BEIJING, May 19 /Xinhua-PRNewswire/ -- Perfect World Co., Ltd. (NASDAQ:PWRD) ("Perfect World" or the "Company"), a leading online game developer and operator in China, today announced its unaudited financial results for the first quarter ended March 31, 2008

    First Quarter 2008 Highlights(1)
    -- Total revenues were RMB303.2 million (USD43.2 million), an increase of
       17.3% from 4Q07 and 247.8% from 1Q07
    -- Gross profit was RMB265.6 million (USD37.9 million), an increase of
       20.9% from 4Q07 and 290.9% from 1Q07
    -- Operating profit was RMB161.6 million (USD23.0 million), an increase of
       17.6% from 4Q07 and 285.1% from 1Q07
    -- Net income was RMB158.4 million (USD22.6 million), an increase of 8.3%
       from 4Q07 and 295.8% from 1Q07
    -- Basic and diluted earnings per ADS were RMB2.83(USD0.40) and RMB2.67
       (USD0.38), respectively, as compared to basic and diluted earnings per
       ADS of RMB2.62 and RMB2.48, respectively, in 4Q07, and basic and
       diluted earnings per ADS of RMB1.27 and RMB0.82, respectively, in 1Q07
    -- Aggregate average concurrent users (ACU) for games under operation were
       approximately 660,000, an increase of 5.8% from 4Q07 and 177.8% from
       1Q07
    -- Active paying customers (APC) for games under the item-based revenue
       model were approximately 1,701,000, an increase of 8.7% from 4Q07 and
       144.7% from 1Q07
    -- Average revenue per active paying customer (ARPU) for games under the
       item-based revenue model was RMB151, an increase of 7.0% from 4Q07 and
       58.2% from 1Q07
    -- Launched "Chi Bi" on January 25, 2008.  "Chi Bi" is a free-to-play
       3D online MMORPG using the item-based revenue model.
    -- Launched the Company's first 3D online casual game, "Hot Dance
       Party," in March, 2008 using the item-based revenue model.  Since
       April 2008, the Company has offered this game to users free of charge
       for all in-game items in order to attract more users to play the game.
    -- Launched expansion packs for each of the Company's MMORPGs, including
       "Lunar New Year Edition" for "Perfect World," "Lunar New Year
       Edition" for "Legend of Marital Arts," "Destiny by the Rubik's
       Cube" for "Perfect World II," "Fantasy Moon Palace" for "Zhu
       Xian," and "Zi Long's Spear" for "Chi Bi."
    -- Launched "Perfect Festival," a marketing campaign that included many
       interactive online and offline activities
    -- Upgraded customer service system by installing Avaya call center
       hardware system and Elite call center solution software to improve the
       Company's customer service capabilities, which were activated on
       January 5, 2008
    -- Entered into new overseas licensing agreements with Cubinet
       Interactive(s) Pte Ltd. to license "Legend of Martial Arts" in
       Vietnam and "Zhu Xian" in Vietnam, Thailand, Malaysia and Singapore
    -- Launched "Perfect World II" in Thailand through Cubinet Interactive
       Sdn Bhd. in January 2008
    -- Launched "Legend of Martial Arts" in Japan through C&C Media Co., Ltd.
       in February 2008
    -- Launched "Legend of Martial Arts" in Malaysia and Singapore through
        Cubinet Interactive(s) Pte Ltd. in March 2008
    -- Entered into agreements for the purchase of office premises with an
       area of approximately 55,000 square meters in Chaoyang District of
       Beijing in March 2008.  The aggregate purchase consideration was
       approximately RMB700 million and the Company has used its existing cash
       to pay approximately RMB580 million as of May 19, 2008, with most of
       the remaining consideration expected to be paid by using the Company's
       existing cash in the second quarter of 2008.  The newly purchased
       premises will be used as the Company's principal executive offices to
       meet the demand arising from its recent business expansion and
       headcount increase.  The Company will acquire the premises after
       completing relevant real estate registration procedures.

    (1) The U.S. dollar (USD) amounts disclosed in this press release are
        presented solely for the convenience of the reader.  The conversion of
        Renminbi (RMB) into USD in this release is based on the noon buying
        rate in The City of New York for cable transfers in RMB per USD as
        certified for customs purposes by the Federal Reserve Bank of New York
        as of March 31, 2008, which was RMB7.0120 to USD1.00.  The percentages
        stated are calculated based on RMB.

"I am very pleased by our first quarter results which are mainly attributed to the effective execution of our core strategies," commented Mr. Michael Chi, Chairman and Chief Executive Officer of Perfect World. "We successfully launched open beta testing for 'Chi Bi' and 'Hot Dance Party' and continued to develop a sustainable pipeline with four new games under development, including 'Pocketpet Journey West.' I believe our ability to maintain user interest in our existing games and expand and diversify our game portfolio has become one of the key aspects of our growth. In terms of overseas development, we signed several new licensing agreements in the past quarter as a result of our continued efforts to expand internationally and further enhance product features. Furthermore, pursuing partnerships and alliances has always been one of our primary growth strategies, and we are happy to report that, in April 2008, we made a strategic investment in Chengdu Seasky Digital Entertainment Co., Ltd. ('Seasky'), which is a strong online game development company in Chengdu, China. Seasky's strong research and development capabilities and solid future potential should make it a great partner for us.

Looking forward, we will continue to execute our primary growth strategies which are based on further developing our platform, improving customer services and extending our reach and our brand globally. We are in the process of developing four new MMORPGs, including a 3D MMORPG named 'Pocketpet Journey West,' developed based on 'Journey to the West,' one of the four classical novels of Chinese literature. Additionally, we plan to integrate existing resources, including game development, sales and marketing and a diverse game portfolio to build a strong platform and expand our proprietary game development technology to overseas markets. I believe our extensive knowledge and experience in the domestic market, powerful technology capabilities and high quality service that already matches global standards will help us continue to grow and become one of the global leaders in the online game industry."

First Quarter 2008 Financial Results

Total Revenues

Total revenues were RMB303.2 million (USD43.2 million) in 1Q08, an increase of 17.3%, or RMB44.8 million, from RMB258.4 million in 4Q07 and an increase of 247.8%, or RMB216.0 million, from RMB87.2 million in 1Q07.

Online game operation revenues were RMB264.5 million (USD37.7 million) in 1Q08, an increase of 14.9%, or RMB34.3 million, from RMB230.2 million in 4Q07 and an increase of 245.4%, or RMB187.9 million, from RMB76.6 million in 1Q07. The sequential increase in online game operation revenues primarily resulted from the successful launch of Chi Bi, expansion packs for the Company's existing MMORPGs and the successful implementation of the "Perfect Festival" marketing campaign.

The ACU was approximately 660,000 in 1Q08, an increase of 5.8%, or 36,000, from 624,000 in 4Q07 and an increase of 177.8%, or 423,000, from 237,000 in 1Q07. The ARPU for games under the item-based revenue model was RMB151 in 1Q08, an increase of 7.0%, or RMB10, from RMB141 in 4Q07 and an increase of 58.2%, or RMB56, from RMB95 in 1Q07. The APC for games under the item-based revenue model was approximately 1,701,000 in 1Q08, an increase of 8.7%, or 136,000, from 1,565,000 in 4Q07 and an increase of 144.7%, or 1,006,000, from 695,000 in 1Q07.

Overseas licensing revenues were RMB38.7 million (USD5.5 million) in 1Q08, an increase of 37.2%, or RMB10.5 million, from RMB28.2 million in 4Q07 and an increase of 265.6%, or RMB28.1 million, from RMB10.6 million in 1Q07. The sequential increase in overseas licensing revenues was mainly due to the recognition of one-time initial license fees in relation to licensing agreements with C&C Media Co., Ltd. in Japan and Cubinet Interactive(s) Pte Ltd. in Malaysia and Singapore for "Legend of Marital Arts" and an increase in usage-based royalty fees from the Taiwan and Japan markets.

Cost of Revenues

The cost of revenues was RMB37.5 million (USD5.4 million) in 1Q08, a decrease of 2.8%, or RMB1.1 million, from RMB38.6 million in 4Q07 and an increase of 95.6%, or RMB18.3 million, from RMB19.2 million in 1Q07. The decrease from 4Q07 was mainly due to a reduction in Internet Data Center, or IDC, costs, and was partially offset by an increase in staff costs, server depreciation expenses and VAT and other related taxes.

Gross Profit and Gross Margin

Gross profit was RMB265.6 million (USD37.9 million) in 1Q08, an increase of 20.9%, or RMB45.8 million, from RMB219.8 million in 4Q07, and an increase of 290.9%, or RMB197.6 million, from RMB68.0 million in 1Q07. Gross margin was 87.6% in 1Q08, which increased from 85.1% in 4Q07 and 78.0% in 1Q07. The sequential improvement in gross margin was mainly due to a higher level of economies of scale generated from rapid revenue growth, a reduction in IDC costs and an increase in overseas licensing revenues, which have a higher gross margin.

Operating Expenses

Operating expenses were RMB104.0 million (USD14.8 million) in 1Q08, an increase of 26.3%, or RMB21.6 million, from RMB82.4 million in 4Q07, and an increase of 300.2%, or RMB78.0 million, from RMB26.0 million in 1Q07. The sequential increase in operating expenses was mainly attributed to higher R&D expenses, sales and marketing expenses and general and administrative expenses.

R&D expenses increased by 3.0%, or RMB0.7 million, from RMB22.7 million in 4Q07 to RMB23.4 million (USD3.3 million) in 1Q08. This was primarily due to an increase in share-based compensation expenses, and was partially offset by a decrease in staff costs because a special year-end bonus was accrued in R&D expenses in 4Q07.

Sales and marketing expenses increased by 36.5%, or RMB16.3 million, from RMB44.4 million in 4Q07 to RMB60.7 million (USD8.7 million) in 1Q08. This was largely due to an increase in advertising and promotional expenses associated with the launch of "Chi Bi" and "Hot Dance Party."

General and administrative expenses increased by 31.1%, or RMB4.7 million, from RMB15.2 million in 4Q07 to RMB19.9 million (USD2.8 million) in 1Q08. This was primarily due to an increase in professional fees, share-based compensation expenses and website domain name acquisition expenses, and was partially offset by a decrease in staff costs because a special year-end bonus was accrued in general and administrative expenses in 4Q07.

Operating Profit

Operating profit was RMB161.6 million (USD23.0 million) in 1Q08, an increase of 17.6%, or RMB24.2 million, from RMB137.4 million in 4Q07, and an increase of 285.1%, or RMB119.6 million, from RMB42.0 million in 1Q07.

Total Other Income

Total other income was RMB2.4 million (USD0.3 million) in 1Q08, a decrease of 81.6%, or RMB10.7 million, from RMB13.1 million in 4Q07, and a substantial increase of RMB2.3 million, from RMB0.1 million in 1Q07. The decrease from 4Q07 was primarily due to an increase in realized foreign exchange loss of approximately RMB4.5 million, and a decrease in government grant subsidy income of approximately RMB4.5 million, and a decrease in interest income of approximately RMB2.5 million.

Income Tax Expense

Income tax expense was RMB5.6 million (USD0.8 million) in 1Q08, an increase of 32.4%, or RMB1.3 million, from RMB4.3 million in 4Q07 and an increase of 175.6%, or RMB3.6 million, from RMB2.0 million in 1Q07. Income tax expense represents withholding income tax for overseas licensing revenues. The sequential increase was mainly due to the increase in overseas licensing revenues in 1Q08.

Net Income

Net income was RMB158.4 million (USD22.6 million) in 1Q08, an increase of 8.3%, or RMB12.2 million, from RMB146.2 million in 4Q07, and an increase of 295.8%, or RMB118.4 million, from RMB40.0 million in 1Q07. Basic and diluted earnings per ADS were RMB2.83 (USD0.40) and RMB2.67 (USD0.38), respectively, in 1Q08, as compared to basic and diluted earnings per ADS of RMB2.62 and RMB2.48, respectively, in 4Q07, and basic and diluted earnings per ADS of RMB1.27 and RMB0.82, respectively, in 1Q07.

Cash and Cash Equivalents

As of March 31, 2008, the Company had RMB1.6 billion (USD226.5 million) of cash and cash equivalents, an increase of 6.2%, or RMB 92.0 million, from RMB1.5 billion as of December 31, 2007. The sequential increase was mainly due to net cash inflow generated from the Company's online game operations and overseas licensing, partially offset by the payments of consideration for the acquisition of the new office premises.

Recent Developments

Launched Official Website for "Pocketpet Journey West"

The Company unveiled the official website of "Pocketpet Journey West," the Company's newest 3D MMORPG based on "Journey to the West," one of the four great classic novels of Chinese literature, in April 2008.

Entered into New Overseas Licensing Agreements with Soft-World International Corp. for Zhu Xian

On April 5, 2008, the Company announced that it had entered into new overseas licensing agreements with Soft-World International Corp. to license the Company's "Zhu Xian" in Taiwan.

Entered into New Overseas Licensing Agreements with C&C Media Co., Ltd. for Zhu Xian

On April 5, 2008, the Company announced that it had entered into new overseas licensing agreements with C&C Media Co., Ltd. to license the Company's "Zhu Xian" in Japan.

Established U.S. Subsidiary

In April, 2008, the Company established Perfect World Entertainment Inc, or PW USA, a Delaware corporation and its wholly owned subsidiary, to capture potential business opportunities in North America. PW USA is expected to primarily focus on solidifying the Company's international expansion strategy.

Made a Strategic Investment in Chengdu Seasky Digital Entertainment Co., Ltd.

In April 2008, the Company entered into a capital increase and share transfer agreement with Chengdu Seasky Digital Entertainment Co., Ltd., or Chengdu Seasky, and its equity holders, to acquire a 20% equity interest in Chengdu Seasky for consideration of US$3.0 million in cash. Chengdu Seasky is principally engaged in the design and development of online games in China. The investment will be accounted for under the equity method.

Appointed Mr. Robert Xiao as the Company's Vice President of Human Resources

Mr. Robert Xiao joined Perfect World as Vice President of Human Resources on May 1, 2008. Mr. Xiao will be responsible for setting the Company's overall human resources strategy, and overseeing human resources processes and tools, recruiting and training, leadership and talent development, performance management, and overall branding in the employment market. Prior to joining Perfect World, Mr. Xiao was the director of talent management at Dell Greater China. Prior to Dell, he also worked in human resources at Philips, Cisco and Motorola. Mr. Xiao received a Bachelor's degree in physics from Tsinghua University in Beijing, China. He received both a Master's and a Ph.D. degree in engineering from the University of Southern California in the U.S.

Mr. Xiao will lead initiatives to further strengthen the Company's human resources management system, functions and capacity.

Special Announcement

The Company has suspended its game services since May 19, and will resume on May 22, in response to the announcement made by the State Council of the People's Republic of China on May 18, for the three-day national mourning for earthquake victims.

Business Outlook

Based on the Company's current operations, total revenues for the second quarter of 2008 are expected to be between RMB303 million and RMB318 million. This represents an increase of 0% - 5% on a sequential basis and reflects the impact of suspending game services in response to the three-day national mourning for earthquake victims and the earthquake's impact on the Company's operation in Sichuan. In addition, the Company has incurred and expects to continue to incur additional operating expenses in the second quarter of 2008, including increase in R&D expenses in connection with Beijing and Shanghai operations and other operating expenses in connection with the new U.S. Subsidiary, which will reduce operating margin and net margin for the second quarter.

Conference Call

Perfect World will host a conference call and live webcast at 8:00 a.m. Eastern Daylight Time (EDT) (8:00 p.m., Beijing time) on Monday, May 19, 2008.

    The dial-in details for the live conference call are as follows:

    -- U.S. toll free number: +1-866-713-8563
    -- International dial-in number: +1-617-597-5311
    -- China toll free number: 10-800-130-0399
    Passcode: PWRD

A live and archived webcast of the conference call will be available on the Investor Relations section of Perfect World's website at http://www.pwrd.com.

A telephone replay of the call will be available after the conclusion of the conference call through 10:00 a.m. Eastern Daylight Time, May 27, 2008.

    The dial-in details for the replay are as follows:

    -- U.S. toll free number: +1-888-286-8010
    -- International dial-in number: +1-617-801-6888
    Passcode: 66682483

About Perfect World Co., Ltd. ( http://www.pwrd.com )

Perfect World Co., Ltd. (NASDAQ:PWRD) is a leading online game developer and operator in China. Perfect World primarily develops three-dimensional ("3D") online games based on the proprietary Angelica 3D game engine and game development platform. The Company's strong technology and creative game design capabilities, combined with extensive local knowledge and experience, enable it to frequently and rapidly introduce popular games that are designed to cater to changing customer preferences and market trends in China. The Company's current portfolio of self-developed online games includes 3D massively multiplayer online role playing games ("MMORPGs"): "Perfect World," "Legend of Martial Arts," "Perfect World II," "Zhu Xian," and "Chi Bi;" and a 3D online casual game: "Hot Dance Party." While most revenues are generated in China, the Company's games have been licensed to leading game operators in more than ten countries and regions. The Company plans to continue to explore new and innovative business models and remains deeply committed to maximizing shareholder value over time.

Safe Harbor Statements

This press release contains forward-looking statements. These statements constitute forward-looking statements under the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by terminology such as "will," "expects," "anticipates," "future," "intends," "plans," "believes," "estimates" and similar statements. Among other things, the management's quotations and "Business Outlook" contain forward-looking statements. Such statements involve certain risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Potential risks and uncertainties include, but are not limited to, our limited operating history, our ability to develop and operate new games that are commercially successful, the growth of the online game market and the continuing market acceptance of our games and in- game items in China and elsewhere, our ability to protect our intellectual property rights, our ability to respond to competitive pressure, our ability to maintain an effective system of internal control over financial reporting, and changes of the regulatory environment in China. Further information regarding these and other risks is included in Perfect World's filings with the U.S. Securities and Exchange Commission, including its annual report on Form 20-F. All information provided in this press release and in the attachments is as of May 19, 2008, and Perfect World does not undertake any obligation to update any forward-looking statement as a result of new information, future events or otherwise, except as required under applicable law.

    For further information, please contact:

    Perfect World Co., Ltd.
     Vivien Wang
     Investor Relations Officer
     Tel:   +86-10-5885-1813
     Fax:   +86-10-5885-6899
     Email: ir@pwrd.com
     Web:   http://www.pwrd.com

    Christensen Investor Relations
     Peter Homstad
     Tel:   +1-480-614-3026
     Fax:   +1-480-614-3033
     Email: phomstad@christensenir.com

    Jung Chang
     Tel:   +852-2117-0861
     Fax:   +852-2117-0869
     Email: jchang@christensenir.com




                           Perfect World Co., Ltd.
                         Consolidated Balance Sheets

                                   Audited      Unaudited      Unaudited
                                 December 31,   March 31,       March 31,
                                    2007           2008           2008
                                     RMB            RMB            USD

    Assets
    Current assets
    Cash and cash equivalents   1,496,032,993 1,588,055,501    226,476,826
    Accounts receivable            16,796,527    17,426,843      2,485,289
    Prepayments and other
     assets                        22,112,949    24,144,632      3,443,330
    Deferred tax assets               731,142       648,684         92,511
    Total current assets        1,535,673,611 1,630,275,660    232,497,956
    Non current assets
    Property, equipment, and
     software, net                107,331,206   145,046,059     20,685,405
    Intangible assets, net          1,723,048     1,468,769        209,465
    Prepayments and other
     assets                        20,283,302   138,134,419     19,699,717
    Deferred tax assets               730,180       772,628        110,187
    Total assets                1,665,741,347 1,915,697,535    273,202,730

    Liabilities and
     Shareholders' Equity
    Current liabilities
    Accounts payable               23,464,378    28,649,042      4,085,716
    Advances from customers        49,672,384   115,900,295     16,528,850
    Salary and welfare payable     30,901,115    16,908,651      2,411,390
    Taxes payable                  13,374,892    16,108,381      2,297,259
    Accrued expenses and other
     liabilities                   14,175,638    20,118,469      2,869,148
    Deferred revenues             123,310,935   166,127,927     23,691,946
    Deferred government grants      1,100,000     1,100,000        156,874
    Total current liabilities     255,999,342   364,912,765     52,041,183
    Deferred revenues              19,365,787    20,975,955      2,991,437
    Total liabilities             275,365,129   385,888,720     55,032,620

    Commitments

    Shareholders' Equity
    Ordinary shares (US$0.0001
     par value, 10,000,000,000
     shares authorized,
     91,309,730 Class A
     ordinary shares and
     187,975,990 Class B
     ordinary shares issued
     and outstanding as of
     December 31, 2007;
     81,235,480 Class A
     ordinary shares and
     202,753,790 Class B
     ordinary shares issued
     and outstanding as of
     March 31, 2008)                  221,081       222,024           31,663
    Additional paid-in
     capital                    1,124,169,036 1,133,025,144      161,583,734
    Statutory reserves             29,919,175    29,919,175        4,266,853
    Accumulated other
     comprehensive loss           (31,771,062)  (59,549,104)      (8,492,456)
    Retained earnings             267,837,988   426,191,576       60,780,316
    Total Shareholders'
     Equity                     1,390,376,218 1,529,808,815      218,170,110
    Total Liabilities and
     Shareholders' Equity       1,665,741,347 1,915,697,535      273,202,730



                           Perfect World Co., Ltd.
               Unaudited Consolidated Statements of Operations

                                       Three months ended
                        March 31,   December 31,   March 31,     March 31,
                          2007         2007          2008          2008
                           RMB          RMB           RMB           USD

    Revenues
        Online game
         operation
         revenues       76,574,669  230,194,222   264,480,379     37,718,251
        Overseas
         licensing
         revenues       10,579,243   28,200,883    38,680,078      5,516,269
    Total Revenues      87,153,912  258,395,105   303,160,457     43,234,520
    Cost of
     revenues          (19,195,954) (38,618,961)  (37,541,866)    (5,353,946)
    Gross profit        67,957,958  219,776,144   265,618,591     37,880,574
    Operating
     expenses
        Research
         and
         development
         expenses       (6,951,062) (22,725,718)  (23,418,800)    (3,339,817)
        Sales and
         marketing
         expenses      (15,308,116) (44,438,673)  (60,666,589)    (8,651,824)
        General and
         administrative
         expenses       (3,736,933) (15,215,509)  (19,943,688)    (2,844,222)
    Total operating
     expenses          (25,996,111) (82,379,900) (104,029,077)   (14,835,863)
    Operating
     profit             41,961,847  137,396,244   161,589,514     23,044,711
    Other
    income/(expenses)
        Interest
         income            453,357   14,156,626    11,647,866      1,661,133
        Others, net       (354,726)  (1,053,932)   (9,236,970)    (1,317,309)
    Total other
     income                 98,631   13,102,694     2,410,896        343,824
     Profit before
      tax               42,060,478  150,498,938   164,000,410     23,388,535
        Income tax
         expense        (2,048,626)  (4,265,466)   (5,646,822)      (805,308)
    Net Profit          40,011,852  146,233,472   158,353,588     22,583,227
        Cumulative
         unearned
         dividends
         of Series
         A Preferred
         Share            (766,499)          --            --             --
    Net profit
     attributable
     to ordinary
     shareholders       39,245,353  146,233,472   158,353,588     22,583,227
    Net earnings
     per share,
     basic                    0.25         0.52          0.57           0.08
    Net earnings
     per share,
    diluted                   0.16         0.50          0.53           0.08
    Net earnings
     per ADS,
     basic                    1.27         2.62          2.83           0.40
    Net earnings
     per ADS,
     diluted                  0.82         2.48          2.67           0.38

    Shares used in
     calculating
     basic net
     earnings per
     share             154,285,720  279,285,720   279,610,748    279,610,748
    Shares used in
     calculating
     diluted net
     earnings per
     share             242,951,028  294,945,237   296,103,511    296,103,511

    Total
     share-based
     compensation
     cost included
     in:
        Cost of
         revenues          (26,949)     (38,209)     (388,707)       (55,435)
        Research
         and
         development
         expenses         (278,151)    (679,745)   (2,840,305)      (405,063)
        Sales and
         marketing
         expenses          (35,759)    (324,124)     (729,651)      (104,057)
        General and
         administrative
         expenses         (158,170)  (2,995,652)   (3,956,386)      (564,231)





                           Perfect World Co., Ltd.
               Unaudited Consolidated Statements of Cash Flows

                                       Three months ended
                         March 31,     December 31,    March 31,     March 31,
                           2007           2007          2008          2008
                            RMB            RMB           RMB           USD

    Cash flows from
     operating
     activities:
    Net profit          40,011,852    146,233,472    158,353,588    22,583,227
    Adjustments
     for:
      Share-based
      compensation
      cost                 499,029      4,037,730      7,915,049     1,128,786
      Depreciation
       and
       amortization
       expense           1,006,078      2,875,270      4,304,116       613,821
      Exchange loss        347,322      5,812,374     10,345,689     1,475,426
    Changes in
     assets and
     liabilities:
    Accounts
     receivable           (831,744)     2,036,676     (1,268,558)     (180,912)
    Current
     prepayments
     and other
     assets                285,853     (2,592,287)    (2,070,147)     (295,229)
    Deferred tax
     assets               (753,572)       (11,235)       (26,987)       (3,849)
    Due to related
     parties              (126,900)            --             --            --
    Non-current
    prepayments and
     other
     assets                (28,126)        11,439     (1,589,347)     (226,661)
    Accounts
     payable            (2,387,548)     3,936,603     13,281,828     1,894,157
    Advances from
     customers           5,470,766    (10,869,452)    66,227,911     9,444,939
    Salary and
     welfare
     payable            (4,410,214)    15,480,337    (13,992,464)   (1,995,503)
    Taxes payable         (613,175)      (688,092)     2,733,489       389,830
    Accrued
     expenses and
     other
     liabilities        (3,256,539)     4,231,479      6,410,124       914,165
    Deferred
     revenues           27,563,222     34,112,590     45,138,179     6,437,276
    Deferred
     government
     grants                     --     (1,400,000)            --            --
    Net cash
     provided by
     operating
     activities         62,776,304    203,206,904    295,762,470    42,179,473

    Cash flows from
     investing
     activities:
    Purchase of
     property,
     equipment and
     software           (4,649,663)   (83,979,972)  (166,168,554)  (23,697,740)
    Net cash used
     in investing
     activities         (4,649,663)   (83,979,972)  (166,168,554)  (23,697,740)

    Cash flows from
     financing
     activities:
    Payments made
     by shareholders
     for Shareholders'
     receivables           126,808             --             --            --
      Proceeds from
       IPO, net
       of issuance
       costs                    --     (8,105,195)            --            --
      Exercise of
       share
       options                  --             --        790,616       112,752
    Net cash
     provided by /
    (used in)
     financing
     activities            126,808     (8,105,195)       790,616       112,752

    Effect of
     exchange rate
     changes on cash
     and cash
     equivalents          (347,322)   (28,657,671)   (38,362,024)   (5,470,910)
    Net increase in
     cash               57,906,127     82,464,066     92,022,508    13,123,575

    Cash and cash
     equivalents,
     beginning of
     the period        101,356,892  1,413,568,927  1,496,032,993   213,353,251
    Cash and cash
     equivalents,
     end of the
     period            159,263,019  1,496,032,993  1,588,055,501   226,476,826

    Supplemental
     disclosures
     of cash flow
     information:
    Cash paid
     during the
     period for
     income taxes       (1,412,029)    (4,290,112)    (5,508,722)     (785,614)

Source: Perfect World Co., Ltd.