We are one of China’s leading online game developers and operators in terms of revenues, and our online game ZT Online was the most popular online game in China in 2006, according to a report published by International Data Corporation, or IDC, a leading market research firm. We focus on massively multiplayer online, or MMO, games that are played through networked game servers in which tens of thousands of players are able to simultaneously connect and interact.
Our first internally developed MMO game, ZT Online, was commercially launched in January 2006. ZT Online’s compound quarterly growth rate was 39.6% and 45.3%, respectively, in terms of peak concurrent users and average concurrent users from the quarter ended March 31, 2006 through the quarter ended September 30, 2007. ZT Online had 120,037 quarterly peak concurrent users and 51,202 quarterly average concurrent users for the quarter ended March 31, 2006 and had 888,146 quarterly peak concurrent users and 481,054 quarterly average concurrent users for the quarter ended September 30, 2007.
We believe that our success is largely attributable to our ability to internally develop, operate and market a high quality MMO game tailored to China’s core game player audience, which we define as players between the ages of 18 and 40. We have a team of over 140 experienced game developers, which includes dedicated product development and enhancement teams for each of our MMO games. We plan to commercially launch our second MMO game, ZT Online PTP, a pay-to-play game based on the ZT Online free-to-play game, and our third MMO game, Giant Online, in the fourth quarter of 2007. We believe that we will be able to leverage our national distribution and operational platform to market these games to players throughout China. We acquired the intellectual property rights to our third free-to-play MMO game, King of Kings III, from Taiwan Lager Network Technology Co., Ltd., or Lager Network, a developer in Taiwan, in the third quarter of 2007, and currently intend to commercially launch the game in China in 2008. See “Business—Our Games—Future Game—King of Kings III.”
We believe that the high playability, interactivity and community-oriented nature of our games, together with their large active player bases, have resulted in a strong growth in the number of our paying players and our average revenues per user, or ARPU. As a result, ZT Online’s quarterly active paying players and ARPU achieved compound quarterly growth rates of 71.1% and 15.9%, respectively, from the quarter ended March 31, 2006 through the quarter ended June 30, 2007. ZT Online had 143,110 and 2,096,870 quarterly active paying players in the quarters ended March 31, 2006 and June 30, 2007, respectively. ZT Online had ARPU of RMB84 and RMB190 in the quarters ended March 31, 2006 and March 31, 2007, respectively. In the quarter ended June 30, 2007, ZT Online’s ARPU decreased to RMB176.
We have built nationwide distribution and marketing networks to sell and market our prepaid game cards and game points. As of August 31, 2007, our distribution network consisted of over 200 distributors and reached over 116,500 retail outlets, including Internet cafés, software stores, supermarkets, bookstores, newspaper stands and convenience stores located throughout China. We also sell game points through our official game website. As of August 31, 2007, our marketing network consisted of over 250 liaison offices located throughout China.
Since our commercial launch of ZT Online in January 2006, we have experienced significant growth in our net revenues and net income. For the year ended December 31, 2006 and the six months ended June 30, 2007, our net revenues were RMB408.5 million (US$53.7 million) and RMB687.4 million (US$90.3 million),
respectively. Our net income for the same periods was RMB244.6 million (US$32.1 million) and RMB512.3 million (US$67.3 million), respectively. As of June 30, 2007, deferred revenues and advances from distributors totaled RMB219.8 million (US$28.9 million) and RMB63.4 million (US$8.3 million), respectively. Deferred revenues and advances from distributors represent amounts that we have received for sales of our prepaid game cards and game points that have not yet been recognized as net revenues. Although substantially all of our revenues have been generated in China, starting in January 2007 we have also derived revenues from the license of ZT Online to Lager Network for operation in Hong Kong, Macau and Taiwan.
