PacificNet reports Q1 results

"We are happy to announce to our shareholders the filing of our 10Q for Q1 2007," said Daniel Lui, CFO of PacificNet. "It is our hope that this first look into our new gaming technology focus will give people valuable insight as to where we are going and get people excited about the prospects for our future. This filing demonstrates our progress in trying to resolve delinquent regulatory filings. I would like to convey to our shareholders that we are working very hard on the re-audit issues still pending with our 2004 and 2005 SEC filings and that we will keep our investors informed via press releases as progress is made. In the meantime, our current gaming business is strong and we invite our shareholders to come visit us in person when they visit Macau. The most compelling case for our company right now is seeing our games in action."

Overview of First Quarter Financial Results (Unaudited, in US Dollars)

-- Quarterly revenue of $9,267,000 represented an increase of 38.9% as compared to $6,672,000 from Q1 2006. Approximately 19% of the total revenues were generated from our new gaming technology division.

-- Quarterly gross profit was $2,539,000, an increase of 87.8% as compared to $1,352,000 from Q1 2006. Gross margin was 27.4% for Q1 2007 as compared to 20.3% for the same period in 2006. Our shift to gaming technology has improved our gross profit margin. Approximately 38% of the gross profit was generated from our new gaming technology division.

-- Quarterly operating profit was $800,000, an increase of 1,190.3% as compare to $62,000 from Q1 2006. Operating profit margin increased to 8.6% for Q1 2007 from 0.9% for Q1 2006. We are encouraged by the increasing profit margin coming from the new gaming technology division. Approximately 83% of the operating profit was generated from our new gaming technology division.

-- Quarterly net profit of $308,000, or EPS of $0.03 per basic share (or $0.03 per diluted share), with the majority (over 80%) of the profit coming from the new gaming technology division.

-- Cash and cash equivalents were $4,041,000 at March 31, 2007, compared to $1,900,000 as of December 31, 2006, due to sales profits and fund raising in the gaming technology division during the quarter.

-- Equity per share of $1.44 and cash per share of $0.34 as of March 31, 2007.

-- Quarterly revenues of $3,963,000, $527,000, and $4,773,000; and operating profit of $400,000, ($3,000), and $1,196,000 were generated from the Company's three business units: (1) CRM Outsourcing Services, (2) Value Added Services (VAS) and (3) Gaming and Telecom Products, respectively. The Company plans to restructure and simplify its business units due to the recent sale of Guangzhou3G in the VAS business.

-- As disclosed in the Company's 10K, the Company has taken certain restructuring steps to provide the necessary capital to continue its operations. These steps have included, but are not limited to: (1) accelerating the disposal and/or spin-off of unprofitable or unfavorable return-on-investment legacy gaming operations, which included the sale of the Company's interest in Guangzhou3G for US$6 million during the first quarter of 2007, and entering into a sale and purchase agreement, during the second quarter of 2007, to dispose of certain real estate in Hong Kong for approximately US$1 million; (2) focusing on executing the Company's new high potential gaming business initiatives; (3) acquiring profitable and/or strategic operations through the issuance of equity instruments; (4) forming strategic relationships with key gaming operators in Asia; and (5) issuing and/or restructuring the Company's currently outstanding long-term convertible debentures.

2007 Business Outlook

Traditionally, the first quarter from January to March is a low season for our operations in China and Macau due to the long Lunar New Year holidays. Today, the Company announced the following estimates:

* The Company expects Q2 revenues will continue to grow, especially in the gaming technology division.

* The Company expects Q2 net income will continue to grow, due to delivery of gaming machines and collection of account receivables.

* PacificNet's strategy in 2007 is to streamline our operation, downsize the non-performing legacy operations, and simplify our business strategy with an emphasis on our new focus on gaming technology development.

* The Company expects a turnaround return to profitability in 2007, with positive net income and EBITDA. The Company plans to provide an updated guidance for 2007 in a few weeks.

"We are delighted to report our turnaround and first profitable quarter since our venture into the gaming technology business. As we announced during the last two earnings conference calls, we have initiated a rapid business transformation away from our low-margin telecom business and into the new high-margin gaming business," said Tony Tong, Chairman and CEO of PacificNet. "Our goal is to streamline our operation, downsize the non-performing legacy operations, and simplify our business strategy with an emphasis on our new focus on gaming technology development. In recent board and management meetings, we evaluated the early success of our gaming technology operation and were satisfied with the progress and financial performance. Our board of directors and management team has approved our new strategy to focus on the rapidly growing gaming market in greater China, Macau, and Asia, and we are seeing encouraging results beginning in 2007. With the help of professional financial advisors and bankers, we will continue to seek strategic alternatives for our low-margin telecom business units which may include sales, disposition, spin-offs and mergers. We expect our gaming revenues and profit will continue to grow throughout the rest of the year."

Daniel Lui, CFO of PacificNet, said, "I am glad to see our turnaround strategy is beginning to show profits as our venture into gaming technology has resulted in our first profitable quarter in the gaming technology business. The software expertise of the legacy software development outsourcing businesses with CMM Level 3 Certification has provided a solid foundation for the Company's bold venture into the high potential gaming technology provider business. As our continuous effort to improve our accounting and reporting workflow, I am dedicated to continue to strengthen our accounting and internal control team, and in implementation of SOX compliance procedures."

"As we have previously announced publicly, we have initiated a rapid business transformation away from the low-margin telecom business and into the new high-margin gaming business," said Victor Tong, President of PacificNet. "The recent strong sales order pipeline for our gaming technology division (PacificNet Games and Take1) is an indication of our fast shift into the expanding gaming machine business."

As mentioned in some of the recent research reports on Macau's gaming industry, PacificNet has demonstrated significant progress as a leading provider of multi-player electronic table games while in Macau, receiving very strong play levels. Addressing the need for multi-station electronic table games, such as sic-bo dice, fish-prawn-crab, baccarat, roulette and other Asian traditional table games, we have released a series of multi-player electronic gaming machines, a hybrid sic-bo and baccarat gaming device that allows a player to make bets at an electronic terminal, while viewing a live dealer turn the cards or dice by TV monitor as well as at the machine. We are satisfied with our success entrance in the highly competitive gaming technology supplier market and we believe our recently launched Asian gaming machines have demonstrated a fairly quick payback for our customers who are the legal gaming operators and casino owners. We believe we are one of the only electronic gaming providers actually based in Macau gives us a competitive advantage both on the R&D side, knowing what Asian gamers want, and the sales and service side. Our machines are specifically targeted towards the Asian market and towards Asian gamers. We have found that Western games such as reel slots, poker and blackjack popular in many other markets are not as popular in Asian markets. Several analysts who recently visited Macau have noted that customer play time on our machines vs. our competitors has been exceptional.

During the recent NASDAQ Hearing attend by PacificNet and the NASDAQ Hearing Panel in May, the management presented a plan to regain compliance with NASDAQ listing rules. The plan to the NASDAQ Hearing Panel included seeking a 3-month time frame to allow the Company to work with its new auditor to conduct a re-audit for the Company's financial reports for fiscal year 2004 and 2005 audits. The NASDAQ Hearing Panel will notify us soon about their decision.