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PacificNet acquires Octavian International

17 Jan 2008

BEIJING, China -- (PRESS RELEASE) -- PacificNet, Inc. (Nasdaq: PACT), a leading provider of gaming technology, Customer Relationship Management (CRM) and e-commerce in China, announced today that it has completed the acquisition of 100% ownership of Octavian International Limited ("Octavian"), a worldwide supplier of gaming technology, solutions and systems.

Following the signing of a definitive agreement with Octavian on December 7, 2007, due diligence was successfully completed within four weeks and the acquisition was consummated on January 15, 2008.

As part of the closing, PacificNet issued 2,330,000 restricted shares of PACT representing approximately 19.5% of PacificNet's outstanding shares, which will be held in an escrow account and will be released in accordance to the payment and earn-out schedule in the Acquisition Agreement. According to Octavian's financial reports as audited by Grant Thornton UK LLP under UK GAAP, Octavian had revenue of approximately $64.6 million, gross profit of approximately $18.4 million, EBITDA of approximately $6.2 million USD, and pre-tax profit of approximately $5.5 million, for the fiscal year ending Dec 31, 2006. This acquisition is expected to increase PacificNet's overall gaming revenues and profits. The combined company will focus on the high-margin gaming technology business with a global presence and anticipates combined 2008 projected annual revenue of $116 million, Gross Profit of $38 million and EBITDA of $13 million subject to securing additional funding or equipment financing. As of January 15, Octavian had already secured 33% of its projected orders for 2008 (representing 19% of combined Octavian and PacificNet revenues for the year). Furthermore, Octavian's projected figures for 2008 are currently based only on sales revenue from its existing markets in Europe, CIS and Latin America. Octavian's projections for 2008 do not take into account sales of its existing games and systems into new markets, such as the Asia- Pacific region.

Due to the traditional slow season in the first quarter of the year, the combined company expects that it may incur a one-time non-recurring loss in Q1 2008, after taking into account of certain one-time non-recurring post-merger write-offs, and merger and acquisition expenses. During 2007 Octavian invested in certification of its products, including GLI certification by Gaming Laboratories International, which now enables Octavian systems and games to be sold in regulated gaming markets worldwide. Octavian expects GLI approval to significantly boost revenues in the medium and long term.

Octavian will continue operating under its current name as a wholly-owned subsidiary of PacificNet and will continue to pursue its global growth strategy as a leading provider of gaming technology. Harmen Brenninkmeijer will become an Executive Director of PacificNet and a member of the board of directors, and continue to serve as CEO of the Octavian subsidiary within PacificNet's gaming division. Furthermore, upon completion of the earn-out provisions and profit targets as defined in the acquisition agreement, Harmen Brenninkmeijer would become President of PacificNet's Global Gaming Division. Sterne Agee has been appointed as the financial advisor for Octavian for this transaction.

Octavian, which maintains worldwide headquarters in Guildford, United Kingdom, develops and markets innovative games and systems and sells its gaming solutions in over 30 countries including Russia, Italy, Germany, Ukraine, Colombia, Bolivia, Mexico, Argentina and South Africa. It also distributes gaming machines and equipment from many of the world's leading gaming brands through its OctaSupplies division. The company's own games and systems include the DreamGames portfolio of casino video slot games, AWP games, downloadable/VLT games and systems for gaming and lottery operations, and ACP (Accounting, Control, Progressives) slot management systems. Octavian is one of the largest independent suppliers of back-end systems to casinos.

PacificNet is a leading provider of gaming and mobile game technology, e- commerce, and Customer Relationship Management (CRM) solutions in China. Its gaming clients include leading hotels, casinos, and gaming operators in Macau, Asia and Europe. PacificNet's products include multi-player electronic table games, roulette machines, Server-Based Games (SBG) with multiple client betting stations, slot and bingo machines, Video Lottery Terminals (VLTs), Amusement With Prizes (AWP) machines, gaming cabinet and client/server system designs, online i-gaming software design and multimedia entertainment kiosks. Through its China subsidiary, PacificNet is also a legally licensed provider and sales agent for the legalized welfare lottery gaming in the Peoples Republic of China. PacificNet currently sells its gaming products and solutions in dozens of countries worldwide with a strong focus on Asia.

Commenting on the deal, Tony Tong, CEO of PacificNet, said: "We are delighted that this acquisition has been completed so smoothly. Great synergy exists between PacificNet and Octavian and we are confident that we can harness this to help us garner long-term, high-margin, recurring revenue contracts in emerging gaming markets worldwide. We expect the synergistic effect of combining Octavian's strong global brand name and worldwide gaming distribution expertise with PacificNet's low-cost development resources in China and local Asian gaming expertise to be considerable."

Harmen Brenninkmeijer, CEO of Octavian, added: "We have developed a strong systems-led product portfolio, a clear global growth strategy and effective distribution channels into the casino, AWP and lottery markets. This provides an extremely good and complementary fit with PacificNet's strategic focus, its expertise in the mobile sector and internet-based gaming, and its ambitions in the gaming world in general. We are very excited by the prospect of operating as an independent subsidiary of PacificNet and playing a leading role in the growth of PacificNet's gaming business. As part of PacificNet, we believe that Octavian is extremely well placed for strong growth in existing and new markets. In addition, Octavian adds market-leading technology, software and experience in the rapidly-expanding lottery market to the PacificNet portfolio."

"We are delighted to welcome Octavian to the PacificNet roster of subsidiary companies," added Victor Tong, President of PacificNet. "Working with Octavian will allow PacificNet to accelerate its gaming expansion and sharpen its focus in the high margin gaming technology business, where we see huge potential for growth."

PacificNet's President Victor Tong and Octavian's CEO Harmen Brenninkmeijer will jointly present the company's combined global gaming strategy and financial outlooks at the 10th Annual ICR XChange Investor Conference January 16, 2008 at 1:00 P.M. Pacific Time at the St. Regis Monarch Beach Resort in Dana Point, California.

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