##### 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, 2008
 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 o o
 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 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
    
    
    41ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
    
    
    60ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
    
    
    68ITEM 8. FINANCIAL INFORMATION
    
    
    71ITEM 9. THE OFFER AND LISTING
    
    
    72ITEM 10. ADDITIONAL INFORMATION
    
    
    73ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    80ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
    
    
    81PART II
    
    
    81ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
    
    
    81ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
    
    
    82ITEM 15. CONTROLS AND PROCEDURES
    
    
    82ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT
    
    
    83ITEM 16B. CODE OF ETHICS
    
    
    83ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
    
    
    83ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
    
    
    83ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS.
    
    
    84ITEM 16F. CHANGE IN REGISTRANTS CERTIFYING ACCOUNTANT
    
    
    84ITEM 16G. CORPORATE GOVERNANCE
    
    
    84PART III
    
    
    85ITEM 17. FINANCIAL STATEMENTS
    
    
    85ITEM 18. FINANCIAL STATEMENTS
    
    
    85ITEM 19. EXHIBITS
    
    
    85Exhibit 1.1Exhibit 8.1Exhibit 12.1Exhibit 12.2Exhibit 13.1Exhibit 13.2Exhibit 15.1Exhibit 15.2Exhibit 15.3




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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 31,2004
    
    
    2005
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2008RMB
    
    
    RMB
    
    
    RMB
    
    
    RMB
    
    
    RMB
    
    
    US$(1)(unaudited)(in thousands, except for per share and per ADS data)Consolidated Statement of
Operation Data:Revenues
    
    
    36,636
    
    
    
    489,191
    
    
    
    1,038,328
    
    
    
    1,350,129
    
    
    
    1,806,130
    
    
    
    264,731Sales taxes
    
    
    (1,913
    )
    
    
    (24,164
    )
    
    
    (52,502
    )
    
    
    (70,522
    )
    
    
    (94,639
    )
    
    
    (13,872
    )Net revenues
    
    
    34,723
    
    
    
    465,027
    
    
    
    985,826
    
    
    
    1,279,607
    
    
    
    1,711,491
    
    
    
    250,859Cost of services
    
    
    (9,139
    )
    
    
    (240,416
    )
    
    
    (524,032
    )
    
    
    (700,047
    )
    
    
    (997,949
    )
    
    
    (146,273
    )Gross profit
    
    
    25,584
    
    
    
    224,611
    
    
    
    461,794
    
    
    
    579,560
    
    
    
    713,542
    
    
    
    104,586Operating expenses
    
    
    (35,347
    )
    
    
    (164,898
    )
    
    
    (191,639
    )
    
    
    (343,695
    )
    
    
    (578,993
    )
    
    
    (84,865
    )(Loss) profit from operations
    
    
    (9,763
    )
    
    
    59,713
    
    
    
    270,155
    
    
    
    235,865
    
    
    
    134,549
    
    
    
    19,721Interest income, net
    
    
    81
    
    
    
    10,022
    
    
    
    9,136
    
    
    
    50,656
    
    
    
    56,691
    
    
    
    8,310Other income (expense), net
    
    
    15,792
    
    
    
    14,467
    
    
    
    28,417
    
    
    
    (30,054
    )
    
    
    (18,967
    )
    
    
    (2,780
    )Income before income tax
(expense) benefit, gain on
investment disposal,
impairment loss on investments,
share of profit (loss) in
equity investments and
minority interests
    
    
    6,110
    
    
    
    84,202
    
    
    
    307,708
    
    
    
    256,467
    
    
    
    172,273
    
    
    
    25,251Income tax (expense) benefit
    
    
    (5,073
    )
    
    
    (168
    )
    
    
    2,670
    
    
    
    (9,269
    )
    
    
    (47,929
    )
    
    
    (7,025
    )Income before gain on
investment disposal,
impairment loss on investments,
share of profit (loss) in
equity investments and
minority interests
    
    
    1,037
    
    
    
    84,034
    
    
    
    310,378
    
    
    
    247,198
    
    
    
    124,344
    
    
    
    18,226Gain on investment disposal
    
    
    
    
    
    
    6,716
    
    
    
    23,409
    
    
    
    
    
    
    
    
    
    
    
    Impairment loss on investments
    
    
    
    
    
    
    
    
    
    
    (20,402
    )
    
    
    (627
    )
    
    
    (25,922
    )
    
    
    (3,800
    )Share of
profit (loss) in equity
investments, net of taxes
    
    
    16,571
    
    
    
    (13,737
    )
    
    
    (908
    )
    
    
    (5,679
    )
    
    
    (2,241
    )
    
    
    (328
    )
  2




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For the Year Ended December 31,2004
    
    
    2005
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2008RMB
    
    
    RMB
    
    
    RMB
    
    
    RMB
    
    
    RMB
    
    
    US$(1)(unaudited)(in thousands, except for per share and per ADS data)Minority interests
    
    
    6,871
    
    
    
    (4,541
    )
    
    
    
    
    
    
    
    
    
    
    655
    
    
    
    96Net income
    
    
    24,479
    
    
    
    72,472
    
    
    
    312,477
    
    
    
    240,892
    
    
    
    96,836
    
    
    
    14,194Net income attributable to
ordinary shareholders
    
    
    12,047
    
    
    
    72,472
    
    
    
    312,477
    
    
    
    240,892
    
    
    
    96,836
    
    
    
    14,194Earnings per share- Basic
    
    
    1.17
    
    
    
    3.00
    
    
    
    12.78
    
    
    
    8.79
    
    
    
    3.50
    
    
    
    0.51- Diluted
    
    
    0.87
    
    
    
    2.92
    
    
    
    12.72
    
    
    
    8.72
    
    
    
    3.50
    
    
    
    0.51Earnings per ADS (2)- Basic
    
    
    1.17
    
    
    
    3.00
    
    
    
    12.78
    
    
    
    8.79
    
    
    
    3.50
    
    
    
    0.51- Diluted
    
    
    0.87
    
    
    
    2.92
    
    
    
    12.72
    
    
    
    8.72
    
    
    
    3.50
    
    
    
    0.51
 As of December 31,2004
    
    
    2005
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2008RMB
    
    
    RMB
    
    
    RMB
    
    
    RMB
    
    
    RMB
    
    
    US$(1)(unaudited)(in thousands, except for per share and per ADS data)Consolidated Balance Sheet Data:Cash and cash equivalents
    
    
    793,405
    
    
    
    488,245
    
    
    
    937,846
    
    
    
    2,215,282
    
    
    
    2,152,586
    
    
    
    315,513Non-current assets
    
    
    171,565
    
    
    
    602,744
    
    
    
    537,492
    
    
    
    831,342
    
    
    
    769,023
    
    
    
    112,719Total assets
    
    
    1,026,595
    
    
    
    1,213,735
    
    
    
    1,624,585
    
    
    
    3,246,101
    
    
    
    3,263,009
    
    
    
    478,272Total current liabilities
    
    
    149,265
    
    
    
    271,750
    
    
    
    288,427
    
    
    
    440,011
    
    
    
    543,767
    
    
    
    79,702Minority interests
    
    
    12,165
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total shareholders equity
    
    
    865,165
    
    
    
    941,985
    
    
    
    1,336,158
    
    
    
    2,806,090
    
    
    
    2,719,242
    
    
    
    398,570Total liabilities and
shareholders equity
    
    
    1,026,595
    
    
    
    1,213,735
    
    
    
    1,624,585
    
    
    
    3,246,101
    
    
    
    3,263,009
    
    
    
    478,272
 
 (1)
    
    Translation from RMB amounts into U.S. dollars was made at a rate of RMB6.8225 to US$1.00.
See Exchange Rate Information.(2)
    
    Each ADS represents one ordinary share.  Exchange Rate Information
   3




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Noon Buying RatePeriod
    
    Period End
    
    
    Average(1)
    
    
    Low
    
    
    High(RMB per US$1.00)2004
    
    
    8.2765
    
    
    
    8.2768
    
    
    
    8.2771
    
    
    
    8.27652005
    
    
    8.0702
    
    
    
    8.1826
    
    
    
    8.2765
    
    
    
    8.07022006
    
    
    7.8041
    
    
    
    7.9723
    
    
    
    8.0702
    
    
    
    7.80412007
    
    
    7.2946
    
    
    
    7.5806
    
    
    
    7.8127
    
    
    
    7.29462008
    
    
    6.8225
    
    
    
    6.9193
    
    
    
    7.2946
    
    
    
    6.78002009January
    
    
    6.8392
    
    
    
    6.8360
    
    
    
    6.8403
    
    
    
    6.8225February
    
    
    6.8395
    
    
    
    6.8363
    
    
    
    6.8470
    
    
    
    6.8241March
    
    
    6.8329
    
    
    
    6.8360
    
    
    
    6.8438
    
    
    
    6.8240April
    
    
    6.8180
    
    
    
    6.8306
    
    
    
    6.8361
    
    
    
    6.8180May
    
    
    6.8278
    
    
    
    6.8235
    
    
    
    6.8326
    
    
    
    6.8176June
    
    
    6.8302
    
    
    
    6.8334
    
    
    
    6.8371
    
    
    
    6.8264July (through July 10, 2009)
    
    
    6.8325
    
    
    
    6.8325
    
    
    
    6.8342
    
    
    
    6.8312
 
 (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.
  Our limited relevant operating history and the unproven long-term potential of our online game
business model make evaluating our business and prospects difficult.
  
    
    retain existing customers and attract new customers;
    
    successfully launch and operate new online games licensed by us;
  5




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
    
    license and maintain licensing rights, acquire or develop additional online games
that are appealing to customers;
    
    anticipate and adapt to changing consumer preferences;
    
    adapt to competitive market conditions;
    
    timely respond to technological changes or resolve unexpected network delays or
interruptions;
    
    adequately and efficiently operate, upgrade and develop our transaction and service
platform; or
    
    maintain adequate control of our expenses.
   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.
    6




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Our business has been impacted by global economic conditions and a corresponding decrease in global
gaming spending, which may adversely impact our results of operations.
   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;
  7




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
    
    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.
   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.
   8




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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.
  Future equity investments may have an adverse effect on our ability to manage our business.
  We may need additional financing and we may not be able to obtain it on terms acceptable to us, or
at all.
  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.
   9




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We rely on services from third parties to carry out our businesses and to deliver our prepaid cards
to customers, and if there is any interruption or deterioration in the quality of these services,
our customers 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.
   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.
   10




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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.
  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.
    11




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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, including the New MII Notice issued in July 2006, 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.
     12




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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.
   13




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Our subsidiaries in China are subject to restrictions on paying dividends or making other payments.
   Our business could suffer if we do not successfully manage current growth and potential future
growth.
  We may not be able to successfully implement our growth strategies.
   14




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We face risks related to health epidemics and other outbreaks, or acts of terrorism, which could
result in reduced demand for gaming or disrupt our operations.
  We could be liable for breaches of security on our websites and fraudulent transactions by users of
our websites.
  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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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.
  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.
   17




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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.
    19




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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.
    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.
  Recent 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.
  Risks Related to Our Shares and ADSs
 We were a passive foreign investment company for the taxable year ended December 31, 2008, 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.
   23




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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.
  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.
   24




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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.
  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.
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You may be subject to limitations on transfer of your ADSs.
  
 ITEM 4. INFORMATION ON THE COMPANY
 History and Development of the Company
     
    
    Shanghai IT, which holds Internet content provision, Internet culture operation and
Internet publishing licenses;
    
    Shanghai The9 Advertisement Co., Ltd., or Shanghai Jiucheng Advertisement, whose
business license permits it to conduct advertisement operations.
   26




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Recent Developments
 Developments Relating to Our Business
 WoW License Agreement
  License of Games and Proprietary Games
  Game
    

Developer/Licensor
    
    Description
    
    StatusWoW
    
    Blizzard Entertainment
    
    3D MMORPG
    
    Commercially launched in
China in June 2005;
expired in June 2009SUN
    
    Webzen, Inc.
    
    3D MMORPG
    
    Commercially launched in
China in May 2007Granado Espada
    
    Hanbitsoft Inc. and
IMC Games Co., Ltd.
    
    3D MMORPG
    
    Commercially launched in
China in November 2007EA 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 2009Audition 2
    
    G10 Entertainment Corp.
    
    Casual dancing game
    
    Preparing for beta testingWorld of Fighter
(formerly Warriors of
Fate Online)
    
    The9
    
    2D MMORPG
    
    In close beta testingJiuZhouZhanJi
    
    The9
    
    2D web game
    
    In close beta testingField of Honor
    
    Beijing Gameworld Tech. Co. Ltd.
    
    3D MMORSS
    
    In development
  27




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##### Table of Contents



License
and Investment by EA Swiss Sàrl/EA International (Studio and
Publishing) Ltd.
  Investment in Ideas Corporation
  Investment in G10 Entertainment Corp.
  License of Atlantica from NDOORS Corporation
  Investment in and License from Gold Engine Soft, Co., Ltd.
  Investment in a Joint Venture
  Licensing to Third Parties of Proprietary Games
   28




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##### Table of Contents



Developments Relating to Stock Repurchase Program
   Business Overview
     Products and Services
   29




---



##### Table of Contents



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
    
    StatusWoW
    
    Blizzard Entertainment
    
    3D MMORPG
    
    Commercially launched in
China in June 2005;
expired in June 2009SUN
    
    Webzen, Inc.
    
    3D MMORPG
    
    Commercially launched in
China in May 2007Granado Espada
    
    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
(formerly Warriors
of Fate Online)
    
    The9
    
    2D MMORPG
    
    In close beta testingField of Honor
    
    Beijing Gameworld
Tech. Co. Ltd.
    
    3D MMORSS
    
    In development
 Casual Games.
  Game
    
    Developer/Licensor
    
    Description
    
    StatusEA 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 testing
  30




---



##### Table of Contents



Other Products and Services.
 Game Operating Support, Website Solutions and Advertisement Services
 SMS.
 Pass9
  Membership Management and Payment System
   31




---



##### Table of Contents



Customer Service
   Purchase of Game Playing Time and Gaming Features
  Prepaid Cards.
 Prepaid Online Points.
 Online Payment.
 Pricing, Distribution and Marketing
 Pricing.
  32




---



##### Table of Contents



Distribution.
 Marketing.
 Advertising and Online Promotion
 Cross-Marketing
 On-Site Promotion
 In-Game Marketing
 Game Development and Licensing
   Technology
  
    
    servers and network devices located in ten internet data centers throughout China as
of the end of December 2008;
    
    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.
  33




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##### Table of Contents



Competition
   Intellectual Property
   Legal Proceedings
  Government Regulations
   34




---



##### Table of Contents



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).
   35




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##### Table of Contents



Circular for Further Strengthening the Administration
of Internet Café and Online Games
    36




---



##### Table of Contents



Regulation of Internet Content
   Regulation of Information Security
   Import Regulation
   37




---



##### Table of Contents



Intellectual Property Rights
  Internet Café Regulation
  Privacy Protection
  Regulation of 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.
   38




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##### Table of Contents



Dividend Distribution
 
    
    The Foreign Investment Enterprise Law (1986), as amended; and
 
    
    Administrative Rules under the Foreign Investment Enterprise Law (2001).
  Regulation of Foreign Exchange in Certain Onshore and Offshore Transactions
   
    
    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.
    39




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##### Table of Contents



Organizational Structure
  
 (IMAGE)
    
    Beneficial interest
Contractual
Arrangements for the operation of games. See Item 5. Operating and Financial
Review and Prospects, Arrangements with Online Game Developers
and Item 7. Major
Shareholders and Related Party Transactions, Related Party Transactions  Arrangement with
Affiliated PRC Entities*
    
    Together operate WoW in China**
    
    Shanghai The9 Information Technology Co., Ltd. is owned by Jun Zhu, our chairman and chief
executive officer, and Yong Wang, our vice president, and operates
all our games other than WoW and MU  40




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##### Table of Contents



Property, Plant and Equipment
  
 ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
  Overview
    
    
    our revenue composition and sources of revenue growth;
 
    
    arrangements with online game developers;
 
    
    our cost of services; and
 
    
    our operating expenses.
  Revenue Composition and Sources of Revenue Growth
   41




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##### Table of Contents



Online Game Services
 Time Consumption Model
 Virtual Items and Services Consumption Model
  Other Revenues
 Cost of Services
 Operating Expenses
 Product Development
  42




---



##### Table of Contents



Sales and Marketing
 General and Administrative
 Impairment
 Arrangements
with Online Game Developers
  Holding Company Structure
  Regulation of Internet Business in China
    43




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##### Table of Contents



Recent Impairment Provisions
  
    
    A RMB19.4 million (US$2.8 million) provision for accounts receivable deemed to be
uncollectible comprising: (i) a provision on a receivable amounting to RMB18.0 million
(US$2.6 million) from a customer that purchased WoW prepaid player cards for
distribution, in light of the impact on the ongoing relationship with the customer due
to non-renewal of the WoW license; and (ii) a RMB1.4 million (US$0.2 million)
provision on receivables in connection with Game First International Corporation
(GFD);
    
    A RMB3.9 million (US$0.6 million) provision for prepaid royalties;
    
    A RMB22.7 million (US$3.3 million) charge to the valuation allowance for deferred
tax assets with the loss of expected future taxable income as a result of non-renewal
of the WoW license, which yielded incremental income taxes;
    
    RMB68.4 million (US$10.0 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 (US$6.8 million) provision for prepayment for equipment and a
RMB8.7 million (US$1.3 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; and
    
    RMB7.3 million (US$1.1 million) provisions on prepayments and other current assets,
comprising: (i) a RMB5.6 million (US$0.8 million) provision on a receivable in
connection with GFD. 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 RMB1.7 million (US$0.3 million)
provision on inventories.
  44




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##### Table of Contents




    
    Goodwill of RMB30.2 million (US$4.4 million) as of December 31,
2008 will be fully provided for impairment in 2009. Goodwill was
deemed recoverable as of December 31, 2008, based on our
impairment test that includes the operating cash flow generated
from WoW during the period from January 1, 2009 to June 6, 2009.
Goodwill is no longer recoverable following the expiration of the
WoW license as WoW no longer generates operating cashflow for us.
    
    Subsequent to December 31, 2008, we continued to make prepayments
of royalties for WoW. As a result of the non-renewal of the WoW
license, we will recognize in 2009 the impairment of RMB104.0
million (US$15.2 million) for royalty prepayments that were paid
in 2009 but not consumed prior to the expiration of the WoW
license on June 7, 2009.
    
    In May 2009, we announced a refund plan in connection with
unactivated WoW game point cards. We recorded revenues derived
from unactivated WoW game point cards as advances from customers.
According to the refund plan, unactivated WoW game point card
holders are eligible to receive a cash refund before September 7,
2009. In connection with the refunds to be given for the
unactivated points cards, as well as potential refunds for
activated but unconsumed point cards, our maximum cost is
approximately RMB28.0 million (US$4.1 million) for game point
cards sold subsequent to January 1, 2009 but not consumed as of
the date of the WoW license expiration on June 7, 2009. We will
record this additional cost as a reduction in earnings in 2009 to
reflect the additional cost as a result of difference between the
face value of the point cards and the net proceeds we received
from the sales of these point cards.
  
    
    A RMB8.9 million (US$1.3 million) impairment provision on computer equipment and a
RMB7.1 million (US$1.0 million) impairment on the upfront license fee related to a
game; and
    
    Impairments on upfront license fees in the amount of RMB66.1 million
(US$9.7 million) for certain other games which have not yet been commercially launched.
 Income and Sales Taxes
       45




---



##### Table of Contents



46




---



##### Table of Contents



Critical Accounting Policies
  Revenue Recognition .
     47




---



##### Table of Contents



Product Development.
  Income Taxes. Accounting
for Income Taxes
    48




---



##### Table of Contents



Property, Equipment and Software.
  In connection with the expiration and non-renewal of the WoW license, we assessed alternative uses for equipment
used in connection with the operation of WoW, taking into consideration future expected game operations, as well as
expected value upon the expiration date of the WoW license agreement. As a result, the expected useful life of the
servers and related equipment and the expected value of the servers and related equipment upon termination of the WoW
license agreement were adjusted. In accordance with FAS 154 Accounting Changes and Error Corrections a replacement of
Opinion No. 20 and FASB 3, this change in accounting estimate has been accounted for prospectively from January 1,
2008. As a result, the depreciation charge relating to this change in year 2008 is an increase in depreciation expense
by approximately RMB68.4 million (US$10.0 million) to reflect the change to a shorter expected useful life of the
underlying assets.  49




---



##### Table of Contents



Intangible assets.
  Goodwill.
 Share-Based Compensation.
       50




---



##### Table of Contents



Fair value measurement.
 Impairment of Investment in Equity Investments.
 Impairment of Long-lived Assets and Intangible Assets.
 Results of Operations
  Year Ended December 31,2006
    
    
    2007
    
    
    2008Revenues:Online game services
    
    
    104.2
    %
    
    
    104.0
    %
    
    
    105.2
    %Other revenues
    
    
    1.1
    %
    
    
    1.5
    %
    
    
    0.3
    %Sales taxes
    
    
    (5.3
    )%
    
    
    (5.5
    )%
    
    
    (5.5
    )%Net revenues
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of services
    
    
    (53.2
    )%
    
    
    (54.7
    )%
    
    
    (58.3
    )%Gross profit
    
    
    46.8
    %
    
    
    45.3
    %
    
    
    41.7
    %Operating expenses:Product development
    
    
    (3.1
    )%
    
    
    (3.2
    )%
    
    
    (4.3
    )%Sales and marketing
    
    
    (6.0
    )%
    
    
    (8.1
    )%
    
    
    (6.1
    )%General and administrative
    
    
    (10.2
    )%
    
    
    (14.1
    )%
    
    
    (18.6
    )%Impairment
of  equipment  and intangible assets
    
    
    (0.1
    )%
    
    
    (1.5
    )%
    
    
    (4.8
    )%Total operating expenses
    
    
    (19.4
    )%
    
    
    (26.9
    )%
    
    
    (33.8
    )%Profit from operations
    
    
    27.4
    %
    
    
    18.4
    %
    
    
    7.9
    %Interest income, net
    
    
    0.9
    %
    
    
    4.0
    %
    
    
    3.3
    %Other income (expenses), net
    
    
    2.9
    %
    
    
    (2.4
    )%
    
    
    (1.1
    )%Income tax benefit (expense)
    
    
    0.3
    %
    
    
    (0.7
    )%
    
    
    (2.8
    )%Gain on investment disposal
    
    
    2.4
    %
    
    
    
    
    
    
    Impairment loss on equity investments
    
    
    (2.1
    )%
    
    
    (0.1
    )%
    
    
    (1.5
    )%Share of loss in equity investments, net of taxes
    
    
    (0.1
    )%
    
    
    (0.4
    )%
    
    
    (0.1
    )%Minority interests
    
    
    
    
    
    
    
    
    
    
    Net income
    
    
    31.7
    %
    
    
    18.8
    %
    
    
    5.7
    %
  51




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##### Table of Contents



Year 2008 Compared to Year 2007
 Revenues.
 Online Game Services.
 Other Revenues.
 Cost of Services.Cost of services in 2008 increased by 42.6% to RMB997.9 million (US$146.3 million) from RMB700.0
million in 2007, primarily due to higher royalty payments associated with increasing revenue from online game sales and
higher server depreciation and Internet Data Center, or IDC, costs related to new server sites opened. The percentage
increase in cost of services was higher than our growth in revenues because certain WoW-related prepaid royalty
payments of RMB3.9 million (US$0.6 million), prepayments and other current assets of RMB1.7 million (US$0.2 million)
and advances to suppliers of RMB0.3 million (US$0.05 million) were written off and additional depreciation expense of RMB68.4
million (US$10.0 million) relating to WoW-related property, equipment and software were recorded during 2008 to reflect
the change to a shorter expected useful life of the underlying assets due to non-renewal of the WoW license agreement. Operating Expenses.
 Product Development.
 Sales and Marketing.
 General and Administrative.General and administrative expenses in 2008 increased by 77.1% to RMB319.3 million
(US$46.8 million) from RMB180.3 million in 2007, primarily due to organic growth and the write off of certain assets
due to the non-renewal of the WoW license agreement. General and administrative expenses also increased due to an
increase in sales taxes by RMB23.1 million (US$3.4 million), which related to certain contractual arrangements between
several of our PRC subsidiaries. In addition, as a result of the
non-renewal of the WoW license agreement beyond June 7, 2009, certain accounts receivable, prepayments and other
current assets, prepayment for equipment and advances to suppliers were written off in 2008 which amounted to RMB79.9
million (US$11.7 million). There was no such write off in 2007. Professional service fees increased by RMB15.6
million (US$2.3 million) due to the expansion of our business. In addition, non-cash share-based compensation expenses
increased by RMB8.5 million (US$1.3 million).  52




---



##### Table of Contents



Impairment of equipment and intangible assets.
 Interest Income, Net.
 Other
Income (Expenses), Net.
 Income Tax Benefit (Expense).
 Impairment
Loss on Investments.
 Net Income.
 Year 2007 Compared to Year 2006
 Revenues.
 Online Game Services
 Game Operating Support, Website Solutions and Advertisement
 Short Message Services
  53




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##### Table of Contents



Other Revenues
 Cost of Services .
 Operating Expenses .
 Product Development
 Sales and Marketing
 General and Administrative
 Impairment of Intangible Assets.
 Interest Income, Net.
 Other
Income (Expenses), Net.
 Income Tax Benefit (Expense).
  54




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##### Table of Contents



Gain on Investment Disposal.
 Share
of Loss in Equity Investments, Net of Taxes.
 Impairment
Loss on Investments.
 Net Income.
 Liquidity and Capital Resources
  Year Ended December 31,2006
    
    
    2007
    
    
    2008RMB
    
    
    RMB
    
    
    RMB
    
    
    US$(unaudited)(in thousands)Net cash provided by operating activities
    
    
    598,910
    
    
    
    616,596
    
    
    
    692,634
    
    
    
    101,522Net cash used in investing activities
    
    
    (204,827
    )
    
    
    (461,585
    )
    
    
    (487,512
    )
    
    
    (71,457
    )Net cash provided by (used in) financing activities
    
    
    58,040
    
    
    
    1,174,645
    
    
    
    (235,734
    )
    
    
    (34,552
    )Effect of foreign exchange rate changes on cash
    
    
    (2,522
    )
    
    
    (52,220
    )
    
    
    (32,084
    )
    
    
    (4,703
    )Net increase (decrease) in cash and cash equivalents
    
    
    449,601
    
    
    
    1,277,436
    
    
    
    (62,696
    )
    
    
    (9,190
    )Cash and cash equivalents at beginning of year
    
    
    488,245
    
    
    
    937,846
    
    
    
    2,215,282
    
    
    
    324,703Cash and cash equivalents at end of year
    
    
    937,846
    
    
    
    2,215,282
    
    
    
    2,152,586
    
    
    
    315,513
        55




---



##### Table of Contents



Capital Expenditures
 Capital Expenditures.
 Recent Accounting Pronouncements
          56




---



##### Table of Contents



57




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##### Table of Contents



Research and Development
  Trend Information
  In connection with our loss of the WoW license, goodwill will be impaired by RMB30.2 million (US$4.4 million) in
2009. In addition, we estimate impairment of RMB104.0 million (US$15.2 million) in 2009 for the prepayment of royalties
that have been paid in 2009 but had not yet not been consumed upon the expiration of WoW license on June 7, 2009. On
May 27, 2009 and June 7, 2009, we announced a refund plan for unactivated WoW game point cards which entitles
cardholders to a refund prior to September 7, 2009. In connection with the refunds for the unactivated points cards,
as well as the potential refund of the activated but unconsumed point cards, our maximum cost is approximately RMB28.0
million (US$4.1 million), which will be treated as a reduction of earnings for 2009. 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
    
    
    6,431,194
    
    
    
    5,651,439
    
    
    
    779,755
    
    
    
    
    
    
    
    
   US$Minimum royalty fees
    
    
    4,928,716
  58




---



##### 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.
    59




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##### Table of Contents



ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
 Directors and Senior Management
  Directors and Executive Officers
    
    Age
    
    Position/TitleJun Zhu
    
    
    42
    
    
    Chairman of the Board
and Chief Executive
OfficerCheung Kin Au-Yeung
    
    
    61
    
    
    DirectorDavin Alexander Mackenzie (1)(2)
    
    
    48
    
    
    Independent DirectorChao Y. Wang (1)(2)
    
    
    44
    
    
    Independent DirectorKa Keung Yeung (1)(2)
    
    
    50
    
    
    Independent DirectorXiaowei Chen
    
    
    41
    
    
    PresidentGeorge Lai (3)
    
    
    32
    
    
    Chief Financial OfficerLingdong Huang
    
    
    32
    
    
    Vice PresidentFumin Lin
    
    
    42
    
    
    Vice PresidentSwun Woo Park
    
    
    36
    
    
    Vice PresidentChris Shen(4)
    
    
    40
    
    
    Vice PresidentYong Wang
    
    
    42
    
    
    Vice PresidentXudong He
    
    
    36
    
    
    Vice PresidentHuanxin Jiang
    
    
    36
    
    
    Vice PresidentDonglei Fang
    
    
    33
    
    
    Vice President
 (1)
    
    Member of Compensation Committee.(2)
    
    Member of Audit Committee.(3)
    
    George Lai was appointed chief financial officer of our company and assumed responsibilities
in July 2008.(4)
    
    Jun Yao resigned on November 16, 2008 and Chris Shen has assumed his duties.  Biographical Information
 Jun Zhu
 Cheung Kin Au-Yeung
 Davin Alexander Mackenzie
  60




---



##### Table of Contents



Chao Y. Wang
 Ka Keung Yeung
 Xiaowei Chen
 George Lai
 Lingdong Huang
 Fumin (Benjamin) Lin
  61




---



##### Table of Contents



Swun Woo (Tony) Park
 Chris Shen
 Yong Wang
 Huanxin Jiang
 Xudong He
 Dong Lei Fang
 Compensation of Directors and Executive Officers
   62




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##### Table of Contents



Amended 2004 Stock Option Plan
  Total Number of Ordinary
    
    
    ExerciseShares Underlying Options
    
    
    Price RangeGranted
    
    
    (in US$)
    
    Expiration dateJun Zhu
    
    950,000
    
    
    38.54
    
    May 31, 2012Yong Wang
    
    *
    
    
    17.00
    
    November 25, 2009Chris Shen
    
    *
    
    
    19.96  30.90
    
    November 25, 2009  March 6, 2012Chao Y. Wang
    
    *
    
    
    12.04  38.54
    
    November 25, 2009  November 17, 2013Ka Keung Yeung
    
    *
    
    
    12.04  38.54
    
    November 25, 2009  November 17, 2013Davin Alexander Mackenzie
    
    *
    
    
    12.04  38.54
    
    November 25, 2009  November 17, 2013Lingdong Huang
    
    *
    
    
    17.00  30.90
    
    November 25, 2009  March 6, 2012Cheung Kin Au-Yeung
    
    *
    
    
    12.04
    
    November 17, 2013Xiaowei Chen
    
    *
    
    
    12.04
    
    November 17, 2013George Lai
    
    *
    
    
    12.04
    
    November 17, 2013All Directors and Senior
Executive Officers as a
Group
    
    1,440,452
    
    
    12.04  38.54
    
    November 25, 2009 to November 17, 2013Other Individuals as a
Group (other than those
listed above)
    
    942,629
    
    
    12.04  30.90
    
    November 25, 2009  March 6, 2012
 
 
    
    Excluding 439,110 options forfeited as of May 31, 2009 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
  63




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##### Table of Contents



Option Agreement
 Option Exercise
 Third-Party Acquisition
 Changes in Capitalization and Other Adjustments
 Termination of Plan
 Board Practices
  Board of Directors
   64




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##### 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
   65




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##### Table of Contents



Terms of Directors
    Voting Agreement
  Employees
  Share Ownership
  (1)
    
    each of our directors and executive officers who are also our shareholders; and
 (2)
    
    each person known to us to own beneficially more than 5% of our ordinary
 shares.
 Ordinary Shares Beneficially OwnedName
    
    Number(1)
    
    
    %(2)Directors and executive officers:Jun Zhu (3)
    
    
    6,973,981
    
    
    
    26.18
    %Cheung Kin Au-Yeung
    
    
    *
    
    
    
    *Davin Alexander Mackenzie
    
    
    *
    
    
    
    *Chao Y. Wang
    
    
    *
    
    
    
    *Ka Keung Yeung
    
    
    *
    
    
    
    *
  66




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##### Table of Contents



Ordinary Shares Beneficially OwnedName
    
    Number(1)
    
    
    %(2)Xiaowei Chen
    
    
    *
    
    
    
    *George Lai
    
    
    *
    
    
    
    *Xudong He
    
    
    *
    
    
    
    *Lingdong Huang
    
    
    *
    
    
    
    *Chris Shen
    
    
    *
    
    
    
    *Yong Wang
    
    
    *
    
    
    
    *Huanxi Jiang
    
    
    *
    
    
    
    *All Directors and Senior Executive Officers as a Group (4)
    
    
    7,378,543
    
    
    
    28.92
    %Principal shareholders:Incsight Limited (5)
    
    
    6,261,481
    
    
    
    24.15
    %Bosma Limited (6)
    
    
    4,612,522
    
    
    
    18.08
    %EA International (Studio and Publishing) Ltd. (7)
    
    
    4,506,829
    
    
    
    17.67
    %QVT Financial LP(8)
    
    
    1,368,288
    
    
    
    5.36
    %
 
 *
    
    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.(2)
    
    Percentage of beneficial ownership is based on 25,512,745 ordinary shares outstanding as of
June 25, 2009, as well as the shares underlying share options and warrants exercisable by such
person or group within 60 days from the date of this annual report. As of December 31, 2008,
we had 26,817,688 ordinary shares outstanding, excluding shares underlying outstanding options
as of that date and shares repurchased pursuant to our share repurchase program but not yet
accounted for in our member register. Under §37(3)(g) of the Cayman Islands Companies Law
(2007 Revision), shares redeemed or purchased under §37 shall be treated as canceled on
redemption or purchase, and the amount of a companys share capital shall be diminished by the
nominal value of those shares accordingly. It is, however, the register of members which
determines whether shares have been validly issued, transferred or repurchased. Board
resolutions approving and executing the repurchase of shares pursuant to our share repurchase
program had been adopted as of December 31, 2008, but such purchases had not yet been
reflected in our register of members as of that date.(3)
    
    Consists of 5,847,334 ordinary shares held by Incsight Limited, a British Virgin Islands
company 100% owned by Mr. Zhu, options to purchase 712,500 shares held by Mr. Zhu and warrants
to purchase 414,147 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)
    
    Shares owned by all of our directors and executive officers as a group include shares
beneficially owned by Jun Zhu and Xudong He, and exclude shares underlying options held by our
directors and officers that do not vest within 60 days of the date of this annual report.(5)
    
    Consists of 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, and warrants to
purchase 414,147 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. 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.  67




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(7)
    
    Consists of 4,506,829 ordinary shares owned by EA International (Studio and Publishing) Ltd.,
a Bermuda corporation. The address for EA International (Studio and Publishing) Ltd. is LOM
Building, 27 Reid Street, Hamilton, HM 11, Bermuda.(8)
    
    Consists of 1,236,163 ordinary shares held by QVT Fund LP and 132,125 ordinary shares held by
Quintessence Fund L.P., as reported by QVT Financial LP on
February 9, 2009. 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.   
 ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
 Major Shareholders
  Related Party Transactions
 Arrangements with Affiliated PRC Entities
      68




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Master Agreement for MU
 Master Agreement for WoW
 Domain Name License Agreement www.the9.com
 Exclusive Technical Service Agreement
 Shareholder Voting Proxy Agreements
 Call Option Agreements
 Loan Agreements
  69




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Equity Pledge Agreements
 Transactions with China Interactive
  Investments in Affiliated Companies
       70




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##### Table of Contents



Stock Option Grants
  Interests of Experts and Counsel
  
 ITEM 8. FINANCIAL INFORMATION
 Consolidated Statements and Other Financial Information
  Legal Proceedings
        71




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##### Table of Contents



Dividend Policy
    Significant Changes
  
 ITEM 9. THE OFFER AND LISTING
 Offering and Listing Details
    Sales PriceHigh
    
    
    LowAnnual Highs and Lows2006
    
    
    32.87
    
    
    
    15.502007
    
    
    52.44
    
    
    
    19.562008
    
    
    28.50
    
    
    
    9.97Quarterly Highs and LowsFirst Quarter 2007
    
    
    39.73
    
    
    
    29.80Second Quarter 2007
    
    
    46.98
    
    
    
    33.34Third Quarter 2007
    
    
    52.44
    
    
    
    31.66Fourth Quarter 2007
    
    
    36.25
    
    
    
    19.56First Quarter 2008
    
    
    23.75
    
    
    
    15.05
  72




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##### Table of Contents



Sales PriceHigh
    
    
    LowSecond 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
    
    
    
    8.62Monthly Highs and LowsJanuary 2009
    
    
    16.64
    
    
    
    13.43February 2009
    
    
    15.20
    
    
    
    11.05March 2009
    
    
    14.17
    
    
    
    9.16April 2009
    
    
    15.90
    
    
    
    8.62May 2009
    
    
    9.77
    
    
    
    8.68June 2009
    
    
    12.04
    
    
    
    8.97July 2009
(through July 9, 2009)
    
    
    10.20
    
    
    
    8.55
 Plan of Distribution
  Markets
  Selling Shareholders
  Dilution
  Expenses of the Issue
  
 ITEM 10. ADDITIONAL INFORMATION
 Share Capital
  Memorandum and Articles of Association
  Material Contracts
   73




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Exchange Controls
     Taxation
  Cayman Islands Taxation
   74




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##### Table of Contents



United States Federal Income Taxation
   
    
    banks;
 
    
    insurance companies;
 
    
    regulated investment companies;
 
    
    real estate investment trusts;
 
    
    broker-dealers;
 
    
    traders that elect to mark to market;
 
    
    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.
 INVESTORS ARE URGED TO CONSULT THEIR TAX ADVISORS ABOUT 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;
  75




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##### Table of Contents




    
    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).
    76




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##### Table of Contents



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 realized 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.
     77




---



##### Table of Contents



de minimis
   YOU ARE STRONGLY URGED TO CONSULT YOUR TAX ADVISORS REGARDING THE IMPACT OF OUR BEING A PFIC
FOR 2008 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
    78




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Taxation of Disposition of the ADSs or Ordinary Shares
   Information Reporting and Backup Withholding
   79




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##### Table of Contents



Dividends and Paying Agents
  Statement by Experts
  Documents on Display
  www.sec.gov
   Subsidiary Information
  
 ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Interest Rate Risk.
  80




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##### Table of Contents



Foreign Exchange Risk.
   Global Economic Conditions.
 
 ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
  
 PART II
 
 ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
   81




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##### Table of Contents



ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
  
 ITEM 15. CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
  Managements Report on Internal Control over Financial Reporting
      Changes in Internal Control over Financial Reporting
   82




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##### Table of Contents




    
    We hired a new chief financial officer, a new financial director and a new internal
audit director, each of whom has solid knowledge of and experience with U.S. GAAP and
SOX compliance; and
 
    
    We provided various U.S. GAAP and SOX training to our accounting staff, finance
department and internal audit department.
   
 ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT
  
 ITEM 16B. CODE OF ETHICS
  
 ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
  2006
    
    
    2007
    
    
    2008RMB
    
    
    RMB
    
    
    RMB
    
    
    US$Audit fees (1)
    
    
    4,565,399
    
    
    
    8,537,214
    
    
    
    9,010,045
    
    
    
    1,320,637Audit-related fees (2)
    
    
    
    
    
    
    
    
    
    
    2,089,865
    
    
    
    306,320Tax fees(3)
    
    
    
    
    
    
    951,423
    
    
    
    753,641
    
    
    
    110,464All other fees
    
    
    11,706
    
    
    
    10,942
    
    
    
    10,239
    
    
    
    1,501
 
 (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.(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 comfort letters, rendering of listing advice, and other
audit-related services for the years ended December 31, 2006, 2007 and 2008.(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
   83




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##### Table of Contents



ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS.
  
 ITEM 16F. CHANGE IN REGISTRANTS CERTIFYING ACCOUNTANT
  
 ITEM 16G. CORPORATE GOVERNANCE
    84




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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 Limited2.1
    
    
    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)4.7
    
    
    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)
  85




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##### Table of Contents



Exhibit Number
    
    Document4.8
    
    
    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 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)4.17
    
    
    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)
  86




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Exhibit Number
    
    Document4.18
    
    
    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)4.27
    
    
    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)
  87




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Exhibit Number
    
    Document4.28
    
    
    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 Limited11.1
    
    
    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 2002
  88




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##### Table of Contents



Exhibit Number
    
    Document13.1
    *
    
    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 PRC Counsel15.3
    *
    
    Consent of PricewaterhouseCoopers
 
 *
    
    Filed with this Form 20-F.  89




---



##### Table of Contents



SIGNATURES
  THE9 LIMITEDBy

/s/
Jun ZhuName:
    Jun ZhuTitle:
    Chairman and Chief Executive Officer




---



##### 



THE9 LIMITED
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 PageReport of Independent Registered Public Accounting Firm
    
    
    F-2Consolidated Statements of Operations and Comprehensive Income for the Years
ended December 31, 2006, 2007 and 2008
    
    
    F-3Consolidated Balance Sheets as of December 31, 2007 and 2008
    
    
    F-4Consolidated Statements of Changes in Shareholders Equity for the Years
ended December 31, 2006, 2007 and 2008
    
    
    F-5Consolidated Statements of Cash Flows for the Years ended December 31, 2006, 2007
and 2008
    
    
    F-7Notes to Consolidated Financial Statements for the Years ended December 31, 2006,
2007 and 2008
    
    
    F-9
   F-1




---



##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 TO THE SHAREHOLDERS OF THE9 LIMITED:
 Company Internal Control  Integrated Framework
    
  F-2




---



##### Table of Contents



THE9 LIMITED
 
 CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
 FOR THE YEARS ENDED DECEMBER 31, 2006, 2007 AND 2008
 Note
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2008RMB
    
    
    RMB
    
    
    RMB
    
    
    US$(Unaudited, Note 3)Revenues:Online game services
    
    
    
    
    
    
    1,027,963,574
    
    
    
    1,330,977,217
    
    
    
    1,800,313,225
    
    
    
    263,878,816Other revenues
    
    
    
    
    
    
    10,364,205
    
    
    
    19,152,227
    
    
    
    5,816,996
    
    
    
    852,6191,038,327,779
    
    
    
    1,350,129,444
    
    
    
    1,806,130,221
    
    
    
    264,731,435Sales taxes
    
    
    
    
    
    
    (52,501,980
    )
    
    
    (70,522,616
    )
    
    
    (94,639,527
    )
    
    
    (13,871,679
    )Net revenues
    
    
    
    
    
    
    985,825,799
    
    
    
    1,279,606,828
    
    
    
    1,711,490,694
    
    
    
    250,859,756Cost of services
    
    
    
    
    
    
    (524,031,705
    )
    
    
    (700,046,829
    )
    
    
    (997,948,540
    )
    
    
    (146,273,146
    )Gross profit
    
    
    
    
    
    
    461,794,094
    
    
    
    579,559,999
    
    
    
    713,542,154
    
    
    
    104,586,610Operating expenses:Product development
    
    
    
    
    
    
    (30,781,632
    )
    
    
    (41,430,087
    )
    
    
    (73,819,607
    )
    
    
    (10,820,023
    )Sales and marketing
    
    
    
    
    
    
    (59,574,787
    )
    
    
    (103,263,236
    )
    
    
    (103,725,123
    )
    
    
    (15,203,389
    )General and administrative
    
    
    
    
    
    
    (100,429,543
    )
    
    
    (180,297,691
    )
    
    
    (319,298,044
    )
    
    
    (46,800,739
    )Impairment of equipment and
intangible assets
    
    
    10, 12, 13
    
    
    
    (853,165
    )
    
    
    (18,704,416
    )
    
    
    (82,149,755
    )
    
    
    (12,041,005
    )Total operating expenses
    
    
    
    
    
    
    (191,639,127
    )
    
    
    (343,695,430
    )
    
    
    (578,992,529
    )
    
    
    (84,865,156
    )Profit from operations
    
    
    
    
    
    
    270,154,967
    
    
    
    235,864,569
    
    
    
    134,549,625
    
    
    
    19,721,454Interest income, net
    
    
    
    
    
    
    9,136,273
    
    
    
    50,655,699
    
    
    
    56,690,807
    
    
    
    8,309,389Other income (expenses), net
    
    
    5
    
    
    
    28,416,722
    
    
    
    (30,053,620
    )
    
    
    (18,967,099
    )
    
    
    (2,780,080
    )Income before income tax benefit
(expense), gain on investment
disposal, impairment loss on
investments, share of loss in
equity investments and minority
interests
    
    
    
    
    
    
    307,707,962
    
    
    
    256,466,648
    
    
    
    172,273,333
    
    
    
    25,250,763Income tax benefit (expense)
    
    
    15
    
    
    
    2,669,763
    
    
    
    (9,268,632
    )
    
    
    (47,928,533
    )
    
    
    (7,025,069
    )Income before gain on investment
disposal, impairment loss on
investments, share of loss in
equity investments and minority
interests
    
    
    
    
    
    
    310,377,725
    
    
    
    247,198,016
    
    
    
    124,344,800
    
    
    
    18,225,694Gain on investment disposal
    
    
    
    
    
    
    23,409,702
    
    
    
    
    
    
    
    
    
    
    
    Impairment loss on investments
    
    
    7, 8
    
    
    
    (20,401,915
    )
    
    
    (627,380
    )
    
    
    (25,922,363
    )
    
    
    (3,799,540
    )Share of loss in equity
investments, net of taxes
    
    
    7
    
    
    
    (908,464
    )
    
    
    (5,678,682
    )
    
    
    (2,241,135
    )
    
    
    (328,492
    )Minority interests
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    654,734
    
    
    
    95,967Net income
    
    
    
    
    
    
    312,477,048
    
    
    
    240,891,954
    
    
    
    96,836,036
    
    
    
    14,193,629Other comprehensive (loss) income:Translation adjustments
    
    
    
    
    
    
    (59,346
    )
    
    
    
    
    
    
    
    
    
    
    Unrealized gain on
available-for-sale investments
    
    
    
    
    
    
    
    
    
    
    13,643,131
    
    
    
    
    
    
    
    Comprehensive income
    
    
    
    
    
    
    312,417,702
    
    
    
    254,535,085
    
    
    
    96,836,036
    
    
    
    14,193,629Earnings per share
    
    
    23- Basic
    
    
    
    
    
    
    12.78
    
    
    
    8.79
    
    
    
    3.50
    
    
    
    0.51- Diluted
    
    
    
    
    
    
    12.72
    
    
    
    8.72
    
    
    
    3.50
    
    
    
    0.51Weighted average shares outstanding
    
    
    23- Basic
    
    
    
    
    
    
    24,456,507
    
    
    
    27,406,263
    
    
    
    27,664,687
    
    
    
    27,664,687- Diluted
    
    
    
    
    
    
    24,565,947
    
    
    
    27,640,626
    
    
    
    27,704,201
    
    
    
    27,704,201
   F-3




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##### Table of Contents



THE9 LIMITED
 
 CONSOLIDATED BALANCE SHEETS
 AS OF DECEMBER 31, 2007 AND 2008
 December 31,
    
    
    December 31,
    
    
    December 31,Note
    
    
    2007
    
    
    2008
    
    
    2008RMB
    
    
    RMB
    
    
    US$(Unaudited, Note 3)ASSETSCurrent assets:Cash and cash equivalents
    
    
    
    
    
    
    2,215,281,857
    
    
    
    2,152,585,574
    
    
    
    315,512,728Short term investments
    
    
    
    
    
    
    
    
    
    
    68,039,221
    
    
    
    9,972,770Accounts receivable, net of
allowance for doubtful accounts of
2007: RMB0.6 million, 2008: RMB21.3
million (US$3.1 million)
    
    
    2<7>
    
    
    
    26,654,274
    
    
    
    8,323,084
    
    
    
    1,219,945Due from related parties
    
    
    22
    
    
    
    
    
    
    
    637,708
    
    
    
    93,471Advances to suppliers
    
    
    16
    
    
    
    8,943,273
    
    
    
    1,435,781
    
    
    
    210,448Prepayments and other current assets
    
    
    
    
    
    
    39,064,809
    
    
    
    68,371,912
    
    
    
    10,021,533Prepaid royalties
    
    
    14
    
    
    
    71,937,382
    
    
    
    138,843,227
    
    
    
    20,350,784Deferred costs
    
    
    14, 2<15>
    
    
    
    47,759,013
    
    
    
    55,748,737
    
    
    
    8,171,306Deferred tax assets, current
    
    
    15
    
    
    
    5,118,345
    
    
    
    
    
    
    
    Total current assets
    
    
    
    
    
    
    2,414,758,953
    
    
    
    2,493,985,244
    
    
    
    365,552,985Investments in equity investees
    
    
    7
    
    
    
    18,236,274
    
    
    
    291,642,529
    
    
    
    42,747,164Available-for-sale investments
    
    
    8, 9
    
    
    
    29,218,400
    
    
    
    29,218,400
    
    
    
    4,282,653Property, equipment and software
    
    
    10
    
    
    
    344,393,472
    
    
    
    200,034,094
    
    
    
    29,319,766Goodwill
    
    
    6
    
    
    
    30,199,751
    
    
    
    30,199,751
    
    
    
    4,426,493Intangible assets
    
    
    12
    
    
    
    277,264,136
    
    
    
    136,129,801
    
    
    
    19,953,068Land use right
    
    
    11
    
    
    
    83,719,665
    
    
    
    81,798,755
    
    
    
    11,989,557Prepayment for equipment
    
    
    16
    
    
    
    18,500,000
    
    
    
    
    
    
    
    Long-term deposits
    
    
    
    
    
    
    454,212
    
    
    
    
    
    
    
    Deferred tax assets, non-current
    
    
    15
    
    
    
    29,356,533
    
    
    
    
    
    
    
    Total assets
    
    
    
    
    
    
    3,246,101,396
    
    
    
    3,263,008,574
    
    
    
    478,271,686LIABILITIESCurrent liabilities:Accounts payable
    
    
    
    
    
    
    48,946,062
    
    
    
    29,758,563
    
    
    
    4,361,827Due to related parties
    
    
    22
    
    
    
    77,052
    
    
    
    
    
    
    
    Income tax payable
    
    
    
    
    
    
    2,329,457
    
    
    
    56,680
    
    
    
    8,308Other taxes payable
    
    
    
    
    
    
    55,234,788
    
    
    
    99,416,815
    
    
    
    14,571,903Advances from customers
    
    
    2<15>
    
    
    
    118,156,157
    
    
    
    143,464,990
    
    
    
    21,028,214Deferred revenue
    
    
    2<15>
    
    
    
    166,916,111
    
    
    
    201,645,952
    
    
    
    29,556,021Other payables and accruals
    
    
    17
    
    
    
    48,351,220
    
    
    
    69,423,536
    
    
    
    10,175,674Total current liabilities
    
    
    
    
    
    
    440,010,847
    
    
    
    543,766,536
    
    
    
    79,701,947Commitments and contingencies
    
    
    25Shareholders equityOrdinary shares (US$0.01 par value;
100,000,000 shares authorized,
28,763,188 and 26,817,688 shares
issued and outstanding as of December
31, 2007 and 2008, respectively)
    
    
    
    
    
    
    2,350,463
    
    
    
    2,190,645
    
    
    
    321,091Additional paid-in capital
    
    
    
    
    
    
    2,218,516,672
    
    
    
    2,128,607,581
    
    
    
    311,998,180Statutory reserves
    
    
    2<24>
    
    
    
    20,745,422
    
    
    
    24,836,354
    
    
    
    3,640,360Accumulated other comprehensive income
    
    
    8
    
    
    
    13,643,131
    
    
    
    13,643,131
    
    
    
    1,999,726Retained earnings
    
    
    
    
    
    
    550,834,861
    
    
    
    549,964,327
    
    
    
    80,610,382Total shareholders equity
    
    
    
    
    
    
    2,806,090,549
    
    
    
    2,719,242,038
    
    
    
    398,569,739Total liabilities and shareholders equity
    
    
    
    
    
    
    3,246,101,396
    
    
    
    3,263,008,574
    
    
    
    478,271,686
   F-4




---



##### Table of Contents



THE9 LIMITED
 
 CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY
 FOR THE YEARS ENDED DECEMBER 31, 2006, 2007 AND 2008
 Ordinary shares(US$0.01 par value)
    
    
    
    
    
    
    Deferred
    
    
    
    
    
    
    Accumulated otherNumber of
    
    
    
    
    
    
    Additional paid-in
    
    
    share-based
    
    
    Statutory
    
    
    comprehensive income
    
    
    
    
    
    
    Total shareholdersshares
    
    
    Par value
    
    
    capital
    
    
    compensation
    
    
    reserves
    
    
    (loss)
    
    
    Retained earnings
    
    
    EquityRMB
    
    
    RMB
    
    
    RMB
    
    
    RMB
    
    
    RMB
    
    
    RMB
    
    
    RMBBalance as of December 31, 2005
    
    
    24,214,130
    
    
    
    2,004,033
    
    
    
    860,214,342
    
    
    
    (145,864
    )
    
    
    54,172
    
    
    
    59,346
    
    
    
    79,798,587
    
    
    
    941,984,616Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    312,477,048
    
    
    
    312,477,048Appropriations to statutory
reserves (Note 2<24>)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20,691,250
    
    
    
    
    
    
    
    (20,691,250
    )
    
    
    Cumulative translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (59,346
    )
    
    
    
    
    
    
    (59,346
    )Adoption of SFAS 123R (Note
2<19>)
    
    
    
    
    
    
    
    
    
    
    (145,864
    )
    
    
    145,864
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Issuance of ordinary shares from
stock option exercise
    
    
    473,908
    
    
    
    37,640
    
    
    
    63,978,786
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    64,016,426Employee share based compensation
(Note 21)
    
    
    
    
    
    
    
    
    
    
    17,739,543
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17,739,543Balance 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 to
Electronic Arts Inc. (EA) (Note 19)
    
    
    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 ADSs
(Note 2<23>, 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
    
    
    
    2,806,090,549
  F-5




---



##### Table of Contents



Ordinary shares(US$0.01 par value)
    
    
    
    
    
    
    
    
    
    
    DeferredNumber of
    
    
    
    
    
    
    Additional paid-in
    
    
    share-based
    
    
    Statutory
    
    
    Accumulated other
    
    
    
    
    
    
    Total shareholdersshares
    
    
    Par value
    
    
    capital
    
    
    compensation
    
    
    reserves
    
    
    comprehensive income
    
    
    Retained earnings
    
    
    equityRMB
    
    
    RMB
    
    
    RMB
    
    
    RMB
    
    
    RMB
    
    
    RMB
    
    
    RMBNet income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    96,836,036
    
    
    
    96,836,036Issuance of
ordinary shares
from stock option
exercise
    
    
    72,583
    
    
    
    5,067
    
    
    
    8,840,640
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,845,707Repurchase and
retirement of ADSs
(Note 2<23>,
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 2<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
    
    
    
    2,719,242,038Balance as of
December 31, 2008
(US$ except share
data, unaudited,
Note 3)
    
    
    26,817,688
    
    
    
    321,091
    
    
    
    311,998,180
    
    
    
    
    
    
    
    3,640,360
    
    
    
    1,999,726
    
    
    
    80,610,382
    
    
    
    398,569,739
   F-6




---



##### Table of Contents



THE9 LIMITED
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 FOR THE YEARS ENDED DECEMBER 31, 2006, 2007 AND 2008
 Note
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2008RMB
    
    
    RMB
    
    
    RMB
    
    
    US$(Unaudited, Note 3)Cash flows from operating activities:Net income
    
    
    
    
    
    
    312,477,048
    
    
    
    240,891,954
    
    
    
    96,836,036
    
    
    
    14,193,629Adjustments for:Deferred taxes
    
    
    
    
    
    
    (3,286,659
    )
    
    
    (29,083,755
    )
    
    
    34,474,878
    
    
    
    5,053,115Loss (gain) on disposal of property,
equipment and software
    
    
    
    
    
    
    119,534
    
    
    
    (275
    )
    
    
    (29,717
    )
    
    
    (4,356
    )Gain on investment disposal
    
    
    
    
    
    
    (23,409,702
    )
    
    
    
    
    
    
    
    
    
    
    Impairment of intangible assets
    
    
    12,13
    
    
    
    853,164
    
    
    
    18,704,416
    
    
    
    73,248,491
    
    
    
    10,736,312Impairment loss on investments
    
    
    7, 8
    
    
    
    20,401,915
    
    
    
    627,380
    
    
    
    25,922,363
    
    
    
    3,799,540Impairment on equipment
    
    
    10,13
    
    
    
    
    
    
    
    
    
    
    
    8,901,264
    
    
    
    1,304,692Depreciation and amortization of
property, equipment and software
    
    
    10
    
    
    
    76,158,886
    
    
    
    122,658,272
    
    
    
    207,787,590
    
    
    
    30,456,224Amortization of land use right
    
    
    11
    
    
    
    
    
    
    
    1,440,684
    
    
    
    1,920,910
    
    
    
    281,555Amortization of intangible assets
    
    
    12
    
    
    
    90,286,523
    
    
    
    87,865,492
    
    
    
    88,886,444
    
    
    
    13,028,427Share of loss in equity investments,
net of taxes
    
    
    7
    
    
    
    908,464
    
    
    
    5,678,682
    
    
    
    2,241,135
    
    
    
    328,492Allowance for doubtful accounts
    
    
    2<7>
    
    
    
    
    
    
    
    
    
    
    
    20,733,448
    
    
    
    3,038,981Provision for prepaid royalties
    
    
    14
    
    
    
    
    
    
    
    
    
    
    
    3,882,516
    
    
    
    569,075Provision
for advances to suppliers and prepayment for equipment
    
    
    16
    
    
    
    
    
    
    
    
    
    
    
    55,191,282
    
    
    
    8,089,598Provision for prepayments and other
current assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,065,933
    
    
    
    1,182,255Non-cash interest expense
    
    
    
    
    
    
    803,605
    
    
    
    
    
    
    
    
    
    
    
    Exchange loss
    
    
    5
    
    
    
    2,480,729
    
    
    
    51,039,667
    
    
    
    31,657,480
    
    
    
    4,640,158Stock based compensation expense
    
    
    21
    
    
    
    17,739,543
    
    
    
    46,728,166
    
    
    
    52,049,596
    
    
    
    7,629,109Change in accounts receivable
    
    
    
    
    
    
    419,382
    
    
    
    (12,029,785
    )
    
    
    (6,999,641
    )
    
    
    (1,025,964
    )Change in advances to suppliers
    
    
    
    
    
    
    637,141
    
    
    
    924,191
    
    
    
    (1,195,620
    )
    
    
    (175,247
    )Change in prepayments and other current
assets
    
    
    
    
    
    
    (421,071
    )
    
    
    (14,820,065
    )
    
    
    (38,849,005
    )
    
    
    (5,694,248
    )Change in prepaid royalties
    
    
    
    
    
    
    15,437,739
    
    
    
    (44,379,175
    )
    
    
    (70,788,361
    )
    
    
    (10,375,722
    )Change in deferred costs
    
    
    
    
    
    
    (9,249,728
    )
    
    
    (14,434,071
    )
    
    
    (7,989,724
    )
    
    
    (1,171,084
    )Change in long-term deposits
    
    
    
    
    
    
    3,132,338
    
    
    
    (454,212
    )
    
    
    454,212
    
    
    
    66,576Change in accounts payable
    
    
    
    
    
    
    (4,773,853
    )
    
    
    38,986,999
    
    
    
    (14,360,918
    )
    
    
    (2,104,935
    )Change in due to related parties
    
    
    
    
    
    
    (429,690
    )
    
    
    (255,745
    )
    
    
    (77,052
    )
    
    
    (11,294
    )Change in due from related parties
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (637,708
    )
    
    
    (93,471
    )Change in income tax payable
    
    
    
    
    
    
    
    
    
    
    2,329,457
    
    
    
    (2,272,777
    )
    
    
    (333,130
    )Change in other taxes payable
    
    
    
    
    
    
    15,466,398
    
    
    
    31,645,034
    
    
    
    44,182,027
    
    
    
    6,475,929Change in advances from customers
    
    
    
    
    
    
    26,389,708
    
    
    
    30,115,182
    
    
    
    25,308,833
    
    
    
    3,709,613Change in deferred revenue
    
    
    
    
    
    
    34,787,591
    
    
    
    55,613,580
    
    
    
    34,729,841
    
    
    
    5,090,486Change in other payables and accruals
    
    
    
    
    
    
    21,981,757
    
    
    
    (3,195,793
    )
    
    
    19,360,340
    
    
    
    2,837,719Net cash provided by operating activities
    
    
    
    
    
    
    598,910,762
    
    
    
    616,596,280
    
    
    
    692,634,096
    
    
    
    101,522,034
  F-7




---



##### Table of Contents



Note
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2008RMB
    
    
    RMB
    
    
    RMB
    
    
    US$(Unaudited, Note 3)Cash flows from investing activities:New investment and minority interest
acquisition
    
    
    
    
    
    
    (88,004,211
    )
    
    
    (10,000,000
    )
    
    
    (299,365,918
    )
    
    
    (43,879,211
    )Proceeds from disposal of investments in
equity investees
    
    
    
    
    
    
    7,900,977
    
    
    
    38,691,099
    
    
    
    
    
    
    
    Cash paid for short-term investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (795,162,471
    )
    
    
    (116,550,014
    )Proceeds from maturities of short-term
investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    728,000,000
    
    
    
    106,705,753Proceeds from disposal of property,
equipment and software
    
    
    
    
    
    
    48,452
    
    
    
    8,415
    
    
    
    184,110
    
    
    
    26,986Purchase of property, equipment and software
    
    
    
    
    
    
    (78,396,860
    )
    
    
    (269,214,504
    )
    
    
    (96,515,362
    )
    
    
    (14,146,627
    )Purchase of land use right
    
    
    11
    
    
    
    
    
    
    
    (85,160,349
    )
    
    
    
    
    
    
    Purchase of intangible assets
    
    
    
    
    
    
    (46,375,740
    )
    
    
    (135,910,465
    )
    
    
    (24,652,900
    )
    
    
    (3,613,470
    )Net cash used in investing activities
    
    
    
    
    
    
    (204,827,382
    )
    
    
    (461,585,804
    )
    
    
    (487,512,541
    )
    
    
    (71,456,583
    )Cash flows from financing activities:Proceeds from stock option exercise
    
    
    
    
    
    
    58,040,116
    
    
    
    30,126,359
    
    
    
    8,845,707
    
    
    
    1,296,549Proceeds from issuance of ordinary shares to EA
    
    
    
    
    
    
    
    
    
    
    1,251,846,347
    
    
    
    
    
    
    
    Repurchase of ADSs
    
    
    
    
    
    
    
    
    
    
    (107,327,385
    )
    
    
    (244,579,850
    )
    
    
    (35,849,007
    )Net cash provided by (used in) financing activities
    
    
    
    
    
    
    58,040,116
    
    
    
    1,174,645,321
    
    
    
    (235,734,143
    )
    
    
    (34,552,458
    )Effect of foreign exchange rate changes on cash
    
    
    
    
    
    
    (2,522,346
    )
    
    
    (52,219,757
    )
    
    
    (32,083,695
    )
    
    
    (4,702,626
    )Net change in cash and cash equivalents
    
    
    
    
    
    
    449,601,150
    
    
    
    1,277,436,040
    
    
    
    (62,696,283
    )
    
    
    (9,189,633
    )Cash and cash equivalents, beginning of year
    
    
    
    
    
    
    488,244,667
    
    
    
    937,845,817
    
    
    
    2,215,281,857
    
    
    
    324,702,361Cash and cash equivalents, end of year
    
    
    
    
    
    
    937,845,817
    
    
    
    2,215,281,857
    
    
    
    2,152,585,574
    
    
    
    315,512,728Supplemental disclosure of cash flow information:Cash paid for income taxes
    
    
    
    
    
    
    616,896
    
    
    
    36,739,365
    
    
    
    23,405,934
    
    
    
    3,430,698Supplemental disclosure of non-cash investing activities:Accrual related to purchase of property, equipment and software
    
    
    
    
    
    
    7,451,744
    
    
    
    1,615,962
    
    
    
    1,072,640
    
    
    
    157,221Accrual related to the purchase of intangible assets
    
    
    
    
    
    
    
    
    
    
    3,652,300
    
    
    
    
    
    
    
    Conversion of loan receivable to investment in affiliated companies
    
    
    
    
    
    
    15,917,000
    
    
    
    
    
    
    
    
    
    
    
    Supplemental disclosure of non-cash financing activities:Receivable from stock option exercise
    
    
    
    
    
    
    5,976,310
    
    
    
    
    
    
    
    
    
    
    
    
   F-8




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##### Table of Contents



THE9 LIMITED
 
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2006, 2007 AND 2008
 1. ORGANIZATION AND NATURE OF OPERATIONS
  Date of
    
    
    
    Interest heldName of entity
    
    incorporation
    
    Relationship
    
    Direct
    
    
    IndirectGameNow.net (Hong Kong) Limited (GameNow
Hong Kong)
    
    January-00
    
    Subsidiary
    
    
    100
    %
    
    
    City GameNet Limited (City GameNet)
    
    January-00
    
    Subsidiary
    
    
    100
    %
    
    
    The9 Computer Technology Consulting
(Shanghai) Co., Limited. (The9 Computer)
    
    June-00
    
    Subsidiary
    
    
    
    
    
    
    100
    %China The9 Interactive Limited (C9I)
    
    October-03
    
    Subsidiary
    
    
    
    
    
    
    100
    %Spring Asia Limited (Spring Asia)*
    
    June-04
    
    Subsidiary
    
    
    
    
    
    
    China The9 Interactive (Shanghai) Co.,
Limited (C9I Shanghai)
    
    February-05
    
    Subsidiary
    
    
    
    
    
    
    100
    %Shanghai The9 Information Technology Co.,
Limited (Shanghai IT)
    
    September-00
    
    VIE subsidiary
    
    
    None
    
    
    
    (Note 2<2>
    )Shanghai Jiucheng Advertisement Co.,
Limited. (Shanghai Advertisement)**
    
    September-01
    
    VIE subsidiary
    
    
    None
    
    
    
    (Note 2<2>
    )Shanghai Jiucheng Advertisement Co.,
Limited. (Shanghai Jiucheng
Advertisement)
    
    April-07
    
    VIE subsidiary
    
    
    None
    
    
    
    (Note 2<2>
    )Well City Limited (Well City)
    
    November-05
    
    Subsidiary
    
    
    100
    %
    
    
    Global Star International Development
Limited (Global Star)
    
    March-06
    
    Subsidiary
    
    
    100
    %
    
    
    City Rise Investments Limited (City Rise)
    
    January-06
    
    Subsidiary
    
    
    
    
    
    
    100
    %Jiu Chuang Information
Technology(Beijing), Co., Limited (C9I
Beijing)
    
    March-07
    
    Subsidiary
    
    
    
    
    
    
    100
    %Jiu Jing Information Technology
(Beijing),Co., Limited (Jiu Jing)
    
    April-07
    
    Subsidiary
    
    
    
    
    
    
    100
    %City Channel Limited (City Channel)
    
    June-06
    
    Subsidiary
    
    
    100
    %
    
    
    Jiu Tuo (Shanghai) Information Technology
Co., Ltd. (Jiu Tuo)
    
    July-07
    
    Subsidiary
    
    
    
    
    
    
    100
    %Asian Success development Limited (Asian
Success)
    
    August-07
    
    Subsidiary
    
    
    100
    %
    
    
    China Crown Technology Limited (China
Crown Technology)
    
    November-07
    
    Subsidiary
    
    
    100
    %
    
    
    Gold Engine Soft Co., Limited (GES)
    
    June-08
    
    VIE subsidiary
    
    
    
    
    
    
    19.9%  (Note 2<2>
    )Gold Engine Soft Co., Limited (GES Shanghai)
    
    October-08
    
    VIE subsidiary
    
    
    
    
    
    
    19.9%  (Note 2<2>
    )The9 Development Center Limited (TDC)
    
    June-08
    
    Subsidiary
    
    
    100
    %
    
    
    
 *
    
    Spring Asia Limited was disposed to a third party in December 2006.**
    
    Shanghai Advertisement was liquidated in November 2007.  F-9




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##### Table of Contents



F-10




---



##### Table of Contents




    
    A RMB19.4 million (US$2.8 million) provision for accounts receivable deemed to be
uncollectible (Note 2<7>);
    
    A RMB3.9 million
(US$0.6 million) provision for prepaid royalties (Note 14);
 
    
    A RMB22.7 million (US$3.3 million) charge to increase the valuation allowance for
deferred tax assets representing incremental income taxes as a result
of non-renewal of the WoW license (Note 15);
 
    
    RMB68.4 million
(US$10.0 million) of additional depreciation expense related to computer equipment (Note 2<8>);
 
    
    A RMB46.5 million
(US$6.8 million) provision for prepayment for equipments and a
RMB8.7 million (US$1.3 million) provision on advances to suppliers (Note 16); and
 
    
    RMB7.3 million (US$1.1 million) provision on prepayments and other current assets,
including a RMB5.6 million (US$0.8 million) provision on a receivable (Note 22) and
a RMB1.7 million (US$0.3 million) provision on inventories.
   
    
    A RMB8.9 million (US$1.3 million) impairment provision on computer equipment
and a RMB7.1 million (US$1.0 million) impairment on the upfront license fee related to a game (Note 13) and
 
    
    Impairments on the upfront license fees in the amounts
of RMB66.1 million (US$9.7 million) for certain
other games which have not yet been commercially launched
(Note 13).
  F-11




---



##### Table of Contents



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




---



##### Table of Contents



<4> Foreign currency translation
  <5> Cash and cash equivalents
  <6> Short-term investments
  <7> Allowances for doubtful accounts
   <8> 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-13




---



##### Table of Contents



<9> Goodwill
  <10> Intangible assets
     F-14




---



##### Table of Contents



<11> Equity investments
   <12> Available-for-sale investments
   <13> Impairment of long-lived assets
   F-15




---



##### Table of Contents



<14>Revenue recognition
 Online game services
  Time consumption model
   Virtual item/service consumption model
   Other revenues
  Game operating support, website solutions and advertisement
   F-16




---



##### Table of Contents



Short message services
  Other revenues
  Sales tax
  <15>Advances from customers, deferred revenue and deferred costs
     F-17




---



##### Table of Contents



<16>Cost of services
  <17>Product development
    <18>Sales and marketing costs
   <19>Share-based compensation
   F-18




---



##### Table of Contents



<20>Leases
  <21>Taxation
    F-19




---



##### Table of Contents



<22>Employee benefits
  <23>Repurchase of shares
   <24>Statutory reserves
    F-20




---



##### Table of Contents



<25>Earnings per share
   <26>Segment reporting
  <27>Comprehensive income
   F-21




---



##### Table of Contents



<28>Dividends
    <29>Business combination
  <30>Fair value measurements
  3. CONVENIENCE TRANSLATION
   F-22




---



##### Table of Contents



4. VARIABLE INTEREST ENTITIES
     Master Agreements.
  F-23




---



##### Table of Contents



Exclusive Technical Service Agreement.
 Shareholder Voting Rights Proxy Agreements.
 Call Option Agreements.
 Loan Agreement.
 Equity Pledge Agreements.
 th th
  F-24




---



##### Table of Contents



5. OTHER INCOME (EXPENSES), NET
   6. GOODWILL
    
    
    GameNow Hong Kong extended a loan of US$600,000 to China Interactive, effective immediately
upon the signing of the term sheet.
 
    
    China Interactive will be required to transfer 14.9% of the total issued shares of C9I held
by China Interactive to GameNow Hong Kong at the per share price equal to the aggregate
invested amount per share, or approximately US$745,000 in total.
 
    
    GameNow Hong Kong will be required to lend a further US$4,000,000 upon completion of the
transfer of 14.9% of the total issued shares of C9I held by China Interactive to GameNow Hong
Kong.
  
    
    GameNow Hong Kong entered into a loan agreement with China Interactive. Pursuant to the
agreement, an additional loan of US$4.0 million was extended to China Interactive.
    F-25




---



##### Table of Contents



At August 26, 2005US$000Net working capital
    
    
    (6,570
    )Net fixed assets
    
    
    6,807Other non-current assets
    
    
    523Intangible assets
    
    
    35,040Goodwill
    
    
    4,200Consideration given
    
    
    40,000
 7. INVESTMENTS IN EQUITY INVESTEES
  December 31,
    
    
    December 31,
    
    
    December 31,Note
    
    
    2007
    
    
    2008
    
    
    2008RMB
    
    
    RMB
    
    
    US$(Unaudited, Note3)Investments accounted for under equity method:9Webzen Hong Kong
    
    
    7.1<1>
    
    
    
    1,959,572
    
    
    
    
    
    
    
    Object Software
    
    
    7.1<2>
    
    
    
    6,276,702
    
    
    
    5,338,823
    
    
    
    782,532Sunmi Rise
    
    
    7.1<3>
    
    
    
    
    
    
    
    
    
    
    
    Ideas
    
    
    7.1<4>
    
    
    
    
    
    
    
    
    
    
    
    Investments accounted for under cost method:SIVA
    
    
    7.2
    
    
    
    10,000,000
    
    
    
    10,000,000
    
    
    
    1,465,738G10
    
    
    7.2
    
    
    
    
    
    
    
    276,303,706
    
    
    
    40,498,894Total
    
    
    
    
    
    
    18,236,274
    
    
    
    291,642,529
    
    
    
    42,747,164
  F-26




---



##### Table of Contents



7.1 Investments accounted for under the equity method
  9Webzen
    
    
    ObjectHong Kong
    
    
    Software
    
    
    Sunmi Rise
    
    
    Ideas<1>
    
    
    <2>
    
    
    <3>
    
    
    <4>
    
    
    TotalBalance at December
31, 2006 (RMB)
    
    
    2,842,680
    
    
    
    5,962,615
    
    
    
    5,737,041
    
    
    
    
    
    
    
    14,542,336Share of (loss)
income in equity
investments
    
    
    (883,108
    )
    
    
    314,087
    
    
    
    (5,109,661
    )
    
    
    
    
    
    
    (5,678,682
    )Impairment
    
    
    
    
    
    
    
    
    
    
    (627,380
    )
    
    
    
    
    
    
    (627,380
    )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
    
    
    
    
    
    
    
    
    
    
    
    5,338,823Balance at December
31, 2008 (US$,
unaudited, Note 3)
    
    
    
    
    
    
    782,532
    
    
    
    
    
    
    
    
    
    
    
    782,532
  <1> Investment in 9Webzen Hong Kong
   F-27




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##### Table of Contents



For the year ended
    
    
    For the year ended
    
    
    For the year ended
    
    
    For the year endedDecember 31, 2006
    
    
    December 31, 2007
    
    
    December 31, 2008
    
    
    December 31, 2008RMB
    
    
    RMB
    
    
    RMB
    
    
    US$(Unaudited)
    
    
    (Unaudited)
    
    
    (Unaudited)
    
    
    (Unaudited, Note 3)Net revenues
    
    
    9,941,497
    
    
    
    14,224,327
    
    
    
    10,870,937
    
    
    
    1,593,395Gross (loss) profit
    
    
    (4,696,730
    )
    
    
    4,064,880
    
    
    
    2,425,299
    
    
    
    355,485Net loss
    
    
    (15,803,830
    )
    
    
    (2,943,686
    )
    
    
    (4,855,671
    )
    
    
    (711,714
    )
  <2> Investment in Object Software
   December 31,
    
    
    December 31,
    
    
    December 31,2007
    
    
    2008
    
    
    2008RMB
    
    
    RMB
    
    
    US$(Unaudited)
    
    
    (Unaudited)
    
    
    (Unaudited, Note 3)Current assets
    
    
    9,802,206
    
    
    
    9,049,733
    
    
    
    1,326,454Non-current assets
    
    
    4,446,547
    
    
    
    4,230,172
    
    
    
    620,033Current liabilities
    
    
    26,064,569
    
    
    
    32,428,207
    
    
    
    4,753,127Shareholders deficits
    
    
    (11,815,816
    )
    
    
    (19,148,302
    )
    
    
    (2,806,640
    )
  F-28




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##### Table of Contents



For the year ended
    
    
    For the year ended
    
    
    For the year ended
    
    
    For the year endedDecember 31, 2006
    
    
    December 31, 2007
    
    
    December 31, 2008
    
    
    December 31, 2008RMB
    
    
    RMB
    
    
    RMB
    
    
    US$(Unaudited)
    
    
    (Unaudited)
    
    
    (Unaudited)
    
    
    (Unaudited, Note 3)Net revenues
    
    
    13,528,478
    
    
    
    27,562,610
    
    
    
    30,936,040
    
    
    
    4,534,414Operating loss
    
    
    (12,731,000
    )
    
    
    (1,874,574
    )
    
    
    (8,524,255
    )
    
    
    (1,249,433
    )Net (loss) income
    
    
    (10,144,230
    )
    
    
    1,535,076
    
    
    
    (4,695,494
    )
    
    
    (688,237
    )
 <3> Investment in Sunmi Rise
   December 31, 2006
    
    
    December 31, 2007RMB
    
    
    RMB(Unaudited)
    
    
    (Unaudited)Current assets
    
    
    5,261,126
    
    
    
    4,455,386Non-current assets
    
    
    4,244,668
    
    
    
    6,205,314Current liabilities
    
    
    8,983,693
    
    
    
    27,245,560Shareholders equity (deficits)
    
    
    522,101
    
    
    
    (16,584,860
    )
  For the period from August 1,
    
    
    For the year ended2006 to December 31, 2006
    
    
    December 31, 2007RMB
    
    
    RMB(Unaudited)
    
    
    (Unaudited)Net revenues
    
    
    306,282
    
    
    
    472,370Operating loss
    
    
    (8,340,733
    )
    
    
    (16,961,741
    )Net loss
    
    
    (8,458,313
    )
    
    
    (17,033,300
    )
   F-29




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##### Table of Contents



<4> Investment in Ideas common shares
    December 31, 2008
    
    
    December 31, 2008RMB
    
    
    US$(Unaudited)
    
    
    (Unaudited, Note 3)Current assets
    
    
    198,722
    
    
    
    29,127Non-current assets
    
    
    1,909,130
    
    
    
    279,829Current liabilities
    
    
    1,673,056
    
    
    
    245,226Shareholders equity
    
    
    434,796
    
    
    
    63,730
  For the period from January 15,
    
    
    For the period from January 15,2008 to December 31, 2008
    
    
    2008 to December 31, 2008RMB
    
    
    US$(Unaudited)
    
    
    (Unaudited, Note 3)Net revenues
    
    
    54,061
    
    
    
    7,924Operating loss
    
    
    (6,847,473
    )
    
    
    (1,003,660
    )Net loss
    
    
    (6,859,231
    )
    
    
    (1,005,384
    )
  7.2 Investments accounted for under the cost method
  Series B Preferred Share Subscription
Agreement
  F-30




---



##### Table of Contents



8. AVAILABLE-FOR-SALE INVESTMENTS
 <1> Investment in IAH
   <2> Investment in Ideas preferred shares
   9. FAIR VALUE MEASUREMENTS
     F-31




---



##### Table of Contents



Assets Measured at Fair Value on a Recurring Basis
 Fair Value Measurements at Reporting DateUsingQuoted Prices inActive Markets for
    
    
    Significant Other
    
    
    SignificantIdentical Assets
    
    
    Observable Inputs
    
    
    Unobservable InputsDescription
    
    December 31, 2008
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)RMB
    
    
    
    
    
    
    
    
    RMBAvailable-for-sale
investments  IAH
    
    
    29,218,400
    
    
    
    
    
    
    
    
    
    
    
    29,218,400
  Fair Value MeasurementsUsing Significant Unobservable Inputs(Level 3)Available-for-sale investmentsRMB
    
    
    US$(Unaudited, Note 3)Beginning balance
    
    
    29,218,400
    
    
    
    4,282,653Purchases
    
    
    14,634,730
    
    
    
    2,145,069Transfers out of Level 3 due to impairment provision
    
    
    (14,634,730
    )
    
    
    (2,145,069
    )Ending balance
    
    
    29,218,400
    
    
    
    4,282,653
 (Level 3).
  F-32




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##### Table of Contents



10. PROPERTY, EQUIPMENT AND SOFTWARE
  December 31,
    
    
    December 31,
    
    
    December 31,2007
    
    
    2008
    
    
    2008RMB
    
    
    RMB
    
    
    US$(Unaudited, Note 3)Office buildings
    
    
    57,563,875
    
    
    
    58,140,552
    
    
    
    8,521,885Computer and equipment
    
    
    504,237,692
    
    
    
    568,246,083
    
    
    
    83,290,006Leasehold improvements
    
    
    5,287,322
    
    
    
    5,394,067
    
    
    
    790,629Office furniture and fixtures
    
    
    6,005,927
    
    
    
    6,967,302
    
    
    
    1,021,224Motor vehicles
    
    
    8,331,715
    
    
    
    9,046,217
    
    
    
    1,325,939Software
    
    
    10,684,451
    
    
    
    12,705,711
    
    
    
    1,862,325Less: accumulated
depreciation and amortization
    
    
    (247,717,510
    )
    
    
    (451,564,574
    )
    
    
    (66,187,550
    )Impairment provision
    
    
    
    
    
    
    (8,901,264
    )
    
    
    (1,304,692
    )Net book value
    
    
    344,393,472
    
    
    
    200,034,094
    
    
    
    29,319,766
   In 2008, the Company recorded impairment provision of RMB8,901,264 (US$1,304,692) on equipment. Please refer to Note
13 for more details. 11. LAND USE RIGHT
   December 31, 2007
    
    
    December 31, 2008
    
    
    December 31, 2008RMB
    
    
    RMB
    
    
    US$(Unaudited, Note 3)Land use right
    
    
    85,160,349
    
    
    
    85,160,349
    
    
    
    12,482,279Less: accumulated amortization
    
    
    (1,440,684
    )
    
    
    (3,361,594
    )
    
    
    (492,722
    )Net book value
    
    
    83,719,665
    
    
    
    81,798,755
    
    
    
    11,989,557
   F-33




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##### Table of Contents



12. INTANGIBLE ASSETS
  December 31,
    
    
    December 31,
    
    
    December 31,2007
    
    
    2008
    
    
    2008RMB
    
    
    RMB
    
    
    US$(Unaudited, Note 3)Upfront licensing fees
    
    
    230,962,573
    
    
    
    251,963,176
    
    
    
    36,931,209Less: accumulated amortization
    
    
    (32,015,053
    )
    
    
    (49,691,505
    )
    
    
    (7,283,474
    )Impairment provision
    
    
    (25,286,919
    )
    
    
    (98,535,410
    )
    
    
    (14,442,713
    )173,660,601
    
    
    
    103,736,261
    
    
    
    15,205,022Intangible assets from
business combination relating
to C9I (Note 6)
    
    
    283,701,360
    
    
    
    283,701,360
    
    
    
    41,583,197Less: accumulated amortization
    
    
    (180,097,825
    )
    
    
    (251,307,820
    )
    
    
    (36,835,151
    )103,603,535
    
    
    
    32,393,540
    
    
    
    4,748,045Net book value
    
    
    277,264,136
    
    
    
    136,129,801
    
    
    
    19,953,068
  RMB
    
    
    US$(Unaudited, Note 3)2009
    
    
    48,952,515
    
    
    
    7,175,1582010
    
    
    23,069,321
    
    
    
    3,381,3592011
    
    
    20,005,147
    
    
    
    2,932,2312012
    
    
    13,796,530
    
    
    
    2,022,2102013
    
    
    63,487
    
    
    
    9,306Total
    
    
    105,887,000
    
    
    
    15,520,264
  13. IMPAIRMENT OF LONG-LIVED ASSETS
   F-34




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##### Table of Contents



(i)
    
    Due to the weaker than expected operating performance of GE, impairment provisions on computer equipment and upfront
license fees of RMB8.9 million (US$1.3 million) and
RMB7.1 million (US$1.0 million), respectively, were recognized in 2008. A significant factor for our
income approach is forecasting performance and revenue from the game. The Company continued to monitor the actual
revenue performance versus forecast revenue since the most recent major contents update in April 2009. Due to the lower
than expected market acceptance following the content updates, GE experienced significantly lower than expected user
levels and revenue during the period from March to June 2009.
 (ii)
    
    The Company 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. Four of these games have experienced continuous deteriorating results during the first half 2009.
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 Company incorporated these results and experience into it continuous evaluation of the forecasted results of the
respective games and taking into account the Companys expected commercial launch and cash flows in the evaluation of
impairment testing for the carrying value of upfront license fees. Based on the Companys impairment test, impairment
provisions on upfront licensing fees of RMB66.1 million
(US$9.7 million) were recognized in 2008.
  14. PREPAID ROYALTIES & DEFERRED COSTS
      F-35




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##### Table of Contents



15. TAXATION
 Cayman Islands and British Virgin Islands
  Hong Kong
  The PRC
   F-36




---



##### Table of Contents



For year endedDecember 31, 2006RMBAggregate effect
    
    
    120,330,643
  For the year ended
    
    
    For the year ended
    
    
    For the year endedDecember 31, 2007
    
    
    December 31, 2008
    
    
    December 31, 2008RMB
    
    
    RMB
    
    
    US$(Unaudited, Note 3)Aggregate effect
    
    
    52,602,187
    
    
    
    124,974,022
    
    
    
    18,317,922
  For the year ended
    
    
    For the year endedDecember 31, 2008
    
    
    December 31, 2008RMB
    
    
    US$(Unaudited, Note 3)Aggregate effect
    
    
    1,976,984
    
    
    
    289,774
 Composition of income tax benefit (expense)
  For the year ended
    
    
    For the year ended
    
    
    For the year ended
    
    
    For the year endedDecember 31, 2006
    
    
    December 31, 2007
    
    
    December 31, 2008
    
    
    December 31, 2008RMB
    
    
    RMB
    
    
    RMB
    
    
    US$(Unaudited, Note 3)Current income tax expense
    
    
    (616,896
    )
    
    
    (38,352,387
    )
    
    
    (13,453,655
    )
    
    
    (1,971,954
    )Deferred taxation
    
    
    12,861,712
    
    
    
    19,288,424
    
    
    
    15,831,538
    
    
    
    2,320,489Change in valuation allowance
    
    
    (9,575,053
    )
    
    
    9,795,331
    
    
    
    (50,306,416
    )
    
    
    (7,373,604
    )Income tax benefit (expense)
    
    
    2,669,763
    
    
    
    (9,268,632
    )
    
    
    (47,928,533
    )
    
    
    (7,025,069
    )
  F-37




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##### Table of Contents



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, 2006
    
    
    December 31, 2007
    
    
    December 31, 2008Statutory EIT rate
    
    
    33
    %
    
    
    33
    %
    
    
    25
    %Effect of tax rates differential from statutory rate
    
    
    1
    %
    
    
    (1
    %)
    
    
    24
    %Change of valuation allowance
    
    
    3
    %
    
    
    (4
    %)
    
    
    35
    %Effect of tax holidays
    
    
    (36
    %)
    
    
    (19
    %)
    
    
    (49
    %)Enacted EIT rate change
    
    
    
    
    
    
    (5
    %)
    
    
    Others
    
    
    (2
    %)
    
    
    
    
    
    
    (2
    %)Effective EIT rate
    
    
    (1
    %)
    
    
    4
    %
    
    
    33
    %
 Significant components of deferred tax assets
 December 31,
    
    
    December 31,
    
    
    December 31,2007
    
    
    2008
    
    
    2008RMB
    
    
    RMB
    
    
    US$(Unaudited, Note 3)Temporary differences related to expenses and accruals
    
    
    470,335
    
    
    
    5,652,320
    
    
    
    828,482Temporary differences related to provision for
advances to suppliers
    
    
    
    
    
    
    1,884,524
    
    
    
    276,222Temporary differences related to provision for
doubtful accounts
    
    
    
    
    
    
    2,848,905
    
    
    
    417,575Temporary differences related to prepayment and other
current assets
    
    
    
    
    
    
    240,268
    
    
    
    35,217Tax loss carryforwards
    
    
    4,830,845
    
    
    
    
    
    
    
    Total current deferred tax assets
    
    
    5,301,180
    
    
    
    10,626,017
    
    
    
    1,557,496Less: Valuation allowance
    
    
    (182,835
    )
    
    
    (10,626,017)
    
    
    
    (1,557,496
    )Net current deferred tax assets
    
    
    5,118,345
    
    
    
    
    
    
    
    Temporary differences related to depreciation,
amortization, and impairment of equipment and intangible assets
    
    
    17,250,101
    
    
    
    25,425,210
    
    
    
    3,726,671Temporary differences related to provision for
prepayment for equipment
    
    
    
    
    
    
    4,900,000
    
    
    
    718,212Tax loss carryforwards
    
    
    18,104,459
    
    
    
    15,536,051
    
    
    
    2,277,179Total non-current deferred tax assets
    
    
    35,354,560
    
    
    
    45,861,261
    
    
    
    6,722,062Less: Valuation allowance
    
    
    (5,998,027
    )
    
    
    (45,861,261
    )
    
    
    (6,722,062
    )Net non-current deferred tax assets
    
    
    29,356,533
    
    
    
    
    
    
    
    Total deferred tax assets
    
    
    34,474,878
    
    
    
    
    
    
    
    
  F-38




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##### Table of Contents



Movement of valuation allowance on deferred tax assets
 For the year ended
    
    
    For the year ended
    
    
    For the year endedDecember 31, 2007
    
    
    December 31, 2008
    
    
    December 31, 2008RMB
    
    
    RMB
    
    
    US$(Unaudited, Note 3)Balance at January 1
    
    
    15,976,193
    
    
    
    6,180,862
    
    
    
    905,954Increase in valuation allowance
    
    
    3,193,583
    
    
    
    50,306,416
    
    
    
    7,373,604Reversal of valuation allowance
    
    
    (12,988,914
    )
    
    
    
    
    
    
    Balance at December 31
    
    
    6,180,862
    
    
    
    56,487,278
    
    
    
    8,279,558
 For the year ended December 31, 2008, a valuation allowance of approximately RMB50.3 million (US$7.4 million) was
provided, which includes: (i) an amount of RMB22.7 million (US$3.3 million) provided on deferred tax assets that existed prior to the evaluation
and recording of these impairment changes as a result of non-renewal
of the WoW license (Note 1). This provision represented
incremental income taxes expenses as a result of non-renewal of the WoW license in 2008; and (ii) an amount of RMB27.6 million (US$4.1 million) representing a full impairment provision on deferred tax assets
arising from the recording of these impairment charges and adjustment on depreciation of WoW related equipment as a
result of non-renewal of the WoW license (Note 1). Accordingly, valuation allowance on deferred tax assets amounted to RMB56.5 million (US$8.3 million), which reduced the
net book value of deferred tax assets as of December 31, 2008 to nil. With the loss of expected future taxable income
as a result of the non-renewal of WoW license, it is more likely than not that deferred tax assets, if any, as of
December 31, 2008, will not be realized.  16. ADVANCES TO SUPPLIERS AND PREPAYEMENT FOR EQUIPMENT
 As of December 31, 2008, the Company provided a full provision for prepayments to a vendor, whom had been the Companys
primary supplier of computer servers and related computer equipment, in connection with its purchase of certain fixed
assets in the amount of RMB54.9 million (US$8.0 million), including an amount of RMB46.5 million (US$6.8 million)
originally recorded as prepayments for equipment and an amount of RMB8.4 million (US$1.2 million) originally recorded
as advances to suppliers. With the non-renewal of WoW license, the Company 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 is recorded as general and administrative expenses.  F-39




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##### Table of Contents



17. OTHER PAYABLES AND ACCRUALS
  December 31,
    
    
    December 31,
    
    
    December 31,2007
    
    
    2008
    
    
    2008RMB
    
    
    RMB
    
    
    US$(Unaudited, Note 3)Staff cost related payables
    
    
    21,689,586
    
    
    
    37,325,822
    
    
    
    5,470,988Professional services
    
    
    12,633,520
    
    
    
    18,574,137
    
    
    
    2,722,483R&D services
    
    
    2,695,366
    
    
    
    2,665,366
    
    
    
    390,673Marketing and promotion
    
    
    4,306,173
    
    
    
    3,777,890
    
    
    
    553,740Others
    
    
    7,026,575
    
    
    
    7,080,321
    
    
    
    1,037,79048,351,220
    
    
    
    69,423,536
    
    
    
    10,175,674
 18. SHARE REPURCHASE PROGRAM
   19. INVESTMENT BY EA
  20. EMPLOYEE BENEFITS
   F-40




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##### Table of Contents



21. SHARE-BASED COMPENSATION
 21.1 Stock options granted by the Company
          F-41




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##### Table of Contents



Weighted-AverageRemainingFor the year ended
    
    
    Weighted-Average
    
    
    Contractual Term
    
    
    AggregateDecember 31, 2008
    
    
    Exercise Price
    
    
    (years)
    
    
    Intrinsic valueOutstanding at January 1, 2008
    
    
    1,634,703
    
    
    US$
    31.73Granted
    
    
    205,000
    
    
    US$
    12.04Exercised
    
    
    (72,583
    )
    
    US$
    17.46Forfeited
    
    
    (136,797
    )
    
    US$
    23.63Outstanding at
December 31, 2008
    
    
    1,630,323
    
    
    US$
    30.57
    
    
    
    3.1
    
    
    $
    262,400Vested and
expected to vest
at December 31,
2008
    
    
    1,605,590
    
    
    US$
    30.78
    
    
    
    3.1
    
    
    $
    238,841Exercisable at
December 31, 2008
    
    
    995,600
    
    
    US$
    29.47
    
    
    
    2.7
    
    
    $
    87,467
    For the year ended
    
    
    For the year ended
    
    
    For the year endedDecember 31, 2006
    
    
    December 31, 2007
    
    
    December 31, 2008Risk-free interest rate
    
    
    4.55
    %
    
    
    4.52%-4.88
    %
    
    
    1.53
    %Expected life (years)
    
    
    2.71
    
    
    
    2.42-3.33
    
    
    
    2.90Expected dividend yield
    
    
    
    
    
    
    
    
    
    
    Volatility
    
    
    55
    %
    
    
    50
    %
    
    
    54
    %Fair value of options at grant date
    
    
    US$7.78
    
    
    
    US$11.71-US$18.15
    
    
    
    US$4.46
  Weighted-AverageNon-vested Shares
    
    Number of shares
    
    
    Grant-Date Fair ValueNon-vested at January 1, 2008
    
    
    1,219,924
    
    
    US$
    16.73Granted
    
    
    205,000
    
    
    US$
    4.46Vested
    
    
    (732,349
    )
    
    US$
    15.47Forfeited
    
    
    (57,852
    )
    
    US$
    10.57Non-vested at December 31,2008
    
    
    634,723
    
    
    US$
    14.77
  F-42




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21.2 Equity warrants granted to Incsight Limited (Incsight)
    Risk-free interest rate
    
    
    1.22
    %Expected life (years)
    
    
    1.81Expected dividend yield
    
    
    Volatility
    
    
    57
    %Fair value of an equity warrant at grant date
    
    
    US$3.68
   21.3 Stock option granted by The9 Development Center Limited (TDC)
   F-43




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Weighted-AverageWeighted-Average
    
    
    RemainingFor the year ended
    
    
    Exercise
    
    
    Contractual Term
    
    
    AggregateDecember 31, 2008
    
    
    Price per option
    
    
    (years)
    
    
    Intrinsic valueOutstanding at January 1, 2008
    
    
    
    
    
    
    Granted
    
    
    18,961,000
    
    
    HK$
    0.10Outstanding at December 31, 2008
    
    
    18,961,000
    
    
    HK$
    0.10
    
    
    
    7.0
    
    
    RMB
    331,943Vested and expected to vest at
December 31, 2008
    
    
    18,351,619
    
    
    HK$
    0.10
    
    
    
    7.0
    
    
    RMB
    321,275Exercisable at December 31, 2008
    
    
    4,740,250
    
    
    HK$
    0.10
    
    
    
    7.0
    
    
    RMB
    82,986
   Risk-free interest rate
    
    
    3.75
    %Expected life (years)
    
    
    5.00Expected dividend yield
    
    
    Volatility
    
    
    53
    %Fair value of option at grant date
    
    
    RMB0.11
  Weighted-AverageGrant-Date Fair Value perNon-vested Shares
    
    Number of shares
    
    
    optionGranted
    
    
    18,961,000
    
    
    RMB
    0.11Vested
    
    
    (4,740,250
    )
    
    RMB
    0.11Non-vested at December 31,2008
    
    
    14,220,750
    
    
    RMB
    0.11
     F-44




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22. RELATED PARTY TRANSACTIONS AND BALANCES
     In December 2006, the Group entered into an agreement with a third party to sell 100% of its interest in Spring Asia,
which mainly includes US$1.5 million equity investment in GFD and US$1.5 million receivable from GFD for a total
consideration of US$6,965,825. US$1 million was received in December 2006 and US$5 million was received in 2007. As of
December 31, 2007, the Companys outstanding receivable from the third party amounted to US$1 million (RMB7 million,
including RMB1.4 million recorded under accounts receivable and RMB5.6 million recorded under prepayments and other
current assets). The Company assessed the impact of the non-renewal of the WoW license on its ongoing relationship with
GFD and resulting collectability of this receivable and concluded collection to be unlikely resulting in the recording
of impairment charge in the amount of RMB7 million (US$1 million) recorded in General and Administrative expenses for the year ended
December 31, 2008 in the accompanying Consolidated Statements of Operations and Comprehensive Income.   December 31, 2007
    
    
    December 31, 2008
    
    
    December 31, 2008RMB
    
    
    RMB
    
    
    US$(Unaudited, Note 3)Amounts due (to)
from 9Webzen Hong
Kong and 9Webzen
Shanghai
    
    
    (77,052
    )
    
    
    637,708
    
    
    
    93,471
  F-45




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For the year ended
    
    
    For the year ended
    
    
    For the year ended
    
    
    For the year endedDecember 31, 2006
    
    
    December 31, 2007
    
    
    December 31, 2008
    
    
    December 31, 2008RMB
    
    
    RMB
    
    
    RMB
    
    
    US$(Unaudited, Note 3)Share revenue from 9Webzen
    
    
    1,078,202
    
    
    
    782,340
    
    
    
    714,761
    
    
    
    104,765Game technical support fee income from GFD
    
    
    1,721,816
    
    
    
    
    
    
    
    
    
    
    
    Equipment and vehicles purchased from 9Webzen Shanghai
    
    
    989,411
    
    
    
    
    
    
    
    
    
    
    
    
 23. EARNINGS PER SHARE
  For the year ended
    
    
    For the year ended
    
    
    For the year ended
    
    
    For the year endedDecember 31, 2006
    
    
    December 31, 2007
    
    
    December 31, 2008
    
    
    December 31, 2008RMB
    
    
    RMB
    
    
    RMB
    
    
    US$(Unaudited, Note 3)Numerator:Net income
    
    
    312,477,048
    
    
    
    240,891,954
    
    
    
    96,836,036
    
    
    
    14,193,629Denominator:Denominator for basic earnings per share
 weighted-average shares outstanding
    
    
    24,456,507
    
    
    
    27,406,263
    
    
    
    27,664,687
    
    
    
    27,664,687Dilutive effect of share options
    
    
    109,440
    
    
    
    234,363
    
    
    
    39,514
    
    
    
    39,514Denominator for diluted earnings per share
    
    
    24,565,947
    
    
    
    27,640,626
    
    
    
    27,704,201
    
    
    
    27,704,201Earnings per share- Basic
    
    
    12.78
    
    
    
    8.79
    
    
    
    3.50
    
    
    
    0.51- Diluted
    
    
    12.72
    
    
    
    8.72
    
    
    
    3.50
    
    
    
    0.51
 24. CERTAIN RISKS AND CONCENTRATION
  Note 1.
  F-46




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25. COMMITMENTS AND CONTINGENCIES
 25.1 Operating lease commitments
  RMB
    
    
    US$(Unaudited, Note 3)2009
    
    
    38,556,940
    
    
    
    5,651,4392010
    
    
    3,616,063
    
    
    
    530,0202011
    
    
    1,703,816
    
    
    
    249,73543,876,819
    
    
    
    6,431,194
   25.2 Other contractual obligations
    F-47




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25.3 Contingencies
   26. Recent accounting pronouncements
   F-48




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F-49




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Accounting for Assets Acquired and Liabilities
Assumed in a Business Combination That Arise from Contingencies
 Determining Fair Value When the Volume and Level of Activity for the
Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly, Interim
Disclosures about Fair Value of Financial Instruments, Recognition and
Presentation of Other-Than-Temporary Impairments,
  F-50




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Subsequent Events.
  27. SUBSEQUENT EVENTS
 <1>Special and Non-recurring Cash Dividends
  <2>Shareholder rights plan
    F-51




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<3>
Investment in a joint venture
  4 Expiration of WoW license
  Goodwill of RMB30.2 million (US$4.4 million) as of December 31, 2008 will be fully provided for impairment in 2009.
Goodwill was deemed recoverable as of December 31, 2008, based on our impairment test that includes the operating cash
flow generated from WoW during the period from January 1 to June 6, 2009; but no longer recoverable following the
expiration of the WoW license on June 7, 2009, where there is no longer operating cashflow from WoW. Subsequent to December 31, 2008, the Company continued to make prepayment of royalties for WoW. As a result of
non-renewal of the WoW license, the Company recognized the impairment of
RMB104 million (US$15.2 million) in 2009 for these prepayment of
royalties that have been paid in 2009 but not been consumed upon the expiration of WoW license on June 7, 2009. In May 2009, the Group announced a refund plan in connection with unactivated WoW game point cards, which the Company
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 before September 7, 2009. In connection with the refunds of the unactivated points
cards, as well as the potential refund of the activated but unconsumed point cards, the maximum cost to the Company is
approximately RMB28 million (US$4.1 million) in the settlement with end users for these point cards sold subsequent to
January 1, 2009 but not consumed as of WoW license expiration on June 7, 2009. This additional cost were recorded as a
reduction in earnings in 2009 to reflect the additional cost to the Company as a result of difference of the face value
of the point cards from the net proceeds the Company received in the sales of these point cards. <5> Share repurchase programs
  <6> Convertible loan in IAH In April 2009, the Company entered into a convertible loan agreement with IAH. Under the agreement, IAH issued a US$1.0
million convertible loan to the Company, which bears an interest of 3% per annum. The Company can, at its discretion,
to either repay the loan upon maturity of 12 months or 24 months
since issuance or convert them into in ordinary shares of IAH at a
fixed price.  F-52




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EXHIBIT INDEX
 Exhibit Number
    
    Document1.1
    *
    
    Amended and Restated Memorandum and Articles of Association of The9 Limited8.1
    *
    
    Subsidiaries
of The9 Limited12.1
    *
    
    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 PRC Counsel15.3
    *
    
    Consent of PricewaterhouseCoopers
 
 *
    
    Filed with this Form 20-F.