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  As Of               Filer                 Filing     As/For/On Docs:Pgs              Issuer               Agent

 4/12/04  Shanda Interactive Entertain..Ltd F-1/A                  5:243                                    Bowne Int'l Asia/FA

Document/Exhibit                   Description                      Pages   Size 

 1: F-1/A       Shanda Interactive Entertainment Limited Am#1       HTML  1,584K 
 2: EX-10.1     EX-10.1 2003 Stock Incentive Plan                     29    135K 
 3: EX-23.1     EX-23.1 Consent of Pricewaterhousecoopers              1      5K 
 4: EX-23.5     EX-23.5 Consent of Beijing East Ip Law Firm            1      6K 
 5: EX-23.6     EX-23.6 Consent of Allen & Gledhill                    2±    10K 

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SECURITIES AND EXCHANGE COMMISSION

Amendment No. 1 to Form F-1

Shanda Interactive Entertainment Limited

No. 1 Intelligent Office Building

CT Corporation System

Copies to:

         Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this registration statement.

         If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.    o

         If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    o

         If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    o

         If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earliest effective registration statement for the same offering.  o

         If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box.    o

CALCULATION OF REGISTRATION FEE

(1)	American depositary shares evidenced by American depositary receipts issuable upon deposit of the ordinary shares registered hereby have been registered pursuant to a separate registration statement on Form F-6 filed with the Commission on                 , 2004 (File No.                 ). Each American depositary share represents                 ordinary shares.
(2)	Estimated solely for the purpose of computing the amount of the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended.
(3)	Includes (a) ordinary shares represented by                 American depositary shares that are issuable upon the exercise of the underwriters’ option to purchase additional shares and (b) all ordinary shares represented by American depositary shares initially offered and sold outside the United States that may be resold from time to time in the United States either as part of the distribution or within 40 days after the later of the effective date of this registration statement and the date the securities are first bona fide offered to the public. The ordinary shares are not being registered for the purpose of sales outside the United States.
(4)	Previously paid.

         The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

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The information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell nor does it seek an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

Subject To Completion. Dated April 12, 2004.

       This is an initial public offering of American depositary shares, or ADSs, of Shanda Interactive Entertainment Limited, or Shanda. Shanda is offering                     ADSs, and the selling shareholders disclosed in this prospectus are offering an additional                     ADSs. Each ADS represents                     ordinary shares, par value US$0.01 per share. The ADSs are evidenced by American depositary receipts, or ADRs.

       Prior to this offering, there has been no public market for the ADSs or the shares. We currently estimate that the initial public offering price per ADS will be between US$                    and US$                    . Application has been made for quotation of the ADSs on The Nasdaq National Market under the symbol “SNDA”.

       See “Risk Factors” beginning on page 11 to read about risks you should consider before buying the ADSs.

       Neither the United States Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.

       The underwriters have an option to purchase up to an additional                     ADSs from Shanda and the selling shareholders at the initial public offering price less the underwriting discount.

       The underwriters expect to deliver ADSs evidenced by the ADRs against payment in U.S. dollars in New York, New York on                     , 2004.

Goldman Sachs (Asia) L.L.C.

Bear, Stearns & Co. Inc.

	CLSA/CIBC World Markets

	The Hongkong and Shanghai Banking Corporation Limited

	Piper Jaffray

Prospectus dated                     , 2004.

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[ARTWORK]

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       In connection with this offering, Goldman Sachs (Asia) L.L.C. or any person acting for it may overallot or effect transactions with a view to supporting the market price of the ADSs at a level higher than that which might otherwise prevail for a limited period of time after the issue date. However, there is no obligation on Goldman Sachs (Asia) L.L.C. or its agent to do this. Such stabilization, if commenced, may be discontinued at any time, and must be brought to an end after a limited period.

       This prospectus contains translations of Renminbi amounts into U.S. dollars at specified rates solely for the convenience of the reader. Unless otherwise noted, all translations from Renminbi to U.S. dollars were made at the noon buying rate in The City of New York for cable transfers in Renminbi per U.S. dollar as certified for customs purposes by the Federal Reserve Bank of New York, or the noon buying rate, as of December 31, 2003, which was RMB8.2767 to US$1.00. We make no representation that the Renminbi amounts referred to in this prospectus could have been or could be converted into U.S. dollars at any particular rate or at all. On April 7, 2004, the noon buying rate was RMB8.2769 to US$1.00.

CONVENTIONS WHICH APPLY TO THIS PROSPECTUS

       Unless we indicate otherwise, all information in this prospectus reflects the following:

	•	no exercise by the underwriters of their option to purchase up to                     additional ADSs representing                     ordinary shares;
	•	conversion of all outstanding preferred shares to ordinary shares upon the closing of this offering;

       Except where the context otherwise requires and for purposes of this prospectus only;

	•	“we,” “us,” “our company” and “our” refer to Shanda Interactive Entertainment Limited, its predecessor entities and subsidiaries, and, in the context of describing our operations, also include our PRC-incorporated affiliates, including Shanghai Shanda Networking Co., Ltd., or Shanda Networking;
	•	in certain instances, Shanda Networking is referred to as “Shanghai Shanda Internet Development Co., Ltd.”, which is an alternative English translation of its Chinese name;
	•	“China” or “PRC” refers to the People’s Republic of China, excluding Taiwan, Hong Kong and Macau; and
	•	all references to “RMB” or “Renminbi” are to the legal currency of China and all references to “U.S. dollars,” “dollars” and “US$” are to the legal currency of the United States.

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PROSPECTUS SUMMARY

       The following summary is qualified in its entirety by, and should be read in conjunction with, the more detailed information and financial statements appearing elsewhere in this prospectus. In addition to this summary, we urge you to read the entire prospectus carefully, especially the risks of investing in the ADSs discussed under “Risk Factors”, before deciding whether to buy our ADSs.

Our Business

       We are the largest operator of online games in China in terms of estimated 2003 game revenues according to International Data Corporation, or IDC, a leading market research firm. We offer a portfolio of online games that users play over the Internet. The games that we operate are licensed to us by third parties as well as developed by us in-house. The games we offer include The Legend of Mir II, or Mir II, which is the most popular online game in China according to users surveyed by IDC, and The World of Legend, or Woool, which is the first online game that we developed in-house. In the first quarter of 2004, our commercially launched games had approximately 1.4 million peak concurrent users and 931,570 average concurrent users, which refer to the highest number and average number, respectively, of users playing our games at the same time during that period.

       We operate both massively multiplayer online games, including massively multiplayer online role-playing games, or MMORPGs, and casual online games. The interactive and group oriented nature of our games creates a strong sense of community among users, and the large size of our user base contributes to user loyalty and helps to attract new users.

	•	Our MMORPGs allow thousands of users to interact with one another in a virtual world by assuming ongoing roles or characters with different features. The games are continuous, and players accumulate features and communicate with one another through instant messaging. Because MMORPGs require a significant amount of time to master, they tend to have a high degree of user stickiness, which means that users tend to spend longer amounts of time playing these games than using other Internet applications.
	•	Our casual games are less complex and time consuming than MMORPGs, but attract a broader range of users as well as more home users. Our casual games include BNB, which was the highest ranked casual game in IDC’s survey of the top 10 most popular online games in China for 2003.

       According to the same survey, three of the games that we currently commercially operate, Mir II, Woool and BNB, ranked among the top five most popular online games in China for 2003, ranking first, fourth and fifth, respectively. The survey was conducted by IDC through the Internet, traditional media and mobile phones in connection with its research report “China Online Gaming Market Analysis 2003-2008”. Over 173,000 participants responded to IDC’s survey. We expect to launch six additional games in 2004, including four MMORPGs and two casual games.

       We believe that the popularity of the online games that we operate is attributable to our operational infrastructure and the services we offer that enhance our users’ game playing experience, in addition to our games’ quality or features. In particular:

	•	We maintain a dedicated product management team for each of our games, which forms operational plans, coordinates internal resources, and manages the online game’s virtual community on an hour-by- hour basis;
	•	We have both in-house development capabilities as well as localization experience for licensed games. After launching our first in-house developed game, Woool, which has become our second most important game in terms of revenues, we launched another in-house developed game, The Sign, for open beta testing in February 2004. Of the six new

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		online games that we plan to commercially launch in 2004, four will be in-house developed and two will be licensed;
	•	We have built a nationwide distribution and payment network in China. We estimate that our network reaches over 317,000 retail points of sale throughout China, over 40% of which are Internet cafes, which are the primary venue for users to play online games in China;
	•	We are developing a centralized Internet cafe communications and management system to link various Internet cafes in our distribution network, which would permit us to provide better information to the Internet cafes about our games, promotions and events, and allow us to gather more data from the Internet cafes;
	•	Our nationwide server network in China consists of approximately 9,500 servers with the capacity to accommodate approximately 3.4 million concurrent online users; and
	•	We have a developed customer service system, which includes a 24-hour call center.

       Our principal source of revenue is the fees paid by users to play our online games. Our users generally purchase pre-paid game cards, which are sold in both virtual and physical form, to obtain access codes and passwords that can be used to add value to their accounts. We offer our users two purchase options: hourly usage for a price per hour from RMB0.28 (US$0.03) to RMB0.55 (US$0.07), and unlimited access for a period of time, generally from two days to 30 days, for a price from RMB5 (US$0.60) to RMB45 (US$5.44) depending on the game. The usage and price options differ among our various games. In the first quarter of 2004, excluding BNB, we had 11.2 million active paying accounts for our games, which refers to the number of user accounts from which pre-paid playtime was used during that quarter. Users of our casual game, BNB, can play the game without any payment, but they must purchase “game points” from us in order to acquire premium features in the game that enhance users’ experience, such as advanced weapons or equipment for game characters. The two most significant factors that affect our MMORPG online games revenues are:

	•	the total number of hours that users play our games (which equals the average concurrent users for a given period multiplied by the number of hours in that period) and
	•	our average revenue per user-hour.

       We have experienced significant revenue and earnings growth since the commercial launch of our first online game in November 2001.

	•	Our net revenues increased by 83.9% to RMB600.0 million (US$72.5 million) in 2003 from RMB326.2 million in 2002.
	•	Our net income increased by 95.9% to RMB272.9 million (US$33.0 million) in 2003 from RMB139.3 million in 2002.

       In addition, we believe that our large user base and the frequency of pageviews of our game websites also provide an opportunity for us to generate advertising revenues. We initially intend to sell banner advertising on the web pages that provide information on the features of our games, rather than on pages in the game environment.

       In 2003, our total net cash receipts were RMB705.2 million (US$85.2 million), which includes direct expenditures by our users for playtime that was not used during the period, and accordingly was not reflected in our net revenues. Our total net cash receipts reflect spending by users for our games during the period, net of sales discounts, which currently equals 23% and 14% of the face value of our pre-paid game cards, that we give to our e-sales distributors and offline distributors, respectively.

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Our Industry

       According to IDC estimates dated December 2003, online game direct expenditures in China (including subscription and usage fees, but not including Internet connection charges, telecommunications charges or purchase of associated software or materials) was US$159 million in 2003, and will reach US$810 million in 2007.

       The online games industry has reached a relatively sizeable scale in China only in the last two years. We believe that this growth is attributable to the growing popularity of the Internet as an attractive source of entertainment, particularly for young people in China, over other forms of media which are predominantly state-owned. In addition, unlike offline games where software is generally made available on a disk or cartridge, software piracy generally does not pose a serious threat to the online games industry. The high degree of user loyalty, relatively low user entry cost and convenience of play for users and China’s strong Internet cafe culture have also contributed to the growth of the online games industry in China.

       We believe that infrastructure factors, including growth of Internet usage and increases in personal computer penetration and broadband adoption, as well as related recent government support for the industry, will continue to drive the growth of the online games market in China. We also believe that advances in game development technologies and the increase in locally developed games will make available more content that is tailored to local tastes in China. While online games today are predominantly played over personal computers, the potential emergence of other platforms, such as online game consoles, could significantly advance the penetration of online games in households in China.

Our Strategies and Risks

       Our objective is to maintain and enhance our position in the online games industry in China. Our strategies for achieving this objective include continuing to broaden our game offerings through in-house development, strategic joint ventures or alliances, acquisitions and licensing arrangements, enhancing our operational platform through additional investments in our technology infrastructure, expanding and diversifying our sources of revenues, including through banner advertising, and exploring alternative channels for delivering online entertainment across other media platforms, including online game consoles.

       Our ability to realize our business objective and execute our strategies is subject to certain risks and uncertainties, including risks related to our dependence on Mir II and Woool, our two most popular online games, for approximately 87.5% of our revenue in the first quarter of 2004, the fact that our two most popular online games are the subjects of pending legal proceedings and our ability to consistently license or develop additional successful online games. Other risks and uncertainties include the possibility that the PRC government could determine that the agreements that establish our operating structure do not comply with PRC government restrictions on foreign investment in the Internet industry, PRC government regulation affecting the online games industry or Internet cafes where our games are most frequently played, significant competition, rapid technological change and the fact that two of our shareholders, Skyline Media Limited and SB Asia Infrastructure Fund L.P., as a result of their substantial shareholdings in us, will continue to have significant influence in determining the outcome of any corporate transaction.

Our Corporate History and Structure

       We are currently 74.9% owned by Skyline Media Limited, or Skyline Media, a company whose sole shareholders are Tianqiao Chen, our chairman and chief executive officer, Danian Chen, our senior vice president, and Qianqian Luo, one of our directors. SB Asia Infrastructure Fund L.P., a private equity fund that focuses on the technology and telecommunications sectors and that is

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       Our business was founded in December 1999 when Tianqiao Chen and Danian Chen established Shanghai Shanda Networking Co., Ltd, or Shanda Networking. In November 2001, we commercially launched Mir II, our first online game. In July 2002, we established a holding company, Shanda Holdings Limited, or Shanda BVI, in the British Virgin Islands. In March 2003, we restructured our operations in connection with the venture capital investment in us by SB Asia Infrastructure Fund L.P. As part of this restructuring, we established Shengqu Information Technology (Shanghai) Co., Ltd., or Shengqu, a wholly owned subsidiary of Shanda BVI in China, which acquired substantially all of Shanda Networking’s operating assets.

       In November 2003, we established a new holding company, Shanda Interactive Entertainment Limited, in the Cayman Islands. In December 2003, the shareholders of Shanda BVI exchanged all of their shares of Shanda BVI for shares of Shanda Interactive Entertainment Limited. Following this share exchange, and assuming the conversion of all of our convertible redeemable preferred shares into our ordinary shares upon completion of this offering and as adjusted to reflect the sale of the ADSs offered in this offering, Skyline Media and SB Asia Infrastructure Fund L.P. will beneficially own           % and           % of our company, respectively.

       As a result of PRC legal considerations, we operate our online game business in China through Shanda Networking, a company wholly owned by Tianqiao Chen and Danian Chen, both of whom are PRC citizens. In order to comply with PRC regulations, Shanda Networking holds the licenses and approvals that are required to operate our online games business in China. We have entered into a series of contractual arrangements with Shanda Networking and its shareholders, including contracts relating to the transfer of assets, the provision of services, software licenses and equipment, and certain shareholder rights and corporate governance matters. As a result of these contractual arrangements, which provide us with the substantial ability to control Shanda Networking, we are considered the primary beneficiary of Shanda Networking and accordingly we consolidate Shanda Networking’s results in our financial statements. For a description of these contractual arrangements, see “Our Corporate Structure” and “Related Party Transactions.”

Our Offices

       Our principal executive office is located at No. 1 Intelligent Office Building, No. 690 Bibo Road, Zhangjiang Micro-Electronics Harbor, Pudong New Area, Shanghai 201203, China, and our telephone number is (86-21) 5050-4740. Our website address is www.shanda.com.cn. The information on our website is not a part of this prospectus.

Recent Developments

       Our board of directors declared a special cash dividend on March 5, 2004 of US$23.2 million. This special dividend is expected to be paid out of available cash to our existing shareholders on or about April 22, 2004.

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The Offering

       The following information assumes that the underwriters will not exercise their option to purchase additional ADSs in the offering, unless otherwise indicated.

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		deposited with a custodian for, and registered in the name of a nominee of, The Depository Trust Company, or DTC, in New York, New York. In general, beneficial interests in the ADSs will be shown on, and transfers of these beneficial interests will be effected only through, records maintained by DTC and its direct and indirect participants.
Use of proceeds		Our net proceeds from this offering are expected to be approximately US$                    million, assuming an initial public offering price per ADS of US$                    , the mid-point of the estimated public offering price range. We anticipate using approximately US$90 million for the enhancement of our existing business and operations, approximately US$60 million for acquisitions or investments in businesses, products or technologies that we believe are complementary to our existing business, and the balance of the net proceeds, or US$                    , for general corporate purposes.
		We will not receive any of the proceeds from the sale of ADSs by the selling shareholders.
Risk factors		See “Risk Factors” and other information included in this prospectus for a discussion of risks you should carefully consider before deciding to invest in our ADSs.

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SUMMARY CONSOLIDATED FINANCIAL AND OPERATING INFORMATION

       The following summary consolidated financial information has been derived from our consolidated financial statements. Our statements of operations and comprehensive income for the years ended December 31, 2001, 2002 and 2003 and our balance sheets as of December 31, 2001, 2002 and 2003 have been audited by PricewaterhouseCoopers Zhong Tian CPAs Limited Company, independent accountants. The report of PricewaterhouseCoopers on those financial statements is included elsewhere in this prospectus. The summary consolidated financial information for those periods and as of those dates should be read in conjunction with those statements and the accompanying notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations”.

       Our consolidated financial statements are prepared and presented in accordance with generally accepted accounting principles in the United States, or US GAAP, reflect our recent reorganization and have been prepared as if our current corporate structure had been in existence throughout the relevant periods.

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RISK FACTORS

       You should consider carefully all of the information in this prospectus, including the risks and uncertainties described below, before making an investment in our ADSs. Any of the following risks could have a material adverse effect on our business, financial condition and results of operations. In any such case, the market price of our ADSs could decline, and you may lose all or part of your investment.

Risks Relating to Our Business

We are substantially dependent on two online games, which accounted for approximately 87.5% of our revenues in the first quarter of 2004.

       Historically, we depended on The Legend of Mir II, or Mir II, which is an online game we license from a third party, for substantially all of our net revenues. On October 8, 2003, we commercially launched The World of Legend, or Woool, which is an online game we developed in-house. In the first quarter of 2004, we derived approximately 56.7% and 30.8% of our revenues from Mir II and Woool, respectively. We expect to continue to derive a substantial majority of our net revenues from Mir II and Woool for at least 2004. Accordingly, any of the following could materially and adversely affect our business, financial condition and results of operations:

	•	any reduction in the Mir II or Woool user base or any decrease in their popularity in the China market due to intensifying competition or other factors;
	•	failure by us to make improvements, updates or enhancements to Woool in a timely manner; or
	•	any lasting or prolonged server interruption due to network failures or other factors or any other adverse developments specific to Mir II or Woool.

If we are unable to maintain the operation of the online games that we license or to consistently license or develop additional successful online games, our business, financial condition and results of operations may be materially and adversely affected.

       We derive the majority of our net revenues from online games that we license from third parties. In the first quarter of 2004, we derived approximately 67.8% of our revenues from licensed online games. If any of these licenses are terminated or not renewed at an acceptable cost or at all, or if we are unable to obtain from the licensor of any of our licensed games the technical support necessary for the satisfactory operation of these games, our financial condition and results of operations may be materially and adversely affected.

       In order to maintain our long-term profitability and financial and operational success, we must continually license or develop new online games that are attractive to our users to replace our existing online games as they reach the end of their useful economic life, which we believe is typically four to five years for successful online games or two to three years for most other online games. Our ability to license successful online games will depend on their availability at an acceptable cost, our ability to compete effectively to attract the licensors of these games, and our ability to obtain government approvals required for licensing and operation of these games. Moreover, the success of our internally developed games will largely depend on our ability to anticipate and effectively respond to changing consumer tastes and preferences. In addition, developing games internally requires substantial initial investment prior to commercial launch of the games as well as a significant commitment of future resources. We cannot assure you that the games we develop or license will be attractive to users, will be viewed by the regulatory authorities as complying with content restrictions, will be launched as scheduled or will be able to compete with games operated by our competitors. If we are not able to consistently license or develop online games with continuing appeal to users, our future profitability and growth prospects will decline.

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Our license to operate Mir II in China is currently subject to an arbitration proceeding. If we lose in this arbitration, we may no longer be able to operate Mir II, which accounted for approximately 56.7% of our revenues in the first quarter of 2004, and may be required to pay additional royalty fees and an unspecified amount of damages.

       We initiated an arbitration in Singapore on July 3, 2003 under the auspices of the International Chamber of Commerce, or the ICC, against Actoz Soft Co., Ltd., or Actoz, and Wemade Entertainment Co., Ltd., or Wemade, which are two online games developers based in Korea. We commenced the arbitration in order to resolve certain disputes relating to our license to operate Mir II in China, or the Mir II license. We settled our disputes with Actoz pursuant to a settlement agreement and an amendment agreement entered into on August 19, 2003, and requested the discontinuation of the arbitration. The amendment agreement with Actoz, among other things, extended the Mir II license for at least two years.

       Wemade has, however, objected to our request for discontinuation of the arbitration, has filed counterclaims against us and has filed cross-claims against Actoz. In addition, Wemade has requested an injunction against our use of the Mir II software and payment of royalty fees and an unspecified amount of damages. We have appointed Allen & Gledhill, a Singapore law firm, to act on our behalf with respect to this arbitration.

       On January 9, 2004, the ICC appointed a sole arbitrator to determine the dispute. Determination of a dispute and publication of an ICC award typically takes approximately 6 to 12 months from the date of appointment of the arbitrator. If the arbitrator determines that Wemade validly terminated the Mir II license and that the settlement agreement and the amendment agreement are not binding with respect to Wemade, or that the Mir II license has expired, we may no longer be able to operate Mir II, which accounted for approximately 56.7% of our revenues in the first quarter of 2004. In addition, we may have to pay additional royalties or an unspecified amount of damages. Any lapse in our right to operate Mir II in China, as well as any additional royalties or damages we may be required to pay as a result of the arbitrator’s decision, may have a material adverse effect on our business, financial condition and results of operations.

       For a more complete description of this arbitration see “Business — Legal Proceedings”.

We may be subject to intellectual property infringement claims, which may force us to incur substantial legal expenses and, if determined adversely against us, may materially disrupt our business. In particular, we are currently subject to copyright infringement and unfair competition claims by Wemade with respect to the Woool software, which if determined adversely against us, could cause us to stop operating Woool, which in the first quarter of 2004 accounted for approximately 30.8% of our revenues.

       We cannot be certain that our online games do not or will not infringe upon patents, valid copyrights or other intellectual property rights held by third parties. We have in the past been, and may in the future be, subject to legal proceedings and claims from time to time relating to the intellectual property of others in the ordinary course of our business. If we are found to have violated the intellectual property rights of others, we may be enjoined from using such intellectual property, and we may incur licensing fees or be forced to develop alternatives. In addition, we may incur substantial expenses in defending against these third party infringement claims, regardless of their merit. Successful infringement or licensing claims against us may result in substantial monetary liabilities, which may materially disrupt the conduct of our business.

       On October 8, 2003, Wemade filed claims against us in the Beijing First Intermediate People’s Court, or the Beijing Court, with respect to our operation of Woool. Wemade has alleged, among other things, that Woool copied Mir II and elements of the Legend of Mir III, which is another online game that Wemade developed, thereby infringing Wemade’s copyrights in these games. In addition, Wemade has alleged that our operation of Woool violates the PRC Anti-Unfair Competition Law. In particular, Wemade has alleged that the Chinese name for Woool, which includes two characters

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       If a court determines that we have breached Wemade’s copyright, we may no longer be able to operate Woool, which accounted for approximately 30.8% of our revenues in the first quarter of 2004. We may also have to pay legal fees and related costs, which could be significant. In addition, if a court determines that we have violated the PRC Anti-Unfair Competition Law, we may be required to modify certain aspects of Woool, including its name. Any lapse in our right to operate Woool in China, or any modifications to the game itself, as a result of this litigation, may have a material adverse effect on our business, financial condition and results of operations.

We face significant competition which could reduce our market share and adversely affect our business, financial condition and results of operations.

       The online games market in China is increasingly competitive. We expect more companies to enter into the online games industry in China and a wider range of online games to be introduced to the China market. As the online games industry in China is relatively new and constantly evolving, our current or future competitors may compete more successfully as the industry matures. In particular, any of these competitors may offer products and services that provide significant performance, price, creativity or other advantages over those offered by us. These products and services may weaken the market strength of our brand name and achieve greater market acceptance than ours. Furthermore, any of our current or future competitors may be acquired by, receive investments from or enter into other commercial relationships with larger, well-established and well-financed companies and therefore obtain significantly greater financial, marketing and game licensing and development resources than we have. In addition, increased competition in the online games industry in China could make it difficult for us to retain existing users and attract new users, and could reduce the average number of hours played by our users or cause us to reduce our fee rates. If we are unable to compete effectively in the online games market in China, our business, financial condition and results of operations could be materially and adversely affected.

Rapid technological change may limit our ability to recover game development costs.

       The online games industry is subject to rapid technological change. We need to anticipate the emergence of new technologies and games and assess their market acceptance. New technologies in online game programming or operations could render Woool or the online games that we are developing or expect to develop in the future obsolete or unattractive to users, thereby limiting our ability to recover development costs and potentially adversely affecting our future profitability and growth prospects.

We may not be able to successfully implement our growth strategies, which would materially and adversely affect our business, financial condition and results of operations.

       We are pursuing a number of growth strategies, including leveraging our user base to develop additional sources of revenues, as well as exploring opportunities to expand into online entertainment offered over other media platforms, such as game consoles. Some of these strategies relate to new services or products for which there are no established markets in China, or relate to services or products in which we lack experience and expertise. We cannot assure you that we will be able to deliver new products or services on a commercially viable basis or in a timely manner, or at all. If we are unable to successfully implement our growth strategies, our revenue and profitability will not grow as we expect, and our competitiveness may be materially and adversely affected.

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There are risks associated with our business strategy contemplating growth through acquisitions and joint ventures.

       As a component of our growth strategy, we intend to continue to enhance our business development, including our game content offerings, by acquiring other businesses that complement our current online business or that we believe may benefit us in terms of user base or product or content offering, and by entering into strategic joint ventures with selected industry players. However, our ability to grow through such acquisitions and joint ventures will depend on the availability of suitable acquisition candidates at an acceptable cost or at all, our ability to compete effectively to attract and reach agreement with acquisition candidates or joint venture partners on commercially reasonable terms, the availability of financing to complete larger acquisitions or joint ventures as well as our ability to obtain any required governmental approvals. We lack experience in identifying, financing and completing large acquisition or joint venture transactions. In addition, the benefits of an acquisition or joint venture transaction may take considerable time to develop and we cannot assure you that any particular acquisition or joint venture will produce the intended benefits. Moreover, the identification and completion of these transactions may require us to expend significant management and other resources.

We depend on our key personnel and our business and growth prospects may be severely disrupted if we lose their services.

       Our future success is heavily dependent upon the continued service of our key executives and other key employees. In particular, we rely on the expertise and experience of Tianqiao Chen and Danian Chen, our founders, controlling shareholders and executive officers, in our business operations, and rely on their personal relationships with our other significant shareholder, employees, the relevant regulatory authorities, our game and service suppliers and Shanda Networking. We also rely on a number of key technology officers and staff for the development and operation of our online games. In addition, as we expect to focus increasingly on the development of our own online games, we will need to continue attracting and retaining skilled and experienced online game developers to maintain our competitiveness.

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

Unauthorized use of our intellectual property by third parties, and the expenses incurred in protecting our intellectual property rights, may adversely affect our business.

       We regard our copyrights, service marks, trademarks, trade secrets and other intellectual property as critical to our success. Unauthorized use of the intellectual property used in our business, whether owned by us or licensed to us, may adversely affect our business and reputation.

       We rely on trademark and copyright law, trade secret protection and confidentiality agreements with our employees, customers, business partners and others to protect our intellectual property rights. Despite our precautions, it may be possible for third parties to obtain and use the intellectual property used in our business without authorization. For example, we discovered that the server-end software of Mir II was unlawfully released into the China market in September 2002. The software leak enabled unauthorized third parties to set up local server networks to operate Mir II, which we believe diverts a significant number of users of our most popular online game from us. We have

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       The validity, enforceability and scope of protection of intellectual pr