##### 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, 2009
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to.
 OR
 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:.
 Commission file number: 001-34238
 
 THE9 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)
 Building No. 3, 690 Bibo Road
Zhang Jiang Hi-Tech Park
Pudong New Area, Pudong
Shanghai 201203
 Peoples Republic of China
(Address of principal executive offices)
 
 George Lai
Tel:  +86-21-5172-9990
Facsimile number: +86-21-5172-9903
Building No. 3, 690 Bibo Road
Zhang Jiang Hi-Tech Park
Pudong New Area, Pudong
Shanghai 201203
Peoples Republic of China
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
 
 Securities registered or to be registered pursuant to Section 12(b) of the Act.
 Name of each exchange and title of each class on which registered:
American Depositary Shares, each representing one ordinary share, par value
US$0.01 per share, Nasdaq Global Market
 Securities registered or to be registered pursuant to Section 12(g) of the Act.
NONE
(Title of Class)
 Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.
NONE
(Title of Class)
 
  o
Yes  þ No
 o þ
 þ o
 o
Yes o No
  o Large accelerated filer
    
    þ Accelerated filer
    
    o Non-accelerated filer
  þ U.S. GAAP
    
    o International Financial Reporting Standards as issued
by the International Accounting Standards Board
    
    o Other
 o o
 o þ
  o
Yes o No




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##### 



TABLE OF CONTENTS
 PageINTRODUCTION
    
    
    1PART I
    
    
    2ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
    
    
    2ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
    
    
    2ITEM 3. KEY INFORMATION
    
    
    2ITEM 4. INFORMATION ON THE COMPANY
    
    
    26ITEM 4A. UNRESOLVED STAFF COMMENTS
    
    
    42ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
    
    
    42ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
    
    
    62ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
    
    
    70ITEM 8. FINANCIAL INFORMATION
    
    
    72ITEM 9. THE OFFER AND LISTING
    
    
    73ITEM 10. ADDITIONAL INFORMATION
    
    
    75ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    87ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
    
    
    88PART II
    
    
    89ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
    
    
    89ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
PROCEEDS
    
    
    89ITEM 15. CONTROLS AND PROCEDURES
    
    
    89ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT
    
    
    91ITEM 16B. CODE OF ETHICS
    
    
    91ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
    
    
    91ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
    
    
    92ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED
PURCHASERS
    
    
    92ITEM 16F. CHANGE IN REGISTRANTS CERTIFYING ACCOUNTANT
    
    
    92ITEM 16G. CORPORATE GOVERNANCE
    
    
    93PART III
    
    
    94ITEM 17. FINANCIAL STATEMENTS
    
    
    94ITEM 18. FINANCIAL STATEMENTS
    
    
    94ITEM 19. EXHIBITS
    
    
    94Exhibit 8.1Exhibit 12.1Exhibit 12.2Exhibit 13.1Exhibit 13.2Exhibit 15.1Exhibit 15.2Exhibit 15.3Exhibit 15.4Exhibit 15.5




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INTRODUCTION
     1




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##### Table of Contents



PART I
 
 ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
  
 ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
  
 ITEM 3. KEY INFORMATION
 Selected Financial Data
  For the Year Ended December 31,2005
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2009RMB
    
    
    RMB
    
    
    RMB
    
    
    RMB
    
    
    RMB
    
    
    US$(1)(in thousands, except for per share and per ADS data)Consolidated Statement of Operation Data:Revenues
    
    
    489,191
    
    
    
    1,038,328
    
    
    
    1,350,129
    
    
    
    1,806,130
    
    
    
    802,629
    
    
    
    117,586Sales taxes
    
    
    (24,164
    )
    
    
    (52,502
    )
    
    
    (70,522
    )
    
    
    (94,639
    )
    
    
    (42,113
    )
    
    
    (6,170
    )Net revenues
    
    
    465,027
    
    
    
    985,826
    
    
    
    1,279,607
    
    
    
    1,711,491
    
    
    
    760,516
    
    
    
    111,416Cost of services
    
    
    (240,416
    )
    
    
    (524,032
    )
    
    
    (700,047
    )
    
    
    (997,949
    )
    
    
    (712,473
    )
    
    
    (104,378
    )Gross profit
    
    
    224,611
    
    
    
    461,794
    
    
    
    579,560
    
    
    
    713,542
    
    
    
    48,043
    
    
    
    7,038Operating expenses
    
    
    (164,898
    )
    
    
    (191,639
    )
    
    
    (343,695
    )
    
    
    (578,993
    )
    
    
    (530,884
    )
    
    
    (77,775
    )Profit (loss) from operations
    
    
    59,713
    
    
    
    270,155
    
    
    
    235,865
    
    
    
    134,549
    
    
    
    (482,841
    )
    
    
    (70,737
    )Interest income, net
    
    
    10,022
    
    
    
    9,136
    
    
    
    50,656
    
    
    
    56,691
    
    
    
    30,501
    
    
    
    4,468Other income (expense), net
    
    
    14,467
    
    
    
    28,417
    
    
    
    (30,054
    )
    
    
    (18,967
    )
    
    
    61,840
    
    
    
    9,060Income (loss) before income taxes, gain on
investment disposal, impairment loss on
investments and share of loss in equity
investments
    
    
    84,202
    
    
    
    307,708
    
    
    
    256,467
    
    
    
    172,273
    
    
    
    (390,500
    )
    
    
    (57,209
    )Income tax (expense) benefit
    
    
    (168
    )
    
    
    2,670
    
    
    
    (9,269
    )
    
    
    (47,929
    )
    
    
    5,536
    
    
    
    811Income (loss) before gain on investment
disposal, impairment loss on investments and
share of loss in equity investments
    
    
    84,034
    
    
    
    310,378
    
    
    
    247,198
    
    
    
    124,344
    
    
    
    (384,964
    )
    
    
    (56,398
    )Gain on investment disposal
    
    
    6,716
    
    
    
    23,409
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Impairment loss on investments
    
    
    
    
    
    
    (20,402
    )
    
    
    (627
    )
    
    
    (25,922
    )
    
    
    (22,412
    )
    
    
    (3,283
    )Share of loss in equity investments, net of taxes
    
    
    (13,737
    )
    
    
    (908
    )
    
    
    (5,679
    )
    
    
    (2,241
    )
    
    
    (2,556
    )
    
    
    (374
    )Net income (loss)
    
    
    77,013
    
    
    
    312,477
    
    
    
    240,892
    
    
    
    96,181
    
    
    
    (409,932
    )
    
    
    (60,055
    )Net income (loss) attributable to noncontrolling
interest(2)
    
    
    4,541
    
    
    
    
    
    
    
    
    
    
    
    (655
    )
    
    
    (4,780
    )
    
    
    (700
    )Net income (loss) attributable to holders of
ordinary shares
    
    
    72,472
    
    
    
    312,477
    
    
    
    240,892
    
    
    
    96,836
    
    
    
    (405,152
    )
    
    
    (59,355
    )Net income (loss) attributable to holders of
ordinary shares per share Basic
    
    
    3.00
    
    
    
    12.78
    
    
    
    8.79
    
    
    
    3.50
    
    
    
    (15.94
    )
    
    
    (2.34
    ) Diluted
    
    
    2.92
    
    
    
    12.72
    
    
    
    8.72
    
    
    
    3.50
    
    
    
    (15.94
    )
    
    
    (2.34
    )Net income (loss) attributable to holders of
ordinary shares per ADS(3) Basic
    
    
    3.00
    
    
    
    12.78
    
    
    
    8.79
    
    
    
    3.50
    
    
    
    (15.94
    )
    
    
    (2.34
    ) Diluted
    
    
    2.92
    
    
    
    12.72
    
    
    
    8.72
    
    
    
    3.50
    
    
    
    (15.94
    )
    
    
    (2.34
    )
  2




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As of December 31,2005
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2009RMB
    
    
    RMB
    
    
    RMB
    
    
    RMB
    
    
    RMB
    
    
    US$(1)(in thousands, except for per share and per ADS data)Consolidated Balance Sheet Data:Cash and cash equivalents
    
    
    488,245
    
    
    
    937,846
    
    
    
    2,215,282
    
    
    
    2,152,586
    
    
    
    1,675,081
    
    
    
    245,401Non-current assets
    
    
    602,744
    
    
    
    537,492
    
    
    
    831,342
    
    
    
    769,023
    
    
    
    522,161
    
    
    
    76,497Total assets
    
    
    1,213,735
    
    
    
    1,624,585
    
    
    
    3,246,101
    
    
    
    3,263,009
    
    
    
    2,324,958
    
    
    
    340,608Total current liabilities
    
    
    271,750
    
    
    
    288,427
    
    
    
    440,011
    
    
    
    543,767
    
    
    
    311,508
    
    
    
    45,636Total equity
    
    
    941,985
    
    
    
    1,336,158
    
    
    
    2,806,090
    
    
    
    2,719,242
    
    
    
    2,013,450
    
    
    
    294,972Total liabilities and equity
    
    
    1,213,735
    
    
    
    1,624,585
    
    
    
    3,246,101
    
    
    
    3,263,009
    
    
    
    2,324,958
    
    
    
    340,608
 
 (1)
    
    Translation from RMB amounts into U.S. dollars was made at a rate of RMB6.8259 to US$1.00.
See  Exchange Rate Information.(2)
    
    We adopted authoritative guidance regarding accounting for noncontrolling interests on
January 1, 2009, retrospectively.(3)
    
    Each ADS represents one ordinary share.  Exchange Rate Information
   3




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Noon Buying RatePeriodPeriod
    
    End
    
    
    Average(1)
    
    
    Low
    
    
    High2005
    
    
    8.0702
    
    
    
    8.1826
    
    
    
    8.2765
    
    
    
    8.07022006
    
    
    7.8041
    
    
    
    7.9579
    
    
    
    8.0702
    
    
    
    7.80412007
    
    
    7.2946
    
    
    
    7.5806
    
    
    
    7.8127
    
    
    
    7.29462008
    
    
    6.8225
    
    
    
    6.9193
    
    
    
    7.2946
    
    
    
    6.78002009
    
    
    6.8259
    
    
    
    6.8295
    
    
    
    6.8470
    
    
    
    6.8176October
    
    
    6.8264
    
    
    
    6.8267
    
    
    
    6.8292
    
    
    
    6.8248November
    
    
    6.8265
    
    
    
    6.8271
    
    
    
    6.8300
    
    
    
    6.8255December
    
    
    6.8259
    
    
    
    6.8275
    
    
    
    6.8299
    
    
    
    6.82442010January
    
    
    6.8268
    
    
    
    6.8269
    
    
    
    6.8295
    
    
    
    6.8258February
    
    
    6.8258
    
    
    
    6.8285
    
    
    
    6.8330
    
    
    
    6.8258March
    
    
    6.8258
    
    
    
    6.8262
    
    
    
    6.8270
    
    
    
    6.8254April (through April 9, 2010)
    
    
    6.8229
    
    
    
    6.8250
    
    
    
    6.8263
    
    
    
    6.8229
 
 (1)
    
    Annual averages are calculated from month-end rates. Monthly averages are calculated using
the average of the daily rates during the relevant period. Capitalization and Indebtedness
  Reasons for the Offer and Use of Proceeds
  Risk Factors
 Risks Related to Our Company
 If we are unable to successfully establish new relationships with online game developers, and
maintain a satisfactory relationship with the online game developers that have licensed games to
us, our future results of operations and profitability will be materially impacted.
   4




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Our business is intensely competitive and hit driven. If we do not deliver new hit products to
the market, or if consumers prefer our competitors products or services over those we provide, our
operating results will suffer.
   We may not be able to maintain our market share and profitability as we operate in a highly
competitive industry and compete against many companies.
   5




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We are subject to securities class action lawsuits alleging that we and certain of our directors
and officers disseminated or approved materially false and misleading statements and failed to
disclose that we might not be able to renew the license of WoW. If the class action lawsuits are
successful, they may have an adverse effect on our financial condition and operating results.
 Glaser v. The9 Ltd. et
al. ODea v. The9 Ltd. et al.
  Illegal game servers, unauthorized character enhancements and other infringements of our
intellectual property rights, as well as theft of in-game goods, could harm our business and
reputation and materially and adversely affect our results of operation.
   The recent global recession and the challenges the Chinese economy faces as a result could
adversely affect the demand for our games and our results of operations.
   6




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We face the risks of changing consumer preferences and uncertainty about market acceptance of our
new products.
  
    
    the popularity of new online games operated by us;
 
    
    the introduction of new online games, competing with or replacing our existing
online games;
 
    
    general economic conditions, particularly economic conditions adversely affecting
discretionary consumer spending;
 
    
    changes in customer tastes and preferences;
 
    
    the availability of other forms of entertainment;
 
    
    critical reviews and public tastes and preferences, all of which change rapidly and
cannot be predicted; and
 
    
    the acceptance by customers of the purchase of in-game items.
   Future acquisitions may have an adverse effect on our ability to manage our business.
    7




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Future equity investments may have an adverse effect on our ability to manage our business.
  Undetected programming errors or flaws in our games could harm our reputation or decrease market
acceptance of our games, which would materially and adversely affect our results of operations.
  We may not be able to prevent others from infringing upon our intellectual property rights, which
may harm our business and expose us to litigation.
  We may need additional financing and we may not be able to obtain it on terms acceptable to us, or
at all.
   8




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Our sale of a significant number of equity shares to third parties may have an adverse effect on
our ability to manage our business, and subsequent sales of large shareholdings by third parties
may impact our share price.
  Any failure to maintain a stable and efficient distribution network could materially and adversely
affect our business and results of operations. In addition, our dependency on one national
distributor to sell our online game points could have a material adverse effect
on our business.
  We rely on services from third parties to carry out our businesses and to deliver our online game points
to end users, and if there is any interruption or deterioration in the quality of these services,
our end users may cease to use our products and services.
  Unexpected network interruptions caused by system failures or other internal or external factors
may lead to user attrition, revenue reductions and may harm our reputation.
   9




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Our business may be harmed if our technology becomes obsolete or if our system infrastructure fails
to operate effectively.
   Our results of operations may be materially and adversely affected if our licensors cannot prevail
on future intellectual property rights claims brought against them by third parties.
  We have been and may be subject to future intellectual property rights claims or other claims,
which could result in substantial costs and diversion of our financial and management resources
away from our business.
   10




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We experience fluctuations in quarterly operating results.
   Our business depends substantially on the continuing efforts of our senior executives, and our
business may be severely disrupted if we lose their services.
   If we are unable to attract, train and retain key individuals and highly skilled employees, our
business may be adversely affected.
  PRC laws and regulations restrict foreign ownership of Internet content provision, Internet culture
operation and Internet publishing licenses, and substantial uncertainties exist with respect to the
application and implementation of PRC laws and regulations.
   11




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We may not be able to get approval for renewing our current foreign games, or for licensing new
foreign games, if the PRC regulatory authorities promote a policy of domestic online game
development and tighten approval criteria for online game imports.
  We depend on Shanghai IT to hold certain operating licenses. If Shanghai IT violates our
contractual arrangements with it, our business could be disrupted and our reputation may be harmed.
  The principal shareholders of Shanghai IT have potential conflicts of interest with us, which may
adversely affect our business.
  Our subsidiaries in China are subject to restrictions on paying dividends or making other payments.
   13




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We have incurred losses starting from the expiration of the license of WoW. We may incur losses in
the future and may not maintain profitability.
   We may not be able to successfully implement our growth strategies.
  We face risks related to health epidemics and other natural disasters.
  We could be liable for breaches of security on our websites and fraudulent transactions by users of
our websites.
   14




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Existing major shareholders have substantial control over us and could delay or prevent a change in
corporate control.
  New income tax laws may increase our tax burden or the tax burden on the holders of our shares or
ADSs, and tax benefits available to us may be reduced or repealed, causing the value of your
investment in us to suffer.
      15




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Strengthened scrutiny over acquisition transactions by the PRC tax authorities may have a negative
impact on our acquisition strategy.
   16




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We have adopted a shareholders rights plan, which, together with the other anti-takeover provisions
of our articles of association, could discourage a third party from acquiring us, which could limit
our shareholders opportunity to sell their shares, including ordinary shares represented by our
ADSs, at a premium.
   We have limited business insurance coverage in China.
  Some of our subsidiaries and an affiliated entity in China engaged in certain business activities
beyond the authorized scope of their respective licenses, and if they are subject to administrative
penalties or fines, our operating results may be adversely affected.
   17




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Failure to achieve and maintain effective internal controls could have a material adverse effect on
our business, results of operations and the trading price of our ADSs.
   We obtained WoW playing time information from a third party and used that information in connection
with our recognition of revenues from the sale of WoW playing time in China during the term of our
license agreement for WoW.
  Risks Related to Doing Business in China
 Our business may be adversely affected by public opinion and government policies in China.
   18




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Adverse changes in economic and political policies of the PRC government could have a material
adverse effect on the overall economic growth of China, which could adversely affect our business.
   The laws and regulations governing the online game industry in China are developing and subject to
future changes. If we fail to obtain or maintain all applicable permits and approvals, our
business and operations could be materially and adversely affected.
   19




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Intensified government regulation of Internet cafés could limit our ability to maintain or increase
our revenues and expand our customer base.
  Regulation and censorship of information disseminated over the Internet in China may adversely
affect our business, and we may be liable for information displayed on, retrieved from, or linked
to our Internet websites.
    20




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Future movements in exchange rates between the U.S. dollar and the RMB may adversely affect the
value of our ADSs.
    21




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Restrictions on currency exchange in China limit our ability to utilize our revenues effectively,
make dividend payments and meet our foreign currency denominated obligations.
  PRC regulations relating to the establishment of offshore special purpose companies by PRC
residents may subject our PRC resident shareholders or us to penalties and fines, and limit our
ability to inject capital into our PRC subsidiaries, limit our subsidiaries ability to increase
their registered capital, distribute profits to us, or otherwise adversely affect us.
      22




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Uncertainties with respect to the PRC legal system could adversely affect us.
  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.
  The continued growth of Chinas Internet market depends on the establishment of adequate
telecommunications infrastructure.
   23




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Risks Related to Our Shares and ADSs
 We were a passive foreign investment company for the taxable year ended December 31, 2009, which
could result in adverse United States federal income tax consequences to U.S. Holders of our ADSs
or ordinary shares.
  The future sales or issuance of a substantial number of our ADSs or ordinary shares could adversely
affect the price of our ADSs.
   The market price for our ADSs may be volatile.
  
    
    actual or anticipated fluctuations in our quarterly operating results;
    
    announcements of new games by us or our competitors;
    
    changes in financial estimates by securities analysts;
    
    price fluctuations of publicly traded securities of other China-based companies
engaging in Internet-related services or other similar businesses;
    
    conditions in the Internet or online game industries;
    
    changes in the economic performance or market valuations of other Internet or online
game companies;
    
    announcements by us or our competitors of significant acquisitions, strategic
partnerships, joint ventures or capital commitments;
    
    fluctuations in the exchange rates between the U.S. dollar and the RMB;
    
    addition or departure of key personnel; and
    
    pending and potential litigation.
  24




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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.
  Your ability to bring an action against us or against our directors and officers, or to enforce a
judgment against us or them, will be limited because we are incorporated in the Cayman Islands,
because we conduct a substantial portion of our operations in China and because the majority of our
directors and officers reside outside of the United States.
  You may not be able to exercise your right to vote.
   25




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Your right to participate in any future rights offerings may be limited, which may cause dilution
to your holdings.
  You may not receive distributions on ordinary shares or any value for them if it is illegal or
impractical to make them available to you.
  You may be subject to limitations on transfer of your ADSs.
  
 ITEM 4.
    
    INFORMATION ON THE COMPANY
 History and Development of the Company
    26




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
    
    Shanghai IT, which holds Internet content provision, Internet culture operation and
Internet publishing licenses;
    
    Shanghai Jiucheng Advertisement, whose business license permits it to conduct
advertisement operations.
    Recent Developments
 Developments Relating to Our Business
 WoW License Agreement
    27




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License of Games and Proprietary Games
  Game
    
    Developer/Licensor
    
    Description
    
    StatusSUN
    
    Webzen, Inc.
    
    3D MMORPG
    
    Commercially launched in China in May 2007GE
    
    Hanbitsoft Inc. and 
IMC Games Co., Ltd.
    
    3D MMORPG
    
    Commercially launched in China in November 2007JiuZhouZhanJi
    
    The9
    
    Web game
    
    Commercially launched in China in April 2009EA Sports FIFA Online 2
    
    EA Swiss Sàrl
    
    Casual soccer game
    
    Commercially launched in China in May 2009Atlantica
    
    Ndoors Corporation
    
    3D MMORPG
    
    Commercially launched in China in June 2009World of Fighter
    
    The9
    
    2D MMORPG
    
    Commercially launched in China in January 2010Audition 2
    
    G10 Entertainment Corp.
    
    Casual dancing game
    
    Preparing for beta testingKingdom Heroes 2 Online
    
    USERJOY Technology Co., Ltd.
    
    3D MMORPG
    
    In closed beta testingShenXianZhuan
    
    Hangzhou Fire Rain Network 
Technology Co., Ltd.
    
    2.5D MMORPG
    
    Preparing for beta testingMiracles: Ultimate X
    
    The9
    
    3D MMORPG
    
    In developmentTiny Tribe
    
    The9
    
    Casual game
    
    In developmentMonster of War
    
    The9
    
    Casual game
    
    In development
 License of SUN from Webzen. Inc.
  License of GE from Hanbitsoft Inc. and IMC Games Co., Ltd.
  License and Investment by EA Swiss Sàrl/EA International (Studio and Publishing) Ltd.
   28




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##### Table of Contents



License of Atlantica from Ndoors Corporation
  Licensing to Third-Parties of World of Fighter
  License of Audition 2 from G10 Entertainment Corp. and Investment in G10 Entertainment Corp.
  License of Kingdom Heroes 2 Online from USERJOY Technology Co., Ltd.
  License of ShenXianZhuan from Fire Rain and Investment in Fire Rain
  Development of our Proprietary Games
    29




---



##### Table of Contents



Investment in Red 5
  Business Overview
      30




---



##### Table of Contents



Products and Services
  MMORPGs.
 
    
    sophisticated 2.5D or 3D graphics which expose players to captivating screen scenes;
    
    player upgrading system which allows players to attain higher game attributes with
their characters as they develop experience and enhanced game capabilities over time;
and
    
    instant messaging system which allows players to communicate with each other during
the game and form groups with other players, thereby coordinating their game skills to
achieve collective objectives.
  Game
    
    Developer/Licensor
    
    Description
    
    StatusSUN
    
    Webzen, Inc.
    
    3D MMORPG
    
    Commercially launched in China in May 2007GE
    
    Hanbitsoft Inc. and IMC 
Games Co., Ltd.
    
    3D MMORPG
    
    Commercially launched in China in November 2007Atlantica
    
    Ndoors Corporation
    
    3D MMORPG
    
    Commercially launched in China in June 2009World of Fighter
    
    The9
    
    2D MMORPG
    
    Commercially launched in China in January 2010Miracles: Ultimate X
    
    The9
    
    3D MMORPG
    
    In developmentKingdom Heroes 2 Online
    
    USERJOY Technology Co., Ltd.
    
    3D MMORPG
    
    In closed beta testingShenXianZhuan
    
    Hangzhou Fire Rain Network 
Technology Co., Ltd.
    
    2.5D MMORPG
    
    Preparing for beta testing
 Casual Games.
  31




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##### Table of Contents



Game
    
    Developer/Licensor
    
    Description
    
    StatusJiuZhouZhanJi
    
    The9
    
    Web game
    
    Commercially launched in China in April 2009EA Sports FIFA Online 2
    
    EA Swiss Sàrl
    
    Casual soccer game
    
    Commercially launched in China in May 2009Audition 2
    
    G10 Entertainment Corp.
    
    Casual dancing game
    
    Preparing for beta testingTiny Tribe
    
    The9
    
    3D casual game
    
    In developmentMonster of War
    
    The9
    
    3D casual game
    
    In development
   Other Products and Services.
 Game Operating Support, Website Solutions and Advertisement Services
 SMS.
 IPTV Services
 Licensing of Proprietary Games.
  32




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##### Table of Contents



Membership Management and Payment System
   Customer Service
   Purchase of In-game Items and Game Playing Time
  Prepaid Cards.
 Prepaid Online Points.
 Online Payment.
  33




---



##### Table of Contents



Pricing, Distribution and Marketing
 Pricing.
 Distribution.
 Marketing.
 Advertising and Online Promotion
 Cross-Marketing
 On-Site Promotion
 In-Game Marketing
 Game Development and Licensing
    34




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##### Table of Contents



Technology
  
    
    servers and network devices located in eight internet data centers throughout China
as of the end of December 2009;
    
    proprietary software, including game monitor tools, that are integrated with our
websites and customer service center operations; and
    
    hardware platform and server sites primarily consisting of Lenovo,
Hewlett-Packard/Compaq, Dell and IBM servers; EMC, HP and Cisco storage systems; and
H3C network gears.
  Competition
   Intellectual Property
   Legal Proceedings
  Government
Regulations
   35




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##### Table of Contents



Regulations
on Internet Content Provision Service, Online Gaming and Internet Publishing
  
    
    Telecommunications Regulations (2000);
    
    The Administrative Rules for Foreign Investments in Telecommunications Enterprises
(2001), as amended in 2008;
    
    The Administrative Measures for Telecommunications Business Operating License
(2009);
    
    The Internet Information Services Administrative Measures (2000);
    
    The Tentative Measures for Administration of Internet Culture (2003), as amended in
2004;
    
    The Notice on Several Issues Relating to the Implementation of The Tentative
Measures for Administration of Internet Culture (2003);
    
    The Tentative Measures for Administration of Internet Publication (2002); and
    
    The Foreign Investment Industrial Guidance Catalogue (2007).
   36




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##### Table of Contents



Circular for Further Strengthening the Administration
of Internet Café and Online Games
  37




---



##### Table of Contents



Regulations
on Internet Content
     38




---



##### Table of Contents



Regulations
on Internet Café
  Regulations
on Privacy Protection
  Import
Regulations
  Regulations
on Intellectual Property Rights
   39




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##### Table of Contents



Regulations
on Foreign Currency Exchange and Dividend Distribution
 Foreign Currency Exchange
 
    
    Foreign Exchange Administration Rules (1996), as amended, or the Exchange Rules; and
    
    Administration Rules of the Settlement, Sale and Payment of Foreign Exchange (1996),
or the Administration Rules.
  Dividend Distribution
 
    
    The Foreign Investment Enterprise Law (1986), as amended; and
    
    Administrative Rules under the Foreign Investment Enterprise Law (2001).
  Regulations
on Foreign Exchange in Certain Onshore and Offshore Transactions
   40




---



##### Table of Contents




    
    prior to establishing or assuming control of an offshore company for the purposes of
financing that offshore company with assets or equity interests in an onshore
enterprise in the PRC, each PRC resident, whether a natural person or a legal entity,
must complete the overseas investment foreign exchange registration procedures with the
local SAFE branch;
    
    an amendment to the registration with the local SAFE branch is required to be filed
by any PRC resident that directly or indirectly holds interests in that offshore
company upon either (1) the injection of equity interests or assets of an onshore
enterprise in the offshore company, or (2) the completion of any overseas fundraising
by such offshore company; and
    
    an amendment to the registration with the local SAFE branch is also required to be
filed by such PRC resident when there is any material change involving a change in the
capital of the offshore company, such as (1) an increase or decrease in its capital,
(2) a transfer or swap of shares, (3) a merger or division, (4) a long-term equity or
debt investment, or (5) the creation of any security interests over the relevant assets
located in China.
     41




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##### Table of Contents



Organizational Structure
  
 Property, Plant and Equipment
  
 ITEM 4A.
    
    UNRESOLVED STAFF COMMENTS
  
 ITEM 5.
    
    OPERATING AND FINANCIAL REVIEW AND PROSPECTS
  Overview
   42




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##### Table of Contents




    
    our revenue composition and sources of revenue;
    
    our cost of services; and
    
    our operating expenses.
  Revenue Composition and Sources of Revenue.
  For the Year Ended
    
    
    For the Year Ended
    
    
    For the Year EndedDecember 31, 2007
    
    
    December 31, 2008
    
    
    December 31, 2009RMB
    
    
    %
    
    
    RMB
    
    
    %
    
    
    RMB
    
    
    US$
    
    
    %(in thousands except percentages)Revenues:Online game
operation
    
    
    1,330,977
    
    
    
    98.6
    
    
    
    1,800,313
    
    
    
    99.7
    
    
    
    795,477
    
    
    
    116,538
    
    
    
    99.1Other revenues
    
    
    19,152
    
    
    
    1.4
    
    
    
    5,817
    
    
    
    0.3
    
    
    
    7,152
    
    
    
    1,048
    
    
    
    0.9Total revenues
    
    
    1,350,129
    
    
    
    100
    
    
    
    1,806,130
    
    
    
    100
    
    
    
    802,629
    
    
    
    117,586
    
    
    
    100
 Online Game Services
   43




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##### Table of Contents



Other Revenues
 Cost of Services .
 Operating Expenses .
 Product Development Expenses
 Sales and Marketing Expenses
 General and Administrative Expenses
  44




---



##### Table of Contents



Impairment
 Recent Impairment Provisions Related to the Non-renewal of the WoW License
  
    
    A provision on a receivable amounting to RMB18.0 million from a customer that
purchased WoW prepaid player cards from the company for distribution, as a result of
the expiration of the WoW license on June 7, 2009 and, among other things, the impact
on the ongoing relationship with the customer;
    
    A RMB3.9 million provision for prepaid royalties;
    
    A RMB22.7 million charge to increase the valuation allowance for deferred tax
assets, which represented incremental income taxes as a result of non-renewal of the
WoW license prior to the evaluation and recording of impairment charges as a result of
the non-renewal of the WoW license;
    
    RMB68.4 million of additional depreciation expense related to computer equipment to
reflect the change to a shorter expected useful life of the underlying assets due to
non-renewal of the WoW license agreement;
    
    A RMB46.5 million provision for prepayment for equipment and a RMB8.7 million
provision on advances to suppliers mainly related to a vendor which had been the
primary supplier of computer servers and related computer equipment. With the
non-renewal of the WoW license, we evaluated a number of factors, including the status
of production of the assets underlying the advance prepayments, our ability to recover
the value of the advances through the possible sale of the fixed assets upon the
completion of production, the ability to utilize the servers upon completion of
production, as well as our ability to recover the amounts advanced to the vendor and as
a result of such assessment, and concluded that a full provision in connection with
such advances and prepayments was necessary;
    
    RMB7.0 million provisions on receivable and prepayments and other current
assets in connection with Game First International Corporation, or GFD,
comprising: (i) a RMB5.6 million provision on prepayments and other current assets.
We assessed the impact of non-renewal of the WoW license on its ongoing
relationship with GFD and the resulting collectability of this receivable, and
concluded collection to be unlikely; and (ii) a RMB1.4 million provision on accounts
receivable; and
    
    A RMB1.7 million provision on inventories.
  45




---



##### Table of Contents




    
    A RMB103.2 million (US$15.1 million) provision for royalty prepayments including
withholding taxes that were paid in 2009 but not consumed prior to the expiration of
the WoW license on June 7, 2009;
    
    RMB40.0 million (US$5.9 million) of additional depreciation expense related to
computer equipment to reflect the change to a shorter expected useful life of the
underlying assets due to the non-renewal of the WoW license agreement;
    
    A RMB30.2 million (US$4.4 million) impairment for goodwill which was deemed
recoverable as of December 31, 2008 based on our companys impairment test that
includes the operating cash flow generated from WoW operation during the period from
January 1 to June 6, 2009, but was no longer recoverable following the expiration of
the WoW license on June 7, 2009; and
    
    A RMB22.1 million (US$3.2 million) provision for additional cost of services related
to the refund of point cards, which is the difference between the face value of the point cards
and the net proceeds our company received in the sales of the respective point cards.
 Holding Company Structure
  Regulations of Internet Business in China
    46




---



##### Table of Contents



Income and Sales Taxes
     47




---



##### Table of Contents



48




---



##### Table of Contents



Critical Accounting Policies
  Revenue Recognition .
 Time
consumption model  WoW services
   Virtual
item / service consumption model  other online game services
   49




---



##### Table of Contents



Product Development.
  Income Taxes.
   Property, Equipment and Software.
   50




---



##### Table of Contents



Intangible assets.
  Goodwill.
 Share-Based Compensation.
   51




---



##### Table of Contents



Available-for-sale investments.
   52




---



##### Table of Contents



Impairment of Equity Investment.
 Impairment of Long-lived Assets and Intangible Assets.
 Noncontrolling interest.
 Results of Operations
  Year Ended December 31,2007
    
    
    2008
    
    
    2009Revenues:Online game services
    
    
    104.0
    %
    
    
    105.2
    %
    
    
    104.6
    %Other revenues
    
    
    1.5
    %
    
    
    0.3
    %
    
    
    0.9
    %Sales taxes
    
    
    (5.5
    )%
    
    
    (5.5
    )%
    
    
    (5.5
    )%Net revenues
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of services
    
    
    (54.7
    )%
    
    
    (58.3
    )%
    
    
    (93.7
    )%Gross profit
    
    
    45.3
    %
    
    
    41.7
    %
    
    
    6.3
    %Operating expenses:Product development
    
    
    (3.2
    )%
    
    
    (4.3
    )%
    
    
    (15.0
    )%Sales and marketing
    
    
    (8.1
    )%
    
    
    (6.1
    )%
    
    
    (14.8
    )%General and administrative
    
    
    (14.1
    )%
    
    
    (18.7
    )%
    
    
    (29.6
    )%Impairment of equipment, intangible assets and
goodwill
    
    
    (1.5
    )%
    
    
    (4.8
    )%
    
    
    (10.4
    )%Total operating expenses
    
    
    (26.9
    )%
    
    
    (33.8
    )%
    
    
    (69.8
    )%Profit (loss) from operations
    
    
    18.4
    %
    
    
    7.9
    %
    
    
    (63.5
    )%Interest income, net
    
    
    4.0
    %
    
    
    3.3
    %
    
    
    4.0
    %Other (expenses) income, net
    
    
    (2.3
    )%
    
    
    (1.1
    )%
    
    
    8.1
    %Income tax (expenses) benefit
    
    
    (0.7
    )%
    
    
    (2.8
    )%
    
    
    0.7
    %Impairment loss on investments
    
    
    (0.0
    )%
    
    
    (1.5
    )%
    
    
    (2.9
    )%Share of loss in equity investments, net of taxes
    
    
    (0.4
    )%
    
    
    (0.1
    )%
    
    
    (0.3
    )%Net income (loss)
    
    
    18.8
    %
    
    
    5.6
    %
    
    
    (53.9
    )%Net loss attributable to noncontrolling interest
    
    
    
    
    
    
    *
    
    
    
    (0.6
    )%Net Income (loss) attributable to holders of
ordinary shares
    
    
    18.8
    %
    
    
    5.7
    %
    
    
    (53.3
    )%
 *
    
    Less than 0.1%  53




---



##### Table of Contents



Year 2009 Compared to Year 2008
 Revenues.
 Online Game Services.
 Other Revenues.
 Cost of Services.
 Operating Expenses.
 Product Development Expenses.
 Sales and Marketing Expenses.
  54




---



##### Table of Contents



General and Administrative Expenses.
 Impairment of equipment, intangible assets and goodwill.
 Net Interest Income.
 Other Income (Expense).
 Income Tax Benefit (Expenses).
 Impairment Loss on Investment.
 Net Income (Loss).
 Net Income (Loss) Attributable to Noncontrolling Interest.
 Net Income (Loss) Attributable to Holders of Ordinary Shares.
  55




---



##### Table of Contents



Year 2008 Compared to Year 2007
 Revenues.
 Online Game Services.
 Other Revenues.
 Cost of Services.
 Operating Expenses.
 Product Development Expenses.
 Sales and Marketing Expenses.
 General and Administrative Expenses.
 Impairment of equipment and intangible assets.
 Net Interest Income.
  56




---



##### Table of Contents



Other Income (Expense).
 Income Tax Benefit (Expense).
 Impairment Loss on Investments.
 Net Income (Loss).
 Net Income (Loss) Attributable to Noncontrolling Interest.
 Net Income (Loss) Attributable to Holders of Ordinary Shares.
 Liquidity and Capital Resources
 Cash Flows and Working Capital
   Year Ended December 31,2007
    
    
    2008
    
    
    2009RMB
    
    
    RMB
    
    
    RMB
    
    
    US$(in thousands)Net cash provided by (used in) operating activities
    
    
    616,596
    
    
    
    692,634
    
    
    
    (106,086
    )
    
    
    (15,542
    )Net cash used in investing activities
    
    
    (461,586
    )
    
    
    (487,513
    )
    
    
    (16,276
    )
    
    
    (2,384
    )Net cash provided by (used in) financing activities
    
    
    1,174,645
    
    
    
    (235,734
    )
    
    
    (356,548
    )
    
    
    (52,235
    )Effect of foreign exchange rate changes on cash
    
    
    (52,220
    )
    
    
    (32,084
    )
    
    
    1,405
    
    
    
    206Net increase (decrease) in cash and cash equivalents
    
    
    1,277,436
    
    
    
    (62,696
    )
    
    
    (477,505
    )
    
    
    (69,955
    )Cash and cash equivalents at beginning of year
    
    
    937,846
    
    
    
    2,215,282
    
    
    
    2,152,586
    
    
    
    315,356Cash and cash equivalents at end of year
    
    
    2,215,282
    
    
    
    2,152,586
    
    
    
    1,675,081
    
    
    
    245,401
  57




---



##### Table of Contents



Operating Activities
  Investing Activities
  Financing Activities
     58




---



##### Table of Contents



Capital Expenditures
 Capital Expenditures.
 Research and Development
  Trend Information
  Off-Balance Sheet Arrangements
  Contractual Obligations
  Payment Due by PeriodLess than
    
    
    
    
    
    
    
    
    
    
    More thanTotal
    
    
    1 year
    
    
    1-2 years
    
    
    3-5 years
    
    
    5 years(in US$)Operating Lease Obligations
    
    
    1,142,851
    
    
    
    888,855
    
    
    
    253,996
    
    
    
    
    
    
    
    
  RMB


    US$Minimum royalty fees
    
    61,400,000


    
    9,000,000
    59




---



##### Table of Contents



Recent Accounting Pronouncements
      60




---



##### Table of Contents



Safe Harbor
  
    
    our ability to successfully launch and operate additional online games licensed by
us in China;
 
    
    our ability to license, develop or acquire additional online games that are
attractive to users;
 
    
    the maintenance and expansion of our relationships with online game developers,
including our existing licensors;
 
    
    uncertainties in and the timeliness of obtaining necessary governmental approvals
and licenses for operating any new online game;
 
    
    risks inherent in the online game business;
 
    
    risks associated with our future acquisitions and investments;
 
    
    our ability to compete successfully against our competitors;
 
    
    risks associated with our corporate structure and the regulatory environment in
China; and
 
    
    other risks outlined in our filings with the Securities and Exchange Commission, or
the SEC, including this annual report on Form 20-F.
  61




---



##### Table of Contents



ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
 Directors and Senior Management
  Directors and Executive Officers
    
    Age
    
    Position/TitleJun Zhu
    
    
    43
    
    
    Chairman of the Board and Chief Executive OfficerCheung Kin Au-Yeung
    
    
    62
    
    
    DirectorDavin Alexander Mackenzie(1)(2)
    
    
    49
    
    
    Independent DirectorChao Y. Wang(1)(2)
    
    
    45
    
    
    Independent DirectorKa Keung Yeung(1)(2)
    
    
    52
    
    
    Independent DirectorXiaowei Chen*
    
    
    42
    
    
    PresidentGeorge Lai
    
    
    33
    
    
    Chief Financial OfficerLingdong Huang
    
    
    33
    
    
    Vice PresidentSwun Woo Park
    
    
    37
    
    
    Vice PresidentChris Shen
    
    
    41
    
    
    Vice PresidentYong Wang
    
    
    43
    
    
    Vice PresidentXudong He
    
    
    37
    
    
    Vice PresidentHuanxin Jiang
    
    
    37
    
    
    Vice President
 (1)
    
    Member of Compensation Committee.(2)
    
    Member of Audit Committee.*
    
    Ms. Xiaowei Chen will not renew her employment contract
with our company, which expires on
May 16, 2010. Mr. Jun Zhu, our Chairman and Chief Executive
Officer, will assume Ms. Chens
duties as President of our company after this date.  Biographical Information
 Jun Zhu
  62




---



##### Table of Contents



Cheung Kin Au-Yeung
 Davin Alexander Mackenzie
 Chao Y. Wang
 Ka Keung Yeung
 Xiaowei Chen
 George Lai
 Lingdong Huang
  63




---



##### Table of Contents



Swun Woo (Tony) Park
 Chris Shen
 Yong Wang
 Xudong He
 Huanxin Jiang
 Compensation of Directors and Executive Officers
   64




---



##### Table of Contents



Amended 2004 Stock Option Plan
  Total Number of Ordinary
    
    
    ExerciseShares Underlying Options
    
    
    Price RangeGranted
    
    
    (in US$)
    
    
    Expiration dateJun Zhu
    
    
    950,000
    
    
    
    7.36
    
    
    May 31, 2012Yong Wang
    
    
    *
    
    
    
    17.00
    
    
    November 25, 2009Chris Shen
    
    
    *
    
    
    
    7.36
    
    
    November 25, 2009 - March 6, 2012Chao Y. Wang
    
    
    *
    
    
    
    7.36
    
    
    November 25, 2009 - November 17, 2013Ka Keung Yeung
    
    
    *
    
    
    
    7.36
    
    
    November 25, 2009 - November 17, 2013Davin Alexander Mackenzie
    
    
    *
    
    
    
    7.36
    
    
    November 25, 2009 - November 17, 2013Lingdong Huang
    
    
    *
    
    
    
    7.36-17.00
    
    
    November 25, 2009 - March 6, 2012Cheung Kin Au-Yeung
    
    
    *
    
    
    
    7.36
    
    
    November 17, 2013Xiaowei Chen
    
    
    *
    
    
    
    7.36
    
    
    November 17, 2013George Lai
    
    
    *
    
    
    
    7.36
    
    
    November 17, 2013All Directors and Senior
Executive Officers as a
Group
    
    
    1,440,452
    
    
    
    7.36-17
    
    
    November 25, 2009 to November 17, 2013Other Individuals as a
Group (other than those
listed above)
    
    
    917,049
    
    
    
    12.04-30.90
    
    
    November 25, 2009 - March 6, 2012
 
 
    
    Excluding 464,690 options forfeited as of April 16, 2010 pursuant to the terms of our
Amended 2004 Stock Option Plan.*
    
    The options held by each of these directors and officers represent less than 1% of our total
outstanding shares.  Termination of Options
 Administration
 Vesting Schedule
  65




---



##### Table of Contents



Option Agreement
 Option Exercise
 Third-Party Acquisition
 Changes in Capitalization and Other Adjustments
 Termination of Plan
 Board Practices
  Board of Directors
   66




---



##### Table of Contents



Committees of the Board of Directors
 Audit Committee.
  
    
    selecting the independent auditors and pre-approving all auditing and non-auditing
services permitted to be performed by the independent auditors;
 
    
    reviewing and approving all proposed related-party transactions;
 
    
    discussing the annual audited financial statements with management and the
independent auditors;
 
    
    annually reviewing and reassessing the adequacy of our audit committee charter;
 
    
    meeting separately and periodically with management and the independent auditors;
 
    
    reporting regularly to the full board of directors; and
 
    
    such other matters that are specifically delegated to our audit committee by our
board of directors from time to time.
 Compensation Committee.
 
    
    reviewing and determining the compensation for our seven most senior executives;
 
    
    reviewing the compensation of our other employees and recommending any proposed
changes to the management;
 
    
    reviewing and approving director and officer indemnification and insurance matters;
 
    
    reviewing and approving any employee loans in an amount equal to or greater than
US$60,000 (or such amount as from time to time announced by the relevant regulatory
bodies as requiring the approval of the Committee); and
 
    
    reviewing periodically and approving any long-term incentive compensation or equity
plans, programs or similar arrangements, annual bonuses, employee pensions and welfare
benefits plans.
 Duties of Directors
   67




---



##### Table of Contents



Terms of Directors
    Voting Agreement
  Employees
  Share Ownership
     68




---



##### Table of Contents



Ordinary Shares Beneficially OwnedName
    
    Number(1)
    
    
    %(2)Directors and executive officers:Jun Zhu(3)
    
    
    7,349,530
    
    
    
    27.6
    %Cheung Kin Au-Yeung
    
    
    *
    
    
    
    *Davin Alexander Mackenzie
    
    
    *
    
    
    
    *Chao Y. Wang
    
    
    *
    
    
    
    *Ka Keung Yeung
    
    
    *
    
    
    
    *Xiaowei Chen
    
    
    *
    
    
    
    *George Lai
    
    
    *
    
    
    
    *Xudong He
    
    
    *
    
    
    
    *Lingdong Huang
    
    
    *
    
    
    
    *Swun Woo Park
    
    
    *
    
    
    
    *Chris Shen
    
    
    *
    
    
    
    *Yong Wang
    
    
    *
    
    
    
    *Huanxi Jiang
    
    
    *
    
    
    
    *All Directors and Senior Executive Officers as a Group(4)
    
    
    7,698,155
    
    
    
    28.6
    %Principal shareholders:Incsight Limited(5)
    
    
    6,399,530
    
    
    
    24.6
    %Bosma Limited(6)
    
    
    4,612,522
    
    
    
    18.1
    %EA International (Studio and Publishing) Ltd.(7)
    
    
    3,251,246
    
    
    
    12.7
    %QVT Financial LP(8)
    
    
    1,393,688
    
    
    
    5.5
    %
 
 *
    
    Less than 1% of our total outstanding shares.(1)
    
    Beneficial ownership is determined in accordance with the rules of the Securities and
Exchange Commission, and includes voting or investment power with respect to the securities.
In computing the number of shares beneficially owned by a person and the percentage ownership
of that person, we have included shares that the person has the right to acquire within 60
days of April 15, 2010, including through the exercise of any option, warrant or other right
or the conversion of any other security.(2)
    
    Percentage of beneficial ownership is based on 25,512,745 ordinary shares outstanding as of
April 15, 2010, as well as the shares underlying share options and warrants exercisable by
such person or group within 60 days from April 15, 2010.(3)
    
    Consists of (i) 5,847,334 ordinary shares held by Incsight Limited, a British Virgin Islands
company 100% owned by Mr. Zhu, as jointly reported by Incsight Limited and Jun Zhu, (ii)
options to purchase 950,000 shares held by Mr. Zhu and (iii) warrants to purchase 552,196
ordinary shares of our company that are also held by Incsight Limited. The business address
for Mr. Zhu is Building No. 3, 690 Bibo Road, Zhangjiang Hi-tech Park, Pudong New Area,
Shanghai 201203, Peoples Republic of China.(4)
    
    Includes ordinary shares, ordinary shares issuable upon
exercise of options and restricted shares, held by all of our
directors and executive officers as a group.(5)
    
    Consists of (i) 5,847,334 ordinary shares held by Incsight Limited, a British Virgin Islands
company 100% owned by Jun Zhu, our chairman and chief executive officer, as jointly reported
by Incsight Limited and Jun Zhu, and (ii) warrants to purchase 552,196 ordinary shares of our
company. The business address for Incsight Limited is Building No. 3, 690 Bibo Road,
Zhangjiang Hi-tech Park, Pudong New Area, Shanghai 201203, Peoples Republic of China.(6)
    
    Consists of 4,612,522 ordinary shares held by Bosma Limited, as reported by Bosma Limited on
the Schedule 13G/A filed with the SEC on February 13, 2009. Bosma Limited, a British Virgin
Islands corporation, is wholly-owned by Morningside VC Limited, a British Virgin Islands
corporation, which is in turn wholly-owned by The HCB Trust, an Isle of Man trust, the trustee
of which is Dunn Investments Limited, an Isle of Man corporation. Dunn Investments Limited
controls indirectly, through The HCB Trust, a 100% interest in Bosma Limited, and as a result
has the sole power to vote and dispose of the shares of The9 Limited held by Bosma Limited.
Dunn Investments Limited is controlled by its board of directors, consisting of Lorna Irene
Cameron and Philip Alvaro Salazar, both of whom expressly disclaim beneficial ownership of the
shares held by Bosma Limited. The address for Bosma Limited is Pasea Estate, Road Town,
Tortola, British Virgin Islands.(7)
    
    Consists of 3,251,246 ADSs, each representing one ordinary share of our company, owned by EA
International (Studio and Publishing) Ltd., a Bermuda corporation, as it reported on the
Schedule 13G/A filed with the SEC on December 23, 2009. The address for EA International
(Studio and Publishing) Ltd. is LOM Building, 27 Reid Street, Hamilton, HM 11, Bermuda.(8)
    
    Consists of 1,259,213 ordinary shares held by QVT Fund LP and 134,475 ordinary shares held by
Quintessence Fund L.P., as reported by QVT Financial LP on the Schedule 13G/A February 10,
2010. QVT Financial LP is the investment manager for QVT Fund LP and Quintessence Fund LP and
has the power to direct the vote and disposition of ordinary shares held by each fund. QVT
Financial LP is a Delaware limited liability company, with an address at 1177 Avenue of the
Americas, 9th Floor, New York, New York 10036.  69




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ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
 Major Shareholders
  Related Party Transactions
 Arrangements with Affiliated PRC Entities
      70




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Master Agreement for WoW
 Domain Name License Agreement www.the9.com
 Exclusive Technical Service Agreement
 Shareholder Voting Proxy Agreements
 Call Option Agreements
 Loan Agreements
 Equity Pledge Agreements
  71




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Investments in Affiliated Companies
    Stock Option Grants
  Interests of Experts and Counsel
  
 ITEM 8. FINANCIAL INFORMATION
 Consolidated Statements and Other Financial Information
  Legal Proceedings
      72




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Glaser v. The9 Ltd. et
al. ODea v. The9 Ltd. et al.
  Dividend Policy
    Significant Changes
  
 ITEM 9. THE OFFER AND LISTING
 Offer and Listing Details
   73




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##### Table of Contents



Sales PriceHigh
    
    
    LowAnnual Highs and Lows2005
    
    
    28.51
    
    
    
    13.692006
    
    
    32.87
    
    
    
    15.502007
    
    
    52.44
    
    
    
    19.562008
    
    
    28.50
    
    
    
    9.972009
    
    
    16.64
    
    
    
    6.28Quarterly Highs and LowsFirst Quarter 2008
    
    
    23.75
    
    
    
    15.05Second Quarter 2008
    
    
    27.80
    
    
    
    18.70Third Quarter 2008
    
    
    28.50
    
    
    
    16.00Fourth Quarter 2008
    
    
    18.46
    
    
    
    9.97First Quarter 2009
    
    
    16.64
    
    
    
    9.16Second Quarter 2009
    
    
    15.90
    
    
    
    8.62Third Quarter 2009
    
    
    10.20
    
    
    
    7.08Fourth Quarter 2009
    
    
    8.97
    
    
    
    6.28First Quarter 2010
    
    
    8.66
    
    
    
    6.35Monthly Highs and LowsSeptember 2009
    
    
    8.70
    
    
    
    7.08October 2009
    
    
    8.97
    
    
    
    7.25December 2009
    
    
    8.16
    
    
    
    7.18January 2010
    
    
    8.66
    
    
    
    6.78February 2010
    
    
    7.34
    
    
    
    6.35March 2010
    
    
    7.49
    
    
    
    6.64April 2010
(through April 15, 2010)
    
    
    7.33
    
    
    
    6.84
 Plan of Distribution
  Markets
  Selling Shareholders
  Dilution
  Expenses of the Issue
   74




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ITEM 10. ADDITIONAL INFORMATION
 Share Capital
  Memorandum and Articles of Association
   Ordinary Shares
 General .
 Dividends .
 Voting Rights .
   Transfer of Shares
 Liquidation .
  75




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Calls on Shares and Forfeiture of Shares .
 Redemption of Shares .
 Variation of Rights of Shares .
 Inspection of Books and Records.
 Differences in Corporate Law
  Mergers and Similar
 
    
    a merger means the merging of two or more constituent companies and the vesting of
their undertaking, property and liabilities in one of such companies as the surviving
company; and
 
    
    a consolidation means the combination of two or more constituent companies into a
consolidated company and the vesting of the undertaking, property and liabilities of
such companies to the consolidated company.
  
    
    a special resolution of the shareholders of each constituent company voting together
as one class, if the shares to be issued to each shareholder in the consolidated or
surviving company will have the same rights and economic value as the shares held in
the relevant constituent company; or
 
    
    a shareholder resolution of each constituent company passed by a majority in number
representing 75% in value of the shareholders voting together as one class.
   76




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
    
    the statutory provisions as to majority vote have been met;
 
    
    the shareholders have been fairly represented at the meeting in question;
 
    
    the arrangement is such that a businessman would reasonably approve; and
 
    
    the arrangement is not one that would more properly be sanctioned under some other
provision of the Companies Law.
   Shareholders Suits .
 Directors Fiduciary Duties
  77




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Shareholder Action by Written Consent
 Shareholder Proposals
 Cumulative Voting
 Removal of Directors
 Transactions with Interested Shareholders
   78




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Dissolution; Winding Up
 Variation of Rights of Shares
 Amendment of Governing Documents
 Anti-Takeover Provisions in Memorandum and Articles of Association.
 
    
    authorize our board of directors to issue preference shares in one or more series
and to designate the price, rights, preferences, privileges and restrictions of such
preference shares without any further vote or action by our shareholders; and
 
    
    create a classified board of directors pursuant to which our directors are elected
for staggered terms, which means that shareholders can only elect, or remove, a limited
number of directors in any given year.
  Rights of Non-Resident or Foreign Shareholders
 Inspection of Books and Records
 Shareholder Rights Plan
   79




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Material Contracts
  Exchange Controls
     Taxation
   80




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##### Table of Contents



Cayman Islands Taxation
  United States Federal Income Taxation
   
    
    banks and other financial institutions;
 
    
    insurance companies;
 
    
    regulated investment companies;
 
    
    real estate investment trusts;
 
    
    broker-dealers;
 
    
    traders that elect to use a mark-to-market method of accounting;
 
    
    U.S. expatriates;
 
    
    tax-exempt entities;
 
    
    persons liable for alternative minimum tax;
 
    
    persons holding an ADS or ordinary share as part of a straddle, hedging, conversion
or integrated transaction;
 
    
    persons that actually or constructively own 10% or more of the total combined voting
power of all classes of our voting stock;
 
    
    partnerships or other pass-through entities, or persons holding ADSs or ordinary
 shares through such entities; or
 
    
    persons who acquired ADSs or ordinary shares pursuant to the exercise of any
employee share option or otherwise as compensation.
  81




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INVESTORS ARE URGED TO CONSULT THEIR TAX ADVISORS REGARDING THE APPLICATION OF THE U.S. FEDERAL TAX
RULES TO THEIR PARTICULAR CIRCUMSTANCES AS WELL AS THE
STATE, LOCAL, FOREIGN AND OTHER TAX CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION
OF ADSs OR ORDINARY SHARES.
  
    
    an individual who is a citizen or resident of the United States;
 
    
    a corporation (or other entity taxable as a corporation for U.S. federal income tax
purposes) organized under the laws of the United States, any State thereof or the
District of Columbia;
 
    
    an estate, the income of which is subject to U.S. federal income taxation regardless
of its source; or
 
    
    a trust that (1) is subject to the primary supervision of a court within the United
States and the control of one or more U.S. persons for all substantial decisions or (2)
has a valid election in effect under applicable U.S. Treasury regulations to be treated
as a U.S. person.
    Passive Foreign Investment Company
  
    
    at least 75% of its gross income for such year is passive income; or
 
    
    at least 50% of the value of its assets (based on an average of the quarterly values
of the assets) during such year is attributable to assets that produce passive income
or are held for the production of passive income (the asset test).
   82




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You are strongly urged to consult your tax advisors as to the
possibility and consequences of making a deemed sale election if we cease to be a PFIC and such
election becomes available to you.
  
    
    the excess distribution or recognized gain will be allocated ratably over your
holding period for the ADSs or ordinary shares;
 
    
    the amount allocated to the current taxable year, and any taxable years in your
holding period prior to the first taxable year in which we were a PFIC, will be treated
as ordinary income; and
 
    
    the amount allocated to each other taxable year will be subject to tax at the
highest tax rate in effect for individuals or corporations, as applicable, for each
such year and the interest charge generally applicable to underpayments of tax will be
imposed on the resulting tax attributable to each such year.
    83




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##### Table of Contents



de minimis
 pro rata
  YOU ARE STRONGLY URGED TO CONSULT YOUR TAX ADVISORS REGARDING THE IMPACT OF OUR BEING A PFIC
FOR 2009 ON YOUR INVESTMENT IN OUR ADSs AND ORDINARY SHARES AS WELL AS THE APPLICATION OF THE PFIC
RULES AND THE POSSIBILITY OF MAKING A MARK-TO-MARKET ELECTION.
 Taxation of Dividends and Other Distributions on the ADSs or Ordinary Shares
   84




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Taxation of Disposition of the ADSs or Ordinary Shares
   85




---



##### Table of Contents



Information Reporting and Backup Withholding
   Dividends and Paying Agents
  Statement by Experts
  Documents on Display
 www.sec.gov
   86




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Subsidiary Information
  
 ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Interest Rate Risk.
 Foreign Exchange Risk.
   Global Economic Conditions.
  87




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##### Table of Contents



ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
 Debt Securities
  Warrants and Rights
  Other Securities
  American Depositary Shares
  Persons depositing or withdrawing shares must pay:
    
    For:$5.00 (or less) per 100 ADSs (or portion of 100
ADSs)
    
    
    
    Issuance of ADSs, including issuances
resulting from a distribution of shares or
rights or other property
    
    Cancellation of ADSs for the purpose of
withdrawal, including if the deposit agreement
terminates$.02 (or less) per ADS
    
    
    
    Any cash distribution to ADS registered holdersA fee equivalent to the fee that would be payable
if securities distributed to you had been shares
and the shares had been deposited for issuance of
ADSs
    
    
    
    Distribution of securities distributed to
holders of deposited securities that are
distributed by the depositary to ADS
registered holders$.02 (or less) per ADSs per calendar year
    
    
    
    Depositary servicesRegistration or transfer fees
    
    
    
    Transfer and registration of shares on our
share register to or from the name of the
depositary or its agent when you deposit or
withdraw sharesExpenses of the depositary
    
    
    
    Cable, telex and facsimile transmissions (when
expressly provided in the deposit agreement)
    
    Converting foreign currency to U.S. dollarsTaxes and other governmental charges the
depositary or the custodian have to pay on any
ADS or share underlying an ADS, for example,
stock transfer taxes, stamp duty or withholding
taxes
    
    
    
    As necessaryAny charges incurred by the depositary or its 
agents for servicing the deposited securities
    
    
    
    As necessary
  88




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PART II
 
 ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
  
 ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
 Shareholder Rights Plan
    Use of Proceeds
  
 ITEM 15. CONTROLS AND PROCEDURES
 Disclosure
Controls and Procedures
   89




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Managements Report on Internal Control over Financial Reporting
    Attestation Report
of the Independent Registered Public Accounting Firm
      90




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Changes in Internal Control over Financial Reporting
  
 ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT
  
 ITEM 16B. CODE OF ETHICS
  
 ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
  2008
    
    
    2009RMB
    
    
    RMB
    
    
    US$Audit fees(1)
    
    
    9,010,045
    
    
    
    7,067,896
    
    
    
    1,035,453Audit-related fees(2)
    
    
    2,089,865
    
    
    
    1,652,614
    
    
    
    242,109Tax fees(3)
    
    
    753,641
    
    
    
    155,030
    
    
    
    22,712All other fees
    
    
    10,239
    
    
    
    
    
    
    
    
 
 (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.  91




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##### Table of Contents



(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
the issue of consent letters and other audit-related services for the years ended December
31, 2008 and 2009.(3)
    
    Tax fees means the fees billed for tax compliance services, including the preparation of
tax returns and tax consultations, such as tax advice related to employee share-based
compensation. 
 ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
  
 ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
  ApproximateTotal Number of
    
    
    Dollar Value ofADSs Purchased as
    
    
    Shares that MayPart of Publicly
    
    
    Yet BeTotal Number of
    
    
    Average Price
    
    
    Announced
    
    
    PurchasedPeriod
    
    ADSs Purchased
    
    
    Paid per ADS(1)
    
    
    Plan(2)
    
    
    Under the Plan(1)November 1 - November 30, 2008
    
    
    156,176
    
    
    $
    11.55
    
    
    
    156,176
    
    
    $
    1,804,383December 1 - December 31, 2008
    
    
    633,961
    
    
    $
    12.47
    
    
    
    633,961
    
    
    $
    7,903,532January 1 - January 31, 2009
    
    
    320,920
    
    
    $
    14.49
    
    
    
    320,920
    
    
    $
    4,651,718February 1 - February 28, 2009
    
    
    365,099
    
    
    $
    14.21
    
    
    
    365,099
    
    
    $
    5,189,669March 1 - March 31, 2009
    
    
    681,594
    
    
    $
    11.98
    
    
    
    681,594
    
    
    $
    8,168,228April 1 - April 30, 2009
    
    
    357,497
    
    
    $
    13.87
    
    
    
    357,497
    
    
    $
    4,958,363Total
    
    
    2,515,247
    
    
    $
    12.99
    
    
    
    2,515,247
    
    
    $
    32,675,893
  (1)
    
    Each of our ADSs represents one ordinary share.(2)
    
    The repurchase plan was publicly announced on September 12, 2008 and provides for the
repurchase of up to $50.0 million of our ADSs. The program ended on September 12, 2009. 
 ITEM 16F. CHANGE IN REGISTRANTS CERTIFYING ACCOUNTANT
     92




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
 
    
 ITEM 16G. CORPORATE GOVERNANCE
    93




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##### Table of Contents



PART III
 
 ITEM 17. FINANCIAL STATEMENTS
  
 ITEM 18. FINANCIAL STATEMENTS
  
 ITEM 19. EXHIBITS
 Exhibit Number
    
    Document1.1
    
    
    Amended and Restated Memorandum and Articles of Association of The9
Limited (incorporated by reference to Exhibit 1.1 from our Annual Report
on Form 20-F filed with the Securities and Exchange Commission on July 15,
2009)2.1
    
    
    Specimen American Depositary Receipt of The9 Limited (incorporated by
reference to Exhibit 4.1 from our Registration Statement on Form F-1
Amendment No.2 (file no. 333-120810) filed with the Securities and
Exchange Commission on December 9, 2004)2.2
    
    
    Specimen Certificate for Ordinary Shares of The9 Limited (incorporated by
reference to Exhibit 4.2 from our Registration Statement on Form F-1 (file
no. 333-120810) filed with the Securities and Exchange Commission on
November 26, 2004)4.1
    
    
    Form of The9 Limited Stock Option Plans (incorporated by reference to
Exhibit 10.1 from our Registration Statement on Form F-1 (file no.
333-120810) on November 26, 20044.2
    
    
    Form of Indemnification Agreement with the Registrants directors and
executive officers (incorporated by reference to Exhibit 10.2 from our
Registration Statement on Form F-1 Amendment No.1 (file no. 333-120810)
filed with the Securities and Exchange Commission on November 30, 2004)4.3
    
    
    Form of Employment Agreement between the Registrant and a Senior Executive
Officer of the Registrant (incorporated by reference to Exhibit 10.3 from
our Registration Statement on Form F-1 Amendment No.1 (file no.
333-120810) filed with the Securities and Exchange Commission on November
30, 2004)4.4
    
    
    Translation of Exclusive Technical Support Service Agreement, dated
January 14, 2004, between Shanghai IT and The9 Computer (incorporated by
reference to Exhibit 10.4 from our Registration Statement on Form F-1
(file no. 333-120810) filed with the Securities and Exchange Commission on
November 26, 2004)4.5
    
    
    Translation of Master Agreement, dated January 1, 2004, among 9Webzen
Shanghai, The9 Computer and Shanghai IT (incorporated by reference to
Exhibit 10.5 from our Registration Statement on Form F-1 (file no.
333-120810) filed with the Securities and Exchange Commission on November
26, 2004)4.6
    
    
    Translation of Form of Call Option Agreement among The9 Computer, Shanghai
IT and other parties therein (incorporated by reference to Exhibit 10.6
from our Registration Statement on Form F-1 Amendment No.1 (file no.
333-120810) filed with the Securities and Exchange Commission on November
30, 2004)
  94




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##### Table of Contents



Exhibit Number
    
    Document4.7
    
    
    Translation of Form of Equity Pledge Agreement among The9 Computer,
Shanghai Advertisement and the other parties therein (incorporated by
reference to Exhibit 10.7 from our Registration Statement on Form F-1
(file no. 333-120810) filed with the Securities and Exchange Commission on
November 30, 2004)4.8
    
    
    Translation of Form of Loan Agreement between The9 Computer and a
shareholder of the Registrant (incorporated by reference to Exhibit 10.8
from our Registration Statement on Form F-1 Amendment No.1 (file no.
333-120810) filed with the Securities and Exchange Commission on November
30, 2004)4.9
    
    
    Translation of Domain Name License Agreement, dated January 1, 2004,
between GameNow.net (Hong Kong) Limited and Shanghai IT (incorporated by
reference to Exhibit 10.9 from our Registration Statement on Form F-1
(file no. 333-120810) filed with the Securities and Exchange Commission on
November 26, 2004)4.10
    
    
    Joint Venture Agreement, dated September 10, 2002, between Webzen Inc. and
GameNow.net (Hong Kong) Limited (incorporated by reference to Exhibit
10.10 from our Registration Statement on Form F-1 (file no. 000-53051)
filed with the Securities and Exchange Commission on November 26, 2004)4.11
    
    
    Shareholders Agreement, dated March 10, 2004, by and between China
Interactive (Singapore) Pte Ltd. and GameNow.net (Hong Kong) Limited
(incorporated by reference to Exhibit 10.13 from our Registration
Statement on Form F-1 (file no. 333-120810) filed with the Securities and
Exchange Commission on November 26, 2004)4.12
    
    
    License and Distribution Agreement, dated February 3, 2004, by and between
Vivendi Games, Inc. (formally known as Vivendi Universal Games Inc.) and
China The9 Interactive (incorporated by reference to Exhibit 10.14 from
our Registration Statement on Form F-1 (file no. 333-120810) filed with
the Securities and Exchange Commission on November 26, 2004)4.13
    
    
    Term Sheet, dated March 10, 2004, by and among C9I, China Interactive
(Singapore) Pte Ltd. and GameNow.net (Hong Kong) Limited (incorporated by
reference to Exhibit 10.15 from our Registration Statement on Form F-1
(file no. 333-120810) filed with the Securities and Exchange Commission on
November 26, 2004)4.14
    
    
    Amendment to Term Sheet, dated September 29, 2004, by and between China
Interactive (Singapore) Pte Ltd. and GameNow.net (Hong Kong) Limited
(incorporated by reference to Exhibit 10.16 from our Registration
Statement on Form F-1 (file no. 333-120810) filed with the Securities and
Exchange Commission on November 26, 2004)4.15
    
    
    Translation of Shanghai Municipality Property Lease Commodity Housing
Pre-lease Contract, dated July 4, 2003, between The9 Computer Technology
Consulting (Shanghai) Co., Ltd. and Shanghai CITIC Square Co., Ltd. with
respect to the premises where the Registrants principal executive offices
are located (incorporated by reference to Exhibit 10.18 from our
Registration Statement on Form F-1 (file no. 333-120810) filed with the
Securities and Exchange Commission on November 26, 2004)4.16
    
    
    Subscription and Purchase Agreement, dated April 2, 2004, by and among
The9 Limited, Object Software Limited and other parties thereto
(incorporated by reference to Exhibit 10.19 from our Registration
Statement on Form F-1 (file no. 333-120810) filed with the Securities and
Exchange Commission on November 26, 2004)
  95




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Exhibit Number
    
    Document4.17
    
    
    Shareholders Agreement, dated April 16, 2004, by and among The9 Limited,
Object Software Limited and its shareholders party thereto (incorporated
by reference to Exhibit 10.20 from our Registration Statement on Form F-1
(file no. 333-120810) filed with the Securities and Exchange Commission on
November 26, 2004)4.18
    
    
    Memorandum of Agreement, dated November 9, 2004, between The9 Limited and
Object Software Limited (incorporated by reference to Exhibit 10.21 from
our Registration Statement on Form F-1 (file no. 333-120810) filed with
the Securities and Exchange Commission on November 26, 2004)4.19
    
    
    Software License Agreement, dated September 20, 2004, among Hanbitsoft,
Inc., IMC Games, Co., Ltd. and GameNow.net (Hong Kong) Limited
(incorporated by reference to Exhibit 10.22 from our Registration
Statement on Form F-1 (file no. 333- 120810) filed with the Securities and
Exchange Commission on November 26, 2004)4.20
    
    
    Translation of Mystina Online Cooperative Agreement, dated July 19, 2004,
between Lager (Beijing) Information Co., Ltd and The9 Limited
(incorporated by reference to Exhibit 10.23 from our Registration
Statement on Form F-1 (file no. 333-120810) filed with the Securities and
Exchange Commission on November 26, 2004)4.21
    
    
    Translation of Capital Subscription Agreement, dated October 19, 2004,
among Beijing Wanwei Sky Technology Co., Ltd., its shareholders and
Shanghai IT (incorporated by reference to Exhibit 10.24 from our
Registration Statement on Form F-1 (file no. 333-120810) filed with the
Securities and Exchange Commission on November 26, 2004)4.22
    
    
    Translation of Shanghai Municipality Property Lease Commodity Housing
Pre-lease Contract, dated May 17, 2005, between The9 Computer Technology
Consulting (Shanghai) Co., Ltd. and Shanghai Zhangjiang Port of
Microelectronics Co. Ltd., with respect to the premises where the
Registrants principal executive offices are located (incorporated by
reference to Exhibit 4.22 from our Annual Report on Form 20-F filed with
the Securities and Exchange Commission on June 30, 2006)4.23
    
    
    Translation of Presale Agreement, dated March 17, 2005, between The9
Computer Technology Consulting (Shanghai) Co., Ltd. and Shanghai
Zhangjiang Port of Microelectronics Co. Ltd (incorporated by reference to
Exhibit 4.23 from our Annual Report on Form 20-F filed with the Securities
and Exchange Commission on June 30, 2006)4.24
    
    
    Loan Agreement, dated December 25, 2004, between China Interactive
(Singapore) Pte. Ltd. and GameNow.net (Hong Kong) Limited (incorporated by
reference to Exhibit 4.24 from our Annual Report on Form 20-F filed with
the Securities and Exchange Commission on June 30, 2006)4.25
    
    
    Share Purchase Agreement, dated December 25, 2004, between China
Interactive (Singapore) Pte. Ltd. and GameNow.net (Hong Kong) Limited
(incorporated by reference to Exhibit 4.25 from our Annual Report on Form
20-F filed with the Securities and Exchange Commission on June 30, 2006)4.26
    
    
    Loan Agreement, dated April 4, 2005, between China Interactive (Singapore)
Pte. Ltd. and GameNow.net (Hong Kong) Limited (incorporated by reference
to Exhibit 4.26 from our Annual Report on Form 20-F filed with the
Securities and Exchange Commission on June 30, 2006)
  96




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##### Table of Contents



Exhibit Number
    
    Document4.27
    
    
    Pledge of Shares, dated April 4, 2005, between China Interactive
(Singapore) Pte. Ltd. and GameNow.net (Hong Kong) Limited (incorporated by
reference to Exhibit 4.27 from our Annual Report on Form 20-F filed with
the Securities and Exchange Commission on June 30, 2006)4.28
    
    
    Option, dated April 4, 2005, between China Interactive (Singapore) Pte.
Ltd. and GameNow.net (Hong Kong) Limited (incorporated by reference to
Exhibit 4.28 from our Annual Report on Form 20-F filed with the Securities
and Exchange Commission on June 30, 2006)4.29
    
    
    Share Purchase Agreement, dated August 26, 2005, between China Interactive
(Singapore) Pte. Ltd. and GameNow.net (Hong Kong) Limited (incorporated by
reference to Exhibit 4.29 from our Annual Report on Form 20-F filed with
the Securities and Exchange Commission on June 30, 2006)4.30
    
    
    Share Purchase Agreement, dated December 14, 2005, between GameNow.net
(Hong Kong) Limited and Webzen Inc. (incorporated by reference to Exhibit
4.30 from our Annual Report on Form 20-F filed with the Securities and
Exchange Commission on June 30, 2006)4.31
    
    
    Addendum to Joint Venture Agreement, dated December 16, 2005, between
Webzen Inc. and GameNow.net (Hong Kong) Limited (incorporated by reference
to Exhibit 4.31 from our Annual Report on Form 20-F filed with the
Securities and Exchange Commission on June 30, 2006)4.32
    
    
    List of Counterparties and Translation of Form of Shanghai Municipality
Commodity Property Sale Contract (incorporated by reference to Exhibit
4.32 from our Annual Report on Form 20-F filed with the Securities and
Exchange Commission on June 30, 2006).4.33
    
    
    Translation of Share Transfer Agreement, dated August 14, 2006, between
Qin Jie, Wang Yong, Zhu Jun and Shanghai The9 Information Technology Co.,
Limited (incorporated by reference to Exhibit 4.33 from our Annual Report
on Form 20-F filed with the Securities and Exchange Commission on June 30,
2006)4.34
    
    
    Translation of Novation Agreement, dated August 14, 2006, between Qin Jie,
Wang Yong, Zhu Jun, The9 Computer Technology Consulting (Shanghai) Co.,
Limited and Shanghai The9 Information Technology Co., Limited
(incorporated by reference to Exhibit 4.34 from our Annual Report on Form
20-F filed with the Securities and Exchange Commission on June 30, 2006)4.35
    
    
    Translation of Supplementary Agreement between Wang Yong, Zhu Jun and The9
Computer Technology Consulting (Shanghai) Co., Limited (incorporated by
reference to Exhibit 4.35 from our Annual Report on Form 20-F filed with
the Securities and Exchange Commission on June 30, 2006)4.36
    
    
    Amended 2004 Stock Option Plan (incorporated by reference to Exhibit 4.36
from our Annual Report on Form 20-F filed with the Securities and Exchange
Commission on June 30, 2006)4.37
    
    
    Investment Agreement by and between The9 Limited and EA International
(Studio and Publishing) Ltd. (incorporated by reference to Exhibit 4.37
from our Annual Report on Form 20-F filed with the Securities and Exchange
Commission on June 30, 2008)8.1
    *
    
    Subsidiaries of The9 Limited
  97




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##### Table of Contents



Exhibit Number
    
    Document11.1
    
    
    Amended Code of Business Conduct and Ethics of The9 Limited (incorporated
by reference to Exhibit 11.1 to our annual report on Form 20-F filed with
the Securities and Exchange Commission on June 30, 2005)12.1
    *
    
    CEO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 200212.2
    *
    
    CFO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 200213.1
    *
    
    CEO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 200213.2
    *
    
    CFO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 200215.1
    *
    
    Consent of Maples and Calder15.2
    *
    
    Consent of Fangda Partners15.3
    *
    
    Consent of Deloitte Touche Tohmatsu CPA Ltd.15.4
    *
    
    Consent of PricewaterhouseCoopers Zhong Tian CPAs Limited Company15.5
    *
    
    Letter of PricewaterhouseCoopers Zhong Tian CPAs Limited Company to SEC
regarding the disclosure in Item 16F
 
 *
    
    Filed with this Form 20-F.  98




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##### Table of Contents



SIGNATURES
  THE9 LIMITEDBy
    /s/ Jun ZhuName:
    Jun ZhuTitle:
    Chairman and Chief Executive Officer




---



##### Table of Contents



THE9 LIMITED
 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 PageReport of Independent Registered Public Accounting Firm
    
    
    F-2Consolidated Statements of Operations and Comprehensive Income (Loss)
for the Years ended December 31, 2007, 2008 and 2009
    
    
    F-4Consolidated Balance Sheets as of December 31, 2008 and 2009
    
    
    F-6Consolidated Statements of Changes in Equity for the Years
ended December 31, 2007, 2008 and 2009
    
    
    F-7Consolidated Statements of Cash Flows for the Years ended December 31, 2007, 2008 and 2009
    
    
    F-9Notes to Consolidated Financial Statements for the Years ended December 31, 2007, 2008 and 2009
    
    
    F-11
  F-1




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
      Internal Control  Integrated Framework
  
  F-2




---



##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 TO THE SHAREHOLDERS OF THE9 LIMITED:
       F-3




---



##### Table of Contents



THE9 LIMITED
 
 CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
 FOR THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009
 Notes
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2009RMB
    
    
    RMB
    
    
    RMB
    
    
    US$(Note 3)Revenues:Online game services
    
    
    
    
    
    
    1,330,977,217
    
    
    
    1,800,313,225
    
    
    
    795,476,714
    
    
    
    116,537,997Other revenues
    
    
    
    
    
    
    19,152,227
    
    
    
    5,816,996
    
    
    
    7,152,637
    
    
    
    1,047,8671,350,129,444
    
    
    
    1,806,130,221
    
    
    
    802,629,351
    
    
    
    117,585,864Sales taxes
    
    
    
    
    
    
    (70,522,616
    )
    
    
    (94,639,527
    )
    
    
    (42,113,498
    )
    
    
    (6,169,662
    )Net revenues
    
    
    
    
    
    
    1,279,606,828
    
    
    
    1,711,490,694
    
    
    
    760,515,853
    
    
    
    111,416,202Cost of services
    
    
    
    
    
    
    (700,046,829
    )
    
    
    (997,948,540
    )
    
    
    (712,472,751
    )
    
    
    (104,377,848
    )Gross profit
    
    
    
    
    
    
    579,559,999
    
    
    
    713,542,154
    
    
    
    48,043,102
    
    
    
    7,038,354Operating expenses:Product development
    
    
    
    
    
    
    (41,430,087
    )
    
    
    (73,819,607
    )
    
    
    (114,443,552
    )
    
    
    (16,766,075
    )Sales and marketing
    
    
    
    
    
    
    (103,263,236
    )
    
    
    (103,725,123
    )
    
    
    (112,517,602
    )
    
    
    (16,483,922
    )General and administrative
    
    
    
    
    
    
    (180,297,691
    )
    
    
    (319,298,044
    )
    
    
    (225,051,424
    )
    
    
    (32,970,220
    )Impairment of equipment,
intangible assets and goodwill
    
    
    4,9,10,11,13
    
    
    
    (18,704,416
    )
    
    
    (82,149,755
    )
    
    
    (78,871,643
    )
    
    
    (11,554,761
    )Total operating expenses
    
    
    
    
    
    
    (343,695,430
    )
    
    
    (578,992,529
    )
    
    
    (530,884,221
    )
    
    
    (77,774,978
    )Profit (loss) from operations
    
    
    
    
    
    
    235,864,569
    
    
    
    134,549,625
    
    
    
    (482,841,119
    )
    
    
    (70,736,624
    )Interest income, net
    
    
    
    
    
    
    50,655,699
    
    
    
    56,690,807
    
    
    
    30,501,101
    
    
    
    4,468,436Other (expenses) income, net
    
    
    
    
    
    
    (30,053,620
    )
    
    
    (18,967,099
    )
    
    
    61,840,303
    
    
    
    9,059,656Income (loss) before income taxes, impairment loss on
investments and share of loss in equity investments
    
    
    
    
    
    
    256,466,648
    
    
    
    172,273,333
    
    
    
    (390,499,715
    )
    
    
    (57,208,532
    )Income tax (expense) benefit
    
    
    15
    
    
    
    (9,268,632
    )
    
    
    (47,928,533
    )
    
    
    5,535,866
    
    
    
    811,009Income (loss) before impairment loss on investments and
share of loss in equity investments
    
    
    
    
    
    
    247,198,016
    
    
    
    124,344,800
    
    
    
    (384,963,849
    )
    
    
    (56,397,523
    )Impairment loss on investments
    
    
    7,8
    
    
    
    (627,380
    )
    
    
    (25,922,363
    )
    
    
    (22,412,269
    )
    
    
    (3,283,416
    )Share of loss in equity investments, net of taxes
    
    
    7
    
    
    
    (5,678,682
    )
    
    
    (2,241,135
    )
    
    
    (2,555,515
    )
    
    
    (374,385
    )Net income (loss)
    
    
    
    
    
    
    240,891,954
    
    
    
    96,181,302
    
    
    
    (409,931,633
    )
    
    
    (60,055,324
    )Less: Net loss attributable to noncontrolling interest
    
    
    
    
    
    
    
    
    
    
    (654,734
    )
    
    
    (4,779,226
    )
    
    
    (700,161
    )Net income (loss) attributable to holders of ordinary shares
    
    
    
    
    
    
    240,891,954
    
    
    
    96,836,036
    
    
    
    (405,152,407
    )
    
    
    (59,355,163
    )Other comprehensive income (loss):Unrealized gain on available-for-sale investments
    
    
    8
    
    
    
    13,643,131
    
    
    
    
    
    
    
    
    
    
    
    Transfer to earnings of other-than-temporary impairment loss
on available-for-sale investments
    
    
    8
    
    
    
    
    
    
    
    
    
    
    
    (13,643,131
    )
    
    
    (1,998,730
    )Comprehensive income (loss) attributable
to holders of
ordinary shares
    
    
    
    
    
    
    254,535,085
    
    
    
    96,836,036
    
    
    
    (418,795,538
    )
    
    
    (61,353,893
    )
  F-4




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##### Table of Contents



Notes
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2009RMB
    
    
    RMB
    
    
    RMB
    
    
    US$(Note 3)Net income (loss) attributable to holders of ordinary shares per share
    
    
    23- Basic
    
    
    
    
    
    
    8.79
    
    
    
    3.50
    
    
    
    (15.94
    )
    
    
    (2.34
    )- Diluted
    
    
    23
    
    
    
    8.72
    
    
    
    3.50
    
    
    
    (15.94
    )
    
    
    (2.34
    )Weighted average number of shares outstanding
    
    
    23- Basic
    
    
    
    
    
    
    27,406,263
    
    
    
    27,664,687
    
    
    
    25,414,620
    
    
    
    25,414,620- Diluted
    
    
    23
    
    
    
    27,640,626
    
    
    
    27,704,201
    
    
    
    25,414,620
    
    
    
    25,414,620
   F-5




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##### Table of Contents



THE9 LIMITED
 
 CONSOLIDATED BALANCE SHEETS
 AS OF DECEMBER 31, 2008 AND 2009
 December 31,
    
    
    December 31,
    
    
    December 31,Notes
    
    
    2008
    
    
    2009
    
    
    2009RMB
    
    
    RMB
    
    
    US$(Note 3)ASSETSCurrent assets:Cash and cash equivalents
    
    
    
    
    
    
    2,152,585,574
    
    
    
    1,675,081,345
    
    
    
    245,400,803Short-term investments
    
    
    
    
    
    
    68,039,221
    
    
    
    
    
    
    
    Accounts receivable, net of
allowance for doubtful accounts of
2008: RMB21.3 million, 2009: RMB22.2 million (US$3.2 million)
    
    
    
    
    
    
    8,323,084
    
    
    
    920,214
    
    
    
    134,812Due from related party
    
    
    22
    
    
    
    637,708
    
    
    
    1,110,424
    
    
    
    162,678Advances to suppliers
    
    
    4
    
    
    
    1,435,781
    
    
    
    44,132,089
    
    
    
    6,465,388Prepayments and other current assets
    
    
    
    
    
    
    68,371,912
    
    
    
    77,896,385
    
    
    
    11,411,885Prepaid royalties
    
    
    4,6
    
    
    
    138,843,227
    
    
    
    
    
    
    
    Deferred costs
    
    
    4,6
    
    
    
    55,748,737
    
    
    
    1,516,601
    
    
    
    222,183Deferred tax assets, current
    
    
    15
    
    
    
    
    
    
    
    2,139,896
    
    
    
    313,497Total current assets
    
    
    
    
    
    
    2,493,985,244
    
    
    
    1,802,796,954
    
    
    
    264,111,246Investments in equity investees
    
    
    7
    
    
    
    291,642,529
    
    
    
    308,806,125
    
    
    
    45,240,353Available-for-sale investments
    
    
    8
    
    
    
    29,218,400
    
    
    
    
    
    
    
    Property, equipment and software
    
    
    9
    
    
    
    200,034,094
    
    
    
    75,977,200
    
    
    
    11,130,723Goodwill
    
    
    10
    
    
    
    30,199,751
    
    
    
    
    
    
    
    Intangible assets
    
    
    11
    
    
    
    136,129,801
    
    
    
    51,628,286
    
    
    
    7,563,587Land use right
    
    
    12
    
    
    
    81,798,755
    
    
    
    79,877,847
    
    
    
    11,702,171Long-term deposits
    
    
    
    
    
    
    
    
    
    
    603,910
    
    
    
    88,473Deferred tax assets, non-current
    
    
    15
    
    
    
    
    
    
    
    5,267,185
    
    
    
    771,647Total assets
    
    
    
    
    
    
    3,263,008,574
    
    
    
    2,324,957,507
    
    
    
    340,608,200LIABILITIESCurrent liabilities:Accounts payable
    
    
    
    
    
    
    29,758,563
    
    
    
    35,013,675
    
    
    
    5,129,532Income tax payable
    
    
    
    
    
    
    56,680
    
    
    
    29,947
    
    
    
    4,387Other taxes payable
    
    
    
    
    
    
    99,416,815
    
    
    
    6,270,518
    
    
    
    918,636Advances from customers
    
    
    4
    
    
    
    143,464,990
    
    
    
    11,154,437
    
    
    
    1,634,134Deferred revenue
    
    
    4
    
    
    
    201,645,952
    
    
    
    10,933,464
    
    
    
    1,601,762Refund of game points
    
    
    4
    
    
    
    
    
    
    
    196,401,440
    
    
    
    28,772,974Other payables and accruals
    
    
    16
    
    
    
    69,423,536
    
    
    
    51,704,425
    
    
    
    7,574,741Total current liabilities
    
    
    
    
    
    
    543,766,536
    
    
    
    311,507,906
    
    
    
    45,636,166Commitments and contingencies
    
    
    25EQUITYThe9 Limited
shareholders equity:Ordinary shares (US$0.01 par value;
100,000,000 shares authorized,
26,817,688 shares issued and
outstanding as of December 31, 2008,
and 25,121,645 shares issued and
outstanding as of December 31, 2009)
    
    
    
    
    
    
    2,190,645
    
    
    
    2,051,712
    
    
    
    300,578Additional paid-in capital
    
    
    
    
    
    
    2,128,607,581
    
    
    
    2,069,616,975
    
    
    
    303,200,600Statutory reserves
    
    
    24
    
    
    
    24,836,354
    
    
    
    28,071,982
    
    
    
    4,112,569Accumulated other comprehensive income
    
    
    
    
    
    
    13,643,131
    
    
    
    
    
    
    
    Retained earnings (deficit)
    
    
    
    
    
    
    549,964,327
    
    
    
    (88,364,685
    )
    
    
    (12,945,500
    )Total The9 Limited shareholders equity
    
    
    
    
    
    
    2,719,242,038
    
    
    
    2,011,375,984
    
    
    
    294,668,247Noncontrolling interest
    
    
    
    
    
    
    
    
    
    
    2,073,617
    
    
    
    303,787Total equity
    
    
    
    
    
    
    2,719,242,038
    
    
    
    2,013,449,601
    
    
    
    294,972,034Total liabilities and equity
    
    
    
    
    
    
    3,263,008,574
    
    
    
    2,324,957,507
    
    
    
    340,608,200
   F-6




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##### Table of Contents



THE9 LIMITED
 
 CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
 FOR THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009
 The9
Limited shareholders equityOrdinary shares(US$0.01 par value)Number of
    
    
    
    
    
    
    Additional paid-in
    
    
    Statutory
    
    
    Accumulated other
    
    
    Retained earnings
    
    
    Noncontrolling
    
    
    Totalshares
    
    
    Par value
    
    
    capital
    
    
    reserves
    
    
    comprehensive income
    
    
    (deficit)
    
    
    interest
    
    

equityRMB
    
    
    RMB
    
    
    RMB
    
    
    RMB
    
    
    RMB
    
    
    RMB
    
    
    RMBBalance as of December 31, 2006
    
    
    24,688,038
    
    
    
    2,041,673
    
    
    
    941,786,807
    
    
    
    20,745,422
    
    
    
    
    
    
    
    371,584,385
    
    
    
    
    
    
    
    1,336,158,287Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    240,891,954
    
    
    
    
    
    
    
    240,891,954Issuance of ordinary shares
    
    
    4,506,829
    
    
    
    344,944
    
    
    
    1,251,501,403
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,251,846,347Issuance of ordinary shares from stock option
exercise
    
    
    179,436
    
    
    
    13,785
    
    
    
    24,136,264
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    24,150,049Repurchase and retirement of American
Depositary Shares(ADSs) (Note 18)
    
    
    (611,115
    )
    
    
    (49,939
    )
    
    
    (45,635,968
    )
    
    
    
    
    
    
    
    
    
    
    (61,641,478
    )
    
    
    
    
    
    
    (107,327,385
    )Employee share based compensation (Note 21)
    
    
    
    
    
    
    
    
    
    
    46,728,166
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    46,728,166Unrealized gain on available-for-sale
investments (Note 8)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,643,131
    
    
    
    
    
    
    
    
    
    
    
    13,643,131Balance as of December 31, 2007
    
    
    28,763,188
    
    
    
    2,350,463
    
    
    
    2,218,516,672
    
    
    
    20,745,422
    
    
    
    13,643,131
    
    
    
    550,834,861
    
    
    
    
    
    
    
    2,806,090,549Net income(loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    96,836,036
    
    
    
    (654,734
    )
    
    
    96,181,302Recognition of noncontrolling interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    654,734
    
    
    
    654,734Issuance of ordinary shares from stock option
exercise
    
    
    72,583
    
    
    
    5,067
    
    
    
    8,840,640
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,845,707Repurchase and retirement of ADSs (Note 18)
    
    
    (2,018,083
    )
    
    
    (164,885
    )
    
    
    (150,799,327
    )
    
    
    
    
    
    
    
    
    
    
    (93,615,638
    )
    
    
    
    
    
    
    (244,579,850
    )Employee share based compensation (Note 21)
    
    
    
    
    
    
    
    
    
    
    52,049,596
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    52,049,596Appropriations to statutory reserves (Note 24)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,090,932
    
    
    
    
    
    
    
    (4,090,932
    )
    
    
    
    
    
    
    Balance as of December 31, 2008
    
    
    26,817,688
    
    
    
    2,190,645
    
    
    
    2,128,607,581
    
    
    
    24,836,354
    
    
    
    13,643,131
    
    
    
    549,964,327
    
    
    
    
    
    
    
    2,719,242,038
  F-7




---



##### Table of Contents



The9 Limited shareholders equityOrdinary shares(US$0.01 par value)Number of
    
    
    
    
    
    
    Additional paid-in
    
    
    Statutory
    
    
    Accumulated other
    
    
    Retained earnings
    
    
    Noncontrollingshares
    
    
    Par value
    
    
    capital
    
    
    reserves
    
    
    comprehensive income
    
    
    (deficit)
    
    
    interest
    
    
    TotalRMB
    
    
    RMB
    
    
    RMB
    
    
    RMB
    
    
    RMB
    
    
    RMB
    
    
    RMBNet loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (405,152,407
    )
    
    
    (4,779,226
    )
    
    
    (409,931,633
    )Recognition of noncontrolling
interest in exchange for
product development expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,094,220
    
    
    
    3,094,220Dividend distribution (Note 17)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (201,028,477
    )
    
    
    
    
    
    
    (201,028,477
    )Issuance of ordinary shares
from stock option
exercise (Note 21)
    
    
    29,067
    
    
    
    1,985
    
    
    
    1,458,898
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,460,883Repurchase and retirement of
ADSs (Note 18)
    
    
    (1,725,110
    )
    
    
    (140,918
    )
    
    
    (127,927,178
    )
    
    
    
    
    
    
    
    
    
    
    (28,912,500
    )
    
    
    
    
    
    
    (156,980,596
    )Employee share-based
compensation (Note 21)
    
    
    
    
    
    
    
    
    
    
    70,234,857
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,001,440
    
    
    
    71,236,297Appropriations to statutory
reserves (Note 24>)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,235,628
    
    
    
    
    
    
    
    (3,235,628
    )
    
    
    
    
    
    
    Transfer to earnings of
other-than-temporary
impairment loss on
available-for-sale investment
(Note 8)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (13,643,131
    )
    
    
    
    
    
    
    
    
    
    
    (13,643,131
    )Conversion of a loan into
equity of a variable interest entity subsidiary (VIE subsidiary)
    
    
    
    
    
    
    
    
    
    
    (2,757,183
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,757,183
    
    
    
    Balance as of December 31, 2009
    
    
    25,121,645
    
    
    
    2,051,712
    
    
    
    2,069,616,975
    
    
    
    28,071,982
    
    
    
    
    
    
    
    (88,364,685
    )
    
    
    2,073,617
    
    
    
    2,013,449,601Balance as of December 31,
2009 (US$ except share data,
Note 3)
    
    
    25,121,645
    
    
    
    300,578
    
    
    
    303,200,600
    
    
    
    4,112,569
    
    
    
    
    
    
    
    (12,945,500
    )
    
    
    303,787
    
    
    
    294,972,034
   F-8




---



##### Table of Contents



THE9 LIMITED
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 FOR THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009
 Notes
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2009RMB
    
    
    RMB
    
    
    RMB
    
    
    US$(Note 3)Cash flows from operating activities:Net income (loss)
    
    
    
    
    
    
    240,891,954
    
    
    
    96,181,302
    
    
    
    (409,931,633
    )
    
    
    (60,055,324
    )Adjustments for:Deferred taxes
    
    
    15
    
    
    
    (29,083,755
    )
    
    
    34,474,878
    
    
    
    (7,407,081
    )
    
    
    (1,085,144
    )Gain on disposal of property,
equipment and software
    
    
    
    
    
    
    (275
    )
    
    
    (29,717
    )
    
    
    (490,369
    )
    
    
    (71,840
    )Impairment of intangible assets
    
    
    11
    
    
    
    18,704,416
    
    
    
    73,248,491
    
    
    
    27,507,199
    
    
    
    4,029,827Impairment of goodwill
    
    
    4,10
    
    
    
    
    
    
    
    
    
    
    
    30,199,751
    
    
    
    4,424,289Impairment loss on investments
    
    
    7,8
    
    
    
    627,380
    
    
    
    25,922,363
    
    
    
    22,412,269
    
    
    
    3,283,416Impairment on equipment
    
    
    9
    
    
    
    
    
    
    
    8,901,264
    
    
    
    21,164,693
    
    
    
    3,100,645Depreciation and amortization of
property, equipment and software
    
    
    9
    
    
    
    122,658,272
    
    
    
    207,787,590
    
    
    
    123,028,739
    
    
    
    18,023,812Amortization of land use right
    
    
    12
    
    
    
    1,440,684
    
    
    
    1,920,910
    
    
    
    1,920,908
    
    
    
    281,415Amortization of intangible assets
    
    
    11
    
    
    
    87,865,492
    
    
    
    88,886,444
    
    
    
    49,481,516
    
    
    
    7,249,083Share of loss in equity investments,
net of taxes
    
    
    7
    
    
    
    5,678,682
    
    
    
    2,241,135
    
    
    
    2,555,515
    
    
    
    374,385Allowance for doubtful accounts
    
    
    
    
    
    
    
    
    
    
    20,733,448
    
    
    
    855,130
    
    
    
    125,277Provision for prepaid royalties and
deferred costs
    
    
    4,6
    
    
    
    
    
    
    
    3,882,516
    
    
    
    160,069,079
    
    
    
    23,450,253Provision for advances to suppliers
and prepayment for equipment
    
    
    4
    
    
    
    
    
    
    
    55,191,282
    
    
    
    
    
    
    
    Provision for prepayments and other
current assets
    
    
    
    
    
    
    
    
    
    
    8,065,933
    
    
    
    
    
    
    
    Exchange loss(gain)
    
    
    
    
    
    
    51,039,667
    
    
    
    31,657,480
    
    
    
    (1,405,166
    )
    
    
    (205,858
    )Stock based compensation expense
    
    
    21
    
    
    
    46,728,166
    
    
    
    52,049,596
    
    
    
    71,236,297
    
    
    
    10,436,176Recognition of noncontrolling
interest in exchange for product
development expenses
    
    
    
    
    
    
    
    
    
    
    654,734
    
    
    
    3,094,220
    
    
    
    453,306Change in accounts receivable
    
    
    
    
    
    
    (12,029,785
    )
    
    
    (6,999,641
    )
    
    
    6,547,740
    
    
    
    959,249Change in due from related party
    
    
    
    
    
    
    
    
    
    
    (637,708
    )
    
    
    (472,716
    )
    
    
    (69,253
    )Change in advances to suppliers
    
    
    
    
    
    
    924,191
    
    
    
    (1,195,620
    )
    
    
    (42,696,308
    )
    
    
    (6,255,044
    )Change in prepayments and other
current assets
    
    
    
    
    
    
    (14,820,065
    )
    
    
    (38,849,005
    )
    
    
    32,128,649
    
    
    
    4,706,874Change in prepaid royalties
    
    
    
    
    
    
    (44,379,175
    )
    
    
    (70,788,361
    )
    
    
    17,227,594
    
    
    
    2,523,857Change in deferred costs
    
    
    
    
    
    
    (14,434,071
    )
    
    
    (7,989,724
    )
    
    
    15,778,691
    
    
    
    2,311,591Change in long-term deposits
    
    
    
    
    
    
    (454,212
    )
    
    
    454,212
    
    
    
    (603,910
    )
    
    
    (88,473
    )Change in accounts payable
    
    
    
    
    
    
    38,986,999
    
    
    
    (14,360,918
    )
    
    
    5,529,144
    
    
    
    810,024Change in due to related parties
    
    
    
    
    
    
    (255,745
    )
    
    
    (77,052
    )
    
    
    
    
    
    
    Change in income tax payable
    
    
    
    
    
    
    2,329,457
    
    
    
    (2,272,777
    )
    
    
    (26,733
    )
    
    
    (3,916
    )Change in other taxes payable
    
    
    
    
    
    
    31,645,034
    
    
    
    44,182,027
    
    
    
    (93,146,297
    )
    
    
    (13,646,010
    )Change in advances from customers
    
    
    
    
    
    
    30,115,182
    
    
    
    25,308,833
    
    
    
    (104,601,759
    )
    
    
    (15,324,244
    )Change in deferred revenue
    
    
    
    
    
    
    55,613,580
    
    
    
    34,729,841
    
    
    
    (41,111,862
    )
    
    
    (6,022,922
    )Change in other payables and accruals
    
    
    
    
    
    
    (3,195,793
    )
    
    
    19,360,340
    
    
    
    5,071,097
    
    
    
    742,920Net cash provided by (used in)
operating activities
    
    
    
    
    
    
    616,596,280
    
    
    
    692,634,096
    
    
    
    (106,085,603
    )
    
    
    (15,541,629
    )
  F-9




---



##### Table of Contents



2007
    
    
    2008
    
    
    2009
    
    
    2009RMB
    
    
    RMB
    
    
    RMB
    
    
    US$Cash flows from investing activities:Cash paid for equity investees and
available-for-sale investments
    
    
    (10,000,000
    )
    
    
    (299,365,918
    )
    
    
    (26,837,000
    )
    
    
    (3,931,643
    )Loan receivable
    
    
    
    
    
    
    
    
    
    
    (13,660,000
    )
    
    
    (2,001,201
    )Proceeds from disposal of investments in
equity investees
    
    
    38,691,099
    
    
    
    
    
    
    
    
    
    
    
    Cash paid for short-term investments
    
    
    
    
    
    
    (795,162,471
    )
    
    
    
    
    
    
    Proceeds from maturities of short-term
investments
    
    
    
    
    
    
    728,000,000
    
    
    
    68,039,221
    
    
    
    9,967,802Proceeds from disposal of property,
equipment and software
    
    
    8,415
    
    
    
    184,110
    
    
    
    532,644
    
    
    
    78,033Purchase of property, equipment and software
    
    
    (269,214,504
    )
    
    
    (96,515,362
    )
    
    
    (20,452,845
    )
    
    
    (2,996,359
    )Purchase of land use right
    
    
    (85,160,349
    )
    
    
    
    
    
    
    
    
    
    
    Purchase of intangible assets
    
    
    (135,910,465
    )
    
    
    (24,652,900
    )
    
    
    (23,897,622
    )
    
    
    (3,501,021
    )Net cash used in investing activities
    
    
    (461,585,804
    )
    
    
    (487,512,541
    )
    
    
    (16,275,602
    )
    
    
    (2,384,389
    )Cash flows from financing activities:Proceeds from stock option exercise
    
    
    30,126,359
    
    
    
    8,845,707
    
    
    
    1,460,883
    
    
    
    214,020Proceeds from issuance of ordinary shares
    
    
    1,251,846,347
    
    
    
    
    
    
    
    
    
    
    
    Dividend paid
    
    
    
    
    
    
    
    
    
    
    (201,028,477
    )
    
    
    (29,450,838
    )Repurchase of ADSs
    
    
    (107,327,385
    )
    
    
    (244,579,850
    )
    
    
    (156,980,596
    )
    
    
    (22,997,787
    )Net cash provided by (used in) financing
activities
    
    
    1,174,645,321
    
    
    
    (235,734,143
    )
    
    
    (356,548,190
    )
    
    
    (52,234,605
    )Effect of foreign exchange rate changes on
cash
    
    
    (52,219,757
    )
    
    
    (32,083,695
    )
    
    
    1,405,166
    
    
    
    205,858Net change in cash and cash equivalents
    
    
    1,277,436,040
    
    
    
    (62,696,283
    )
    
    
    (477,504,229
    )
    
    
    (69,954,765
    )Cash and cash equivalents, beginning of year
    
    
    937,845,817
    
    
    
    2,215,281,857
    
    
    
    2,152,585,574
    
    
    
    315,355,568Cash and cash equivalents, end of year
    
    
    2,215,281,857
    
    
    
    2,152,585,574
    
    
    
    1,675,081,345
    
    
    
    245,400,803Supplemental disclosure of cash flow
information:Cash paid for income taxes
    
    
    36,739,365
    
    
    
    23,405,934
    
    
    
    6,454,702
    
    
    
    945,619Supplemental disclosure of non-cash
investing and financing activities:Accrual related to purchase of property,
equipment and software
    
    
    1,615,962
    
    
    
    1,072,640
    
    
    
    736,608
    
    
    
    107,914Accrual related to the purchase of
intangible assets
    
    
    3,652,300
    
    
    
    
    
    
    
    
    
    
    
    Conversion of a loan into equity of a VIE
subsidiary
    
    
    
    
    
    
    
    
    
    
    2,757,183
    
    
    
    403,930
   F-10




---



##### Table of Contents



THE9 LIMITED
 
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  FOR THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009
 1. ORGANIZATION AND NATURE OF OPERATIONS
  Date of
    
    Place of
    
    
    
    Interest heldName of entity
    
    incorporation
    
    incorporation
    
    Relationship
    
    Direct
    
    
    IndirectGameNow.net (Hong Kong)
Limited (GameNow Hong Kong)
    
    January-00
    
    HongKong
    
    Subsidiary
    
    
    100
    %
    
    
    The9 Computer Technology
Consulting (Shanghai) Co.,
Limited. (The9 Computer)
    
    June-00
    
    PRC
    
    Subsidiary
    
    
    
    
    
    
    100
    %China The9 Interactive Limited
(C9I)
    
    October-03
    
    HongKong
    
    Subsidiary
    
    
    
    
    
    
    100
    %China The9 Interactive
(Shanghai) Co., Limited (C9I
Shanghai)
    
    February-05
    
    PRC
    
    Subsidiary
    
    
    
    
    
    
    100
    %9Dream Limited (9Dream)
    
    July-05
    
    HongKong
    
    Subsidiary
    
    
    100
    %
    
    
    China The9 Interactive
(Beijing) Co., Limited (C9I
Beijing)
    
    March-07
    
    PRC
    
    Subsidiary
    
    
    
    
    
    
    100
    %Jiu Jing Era Information
Technology (Beijing) Limited
(Jiu Jing)
    
    April-07
    
    PRC
    
    Subsidiary
    
    
    
    
    
    
    100
    %Jiu Tuo (Shanghai) Information
Technology Co., Ltd. (Jiu
Tuo)
    
    July-07
    
    PRC
    
    Subsidiary
    
    
    
    
    
    
    100
    %Asian Success development
Limited (Asian Success)
    
    August-07
    
    HongKong
    
    Subsidiary
    
    
    100
    %
    
    
    China Crown Technology
Limited (China Crown
Technology)
    
    November-07
    
    HongKong
    
    Subsidiary
    
    
    100
    %
    
    
    Champ Base Development Limited
(Champ Base)
    
    January-08
    
    HongKong
    
    Subsidiary
    
    
    100
    %
    
    
    The9 Development Center
Limited (TDC)
    
    June-08
    
    HongKong
    
    Subsidiary
    
    
    100
    %
    
    
    TDC (Asia) Limited (TDC Asia)
    
    April-09
    
    BVI
    
    Subsidiary
    
    
    
    
    
    
    100
    %Shanghai The9 Information
Technology Co., Limited
(Shanghai IT)
    
    September-00
    
    PRC
    
    VIE subsidiary
    
    None (Note 5)Shanghai Jiucheng
Advertisement Co., Limited.
(Shanghai
Jiucheng Advertisement)
    
    April-07
    
    PRC
    
    VIE subsidiary
    
    None (Note 5)Nanjing Youqu Software
Development Co., Limited
(Nanjing Youqu)
    
    November-07
    
    PRC
    
    VIE subsidiary
    
    45% (Note 5)Hangzhou Fire Rain Network
Technology Co., Limited (Fire
Rain)
    
    December-08
    
    PRC
    
    VIE subsidiary
    

    20% (Note 5)Nanjing Star-matrix Software
Information & Technology Co.,
Limited (Xingli Fangzhen)
    
    March-09
    
    PRC
    
    VIE subsidiary
    
    45% (Note 5)Shenzheng Fatiaocheng
Technology Co., Limited
(Fatiaocheng)
    
    June-09
    
    PRC
    
    VIE subsidiary
    
    None (Note 5)
  F-11




---



##### Table of Contents



2. PRINCIPAL ACCOUNTING POLICIES
 <1> Basis of presentation
  <2> Consolidation
   <3> Use of estimates
   F-12




---



##### Table of Contents



<4> Foreign currency translation
  <5> Cash and cash equivalents
   <6> Short-term investments
  <7> Allowance for doubtful accounts
  <8> Prepaid royalties and deferred costs
  (i)
    
    Royalties paid to the licensors of games are initially recognized as prepaid royalties when
paid and subsequently recognized as deferred costs upon the customers online registration and
activation of their cards or online points, and then ultimately recognized as cost of services
in the consolidated statements of operations and comprehensive income (loss) based upon the
actual usage of the game playing time by the customers or when the likelihood that the Group
would provide further services to those customers becomes remote.
 (ii)
    
    Royalties payable to the licensors upon players charging their accounts are initially
recorded as deferred costs upon the customers online registration and activation of their
cards or online points, and recognized as an account payable. Deferred costs are recognized as
costs of services in the consolidated statements of operations and comprehensive income (loss)
based upon the actual usage of the game points by end customers.
  F-13




---



##### Table of Contents



<9> Investments in equity investees
   <10> Available-for-sale investments
   <11> Property, equipment and software
  Leasehold improvements
    
    Respective term of
the leases or the estimated useful lives of
the leasehold improvementsComputer and equipment
    
    3 to 4 yearsSoftware
    
    5 yearsOffice furniture and fixtures
    
    3 yearsMotor vehicles
    
    5 yearsOffice buildings
    
    10 to 20 years
  F-14




---



##### Table of Contents



<12> Goodwill
  <13> Intangible assets
    <14> Land use right
   F-15




---



##### Table of Contents



<15> Impairment of long-lived assets
  <16> Revenue recognition
 Online game services
  Time consumption model  WoW services
   Virtual item / service consumption model  other online game services
    F-16




---



##### Table of Contents



Other revenues
  Short message services
  Game operating support, website solutions and advertisement
  Other revenues
  Sales tax
  <17> Advances from customers, deferred revenue, and deferred costs
  <18> Cost of services
   F-17




---



##### Table of Contents



<19> Product development costs
    <20> Sales and marketing expenses
   <21> Government grants
  <22> Share-based compensation
    F-18




---



##### Table of Contents



<23> Leases
  <24> Income taxes
   <25> Noncontrolling interest
    F-19




---



##### Table of Contents



<26> Earnings (loss) per share
  <27> Segment reporting
  <28> Comprehensive income (loss)
  <29> Certain risks and concentration
    <30> Fair value measurements
   F-20




---



##### Table of Contents



<31> Financial instruments
  <32> Recent accounting pronouncements
     F-21




---



##### Table of Contents



3. CONVENIENCE TRANSLATION
   F-22




---



##### Table of Contents



4. IMPAIRMENT AND CHARGES RELATED TO EXPIRATION OF WOW LICENSE
   
    
    A provision on a receivable amounting to RMB18.0 million from a customer that purchased
WoW prepaid player cards from the Group for distribution, as a result of the expiration of
the Groups WoW license on June 7, 2009 and, among other things, the impact on the ongoing
relationship with the customer;
 
    
    A RMB3.9 million provision for prepaid royalties;
 
    
    A RMB22.7 million charge to increase the valuation allowance for deferred tax assets,
which represented incremental income taxes as a result of non-renewal of the WoW license
prior to the evaluation and recording of impairment charges as a result of non-renewal of the
WoW license;
 
    
    A RMB68.4 million additional depreciation expense related to computer equipment to reflect
the change to a shorter expected useful life of the underlying assets due to non-renewal of
the WoW license agreement. The Group assessed the alternative uses for equipment used in
connection with the operation of WoW, taking into consideration future expected game
operations, as well as expected value at the WoW license expiration date. As a result, the
Group adjusted the expected useful life of the servers and related equipment, and the
expected value of the servers and related equipment at the end of the WoW license. This
change in accounting estimate has been accounted for prospectively from January 1, 2008. As a
result, the Group recorded additional depreciation expense as a component of cost of service
in the amount of RMB68.4 million in 2008 to reflect the change to a shorter expected useful
life of the underlying assets. Depreciation expense relating to this change is to decrease
both profit from operations and net income by RMB68.4 million, and to decrease both basic and
diluted net income attributable to holders of ordinary shares per share by RMB2.47 in 2008.
 
    
    A full provision for prepayments to a vendor, whom had been the Groups primary supplier
of computer servers and related computer equipment, in connection with its purchase of
certain fixed assets, including RMB46.5 million originally recorded as prepayments for
equipment and RMB8.7 million originally recorded as advances to suppliers. With the
non-renewal of WoW license, the Group evaluated a number of factors, including the status
of production of the assets underlying the advance prepayments, ability to recover the value
of the advances through the possible sale of the fixed assets upon the completion of
production, the ability to utilize the servers upon completion of production, as well as the
ability to recover the amounts advanced to the vendor and as a result of such assessment,
concluded that a full provision in connection with such advances and prepayments was
necessary. The provision was recorded as general and administrative expenses for the year
ended December 31, 2008.
 
    
    A RMB7.0 million provision on receivable and prepayments and other current assets in
connection with Game First International Corporation
(GFD). As of December 31, 2008, the
Groups outstanding receivable from selling of 100% of its interest in Spring Asia Limited, a
wholly owned subsidiary, to a third party in 2006, amounted to RMB7.0 million, including
RMB1.4 million recorded in accounts receivable and RMB5.6 million recorded in prepayments and
other current assets. The Group assessed the impact of the non-renewal of the WoW license on
its ongoing relationship with GFD, whose equity interest is 30% held by Spring Asia Limited,
and resulting collectability of this receivable and concluded collection to be unlikely
resulting in the recording of impairment charge in the amount of RMB7.0 million recorded in
general and administrative expenses for the year ended December 31, 2008.
 
    
    A RMB1.7 million provision on inventories.
  F-23




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##### Table of Contents




    
    The Group continued to make prepayment of royalties for WoW until the expiration of the
WoW license. As a result of the non-renewal of the WoW license, the Group recognized an
impairment loss for prepaid royalties, deferred cost and related prepaid withholding taxes of
RMB60.7 million (US$8.9 million), RMB38.1 million (US$5.6 million) and RMB4.4 million (US$0.6
million), respectively, for the year ended December 31, 2009;
 
    
    As a result of change in accounting estimate on the useful life of computer equipment
through the end of the WoW license, the Group recorded additional depreciation expense as a
component of cost of service in the amount of RMB40.0 million (US$5.9 million) in 2009.
Depreciation expense relating to this change is to increase both loss from operations and net
loss by RMB40.0 million (US$5.9 million), and to increase both basic and diluted net loss per
share by RMB1.57 in 2009.
 
    
    A RMB30.2 million (US$4.4 million) impairment of goodwill following the expiration of the
WoW license on June 7, 2009. The Group determined the fair value of the reporting unit
related to WoW using the income approach. The income approach included the use of a
discounted cash flow model, which required assumptions of projected revenue expenses, capital
expenditures and other costs, as well as a discount rate calculated based on the risk profile
of the online game industry. The Group does not expect any revenue from WoW reporting unit
after expiration of the WoW license and assessed the fair value of the WoW reporting unit to
be zero. Accordingly, the assigned value for goodwill related to WoW was zero and a full
impairment was recognized.
 
    
    As a result of non-renewal of WoW license beyond June 7, 2009, the Group announced a
refund plan in connection with unactivated WoW game point cards, which the Group recorded as
advance from customers. According to the plan, unactivated WoW game point card holders are
eligible to receive a cash refund from the Group. In connection with the settlement of both
unactivated points cards and activated but unconsumed point cards, the maximum refund the
Group may potentially make amounts to approximately RMB200.4 million (US$29.4 million), of
which RMB4.0 million (US$0.6 million) was refunded in 2009. The difference between the face
value of the point cards and the net proceeds the Group received in the sales of the
respective point cards was recorded as additional cost of services, amounting to RMB22.1
million (US$3.2 million) for the year ended December 31, 2009. The advances from customers
and deferred revenue relating to these WoW game point cards will be recorded as revenue after
the release of legal liability to refund under the respective laws. The Group has engaged an
agent to settle the liability with the game point card holders who have claimed a refund. As
of December 31, 2009, the balance of the advance payment to the agent was RMB43.3 million
(US$6.3 million).
 
    
    As of December 31, 2009, the WoW related computer and equipment and intangible assets
have been fully depreciated and no additional impairment was recognized in 2009.
 5. VARIABLE INTEREST ENTITIES
   F-24




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##### Table of Contents



F-25




---



##### Table of Contents



December 31,
    
    
    December 31,
    
    
    December 31,2008
    
    
    2009
    
    
    2009RMB
    
    
    RMB
    
    
    US$(Note 3)Total assets
    
    
    381,112,019
    
    
    
    167,391,153
    
    
    
    24,522,942Total liabilities
    
    
    390,300,757
    
    
    
    251,945,913
    
    
    
    36,910,285
 December 31,
    
    
    December 31,
    
    
    December 31,
    
    
    December 31,2007
    
    
    2008
    
    
    2009
    
    
    2009RMB
    
    
    RMB
    
    
    RMB
    
    
    US$ (Note 3)Revenue
    
    
    1,161,936,046
    
    
    
    1,801,713,116
    
    
    
    802,074,406
    
    
    
    117,504,564Net income(loss)
    
    
    (23,419,962
    )
    
    
    14,501,809
    
    
    
    (79,376,759
    )
    
    
    (11,628,761
    )
 6. PREPAID ROYALTIES AND DEFERRED COSTS
  7. INVESTMENTS IN EQUITY INVESTEES
  December 31,
    
    
    December 31,
    
    
    December 31,Note
    
    
    2008
    
    
    2009
    
    
    2009RMB
    
    
    RMB
    
    
    US$(Note 3)Investments accounted for under equity method:9 Webzen Limited (9Webzen Hong Kong)
    
    
    7.1<1>
    
    
    
    
    
    
    
    
    
    
    
    Object Software Limited (Object Software)
    
    
    7.1<2>
    
    
    
    5,338,823
    
    
    
    4,218,795
    
    
    
    618,057Ideas Corporation (Ideas)
    
    
    7.1<3>
    
    
    
    
    
    
    
    
    
    
    
    Beijing Zhongqing Shenglian Internet
Technology Co., Ltd. (BZSIT)
    
    
    7.1<4>
    
    
    
    
    
    
    
    18,564,513
    
    
    
    2,719,717Investments accounted for under cost method:Shanghai Institute of Visual Art of Fudan
University (SIVA)
    
    
    7.2
    
    
    
    10,000,000
    
    
    
    10,000,000
    
    
    
    1,465,008G10 Entertainment Corporation (G10)
    
    
    7.2
    
    
    
    276,303,706
    
    
    
    276,022,817
    
    
    
    40,437,571Total
    
    
    
    
    
    
    291,642,529
    
    
    
    308,806,125
    
    
    
    45,240,353
  F-26




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##### Table of Contents



7.1 Investments accounted for under the equity method
  9Webzen
    
    
    ObjectHong Kong
    
    
    Software
    
    
    Ideas
    
    
    BZSIT
    
    
    Total<1>
    
    
    <2>
    
    
    <3>
    
    
    <4>Balance at December
31, 2007 (RMB)
    
    
    1,959,572
    
    
    
    6,276,702
    
    
    
    
    
    
    
    
    
    
    
    8,236,274Investments
    
    
    
    
    
    
    
    
    
    
    10,631,317
    
    
    
    
    
    
    
    10,631,317Share of loss in
equity investments,
net of taxes
    
    
    (57,317
    )
    
    
    (937,879
    )
    
    
    (1,245,939
    )
    
    
    
    
    
    
    (2,241,135
    )Impairment
    
    
    (1,902,255
    )
    
    
    
    
    
    
    (9,385,378
    )
    
    
    
    
    
    
    (11,287,633
    )Balance at December
31, 2008 (RMB)
    
    
    
    
    
    
    5,338,823
    
    
    
    
    
    
    
    
    
    
    
    5,338,823Investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20,000,000
    
    
    
    20,000,000Share of loss in
equity investments,
net of taxes
    
    
    
    
    
    
    (1,120,028
    )
    
    
    
    
    
    
    (1,435,487
    )
    
    
    (2,555,515
    )Balance at December
31, 2009 (RMB)
    
    
    
    
    
    
    4,218,795
    
    
    
    
    
    
    
    18,564,513
    
    
    
    22,783,308Balance at December
31, 2009 (US$,
unaudited, Note 3)
    
    
    
    
    
    
    618,057
    
    
    
    
    
    
    
    2,719,717
    
    
    
    3,337,773
 <1> 9Webzen Hong Kong
  <2> Object Software
  <3> Ideas
  <4> BZSIT
   F-27




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##### Table of Contents



7.2 Investments accounted for under the cost method
   8. AVAILABLE-FOR-SALE INVESTMENTS
 <1> Investment in Infocomm Asia Holdings Pte Ltd. (IAH)
    <2> Investment in Ideas preferred shares
   F-28




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##### Table of Contents



9. PROPERTY, EQUIPMENT AND SOFTWARE
  December 31,
    
    
    December 31,
    
    
    December 31,2008
    
    
    2009
    
    
    2009RMB
    
    
    RMB
    
    
    US$(Note 3)Office buildings
    
    
    58,140,552
    
    
    
    58,835,873
    
    
    
    8,619,504Computer and equipment
    
    
    568,246,083
    
    
    
    581,259,400
    
    
    
    85,154,983Leasehold improvements
    
    
    5,394,067
    
    
    
    6,399,643
    
    
    
    937,553Office furniture and fixtures
    
    
    6,967,302
    
    
    
    7,219,856
    
    
    
    1,057,715Motor vehicles
    
    
    9,046,217
    
    
    
    10,411,896
    
    
    
    1,525,351Software
    
    
    12,705,711
    
    
    
    13,690,415
    
    
    
    2,005,657Less: accumulated
depreciation and
amortization
    
    
    (451,564,574
    )
    
    
    (571,773,926
    )
    
    
    (83,765,352
    )Impairment provision
    
    
    (8,901,264
    )
    
    
    (30,065,957
    )
    
    
    (4,404,688
    )Net book value
    
    
    200,034,094
    
    
    
    75,977,200
    
    
    
    11,130,723
   10. GOODWILL
   AccumulatedGross
    
    
    Impairment
    
    
    NetAmount
    
    
    Loss
    
    
    AmountRMB
    
    
    RMB
    
    
    RMBBalance at January 1, 2009
    
    
    30,199,751
    
    
    
    
    
    
    
    30,199,751Impairment loss recognized (Note 4)
    
    
    
    
    
    
    (30,199,751
    )
    
    
    (30,199,751
    )Balance at December 31, 2009
    
    
    30,199,751
    
    
    
    (30,199,751
    )
    
    
    Balance at
December 31, 2009 US$ (Note 3)
    
    
    4,424,289
    
    
    
    (4,424,289
    )
    
    
    
  F-29




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##### Table of Contents



11. INTANGIBLE ASSETS
  December 31,
    
    
    December 31,
    
    
    December 31,2008
    
    
    2009
    
    
    2009RMB
    
    
    RMB
    
    
    US$(Note 3)Upfront licensing fees
    
    
    251,963,176
    
    
    
    275,860,798
    
    
    
    40,413,835Less: Accumulated amortization
    
    
    (49,691,505
    )
    
    
    (66,779,481
    )
    
    
    (9,783,249
    )Impairment provision
    
    
    (98,535,410
    )
    
    
    (126,042,609
    )
    
    
    (18,465,346
    )Licensing fee refunds transferred to other receivable
    
    
    
    
    
    
    (31,410,422
    )
    
    
    (4,601,653
    )103,736,261
    
    
    
    51,628,286
    
    
    
    7,563,587Intangible assets from an acquisition relating to C9I
    
    
    283,701,360
    
    
    
    283,701,360
    
    
    
    41,562,484Less: accumulated amortization
    
    
    (251,307,820
    )
    
    
    (283,701,360
    )
    
    
    (41,562,484
    )32,393,540
    
    
    
    
    
    
    
    Net book value
    
    
    136,129,801
    
    
    
    51,628,286
    
    
    
    7,563,587
   RMB
    
    
    US$(Note 3)2010
    
    
    9,655,114
    
    
    
    1,414,4822011
    
    
    16,166,680
    
    
    
    2,368,4322012
    
    
    16,166,680
    
    
    
    2,368,4322013
    
    
    9,639,812
    
    
    
    1,412,2412014
    
    
    
    
    
    
    Total
    
    
    51,628,286
    
    
    
    7,563,587
  12. LAND USE RIGHT
  December 31,
    
    
    December 31,
    
    
    December 31,2008
    
    
    2009
    
    
    2009RMB
    
    
    RMB
    
    
    US$(Note 3)Land use right
    
    
    85,160,349
    
    
    
    85,160,349
    
    
    
    12,476,062Less: accumulated amortization
    
    
    (3,361,594
    )
    
    
    (5,282,502
    )
    
    
    (773,891
    )Net book value
    
    
    81,798,755
    
    
    
    79,877,847
    
    
    
    11,702,171
  F-30




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##### Table of Contents



13. IMPAIRMENT OF LONG-LIVED ASSETS
   (i)
    
    Due to weaker than expected operating performance of certain games, impairment provisions on
computer equipment and upfront license fees of RMB8.9 million and RMB7.1 million,
respectively, were recognized in 2008. Impairment provisions on computer equipment and upfront
license fees of RMB7.6 million (US$1.1 million) and RMB26.7 million (US$3.9 million),
respectively, were recognized in 2009. A significant factor for the internally developed income
approach is forecasting performance and revenue from the games. The Group continued to monitor
the actual revenue performance versus forecast revenue. Due to the lower than expected market
acceptance of the games and the following the content updates, certain games experienced
significantly lower than expected user levels and revenue.
 (ii)
    
    The Group has been monitoring its licensed games that have not commercially launched,
including but not limited to their market acceptance and operational performance in other
regions where they are commercially launched and operated by other operators. Such information
includes ceased operation in certain regions where games were commercially launched, delayed
or unsuccessful commercial launch, and user number significantly below the expectation despite
the launching of patches. The Group incorporated these results and experience into it
continuous evaluation of the forecasted results of the respective games and taking into
account the Groups expected commercial launch and cash flows in the evaluation of impairment
testing for the carrying value of upfront license fees. Based on the Groups impairment test,
impairment provisions on upfront licensing fees of RMB18.7 million, RMB66.1 million and RMB0.8
million (US$0.1 million) were recognized in 2007, 2008 and 2009, respectively.
 (iii)
    
    In 2009, impairment provisions on idle computer equipment of RMB13.6 million (US$2.0
million) was recognized in view of the low possibility to reuse the idle computer equipment in
the foreseeable future.
  F-31




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##### Table of Contents



14. FAIR VALUE MEASUREMENTS
 Assets Measured at Fair Value on a Recurring Basis
  Fair Value Measurements at Reporting Date UsingQuoted Prices in
    
    
    Significant Other
    
    
    SignificantActive Markets for
    
    
    Observable
    
    
    UnobservableIdentical Assets
    
    
    Inputs
    
    
    Inputs
    
    
    TotalNote
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)
    
    
    BalanceRMB
    
    
    RMB
    
    
    RMB
    
    
    RMBAvailable-for- sale investment- IAH
    
    
    8
    
    
    
    
    
    
    
    
    
    
    
    29,218,400
    
    
    
    29,218,400
    Years Ended December 31,2008
    
    
    2009
    
    
    2009RMB
    
    
    RMB
    
    
    US$(Note 3)Beginning balance
    
    
    29,218,400
    
    
    
    29,218,400
    
    
    
    4,280,520Purchases
    
    
    14,634,730
    
    
    
    6,837,000
    
    
    
    1,001,626Reversal of unrealized gain
previously recognized in other
comprehensive income
    
    
    
    
    
    
    (13,643,131
    )
    
    
    (1,998,730
    )Impairment losses included in earnings
    
    
    (14,634,730
    )
    
    
    (22,412,269
    )
    
    
    (3,283,416
    )Ending balance
    
    
    29,218,400
    
    
    
    
    
    
    
    
  Assets Measured at Fair Value on a Non-recurring Basis
  Fair Value Measurements at Reporting Date UsingQuoted Prices
    
    
    Significantin Active
    
    
    Other
    
    
    SignificantYear Ended
    
    
    Markets for
    
    
    Observable
    
    
    UnobservableDecember 31,
    
    
    Identical Assets
    
    
    Inputs
    
    
    InputsNote
    
    
    2009
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)
    
    
    Total LossesRMB
    
    
    RMB
    
    
    RMBComputers and equipment
    
    
    13
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    21,164,693Upfront licensing fees
    
    
    13
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    27,507,199Goodwill
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    30,199,751Total
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    78,871,643
   F-32




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##### Table of Contents



15. TAXATION
 Cayman Islands and British Virgin Islands
  Hong Kong
  The PRC
 PRC Income Tax Laws
   For the year ended
    
    
    For the year ended
    
    
    For the year ended
    
    
    For the year endedDecember 31, 2007
    
    
    December 31, 2008
    
    
    December 31, 2009
    
    
    December 31, 2009RMB
    
    
    RMB
    
    
    RMB
    
    
    US$(Note 3)Aggregate effect
    
    
    52,602,187
    
    
    
    124,974,022
    
    
    
    35,865,045
    
    
    
    5,254,259
  F-33




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##### Table of Contents



For the year ended
    
    
    For the year ended
    
    
    For the year endedDecember 31, 2008
    
    
    December 31, 2009
    
    
    December 31, 2009RMB
    
    
    RMB
    
    
    US$(Note 3)Aggregate effect
    
    
    1,976,984
    
    
    
    
    
    
    
    
 Composition of income tax benefit (expense)
  For the year ended December 31,2007
    
    
    2008
    
    
    2009
    
    
    2009RMB
    
    
    RMB
    
    
    RMB
    
    
    US$(Note 3)Current income tax expense
    
    
    (38,352,387
    )
    
    
    (13,453,655
    )
    
    
    (1,871,215
    )
    
    
    (274,135
    )Deferred taxation
    
    
    19,288,424
    
    
    
    15,831,538
    
    
    
    69,182,452
    
    
    
    10,135,287Change in valuation allowance
    
    
    9,795,331
    
    
    
    (50,306,416
    )
    
    
    (61,775,371
    )
    
    
    (9,050,143
    )Income tax (expense) benefit
    
    
    (9,268,632
    )
    
    
    (47,928,533
    )
    
    
    5,535,866
    
    
    
    811,009
 Reconciliation of the differences between statutory tax rate and the effective tax rate
  For the year ended
    
    
    For the year ended
    
    
    For the year endedDecember 31, 2007
    
    
    December 31, 2008
    
    
    December 31, 2009Statutory EIT rate
    
    
    33
    %
    
    
    25
    %
    
    
    25
    %Effect of tax rate differentials from statutory rate
    
    
    (1
    %)
    
    
    24
    %
    
    
    (15
    %)Change of valuation allowance
    
    
    (4
    %)
    
    
    35
    %
    
    
    (15
    %)Income not subject to tax and non-deductible
expenses, net
    
    
    
    
    
    
    
    
    
    
    (8
    %)Effect of tax holidays
    
    
    (19
    %)
    
    
    (49
    %)
    
    
    3
    %Effect of future tax rate change
    
    
    (5
    %)
    
    
    
    
    
    
    11
    %Enacted EIT rate change
    
    
    (5
    %)
    
    
    
    
    
    
    Others
    
    
    
    
    
    
    (2
    %)
    
    
    Effective EIT rate
    
    
    4
    %
    
    
    33
    %
    
    
    1
    %
  F-34




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##### Table of Contents



Significant components of deferred tax assets
 December 31,
    
    
    December 31,
    
    
    December 31,2008
    
    
    2009
    
    
    2009RMB
    
    
    RMB
    
    
    US$(Note 3)Temporary differences related to expenses and accruals
    
    
    5,652,320
    
    
    
    4,985,989
    
    
    
    730,452Temporary differences related to provision for advances to
suppliers
    
    
    1,884,524
    
    
    
    1,912,082
    
    
    
    280,122Temporary differences related to provision for doubtful
accounts
    
    
    2,848,905
    
    
    
    3,744,950
    
    
    
    548,638Temporary differences related to prepayment and other
current assets
    
    
    240,268
    
    
    
    5,564,504
    
    
    
    815,204Tax loss carryforwards
    
    
    
    
    
    
    
    
    
    
    Total current deferred tax assets
    
    
    10,626,017
    
    
    
    16,207,525
    
    
    
    2,374,416Less: Valuation allowance
    
    
    (10,626,017
    )
    
    
    (14,067,629
    )
    
    
    (2,060,919
    )Net current deferred tax assets
    
    
    
    
    
    
    2,139,896
    
    
    
    313,497Temporary differences related to depreciation,
amortization, and impairment of equipment and intangible
assets
    
    
    25,425,210
    
    
    
    49,732,344
    
    
    
    7,285,830Startup expenses and advertising fee
    
    
    
    
    
    
    2,483,828
    
    
    
    363,883Temporary differences related to provision for prepayment
for equipment
    
    
    4,900,000
    
    
    
    11,625,000
    
    
    
    1,703,072Tax loss carry forwards
    
    
    15,536,051
    
    
    
    45,621,033
    
    
    
    6,683,519Total non-current deferred tax assets
    
    
    45,861,261
    
    
    
    109,462,205
    
    
    
    16,036,304Less: Valuation allowance
    
    
    (45,861,261
    )
    
    
    (104,195,020
    )
    
    
    (15,264,657
    )Net non-current deferred tax assets
    
    
    
    
    
    
    5,267,185
    
    
    
    771,647Total deferred tax assets
    
    
    
    
    
    
    7,407,081
    
    
    
    1,085,144
 Movement of valuation allowance on deferred tax assets
 For the year ended
    
    
    For the year ended
    
    
    For the year endedDecember 31, 2008
    
    
    December 31, 2009
    
    
    December 31, 2009RMB
    
    
    RMB
    
    
    US$(Note 3)Balance at January 1
    
    
    6,180,862
    
    
    
    56,487,278
    
    
    
    8,275,433Increase in valuation allowance
    
    
    50,306,416
    
    
    
    70,599,298
    
    
    
    10,342,856Reversal of valuation allowance
    
    
    
    
    
    
    (8,823,927
    )
    
    
    (1,292,713
    )Balance at December 31
    
    
    56,487,278
    
    
    
    118,262,649
    
    
    
    17,325,576
       F-35




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##### Table of Contents



16. OTHER PAYABLES AND ACCRUALS
  December 31,
    
    
    December 31,
    
    
    December 31,2008
    
    
    2009
    
    
    2009RMB
    
    
    RMB
    
    
    US$(Note 3)Staff cost related payables
    
    
    37,325,822
    
    
    
    23,944,309
    
    
    
    3,507,861Professional services
    
    
    18,574,137
    
    
    
    16,721,169
    
    
    
    2,449,665Product development services
    
    
    2,665,366
    
    
    
    2,665,366
    
    
    
    390,478Marketing and promotion
    
    
    3,777,890
    
    
    
    2,045,100
    
    
    
    299,609Others
    
    
    7,080,321
    
    
    
    6,328,481
    
    
    
    927,12869,423,536
    
    
    
    51,704,425
    
    
    
    7,574,741
  F-36




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##### Table of Contents



17. SPECIAL AND NON-RECURRING CASH DIVIDENDS
  18. SHARE REPURCHASE PROGRAM
    19. SHAREHOLDER RIGHTS PLAN
   20. EMPLOYEE BENEFITS
   F-37




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##### Table of Contents



21. SHARE-BASED COMPENSATION
 21.1 Stock options granted by the Company
         Weighted-AverageRemainingNumber of
    
    
    Weighted-Average
    
    
    Contractual Term
    
    
    AggregateOptions
    
    
    Exercise Price
    
    
    (years)
    
    
    Intrinsic ValueOutstanding
at January 1, 2009
    
    
    1,630,323
    
    
    US $
    30.57
    
    
    
    3.1
    
    
    US $
    262,400Exercised
    
    
    (29,067
    )
    
    US $
    7.36
    
    
    
    
    
    
    
    Forfeited
    
    
    (26,629
    )
    
    US $
    22.26
    
    
    
    
    
    
    
    Expired
    
    
    (270,527
    )
    
    US $
    16.57
    
    
    
    
    
    
    
    Outstanding at
December 31, 2009
    
    
    1,304,100
    
    
    US $
    8.07
    
    
    
    2.63
    
    
    NilVested and
expected to vest
at December 31,
2009
    
    
    1,302,964
    
    
    US $
    8.06
    
    
    
    2.63
    
    
    NilExercisable at
December 31, 2009
    
    
    1,107,065
    
    
    US $
    8.12
    
    
    
    2.59
    
    
    Nil
   F-38




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##### Table of Contents



For the year ended
    
    
    For the year endedDecember 31, 2007
    
    
    December 31, 2008Risk-free interest rate
    
    
    4.52%-4.88
    %
    
    
    1.53
    %Expected life (years)
    
    
    2.42-3.33
    
    
    
    2.90Expected dividend yield
    
    
    
    
    
    
    Volatility
    
    
    50
    %
    
    
    54
    %Fair value of options at grant date
    
    US$
    11.71-US$18.15
    
    
    US$
    4.46
  For the year endedDecember 31, 2009Risk-free interest rate
    
    
    0.08%-1.44
    %Expected remaining life (years)
    
    
    0.13-3.14Expected dividend yield
    
    
    Volatility
    
    
    49%-67
    %Fair value of incremental cost
    
    US$
    0.06-US$2.03
   21.2 Equity warrants granted to Incsight Limited (Incsight)
   Risk-free interest rate
    
    
    1.22
    %Expected life (years)
    
    
    1.81Expected dividend yield
    
    
    Volatility
    
    
    57
    %
  F-39




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##### Table of Contents



21.3 Stock option granted by The9 Development Center Limited (TDC)
   Weighted-AverageWeighted-Average
    
    
    RemainingNumber of
    
    
    Exercise Price
    
    
    Contractual Term
    
    
    AggregateOptions
    
    
    per Option
    
    
    (years)
    
    
    Intrinsic ValueOutstanding at January 1, 2009
    
    
    18,961,000
    
    
    HK$
    0.10
    
    
    
    7.0
    
    
    RMB
    331,943Forfeited
    
    
    (60,000
    )
    
    HK$
    0.10Outstanding at December 31, 2009
    
    
    18,901,000
    
    
    HK$
    0.10
    
    
    
    6.0
    
    
    RMB
    414,915Vested and expected to vest at
December 31, 2009
    
    
    18,443,772
    
    
    HK$
    0.10
    
    
    
    6.0
    
    
    RMB
    404,878Exercisable at December 31, 2009
    
    
    9,450,500
    
    
    HK$
    0.10
    
    
    
    6.0
    
    
    RMB
    207,457
   Risk-free interest rate
    
    
    3.75
    %Expected life (years)
    
    
    5.00Expected dividend yield
    
    
    Volatility
    
    
    53
    %
     F-40




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##### Table of Contents



22. RELATED PARTY TRANSACTIONS AND BALANCES
  23. EARNINGS PER SHARE
  For the year ended
    
    
    For the year ended
    
    
    For the year ended
    
    
    For the year endedDecember 31, 2007
    
    
    December 31, 2008
    
    
    December 31, 2009
    
    
    December 31, 2009RMB
    
    
    RMB
    
    
    RMB
    
    
    US$(Note 3)Numerator:Net income (loss) attributable to ordinary
shareholders
    
    
    240,891,954
    
    
    
    96,836,036
    
    
    
    (405,152,407
    )
    
    
    (59,355,163
    )Denominator:Denominator for basic earnings (loss) per
share  weighted-average shares outstanding
    
    
    27,406,263
    
    
    
    27,664,687
    
    
    
    25,414,620
    
    
    
    25,414,620Dilutive effect of share options and warrants
    
    
    234,363
    
    
    
    39,514
    
    
    
    
    
    
    
    Denominator for diluted earnings (loss) per
share
    
    
    27,640,626
    
    
    
    27,704,201
    
    
    
    25,414,620
    
    
    
    25,414,620Earnings per share- Basic
    
    
    8.79
    
    
    
    3.50
    
    
    
    (15.94
    )
    
    
    (2.34
    )- Diluted
    
    
    8.72
    
    
    
    3.50
    
    
    
    (15.94
    )
    
    
    (2.34
    )
  24. RESTRICTED NET ASSETS
   F-41




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##### Table of Contents



25. COMMITMENTS AND CONTINGENCIES
 25.1 Operating lease commitments
  RMB
    
    
    US$(Note 3)2010
    
    
    6,067,236
    
    
    
    888,8552011
    
    
    1,733,751
    
    
    
    253,9967,800,987
    
    
    
    1,142,851
  25.2 Other contractual obligations
     F-42




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##### Table of Contents



25.3 Contingencies
     26. SUBSEQUENT EVENT
    F-43