="font-size: 85%; vertical-align: text-top">st</SUP> intermediate people&#146;s court of Beijing city in connection with
the lawsuit related to an infringement of copyright. For the first case, claim amount is USD
642,481 and it is probable that the Company win the lawsuit. However, for the second case, claim
amount is not fixed and its final outcome cannot be predicted.</TD>
</TR>

</TABLE>
</DIV>
<P align="center" style="font-size: 10pt">F-79
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV style="margin-top: 6pt"><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">


<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">21.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Interim Period Information</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Interim financial informations of the Company for the final(4<SUP style="font-size: 85%; vertical-align: text-top">th</SUP>) quarter of 2005 and
2004 are summarized as follows:</TD>
</TR>

</TABLE>
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6">Korean won(in thousands</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000">except for income per share)</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2005</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2004</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Sales</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">3,319,088</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">8,979,541</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Gross profit(loss)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,180,014</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,330,104</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Operating income(loss)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,154,896</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,730,552</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Quarterly net income(loss)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,200,312</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,745,411</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Quarterly net income(loss) per
share in Korean won</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left"><strike>W</strike></TD>
    <TD align="right">(247</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><strike>W</strike></TD>
    <TD align="right">196</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">22.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Economic Environment</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>In response to the overall unstable economic situations, the Korean government and the private
sector have been implementing structural reforms to historical business practices. The Company
may be either directly or indirectly affected by these economic situations and structural
reforms.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The accompanying financial statements reflect management&#146;s current assessment of the impact to
date of the economic situation on the financial position of the Company. Actual results may
differ materially from management&#146;s current assessment.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">23.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Reconciliation to United States Generally Accepted Accounting Principles</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The financial statements are prepared in accordance with Korean GAAP which differ in certain
respects from accounting principles generally accepted in the United
States of America     (&#147;U.S. GAAP&#148;). The significant differences between Korean GAAP and U.S. GAAP that affect the
Company&#146;s financial statements are described below.
</TD>
</TR>
<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The effects of the significant adjustments to net income and stockholders&#146; equity which would be
required if U.S. GAAP were to be applied instead of Korean GAAP are summarized as follows:</TD>
</TR>

</TABLE>
</DIV>
<P align="center" style="font-size: 10pt">F-80
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="48%">&nbsp;</TD>
    <TD width="20">&nbsp;</TD>
<TD width="14%">&nbsp;</TD>
<TD width="7%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>

    <TD nowrap align="center" style="border-bottom: 1px solid #000000">Thousands of Korean won</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">

<TD colspan="3" nowrap align="left" style="border-bottom: 1px solid #000000"><DIV style="margin-left:130px; text-indent:-15px">Description</DIV></TD>


    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Amount</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income in accordance with Korean GAAP</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,162,953</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Adjustments:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Depreciation(1)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(243,554</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Stock option(2)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">79,036</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Intangible assets(3)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2,473,467</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Revenue(4)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,380,154</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">U.S. GAAP adjustments of equity method affiliates(5)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,789,911</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">U.S. GAAP adjustments of consolidated subsidiaries(6)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">41,343</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Deferred tax effects of U.S. GAAP adjustments(7)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">345,904</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,919,327</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income as adjusted in accordance with U.S. GAAP</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,082,280</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="48%">&nbsp;</TD>
    <TD width="20">&nbsp;</TD>
<TD width="14%">&nbsp;</TD>
<TD width="7%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>

    <TD nowrap align="center" style="border-bottom: 1px solid #000000">Thousands of Korean won</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">

<TD colspan="3" nowrap align="left" style="border-bottom: 1px solid #000000"><DIV style="margin-left:130px; text-indent:-15px">Description</DIV></TD>


    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Amount</TD>
</TR>


<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Stockholders&#146; equity in accordance with Korean GAAP</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">52,356,750</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Adjustments:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Depreciation(1)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">328,619</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Stock option(2)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(90,732</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Intangible assets(3)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(6,408,233</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Revenue(4)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,601,401</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">U.S. GAAP adjustments of equity method affiliates(5)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(934,937</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">U.S. GAAP adjustments of consolidated subsidiaries(6)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(723,277</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Deferred tax effects of U.S. GAAP adjustments(7)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,137,230</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(7,292,731</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Stockholders&#146; equity as adjusted in accordance with U.S. GAAP</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">45,064,019</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV align="left">
<DIV style="font-size: 3pt; margin-top: 16pt; width: 18%; border-top: 1px solid #000000">&nbsp;</DIV>
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96"></TD>
</TR>

<TR valign="top">
    <TD nowrap align="left">(1)</TD>
    <TD>&nbsp;</TD>
    <TD>The Company makes depreciation of property and equipment using declining balance method over
their respective useful lives. To conform to Shanda&#146;s accounting policy, the Company restated
the depreciation expenses using straight-line method.</TD>
</TR>

</TABLE>


<P align="center" style="font-size: 10pt">F-81
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">



<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96"></TD>
</TR>

<TR valign="top">
    <TD nowrap align="left">(2)</TD>
    <TD>&nbsp;</TD>
    <TD>Under Korean GAAP, The Company values stock options based upon an option-pricing model
(Black-Scholes model) under the fair value method and recognizes stock compensation expense
over the period in which the options vest. Under US GAAP, the Company accounts for stock
options in accordance with APB No.&nbsp;25 in 2005, under which stock compensation expense is
recognized based on the difference, if any, between the estimated fair value of the
Company&#146;s ordinary shares and the amount an employee is required to pay to acquire the
ordinary shares, as determined on the date the option is granted. Compensation expense, if
any, is recorded in shareholders&#146; equity as additional paid-in capital with an offsetting
entry recorded as deferred share-based compensation. Deferred share-based compensation is
amortized and charged to expense based on the vesting terms of the underlying options.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(3)</TD>
    <TD>&nbsp;</TD>
    <TD>Under Korean GAAP, the Company capitalizes development costs resulting from developing
new game products in which the elements of costs satisfy the certain conditions required
and future economic benefits are clearly expected, and amortizes it over a five year period
beginning in the year the related products are first saleable or usable. Under US GAAP,
The Company&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;accounts for costs to develop its online game products in accordance
with SFAS No.&nbsp;86, &#147;Accounting for Costs of Computer Software to be Sold, Leased or
Otherwise Marketed&#148; (&#147;SFAS No.86&#148;), which requires that costs incurred for the development
of online game products prior to the establishment of technological feasibility are
expensed when incurred and are included in product development expense. Once an online game
product has reached technological feasibility, all subsequent online game product
development costs are capitalized until the product is available for marketing. Due to
inability to establish technological feasibility of the games under developed, the Company
expenses off all the game development cost as incurred and reversed related amortization
expenses under US GAAP.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(4)</TD>
    <TD>&nbsp;</TD>
    <TD>Under Korean GAAP, the Company recognizes the upfront fee as revenue for games licensed
to third parties upon receipt from its licensees when licensed agreement is entered into.
Under US GAAP, in accordance with SAB 101, upfront fee received form licensed games
are recorded as deferred revenue and evenly credited as revenue over the licensed period.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(5)</TD>
    <TD>&nbsp;</TD>
    <TD>In one of the Company&#146;s affiliates, under U.S.GAAP, the development costs as stated in (3)
above were expensed off prior to the year 2005 and the related amortization expenses under
Korean GAAP were reversed in 2005, which resulted in positive effect on net income for the
affiliate. Under U.S.GAAP, one of the Company&#146;s affiliates recorded additional bad debt expenses
for receivables prior to the year 2005 based upon its collectibility estimated by the Company.
However, such bad debt expense was recorded in 2005 under Korean GAAP. Furthermore, the amount
was reversed </TD>
</TR>

</TABLE>


<P align="center" style="font-size: 10pt">F-82
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">



<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96"></TD>
</TR>

<TR valign="top">
    <TD nowrap align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>under U.S.GAAP in 2005. Accordingly, as the Company accounts for the affiliate
using the equity method, the U.S.GAAP adjustments resulted in the adjustments of the equity
method used in the investment in the affiliate.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(6)</TD>
    <TD>&nbsp;</TD>
    <TD>The difference is mainly resulted from the additional U.S.
GAAP adjustments in certain subsidiaries of the Company. Under U.S.
GAAP, certain subsidiaries of the Company recorded additional U.S.
GAAP adjustments such as bad debt adjustment and the expensed-off
development costs as stated in (3). However, such U.S. GAAP
adjustments were not required to be recorded under Korean GAAP.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(7)</TD>
    <TD>&nbsp;</TD>
    <TD>In general, accounting for deferred income taxes is substantially the same between Korean
GAAP and U.S. GAAP. The Company is also required to recognize the additional deferred tax
effects that result from differences between the reported Korean GAAP and U.S. GAAP amounts.</TD>
</TR>

</TABLE>




<P align="center" style="font-size: 10pt">F-83
</DIV>

</BODY>
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SHANDA INTERACTIVE ENTERTAINMENT LIMITED
Table of Contents
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F
(Mark One)
o
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (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, 2005
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from
to
.
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
.
For the transition period from
to
.
Commission file number: 000-50705
SHANDA INTERACTIVE ENTERTAINMENT 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 201203, People's Republic of China
(Address of principal executive offices)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
(Title of each class)
(Name of each exchange on which registered)
None
None
Securities registered or to be registered pursuant to Section 12(g) of the Act:
American Depositary Shares, each representing 2 ordinary shares, par value
$0.01 per share
(Title of each class)
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
None
Indicate the number of outstanding shares of each of the issuer's classes of capital or common
stock as of the close of the period covered by the annual report: 141,982,766 ordinary shares, par
value $0.01 per share.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of
the Securities Act.
o
Yes
þ
No
If this report is an annual or transaction report, indicate by check mark if the registrant is not
required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
o
Yes
þ
No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
þ
Yes
o
No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,
or a non-accelerated filer.
o
Large accelerated filer
þ
Accelerated filer
o
Non-accelerated filer
Indicate by check mark which financial statement item the registrant has elected to follow:
o
Item 17
þ
Item 18
If this is an annual report, indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act).
o
Yes
þ
No
TABLE OF CONTENTS
Introduction
3
Part I.
Item 1.
Identity of Directors, Senior Management and Advisors
N/A
Item 2.
Offer Statistics and Expected Timetable
N/A
Item 3.
Key Information
5
Item 4.
Information on the Company
32
Item 5.
Operating and Financial Review and Prospects
53
Item 6.
Directors, Senior Management and Employees
80
Item 7.
Major Shareholders and Related Party Transactions
90
Item 8.
Financial Information
100
Item 9.
The Offer and Listing
102
Item 10.
Additional Information
104
Item 11
Quantitative and Qualitative Disclosures About Market Risk
111
Item 12.
Description of Securities Other Than Equity Securities
N/A
Part II.
Item 13.
Defaults, Dividend Arrearages and Delinquencies
N/A
Item 14.
Material Modifications to the Rights of Security Holders and Use of Proceeds
N/A
Item 15.
Controls and Procedures
112
Item 16A.
Audit Committee Financial Expert
114
Item 16B.
Code of Ethics
114
Item 16C.
Principal Accountant Fees and Services
115
Item 16D.
Exemptions from the Listing Standards for Audit Committees
115
Item 16E.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
115
Part III.
Item 17.
Financial Statements
N/A
Item 18.
Financial Statements
116
Item 19.
Exhibits
117
EX-4.8 ARENA SOFTWARE I LICENSE AGREEMENT
EX-4.9 ARENA SOFTWARE II LICENSE AGREEMENT
EX-4.10 XINTIANYOU SOFTWARE LICENSING AGREEMENT
EX-4.11 E-SALES SOFTWARE LICENSING AGREEMENT
EX-4.21 EXTENSION AGREEMENT DATED SEPTEMBER 22, 2005
EX-4.24 RESEARCH AND DEVELOPMENT AGREEMENT DATED OCTOBER 31, 2005
EX-4.25 ONLINE GAME DISTRIBUTION AND LICENSE AGREEMENT
EX-4.26 ONLINE GAME DISTRIBUTION AND LICENSE AGREEMENT
EX-4.27 ONLINE GAME DISTRIBUTION AND LICENSE AGREEMENT
EX-4.28 ONLINE GAME DISTRIBUTION AND LICENSE AGREEMENT
EX-4.29 ONLINE GAME DISTRIBUTION AND LICENSE AGREEMENT
EX-4.30 ONLINE GAME DISTRIBUTION AND LICENSE AGREEMENT
EX-4.31 ONLINE GAME DISTRIBUTION AND LICENSE AGREEMENT
EX-4.32 ONLINE GAME DISTRIBUTION AND LICENSE AGREEMENT
EX-4.33 ONLINE GAME DISTRIBUTION AND LICENSE AGREEMENT
EX-4.34 ONLINE GAME DISTRIBUTION AND LICENSE AGREEMENT
EX-4.44 BILLING TECHNOLOGY LICENSE AGREEMENT
EX-4.45 BILLING TECHNOLOGY LICENSE AGREEMENT
EX-4.46 BILLING TECHNOLOGY LICENSE AGREEMENT
EX-4.53 AMENDMENT II TO STRATEGIC CONSULTING SERVICE AGREEMENT
EX-4.54 AMENDMENT III TO STRATEGIC CONSULTING SERVICE AGREEMENT
EX-4.56 ENTRUSTED LOAN AGREEMENT
EX-4.57 LOAN AGREEMENT
EX-4.58 ENTRUSTED LOAN AGREEMENT
EX-4.59 LOAN AGREEMENT
EX-4.60 ENTRUSTED LOAN AGREEMENT
EX-4.61 LOAN AGREEMENT
EX-4.62 LOAN AGREEMENT
EX-4.63 ENTRUSTED LOAN AGREEMENT
EX-4.64 LOAN AGREEMENT
EX-4.65 ENTRUSTED LOAN AGREEMENT
EX-4.66 LOAN AGREEMENT
EX-4.67 COOPERATION AGREEMENT
EX-8.1 LIST OF SUBSIDIARIES
EX-12.1 CERTIFICATION OF CEO
EX-12.2 CERTIFICATION OF CFO
EX-13.1 CERTIFICATION OF CEO AND CFO
2
Table of Contents
Introduction
CONVENTIONS WHICH APPLY TO THIS FORM
Except where the context otherwise requires and for purposes of this form only:
•
"we," "us," "our company" and "our" refer to Shanda Interactive Entertainment
Limited, its predecessor entities and subsidiaries, and, in the context of describing our
operations, also include our PRC-incorporated affiliates, including Shanghai Shanda
Networking Co., Ltd., or Shanda Networking, Nanjing Shanda Networking Co., Ltd., or
Nanjing Shanda, and Hangzhou Bianfeng Networking Co., Ltd., or Hangzhou Bianfeng;
•
in certain instances, Shanda Networking, Nanjing Shanda, and Hangzhou Bianfeng are
referred to collectively as "our PRC operating companies";
•
in certain instances, Shanda Networking is referred to as "Shanghai Shanda Internet
Development Co., Ltd.", which is an alternative English translation of its Chinese name;
•
"China" or "PRC" refers to the People's Republic of China, excluding Taiwan, Hong
Kong and Macau; and
•
all references to "RMB" or "Renminbi" are to the legal currency of China and all
references to "U.S. dollars," "dollars" and "US$" are to the legal currency of the United
States.
This form contains translations of Renminbi amounts into U.S. dollars at specified rates solely for
the convenience of the reader. Unless otherwise noted, all translations from Renminbi to U.S.
dollars were made at the noon buying rate in The City of New York for cable transfers in Renminbi
per U.S. dollar as certified for customs purposes by the Federal Reserve Bank of New York, or the
noon buying rate, as of December 30, 2005 which was RMB8.0702 to US$1.00. We make no representation
that the Renminbi amounts referred to in this form could have been or could be converted into U.S.
dollars at any particular rate or at all. On June 26, 2006, the noon buying rate was RMB 7.9995 to
US$1.00.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This form contains forward-looking statements that are based on our current expectations,
assumptions, estimates and projections about us and our industry. All statements other than
statements of historical fact in this form are forward-looking statements. These forward-looking
statements can be identified by words or phrases such as "may", "will", "expect",
3
Table of Contents
"anticipate",
"estimate", "plan", "believe", "is/are likely to" or other similar expressions. The forward-looking
statements included in this form relate to, among others:
•
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;
•
expected acceptance of our new revenue model;
•
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 to launch new products, including the new EZ series products, EZ
content and services, movies and music content;
•
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;
•
our estimates of earn-out payments and other obligations relating to our
acquisitions and investments;
•
the development of other delivery platforms for online games and other
interactive entertainment content and services, including the new EZ series products,
online game consoles and mobile phones;
•
competition in the PRC online game industry;
•
the outcome of ongoing, or any future, litigation or arbitration;
•
the outcome of our annual PFIC evaluations;
•
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;
4
Table of Contents
•
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.
These forward-looking statements involve various risks and uncertainties. Although we believe
that our expectations expressed in these forward-looking statements are reasonable, we cannot
assure you that our expectations will turn out to be correct. Our actual results could be
materially different from and worse than our expectations. Important risks and factors that could
cause our actual results to be materially different from our expectations are generally set forth
in the "Risk Factors" section of Item 3 and elsewhere in this form.
The forward-looking statements made in this form relate only to events or information as of
the date on which the statements are made in this form. We undertake no obligation to update any
forward-looking statements to reflect events or circumstances after the date on which the
statements are made or to reflect the occurrence of unanticipated events.
Item 1. Identity of Directors, Senior Management and Advisors
Not Applicable
Item 2. Offer Statistics and Expected Timetable
Not Applicable
Item 3. Key Information
A. SELECTED FINANCIAL DATA
The following summary consolidated financial information has been derived from our
consolidated financial statements included elsewhere in this annual report and from consolidated
financial statements previously filed with the United States Securities and Exchange Commission, or
the SEC. The summary consolidated financial information for those
periods and as of those dates should be read in conjunction with those statements and the
accompanying notes and the discussion set forth in Item 5, "Operating and Financial Review and
Prospects".
Our consolidated financial statements are prepared and presented in accordance with generally
accepted accounting principles in the United States, or U.S. GAAP, reflect our recent
reorganization, and have been prepared as if our current corporate structure had been in existence
throughout the relevant periods.
5
Table of Contents
For the year ended December 31,
2001
2002
2003
2004
2005
RMB
RMB
RMB
RMB
RMB
US$
1
(in thousands)
Consolidated Statements of Operations and
Comprehensive Income Data
Net revenues:
Online game net revenues:
MMORPGs
3,871
326,127
580,315
994,664
1,255,341
155,552
Casual
—
—
8,313
214,513
402,968
49,933
Other revenues
681
94
11,352
89,548
238,302
29,529
Total net revenues
4,552
326,221
599,980
1,298,725
1,896,611
235,014
Cost of revenue
(1,970
)
(122,081
)
(233,701
)
(471,184
)
(614,427
)
(76,134
)
Gross profit
2,582
204,140
366,279
827,541
1,282,184
158,880
Operating expenses
(8,917
)
(41,516
)
(153,106
)
(316,579
)
(660,285
)
(81,818
)
Income (loss) operations
(6,335
)
162,624
213,173
510,962
621,899
77,062
Interest income and investment income
205
1,112
13,531
63,171
23,127
2,866
Amortization of convertible debt issuance
cost
—
—
—
(3,524
)
(18,492
)
(2,291
)
Other income (expense), net
(18
)
(1,371
)
61,152
83,656
174,903
21,672
Income (loss) before income tax benefits
(expenses), equity in loss of affiliated companies,
minority interests extraordinary gain
(6,148
)
162,365
287,856
654,265
801,437
99,309
Income tax benefits (expenses)
87
(23,077
)
(18,647
)
(38,941
)
(96,711
)
(11,984
)
Equity in loss of affiliated companies
—
—
—
(4,180
)
(544,268
)
(67,441
)
Minority interests
4,781
—
3,641
(1,661
)
4,825
597
Extraordinary gain arising from acquisition of a
company
4,516
—
—
—
—
—
Net income
3,236
139,288
272,850
609,483
165,283
20,481
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Table of Contents
For the year ended December 31,
2001
2002
2003
2004
2005
RMB
RMB
RMB
RMB
RMB
US$
1
(in thousands except for per share data)
Earnings per Share Data:
Accretion for preferred
shares
—
—
(24,963
)
—
—
—
Income attributable to preferred shareholders
—
—
(48,358
)
(82,479
)
—
—
Income attributable to ordinary shareholders
3,236
139,288
199,529
527,004
165,283
20,481
Earnings per share, basic
0.03
1.39
2.14
4.32
1.17
0.14
Earnings per share, diluted
0.03
1.39
2.07
4.05
1.13
0.14
Earnings per ADS
2
, basic
0.06
2.78
4.28
8.64
2.34
0.28
Earnings per
ADS
2
, diluted
0.06
2.78
4.14
8.10
2.26
0.28
As of December 31,
2001
2002
2003
2004
4
2005
RMB
RMB
RMB
RMB
RMB
US$
1
(in thousands)
Consolidated Balance
Sheets Data:
Cash and cash
equivalents
7,791
177,040
598,922
3,123,971
949,622
117,670
Working
capital
3
1,841
99,080
459,445
3,200,918
2,742,420
339,821
Total
assets
16,300
404,695
928,978
4,291,164
4,470,453
553,945
Total
liabilities
9,353
258,629
303,661
2,774,386
2,829,205
350,574
Minority
interests
—
—
2,716
6,879
3,389
420
Total shareholders'
equity
6,947
146,066
622,601
1,509,899
1,637,859
202,951
1
Translations of RMB amounts into U.S. dollars were made at a rate of
RMB8.0702 to US$1.00, the noon buying rate in New York City for cable transfers as
certified for customs purposes by the Federal Reserve Bank of New York on December 30,
2005.
2
Each ADS represents two ordinary shares.
3
Working capital represents total current assets less total current liabilities.
4
Certain reclassifications have been made to the consolidated financial
statements of the year ended December 31, 2004 to conform to the current year
presentation.
7
Table of Contents
EXCHANGE RATE INFORMATION
The following table sets forth information regarding the noon buying rates in Renminbi and
U.S. dollars for the periods indicated.
Renminbi per U.S. Dollar Noon Buying Rate
Average
High
Low
Period End
2001
8.2770
8.2786
8.2676
8.2766
2002
8.2770
8.2800
8.2669
8.2800
2003
8.2770
8.2800
8.2272
8.2769
2004
8.2770
8.2773
8.2765
8.2765
2005
8.1826
8.2765
8.0702
8.0702
Renminbi per U.S. Dollar Noon Buying Rate
High
Low
December 2005
8.0808
8.0702
January 2006
8.0702
8.0596
February 2006
8.0616
8.0415
March 2006
8.0505
8.0167
April 2006
8.0248
8.004
May 2006
8.03
8.0005
Source: Federal Reserve Bank of New York
On June 26, 2006, the noon buying rate was RMB7.9995 to US$1.00.
B. CAPITALIZATION AND INDEBTEDNESS
Not Applicable
C. REASONS FOR THE OFFER AND USE OF PROCEEDS
Not Applicable
D. RISK FACTORS
Risks Relating to our Business
We are substantially dependent on two online games, which accounted for approximately 63.4% of our
net revenues in 2005 and which may have a finite commercial lifespan.
We are dependent upon The Legend of Mir II, or Mir II, and The World of Legend, or Woool, for
the majority of our revenue. In 2005, Mir II and Woool accounted for approximately 35.3% and 28.1%
of our net revenues, respectively. These and other online games may, however, have finite
commercial lifespans. We believe that Mir II, which we commercially launched in the fourth quarter
of 2001, has already entered the mature stages of its lifecycle. Woool, which we commercially
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launched in the fourth quarter of 2003, may also be entering the mature stages of its lifecycle. We
believe that the revenue generated by Mir II and Woool will generally continue to decline but may
fluctuate in absolute amounts as the games continue to age and as we and our competitors release
new games on the market. Nonetheless, we expect to continue to derive a substantial portion of our
net revenues from Mir II and Woool through at least 2006. Accordingly, our business, financial
condition and results of operations would be materially and adversely affected by any occurrence
that leads to a more rapid decline in revenue generated by Mir II and Woool, including but not
limited to:
•
any reduction in purchases of in-game items or value-added services by Mir II or
Woool users or any decrease in the popularity of either game in the China market due to
intensifying competition or other factors;
•
loss of our rights to operate either of these games due to a
termination of necessary licenses or other reasons;
•
failure to make improvements, updates or enhancements to 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.
If we are unable to consistently license or develop additional successful online games, our
business, financial condition and results of operations may be materially and adversely affected.
In order to maintain our long-term profitability and operational success, we must continually
license or develop new online games that are attractive to our users to replace our existing online
games as they reach the end of their commercial lifespan, which we believe is typically four to
five years for successful online games, and two to three years for most other online games.
Our ability to license successful online games will depend on our ability to identify games
that will appeal to our users, the availability of such games at acceptable costs, our ability to
compete effectively to attract the licensors of such games, and our ability to obtain government
approvals required for the licensing and operation of such games. It is, however, difficult at the
testing phase to determine which online games will appeal to our users. In addition, many of the
games that are licensed by overseas developers were not designed specifically for China's online
game market, further complicating the task of identifying or implementing games that will appeal to
our users. Moreover, due to increased competition among online game operators in China, upfront
license fees for licensed games have increased and some licensors are demanding guaranteed minimum
royalty payments. We may be unable to fully recover upfront and minimum royalty licensing costs if
a licensed game is not popular among users. In 2006, for example, we expect to commercially launch
Dungeons and Dragons Online, an MMORPG based upon a well-known American role playing board game.
Dungeons and Dragons Online is not, however, as well-known in China as in the United States and the
online version of the game, which was designed primarily for the North American market, may not be
popular among Chinese online game players.
Our ability to internally develop successful online games will depend on our ability to
anticipate changing consumer tastes and preferences, to adopt new technologies, to attract, retain
and motivate talented online game developers and to effectively execute online game development
plans. Internal online game development requires substantial initial investment prior to commercial
launch of the games as well as a significant commitment of future resources to produce
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upgrades and
expansion packs. As with the licensing costs for third-party games, we may be unable to fully
recover development costs if the games are not popular among users.
We cannot be certain that the games we license from third parties or internally develop will
be attractive to users, will be viewed by the regulatory authorities as complying with content
restrictions, will be launched as scheduled or will be able to compete with games operated by our
competitors. If we are not able to consistently license or develop online games with continuing
appeal to users, our future profitability and growth prospects will decline.
If we are unable to maintain stable relationships with the overseas licensors of our online games,
we may experience difficulties in the continued operation of our existing licensed games, the
extension of existing licenses and the granting of licenses for new games.
We need to maintain stable working relationships with our overseas licensors in order to
ensure the continued smooth operation of our licensed online games and our continued access to new
online game licenses. In 2005, we derived approximately 55.1% of our net revenues from online games
that were licensed from third parties. We are dependent upon our licensors for the provision of
technical support necessary for the operation of the licensed games as well as expansion packs and
upgrades that help to sustain interest in a game among online users. In addition, certain marketing
activities often require the consent of our licensors. Moreover, certain of our licenses may be
terminated upon the occurrence of certain events, such as our material breach of the license. If a
licensed game is successful during its initial term of operation, we may be required to negotiate
with our licensors to extend that term of operation. Our ability to maintain stable working
relationships with our overseas licensors also influences our ability to license new online games
developed by the same or other licensors. If we are unable to maintain stable relationships with
our overseas licensors, our financial condition and results of operations may be materially and
adversely affected.
We or our licensors 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, may
materially disrupt our business. In particular, we are currently subject to copyright infringement
and unfair competition claims by Wemade and Actoz with respect to Woool, which if determined
adversely against us, could cause us to stop operating Woool.
We cannot be certain that internally developed or licensed online games and other interactive
entertainment content do not and will not infringe upon patents, copyrights, trademarks or other
intellectual property rights held by third parties. Of the twelve games that we commercially
operated as of December 31, 2005, six are internally developed and six are licensed form third parties. In connection with
our EZ initiative, we also cooperate with numerous service and content providers that supply
interactive entertainment content, such as movies, music, news and information. We or any of our
licensors may become subject to legal proceedings and claims from time to time relating to the
intellectual property of others. If we or our licensors are found to have violated the intellectual
property rights of others, we may be required to pay damages and be enjoined from using such
intellectual property, and we may incur new or additional licensing fees if we wish to continue
using the infringing content, or be forced to develop or license alternatives. In addition, we may
incur substantial expenses in defending against these third party infringement claims, regardless
of their merit.
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Table of Contents
On October 8, 2003, Wemade Entertainment Co., Ltd. ("Wemade") filed claims against us in the
Beijing First Intermediate People's Court, or the Beijing Court, with respect to our operation of
Woool. Wemade has alleged, among other things, that Woool copied Mir II and elements of the Legend
of Mir III, or Mir III, which is another online game that Wemade developed, thereby infringing
Wemade's copyrights in these games. In addition, Wemade has alleged that our operation of Woool
violates the PRC Anti-Unfair Competition Law. In particular, Wemade has alleged that the Chinese
name for Woool, which includes two characters from the Chinese name for Mir II, misleads users and
that we previously encouraged users to switch from Mir II to Woool by permitting the transfer of
game characters developed in Mir II to Woool. Wemade has requested the Beijing Court to, among
other things, order us to stop our operation of Woool, and to pay its legal fees and related costs
incurred in connection with this litigation. On May 24, 2004,
the Beijing Court informed us that
Actoz Soft Co., Ltd. ("Actoz") had been joined as a co-plaintiff in these proceedings. On October
14, 2005, the Beijing Court completed a series of hearings in connection with this matter and the
parties are now awaiting a decision from the Beijing Court.
If the Beijing court determines that we have violated the Mir II or Mir III copyrights, we may
be required to pay damages as well as the plaintiffs' legal fees and related costs, each of which
may be material. In addition, we may be required to modify portions of Woool or to completely cease
operation of Woool, which accounted for approximately 28.1% of our net revenues in 2005.
Furthermore, if the Beijing Court determines that we have violated the PRC Anti-Unfair Competition
Law, we may be required to modify the Chinese name for Woool. Any lapse in our right to operate
Woool in China, or any modifications to the game itself, as a result of this litigation, may have a
material adverse effect on our business, financial condition and results of operations.
Negative publicity in China regarding online games could lead to additional government regulations
that may have a material and adverse impact on our business, financial condition and results of
operations.
The media in China has
reported incidents of violent crimes allegedly inspired by online
games, including theft of online game virtual items among users. In addition, incidences of
excessive online game playing and allegations that online games distract students and interfere
with their education have also been reported in the media. This negative publicity regarding the
online game industry has led to several regulatory initiatives and could lead to additional
regulation in the future. For example, in July 2005, the Ministry of Culture and the Ministry of
Information Industry jointly issued an opinion which requires online game operators to develop
systems and softwares for indentity certification, to implement anti-addiction modifications to
game rules and to restrict players under eighteen years of age from playing certain games. In August
2005, for example, the State Administration of Press and Publications, or SAPP, proposed an online
game anti-addiction system that would have reduced and eliminated experience points that a user can
accumulate after three and five hours of consecutive playing, respectively. In March 2006, SAPP
amended its proposal to require players to register with their real names and identity card numbers
and to apply the anti-addiction system only to players under eighteen years of age. Although the
proposal has not yet been formally adopted and compliance is not yet compulsory for online game
operators, these and other regulations may be implemented in response to negative publicity and
such regulations could have a material and adverse impact on our business, financial condition and
results of operations.
We face significant competition which could reduce our market share and adversely affect our
business, financial condition and results of operations.
The online game market in China is increasingly competitive. Our results of operations to date
may be a result, in part, of a first-mover advantage which may not continue to be available to us.
A significant number of competitors have
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entered the online game business in China. We expect more
companies to enter the market and we expect a wider range of online games to be introduced to the
China market. Competition from other online game operators, both based in China as well as
overseas, is likely to increase in the future. Other online game operators or developers, such as China-based Netease and
The9, as well as overseas-based Electronic Arts and NCsoft, are current, or potential future,
competitors. As the online game industry in China is relatively new and constantly evolving, our
current or future competitors may compete more successfully as the industry matures. In particular,
any of these competitors may offer products and services that provide significant performance,
price, creativity or other advantages over those offered by us. These products and services may
weaken the market strength of our brand name and achieve greater market acceptance than ours.
Furthermore, any of our current or future competitors may be acquired by, receive investments from
or enter into other commercial relationships with, larger, well-established and well-financed
companies and therefore obtain significantly greater financial, marketing and game licensing and
development resources than we have. In addition, increased competition in the online game industry
in China could make it difficult for us to retain existing users and attract new users. Moreover,
game consoles that have achieved
significant successes in markets other than China have not yet formally entered the market in
China due to regulatory and other concerns. If these game consoles, many of which are strengthening
their online game features, formally enter the market in China, we would face additional
competition. We also compete with other forms of entertainment, such as television and movies. If
we are unable to compete effectively in China's online game market as well as China's entertainment
market, our business, financial condition and results of operations could be materially and
adversely affected.
We may not be able to successfully implement our growth strategies, including our EZ initiative,
which may materially and adversely affect our business, financial condition and results of
operations.
In 2005, as part of our transition from a pure online game operator to an interactive
entertainment media company, we introduced the EZ initiative as an integral part of our home
strategy. The EZ initiative involves broadening our interactive entertainment services and content
offerings as well as introducing new media platforms over which to deliver our expanded service and
content offerings to end users. Our EZ initiative includes introducing new products and services
for which there are no established markets. Our ability to successfully implement our EZ initiative
will depend upon our success in educating consumers on the value of these new products and
services. Many consumers in China may, nonetheless, regard some of the new products as too
expensive. In addition, we lack experience and expertise with respect to some of the EZ series
products and services. For example, we do not have experience or expertise in distribution,
marketing, inventory management or warranty support for consumer electronic products. Although in
executing the EZ initiative we will cooperate with consumer electronics manufactures that do have
such experience and expertise, our lack of such knowledge internally may prove to be a material
disadvantage. We cannot assure you that we will be able to deliver the new EZ series products and
services on a commercially viable basis or in a timely manner, or at all. Moreover, execution of
the EZ initiative requires a significant amount of managerial time and energy. Pursuit of the EZ
initiative, and other growth strategies, may divert senior management's focus away from our core
online game business to the detriment of such business. If we are unable to successfully implement
our growth strategies, our revenue and profitability will not grow as we expect, which may have a
material and adverse effect on our business, financial condition and results of operations.
The recent change to the revenue model for our leading MMORPGs may reduce the amount of revenue
that otherwise would have been generated by these games, thereby negatively affecting our financial
condition and results of operations.
In late November 2005, we replaced the pay-to-play revenue model with a free-to-play and
pay-for in-game value-added services revenue model for three of our leading MMORPGs: Mir II, Woool
and Magical Land. Going forward,
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we will consider adopting this new revenue model for our other
existing MMORPGs, depending on the game type and lifecycle. We have also adopted this revenue
model for our casual games. Under the new model, end users are able to play the basic functions of
these MMORPGs for free and may choose to purchase in-game value-added services, including certain
in-game items and premium features, which enhance the game
experience. Unaudited revenue generated by these
three MMORPGs declined from RMB 320.2 million in the third quarter of 2005, to RMB 220.9 million in
the fourth quarter of 2005, to RMB 216.8 million in the first
quarter of 2006. Unaudited deferred revenues,
which represents cash received from the purchase of pre-paid cards that have not yet been used to
play our games or purchase in-game items and value-added services, declined from RMB 267.2 million
in the third quarter of 2005, to RMB 172.5 million in the fourth quarter of 2005 and increased to
RMB 206.0 million in the first quarter of 2006. Although we believe that adopting this new revenue
model will benefit our company in the long run, we cannot assure that the new revenue model will be
successful, or that it will not have a negative impact on our financial condition and results of
operations. Any material reduction in revenue would have a material and adverse affect on our
financial condition and results of operations.
There are risks associated with our pursuit of growth through acquisitions and strategic
investments.
In recent years we have pursued, and in the future we may continue to pursue, growth through
acquisitions and strategic investments. We acquired or invested in eight businesses in 2004 and
2005 with a total value of US$421.0 million. In May 2005, we completed the second step of a
two-step acquisition of Shanghai Haofang Online Information
Technology Co., Ltd., or Haofang, at a
total purchase price of US$56.0 million. In February 2005, we completed our purchase of an
approximately 19.5% stake in Sina Corp, or Sina, at a total purchase
price of US$227.6 million. In
February 2005, we also completed the purchase of a 29% stake in Actoz, increasing our total stake to
approximately 38.1%, at a total purchase price at US$106.1 million. In July 2004, we acquired
Hangzhou Bianfeng Software Co., Ltd., or Bianfeng, at a total purchase price of US$20.0 million.
For more information on our acquisitions, see "Recent Acqusitions" in Item 5 "Operating and
Financial Review and Prospects" and " History and Development of the Company " in Item 4
"Information on the Company". These acquired or invested companies operate businesses that
complement our core online game business or represent related but new lines of business. We may,
however, fail to realize the synergies contemplated at the time of executing these transactions,
which could negatively impact our financial condition and results of operations. For example, we
completed the purchase of our controlling stake in Actoz, the co-owner of Mir II, in February 2005,
for a total consideration of RMB878.0 million (US$106.1 million), which represented an 81% premium
over the open market price at the time that we entered into the purchase agreement in October 2004.
In the fourth quarter of 2005, however, we recorded a non-cash impairment charge of RMB521.5
million (US$64.6 million) to reflect the fair value of our 38.1% stake in Actoz. We recognized the
impairment charge primarily as a result of the continued decline in royalties payable to Actoz from
our operation of Mir II in China. The decision to recognize impairment was also influenced by the
decline in market price for shares of Actoz, which in the fourth quarter of 2005 was determined to be other
than temporary, mainly due to the continued decline in Mir II royalties. Additional risks
associated with acquisitions and strategic investments include the following:
•
It may be difficult to assimilate the operations and personnel of an acquired
business into our own business;
•
Management information and accounting systems of an acquired business must be
integrated into our current systems;
•
Our management must devote its attention to assimilating the acquired business,
which diverts attention from other business concerns; and
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•
We may be unable to complete transactions that we initiate.
We cannot assure you that we will have the ability to effectively integrate the operation of
the acquired companies into our own and achieve the synergies contemplated at the time of entering
into these transactions. If we are unable to achieve the synergies contemplated at the time of
acquiring these businesses, the carrying value of the acquired companies may not be recoverable. We
are required by U.S. GAAP to review the impairment at least on an annual basis. If an impairment is
determined and charged to the earnings in our financial statements, our financial condition and
results of operations may be materially and adversely affected.
There have been historical deficiencies with our internal controls, including material weaknesses,
and our internal controls require significant improvement. If we fail to maintain an effective
system of internal controls, we may be unable to accurately report our financial results or prevent
fraud or restatement of previously reported financial results, and investor confidence and the
market price of our ADSs may be adversely impacted.
In the course of their audit of our 2005 operating results, our auditors identified a number
of control deficiencies. The substantial majority of these control deficiencies constituted
material weaknesses and significant deficiencies in the design or operation of our internal
controls that, in our management and independent auditors' judgment, could adversely affect our
ability to record, process, summarize and report financial data consistent with the assertions of
management in the financial statements. For a description of these deficiencies and material
weaknesses, see Item 15 "Controls and Procedures".
We must continue to improve our internal controls. If we fail to timely implement solutions to
these control deficiencies and other weaknesses in our internal controls or fail to maintain an
effective system of internal controls in the future, we may be unable to accurately report our
financial results or prevent fraud or prevent potential restatements of or adjustments to
previously reported or announced operating results and investor confidence and the market price of
our ADSs may be adversely impacted.
In addition, at the end of 2006, we will become subject to Section 404 of the Sarbanes-Oxley
Act of 2002 with respect to the evaluation of the effectiveness of our internal control over
financial reporting. We cannot be certain as to the timing of completion of our evaluation, testing
and any remedial actions with respect to our internal control over financial reporting or the
impact of the same on our operations. If we fail to implement the requirements of Section 404 in a
timely manner or with adequate compliance, our independent auditors may be unable to provide a
written attestation as to the effectiveness of our internal controls over financial reporting and
we may be subject to sanctions or investigation by regulatory authorities, such as the Securities
and Exchange Commission. As a result, there could be a negative reaction in the financial markets
due to a loss of confidence in the reliability of our financial statements. In addition, we may be
required to incur significant costs in improving our internal control system and the hiring of
additional personnel. Any such action could increase our costs relative to our revenues, thereby
reducing our operating margins and could negatively affect the market price of our ADSs.
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Operation of pirate game servers and the expenses incurred in protecting our intellectual property
rights, may adversely affect our business.
We continue to face challenges from pirate game servers, which are game servers that operate
unauthorized copies of our online games and permit users to play those games without purchasing
pre-paid game cards from us. We have detected the operation by pirate servers of unauthorized
copies of various of our leading games. In September 2002, for example, we discovered that the
server-end software of Mir II was unlawfully released into the China market. This software leak
enabled unauthorized third parties to set up local server networks to operate Mir II, which we
believe continue to divert a significant number of users of one of our most popular online games
away from us. Although we have made efforts to shutdown pirate servers across China, the
intellectual property enforcement regime in China is not as robust as that of the United States,
and we continue to face considerable challenges when attempting to enforce our intellectual
property rights. Enforcement actions generally require cooperation from local authorities, which
are not always willing to use their limited resources to enforce the intellectual property rights
of national corporations against individuals or companies in their districts. In addition, detailed
comparisons of software codes and litigation proceedings are often necessary to enforce our
intellectual property rights, which sometimes result in substantial costs. Despite our efforts to
shutdown pirate servers, we believe that a
significant number of pirate game servers continue to operate unauthorized copies of our
online games. The continued operation of our leading games by pirate game servers, or the operation
of any new games that we may introduce by pirate servers, may materially and adversely affect our
business, financial condition and results of operations.
Undetected programming errors or defects in our games and the proliferation of cheating programs
could materially and adversely affect our business, financial condition and results of operations.
Our games may contain undetected programming errors or other defects. In addition, parties
unrelated to us may develop Internet cheating programs that enable our users to acquire superior
features for their game characters that they would not have otherwise. Furthermore, certain
cheating programs could cause the loss of a character's superior features acquired by a user. The
occurrence of undetected errors or defects in our games, and our failure to discover and disable
cheating programs affecting the fairness of our game environment, could disrupt our operations,
damage our reputation and detract from the game experience of our users. As a result, such errors,
defects and cheating programs could materially and adversely affect our business, financial
condition and results of operations.
Unexpected network interruptions, security breaches or computer virus attacks could have a material
adverse effect on our business, financial condition and results of operations.
Any failure to maintain the satisfactory performance, reliability, security and availability
of our network infrastructure may cause significant harm to our reputation and our ability to
attract and maintain users. We maintain a distributed server network architecture with third party
service providers hosting servers in more than one hundred cities throughout China. Most of the
servers handling log in, and all servers handling billing and data backup matters for us, are
hosted and maintained by third party service providers in Shanghai. We do not maintain full backup
for our server network hardware. Major risks involved in such network infrastructure include:
•
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
users outside Shanghai from logging on to any of our games or other content, or playing
the games, for which the servers are all located in Shanghai.
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In the past, our server network has experienced unexpected outages for several hours and
occasional slower performance in a number of locations in China as a result of failures by third
party service providers. Our network systems are also vulnerable to damage from fire, flood, power
loss, telecommunications failures, computer virus, hackings and similar events. Any network
interruption or inadequacy that causes interruptions in the availability of our games or
deterioration in the quality of access to our games could reduce our users' satisfaction. In
addition, any security breach caused by hacking, which involve efforts to gain unauthorized access
to information or systems, or to cause intentional malfunctions or loss or corruption of data,
software, hardware or other computer equipment, and the inadvertent transmission of computer
viruses could have a material adverse effect on our business, financial condition and results of
operations. We do not maintain insurance policies covering losses relating to our systems and we do
not have business interruption insurance.
Any failure to maintain a stable and efficient distribution and payment network could have a
material and adverse impact on our business, financial condition and results of operations.
Online payment systems in China are in a developmental stage and are not as widely available
or acceptable to consumers in China as in the United States. As a result, we rely heavily on a
multi-layer distribution and payment network composed of third party distributors for our sales to,
and collection of payment from, our users. As we do not enter into long-term agreements with any of
our distributors, we cannot assure you that we will continue to maintain favorable relationships
with them. If we fail to maintain a stable and efficient distribution and payment network, our
business, financial condition and results of operations could be materially and adversely affected.
The limited use of personal computers in China and the relatively high cost of Internet access with
respect to per capita gross domestic product may limit the development of the Internet in China and
impede our growth.
Although the use of personal computers in China has increased in recent years, the penetration
rate for personal computers in China is much lower than in the United States. In addition, despite
a decrease in the cost of Internet access in China due to a decrease in the cost of personal
computers and the introduction and expansion of broadband access, the cost of personal Internet
access, in contrast with Internet access through Internet cafes, remains relatively high in
comparison to the average per capita income in China. The limited use of personal computers in
China and the relatively high cost of personal Internet access may limit the growth of our
business. Furthermore, any Internet access or telecommunications fee increase could reduce the
number of users that play our online games.
Our business could suffer if we do not successfully manage our growth.
Our recent growth has placed significant strain on our management, operational, financial and
other resources. For example, the total number of our employees increased from 562 as of December
31, 2003 to 1429 as of December 31, 2004, and to 2392 as of December 31, 2005. In addition, certain
of our directors, officers and key employees that have recently joined our company will need time
to learn our business and successfully integrate themselves into our company. In addition, as a
result of our growth we need to continue to develop and expand our financial and management
controls and our reporting systems and procedures. We cannot assure you that we will be able to
efficiently or effectively manage the growth of our operations, and any failure to do so may limit
our future growth and materially and adversely affect our business, financial condition and results
of operations.
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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.
Our future success is heavily dependent upon the continued service of our key executives and
other key employees. In particular, we rely on the expertise, experience and leadership ability of
Tianqiao Chen, our founder, controlling shareholder and chief executive officer, in our business
operations, and rely on his personal relationships with our employees, the relevant regulatory
authorities, our game and service suppliers and Shanda Networking. We also rely on a number of key
technology officers and staff for the development and operation of our online games. In addition,
as we expect to focus increasingly on the development of our own online games, we will need to
continue attracting and retaining skilled and experienced online game developers to maintain our
competitiveness.
If one or more of our key personnel are unable or unwilling to continue in their present
positions, we may not be able to easily replace them and may incur additional expenses to recruit
and train new personnel, our business could be severely disrupted, and our financial condition and
results of operations could be materially and adversely affected. Furthermore, since our industry
is characterized by high demand and intense competition for talent, we may need to offer higher
compensation and other benefits in order to attract and retain key personnel in the future. We
cannot assure you that we will be able to attract or retain the key personnel that we will need to
achieve our business objectives. Furthermore, we do not maintain key-man life insurance for any of
our key personnel.
The discontinuation 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.
Certain of our PRC companies, including Shengqu, Shanda Networking, Hangzhou Bianfeng and
Nanjing Shanda, enjoy preferential tax treatments, in the form of reduced tax rates or tax
holidays, provided by the PRC government or its local agencies or bureaus. These four subsidiaries,
Shengqu, Shanda Networking, Hangzhou Bianfeng and Nanjing Shanda benefit from a 15% preferential
income tax rate. In addition, Shengqu was granted an income tax
exemption for 2003 and 2004, followed by a three year tax holiday
during which it is subject to a 7.5% preferential income
tax rate; Hangzhou Bianfeng was granted an income tax exemption in the second quarter of 2006 for
2005; and Nanjing Shanda was granted an income tax exemption in the third quarter of 2005 for 2005
and 2006. After receiving approval for tax exemption treatment, income tax already paid in 2005 by
Hangzhou Bianfeng and Nanjing Shanda prior to receipt of approval has been refunded in
the second quarter of 2006 and in the third quarter of 2005, respectively. As a result of these
preferential tax treatments, our effective income tax rate for 2005 was 12.1%. Nanjing Shanda must
continue to meet a number of financial and non-financial criteria to qualify as a new high
technology company for its current and future tax holidays.
In
2004 and 2005 we also received aggregate government financial
incentives of RMB88.1 million and RMB137.3 million
(US$17.0 million), respectively, which were calculated with reference to taxable revenue and taxable income. For
Shengqu and Shanda Networking, these incentives have a term of 3 years with respect to incentives
granted with reference to taxable revenue on which we pay business tax and 8 years for incentives
granted with reference to taxable income on which we pay income tax. Eligibility for the government
financial incentives we receive requires that we continue to meet a number of financial and
non-financial criteria and our continued qualification is further subject to the
discretion of the municipal government. Moreover, the central government or municipal government
could determine at any time to immediately eliminate or reduce these government financial
incentives, generally with prospective effect. If we had not received these government financial
incentives in 2004, our income before income tax expenses, equity in
loss of affiliated companies, and minority interests would have been
RMB566.2 million, a decrease of 13.5% from the
reported amount. If
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we had not
received these government financial incentives in 2005, our income
before income tax expenses, equity in loss of affiliated companies,
and minority interests would have been RMB664.1 million
(US$82.3 million), a decrease of 17.1% from the reported
amount. As the receipt of these government financial incentives are subject to periodic time lags
and inconsistent municipal government practice on payment times, for so long as we continue to
receive these government financial incentives, our net income in a particular quarter may be higher
or lower relative to other quarters based on the potentially uneven receipt by us of these
government financial incentives in addition to any business or operating related factors we may
otherwise experience.
We cannot assure you that we will continue to enjoy these preferential tax treatments or
government financial incentives in the future. The discontinuation of these preferential tax
treatments or government financial incentives could materially and adversely affect our business,
financial condition and results of operations. Please see Item 5 for a discussion of the duration
of these preferential tax treatments or government financial incentives.
The PRC government is now reviewing China's tax policies and it is possible that in the near
future, the different income tax rates imposed on enterprises of different ownership natures (i.e.
state owned, collectively owned, privately owned and foreign-invested) may be unified, which reform
may result in higher income tax rates applicable to our PRC companies and therefore could
materially and adversely affect our business, financial condition and results of operations.
We may become a passive foreign-investment company, or PFIC, which could result in adverse U.S. tax
consequences to U.S. investors.
Depending upon the value of our ordinary shares and ADSs and the nature of our assets and
income over time, we could be classified as a passive foreign-investment company, or PFIC, by the
United States Internal Revenue Service, or IRS, for U.S. federal income tax purposes. If we are
classified as a PFIC in any taxable year in which you hold our ADSs and you are a U.S. investor,
you would generally be taxed at higher ordinary income, rather than lower capital gain rates, if
you dispose of ADSs at a gain in a later year, even if we are not a PFIC in that year. In addition,
a portion of the tax imposed on your gain would be increased by an interest charge. Moreover, if we
were classified as a PFIC in any taxable year, you would not be able to benefit from any
preferential tax rate with respect to any dividend distribution that you may receive from us in
that year or in the following year. Finally, you would also be subject to special U.S. tax
reporting requirements.
We believe that we were not a PFIC for the taxable year 2005. Although in the past we have
operated our business, and in the future we intend to operate our business, so as to minimize the
risk of being classified as a PFIC, there can be no assurance that we will not be a PFIC for the
taxable year 2006 and/or later taxable years, as PFIC status is re-tested each year and depends on
our assets and income in such year. For example, we would be a PFIC for the taxable year 2006 if
the sum of our average market capitalization, which is our share price multiplied by the total
amount of our outstanding shares, and our liabilities over that taxable year is not more than twice
the value of our cash, cash equivalents, and other assets that are readily converted into cash. We
could also be a PFIC for any taxable year if the gross income that we and our subsidiaries earn
from investing the portion of the cash raised in our initial public offering and debt offerings
that exceed the immediate capital needs of our active online business is substantial in comparison
with the gross income from our business operations.
We cannot assure you that we will not be a PFIC for 2006 or any future taxable year. For more
information on the U.S. tax consequences to you that would result from our classification as a
PFIC, please, see the subsection "Taxation" included in Item 10 "Additional Information".
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We may be required to take significant actions that are contrary to our business objectives to
avoid being deemed an investment company as defined under the Investment Company Act.
Generally, the Investment Company Act provides that a company is not an investment company and
is not required to register under the Investment Company Act as an investment company if:
•
the company is primarily engaged, directly or through a wholly-owned subsidiary or
subsidiaries, in a business or businesses other than those of investing, reinvesting,
owning, holding or trading in securities; and
•
40% or less of the fair market value of the company's assets is represented by
investment securities.
We believe that we are engaged primarily in the businesses of, among other things, developing
and operating online games. In addition, less than 40% of the fair market value of our assets is
represented by investment securities. As a result, we believe, that we are not an investment
company as that term is defined under the Investment Company Act. We may, however, be required to
take significant actions that are contrary to our business objectives to avoid being deemed an
investment company in the future. We may, for example, need to hold a significant portion of our
assets and invest portions of our cash flows in low-yielding investments or we may need to acquire
additional income or loss generating assets that we might not otherwise have acquired. In addition,
we may need to sell all or a portion of our minority investments in Actoz or Sina, or forego
opportunities to acquire minority interests in other companies that could be important to our
strategy.
The Investment Company Act also contains substantive regulations with respect to investment
companies including restrictions on their capital structure, operations, transactions with
affiliates and other matters which would be incompatible with our operations. If we were to be
deemed an investment company in the future, we would, among other things, effectively be precluded
from making public offerings in the United States. We could also be subject to other adverse
consequences.
Changes to existing accounting pronouncements, including SFAS 123R, or practices may adversely
affect our reported results of operations or how we conduct our business.
A change in accounting pronouncements or practices can have a significant effect on our
reported results and may even affect our reporting of transactions completed before the change is
effective. Pursuant to SEC rules, we are required to implement the Statement of Financial
Accounting Standards No. 123 (revised 2004), "Accounting
for Share Based Compensation" ("SFAS 123R") starting in the
first quarter of 2006. SFAS 123R requires us to measure compensation costs for all share-based
compensation at fair value and take compensation charges equal to that value. The requirement to
measure compensation costs for all share-based compensation under SFAS 123R could negatively affect
our profitability and the trading price of our ADSs. SFAS 123R and the impact of
expensing on our reported results could also limit our ability to continue to use stock options as
an incentive and retention tool, which could, in turn, hurt our ability to recruit employees and
retain existing employees. Other new accounting pronouncements and varying interpretations of
accounting pronouncements have occurred and may occur in the future. This change to existing rules,
future changes, if any, or the questioning of current practices may adversely affect our reported
financial results or the way we conduct our business.
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We have limited business insurance coverage in China.
The insurance industry in China is still at an early stage of development. In particular, PRC
insurance companies do not offer extensive business insurance products. As a result, we do not have
any business liability or disruption insurance coverage for our operations in China. Any business
disruption, litigation or natural disaster might result in our incurring substantial costs and the
diversion of resources.
Risks Relating to Regulation of the Internet and to Our Structure
If the PRC government finds that the agreements that establish the structure for operating our
China business do not comply with PRC government restrictions on foreign investment in the online
game industry, we could be subject to severe penalties.
PRC regulations currently limit foreign ownership of companies that provide Internet content
services, which includes operating online games, to 50%. In addition, foreign and foreign-invested
enterprises are currently not able to apply for the licenses required to operate online games in
China or to provide Internet information content, such as online advertising. We are a Cayman
Islands exempted company and we conduct our operations in China primarily through Shengqu, our
indirectly wholly owned subsidiary. We and Shengqu are foreign or foreign-invested enterprises
under PRC law and accordingly are ineligible to apply for a license to operate online games or to
sell online advertising. In order to comply with foreign ownership restrictions, we operate our
online game business in China through Shanda Networking, which is wholly owned by Tianqiao Chen,
our chairman and chief executive officer, and Danian Chen, our executive senior vice president,
both of whom are PRC citizens, and through Nanjing Shanda and Hangzhou Bianfeng, which are
subsidiaries of Shanda Networking. Shanda Networking, Nanjing Shanda, Hangzhou Bianfeng, or our PRC
operating companies, and other subsidiaries of Shanda Networking hold the licenses and approvals
that are required to operate our online game business and to sell online advertising on our web
pages and Shengqu owns the substantial majority of physical assets. Shengqu has entered into a
series of contractual arrangements with Shanda Networking and its shareholders. As a result of
these contractual arrangements, we are considered the primary beneficiary of Shanda Networking and
accordingly we consolidate the results of operations of Shanda Networking and its subsidiaries in
our financial statements. For a description of these contractual arrangements, see "Organizational
Structure" in Item 4, "Information on the Company" and Item 7 "Major Shareholders and Related Party
Transactions".
We believe that (1) the ownership structures of our company, Shengqu, and our PRC operating
companies are in compliance with existing PRC laws and regulations; (2) our contractual
arrangements with Shanda Networking and its shareholders are valid, binding and enforceable, and
will not result in any violation of PRC laws or regulations currently in effect; and (3) the
business operations of our company, Shengqu, and our PRC operating companies, as described in this
annual report, are in compliance with existing PRC laws and regulations in all material aspects.
There are, however, substantial uncertainties regarding the interpretation and application of
current or future PRC laws and regulations. Accordingly, we cannot assure you that the PRC
regulatory authorities will not ultimately take a view that is contrary to our view. If we,
Shengqu, or any of our PRC operating companies are found to be in violation of any existing or
future PRC laws or regulations, the relevant regulatory authorities would have broad discretion in
dealing with such violations, including:
•
revoking Shengqu's or any of our PRC operating companies' business and operating licenses;
•
discontinuing or restricting our, Shengqu's or our PRC operating companies' operations;
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•
imposing conditions or requirements with which we, Shengqu or our PRC operating
companies may not be able to comply;
•
requiring us, Shengqu or our PRC operating companies to restructure the relevant
ownership structure or operations; or
•
taking other regulatory or enforcement actions, including levying fines, that could
be harmful to our business.
Any of these actions could cause our business, financial condition and results of operations
to suffer and the price of our ADSs to decline.
The contractual arrangements related to critical aspects of our operations with Shanda Networking
and its shareholders, Tianqiao Chen and Danian Chen, may not be as effective in providing
operational control as direct ownership.
We rely on contractual arrangements with Shanda Networking and its shareholders, Tianqiao Chen
and Danian Chen, to operate our business. These contractual arrangements may not be as effective as
direct ownership in providing us control over PRC operating companies. Direct ownership would allow
us, for example, to directly exercise our rights as a shareholder to effect changes in the board of
Shanda Networking, which, in turn, could effect changes, subject to any applicable fiduciary
obligations, at the management level. However, under the current contractual arrangements, as a
legal matter, if Shanda Networking or Tianqiao Chen or Danian Chen fails to perform its, his or her
respective obligations under these contractual arrangements, we may have to incur substantial costs
and expend significant resources to enforce those arrangements and rely on legal remedies under
PRC law. These remedies may include seeking specific performance or injunctive relief, and claiming
damages, any of which may not be effective.
All of these contractual arrangements are governed by PRC laws and provide for the resolution
of disputes through either arbitration or litigation in the PRC. Accordingly, these contracts would
be interpreted in accordance with PRC laws and any disputes would be
resolved in accordance with
PRC legal procedures. The legal environment in the PRC is not as developed as in other
jurisdictions, such as the United States. As a result, uncertainties in the PRC legal system could
limit our ability to enforce these contractual arrangements. In the event we are unable to enforce
these contractual arrangements, we may be unable to exert effective control over our PRC operating
companies, and our ability to conduct our business may be negatively affected.
The entire share capital of Shanda Networking is held by our controlling shareholders, who may
cause the agreements between our company and Shanda Networking to be amended in a manner that is
adverse to us.
We conduct substantially all of our operations, and generate substantially all of our
revenues, through our PRC operating companies. Our control over these entities is based upon
contractual arrangements with Shanda Networking and its shareholders that provide us with the
substantial ability to control Shanda Networking. The two shareholders of Shanda Networking,
Tianqiao Chen and Danian Chen, are also our controlling shareholders. As a result, Tianqiao Chen
and Danian Chen may be able to cause these agreements to be amended in a manner that will be
adverse to our company, or may be able to prevent these agreements from being renewed, even if
their renewal would be beneficial for us. Although we have entered into an agreement that prevents
the amendment of these agreements without the approval of our audit committee, which is comprised
of independent directors, we can provide no assurances that these agreements will not be amended in
the future to contain terms that may be adverse to our interests.
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Our arrangements with our PRC operating companies may be subject to scrutiny by the PRC tax
authorities for transfer pricing adjustments.
We also could face material and adverse tax consequences if the PRC tax authorities determine
that our contracts with our PRC operating companies were not entered into based on arm's length
negotiations. Although we based our contractual arrangements on those of similar businesses, if the
PRC tax authorities determine that these contracts were not
entered into on an arm's length basis, they may adjust our income and expenses for PRC tax
purposes in the form of a transfer pricing adjustment. A transfer pricing adjustment could result
in a reduction, for PRC tax purposes, of deductions recorded by our PRC operating companies, which
could adversely affect us by:
•
increasing our PRC operating companies' tax liability without reducing Shengqu's
tax liability, which could further result in late payment fees and other penalties to our
PRC operating companies for under-paid taxes; or
•
limiting Shengqu's ability to maintain preferential tax treatments and government
financial incentives, which if the transfer pricing adjustment is significant, could
result in Shengqu failing to qualify for those preferential tax treatments and government
financial incentives.
As a result, any transfer pricing adjustment could have a material and adverse impact
upon our financial condition.
Our corporate structure may restrict our ability to receive dividends from, and transfer funds to,
our PRC subsidiary and our PRC operating companies, which could restrict our ability to act in
response to changing market conditions and reallocate funds from one Chinese affiliated entity to
another in a timely manner.
We are a Cayman Islands holding company and substantially all of our operations are conducted
through our subsidiary, Shengqu, and our PRC operating companies. We rely principally on dividends
and other distributions on equity paid by Shengqu for our cash requirements, including the funds
necessary to allow us to pay dividends on the shares underlying our ADSs and the funds necessary to
service any debt we may incur, or financing we may need for operations other than through Shengqu.
If Shengqu incurs debt on its own behalf in the future, the instruments governing the debt may
restrict Shengqu's ability to pay dividends or make other distributions to the intermediate holding
company and thus to us. We generate substantially all of our revenues through contractual
arrangements with our PRC operating companies. However, PRC governmental authorities may require us
to amend these contractual arrangements in a manner that would materially and adversely affect
Shengqu's ability to pay dividends and other distributions to us. Furthermore, PRC legal
restrictions permit payments of dividends by Shengqu only out of its retained earnings, if any,
determined in accordance with PRC accounting standards and regulations. Under PRC law, Shengqu is
also required to set aside a portion of its net income each year to fund certain reserve funds.
These reserves are not distributable as cash dividends. As a result of these and other restrictions
under PRC laws and regulations, our PRC subsidiary and our affiliated PRC entities are restricted
in their ability to transfer a portion of their net assets to us in the form of dividends, loans or
advances, which restricted portion amounted to approximately RMB1,081.6 million (US$134.0 million),
or 66.0%, of our total consolidated net assets as of December 31, 2005. Any limitation on the
ability of our PRC subsidiary and our affiliated PRC entities to transfer funds to
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us in the form
of dividends, loans or advances could materially and adversely limit our ability to grow, make
investments or acquisitions that could be beneficial to our businesses, pay debt or dividends, and
otherwise fund and conduct our business.
In addition, any transfer of funds from us to our PRC subsidiary, either as a shareholder loan
or as an increase in registered capital, is subject to registration or approval of Chinese
governmental authorities, including the relevant administration of foreign exchange and/or the
relevant examining and approval authority. It is not permitted under PRC law for our PRC subsidiary
and our PRC operating companies to directly lend money to each other. Therefore, it is difficult to
change our capital expenditure plans once the relevant funds have been remitted from our company to
our PRC subsidiary and PRC operating companies. These limitations on the free flow of funds
between us and our PRC entities could restrict our ability to act in response to changing market
conditions and reallocate funds from one Chinese entity to another in a timely manner.
Recent PRC regulations relating to offshore investment activities by PRC residents may increase the
administrative burden we face and create regulatory uncertainties that could restrict our overseas
and cross border investment activity, and a failure by our shareholders who are PRC residents to
make any required applications and filings pursuant to such regulations may prevent us from being
able to distribute profits and could expose us and our PRC resident shareholders to liability under
PRC law.
Regulations were recently promulgated by the State Administration of Foreign Exchange, or
SAFE, that require registration with local SAFE offices in connection with direct or indirect offshore
investment by PRC residents, including PRC individual residents and PRC corporate entities. These
regulations apply to our shareholders who are PRC residents and also apply to our prior and future
offshore acquisitions. In particular, the SAFE regulations require PRC Residents to file with
competent SAFE offices information about offshore companies in which they have directly or
indirectly invested and to make follow-up filings in connection with certain material transactions
involving such offshore companies, such as increases or decreases in investment amount, transfers
or exchanges of shares, mergers or divisions, long-term equity or debt investments, or external
guarantees, or other material events that do not involve return investment.
The SAFE regulations retroactively require registration by March 31, 2006 of direct or
indirect investments previously made by PRC residents in offshore companies. If a PRC resident
with a direct or indirect stake in an offshore parent company fails to make the required SAFE
registration, the PRC subsidiaries of such offshore parent company may be prohibited from making
distributions of profit to the offshore parent and from paying the offshore parent proceeds from
any reduction in capital, share transfer or liquidation in respect of the PRC subsidiaries.
Further, failure to comply with various SAFE registration requirements described above could result
in liability under PRC law for foreign exchange evasion.
Our major shareholders who are PRC residents, or whose shares are beneficially owned by PRC
residents, have completed foreign exchange registration with the local Shanghai Foreign Exchange
Bureau according to these SAFE regulations. As a result of the newness of the regulations and
uncertainty concerning the reconciliation of the new regulations with other approval requirements,
it remains unclear how the regulations, and any future legislation concerning offshore or
cross-border transactions, will be interpreted, amended and implemented by the relevant government
authorities. We are committed to complying and to ensuring that our shareholders who are subject to
the regulations comply with the relevant rules. However, we cannot assure you that all of our
shareholders who are PRC residents will comply with our request to make or obtain any applicable
registrations or approvals required by the regulations or other related legislation. The failure or
inability of our PRC resident shareholders to receive any required approvals or make any required
registrations may subject us to fines and legal sanctions, restrict our overseas or cross border
investment activities, limit our
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PRC subsidiary, Shengqu, to make distributions or pay dividends or
affect our ownership structure, as a result of which our acquisition strategy and business
operations and our ability to distribute dividend to you could be materially and adversely
affected.
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.
The Internet industry, including the operation of online games, in China is highly regulated
by the PRC government. Various regulatory authorities of the central PRC government, such as the
State Council, the Ministry of Information Industry, the State Administration of Industry and
Commerce, the Ministry of Culture, the State Press and Publication
Administration, the State Administration of Radio, Film and
Television, and the Ministry of Public Security, are empowered to issue and implement
regulations governing various aspects of the Internet and online game industries.
Our PRC operating companies are required to obtain applicable permits or approvals from
different regulatory authorities in order to provide their services. For example, an Internet
content provider, or ICP, must obtain an ICP license from the Ministry of Information Industry in
order to engage in any commercial ICP operations within China. An online game operator must also
obtain a license from the Ministry of Culture and a license from the State Press and Publication
Administration in order to distribute games through the Internet. In addition, in connection with
our launch of certain EZ series products, which offer video and audio content, such as music and
movies, our PRC operating companies may need to obtain a license from the State Administration of
Radio, Film and Television. We understand, however, that companies that are not state-owned may not
be able to obtain such license. If any of our PRC operating companies fails to obtain or maintain
any of the required permits or approvals, they may be subject to various penalties, including fines
and the discontinuation or restriction of their operations. Any such disruption in business
operations would materially and adversely affect our financial condition and results of operations.
We currently operate a large number of websites, the domain names of which are registered
under the names of Shengqu and our other PRC-incorporated affiliates. In order to streamline and
optimize our Internet publication businesses, we have started to put
all of our Internet publication
businesses, including our editing, content supervision, publication, and other related businesses,
under Shanda Networking. We have reported to the Ministry of Information Industry of the change and
Shanda Networking has applied to the State Press and Publications Administration for expanding its
Internet publication license from the publication of online games to encompass books, newspapers,
periodicals, music and video products, works in the fields of literature, art, natural science,
social science, engineering, and other electronic publications. We believe that Shanda Networking
has satisfied all qualifications required to obtain the permission for license expansion and we do
not believe that, while its application is pending, the regulatory authorities will take any action
against it. However, we cannot assure you that it will obtain this approval or that the regulatory
authority will not take any action against it.
As the online game industry is at an early stage of development in China, new laws and
regulations may be adopted in the future to address new issues that arise from time to time, such
as online advertising. Also, different regulatory authorities may have different opinions with
regard to the licensing requirements imposed on online game operators. As a result, substantial
uncertainties exist regarding the interpretation and implementation of current and any future PRC
laws and regulations applicable to the online game industry and related businesses. While we
believe that we are in compliance in all material respects with all applicable PRC laws and
regulations currently in effect, we cannot assure you that we will not be found in violation of any
current or future PRC laws and regulations.
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The PRC government may prevent us from distributing, and we may be subject to liability for,
content that it believes is inappropriate.
China has enacted laws and regulations governing Internet access and the distribution of news,
information or other content, as well as products and services, through the Internet. In the past,
the PRC government has stopped the distribution of information through the Internet that it
believes violates PRC law. The Ministry of Information Industry, the State Press and Publication
Administration and the Ministry of Culture have promulgated regulations that prohibit games from
being distributed through the Internet if the games contain content that is found to, among other
things, propagate obscenity,
gambling or violence, instigate crimes, undermine public morality or the cultural traditions
of the PRC, or compromise State security or secrets. In addition, certain PRC social organizations
have recently discussed the possibility of implementing a rating system for online games. The
effect that such a system could have on our business is unclear.
If any games we offer were deemed to violate any such content restrictions, we would not be
able to continue such offerings and could be subject to penalties, including confiscation of
income, fines, suspension of business and revocation of our license for operating online games,
which would materially and adversely affect our business, financial condition and results of
operations.
We may also be subject to potential liability for unlawful actions of our users or for content
we distribute that is deemed inappropriate. Furthermore, we may be required to delete content that
violates the laws of the PRC and report content that we suspect may violate PRC law. It may be
difficult to determine the type of content that may result in liability for us, and if we are
wrong, we may be prevented from operating our games or other services in China.
The PRC government has announced its intention, and has begun, to intensify its regulation of
Internet cafes, which are currently the primary venue 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 customer base.
In April 2001, the PRC government began tightening its regulation and supervision of Internet
cafes. In particular, a large number of unlicensed Internet cafes have been closed. The PRC
government has also imposed higher capital and facility requirements for the establishment of
Internet cafes. Furthermore, the PRC government's policy, which encourages the development of a
limited number of national and regional Internet cafe chains and discourages the establishment of
independent Internet cafes, may slow down the growth of Internet cafes. Moreover, the State
Administration of Industry and Commerce, one of the government agencies in charge of Internet cafe
licensing, and other government agencies jointly issued a notice in February 2004 suspending the
issuance of new Internet cafe licenses for a period of six months. Although the six-month period is
over, in practice, to obtain a license for setting up a new Internet café remains very difficult.
It is unclear when this suspension will be lifted, if at all. So long as Internet cafes are the
primary venue for our users to play online games, any reduction in the number, or slowdown in the
growth, of Internet cafes in China, or any new regulatory restrictions on their operations, could
limit our ability to maintain or increase our revenues and expand our customer base, thereby
reducing our profitability and growth prospects.
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Currently there are no laws or regulations in the PRC specifically governing virtual asset property
rights and therefore, it is not clear what liabilities, if any, online game operators may have for
virtual assets.
In the course of playing online games, some virtual assets, such as special equipment, player
experience grades and other features of our users' game characters, are acquired and accumulated.
Such virtual assets can be important to online game players and in
some cases are exchanged between
players for monetary value. In practice, virtual assets can be lost for various reasons, often
through unauthorized use of the game account of one user by other users and occasionally through
data loss caused by a delay of network service or by a network crash. Currently there are no PRC laws
and regulations specifically governing virtual asset property rights. As a result, it is unclear
who is the legal owner of virtual assets and whether and how the ownership of virtual assets is
protected by law. In case of a loss of virtual assets, we may be sued by online game players and
may be held liable for damages, which may negatively affect our business, financial condition and
results of operations.
Risks Relating to the People's Republic of China
Substantially all of our assets are located in China and substantially all of our revenues are
derived from our operations in China. Accordingly, our business, financial condition, results of
operations and prospects are subject, to a significant extent, to economic, political and legal
developments in China.
The PRC's economic, political and social conditions, as well as government policies, could affect
our business.
The PRC economy differs from the economies of most developed countries in many respects,
including in the amount of government involvement, level of development, growth rate, control of
foreign exchange and allocation of resources. While the PRC economy has experienced significant
growth over the past twenty-five years, growth has been uneven, both geographically and among
various sectors of the economy. The PRC government has implemented numerous measures to encourage
economic growth and to guide the allocation of resources. Some of these measures may benefit the
overall PRC economy, but also have a negative effect on us. For example, our financial condition
and results of operations may be adversely affected by government control over capital investments
or changes in tax regulations that are applicable to us.
The PRC economy has been transitioning from a planned economy to a more market-oriented
economy. Although the PRC government has implemented measures since the late 1970s emphasizing the
utilization of market forces for economic reform, the reduction of state ownership of productive
assets and the establishment of sound corporate governance in business enterprises, a substantial
portion of productive assets in China is still owned by the PRC government. In addition, the PRC
government continues to play a significant role in regulating industry development by imposing
industrial policies. The PRC government also exercises significant control over China's economic
growth through the allocation of resources, controlling payment of foreign currency denominated
obligations, setting monetary policy and providing preferential treatment to particular industries
or companies. These actions, as well as future actions and policies of the PRC government, could
materially affect general economic conditions in China and could have a material adverse effect on
our business and results of operations.
The PRC legal system embodies uncertainties which could limit the legal protections available to
you and us.
The PRC legal system is a civil law system based on written statutes. Unlike common law
systems, it is a system in which decided legal cases have little precedential value. In 1979, the
PRC government began to promulgate a comprehensive system of laws and regulations governing general
economic and business matters. The overall effect of
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legislation over the past 26 years has been a
significant enhancement of the protections afforded to various forms of foreign-invested
enterprises in mainland China. Our PRC operating subsidiary, Shengqu, is a wholly foreign owned
enterprise, or WFOE, which is an enterprise incorporated in mainland China and wholly-owned by
foreign investors. Shengqu is subject to laws and regulations applicable to foreign investment in
mainland China in general and laws and regulations applicable to WFOEs in particular. However,
these laws, regulations and legal requirements are constantly changing, and their interpretation
and enforcement involve uncertainties. These uncertainties could limit the legal protections
available to us and other foreign investors, including you. In addition, we cannot predict the
effect of future developments in the PRC legal system, particularly with regard to the Internet,
including the promulgation of new laws, changes to existing laws or the interpretation or
enforcement thereof, or the preemption of local regulations by national laws.
Restrictions on currency exchange may limit our ability to utilize our revenues effectively.
Substantially all of our revenues and operating expenses are denominated in Renminbi. The
Renminbi is currently freely convertible under the "current account", which includes dividends,
trade and service-related foreign exchange transactions, but not under the "capital account", which
includes foreign direct investment and loans.
Currently, Shengqu may purchase foreign exchange for settlement of "current account
transactions", including payment of dividends to us and payment of license fees to foreign game
licensors, and our PRC operating companies may purchase foreign exchange for payment of license
fees to foreign game licensors without the approval of the State Administration for Foreign
Exchange. Shengqu may also retain foreign exchange in its current account, subject to a ceiling
approved by the State Administration for Foreign Exchange, to satisfy foreign exchange liabilities
or to pay dividends. However, we cannot assure you that the relevant PRC governmental authorities
will not limit or eliminate our ability to purchase and retain foreign currencies in the future.
Since a significant amount of our future revenues will be denominated in Renminbi, the
existing and any future restrictions on currency exchange may limit our ability to utilize revenues
generated in Renminbi to fund our business activities outside China, if any, or expenditures
denominated in foreign currencies.
Foreign exchange transactions under the capital account are subject to limitations and require
registration with or approval by the relevant PRC governmental authorities. In particular, if we
finance Shengqu by means of foreign currency loans, those loans cannot exceed certain statutory
limits and must be registered with the State Administration for Foreign Exchange, and if we finance
Shengqu by means of capital contributions, those capital contributions must be approved by the
Ministry of Commerce. Our ability to use the U.S. dollar proceeds of the sale of our equity or debt
to finance our business activities conducted through Shengqu will depend on our ability to obtain
these governmental registrations or approvals. In addition, because of the regulatory issues
related to foreign currency loans to, and foreign investment in, domestic PRC enterprises, we may
not be able to finance Shanda Networking or its subsidiaries' operations by loans or capital
contributions. We cannot assure you that we can obtain these governmental registrations or
approvals on a timely basis, if at all.
Fluctuations in exchange rates could result in foreign currency exchange losses.
Substantially all of our revenues are denominated in Renminbi, while a portion of our
expenditures are denominated in foreign currencies, primarily the U.S. dollar. Fluctuations in
exchange rates, particularly those involving the U.S. dollar,
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may affect our costs and operating
margins. In addition, these fluctuations could result in exchange losses and increased costs in
Renminbi terms. Where our operations conducted in Renminbi are reported in dollars, such
fluctuations could result in changes in reported results which do not reflect changes in the
underlying operations. Since January 1, 1994, the PRC government has used a unitary managed
floating rate system. Under that system, the People's Bank of China, or PBOC, publishes a daily
base exchange rate with reference primarily to the supply and demand of Renminbi against U.S.
dollar and other foreign currencies in the market during the previous day. Authorized banks and
financial institutions are allowed to quote buy and sell rates for Renminbi within a specified bank
around the central bank's daily exchange rate. On July 21, 2005, PBOC announced an adjustment of
the exchange rate of the U.S. dollar to Renminbi from 1:8.27 to 1:8.11 and modified the system by
which the exchange rates are determined. This adjustment has resulted in an approximate 3.0%
appreciation of the Renminbi against the U.S. dollar as of
March 21, 2006 when compared with the exchange rate in effect in
March, 2005. While the international
reaction to the Renminbi revaluation has generally been positive, there remains significant
international pressure on the PRC government to adopt an
even more flexible currency policy, which could result in a further reevaluation and a
significant fluctuation of the exchange rate of the Renminbi against the U.S. dollar, including
possible devaluations. As substantially all of our revenues are denominated in Renminbi, such a
potential future devaluation of Renminbi against the U.S. dollars could negatively impact our
results of operations. Moreover, we do have material monetary assets and liabilities denominated in U.S. dollars,
which mainly consists of the investments in marketable securities, affiliated companies and the convertible notes
payable. The fluctuation of foreign exchange rate affects the value of these monetary assets and liabilities denominated
in U.S. dollars. Generally, appreciation of Renminbi against U.S. dollars results in a foreign exchange loss for monetary
assets denominated in U.S. dollars, and a foreign exchange gain for monetary liabilities denominated in U.S. dollars. On
the contrary, devaluation of Renminbi against U.S. dollars results in a foreign exchange gain for monetary assets
denominated in U.S. dollars, and a foreign exchange loss for monetary liabilities denominated in U.S. dollars.
Very limited hedging transactions are available in China to reduce our exposure to exchange
rate fluctuations. To date, we have not entered into any hedging transactions in an effort to
reduce our exposure to foreign currency exchange risk. While we may decide to enter into hedging
transactions in the future, the availability and effectiveness of these hedges may be limited and
we may not be able to successfully hedge our exposure at all.
In addition, our currency exchange losses may be magnified by PRC exchange control regulations
that restrict our ability to convert Renminbi into U.S. dollars. Conversely, an increase in the
value of the Renminbi could increase our reported earnings in U.S. dollar terms without a
fundamental change in our business or operating performance.
Since our revenues are primarily denominated in Renminbi, our valuation could be materially
and adversely affected by the devaluation of the Renminbi if U.S. investors analyze our value based
on the U.S. dollar equivalent of our financial condition and results of operations. In addition,
certain of our acquisitions may expose us to additional currency fluctuations that would affect our
reported valuation of those holdings. Actoz, which we will account for under the equity method, is
a South Korean company; changes in its valuation as a consequence of fluctuations in the Korean Won
would be reflected in our valuation.
Inflation in China could negatively affect our profitability and growth.
While the PRC economy has experienced rapid growth, such growth has been uneven among various
sectors of the economy and in different geographical areas of the country. Rapid economic growth
can lead to growth in the money supply and rising inflation. If prices for our products and
services rise at a rate that is insufficient to compensate for the rise in our costs, our business
may be materially and adversely affected. In order to control inflation in the past, the PRC
government has imposed controls on bank credits, limits on loans for fixed assets, and restrictions
on state bank lending. Such austerity measures can lead to a slowing of economic growth. A slow
down in the PRC economy could also materially and adversely affect our business and prospects.
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You may experience difficulties in effecting service of process, enforcing foreign judgments or
bringing original actions in China based on United States or other foreign laws against us, our
management or the experts named in the prospectus.
We conduct substantially all of our operations in China and substantially all of our assets
are located in China. In addition, most of our directors and executive officers reside within
China. As a result, it may not be possible to effect service of process within the United States or
elsewhere outside China upon some of our directors and senior executive officers, including with
respect to matters arising under U.S. federal securities laws or applicable state securities laws.

Moreover, the PRC does not have treaties with the United States or many other countries
providing for the reciprocal recognition and enforcement of judgment of courts.
Any future outbreak of avian flu or severe acute respiratory syndrome in China or similar adverse
public health developments may severely disrupt our business and operations.
Adverse public health epidemics or pandemics could disrupt businesses and national economies
in China. For example, from December 2002 to June 2003, China and certain other countries
experienced an outbreak of a new and highly contagious form of atypical pneumonia now known as
severe acute respiratory syndrome, or SARS. During May and June of 2003, many businesses in China
were closed by the PRC government to prevent transmission of SARS. The World Health Organization
has announced that there is a high likelihood of an outbreak of avian flu, with the potential to be
as disruptive if not more disruptive than SARS. Any recurrence of the SARS outbreak, an avian flu
outbreak, or development of a similar health hazard in China, may have disruptive effects on
consumer spending. In addition, health or other government regulation may require temporary closure
of our offices and operations. Such outbreak may also cause the sickness or death of our key
management and employees. Any of such occurrences would adversely affect our business and results
of operations.
Risks Relating to our ADSs
One shareholder has significant control over the outcome of our shareholder votes.
As of March 31, 2006, Skyline Media beneficially owned approximately 57% of our outstanding
equity interests. Accordingly, Skyline Media has and is expected to maintain significant control
over the outcome of any corporate transaction or other matter submitted to our shareholders for
approval, including mergers, consolidations and the sale of all or substantially all of our assets.
If our controlling shareholder, Skyline Media ,which holds approximately 57% of our ordinary
shares, chose to dispose of a material portion of the ordinary shares that it holds, the prevailing
market price for our securities may decline.
As of March 31, 2006, Skyline Media beneficially owned 81,070,090 of our ordinary shares,
representing approximately 57% of our outstanding ordinary shares. The beneficial owners of Skyline
Media are Tianqiao Chen, our chairman and chief executive officer, Danian Chen, our executive
senior vice president and the brother of Tianqiao Chen, and Qianqian Luo, our director and the wife
of Tianqiao Chen. Tianqiao Chen and Qianqian Luo beneficially own an additional 1,866,338 of our
ordinary shares through DBS Trustees Ltd as trustee for the Jade Trust and Danian Chen beneficially
owns an additional 951,170 of our ordinary shares through DBS Trustees Ltd as trustee for the
Chifeng Trust.
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In June 2005, Jade Trust adopted pre-arranged stock trading plans in accordance with
Rule10b5-1 under the U.S. Securities Exchange Act of 1934, as amended, and the Company's trading
policy with respect to sales of the Company's securities by insiders. As of March 31, 2006, 322,000
ordinary shares had been sold pursuant to the 10b5-1 plan, which will expire on August 15, 2006 if
it is not renewed. If Skyline Media chooses to sell a material portion of the ordinary shares that
it holds, or indicate its intention to do so, the prevailing market price for our securities may
decline.
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.
The trading price of our ADSs has been and may continue to be subject to wide fluctuations.
Since we completed our initial public offering in May 2004, the sale prices of our ADSs on the
Nasdaq National Market ranged from US$10.58 to US$45.40 per ADS and the last reported sale price on
June 26, 2006 was US$13.71. Our ADS price may fluctuate in response to a number of events and
factors. In addition, the financial markets in general, and the market prices for Internet-related
companies in particular, have experienced extreme volatility that often has been unrelated to the
operating performance of such companies. These broad market and industry fluctuations may adversely
affect the price of our ADSs, regardless of our operating performance. In addition, the existence
of our Zero Coupon Senior Convertible Notes due 2014 that we issued in October 2004, or the
convertible notes, may encourage short selling in our ADSs by market participants because the
conversion of the convertible notes could depress the price of our ADSs.
You may face difficulties in protecting your interests, and our ability to protect our rights
through the U.S. federal courts may be limited, because we are incorporated under Cayman Islands
law.
Our corporate affairs are governed by our memorandum and articles of association and by the
Companies Law (2004 Revision) and common law of the Cayman Islands. The rights of our shareholders
and the fiduciary responsibilities of our directors under Cayman Islands law are not as clearly
established as they would be under statutes or judicial precedents in the United States. In
particular, the Cayman Islands has a less developed body of company law as compared to the U.S.,
and provides significantly less protection to investors. Therefore, our shareholders may have more
difficulties in protecting their interests in the face of actions by our management, directors or
controlling shareholders than would shareholders of a corporation incorporated in a jurisdiction in
the United States. In addition, Cayman Islands companies may not have standing to sue before the
federal courts of the United States. As a result, our ability to protect our interests if we are
harmed in a manner that would otherwise enable us to sue in a United States federal court may be
limited.
Anti-takeover provisions in our organizational documents may discourage our acquisition by a third
party, which could limit your opportunity to sell your shares at a premium.
Our amended and restated memorandum and articles of association include provisions that could
limit the ability of others to acquire control of us, modify our structure or cause us to engage in
change of control transactions, including, among other things, the following:
•
provisions that restrict the ability of our shareholders to call meetings and to
propose special matters for consideration at shareholder meetings; and
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•
provisions that authorize our board of directors, without action by our
shareholders, to issue preferred shares and to issue additional ordinary shares,
including ordinary shares represented by ADSs.
These provisions could have the effect of depriving you of an opportunity to sell your ADSs at
a premium over prevailing market prices by discouraging third parties from seeking to acquire
control of us in a tender offer or similar transactions.
The voting rights of holders of ADSs are limited by the terms of the deposit agreement.
A holder of our ADSs may only exercise the voting rights with respect to the underlying
ordinary shares in accordance with the provisions of the deposit agreement. Upon receipt of voting
instructions of a holder of ADSs in the
manner set forth in the deposit agreement, the depositary will endeavor to vote the underlying
ordinary shares in accordance with these instructions. Under our amended and restated memorandum
and articles of association and Cayman Islands law, the minimum notice period required for
convening a general meeting is ten days. When a general meeting is convened, you may not receive
sufficient notice of a shareholders' meeting to permit you to withdraw your ordinary shares to
allow you to cast your vote with respect to any specific matter. In addition, the depositary and
its agents may not be able to send voting instructions to you or carry out your voting instructions
in a timely manner. We will make all reasonable efforts to cause the depositary to extend voting
rights to you in a timely manner, but we cannot assure you that you will receive the voting
materials in time to ensure that you can instruct the depositary to vote your shares. Furthermore,
the depositary and its agents will not be responsible for any failure to carry out any instructions
to vote, for the manner in which any vote is cast, or for the effect of any such vote. As a result,
you may not be able to exercise your right to vote and you may lack recourse if your ordinary
shares are not voted as you requested.
You may be subject to limitations on transfer of your ADSs
Your
ADSs represented by American Depositary Receipts are transferable on the books of the
depositary. However, the depositary may close its books at any time or from time to time when it
deems expedient in connection with the performance of its duties. The depositary may close its
books for a number of reasons, including in connection with corporate events such as a rights
offering, during which time the depositary needs to maintain an exact number of ADS holders on its
books for a specified period. The depositary may also close its books in emergencies, and on
weekends and public holidays. The depositary may refuse to deliver, transfer, or register transfers
of our ADSs generally when our books or the books of the depositary are closed, or at any time if
we or the depositary thinks it is advisable to do so because of any requirement of law or any
government or governmental body, or under any provision of the deposit agreement, or for any other
reason.
Your right as a holder of ADSs to participate in any future rights offerings may be limited, which
may cause dilution to your holdings.
We may from time to time distribute rights to our shareholders, including rights to acquire
our securities. However, we cannot make rights available to our ADS holders in the United States
unless we register the rights and the securities to which the rights relate under the Securities
Act or an exemption from the registration requirements is available. In addition, the deposit
agreement provides that the depositary bank will not make rights available to you unless the
distribution to ADS holders of both the rights and any related securities are either registered
under the Securities Act or exempted from registration under the Securities Act. We are under no
obligation to file a registration statement with respect to any such rights or securities or to
endeavor to cause such a registration statement to be declared effective. Moreover, we may not be
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able to establish an exemption from registration under the Securities Act. Accordingly, ADS holders
may be unable to participate in our rights offerings and may experience dilution in their holdings.
In addition, if the depositary is unable to sell rights that are not exercised or not distributed
or if the sale is not lawful or reasonably practicable, it will allow the rights to lapse, in which
case you will receive no value for these rights.
Risks Relating to our Zero Coupon Senior Convertible Notes
We may not have the ability to repurchase our Zero Coupon Senior Convertible Notes in cash if
holders exercise their repurchase rights on October 15, 2007.
In October 2004, we issued US$275 million Zero Coupon Senior Convertible Notes, or the
convertible notes. The holders of the notes have the right to require us to repurchase all or a
portion of their notes on October 15, 2007 at a repurchase price equal to 100% of the principal
amount of notes to be repurchased, plus accrued and unpaid interest and liquidated damages, if any.
As of March 31, 2006, we had RMB817.3 million (US$101.3 million) in cash and cash equivalents,
RMB68.1 million (US$8.4 million) in short-term investment and RMB2,211.8 million (US$274.1
million)in marketable securities, which includes our minority investments in Sina
Corporation, or Sina. The trading prices for the securities have been and may
continue to be subject to wide fluctuations. Financial markets in general, and the market price for
Internet-related companies in particular, have experienced extreme volatility that is often
unrelated to the operating performance of such companies. In addition, the relatively large size of
our investments in Sina may inhibit our ability to sell as many of these securities as we might
want to sell at an acceptable price or at all. If our resources are insufficient to satisfy our
cash requirements for repurchase of the notes, we may seek to sell additional equity or debt
securities or obtain a credit facility. The sale of additional equity securities could result in
additional dilution to our shareholders. The incurrence of indebtedness would result in increased
interest rate risk and debt service obligations and could result in operating and financing covenants that would restrict
our operations. We cannot assure you, however, that future financing will be available in amounts
or on terms acceptable to us, if at all. As a result, we may not have sufficient funds to make the
required repurchase in cash. Our failure to repurchase tendered notes would constitute an event of
default under the Indenture for the notes, which might constitute a default under any other
obligations we may have at that time.
Item 4.
Information on the Company
A. HISTORY AND DEVELOPMENT OF THE COMPANY
Our business was founded in December 1999 when Tianqiao Chen and Danian Chen established
Shanda Networking, initially focusing on investments relating to the development and operation of a
Chinese language online virtual community. In November 2004, we incorporated Shanda Interactive
Entertainment Limited in the Cayman Islands.
Our principal executive offices are located at No. 1 Office Building, No. 690 Bibo Road,
Pudong New Area, Shanghai 201203, China. Our telephone number is (86-21) 5050 4740. Our agent for
service of process in the United States is CT Corporation System, located at 111 Eighth Avenue, New
York, Now York 10011.
In November 2001, we commercially launched Mir II, our first massively multiplayer online
role-playing game, or MMORPG. In March 2003, we commercially launched Fortress II, our first casual
game, and in October 2003, we launched Woool, our first in-house developed online game. As of
December 31, 2005, Shanda commercially operates twelve online
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games, including seven MMORPGs and
five casual games. In 2005, total peak concurrent users for all Shanda games in commercial service
reached 2.68 million.
In addition to our comprehensive online game portfolio, in 2005 Shanda introduced the EZ
Center platform, a unified software solution on top of our service platform that integrates
entertainment and informational content from the Internet and provide
users with access to such content through a user-friendly
interface. For more information on the EZ initiative, see also "Business Overview" in Item 4
"Information on the Company, Item 5 "Operating and Financial Review and Prospects," and Item 3
"Risk Factors".
In the fourth quarter of 2005, we adopted a free-to-play and
pay-for in-game value-added services revenue model for three of our MMORPGs: Mir II, Magical Land
and Woool. Going forward, we will consider adopting this new revenue model for our other existing
MMORPGs, depending on the game type and lifecycle. For more information on the new revenue
model, see also "Business Overview" in Item 4
"Information on the Company", Item 5 "Operating
and Financial Review and Prospects," and Item 3 "Risk
Factors".
As part of our efforts to further broaden our content offerings and expedite our growth, we
have developed our business through a number of strategic acquisitions and investments, including
the following:
•
In November 2005, we acquired Wenzhou Chuangjia Technology Co., Ltd., or Gametea,
which develops chess and board games and operates Gametea, a casual game platform in
China;
•
In May 2005, we completed the second step of a two-step acquisition of Shanghai
Haofang Online Information Technology Co. Ltd., or Haofang, the operator of the largest
network PC game platform in China;
•
In February 2005, we completed our purchase of an approximately 19.5% stake in
Sina Corp, or Sina, an online media company and value-added service provider in China;
•
In February 2005, we also completed the purchase of a 29% stake in Actoz, a Korean
developer, operator and publisher of online games, increasing our total stake to
approximately 38.1%;
•
In October 2004, we completed the second step of a two-step acquisition of Beijing
Digital Red Software Application Technology Co., Ltd., or Digital Red, a developer of
mobile phone games;
•
In September 2004, we acquired Shanghai Xuanting Entertainment Information
Technology Co., Ltd., which operates Qidian, an online literature forum; and
•
In July 2004, we acquired Hangzhou Bianfeng Software Co. Ltd., or Bianfeng, a
developer and operator of online chess and board games in China.
B. BUSINESS OVERVIEW
Shanda Interactive Entertainment Limited is an interactive entertainment company and one of
the largest operators of online games in China. In addition to our portfolio of online games that
users play over the Internet, we provide users with access to additional content and services
through our EZ Center platform, including literature, music, movies, radio, finance, e-commerce,
travel, news and educational programs.
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Our core online game business includes the operation of online games that are either licensed
from third-parties or developed in-house. In 2005, our commercially launched games had
approximately 2.68 million peak concurrent users and 1.38 million average concurrent users. In
2005, we commercially launched three new MMORPGs, Magical Land, D.O. and R.O and two new casual
games, Three Kingdoms and Shanda Richman. In 2005, we also acquired Wenzhou Chuangjia Technology
Co., Ltd., or Gametea, a casual game platform offering more than 90 online games, including poker
games, board games, mahjong and other contest games. Gametea, together with Bianfeng, a developer
and operator of online chess and board games that we acquired in July 2004, had approximately
500,000 peak concurrent users in 2005.
In late November 2005, we introduced a free-to-play and pay-for in-game value-added services
revenue model for three of our leading MMORPGs, Mir II, Woool, and Magical Land. Under the new
revenue model, users are able to play the basic functions of an MMORPG for free and may choose to
purchase in-game value-added services, including certain in-game items and premium features, which
enhance the game experience.
In 2005, in connection with our transition from a pure online game operator to an interactive
entertainment company, we introduced EZ Center platform as the unified software solution on top of
our service platform. It integrates entertainment and informational
content from the Internet and provide users with access to such
content through a user-friendly interface that has simple intuitive menus, large text and clear graphics.
The EZ Pod, which is the first product launched off our EZ Center platform, enables PC users to
navigate and access the aggregated Internet content over our EZ Center platfrom using a remote
control. As of March 31, 2006, EZ Center platform is still at the trial run stage and we have not
yet charged users subscription fees.
Our operating platform includes our technology infrastructure, distribution and payment
system, customer service center, game content management and marketing platform. Our technology
infrastructure consists of a nation-wide server network with the capacity to accommodate
approximately 6.6 million concurrent online users. Our nation-wide distribution and payment network
includes approximately 310,000 distribution points for our pre-paid cards. Our customer service
system includes a 24-hour call center and a walk-in customer service center. In addition, for each
of our online games we have a separate game content management team which manages the operation of
the game and the online community for the game.
Our Content
Our content offerings primarily consist of online games, including MMORPGs and casual games,
as well as online chess and board games, a network PC game platform and wireless games. In
addition, through our EZ Center platform we provide users with access to additional content and
services including movies, music, literature works, finance and
investment information, travel information, news
and educational programs. As of March 31, 2006, we have not yet started to charge users for access
to content or services over the EZ Center platform.
MMORPGs
Our MMORPGs are action-adventure based, and draw upon martial arts and combat themes. Each
MMORPG creates a virtual world within which players interact with one another inside
the game. Typical features of our MMORPGs include the following:
•
players may assume the ongoing role, or alter-ego, of a particular game character,
each with different strengths and weaknesses;
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•
each game character may gain experience and collect certain game features and items, such as
weapons and points, which increases the status and power of the game character and, in the process,
builds a strong game identity; the variety of features that are available means that a
player is unlikely to "meet" anyone in the virtual world exactly like his or her game
character;
•
although each game character may be unique, groups of players may, and often must,
form teams or alliances to fulfill certain game objectives, such as quests and missions;
•
game features and items may be "traded" or "sold" within the game, and game characters may
take on life-like social experiences such as getting married and forming master/disciple
relationships with other players. In addition,
players may communicate with each other through our instant messaging service or our chat
room during the game on our operation platform which supports all of our online games;
•
special events are held from time to time to stimulate group interest, such as
"fortress raids" where players are encouraged to form groups and attack a particular
fortress at a specified time; and
•
the game is ultimately never won or lost, but instead continues through a game
story that is interactively written by the game developer and players and does not have a natural ending.
We use two different revenue models to charge users of our MMORPGs. The first revenue model is
the traditional subscription-based pay-to-play revenue model, where users purchase pre-paid cards
to play for a fixed number of hours or for an unlimited amount of time within a specified number of
days. In the fourth quarter of 2005, we adopted a free-to-play and pay-for in-game value-added
services revenue model for three of our MMORPGs: Mir II, Woool and Magical Land. Under the new
revenue model, users are able to play the basic functions of a MMORPG for free and may choose to
purchase in-game value-added services, as well as certain in-game items and premium features, which
enhance the game experience. Same as our traditional subscription-based pay-to-play revenue model,
payment is collected upon the sale of our pre-paid cards under the new revenue model. However, game
points are consumed as users purchase value-added services and in-game items, instead of as users
play the games.
In preparation for the commercial launch of a new game, we conduct closed beta testing of the
game in an effort to eliminate technical problems. This closed beta testing is followed by open
beta testing in which we allow our registered users to play without charge in open market
conditions to ensure performance consistency and stability of operation systems.
As of December 31, 2005, the following table summarizes the MMORPGs or other massively
multiplayer online games that we offer.
Game
Description
Game Source
Date
of Commercial Launch
Mir II
Martial arts adventure
Licensed
November 2001
Woool
Martial arts adventure
In-house developed
October 2003
The Sign
3D martial arts adventure
In-house developed
May 2004
The Age
Society simulation
In-house developed
June 2004
Magical Land
Fantasy role-playing
In-house developed
July 2005
D.O.
3D martial arts adventure
Licensed
August 2005
R.O.
Fantasy role-playing
Licensed
September 2005
In addition to the MMORPGs listed above, we have entered into license agreements to
operate two other MMORPGs in China. In April 2005, we entered into a license agreement for the
China operation of Dungeons & Dragons Online, a 3-D
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fantasy role-playing game based on the Hasbro
and Wizards of the Coast Dungeons and Dragons franchise, and Archlord, a 3-D martial arts adventure
game. We began open beta testing of ArchLord on June 18, 2006, and started closed beta
testing of Dungeons & Dragons Online on June 28, 2006.
In 2005, our MMORPGs in commercial service had approximately 1.03 million peak concurrent
users and 672,000 average concurrent users.
Our Casual Games
Casual games are easier to play than MMORPGs. Casual games are typically session based,
meaning that a game can be played to a conclusion within a short period of time. Generally, fewer
than ten players may interact with each other in an online casual game. Casual games are an
important component of our overall home strategy because casual games attract a broader range of
users than MMORPGs, as well as more home users. We believe that casual games provide us with
certain benefits and opportunities not typically available through MMORPGs, including:
•
casual games, due to their lower level of complexity and typically shorter
duration, provide less-experienced online game players with a means to become familiar
with both online game playing and the online game culture without making substantial
commitments of time and resources; and
•
casual games are well-suited to use at home, due to their shorter duration and
reduced demand for a player's full attention for prolonged periods, as compared to
MMORPGs; as a result, we believe that casual games may contribute to the expansion of the
online game culture beyond the Internet cafes and into the homes of users.
We use the free-to-play and pay-for in-game value-added services revenue model to charge users
of our casual games. As a result, users are able to play the basic functions of our casual games
for free and may choose to purchase in-game items and premium features, which enhance the game
experience.
As of December 31, 2005, the following table summarizes the casual games that we offer.
Date of Commercial
Game
Description
Game Source
Launch
BNB
Battle
Licensed
August 2003
GetAmped
3D fighting game
Licensed
May 2004
Maple Story
Side-scrolling combat game
Licensed
August 2004
Three Kingdoms
Strategy combat
In-house developed
September 2005
Shanda Richman
3D Strategy Operation
In-house developed
December 2005
In addition to the casual games listed above, we have entered into license agreements to
operate DJ Max and Kong Kong, two South Korean casual games. In February 2006, we also entered into
an agreement with Walt Disney Internet Group pursuant to which we have agreed to develop,
distribute and operate in China a online casual game based on the magical worlds of Disney and
featuring some of Disney's most popular animated characters. In March 2006, we commercially
launched our in-house developed car racing game, Crazy Kart. In addition to these games, we also
have a number of casual games under in-house development, which we hope to introduce during 2006.
In 2005, our commercially launched casual games, excluding the casual games operated by or
played on the platforms provided by Bianfeng, Haofang and Gametea, had approximately 825,000 peak
concurrent users.
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Our Online Chess and Board Games
Our casual games also include online chess and board games offered through Bianfeng, which we
acquired in 2004, and Gametea, which we acquired in 2005. Through Bianfeng and Gametea, we offer a
variety of casual games, including card games, board games, mahjong and simple arcade games. In
2005, the casual games operated by Bianfeng and Gametea had approximately 500,000 peak concurrent
users.
Network PC Games Platform
Through
Haofang, which we completed the two-step acquisition of in May 2005, we provide a
personal computer game network to our end users. Through this platform, users of PC games are able
to find and connect through the Internet with other players of the
same PC games. This enables users
to form a large network through which to interact with others virtually, using software that has
network capability. Without such an Internet based network, users of PC games would generally be
limited to playing with other users that are either at the same PC or connected through a local
area network. Unlike with our MMORPGs and casual games, we do not own or license the content that
PC game players use over the Haofang network. Nonetheless, we believe
that the Haofang PC game
network enhances our overall online game platform. In 2005, the Haofang PC game network had
approximately 535,000 peak concurrent users.
Wireless Games
Through Digital Red, which we completed the two-step acquisition of in October 2004, we
develop and offer wireless games to end users of mobile phones. Digital Red has developed
approximately 600 wireless games, approximately 400 of which were in distribution as of December
31, 2005. Digital Red primarily distributes its wireless games by
pre-loading the games on handsets
produced by mobile phone manufacturers and by
downloading the games from game portal of the mobile phone service
providers.
EZ Content
In addition to our core online game content, we offer additional content through our EZ Center
platform. Through cooperation with more than 100 Internet content and service providers, we provide
users with access to an array of content and services that can be grouped into three broad
categories:
•
Entertainment, including radio, movies, music, karaoke and literature;
•
Life, including finance, e-commerce, travel and communication programs; and
•
Info-learning, including news and educational programs.
Sources of Content
Game Licensing
We license games from developers in various countries where online game use is relatively
established. We monitor each of the South Korean, Japanese, United States and European markets to
identify and source new online games. Prior to negotiating a license agreement with an overseas
game developer, we evaluate games in our game testing center.
The cost of licensing games from developers generally consists of an upfront licensing fee,
which we normally pay in several installments, and ongoing licensing fees, which are equal to a
percentage of revenues generated from operation of the game. The ongoing licensing fee payments for
games which have been commercially launched range from 20% to 30% of revenues for MMORPGs, and 17%
to 40% of revenues for casual games
.
Each of our licenses provides us with the
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exclusive right to
operate the game in China. Most developers agree to timely provide us, without any additional
charge, with updates, enhancements and improvements developed for the games licensed to us. The
majority of our game licenses require the licensors to provide us with technical support. As of
December 31, 2005, six of the twelve online games that we commercially operate are licensed from
overseas developers.
We have also obtained rights or control to certain licenses through the acquisition of, or
investment in, other businesses. Please see the section "Recent Acquisitions" in Item 5 "Operating
and Financial Review and Prospects".
Game Development
We both develop online games at our in-house game development studios and fund the development
of games at independent game development studios. Our initial in-house game development efforts
focused upon MMORPGs. In 2005, as part of our home strategy and EZ initiative, we have shifted the
focus of our in-house game development efforts away from MMORPGs and toward casual games. In
addition to the development of traditional online games, through Bianfeng and Gametea we develop
online chess and board games, and through Digital Red we develop wireless games for mobile phone
users. As of December 31, 2005, approximately 580 employees were engaged in our in-house game
development efforts. In addition, as of December 31, 2005, six of the twelve online games that we
commercially operate were in-house developed, including two casual games.
Other Content
We offer other content to users both through our Internet platform and through our EZ Center
platform. This additional content is generally provided in partnership with third party service and
content providers. We have entered into strategic partnerships with Universal Music and EMI, for
example, to provide their music content to end users through our EZ Center platform as well as our
online interactive entertainment portal. In addition, through Qidian, a Chinese language original
literature portal that we acquired in 2004, we publish works of independent writers, including
magic fantasy works, science fiction works and works based upon the story lines of online games. As
of December 31, 2005, we have entered into agreements with over 100 content and service providers
to offer non-game content over our EZ Center platform.
Our Operating Platform
We believe that our operating platform contributes to the experience of our users and enhances
user loyalty. Our operating platform encompasses a variety of elements, including our product
management system, distribution and payment network, unified billing platform, marketing, customer
service and technological infrastructure.
Game Product Management
We have a separate product management team for each of our MMORPGs and casual games. Each
product team acts as a product specialist in interaction with our functional departments, such as
research and development, marketing, sales and distribution, technology support and customer
services. Our product teams:
•
conduct the cost/return analysis and form operational plans before the launch of
each game;
•
coordinate internal resources and interact with the other departments to secure the
smooth operation of the game on a day-to-day basis;
•
control the timing of the release of new game versions and enhancements; and
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•
manage the online game's virtual community on an hour-by-hour basis including, for
example, by organizing in-game events.
As of December 31, 2005, our product management teams consisted of 254 employees.
Pricing, Distribution and Payment
In order to play our games or in order to purchase in-game value-added services, users must
purchase pre-paid cards, which are sold in both virtual and physical form. Each pre-paid card
contains a unique access code and password that
enables users to add value to their account for one of our online games. Currently, each
pre-paid card may only be used to play one of our online games, although a user may choose which
game account, among all accounts held by the user, to apply the
pre-paid card's value to. Charges
based on the number of hours of playtime, unlimited playtime for a specified number of days or the
value and amount of in-game value-added services purchased are deducted against the value provided
in the pre-paid cards.
We generally develop a pricing curve to set the retail prices for the games we offer. Pricing
curves are developed primarily based on the game cost, user game playing and payment patterns and
the pricing of competing games in the market. Since the launch of our first online game in 2001, we
have tracked and accumulated user data generated from our user base, which provides us with an
extensive database to analyze user patterns and establish pricing curves for particular types of
games. Once a game's pricing is set, it is difficult to increase prices during the game's
commercial lifecycle. We have generally maintained stable pricing curves for our games.
We distribute our pre-paid cards through three principal channels:
•
our e-sales system for virtual pre-paid cards;
•
our offline distribution system for physical pre-paid cards; and
•
direct online sales.
Other than direct online sales, we generally operate by selling pre-paid cards to a group of
regional distributors from whom we generally collect payment on a prepaid basis. These distributors
resell the cards to sub-distributors who, in turn, distribute the cards directly to Internet cafes
and other retail points of sale. We estimate, based on a survey we conducted among our regional
distributors in December 2005 and sales records in our e-sales system, that our e-sales and offline
distribution networks include approximately 134,000 and 174,000
points of sale in China,
respectively. Our data center and servers maintain user information, including user registration
information and data relating to usage patterns, and we do not rely on distributors for such
information.
The following table sets forth the percentage of pre-paid card sales from each of these
distribution channels in 2005:
Prepaid Card Sales in
Distribution Channel
2004
2005
E-sales
44.7
%
48.6
%
Offline Distribution
44.1
%
36.9
%
Direct Online Sales
5.7
%
13.8
%
Other
5.4
%
0.7
%
Total
100
%
100
%
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In 2005, we offered average sales discounts of approximately 23.8% and 16.7% to our
e-sales distributors and offline distributors, respectively. The sales discount represents the
difference between the price at which we sell pre-paid cards to distributors and the face value of the
pre-paid cards. We generally offer a larger discount to our e-sales distributors than our offline
physical card distributors because we intend to facilitate the expansion of our e-sales system,
which provides us with control over the distribution process. In addition, the cost of distributing
virtual pre-paid cards through our e-sales system is lower than the costs involved in offline
distribution of physical pre-paid cards. In addition, we are actively promoting direct online
sales of our pre-paid cards through credit and debit card payments. For more information on our
sales discount policy, please also see subsection "A. Operating Results-Net Revenue" in Item 5
"Operating and Financial Review and Prospects "
Our Unified User Platform
Through our unified user and billing verification system, users can access our various online
games and other interactive entertainment content through a single Shanda account. We believe that
our unified user platform helps us to leverage the value of our user base within any given
application, to build user loyalty and to have an efficient means to manage our billing and user
data as well as to organize promotional events for new products and services.
Marketing
Due to the group interaction appeal of online games, word-of-mouth is a major medium for
promoting our games. Our marketing strategy includes utilizing our large user base and nationwide
distribution network to retain our existing users and attract new users. We employ a variety of
traditional and online marketing programs and promotional activities, including in-game events,
in-game marketing, open beta testing and offline efforts.
We frequently organize in-game events for our users, which we believe encourages the
development of virtual communities among our users and increases user interest in our games.
Examples of in-game events include special challenges or features, such as fortress raids,
introduced to the game environments for a scheduled period. In addition, we use in-game events to
introduce users to new features of our games. Moreover, we frequently post announcements in the
game environment of our MMORPGs to promote new features, other improvements to the games, and
in-game events. We generally use these announcements to promote the game in which they are
displayed.
Our open beta testing system both tests the operation of new games under open market
conditions and introduces new games to users. During open beta testing, we do not charge users to
play the new game. Open beta testing provides an initial user base and creates initial excitement
and word-of-mouth publicity to support the commercial launch of the game.
We also market new games through offline efforts. We promote new games by placing game posters
in Internet cafes. In addition, we place advertisements
in traditional print media as well as on billboards and city buses. In connection with the
commercial launch of Magical Land, for example, we placed advertisements in over 100 newspapers and
magazines, over 600 billboards in nine major cities and on over 200 websites. We also cooperated
with other businesses, such as soft drink manufacturers in
co-marketing projects. In addition, we organize
promotional events at Internet cafes, distribution points, school campuses and other locations
frequented by game players. We also sponsor select media events to promote our brand name and our
games.
Customer Service
We regard customer service as one of our key marketing tools and we are committed to providing
superior customer service to our users. We provide service to our customers through three principal
channels:
•
our call center, which serves our customers 24 hours per day, seven days per week;
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•
our walk-in customer service center, located in Shanghai; and
•
e-mail and facsimile letters.
In addition, we offer bulletin board services that allow users to post questions to, and
receive responses from, other users.
Technology Infrastructure
We have developed an extensive technology infrastructure to support the operation of our
games, including a nation-wide server network. Due to the real-time interaction among thousands of users,
the stable operation of our MMORPGs requires a large number of servers and a significant amount of
connectivity bandwidth. Due to China's large geographical area and limitations on bandwidth, we
have located game servers for our MMORPGs in a number of regions throughout China. As a result, our
MMORPG users can play our games using servers located in their region and without exchanging data
across the national network, thereby increasing the speed at which our games operate and enhancing
the user experience.
As of December 31, 2005, our server network for our game operations consisted of approximately
13,400 servers and 2,500 server annex equipment units with the capacity to accommodate up to 6.6
million concurrent online users. As of December 31, 2005, we owned approximately 57.7% of the
servers in our network, and we leased the remainder from telecommunications operators. All of the
servers in our server network are located on the premises of our hosting telecommunications
operators.
Our EZ Initiative
In 2005 we introduced our EZ Center platform as an integral part of our home strategy, which
aims to provide home users with a broad range of interactive entertainment content from the
Internet and display them in a user-friendly interface that has simple intuitive menus,
large text and clear graphics. Through cooperation with a variety of Internet content and service
providers, we offer an array of content and services to users over our EZ Center platform,
including literature, music, movies, radio, finance, e-commerce, travel, news and education
programs.
The EZ Center platform is supported by our integrated operating platform, including our
unified user account authorization system, payment system and customer service center. Users that
purchase an EZ series product and access the EZ Center platform will, after a free or reduced rate
introductory period, be able to purchase EZ content and services on an a-la-carte basis or on a
monthly subscription basis. As of March 31, 2006, we have not yet started to charge users for
access to content or services over the EZ Center platform.
The debut of the EZ Pod was our first step to bring the interactive entertainment content
offerings on the EZ Center platform to home users in China. The EZ Pod includes a remote control,
an inferred dongle and the EZ Center software. The EZ Center software
solution transforms an average PC into an entertainment PC, thus changes the way users navigate the
online media content from an information-based Internet portal model to an application-based new
entertainment portal model.
The EZ Pod is a Shanda in-house developed product and we are actively managing its
marketing and distribution. We commercially launched the EZ Pod on December 1, 2005 and are
distributing the EZ Pod primarily through two channels. The first is our own distribution channel,
including the distribution channel for our pre-paid cards, which will target existing personal
computer owners encouraging them to transform their computers into an entertainment PC by
purchasing and installing an EZ Pod. The second channel is through partnerships with PC
manufactures, targeting new PC purchasers by
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bundling and pre-installing EZ Center software on new
computers. In addition, we are actively exploring other opportunities in partnerships, such as
collaboration with telecom operators.
As part of our EZ initiative, we are also exploring additional products that would allow users
to access the EZ Center platform through various delivery channels. If we introduce additional
products, we do not intend to be responsible for hardware manufacturing, inventory, sales and
distribution of those products. Instead, we intend to license the hardware and software solutions
to consumer electronic manufactures. We will focus not upon the hardware component of the EZ
initiative, but upon providing content and services to users over the EZ Center platform.
Competition
We compete primarily with other online game operators based in China. We believe that domestic
operators, including us, are likely to have a competitive advantage over international service
providers who enter the China market, as these international service providers are likely to lack
operational infrastructure in China and content localization experience for the China market. We
cannot assure you, however, that this competitive advantage will continue to exist, particularly if
international operators establish joint ventures or form alliances with, or acquire, domestic
operators. In addition, we compete for users against various offline games, such as console games,
arcade games and handheld games, as well as various other forms of traditional or other online
entertainment.
Intellectual Property and Proprietary Rights
We rely on copyright, trademark, patent, trade secret and other intellectual property law, as
well as non-competition, confidentiality and license agreements with our employees, suppliers,
business partners and others to protect our intellectual property rights. Our employees are
generally required to sign agreements acknowledging that all inventions, trade secrets, works of
authorship, developments and other processes generated by them on our behalf are our property, and
assigning to us any ownership rights that they may claim in those works. Despite our precautions,
it may be possible for third parties to obtain and use intellectual property that we own or license
without our consent. Unauthorized use of our intellectual property by third parties, and the expenses
incurred in protecting our intellectual property rights, may adversely affect our business.
As of December 31, 2005, we own 35 software copyrights, each of which we have registered with
the State Copyright Bureau of the PRC.
As of December 31, 2005, we own 28 trademarks, each in various classes, each of which we have
registered with the China Trademark Office, and had 70 trademark applications, each in various
classes, pending with the China Trademark Office. We have also filed applications to register
certain trademarks in a number of other jurisdictions, including Taiwan, Hong Kong,
South Korea, the United States, India, Japan, Canada, Singapore and New Zealand.
As
of December 31, 2005, we hold six patents granted by the State
Intellectual Property Office of the
PRC and we have eleven patent applications pending with the
State Intellectual Property Office. In addition, we hold two patents
that have been granted by select jurisdictions outside of China,
including the European Union, South Korea and Singapore.
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Regulatory Matters
The online game industry in China operates under a legal regime that consists of the State
Council, which is the highest authority of the executive branch of the PRC central government, and
the various ministries and agencies under its leadership. These ministries and agencies mainly
include:
•
the Ministry of Information Industry;
•
the Ministry of Culture;
•
the State Press and Publications Administration;
•
the State Copyright Bureau;
•
the State Administration for Industry and Commerce;
•
the Ministry of Public Security; and
•
the Bureau of State Secrecy.
The State Council and these ministries and agencies have issued a series of rules that
regulate a number of different substantive areas of our business, which are discussed below.
Foreign Ownership Restrictions
PRC regulations currently limit foreign ownership of companies that provide Internet content
services, which includes operating online games, to 50%. In addition, foreign and foreign-invested
enterprises are currently not able to apply for the required licenses for operating online games in
China. In order to comply with foreign ownership restrictions, we operate our online game business
in China through Shanda Networking, which is wholly owned by Tianqiao Chen, our chairman and chief
executive officer, and Danian Chen, our executive senior vice president, both of whom are PRC
citizens, and through Nanjing Shanda and Hangzhou Bianfeng, which are subsidiaries of Shanda
Networking. Under PRC law, we cannot hold the licenses and approvals necessary to operate our
online games because those licenses and approvals can only be held by domestic PRC persons and we
are not considered to be a domestic PRC person for this purpose. We believe that (1) the ownership
structures of our company, Shengqu and our PRC operating companies are in compliance with existing
PRC laws and regulations, (2) our contractual arrangements with Shanda Networking and its
shareholders are valid and binding, and will not result in any violation of PRC laws or regulations
currently in effect; and (3) the business operations of our company, Shengqu and our PRC operating
companies, as described in this annual report, are in compliance with existing PRC laws and
regulations in all material aspects. There are, however, substantial uncertainties regarding the
interpretation and application of current or future PRC laws and regulations. Accordingly, we
cannot assure you that the PRC regulatory authorities will not ultimately take a view that is
contrary to our view. If the PRC government finds that the agreements that establish the structure
for operating our China business do not comply with PRC government restrictions on foreign
investment in the online game industry, we could be subject to severe penalties.
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Licenses
There are a number of aspects of our business which require us to obtain licenses from a
variety of PRC regulatory authorities.
As ICP service providers, our PRC operating companies are required to either hold value-added
telecommunications business operation licenses, or ICP licenses, issued by the Ministry of
Information Industry or its local offices or be sublicensed by qualified ICP license holders.
Moreover, ICP operators providing ICP services in multiple provinces, autonomous regions and
centrally administered municipalities may be required to obtain an Inter-regional ICP license.
Shanda Networking and Shanghai Shulong Technology Development Co., Ltd. have already obtained
inter-regional ICP licenses, which both cover SMS service. Shanda Networking's license also covers
online bulletin board service. Nanjing Shanda and Hangzhou Bianfeng currently conduct ICP
businesses by having sublicensing arrangements with Shanda Networking.
Each ICP license holder that engages in the supply and servicing of Internet cultural
products, which include online games, must obtain an additional Internet culture business
operations license from the Ministry of Culture. Shanda Networking holds an Internet culture
business operations license issued by the Ministry of Culture. In connection with our launch of
certain EZ series products, which offer video and audio content, such as music and movies, we may
need to obtain a license from the State Administration of Radio, Film and Television. We understand
that non-State-owned companies may not be able to obtain such a
license and, accordingly, if it is determined that such a license is
required our E2 initiative may be materially and adversely affected.
The State Press and Publications Administration and the Ministry of Information Industry
jointly impose a license requirement for any company that intends to engage in online publishing,
defined as any act by an Internet information service provider to select, edit and process content
or programs and to make such content or programs publicly available on the Internet. Shanda
Networking holds an online publishing license issued by the State Press and Publications
Administration. In addition, the Ministry of Culture requires us to submit for its content review
and approval any online games we would like to import. If we import games without that approval,
the Ministry of Culture may impose penalties on us, including revoking our Internet culture
business operations license required for the operation of online games in China.
The Ministry of Public Security imposes a license requirement for any company that intends to
engage in the development and sales of computer and information system safety guard products.
Shanda Networking holds a computer and information system safety guard products sales license
issued by the Ministry of Public Security.
ICP License Sublicensing
According to rules promulgated by the Ministry of Information Industry, an ICP service
provider that has obtained an inter-regional ICP license shall conduct its business operations in
provinces, autonomous regions and centrally administered municipalities as covered by its license
within one year after acquiring the license. An inter-regional ICP service provider may authorize
its subsidiaries or its branches to conduct an ICP business in licensed regions. If it authorizes
its subsidiaries, the ICP service provider's shareholding in such subsidiaries must be greater than
51%. Moreover, an ICP service provider shall not authorize two or more subsidiaries or branches to
conduct the same ICP business in the same region. Shanda Networking has authorized Nanjing Shanda
and Hangzhou Bianfeng to conduct ICP business in several regions. Nanjing Shanda is responsible for
the east and central-south of China. Hangzhou Bianfeng is responsible for north-east China.
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Shanda
Networking will continue to conduct online game business in residual regions, with its Xian branch,
Beijing branch and its subsidiary Chengdu Jisheng Technology Co., Ltd. being respectively
responsible for north-west China, north China and south-west China. Shanghai Shulong Technology
Development Co., Ltd has set up five branches and authorized them to conduct ICP business in five
regions of north China, north-east China, central-south China, south-west China and north-west
China. Shanghai Shulong Technology Development Co., Ltd. is responsible for east China.
Regulation of Internet Content
The PRC government has promulgated measures relating to Internet content through a number of
ministries and agencies, including the Ministry of Information Industry, the Ministry of Culture
and the State Press and Publications Administration. These measures specifically prohibit Internet
activities, which includes the operation of online games that result in the publication of any
content which is found to, among other things, propagate obscenity, gambling or violence, instigate
crimes, undermine public morality or the cultural traditions of the PRC, or compromise State
security or secrets. If an ICP license holder violates these measures, the PRC government may
revoke its ICP license and shut down its websites.
Regulation of Information Security
Internet content in China is also regulated and restricted from a State security standpoint.
The Standing Committee of the National People's Congress, China's national legislative body, issued
a decision in December 2000, according to which following conducts in China may be subject to
criminal punishment in China any effort to: (1) gain improper entry into a computer or system of
strategic importance; (2) disseminate politically disruptive information; (3) leak state secrets;
(4) spread false commercial information; or (5) infringe intellectual property rights.
The Ministry of Public Security has promulgated measures that prohibit use of the Internet in
ways which, among other things, result in a leakage of state secrets or a spread of socially
destabilizing content. The Ministry of Public Security has supervision and inspection rights in
this regard, and we may be subject to the jurisdiction of the local security bureaus. If an ICP
license holder violates these measures, the PRC government may revoke its ICP license and shut down
its websites.
Import Regulation
Our ability to license online games from abroad and import them into China is regulated in
several ways. We are required to register with the Ministry of Commerce any license agreement with
a foreign licensor that involves an import of technologies, including online game software into
China. Without that registration, we cannot remit licensing fees out of China to any foreign game
licensor. Furthermore, the State Copyright Bureau requires us to register copyright license
agreements relating to imported software. Without the State Copyright Bureau registration, we
cannot remit licensing fees out of China to any foreign game licensor and are not allowed to
publish or reproduce the imported game software in China. In addition, imported online game
software is also required to pass a content examination by the Ministry of Culture. Any imported
online game software, which has not been examined and approved by the
Ministry of Culture or is not
registered with the Ministry of Information Industry, is not allowed to be put into operation in
China.
Publishing Regulation
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Our publishing activities include both online publishing and offline publishing. In order to
engage in the online publishing business, we have obtained licenses from both the State Press and
Publications Administration and the Ministry of Culture. We do not hold the required license to
engage in offline publishing, so in order to conduct our game related content publishing business, we
cooperate with companies that are licensed to conduct such businesses.
Advertising Regulation
According to PRC laws and regulations, in order to conduct advertising and related business, a
company must have an approved business scope that covers such businesses. Currently, we conduct our
advertising and related businesses primarily through our subsidiary, Shanghai Shengyue
Advertisement Co., Ltd., which is licensed to conduct these businesses.
Intellectual Property Rights
The State Council and the State Copyright Bureau have promulgated various regulations and
rules relating to protection of software in China. Under these regulations and rules, software
owners, licensees and transferees may register their rights in software with the State Copyright
Bureau or its local branches and obtain software copyright registration certificates. Although such
registration is not mandatory under PRC law, software owners, licensees and transferees are
encouraged to go through the registration process and registered
software rights may be entitled to better
protections. We have registered all of our commercially launched in-house developed online games with
the State Copyright Bureau.
Internet Cafe Regulation
Internet cafes are required to obtain a license from the Ministry of Culture and the State
Administration of Industry and Commerce, and are subject to requirements and regulations with
respect to location, size, number of computers, age limit of customers and business hours. Although
we do not own or operate any Internet cafes, many Internet cafes distribute our virtual pre-paid
cards. The PRC government has announced its intention, and has begun, to intensify its regulation
of Internet cafes, which are currently the primary venue for our users to play online games. In
February 2004, the State Administration of Industry and Commerce and other related government
agencies issued a notice to suspend issuance of new Internet cafe licenses for a six month period.
While the specified suspension period is nominally over, in practice, to obtain a license for
setting up a new Internet café remains very difficult. Intensified government regulation of
Internet cafes could restrict our ability to maintain or increase our revenues and expand our
customer base.
Privacy Protection
PRC law does not prohibit Internet content providers from collecting and analyzing personal
information from their users. We require our users to accept a user agreement whereby they agree to
provide certain personal information to us. PRC law prohibits Internet content providers from
disclosing to any third parties any information transmitted by users through their networks unless
otherwise permitted by law. If an Internet content provider violates these regulations, the
Ministry of Information Industry or its local bureaus may impose penalties and the Internet content
provider may be liable for damages caused to its users.
C. ORGANIZATIONAL STRUCTURE
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We are a holding company with no operations of our own. We are a Cayman Islands exempted
company and we conduct our operations in China primarily through Shengqu, our indirectly wholly
owned subsidiary. We and Shengqu are foreign or foreign-invested enterprises under PRC law and
accordingly are ineligible to apply for a license to operate online games. In order to comply with
foreign ownership restrictions, we operate our online game business in China through Shanda
Networking, which is wholly owned by Tianqiao Chen, our chairman and chief executive officer, and
Danian Chen, our executive senior vice president, both of whom are PRC citizens, and through
Nanjing Shanda and Hangzhou Bianfeng, which are subsidiaries of Shanda Networking. Shanda
Networking, Nanjing Shanda, Hangzhou Bianfeng, collectively referred to as our PRC operating
companies, and other subsidiaries of Shanda Networking hold the licenses and approvals that are
required to operate our online game business and to sell online advertising on our web pages, and
Shengqu owns the substantial majority of physical assets. Shengqu has entered into a series of
contractual arrangements with Shanda Networking and its shareholders. As a result of these
contractual arrangements, we are considered the primary beneficiary of Shanda Networking and its
subsidiaries (including the other PRC operating companies) and accordingly we consolidate the
results of operations of Shanda Networking and its subsidiaries in our financial statements.
However, neither we nor Shengqu owns the equity of the PRC operating companies, and, although we
consolidate the results of the PRC operating companies in our consolidated financial statements and
we can utilize their cash and cash equivalents in our operations through our contractual
arrangements with Shanda Networking, we do not have direct access to the cash and cash equivalents
or future earnings of the PRC operating companies. As of March 31, 2006, we had approximately
RMB817.3 million (US$101.3 million)in cash and cash equivalents, of which RMB442.0 million (US$54.8
million)was held by Shanda Networking and its subsidiaries.
Pursuant to our contractual arrangements with Shanda Networking and the other PRC operating
companies, we provide services, software licenses and equipment to the PRC operating companies in
exchange for fees. The principal service, software license and equipment lease agreements that we
have entered into are:
•
equipment leasing agreements, pursuant to which Shanda Networking, Nanjing Shanda
and Hangzhou Bianfeng lease a substantial majority of their operating assets from
Shengqu;
•
a technical support agreement, pursuant to which Shengqu provides technical support
for Shanda Networking's operations;
•
technology licensing agreements, pursuant to which Shengqu licenses certain billing
technology to Shanda Networking, Nanjing Shanda and Hangzhou Bianfeng;
•
software license agreements, pursuant to which Shengqu licenses certain software to
Shanda Networking, Nanjing Shanda and Hangzhou Bianfeng;
•
a strategic consulting agreement, pursuant to which Shengqu provides strategic
consulting services to Shanda Networking; and
•
online game distribution and service agreements, pursuant to which Shanda
Networking, Nanjing Shanda and Hangzhou Bianfeng distributes and services certain online
games that are licensed or owned by Shengqu.
In addition, we have entered into agreements with Shanda Networking and its shareholders that
provide us with the substantial ability to control Shanda Networking. Pursuant to these contractual
arrangements:
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•
the shareholders of Shanda Networking have granted an irrevocable proxy to
individuals designated by Shengqu to exercise the right to appoint directors, the general
manager and other senior management of Shanda Networking;
•
Shanda Networking will not enter into any transaction that may materially affect
its assets, liabilities, equity or operations without our prior written consent;
•
Shanda Networking will not distribute any dividend;
•
Shengqu may purchase the entire equity interest in, or all the assets of, Shanda
Networking for a purchase price of the lower of RMB10 million or the lowest price
permitted under PRC law when and if such purchase is permitted by PRC law or when the
current shareholders of Shanda Networking cease to be directors or employees of Shanda
Networking;
•
the shareholders of Shanda Networking have pledged their equity interest in Shanda
Networking to Shengqu to secure the payment obligations of Shanda Networking under all of
the agreements between Shanda Networking and Shengqu; and
•
the shareholders of Shanda Networking will not transfer, sell, pledge, dispose of
or create any encumbrance on their equity interest in Shanda Networking without the prior
written consent of Shengqu.
Each of Shengqu's contractual arrangements with Shanda Networking and its shareholders may
only be amended with the approval of our audit committee or another independent body of our board
of directors.
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The following diagram illustrates our corporate and share ownership structure as of March 31,
2006:
49
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1
Skyline Media Limited is 100% owned by Skyline Capital International
Limited, which is in turn 40% owned by Tianqiao Chen through Shanda Media Limited, a
company wholly owned by him, 30% owned by Danian Chen through Shanda Investment
International Limited, a company wholly owned by him, and 30% owned by Qianqian Luo
through Fortune Capital Holdings Enterprise Limited, a company wholly owned by her.
2
Shanda Interactive Entertainment Limited holds a beneficial ownership interest in
a number of subsidiaries and investee companies, a list of which is set forth below.
3
Shanda Networking holds a beneficial ownership interests in a number of
subsidiary and investee companies established in the PRC. Although we consolidate our
results of operations with those of Shanda Networking and its majority beneficially owned
subsidiaries, we do not own these entities. Shanda Networking's beneficial ownership
interests in its subsidiaries and investee companies are listed in the table set forth
below.
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Subsidiaries and Investee Companies
The following table sets forth the direct and indirect subsidiaries and investee companies of
Shanda Interactive Entertainment Limited.
Shanda Interactive
Entertainment's
Beneficial Ownership
Jurisdiction of
Percentage
1
Incorporation
Business
Shengqu Information Technology
(Shanghai) Co., Ltd.
100
%
PRC
Provider of information technology-related
services and developer of software
Shanda Computer (Shanghai)
Co., Ltd.
100
%
PRC
Developer of software, hardware and composite
systems for end-users
Grandpro Technology Ltd.
100
%
BVI
Network PC game platform operator
Shanda Zona LLC
100
%
Delaware
Developer and provider of server infrastructure
Shanda Zona Limited
100
%
BVI
Developer and provider of server infrastructure
Actoz Soft Co., Ltd.
38.1
%
Korea
Developer, operator and publisher of online
games
Sina Corporation
18.4
%
3
Cayman Islands
Online media company and value-added
information service provider for China and
Chinese communities worldwide
Grandpro Technology
(Shanghai) Co., Ltd.
100
%
PRC
Network PC game platform operator
The following table sets forth the direct and indirect subsidiaries and investee
companies of Shanda Networking. Although we consolidate our results of operations with those of
Shanda Networking and its majority beneficially owned subsidiaries, we do not own Shanda Networking
or such subsidiaries.
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Shanda Networking's
Beneficial Ownership
Jurisdiction of
Percentage
1
Incorporation
Business
Nanjing Shanda Networking Co.,
Ltd.
100
%
PRC
Operation of online games
Hangzhou Bianfeng Networking
Co., Ltd.
100
%
PRC
Operation of online games
Shanghai Shengjin Software
Development Co., Ltd.
51.0
%
PRC
Development of online games
Shanghai Shengpin Network
Technology Development Co.,
Ltd.
62.5
%
PRC
Development of online games
Shanghai Shanda Xinhua
Network Development Co.,
Ltd.
56.0
%
PRC
Development and distribution of game
publications and Products
Shanghai Orient Youth
Culture Development Co., Ltd.
16.8
%
2
PRC
Expo services, consulting services
related to international cultural
activities, and advertising business
Chengdu Jisheng Technology Co.,
Ltd.
100.0
%
PRC
Development and distribution of management
software for Internet cafes
Shanghai Shulong Technology
Development Co., Ltd.
100.0
%
PRC
Short messaging services
Shanghai Haofang Online
Information Technology Co.,
Ltd.
100
%
PRC
Operation of network PC game platform
Hangzhou Bianfeng Software Co.,
Ltd.
100
%
PRC
Development and operation of online chess and
board games
Beijing Manyou Tiandi Networking
Service Co., Ltd.
100
%
PRC
Development of virtual community website
Shanghai Xuanting Entertainment
Information Technology Co.,
Ltd.
100
%
PRC
Publication of original literature online
Beijing Digital Red Software
Technology Co., Ltd.
100
%
PRC
Development of mobile phone-based wireless games
Shanghai Shengyue Advertisement
Co., Ltd.
100
%
PRC
Provider of online advertising services
Beijing Shengkai Interactive
Entertainment Technology Co.,
Ltd.
75
%
PRC
Development of video games.
Shanghai Qipai Computer
Technology Co., Ltd.
100
%
PRC
Development and operation of online chess and
board games.
Shanghai Shanda Family Culture
Communication Co., Ltd.
49
%
PRC
Distributer of magazines
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Shanda Networking's
Beneficial Ownership
Jurisdiction of
Percentage
1
Incorporation
Business
Shanghai Shengci Network
Technology Co., Ltd.
75
%
PRC
Developer of instant message software
Wenzhou Chuangjia Technology
Co., Ltd.
100
%
PRC
Development and operation of online chess and
board games.
1
For purposes of reporting beneficial ownership, we include interests held by
controlled subsidiaries and nominee shareholders. Due to certain restrictions under PRC
Company Law and practices, most PRC limited liability companies, including Shanda
Networking, were required to have two or more shareholders. A common practice in cases
where a subsidiary would otherwise be wholly-owned is to realize ownership and control
via connected companies or organize a second, nominee shareholder through whom control
and beneficial ownership are maintained by contractual arrangements. PRC Company Law was
amened on October 27, 2005, which came into effect on January 1, 2006. According to the
amended Company Law, limited liability companies are no longer required to have two or
more shareholders. We may change our current shareholding structure accordingly.
2
The figure 16.8% is derived from the fact that Shanda Networking owns 56% of
Shanghai Xinhua Networking Development Co., Ltd., which in turn owns 30% of Shanghai
Orient Youth Culture Development Co., Ltd.
3
We currently hold 9,821,765 ordinary shares of Sina Corporation, or Sina. The
figure 18.4% is based on the 53,289,232 ordinary shares outstanding as of March 10, 2006,
as reported by Sina Corporation on its 10-K annual report, filed with the Securities and
Exchange Commission on March 15, 2006. The figure 19.5% we disclosed in February 2005 is
based on the 50,477,694 ordinary shares outstanding as of October 30, 2004, as reported
by Sina Corporation on its 10-Q quarterly report, filed with the Securities and Exchange
Commission on November 11, 2004.
D. PROPERTY, PLANTS AND EQUIPMENT
Our principal executive offices are located in approximately 14,500 square meters of office
space in the No. 1 Office Building in Shanghai under a lease that expires in December 2008. In the
fourth quarter of 2005, we acquired a property located at Guoshoujing Road 356, Shanghai, with
approximately 10,197.70 square meters of office spaces in Shanghai for office use. We occupy
approximately 2,000 square meters of additional leased office space and warehouse space in a number
of locations in Shanghai and approximately 6,500 square meters of additional leased office space in
Beijing, Shenzhen, Chengdu, Hangzhou, Guangzhou and Wuhan, China; Tokyo, Japan; and Santa Clara,
California. We believe that our existing facilities are adequate for our current requirements and
that additional space can be obtained on commercially reasonable terms to meet our future
requirements.
Item 4A. Unresolved Staff Comments
Not applicable
Item 5. Operating and Financial Review and Prospects
The following discussion of our financial condition and results of operations is based upon
and should be read in conjunction with our consolidated financial statements and their related
notes included in this annual report on
Form 20-F
. This report contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities
and Exchange Act of 1934, or the Exchange Act, including, without limitation, statements regarding
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our expectations, beliefs, intentions or future strategies that are signified by the words
"expect", "anticipate", "intend", "believe", or similar language. All forward-looking statements
included in this annual report are based on information available to us on the date hereof, and we
assume no obligations to update any such forward-looking statements. Actual results could differ
materially from those projected in the forward-looking statements. In evaluating our business, you
should carefully consider the information provided under the caption "Risk Factors" in this annual
report on
Form 20-F
. We caution you that our businesses and financial performance are subject to
substantial risks and uncertainties.
Our consolidated financial statements and the financial data included in this annual report
reflect our reorganization and have been prepared as if our current corporate structure had been in
existence throughout the relevant periods. See note 1 to our audited consolidated financial
statements.
Overview
We are an interactive entertainment company and one of the largest operators of online games
in China. In 2005, our commercially launched games had approximately 2.68 million peak concurrent
users and 1.38 million average concurrent users, which refer to the highest number and average
number, respectively, of users playing our games at the same time during that period. Immediately
below is a summary of our net revenue and net income over the past two years:
•
In 2005, our net revenues increased by 46.0% to RMB1,896.6 million (US$235.0 million) from
RMB1,298.7 million in 2004; but our net income decreased by 72.9% to RMB165.3 million (US$20.5
million) in 2005 from RMB609.5 million in 2004. The decrease in net income is primarily due to a
provision of RMB521.5 million (US$64.6 million) for impairment of the investment in Actoz Soft
Co., Ltd., or Actoz, an associated company in which we own its 38.1%
equity interest; and
•
Our net revenues increased by 116.5% to RMB1,298.7 million in 2004 from RMB600.0 million in
2003; our net income increased by 123.4% to RMB609.5 million in
2004 from RMB272.9 million in 2003.
Significant factors affecting our financial condition and results of operations include:
•
The commercial lifespan of the online games and other content that we offer, and
our ability to replace such content with new popular online games during that lifespan;
•
The arrival of additional competition into our markets and its erosion of any
first-mover advantage that we might have benefited from by having been one of the first
entrants into the online game market in China, and any effect on market prices and the
costs of our services and operations;
•
Our ability to successfully grow through the identification and acquisition of
complementary businesses and our ability to successfully integrate acquired companies and
realize synergies envisioned at the time of acquisition;
•
Our ability to successfully develop the EZ initiative and transition from a pure
online game company to an interactive entertainment media platform, content and service
provider.
•
The cost of researching, developing and marketing new products, including the EZ initiative.
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•
Our traditional subscription based pay-to-play revenue model;
•
The willingness of users to purchase in-game value-added services following the
introduction of a new free-to-play and pay-for-in-game-value-added services revenue model
for our leading MMORPGs.
•
The costs of licensing and in-house development of new games;
•
The future availability of preferential tax treatments and government financial
incentives in China;
•
The effect of PRC regulations on the conduct of our operations; and
•
The growth of Internet and personal computer use and the popularity of these
media as a source of entertainment.
In late November 2005, we adopted a free-to-play and pay-for in-game value-added services
revenue model for three of our MMORPGs: Mir II, Magical Land and Woool. Going forward, we will
consider adopting this new revenue model for our other existing MMORPGs, depending on the game type
and lifecycle. Under this new revenue model, which is also used for our casual games, playing the
basic features of the game is free and users are able to purchase in-game value-added services,
including in-game items and premium features, that enhance the game experience. This new revenue
model was introduced primarily in response to the changes in consumption patterns of online game
players, as well as market conditions of online game industry in China since we first standardized
the pay-to-play revenue model for MMORPGs more than four years ago.
In 2005, as part of our transition from a pure online game operator to an interactive
entertainment media company, we introduced the EZ initiative as an integral part of our home
strategy. This initiative aims to provide home users with a broad range of entertainment content
and services in a convenient and easy-to-use format. We intend to generate revenues from the EZ
initiative from the sale of content and services over the EZ Center platform as well as from the
sale or licensing of EZ Series products, and  we continue efforts in
building better partnerships and developing the distribution models for our EZ Pod products.
Recent Acquisitions
In 2004 as well as 2005, we developed and expanded our business through strategic acquisitions
and investments. Since the completion of our initial public offering and listing on Nasdaq in May
2004, we have completed acquisitions and investments in businesses that specialize in, among other
things, online chess and board games, infrastructure platforms for online and network PC games,
mobile phone games, online games and online media, wireless value-added services and Internet
portal services. These investments helped us to expand our product offerings and to grow our user
base.
Our recent purchases and acquisitions have included the following:
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•
In July 2004, we completed the acquisition of Hangzhou Bianfeng Software Co. Ltd., or
Bianfeng, a developer and operator of online chess and board games in China. The total
purchase price for the entire equity interest in Bianfeng and an affiliated company was
US$20.0 million in cash.
•
In September 2004, we completed the acquisition of Shanghai Xuanting Entertainment
Information Technology Co., Ltd., which operates Qidian, an online forum where
independent writers publish their original literature online. The total purchase price
for the entire equity interest in Qidian was RMB16.5 million (US$2.0 million).
•
In October 2004, we completed the second step of a two-step acquisition of Beijing
Digital Red Software Application Technology Co., Ltd., or Digital Red, a developer of
mobile phone games. The total purchase price for the entire equity interest in Digital
Red was RMB19.2 million (US$2.4 million).
•
In February 2005, we completed our purchase of an approximately 29% stake in Actoz
Soft Co., Ltd., or Actoz, a Korean developer, operator and publisher of online games from
certain shareholders of Actoz for approximately US$91.7 million in cash. Prior to the shares transfer, we had purchased approximately 9% of Actoz's issued and outstanding shares from KOSDAQ market at an aggregate cost of approximately US$14.4 million. As a
result, our ownership in equity interest of Actoz raised to 38.1%. Actoz owns 50% of the
copyright for Mir II, the operation of which has generated a significant portion of our
revenue.
•
In February 2005, we completed the purchase of an approximately 19.5% stake in
Sina, an online media company, wireless value-added services provider and Internet portal
in China, the shares of which are publicly traded on Nasdaq, at a purchase price of
US$227.6 million.
•
In May 2005, we completed the second step of a two-step acquisition of Shanghai
Haofang Online Information Technology Co. Ltd., or Haofang, the operator of the largest
network PC game platform in China. The total purchase price for the entire equity
interest in Haofang and two affiliated companies, including earn-out payments, which was
made in February 2006 based on the audited earnings of 2005, was US$56.0 million.
•
In November 2005, we completed the acquisition of Wenzhou Chuangjia Technology Co.,
Ltd., or Gametea, a developer and operator of online chess and board games in China. The
total purchase price for the entire equity interest in Gametea and an affiliated company
was US$4.9 million in cash, of which approximately US$ 3.6 million was paid up, and the
remaining consideration shall be paid by two installments in the next two years.
From time to time, we may engage in discussions with third parties with respect to additional
acquisitions or investments. Our reported financial results may be affected by any such
acquisitions and/or investments, including any acquisitions or dispositions undertaken by us in
anticipation of or in connection with any such acquisitions and/or investments. See "Risk Factors"
in Item 3 "Key Information".
Related Party Arrangements
In order to comply with current foreign ownership restrictions, we operate our online game
business in China through Shanda Networking, a company wholly owned by Tianqiao Chen, our chairman
and chief executive officer, and Danian Chen, our executive senior vice president, both of whom are
PRC citizens, and through Nanjing Shanda and Hangzhou
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Bianfeng, which are subsidiaries of Shanda
Networking. Tianqiao Chen and Danian Chen, together with Qianqian Luo, also own all of the shares
of Skyline Media Limited, our controlling shareholder. We have entered into a series of contractual
arrangements with Shanda Networking, Nanjing Shanda, Hangzhou Bianfeng and the shareholders of
Shanda Networking. Pursuant to these contractual arrangements, we provide services, software
licenses and equipment to the PRC operating companies in exchange for fees, and we have undertaken
to provide financial support to the PRC operating companies to the extent necessary for their
operations. As a result of these contractual arrangements, we are considered the primary
beneficiary of the PRC operating companies and accordingly we consolidate the results of operations
of the PRC operating companies in our financial statements. For a description of our contractual
arrangements with Shanda Networking and its shareholders and with Nanjing Shanda and Hangzhou
Bianfeng, see "Organizational Structure" in Item 4 and "Major Shareholders and Related Party
Transactions" in Item 7.
A. OPERATING RESULTS
Net Revenues
In 2005, we had net revenues of RMB1,896.6 million (US$235.0 million), of which net revenues
from our online games were RMB1,658.3 million (US$205.5 million), accounting for approximately
87.4% of total net revenues, and net revenues from other sources were RMB238.3 million (US$29.5
million), accounting for approximately 12.6% of total net revenues. Our online game revenues are
net of a sales discount, which in 2005 averaged approximately 23.8% and 16.7% of the face value of
our pre-paid cards that we sell to our e-sales distributors and offline distributors, respectively.
The sales discounts represent the difference between the price at which we sell pre-paid cards to
distributors and the face value of the pre-paid cards. In April 2006, we adopted a new discount
policy, which cuts the sales discount rates, while alternatively gives distributors more rebate and
incentive, based on how much they sell and what kinds of pre-paid game card they sell. Under the
new policy, we are able to encourage our distributors to promote games and thus have more control
over the distributors.
Our net revenues reflect a deduction from our revenues for business taxes and related
surcharges incurred in connection with our China operations. Since Shanda Networking and its
subsidiaries operate in China, their revenues are subject to a business tax, at an effective rate
of 4.3%, on revenues earned from services provided in the PRC. We deduct these amounts from our
revenues to arrive at our net revenues. Due to the preferential treatments for qualified high
technology companies in China and the incentive from local government to encourage regional
business development, a portion of our revenues for which we previously paid business taxes in
connection with our operations in China are currently refunded to us in the form of government
financial incentives, but the amount of the financial incentives and the timing to grant them are
subject to determination of the government authorities. Upon receipt, these government financial
incentives are recognized as other income in our statements of operations and comprehensive income.
Please see "Taxation" in Item 10 "Additional Information" and note 7 to our consolidated financial
statements.
Sources of Revenues
Online game revenues.
We derive our online game revenues, which constitute substantially all
of our revenues, from online game usage fees paid by users of our MMORPGs and casual games. Mir II
and Woool are our two most popular MMORPGs and together have historically accounted for most of our
revenues. In the second half of 2005, revenues from Mir II and Woool declined as each game entered
the later stages of its lifecycle. We expect Mir II and Woool still to be significant contributors
to our revenues during the remainder of their respective lifecycles, and we have taken various
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measures to stabilize the revenue from these two games under the free-to-play and pay-for in-game
value-added services revenue model, including upgrade of game version and provision of various
customized virtual items and value-added services to game players. Revenues from casual games are
primarily derived from BNB and Maple Story. In 2005, the revenue contribution from casual games
increased to 21.2% of total net revenue from 16.5% of total net revenue in 2004. The revenue
contributed from BNB did, however, begin to decline during 2005 and we expect this downward trend
to continue in 2006. As a general matter, online games have a relatively short commercial
lifecycle, typically four to five years for successful games. According to our game pipeline, we
plan to commercially launch two licensed MMORPGs, Dungeons & Dragons Online and ArchLord, in the
second half of 2006. Dungeons & Dragons Online is licensed from a US game developer. We will
operate Dungeons & Dragons Online using the pay-to-play revenue model. ArchLord is a 3D MMORPG
developed by a leading South Korean game developer and will be
operated under the free-to-play and
pay-for in-game value-added services model. Within casual games, following the successful commercial
launch of our in-house developed car racing game Crazy Kart in March 2006, we plan to commercialize
two new casual games, including one South Korean music game DJ Max and one in-house developed casual
game in the second half of 2006. We expect that these new games will start to contribute revenue
beginning in the third or fourth quarter of 2006.
Other net revenues.
Our other net revenues primarily consist of net revenues from
online advertising, sales of our user password protection product, sales of EZ Pod, short messaging
services, or SMS, technical service and cooperation on our network PC game platform and our online
literature portal. In 2005, the contribution from other revenues increased to 12.6% of total net
revenue from 6.9% of total net revenue in 2004. In the last quarter of 2005, we commenced the sale
of EZ-Pod products, which is a software-based upgrade that allows users to access our interactive
entertainment content. For the year ended December 31, 2005, the revenue from sale of EZ Pod
amounted to RMB22.5 million (US$2.8 million). As of March 31, 2006, Shanda's EZ platform is still at
the trial run stage and we have not yet charged users subscription fee.
Significant Factors
Pay-to-play
revenue model.
Prior to late November 2005, our MMORPG online game revenues were
primarily derived from the purchase and utilization of playing time by our users. Accordingly, the
two significant factors that affect our MMORPG online game revenues have been:
•
the number of hours that users play our games, or total user-hours; and
•
our average revenue per user-hour.
We calculate our total user-hours based on our average concurrent users, which is a commonly
used industry statistic. In a given period, the number of total user-hours equals the average
concurrent users for that period multiplied by the number of hours in that period. In measuring
average concurrent users, we determine the number of users logged on to each of our commercially
launched games at one minute intervals, then average that data over the course of a day to derive
daily averages. Average daily information is further averaged over a particular period to determine
average concurrent users for that period. For a discussion of factors that might affect total
user-hours, see "Risk Factors" in Item 3, "Key Information".
Our effective revenue per user-hour is derived by taking the revenues from our online games
for a period and dividing this number by total user-hours in that period. This provides us with a
measure of the average revenue per user-hour that we receive from users that play our games.
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Free-to-play and pay-for in-game value-added services revenue model.
In late November 2005, we
adopted a free-to-play and pay-for in-game value-added services revenue model for three of our
MMORPGs: Mir II, Magical Land and Woool.
The free-to-play and pay-for in-game value-added services revenue model is also used for our
casual games. Under this model, users acquire in-game items by converting game points from pre-paid
cards. Because playing the basic features of the game is free and the purchase of in-game items is
optional, average concurrent users is not a significant revenue factor under this model. The most
significant factors that affect MMORPG and casual game revenue under the free-to-play and pay-for
in-game value-added services revenue model are:
•
the number of active paying accounts; and
•
our average revenue per active paying account.
The number of active paying accounts for any given period is equal to the number of accounts
from which game points are utilized during such period. Our average revenue per paying account is
equal to our revenue for the given period divided by our active paying accounts in that period. For
a discussion of factors that might affect the number of active paying casual game account and the
average revenue per active paying account, see "Risk Factors" in Item 3, "Key Information"
Revenue Collection
Our online game revenues are collected through the sale of pre-paid cards, which we sell in
both virtual and physical form, to third party distributors and retailers, including Internet
cafes, as well as through our direct online payment systems. In most cases, we receive cash
payments from these parties in exchange for delivery of the pre-paid cards. We do not provide
refunds to these distributors or retailers with respect to unsold inventories of pre-paid cards. We
also collect online game revenues through certain telecommunications service operators that bundle
broadband access services for home users with our online games.
Our other revenues are collected through mobile telecommunications service operators, in the
case of certain of our SMS services, and through traditional sales channels in the case of our
game-related publications, derivative products, online advertising sales, sales of our user
password protection product and sales of EZ Pod.
In 2005, we recorded doubtful debts in the amount of RMB55.7 million (US$6.9 million), which
was mainly due to overdue receivables from online advertising and sales of our user password
protection product. As of December 31, 2005, we had net accounts receivable of RMB81.1 million
(US$10.1 million), which were also mainly due from purchasers of online advertising and sales of
our user password protection product.
Revenue Recognition and Deferred Revenue
In the case of pay-to-play games, we recognize revenues based on the time units actually
consumed by our users, and, in the case of pay-for-items games, we recognize revenues over the life
of the in-game premium features users purchase or as the premium features are consumed. We also
recognize revenues when our users who had previously purchased playing time and/or points are no
longer entitled to access the online games in accordance with our published expiration policy. We
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account for the amounts received upon the sale of pre-paid cards, but prior to usage or expiration
of the value sold, as deferred revenue in our consolidated balance sheets. Deferred revenue is
reduced as revenues are recognized. As our online game business has grown, our deferred revenue
balances have increased from RMB197.5 million as of December 31, 2003, to RMB247.3 million as of
December 31, 2004. In 2005, however, our deferred revenue balance decreased to RMB172.5 million
(US$21.4 million) as of December 31, 2005.
Sales Tax
Our PRC affiliates are subject to PRC business tax. We primarily pay business tax on gross
revenues generated from online game operations, rentals, service fees and license fees. Shanda
Networking, Nanjing Shanda and Hangzhou Bianfeng pay business tax on their gross revenues derived
from online game operations at a rate ranging from 3% to 5%, and this business tax is deducted from
total revenues. In addition, Shengqu pays a 5% business tax on the gross revenues derived from its
contractual arrangements with Shanda Networking, Nanjing Shanda and Hangzhou Bianfeng, and these
taxes are primarily recorded in operating expenses in accordance with
our accounting policy.
Cost of Revenue
Our cost of revenue primarily consists of ongoing licensing fees for online games,
amortization of upfront licensing fees, server leasing and maintenance fees, salary and benefits,
depreciation of property, equipment and software, and manufacturing costs of pre-paid cards, our
user password protection product and EZ Pod.
Upfront and ongoing licensing fees.
The cost of licensing games from developers consists of
upfront licensing fees, which are generally paid in several installments, and ongoing licensing
fees, which are equal to a percentage of our revenues from the relevant licensed game. The ongoing
licensing fee payments range from 20% to 30% of revenues for our commercially launched MMORPGs, and
from 17% to 40% of our revenues for our commercially launched casual games. The cost of licensing
games was equal to 21.3% of our net revenues in 2004 and 17.7% of our net revenues in 2005, and
constituted the largest component of our cost of revenue in each such period. Six of the twelve
online games we offer commercially are licensed from third parties. The decrease of the percentage
of cost of licensing games in our net revenue is primarily due to the increase of percentage of net
revenue generated by Woool, an in-house developed game in total net revenue and the increase in our
non-game revenue.
Server leasing and maintenance fees.
Server leasing and maintenance fees was equal to 6.2% of
our net revenues in 2004 and 4.7% of our net revenues in 2005. As of December 31, 2005, we leased
approximately 42.3% of our servers, primarily from telecommunications companies. These companies
host our server network, and receive maintenance fees from us in addition to the lease payments.
The majority of our server leases have variable payment obligations based on the number of our
users logging on to each relevant server. We expect our costs for servers to increase in the
future, due to the purchase of additional servers in connection with our introduction of new games
and due to our recent change in revenue model, which resulted in an increase in the average number
of users playing our games. For a discussion of our change in revenue model, see Item 5 "Operating
and Financial Review and Prospects – A. Operating Results – Net Revenues – Significant Factors."
Depreciation of property, equipment and software.
Depreciation of property, equipment and
software, which consisted primarily of servers and other computer equipment, was equal to 2.2% of
our net revenues in 2004 and 2.3% of our net revenues in 2005. We include depreciation expenses
within our cost of revenue when the relevant assets are directly
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related to the operations of our
online game network and provision of online game services. Depreciation expenses are characterized
as operating expenses in all other cases. In 2005, the increase in our depreciation expense was
primarily due to the acquisition of additional servers. As we expect to continue to purchase
additional servers in connection with the introduction of new games, we believe that our depreciate
costs will continue to increase in 2006.
Salary and benefits.
Salary and benefits expense was equal to 1.8% of our net revenues in 2004
and 2.2 % of our net revenues in 2005. Salary and benefits expense includes employee wages and
welfare benefits, such as medical insurance, housing subsidies, unemployment insurance and pension
benefits. Salary and benefits expense included in our cost of revenue primarily relates to
employees involved in the operation of our online games, including network maintenance, billing
systems and our call center. In 2004 and 2005, approximately 18.2% and 18.6%, respectively, of our
salary and benefits expense was included in our cost of revenue, with the remainder constituting
operating expenses. We do not expect an increase in the number of employees involved in the
operation of our games in 2006. In the second quarter of 2006, we adopted a new compensation
structure for employees that operate our games, pursuant to which an employee's bonus is tied to
the financial performance of the game that his group operates. As this compensation structure is
untested, we are unsure what impact the new system will have on cost
of revenue salary and
benefits expense.
Gross profit/margin.
Gross profit represented 63.7% of our net revenues in 2004 and 67.6% of
our net revenues in 2005.
Operating Expenses
Our operating expenses consist of product development expenses, sales and marketing expenses,
general and administrative expenses.
Product development expenses.
Product development expenses were equal to 5.5% of our net
revenues in 2004 and 8.7% of our net revenues in 2005. Our product development expenses primarily
consist of salary and benefits expenses of personnel engaged in the research and development of our
products, amortization of software used by our research and development center, rental and
management fees for office space used by our research and development
center, share-based compensation, and depreciation of
equipment used in research and development activities. We expect our product development expenses
to continue to increase in the future, as we continue research and development projects related to
our EZ initiative and our in-house casual games.
Sales
and marketing expenses.
Sales and marketing expenses were equal to 7.0% of our net
revenues in 2004 and 12.4% of our net revenues in 2005. Our sales and marketing expenses primarily
consist of promotion, advertising and sponsorship of media events,
share-based compensation, and salary and benefits of our
sales and marketing department. We have taken various measures to improve the budget control
procedure. Going forward, we will focus on the effective usage of the budget, with emphasis on
promoting new games launched as well as our EZ initiative. We expect that sales and marketing
expenses will decline in 2006.
General and administrative expenses.
General and administrative expenses were equal to 11.8%
of our net revenues in 2004 and 13.7% of our net revenues in 2005. General and administrative
expenses primarily consist of salary and benefits for general management, finance and
administrative personnel, professional service fees, business tax
expense, share-based compensation, and provision for
doubtful debts. Our business tax expense primarily relates to services and licensing fees paid by
our PRC operating companies to Shengqu. Provisions of RMB 55.7 million (US$ 6.9 million) for
doubtful debts were made in 2005 for the
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overdue receivables from online advertising and sales of
our user password protection product. As a result of tightening of credit controls and other cost
control procedures, we expect general and administrative expenses to decline in 2006. See the
sections entitled "Our Corporate Structure" and "Related Party Transactions" in Item 7 "Major
Shareholders and Related Party Transactions" for additional description of the relationship between
Shengqu and our PRC operating companies.
Income from operations/margin.
In 2004, our income from operations accounted for 39.3% of our
net revenues. In 2005, our income from operations accounted for 32.8% of our net revenues.
Other Income
Our other income consists primarily of government financial incentives that certain of our PRC
incorporated affiliates receive from municipal governments and that are calculated with reference
to taxable income and revenues, as the case may be. In 2004 and 2005, we received aggregate
government financial incentives of RMB88.1 million and RMB137.3 million (US$17.0 million),
respectively, from municipal governments. We expect to continue receiving government financial
incentives relating to our 2005 taxable income and revenues in 2006, until those 2005 financial
incentives are completed. Going forward, eligibility for the government financial incentives we
are to receive requires that we continue to meet a number of government financial and non-financial
criteria to continue to qualify for these government financial incentives. Generally, which
include:
•
at least a minimum level of revenues must be generated from high-tech related sales
or services, determined as a percentage of total revenues;
•
at least a minimum number of employees must be engaged in research and
development; and
•
at least a minimum amount must be expended on research and development, determined
as a percentage of total revenues.
The continued qualification is further subject to the discretion of the municipal government.
Moreover, the central government or municipal government could determine at any time to immediately
eliminate or reduce these financial incentives. Upon expiration of these government financial
incentives, we will consider available options, in accordance with applicable law, that would
enable us to qualify for further government financial incentives to the extent they are then
available to us.
In 2005, other income also includes a foreign exchange gain of RMB48.9 million
(US$6.1 million) arising from a revaluation of monetary assets and liabilities
denominated in US dollar following the appreciation of the RMB against the U.S. dollar in 2005.
Income Tax Expense
Under the current laws of the Cayman Islands and the British Virgin Islands, neither Shanda
Interactive Entertainment Limited nor Shanda Holdings Limited, our wholly owned subsidiary
incorporated in the British Virgin Islands, is subject to tax on its income or capital gains. In
addition, payment of dividends by either company is not subject to withholding tax in those
jurisdictions.
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PRC enterprise income tax.
Our PRC incorporated affiliates, including Shengqu, Shanda
Networking, Nanjing Shanda, Hangzhou Bianfeng and Shanda Computer, are subject to PRC enterprise
income tax on the taxable income as reported in their respective statutory financial statements,
adjusted in accordance with the Enterprise Income Tax Law and the Income Tax Law of the People's
Republic of China concerning Foreign Investment Enterprise and Foreign Enterprises (collectively
the "PRC Income Tax Laws"), respectively. Pursuant to the PRC Income Tax Laws, our PRC incorporated
affiliates are generally subject to PRC enterprise income tax at a statutory rate of 33%, among
which Shengqu, Shanda Networking and Shanda Computer, because of incorporation in the Pudong New
District of Shanghai, are however, subject to a 15% preferential income tax rate pursuant to the
local tax preferential treatment. Shengqu, as a software development enterprise, has been granted a
two year income tax exemption to be followed by a three year 50% income tax reduction on its taxable
income, commencing the year ended December 31, 2003 ("tax holiday"). Nanjing Shanda, as a result of
receiving government's recognition as a technologically advanced enterprise in the third quarter of
2005, has been entitled to a full income tax exemption for two years effective from January 1, 2005
and will be subject to a preferential tax rate of 15% after
January 1, 2007 due to its residence in
a national high-tech development zone. As a result of this recognition, Nanjing Shanda received the refund for the
income tax it previously paid in 2005. Hangzhou Bianfeng was in the process of apply for
recognition as a technologically advanced enterprise in 2005 and was then subject to income tax at the
statutory rate of 33%. In the second quarter of 2006
,
Hangzhou Bianfeng received an approval from
local tax authorities in respect of the preferencial treatment as a technologically advanced
enterprise and is thus entitled to a reduced income tax rate of 15% effective from January 1, 2006.
Moreover, the income tax previously paid by Hangzhou Bianfeng for the year ended December 31, 2005
will be refunded to it in 2006. The qualifications of Shengqu, Shanda Networking, Nanjing Shanda
and Hangzhou Bianfeng as a software development enterprise or a technologically advanced enterprise
are required to be reassessed on an annual basis. Shanda Computer was still in a loss-making
position as of December 31, 2005, and thus no PRC enterprise income tax was due for the year then
ended.
Critical Accounting Policies
We prepare our financial statements in conformity with US GAAP, which requires us to make
estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of
contingent assets and liabilities on the date of the financial statements and the reported amounts
of revenues and expenses during the financial reporting period. We continually evaluate these
estimates and assumptions based on the most recently available information, our own historical
experience and on various other assumptions that we believe to be reasonable under the
circumstances. Since the use of estimates is an integral component of the financial reporting
process, actual results could differ from those estimates. Some of our accounting policies require
higher degrees of judgment than others in their application. We consider the policies discussed
below to be critical to an understanding of our financial statements as their application places
the most significant demands in our management's judgment.
Revenue Recognition
Substantially all of our revenues are collected through the sales of pre-paid cards, which we
sell in both virtual and physical form, to third party distributors and retailers. Prior to late
November 2005, we operated all MMORPGs under a pay-to-play model. Under this model, the
subscription fees from distributors or retailers are deferred when received and revenue is
recognized based upon the actual usage of time units by the end users. In late November 2005, we
changed the revenue model of certain MMORPGs from the pay-to-play model to a free-to-play and
pay-for in-game value-added services revenue model. Under the new model, players can access the
game free of charge but may pay for in-game premium features. Under
the new model, subscription fee is deferred
when received and revenue is recognized over the life of the premium
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features
users purchase or as the premium
features are consumed. For casual games, which can also be accessed
for free and in-game premium
features are provided users purchase with charges, we deferred the subscription fee received and recognize it as
revenue over the life of the premium features or as they are consumed.
Revenue is recognized when our users who had previously purchased playing time and/or points
are no longer entitled to use that playing time and/or points in accordance with our published
expiration policy. Our users must "activate" their pre-paid cards by using access codes and
passwords to transfer the value of those cards to their personal game accounts. Under our current
expiration policy, for MMORPGs, if a user's personal game account remains unused and the user does
not transfer additional value to the account over a period of six months, we suspend the use of
that account. Users may reactivate their suspended accounts by purchasing a new card and
transferring its value to that account within one month after suspension. For MMORPGs, after the
one month suspension, the account expires and any unused balance in that account may no longer be
used. For casual games, if a user's personal game account remains unused and the user does not
transfer additional value to the account over a period of three months, the account expires
immediately and reactivation is not allowed. Moreover,starting from January 2005, we recognize
revenues for pre-paid cards which are sold but not yet activated over certain time after the pre-paid
cards are sold to distributors. We account for the amounts received upon the sale of pre-paid
cards, but prior to usage and expiration of the value sold, these amounts are accounted for as
deferred revenue in our consolidated balance sheets. Deferred revenue is reduced as revenues are
recognized.
Portions of our deferred revenue are composed of the value from pre-paid cards which are
activated but not fully used, or not used at all, and the value from cards which are sold to
distributors, retailers or end users, for which we have received payment, but which have not yet
been activated by users. In accordance with our published expiration policy described above and
because we believe that the likelihood of our being required to render online game services in
connection with certain inactive accounts are remote, we recognize revenues and related amounts of
deferred expenses with respect to game accounts that have neither been utilized nor had value added
to them for seven months in MMORPGs, and for three months in casual games. Moreover, starting from
January 2005, we recognize revenues for pre-paid cards which are sold but not yet activated six or
twelve months after the pre-paid cards are sold, pacticularly six months for virtual pre-paid card
and twelve months for physical pre-paid card. As a result of this policy, we recognized additional
net revenues of RMB40.8 million in 2004 and additional net revenues of RMB86.1 million (US$10.7
million) in 2005. We also recognized related expenses, mainly licensing costs, of RMB10.3 million
and RMB18.9 million (US$2.3 million) in 2004 and 2005, respectively. Future usage may differ from
the historical usage patterns on which we based our revenue recognition policy. The sales of our
pre-paid cards to distributors and retailers include certain discounts from the face value of the
cards. As we do not have control over, and generally do not know the ultimate selling prices of,
these pre-paid cards, we recognize revenues from these transactions net of the discounts provided
to the distributors.
Consolidation of Variable Interest Entities
PRC regulations currently limit foreign ownership of companies that provide Internet content
services, which includes the operation of online games, to 50%. In addition, foreign and
foreign-invested enterprises are currently not able to apply for the licenses required to operate
online games in China or to provide Internet information content (such as online advertising). We
are a Cayman Islands exempted company and we conduct our operations in China primarily through
Shengqu, our indirect wholly owned subsidiary. We and Shengqu are foreign or foreign-invested
enterprises under PRC law and accordingly are ineligible to apply for a license to operate online
games or to sell online advertising. In order to comply with foreign ownership restrictions, we
operate our online games business in China through Shanda Networking, which is wholly owned by
Tianqiao Chen, our chairman and chief executive officer, and Danian Chen, our executive senior vice
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president, both of whom are PRC citizens, and through Nanjing Shanda and Hangzhou Bianfeng, which
are subsidiaries of Shanda Networking. Shanda Networking, Nanjing Shanda and Hangzhou Bianfeng hold
the licenses and approvals that are required to operate our online game business and to sell online
advertising on our web pages and Shengqu owns the substantial majority of physical assets. Shengqu
has entered into a series of contractual arrangements with Shanda Networking and its shareholders.
As a result of these contractual arrangements, we are considered the primary beneficiary of Shanda
Networking and accordingly we consolidate Shanda Networking's results of operations in our
financial statements.
Property, Equipment and Software, Intangible Assets and Long-Lived Assets
Our accounting for long-lived assets, including property, equipment and software, and
intangible assets, is described in notes 12, 14 and 15 to our consolidated financial statements.
The recorded values of long-lived assets, including property, equity investments, equipment and
software, and intangible assets, are affected by a number of management estimates, including
estimated useful lives and residual values and impairment charges. We assess impairment for
long-lived assets whenever events or changes in circumstances indicate that the applicable carrying
amount may not be recoverable. During the years ended December 31, 2003, 2004 and 2005, we did not
record any impairment charges, except for the investment in Actoz as disclosed in the paragraph
"Impairment of Investment in Affiliate Companies".
Impairment of Investment in Affiliated Companies
We continually review our investments in affiliated companies to determine whether a decline
in fair value below the cost basis is other than temporary. The primary factors we consider in its
determination are the length of time that the fair value of the investment is below its carrying
value; and the financial condition, operating performance and near term prospects of the investee.
In addition, we consider the reasons for the decline in fair value, be it general market
conditions, industry specific or investee specific; analysts' ratings and estimates of 12 month
share price targets for the investee; changes in stock market price or valuation subsequent to the
balance sheet date; and our intent and ability to hold the investment for a period of time
sufficient to allow for a recovery in fair value. In determination of whether a decline in value is
other than temporary requires significant judgment. If
the decline in fair value is deemed to be other than temporary, the cost basis of the security is
written down to fair value. Write-downs for equity method investments are included in equity in
earning (loss) of affiliated companies. In the fourth quarter of 2005, we recorded a non-cash
impairment charge of RMB521.5 million (US$64.6 million) to reflect the fair value of our 38.1%
stake in Actoz, the co-owner of Mir II. We completed the purchase of our controlling stake in
February 2005 for a total consideration of RMB878.0 million (US$106.1 million). We recognized the impairment charge primarily as a result of the continued decline
in royalties payable to Actoz from our operation of Mir II in China. The decision to recognize
impairment was also influenced by the decline in market price for share of Actoz, which in the
fourth quarter was determined to be other than temporary mainly due to the continued decline in Mir
II royalties.
Allowances for Doubtful Accounts
We determines the allowance for doubtful accounts when facts and circumstances indicate that
the receivable is unlikely to be collected. If the financial condition of our customers are to
deteriorate, resulting in an impairment of their ability to make payments, we consider making
additional allowances. During the years ended December 31, 2003, 2004 and
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2005, we made provisions
of nil, nil and RMB55.7 million (US$ 6.9 million) for doubtful accounts, respectively.
Share-Based Compensation
We have equity compensation plans, which allow for the granting of stock options to certain
senior executives, management, employees and directors. Prior to January 1, 2006, we accounted for
any grants made pursuant to the plans in accordance with Accounting Principles Board Opinion No.
25,
"Accounting for Stock Issued to Employees"
, or APB No. 25, the intrinsic value approach, with
the required disclosures under the related accounting guidance described in note 2(22) to our
consolidated financial statements.
Under APB No. 25, intrinsic value, if any, is determined as the difference between estimated
fair value of our ordinary shares on the grant date of an option and the exercise price for the
option. On March 31, 2003, we granted options to purchase 7,320,436 of our ordinary shares to some
of our directors and officers at an exercise price of US$1.516 per share, which approximated the
estimated fair value of our ordinary shares on the grant date. When estimating the fair value of
our ordinary shares, we review both internal and external sources of information. The sources
utilized to determine the fair market value of the underlying shares at the date of measurement
were, prior to our initial public offering in May 2004, subjective in nature. For our March 2003
option grants, the estimated fair value of our ordinary shares was based on, among other factors,
our (1) financial condition as of the date of grant, (2) operating history and (3) financial and
operating prospects at that time with reference to our issuance of convertible preferred shares in
March 2003. On December 18, 2003, we granted options to purchase an additional 1,537,367 of our
ordinary shares to some of our officers and managers at the same exercise price. Compensation
expense was recognized based on the intrinsic value of our ordinary shares measured on that date.
Estimated fair value of the Company's ordinary shares on December 18, 2003 was determined with
reference to the initial public offering price of our ordinary shares. In 2004 and 2005, we granted
options to purchase an additional 4,826,234 ordinary shares to some of our officers, directors and
other employees, which have an exercise price equal to the market value of our ordinary shares at
the time of grant. Accordingly, no share-based compensation expenses have been incurred in
connection with our 2004 and 2005 option grants prior to January 1, 2006. For purposes of 2004
grants made prior to our initial public offering in May of 2004, the fair value of our shares was
equal to the initial public offering price of our ordinary shares. For purposes of 2004 grants made
after the initial public offering, the fair value of our ordinary shares equaled the market value
of such shares (in the form of ADS equivalents) on the Nasdaq at the time of grant.
We recognized compensation expense of RMB28.8 million in 2004 and RMB13.7 million (US$1.7
million) in 2005 with respect to the options granted in December 2003. These options had the same
exercise price as the options granted to our directors and officers
in March 2003. See note 2(22) to our consolidated financial
statements.
Beginning on January 1, 2006, we account for grants made pursuant to the plans in accordance
with the Financial Accounting Standards Board's Statement No. 123R
"Accounting for Share Based
Compensation"
, or SFAS 123R, which establishes a fair value based method of accounting for
share-based compensation plans. Under the fair value method, compensation cost is measured at the
grant date based on the fair value or minimum value, as applicable, of the shares granted and is
recognized over the service period, which is usually the vesting period. Had we determined the
share-based compensation expenses for the options granted based upon the fair value at their grant
date in accordance with SFAS 123, the net income attributable to ordinary shareholders for the
years ended December 31, 2003, 2004 and 2005 would have been reduced by RMB7.3 million, RMB35.6
million and RMB36.5 million (US$4.5 million), respectively. On
June 28, 2006, we granted options to purchase an additional 3,000,000
of ordinary shares to some of our directors, officers and other
employees. Based on unvested options as of the date of this annual
report, and excluding any new options that may be granted, we
estimate the share-based compensation expenses to be approximately
RMB13.0 million (US$1.6 million) in each of the following quarters in
2006. See note 2(22) to our consolidated
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financial statements
for a discussion of these changes in accounting standards. For a description of our equity
compensation plans, see Item 6 "Directors, Senior Manage and Employees – B. Compensation – Equity
Compensation Plans."
Income Taxes
We account for income taxes under the provisions of SFAS No. 109,
"Accounting for Income
Taxes"
, with the required disclosures as described in note 7 to our consolidated financial
statements. Accordingly, we record valuation allowances to reduce our deferred tax assets when we
believe it is more likely than not that we will not be able to utilize the deferred tax asset
amounts based on our estimates of future taxable income and prudent and feasible tax planning
strategies. As of December 31, 2004 and 2005, valuation allowances recognized were RMB3.8 million
and RMB7.0 million (US$0.9 million), respectively. Valuation allowances were provided for because
it was more likely than not that we would not be able to utilize certain tax loss carryforwards
generated by certain indirectly held subsidiaries. As of December 31, 2004 and 2005, we have
recorded deferred tax assets, net of valuation allowances, of RMB29.6 million and RMB17.1 million
(US$2.1 million) respectively. We do not believe any further valuation allowances to reduce our net
deferred tax assets are necessary as we currently anticipate future taxable profits which will
allow us to fully utilize our net deferred tax assets in the foreseeable future. If, however,
events were to occur in the future which are not currently contemplated, that would not allow us to
realize all or part of our net deferred tax assets in the future, an adjustment would result by way
of a charge to income tax expense in the period in which such determination was made.
Contingencies
We account for loss contingencies under the provisions of SFAS No. 5,
"Accounting for
Contingencies"
, with the required disclosures as described in note 25 to our consolidated financial
statements. We record loss contingencies when, based on information available, it is likely that a
loss has been incurred and the amount of the loss can be reasonably estimated. Based on our current
knowledge, which includes consultation with outside counsel handling our defense in these matters,
we believe that we have made adequate provisions for current or unasserted claims. It is possible,
however, that our future results of operations could be materially affected by changes in our
estimates or in the effectiveness of our strategies relating to these proceedings. As of December
31, 2005, we did not have any accruals for loss contingencies. We are, however, currently involved
in various legal proceedings. See "Legal Proceedings" in Item 8, "Financial Information".
Results of Operations
Year Ended December 31, 2005 Compared to Year Ended December 31, 2004
Net revenues.
Our net revenues increased from RMB1,298.7 million in 2004 to RMB1,896.6 million
(US$235.0 million) in 2005.
Our online game net revenues increased from RMB1,209.2 million in 2004 to RMB1,658.3 million
(US$205.5 million) in 2005. Net revenues from MMORPGs increased by 26.2% from RMB994.7 million in
2004 to RMB1,255.3 million (US$155.6 million) in 2005. Net revenues from casual games increased
from RMB214.5 million in 2004 to RMB403.0 million (US$49.9 million) in 2005.
The increase in our net revenues from MMORPGs was primarily due to an increase in revenues
from Woool as well as Mir II. Average concurrent users for our MMORPGs decreased from 736,000 in
2004 to 672,000 in 2005. Average revenue per user-hour increased from RMB 0.16 in 2004 to RMB 0.21
in 2005. Peak concurrent users for our MMORPGs
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increased from 1,006,000 in 2004 to 1,028, 000 in
2005. In late November 2005, we adopted the free-to-play and pay-for in-game value-added
services revenue model for our leading MMORPGs. Under the free-to-play and pay-for in-game
value-added services revenue model, which is also used for our casual games, playing the basic
features of the game is free and users are able to purchase in-game items and value-added services
that enhance the game experience. Under the free-to-play and pay-for in-game value-added services
revenue model, the most significant factors effecting revenue are the number of active paying
accounts and the average revenue per paying account.
Increase
in our net revenues from our casual games were primarily due to an increase in
revenues from Maple Story and BNB. Peak concurrent users for our casual games increased from
878,000 in 2004 to 1,661,000 in 2005.
Our other net revenue also increased from RMB89.5 million in 2004 to RMB238.3 million (US$29.5
million) in 2005. This increase in other net revenue was primarily due to increases in online
advertising sales, which we commenced in 2004, and user password protection products sales as well
as revenue generated by EZ Pod sales and by Haofang's PC game network platform. The increase in
other net revenue was partially offset by a decrease in revenue from the sale of game related
merchandise products and our SMS services.
Cost of revenue.
Our cost of revenue increased 30.4% from RMB471.2 million in 2004 to RMB614.4
million (US$76.1 million) in 2005. This increase was primarily due to increases in our ongoing
licensing fees for online games, amortization of upfront licensing fees, server leasing and
maintenance fees, depreciation of property, equipment and software, salary and benefits of
employees directly engaged in provision of our online games services, and manufacturing costs for
our user password protection products and EZ Pod.
•
Ongoing licensing fees for online games increased 20.0% from RMB249.3 million in
2004 to RMB299.2 million (US$37.1 million) in 2005. This increase was principally a
result of the continued increase in our revenues attributable to licensed games,
particularly MapleStory, which we launched commercially in the third quarter of 2004, and
Mir II. Additional games, including Archlord and Dungeons & Dragons Online, each of which
we expect to commercially launch in 2006, will further contribute to this expense.
Ongoing licensing fees for online games totaled approximately 19.2% of our net revenues
in 2004 compared to approximately 15.8% of our net revenues in 2005. This decrease was
primarily due to the increase in revenue generated by Woool, an in-house developed game,
and the increase in our non-game revenue.
•
Amortization of upfront online game licensing fees increased 36.9% from RMB27.2
million in 2004 to RMB37.3 million (US$4.6 million) in 2005. This increase was
principally due to the amortization of an upfront fee that we paid for the license of
R.O. and D.O. to Gravity Co,, Ltd. and Cr-Space Co., Ltd., respectively, and of an
upfront fee that we paid to Nexon Corporation in connection with our extension of our BNB
license. Additional games, including Archlord and Dungeons & Dragons Online, which we
expect to commercially launch in 2006, are expected to further increase these
amortization expenses. Amortization of upfront online game licensing fees totaled
approximately 2.1% and 2.0% of our net revenues in 2004 and 2005, respectively.
•
Aggregate server leasing fees and server maintenance fees increased 11.2% from
RMB79.9 million in 2004 to RMB88.9 million (US$11.0 million) in 2005. This increase was
primarily due to the increase of average concurrent user, acquiring of additional servers
and increased maintenance fees.The number of servers we leased
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as of December 31, 2005
was approximately 5665. Aggregate server leasing and maintenance fees totaled
approximately 6.2% and 4.7% of our net revenues in 2004 and 2005, respectively.
•
Depreciation of property, equipment and software increased 55.0% from RMB28.4
million in 2004 to RMB44.0 million (US$5.5 million) in 2005. This increase was primarily
due to our acquiring of additional servers to meet the needs of our increased user
base.Depreciation of property, equipment and software totaled approximately 2.2% and 2.3%
of our net revenues in each of 2004 and 2005.
•
Salary and benefits increased 71.8% from RMB23.8 million in 2004
to RMB40.9 million (US$5.1 million) in 2005. This increase was primarily due to the
increase in the number of employees directly engaged in provision of our online games
services from approximately 500 as of December 31, 2004 to approximately 720 as of
December 31, 2005, as well as a merit-based salary raise throughout the company during
the third quarter of 2005. Salary and benefits attributable to costs
of revenue totaled
approximately 1.8% and 2.2% of our net revenues in 2004 and 2005, respectively.
•
Other cost of revenue, which includes manufacturing costs for our user password
protection product, derivative products, pre-paid cards and EZ Pods, rental and
management fees, technical service fees (including commissions paid to telecommunications
providers) and inventory provisions, increased from RMB62.6 million in 2004 to RMB104.1
million (US$12.8 million) in 2005. This increase was primarily due to an increase in
manufacturing costs of our user protection product as a result of increased production
costs due to increased sales, and costs of manufacturing EZ Pod, which was commercially
launched in the fourth quarter of 2005. The increase was partially offset by a decrease
in manufacturing costs for derivative products as a result of a decrease in production
due to the slowdown of derivative product sales. Other expenses totaled approximately
4.8% and 5.5% of our net revenues in 2004 and 2005, respectively.
Gross profit.
As a result of the foregoing, our gross profit increased 54.9% from RMB827.5
million in 2004 to RMB1,282.2 million (US$158.9 million) in 2005. Our gross profit margin, which is
equal to our gross profit divided by our net revenues, increased from 63.7% in 2004 to 67.6% in
2005.
Operating expenses.
Our operating expenses increased from RMB316.6 million in 2004 to RM660.3
million (US$81.8 million) in 2005. This increase was due to increases in our product development,
sales and marketing and general and administrative expenses.
•
Our product development expenses increased from RMB71.8 million in 2004 to
RMB164.8 million (US$20.4 million) in 2005. This increase was primarily due to an
increase in salary and benefits expenses of personnel engaged in the research and
development of our products, as well as depreciation and rental and management fees
attributable to our research and development efforts. The number of our employees engaged
in the development of online games, our EZ initiative and technology supporting our
operations increased from approximately 550 as of December 31, 2004 to approximately 810
as of December 31, 2005. These increases were principally a result of our focus on the EZ
initiative in 2005. Product development expenses totaled approximately 5.5% and 8.7% of
our net revenues in 2004 and 2005, respectively. We expect that our product development
expenses will increase as we plan to increase expenditures relating to the research and
development of our EZ initiative and in-house casual games.
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•
Our sales and marketing expenses increased from RMB91.2 million in 2004 to
RMB235.4 million (US$29.2 million) in 2005. This increase was mainly due to the following
factors:
w
The significant increase in advertisement fees and marketing promotion
expenses from RMB57.7 million in 2004 to RMB168.6 million (US$20.9 million) in 2005,
which is primarily attributable to the expansion of our game offerings, introduction
of the EZ Pod and advertising efforts to build awareness of our brand;
w
The growth of our sales and marketing personnel from approximately 215 as
of December 31, 2004 to approximately 340 as of December 31, 2005, along with a
merit-based salary raise throughout the company during the third quarter of 2005,
resulted in an increase in our salary and benefit expense increasing from RMB19.0
million in 2004 to RMB34.6 million (US$4.3 million) in 2005; and
Sales and marketing expenses accounted for approximately 7.0% and 12.4% of
our net revenues in 2004 and 2005, respectively. We expect that sales and marketing
expenses will decline in 2006.
•
Our general and administrative expenses increased by 69.4% from RMB153.6 million
in 2004 to RMB260.1 million (US$32.2 million) in 2005. This increase was primarily due to
the following factors:
w
The increase in provisions for doubtful debts from RMB0.8 million in 2004
to RMB55.7 million (US$6.9 million) in 2005. The provisions for doubtful debt in 2005
are due to RMB48.0 million (US$5.9 million) recorded in the fourth quarter of 2005,
which was mainly due to overdue receivables from online advertising and sales of our
user password protection product.
w
The 56.7% increase in salary and benefits expenses from RMB27.1 million in
2004 to RMB42.4 million (US$5.3 million) in 2005, which was primarily attributable to
the increase in the number of employees engaged in general and administrative work
from approximately 180 as of December 31, 2004 to approximately 201 as of December
31, 2005, as well as a merit-based salary raise throughout the company during the
third quarter of 2005.
w
The 50.1% increase in business taxes from RMB38.5 million in 2004 to
RMB57.8 million (US$7.2 million) in 2005, which primarily relate to business taxes
incurred by Shengqu from revenues collected from our operating companies: Shanda
Networking, Nanjing Shanda and Hangzhou Bianfeng; and
w
The increase in other general and administrative expenses from RMB87.2
million in 2004 to RMB104.2 million (US$12.8 million) in 2005, which relate primarily
to consulting, legal and audit fees, rental and management fees and amortization of
intangible assets-reevaluation.
General and administrative expenses accounted for approximately 11.8% and 13.7% of our net
revenues in 2004 and 2005, respectively. Due to a tightening of our credit controls and other cost
control measures, we expect general and administrative expenses to decline in 2006.
Income from operations.
As a result of the foregoing, our operating income increased from
RMB511.0 million in 2004 to RMB621.9 million (US$77.1 million) in 2005. Our operating margin, which
is equal to our operating profit divided by our net revenues, decreased from 39.3% in 2004 to 32.8%
in 2005.
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Income before minority interests and income tax expenses.
Our income before minority interests
and income tax expenses increased 22.5% from RMB654.3 million in 2004 to RMB801.4 million (US$99.3
million) in 2005. This increase was primarily the result of the increase in income from operations,
as well as the following:
•
Interest income.
Our interest income increased from RMB19.7 million in 2004 to
RMB29.0 million (US$3.6 million) in 2005. This increase was primarily due to the increase
in our average cash and cash equivalents balances in 2005 relative to those in 2004.
•
Amortization of convertible debt insurance cost
. Amortization of convertible debt
issuance costs increased from RMB3.5 million in 2004 to RMB18.5 million (US$2.3 million)
in 2005 due to the full year effect from the amortization of costs incurred in connection
with the issuance of our convertible notes in October 2004.
•
Investment income (loss).
We had investment income of RMB43.5 million in 2004 and
an investment loss of RMB5.9 million (US$0.7 million) in 2005. The investment gain in
2004 primarily related to gains on trading marketable securities, while the loss in 2005
primarily related to loss on disposition of investment in Bothtec Inc. and Shenzhen
Fenglin Huoshan Computer Technology Co., Ltd.
•
Other income.
Our other income increased from RMB83.7 million in 2004 to RMB174.9
million (US$21.7 million) in 2005. Our other income during 2005 was primarily
attributable to government financial incentives of RM137.3 million (US$17.0 million) we
received in 2005 from a local government authority in China relating to business taxes we
paid in the PRC. The increase in our government financial incentives in 2005 is due to an
increase in the amount of business taxes we have paid as a result of our increased
revenues. See the sections of this Item 5 entitled "A. Operating Results-Other Income".
In 2005, we also recorded a foreign exchange gain of RMB48.9 million (US$6.1 million) due
to the appreciation of the RMB against the U.S. dollar during 2005.
Income tax expenses.
Our income tax expenses increased from RMB38.9 million in 2004 to RMB96.7
million (US$12.0 million) in 2005.
Equity in loss of affiliates
. Our equity in loss of an affiliate increased from RMB4.2 million
in 2004 to RMB544.3 million (US$67.4 million) in 2005. This increase was primarily due to the
recognition of a non-cash impairment charge of RMB521.5 million (US$64.6 million) in the fourth
quarter of 2005 to reflect the fair value of our 38.1% stake in Actoz. We completed the purchase of
our 38.1% controlling stake in February 2005 for a total consideration of RMB878.0 million
(US$106.1 million), which represents a premium over the then quoted market price. We recognized an
impairment charge on our investment in Actoz primarily as a result of the continued decline in
royalties payable to Actoz from our operation of Mir II in China. The decision to recognize
impairment was also influenced by the decline in the market price for shares of Actoz.
Net income
. As a result of the foregoing, our net income decreased by 72.9% from RMB609.5
million in 2004 to RMB165.3 million (US$20.5 million) in 2005.
Year Ended December 31, 2004 Compared to Year Ended December 31, 2003
Net revenues.
Our net revenues increased from RMB600.0 million in 2003 to RMB1,298.7 million
in 2004.
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Our online game net revenues increased from RMB588.6 million in 2003 to RMB1,209.2 million in
2004. Net revenues from MMORPGs increased by 71.4% from RMB580.3 million in 2003 to RMB994.7
million in 2004. Net revenues from casual games increased from RMB8.3 million in 2003 to RMB214.5
million in 2004.
The increase in our net revenues from MMORPGs was primarily due to an increase in our average
concurrent users. The average concurrent users of our MMORPGs increased by 73.1% from approximately
425,000 in 2003 to approximately 736,000 in 2004, although the average revenue per user-hour for
our MMORPGs decreased 5.9% from RMB0.17 in 2003 to RMB0.16 in 2004.
The increase in net revenue from casual games was primarily due to an increase in the number
of active paying accounts and average revenue per paying account, in particular with our casual
game BNB. The number of active paying accounts for our casual games increased by 51.6% from
approximately 2,044,000 in the first quarter of 2004 to approximately 3,100,000 in the fourth
quarter of 2004.
Our other net revenue increased from RMB11.4 million in 2003 to RMB89.5 million in 2004. This
increase in other net revenue was primarily due to increases in sales of user password protection
products, SMS services, and to a significantly lesser extent, the commencement of online
advertising sales in 2004.
Cost of revenue.
Our cost of revenue increased from RMB233.7 million in 2003 to RMB471.2
million in 2004. This increase was primarily due to increases in our ongoing licensing fees for
online games, amortization of upfront licensing fees, server leasing and maintenance fees,
depreciation of property, equipment and software, salary and benefits, and manufacturing costs for
pre-paid games cards, all of which were generally attributable to the significant increase in our
business activity in 2004 relative to 2003.
•
Ongoing licensing fees for online games increased 85.3% from RMB134.5 million in
2003 to RMB249.3 million in 2004. This increase was principally a result of the continued
increase in our revenues attributable to licensed games, particularly BNB, which we
launched commercially in the third quarter of 2003, and Mir II. Ongoing licensing fees
for online games totaled approximately 22.4% of our net revenues in 2003 compared to
approximately 19.2% of our net revenues in 2004.
•
Amortization of upfront online game licensing fees increased from RMB11.7 million
in 2003 to RMB27.2 million in 2004. This increase was principally due to the amortization
of an upfront fee that we paid for the license of BNB in the second quarter of 2003 and
of an upfront fee that we paid to Actoz in connection with our extension of our Mir II
license in the third quarter of 2003. Amortization of upfront online game licensing fees
totaled approximately 1.9% and 2.1% of our net revenues in 2003 and 2004, respectively.
•
Aggregate server leasing fees and server maintenance fees increased from RMB39.7
million in 2003 to RMB79.9 million in 2004. This increase was primarily due to the
continued increase in our user base, which required that we increase the number of our
servers, and, to a significantly lesser extent, increased fees under renewals of expiring
server leases. The number of servers we leased as of December 31, 2004 was approximately
5,500. Aggregate server leasing and maintenance fees totaled approximately 6.6% and 6.2%
of our net revenues in 2003 and 2004, respectively.
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•
Depreciation of property, equipment and software increased from RMB14.1 million
in 2003 to RMB28.4 million in 2004. This increase was principally a result of our
acquiring additional servers and related operating and data security software to meet the
needs of our increased user base. The number of the servers we own, including servers for
game operations and for office use, increased from approximately 4,100 as of December 31,
2003 to approximately 5,600 as of December 31, 2004. Depreciation of property, equipment
and software totaled approximately 2.3% and 2.2% of our net revenues in 2003 and 2004,
respectively.
•
Salary and benefits increased 73.7% from RMB13.7 million in 2003 to RMB23.8
million in 2004. This increase was primarily due to increases in personnel employed to
maintain our server network, billing system and customer service center from 297 as of
December 31, 2003 to approximately 500 as of December 31, 2004 as a result of the
expansion of our user base and network infrastructure. Salary and benefits attributable
to costs of services totaled approximately 2.3% and 1.8% of our net revenues in both 2003
and 2004, respectively.
•
Other expenses, which includes manufacturing costs for our user password
protection product, derivative products and pre-paid cards, share-based compensation
costs, rental and management fees and technical service fees (including commissions paid
to telecommunications providers), increased from RMB20.1 million in 2003 to RMB62.5
million in 2004. This increase was primarily due to increases in (1) manufacturing costs
of derivative products, (2) manufacturing costs of our user password protection product,
(3) manufacturing costs of pre-paid cards, and (4) charges by telecommunications
providers in connection with SMS services. Other expenses totaled approximately 3.3% and
4.8% of our net revenues in 2003 and 2004, respectively.
Gross profit.
As a result of the foregoing, our gross profit increased from RMB366.3 million
in 2003 to RMB827.5 million in 2004. Our gross profit margin, which is equal to our gross profit
divided by our net revenues, was 63.7% in 2004 compared to 61.1% in 2003.
Operating expenses.
Our operating expenses increased from RMB153.1 million in 2003 to RMB316.6
million in 2004. This increase was primarily due to increases in our product development, sales and
marketing and general and administrative expenses as a result of the continued growth of our
business in 2004.
•
Our product development expenses increased from RMB33.0 million in 2003 to
RMB71.8 million in 2004. This increase was primarily due to an increase in salary and
benefits expenses of personnel engaged in the research and development of our products,
as well as amortization of intangibles relating to the purchase of software used in
research and development efforts. The number of our employees engaged in the development
of online games and software and technology supporting our operations increased from
approximately 225 as of December 31, 2003 to approximately 550 as of December 31, 2004.
These increases were principally a result of our increased focus on in-house game
development in 2004. Product development expenses, including the amortization of related
intangibles such as software used in our research and development center, totaled
approximately 5.5% and 5.5% of our net revenues in 2003 and 2004, respectively.
•
Our sales and marketing expenses increased from RMB44.1 million in 2003 to
RMB91.2 million in 2004. This increase was mainly due to the following factors:
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w
The significant increase in advertisement fees and marketing promotion
expenses from RMB26.4 million in 2003 to RMB57.7 million in 2004, which is primarily
attributable to the expansion of our game offerings and advertising efforts to build
awareness of our brand; and
w
The growth of our sales and marketing personnel from approximately 140 as
of December 31, 2003 to approximately 215 as of December 31, 2004, which resulted in
an increase in our salary and benefit expense increasing from RMB6.3 million in 2003
to RMB19.0 million in 2004.
w
Sales and marketing expenses accounted for approximately 7.4% and 7.0% of
our net revenues in 2003 and 2004, respectively.
•
Our general and administrative expenses increased by 102.0% from RMB76.0 million in
2003 to RMB153.6 million in 2004. This increase was primarily due to the following
factors:
w
The increase in salary and benefits expenses from RMB19.6 million in 2003 to
RMB27.1 million in 2004, which was primarily attributable to the increase in the number
of employees engaged in general and administrative work from approximately 120 as of
December 31, 2003 to approximately 180 as of December 31, 2004 as a result of the
continued growth of our business in 2003 and 2004 and, to a lesser extent, to an increase
in the average salary and expense per employee;
w
The increase in business taxes from RMB19.8 million in 2003 to RMB38.5 million in
2004, which primarily relate to business taxes incurred by Shengqu from revenues
collected from Shanda Networking since our restructuring in March 2003; and
w
The increase in other general and administrative expenses from RMB9.2 million in
2003 to RMB18.8 million in 2004, which relate primarily to the costs of increased
obligations stemming from compliance costs associated with our status as a registered
public company, and costs related to our acquisitions.
General and administrative expenses accounted for approximately 12.7% and 11.8% of our net
revenues in 2003 and 2004, respectively.
Income from operations.
As a result of the foregoing, our operating income increased from
RMB213.2 million in 2003 to RMB511.0 million in 2004. Our operating margin, which is equal to our
operating profit divided by our net revenues, increased from 35.5% in 2003 to 39.3% in 2004.
Income before minority interests and income tax expenses.
Our income before minority interests
and income tax expenses increased from RMB287.9 million in 2003 to RMB654.3 million in 2004. This
increase was primarily the result of a significant increase in income from operations, as well as
the following:
•
Investment income.
Our investment income increased from RMB6.6 million in 2003 to
RMB43.5 million in 2004, which reflected gains in trading of marketable securities,
including the realization of a gain on the sale of shares of Sina in December 2004.
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•
Other income.
Our other income increased from RMB61.2 million in 2003 to RMB83.7
million in 2004. Our other income during 2004 was primarily attributable to government
financial incentives of RMB88.1 million we received in 2004 from a local government
authority in China relating to business taxes we paid in the PRC. The increase in our
government financial incentives relative to 2003 results from our having paid more
business taxes as our revenues have increased and the imposition of business tax on
Shengqu following our restructuring in March 2003, which tax only applied during a
portion of 2003. See the sections of this Item 5 entitled "PRC Enterprise Income Tax" and
"PRC Business Tax and Financial Incentives".
•
Interest income.
Our interest income increased from RMB7.0 million in 2003 to
RMB19.7 million in 2004. This increase was primarily due to a significant increase in our
cash and cash equivalents balances resulting from operations, our initial public offering
in May 2004 and our private placement of convertible notes in October 2004.
Income tax expenses.
Our income tax expenses increased from RMB18.6 million in 2003 to RMB38.9
million in 2004.
Net income.
As a result of the foregoing, our net income increased by RMB336.6 million from
RMB272.9 million in 2003 to RMB609.5 million in 2004.
B. LIQUIDITY AND CAPITAL RESOURCES
Cash Flows and Working Capital
To date, we have financed our operations through internally generated cash, the sale of our
preferred shares to an investor in March 2003, our initial public offering of ADSs in May 2004 and
the offering of the convertible notes in October 2004. As of December 31, 2005, we had
approximately RMB949.6 million (US$117.7 million) in cash and cash equivalents, of which RMB665.6
million (US$82.5 million) was held by Shanda Networking and its subsidiaries. As of the same date,
we had outstanding debt of RMB2,219.3 million (US$275.0 million) pursuant to the convertible notes.
Our cash and cash equivalents primarily consist of cash on hand, demand deposits, and liquid
investments with original maturities of three months or less that are placed with banks and other
financial institutions. Although we consolidate the results of Shanda Networking and its
subsidiaries in our consolidated financial statements and we can
utilize the cash and cash
equivalents of Shanda Networking and its subsidiaries in our operations, we do not have direct access to the cash and cash equivalents or
future earnings of Shanda Networking or any of its subsidiaries. However, these cash balances can
be utilized by us for our normal operations pursuant to our agreements with Shanda Networking and
its subsidiaries that provide us with the substantial ability to control these companies and their
operations. See "Organizational Structure" in Item 4 and "Exchange Controls" in Item 10.
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The following table shows our cash flows with respect to operating activities, investing
activities and financing activities in the years ended December 31, 2003, 2004 and 2005:
For the years ended December 31,
2003
2004
2005
RMB
RMB
RMB
US$
(in thousands)
Net cash provided by operating
activities
278,355.5
807,330.8
649,787.9
80,516.9
Net cash used in
investing activities
(21,515.4
)
(615,675.0
)
(2,831,460.3
)
(350,853.8
)
Net cash provided by financing
activities
165,042.3
2,333,392.9
17,900.5
2,218.1
Effect of exchange rate change on cash
—
—
(10,577.6
)
(1,310.7
)
Net increase (decrease) in cash and
cash equivalents
421,882.4
2,525,048.7
(2,174,349.5
)
(269,429.5
)
Cash beginning of period
177,040.0
598,922.4
3,123,971.1
387,099.6
Cash, end of period
598,922.4
3,123,971.1
949,621.6
117,670.1
We had net cash provided by operating activities of RMB649.8 million (US$80.5 million) in
2005 compared to RMB 807.3 million in 2004. The cash provided by operating activities primarily
derived from our online games operations, advertising, sales of user password protection product
and EZ Pod. The decrease of cash provided by operating activities in 2005 is primarily a result
of a decline in the operating profit margin in online game operations, and the increase of account
receivable and inventories attributable to manufacturing and sales of user password protection
product and EZ Pod product. We had net cash provided by operating activities of RMB807.3 million in
2004 compared to RMB278.4 million in 2003. This increase was primarily attributable to an increase
in our net income derived from our online games with additional contribution from advertising
revenues, wireless value-added services revenue, and revenues from sales of game related
merchandise.
We
had net cash used in investing activities of RMB2,831.5 million
(US$350.9 million) in 2005. Our net cash used
in investing activities in 2005 was principally attributable to the payment of RMB1,559.5 million
(US$193.2 million) for purchase of the stake in Sina, the payment of RMB759.1 million
(US$91.7 million) for purchase of the issued and outstanding shares of Actoz, the payment of
RMB218.9
(
US$27.1 million
)
for purchase of property, equipment, software, intangible assets and
land use right, the net increase in time deposit of RMB
126.4 million (US$15.7 million),
t
he payment of RMB165.5
million (US$20.5 million
)
for acquisition of 100% equity interest in Haofang and the payment of
RMB29.2 million (US$3.6 million) for acquisition of 100% equity interest in Gametea. We had net
cash used in investing activities of RMB615.7 million in 2004. This was primarily due to our
purchase of marketable securities, our purchase of property, equipment, software and intangible
assets, and our acquisitions and investments in associated companies. This amount was partially
offset by the repayment of an outstanding loan to an unrelated party and the proceeds from the
disposition of short-term investments. We had net cash used in investing activities of RMB21.5
million in 2003. This was primarily attributable to our purchase of property, equipment and
software, principally servers, a loan made by us, and the acquisition by Shanda Networking of two
subsidiaries. This amount was partially offset by a decrease in our short-term investments.
We had net cash provided by financing activities of RMB17.9 million (US$2.2 million) in 2005,
which was comprised of RMB72.5 millon (US$9.0 million) in connection with stock option exercises by our officers,
directors and employees, and partially offset by RMB54.9 million (US$6.8 million)
used for share repurchases. We had net cash provided by financing
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activities of RMB2,333.4 million
in 2004. This was primarily attributable to the net proceeds from our initial public offering in
May 2004 of RMB875.5 million (US$105.8 million) and the net proceeds of our offering of the
convertible notes in October 2004 of approximately RMB2,225.4 million (US$268.9 million). This
amount was partially offset by a special dividend of RMB192.1 millon paid to our shareholders in
March 2004 and the repurchase of 5,326,250 of our ordinary shares from SB Asia Infrastructure Fund
for US$75.0 million, or $14.08 per ordinary share. We had net cash provided by financing activities
of RMB165.0 million in 2003. This was primarily attributable to the proceeds from the sale of our
preferred stock to an investor in March 2003, which was partially offset by deemed capital
distributions related to the acquisition in March 2003 of substantially all of the business and
operations of a related company.
We believe that our current cash and cash equivalents, and cash flow from operations will be
sufficient to meet our anticipated cash needs, including for working capital and capital
expenditures, for at least the next twelve months. We may, however, require additional cash
resources due to changed business conditions or other future developments. In particular, the
holders of our US$275 million Zero Coupon Senior Convertible Notes, or the convertible notes, have
the right to require us to repurchase all or a portion of their notes on October 15, 2007 at a
repurchase price equal to 100% of the principal amount of notes to be repurchased, plus accrued and
unpaid interest and liquidated damages, if any. If our current cash and cash equivalents as well as
cash flow from operations are insufficient to satisfy our cash requirements, including the
repurchase of the convertible notes, we may seek to sell additional debt securities or equity
securities or obtain a credit facility. We cannot assure you that financing will be available in
amounts or on terms acceptable to us, if at all. Please see Item 3 "Key Information", —"Risk
Factors"—, "We may not have the ability to repurchase our Zero Coupon Senior Convertible Notes in
cash if holders exercise their repurchase right on October 15, 2007." Please also see "Exchange
Controls" in Item 10 for a discussion of impediments to capital flows in and out of China.
From time to time, we evaluate possible investments, acquisitions or divestments and may, if a
suitable opportunity arises, make an investment or acquisition or conduct a divestment, which may
have a material effect upon our liquidity and capital resources. Please see "Recent Acquisitions"
in this Item 5 for a description of our significant investments, acquisitions and divestments.
Certain transactions out of the ordinary course of business have occurred since December 31,
2005 and have affected our liquidity and capital resources. On February 28, 2006, we made the final
earn out payment in an amount of US$31 million to the former shareholders of Haofang in connection
with our two-step acquisition of Haofang. As a result of this payment, as of March 31, 2006, our
cash and cash equivalents were RMB 817.3 million (US$101.3 million), of which RMB 442.0 million
(US$54.8 million) was held by Shanda Networking and its subsidiaries.
Capital Expenditures
We made capital expenditure of RMB78.2 million, RMB97.4 million and RMB218.9 million (US$27.1
million) in 2003, 2004 and 2005. To date, the capital expenditures
have primarily consisted of
purchases of online game network infrastructure, software, copyrights
as well as office premises. We
expect the capital expenditure in 2006 to increase as we will continue to make technological
improvement of our network infrastructure along with the continuous expansion of our online game
business and development of EZ initiative, and to acquire new office premises on commercially
reasonable terms to reduce our reliance on the existing leased office facilities.
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C. RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES, ETC.
We focus our research and development activities principlly on the in-house development of
casual games and on the EZ initiative.
Our research and development efforts and plans consist of:
•
development of casual online games, including chess and board games, for use on
our Internet game portal and our EZ Center platform;
•
design and development of the EZ Center software platform and the EZ Series products;
•
localization of games licensed from abroad for commercialization in China;
•
design and development of the EZ Center software platform and the EZ Series products;
•
development of wireless games for mobile phones;
•
improving our unified user platform, including our unified billing and user
authentication system; and
•
improving our server management and control systems.
Our research and development expenditures were RMB 33,0 million, RMB71,8 million, and RMB
164,8 million (US$ 20.4 million) in 2003, 2004 and 2005, respectively.
D. TREND INFORMATION
Other than as disclosed elsewhere in this annual report, we are not aware of any trends,
uncertainties, demands, commitments or events for the period from January 1, 2003 to December 31,
2005 that are reasonably likely to have a material effect on our net revenues, income,
profitability, liquidity or capital resources, or that caused the disclosed financial information
to be not necessarily indicative of future operating results or financial conditions.
E. OFF-BALANCE SHEET ARRANGEMENTS
Other than our operating lease arrangements, we have not entered into any off-balance sheet arrangements other than our operating lease
arrangements:
•
We have not entered into any financial guarantees or other commitments to
guarantee the payment obligations of any unconsolidated entity;
•
We have not entered into any obligations under any derivative contracts that are
indexed to our own shares and classified as shareholder's equity, or that are not
reflected in our consolidated financial statements;
•
We do not have any retained or contingent interest in assets transferred to an
unconsolidated entity that serves as credit, liquidity or market risk support to such
entity; and
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•
We do not have any variable interest in any unconsolidated entity that provides
financing, liquidity, market risk or credit support to us or engages in leasing, hedging
or research and development services with us.
F. CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS
The following table sets forth our contractual obligations as of December 31, 2005:
Payments Due by Period
January 1, 2006 to
January 1, 2007 to
January 1, 2008 to
January 1, 2009 to
Total
December 31, 2006
December 31, 2007
December 31, 2008
December 31, 2009
Thereafter
(RMB in thousands)
Operating lease obligations:
Office premises
26,220.5
22,399.2
3,142.0
422.1
257.2
—
Computer equipment and others
18,533.6
18,031.9
501.7
—
—
—
Obligations relating to
upfront licensing fees for
licensed games
16,543.9
16,543.9
—
—
—
—
Obligations
relating to property, plant and equipment
5,168.5
3,457.5
1,711.0
Obligation relating to
considerations to be paid for
acquisition of Haofang
249,286.5
249,286.5
—
—
—
—
Total contractual obligations.
315,753.0
309,719.0
5,354.7
422.1
257.2
—
As of December 31, 2005, substantially all of our operating lease arrangements for servers and
related services provide for the calculation of lease payments based on formulas that reference the
actual number of users of the relevant servers. Our rental expenses under these operating leases
were RMB25.0 million, RMB55.7 million and RMB43.9 million (US$5.4 million) in 2003, 2004 and 2005,
respectively. As future lease payments for these arrangements are based on the actual number of
users and thus cannot be reasonably estimated, they are not included in the minimum lease payments
shown above.
As of December 31, 2005, we did not have any material capital lease obligations.
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Apart from the foregoing, as of December 31, 2005, we did not have any other long-term debt
obligations, operating lease obligations or purchase obligations. However, pursuant to the
contractual arrangements between Shengqu, Shanda Networking and the shareholders of Shanda
Networking, Shengqu has an option, exercisable at such time, if any, as it is legally permissible,
to acquire 100% of the equity interest in Shanda Networking for RMB10.0 million or such lower
amount as permitted by applicable law. In addition, Shengqu has agreed to indemnify the
shareholders of Shanda Networking to the extent that they are subject to any legal or economic
liabilities as a result of performing their obligations pursuant to their agreements with Shengqu.
Furthermore, Shengqu has undertaken to provide financial support to Shanda Networking and its
subsidiaries to the extent necessary for its operations. See Item 7 "Major Shareholders and Related
Party Transactions" and "Organizational Structure" in Item 4.
Item 6. Directors, Senior Management and Employees
A. DIRECTORS AND SENIOR MANAGEMENT
The following table sets forth certain information relating to our directors and executive
officers as of June 25, 2006. The business address of each of our directors and executive officers
is No. 1 Office Building, No. 690 Bibo Road, Pudong New Area, Shanghai 201203, China.
Name
Age
Position
Tianqiao Chen
1
33
Chairman of the Board and Chief Executive Officer
Jun Tang
43
Director and President
Danian Chen
28
Director and Executive Senior Vice President
Qianqian Luo
1
30
Director
W. Mark Evans
2
48
Director
Jingsheng Huang
2
48
Director
Chengyu Xiong
2
52
Director
Haibin Qu
31
Director and Executive Senior Vice President
Shujun Li
3
34
Director, Senior Vice President and Chief Financial Officer
Qunzhao Tan
30
Senior Vice President and Chief Technology Officer
Yanmei Zhang
42
Senior Vice President
Jingying Wang
35
Senior Vice President
Hai Ling
36
Senior Vice President
Xiangdong Zhang
30
Senior Vice President
Daniel Zhang
3
34
Financial Controller
1
Member of the compensation committee.
2
Member of the audit committee.
3
Effective June 30, 2006, Shujun Li will resign from his position as Senior Vice
President and Chief Financial Officer and Daniel Zhang shall be promoted from financial
controller to Vice President and Chief Financial Officer. Shujun Li will continue to
serve as a director.
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Tianqiao Chen
, one of our co-founders, has served as the chairman of our board of
directors and our chief executive officer since our inception in December 1999. Mr. Chen
established Shanda Networking with Danian Chen in December 1999. Prior to establishing Shanda
Networking, Mr. Tianqiao Chen served as the vice director of the office of the president of
Kinghing Trust & Investment Co., Ltd. from 1998 to 1999. From 1994 to 1998, Mr. Chen served in
various management positions with Shanghai Lujiazui Group. Mr. Tianqiao Chen holds a bachelor's
degree in economics from Fudan University. Mr. Tianqiao Chen is the brother of Danian Chen, our
co-founder, and is married to Qianqian Luo, one of our directors.
Jun Tang
has served as our president since February 2004 and as our director since April 2004.
Prior to joining us, Mr. Tang served as the president of Microsoft China Co., Ltd. from March 2002
to January 2004 and the general manager of Microsoft Asia product support and service and Microsoft
Global Technical Engineering Center from January 1998 to March 2002. In 2002, he founded Intertex
Company, a software and entertainment company, in California. Mr. Tang received his doctorate
degree, master's degree and bachelor's degree in the U.S., Japan and China, respectively.
Danian Chen
, one of our co-founders, established Shanda Networking with Tianqiao Chen in
December 1999. Mr Danian Chen has served as our executive senior vice president since August 2005.
Mr. Danian Chen served as a senior vice president from July 2003 to August 2005, after serving as
our director of products until July 2003, Mr. Danian Chen has served on our board of directors
since our inception. Prior to co-founding Shanda Networking, Mr. Danian Chen worked as an employee
in Xinghui International Transport Company, Haijie Shipping Agency Company and Jinyi Network from
September 1996 to November 1999. Mr. Danian Chen is Tianqiao Chen's brother.
Qianqian Luo
has served as our director since our inception in December 1999. Ms. Luo
previously served as our director of administration from November 1999 to July 2003 and vice
president from July 2003 to February 2004. Ms. Luo served as a project manager at the investment
banking department of Kinghing Trust & Investment Co., Ltd. from 1998 to 1999. Ms. Luo holds a
bachelor's degree in economics from Financial & Banking Institute of China. Ms. Luo is married to
Tianqiao Chen.
W. Mark Evans
has served as our director since April 2004. Mr. Evans has been a General
Partner of Benchmark Capital, a U.K. based venture capital firm, since 2002 and currently serves on
the boards of a number of private companies. Mr. Evans previously held a variety of senior
management positions within Goldman Sachs, including serving as the Chairman of Goldman Sachs Asia
from 1993 to 1997. Mr. Evans holds an MLitt in economics from the University of Oxford and a BA in
economics from Queen's University in Canada.
Jingsheng Huang
has served as our director since October 2005. Since October 2005, Mr. Huang
has served as Managing Director at Bain Capital. From January 2002 to September 2005, he was
Managing Director China at SOFTBANK Asia Infrastructure Fund, or SAIF, and served as a director on
the board of twelve SAIF portfolio companies in the technology, telecommunications and media
sectors. Prior to joining SAIF, Mr. Hunag was a partner at SUNeVision Ventures. Mr. Huang has also
served as Senior Manager of Strategic Investments at Intel Capital, Director of Asia Pacific
Research Operations at Gartner Group and Vice President of Marketing of Mtone Wireless. Mr. Huang
holds an MBA degree from Harvard Business School, a master's degree in sociology from Stanford
University and a bachelor's degree in English from Beijing Foreign Studies University.
Chengyu Xiong
has served as our director since October 2005. Dr. Xiong is a professor and
deputy dean of the School of Journalism and Communication at Tsinghua University. In addition, Dr.
Xiong serves as the director of both the
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New Media Studies Center and the Cultural Industries Center at the School of Journalism. Dr.
Xiong received his doctorate degree from Brigham Young University. Dr Xiong has written, edited and
translated numerous books and articles.
Haibin Qu
has served as our executive senior vice president since August 2005 and as our
director since April 2004. Prior to serving as our senior vice president from July 2003 to August
2005, Mr. Qu served as our vice president from September 2002 to June 2003 and as our director of
business development from February 2000 to August 2002. Previously, Mr. Qu served as a vice
president of Shanghai Fuwei Technology Development Co., Ltd. from September 1996 to December 1999.
Mr. Qu holds a bachelor's degree in mechanics from Fudan University.
Shujun Li
has served as our senior vice president since August 2005 and as our chief financial
officer since November 2003 and vice president from July 2003 to August 2005. Mr. Li became a
member of our board of directors in April 2005 after leading our initial public offering in May
2004. Mr. Li previously served as our director of investment and overseas business from March 2002
to July 2003. Prior to joining us, Mr. Li served as a fund manager responsible for the
establishment of Zhongrong Fund Management Company from January 2001 to October 2001 and a senior
manager at the international business department of China Southern Securities Co., Ltd. from August
1997 to December 2000. Mr. Li holds a master's degree in economics from Nankai University and a
bachelor's degree in English from Hebei Normal University.
Qunzhao Tan
has served as our senior vice president since August 2005 and as our vice
president from July 2003 to August 2005 and chief technology officer since July 2003. Mr. Tan
previously served as our director of research and development from November 1999 to July 2003.
Prior to joining us, Mr. Tan worked as an assistant in the Institute of Clean Coal Technology of
East China University of Science and Technology from July 1996 to November 1999. Mr. Tan holds a
bachelor's degree in chemical engineering from East China University of Science and Technology.
Yanmei Zhang
has served as our senior vice president since August 2005 and as our vice
president from January 2005 to August 2005. Prior to joining us, Ms. Zhang served as Vice President
at Sony China Corp. from January 1994 until December 2004. Ms. Zhang joined Sony America in New
York in 1991 as international Human Resources specialist and served in that position until 1993.
Ms. Zhang holds a master's degree in Business Administration from University of South Carolina and
a bachelor's degree in English from Shanxi University.
Jingying Wang
has served as our senior vice president since August 2005. Ms. Wang previously
served as our vice president from January 2005 to August 2005 and as our director of customer
services from May 2002 to July 2003. Prior to joining us, Ms. Wang served as the customer services
manager of Shanghai Waterman Drinks Co., Ltd. from December 2000 to May 2002, and the customer
services supervisor of Hangzhou Marykay Cosmetics Co., Ltd. from 1998 to December 2000. Ms. Wang
holds a bachelor's degree in radio technology from Shanghai University.
Hai Ling
has served as our senior vice president since August 2005. Mr. Ling previously served
as our vice president from August 2003 to August 2005 and as our director of sales. Prior to
joining us, Mr. Ling served as general manager of Powerise Technology Co. from 1997 to 2003. Mr.
Ling holds a bachelor's degree in computer science and technology from the National University of
Defense Technology.
Xiangdong Zhang
was promoted to senior vice president in June 2006. Prior to serving as our
vice president from July 2005 to June 2006, Mr. Zhang served as director of our product management
center from 2001 to July 2005. Prior to joining us, Mr. Zhang served as the editor-in-chief of the
game channel at China.com from 1999 to 2001. Mr. Zhang holds a bachelor's degree in engineering
from Dalian Institute of Light Industry.
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Daniel Zhang
joined Shanda in September 2005 as Financial Controller. Prior to
joining Shanda, Mr. Zhang served as senior manager of PricewaterhouseCoopers' Audit and Business
Advisory Division in Shanghai, China from 2002 to 2005. Prior to PricewaterhouseCoopers' he served
for seven years with Arthur Andersen, departing as an audit manager of the firm's Shanghai office.
Mr. Zhang holds a bachelor's degree in finance from Shanghai University of Finance and Economics.
Duties of Directors
Under Cayman Islands law, our directors have a duty of loyalty to act honestly in good faith
with a view to our best interests. Our directors also have a duty to exercise the care, diligence
and skills that a reasonably prudent person would exercise in comparable circumstances. In
fulfilling their duty of care to us, our directors must ensure compliance with our amended and
restated memorandum and articles of association. A shareholder has the right in certain
circumstances in a derivative action in the name of the company to seek damages if a duty owed by
our directors is breached.
The functions and powers of our board of directors include, among others:
•
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
Each of our directors holds office until a successor has been duly elected and qualified
unless the director was appointed by the board of directors, in which case such director holds
office until the next following annual meeting of shareholders at which time such director is
eligible for reelection. All of our executive officers are appointed by and serve at the discretion
of our board of directors.
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B. COMPENSATION
In 2005, the aggregate cash compensation paid to our directors and executive officers as a
group was RMB 11.86 million (US$1.47 million). In addition, options to acquire an aggregate of
163,078 ordinary shares were granted to our directors and executive officers in 2005. We have no
service contracts with any of our directors or executive officers that provide benefits to them
upon termination.
Equity Compensation Plans
In order to promote our success and to increase shareholder value by providing an additional
means to attract, motivate, retain and reward selected directors, employees and other eligible
persons, we have adopted our 2003 Incentive Plan, or the 2003 Plan and our 2005 Equity Compensation
Plan, or the 2005 Plan. In March 2003, our board of directors adopted the 2003 Plan. An aggregate
of 13,309,880 ordinary shares, which is equal to approximately 9.4% of our issued and outstanding
ordinary shares as of March 31, 2006, were reserved for issuance under the 2003 Plan.
The table set forth below summarizes stock option activity under the 2003 Plan for the years
ended December 31, 2003, 2004 and 2005:
2003
2004
2005
Options
Weighted Average
Options
Weighted Average
Options
Weighted Average
Outstanding
Exercise Price (US$)
Outstanding
Exercise Price (US$)
Outstanding
Exercise Price (US$)
Outstanding at beginning of
year
—
—
8,857,803
1.516
8,883,402
3.42
Granted
8,857,803
1.516
4,258,503
5.57
567,731
15.63
Exercised
—
—
(4,116,074
)
1.55
(2,762,438
)
2.70
Forfeited
—
—
(116,830
)
3.51
(467,920
)
5.33
Outstanding at end of year
8,857,803
1.516
8,883,402
3.42
6,220,775
4.71
Vested and exercisable at end
of year
2,214,451
1.516
397,091
2.53
1,164,853
3.97
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As of December 31, 2005, approximately 210,594 options were available for granted under
the 2003 Plan. The table set forth below summarizes outstanding and exercisable stock options under
the 2003 Plan as of December 31, 2005
Options Outstanding at
Options Exercisable at
December 31, 2005
December 31, 2005
Weighted Average
Number
Remaining Contractual
Weighted Average
Number
Weighted Average
Exercise Prices US$
Outstanding
Life (years)
Exercise Price (US$)
Outstanding
Exercise Price (US$)
1.516
2,561,319
7.25
1.516
480,690
1.516
5.5
3,086,031
8.15
5.5
638,313
5.5
8.00
35,850
8.58
8.00
35,850
8.00
9.95
40,000
8.63
9.95
10,000
9.95
15.33
163,078
9.07
15.33
—
—
15.55
240,940
9.08
15.55
—
—
14.89
40,295
9.13
14.89
—
—
16.945
23,606
9.38
16.945
—
—
16.86
29,656
9.42
16.86
—
—
6,220,775
1,164,853
In October 2005, shareholders approved the 2005 plan at our annual general meeting of
shareholders. An aggregate of 7,449,235 ordinary shares, which is equal to approximately 5.2% of
our issued and outstanding ordinary shares as of March 31, 2006, were reserved for issuance under
the 2005 Plan. On June 28, 2006, we granted options under the 2005
plan to purchase 3,000,000 of our ordinary shares to some of our
directors and officers and other employees at an exercise price equal
to the average market value in the previous three months.
Both the 2003 Plan and the 2005 Plan are administered by our compensation committee, which has
wide discretion to award equity compensation grants. Subject to the provisions of the 2003 Plan and
the 2005 Plan, including the limits upon the number of ordinary shares reserved for issuance under
these plans, our compensation committee determines who will receive equity compensation awards, the
type and timing of awards to be granted, vesting schedules, exercise prices and other terms and
conditions of the awards.
For a description of our past stock option compensation expense and recent accounting changes,
see Item 5 "Operating and Financial Review and Prospects – A. Operating Results – Operating
Expenses – Share-based Compensation."
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The table below sets forth the option grants made to our directors and executive officers
pursuant to the 2003 Plan as of June 28, 2006:
Number of Shares
Per Share
Underlying
Exercise Price
Name
Options
Granted
(in US$)
Date of Grant
Date of Expiration
Tianqiao Chen
266,198
1.516
March 31, 2003
March 31, 2013
Danian Chen
266,198
1.516
March 31, 2003
March 31, 2013
Jun Tang
2,661,976
5.5
February 12, 2004
February 12, 2014
Qianqian Luo
266,198
1.516
March 31, 2003
March 31, 2013
W. Mark Evans
*
8.0
July 26, 2004
July 26, 2014
Jingsheng Huang
*
1.516
March 31, 2003
March 31, 2013
Haibin Qu
1,863,383
1.516
March 31, 2003
March 31, 2013
Shujun Li
1,330,988
1.516
March 31, 2003
March 31, 2013
Qunzhao Tan
2,129,581
1.516
March 31, 2003
March 31, 2013
Jingying Wang
*
1.516
March 31, 2003
March 31, 2013
Yanmei Zhang
*
15.33
January 25, 2005
January 25, 2015
Hai Ling
*
1.516
March 31, 2003
March 31, 2013
Hai Ling
*
5.5
April 1, 2004
April 1, 2014
Xiangdong Zhang
*
1.516
March 31, 2003
March 31, 2013
Xiangdong Zhang
*
5.5
April 1, 2004
April 1, 2014
The
table below sets forth the option grants made to our directors and
executive officers pursuant to the 2005 plan as of June 28, 2006:
Number of Shares
Per Share
Underlying
Exercise Price
Name
Options
Granted
(in US$)
Date of Grant
Date of Expiration
Qunzhao Tan
150,000
6.8505
June 28, 2006
June 28, 2016
Jingying Wang
*
6.8505
June 28, 2006
June 28, 2016
Yanmei Zhang
*
6.8505
June 28, 2006
June 28, 2016
Hai Ling
*
6.8505
June 28, 2006
June 28, 2016
Xiangdong
Zhang
*
6.8505
June 28, 2006
June 28, 2016
Daniel Zhang
*
6.8505
June 28, 2006
June 28, 2016
*
Upon exercise of all options granted, would beneficially own less than 1% of our
outstanding ordinary shares.
C. BOARD PRACTICES
Term and Severance Provisions of Directors and Executive Officers
Each of our directors holds office until a successor has been duly elected and qualified
unless the director was appointed by the board of directors, in which case such director holds
office until the next following annual meeting of shareholders at which time such director is
eligible for reelection. All of our executive officers are appointed by and serve at the discretion
of our board of directors. We have no service contracts with any of our directors or executive
officers that provide benefits to them upon termination.
Board Committees
Our board of directors has established an audit committee and a compensation committee.
Audit Committee
Our audit committee currently consists of W. Mark Evans, Jingsheng Huang and Chengyu Xiong.
Our board of directors has determined that all of our audit committee members are independent
directors within the meaning of Nasdaq
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Marketplace Rule 4200(a)(15) and meet the criteria for
independence set forth in Section 10A(m)(3)(B)(i) of the Exchange Act.
Our audit committee is responsible for, among other things:
•
selecting the independent auditors and pre-approving all auditing and non-auditing
services permitted to be performed by the independent auditors;
•
annually reviewing an independent auditors' report describing the auditing firm's
internal quality-control procedures, any material issues raised by the most recent
internal quality-control review, or peer review, of the independent auditors and all
relationships between the independent auditors and our company;
•
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, as defined in Item 404 of Regulation S-K;
•
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;
•
discussing earnings press releases, as well as financial information and earnings
guidance provided to analysts and rating agencies;
•
reviewing with management and the independent auditors the effect of regulatory and
accounting initiatives, as well as off-balance sheet structures on our financial
statements;
•
discussing policies with respect to risk assessment and risk management;
•
reviewing major issues as to the adequacy of our internal controls and any special
audit steps adopted in light of material control deficiencies;
•
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;
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•
establishing procedures for the receipt, retention and treatment of complaints
received from our employees regarding accounting, internal controls or auditing matters
and the confidential, anonymous submission by our employees of concerns regarding
questionable accounting or auditing matters;
•
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;
•
meeting separately, periodically, with management, the internal auditors and the independent auditors; and
•
reporting regularly to the full board of directors.
Compensation Committee
Our current compensation committee consists of Tianqiao Chen and Qianqian Luo.
Our compensation committee is responsible for:
•
reviewing and making recommendations to our board of directors regarding our
compensation policies and forms of compensation provided to our directors and officers;
•
reviewing and determining bonuses for our officers and other employees;
•
reviewing and determining 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.
Controlled Company
We are a controlled company as defined under Nasdaq Marketplace Rule 4350(c)(5). As a result,
for so long as we remain a controlled company as defined in that rule, we are exempt from some of
the requirements of Nasdaq Marketplace Rule 4350(c), including the requirements that:
•
a majority of our board of directors must be independent directors;
•
the compensation of our chief executive officer must be determined or recommended
by a majority of the independent directors or a compensation committee comprised solely
of independent directors; and
•
the director nominees must be selected or recommended by a majority of the
independent directors or a nomination committee comprised solely of independent
directors.
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Corporate Governance
Our board of directors has adopted a code of ethics, which is applicable to our senior
executive and financial officers. In addition, our board of directors has adopted a code of
conduct, which is applicable to all of our directors, officers and employees. We have made our code
of ethics and our code of conduct publicly available on our website. See also Item 16B "Code of
Ethics".
In addition, our board of directors has adopted a set of corporate governance guidelines. The
guidelines reflect certain guiding principles with respect to our board's structure, procedure and
committees. The guidelines are not intended to change or interpret any law or our amended and
restated memorandum and articles of association.
We also have established a disclosure committee, which is comprised of certain members of
senior management. Pursuant to the disclosure committee's charter, which was ratified by our board
of directors, the disclosure committee is responsible for adopting, evaluating and overseeing our
disclosure controls and procedures and internal financial controls.
D. EMPLOYEES
As of December 31, 2005, we had 2392 full-time employees. The following table sets forth the
number of our employees by department as of December 31, 2004 and 2005:
As of December 31, 2004
As of December 31, 2005
Number
Percent
Number
Percent
Senior Management
40
2.8
32
1.3
Customer Service
284
19.9
419
17.5
Technology Support
202
14.1
301
12.6
Game Development
398
27.9
818
34.2
Product
Management
154
10.8
254
10.6
Sales, Marketing and Public
Relations
155
10.9
345
14.4
Finance and Administration /
Investment and Overseas
Business
138
9.6
223
9.4
New Business
58
4.0
—
—
Total
1429
100.0
2392
100.0
As required by PRC regulations, we participate in various employee benefit plans that are
organized by municipal and provincial governments, including housing, pension, medical and
unemployment benefit plans. We are required under PRC law to make contributions to the employee
benefit plans at specified percentages of the salaries, bonuses and certain allowances of our
employees, up to a maximum amount specified by the local government from time to time. Members of
the retirement plan are entitled to a pension equal to a fixed proportion of the salary prevailing
at the member's retirement date. In addition to the benefits that we are required to provide to our
employees pursuant to PRC regulations, we also
provide life insurance and supplemental medical insurance. The total amount of contributions
we made to employee benefit plans in 2003, 2004 and 2005 was RMB5.4 million, RMB13.7 million and
RMB 24.2 million (US$3.0 million) respectively.
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Our employees who are PRC citizens are members of a labor union that represents employees with
respect to labor disputes and other employee matters. The labor union does not, however, represent
employees for the purpose of collective bargaining. We believe that we maintain a good working
relationship with our employees and we have not experienced any significant labor disputes or any
difficulty in recruiting staff for our operations.
We enter into a standard annual employment contract with most of our officers, managers and
employees. These contracts include a covenant that prohibits the officer, manager or employee from
engaging in any activities that compete with our business during, and for one to two years after
the period of their employment with us.
E. SHARE OWNERSHIP
Please see Item 7.A.
Item 7. Major Shareholders and Related Party Transactions
A. MAJOR SHAREHOLDERS
The following table sets forth information with respect to the beneficial ownership, within
the meaning of Rule 13d-3 of the U.S. Securities Exchange Act of 1934, as amended, or the Exchange
Act, of our ordinary shares, as of March 31, 2006:
•
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;
Beneficial ownership includes voting or investment power with respect to the securities.
Except as indicated below, and subject to applicable community property laws, the persons named in
the table have sole voting and investment power with respect to all ordinary shares shown as
beneficially owned by them. Percentage of beneficial ownership is based on 142,181,048 ordinary
shares outstanding as of March 31, 2006.
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Shares Beneficially Owned
Name
Number
Percentage of Total
Tianqiao
Chen
1
83,202,628
58.5
%
Danian Chen
2
82,154,360
57.8
%
Qianqian Luo
3
83,202,628
58.5
%
Skyline Media
Limited
4
81,070,090
57.0
%
Cisco Systems, Inc
5
13,855,499
9.7
%
Jun Tang
1,035,186
0.7
%
Jingsheng Huang
*
*
W. Mark Evans
*
*
Qunzhao Tan
6
1,576,281
1.1
%
Haibin Qu
7
1,446,661
1.0
%
Shujun Li
8
398,748
0.3
%
Yanmei Zhang
Jingying
Wang
9
*
*
Hai Ling
*
*
Xiangdong Zhang
*
*
*
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
Represents 81,070,090 ordinary shares owned by Skyline Media Limited, 1,866,338
ordinary shares held by DBS Trustees Limited acting as trustees of the Jade Trust and
266,200 ordinary shares that may be issued upon exercise of stock options that are held
by DBS Trustees Limited acting as trustees of the Jade Trust. The 1,866,338 ordinary
shares held by DBS Trustees Limited do not include 322,000 ordinary shares that had been
sold as of March 31, 2006 pursuant to a pre-arranged stock trading plan adopted in June
2005 in accordance with Rule 10b5-1 under the Securities Exchange Act of 1934. Tianqiao
Chen is the sole shareholder of Shanda Media Limited, which is a director and owns 40% of
Skyline Capital International Limited, the sole shareholder of Skyline Media Limited.
Tianqiao Chen is also a director of Skyline Media Limited. Tianqiao Chen disclaims
beneficial ownership of all of our ordinary shares owned by Skyline Media Limited.
Ordinary shares and stock options held by DBS Trustees Limited acting as trustees of the
Jade Trust are held for the benefit of Tianqiao Chen and his family members.
2
Represents 81,070,090 ordinary shares owned by Skyline Media Limited, 951,170
ordinary shares owned by DBS Trustees Limited acting as trustees of the Chi Feng Trust
and 133,100 ordinary shares that may be issued upon exercise of stock options that are
held by DBS Trustees Limited acting as trustees of the Chi Feng Trust. Danian Chen is the
sole shareholder of Shanda Investment International Limited, which is a director and owns
30% of Skyline Capital International Limited, the sole shareholder of Skyline Media
Limited. Danian Chen is also a director of Skyline Media Limited. Danian Chen disclaims
beneficial ownership of all of our ordinary shares owned by Skyline Media Limited.
Ordinary shares and stock options held by DBS Trustees Limited acting as trustees of the
Chi Feng Trust are held for the benefit of Danian Chen and his family members.
3
Represents 81,070,090 ordinary shares owned by Skyline Media Limited, 1,866,338
ordinary shares owned by DBS Trustees Limited acting as trustees of the Jade Trust and
266,200 ordinary shares that may be issued upon
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exercise of stock options held by DBS
Trustees Limited acting as trustees of the Jade Trust. The 1,866,338 ordinary shares held
by DBS Trustees Limited do not include 322,000 ordinary shares that had been sold as of
March 31, 2006 pursuant to a pre-arranged stock trading plan adopted in June 2005 in
accordance with Rule 10b5-1 under the Securities Exchange Act of 1934. Qianqian Luo is
the sole shareholder of Fortune Capital Holdings Enterprises Limited, which is a director
and owns 30% of Skyline Capital International Limited, the sole shareholder of Skyline
Media Limited. Ms. Luo is also a director of Skyline Media Limited. Ms. Luo disclaims
beneficial ownership of all of our ordinary shares owned by Skyline Media Limited.
Ordinary shares and stock options held by DBS Trustees Limited acting as trustees of the
Jade Trust are held for the benefit of Ms. Luo and her family members.
4
Tianqiao Chen, Danian Chen and Qianqian Luo indirectly own 40%, 30% and 30%,
respectively, of Skyline Media and may be deemed to beneficially own all of our shares
held by Skyline Media Limited.
5
The number of shares was taken from Schedule 13G filed with the SEC by Cisco
Systems, Inc. on February 14, 2006, the file number is 005-80297. The percentage of
beneficial ownership was calculated based on the amount of our ordinary shares
outstanding as of March 31, 2006.
6
These ordinary shares, or stock options to purchase ordinary shares, are held by
DBS Trustees Limited acting as Trustees of the Three Gorges Trust for the benefit of
Qunzhao Tan and his family members.
7
These ordinary shares, or stock options to purchase ordinary shares, are held by
DBS Trustees Limited acting as Trustees of the Hub Trust for the benefit of Haibin Qu and
his family members.
8
These ordinary shares, or stock options to purchase ordinary shares, are held by
DBS Trustee Limited acting as Trustees of the Nature Trust for the benefit of Shujun Li
and his family members.
9
These ordinary shares, or stock options to purchase ordinary shares, are held by
DBS Trustee Limited acting as Trustees of the Fly Trust for the benefit of Jingying Wang
and his family members
None of our existing shareholders have voting rights that differ from the voting rights of
other shareholders. We are not aware of any arrangement that may, at a subsequent date, result in a
change of control of our company. As of December 31, 2005, of the 141,982,766 issued and
outstanding ordinary shares, approximately 16.26% of those ordinary shares are held in the US by 50
institutional holders of record
B. RELATED PARTY TRANSACTIONS
Shengqu/Shanda Networking Arrangements
In order to comply with PRC regulations, through the date of this annual report, we have
operated our online game business in China through Shanda Networking, a company wholly owned by
Tianqiao Chen and Danian Chen, our founders and controlling shareholders, who are also PRC
citizens. We have entered into a series of contractual arrangements with Shanda Networking and its
shareholders, including contracts relating to the transfer of assets, the provision of services,
software licenses and equipment, and certain shareholder rights and corporate governance matters.
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Each of Shengqu's contractual arrangements with Shanda Networking and its shareholders may
only be amended with the approval of our audit committee or another independent body of our board
of directors.
In December 2004, with an effective date of January 2005, we reorganized our online game
operations in China, splitting such operations between three different companies, Shanda
Networking, Nanjing Shanda and Hangzhou Bianfeng. Nanjing Shanda and Hangzhou Bianfeng are
subsidiaries of Shanda Networking. Following this reorganization, each of these companies operates
our online games in distinct provinces and regions across China. In connection with this
reorganization, we entered into a series of contractual arrangements with Shanda Networking,
Nanjing Shanda and Hangzhou Bianfeng and modified certain existing contractual arrangements with
Shanda Networking.
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The following is a summary of the material provisions of these agreements. For more complete
information you should read these agreements in their entirety. Directions of how to obtain copies
of those agreements are provided in this annual report under "Documents on Display" included in
Item 10 "Additional Information".
No
Agreement
Date
Parties
Purpose
Payment
1
Research and
Development
Agreement
October 31, 2005
Shengqu and Shengjin
Shengjin to develop
Shanda Richman, an
online casual game
Shengqu to make: (i)
recoupable installment
payments of totaling 2
million over 24 months; and
(ii) monthly royalty
payments equal to 16%
2
Research and
Development
Agreement
July 14, 2004
Shengqu and Shengjin
Shengjin to develop
The Sign, a MMORPG
Shengqu to make: (i)
recoupable installment
payments of totaling 2
million over 24 months; and
(ii) monthly royalty
payments between 5% and 10%.
3
Purchase
Agreement
December 21, 2004
Shengqu and Shengpin
Shengqu to purchase
from Shengpin
copyright for The
Age, a MMORPG
RMB2.7 million
4
Mir II License
Agreement Extension
September 28, 2005
Shengqu and PRC
operating companies
Shengqu extends
term Mir II
operating license
to the PRC
operating companies
RMB23,799,400 and 26% royalty
5
BNB License
Agreement Extension
October 1, 2005
Shengqu and PRC
operating companies
Shengqu extends
term BNB operating
license to the PRC
operating companies
RMB12,138,000 and 45% royalty
6
The Woool
License Agreement
Extension
January 1, 2006
Shengqu and PRC
operating companies
Shengqu extends
term Woool
operating license
to the PRC
operating companies
RMB15,000,000 and 26% royalty
7
The Age License
Agreement Extension
January 1, 2006
Shengqu and PRC
operating companies
Shengqu extends
term The Age
operating license
to the PRC
operating companies
RMB1,080,000 and 26% royalty
8
The Sign
License Agreement
Extension
January 1, 2006
Shengqu and PRC
operating companies
Shengqu extends
term The Sign
operating license
to the PRC
operating companies
RMB1,080,000 and 26% royalty
9
R.O. License
Agreement
September 1, 2005
Shengqu and PRC
operating companies
Shengqu licenses
right to operate
R.O. to the PRC
operating companies
RMB5,669,860 and 35% royalty
10
3G Hero License
Agreement
September 1, 2005
Shengqu and PRC
Operating Companies
Shengqu licenses
right to operate 3G
Hero to the PRC
operating companies
RMB2,000,000 and 35% royalty
11
Shanda Richman
License Agreement
December 8, 2005
Shengqu and PRC
operating companies
Shengqu licenses
right to operate
Shanda Richman to
the PRC operating
companies
RMB1,500,000 and 35% royalty
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No
Agreement
Date
Parties
Purpose
Payment
12
Crazy Kart
License Agreement
March 18, 2006
Shengqu and PRC
operating companies
Shengqu licenses
right to operate
Crazy Kart to the
PRC operating
companies
RMB1,200,000 and 35% royalty
13
Doudizhu
License Agreement
May 1, 2006
Grandpro and
Haofang Online
Grandpro licenses
right to operate
Doudizhu to Haofang Online
35% royalty
14
The Woool
License Agreement
December 28, 2004
Shengqu and PRC
operating companies
Shengqu licenses
right to operate
Woool to the PRC
operating companies
RMB30,000,000 and 26% royalty
15
The Age License
Agreement
December 28, 2004
Shengqu and PRC
operating companies
Shengqu licenses
right to operate
the Age to the PRC
operating companies
RMB3,300,000 and 26% royalty
16
The Sign
License Agreement
December 28, 2004
Shengqu and PRC
operating companies
Shengqu licenses
right to operate
The Sign to the PRC
operating companies
RMB2,900,000 and 26% royalty
17
D.O. License
Agreement
December 28, 2004
Shengqu and PRC
operating companies
Shengqu licenses
right to operate
D.O. to the PRC
operating companies
RMB6,621,600 and 25% royalty
18
Maple Story
License Agreement
December 28, 2004
Shengqu and PRC
operating companies
Shengqu licenses
right to operate
Maple Story to the
PRC operating
companies
RMB3,972,960 and 35% royalty
19
Mir II License
Agreement
December 28, 2004
Shengqu and PRC
operating companies
Shengqu licenses
right to operate
Mir II to the PRC
operating companies
RMB11,035,733 and 26% royalty
20
BNB License
Agreement
December 28, 2004
Shengqu and PRC
operating companies
Shengqu licenses
right to operate
BNB to the PRC
operating companies
RMB1,308,701 and 35% royalty
21
GetAmped
License Agreement
December 28, 2004
Shengqu and PRC
operating companies
Shengqu licenses
right to operate
GetAmped to the PRC
operating companies
RMB958,222 and 25% royalty
22
Buzzer Beater
License Agreement
December 28, 2004
Shengqu and PRC
operating companies
Shengqu licenses
right to operate
Buzzer Beater to
the PRC operating
companies
RMB830,000 and between 18%
to 21% royalty
95
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No
Agreement
Date
Parties
Purpose
Payment
23
Arena Software
I License Agreement
May 1, 2006
Grandpro and
Haofang Online
Grandpro licenses
right to use Arena
Software I to
Haofang Online
35% royalty
24
Arena Software
II License
Agreement
May 1, 2006
Grandpro and
Haofang Online
Grandpro licenses
right to use Arena
Software II to
Haofang Online
35% royalty
25
New E-sales
System License
December 9, 2005
Shengqu and PRC
operating companies
Shengqu licenses
right to use
The PRC operating
companies to make:
Agreement
E-Sales System
software to the PRC
operating companies
(i) installment
payments of
RMB3,250,000 over
12 months; and (ii)
monthly royalty
payments equal to
15%
26
New Xintianyou
License Agreement
January 1, 2006
Shengqu and PRC
operating companies
Shengqu licenses
right to use
The PRC operating
companies to make:
Xintianyou to the
PRC operating
companies
(i) one installment
payments of
RMB3,600,000 over
12 months, and (ii)
monthly royalty
equal to 5%
27
E-sales System
License Agreement
December 28, 2004
Shengqu and PRC
operating companies
Shengqu licenses
right to use
The PRC operating
companies to make:
E-Sales System
software to the PRC
operating companies
(i) one installment
payments of
RMB6,000,000 over
12 months, and (ii)
monthly royalty
equal to 15%
28
Xintianyou
License Agreement
December 28, 2004
Shengqu and PRC
operating companies
Shengqu licenses
right to use
The PRC operating
companies to make:
Xintianyou to the
PRC operating
companies
(i) one installment
payments of
RMB3,600,000 over
12 months, and (ii)
monthly royalty
equal to 5%
29
New Billing
Technology License
Agreement
January 1, 2006
Shengqu and Shanda
Networking
Shengqu licenses
right to use
billing technology
in South-west
China, North-west
China and North
China to Shanda
Networking
Shanda Networking
to make monthly
royalty payments
equal to the number
of monthly average
concurrent users
multiplied by RMB10
for 2006
30
New Billing
Technology License
Agreement
January 1, 2006
Shengqu and Nanjing
Shanda
Shengqu licenses
right to use
billing technology
in East China and
South-central China
to Nanjing Shanda
Nanjing Shanda to
make monthly
royalty payments
equal to the number
of monthly average
concurrent users
multiplied by RMB10
for 2006
31
New Billing
Technology License
Agreement
January 1, 2006
Shengqu and
Hangzhou Bianfeng
Shengqu licenses
right to use
billing technology
in North-east China
to Hangzhou
Bianfeng
Hangzhou Bianfeng
to make monthly
royalty payments
equal to the number
of monthly average
concurrent users
multiplied by RMB10
for 2006
32
Amendment to
the Amended and
Restated Billing
Technology License
Agreement
December 28, 2004
Shengqu and Shanda
Networking
Shengqu licenses
right to use
billing technology
in South-west
China, North-west
China and North
China to Shanda
Networking
Shanda Networking
to make monthly
royalty payments
equal to the number
of monthly average
concurrent users
multiplied by
RMB13.46 for 2005
96
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No
Agreement
Date
Parties
Purpose
Payment
33
Billing
Technology License
Agreement
December 28, 2004
Shengqu and Nanjing
Shanda
Shengqu licenses
right to use
billing technology
in East China and
South-central China
to Nanjing Shanda
Nanjing Shanda to
make monthly
royalty payments
equal to the number
of monthly average
concurrent users
multiplied by
RMB13.46 for 2005
34
Billing
Technology License
Agreement
December 28, 2004
Shengqu and
Hangzhou Bianfeng
Shengqu licenses
right to use
billing technology
in North-east China
to Hangzhou
Bianfeng
Nanjing Shanda to
make monthly
royalty payments
equal to the number
of monthly average
concurrent users
multiplied by
RMB13.46 for 2005
35
The Amended and
Restated Billing
Technology License
Agreement
December 9, 2003
Shengqu and Shanda
Networking
Shengqu licenses
right to use
billing technology
in China to Shanda
Networking
Shanda Networking
to make monthly
royalty payments
equal to the number
of monthly average
concurrent users
multiplied by
RMB13.46 for 2004
and RMB 15.3 for
2003
36
Equipment Lease
Agreement
December 28, 2004
Shengqu and Nanjing
Shanda
Shengqu leases
certain equipment
to Nanjing Shanda
Nanjing Shanda to
pay monthly rent
equal to 4.2% of
the original value
of the leased
equipment.
37
Equipment Lease
Agreement
December 28, 2004
Shengqu and
Hangzhou Bianfeng
Shengqu leases
certain equipment
to Hangzhou
Bianfeng
Hangzhou Bianfeng
to pay monthly rent
equal to 4.2% of
the original value
of the leased
equipment.
38
Amended
Strategic
Consulting Service
Agreement II
December 28, 2004
Shengqu and Shanda
Networking
Shengqu provides
strategic
consulting service
to Shanda
Networking
Shanda Networking
to pay: (i)
standard monthly
fee of RMB150.00
per user; and (ii)
RMB1,900,000 for
2005
39
Amended
Strategic
Consulting Service
Agreement III
December 28, 2005
Shengqu and Shanda
Networking
Shengqu provides
strategic
consulting service
to Shanda
Networking
Shanda Networking
to pay: (i)
standard monthly
fee of RMB92.00 per
user; and (ii)
RMB1,600,000 for
2006
40
Amended
Strategic
Consulting Service
Agreement
December 28, 2004
Shengqu and Shanda
Networking
Shengqu provides
strategic
consulting service
to Shanda
Networking
Shanda Networking
to pay: (i)
standard monthly
fee of RMB86.00 per
user; and (ii)
RMB1,900,000 for
2004
41
Entrusted Loan
Agreement
March 19, 2006
Nanjing Shanda and
China Merchants
Bank Dongfang
Branch
Nanjing Shanda
provides Shanda
Computer with a
loan through
services provided
by China Merchants
Bank
Nanjing Shanda to
provide Shanda
Computer a loan of
RMB38,000,000
42
Loan Agreement
March 19, 2006
China Merchants
Bank Dongfang
Branch and Shanda
Computer
Nanjing Shanda
provides Shanda
Computer with a
loan through
services provided
by China Merchants
Bank
Nanjing Shanda to
provide Shanda
Computer a loan of
RMB38,000,000
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No
Agreement
Date
Parties
Purpose
Payment
43
Entrusted Loan
Agreement
March 19, 2006
Hangzhou Bianfeng
and China Merchants
Bank Dongfang
Branch
Hangzhou Bianfeng
provides Shanda
Computer with a
loan through
services provided
by China Merchants
Bank
Hangzhou Bianfeng
to provide Shanda
Computer a loan of
RMB27,000,000
44
Loan Agreement
March 19, 2006
China Merchants
Bank Dongfang
Branch and Shanda
Computer
Hangzhou Bianfeng
provides Shanda
Computer with a
loan through
services provided
by China Merchants
Bank
Hangzhou Bianfeng to
provide Shanda
Computer a loan of
RMB27,000,000
45
Entrusted Loan
Agreement
March 24, 2006
Shanda Networking
and China
Industrial &
Commercial Bank
Pudong Branch
Shanda Networking
provides Shanda
Computer with a
loan through
services provided
by China Industrial
& Commercial Bank
Shanda Networking
to provide Shanda
Computer a loan of
RMB35,000,000
46
Loan Agreement
March 24, 2006
Shanda Networking,
Shanda Computer and
China Industrial &
Commercial Bank
Pudong Branch
Shanda Networking
provides Shanda
Computer with a
loan through
services provided
by China Industrial
& Commercial Bank
Shanda Networking
to provide Shanda
Computer a loan of
RMB35,000,000
47
Loan Agreement
January 4, 2006
Shanda Networking,
Shanghai Bank
Xujiahui Branch and
Shegnqu
Shanda Networking
provides Shengqu
with a loan through
services provided
by Shanghai Bank
Shanda Networking
to provide Shengqu
a loan of
RMB100,000,000
48
Entrusted Loan
Agreement
January 4, 2006
Shanda Networking
and China Merchants
Bank Dongfang
Branch
Shanda Networking
provides Shengqu
with a loan through
services provided
by China Merchants
Bank
Shanda Networking
to provide Shengqu
a loan of
RMB100,000,000
49
Loan Agreement
January 4, 2006
China Merchants
Bank Dongfang
Branch and Shengqu
Shanda Networking
provides Shengqu
with a loan through
services provided
by China Merchants
Bank
Shanda Networking
to provide Shengqu
a loan of
RMB100,000,000
50
Entrusted Loan
Agreement
January 4, 2006
Nanjing Shanda and
China Merchants
Bank Dongfang
Branch
Nanjing Shanda
provides Shengqu
with a loan through
services provided
by China Merchants
Bank
Nanjing Shanda to
provide Shengqu a
loan of
RMB100,000,000
51
Loan Agreement
January 4, 2006
China Merchants
Bank Dongfang
Branch and Shengqu
Nanjing Shanda
provides Shengqu
with a loan through
services provided
by China Merchants
Bank
Nanjing Shanda to
provide Shengqu a
loan of
RMB100,000,000
52
Cooperation
Agreement
January 1, 2005
Shengqu and Shengyue
Shengqu to plan,
design and create
media content and
prepare such
materials for
Shengyue
Shengyue to pay a
service fee equal
to 80% of the
revenue realized
through the
distribution of
media content
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Table of Contents
Shareholder Rights and Corporate Governance
Transfer of Ownership when Permitted by Law.
Pursuant to a purchase option and cooperation
agreement, or the purchase option agreement, entered into among Shengqu, Tianqiao Chen, Danian Chen
and Shanda Networking on December 30, 2003, Tianqiao Chen and Danian Chen jointly granted Shengqu
an exclusive option to purchase all of their equity interest in Shanda Networking, and Shanda
Networking granted Shengqu an exclusive option to purchase all of its assets if and when (1) such
purchase is permitted under applicable PRC law or (2) to the extent permitted by law, with respect
to his individual interest, either Tianqiao Chen and Danian Chen ceases to be a director or
employee of Shanda Networking or desires to transfer his equity interest in Shanda Networking to a
third party. Shengqu may purchase such interest or assets by itself or designate another party to
purchase such interest or assets. The exercise price of the option will be equal to the lower of
RMB10 million or the lowest price permitted by PRC law, or a pro rata portion thereof for a
purchase of a portion of the equity interest in, or assets of, Shanda Networking. Shengqu will bear
the tax consequences of Tianqiao Chen and Danian Chen caused by any exercise by Shengqu of the
option to purchase the equity interest in Shanda Networking. Following any exercise of the option,
the parties will enter into a definitive share or asset purchase agreement and other related
transfer documents within 30 days after written notice of exercise is delivered. Pursuant to the
purchase option agreement, at all times before Shengqu acquires 100% of Shanda Networking's shares
or assets, Shanda Networking may not (1) sell, transfer, assign, dispose of in any manner or create
any encumbrance in any form on any of its assets unless such sale, transfer, assignment, disposal
or encumbrance is relating to the daily operation of Shanda Networking or has been disclosed to and
consented to in writing by Shengqu; (2) enter into any transaction which may have a material effect
on Shanda Networking assets, liabilities, operations, equity or other legal interests unless such
transaction relates to the daily operation of Shanda Networking or has been disclosed to and
consented to in writing by Shengqu; and (3) distribute any dividends to its shareholders in any
manner, and Tianqiao Chen and Danian Chen may not cause Shanda Networking to amend its articles of
association to the extent such amendment may have a material effect on Shanda Networking's assets,
liabilities, operations, equity or other legal interests except for pro rata increases of
registered capital required by law.
Voting Arrangement.
Pursuant to two proxies executed and delivered by Tianqiao Chen and Danian
Chen to Haibin Qu and Qunzhao Tan, respectively, on December 30, 2003, Tianqiao Chen and Danian
Chen have granted Haibin Qu and Qunzhao Tan, who are employees of Shengqu, the power to exercise
their rights as the shareholders of Shanda Networking to appoint directors, the general manager and
other senior managers of Shanda Networking. Under the purchase option agreement, Tianqiao Chen and
Danian Chen have agreed that (1) they will only revoke the proxies granted to Haibin Qu or Qunzhao
Tan when either of the two individuals ceases to be an employee of Shengqu or Shengqu delivers a
written notice to Tianqiao Chen and Danian Chen requesting such revocation, and (2) they, or either
of them, as the case may be, will execute and deliver another proxy in the same format as the one
dated December 30, 2003 to any other individual as instructed by Shengqu. Tianqiao Chen and Danian
Chen have agreed that they will cause their successors to continue to fulfill such undertaking if
and when either ceases to be a shareholder or director of Shanda Networking.
Share Pledge Agreement.
Pursuant to a share pledge agreement, dated December 30, 2003,
Tianqiao Chen and Danian Chen have pledged all of their equity interest in Shanda Networking to
Shengqu to secure the payment obligations of Shanda Networking under all of the agreements between
Shanda Networking and Shengqu. Under this agreement, Tianqiao Chen and Danian Chen have agreed not
to transfer, assign, pledge or in other manner dispose of their interests in Shanda Networking or
create any other encumbrance on their interests in Shanda Networking which may have a material
effect on Shengqu's interests without the written consent of Shengqu.
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Financing Support.
Pursuant to the purchase option agreement, Shengqu has agreed to provide or
designate one of its affiliates to provide financing to Shanda Networking to the extent Shanda
Networking needs such financing. To the extent that Shanda Networking is unable to repay the
financing due to its losses, Shengqu agrees to waive or cause other relevant parties to waive all
recourse against Shanda Networking with respect to the financing.
Indemnifications.
Shengqu has agreed to provide necessary support to and to indemnify Tianqiao
Chen and Danian Chen to the extent that they are subject to any legal or economic liabilities as a
result of performing their obligations pursuant to their agreements with Shengqu.
Other Related Party Transactions
Authorization of Skyline Media Limited, Skyline Capital International Limited and Shanda Media
Limited to purchase shares of Sina on behalf of the Company.
On February 14, 2005, we entered into
an agreement to purchase 688,015 shares of Sina Corp, an online media company, value-added service
provider and Internet portal in China, at an aggregate purchase price of US$10.7 million from
Skyline Media Limited, Skyline Capital International Limited and Shanda Media Limited, in
connection with our strategic investment in Sina. This aggregate purchase price is equivalent to a
US$15.59 per share purchase price, which represents the actual cost incurred by the sellers in
purchasing the Sina shares less certain past profits realize by the sellers on behalf of us in
connection with trading Sina shares.
C. INTEREST OF EXPERTS AND COUNSEL
Not applicable.
Item 8. Financial Information
A. CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION
Consolidated Financial Statements
Please see Item 18 "Financial Statements" for our audited consolidated financial statements
filed as a part of this annual report.
Legal Proceedings
From time to time we may initiate legal proceedings in order to protect our contractual and
property rights and becoming involved in legal proceedings in which others allege that we have
breached their contractual or property rights.
Actoz / Wemade
On July 3, 2003, we initiated an arbitration in Singapore, under the auspices of the
International Chamber of Commerce, or the ICC, against Actoz and Wemade, which are two online game
developers based in South Korea, in order to resolve, among other things, certain disputes relating
to the software license agreement between Shanda Networking and Actoz for Mir II. In August 2003,
we settled the disputes regarding the Mir II license agreement with Actoz and requested
discontinuance of the arbitration. Wemade, however, objected to the discontinuation request and
filed claims against Shanda
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and Actoz, alleging, among other things, that Wemade validly terminated the Mir II license in
November 2002. In October 2005, the arbitrator appointed by the ICC to decide the dispute issued
its award. The tribunal found that Actoz was fully authorized to enter into the settlement with
Shanda on behalf of Wemade and that Wemade had no legitimate interest to object to the withdrawal
of the arbitration. Accordingly, the claims made by Wemade against Shanda and Actoz were dismissed.
In addition, Wemade shall bear and pay the costs incurred by Shanda and Actoz from August 29, 2003
in defending against such claims.
On October 8, 2003, Wemade filed a claim with the Beijing First Intermediate People's Court,
or the Beijing Court, against us and Beijing Lian Jin Century Scientific and Commercial Centre, a
Beijing based distributor of our games, which alleged that we have infringed upon Wemade's
copyright and violated the PRC Anti-Unfair Competition Law with respect to Mir II in connection
with our development and operation of Woool. In particular, Wemade has alleged that the Chinese
name for Woool, which includes two characters from the Chinese name for Mir II, misleads users and
that we previously encouraged users to switch from Mir II to Woool by permitting the transfer of
game characters developed in Mir II to Woool. The claim was served to us on December 29, 2003.
Wemade has alleged, among other things, that we have copied Mir II and elements of the Legend of
Mir III, another game developed by Wemade, in developing Woool and that customers have been misled
into thinking that Woool is a new version of Mir II. Wemade has requested the court to order us to
stop operating Woool, destroy all data relating to Woool, stop distributing and marketing products
related to Woool, take down the Woool website, stop selling pre-paid cards and related products
with respect to Woool, and pay Wemade's legal fees and related costs incurred by Wemade in
connection with this litigation.
On May 24, 2004, the Beijing court informed us that Actoz joined Wemade as a co-plaintiff in
these proceedings. In October 2005, the Beijing Court completed a series of hearings in connection
with the allegations. The parties are awaiting a decision from the Beijing Court.
We believe that we have valid defenses to Wemade's claims. There are, however, uncertainties
associated with any litigation, and we cannot assure you that the Beijing court will determine the
issues in our favor.
In late March 2004, we received notice from Actoz relating to an audit on Mir II royalty fees
prepared on behalf of Actoz pursuant to the settlement agreement. The audit alleged certain
potential underpayments of royalty fees in respect of the period from July 1, 2002 to September 30,
2003 amounting to approximately RMB35 million. In addition, we received notice from Actoz relating
to an audit of Mir II royalty fees prepared on behalf of Actoz for royalties accrued during the
fourth quarter of 2003. The audit alleged certain potential underpayments of royalty fees for such
period in an amount of approximately RMB2 million. In September 2005, in connection with the
extension of the software license agreement for Mir II, we settled the alleged underpayment of
royalty fees with Actoz and agreed to pay RMB20.6 million of RMB37 million alleged underpayment.
China Cyberport
On April 25, 2006, China Cyberport Co. Ltd., or China Cyberport, filed a claim with the
Shanghai First Intermediate People's Court against our affiliate company Haofang. The claim alleges
that Haofang, which operates a PC game network platform that allows users to play PC games against
each other through the Internet, infringed upon China Cyberport's exclusive distribution rights for
certain PC games. China Cyberport has requested that the Shanghai Court order Haofang to cease
operation of its PC game network, to pay damages in the amount of RMB120 million and to reimburse
China Cyberport for costs incurred in connection with the dispute. We believe that Haofang has
valid defenses to China
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Cyberport's claims and we intend to assist Haofang in defending vigorously against such
claims. There are, however, uncertainties associated with any litigation, and we cannot assure you
that the Shanghai court will determine the issues in favor of Haofang.
Dividend Policy
We declared a special cash dividend in the first quarter of 2004, that was paid on April 29,
2004, pro-rata out of available cash to our existing shareholders. We do not, however, expect to
pay dividends on our ordinary shares in the foreseeable future. We currently intend to retain all
available funds and any future earnings for use in the operation and expansion of our business, and
do not anticipate paying any cash dividends on our ordinary shares, or indirectly on our ADSs, for
the foreseeable future.
Future cash dividends, if any, will be declared at the discretion of our board of directors
and will depend upon our future operations and earnings, capital requirements and surplus, general
financial condition, contractual restrictions and other factors as our board of directors may deem
relevant.
Holders of ADSs will be entitled to receive dividends, subject to the terms of the deposit
agreement, to the same extent as the holders of our ordinary shares, less the fees and expenses
payable under the deposit agreement. Cash dividends will be paid by the depositary to holders of
ADSs in U.S. dollars, subject to the terms of the deposit agreement. Other distributions, if any,
will be paid by the depositary to holders of ADSs in any means it deems legal, fair and practical.
B. SIGNIFICANT CHANGES
Since the date of the audited financial statements included as a part of this annual report,
the following significant changes have occurred:
On February 28, 2006, we made the final earn out payment in the amount of US$ 31 million to
the former shareholders of Haofang in connection with our two-step acquisition of Haofang.
On May 17, 2006, we announced our unaudited financial results for the first quarter of 2006,
ended March 31,2006.
Item 9. The Offer and Listing
A. OFFER AND LISTING DETAILS
Price Range of American Depositary Shares
Our ADSs, each representing two of our ordinary shares, have been listed on The Nasdaq
National Market since May 13, 2004. Our ADSs trade under the symbol "SNDA." The following table
provides the high and low sale prices for our ADSs on The Nasdaq National Market for (1) the year
of 2004 and the year of 2005, (2) each of the quarters since the second quarter of 2004, and (3)
each of the most recent six months. On June 26, 2006, the last reported sale price for our ADSs was
US$13.71 per ADS.
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Table of Contents
Sale Price (US$)
High
Low
Yearly highs and lows
Year 2004 (from May 13, 2004)
45.40
10.58
Year 2005
43.55
14.80
Quarterly highs and lows:
Second quarter 2004
17.88
10.58
Third quarter 2004
25.30
13.52
Fourth quarter 2004
45.40
23.62
First quarter 2005
43.55
27.80
Second quarter 2005
42.24
28.98
Third quarter 2005
41.18
26.67
Fourth quarter 2005
28.30
14.80
First quarter 2006
18.40
12.58
Monthly highs and lows:
December 2005
17.47
14.80
January 2006
18.40
14.95
February 2006
17.00
13.47
March 2006
14.49
12.58
April 2006
14.55
12.23
May 2006
15.30
12.30
B. PLAN OF DISTRIBUTION
Not applicable
C. MARKETS
Our ADSs, each representing two of our ordinary shares, have been listed on The Nasdaq National
Market since May 13, 2004 under the symbol "SNDA."
D. SELLING SHAREHOLDERS
Not applicable
E. DILUTION
Not applicable
F. EXPENSES OF THE ISSUE
Not applicable
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Item 10. Additional Information
A. SHARE CAPITAL
Not applicable.
B. MEMORANDUM AND ARTICLES OF ASSOCIATION
We incorporate by reference into this annual report the description of our amended and
restated memorandum and articles of association contained in our registration statement on Form F-1
(File No. 333-114177) filed with the Securities and Exchange Commission on May 7, 2004.
C. MATERIAL CONTRACTS
We have not entered into any material contracts other than in the ordinary course of business
or other than those described in Item 4 "Information on the Company" and elsewhere in this annual
report.
D. EXCHANGE CONTROLS
Substantially all of our revenues are denominated in Renminbi, while a portion of our
expenditures are denominated in foreign currencies, primarily the U.S. dollar. Fluctuations in
exchange rates, particularly those involving the U.S. dollar and the Japanese yen, may affect our
costs and operating margins. In addition, these fluctuations could result in exchange losses and
increased costs in Renminbi terms. Where our operations conducted in Renminbi are reported in
dollars, such fluctuations could result in changes in reported results which do not reflect changes
in the underlying operations. Since January 1, 1994, the PRC government has used a unitary managed
floating rate system. Under that system, the People's Bank of China, or PBOC, publishes a daily
base exchange rate with reference primarily to the supply and demand of Renminbi against U.S.
dollar and other foreign currencies in the market during the previous day. Authorized banks and
financial institutions are allowed to quote buy and sell rats for Renminbi within a specified bank
around the central bank's daily exchange rate. On July 21, 2005, PBOC announced an adjustment of
the exchange rate of the U.S. dollar to Renminbi from 1:8.27 to 1:8.11 and modified the system by
which the exchange rates are determined. This adjustment has resulted in an approximate 3.0%
appreciation of the Renminbi against the U.S. dollar as of March 21, 2006. While the international
reaction to the Renminbi revaluation has generally been positive, there remains significant
international pressure on the PRC government to adopt an even more flexible currency policy, which
could result in a further reevaluation and a significant fluctuation of the exchange rate of
Renminbi against the U.S. dollar, including possible devaluations. As substantially all of our
revenues are denominated in Renminbi, such a potential future devaluation of Renminbi against the
U.S. dollars could negatively impact our results of operations.
In October 2005, the State Administration of Foreign Exchange, or SAFE, promulgated
regulations that require registration with local SAFE in connection with direct or indirect
offshore investment by PRC residents, including PRC individual residents and PRC corporate
entities. These regulations apply to our shareholders who are PRC residents and also apply to our
prior and future offshore acquisitions.
The SAFE regulations retroactively require registration by March 31, 2006 of direct or
indirect investments previously made by PRC residents in offshore companies. If a PRC resident
with a direct or indirect stake in an offshore
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parent company fails to make the required SAFE registration, the PRC subsidiaries of such
offshore parent company may be prohibited from making distributions of profit to the offshore
parent and from paying the offshore parent proceeds from any reduction in capital, share transfer
or liquidation in respect of the PRC subsidiaries. Further, failure to comply with various SAFE
registration requirements described above could result in liability under PRC law for foreign
exchange evasion.
For more information about foreign exchange control and other foreign exchange regulations in
China, see "Risk Factors" in Item 3 "Key Information."
E. TAXATION
The following is a general summary of certain material Cayman Islands and U.S. federal income
tax considerations. The discussion is not intended to be, nor should it be construed as, legal or
tax advice to any particular prospective shareholder. 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 United
States state or local tax laws, or tax laws of jurisdictions other than the Cayman Islands and the
United States.
Cayman Islands Taxation
The Cayman Islands currently levies no taxes on individuals or corporations based upon
profits, income, gains or appreciation and there is no taxation in the nature of inheritance tax or
estate duty or withholding tax applicable to us or to any holder of our securities. There are no
other taxes likely to be material to us levied by the Government of the Cayman Islands except for
stamp duties which may be applicable on instruments executed in, or after execution brought within
the jurisdiction of the Cayman Islands. No stamp duty is payable in the Cayman Islands on transfers
of shares of Cayman Islands companies except those which hold interests in land in the Cayman
Islands. The Cayman Islands is not party to any double tax treaties. There are no exchange control
regulations or currency restrictions in the Cayman Islands.
Pursuant to Section 6 of the Tax Concessions Law (1999 Revision) of the Cayman Islands, the
Company has obtained an undertaking from the Governor-in-Council:
(1)
that no law which is enacted in the Cayman Islands imposing any tax to be levied on
profits or income or gains or appreciation shall apply to the Company or its operations;
and
(2)
that the aforesaid tax or any tax in the nature of estate duty or inheritance tax
shall not be payable on the shares, debentures or other obligations of the Company.
The undertaking for the Company is for a period of twenty years from November 25, 2003.
United States Federal Income Taxation
This discussion describes the material U.S. federal income tax consequences of the purchase,
ownership and disposition of our ADSs. This discussion does not address any aspect of U.S. federal
gift or estate tax, or the state, local or foreign tax consequences of an investment in our ADSs.
This discussion applies to you only if you hold and beneficially own our ADSs as capital assets for
tax purposes. This discussion does not apply to you if you are a member of a class of holders
subject to special rules, such as:
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•
dealers in securities or currencies;
•
traders in securities that elect to use a mark-to-market method of accounting for
securities holdings;
•
banks or other financial institutions;
•
insurance companies;
•
tax-exempt organizations;
•
partnerships and other entities treated as partnerships for U.S. federal income
tax purposes or persons holding ADSs through any such entities;
•
persons that hold ADSs as part of a hedge, straddle, constructive sale,
conversion transaction or other integrated investment;
•
U.S. Holders (as defined below) whose functional currency for tax purposes is not the U.S. dollar;
•
persons liable for alternative minimum tax; or
•
persons who actually or constructively own 10% or more of the total combined voting
power of all classes of our shares (including ADSs) entitled to vote.
This discussion is based on the U.S. Internal Revenue Code of 1986, as amended, which we refer
to in this discussion as the Code, its legislative history, existing and proposed regulations
promulgated thereunder, published rulings and court decisions, all as currently in effect. These
laws are subject to change, possibly on a retroactive basis. In addition, this discussion relies on
our assumptions regarding the projected value of our shares and the nature of our business.
Finally, this discussion is based in part upon the representations of the depositary and the
assumption that each obligation in the deposit agreement and any related agreement will be
performed in accordance with its terms. For U.S. federal income tax purposes, as a holder of ADSs,
you are treated as the owner of the underlying ordinary shares represented by such ADSs.
You should consult your own tax advisor concerning the particular U.S. federal income tax
consequences to you of the purchase, ownership and disposition of our ADSs, as well as the
consequences to you arising under the laws of any other taxing jurisdiction.
For purposes of the U.S. federal income tax discussion below, you are a "U.S. Holder" if you
beneficially own ADSs and are:
•
a citizen or resident of the United States for U.S. federal income tax purposes;
•
a corporation, or other entity taxable as a corporation, that was created or
organized in or under the laws of the United States or any political subdivision thereof;
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•
an estate the income of which is subject to U.S. federal income tax regardless of
its source; or
•
a trust if (a) a court within the United States is able to exercise primary
supervision over its administration and one or more U.S. persons have the authority to
control all substantial decisions of the trust, or (b) the trust has a valid election in
effect to be treated as a U.S. person.
If you are not a U.S. person, please refer to the discussion below under "Non-U.S. Holders."
For U.S. federal income tax purposes, income earned through a foreign or domestic partnership
or other flow-through entity is attributed to its owners. Accordingly, if a partnership or other
flow-through entity holds ADSs, the tax treatment of the holder will generally depend on the status
of the partner or other owner and the activities of the partnership or other flow-through entity.
U.S. Holders
Dividends on ADSs.
We do not anticipate paying dividends on our ordinary shares or indirectly
on our ADSs, in the foreseeable future. See "Dividend Policy" in Item 8.
Subject to the "Passive Foreign Investment Company" discussion below, if we do make
distributions and you are a U.S. Holder, the gross amount of any distributions you receive on your
ADSs will generally be treated as dividend income if the distributions are made from our current or
accumulated earnings and profits, calculated according to U.S. federal income tax principles.
Dividends will generally be subject to U.S. federal income tax as ordinary income on the day you
actually or constructively receive such income. However, if you are an individual and have held
your ADSs for a sufficient period of time, dividend distributions on our ADSs will generally
constitute qualified dividend income taxed at a preferential rate (generally 15% for dividend
distributions before January 1, 2011) as long as our ADSs continue to be readily tradable on the
Nasdaq National Market. You should consult your own tax adviser as to the rate of tax that will
apply to you with respect to dividend distributions, if any, you receive from us.
We do not intend to calculate our earnings and profits according to U.S. tax accounting
principles. Accordingly, distributions on our ADSs, if any, will generally be taxed to you as
dividend distributions for U.S. tax purposes. You will not be entitled to claim a
dividends-received deduction with respect to distributions you receive from us even if you are a
corporation. Dividends generally will constitute foreign source passive income for purposes of the
U.S. foreign tax credit rules.
Sales and other dispositions of ADSs.
Subject to the "Passive Foreign Investment Company"
discussion below, when you sell or otherwise dispose of ADSs, you will generally recognize capital
gain or loss in an amount equal to the difference between the amount realized on the sale or other
disposition and your adjusted tax basis in the ADSs, both as determined in U.S. dollars. Your
adjusted tax basis will generally equal the amount you paid for the ADSs. Any gain or loss you
recognize will be long term capital gain or loss if your holding period in our ADSs is more than
one year at the time of disposition. If you are an individual, any such long-term capital gain will
be taxed at preferential rates (generally 15% for capital gain recognized before January 1, 2011).
Your ability to deduct capital losses will be subject to various limitations.
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Passive Foreign Investment Company.
If we were a Passive Foreign Investment Company, or
"PFIC", in any taxable year in which you hold our ADSs, as a U.S. Holder, you would generally be
subject to adverse U.S. tax consequences in the form of increased tax liability and special U.S.
tax reporting requirements.
We will be classified as a PFIC in any taxable year if either: (1) the average percentage
value of our gross assets during the taxable year that produce passive income or are held for the
production of passive income is at least 50% of the value of our total gross assets or (2) 75% or
more of our gross income for the taxable year is passive income (such as certain dividends,
interest or royalties). For purposes of the first test: (1) any cash, cash equivalents, and cash
invested in short-term, interest bearing, debt instruments, or bank deposits that are readily
convertible into cash, will generally count as producing passive income or held for the production
of passive income and (2) the total value of our assets is calculated based on our market
capitalization.
We believe that we were not a PFIC for the taxable year 2005. Although in the past we have
operated our business and in the future we intend to operate our business so as to minimize the
risk of being classified as a PFIC, there can be no assurance that we will not be a PFIC for the
taxable year 2006 and/or later taxable years, as PFIC status is re-tested each year and depends on
our assets and income in such year. For example, we would be a PFIC for the taxable year 2006 if
the sum of our average market capitalization, which is our share price multiplied by the total
amount of our outstanding shares, and our liability over the taxable year is not more than twice
the value of our cash, cash equivalents, and other assets that are readily converted into cash.
If we were a PFIC, you would generally be subject to additional taxes and interest charges on
certain "excess" distributions we make and on any gain realized on the disposition or deemed
disposition of your ADSs, regardless of whether we continue to be a PFIC in the year in which you
receive an "excess" distribution or dispose of or are deemed to dispose of your ADSs. Distributions
in respect of your ADSs during a taxable year would generally constitute "excess" distributions if,
in the aggregate, they exceed 125% of the average amount of distributions in respect of your ADSs
over the three preceding taxable years or, if shorter, the portion of your holding period before
such taxable year.
To compute the tax on "excess" distributions or any gain, (1) the "excess" distribution or the
gain would be allocated ratably to each day in your holding period, (2) the amount allocated to the
current year and any tax year before we became a PFIC would be taxed as ordinary income in the
current year, (3) the amount allocated to other taxable years would be taxable at the highest
applicable marginal rate in effect for that year, and (4) an interest charge at the rate for
underpayment of taxes for any period described under (3) above would be imposed with respect to any
portion of the "excess" distribution or gain that is allocated to such period. In addition, if we
were a PFIC, no distribution that you receive from us would qualify for taxation at the
preferential rate discussed in the "Dividends on ADSs" section above.
If we were a PFIC in any year, as a U.S. Holder, you would be required to make an annual
return on IRS Form 8621 regarding your ADSs. However, we do not intend to generate, or share with
you, information that you might need to properly complete IRS Form 8621. You should consult with
your own tax adviser regarding reporting requirements with regard to your ADSs.
If we were a PFIC in any year, you would generally be able to avoid the "excess" distribution
rules described above by making a timely so-called "mark-to-market" election with respect to your
ADSs, provided our ADSs are "marketable". If you made this election in a timely fashion, you would
generally recognize as ordinary income or ordinary loss the difference between the fair market
value of your ADSs on the first day of any taxable year and their value on the last day of that
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taxable year. Any ordinary income resulting from this election would generally be taxed at
ordinary income rates and would not be eligible for the reduced rate of tax applicable to qualified
dividend income. Any ordinary losses would be limited to the extent of the net amount of previously
included income as a result of the mark-to-market election, if any. Your basis in the ADSs would be
adjusted to reflect any such income or loss. You should consult with your own tax adviser regarding
potential advantages and disadvantages to you of making a "mark-to-market" election with respect to
your ADSs. Separately, if we were a PFIC in any year, you would be able to avoid the "excess"
distribution rules by making a timely election to treat us as a so-called "Qualified Electing Fund"
or "QEF." You would then generally be required to include in gross income for any taxable year (1)
as ordinary income, your pro rata share of our ordinary earnings for the taxable year, and (2) as
long-term capital gain, your pro rata share of our net capital gain for the taxable year. However,
we do not intend to provide you with the information you would need to make or maintain a "QEF"
election and you will, therefore, not be able to make or maintain such an election with respect to
your ADSs.
Non-U.S. Holders
If you beneficially own ADSs and are not a U.S. Holder for U.S. federal income tax purposes (a
"Non-U.S. Holder"), you generally will not be subject to U.S. federal income tax or withholding on
dividends received from us with respect to ADSs unless that income is considered effectively
connected with your conduct of a U.S. trade or business and, if an applicable income tax treaty so
requires as a condition for you to be subject to U.S. federal income tax with respect to income
from your ADSs, such dividends are attributable to a permanent establishment that you maintain in
the United States. You generally will not be subject to U.S. federal income tax, including
withholding tax, on any gain realized upon the sale or exchange of ADSs, unless:
•
that gain is effectively connected with the conduct of a U.S. trade or business
and, if an applicable income tax treaty so requires as a condition for you to be subject
to U.S. federal income tax with respect to income from your ADSs, such gain is
attributable to a permanent establishment that you maintain in the United States; or
•
you are a nonresident alien individual and are present in the United States for at
least 183 days in the taxable year of the sale or other disposition and either (1) your
gain is attributable to an office or other fixed place of business that you maintain in
the United States or (2) you have a tax home in the United States.
If you are engaged in a U.S. trade or business, unless an applicable tax treaty provides
otherwise, the income from your ADSs, including dividends and the gain from the disposition of
ADSs, that is effectively connected with the conduct of that trade or business will generally be
subject to the rules applicable to U.S. holders discussed above. In addition, if you are a
corporation, you may be subject to an additional branch profits tax at a rate of 30% or any lower
rate under an applicable tax treaty.
U.S. information reporting and backup withholding rules
In general, dividend payments with respect to the ADSs and the proceeds received on the sale
or other disposition of those ADSs may be subject to information reporting to the IRS and to backup
withholding (currently imposed at a rate of 28%). Backup withholding will not apply, however, if
you (1) are a corporation or come within certain other exempt categories and, when required, can
demonstrate that fact or (2) provide a taxpayer identification number, certify as to no loss of
exemption from backup withholding and otherwise comply with the applicable backup withholding
rules. To establish your status as an exempt person, you will generally be required to provide
certification on IRS Form W-9, W-8BEN or
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W-8ECI, as applicable. Any amounts withheld from payments to you under the backup withholding
rules will be allowed as a refund or a credit against your U.S. federal income tax liability,
provide that you furnish the required information to the IRS.
HOLDERS OF OUR ADSS SHOULD CONSULT WITH THEIR OWN TAX ADVISORS REGARDING THE APPLICATION OF
THE U.S. FEDERAL INCOME TAX LAWS TO THEIR PARTICULAR SITUATION AS WELL AS ANY TAX CONSEQUENCES
RESULTING FROM PURCHASING, HOLDING OR DISPOSING OF THE ADSS, INCLUDING THE APPLICABILITY AND EFFECT
OF THE TAX LAWS OF ANY STATE, LOCAL OR FOREIGN JURISDICTION AND INCLUDING ESTATE, GIFT, AND
INHERITANCE LAWS.
F. DIVIDENDS AND PAYING AGENTS
Not applicable
G. STATEMENTS BY EXPERTS
Not applicable
H. DOCUMENTS ON DISPLAY
We have filed with the SEC a registration statement on Form F-1, a registration statement on
Form F-6, a registration statement on Form F-3, and a registration statement on Form 8-A, including
relevant exhibits and schedules under the Securities Act, covering the ordinary shares represented
by the ADSs, as well as the ADSs. You should refer to our registration statements and their
exhibits and schedules if you would like to find out more about us and about the ADSs and the
ordinary shares represented by the ADSs. This annual report summarizes material provisions of
contracts and other documents to which we refer you. Since the annual report may not contain all
the information that you may find important, you should review a full text of these documents.
The SEC also maintains a website that contains reports, proxy statements and other information
about issuers, such as us, who file electronically with the SEC. The address of that site is
http://www.sec.gov. The information on that website is not a part of this annual report.
We will furnish to The Bank of New York, as depositary of our ADSs, our annual reports. When
the depositary receives these reports, it will upon our request promptly provide them to all
holders of record of ADSs. We will also furnish the depositary with all notices of shareholders'
meetings and other reports and communications in English that we make available to our
shareholders. The depositary will make these notices, reports and communications available to
holders of ADSs and will upon our request mail to all holders of record of ADSs the information
contained in any notice of a shareholders' meeting it receives.
We are subject to periodic reporting and other informational requirements of the Exchange Act
as applicable to foreign private issuers. Accordingly, we will be required to file reports,
including annual reports on Form 20-F, and other information with the SEC. As a foreign private
issuer, we are exempt from the rules of the Exchange Act prescribing the furnishing and content of
proxy statements to shareholders. The registration statements, reports and other information so
filed can be inspected and copied at the public reference facilities maintained by the SEC at Room
1024, Judiciary Plaza,
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450 Fifth Street, N.W., Washington, D.C. 20549. You can request copies of these documents upon
payment of a duplicating fee, by writing to the SEC. Please call the SEC at 1-800-SEC-0330 for
further information on the operation of the public reference rooms.
I. SUBSIDIARY INFORMATION
Not applicable
Item 11. Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk
Our exposure to interest rate risk primarily relates to the interest income generated by
excess cash invested in demand deposits, investments in fixed deposits with maturity over three
months, PRC government and PRC corporate bonds, and interest expenses
to be incurred, if we seek to obtain a credit facility to satisfy our
cash requirement for repurchase of our convertible notes. We have not used derivative financial
instruments in our investment portfolio in order to reduce interest rate risk. Interest earning
instruments carry a degree of interest rate risk. However, our future
interest income may change, subject to market interest rate movement.
Inflation
In recent years, China has not experienced significant inflation, and thus inflation has not
had a significant effect on our business during the past two years. According to the China
Statistical Bureau, China's overal national inflation rate, as represented by the general consumer
price index, was approximately 1.2%, 3.9% and 1.8%, in 2003, 2004 and 2005 respectively. Sustained
or increased inflation in China may have an adverse impact on China's economy, which could affect
demand for our products or services or increase our cost of services or operating expenses. As we
have not previously operated during a period of significant inflation, we cannot predict with
confidence the effect that such inflation may have on our business. See "Risk Factors"—"Risks
Relating to the People's Republic of China — Inflation in China could negatively affect our
profitability and growth" in Item 3, "Key Information".
Foreign Currency Risk
Our business is operated in
the PRC, and its value is effectively denominated in Renminbi, while our ADSs will be traded in U.S. dollars. The fluctuation of foreign exchange
rate between U.S. dollars and Renminbi affects the value of your investment in our ADSs. All our revenues and most of expenses are substantially denominated
in Renminbi, their exposure to foreign exchange risks should generally be limited. However, as at the release date of our annual report, we do have material
monetary assets and liabilities denominated in U.S. dollars, which mainly consist of the investments in marketable securities and affiliated companies and
the convertible notes payable. The fluctuation of foreign exchange rate affects the value of these monetary assets and liabilities denominated in
U.S. dollars. Generally, appreciation of Renminbi against U.S. dollars will devaluate the assets and liabilities denominated in U.S. dollar, while
devaluation of Renminbi again U.S. dollars will appreciate the assets and liabilities denominated in U.S. dollar. In 2005, a
foreign exchange gain of RMB48.9 million (US$6.1 million) incurred as a result of revaluation of monetary assets and liabilities denominated in US dollar
following the appreciation of Renminbi against the U.S. dollar. In China, very limited hedging transactions are available to reduce our exposure to exchange
rate fluctuations. To date, we have not entered into any hedging transactions in an effort to reduce our exposure to foreign currency exchange risk. While
we may decide to enter into hedging transactions in the future, the availability and effectiveness of these hedges may be limited and we may not be able
to successfully hedge our exposure at all. See "Exchange Controls" in
Item 10, "Additional Information".
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Item 12. Description of Securities Other Than Equity Securities
Not Applicable
Part II
Item 13. Defaults, Dividend Arrearages and Delinquencies
Not Applicable
Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds
A. – D. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS
Not Applicable
E. USE OF PROCEEDS
Not Applicable
Item 15. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this report, our principal executive officer and
principal financial officer have performed an evaluation of the effectiveness of our disclosure
controls and procedures within the meaning of Rules 13a-15(e) and 15d-15(e) of Exchange Act. Based
upon that evaluation, and in light of the material weaknesses described below, they have concluded
that our disclosure controls and procedures were not effective in ensuring that the information
required to be disclosed by us in the reports that we file and furnish under the Exchange Act is
recorded, processed, summarized and reported, within the time periods specified in by the
Securities and Exchange Commission's rules and regulations.
Internal Controls
We are aware of the importance of maintaining controls and procedures and are working towards
improving our controls and procedures. Beginning with the fiscal year ending December 31, 2006,
Section 404 of the Sarbanes-Oxley Act of 2002, or Section 404, will require us to include an
internal control report of management with our annual report on Form 20-F. The internal control
report must contain (i) a statement of management's responsibility for establishing and maintaining
adequate internal control over financial reporting, (ii) a statement identifying the framework used
by management to conduct the required evaluation of the effectiveness of our internal control over
financial reporting, (iii) management's assessment of the effectiveness of our internal control
over financial reporting as of the end of our most recent fiscal year, including a statement as to
whether or not our internal control over financial reporting is effective and (iv) a statement that
our independent auditors have issued an attestation report on management's assessment of our
internal control over financial reporting.
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In the course of their audit of our 2005 operating results, our independent auditors,
PricewaterhouseCoopers Zhong Tian CPAs Limited Company, or PricewaterhouseCoopers, have identified
a number of control deficiencies, some of which constitute material weaknesses and significant
deficiencies. A control deficiency exits when the design of operation of a control does not enable
management or employees, in the normal course of performing their assigned functions, to prevent or
detect misstatements on a timely basis; a significant deficiency is a control deficiency, or
combination of control deficiencies, that adversely affects the company's ability to initiate,
authorize, record, process, or report external financial data reliably in accordance with generally
accepted accounting principles such that there is more than a remote likelihood that a misstatement
of the company's annual or interim financial statements that is more than inconsequential will not
be prevented or detected; a material weakness is a control deficiency, or combination of control
deficiencies, that result in more than a remote likelihood that a material misstatement of the
financial statements will not be prevented or detected. Specifically our auditors noted that we had
material weaknesses which consist of: (1) lack of an enterprise risk management system, including
internal audit or like functions to address enterprise risk and internal policies over company
level controls are not formalized, (2) lack of sufficient personnel with appropriate knowledge,
experience and training in the application of accounting principles generally accepted in the US
("US GAAP"), commensurate with the financial reporting requirements, (3) lack of policies to select
and evaluate the design and implementation with regards to US GAAP accounting policies and critical
accounting estimates. In addition, significant deficiency identified is lack of policies and
procedures over data security and access, segregation of duties, data backup and system change.
We consulted with our Audit Committee and undertook or are undertaking remedial measures to
make improvements as soon as practicable. Our board of directors and the audit committee have been
advised of these material weaknesses and significant deficiencies.
To comply with our Section 404 obligations described above, we are currently performing the
system and process evaluation and testing (and any required remediation) of our internal control
over financial reporting by the effective date for compliance. Our efforts to implement
standardized internal control procedures and develop the internal tests necessary to verify the
proper application of the internal control procedures and their effectiveness will be a key area of
focus for our Board of Directors, our Audit Committee and our senior management, particularly in
light of the above material weaknesses and significant deficiencies. As this process continues, we
and our auditors may identify other conditions that may result in significant deficiencies or
material weaknesses in the future.
In response to the above material weaknesses and significant deficiencies, in cooperation with
our Board and under the supervision of our audit committee, we have taken a number of actions.
These measures include formalization of internal audit team and enhancement of internal audit
function, with clearer internal audit objective and work plan; recruitment of executive officers
and staff with US GAAP expertise; standardization of timely review procedures over the critical
accounting policies and critical accounting estimates. In addition, we plan to take the following
measures in order to address these material weaknesses and the significant deficiencies in our
internal controls
:
•
arrange training for financial and accounting personnel on a periodical basis to
furnish them with adequate knowledge of US GAAP and SEC rules and disclosure requirement;
•
reinforce existing controls over data security and system change;
•
implement additional monitoring controls that are designed to improve upon the
accuracy and timely preparation of our financial statements and related SEC filings; and
•
standardize internal policies over the design and implementation of company level
controls
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The foregoing measures are in addition to measures we have implemented during 2005 in
connection with the requirements of the Sarbanes-Oxley Act of 2002. In particular, during 2005, we
undertook a number of actions to strengthen our internal controls, including the formalization and
adoption of accounting and management policies, including policies relating to credit controls,
inventory pricing and management, sales with multiple elements, and continuous impairment
assessment of investments and other long-lived assets, and the hiring and training of personnel as
required to implement these policies and those which will be required for compliance with Section
404 upon its effectiveness.
Inherent Limitation on the Effectiveness of Internal Controls
The effectiveness of any system of internal control over financial reporting, including
Shanda's, is subject to inherent limitations, including the exercise of judgment in designing,
implementing, operating, and evaluating the controls and procedures, and the inability to eliminate
misconduct completely. Accordingly, any system of internal control over financial reporting,
including Shanda's, can only provide reasonable, not absolute assurances. In addition, projections
of any evaluation of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate. We intend to continue to monitor and upgrade our internal
controls as necessary or appropriate for our business, but cannot assure you that such improvements
will be sufficient to provide us with effective internal control over financial reporting.
Item 16A. AUDIT COMMITTEE FINANCIAL EXPERT
Our board of directors has determined that Mr. W. Mark Evans qualifies as an Audit Committee
Financial Expert as defined by the applicable rules of the SEC.
Our board of directors has determined that Mr. W. Mark Evans is independent as such term is
defined by Rule 4200 of the NASD Marketplace Rules.
Item 16B. CODE OF ETHICS
Our board of directors has adopted a code of ethics, which is applicable to our senior
executive and financial officers. In addition, our board of directors has adopted a code of
conduct, which is applicable to all of our directors, officers and employees. We have made our code
of ethics and our code of conduct publicly available on our website.
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Item 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The following table sets forth the aggregate fees by categories specified below in connection
with certain professional services rendered by our principal external auditors for the periods
indicated. We did not pay any other fees to our principal external auditors during the periods
indicated below.
For the year ended December 31,
2003
2004
2005
RMB
RMB
RMB
US$
(in thousands)
Audit
fees
1
2,756.1
9,327.6
5,084.2
630.0
Audit-related
fees
2
69.9
1,858.1
2,679.3
332.0
Other
fees
3
517.9
703.5
2,001.4
248.0
1
Audit fees means the aggregate fees billed in each of the fiscal years
listed for professional services rendered by our principal auditors for the audit of our
annual financial statements or services that are normally provided by the auditors in
connection with statutory and regulatory filings or engagements.
2
Audit-related fees means the aggregate fees billed in each of the fiscal years
listed for assurance and related services by our principal auditors that are reasonably
related to the performance of the audit or review of our financial statements and are not
reported under "Audit fees". Services comprising the fees disclosed under the category of
"Audit-related fees" involve principally limited reviews performed on our consolidated
financial statements and the audits of the annual financial statements of our
subsidiaries and affiliated companies. .
3
Other fees means the aggregate fees billed for (i) the issuance of agreed-upon
procedures reports by our principal auditors as part of the due diligence work relating
to our merger and acquisition projects and (ii) compliance, advisory and other tax
related service.
Item 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
We have not been granted an exemption from the applicable listing standards for the audit
committee of our board of directors.
Item 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
(c ) Total Number of ADS
(d) Maximum Approximate Dollar
(a) Total Number
(b) Average Price
Purchased as Part of
Value of ADS that May Yet
Period
of ADS Purchased
Paid per ADS
Publicly Announced Plan
1
Be Purchased Under the Plan
1
November 1 –
November 30, 2005
260,000
$
19.14
260,000
$
45,023,600
December 1 –
December 31, 2005
110,000
$
16.57
110,000
$
43,200,900
115
Table of Contents
1
On October 24, 2005, we announced a share repurchased plan, under the plan,
we are approved to repurchase up to US$50 million worth of our outstanding ADS from time
to time over the next 12 months.
Item 17. Financial Statements
Not Applicable
Item 18. Financial Statements
The consolidated financial statements for the Company and its subsidiaries are included at the
end of this annual report.
Pursuant
to Rule 3-09 of SEC Regulation S-X, financial statements of
Actoz Soft Co., Ltd., in which we own 38.1% stake, are included at
the end of this annual report.
116
Table of Contents
Item 19. Exhibits
Exhibit Number
Description
1.1
Amended and Restated Memorandum and Articles of
Association of Shanda Interactive Entertainment
Limited (incorporated by reference to Exhibit 3.1 to
our Registration Statement on Form F-1 (file no.
333-114177) filed with the Securities and Exchange
Commission on May 7, 2004).
2.1
Specimen Ordinary Share Certificate (incorporated by
reference to Exhibit 4.1 to our Registration
Statement on Form F-1 (file no. 333-114177) filed
with the Securities and Exchange Commission on May 7,
2004).
2.2
Specimen of American Depositary Receipts
(incorporated by reference to Exhibit A to Exhibit 1
to our Registration Statement on Form F-6 POS (file
no. 333-114759) filed with the Securities and
Exchange Commission on June 9, 2004).
2.3
Form of Deposit Agreement (incorporated by reference
to Exhibit 1 to our Post-Effective Amendment No. 1 to
the Form F-6 (file no. 333-114759) filed with the
Securities and Exchange Commission on June 9, 2004).
2.4
Registration Rights Agreement, dated October 20,
2004, between Shanda Interactive Entertainment
Limited and the parties named herein (incorporated by
reference to Exhibit 4.7 to our Registration
Statement on Form F-1 (file no. 333-122029) filed
with the Securities and Exchange Commission on
January 13, 2005).
2.5
Indenture, dated October 20, 2004, between Shanda
Interactive Entertainment Limited, and The Bank of
New York, as Trustee, relating to the Company's Zero
Coupon Senior Convertible Notes due 2014
(incorporated by reference to Exhibit 4.6 to our
Registration Statement on Form F-1 (file no.
333-122029) filed with the Securities and Exchange
Commission on January 13, 2005).
2.6
Shareholders Agreement of Shanda Interactive
Entertainment Limited among Shanda Interactive
Entertainment Limited, Shanghai Shanda Internet
Development Co., Ltd., Shanda Media Limited, Shanda
Investment International Limited, Tianqiao Chen,
Danian Chen and SB Asia Infrastructure Fund L.P.,
dated December 19, 2003, (incorporated by reference
to Exhibit 4.2 to our Registration Statement on Form
F-1 (file no. 333-114177) filed with the Securities
and Exchange Commission on April 2, 2004).
2.7
Sale and Purchase Agreement, among Shanda Interactive
Entertainment Limited, Jong Hyun Lee, Il Wang Park,
Byung Chan Park, Jin Ho Lee, Sang Jun Roh, Sung Gon
Bae and Yong Sung Cho, dated November 29, 2004 in
connection with the sale of shares of Actoz Soft Co.,
Ltd. to Shanda Interactive Entertainment Limited
(incorporated by reference to Exhibit 2.7 to our 2004
annual report on Form 20-F (file no. 000-50705) filed
with the Securities and Exchange Commission on May
31, 2005).
4.1
Employee Stock Option Plan and form of share option
agreement (incorporated by reference to Exhibit 10.1
to our Registration Statement on Form F-1 (file no.
333-114177) filed with the Securities and Exchange Commission on April 2, 2004).
4.2
Employee Equity Compensation Plan (incorporated by
reference to Exhibit 99.2 to our press release on
Form 6-K (file no.000-50705) filed with the
Securities and Exchange Commission on September 22,
2005)
4.3
Share Purchase Agreement among Shanda Media Limited,
Shanda Investment International Limited, SB Asia
Infrastructure Fund L.P., Shanda Interactive
Entertainment Limited and Shanda Holdings Limited,
dated December 19, 2003, (incorporated by reference
to Exhibit 4.3 to our Registration Statement on Form
F-1 (file no. 333-114177) filed with the Securities
and Exchange Commission on April 2, 2004).
4.4
Purchase Option and Cooperation Agreement among
Shengqu Information Technology (Shanghai) Co., Ltd.,
Shanghai Shanda Networking Co., Ltd., Tianqiao Chen
and Danian Chen, dated December 30, 2003,
(incorporated by reference to Exhibit 10.2 to our
Registration Statement on Form F-1 (file no.
333-114177) filed with the Securities and Exchange
Commission on April 2, 2004).
117
Table of Contents
Exhibit Number
Description
4.5
Share Pledge Agreement among Tianqiao Chen, Danian
Chen and Shengqu Information Technology (Shanghai)
Co., Ltd., dated December 30, 2003, (incorporated by
reference to Exhibit 10.3 to our Registration
Statement on Form F-1 (file no. 333-114177) filed
with the Securities and Exchange Commission on April
2, 2004).
4.6
Amended and Restated Equipment Leasing Agreement
between Shanghai Shanda Networking Co., Ltd. and
Shengqu Information Technology (Shanghai) Co., Ltd.,
dated December 9, 2003, (incorporated by reference to
Exhibit 10.8 to our Registration Statement on Form
F-1 (file no. 333-114177) filed with the Securities
and Exchange Commission on April 2, 2004).
4.7
Amended and Restated Technical Support Agreement
between Shanghai Shanda Networking Co., Ltd. and
Shengqu Information Technology (Shanghai) Co., Ltd.,
dated December 9, 2003, (incorporated by reference to
Exhibit 10.9 to our Registration Statement on Form
F-1 (file no. 333-114177) filed with the Securities
and Exchange Commission on April 2, 2004).
4.8
Arena Software I License Agreement between Grandpro
Information Technology (Shanghai) Co., Ltd. and
Shanghai Haofang Online Information Technology Co.,
Ltd. with respect to Arena Software I, dated May 1,
2006.
4.9
Arena Software II License Agreement between Grandpro
Information Technology (Shanghai) Co., Ltd. and
Shanghai Haofang Online Information Technology Co.,
Ltd. with respect to Arena Software II, dated May 1,
2006.
4.10
Software Licensing Agreement among Shanghai Shanda
Networking Co., Ltd., Shengqu Information Technology
(Shanghai) Co., Ltd., Nanjing Shanda Networking Co.,
Ltd. and Hangzhou Bianfeng Networking Co., Ltd. with
respect to Shanda Xintianyou 1.0 software system,
dated January 1, 2006.
4.11
Software Licensing Agreement among Shanghai Shanda
Networking Co., Ltd., Shengqu Information Technology
(Shanghai) Co., Ltd., Nanjing Shanda Networking Co.,
Ltd. and Hangzhou Bianfeng Networking Co., Ltd. with
respect to E-sales System 2.0 Software, dated
December 9, 2005.
4.12
Software Licensing Agreement among Shanghai Shanda
Networking Co., Ltd., Shengqu Information Technology
(Shanghai) Co., Ltd., Nanjing Shanda Networking Co.,
Ltd. and Hangzhou Bianfeng Networking Co., Ltd. with
respect to Shanda Xintianyou 1.0 software system,
dated December 28, 2004, (incorporated by reference
to Exhibit 4.11 to our 2004 annual report on Form
20-F (file no. 000-50705) filed with the Securities
and Exchange Commission on May 31, 2005).
4.13
Software Licensing Agreement among Shanghai Shanda
Networking Co., Ltd., Shengqu Information Technology
(Shanghai) Co., Ltd., Nanjing Shanda Networking Co.,
Ltd. and Hangzhou Bianfeng Networking Co., Ltd. with
respect to E-sales System 2.0 Software, dated
December 28, 2004, (incorporated by reference to
Exhibit 4.12 to our 2004 annual report on Form 20-F
(file no. 000-50705) filed with the Securities and
Exchange Commission on May 31, 2005).
4.14
Sample of Provincial General Distribution and
City-level Distribution Agreement (incorporated by
reference to Exhibit 10.16 to our Registration
Statement on Form F-1 (file no. 333-114177) filed
with the Securities and Exchange Commission on April
2, 2004).
4.15
Software Licensing Agreement among Shanghai Shanda
Internet Development Co., Ltd., Shanghai Pudong New
Area Imp. & Exp. Corp. and Actoz Soft Co., Ltd.,
dated June 29, 2001, (incorporated by reference to
Exhibit 10.17 to our Registration Statement on Form
F-1 (file no. 333-114177) filed with the Securities
and Exchange Commission on April 20, 2004).
4.16
Supplemental Agreement among Shanghai Shanda
Networking Development Co., Ltd., Actoz Soft Co.,
Ltd. and Wemade Entertainment Co., Ltd., dated July
14, 2002, (incorporated by reference to Exhibit 10.18
to our Registration Statement on Form F-1 (file no.
333-114177) filed with the Securities and Exchange
Commission on April 2, 2004).
118
Table of Contents
Exhibit Number
Description
4.17
Pre-lease Contract between Shengqu Information Technology (Shanghai) Co., Ltd. and Shanghai
Zhangjiang Micro-electronics Harbor Co., Ltd., dated August 29, 2003, for offices located at
No. 1 (temporary) Building, No. 690 Bibo Road, Zhangjiang High-Tech Area, Shanghai, PRC
(incorporated by reference to Exhibit 10.20 to our Registration Statement on Form F-1 (file
no. 333-114177) filed with the Securities and Exchange Commission on April 2, 2004).
4.18
Articles of Association of Shengqu Information Technology (Shanghai) Co., Ltd. (incorporated
by reference to Exhibit 10.21 to our Registration Statement on Form F-1 (file no. 333-114177)
filed with the Securities and Exchange Commission on April 2, 2004).
4.19
Settlement Agreement between Shanghai Shanda Internet Development Co., Ltd. and Actoz Soft
Co., Ltd., dated August 19, 2003, (incorporated by reference to Exhibit 10.22 to our
Registration Statement on Form F-1 (file no. 33-114177) filed with the Securities and Exchange
Commission on April 20, 2004).
4.20
Amendment Agreement among Shanghai Shanda Internet Development Co., Ltd., Actoz Soft Co., Ltd,
Shanghai Pudong Import & Export Co., Ltd. and Shengqu Information Technology (Shanghai) Co.,
Ltd., dated August 19, 2003, (incorporated by reference to Exhibit 10.23 to our Registration
Statement on Form F-1 (file no. 333-114177) filed with the Securities and Exchange Commission
on April 20, 2004).
4.21
Extension Agreement among Actoz Soft Co., Ltd, Shanghai Shanda Internet Development Co., Ltd.
and Shanghai Pudong Imp.& Exp. Co., Ltd., dated September 22, 2005.
4.22
Form of Indemnification Agreement for Directors and Officers (incorporated by reference to
Exhibit 10.24 to our Registration Statement on Form F-1 (file no. 333-114177) filed with the
Securities and Exchange Commission on April 2, 2004).
4.23
Form of Employment Contract of Shengqu Information Technology (Shanghai) Co., Ltd.
(incorporated by reference to Exhibit 10.25 to our Registration Statement on Form F-1 (file
no. 333-114177) filed with the Securities and Exchange Commission on April 2, 2004).
4.24
Research and Development Agreement between Shengqu Information Technology (Shanghai) Co., Ltd.
and Shanghai
Shengjin Software Development Co., Ltd. with respect to Shanda Richman, dated October 31, 2005.
4.25
Online Game Distribution and License Agreement among Shengqu Information Technology (Shanghai)
Co., Ltd., Shanghai Shanda Networking Co., Ltd., Nanjing Shanda Networking Co., Ltd. and
Hangzhou Bianfeng Networking Co., Ltd. with respect to Legend of Mir II, dated September 28,
2005.
4.26
Online Game Distribution and License Agreement among Shengqu Information Technology (Shanghai)
Co., Ltd., Shanghai Shanda Networking Co., Ltd., Nanjing Shanda Networking Co., Ltd. and
Hangzhou Bianfeng Networking Co., Ltd. with respect to BNB, dated October 1, 2005.
4.27
Online Game Distribution and License Agreement among Shengqu Information Technology (Shanghai)
Co., Ltd., Shanghai Shanda Networking Co., Ltd., Nanjing Shanda Networking Co., Ltd. and
Hangzhou Bianfeng Networking Co., Ltd. with respect to Woool, dated January 1, 2006.
4.28
Online Game Distribution and License Agreement among Shengqu Information Technology (Shanghai)
Co., Ltd., Shanghai Shanda Networking Co., Ltd., Nanjing Shanda Networking Co., Ltd. and
Hangzhou Bianfeng Networking Co., Ltd. with respect to The Age, dated January 1, 2006.
4.29
Online Game Distribution and License Agreement among Shengqu Information Technology (Shanghai)
Co., Ltd., Shanghai Shanda Networking Co., Ltd., Nanjing Shanda Networking Co., Ltd. and
Hangzhou Bianfeng Networking Co., Ltd. with respect to The Sign, dated January 1, 2006.
119
Table of Contents
Exhibit Number
Description
4.30
Online Game Distribution and License Agreement among Shengqu Information Technology (Shanghai) Co., Ltd.,
Shanghai Shanda Networking Co., Ltd., Nanjing Shanda Networking Co., Ltd. and Hangzhou Bianfeng
Networking Co., Ltd. with respect to R.O., dated September 1, 2005.
4.31
Online Game Distribution and License Agreement among Shengqu Information Technology (Shanghai) Co., Ltd.,
Shanghai Shanda Networking Co., Ltd., Nanjing Shanda Networking Co., Ltd. and Hangzhou Bianfeng
Networking Co., Ltd. with respect to 3G Hero, dated September 1, 2005.
4.32
Online Game Distribution and License Agreement among Shengqu Information Technology (Shanghai) Co., Ltd.,
Shanghai Shanda Networking Co., Ltd., Nanjing Shanda Networking Co., Ltd. and Hangzhou Bianfeng Networking
Co., Ltd. with respect to Shanda Richman, dated December 8, 2005.
4.33
Online Game Distribution and License Agreement among Shengqu Information Technology (Shanghai) Co., Ltd.,
Shanghai Shanda Networking Co., Ltd., Nanjing Shanda Networking Co., Ltd. and Hangzhou Bianfeng Networking
Co., Ltd. with respect to Crazy Kart, dated March 18, 2006.
4.34
Online Game Distribution and License Agreement between Grandpro and Haofang Online with respect to
Doudizhu, dated May 1, 2006.
4.35
Online Game Distribution and Service Agreement among Shengqu Information Technology (Shanghai) Co., Ltd.,
Shanghai Shanda Networking Co., Ltd., Nanjing Shanda Networking Co., Ltd. and Hangzhou Bianfeng
Networking Co., Ltd. with respect to The Age, dated December 28, 2004, (incorporated by reference Exhibit
4.22 to our 2004 annual report on Form 20-F (file no. 000-50705) filed with the Securities and Exchange
Commission on May 31, 2005).
4.36
Online Game Distribution and Service Agreement among Shengqu Information Technology (Shanghai) Co., Ltd.
Shanghai Shanda Networking Co., Ltd., Nanjing Shanda Networking Co., Ltd. and Hangzhou Bianfeng
Networking Co. Ltd. with respect to The Sign, dated December 28, 2004, (incorporated by reference to
Exhibit 4.23 to our 2004 annual report on Form 20-F (file no. 000-50705) filed with the Securities and
Exchange Commission on May 31, 2005).
4.37
Online Game Software Distribution and License Agreement among Shengqu Information Technology (Shanghai)
Co., Ltd., Shanghai Shanda Networking Co., Ltd. Nanjing Shanda Networking Co., Ltd. and Hangzhou Bianfeng
Networking Co., Ltd. with respect to Woool, dated December 28, 2004, (incorporated by reference to
Exhibit 4.24 to our 2004 annual report on Form 20-F (file no. 000-50705) filed with the Securities and
Exchange Commission on May 31, 2005).
4.38
Online Game Software Distribution and License Agreement among Shengqu Information Technology (Shanghai)
Co., Ltd., Shanghai Shanda Networking Co., Ltd. Nanjing Shanda Networking Co., Ltd. and Hangzhou Bianfeng
Networking Co., Ltd. with respect to D.O., dated December 28, 2004, (incorporated by reference to Exhibit
4.25 to our 2004 annual report on Form 20-F (file no. 000-50705) filed with the Securities and Exchange
Commission on May 31, 2005).
4.39
Online Game Software Distribution and License Agreement among Shengqu Information Technology (Shanghai)
Co., Ltd., Shanghai Shanda Networking Co., Ltd. Nanjing Shanda Networking Co., Ltd. and Hangzhou Bianfeng
Networking Co., Ltd. with respect to Maple Story, dated December 28, 2004, (incorporated by reference to
Exhibit 4.26 to our 2004 annual report on Form 20-F (file no. 000-50705) filed with the Securities and
Exchange Commission on May 31, 2005).
4.40
Online Game Software Distribution and License Agreement among Shengqu Information Technology (Shanghai)
Co., Ltd., Shanghai Shanda Networking Co., Ltd. Nanjing Shanda Networking Co., Ltd. and Hangzhou Bianfeng
Networking Co., Ltd. with respect to Legend of Mir II, dated December 28, 2004, (incorporated by
reference to Exhibit 4.27 to our 2004 annual report on Form 20-F (file no. 000-50705) filed with the
Securities and Exchange Commission on May 31, 2005).
120
Table of Contents
Exhibit Number
Description
4.41
Online Game Software Distribution and License
Agreement among Shengqu Information Technology
(Shanghai) Co., Ltd., Shanghai Shanda Networking Co.,
Ltd. Nanjing Shanda Networking Co., Ltd. and Hangzhou
Bianfeng Networking Co., Ltd., Shanda Networking with
respect to BNB dated December 28, 2004 (incorporated
by reference to Exhibit 4.28 to our 2004 annual
report on Form 20-F (file no. 000-50705) filed with
the Securities and Exchange Commission on May 31,
2005) .
4.42
Online Game Software Distribution and License
Agreement among Shengqu Information Technology
(Shanghai) Co., Ltd., Shanghai Shanda Networking Co.,
Ltd., Nanjing Shanda Networking Co., Ltd. and
Hangzhou Bianfeng Networking Co., Ltd. with respect
to GetAmped dated December 28, 2004 (incorporated by
reference to Exhibit 4.29 to our 2004 annual report
on Form 20-F (file no. 000-50705) filed with the
Securities and Exchange Commission on May 31, 2005).
4.43
Online Game Software Distribution and License Agreement among Shengqu Information Technology (Shanghai) Co.,
Ltd., Shanghai Shanda Networking Co., Ltd., Nanjing Shanda Networking Co., Ltd. and Hangzhou Bianfeng Networking
Co., Ltd. with respect to Buzzer Beater dated December 28, 2004 (incorporated by reference to Exhibit 4.32 to our
2004 annual report on Form 20-F (file no. 000-50705) filed with the Securities and Exchange Commission on May 31,
2005).
4.44
Billing Technology License Agreement between Shengqu Information Technology (Shanghai) Co., Ltd. and Shanghai
Shanda Networking Co., Ltd. dated January 1, 2006.
4.45
Billing Technology License Agreement between Shengqu Information Technology (Shanghai) Co., Ltd. and Nanjing
Shanda Networking Co., Ltd. dated January 1, 2006.
4.46
Billing Technology License Agreement between Shengqu Information Technology (Shanghai) Co., Ltd. and Hangzhou
Bianfeng Networking Co., Ltd. dated January 1, 2006.
4.47
Amendment to Billing Technology License Agreement between Shanghai Shanda Networking Co., Ltd. and Shengqu
Information Technology Co., Ltd., dated December 28, 2004 (incorporated by reference to Exhibit 4.33 to our 2004
annual report on Form 20-F (file no. 000-50705) filed with the Securities and Exchange Commission on May 31,
2005) .
4.48
Billing Technology License Agreement between Shengqu Information Technology (Shanghai) Co., Ltd. and Nanjing
Shanda Networking Co., Ltd. dated December 28, 2004 (incorporated by reference to Exhibit 4.34 to our 2004 annual
report on Form 20-F (file no. 000-50705) filed with the Securities and Exchange Commission on May 31, 2005) .
4.49
Billing Technology License Agreement between Shengqu Information Technology (Shanghai) Co., Ltd. and Hangzhou
Bianfeng Networking Co., Ltd. dated December 28, 2004 (incorporated by reference to Exhibit 4.35 to our 2004
annual report on Form 20-F (file no. 000-50705) filed with the Securities and Exchange Commission on May 31,
2005)
4.50
Equipment Lease Agreement between Shengqu Information Technology (Shanghai) Co., Ltd. and Nanjing Shanda
Networking Co., Ltd. dated December 28, 2004 (incorporated by reference to Exhibit 4.36 to our 2004 annual report
on Form 20-F (file no. 000-50705) filed with the Securities and Exchange Commission on May 31, 2005).
4.51
Equipment Lease Agreement between Shengqu Information Technology (Shanghai) Co., Ltd. and Hangzhou Bianfeng
Networking Co., Ltd. dated December 28, 2004 (incorporated by reference to Exhibit 4.37 to our 2004 annual report
on Form 20-F (file no. 000-50705) filed with the Securities and Exchange Commission on May 31, 2005).
4.52
Amendment to Strategic Consulting Service Agreement between Shanghai Shanda Networking Co., Ltd. and Shengqu
Information Technology Co., Ltd. dated December 28, 2004 (incorporated by reference to Exhibit 4.38 to our 2004
annual report on Form 20-F (file no. 000-50705) filed with the Securities and Exchange Commission on May 31,
2005).
4.53
Amendment II to Strategic Consulting Service Agreement between Shengqu Information Technology (Shanghai) Co.,
Ltd. and Shanghai Shanda Networking Co., Ltd. dated December 28, 2004.
121
Table of Contents
Exhibit Number
Description
4.54
Amendment III to Strategic Consulting Service Agreement between Shengqu Information Technology (Shanghai) Co.,
Ltd. and Shanghai Shanda Networking Co., Ltd. dated December 28, 2005.
4.55
Technology Transfer Agreement between Shengqu Information Technology (Shanghai) Co., Ltd. and Shanghai Shengpin
Networking, dated November 30, 2004 (incorporated by reference to Exhibit 10.30 to our Registration Statement on
Form F-1 (file no. 333-122029) filed with the Securities and Exchange Commission on January 13, 2005).
4.56
Entrusted Loan Agreement between Nanjing Shanda Networking Co., Ltd. and China Merchants Bank Dongfang Branch
with respect to a loan of RMB38,000,000 dated March 19, 2006.
4.57
Loan Agreement between China Merchants Bank Dongfang Branch and Shanda Computer (Shanghai) Co., Ltd. with respect
to a loan of RMB38,000,000 dated March 19, 2006.
4.58
Entrusted Loan Agreement between Hangzhou Bianfeng Networking Co., Ltd. and China Merchants Bank Dongfang Branch
with respect to a loan of RMB27,000,000 dated March 19, 2006.
4.59
Loan Agreement between China Merchants Bank Dongfang Branch and Shanda Computer (Shanghai) Co., Ltd. with respect
to a loan of RMB27,000,000 dated March 19, 2006.
4.60
Entrusted Loan Agreement between Shanghai Shanda Networking Co., Ltd. and China Industrial and Commercial Bank
Pudong Branch with respect to a loan of RMB35,000,000 dated March 24, 2006.
4.61
Loan Agreement among Shanghai Shanda Networking Co., Ltd., China Industrial and Commercial Bank Pudong Branch and
Shanda Computer (Shanghai) Co., Ltd. with respect to a loan of RMB35,000,000 dated March 24, 2006.
4.62
Loan Agreement among Shanghai Shanda Networking Co., Ltd., Shanghai Bank Xujiahui Branch and Shengqu Information
Technology (Shanghai) Co., Ltd. with respect to a loan of RMB100,000,000 dated January 4, 2006.
4.63
Entrusted Loan Agreement between Shanghai Shanda Networking Co., Ltd. and China Merchants Bank Dongfang Branch
with respect to a loan of RMB100,000,000 dated January 4, 2006.
4.64
Loan Agreement between China Merchants Bank Dongfang Branch and Shengqu Information Technology (Shanghai) Co.,
Ltd. with respect to a loan of RMB100,000,000 dated January 4, 2006.
4.65
Entrusted Loan Agreement between Nanjing Shanda Networking Co., Ltd. and China Merchants Bank Dongfang Branch
with respect to a loan of RMB100,000,000 dated January 4, 2006.
4.66
Loan Agreement between China Merchants Bank Dongfang Branch and Shengqu Information Technology (Shanghai) Co.,
Ltd. with respect to a loan of RMB100,000,000 dated January 4, 2006.
4.67
Cooperation Agreement between Shengqu Information Technology (Shanghai) Co., Ltd. and Shanghai Shengyue
Advertisement Co., Ltd. dated January 1, 2005.
4.68
Stock Purchase Agreement between Shanda Interactive Entertainment Limited and SB Asia Infrastructure Fund L.P.
dated October 15, 2004 (incorporated by reference to Exhibit 10.31 to our Registration Statement on Form F-1
(file no. 333-122029) filed with the Securities and Exchange Commission on January 13, 2005).
8.1
List of Subsidiaries.
11.1
Code of Ethics (incorporated by reference to Exhibit 11.1 to our 2004 annual report on Form 20-F (file no.
000-50705) filed with the Securities and Exchange Commission on May 31, 2005).
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 and Chief Financial Officer Required by Rule 13(a)-14(b) and Section
1350 of Chapter 63 of Title 18 of the United States Code.
122
Table of Contents
SIGNATURE
The registrant hereby certifies that it meets all of the requirements for filing its annual
report on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual
report on its behalf.
SHANDA INTERACTIVE
ENTERTAINMENT LIMITED
/s/ Tianqiao Chen
Name: Tianqiao Chen
Title: Chairman and Chief Executive Officer
Date: June 29, 2006
123
Table of Contents
SHANDA INTERACTIVE ENTERTAINMENT LIMITED
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
F2
Consolidated
statement of operations and comprehensive income for the years ended
December 31, 2003, 2004 and 2005
F3
Consolidated
balance sheets for the years ended December 31, 2004 and 2005
F4
Consolidated statements of changes in shareholders' equity
F5
Consolidated
statements of cash flows for the years ended December 31, 2003,
2004 and 2005
F6
Notes to the consolidated financial statements
F7
Additional information — financial statement Schedule I
F50
ACTOZ
SOFT CO., LTD.
INDEX
TO FINANCIAL STATEMENTS
Report of
Independent Auditor's Report
F52
Statements of
Income for the years ended December 31, 2005 and 2004
F54
Balance sheets
for the years ended December 31, 2005 and 2004
F55
Statements
of appropriations of related earnings for the years ended December
31, 2005 and 2004
F57
Statements of
cash flows for the years ended December 31, 2005 and 2004
F58
Notes to
financial statements
F60
F-1
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF
SHANDA INTERACTIVE ENTERTAINMENT LIMITED:
In our opinion, the accompanying consolidated balance sheets and the related consolidated
statements of operations and comprehensive income, of changes in shareholders' equity and of cash
flows expressed in Renminbi present fairly, in all material respects, the financial position of
Shanda Interactive Entertainment Limited (the "Company") and its subsidiaries as of December 31,
2004 and 2005, and the results of their operations and their cash flows for each of the three years
ended December 31, 2003, 2004 and 2005 in conformity with accounting principles generally accepted
in the United States of America. In addition, in our opinion, the related Financial Statement
Schedule I presents fairly, in all material respects, the information set forth therein when read
in conjunction with the related consolidated financial statements. These financial statements and
Financial Statement Schedule I are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and Financial Statement
Schedule I based on our audits. We conducted our audits of these statements in accordance with the
standards of the Public Company Accounting Oversight Board (United States). 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 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 and evaluating the overall
financial statement presentation. We believe that our audits provide a reasonable basis for our
opinion.
PricewaterhouseCoopers Zhong Tian CPAs Limited Company
Shanghai, People's Republic of China
May 18, 2006
F-2
Table of Contents
SHANDA INTERACTIVE ENTERTAINMENT LIMITED
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
For the years ended December 31
Note
2003
2004
2005
2005
RMB
RMB
RMB
US$
Restated (Note 12)
(Note 2(3))
Net revenues:
Online MMORPGs game revenue
580,314,901
994,663,760
1,255,340,380
155,552,574
Online casual game revenue
8,312,973
214,513,007
402,968,774
49,932,935
Other revenues
5
11,352,574
89,548,104
238,301,952
29,528,630
Total net revenues
599,980,448
1,298,724,871
1,896,611,106
235,014,139
Cost of revenue
(233,701,419
)
(471,183,798
)
(614,427,273
)
(76,135,322
)
Gross profit
366,279,029
827,541,073
1,282,183,833
158,878,817
Operating expenses:
Product development
(32,957,833
)
(71,838,477
)
(164,756,024
)
(20,415,358
)
Sales and marketing
(44,136,587
)
(91,175,636
)
(235,437,664
)
(29,173,709
)
General and administrative
(76,011,278
)
(153,564,436
)
(260,091,615
)
(32,228,645
)
Total operating expenses
(153,105,698
)
(316,578,549
)
(660,285,303
)
(81,817,712
)
Income from operations
213,173,331
510,962,524
621,898,530
77,061,105
Interest income
6,979,927
19,676,978
29,025,897
3,596,676
Amortization of convertible debt issuance cost
2(13)
—
(3,523,935
)
(18,492,523
)
(2,291,457
)
Investment income (loss)
13
6,551,259
43,494,032
(5,898,971
)
(730,957
)
Other income (expense), net
6
61,151,579
83,655,918
174,904,598
21,672,895
Income before income tax expenses, equity in loss of
affiliated companies, and minority interests
287,856,096
654,265,517
801,437,531
99,308,262
Income tax expenses
7
(18,646,877
)
(38,940,924
)
(96,711,992
)
(11,983,841
)
Equity in loss of affiliated companies
12
—
(4,180,283
)
(544,268,271
)
(67,441,733
)
Minority interests
3,640,950
(1,661,422
)
4,825,541
597,946
Net income
272,850,169
609,482,888
165,282,809
20,480,634
Accretion for Series A and Series A-1 Preferred
Shares
18
(24,962,571
)
—
—
—
Income attributable to Series A and Series A-1
Preferred Shareholders
18
(48,358,328
)
(82,478,882
)
—
—
Net income attributable to ordinary shareholders
199,529,270
527,004,006
165,282,809
20,480,634
Other comprehensive income:
Unrealized appreciation (depreciation) of marketable
securities
2(6)
284,506
133,698,934
(102,482,869
)
(12,698,926
)
Cumulative currency translation adjustments of an
affiliated company
2(3)
—
—
(1,150,365
)
(142,545
)
Comprehensive income
199,813,776
660,702,940
61,649,575
7,639,163
Earnings per share
8
Basic
2.14
4.32
1.17
0.14
Diluted
2.07
4.05
1.13
0.14
Earnings per ADS
Basic
4.28
8.64
2.34
0.28
Diluted
4.14
8.10
2.26
0.28
Weighted average ordinary shares outstanding
8
Basic
93,246,726
122,136,580
141,338,480
141,338,480
Diluted
96,325,957
130,167,656
146,347,595
146,347,595
Weighted average ADS outstanding
Basic
46,623,363
61,068,290
70,669,240
70,669,240
Diluted
48,162,979
65,083,828
73,173,798
73,173,798
* Share-based compensation was related to the
associated operating expense categories as follows:
Product development
(4,206,797
)
(6,899,138
)
(4,038,525
)
(500,424
)
Sales and marketing
(386,231
)
(633,421
)
(370,787
)
(45,945
)
General and administrative
(10,463,032
)
(16,479,254
)
(8,122,615
)
(1,006,495
)
Share-based compensation expense included in cost of
revenue
(3,102,922
)
(4,816,015
)
(1,165,950
)
(144,476
)
The accompanying notes are an integral part of these financial statements.
F-3
Table of Contents
SHANDA INTERACTIVE ENTERTAINMENT LIMITED
CONSOLIDATED BALANCE SHEETS
December 31,
December 31,
December 31,
Note
2004
2005
2005
RMB
RMB
US$
Restated (Note 12)
(Note 2(3))
ASSETS
Current assets:
Cash and cash equivalents
9
3,123,971,173
949,621,601
117,670,145
Restricted cash
12
—
150,778,672
18,683,387
Short-term investment
2(5)
—
126,360,137
15,657,621
Marketable securities
2(6), 12, 13
422,326,939
1,933,673,748
239,606,670
Accounts receivable, net of allowance for
doubtful accounts
10
39,307,718
81,127,164
10,052,683
Inventories
11
6,039,188
28,480,970
3,529,153
Due from related parties
1,514,798
—
—
Deferred licensing fees and related costs
48,716,255
24,067,061
2,982,214
Prepayments and other current assets
27,621,265
41,085,629
5,091,030
Deferred tax assets
7
29,631,926
17,124,664
2,121,963
Total current assets
3,699,129,262
3,352,319,646
415,394,866
Investment in affiliated companies
12
155,935,548
328,581,623
40,715,425
Property and equipment
14
137,725,518
258,352,452
32,013,141
Intangible assets
15
111,378,046
212,314,772
26,308,489
Goodwill
16
133,958,922
245,092,242
30,370,033
Long-term deposits
2,363,404
2,862,802
354,738
Long-term prepayments
14
—
18,157,950
2,250,000
Other long-term assets
50,673,309
52,771,434
6,539,049
Total assets
4,291,164,009
4,470,452,921
553,945,741
LIABILITIES
Current liabilities:
Accounts payable
47,342,259
65,390,260
8,102,681
Licensing fees payable
18,092,590
18,157,692
2,249,968
Taxes payable
40,197,333
37,044,920
4,590,335
Deferred revenue
247,281,633
172,455,470
21,369,417
Licensing fees payable to a related party
23
52,272,515
13,830,197
1,713,737
Due to related parties
23
1,757,572
3,040,380
376,742
Acquisition related obligation
12
—
158,430,162
19,631,504
Other payables and accruals
91,267,534
141,551,334
17,540,003
Total current liabilities
498,211,436
609,900,415
75,574,387
Convertible debt
17
2,276,175,000
2,219,305,000
275,000,000
Total liabilities
2,774,386,436
2,829,205,415
350,574,387
Minority interests
6,878,858
3,388,896
419,927
Commitments and contingencies
25
—
—
—
Shareholders' equity
Ordinary shares (US$0.01 par value,
186,000,000 shares authorized, 139,960,328
issued and outstanding as of December 31,
2004; and 141,982,766 issued and
outstanding as of December 31, 2005)
19
11,584,515
11,751,186
1,456,121
Additional paid-in capital
1,300,453,557
1,397,092,348
173,117,438
Statutory reserves
40,025,479
87,619,085
10,857,114
Deferred share-based compensation
(20,623,032
)
(3,595,349
)
(445,509
)
Accumulated other comprehensive gain
133,814,940
30,181,706
3,739,895
Retained earnings
44,643,256
114,809,634
14,226,368
Total shareholders' equity
1,509,898,715
1,637,858,610
202,951,427
Total liabilities and shareholders' equity
4,291,164,009
4,470,452,921
553,945,741
The accompanying notes are an integral part of these financial statements.
F-4
Table of Contents
SHANDA INTERACTIVE ENTERTAINMENT LIMITED
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Series A and Series
A-1 Convertible Preferred
Ordinary shares
Shares
Accumulated
(US$0.01 par value)
(US$0.01 par value)
Additional
Deferred
other
Total
Shanda
Group equity
Number
Par
Number
Par
Subscription
paid-in
Statutory
share-based
comprehensive
Retained
shareholders'
Networking
Heng Kang
Total
of shares
value
of shares
value
receivables
capital
reserves
compensation
gain
earnings
Equity
RMB
RMB
RMB
RMB
RMB
RMB
RMB
RMB
RMB
RMB
RMB
RMB
Balance as of January 1, 2003
1,500,000
500,000
2,000,000
5,000,000
414,000
—
—
(414,000
)
—
5,370,585
—
(168,500
)
138,864,190
146,066,275
Issuance of additional ordinary shares
—
—
—
95,000,000
7,863,000
—
—
(7,863,000
)
—
—
—
—
—
—
Transfer group equity to additional
paid-in capital upon the
Reorganization
(1,500,000
)
—
(1,500,000
)
—
—
—
—
—
1,500,000
—
—
—
—
—
Increase in group equity (Note 19)
—
—
—
—
—
—
—
—
8,500,000
—
—
—
(10,625,000
)
(2,125,000
)
Deemed dividend upon issuance of
Series A-1 Preferred Shares
—
—
—
(4,947,230
)
(409,483
)
—
—
—
—
—
—
—
(24,421,517
)
(24,831,000
)
Deemed dividend upon issuance of
Series A Preferred Shares
—
—
—
(5,323,952
)
(440,664
)
—
—
—
—
—
—
—
(57,498,336
)
(57,939,000
)
Accretion for Series A and Series A-1
Preferred Shares
—
—
—
—
—
—
—
—
—
—
—
—
(24,962,571
)
(24,962,571
)
Reclassification upon removal of
redemption rights of Series A and
Series A-1 Preferred Shares
—
—
—
—
—
30,060,100
2,488,074
—
345,830,170
—
—
—
—
348,318,244
Dividends to ordinary shareholders
—
—
—
—
—
—
—
8,277,000
—
—
—
(8,277,000
)
—
Deemed capital distribution to
shareholders of Heng Kang (Note 1)
—
(500,000
)
(500,000
)
—
—
—
—
—
—
(250,000
)
—
—
(52,469,452
)
(53,219,452
)
Deferred share-based compensation
relating to issuance of share option
—
—
—
—
—
—
—
—
69,730,490
—
(69,730,490
)
—
—
—
Amortization of deferred share-based
compensation
—
—
—
—
—
—
—
—
—
—
18,158,982
—
—
18,158,982
Unrealized net appreciation of
marketable securities
—
—
—
—
—
—
—
—
—
—
—
284,506
—
284,506
Net income
—
—
—
—
—
—
—
—
—
—
—
—
272,850,169
272,850,169
Appropriations to statutory reserves
(Note 2(25))
—
—
—
—
—
—
—
—
—
22,191,988
—
—
(22,191,988
)
—
Balance as of December 31, 2003
—
—
—
89,728,818
7,426,853
30,060,100
2,488,074
—
425,560,660
27,312,573
(51,571,508
)
116,006
211,268,495
622,601,153
Issuance of common share upon IPO
(Note 19)
—
—
—
21,381,586
1,769,754
—
—
—
873,737,944
—
—
—
—
875,507,698
Exercise of share option (Note 21)
—
—
—
4,116,074
340,687
—
—
—
52,296,796
—
—
—
—
52,637,483
Conversion of Series A and A-1
Preferred Shares upon completion of
the IPO
—
—
—
30,060,100
2,488,074
(30,060,100
)
(2,488,074
)
—
—
—
—
—
—
—
Repurchase of share (Note 20)
—
—
—
(5,326,250
)
(440,853
)
—
—
—
(49,021,195
)
—
—
—
(571,312,952
)
(620,775,000
)
Dividends to ordinary shareholders
—
—
—
—
—
—
—
—
—
—
—
—
(143,869,619
)
(143,869,619
)
Dividends to preferred shareholders
—
—
—
—
—
—
—
—
—
—
—
—
(48,212,650
)
(48,212,650
)
Forfeited share option (Note 21)
—
—
—
—
—
—
—
—
(2,120,648
)
—
2,120,648
—
—
—
Amortization of deferred share-based
compensation
—
—
—
—
—
—
—
—
—
—
28,827,828
—
—
28,827,828
Unrealized net appreciation of
marketable securities (Restated (Note
12))
—
—
—
—
—
—
—
—
—
—
—
133,698,934
—
133,698,934
Net income
—
—
—
—
—
—
—
—
—
—
—
—
609,482,888
609,482,888
Appropriations to statutory reserves
(Note 2(25))
—
—
—
—
—
—
—
—
—
12,712,906
—
—
(12,712,906
)
—
Balance as of December 31, 2004
(Restated (Note 12))
—
—
—
139,960,328
11,584,515
—
—
—
1,300,453,557
40,025,479
(20,623,032
)
133,814,940
44,643,256
1,509,898,715
Exercise of share option (Note 21)
—
—
—
2,762,438
227,917
—
—
—
61,257,423
—
—
—
—
61,485,340
Repurchase of share (Note 20)
—
—
—
(740,000
)
(61,246
)
—
—
—
(7,277,215
)
—
—
—
(47,522,825
)
(54,861,286
)
Forfeited share option (Note 21)
—
—
—
—
—
—
—
—
(3,329,806
)
—
3,329,806
—
—
—
Amortization of deferred share-based
compensation
—
—
—
—
—
—
—
—
—
—
13,697,877
—
—
13,697,877
Unrealized net depreciation of
marketable securities
—
—
—
—
—
—
—
—
—
—
—
(102,482,869
)
—
(102,482,869
)
Cumulative currency translation
adjustments of an affiliated company
—
—
—
—
—
—
—
—
—
—
—
(1,150,365
)
—
(1,150,365
)
Net income
—
—
—
—
—
—
—
—
—
—
—
—
165,282,809
165,282,809
Shareholder's contribution (Note 13)
—
—
—
—
—
—
—
—
45,988,389
—
—
—
—
45,988,389
Appropriations to statutory reserves
(Note 2(25))
—
—
—
—
—
—
—
—
—
47,593,606
—
—
(47,593,606
)
—
Balance as of December 31, 2005
—
—
—
141,982,766
11,751,186
—
—
—
1,397,092,348
87,619,085
(3,595,349
)
30,181,706
114,809,634
1,637,858,610
The accompanying notes are an integral part of these financial statements.
F-5
Table of Contents
SHANDA INTERACTIVE ENTERTAINMENT LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31,
2003
2004
2005
2005
RMB
RMB
RMB
US$
Restated (Note 12)
(Note2(3))
Cash flows from operating activities:
Net income
272,850,169
609,482,888
165,282,809
20,480,634
Adjustments for:
Share-based compensation costs
18,158,982
28,827,828
13,697,877
1,697,340
Depreciation of property and equipment
13,688,392
29,059,685
46,671,567
5,783,198
Amortization of intangible assets
17,347,105
52,843,104
67,460,912
8,359,262
Provision for losses on receivables
—
842,270
55,675,931
6,898,953
Provision for losses on inventories
—
—
10,794,286
1,337,549
Loss from disposal of fixed assets
—
803,217
662,160
82,050
Investment loss(income)
(6,551,259
)
(43,494,032
)
5,898,971
730,957
Interest income on loan receivable
(1,752,083
)
(730,678
)
—
—
Interest income on restricted cash
—
—
(2,750,995
)
(340,883
)
Purchased in-progress research and development
—
—
4,147,000
513,866
Foreign Exchange gain
—
—
(46,254,419
)
(5,731,508
)
Amortization of convertible debt issuance cost
—
3,523,935
18,492,523
2,291,458
Other income
—
(1,222,699
)
—
—
Deferred tax assets
(7,049,837
)
(7,544,269
)
12,660,475
1,568,793
Equity in loss of affiliated companies
—
4,180,283
544,268,271
67,441,733
Minority interests
(3,640,950
)
1,661,422
(4,825,541
)
(597,946
)
Changes in assets and liabilities, net of acquisitions:
Accounts receivable
(6,199,809
)
(32,372,698
)
(84,098,143
)
(10,420,825
)
Inventories
—
(6,039,188
)
(33,189,092
)
(4,112,549
)
Due from related parties
(2,114,691
)
1,349,893
—
—
Deferred licensing fees and related costs
(19,920,207
)
4,425,964
24,893,734
3,084,649
Prepayments and other current assets
(7,075,010
)
(3,387,526
)
(23,446,948
)
(2,905,374
)
Upfront licensing fee paid
(38,061,203
)
(11,587,800
)
(42,107,260
)
(5,217,623
)
Prepayment for upfront license fee
—
—
(22,523,080
)
(2,790,895
)
Other long-term deposits
(2,025,066
)
(14,464
)
(499,398
)
(61,882
)
Accounts payable
13,067,772
10,802,808
21,204,583
2,627,516
Licensing fees payable
(26,881,371
)
23,313,660
(38,377,217
)
(4,755,423
)
Taxes payable
(37,453,196
)
26,817,958
(4,487,054
)
(556,003
)
Deferred revenue
86,272,373
49,801,190
(87,664,935
)
(10,862,796
)
Due to related parties
—
1,757,572
(7,491,973
)
(928,350
)
Other payables and accruals
15,695,509
64,230,449
55,692,882
6,901,054
Net cash provided by operating activities
278,355,620
807,330,772
649,787,926
80,516,955
Cash flows from investing activities:
(Increase) decrease of short-term investments
120,000,000
—
(126,360,137
)
(15,657,621
)
Purchase of marketable securities
(1,829,473,857
)
(432,524,942
)
(1,574,695,967
)
(195,124,777
)
Proceeds from disposal of marketable securities
1,829,431,841
196,221,753
7,661,458
949,352
Proceeds from income of other investment
—
2,130,935
989,677
122,634
(Increase) decrease in loan receivable
(55,870,000
)
58,352,761
—
—
Purchase of property and equipment
(55,914,721
)
(74,025,031
)
(160,318,006
)
(19,865,431
)
Prepayment for purchase of land use right
—
—
(18,157,950
)
(2,250,000
)
Proceeds from disposal of fixed assets
—
269,095
469,193
58,139
Purchase of intangible assets
(22,288,513
)
(23,379,233
)
(40,450,554
)
(5,012,336
)
Net cash paid for purchase of subsidiaries and VIE subsidiaries
(5,538,055
)
(182,444,474
)
(161,517,636
)
(20,014,081
)
Proceeds from disposal of other long-term assets
—
—
453,103
56,145
Proceeds from disposal of a VIE subsidiary, net
1,593,000
—
(129,265
)
(16,018
)
Investment in affiliated companies
(3,455,125
)
(160,275,860
)
(759,404,237
)
(94,099,804
)
Net cash used in investing activities
(21,515,430
)
(615,674,996
)
(2,831,460,321
)
(350,853,798
)
Cash flows from financing activities:
Proceeds from issuance of common stock upon IPO, net of IPO issuance costs
—
875,507,698
—
—
Proceeds from issuance of common stock under stock option plan
—
41,587,542
72,516,739
8,985,742
Proceeds from issuance of convertible debt, net of issuance cost
240,585,510
2,225,430,331
—
—
Repurchase of stock
—
(620,775,000
)
(54,861,286
)
(6,798,008
)
Cash injection in VIE subsidiaries by minority shareholders
6,356,435
3,724,650
245,000
30,359
Dividends to ordinary shareholders
(2,125,000
)
(143,869,619
)
—
—
Dividends to preferred shareholders
—
(48,212,650
)
—
—
Deemed capital distribution to the founders of Heng Kang
(24,831,000
)
—
—
—
Deemed capital distribution from deconsolidation of Heng Kang
(54,943,653
)
—
—
—
Net cash provided by financing activities
165,042,292
2,333,392,952
17,900,453
2,218,093
Effect of exchange rate changes on cash
—
—
(10,577,630
)
(1,310,703
)
Net increase (decrease) in cash and cash equivalents
421,882,482
2,525,048,728
(2,174,349,572
)
(269,429,453
)
Cash, beginning of year
177,039,963
598,922,445
3,123,971,173
387,099,598
Cash, end of year
598,922,445
3,123,971,173
949,621,601
117,670,145
Supplemental disclosure of cash flow information:
Cash paid during the year for income tax
55,238,262
33,121,613
101,307,276
12,553,255
Supplemental disclosure of investing activities:
Total consideration for purchase of subsidiaries
13,720,000
198,580,000
246,539,225
30,549,332
Consideration paid in previous year
—
—
(41,384,900
)
(5,128,113
)
Acquisition related obligation at December 31, 2005
—
—
(10,402,485
)
(1,289,000
)
Contingent consideration paid for the acquisitions in 2004
—
—
6,600,000
817,824
Cash paid for purchase of subsidiaries
13,720,000
198,580,000
201,351,840
24,950,043
Cash acquired
(8,181,945
)
(16,135,526
)
(39,834,204
)
(4,935,962
)
Cash paid for business acquisition, net
5,538,055
182,444,474
161,517,636
20,014,081
Supplemental disclosure of non-cash investing and financing activities:
Accrual related to purchase of property and equipment
14,828,993
20,469,415
25,671,372
3,181,008
Accounts payable assumed by founders of Heng Kang upon deconsolidation
26,555,201
—
—
—
Conversion of Series A and A-1 Preferred Shares to ordinary shares
—
2,488,074
—
—
Dividends distributed for settlement of subscription receivables (Note 19)
8,277,000
—
—
—
Dividends distributed for reinvestment in Shanda Networking (Note 19)
8,500,000
—
—
—
The accompanying notes are an integral part of these financial statements.
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SHANDA INTERACTIVE ENTERTAINMENT LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS EXPRESSED IN Renminbi (RMB) UNLESS OTHERWISE STATED)
1. ORGANIZATION AND NATURE OF OPERATIONS
The accompanying consolidated financial statements include the financial statements of Shanda
Interactive Entertainment Limited (the "Company" or "Shanda Interactive"), its subsidiaries, which
mainly include Shanda Holdings Limited (the "Shanda BVI") and Shengqu Information Technology
(Shanghai) Co., Ltd. ("Shengqu") and certain variable interest entities ("VIEs" or "VIE
subsidiaries"), which include Shanghai Shanda Networking Co., Ltd. ("Shanda Networking") and its
subsidiaries. The Company, its subsidiaries and the VIE subsidiaries are collectively referred to
as the "Group".
Shanda BVI, formerly known as Spirit High Ventures Ltd., was incorporated in British Virgin
Islands as a limited liability company on July 2, 2002. Shengqu and Shanda Networking were
incorporated in the PRC on January 21, 2003 and December 29, 1999, respectively. Shanda Interactive
was incorporated in the Cayman Islands on November 17, 2003 and became the holding company of the
Group through a share purchase agreement in December 2003.
The Group is principally engaged in the development and operation of online games and related
businesses in the People's Republic of China (the "PRC"). The Group develops and operates online
games primarily through Shengqu, Shanda Networking, Nanjing Shanda Networking Co., Ltd. ("Nanjing
Shanda") and Hangzhou Bianfeng Networking Co., Ltd. ("Hangzhou Bianfeng"), which are subsidiaries
of Shanda Networking.
Shanda Networking was the predecessor of the Group and operated substantially all of the
businesses of the Group prior to March 2003. It is wholly owned by Tianqiao Chen and Danian Chen,
the Company's Chief Executive Officer and Senior Vice President, respectively, who are PRC
citizens. Tianqiao Chen and Danian Chen, together with Qianqian Luo, a director of the Company and
spouse of Tianqiao Chen, also own all of the shares of Skyline Media Limited ("Skyline"), the
Company's controlling shareholder.
In March 2003, the Group undertook a restructuring and reorganization (the "Reorganization")
immediately prior to the issuance of Series A and A-1 Preferred Shares (Note 18) to a foreign
investor. The Reorganization was necessary to comply with PRC law and regulations that limit
foreign ownership of companies that provide Internet content services, which includes operating
online games.
As part of the Reorganization, Shanda BVI established Shengqu, a wholly foreign owned
enterprise, and Shengqu entered into a series of agreements with Shanda Networking. Pursuant to
these agreements, Shanda Networking transferred substantially all of its operating assets to
Shengqu, except for certain assets that an online game operator must own to qualify to be an
Internet content provision license holder, and Shengqu provides services, software licenses and
equipment to Shanda Networking in exchange for fees. As a result of these agreements, the Company
is considered the primary beneficiary of Shanda Networking (Note 2(2)) and accordingly Shanda
Networking's results are consolidated in the financial statements of the Company.
Following the Reorganization, Shanda Networking acquired substantially all of the business and
operations of Shanghai Heng Kang Networking Co., Ltd. ("Heng Kang"), a related company owned by
immediate family members of
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Tianqiao Chen and Danian Chen. The principal business of Heng Kang was the distribution of
pre-paid cards for Shanda Networking's online game business. The acquisition was a transaction
among a common control group and the accompanying consolidated financial statements have been
prepared as if the Group had acquired Heng Kang on August 21, 2000, the date of Heng Kang's
incorporation. The cash consideration paid of RMB24,831,000 and the carrying value of net assets
not acquired as part of the acquisition of RMB28,388,452, mainly comprising of cash and accounts
payable, have been recognized as a deemed capital distribution.
In December 2003, Shanda Interactive entered into a share purchase agreement with Shanda BVI
and the preferred and ordinary shareholders of Shanda BVI (the "Share Swap"), pursuant to which
Shanda Interactive purchased all of the preferred and ordinary shares of Shanda BVI. As
consideration for the purchase, Shanda Interactive issued the same number of preferred and ordinary
shares to the selling preferred and ordinary shareholders of Shanda BVI. The rights of the
preferred and ordinary shares issued by Shanda Interactive are the same as those originally issued
by Shanda BVI. As the Reorganization and the Share Swap were among common shareholders, the
accompanying consolidated financial statements have been prepared as if the Group had been in
operation since the incorporation of Shanda Networking, which was the predecessor of the Group.
Prior to the Reorganization, Shanda BVI was an investment holding company with no other operations.
In May 2004, Shanda Interactive completed an initial public offering of American Depository
Shares (ADSs). ADSs of the Company are traded from May 13, 2004 on NASDAQ National Market under the
symbol "SNDA" in the United States.
In October 2004, pursuant to a repurchase agreement between the Company and SB Asia
Infrastructure Fund L.P., or SAIF, the Company used US$75.0 million, equivalent to RMB620.7
million, to purchase 5,326,250 ordinary shares (which was equal to 2,663,125 ADSs) from SAIF. After
the repurchase, those shares were retired (Note 20).
In October 2005, pursuant to a share repurchase plan, under which the Company is authorized to
repurchase up to US$50 million worth of outstanding ADs from time to time over the next 12 months
(Note 20).
2. PRINCIPAL ACCOUNTING POLICIES
(1) Basis of presentation
The accompanying consolidated financial statements have been prepared in accordance with
generally accepted accounting principles in the United States of America ("US GAAP").
The preparation of financial statements in conformity with US GAAP requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures
of contingent assets and liabilities at the balance sheet dates and the reported amounts of
revenues and expenses during the reporting periods. Actual results could materially differ from
those estimates.
(2) Consolidation
The consolidated financial statements include the financial statements of the Company, its
subsidiaries and VIE subsidiaries for which the Company is the primary beneficiary. All
transactions and balances among the Company, its subsidiaries and VIE subsidiaries have been
eliminated upon consolidation. Investments in equity securities which the
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Company can exercise significant influence are accounted for by the equity method of
accounting.
The Group has adopted FASB Interpretation No. 46R,
"Consolidation of Variable Interest
Entities, an Interpretation of ARB No. 51"
("FIN 46R"). FIN 46R requires certain variable interest
entities to be consolidated by the primary beneficiary of the entity if the equity investors in the
entity do not have the characteristics of a controlling financial interest or do not have
sufficient equity at risk for the entity to finance its activities without additional subordinated
financial support from other parties.
To comply with PRC laws and regulations that restrict foreign ownership of companies that
operate online games, the Company operates its online games mainly through Shanda Networking, which
is wholly owned by Tianqiao Chen and Danian Chen, and Nanjing Shanda and Hangzhou Bianfeng, which
are subsidiaries of Shanda Networking. These three companies hold the license and approvals to
operate online games in the PRC.
Pursuant to the contractual arrangements with Shanda Networking, Nanjing Shanda and Bianfeng
Networking, Shengqu provides services, software licenses and equipment to Shanda Networking,
Nanjing Shanda and Bianfeng Networking, in exchange for fees, determined according to certain
agreed formulas. During the year ended December 31, 2004 and 2005, the total amount of such fees
was approximately RMB646.1 million and RMB1,034.5 million, which represented the substantial
majority operating profit of Shanda Networking, Nanjing Shanda and Bianfeng Networking. Shengqu has
also undertaken to provide financial support to Shanda Networking to the extent necessary for its
operations. The principal services, software license and equipment lease agreements that Shengqu
has entered into with Shanda Networking, Nanjing Shanda and Bianfeng Networking are:
•
Equipment leasing agreements, pursuant to which Shanda Networking, Nanjing Shanda and
Bianfeng Networking lease a substantial majority of their operating assets from Shengqu;
•
A technical support agreement, pursuant to which Shengqu provides technical support for
Shanda Networking's operations;
•
Technology licensing agreements, pursuant to which Shengqu licenses certain billing
technology to Shanda Networking, Nanjing Shanda and Bianfeng Networking;
•
Software license agreements, pursuant to which Shengqu licenses certain software to
Shanda Networking, Nanjing Shanda and Bianfeng Networking;
•
A strategic consulting agreement, pursuant to which Shengqu provides strategic
consulting services to Shanda Networking; and
•
Online game distribution and service agreements, pursuant to which Shanda Networking,
Nanjing Shanda and Bianfeng Networking distribute and service certain online games that are
licensed or owned by Shengqu.
In addition, Shengqu has entered into agreements with Shanda Networking and its equity owners
with respect to certain shareholder rights and corporate governance matters that provide Shengqu
with the substantial ability to control Shanda Networking. Pursuant to these contractual
arrangements:
•
The equity owners of Shanda Networking have granted an irrevocable proxy to individuals
designated by
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Shengqu to exercise the right to appoint directors, general manager and other senior
management of Shanda Networking;
•
Shanda Networking will not enter into any transaction that may materially affect its
assets, liabilities, equity or operations without the prior written consent of Shengqu;
•
Shanda Networking will not distribute any dividend;
•
Shengqu may purchase the entire equity interest in, or all the assets of, Shanda
Networking for a purchase price equal to the lower of RMB10 million or the lowest price
permitted under PRC law when and if such purchase is permitted by PRC law or the current
equity owners of Shanda Networking cease to be directors or employees of Shanda Networking
or desire to transfer their interest in Shanda Networking to a third party;
•
The equity owners of Shanda Networking have pledged their equity interest in Shanda
Networking to Shengqu to secure the payment obligations of Shanda Networking under all of
the agreements between Shanda Networking and Shengqu; and
•
The equity owners of Shanda Networking will not transfer, sell, pledge or dispose of
their equity interest in Shanda Networking without the prior written consent of Shengqu.
As a result of these agreements, the Company is considered the primary beneficiary of Shanda
Networking and accordingly Shanda Networking's results are consolidated in the Company's financial
statements.
(3) Foreign currency translation
The Company's reporting currency is the Renminbi ("RMB"). The functional currency of the
Company, its subsidiaries and VIE subsidiaries is RMB. Transactions denominated in currencies other
than RMB are translated into RMB at the exchange rates quoted by the People's Bank of China
prevailing at the dates of the transactions. Gains and losses resulting from foreign currency
transactions are included in the consolidated statements of operations and comprehensive income.
Monetary assets and liabilities denominated in foreign currencies are translated into RMB using the
applicable exchange rates quoted by the People's Bank of China at the balance sheet dates. All such
exchange gains and losses are included in the statements of operations and comprehensive income.
The exchange differences for translation of group companies' balances where RMB is not their
functional currency are included in cumulative translation adjustments, which is a separate
component of shareholders' equity on the consolidated financial statements.
Translations of amounts from RMB into United States dollars ("US$" or "U.S. dollars") are
solely for the convenience of the reader and were calculated at the rate of US$1.00 = RMB8.0702,
representing the noon buying rate in the City of New York for cable transfers of RMB, as certified
for customs purposes by the Federal Reserve Bank of New York, on December 31, 2005. This
convenient translation is not intended to imply that the RMB amounts could have been, or could be,
converted, realized or settled into U.S. dollars at that rate on December 31, 2005, or at any other
rate.
(4) Cash and cash equivalents
Cash and cash equivalents represent cash on hand, demand deposits and highly liquid
investments placed with
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banks or other financial institutions, which have original maturities less than three months.
(5) Short-term investments
Short-term investments represent the bank time deposits with the maturities between three
months and six months.
(6) Marketable securities
Marketable securities primarily consist of available-for-sale marketable equity securities,
marketable corporate bonds, or mutual funds. Marketable securities are classified as short-term
based on their liquid nature and because such securities are available for current operations.
Marketable securities are carried at fair market value with unrealized appreciation (depreciation)
reported as a component of accumulated other comprehensive gain (loss) in shareholders' equity. The
specific identification method is used to determine the cost of securities. Realized gains and
losses are reflected as investment income.
During the years ended December 31, 2003, 2004 and 2005, the Company recorded unrealized
(losses)/gains on its marketable securities of approximately, RMB 0.3 million and RMB 133.7 million
and RMB(102.5) million, respectively, as a component of comprehensive income.
(7) Allowances for doubtful accounts
The Group determines the allowance for doubtful accounts when facts and circumstances indicate
that the receivable is unlikely to be collected. If the financial condition of the Group's
customers were to deteriorate, resulting in an impairment of their ability to make payments,
additional allowances may be required.
(8) Inventories
Inventories are valued at the lower of cost or market value. The value of inventories is
determined using the weighted average method. The Group provides estimated inventory allowance for
excessive, slow moving and obsolete inventories as well as inventory whose carrying value is in
excess of net realized value.
(9) Investment in affiliated companies
Affiliated companies are entities over which the Company has significant influence, but which
it does not control. Investments in affiliated companies are accounted for by the equity method of
accounting. Under this method, the Company's share of the post-acquisition profits or losses of
affiliated companies is recognized in the income statement and its share of post-acquisition
movements in reserves is recognized in reserves. Unrealized gains on transactions between the
Company and its affiliated companies are eliminated to the extent of the Company's interest in the
affiliated companies; unrealized losses are also eliminated unless the transaction provides
evidence of an impairment of the asset transferred. When the Company's share of losses in an
affiliated company equals or exceeds its interest in the affiliated company, the Company does not
recognize further losses, unless the Company has incurred obligations or made payments on behalf of
the affiliated company.
The Company continually reviews its investments in affiliated companies to determine whether a
decline in fair
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value below the carrying value is other than temporary. The primary factors the Company
considers in its determination are the length of time that the fair value of the investment is
below the Company's carrying value; and the financial condition, operating performance and near
term prospects of the investee. In addition, the Company considers the reason for the decline in
fair value, be it general market conditions, industry specific or investee specific; analysts'
ratings and estimates of 12 month share price targets for the investee; changes in stock market
price or valuation subsequent to the balance sheet date; and the Company's intent and ability to
hold the investment for a period of time sufficient to allow for a recovery in fair value. If the
decline in fair value is deemed to be other than temporary, the carrying value of the security is
written down to fair value. During the years ended December 31, 2004 and 2005, the Company recorded
impairment loss of approximately Nil and RMB521,486,000, respectively. These write-downs for equity
method investments are included in equity in loss of affiliated companies.
(10) Property and equipment
Property and equipment are stated at cost less accumulated depreciation. Depreciation is
computed using the straight-line method over the following estimated useful lives:
Computer equipment
5 years
Leasehold improvements
Lesser of the term of the lease or
the estimated useful lives of the
assets
Furniture and fixtures
5 years
Motor vehicles
5 years
Office buildings
20 years
(11) Intangible assets
Online game product development costs
The Group recognizes costs to develop its online game products in accordance with SFAS No. 86,
"Accounting for Costs of Computer Software to be Sold, Leased or Otherwise Marketed"
("SFAS
No.86")
.
Costs incurred for the development of online game products prior to the establishment of
technological feasibility are expensed when incurred and are included in product development
expense. Once an online game product has reached technological feasibility, all subsequent online
game product development costs are capitalized until the product is available for marketing.
Technological feasibility is evaluated on a product-by-product basis, but typically encompasses
both technical design and game design documentation and only occurs when the online game has a
proven ability to operate in online game environment in the PRC market. Since the inception of the
Group, the amount of online game development costs qualifying for capitalization was approximately
RMB1,292,000, which is being amortized over the estimated life of the online game.
Website and internally used software development costs
The Group recognizes website and internally used software development costs in accordance with
Statement of Position ("SOP") No. 98-1,
"Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use"
. As such, the Group expenses all costs that are incurred in connection
with the planning and implementation phases of development and costs that are associated with
repair or maintenance of the existing websites and software. Costs incurred in the development
phase are capitalized and amortized over the estimated product life. Since the inception of
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the Group, the amount of costs qualifying for capitalization has been immaterial and as a
result all website and internally used software development costs have been expensed as incurred.
Upfront licensing fees
Upfront licensing fees paid to third party licensors are capitalized and amortized on a
straight-line basis over the shorter of the useful economic life of the relevant online game or
license period, which is usually 2 to 3 years.
Software and copyrights
Software and copyrights purchased from third parties are initially recorded at cost and
amortized on a straight-line basis over the shorter of the useful economic life or stipulated
period in the contract, which is usually 2 to 5 years.
Software technology, game engine, non-compete agreements and customer base acquired through
business combinations
An intangible asset is required to be recognized separately from goodwill based on its
estimated fair value if such asset arises from contractual or legal right or if it is separable as
defined by SFAS No. 141
"Business Combinations"
("SFAS No. 141"). Software technology, game engine,
non-compete agreements and customer base arising from the acquisitions of subsidiaries and VIE
subsidiaries are initially recognized and measured at estimated fair value upon acquisition.
Amortization is computed using the straight-line method over the following estimated useful lives:
Software technology
3 to 5.5 years
Game engine
3 years
Non-compete agreements
2 years
Customer base
5 or 5.5 years
(12) Goodwill
Goodwill is measured as the excess of the purchase price over the fair value assigned to the
individual assets acquired and liabilities assumed. In a business combination, any acquired
intangible assets that do not meet separate recognition criteria as specified in SFAS No. 141
should be recognized as goodwill.
In accordance with SFAS No.142
"Goodwill and other intangible assets"
("SFAS No. 142"), no
amortization is recorded for goodwill. Goodwill is tested for impairment annually or more
frequently if events or changes in circumstances indicate that it might be impaired. In October of
each year, the Company tests impairment of goodwill at the reporting unit level and recognizes
impairment in the event that the carrying value exceeds the fair value of each reporting unit.
(13)Other long-term assets
Other long-term assets mainly include the issuance costs, amounting to RMB52.1 million, of the
Company's Zero Coupon Senior Convertible Notes due 2014 ("Convertible Notes"). The issuance costs
of its Convertible Notes is deferred and being amortized on a straight-line basis over a period of
three years from the date of issuance, which is October 15, 2004, to the first date when the
Company may be required to repurchase all or any portion of their principal amount. The
amortization expense for the year ended December 31, 2004 and 2005 were RMB3.5 million and RMB
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18.5 million respectively.
(14) Impairment of long-lived assets and intangible assets
Long-lived assets and intangible assets are reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company
assesses the recoverability of the long-lived assets and intangible assets (other than goodwill) by
comparing the carrying amount to the estimated future undiscounted cash flow associated with the
related assets. The Company recognizes impairment of long-lived assets and intangible assets in the
event that the net book value of such assets exceeds the estimated future undiscounted cash flows
attributable to such assets. No impairment of long-lived assets and intangible assets was
recognized for any of the years presented.
(15) Financial instruments
Financial instruments of the Company primarily comprise of cash and cash equivalents,
short-term investment, marketable securities, accounts receivable, prepayments and other current
assets, amount due from/to related parties, accounts payable and other payables. As of December 31,
2004 and 2005, their carrying values approximated their fair values.
(16) Revenue recognition
Online game revenue
Prior to November 28, 2005, the Group operated all Massively Multiplayer Online Role-Playing
Games ("MMORPGs") under a pay-to-play model. Under this model, the Group receives subscription fees
from distributors for the sale of time units, which allow end users to access its online game
products. The distribution of time units to the end users typically is made by sales of pre-paid
game cards, in physical or virtual form. The pre-paid game cards entitle the end users to access
the Group's online game products for a specified period of time in accordance with the Group's
published expiration policy. All subscription fees are deferred when received and revenue is
recognized based upon the actual usage of time units by the end users, or when the end users are no
longer entitled to access the online game products in accordance with the Group's published
expiration policy.
Starting from November 28, 2005, the Group changed the operation of certain MMORPGs from the
pay-to-play model to a free-to-pay model. Under the new model, players can access the games free of
charges but may purchase points for in-game premium features. The distribution of points to the end
users typically is made by sales of pre-paid game cards, in physical or virtual forms. The unused
time units as of November 28, 2005 were converted into point units immediately. Subscription fees
are deferred when received and revenue is recognized over the life of the premium features or as
the premium features is consumed.
For casual online games, which are typically less complex and have shorter play duration than
MMORPGs, the Group receives subscription fee from distributors for the sales of points, which allow
end users to purchase premium features. Casual games can be accessed and played by end users free
of charge and without the purchase of premium features. Subscription fee is deferred when received
and revenue is recognized over the life of the premium features or as the premium features is
consumed.
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Other Revenues
Other revenues principally comprise of advertising revenues, Mobile valued-added services
revenue, revenues from sale of E-Key, EZ Pod, and other online game auxiliary products.
Advertising revenues are derived principally from online advertising arrangements, sponsorship
arrangements, or a combination of both. Online advertising arrangements allow advertisers to place
advertisements on particular areas of the Group's websites, in particular formats and over
particular period of time. Advertising revenues from online advertising arrangements are recognized
ratably over the displayed period of the contract when the collectibility is reasonably assured.
Revenue from advertisement was reported as other revenues for all periods presented.
Mobile value-added services revenue are derived from providing mobile phone users with
services for recharging value of their prepaid cards and subscribing other game related content via
short messaging services, or SMS. Revenues from SMS are charged based on usage and recognized in
the period in which the service is performed, provided that collection of the receivables is
reasonably assured, the amounts can be accurately estimated, and there are no future service
obligations by the Company.
EZ Pod is an output device of Shanda Home Entertainment Platform ("Platform"). By using EZ
Pod, users can have access to the Platform and pay subscription fee to subscribe various online
contents, such as games, music and films. As of December 31, 2005, the Platform was still in the
trial operation period and no subscription fee was charged to users. Revenue from sale of EZ Pod
was recognized upon delivery as the EZ Pod had separate value to the users and the Company had no
future legal or constructive obligation related to the sale of EZ Pod.
The Group sells E-Key, a secure ID product and other on-line game auxiliary products to
customers. Revenues derived from the sale of E-Key and other on-line game auxiliary products are
recognized when the titles of such products are transferred to the customers and collections are
reasonably assured.
The Group's subsidiaries and its VIE subsidiaries are subject to business tax and related
surcharges and value added tax on the revenues earned for services provided and products sold in
the PRC. The applicable business tax rate varies from 3% to 5% and the rate of value added tax
varies from 6% to 17%. In the accompanying statements of operations and comprehensive income,
business tax and related surcharges for revenues derived from on-line games, advertisement, mobile
valued-added services are deducted from gross receipts to arrive at net revenues.
(17) Deferred revenue
Deferred revenue represents subscription fees received from customers that cover online game
services to be rendered in the future. Deferred revenue is stated at the amount of subscription
fees received less the amount previously recognized as revenue upon the rendering of online game
services or expiration of the time units or expiration of game cards in accordance with the Group's
published expiration policy.
(18) Deferred licensing fees and related costs
Upon the receipt of subscription fees from the distributors, the Group is obligated to pay
on-going licensing fees and other costs related to such subscription fees, including business tax
and related surcharges. As subscription fees are deferred (Note 2(17)), the related on-going
licensing fees and costs are also deferred. The deferred licensing fees and
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related costs are recognized in the statements of operations and comprehensive income in the
period in which the related online game subscription fees are recognized as revenue.
(19) Cost of revenue
Cost of services rendered
Cost of services rendered consists primarily of online game licensing fees, depreciation,
maintenance and rental of computer equipment, amortization of upfront licensing fees, manufacturing
costs for prepaid game cards and other overhead expenses directly attributable to the provision of
online game services. Cost of services rendered amounted to approximately RMB233,701,000,
RMB443,558,000 and RMB567,267,000, during the years ended December 31, 2003, 2004 and 2005,
respectively.
Cost of goods sold
Cost of goods sold primarily consists of direct and indirect costs of EZ Pod, E-Key and other
on-line game auxiliary products, as well as the corresponding shipping and handling costs for the
products sold. Cost of goods sold amounted to approximately 0, RMB27,626,000 and RMB47,160,000,
during the years ended December 31, 2003, 2004 and 2005, respectively.
(20) Product development
Product development costs consist primarily of payroll, depreciation expense and other
overhead expenses incurred by the Group to develop, maintain, monitor and manage the Group's online
gaming products, software and websites, and are recorded on an accrual basis.
(21) Sales and marketing
Sales and marketing costs consist primarily of advertising and market promotion expenses,
payroll and other overhead expenses incurred by the Group's sales and marketing personnel, and are
recorded on an accrual basis. Advertising expenses amounted to approximately RMB13,147,000,
RMB16,015,000 and RMB66,248,000, during the years ended December 31, 2003, 2004 and 2005,
respectively.
(22) Share-based compensation
The Company accounts for share-based compensation plans under the intrinsic-value method
prescribed by Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB No. 25"), as interpreted, with pro forma disclosures of net income attributable to
ordinary shareholders and earnings per share, as if the fair value method of accounting defined in
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation"
("SFAS No. 123"). In general, compensation cost under APB No. 25 is recognized based on the
difference, if any, between the estimated fair value of the Company's ordinary shares and the
amount an employee is required to pay to acquire the ordinary shares, as determined on the date the
option is granted. Compensation cost, if any, is recorded in shareholders' equity as additional
paid-in capital with an offsetting entry recorded as deferred share-based compensation. Deferred
share-based compensation is amortized and charged to expense based on the vesting terms of the
underlying options.
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Table of Contents
SFAS No. 123 establishes a fair value based method of accounting for share-based compensation
plans. Under the fair value method, compensation cost is measured at the grant date based on the
fair value or minimum value, as applicable, of the award and is recognized over the service period,
which is usually the vesting period. Had the Company determined the share-based compensation
expense for the Company's share options based upon the minimum value/fair value at the grant date
for share options awards in 2003, 2004 and 2005, consistent with the provisions of SFAS No. 123,
the Company's net income attributable to ordinary shareholders and earnings per share would have
been reduced to the pro forma amounts indicated below.
2003
2004
2005
RMB
RMB
RMB
Net income attributable
to ordinary shareholders
as reported
199,529,270
527,004,006
165,282,809
Add: Share-based
compensation expenses
under APB No. 25
18,158,928
28,827,828
13,697,877
Less: Share-based
compensation expenses
under SFAS No. 123
(27,315,276
)
(67,612,681
)
(50,192,400
)
Add: Allocation to
participating
shareholders
1,847,982
3,184,018
—
Pro forma net income
attributable to ordinary
shareholders
192,220,904
491,403,171
128,788,286
Basic earnings per share
As reported
2.14
4.32
1.17
Pro forma
2.06
4.02
0.91
Basic earnings per ADS
As reported
4.28
8.64
2.34
Pro forma
4.12
8.04
1.82
Diluted earnings per share
As reported
2.07
4.05
1.13
Pro forma
2.00
3.78
0.88
Diluted earnings per ADS
As reported
4.14
8.10
2.26
Pro forma
4.00
7.56
1.76
The effects of applying SFAS No. 123 methodologies in this pro forma disclosure are not
indicative of future earnings or earnings per share. Additional share option awards in future years
are expected.
Prior to January 1, 2004, the Company was considered a non-public company and calculated the
minimum value of share options on the date of grant as (i) the estimated fair value of the shares
reduced to exclude the present value of any expected dividends during the term of the option minus
(ii) the present value of the exercise price using the assumptions in the following table.
Subsequent to January 1, 2004, the Company calculated the fair value of each option granted on the
date of grant using the Black-Scholes pricing method based on the following assumptions:
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Table of Contents
2003
2004
2005
Risk-free interest rate
2.65
%
2.8-4.0
%
3.9-4.2
%
Term of share option/Expected life (in years)
10 years
5 years
6.25 years
*
Expected dividend yield
0
%
0
%
0
%
Volatility
NA
58%-71
%
58%-60
%
Minimum value/fair value per option at grant
date
RMB2.91-RMB48.28
RMB23.66-RMB49.26
RMB73.39-RMB82.59
*
The Company's historical share option exercise experience does not provide a reasonable basis
upon which to estimate expected term. As a result, according to Staff Accounting Bulletin No.
107
"SAB 107"
, considering the Company's stock option awards have the characteristics of "plain
vanilla" option, the Company uses a "simplified" method to determine the expected term of the
options granted in 2005.
(23) Leases
Leases where substantially all the rewards and risks of ownership of assets remain with the
leasing company are accounted for as operating leases. Other leases are accounted for as capital
leases. Payments made under operating leases, net of any incentives received by the Group from the
leasing company, are charged to the statements of operations and comprehensive income on a
straight-line basis over the lease periods or based on certain formulas, as specified in the lease
agreements, with reference to the actual number of users of the leased assets, as appropriate.
(24) Taxation
Deferred income taxes are provided using the liability method. Under this method, deferred
income taxes are recognized for the tax consequences of temporary differences by applying enacted
statutory rates applicable to future years to differences between the financial statement carrying
amounts and the tax bases of existing assets and liabilities. The tax base of an asset or liability
is the amount attributed to that asset or liability for tax purposes. The effect on deferred taxes
of a change in tax rates is recognized in income in the period of change. A valuation allowance is
provided to reduce the amount of deferred tax assets if it is considered more likely than not that
some portion of, or all of, the deferred tax assets will not be realized.
(25) Statutory reserves
Shengqu, Shanda Computer (Shanghai) Co., Ltd., Grandpro Technology (Shanghai) Co., Ltd. and
the Group's VIE subsidiaries incorporated in the PRC are required on an annual basis to make
appropriations of retained earnings set at certain percentage of after-tax profit determined in
accordance with PRC accounting standards and regulations ("PRC GAAP") to statutory reserve fund and
statutory welfare fund. The statutory reserve fund can be used to increase the registered capital
and eliminate future losses of the companies, it cannot be distributed to shareholders except in
the event of a solvent liquidation of the companies. The statutory welfare fund can only be used
for the collective benefits and facilities of the employees. The Group's VIE subsidiaries are
required to make an appropriations of retained earnings equal to, at least, 10% and 5%, of the PRC
GAAP after-tax profit, to the statutory reserve fund and the statutory welfare fund, respectively.
Shengqu, Shanda Computer (Shanghai) Co., Ltd. and Grandpro Technology (Shanghai) Co., Ltd., as
wholly foreign owned enterprises incorporated in the PRC, is required to make appropriation of
retained earnings equal to at least 10% of the PRC GAAP after-tax profit to the statutory reserve
fund. Once the level of these funds reaches 50% of the registered capital of the respective
companies, further appropriations are discretionary.
Appropriations to these funds are classified in the consolidated balance sheets as statutory
reserves. During the year ended December 2003, 2004 and 2005, the Group made total appropriations
to these statutory reserves of
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approximately RMB22,192,000, RMB12,713,000 and RMB47,594,000 respectively.
There are no legal requirements in the PRC to fund these reserves by transfer of cash to any
restricted accounts, and the Group does not do so.
(26) Dividends
Dividends are recognized when declared.
On March 5, 2004, a cash dividend of US$23 million (equivalent to RMB192 million) was declared
by the Company to its holders of ordinary shares and preferred shares in proportion to their
respective share ownership, on an as-converted basis, which is approximately 74.9% and 25.1%,
respectively.
Relevant PRC laws and regulations permit payments of dividends by the PRC subsidiaries and
affiliated companies only out of their retained earnings, if any, as determined in accordance with
PRC accounting standards and regulations (see Note 2(25)).
In addition, since a significant amount of the Group's future revenues will be denominated in
RMB, the existing and any future restrictions on currency exchange may limit the Group's ability to
utilize revenues generated in RMB to fund the Group's business activities outside China, if any, or
expenditures denominated in foreign currencies.
(27) Earnings per share
In accordance with SFAS No. 128, "
Computation of Earnings Per Share
" ("SFAS No. 128") and EITF
Issue 03-06, "
Participating Securities and the Two-Class Method under FASB Statement No. 128
",
basic earnings per share is computed by dividing net income attributable to common shareholders by
the weighted average number of unrestricted ordinary shares outstanding during the year using the
two-class method. Under the two class method, net income is allocated between ordinary shares and
other participating securities based on their participating rights. The Company's Series A and
Series A-1 Convertible Redeemable Preferred Shares (Note 18) are participating securities. Diluted
earnings per share is calculated by dividing net income attributable to common shareholders as
adjusted for the effect of dilutive ordinary equivalent shares, if any, by the weighted average
number of ordinary and dilutive ordinary equivalent shares outstanding during the year. Ordinary
equivalent shares consist of the ordinary shares issuable upon the conversion of the Convertible
Redeemable Preferred Shares and Convertible Debt (using the as-converted method) and ordinary
shares issuable upon the exercise of outstanding share options (using the treasury share method).
Earnings per share has been computed as if the current corporate structure, after the
Reorganization and Share Swap (Note 1), the 1:100 share split (Note 19) and the share issuance for
nominal value (Note 19), had occurred at the beginning of the relevant periods.
(28) Segment reporting
The Group operates and manages its business as a single segment. As the Group primarily
generates its revenues from customers in the PRC, no geographical segments are presented.
(29) Reclassifications
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Certain reclassifications have been made to all years presented in the consolidated financial
statements to conform to the current year presentation.
3. Recent accounting pronouncements
In December 2004, the FASB issued SFAS No. 123R,
"Share-Based Payment"
, which replaced SFAS
No. 123 and superseded APB No. 25. SFAS No. 123R requires all share-based payments to employees,
including grants of employee stock options, to be recognized in the financial statements based on
their grant date fair values. Under SFAS No. 123R, the pro forma disclosures previously permitted
no longer will be an alternative to financial statement recognition. In March 2005, the SEC issued
SAB 107 regarding the SEC's interpretation of SFAS No. 123R and the valuation of share-based
payments for public companies.
The Company will adopt SFAS No. 123R and related FASB Staff Position ("FSPs") on January 1,
2006. The Company will apply the Black-Scholes valuation model in determining the fair value of
share-based payments to employees, and will recognize compensation expense on an accelerated basis
over the requisite service period. The Company will apply the modified prospective method, which
requires that compensation expense be recorded for all unvested stock options upon adoption of SFAS
No. 123R. The stock option compensation expense for the first quarter of 2006, due to the effect of
adoption of SFAS No. 123R, approximated RMB 11,988,000.
In November 2004, the FASB issued SFAS 151,
"Inventory Costs, an amendment of ARB No. 43,
Chapter 4"
, ("SFAS 151"). SFAS 151 clarifies that abnormal inventory costs such as costs of idle
facilities, excess freight and handling costs, and wasted materials (spoilage) are required to be
recognized as current period charges. The provisions of SFAS 151 are effective for the fiscal year
beginning after June 15, 2005. The Company believes the adoption of EITF No. 05-06 will not have a
significant impact on its financial statements.
In December 2004, the FASB issued SFAS No. 153,
"Exchanges of Non-monetary Assets, an
amendment of APB Opinion No. 29"
, ("SFAS 153"). SFAS 153 addresses the measurement of exchanges of
non-monetary assets and redefines the scope of transactions that should be measured based on the
fair value of the assets exchanged. SFAS 153 is effective for non-monetary asset exchanges
occurring in fiscal periods beginning after June 15, 2005. The Company believes the adoption of
EITF No. 05-06 will not have a significant impact on its financial statements.
In June 2005, the FASB issued SFAS No. 154,
"Accounting Changes and Error Corrections"
which
replaces APB Opinion No. 20, Accounting Changes, and FASB Statement No. 3, Reporting Accounting
Changes in Interim Financial Statements, and changes the requirements for the accounting for and
reporting of a change in accounting principle. Opinion 20 previously required that most voluntary
changes in accounting principle be recognized by including in net income of the period of the
change the cumulative effect of changing to the new accounting principle. SFAS No. 154 requires
retrospective application to prior periods' financial statements of changes in accounting
principle, unless it is impracticable to determine either the period-specific effects or the
cumulative effect of the change. This statement will be effective for accounting changes and
corrections of errors made in fiscal years beginning after December 15, 2005.
In June 2005, the FASB's Emerging Issues Task Force ("EITF") issued EITF Issue No. 05-02
"The
Meaning of 'Conventional Convertible Debt Instrument' in EITF Issue 00-19 "Accounting for
Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company's Own Stock""
,
which retains the exception in paragraph 4 of EITF
F-20
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Issue No. 00-19 for conventional convertible debt instruments. Those instruments in which the
holder has an option to convert the instrument into a fixed number of shares (or a corresponding
amount of cash at the issuer's discretion) and its ability to exercise the option is based on
either (a) the passage of time or (b) a contingent event, should be considered "conventional" for
purposes of applying that exception. The consensus should be applied on a prospective basis for new
or modified instruments starting from the third quarter of 2005. The Company believes the adoption
of EITF No. 05-02 will not have a significant impact on its financial statements.
In June 2005, the FASB ratified the EITF Issue No. 05-06,
"Determining the Amortization Period
for Leasehold Improvements".
EITF No. 05-06 provides that the amortization period used for
leasehold improvements acquired in a business combination or purchased after the inception of a
lease be the shorter of (a) the useful life of the assets or (b) a term that includes required
lease periods and renewals that are reasonably assured upon the acquisition or the purchase. The
provisions of EITF No. 05-06 should be applied to leasehold improvements (within the scope of this
issue) that are purchased or acquired in reporting periods beginning after June 29, 2005. The
Company believes the adoption of EITF No. 05-06 will not have a significant impact on its financial
statements.
4. BUSINESS COMBINATIONS
The Group accounts for its business combinations using the purchase method of accounting. This
method requires that the acquisition cost to be allocated to the assets, including separately
identifiable intangible assets, and liabilities the Group acquired based on their estimated fair
values. The Company makes estimates and judgments in determining the fair value of the acquired
assets and liabilities based on independent appraisal reports as well as its experience with
similar assets and liabilities in similar industries. If different judgments or assumptions were
used, the amounts assigned to the individual acquired assets or liabilities could be materially
different.
Acquisition completed in 2005
(1)
Shanghai Haofang Online Information Technology Co., Ltd. and Grandpro Technology Limited
(collectively "Haofang")
In October 2004, the Group acquired a 17.86% equity interest for the consideration of US$5.0
million in cash (equivalent to RMB41.4 million) in Haofang, the operator of the largest network PC
game platform in China. The Company accounted for the investment in Haofang using the equity method
of accounting as the Company had significant influence over Haofang in 2004.
In May 2005, the Group acquired the remaining 82.14% equity interest of Haofang for the
consideration of US$20.0 million in cash (equivalent to RMB 165.5 million). As a result, Haofang
became a wholly-owned subsidiary of the Group. Pursuant to the purchase agreement, the Group was
required to make contingent payment to the selling shareholders if 2005 earnings of Haofang
exceeded a pre-set target. The contingent payment of US$31.0 million (equivalent to Rmb249.3
million) was subsequently paid and recorded as an adjustment to goodwill by the Group in February
2006 (Note 26).
The purchase price, before the contingent consideration payment of US$31.0 million, was
allocated as follows:
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Table of Contents
RMB
Cash
39,399,000
Other assets
17,359,000
Identifiable intangible assets
75,614,000
Purchased in-progress research and development
4,147,000
Goodwill
97,296,000
Current liabilities
(26,887,000
)
Purchase price
206,928,000
Identifiable intangible assets acquired, including software technology of RMB46.0 million and
customer base of RMB29.6 million, have estimated useful lives of 5.5 years. Purchased in-progress
research and development of RMB4.1 million were written off at the date of acquisition in
accordance with FASB Interpretation No.4
"Applicability of FASB Statement No. 2 to Business
Combinations Accounted for by the Purchase Method"
("FASB Interpretation No. 4") because the
technological feasibility of the in-progress technology has not yet been established and that the
technology has no alternative future use. Those write-offs are included in product development
expenses.
Goodwill of RMB97.3 million represents the excess of the purchase price over the estimated
fair value of the net tangible and identifiable intangible assets acquired, and is not deductible
for tax purposes. In accordance with SFAS No. 142, goodwill is not amortized but is tested for
impairment. The purchase allocation for Haofang acquisition is primarily based on an appraisal
performed by an independent appraisal firm together with the management assessment based on their
experience in online game business in the PRC.
The following unaudited pro forma consolidated financial information reflects the results of
operations for the year ended December 31, 2004 and 2005, as if the acquisition of Haofang had
occurred on January 1, 2004 and 2005, and after giving effect to purchase accounting adjustments.
These pro forma results have been prepared for comparative purposes only and do not purport to be
indicative of what operating results would have been had the acquisition actually taken place on
the beginning of the periods presented, and may not be indicative of future operating results.
2004
2005
Unaudited in RMB
Unaudited in RMB
Net revenue
1,305,724,000
1,930,396,000
Net income
555,004,000
180,130,000
Net income attributable to ordinary
shareholders
472,525,000
180,130,000
Earnings per share
Basic
3.87
1.27
Diluted
3.63
1.23
The pro forma net income for 2004 and 2005 includes RMB13.7 million in each year for the
amortization of identifiable intangible assets, and was determined using at the actual effective
income tax rate of Haofang in each year.
(2) Gametea
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Table of Contents
In November 2005, the Company acquired 100% equity interest of Wenzhou Chuangjia Technology
Co., Ltd. and Shanghai Qipai Computer Technology Co., Ltd. (collectively "Gametea"), a leading
online casual game platform that develops and operates chess and board games in China. Pursuant to
the acquisition agreement, the total purchase consideration was US$4.9 million (equivalent to
RMB39.6 million), of which US$3.6 million (equivalent to RMB29.1 million) was paid in 2005, and the
remaining purchase consideration will be paid in two installments in 2006 and 2007, respectively.
The purchase price of Gametea was allocated as follows:
RMB
Cash
435,000
Other assets
2,059,000
Identifiable intangible assets
20,213,000
Goodwill
17,387,000
Current liabilities
(484,000
)
Purchase price
39,610,000
Identifiable intangible assets acquired, including software technology of RMB14.7 million and
customer base of RMB5.5 million, have estimated useful lives of 5 years. Goodwill of RMB17.4
million represents the excess of the purchase price over the estimated fair value of the net
tangible and identifiable intangible assets acquired, and is not deductible for tax purposes. In
accordance with SFAS No. 142, goodwill is not amortized but is tested for impairment.
Acquisition completed in 2004
(1) Bianfeng
In July 2004, the Group acquired 100% equity interest in Hangzhou BianFeng Software Technology
Co., Ltd. and BianFeng Networking (collectively "Bianfeng"), companies incorporated in the PRC and
engaged in the operation of online chess and board games. As a result of such acquisition, Bianfeng
became a wholly-owned subsidiary of Shanda Networking. Total purchase price for this acquisition is
US$20.0 million in cash, equivalent to RMB164.5 million. Pursuant to the purchase agreement, the
Group was required to make contingent payment to the selling shareholders if 2004 earnings of
Bianfeng exceeded the pre-set target. Based on 2004 earnings, the Company was not required to make
contingent payment as the earnings target set out in the purchase agreement was not achieved.
F-23
Table of Contents
The purchase price of Bianfeng was allocated as follows:
RMB
Cash
12,744,000
Other assets
1,272,000
Identifiable intangible assets
44,631,000
Goodwill
106,170,000
Current liabilities
(277,000
)
Purchase price
164,540,000
Identifiable intangible assets acquired, including software technology and non-compete
arrangements with certain Bianfeng selling shareholders, have estimated useful lives ranging from
two to five years. Goodwill of RMB106 million represents the excess of the purchase price over the
estimated fair value of the net tangible and identifiable intangible assets acquired, and is not
deductible for tax purposes. In accordance with SFAS No. 142, goodwill is not amortized but is
tested for impairment. The purchase allocation for Bianfeng acquisition is primarily based on an
appraisal performed by an independent appraisal firm together with the management assessment based
on their experience in online game business in the PRC.
Other business combinations
In fiscal 2004, the Company also incurred an aggregate upfront cash consideration of
approximately RMB39,798,000 to the sellers to acquire additional businesses including server
infrastructure developer, publication of original online literature, mobile phone-based wireless
game developer and virtual community website. These acquisitions resulted in approximately
RMB15,313,000 of goodwill. Intangible assets acquired of approximately RMB24,485,000 consist of
game engine, software technology which are being amortized on a straight-line basis over economic
lives of three to five years estimated by the Company.
5. OTHER NET REVENUES
2003
2004
2005
RMB
RMB
RMB
Advertising
—
12,044,832
80,105,525
E-Keys
—
25,479,708
76,838,512
EZ Pod
—
—
22,533,424
Mobile value-added services
4,142,752
19,078,242
15,512,057
Technology service and cooperation
—
—
12,622,838
Others
7,209,822
32,945,322
30,689,596
11,352,574
89,548,104
238,301,952
F-24
Table of Contents
6. OTHER INCOME (EXPENSES)
Other income primarily consists of government financial incentives. During the years ended
December 31, 2003, 2004 and 2005, the Group received incentives of approximately RMB62,901,000,
RMB88,083,000 and RMB137,282,000, respectively, from local government authorities and such amounts
were recorded as other income in the statements of operations and comprehensive income.
The government financial incentives are granted by the municipal government upon the
qualification of a company as a new-high technology enterprise. These government financial
incentives are calculated with reference to either the group companies' taxable income or revenue,
as the case may be. Eligibility for the government financial incentives the group companies receive
requires that the group companies continue to meet a number of government financial and
non-financial criteria to continue to qualify for these government financial incentives and its
continued qualification is further subject to the discretion of the municipal government. Moreover,
the central government or municipal government could determine at any time to immediately eliminate
or reduce these financial incentives. There is no guarantee that the Group will continue to receive
these government financial incentives in the future. Accordingly, government financial incentives
are recognized as other income when received.
In 2005, other income also includes a foreign exchange gain of RMB48.9 million mainly arising
from a revaluation of monetary assets and liabilities denominated in US dollar following the
appreciation of RMB in July 2005 (Note 24).
7. TAXATION
Cayman Islands
Under the current laws of Cayman Islands, the Group is not subject to tax on its income or
capital gains. In addition, upon payments of dividends by the Group to its shareholders, no Cayman
Islands withholding tax will be imposed.
British Virgin Islands
Under the current laws of British Virgin Islands, the Group is not subject to tax on its
income or capital gains. In addition, upon payments of dividends by the Group to its shareholders,
no British Virgin Islands withholding tax will be imposed.
China
The Group's subsidiaries and VIE subsidiaries that are incorporated in the PRC are subject to
Enterprise Income Tax ("EIT") on the taxable income as reported in their respective statutory
financial statements adjusted in accordance with the Enterprise Income Tax Law and the Income Tax
Law of the People's Republic of China concerning Foreign Investment Enterprise and Foreign
Enterprises (collectively the "PRC Income Tax Laws"), respectively. Pursuant to the PRC Income Tax
Laws, the Group is generally subject to EIT at a statutory rate of 33%. Group companies that are
registered in the Pudong New District of Shanghai are, however, subject to a 15% preferential EIT
rate pursuant to the local tax preferential treatment. Shengqu, as a software development
enterprise,
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Table of Contents
has been granted a two year EIT exemption and followed by a three year 50% EIT reduction on
its taxable income, commencing the year ended December 31, 2003 ("tax holiday"). Shengqu's
qualifications as a software development enterprise or a technology advanced enterprise are
required to be reassessed on an annual basis. Nanjing Shanda, as a result of receiving government's
recognition as a technology advanced enterprise, has been entitled to a full income tax exemption
for two years effective from January 1, 2005 and will be subject to a preferential tax rate of 15%
after January 1, 2007.
Composition of income tax expense
The current and deferred portion of income tax expense included in the consolidated statements
of operations and comprehensive income for the years ended December 31, 2003, 2004 and 2005 are as
follows:
2003
2004
2005
RMB
RMB
RMB
Current income tax expenses
(25,696,714
)
(46,485,395
)
(84,204,730
)
Change in deferred tax assets
7,356,905
8,690,988
(9,365,576
)
Change in valuation allowance
(307,068
)
(1,146,517
)
(3,141,686
)
Income tax expenses
(18,646,877
)
(38,940,924
)
(96,711,992
)
Reconciliation of the differences between statutory tax rate and the effective tax rate
The reconciliation between the statutory EIT rate and the Group's effective tax rate for the
years ended December 31 2003, 2004 and 2005 is as follows:
2003
2004
2005
Statutory income
tax rate
33
%
33
%
33
%
Tax differential
from statutory rate
applicable to the
subsidiaries and
the VIE
subsidiaries in the
PRC
(19
%)
(20
%)
(18
%)
Effect of tax
holidays
(11
%)
(11
%)
(7
%)
Others
3
%
4
%
4
%
Effective EIT
rate
6
%
6
%
12
%
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Table of Contents
Significant components of deferred tax assets
December 31,
December 31,
2004
2005
RMB
RMB
Licensing fees and related costs and revenue deferred
29,267,929
14,857,898
Tax losses carried forward
3,831,944
6,973,630
Other temporary differences
363,997
2,266,766
Less: Valuation allowance
(3,831,944
)
(6,973,630
)
Deferred tax assets
29,631,926
17,124,664
Movement of valuation allowances
2004
2005
RMB
RMB
At beginning of year
2,685,225
3,831,944
Current year addition
2,544,041
6,318,048
Current year reversal
(1,397,322
)
(3,176,362
)
At end of year
3,831,944
6,973,630
Valuation allowances have been provided on the net deferred tax assets due to the
uncertainty surrounding their realization. As of December 31, 2004 and 2005, valuation allowances
were provided because it was more likely than not that the Group will not be able to utilize
certain tax losses carryforwards generated by certain VIE subsidiaries. Tax losses carry forward
in the amount of approximately RMB338,000 and RMB1,867,000 and RMB31,696,000 incurred in 2003, 2004
and 2005 will expire in the year ending December 31, 2009, 2010 and 2011, respectively.
Alternatively, if events occur in the future that allow the Group to realize more of its deferred
tax assets than the presently recorded amount, an adjustment to the valuation allowances will
increase income when those events occur.
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Table of Contents
8. EARNINGS PER SHARE
Basic earnings per share and diluted earnings per share have been calculated in accordance
with SFAS No. 128 and EITF No. 03-06 for the years ended December 31 2003, 2004 and 2005 as
follows:
2003
2004
2005
RMB
RMB
RMB
Numerator:
Net income
272,850,169
609,482,888
165,282,809
Accretion for Series A and Series A-1
Prefer Shares (Note 18)
(24,962,571
)
—
—
Dividends to Series A and Series
A-1Prefer Shareholders (Note
18)
—
(48,212,650
)
—
Earnings allocated to participating
Preferred Shareholders
(48,358,328
)
(34,266,232
)
—
Numerator for basic and diluted
earnings per share
199,529,270
527,004,006
165,282,809
Denominator:
Denominator for basic earnings per
share
- Weighted-average ordinary shares
outstanding
93,246,726
122,136,580
141,338,480
Dilutive effect of share options
3,079,231
8,031,076
5,009,115
Denominator for diluted earnings per
share
96,325,957
130,167,656
146,347,595
Basic earnings per share
2.14
4.32
1.17
Diluted earnings per share
2.07
4.05
1.13
Net income, after deducting accretion and dividends to holders of Preferred Shareholders,
has been allocated to the ordinary share and Preferred Shares based on their respective rights to
share in dividends.
Potential dilutive securities, consisted of Series A and A-1 Preferred Shares in 2003 and
Series A and A-1 Preferred Shares and Convertible Notes in 2004, were not included in the
computation of earnings per share for 2003, 2004 and 2005 because of their anti-dilutive effects.
9. CASH AND CASH EQUIVALENTS
Cash and cash equivalents as of December 31, 2005 include cash balances held by the Company's
VIE subsidiaries of approximately RMB665,604,000. These cash balances cannot be transferred to the
Company by dividend, loan or advance according to existing PRC laws and regulations (Note 27).
However, these cash balances can be utilized by the Company for its normal operations pursuant to
various agreements which enable the Company to substantially control these VIE subsidiaries as
described in Note 2(2) for its normal operations.
Included in the cash and cash equivalents are cash balances denominated in U.S. dollars of
approximately
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US$281,006,000 and US$20,749,000 (equivalent to approximately RMB2,325,898,000 and
RMB167,449,000) as of December 31, 2004 and 2005, respectively.
10. ACCOUNTS RECEIVABLE
December 31,
December 31,
2004
2005
RMB
RMB
Accounts receivable
39,855,575
131,553,747
Less: Allowance for doubtful accounts
(547,857
)
(50,426,583
)
39,307,718
81,127,164
The movement of the allowance for doubtful accounts during the years is as follow:
2004
2005
RMB
RMB
Balance as beginning of year
—
547,857
Add: Current year additions
547,857
53,849,939
Less: Current year write-offs
—
(3,971,213
)
Balance at end of year
547,857
50,426,583
11. INVENTORIES
December 31,
December 31,
2004
2005
RMB
RMB
Finished goods
6,039,188
18,857,526
Raw materials
—
9,623,444
Total inventories
6,039,188
28,480,970
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12. INVESTMENTS IN AFFILIATED COMPANIES
The following table includes the Group's carrying amount and percentage ownership of the
investments in affiliated companies at December 31, 2005 and the carrying amount at December 31,
2004:
December 31,
December 31,
2004
2005
RMB
RMB
Percentage
ownership
%
Actoz Soft
Co., Ltd.
118,890,960
849,760,675
38.14
%
Shanghai
Orient Youth Culture Co., Ltd.
—
306,836
30
%
Shanghai Haofang Online Information
Technology Co., Ltd. and Grandpro
Technology Limited (collectively
"Haofang")
37,044,588
—
—
Less: provision for other-than-temporary
impairment of the investment in
affiliates companies
—
(521,485,888
)
Total
155,935,548
328,581,623
The movement of the investments in affiliated companies is as follows:
Actoz Soft
Shanghai Orient
Haofang
Total
Co., Ltd.
Youth Culture Co.,
Ltd.
RMB'000
RMB'000
RMB'000
RMB'000
Balances at December 31, 2003
—
—
—
—
Investments
118,891
—
41,385
160,276
Share of loss on affiliated companies investments
—
—
(4,180
)
(4,180
)
Amortization of identifiable intangible assets
—
—
(160
)
(160
)
Balances at December 31, 2004
118,891
—
37,045
155,936
Investments
759,105
300
165,543
924,948
Share of
profit on affiliated companies investments
10,710
7
4,416
15,133
Other equity movement
(1,296
)
—
—
(1,296
)
Amortization of identifiable intangible assets,
net of tax
(22,189
)
—
(266
)
(22,455
)
Immediate write off of purchased in-progress
research and development
(15,460
)
—
—
(15,460
)
Other-than-temporary impairment
(521,486
)
—
—
(521,486
)
Transferred out for consolidation
—
—
(206,738
)
(206,738
)
Balances at December 31, 2005
328,275
307
—
328,582
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Investment in Actoz Soft Co., Ltd.
In November 2004, the Company entered into a share purchase agreement with certain
shareholders of Actoz Soft Co., Ltd, or Actoz, a Korean developer, operator and publisher of online
games listed on the KOSDAQ, to acquire approximately 29% of the shares of Actoz by the Company from
these shareholders for approximately US$91.7 million, equivalent to RMB759.1 million. The
acquisition of the 29% interest has been completed in February 2005 and such date was determined to
be the date of acquisition for accounting purposes.
In December 2004, the Company purchased approximately 9% of the shares in Actoz for
approximately US$14.4 million, equivalent to RMB118.9 million, in the open market. The management
of the Company considered that prior to the completion of the acquisition of the 29% interest, the
Company was not able to exercise significant influence on the operation of Actoz, accordingly, the
investment was recorded as marketable securities and carried out at fair market value with
unrealized depreciation of approximately RMB9.1 million originally reported as a component of other
comprehensive income in shareholders' equity as at December 31, 2004.
After this acquisition of the 29% interest in February 2005, the Company owns in total
approximately 38% of Actoz and will account for the investment in Actoz under equity method of
accounting in 2005. As a result, as required by APB 18 "The Equity Method of Accounting for
Investments in Common Stock", the Company has retroactively applied the equity method of accounting
to account for the 9% investment in Actoz for the year ended December 31, 2004.
Pursuant to the share purchase agreement, an escrow amount of US$18.3 million (equivalent to
RMB151.8 million) was required to be set aside in an escrow account which would be released against
the remaining portion of purchase consideration in 365 calendar days after the completion date of
the acquisition. As at December 31, 2005, the escrow amount was recorded as restricted cash in the
financial statements, and was subsequently released in February 2006.
The purchase price of Actoz was allocated as follows:
RMB
Fair value of net assets acquired
128,419,000
Identified intangible assets
183,884,000
Purchased in-progress research and development
15,460,000
Deferred tax liabilities arising from the acquisition
(50,567,000
)
Goodwill
600,800,000
Total
877,996,000
Identifiable intangible assets acquired include trademarks of RMB54.5 million that was
determined to have infinite life and thus not subject to amortization. The remaining identifiable
intangible assets acquired include completed technology of RMB63.7 million with estimated
weighted-average useful life of 6.3 years, core technology of RMB35.7 million with estimated useful
life of 4 years, customer database of RMB23.2 million with estimated useful life of 2 years, and
non-compete agreement of RMB6.8 million with estimated useful life of 2.5 years. Purchased
in-progress research and development of RMB15.5 million was written off at the date of acquisition
in accordance with FASB Interpretation No. 4 because the technological feasibility of the
in-progress technology has
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not yet been established and the technology has no alternative future use. Those write-offs
are included in equity in earnings (loss) of affiliated companies.
In the fourth quarter of 2005, the Company recognized an other-than-impairment charge of US$
64.6 million, equivalent to RMB 521.5 million, on its investment in Actoz based on the quoted
market price. The impairment charge was made primarily as a result of (1) the continued decline in
Actoz's quoted market price on the KOSDAQ; (2) a continued decline in royalties generated for Actoz
by Shanda's operation of Mir II, a MMORPG licensed from Actoz, in the PRC, which was mainly due to
the continued aging of Mir II and adoption of the free-to-play model (Note 2(16)) for Mir II; and
(3) intensified competition.
As at December 31, 2005, the value of the investment in Actoz based on the quoted market price
was RMB328.3 million, which is equal to its carrying amount.
The financial information for Actoz as of and for the year ended December 31, 2005 is disclosed
below:
RMB
Current assets
232,708,000
Non-current assets
188,483,000
Current Liabilities
43,789,000
Non-current liabilities
16,015,000
Net assets
361,387,000
Net income
33,394,000
The net assets of Actoz as of December 31, 2005 is reconciled to the Group's carrying amount of
the investments in Actoz as of December 31, 2005 as below:
RMB
Net assets of Actoz as of December 31, 2005
361,387,000
The Group's approximate percentage ownership of the investments in Actoz
38
%
Net assets of Actoz shared by the Group as of December 31, 2005
137,833,000
Add: Purchase price allocation
190,442,000
328,275,000
The purchase price allocation includes identified intangible assets, deferred tax liabilities
arising from the acquisition and goodwill, netting off against the amortization of identified
intangible assets and deferred tax liabilities, and the recognition of an other-than-impairment
charge.
13. MARKETABLE SECURITIES
Marketable securities as of December 31, 2004 and 2005 comprised of:
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2004
Cost
Unrealized gain
Fair value
RMB
RMB
RMB
Mutual funds
10,013,526
—
10,013,526
Listed securities
— SINA Corporation ("SINA")
278,605,129
133,698,934
412,304,063
— Others
9,350
—
9,350
Total
288,628,005
133,698,934
422,326,939
2005
Cost
Unrealized gain
Fair value
RMB
RMB
RMB
Mutual funds
18,102,028
546,681
18,648,709
Listed securities
— SINA Corporation
("SINA")
1,884,084,977
30,930,712
1,915,015,689
—
Others
9,350
—
9,350
Total
1,902,196,355
31,477,393
1,933,673,748
Investment in SINA
During the year of 2004, the Group purchased shares in SINA, a NASDAQ listed online media
company and value-added information service provider for China and the global Chinese communities,
in the open market. A portion of the shares were disposed of in 2004 with realized gain of
approximately RMB40.6 million.
On February 18, 2005, the Company; Skyline, the holder of 60.4% of the outstanding ordinary
shares of the Company; Skyline Capital International Limited ("SCIL"), a British Virgin Islands
limited company and the sole shareholder of Skyline; Shanda Media Limited ("SML"), a British Virgin
Islands limited company and holder of 40% of the outstanding share capital of SCIL and Mr. Tianqiao
Chen ("Mr. Chen"), the sole shareholder of SML, made series of purchases of shares of SINA, an
online media company and value-added information service provider for China and the global Chinese
communities, listed on NASDAQ, in open market transactions.
Pursuant to an Agency Purchase Agreement the Company signed on February 14, 2005 with Skyline,
SCIL and SML (collectively referred as "Agents"), the Agents agreed to purchase the shares of SINA
respectively on behalf of the Company, and the Company agrees to purchase the shares held by the
Agents, after it has allocated appropriate funds, at a purchase price equal to the price paid by
the Agents for the acquisition of such shares less any past profits realized by the Agents from any
transactions of SINA shares made after August 31, 2004. In addition, each of the Agents has granted
to Shanda an irrevocable proxy with respect to the voting and disposition of any shares held by
them on behalf of the Company. The difference of US$5.6 million (equivalent to RMB46.0 million)
between the market value of SINA's shares of US$16.3 million (equivalent to RMB134.8 million) as of
the date of the Agency Purchase Agreement and the purchase price of US$10.7 million (equivalent to
RMB88.8 million) was recognized as capital contribution in 2005.
After the series of purchases and the completion of the Agency Purchase Agreement, the Group
held approximately 19.5% of the issued and outstanding shares of SINA at an aggregate cost of
approximately US$227.6
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million, equivalent to RMB1,884.1 million. The investment was recorded in marketable
securities and carried at fair market value with unrealized appreciation of approximately RMB30.9
million reported as a component of accumulated other comprehensive gain in shareholders' equity as
at December 31, 2005.
14. PROPERTY AND EQUIPMENT
Property and equipment and its related accumulated depreciation as of December 31, 2004 and 2005
are as follows:
2004
2005
RMB
RMB
Computer equipment
154,264,543
274,359,255
Leasehold improvements
18,420,332
27,000,475
Furniture and fixtures
3,743,477
6,195,430
Motor vehicles
7,697,145
8,610,393
Office buildings
—
34,607,050
Less: Accumulated
depreciation
(46,399,979
)
(92,420,151
)
Net book value
137,725,518
258,352,452
Land use right, associated with the purchase of office buildings, was recorded in
long-term prepayments.
Depreciation expense for the years ended December 31, 2003, 2004 and 2005 was approximately
RMB13,688,000, RMB29,060,000 and RMB46,672,000, respectively.
15. INTANGIBLE ASSETS
Intangible assets consist of upfront licensing fees paid to online game licensors, software
and copyrights, and intangible assets arising from business combinations. Gross carrying amount,
accumulated amortization and net book value of the Group's intangible assets as of December 31,
2004 and 2005 are as follows:
2004
2005
RMB
RMB
Gross carrying amount:
Upfront licensing fee paid
64,157,124
106,264,384
Software, copyrights and others
50,973,502
81,436,559
Intangible assets arising from business combinations
— Software technology
51,587,361
112,360,179
— Game engine
14,898,060
14,898,060
— Non-compete arrangement
2,626,000
2,626,000
— Customer base
—
35,054,504
— Other
5,332
5,332
184,247,379
352,645,018
Less: accumulated amortizations
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2004
2005
RMB
RMB
Upfront licensing fee paid
(39,429,908
)
(60,345,243
)
Software, copyrights and others
(28,907,642
)
(46,671,228
)
Intangible assets arising from business combinations
(4,531,783
)
(33,313,775
)
(72,869,333
)
(140,330,246
)
Net book value
111,378,046
212,314,772
Amortization expense for the years ended December 31, 2003, 2004 and 2005 amounted to
approximately RMB17,347,000, RMB 52,683,000 and RMB67,460,000, respectively.
The estimated aggregate amortization expense for each of the five succeeding fiscal years is
as follows:
Amortization
RMB
2006
70,551,876
2007
57,400,640
2008
42,915,103
2009
24,608,736
2010
16,613,856
212,090,211
16. GOODWILL
The changes in the carrying amount of goodwill are as follows:
Haofang
Bianfeng
Gametea
Others
Total
RMB'000
RMB'000
RMB'000
RMB'000
RMB'000
Balance as of December 31, 2003
—
—
—
12,476
12,476
Acquisitions
—
106,170
—
15,313
121,483
Balance as of December 31, 2004
—
106,170
—
27,789
133,959
Acquisitions
97,296
—
17,387
—
114,683
Disposal of a subsidiary
—
—
—
(4,193
)
(4,193
)
Others
—
—
—
643
643
Balance as of December 31, 2005
97,296
106,170
17,387
24,239
245,092
In 2005, the Company performed a goodwill impairment test relating to goodwill arising from
its acquisition and concludes that there was no impairment as to the carrying value of goodwill as
of December 31, 2004 and 2005.
17. CONVERTIBLE DEBT
In October 2004, the Company issued US$200 million in aggregate principal amount of Zero
Coupon Senior Convertible Notes due 2014 ("Convertible Notes" or "Notes"). The offering size was
increased to US$275 million when the underwriters exercised in full their option to purchase
additional notes. The Notes were issued at par and
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bears no interest. The Notes will be convertible into ordinary shares of the Company, upon
satisfaction of certain conditions, subject to adjustments for certain events. The terms of the
Notes are further described in Convertible Notes Offering Memorandum dated October 15, 2004.
The notes will mature on October 15, 2014. The notes will not accrue interest unless specified
events of default under the registration rights agreement occur.
The notes may be converted at any time prior to maturity (unless earlier redeemed, repurchased
or exchanged) at the option of the holder into the consideration described below at the initial
conversion rate of 50.3816 ordinary shares per US$1,000 principal amount of notes, which is equal
to an initial conversion price of US$19.85 per ordinary share (or US$39.70 per ADS). The initial
conversion price is higher as compared to the market price of the Company's ADS at the date of
issuance. In respect of each US$1,000 in principal amount of notes, the conversion consideration
will consist of (a) cash in an amount equal to the principal amount of each note, subject to
certain limitation; and (b) a number of the holder's ordinary shares based on market value of the
five consecutive trading days beginning on the third trading day following the conversion date.
The Company will have the right to redeem the Notes in whole or in part, at any time or from
time to time, on or after October 15, 2007 at a redemption price equal to 100% of the principal
amount of the Notes to be redeemed, plus accrued and unpaid interest and liquidated damages, if
any, to the redemption date.
The holders have the right to require the Company to repurchase all or a portion of their
notes on October 15, 2007 at a repurchase price equal to 100% of the principal amount of Notes to
be repurchased, plus accrued and unpaid interest and liquidated damages, if any, to the repurchase
date.
The Company has filed its registration statement with U.S. Securities and Exchange Commission
under the Security Act of 1933 in Form F-3 on July 8, 2005 to cause the shelf registration
statement declared effective.
18. SERIES A AND A-1 CONVERTIBLE REDEEMABLE PREFERRED SHARES
In 2003, the Group issued certain convertible preferred shares to strategic investors. Such
preferred shares were converted on a 1:1 basis to ordinary shares upon the completion of the
Company's initial public offering in May 2004.
In February 2003, Shanda BVI entered into the Plan of Restructuring and Securities Purchase
Agreement ("February Purchase Agreement"), whereby the Company authorized 30,000,000 preferred
shares and issued 19,788,918 Series A Convertible Redeemable Preferred Shares ("Series A Preferred
Shares") and 4,947,230 Series A-1 Convertible Redeemable Preferred Shares ("Series A-1 Preferred
Shares") to an investor. The purchase closed in March 2003. The stated per share issuance prices of
the Series A Preferred Shares and Series A-1 Preferred Shares were US$1.5160 and US$0.6064,
respectively. The issuance of the Series A Preferred Shares and the Series A-1 Preferred Shares are
collectively referred to as the "February Issuance".
As part of the February Issuance, the shareholders of Shanda BVI, namely Tianqiao Chen, Danian
Chen and Qianqian Luo ("Shanda BVI shareholders"), sold 4,947,230 ordinary shares to the investor
for total proceeds of US$3 million or US$0.6060 per share. Immediately following the sale of the
ordinary shares and pursuant to the February Purchase Agreement, Shanda BVI issued Series A-1
Convertible Preferred Shares to the investor in exchange for the ordinary shares purchased from
Shanda BVI shareholders on a 1:1 basis. The US$3 million (RMB 24.8 million) was
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recognized as a deemed dividend to the ordinary shareholders.
The Series A Preferred Shares were convertible into ordinary shares on a 1:1 basis, subject to
Shanda BVI achieving certain performance goals in 2003. The Series A-1 Preferred Shares were
convertible into ordinary shares on a 1:1 basis, and such conversion ratio was not subject to any
contingent terms.
In addition, as part of the February Issuance, the preferred shareholder received a warrant to
purchase an additional 5,074,082 Series A Preferred Shares at an exercise price of $1.9708 per
share. Under the terms of the February Purchase Agreement, the warrant would have expired upon the
earlier of (i) March 4, 2007, (ii) the consummation of an initial public offering meeting minimum
conditions as to offering proceeds to the Group and market capitalization, or (iii) the redemption
of all of the issued and outstanding Series A and Series A-1 Preferred Shares. The estimated fair
value of the warrant was determined to be RMB 3.6 million using the Black-Scholes valuation method.
Total consideration paid by the investor for the February Issuance was US$33 million, which
was allocated between the estimated fair value of the warrant and the Series A and Series A-1
Preferred Shares.
In August 2003, Shanda BVI increased its authorized preferred shares to 30,060,100 and entered
into an additional securities purchase agreement ("August Purchase Agreement") with the same
investor, whereby the investor acquired from Shanda BVI shareholders 5,323,952 ordinary shares for
US$7 million. Immediately following the sale of the ordinary shares and pursuant to the August
Purchase Agreement, Shanda BVI issued Series A Convertible Preferred Shares to the investor in
exchange for the ordinary shares purchased from Shanda BVI shareholders on a 1:1 basis. The US$7
million (RMB57.9 million) was recognized as a deemed dividend to the ordinary shareholders. The
subsequent issuance of Series A Preferred Shares is referred to as the "August Issuance".
In addition to the US$7 million cash consideration, as part of the August Issuance, the
investor agreed to cancel the warrant issued in connection with the February Issuance and to waive
the right to adjust the conversion ratio of the Series A Preferred Shares.
All of the Series A Preferred Shares and the Series A-1 Preferred Shares issued are
collectively referred to as the "Preferred Shares" of the Company. While the Series A Preferred
Shares and the Series A-1 Preferred Shares are legally distinct securities, they have essentially
the same features with the exception of their stated issuance price. Accordingly, the Preferred
Shares are presented in aggregate on the Consolidated Balance Sheets and the related accretion
charges are presented in aggregate on the Consolidated Statements of Operations and Comprehensive
Income.
The holders of the Preferred Shares were entitled to receive, when and as declared, a
cumulative dividend per share at a rate equal to the 6% of the Preferred Shares' stated issuance
price of US$1.5160, US$1.3148 and US$0.6064 for the February Series A Preferred Shares, August
Series A Preferred Shares and the Series A-1 Preferred Shares, respectively, per annum, prior to
and in preference to the ordinary shareholders.
Each Preferred Share was convertible into one ordinary share at the option of the holders of
the Preferred Shares. Each Preferred Share automatically converted into one ordinary share, upon
the closing of the Company's first qualified public offering. No beneficial conversion feature
charge was recognized in connection with the February Issuance as the estimated fair value of the
ordinary share was less than the effective conversion price of each class of
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preferred shares based upon the allocation of the proceeds received on the commitment date. No
beneficial conversion feature charge was recognized for the August Issuance as the consideration
surrendered by the investor, including the cancellation of the warrants and the forfeiture of the
right to adjust the conversion ratio of the Series A Preferred Shares, was in excess of the
estimated fair value of the ordinary shares on the commitment date.
At any time on or after the fourth anniversary date on which Preferred Share was first
allotted and issued, the Company would have been required, at the election of the holders of the
Preferred Shares, to redeem all or part of the Preferred Shares. The redemption price was equal to
150% of the stated issuance price of US$1.5160, US$1.3148 and US$0.6064 for the February Series A
Preferred Shares, August Series A Preferred Shares and the Series A-1 Preferred Shares,
respectively. Accordingly, the carrying value of the respective series of Preferred Shares was
being accreted to their redemption value through charges to retained earnings based on the interest
method over a four-year period from the date of issuance. In November 2003, the preferred
shareholder forfeited its redemption rights for no consideration in anticipation of the public
offering of the Company's ordinary shares. As a result, no accretion charge will be recognized for
any period after the date on which the redemption right was waived.
All the Series A and A-1 Preferred Shares of 30,060,100 shares were converted to ordinary
shares upon the completion of the company's initial public offering as at May 12, 2004.
19. SHAREHOLDERS' EQUITY
Upon incorporation, Shanda BVI issued 50,000 ordinary shares at a par value of US$1.00 per
share. In March 2003, Shanda BVI split its ordinary shares at a ratio of 1:100 resulting in
5,000,000 ordinary shares outstanding with a par value of US$0.01 per share. The share split has
been reflected as if it occurred upon incorporation of Shanda BVI. Subsequent to the share split
and prior to the Reorganization as described in Note 1, Shanda BVI issued an additional 95,000,000
ordinary shares at par value. In November 2003, a special dividend of RMB8,277,000 (US$1,000,000)
was distributed by the Company to its ordinary shareholders and the amount was immediately used to
settle the promissory notes, recorded as subscription receivables, owed by the ordinary
shareholders to Shanda BVI. Upon the Reorganization, paid in capital of the VIE subsidiaries
recognized as group equity was transferred to represent the Group's additional paid-in capital.
During the year ended December 31, 2003, as a result of regulatory requirements, a dividend of
RMB10,625,000 was distributed to the equity owners and the amount, net of income taxes paid by
Shanda BVI on behalf of the equity owners, at an amount of RMB8,500,000 was immediately used to
reinvest into Shanda Networking.
On May 13, 2004, the Company completed an underwritten initial public offering of 13,854,487
American Depositary Shares (ADSs), consisting of 9,642,857 ADSs offered by the Company and
4,211,630 ADSs offered by its selling shareholders, which was priced at US$11 per ADS. Each ADS
represents two ordinary shares, and has par value of US$0.01 per share. Subsequent to the initial
public offering and on June 2, 2004, the Company held the closing for the over-allotment option in
connection with its initial public offering. At this closing, an additional 1,047,936 ADSs were
purchased from the Company and 457,698 ADSs were purchased from its selling shareholders. Total
proceeds, net of direct offering expenses, of approximately RMB875.5 million were received as a
result of the initial public offering and subsequent over-allotment.
20. REPURCHASE OF SHARES
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In October 2004, the Company entered into a repurchase agreement with SB Asia Infrastructure
Fund L.P., or SAIF, and had used US$75 million, equivalent to RMB620.7 million, to purchase
5,326,250 ordinary shares (which was equal to 2,663,125 ADSs) from SAIF. The purchase price of
US$14.08 per share was lower than the then market price of the Company's shares. After the
repurchase, those shares were retired. The excess of US$74.9 million of purchase price over par
value, equivalent to RMB620.3 million, was allocated between additional paid-in capital and
retained earnings of US$5.9 million and US$69.0 million, respectively (equivalent to RMB49.0
million and RMB571.3 million, respectively), based on the pro rata portion of additional paid-in
capital on the ordinary shares.
In October 2005, the Board of Directors approved a share repurchase plan, under which the
Company is authorized to repurchase up to US$50.0 million worth of outstanding ADSs from time to
time over the next 12 months. As of December 31, 2005, the Company used US$6.8 million, equivalent
to RMB54.9 million, to purchase 740,000 ordinary shares (which was equal to 370,000 ADSs) from the
open market. After the repurchase, those shares were retired. The excess of US$6.8 million of
purchase price over par value, equivalent to RMB54.8 million, was allocated between additional
paid-in capital and retained earnings of US$0.9million and US$5.9 million, respectively (equivalent
to RMB7.3 million and RMB47.5 million, respectively), based on the pro rata portion of additional
paid-in capital on the ordinary shares.
21. SHARE OPTION PLAN
2003 Share Incentive Plan
On March 31, 2003, Shanda BVI authorized a share option plan (the "2003 Share Incentive Plan")
that provides for the issuance of options to purchase up to 13,309,880 ordinary shares. Under the
2003 Share Incentive Plan, the directors may, at their discretion, grant any officers (including
directors) and employees of Shanda BVI and/or its subsidiaries, and individual consultant or
advisor (i) options to subscribe for ordinary shares, (ii) share appreciation rights to receive
payment, in cash and/or the Company's ordinary shares, equals to the excess of the fair market
value of the Company's ordinary shares, or (iii) other types of compensation based on the
performance of the Company's ordinary shares. On March 31, 2003, Shanda BVI granted options to
purchase 7,320,436 ordinary shares under the 2003 Share Incentive Plan at an exercise price of
US$1.5160 per share. On December 18, 2003, the Company granted additional options to purchase
1,537,367 ordinary shares to certain executive officers under the 2003 Share Incentive Plan at an
exercise price of US$1.5160. The options can be exercised within 10 years from the award date.
These awards vest over a three year period, with 25% of the options to vest immediately upon
granting, and an additional 25% to vest on each of the first, second and third anniversaries of the
award date as stipulated in the share option agreement. The exercise price for the share options
granted on December 18, 2003 was not determined based on the fair value of the Company's ordinary
shares. Accordingly, compensation expense will be recognized over vesting terms of the options
based on the difference between the estimated fair value of the Company's ordinary shares and the
exercise price of the options granted. The estimated fair value of the Company's ordinary shares
was determined with reference to the Company's expected initial public offering price. The total
share-based compensation expense of approximately RMB69,730,000 relating to the options granted on
December 18, 2003 will be recognized based on the vesting terms. Accordingly, share-based
compensation expense of approximately RMB18,159,000, RMB28,828,000 and RMB13,698,000 were
recognized in the consolidated statements of operations and comprehensive income in 2003, 2004 and
2005, respectively.
Following the Share Swap, pursuant to the share purchase agreement, Shanda Interactive has
undertaken to
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assume all obligations for share options, whether vested or unvested, previously granted by
Shanda BVI subject to the same terms and conditions as the 2003 Share Incentive Plan as adopted by
Shanda BVI.
From January 1, 2004 through May 12, 2004, the Company has issued additional options, under
the 2003 Share Incentive Plan to purchase 4,170,853 ordinary shares, at an exercise price that was
equal to the price per ordinary share of US$5.50 in the Company's initial public offering, to
certain officers of the Company. Of the total options granted, options to purchase 2,661,976
ordinary shares were vested over a four year period, with 40% of the options to vest on the first
anniversary of the date of grant, and an additional 20% to vest on each of the second, third and
fourth anniversaries of the date of grant. Options to purchase 215,000 ordinary shares were vested
over a three year period, with 25% of the options to vest immediately upon granting and an
additional 25% to vest on each of the first, second and third anniversaries of the date of grant.
The rest of options to purchase 1,293,877 ordinary shares will vest in four year installments on
the first, second, third and fourth anniversaries of the date of grant.
On July 26, 2004 and August 17, 2004, the Company has issued additional options under the 2003
Share Incentive Plan to purchase 87,650 ordinary shares, at an exercise price that was equal to the
market price per ordinary share at the date of grant, to certain officers of the Company.
During the year ended December 31, 2005, the Company issued additional options under the 2003
Share Incentive Plan to purchase 567,731 ordinary shares, at an exercise price that was equal to
the market price per ordinary share at the date of grant, to certain officers of the Company. These
awards will vest in four year installments on the first, second, third and fourth anniversaries of
the date of grant.
2005 Equity Compensation Plan
In October 2005, the Company authorized an equity compensation plan (the "2005 Equity
Compensation Plan") that provides for the issuance of options to purchase up to 7,449,235 ordinary
shares, plus ordinary shares reserved for issuance, but not yet issued, under the Company's 2003
Share Incentive Plan. Under the 2005 Equity Compensation Plan, the directors may, at their
discretion, grant any officers (including directors) and employees of the Company and/or its
subsidiaries, and individual consultant or advisor (i) options to subscribe for ordinary shares,
(ii) share appreciation rights to receive payment, in cash and/or the Company's ordinary shares,
equals to the excess of the fair market value of the Company's ordinary shares, or (iii) other
types of compensation based on the performance of the Company's ordinary shares. As of December 31,
2005, the Company has not yet made any award grants under the 2005 Equity Compensation Plan.
Activities of share options
The Company's share option activities as of and for the years ended December 31, 2003, 2004
and 2005 are set out below:
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Table of Contents
2003
2004
2005
Weighted
Weighted
Weighted
Options
Average
Options
Average
Options
Average
Outstanding
Exercise Price
Outstanding
Exercise Price
Outstanding
Exercise Price
US$
US$
US$
Outstanding at
beginning of year
—
—
8,857,803
1.516
8,883,402
3.42
Granted
8,857,803
1.516
4,258,503
5.57
567,731
15.63
Exercised
—
—
(4,116,074
)
1.55
(2,762,438
)
2.70
Forfeited
—
—
(116,830
)
3.51
(467,920
)
5.33
Outstanding at end
of year
8,857,803
1.516
8,883,402
3.42
6,220,775
4.71
Vested and
exercisable at end
of year
2,214,451
1.516
397,091
2.53
1,164,853
3.97
2003
2004
2005
Exercise
Prices
Weighted
Weighted
Weighted
( "EP" ) and
Average
Average
Average
Grant-date
Weighted
Grant-date
Weighted
Grant-date
Grant-date
Market
Average
Fair Value
Average
Fair Value
Weighted
Fair Value
Prices
Options
Exercise
of Stock
Options
Exercise
of Stock
Options
Average
of Stock
( "MP" )
Granted
Price
Options
Granted
Price
Options
Granted
Exercise Price
Options
US$
US$
US$
US$
US$
US$
EP<MP
1,537,367
1.516
5.83
—
—
—
—
—
—
EP=MP
7,320,436
1.516
0.35
4,258,503
5.57
2.97
567,731
15.63
9.31
Options Outstanding at
Options Exercisable at
December 31, 2005
December 31, 2005
Weighted
Average
Weighted
Weighted
Remaining
Average
Average
Number
Contractual
Exercise
Number
Exercise
Exercise Prices US$
Outstanding
Life (years)
Price US$
Outstanding
Price US$
1.516
2,561,319
7.25
1.516
480,690
1.516
5.5
3,086,031
8.15
5.5
638,313
5.5
8.00
35,850
8.58
8.00
35,850
8.00
9.95
40,000
8.63
9.95
10,000
9.95
15.33
163,078
9.07
15.33
—
—
15.55
240,940
9.08
15.55
—
—
14.89
40,295
9.13
14.89
—
—
16.945
23,606
9.38
16.945
—
—
16.86
29,656
9.42
16.86
—
—
6,220,775
1,164,853
22. EMPLOYEE BENEFITS
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The full-time employees of the Company's subsidiaries and VIE subsidiaries that are
incorporated in the PRC are entitled to staff welfare benefits, including medical care, welfare
subsidies, unemployment insurance and pension benefits. These companies are required to accrue for
these benefits based on certain percentages of the employees' salaries in accordance with the
relevant regulations, and to make contributions to the state-sponsored pension and medical plans
out of the amounts accrued for medical and pension benefits. The total amounts charged to the
statements of operations and comprehensive income for such employee benefits amounted to
approximately RMB5,386,000, RMB13,741,000 and RMB 24,234,000 for the years ended December 31, 2003,
2004 and 2005, respectively. The PRC government is responsible for the medical benefits and
ultimate pension liability to these employees.
23. RELATED PARTY TRANSACTIONS
During the years ended December 31, 2003, 2004 and 2005, significant related party
transactions were as follows:
2003
2004
2005
RMB
RMB
RMB
Online game
licensing fees paid
to Actoz, an
affiliated company
—
173,855,652
167,593,961
Purchase of SINA
shares from related
parties (Note
13)
—
—
88,797,021
Online game upfront
licensing fee paid
to Actoz
—
—
24,299,400
Purchase of game
content related
merchandise from
minority
shareholder of a
VIE subsidiary
—
1,900,118
1,359,333
Provision of
advertising and
promotion services
to an affiliated
company
—
4,900,000
—
Technical service
fees from minority
shareholders of VIE
subsidiaries
1,820,000
1,100,000
—
Sales of prepaid
game cards to a
related
party
8,884,600
—
—
Gain from disposal
of VIE
subsidiary
590,000
—
—
Total
11,294,600
181,755,770
282,049,715
During the year ended December 31, 2003, the Group sold certain prepaid game cards to a
related company owned by an immediate family member of Tianqiao Chen and Danian Chen. The sales
transactions were not based on any written agreements and the Company has received full payment in
cash. In September 2003, the Group sold its entire ownership interest in Stamedotcom to Heng Kang
and Shanghai Yixi Information Technology Co., Ltd., both related parties, for cash consideration of
RMB1,593,000. As a result, a disposal gain of RMB590,000 was recognized as investment income.
As of December 31, 2004 and 2005, the Group had licensing fees payable to Actoz of
approximately RMB52,273,000 and RMB13,830,000, respectively.
As of December 31, 2004 and 2005, the Group had amounts due to related parties of
approximately RMB1,758,000 and RMB3,040,000 respectively, mainly arising from purchase of game
related merchandise from certain minority shareholders of VIE subsidiaries.
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All amounts due to related parties are unsecured, interest-free and have no definite terms.
24. CERTAIN RISKS AND CONCENTRATIONS
Financial instruments that potentially subject the Group to significant concentrations of
credit risk consist primarily of cash and cash equivalents, short-term investments, marketable
securities, accounts receivable, due from/to related parties and prepayments and other current
assets. As of December 31, 2004 and 2005 substantially all of the Group's cash and cash
equivalents, short-term investments and marketable securities were held by major financial
institutions located in the PRC, in Hong Kong and in the Switzerland, which management believes are
of high credit quality.
In addition, 88.6%, 47.4% and 35.3% of the Group's net revenue for the years ended December
31, 2003, 2004 and 2005, respectively, was derived from a single online game.
No individual customer accounted for more than 10% of net revenues during the years ended
December 31, 2003, 2004 and 2005.
On July 21, 2005, the People's Bank of China, or PBOC, announced an adjustment of the exchange
rate of the US dollar to RMB from 1:8.27 to 1:8.11 and modified the system by which the exchange
rates are determined. This adjustment has resulted in an appreciation of the RMB against the US
dollar. While the international reaction to the RMB revaluation has generally been positive, there
remains significant international pressure on the PRC government to adopt an even more flexible
currency policy, which could result in a further reevaluation and a significant fluctuation of the
exchange rate of RMB against the US dollar.
25. COMMITMENTS AND CONTINGENCIES
Operating lease agreements
The Group has entered into leasing arrangements relating to office premises and computer
equipment that are classified as operating leases. Future minimum lease payments for non-cancelable
operating leases as of December, 31, 2005 are as follows:
Computer
Office premise
equipment
Total
RMB
RMB
RMB
2006
22,399,185
18,031,880
40,431,065
2007
3,141,989
501,700
3,643,689
2008
422,091
—
422,091
2009
257,206
—
257,206
2010
—
—
—
26,220,471
18,533,580
44,754,051
As of December 31, 2005, the Group had leased servers under operating lease arrangements
where the lease
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payments are calculated based on certain formulas, as specified in the agreements, with
reference to the actual number of users of the leased assets. The server leasing rental expenses
under these operating leases amounted to approximately RMB24,969,000, RMB55,699,000 and
RMB43,909,000 during the years ended December 31, 2003, 2004 and 2005, respectively. As the future
lease payments for these arrangements are based on the actual number of users and thus cannot be
reasonably estimated, they are not included in the minimum lease payments as disclosed above.
Total rental expenses including server leasing rental, office rental and server maintenance
were approximately RMB47,686,000, RMB94,665,000 and RMB115,975,000 during the years ended December
31, 2003, 2004 and 2005, respectively, and were charged to the statements of operations and
comprehensive income when incurred.
Capital commitment
Capital commitments for purchase of property and equipment, and game license as of December
31, 2005 were approximately RMB21,712,000.
In February 2006, the Group paid US$31.0 million (equivalent to RMB249.3 million) to the
selling shareholders of Haofang to settle the contingent payment based on the audited 2005 earnings
(Note 26).
Contingencies
The Group accounts for loss contingencies in accordance with SFAS 5 "Accounting for Loss
Contingencies", and other related guidance. Set forth below is a description of certain loss
contingencies as well as the opinion of management as to the likelihood of loss in respect of each
loss contingency.
a.
PRC regulations currently limit foreign ownership of companies that provide Internet
content services, which include operating online games, to 50%. In addition, foreigners or
foreign invested enterprises are currently not able to apply for the required licenses for
operating online games in the PRC. The Company is incorporated in the Cayman Islands and
accordingly Shengqu is considered as a foreign invested enterprise under PRC law. In order
to comply with foreign ownership restrictions, the Group operates its online games business
in the PRC through Shanda Networking, which is wholly owned by Tianqiao Chen and Danian
Chen, both of whom are PRC citizens. Shanda Networking holds the licenses and approvals
that are required to operate the online games business and to sell online advertising on
Shanda's web pages and Shengqu owns the substantial majority of the physical assets
required to operate the online games business. Shengqu has entered into a series of
contractual arrangements with Shanda Networking, Nanjing Shanda and Hangzhou Bianfeng,
pursuant to which Shengqu provides Shanda Networking, Nanjing Shanda and Hangzhou Bianfeng
with services, software licenses and equipment in exchange for fees, and Shengqu undertakes
to provide financial support to Shanda Networking, Nanjing Shanda and Hangzhou Bianfeng to
the extent necessary for their operations. In addition, Shengqu has entered into agreements
with Shanda Networking and its shareholders that provide it with the substantial ability to
control Shanda Networking. In the opinion of management and the Company's PRC legal
counsel, (i) the ownership structure of the Company, Shengqu and Shanda Networking are in
compliance with existing PRC laws and regulations; (ii) the contractual arrangements with
Shanda Networking and its shareholders are valid and binding, and will not result in any
violation of PRC laws or regulations currently in effect; and (iii) the Group's business
operations are in compliance with existing PRC laws and regulations in all material
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respects. However, there are substantial uncertainties regarding the interpretation and
application of current and future PRC laws and regulations. Accordingly, the Company cannot
be assured that PRC regulatory authorities will not ultimately take a contrary view to its
opinion. If the current ownership structure of the Group and its contractual arrangements
with Shanda Networking were found to be in violation of any existing or future PRC laws and
regulations, the Group may be required to restructure its ownership structure and operations
in the PRC to comply with the changing and new PRC laws and regulations. In the opinion of
management, the likelihood of loss in respect of the Group's current ownership structure or
the contractual arrangements with Shanda Networking is remote.
b.
On October 8, 2003, the developer of the Group's primary online game filed claims
against the Group in the Beijing First Intermediate People's Court (the "Beijing Court")
with respect to the Group's development and operation of a new online game. The developer
has alleged, among other things, that the online game which was developed by the Group
internally copied certain elements of games owned by the developer, thereby infringing upon
the copyrights of these games. In addition, the developer has alleged that the operation of
the Group's internally developed online game violates the PRC Anti-Unfair Competition Law.
The developer has requested that the Beijing Court order the Group to stop operation of its
game and to pay the developer's legal fees and related costs incurred in connection with
this litigation. The developer has not made any claim for damages against the Group. The
case is now pending for decision by the Beijing Court.
In the opinion of management, it is reasonably possible that the Group could incur a loss
with respect to this litigation, whether through reaching a final judgment on the merits or
through settlement. However, as of the date of the report, it is not possible to estimate
the range of such loss, if any. Accordingly, no provision has been made as of December 31,
2005.
c.
On April 25, 2006, China Cyber Port Co., Ltd. ("China Cyber Port") filed a lawsuit
against Shanghai Haofang Online Technology Co. Ltd. ("Shanghai Haofang") in the Shanghai
No.1 Intermediate People's Court (the "Shanghai Court") with respect to a dispute regarding
the alleged copyright infringement of the certain Internet games exclusively distributed by
China Cyber Port in the PRC. China Cyber Port has requested that the Shanghai Court order
Shanghai Haofang to stop infringing the copyright of the games and to pay China Cyber Port
the damage, legal fees and related costs incurred in connection with this litigation. The
Shanghai Court accepted the case, and Shanghai Haofang received the Notice of Litigation
on, April 27, 2006. The evidence exchange proceeding will be held on June 14, 2006.
In the opinion of management, it is reasonably possible that the Group could incur
a loss with respect to this litigation, whether through reaching a final judgment on
the merits or through settlement. However, as of the date of the report, it is not
possible to estimate the range of such loss, if any. Accordingly, no provision has been
made as of December 31, 2005.
26. SUBSEQUENT EVENTS
Pursuant to the purchase agreement entered into with the selling shareholders of Haofang, the
Group was required to make contingent payment to the selling shareholders if 2005 earnings of
Haofang exceeded certain pre-set target (Note 4(1)). In February 2006, the Group paid US$31.0
million (equivalent to RMB249.3 million) to the selling shareholders of Haofang to settle the
contingent payment based on the audited 2005 earnings.
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Table of Contents
27. RESTRICTED NET ASSETS
Relevant PRC laws and regulations permit payments of dividends by our PRC subsidiaries and
affiliates only out of their retained earnings, if any, as determined in accordance with PRC
accounting standards and regulations. In addition, the statutory general reserve fund requires
annual appropriations of 10% of net after-tax income should be set aside prior to payment of any
dividends. As a result of these and other restrictions under PRC laws and regulations, our PRC
subsidiaries and affiliates are restricted in their ability to transfer a portion of their net
assets to us either in the form of dividends, loans or advances, which restricted portion amounted
to approximately RMB1,081.6 million, or 66.0% of our total consolidated net assets as of December
31, 2005. Even though we currently do not require any such dividends, loans or advances from our
PRC subsidiaries and affiliates for working capital and other funding purposes, we may in the
future require additional cash resources from our PRC subsidiaries and affiliates due to changes in
business conditions, to fund future acquisitions and developments, or merely declare and pay
dividends to or distributions to our shareholders. See "Financial Statement Schedule I".
F-46
Table of Contents
ADDITIONAL
INFORMATION — FINANCIAL STATEMENT SCHEDULE I
SHANDA INTERACTIVE ENTERTAINMENT LIMITED
CONDENSED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
For the years ended December 31
Note
2003
2004
2005
2005
RMB
RMB
RMB
US$
(Note 3)
Net revenues
—
—
—
—
Cost of services
—
—
—
—
Gross profit
—
—
—
—
Total operating expenses
(19,895,199
)
(37,565,204
)
(50,557,257
)
(6,264,685
)
Loss from operations
(19,895,199
)
(37,565,204
)
(50,557,257
)
(6,264,685
)
Interest income
1,144,602
11,877,054
9,244,779
1,145,545
Amortization of convertible debt issuance cost
—
(3,523,935
)
(18,492,523
)
(2,291,458
)
Foreign exchange gain
—
—
63,337,152
7,848,276
Investment income
—
40,579,577
596,100
73,864
Income before income tax expense and equity in
profit of subsidiaries and equity in loss of
affiliated companies
(18,750,597
)
11,367,492
4,128,251
511,542
Income tax expense
—
—
—
—
Equity in profit of subsidiaries
1
291,600,766
598,115,396
709,579,577
87,925,898
Equity in loss of affiliated companies
—
—
(548,425,019
)
(67,956,806
)
Net income
272,850,169
609,482,888
165,282,809
20,480,634
Accretion for Series A and Series A-1 Preferred
Shares
(24,962,571
)
—
—
—
Income attributable to Series A and Series A-1
Preferred Shareholders
(48,358,328
)
(82,478,882
)
—
—
Net income attributable to ordinary shareholders
199,529,270
527,004,006
165,282,809
20,480,634
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Table of Contents
ADDITIONAL
INFORMATION — FINANCIAL STATEMENT SCHEDULE I
SHANDA INTERACTIVE ENTERTAINMENT LIMITED
CONDENSED BALANC SHEETS
2004
2005
2005
RMB
RMB
US$
Restated (Note 12 of
(Note 3)
the notes to the
consolidated
financial
statements)
ASSETS
Current assets:
Cash and cash equivalents
2,223,987,984
59,405,976
7,361,153
Restricted cash
—
150,778,672
18,683,387
Marketable securities
355,583,230
1,871,632,968
231,919,031
Due from subsidiaries
69,169,007
—
—
Prepayments and other current assets
12,758,680
2,480,414
307,355
Total current assets
2,661,498,901
2,084,298,030
258,270,926
Investment in subsidiaries
960,483,662
1,820,041,365
225,526,179
Investment in affiliate companies
118,890,960
328,274,788
40,677,404
Other long-term assets
47,220,734
30,248,354
3,748,154
Total assets
3,778,094,257
4,262,862,537
528,222,663
LIABILITIES
Current liabilities:
Due to subsidiaries
—
239,486,587
29,675,422
Acquisition related
obligation
—
148,027,677
18,342,504
Other payable and accruals
2,020,542
18,184,663
2,253,310
Convertible debt
2,276,175,000
2,219,305,000
275,000,000
Total liabilities
2,278,195,542
2,625,003,927
325,271,236
Shareholders' equity
Ordinary shares (US$0.01 par value,
186,000,000 shares authorized, 139,960,328
issued and outstanding as of December 31,
2004, and 141,982,766 issued and outstanding
as of December 31,
2005)
11,584,515
11,751,186
1,456,121
Additional paid-in capital
1,300,453,557
1,397,092,348
173,117,438
Deferred share-based compensation
(20,623,032
)
(3,595,349
)
(445,509
)
Accumulated other comprehensive gain
133,814,940
30,181,706
3,739,895
Retained earnings
84,668,735
202,428,719
25,083,482
Total shareholders' equity
1,509,898,715
1,637,858,610
202,951,427
Total liabilities and shareholders' equity
3,788,094,257
4,262,862,537
528,222,663
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Table of Contents
ADDITIONAL
INFORMATION — FINANCIAL STATEMENT SCHEDULE
SHANDA INTERACTIVE ENTERTAINMENT LIMITED
CONDENSED CASH FLOW STATEMENT
For the years ended December 31
2003
2004
2005
2005
RMB
RMB
RMB
US$
(Note 3)
Net cash provided by (used in) operating activities
(3,250,908
)
3,790,095
(5,561,372
)
(689,124
)
Net cash used in investing activities
(86,222,577
)
(236,896,202
)
(2,172,229,862
)
(269,166,794
)
Net cash provided by financing activities
216,899,274
2,329,668,302
17,655,453
2,187,734
Effect of foreign exchange rate changes on cash
—
—
(4,446,227
)
(550,944
)
Net increase (decrease) in cash
127,425,789
2,096,562,195
(2,164,582,008
)
(268,219,128
)
Cash, beginning of year
—
127,425,789
2,223,987,984
275,580,281
Cash, end of year
127,425,789
2,223,987,984
59,405,976
7,361,153
F-49
Table of Contents
ADDITIONAL
INFORMATION — FINANCIAL STATEMENT SCHEDULE I
SHANDA INTERACTIVE ENTERTAINMENT LIMITED
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
(AMOUNTS EXPRESSED IN Renminbi (RMB) UNLESS OTHERWISE STATED)
1. BASIS OF PRESENTATION
The condensed financial statements of Shanda Interactive Entertainment Limited (the "Company")
have been prepared in accordance with accounting principles generally accepted in the United States
of America except for accounting of the Company's subsidiaries and certain footnote disclosures as
described below.
Shanda Holding Limited, formerly known as Spirit High Ventures Ltd., was incorporated in
British Virgin Islands as a limited liability company on July 2, 2002. Shanda Interactive
Entertainment Limited was incorporated in Cayman Islands on November 17, 2003 and became the
holding company through a share purchase agreement in December 2003. Shanda Holding Limited was
considered the predecessor of the Company. The Company is generally a holding company of certain
subsidiaries and variable interest entities (collectively "subsidiaries").
The Company records its investment in subsidiaries under the equity method of accounting as
prescribed in APB Opinion No. 18, "
The Equity Method of Accounting for Investments in Common
Stock
". Such investment is presented on the balance sheet as "Investment in subsidiaries" and the
subsidiaries' profit or loss are recognized based on the effective shareholding percentage as
"Equity in profit of subsidiary companies" on the statement of operations and comprehensive income.
The beginning retained earnings for the periods presented include equity in earnings of all
subsidiaries from their respective date of incorporation or date of purchase, as the case maybe.
The subsidiaries paid a cash dividend of approximately RMB192.1 million to the Company in 2004
and no cash dividend was paid in 2005.
Certain information and footnote disclosures normally included in financial statements
prepared in accordance with accounting principles generally accepted in the United States have been
condensed or omitted. The footnote disclosures contain supplemental information relating to the
operations of the Company and, as such, these statements should be read in conjunction with the
notes to the consolidated financial statements of the Company.
Operating expenses for the Company for the years ended December 31, 2003, 2004 and 2005
include share-based compensation expense as a result of the options granted to employees in
December 2003. Total share-based compensation expense for the years ended December 31, 2003, 2004
and 2005 was approximately RMB18,159,000, RMB28,828,000 and RMB13,698,000, respectively.
2. COMMITMENTS
The Company has long term obligations arising from the issuance of Zero Coupon Senior
Convertible Notes due 2014 in October 2004 (See Note 17 of the notes to the consolidated financial
statements). There are no other long-term obligations or significant commitments.
F-50
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3. FOREIGN CURRENCIES
The unaudited United States dollar ("US$") amounts disclosed in the financial statement are
presented solely for the convenience of the readers. Translations of amounts from RMB into United
States dollars for the convenience of the reader were calculated at the noon buying rate of US$1.00
= RMB8.0702 on December 31, 2005 in The City of New York for cable transfers of RMB as certified
for customs purposes by the Federal Reserve Bank of New York. No representation is made that the
RMB amounts could have been, or could be, converted into US$ at that rate on December 31, 2005, or
at any other certain rate.
F-51
Table of Contents
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
Actoz Soft Co., Ltd.
We have audited the accompanying balance sheets of Actoz Soft Co., Ltd.(the "Company") as of
December 31, 2005 and 2004, and the related statements of income, appropriation of retained
earnings and cash flows for the years then ended(all expressed in Korean won). 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 did not audit Wemade Entertainment
Co., Ltd.. The Company's investment in this company which was accounted for under the equity
method, is stated at
W
10,698 million, 18% of total assets, as of December 31, 2005 and
W
12,043
million, 21% of total assets, as of December 31, 2004, respectively and equity pick up amounted to
W
668 million, 33% of income before income
taxes, in 2005 and
W
4,051 million, 37% of income
before income taxes, in 2004, respectively, in the accompanying financial statements. Wemade
Entertainment Co., Ltd. was examined by other auditors whose reports thereon have been furnished to
us, and our opinion expressed herein, insofar as it relates to the amounts included for those
investment accounts, is based solely upon the reports of the other auditors.
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
examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide 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 the Company as of December 31, 2005 and 2004 and the results of
its operations, the changes in its retained earnings and its cash flows for the years then ended in
accordance with the financial accounting standards generally accepted in the Republic of Korea.
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Accounting principles and auditing standards and their application in practice vary among
countries. The accompanying financial statements are not intended to present the financial
position, results of operations and cash flows in accordance with accounting principles and
practices generally accepted in countries other than the Republic of Korea.
Accounting principles generally accepted in the Republic of Korea vary in certain significant
respects from accounting principles generally accepted in the United States of America. Information
relating to the nature and effect of such differences is presented in Note 23 to the financial
statements.
April 14, 2006
F-53
Table of Contents
ACTOZ SOFT CO., LTD.
STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 2005 AND 2004
Thousands of Korean won
2005
2004
Sales(Noote 8)
W
29,168,255
W
39,219,123
Cost of sales(Note 8)
19,843,130
23,237,951
Gross profit
9,325,125
15,981,172
Selling and administrative expenses(Note 14)
6,816,010
7,904,070
Operating income
2,509,115
8,077,102
Other income(expenses):
Interest income
817,055
734,959
Gain on disposal of investment securities
360,431
21,855
Reversal of allowance for doubtful accounts
180,393
109,052
Refund of income taxes(Note 15)
116,475
180,424
Gain on foreign exchange transactions and translation, net
62,143
—
Loss on
foreign exchange transactions and translation, net
—
(388,137
)
Equity in earnings of investees, net(Note 5)
—
4,027,505
Equity in
losses of investees, net(Note 5)
(1,683,890
)
—
Loss on disposal of property and equipments
(568,332
)
—
Impairment loss on investments
(103,011
)
—
Impairment loss on intangible assets
—
(1,482,083
)
Other bad debt
(102,411
)
(147,265
)
Loss on contract termination
—
(241,000
)
Contribution(Note 18)
(30,000
)
(55,000
)
Other, net
438,256
(24,899
)
(512,891
)
2,735,411
Income before income taxes
1,996,224
10,812,513
Income tax expenses (benefits) (Note 15)
(166,729
)
2,692,850
Net income(Note 16)
W
2,162,953
W
8,119,663
Net income per share in Korean won(Note 16)
W
243
W
911
See accompanying Notes to Financial Statements.
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Table of Contents
ACTOZ SOFT CO., LTD.
BALANCE SHEETS
DECEMBER 31, 2005 and 2004
Thousands of Korean won
2005
2004
ASSETS
CURRENT ASSETS :
Cash and cash equivalents(Notes 2 and 3)
W
801,378
W
810,448
Short-term financial instruments(Notes 2 and 3)
22,000,000
16,500,000
Accounts receivable — trade, net of allowance for
doubtful accounts of
W
1,584,503 thousand
in 2005 and
W
640,964 thousand in 2004(Notes 2 and 10)
2,634,880
7,683,088
Accounts receivable — other, net of allowance for
doubtful accounts of
W
18,924 thousand in 2005
and 16,851 thousand in 2004
12,270
2,569,225
Short-term loans, net of allowance for doubtful
accounts of
W
120,416 thousand in 2005 and
W
123,479 thousand in 2004(Note 8)
89,850
584,451
Prepayments
322,791
224,026
Prepaid value added taxes
315,589
497,416
Prepaid expenses
2,249,520
3,145
Short-term deferred income tax assets(Notes 2 and 15)
463,276
—
Accrued income and other current assets
213,772
91,608
Total Current Assets
29,103,326
28,963,407
NON-CURRENT ASSETS :
Marketable securities(Notes 2 and 4)
713,011
356,023
Investment securities(Notes 2 and 5)
12,116,354
15,577,657
Rental deposits
4,914,800
2,083,050
Deferred income tax asset(Notes 2 and 15)
3,505,273
521,582
Other investments
975,047
—
Property and equipment, net(Notes 2, 6 and 9)
872,841
5,375,873
Intangible assets(Notes 2 and 7)
6,999,713
4,325,345
Total Non-Current Assets
30,097,039
28,239,530
TOTAL ASSETS
W
59,200,365
W
57,202,937
(Continued)
F-55
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ACTOZ SOFT CO., LTD.
BALANCE SHEETS (CONTINUED)
DECEMBER 31, 2005 and 2004
Thousands of Korean won
2005
2004
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES :
Accrued expenses(Notes 8 and 10)
W
3,386,721
W
6,758,656
Income taxes payable
—
182,442
Withholdings
80,801
71,229
Advance receipts
3,376,093
28,284
Total Current Liabilities
6,843,615
7,040,611
LONG-TERM LIABILITIES :
—
—
Total Liabilities
6,843,615
7,040,611
COMMITMENTS AND CONTINGENCIES(Note 20)
SHAREHOLDERS' EQUITY :
Common stock, par value
W
500(Note 11)
Authorized: 50,000,000 shares
Issued: 8,914,500 shares
4,457,250
4,457,250
Capital surplus(Note 11):
Paid-in capital in excess of par
19,169,186
19,169,186
Retained earnings(Note 12)
Reserve for business rationalization(Note 12)
170,000
170,000
Reserve for technology development(Note 12)
—
16,667
Change in retained earnings of valuation(Note 5)
(166,285
)
—
Unappropriated retained earnings
27,648,409
25,468,789
Capital adjustments(Note 13)
1,078,190
880,434
Total Shareholders' Equity
52,356,750
50,162,326
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
W
59,200,365
W
57,202,937
See accompanying Notes to Financial Statements.
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ACTOZ SOFT CO., LTD.
STATEMENTS OF APPROPRIATIONS OF RETAINED EARNINGS
YEARS ENDED DECEMBER 31, 2005 AND 2004
Thousands of Korean won
2005
2004
RETAINED EARNINGS BEFORE APPROPRIATIONS
Unappropriated
retained earnings carried over from prior year
W
25,485,456
W
17,620,626
Prior period adjustments
—
(271,500
)
Net income for the year
2,162,953
8,119,663
27,648,409
25,468,789
TRANSFER OF VOLUNTARY RESERVES
Reserve for technology development(Note 12)
—
16,667
27,648,409
25,485,456
UNAPPROPRIATED RETAINED EARNINGS
TO BE CARRIED FORWARD TO NEXT YEAR
W
27,648,409
W
25,485,456
See accompanying Notes to Financial Statements.
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ACTOZ SOFT CO., LTD.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2005 AND 2004
Thousands of Korean won
2005
2004
CASH FLOWS FROM OPERATING ACTIVITIES
Net income
W
2,162,953
W
8,119,663
Addition of expenses not involving cash outflows :
Depreciation
411,656
670,980
Amortization of intangible assets
542,592
540,173
Loss on disposal of property and equipment
568,332
201
Stock compensation
169,768
—
Other bad debts
102,411
652,952
Loss on impairment of investment
103,011
—
Loss on impairment of intangible assets
—
1,482,083
Equity in losses of investees
2,351,917
862,509
4,249,687
4,208,898
Deduction of revenues not involving cash inflows :
Reversal of allowance for doubtful accounts
3,400
109,052
Gain on disposal of investment securities
360,431
21,855
Equity in earnings of investees
668,026
4,890,014
1,031,857
5,020,921
Changes in assets and liabilities resulting from operations:
Decrease(increase) in accounts receivable-trade
5,419,839
(179,730
)
Decrease(increase) in prepayments
(98,765
)
(209,981
)
Decrease(increase) in prepaid value added taxes
181,827
(359,628
)
Decrease(increase) in accrued income and other current assets
(122,164
)
(5,649
)
Decrease in prepaid income taxes
—
120,736
Decrease(increase) in prepaid expenses
(2,246,375
)
(3,145
)
Decrease(increase) in deferred income tax asset
(6,357,354
)
(418,599
)
Increase in withholdings
9,572
3,452
Increase(decrease) in accrued expenses
(3,371,935
)
(20,684,718
)
Increase in income taxes payable
(182,442
)
182,442
Increase(decrease) in advance receipts
3,347,809
(18,441
)
Decrease in deferred income tax liability
2,438,755
(9,327
)
(981,233
)
(21,582,588
)
Net cash provided by(used in) operating activities
W
4,399,550
W
(14,274,948
)
(Continued)
F-58
Table of Contents
ACTOZ SOFT CO., LTD.
STATEMENTS OF CASH FLOWS(CONTINUED)
YEARS ENDED DECEMBER 31, 2005 AND 2004
Thousands of Korean won
2005
2004
CASH FLOWS FROM INVESTING ACTIVITIES
Cash inflows from investing activities :
Decrease in short-term financial instruments
W
69,500,000
W
61,000,000
Decrease in short-term loans
608,000
550,392
Decrease in accounts receivable-other
4,830,604
2,602,025
Disposal of marketable securities
150,000
—
Disposal of equity method valued investment securities
—
650,000
Dividend income from equity method valuation of
investment securities
2,000,000
2,400,000
Decrease in rental deposits
2,100,550
8,916,000
Disposal of property and equipment
4,210,737
2,272
83,399,891
76,120,689
Cash outflows from investing activities :
Acquisition of short-term financial instruments
75,000,000
57,500,000
Acquisition of marketable securities
610,000
206,023
Increase in short-term loans
110,336
814,000
Increase in accounts receivable-other
2,275,723
5,105,834
Acquisition of equity method valued investment securities
—
2,201,150
Increase in other investment
975,500
—
Increase in rental deposits
4,932,300
8,316,400
Acquisition of property and equipment
687,693
4,938,587
Disbursement of development cost
2,818,477
2,363,241
Acquisition of other intangible assets
398,482
148,013
87,808,511
81,593,248
Net cash used in investing activities
(4,408,620
)
(5,472,559
)
CASH FLOWS FROM FINANCING ACTIVITIES :
Cash inflows from financing activities :
Increase in short-term borrowings
—
1,167,227
—
1,167,227
Cash outflows from financing activities :
Repayment of short-term borrowings
—
1,167,227
—
1,167,227
Net cash used in financing activities
—
—
NET INCREASE(DECREASE) IN CASH AND CASH EQUIVALENTS
(9,070
)
(19,747,507
)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR
810,448
20,557,955
CASH AND CASH EQUIVALENTS AT END OF YEAR
W
801,378
W
810,448
See accompanying Notes to Financial Statements.
F-59
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ACTOZ SOFT CO., LTD.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2005 AND 2004
1.
General
Actoz Soft Co., Ltd. (the "Company") was incorporated on October 29, 1996 under the laws of the
Republic of Korea. The Company is engaged in developing and distributing online game software
products. The Company is registered as a venture business at the Korean Small and Medium
Enterprise Service in accordance with the special law for the promotion of venture businesses.
The Company's capital stock as of December 31, 2005 amounts to
W
4,457,250 thousand. The
Company's shares were listed on the Korea Securities Dealers Automated Quotation (KOSDAQ) market
since August 14, 2001.
2.
Summary of Significant Accounting Policies
a. Basis of Presentation of Financial Statements
The Company maintains its official accounting records in Korean won and prepares financial
statements in the Korean language (Hangul) in conformity with the accounting principles
generally accepted in the Republic of Korea including the statements of Korean financial
accounting standards No. 1 through No. 17(excluding No. 11 and No.14). Certain accounting
principles applied by the Company that conform with financial accounting standards and
accounting principles in the Republic of Korea may not conform with generally accepted
accounting principles in other countries. Accordingly, these financial statements are
intended for use by those who are informed about Korean accounting principles and practices.
The accompanying financial statements have been condensed, restructured and translated into
English from the Korean language financial statements.
Certain information attached to the Korean language financial statements, but not required for
a fair presentation of the Company's financial position, results of operations or cash flows,
is not presented in the accompanying financial statements.
F-60
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The accounts of Onlineworks Co., Ltd., a wholly owned subsidiary, were not consolidated into
the accounts of the Company as allowed under the financial accounting standards generally
accepted in the Republic of Korea Financial. The investment in the subsidiary was accounted
under the equity method (see note 5)
b. Cash and Cash Equivalents
The Company records in cash and cash equivalents account, currencies, currency
substituting securities such as third party issued checks, current deposits, ordinary
deposits, and marketable securities and short-term financial instruments which maturities
or repayments are due within three months when acquired and easily convertible into cash
without incurring material transaction costs and which have no material risks of the value
changes due to the change of interest rates.
c. Financial Instruments
Short-term financial instruments are time deposits and installment deposits of financial
institutes which are held for the purpose of short-term operations of the funds and which
maturities are due within one year. Long-term financial instruments are financial
instruments not classified as current assets.
d. Allowance for Doubtful Accounts
The Company provides an allowance for doubtful accounts to cover estimated losses on
receivables, based on collection experience and analysis of the collectibility of individual
outstanding receivables.
e. Marketable Securities
Marketable securities bought and held for the purpose of selling them in the near term are
classified as short-term trading securities and debt securities which repayment amounts are
fixed or can be fixed and which the Company has the intent and ability to hold to maturity are
classified as held-to-maturity securities and marketable securities not classified as either
short-term trading securities or held-to-maturity securities are classified as available- for-
sale securities.
Marketable securities are initially carried at cost, using the moving average method. The
following paragraphs describe the subsequent accounting for securities by the type of
security.
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Held-to-maturity securities are carried at cost, adjusted for the amortization or accretion of
premiums or discounts. Short-term trading securities and available- for-sale securities are
reported at fair value. Available-for-sale equity securities that do not have readily
determinable market or fair values are reported at cost.
Unrealized gains or losses arising from the differences between the fair value and the
acquisition cost are recorded in current operations for short-term trading securities, and
are reported as a capital adjustment in shareholders' equity for available-for-sale securities
which accumulated amounts in shareholders' equity are reflected in current operations when
disposing the securities or recognizing impairment losses.
When estimated recoverable values from marketable securities are less than acquisition costs
of equity securities or debt securities adjusted for the amortization or accretion of premiums
or discounts, impairment losses are recorded in current operation
Subsequent recoveries are also recorded in current operations up to the original
cost of the securities.
f. Investment Securities Valued Using the Equity Method of Accounting
Investments in equity securities of companies, over which the Company exercises significant
influence, are reported using the equity method of accounting.
Under the equity method of accounting, the Company records changes in its proportionate equity
of the book value of the investee as current operations, capital adjustments or adjustments to
retained earnings, depending on the nature of the underlying change in book value of the
investee.
Differences between the purchase cost and the Company's proportionate equity in net asset
value of the investee are amortized over five years using the straight-line method.
Unrealized profits arising from sales by the Company to equity-method investees are fully
eliminated. The Company's proportionate unrealized profits arising from sales by
equity-method investees to the Company or transactions between equity-method investees are
also eliminated.
For overseas affiliates whose financial statements are prepared in foreign currency, assets
and liabilities are translated at the exchange rate on the balance sheet date, shareholders'
equity is translated at the historical exchange rate, and statement of income items are
recorded at the weighted average exchange rate of the reporting period. Net translation
adjustments are recorded as a component of shareholders' equity.
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g. Property and Equipment
Property and equipment are stated at acquisition cost. Major renewals and betterments, which
prolong the useful life or enhance the value of assets, are capitalized; expenditure for
maintenance and repairs are charged to expense as incurred. Depreciation is computed using
the declining balance method over the following useful lives:
Description
Useful lives (years)
Machinery and equipment
4
Furniture and fixtures
4
Vehicles
4
Depreciation expenses on the long-term idle facilities are recorded in other expenses. When
the recoverable amount is significantly less than the carrying value of property and equipment
due to obsolescence, physical damage, decline in market value or other causes, an impairment
loss in the amount of the difference between the recoverable amount and the carrying value is
recorded in the current operations with the carrying amount of the asset adjusted reflecting
the impairment.
h. Intangible Assets
Development costs resulting from developing new products in which the elements of costs
satisfy the certain conditions required and future economic benefits are clearly expected, are
capitalized and amortized over a five year period beginning in the year the related products
are first saleable or usable. When the recoverable amount is significantly less than the
carrying value of development costs due to the uncertainty of their future economic benefits,
an impairment loss in the amount of the difference between the recoverable amount and the
carrying value is recorded in the current operations with the carrying amount of the asset
adjusted reflecting the impairment.
Other intangible assets including industrial property rights are stated at cost and amortized
on a straight-line basis over a five year period.
i. Deferred Income Taxes
Deferred tax assets and liabilities are recorded for future tax consequences of operating loss
carryforwards, tax credits and temporary differences between the financial statement carrying
F-63
Table of Contents
amounts of existing assets and liabilities and their respective tax bases. Deferred tax
assets are recognized to the extent that they are expected to be realizable. Deferred tax
assets and liabilities are presented on the balance sheet as a single non-current net number.
j. Severance Indemnity
In accordance with the Company's policy, the Company pays severance indemnity on a yearly
basis to all employees with more than one year of service with the Company.
k. Foreign Currency Transactions and Translation
Transactions denominated in foreign currencies are recorded in Korean won translated at the
exchange rate prevailing on the transaction date. Monetary assets and liabilities denominated
in foreign currency are translated into Korean won at the Base Rates announced by Seoul Money
Brokerage Services Limited on the balance sheet date. Gains or losses arising from the
settlement of foreign currency transactions and the translation of foreign currency assets and
liabilities are charged or credited to current operations.
l. Revenue Recognition
Service revenue is recognized by reference to the stage of completion of the transaction
at the balance sheet date. The percentage of completion method for the service revenue can be
employed when the following conditions are met: (a) the amount of revenue can be measured
reliably; (b) it is probable that the economic benefits will flow to the Company; (c) the
stage of completion of the transaction at the balance sheet date can be measured reliably; and
(d) the costs incurred for the transaction and the costs to complete the transaction and be
measured reliably. For sales of merchandises and finished goods, revenue is recognized based
on the delivery of goods for domestic sales and on the shipping dates for export.
m. Stock Options
The stock option program allows the Company's officers to acquire shares of the Company.
The option exercise price is generally fixed at above the market price of underlying shares at
the date of the grant. The Company values stock options based upon an option-pricing model
(Black-Scholes model) under the fair value method and recognizes this value as an expense over
the period in which the options vest.
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n. Net Income Per Share
Net income per share is calculated by dividing net income by the weighted-average number
of shares of common stock outstanding during each period.
o. Use of Estimates
The preparation of financial statements in accordance with accounting principles
generally accepted in the Republic of Korea requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and related notes to
financial statements. Actual results could differ from those estimates.
p. Contingent Liabilities
Contingent losses are recorded in liabilities if it is certain that net assets have
decreased as of the balance sheet date and the loss amount can be reasonably estimated.
q. Reclassification of Certain Accounts
Certain amounts in 2004 financial statements have been reclassified to conform with the 2005
financial statement presentation. These reclassifications did not have an effect on the
financial position of the Company as of December 31, 2004, or the results of its
operations for the year then ended.
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3.
Cash and Cash Equivalents and Short-term Financial Instruments
Details of cash and cash equivalents and short-term financial instruments as of December 31,
2005 and 2004 are as follows:
Thousands of Korean won
Annual interest
rate(%)
2005
2004
<Cash and cash equivalents >
Cash
—
W
1,000
—
Ordinary deposit
0.1
86,862
W
101,141
Cash Management Account("CMA")
3.5
713,516
709,307
Total
W
801,378
W
810,448
<Short-term financial instruments>
Time deposits
3.8
~
4.2
W
22,000,000
W
16,500,000
Total
W
22,000,000
W
16,500,000
4. Marketable Securities
Marketable securities of the Company at December 31, 2005 and 2004 are classified as
available-for-sale securities according to its purpose of acquisition and intent of holding and
consist of the following :
<2005>
Thousands of Korean won
Ownership
Acquisition
Fair value or
Book
Investee
percentage
cost
net asset value
value
<Equity securities>
Joyspell Co., Ltd.
5.08
%
W
206,023
W
49,252
W
103,011
<Debt securities>
Onlineworks
Co.,Ltd.- convertible
debenture(1
st
series non-guaranteed
privately placed)
—
350,000
350,000
350,000
Onlineworks Co.,
Ltd.- convertible
debenture(2
st
series non-guaranteed
privately placed)
—
260,000
260,000
260,000
Total
W
816,023
W
659,252
W
713,011
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The Company recognized an impairment loss amounting to
W
103,011 thousand on marketable
securities relating to Joyspell due to the decrease of the net asset of Joyspell.
<2004>
Thousands of Korean won
Ownership
Acquisition
Fair value or
Book
Investee
percentage
cost
net asset value
value
<Equity securities>
Joyspell Co., Ltd.
5.08
%
W
206,023
W
33,258
W
206,023
<Debt securities>
Vivabox
Co.,Ltd.- convertible
debenture(1
st
series non-guaranteed
privately placed)
—
150,000
150,000
150,000
Total
W
356,023
W
183,258
W
356,023
5. Investment Securities
Investment securities stated by the equity method of accounting at December 31, 2005 and 2004
are as follows:
(1) Detail of investment securities
Thousands of Korean won
Book value
Percentage
No. of
of
Acquisition
Net Asset
Investee
shares
ownership
cost
value
2005
2004
Wemade Entertainment
Co., Ltd.
56,000
40.0
%
W
280,000
W
10,697,586
W
10,697,586
W
12,043,171
Anipark Co., Ltd.
900,000
24.8
%
563,850
893,086
896,028
989,244
Onlineworks Co., Ltd.
60,000
100.0
%
300,000
518,447
522,740
1,437,841
Beijing Oriental
Interactive Science and
Technology Development
Co., Ltd.
—
50.0
%
2,201,150
(453
)
—
1,107,401
Total
W
3,345,000
W
12,108,666
W
12,116,354
W
15,577,657
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(2) Detail of valuation by the equity method
<2005>
Thousands of Korean won
Capital
Retained
Other
Beginning
Earnings
adjustments
earnings of
increase
Balance at end
Investee
balance
(loss) P/L
of valuation
valuation
(decrease)
of 2004
Wemade Entertainment
Co., Ltd.
W
12,043,171
W
668,026
W
(13,611
)
—
W
(2,000,000
)
W
10,697,586
Anipark Co., Ltd.
989,244
(460,298
)
22,675
(16,024
)
360,431
896,028
Onlineworks Co., Ltd.
1,437,841
(783,609
)
18,769
(150,261
)
—
522,740
Beijing Oriental
Interactive Science and
Technology Development
Co., Ltd.
1,107,401
(1,108,010
)
156
—
—
—
Total
W
15,577,657
(1,683,891
)
27,989
(166,285
)
(1,639,569
)
W
12,116,354
For Wemade entertainment Co., Ltd., other decrease was a result of dividends receipts.
For Anipark Co., Ltd., other increase was recorded as a gain on disposal of investment
securities for the change in the equity interest arising from the capital increases.
For Beijing Oriental Interactive Science and Technology Development Co., Ltd.,
W
453 thousand
of a valuation loss was recorded as allowance for doubtful accounts.
<2004>
Thousands of Korean won
Capital
Other
Beginning
adjustments
Earnings
increase
Balance at end
Investee
balance
of valuation
(loss) P/L
Disposal
(decrease)
of 2004
Wemade Entertainment
Co., Ltd.
W
10,378,114
W
13,611
W
4,051,446
—
W
(2,400,000
)
W
12,043,171
Anipark Co., Ltd.
859,244
331,380
173,104
—
(374,484
)
989,244
Actoznet Co., Ltd.
631,536
—
(3,391
)
(628,145
)
—
—
Onlineworks Co., Ltd.
364,714
407,663
665,464
—
—
1,437,841
Beijing Oriental
Interactive Science and
Technology Development
Co., Ltd.
2,201,150
(234,631
)
(859,118
)
—
—
1,107,401
Total
W
14,434,758
W
518,023
W
4,027,505
W
(628,145
)
W
(2,774,484
)
W
15,577,657
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6. Property and Equipment
Property and equipment as of December 31, 2005 and 2004 are as follows:
Thousands of Korean won
2005
2004
Land
W
—
W
4,733,497
Machinery
2,365,713
2,316,528
Furniture and fixture
1,301,143
1,193,200
Vehicles
31,349
31,349
Total acquisition cost
3,698,205
8,274,574
Less accumulated depreciation
(2,825,364
)
(2,898,701
)
Property and equipment, net
W
872,841
W
5,375,873
7. Intangible Assets
Details of development cost and other intangible assets for the years ended December 31, 2005
and 2004 are as follows:
<2005>
Thousands of Korean won
Development
Industrial
Description
cost
property right
Others
Total
Beginning balance
W
3,929,807
W
5,275
W
390,263
W
4,325,345
Increase in the year
2,818,478
10,232
388,249
3,216,959
Amortization
(340,052
)
(2,905
)
(199,634
)
(542,591
)
Ending balance
W
6,408,233
W
12,602
W
578,878
W
6,999,713
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<2004>
Thousands of Korean won
Development
Industrial
Description
cost
property right
Others
Total
Beginning balance
W
3,431,757
W
4,665
W
399,926
W
3,836,348
Increase in the year
2,363,241
2,465
145,547
2,511,253
Amortization
(383,108
)
(1,855
)
(155,210
)
(540,173
)
Other decrease
(1,482,083
)*
—
—
(1,482,083
)*
Ending balance
W
3,929,807
W
5,275
W
390,263
W
4,325,345
*
W
1,482,083 thousand of impairment loss for development costs was recognized in 2004.
8. Transactions with Related Parties
Major transactions and account balances with related parties as of and for the years ended
December 31, 2005 and 2004 are as follows:
<2005>
Thousands of Korean won
Commission
Related
Related
Company
Sales
Investment
Outsourcing
paid
receivables
payables
Wemade
Entertainment Co.,
Ltd.
W
481,070
—
W
18,272,535
W
—
W
2,746,291
Anipark Co., Ltd.
77,500
—
1,017,173
—
496,365
Shanda
Interactive
Entertainment Ltd.
22,386,381
—
—
—
1,729,671
—
Beijing Oriental
Interactive Science
and Technology
Development Co.,
Ltd.
—
520,500
—
—
520,500
—
Total
W
22,944,951
W
520,500
W
19,289,708
W
—
W
2,250,171
W
3,242,656
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Table of Contents
<2004>
Thousands of Korean won
Cost of
Commission
Related
Related
Company
Sales
sales
Outsourcing
paid
receivables
payables
Wemade Entertainment
Co., Ltd.
W
1,910,150
W
89,384
W
20,286,948
W
—
W
403,363
W
5,490,491
Anipark Co., Ltd.
109,300
—
2,402,886
—
1,980
651,909
Onlineworks Co., Ltd.
—
—
—
108,561
—
—
Actozinworld Co., Ltd.
—
—
—
317,582
—
—
Total
W
2,019,450
W
89,384
W
22,689,834
W
426,143
W
405,343
W
6,142,400
Short-term housing loan to shareholders, officers and employees at December 31, 2005 and 2004
amounted to
W
210,266 thousand and
W
363,930 thousand, respectively, and the related
interest income recognized in 2005 and 2004 amounted to
W
14,089 thousand and 46,256
thousand, respectively.
There is no collateral or guarantee provided by the Company or received from the related
parties as of December 31, 2005.
9. Insurance
As of December 31, 2005 the Company has fire insurance for its machinery with Samsung Fire
Insurance Co., Ltd. with the coverage amount totaling
W
2,200,417 thousand.
In addition, the Company's vehicles are insured for comprehensive coverage.
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10.
Assets and Liabilities Denominated in Foreign Currencies
Details of assets and liabilities denominated in foreign currencies as of December 31, 2005 and
2004 are as follows:
(In U.S. dollars, JPY, EUR, GBP and thousands of Korean won)
Foreign currency
Korean won equivalent
Account
2005
2004
2005
2004
Assets:
Accounts receivable
USD
3,804,690
USD
7,482,139
W
3,854,151
W
7,809,856
JPY
—
JPY
18,802,658
—
190,296
EUR
16,317
EUR
5,322
19,583
7,573
GBP
3,720
GBP
1,545
6,492
3,104
W
3,880,226
W
8,010,829
Liabilities:
Accrued expenses
USD
1,586,613
USD
4,250,217
W
1,607,239
W
4,436,377
EUR
11,422
EUR
3,725
13,708
5,301
JPY
—
JPY
1,521,063
—
15,394
W
1,620,947
W
4,457,072
11.
Capital Stock
Capital stock of the Company as of December 31, 2005 and 2004 is as follows;
2005
2004
Number of shares authorized
50,000,000
50,000,000
Number of shares issued:
Common stock
8,914,500
8,914,500
Par value
W
500
W
500
There was no change in capital stock or capital surplus in 2005.
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12.
Retained Earnings
(1)
Reserve for business rationalization
Until end of 2002, in accordance with the Tax Exemption and Reduction Control Law, the amount of
tax benefit associated with certain tax deductions and tax credits must be appropriated as a
reserve for business rationalization. The reserve for business rationalization might not be
utilized for cash dividends, but might be used to offset a future deficit, if any, or might be
transferred to capital stock. However, in December 2002, this law was revised and the clauses
relevant to the above reserve was rescinded. Accordingly, at December 31, 2004 a reserve of
W
170,000 thousand for business rationalization was transferred to voluntary reserve.
(2)
Other reserve
Reserve for technology development was appropriated in accordance with the relevant tax laws, and
may be transferred to voluntary reserve and be utilized for dividends.
13.
Capital Adjustments
(1)
Treasury stock
The Company has 480 shares of treasury stock (common stock) as of December 31, 2005 and 2004
purchased in the process of issuing additional shares in 2003 and plans to resell the stock.
(2)
Stock options
The Company granted stock options to its representative director as follows.
Exercise period
Number of shares
Exercise price
Within 5 years from grant date
267,420
9,470 Won
The Company values stock options based upon an option-pricing model (Black-Scholes model) under
the fair value method and recognizes this value as an expense over the period in which the options
vest. The expense for 2005 amounted to
W
169,768 thousand.
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Table of Contents
14.
Selling and Administrative Expenses
Selling and administrative expenses in 2005 and 2004 consist of the following:
Thousands of Korean won
2005
2004
Salaries and wages
W
1,787,499
W
2,399,194
Severance benefits
141,387
184,943
Stock compensation
169,768
—
Employee benefits
208,430
281,826
Travel
62,474
230,920
Entertainment
73,490
82,051
Communications
13,709
33,417
Utilities
27,731
49,762
Taxes and dues
59,991
42,957
Depreciation
159,094
390,465
Rent
111,042
169,931
Repairs
5,612
22,923
Vehicles
8,419
14,364
Books and printing
6,345
5,936
Supplies
13,070
9,200
Education and training
24,149
4,549
Bad debt
1,057,467
505,687
Commissions
1,347,665
2,402,412
Advertising
727,192
525,755
Insurance
43,094
545
Amortization
542,592
540,173
Ordinary R&D
204,241
—
Others
21,593
7,060
Total
W
6,816,010
W
7,904,070
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Table of Contents
15.
Income Taxes
(1)
Components of income tax expense(benefit) for the year ended December 31, 2005 are as
follows;
Thousands of Korean won
Description
Amount
Current
W
3,280,238
Deferred:
Change in cumulative temporary differences
(915,068
)
Change in tax credit carryforwards
(2,531,899
)
Income tax expense(benefit)
W
(166,729
)
(2)
Reconciliations of accounting income and taxable income for the year ended December
31, 2005 are as follows;
Thousands of Korean won
Temporary differences
Permanent differences
Additions:
Accrued income recorded in prior year
W
91,607
Allowance for doubtful accounts
1,672,533
Bad debt
37,019
Development cost
2,407
Investment securities
5,714,741
Impairment loss on marketable securities
103,011
Entertainment expense in excess of limit
W
37,699
Stock compensation
169,768
Contribution
30,000
Capital adjustments relating to equity
method
59,138
Total
W
7,621,318
W
296,605
Deductions:
Accrued income in current year
W
96,845
Allowance for doubtful accounts
150,181
Investment securities
1,087,596
Development cost
479,964
Dividend income
W
600,000
Refund of income taxes
116,476
Income tax expense
638,361
Change in retained earnings of valuation
503,558
Total
W
1,814,586
W
1,858,395
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Table of Contents
(3)
Changes in temporary differences during the year ended December 31, 2005 and deferred
tax assets as of December 31, 2005 are as follows;
Thousands of Korean won
Description
January 1, 2005
Decrease
Increase
December 31, 2005
Allowance for doubtful accounts
150,181
150,181
1,672,533
1,672,533
Bad debt
71,935
—
37,019
108,954
Development cost
1,465,805
479,964
2,407
988,248
Available-for-sale securities
200,000
—
103,011
303,011
Accrued income
(91,608
)
(91,608
)
(96,845
)
(96,845
)
Investment securities
(13,398,499
)
(5,714,741
)
(1,087,596
)
(8,771,354
)
Sub-total
(11,602,185
)
(5,176,203
)
(630,529
)
(5,795,453
)
Deferred taxes from tax credit
carryforwards
5,562,299
Tax effect of temporary differences:
(1,593,750
)
Short-term deferred income taxes
463,276
Deferred income taxes
W
3,505,273
The future income tax rate of 27.5% has been used in computing deferred income taxes.
The beginning balances are based on the previous year's amendment tax return and the
difference in amount between the tax return and audited financial report of the previous year
was recorded as income tax refunds in current year.
16.
Income Per Share
Net income per share amounts for the years ended December 31, 2005 and 2004 are as follows:
(1)
Basic income per share
Korean won(in thousands except for income per share)
2005
2004
Net income
W
2,162,953
W
8,119,663
Extraordinary gains
—
—
Extraordinary losses
—
—
Income taxes relating to extraordinary items
—
—
Ordinary income
2,162,953
8,119,663
Weighted average number of shares outstanding
8,914,020
8,914,020
Ordinary income per share in Korean won
W
243
W
911
Net income per share in Korean won
W
243
W
911
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Table of Contents
(2)
Weighted average number of shares outstanding
<2005>
Numbers
Weighted number of
of shares
Days
shares
Beginning balance
8,914,500
Treasury stock
(480
)
Total
8,914,020
366
3,253,617,300
÷366
Weighted average number of shares
8,914,020
<2004>
Numbers
Weighted number of
of shares
Days
shares
Beginning balance
8,914,500
Treasury stock
(480
)
Total
8,914,020
366
3,262,531,320
÷366
Weighted average number of shares
8,914,020
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Table of Contents
17.
Value Added Information
Details of value added information for the years ended December 31, 2005 and 2004 are as
follows:
<2005>
Thousands of Korean won
Selling and
Development cost
administrative
and its impairment
Cost of sales
expense
loss
Total
Salaries
W
355,930
W
1,787,499
W
1,762,769
W
3,906,198
Provision for retirement
and severance benefits
24,304
141,387
108,002
273,693
Employee benefits
33,840
208,430
189,203
431,473
Rent
20,618
111,042
116,599
248,259
Depreciation
36,916
159,094
195,262
391,272
Taxes and dues
—
59,991
—
59,991
Total
W
471,608
W
2,467,443
W
,371,835
W
5,310,886
<2004>
Thousands of Korean won
Selling and
Development cost
administrative
and its impairment
Cost of sales
expense
loss
Total
Salaries
W
267,287
W
2,399,194
W
1,366,085
W
4,032,566
Provision for retirement
and severance benefits
10,456
184,943
89,179
284,578
Employee benefits
33,037
281,826
171,236
486,099
Rent
15,530
169,930
96,045
281,505
Depreciation
42,970
390,465
237,545
670,980
Taxes and dues
—
42,957
—
42,957
Total
W
369,280
W
3,469,315
W
1,960,090
W
5,798,685
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Table of Contents
18.
Employees' Benefits and Contribution to Society
The Company provides various employee benefits such as a national pension, a medical
insurance, workmen's accident compensation and a paid vacation. The Company paid
W
441,820
thousand for such employee benefits in 2005.
The Company contributed
W
30,000 thousand to the Korea Game Industry Association in 2005.
19.
Supplementary Cash Flow Information
Major transactions not involving the inflow or outflow of cash for the years ended December
31, 2005 and 2004 are as follows:
Thousands of Korean won
Description
2005
2004
Transfer of marketable securities into
intangible assets
150,000
—
20.
Commitments and Contingencies
At December 31, 2005, two legal proceedings were pending in the courts where the Company
was the claimant against Shanghai Shanda Internet Development Co., Ltd. One legal case was
pending for arbitration in the International Chamber of Commerce in Singapore and the other case
was pending in the 1
st
intermediate people's court of Beijing city in connection with
the lawsuit related to an infringement of copyright. For the first case, claim amount is USD
642,481 and it is probable that the Company win the lawsuit. However, for the second case, claim
amount is not fixed and its final outcome cannot be predicted.
F-79
Table of Contents
21.
Interim Period Information
Interim financial informations of the Company for the final(4
th
) quarter of 2005 and
2004 are summarized as follows:
Korean won(in thousands
except for income per share)
2005
2004
Sales
W
3,319,088
W
8,979,541
Gross profit(loss)
1,180,014
3,330,104
Operating income(loss)
(1,154,896
)
1,730,552
Quarterly net income(loss)
(2,200,312
)
1,745,411
Quarterly net income(loss) per
share in Korean won
W
(247
)
W
196
22.
Economic Environment
In response to the overall unstable economic situations, the Korean government and the private
sector have been implementing structural reforms to historical business practices. The Company
may be either directly or indirectly affected by these economic situations and structural
reforms.
The accompanying financial statements reflect management's current assessment of the impact to
date of the economic situation on the financial position of the Company. Actual results may
differ materially from management's current assessment.
23.
Reconciliation to United States Generally Accepted Accounting Principles
The financial statements are prepared in accordance with Korean GAAP which differ in certain
respects from accounting principles generally accepted in the United
States of America     ("U.S. GAAP"). The significant differences between Korean GAAP and U.S. GAAP that affect the
Company's financial statements are described below.
The effects of the significant adjustments to net income and stockholders' equity which would be
required if U.S. GAAP were to be applied instead of Korean GAAP are summarized as follows:
F-80
Table of Contents
Thousands of Korean won
Description
Amount
Net income in accordance with Korean GAAP
2,162,953
Adjustments:
Depreciation(1)
(243,554
)
Stock option(2)
79,036
Intangible assets(3)
(2,473,467
)
Revenue(4)
1,380,154
U.S. GAAP adjustments of equity method affiliates(5)
2,789,911
U.S. GAAP adjustments of consolidated subsidiaries(6)
41,343
Deferred tax effects of U.S. GAAP adjustments(7)
345,904
1,919,327
Net income as adjusted in accordance with U.S. GAAP
4,082,280
Thousands of Korean won
Description
Amount
Stockholders' equity in accordance with Korean GAAP
52,356,750
Adjustments:
Depreciation(1)
328,619
Stock option(2)
(90,732
)
Intangible assets(3)
(6,408,233
)
Revenue(4)
(1,601,401
)
U.S. GAAP adjustments of equity method affiliates(5)
(934,937
)
U.S. GAAP adjustments of consolidated subsidiaries(6)
(723,277
)
Deferred tax effects of U.S. GAAP adjustments(7)
2,137,230
(7,292,731
)
Stockholders' equity as adjusted in accordance with U.S. GAAP
45,064,019
(1)
The Company makes depreciation of property and equipment using declining balance method over
their respective useful lives. To conform to Shanda's accounting policy, the Company restated
the depreciation expenses using straight-line method.
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Table of Contents
(2)
Under Korean GAAP, The Company values stock options based upon an option-pricing model
(Black-Scholes model) under the fair value method and recognizes stock compensation expense
over the period in which the options vest. Under US GAAP, the Company accounts for stock
options in accordance with APB No. 25 in 2005, under which stock compensation expense is
recognized based on the difference, if any, between the estimated fair value of the
Company's ordinary shares and the amount an employee is required to pay to acquire the
ordinary shares, as determined on the date the option is granted. Compensation expense, if
any, is recorded in shareholders' equity as additional paid-in capital with an offsetting
entry recorded as deferred share-based compensation. Deferred share-based compensation is
amortized and charged to expense based on the vesting terms of the underlying options.
(3)
Under Korean GAAP, the Company capitalizes development costs resulting from developing
new game products in which the elements of costs satisfy the certain conditions required
and future economic benefits are clearly expected, and amortizes it over a five year period
beginning in the year the related products are first saleable or usable. Under US GAAP,
The Company            accounts for costs to develop its online game products in accordance
with SFAS No. 86, "Accounting for Costs of Computer Software to be Sold, Leased or
Otherwise Marketed" ("SFAS No.86"), which requires that costs incurred for the development
of online game products prior to the establishment of technological feasibility are
expensed when incurred and are included in product development expense. Once an online game
product has reached technological feasibility, all subsequent online game product
development costs are capitalized until the product is available for marketing. Due to
inability to establish technological feasibility of the games under developed, the Company
expenses off all the game development cost as incurred and reversed related amortization
expenses under US GAAP.
(4)
Under Korean GAAP, the Company recognizes the upfront fee as revenue for games licensed
to third parties upon receipt from its licensees when licensed agreement is entered into.
Under US GAAP, in accordance with SAB 101, upfront fee received form licensed games
are recorded as deferred revenue and evenly credited as revenue over the licensed period.
(5)
In one of the Company's affiliates, under U.S.GAAP, the development costs as stated in (3)
above were expensed off prior to the year 2005 and the related amortization expenses under
Korean GAAP were reversed in 2005, which resulted in positive effect on net income for the
affiliate. Under U.S.GAAP, one of the Company's affiliates recorded additional bad debt expenses
for receivables prior to the year 2005 based upon its collectibility estimated by the Company.
However, such bad debt expense was recorded in 2005 under Korean GAAP. Furthermore, the amount
was reversed
F-82
Table of Contents
under U.S.GAAP in 2005. Accordingly, as the Company accounts for the affiliate
using the equity method, the U.S.GAAP adjustments resulted in the adjustments of the equity
method used in the investment in the affiliate.
(6)
The difference is mainly resulted from the additional U.S.
GAAP adjustments in certain subsidiaries of the Company. Under U.S.
GAAP, certain subsidiaries of the Company recorded additional U.S.
GAAP adjustments such as bad debt adjustment and the expensed-off
development costs as stated in (3). However, such U.S. GAAP
adjustments were not required to be recorded under Korean GAAP.
(7)
In general, accounting for deferred income taxes is substantially the same between Korean
GAAP and U.S. GAAP. The Company is also required to recognize the additional deferred tax
effects that result from differences between the reported Korean GAAP and U.S. GAAP amounts.
F-83