Good day, ladies and gentlemen, and welcome to The9 Limited first and second quarter 2009 financial results conference call. My name is Krista and I will be your coordinator for today. (Operator Instructions). As a reminder, this conference is being recorded for replay purposes. I would now turn the presentation over to your host for today’s conference, Ms. Phyllis Sai, IR Manager of The9. Please proceed, ma’am.

Thanks, operator. Hello, everyone, and thank you for joining us today for The9's first and second quarter year 2009, financial results conference call. The management with me today are Ms. Xiaowei Chen, President, and Mr. George Lai, Chief Financial Officer. As always, I'll start the call with a review of the Safe Harbor Statements before our management begins their prepared remarks. During the course of today’s call, certain projections or forward-looking statements may be made regarding The9's future financial performance or future events. We wish to caution you that such statements or predictions are based on current information and expectations and actual results may differ materially from those projected in the forward-looking statements. We would also like to refer you to the documents that the company filed with the United States Securities and Exchange Commission. Those documents contain additional information concerning factors that could cause actual results to differ materially from those contained in the management’s projection or forward-looking statements. Now, we would like to begin with our President, Ms. Xiaowei Chen, who will give you an overview of our financial results and operational reports for the quarter, followed by our Chief Financial Officer, Mr. George Lai, who will follow with a detailed discussion of our financials. Ms. Xiaowei?

Thank you, Phyllis. Good day and evening, ladies and gentlemen. Thank you for participating in our discussion of The9’s first and second quarter 2009 results. 2009 is a challenging year for The9. In June, we (ceased) the World of Warcraft operation upon expiration of the license and our revenues have significantly declined. However, our proven track record clearly demonstrates The9's first class game operations capability and deep insights in bringing the best online games to Chinese players. Furthermore, our proprietary development capabilities have substantially grown in the last two years. We believed we will have a turnaround in the near future. We will continue to pursue our 4D strategy. We will continue to license high quality online games and develop our own proprietary games. In addition to Soul of The Ultimate Nation or SUN and Granado Espada or GE, we launched EA SPORTS FIFA Online 2 and Atlantica in Q2 of 2009 to further enhance our portfolio diversification. Together with Audition 2 and our newly licensed game Kingdom Heroes 2 Online and other proprietary games as well, we have a very strong 2010 licensed games pipeline. We’re increasing our investments in research and development for our own proprietary games. As of the second quarter, our headcounts in TDC or The9 Development Center had a 57% increase to 300, since its establishment in July 2008. Our proprietary games underdevelopments include World of Fighter or (inaudible), Dragon Emperor, or Jiu Zhou Zhan Ji, Miracles: Ultimate X, Monster of War, Tiny Tribe and other advanced casual games and web based games. Among these proprietary games, World of Fighter has already been licensed to Hong Kong, Macau and Taiwan. In addition, we made equity investments in a number of games studios in the first half of 2009, which further strengthen our propriety game pipeline.…

Thank you, Xiaowei and hi, everyone. I will now take you through an overview of our first and second quarter 2009 financial results. For the first quarter of 2009, our total net revenues were $62.4 million which increased by 4% compared to $59.8 million in the fourth quarter of 2008 and decreased by 3% compared to $64.3 million in the same period last year. Despite the negative seasonality factors, we managed to deliver a quarter-over-quarter growth in the revenues through effective marketing campaigns and ground promotions. In the first quarter, net revenues attributable to the operations of subscription-based games, which included revenues from game playing time, merchandise and installation package sales, increased by 5% quarter-over-quarter and by 3% year-over-year to $59.0 million. Net revenues attributable to the operations of item-sales based games decreased by 11% quarter-over-quarter and by 47% year-over-year to $3.1 million, the decrease was mainly due to the lower than expected operating performance of GE which caused decline in active paying users. For the second quarter of 2009, total net revenues were $42.2 million which decreased by 32% compared to $62.4 million in the previous quarter and by 37% compared to $66.6 million in the same period last year. The decrease was primarily due to the decreased revenue from World of Warcraft, which expired on June 7, 2009. In the second quarter of 2009, net revenues attributable to the operations of subscription-based game, which included revenues from game playing time, merchandise and installation package sales, decreased by 33% quarter-over-quarter and by 35% year-over-year to $39.5 million. Net revenues attributable to the operations of item-based games decreased by 24% quarter-over-quarter and by 58% year-over-year to $2.3 million. The sequential decrease in such revenues was mainly due to the lower than expected operating performance of GE. For the first quarter…

(Operator Instructions). Your first question comes from the line of Alicia Yap with Citigroup.

I have a few questions. First of all, I did not get the active paying customer number for the first quarter and second quarter. I'm not sure you actually disclosed that. If I remember currently in terms of the ARPU, previously I think the ARPU was actually below RMB100 and so what contributes to the increase of ARPU in the first and second quarter to over about like RMB290? How much contribution from FIFA Online 2 and Atlantica during the second quarter? Then I have couple more follow-ups.

Thanks, Alicia. Let me take the first question. Let me repeat what I mentioned earlier. On a combined basis, our commercialized gain excluding World of Warcraft which means it's a combined basis of SUN, GE, FIFA and Atlantica; of which only SUN and GE were available in Q1 and Atlantica and FIFA were launched in Q2. Actually, Atlantica was only launched in June and FIFA was launched in April. But on a combined basis, in Q1, which means only between SUN and GE, we had an aggregate asset user of 1.5 million and active paying accounts of 74,000. With the joining of FIFA Online 2 and Atlantica in Q2, our aggregate accounts were 3.2 million and active paying users is 73,000. So I hope that's clear enough. We don't breakdown game-by-game, hope that's understandable. In terms of why the ARPU has increased before because of the weighted average of World of Warcraft being 90% of our revenue our ARPU and also by then our ARPU was mainly contributed by World of Warcraft and because that's a time-based game and we charge almost strictly by the hour except for some of our paying services like paid transfer of accounts and rolls, so that's marginally around $0.45 R&D per hour. However, when you are talking about ARPU this time, what I just mentioned ARPU of RMB299 yuan in Q1 and ARPU of RMB221 in Q2, that's all contributed by SUN, GE and FIFA and Atlantica all of which are item-based games.

Your next question comes from the line of [Hyatt Gau with SIG]. Please proceed.

I have two questions, the first one is, how much is fixed expenses in this quarter? Also in your second quarter cost of service, how much is fixed cost?

I want to clarify your question. You want to know the fixed cost of...?

Actually, I think my question has two parts. The first one is about in your second quarter cost of service, how much is fixed cost?

Actually, I can give you a rough idea about our cost component. It includes our payroll in customer service department, and also depreciation of service, and also our royalty payment and amortization of license fee. All these four components are the major components in our cost of services. So it depends on how you will return fixed cost, I'll say the customer service department payroll is fixed, while for the depreciation of service, because you know the service are kind of rolling forward account. So, I'm not sure whether you want to include it in the fixed cost. For the royalty and also amortization of license fee it also depends on the gain. So, normally we would not classify our cost of services into fixed or in variable in that way.

Can I still go back to your cost of service question, because I just try to simply know, how can we model the cost of service in the following quarters given the depreciation has been cut off a lot?

Let me give you some percentage. Included in our cost of services royalty accounts for around 42% of our total cost of services, and then the next big item is the IDC rental which accounts for 12% of our cost of services, and then depreciation as I just mentioned is 20% in the cost of services, and amortization it is 8%. Amortization of license fee is 8%, and the last item is fairly of our Customer Service Department. It only accounts 7% of our total cost of services. So if you consider only payroll is variable cost and I guess royalties will be variable as well, so adding these two together account for around 60% of our variable costs.

My second question is about your expenses line, how much of them going to be fixed [up to the while] tax been cut off?

As far as you know we do not provide guidance for our going forward financials, so I can only give you a rough idea for the fee like items, for our R&D expenses, we expect it will increase going forward because we are going to put more of our resources in our R&D. For selling and marketing expenses, we expect and it will decrease by little bit because in the first and second quarter, we put a lot of our resources in marketing campaigns for our new games. For G&A in general it will decrease because we have pursued quite an aggressive cost cutting post (inaudible), and also on the other hand in the past there are some couple of pieces relating to World of Warcraft, included in G&A expenses. Now (inaudible) we do not have this type of (inaudible). So you can expect our G&A expenses will decrease going forward. Operator: Your next question comes from the [Julie Yap] with Citigroup.

I actually have to follow-up with Xiaowei's answer on the ARPU question, because if I remember correctly, your ARPU and APA was in the previous disclosure were mainly only for the item-based game and does not include the World of Warcraft. I think previously you have about 70 for the aggregate number and about 90 on [BSR]. So, I just try to understand with the increase of the ARPU and then with your decrease in the APA, is it mainly because the remaining customer actually pay a higher ARPU in your SUN and GE. What's the contribution? Is there anything related to the launch of FIFA and Atlantica that drive the increase in ARPU?

The ARPU before, yes, you are right. Mainly due to World of Warcraft and that's on time based game, basically it's $0.45 per hour with a few paid transfers and paid services and that's pretty flat. The ARPU that you saw this time, what I just mentioned in the earlier part of this call RMB299, that's per quarter and RMB221 also for Q2, that's per quarter. So if you wanted to do it in a simple way per month it is roughly a third of that, and that's pretty much in line with other peoples experience of item-based games and on the four games because all of these numbers we mentioned are excluding World of Warcraft, so all of the current games that we have SUN, GE, FIFA ONLINE 2 and Atlantica are item-based games.

Then I have second question regarding the impairment costs. Just want to make sure we have this clear. So the 15 million write-off in the cost of revenue in the first quarter is related to the prepaid royalties to WoW license, and then the 4.4 million write-off in the second quarter is also related to the goodwill impairment to WoW, and are these write-off is done and should we not expecting any additional write-off going forward?

Yes, you are right. We don't expect any more write-off or impairment relating to WoW going forward.

Okay. And then lastly on the write-off is the 12 million in the fourth quarter '08 and which you said is related to impairment of receivable and prepayment of advance to supplier and the upfront licensing fee of certain games. When you mentioned in terms of your pipeline for your newly licensed game, going forward, you only mentioned about Audition 2 and also the new under license Kingdom Hero in the pipeline. So should we assume that you have written-down on some of the older games you licensed such as RO2, FM, Huxley, Hell Gate?

Yes, you are right.

And lastly will you be able to provide the ACO and [MPCO] on World of Warcraft?

World of Warcraft reached its record performance in Q1. And I'm reaching for my data, in 2009 Q1, World of Warcraft PCCU reached 1.06 million and I don't believe we have disclosed ACCU before. In 2009 Q2, World of Warcraft PCCU maintained almost as high as in Q1, however it was stopped on June 7th, so these are the numbers that I can give you, but they both reached over 1 million in Q1 and Q2. The news of The9 exploration of license was announced in April, so more of that effected in Q2 than Q1.

(Operator Instructions) Next question comes from Andrey Glukhov, with Brean Murray, please proceed.

Thanks for taking the question. Xiaowei, maybe you can help us kind of understand what was the overall headcount for the company exiting the second quarter? Where would you expect the headcount to end up, exiting the year?

The headcount exiting the second quarter is around 1200 and we expect to further maximize our efficiency as the company and we currently cannot disclose the target yet and it also depends largely on the launching schedule of our various new games in the pipeline including Audition 2 and also (inaudible) or World of Fighter, which is our proprietary game.

If you look at Audition 2, what is your guys' current expectation when the game would be, let's say in open beta?

The Korean partner has set their closed beta schedule, and that is targeted for later this year and at this point, we’re still in discussions with our Korean partner T3, on how to and when to launch it in China. At this point I regret not being able to share better information.

I guess the last question, if I may. On FIFA Online 2 and Altantica the games that you launched in the second quarter. Can you guys give us some sense on what the magnitude of the marketing commitments or the marketing investments for those games are?

We have not disclosed the marketing expenses for individual games because it is quite sensitive commercially. So, we apologize we cannot disclose that.

Let me clarify by saying that for FIFA Online 2, it’s a highly seasonable kind of game because of the Chinese Super League season and World Cup coming up next year. Our marketing campaigns would be largely design to time with those major events because we believe that those major events will bring a major growth to the FIFA Online 2, PCCU and ACCU level. For Atlantica, we’re currently still working with the Korean partner on some of the technical issues and our marketing campaign will be designed once the technical issues are resolved.

(Operator Instructions) Your next question comes from the line of Atul Bagga with Thinkequity. Please proceed

Thank you for taking my call. Can you talk a little bit about what cost adjustment you might have made after World of Warcraft contract expiry? Secondly, when do you guys expect to be cash flow positive? Thank you.

Can you repeat your first question, I couldn't get you.

My first question was regarding the adjustments you might have made in your cost structure post World of Warcraft contract expiry?

If you are talking about the financial impact like all those impairments, we have written off 15 million of prepaid royalty in the first quarter and about 4.4 million of goodwill relating to WoW in the second quarter.

In terms of the headcount, in terms of your other fixed expenses, can we expect to see any reduction in those expenses going into third quarter?

You can expect because we do not operate this scheme anymore, so like in the past those depreciation relating to WoW service, our future and financial results and also in terms of the headcount in our customer service department. The headcount relating to WoW have been decreased quite significantly. We can also expect a decrease in the expense.

Can you quantify the impact, how much expenses might be going down because of World of Warcraft from Q2 to Q3?

In terms of the headcount, we have around 600 people in the customer service responsible for WoW and so basically we have plan to and transfer some of them to out other games and some of them and actually they leave the company for other reasons. So, you can expect the headcount for that has been decreased by approximately about 30% to 40%. For the cost sales (inaudible) actually I just provided to another analyst just now, do you need those data again, I believe if you have those data, you can have a better estimation of our future cost.

I know you are asking for a quantified answer, let me qualify George's answer, by saying that with the cease of operation of World of Warcarft, several items are ceasing. Number one, for our World of Warcraft, we had a marketing commitment and that has ceased. Also with the World of Warcraft some of the fixed costs like the depreciation of servers, you will not see in our P&L coming up in Q3, and also in terms of bandwidth cost and IDC cost, rental cost you will not see in our Q3 P&L either and in terms of headcount adjustments George has just mentioned. The major items in terms of cost structure that you saw before in our previous P&L, you will no longer see in the coming up P&L. That qualitatively answers your question.

(Operator Instructions) Your next question comes from the line of Eddie Leung with Bank of America, please proceed. Eddie Leung – Bank of America: Have questions about your investments in studios, could you share with us what experience as a teams that you guys have been (inaudible) and what type of games that you developed?

The investments we made in two major studios in first half of this year include one in (inaudible), for competitive reasons we cannot disclose much more details regarding who they are and how much investments we made exactly, however, let me just say that these are very, very experienced game developers with proven track record and each one is developing at least one major MMORPG that we believe should be ready by 2010.

Your next question comes from the line of Wendy Huang, with RBS, please proceed.

Just want to get some clarification on your APA and active accounts number you provide. I wonder if the 1.5 million, if 3.2 million is for the registered account or active accounts and why are your active paying accounts declined from 74,000 to 73,000 from Q1 to Q2?

The 1.5 million you mentioned was aggregate active users, so not just registered accounts but active user accounts for Q1 and 3.2 million for active user accounts in Q2. You're right in Q1, the active paying accounts was 74,000 and Q2, it was 73,000 and that’s largely due to the decrease in SUN and GE because of the lack of content upgrades, but we have major content upgrade especially new item upgrades coming up in the third quarter.

(inaudible) seems inconsistent with active accounts growth, should we assume that some people still stay in the game, but they just stop paying?

You're right. Superficially, it definitely looks inconsistent. The major increase in active account increased from Q1 to Q2 is due to the launch of new game, FIFA Online 2 and also Atlantica. So you can see a major surge in active account registering. When FIFA Online 2 and also Atlantica are newly launched, especially when they are not commercialized, remember that Atlantica was only commercialized I think in Q3 or at the end of Q2, so that doesn’t contribute to active paying accounts. And also FIFA Online 2 when it was just commercialized in May 20, it didn’t have many sellable items when it was first commercialized. So they don’t contribute majorly to active paying accounts, the decrease you saw was largely due to the decrease in active paying account from SUN and GE the two order game.

So is it fair to say the decrease in ARPU from Q1 to Q2 is also partly diluted by the new games?

It’s not partly diluted by the new games. I would rather say that it’s due to the decrease of old games from Q1 to Q2. Remember in Q2, Atlantica only contributed for like 10 days, in terms of paying commercial launch. And FIFA only contributed for a month. Their contribution was very little to offset the larger base as the older game.

Your next question comes from the line of [Hyatt Gau with SIG].

A follow-up question about, how are the FIFA Online 2 and Atlantica doing now? We just try to get some near-term revenue picture?

I really apologize, [Hyatt], I couldn’t get your question at all. The sound was muffled.

My question is about, can you give us some update about your FIFA Online 2 and Atlantica's current picture?

What about them. Sorry, I didn't get the last part of your question.

How those games are doing now.

How are those games doing now?

Yes, right.

FIFA Online 2 was launched on April 22nd and commercialized on May 20th. And right now our operational team is working on, number one, working with potential partners to incorporate new features into the game. And as I mentioned the China [SuperMeek] we believe, their game has a major impact on local soccer fans. So that's one thing that we're working on. We're also working on new marketing campaigns, including creative ways of bringing marketing campaigns into FIFA Online 2 and for competitive reasons I cannot disclose this at this point. For Atlantica what we are doing right now is as I mentioned before, working with our Korean partners in solving some of technical issues. We do believe that Atlantica is the game with strong potentials. Its performance was highly valued in North America and Korea and other markets where the internet environment and also hardware of players are somewhat more advanced. Right now, we're working with our Korean partners on reducing the memory size to a manageable size and we believe that could allow more players to join that game.

Your next question comes from the line of [Thomas Chen with Integral Capital]. Please proceed.

I have a question about your expenses, could you give us some colors on your margin trend going forward and how should we model your gross margins and your operating margins? Also I remember George mentioned to a previous question that you expect your R&D expenses to increase and your marketing expenses and your G&A expenses to be decreasing going forward. Just to make sure I understand you correctly, do you mean those expenses to be increasing or decreasing in absolute amount or as percentage of your revenue?

In absolute amount.

In absolute amount, so what about the margin trends?

Frankly speaking to the margin trend all depends on (inaudible). I think you can easily make your model by picking out WoW revenue from our existing revenue and at new games revenues and then you can develop your model. I apologize; because you know we do not give any guidance. I'm afraid I cannot give you more color on this.

WoW is a licensed game, so we all know that it is kind of like pressure to your margin. Now with this game [gone] so probably with a lot of your current portfolio, actually consistent of your in-house [stable again]. Can we expect that your margins to be like increasing a little bit going forward?

I think you are right. Let me qualitatively answer your question. In terms of margin trend, let me clarify that when George said it all depends on revenue, actually revenue and revenue are different. The revenue from licensed games are different from revenue from proprietary games and one of the reasons for developing proprietary games is obviously to increase margin trends. You are absolutely correct that when our proprietary games are launched, we should expect at least gross margin trends to turn very positively. One other thing that I want to mention also is that now that we have a collection of medium-size games if you will compare to one standard performance game, I think a lot of the management's focus would be on how to create synergy amongst medium-size games and also how to increase our efficiency amongst medium-size games. And these are all the questions that we're working right now and even among licensed games, we also expect our margin trend to turn positively compared to before.

And also Xiaowei, could you please help actually repeat the launch date for your Audition 2, I didn't get that?

I didn't say it either.

I think you mentioned the closed beta testing on Audition 2 seems to be underway?

Closed beta testing, right. Our Korean partner for Audition 2 has already set a closed beta testing for their own market and we're currently working with them on setting our closed beta test dates for our China market.

Next question comes from the line of Wallace Cheung - Credit Suisse.

Just one simple question; say in the next six to 12 month time, can you just give us a little bit more color on the pipeline in terms of the games and also in terms of the timing?

Let me answer this question by saying that in the next six to 12 months, the games that to be launched in our pipeline from the licensing side would include Audition 2 and very likely Kingdom Heroes Online 2. On the proprietary game side, we have two that are already in closed-beta testing, which are (inaudible) or Warriors of Fate and on Jiu Zhou Zhan Ji or Dragon Empire. In 12 months, there may be a chance that our second major MMORPG, MUX or Miracles: Ultimate X would be launched within the 12 month timeline too. I don't really want to place a deadline on that because as you know good developers shouldn't be rushed. I should have also mentioned that there may be a chance that the two studios that we most recently invested in may have their products ready also in 2010, but again we don't want to rush the developers.

So basically we could have around four to around seven games that to be launched in the next six to 12 months times?

I think you're right. The games that I mentioned, includes both licensing and proprietary.

Okay. Just one quick follow-up; I think previously in my model, I think have record quite few other different names, so we simply just removed the names from our modeling?

As George has mentioned, some of the older license games have been written-off in this half of 2009.

Okay.

So it's for 2008.

Yes. In last quarter of 2008.

Yes, that's good. Thank you.

Your next question comes from the line of Alicia Yap with Citigroup. Please proceed. Alicia Yap – Citigroup: Just have one quick follow-up on in terms of your servers for World of Warcraft. What are you going to do? Are you going to sell them in the future, or are you going to be able to use it for other games? Thank you.

Thank you, Alicia. The servers for World of Warcraft were ordered according to specifications designated by (inaudible) and they were especially designed for that game. We obviously would try to see if there are other games that we can apply them too, but game servers are very specified and at this point we're not going to try to force them into a game that is not most suitable for those servers. And at the same time if there is buyers who are interested in buying our servers and if they are at the right price then we would certainly be happy to consider them. But as of today they have been written-off. Alicia Yap – Citigroup: Okay. Thank you.

Your next question comes from line of Wendy Huang with RBS. Please proceed.

Just one question on the FIFA ONLINE 2, Xiaowei, could you share maybe the trends experience in the last World Cup and how the FIFA Online's number was boosted by the World Cup last time? Could you quantify your expectation for FIFA for 2010, due to the World Cup?

Thanks. Before I start let me just say that football in China is a very hard item to quantify. I think most Chinese football players and fans would understand what I am talking about. At the same time, I believe in heights of the Korean games during World Cup. It was 100,000 PCCU? Yes, it was somewhere between 100 to 150,000 PCCU in Korea and for a country as Korea I think that's a huge percentage of their online game population. We believe that World Cup in China would definitely give FIFA Online 2 a boost in this market too. Exactly how much to quantify it's a really hard question to answer. Obviously I have to say that the Korean teams performance in that World Cup was stellar and I am not saying that the Chinese team's performance will not match that, but you know miracles can happen.

Maybe could you give me something what's PCCU percentage increase before Warcraft and post Warcraft in Korea (lifetimes)?

I do not have that data available with me, but let me again clarify by saying that the Korean market situation although as close as it can get to China is not exactly parallel to the Chinese market situation. The football environment in these countries are very, very different. The Internet environment and the online gaming environment in these two countries are somewhat different too. And so I would be happy to find those data and provide to you offline later on, but I am not sure how much reference value they may have, in terms of quantitative reference value. In terms of qualitative reference value, we're pretty confident that the World Cup would give FIFA a boost in China too.

At this time there are no further questions.

We would like to thank you all for participating in today's call. Please feel free to contact us with any additional questions. Thank you. Thank you all.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a wonderful day.