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Immediate capital needs of our active online business is substantial in comparison with the gross income from our business operations. we cannot assure you that we will not be a pfic for 2006 or any future taxable year. for more information on the u.s. tax consequences to you that would result from our classication as a pfic, please, see the subsection ""taxation'' included in item 10 ""additional information''. we may be required to take signicant actions that are contrary to our business objectives to avoid being deemed an investment company as dened under the investment company act. generally, the investment company act provides that a company is not an investment company and is not required to register under the investment company act as an investment company if: , the company is primarily engaged, directly or through a wholly-owned subsidiary or subsidiaries, in a business or businesses other than those of investing, reinvesting, owning, holding or trading in securities; and , 40% or less of the fair market value of the company's assets is represented by investment securities. we believe that we are engaged primarily in the businesses of, among other things, developing and operating online games. in addition, less than 40% of the fair market value of our assets is represented by investment securities. as a result, we believe, that we are not an investment company as that term is dened under the investment company act. we may, however, be required to take signicant actions that are contrary to our business objectives to avoid being deemed an investment company in the future. we may, for example, need to hold a signicant portion of our assets and invest portions of our cash ows in low-yielding investments or we may need to acquire additional income or loss generating assets that we might not otherwise have acquired. in addition, we may need to sell all or a portion of our minority investments in actoz or sina, or forego opportunities to acquire minority interests in other companies that could be important to our strategy. the investment company act also contains substantive regulations with respect to investment companies including restrictions on their capital structure, operations, transactions with aliates and other matters which would be incompatible with our operations. if we were to be deemed an investment company in the future, we would, among other things, eectively be precluded from making public oerings in the united states. we could also be subject to other adverse consequences. changes to existing accounting pronouncements, including sfas 123r, or practices may adversely aect our reported results of operations or how we conduct our business. a change in accounting pronouncements or practices can have a signicant eect on our reported results and may even aect our reporting of transactions completed before the change is eective. pursuant to sec rules, we are required to implement the statement of financial accounting standards no. 123 revised 2004 ; , ""accounting for share based compensation'' ""sfas 123r'' ; starting in the rst quarter of 2006. sfas 123r requires us to measure compensation costs for all share-based compensation at fair value and take compensation charges equal to that value. the requirement to measure compensation costs for all share-based compensation under sfas 123r could negatively aect our protability and the trading price of our adss. sfas 123r and the impact of expensing on our reported results could also limit our ability to continue to use stock options as an incentive and retention tool, which could, in turn, hurt our ability to recruit employees and retain existing employees. other new accounting pronouncements and varying interpretations of accounting pronouncements have occurred and may occur in the future. this change to existing rules, future changes, if any, or the questioning of current practices may adversely aect our reported nancial results or the way we conduct our business. we have limited business insurance coverage in china. the insurance industry in china is still at an early stage of development. in particular, prc insurance companies do not oer extensive business insurance products. as a result, we do not have any business liability 16.

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