According to Datamonitor, approximately 36 million consumers in the Asia-Pacific region played online games over the Internet in 2003, generating over 70% of the global online game revenue in 2003.

According .to an April 2004 report issued by IDC, China is a newly developing market that will generate estimated total online game revenues of US$238 million in 2004, representing an increase of 48.9% over revenues of US$160 million in 2003.

According to IDC, the Internet and broadband penetration rates in China in 2002 were only 3.8% and 0.2%, respectively, which were relatively lower than many other countries in Asia. However, IDC projects that Internet users in China will increase at a compound annual growth rate of 26% until 2007, and that broadband users in China will sustain a compound annual growth rate of 48.7% until 2007. In addition, according to IDC, China was the biggest PC market in Asia in 2002, and PC shipments in China will grow at a compound annual growth rate of 16.5% until 2007.

Unlike console games that generally do not have Chinese versions, all the online games offered in China have been localized or tailored to the Chinese market. Online games enable players to participate interactively in the games, compete against each other on a mass scale and attain higher game attributes with their characters, thereby offering players a sense of fulfillment in a community setting.

In a typical MMORPG, thousands of players play in the same game world at the same time. MMORPG players can select a specific character to compete within the game, with which they develop experience and enhance game attributes, which can be carried over into next higher game levels.

In September 2002, the Company and Webzen formed 9Webzen to launch and operate MU in China. MU is an online role-playing experience set in a kingdom named “MU.” MU players assume the roles of soldiers, magicians and archers as they develop skills, use magical weapons and team up with other players to fight against monsters that attempt to invade and conquer the MU kingdom.

The Company operates MU with “quarter-view” support, which means that a player’s viewpoint is fixed at a bird’s eye view, instead of allowing the player to change his or her view point freely. The “quarter view” perspective is a commonly used viewpoint for console games and PC games and offers the advantage of lower system requirements. The recommended desk-top PC configuration requirements for playing MU are Pentium III 550 Mhz CPU, 64 MB RAM, Voodoo 16 MB graphic card and 1 GB hard drive.

The Company has acquired an exclusive license to localize and operate WoW in China. WoW is developed by Blizzard Entertainment, which is Vivendi Universal Games’ game developer studio and a premier publisher of entertainment software that has developed many award-winning blockbuster PC game hits including the Warcraft, Diablo and StarCraft series. WoW is the first MMORPG developed by Blizzard Entertainment.

WoW is an online role-playing experience set in the Warcraft universe. Players assume the roles of Warcraft heroes as they explore, adventure, and quest across a vast virtual world with miles of forests, deserts, snow-blown mountains, and other exotic lands. As an MMORPG, WoW allows thousands of players to interact within the same virtual world. Whether adventuring together or fighting against each other in epic battles, WoW provides players with opportunities to form friendships, forge alliances and combat enemies.

Cost of services for the nine months ended September 30, 2004 increased by 52.3% to RMB6.8 million (US$0.8 million) from RMB4.5 million for the same period in 2003.

Operating expenses for the nine months ended September 30, 2004 increased by 91.5% to RMB20.2 million (US$2.4 million) from RMB10.6 million for the same period in 2003.

Sales and marketing expenses for the nine months ended September 30, 2004 increased by 20.2% to RMB3.9 million (US$0.5 million) from RMB3.3 million for the same period in 2003.