DATE Jiayuan.Com International Ltd. ADS (MM)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 20-F

(Mark One)

Date of event requiring this shell company report . . . . . . . . . . . . . . . . . . .

For the transition period from                       to                        

Commission file number: 001-35157

Securities registered or to be registered pursuant to Section 12(b) of the Act:

*              Not for trading, but only in connection with the listing on the Nasdaq Global Select Market of the American Depositary Shares

Securities registered or to be registered pursuant to Section 12(g) of the Act:

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Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

o Yes    x No

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

o Yes    x No

Note — Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

x Yes    o No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

x Yes    o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer” and “large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.

o Item 17    o Item 18

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

o Yes    x No

(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.

o Yes    o No

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INTRODUCTION

Unless otherwise indicated and except where the context otherwise requires, references in this annual report on Form 20-F to:

·                                 “we,” “us,” “our company,” “our” and “Jiayuan” refer to Jiayuan.com International Ltd., and, unless the context requires otherwise, its subsidiaries, Shanghai Huaqianshu Information Technology Co., Ltd., Beijing Huaqianshu Information Technology Co., Ltd., Beijing Shiji Xique Information Technology Co., Ltd., Beijing Aizhenxin Information Technology Co., Ltd., Shanghai Shiji Jiayuan Matchmaking Service Center, Beijing Youyue Hudong Information Technology Co., Ltd., Beijing Caiyuanlai Investment Administration Co., Ltd. and Shanghai Tengwan Internet Finance Service Co., Ltd.;

·                                 “our PRC companies” refers to our PRC subsidiaries and our PRC operating companies;

·                                 “our PRC operating companies” refers to Shanghai Huaqianshu Information Technology Co., Ltd., Beijing Huaqianshu Information Technology Co., Ltd., Beijing Aizhenxin Information Technology Co., Ltd., Beijing Shiji Xique Information Technology Co., Ltd., Beijing Youyue Hudong Information Technology Co., Ltd., Beijing Caiyuanlai Investment Administration Co., Ltd. and Shanghai Tengwan Internet Finance Service Co., Ltd.;

·                                 “our VIE entities” refers to Shanghai Huaqianshu Information Technology Co., Ltd., Beijing Huaqianshu Information Technology Co., Ltd., Beijing Aizhenxin Information Technology Co., Ltd., Beijing Shiji Xique Information Technology Co., Ltd., Beijing Youyue Hudong Information Technology Co., Ltd. and Shanghai Shiji Jiayuan Matchmaking Service Center;

·                                 “our PRC subsidiaries” refers to Miyuan (Shanghai) Information Technology Co., Ltd. and Beijing Miyuan Information Technology Co., Ltd.;

·                                 “China” or “PRC” refers to the People’s Republic of China, excluding, for the purpose of this annual report only, Taiwan, Hong Kong and Macau;

·                                 “shares” refers to our ordinary shares, par value US$0.001 per share;

·                                 “preferred shares” or “Series A preferred shares” refers to our Series A convertible and redeemable preferred shares, par value US$0.001 per share, all of which were automatically converted into ordinary shares upon the completion of our initial public offering in May 2011;

·                                 “ADRs” refers to the American depositary receipts, which, if issued, evidence our ADSs;

·                                 “ADSs” refers to our American depositary shares, every two of which represent three ordinary shares;

·                                 “platforms” refers to our Jiayuan.com website, izhenxin.com website,  jr.jiayuan.com website and jr.jiayuan.com , Jiayuan.com and qiuai.com wireless application protocol, or WAP, platforms, our Jiayuan.com, izhenxin.com, q iuyuehui, q iuai.com and jr.jiayuan.com wireless applications and our Jiayuan.com desktop client; we introduced our Jiayuan.com wireless application protocol platform in 2010, our Jiayuan.com wireless application in 2011, our Jiayuan.com desktop client in January 2012, our izhenxin.com website in October 2012 , our qiuai.com WAP platform in September 2013, our izhenxin.com wireless application in May 2014, our jr.jiayuan.com website in 2015 and our jr.jiayuan.com wireless applications in 2016, respectively;

·                                 “registered users” refers to users who have completed the registration process on one of our platforms;

·                                 “registered user accounts” refers to accounts set up by registered users, including registered users who may have set up more than one account;

·                                 “active user accounts” refers to registered user accounts through which registered users have logged-in to one of our platforms at least once within a calendar month in the case of user accounts registered in prior months, or on at least two separate days within a calendar month, including the day of completion of the registration process, in the case of user accounts newly registered in the calendar month;

·                                 “paying user accounts” refers to registered user accounts through which registered users have paid for at least a single message fee or periodic subscription fee or purchased a value-added service within a calendar month;

·                                 “personalized matchmaking services” refers to services which we previously referred to as VIP services;

·                                 “RMB” or “Renminbi” refer to the legal currency of China; and

·                                 “$,” “dollars,” “US$” or “U.S. dollars” refer to the legal currency of the United States.

This annual report on Form 20-F includes our audited consolidated statements of comprehensive income for the fiscal years ended December 31, 2013, 2014 and 2015 and audited consolidated balance sheet data as of December 31, 2014 and 2015.

We completed our initial public offering of 7,100,000 ADSs, every two ADSs representing three ordinary shares, on May 16, 2011. Our ADSs were listed on the NASDAQ Global Select Market under the symbol “DATE” on May 11, 2011.

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FORWARD-LOOKING STATEMENTS

This annual report contains forward-looking statements that are based on our current expectations, assumptions, estimates and projections about us and our industry. All statements other than statements of historical fact in this annual report are forward-looking statements. These forward-looking statements can be identified by words or phrases such as “anticipate,” “believe,” “continue,” “estimate,” “expect,” “intend,” “is/are likely to,” “may,” “plan,” “should,” “will,” or other similar expressions. The forward-looking statements included in this annual report relate to, among others:

·                                           our future business development, financial condition and results of operations;

·                                           our ability to maintain and strengthen our position as the leading provider of online dating services in China;

·                                           our ability to develop and commercialize additional online dating services;

·                                           market acceptance of our online dating services;

·                                           our various initiatives to implement our business strategies to expand our business;

·                                           competition from other online dating service providers and operators;

·                                           the expected growth of and change in the online dating services industry in China;

·                                           our ability to effectively protect our intellectual property rights and not infringe on the intellectual property rights of others; and

·                                           the PRC laws, regulations and policies relating to the Internet and Internet content providers, including online dating service providers and operators.

These forward-looking statements involve various risks and uncertainties. Although we believe that our expectations expressed in these forward-looking statements are reasonable, our expectations may turn out to be incorrect. Our actual results could be materially different from our expectations. Important risks and factors that could cause our actual results to be materially different from our expectations are generally set forth in “Item 3.D Key Information — Risk Factors” and other sections in this annual report.

The forward-looking statements made in this annual report relate only to events or information as of the date on which the statements are made in this annual report. We undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date on which the statements are made or to reflect the occurrence of unanticipated events.

This annual report also contains statistical data and estimates that we obtained from industry publications and reports generated by third-party market research firms, including a report for the purpose of providing various industry and other information and illustrating our position in the online dating industry in China prepared by iResearch at our request and commissioned by us for the purposes of our annual report, and publicly available data. Although we believe that the publications, reports and surveys are reliable, we have not independently verified the data.

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(1)   Includes share-based compensation expenses as follow:

(2)          Basic and diluted net income per ADS is computed based on net income attributable to ordinary shareholders and the corresponding basic and diluted number of ADSs, assuming that, during each period presented, every two ADSs represents three ordinary shares.

Selected Non-GAAP Consolidated Financial Data

We define non-GAAP net income as net income attributable to Jiayuan.com International Ltd. excluding share-based compensation expenses and professional fees related to the review and evaluation of previously announced proposals regarding a potential “going private” transaction and the proposed merger with LoveWorld Inc. We review non-GAAP net income together with net income attributable to Jiayuan.com International Ltd. to obtain an additional understanding of our operating performance. We also believe it is useful supplemental information for investors and analysts to assess our operating performance without the effect of non-cash share-based compensation expenses, which have been and will continue to be significant recurring expenses in our business, and professional fees related to the review and evaluation of previously announced proposals regarding a potential “going private” transaction and the proposed merger with LoveWorld Inc. which are not relevant to our operational activities. However, the use of non-GAAP net income has material limitations as an analytical tool. One of the limitations of using non-GAAP net income is that it does not include all items that impact our net income attributable to Jiayuan.com International Ltd. during the periods. In addition, because non-GAAP net income is not calculated in the same manner by all companies, it may not be comparable to other similar titled measures used by other companies. In light of the foregoing limitations, you should not consider non-GAAP net income in isolation from or as an alternative to net income attributable to Jiayuan.com International Ltd. prepared in accordance with U.S. GAAP. Our non-GAAP net income is calculated as follows for the periods presented:

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Exchange Rate Information

Our business is primarily conducted in China and a substantial majority of our revenues are denominated in Renminbi. The exchange rate refers to the exchange rate as set forth in the H.10 statistical release of the Federal Reserve Board. Unless otherwise indicated, conversions of RMB into U.S. dollars in this annual report are based on the exchange rate, as of December 31, 2015, which was RMB6.4 778 to $1.00. We make no representation that any Renminbi or U.S. dollar amounts could have been, or could be, converted into U.S. dollars or Renminbi, as the case may be, at any particular rate, the rates stated below, or at all. The PRC government imposes controls over its foreign currency reserves in part through direct regulation of the conversion of Renminbi into foreign exchange and through restrictions on foreign trade.

The following table sets forth information concerning exchange rates between the Renminbi and the U.S. dollar for the periods indicated.

(1) Annual averages are calculated by averaging the exchange rates on the last business day of each month.  Monthly averages are calculated using the average of the daily rates during the relevant period.

On May 6, 2016, the exchange rate set forth in the H.10 statistical release of the Federal Reserve Board was RMB6.4970 to $1.00.

B.                     Capitalization and indebtedness

Not applicable.

C.                     Reasons for the offer and use of proceeds

Not applicable.

D.                     Risk factors

Risks Relating to Our Business

Our limited operating history and relatively new business model in an emerging and rapidly evolving market make it difficult to evaluate our future prospects.

Our online dating business commenced in 2003.  We began charging our users message fees on our online dating platform in October 2008.  Prior to this, we generated revenues primarily from charging for non-message related value-added services, such as VIP memberships, priority search rankings and from selling advertisement space on our platform.  Accordingly, we have a limited relevant operating history from which to evaluate our business, financial performance and prospects.  Since the change in our business model in 2008, we have derived a substantial portion of our net revenues from service fees generated from online dating services.  Our online services revenue represented 85.7%, 69.3% and 60.4% of our net revenues in 2013, 2014 and 2015, respectively.  In 2013, we began offering personalized matchmaking services in cooperation with matchmaking agencies under an outsourcing model in China and we had 100 locations offering personalized matchmaking services through such arrangements in China as of December 31, 2015.  As a result, we have a short operating history under our current revenue model for you to evaluate in assessing our future prospects.  We may not be able to achieve similar results or growth in future periods.  Our business model may become obsolete due to development of other business models or technologies.  You must consider our business and prospects in light of the risks and difficulties we will encounter as a young company in a new and rapidly evolving market.  Our ability to maintain profitability primarily depends on, among other factors, the growth of the online dating industry in China, the continued acceptance of our business model by our users, our ability to generate continuing interest in our platform, our ability to provide services that meet the needs of our users and our ability to control costs and expenses.  Accordingly, you should not rely on our results of operations for any prior period as an indication of our future performance.  We may not be able to effectively assess or address the evolving risks and difficulties present in the market, which could threaten our capacity to continue operations successfully in the future.

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If our efforts to attract a large number of users, convert users into paying users and retain paying users are not successful, our operating results would suffer.

Our future growth depends on our ability to attract a large number of users, convert our users into paying users and retain our paying users.  This depends in part on our ability to deliver a high-quality online dating experience to our users and our development and introduction of enhanced services to retain our paying users.  As a result, we must invest significant resources in order to enhance our existing services and continue to introduce new services that people will use.  If we are unable to predict user preferences or industry changes, or if we are unable to modify and enhance our services on a timely basis, we may lose user interest and fail to attract new and paying users.  Our operating results would also be adversely affected if our services are not responsive to the needs of our users and paying users.

Our selling and marketing expenses may increase and if efforts to increase traffic to our platform are not successful or cost-effective, our net revenues and profitability may be materially and adversely affected.

We rely on a variety of different marketing efforts to attract traffic to our platforms and convert users into paying users.  Our marketing activities involve considerable expenditures for online and traditional offline advertising and marketing.  Our online advertising is designed to direct traffic to our platforms and includes purchased listings on various major Internet search engines in China as well as advertising on third-party websites.  Purchased listings generally are displayed if searches for a particular word are performed on a search engine.  Advertising on third-party websites includes purchasing advertising space and links to one of our platforms.  In addition, we also advertise through wireless channels, including WAP portals, application download stores and in-app advertising.  Depending on the arrangement, we pay a fixed fee when visitors to these websites click through to one of our platforms, a fee based on the volume of clicks to our platforms or a fee based on the volume of successful registrations from visitors who click through to one of our platforms.  These arrangements generally are not exclusive.  Our offline advertising includes advertising in conventional media such as television stations and print media.  To enhance our market penetration, especially among working professionals, we also advertise in subway stations.

Our selling and marketing expenses vary over time, depending upon a number of factors, many of which are beyond our control.  For example, the cost of online advertising has recently increased substantially, and we expect those costs to continue to rise as long as the demand for online advertising remains robust.  If we are not able to reduce our other operating costs, increase our paying user base or increase average revenue per user to offset such anticipated increases, our profitability may be materially and adversely affected.  In addition, our marketing activities may not be successful or cost-effective.  Existing arrangements with third parties can be terminated or allowed to lapse upon their expiration and we may not be able to replace this traffic and the related revenues.  We also may not be able to enter into new arrangements with third parties in response to industry trends, which would adversely affect our business, financial condition and results of operations.

Marketing strategies in China are evolving.  This further requires us to enhance our marketing strategies and experiment with new marketing methods to keep pace with industry developments.  Failure to refine our existing marketing activities or to introduce new effective marketing activities in a cost-effective manner could reduce our market share, cause our net revenues to decline and negatively impact our profitability.

If one or more of our users suffers, or alleges to have suffered, physical, financial or emotional harm or our dating services are misused by users, we may suffer damage to our reputation and our brand, which in turn could adversely affect our net revenues and cause the value of our ADSs to decline.

The nature of online dating is such that we cannot control the behavior of our users in their communications or physical interactions.  It is possible that one or more of our users could be physically, financially, emotionally or otherwise harmed following interaction with other users.  We warn our users to exercise caution in meetings they arrange following the use of our services or participation in our offline events, but if one or more of our users suffers or alleges to have suffered physical, financial, emotional or other harm following contact initiated on our dating services or dating services of one of our competitors, any resulting negative publicity or legal action could harm our reputation and business and may have an adverse effect on China’s online dating and dating services industry in general, potentially leading to, among other things, increased government scrutiny and regulation.  From time to time, we are subject to claims, which may include lawsuits, by users relating to incidents that have occurred after users meet each other.

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Users may also be able to circumvent the controls we have in place to prevent illegal or dishonest activities and behavior on our platforms, such as seeking payment for sexual activity and other activities that are inconsistent with our business purpose.  Users could also post fraudulent profiles or create false profiles on behalf of other non-consenting parties.

Any such incident involving our online dating services could damage our reputation and our brand.  This, in turn, could adversely affect our net revenues and could cause the value of our ADSs to decline.  In addition, the affected users could initiate legal or other actions against us, which could cause us to incur significant expenses and damage our reputation.

Negative press or public opinion about us, our management or users of our dating services may result in harm to our brand and reputation, lead to government investigations and sanctions or have a material and adverse effect on our business.

We have been the subject of allegations in media reports and Internet forums.  In particular, some media reports and comments in Internet forums have alleged that users of our Jiayuan.com platform have been subjected to fraudulent and other illegal and dishonest activities carried out by other users of the platform.  Some of our users have also been alleged to use our Jiayuan.com online platform to seek casual, non-serious relationships and to also seek and provide sexual and other activities that are inconsistent with our business purpose.  Our Jiayuan.com platform has also been alleged to contain false profiles and erroneous user activity.  While we have controls in place in an effort to limit such activities, our business and our brand and reputation may be materially and adversely affected through the dissemination of rumors, whether substantiated or not, about our business and operations in media reports, online news sites, blogs, social networking sites or other Internet forums.  Negative press or any public allegation against us, our online dating platforms , our dating services or our users, may materially and adversely harm our brand and our business. Such negative publicity or allegations, especially direct allegations against us, may also require us to engage in a defensive media campaign, which may result in an increase in our marketing expenses, divert our management’s attention and adversely impact our results of operations.  Government authorities may require us to restrict or discontinue the features and services provided by our online dating platforms and dating services. As a result, our business may suffer and our user base, revenues and profitability may be materially and adversely affected.

If we are unable to maintain and enhance our brands, we may be unable to maintain or expand our user base.

We believe that the reputation and level of market awareness for our “ 世 纪 佳 缘 ” (Shiji Jiayuan) and “ 佳 缘 ” (Jiayuan) brands have contributed significantly to the success of our business.  Maintaining and enhancing our brand recognition and reputation depends primarily on the quality and consistency of our services, as well as the success of our marketing and promotional efforts.  We believe that maintaining and enhancing our brand is critical to our efforts to attract and expand our user base.  We believe that the importance of brand recognition will continue to increase given the growing number of Internet sites and the low barriers to entry for companies to set up online dating services.  To attract and retain users, and to promote and maintain our brands in response to competitive pressures, we intend to increase our financial commitment to creating and maintaining distinct brand loyalty.  If visitors and users to our platforms do not perceive our existing services to be of high quality, or if we introduce new services that are not favorably received, the value of our brands could be diluted, thereby decreasing the attractiveness of our platforms.  While we have devoted significant resources to brand promotion efforts in recent years, we cannot assure you that our ongoing marketing efforts will be successful in further promoting our brand.  In addition, our brand image may be harmed by negative publicity relating to our company or platforms regardless of its veracity. If we are unable to further maintain and enhance our brand recognition and increase market awareness for our company and services, our ability to attract users may be harmed and our business prospects may be materially and adversely affected.

Competition presents an ongoing threat to the performance of our business and may make it difficult for us to attract and retain users.

The online dating sector in China is highly competitive.  The market is characterized by the frequent introduction of new websites and services, short website life cycles, constantly evolving trends, rapid adoption of technological advancements, as well as price-sensitive users.  We expect competition in the online dating business in China to continue to increase because there are no substantial barriers to setting up an online dating website.  We compete directly with online dating service providers such as Baihe.com , Zhenai.com and Youyuan.com .  We also compete with portals and classifieds websites that operate online dating sub-channels, such as 163.com , Ganji.com and 58.com .  In addition, we face competition from Internet portals and social networking websites such as Sina.com.cn , Sohu.com , QQ.com , Renren.com and Kaixin001.com , including applications on wireless devices from QQ.com , WeChat and Momo.  We also face competition and potential competition from overseas operators of online dating services and Internet companies that offer or seek to offer online dating services in China.

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In addition, we compete with traditional dating services, as well as newspapers, magazines and other traditional media companies that provide dating services.  We believe that our ability to compete successfully depends upon many factors both within and beyond our control, including the following:

·                   the size and diversity of our user base;

·                   the timing and market acceptance of our services, including the developments of and enhancements to those services relative to those offered by our competitors;

·                   customer service and support efforts;

·                   selling and marketing efforts; and

·                   our brand strength in the marketplace relative to our competitors.

Many of our current and potential competitors, including overseas companies that offer or seek to offer online dating services in China, have longer operating histories, significantly greater financial, technical, marketing and other resources and larger user bases than we do.  These factors may allow our competitors to respond more quickly than we can to new or emerging technologies and changes in user requirements.  These competitors may engage in more extensive technological development efforts, undertake more far-reaching marketing campaigns and adopt more aggressive pricing policies which may allow them to build larger user bases than we have.  Our competitors may develop products or services that are equal or superior to our services or that achieve greater market acceptance than our services.  These activities could attract users away from our platforms and reduce our market share.

In addition, current and potential competitors may make strategic acquisitions or establish cooperative and, in some cases, exclusive relationships with significant companies or competitors to expand their businesses or to offer more comprehensive services.  For example, an overseas operator of online dating services acquired a minority stake in one of our competitors based in the PRC.  To the extent these competitors or potential competitors establish exclusive relationships with major portals, search engines and Internet service providers, our ability to reach potential users may be restricted.  Any of these competitors could cause us difficulty in attracting and retaining users and could jeopardize our existing relationships with portals, search engines and other web properties.

If we fail to keep pace with rapid technological change, our competitive position will suffer.

We operate in a market characterized by rapidly changing technologies, evolving industry standards, new product and service announcements, product enhancements and changing user demands.  Accordingly, our performance will depend on our ability to adapt to these rapidly changing technologies and industry standards, and our ability to continually improve the speed, performance, features, ease of use and reliability of our services in response to both evolving demands of the marketplace and competitive services.  There may be occasions when we may not be as responsive as our competitors in adapting our services to changing industry standards and the needs of our users.  Our industry has been subject to constant innovation and competition.  Historically, new features may be introduced by one competitor, and if they are perceived as attractive to users, they are often copied later by others.  Over the past several years, such new feature introductions in the industry have included instant messaging, message boards, e-cards, virtual gifts, personality profiles , mobile content delivery and video dating.  In addition, the number of people who access the Internet through devices other than desktop and laptop computers, including mobile telephones, tablet computers and other handheld computing devices, has increased dramatically in the past few years, and we expect this growth to continue. Such growth can affect our results of operations as our cost of revenues increases in part due to such users paying for our services through telecommunication operators.  Payments through telecommunication operators result in an increase of the commissions that we pay to our WVAS partners because our WVAS partners charge a higher commission compared to online banking and online payment providers.

Introducing new technologies into our systems involves numerous technical challenges, substantial amounts of capital and personnel resources and often takes many months to complete.  For example, the lower resolution, functionality and memory currently associated with mobile devices may make the use of our services through such mobile devices more difficult and impair the user experience relative to access via desktop and laptop computers.  We intend to continue to devote resources to the development of additional technologies and services.  We may not be able to effectively integrate new technologies on a timely basis or at all, which may decrease user satisfaction with our online dating services.  Such technologies, even if integrated, may not function as expected or may be unable to attract and retain a substantial number of mobile device users to our online dating services.  We also may not be able to protect such technology from being used by our competitors.  Our failure to keep pace with rapid technological changes could have a material and adverse effect on our business.

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If we are unable to attract, retain and motivate key personnel or hire qualified personnel, or if such personnel do not work well together, our growth prospects and profitability will be harmed.

Our performance is largely dependent on the talents and efforts of highly skilled individuals.  As certain members of management left in 2012, we have recently recruited several members of our management, some of whom have limited experience in the online dating industry.  As members of our management have only worked together as a team for a limited time, there are inherent risks in the management of our company with respect to decision-making, business direction, product development and strategic relationships.  In the event that the members of our management team are unable to work well together or agree on operating principles, business direction or business transactions or are unable to provide cohesive leadership, our business could be harmed and one or more of those individuals may discontinue their service to our company forcing us to find a suitable replacement.  The loss of any of our management or key personnel could seriously harm our business.

Competition in our industry for personnel is intense, and we are aware that our competitors have directly targeted our employees and that there are former employees of ours currently working for our competitors.  While we have entered into non-competition agreements with our executive officers and many of our non-executive employees, we cannot assure you that the non-competition restrictions in these agreements will be effective or enforceable under PRC law.  We also do not maintain key-person insurance policies on our executive officers.  The incentives to attract, retain and motivate employees provided by our option grants, restricted shares or by future arrangements, such as cash bonuses, may not be as effective as they have been in the past.  If we do not succeed in attracting necessary personnel or retaining and motivating existing personnel, we may be unable to grow effectively. In addition, if any of our management or employees joins a competitor or forms a competing company, we may lose know-how, clients and key professionals and staff members.

We have re-priced, and may continue to re-price, our outstanding stock options granted to our directors and employees, any of which may result in increased share-based compensation expenses.

In July 2012, in order to help retain key personnel under then-current market conditions, our board of directors approved the amendment of certain option awards granted under our 2007 Amended and Restated Share Incentive Plan. We cancelled and replaced the awards with awards that have a lower exercise price and fewer underlying shares. In October 2014, we adjusted the exercise price of our outstanding stock options in order to take into account the special cash dividend we declared in September 2014.  As the trading price of our ADSs fluctuates, we cannot assure you that we will not continue to reduce the exercise price of our outstanding options granted under the existing equity incentive plan or other equity incentive plans that may be adopted in the future. Should we reduce the exercise price of our outstanding options, our share-based compensation expenses may increase and our operating results may be adversely affected.

Our inability to effectively manage our growth could materially and adversely affect our profitability.

The growth and expansion of our business and services place a continuous significant strain on our management, operational and financial resources.  We are required to manage multiple relationships with various strategic associates, technology licensors, users and other third parties.  In the event of further growth of our operations or in the number of our third-party relationships, our computer systems or procedures may not be adequate to support our operations and our management may not be able to manage this growth effectively.  To effectively manage our growth, we must continue to implement and improve our operational, financial and management information systems and to expand, train and manage our employee base.  If we fail to do so, our management, operational and financial resources could be overstrained and adversely impacted.

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Our business depends on our server and network hardware and software and our ability to obtain network capacity; if our current systems safeguards are unable to prevent an interruption in the availability of our services, our reputation and brand may be adversely affected and our net revenue may be reduced.

The performance of our server and networking hardware and software infrastructure is critical to our business and reputation, to our ability to attract visitors and users to our platforms, to convert users into paying users and to retain paying users.  An unexpected or substantial increase in the use of our platforms could strain the capacity of our systems, which could lead to a slower response time or systems failures.  We have in the past experienced delays due to hacking activities.  Any future slowdowns or systems failures could adversely affect the speed and responsiveness of our platforms and would diminish the experience for our visitors and users.  We face risks related to our ability to scale up to our expected user levels while maintaining superior performance.  If the usage of our platforms substantially increases, we may need to purchase additional servers and networking equipment and services to maintain adequate data transmission speeds, the availability of which may be limited or the cost of which may be significant.  Any systems failure that causes an interruption in service or a decrease in the responsiveness of our platforms could reduce traffic on our platforms and, if sustained or repeated, could impair our reputation and the attractiveness of our brands as well as reduce net revenue and negatively impact our operating results.

Furthermore, we rely on many different hardware systems and software applications, some of which have been developed internally.  If these hardware systems or software applications fail, it would adversely affect our ability to provide our services.  If we are unable to protect our data from loss or electronic or magnetic corruption, or if we receive a significant unexpected increase in usage and are not able to rapidly expand our transaction-processing systems and network infrastructure without any systems interruptions, it could seriously harm our business and reputation.  We have experienced occasional systems interruptions in the past, and we cannot assure you that we will not experience similar or more serious interruptions in the future.  From time to time, our company and our platforms have been subject to delays and interruptions due to software viruses, or variants thereof, such as internet worms.  To date, we have not experienced delays or systems interruptions that have had a material impact on our business.

In addition, while we have backup systems and disaster recovery systems in place, we may be unable to serve our web traffic for a significant period of time in the event of a catastrophic failure involving our platforms.  Our business is therefore susceptible to earthquakes and other catastrophic events, including acts of terrorism.  Our servers operate from three sites in close proximity to one another in Beijing and the absence of a redundant network in a different location could exacerbate this disruption.  Any systems failure, including network, software or hardware failure, that causes an interruption in the delivery of our platforms and services or a decrease in responsiveness of our platforms would result in reduced visitor traffic, reduced net revenue and would adversely affect our reputation and brands.

We rely on third-party advertising service providers and their failure or unwillingness to effectively provide services to us could harm us by increasing our costs and reducing our operating margins.

We rely on third-party advertising service providers, such as Baidu and Qihoo, that help market our services.  Any failure of these third parties to provide their services could significantly harm our business.  The steps we take to improve the marketing of our services will increase our cost and reduce our operating margins and may not be successful.  Furthermore, any financial or other difficulties these providers face, the nature and extent of which we cannot predict, may adversely affect our business.  Except for certain rights in our contracts with these third-party service providers, we exercise little or no control over them, which increases our vulnerability to problems with the services that they provide.

We are required to estimate a portion of our reported revenues and cost of revenues at period-end, which may require adjustments once we receive billing statements from WVAS partners, which may require subsequent adjustments to our financial statements.

We do not directly bill our users that elect to pay for our online services through their telecommunication operators.  Instead, we depend on wireless value-added services, or WVAS, partners, to record the sales volume, bill our users, collect payments from the Internet and telecommunication operators and remit to us our portion of the revenues.  In the years ended December 31, 2013, 2014 and 2015, revenue remitted from WVAS partners accounted for approximately 33.4%, 35.9% and 33.8%, respectively, of our online revenues.

Due to our past experience with the timing of receipt of the monthly statements provided by our WVAS partners, we rely on our own internal estimates for the portion of our reported revenues and cost of revenues attributable to our WVAS partners and are required to make adjustments when we actually receive the monthly billing statements from these partners if such statements are materially different from our estimates.  Historically, there have been no significant differences between our estimates and our WVAS partners’ billing statements.  To the extent that our WVAS partners require longer periods of time to send us monthly billing statements, we may not be able to make any adjustment prior to releasing our period-end results and we cannot assure you that any adjustment which we subsequently make would not be material.

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Furthermore, our WVAS partners collect user fees from telecommunication operators, such as China Mobile, China Unicom and China Telecom.  Our WVAS partners’ relationships with these telecommunication operators could in turn impact our business.  Any loss or deterioration of our WVAS partners’ relationships with telecommunication operators may affect our ability to collect fees from our users, which would have an adverse effect on our cash flows and any write-off of receivables would affect our results of operations.

If we fail to maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results or prevent fraud.  As a result, current and potential shareholders could lose confidence in our financial reporting, which would harm the value of our ADSs.

Effective internal controls are necessary for us to provide reasonable assurance with respect to our financial reports and to prevent fraud. We are required to comply with U.S. laws, rules and regulations on internal controls, including the Sarbanes-Oxley Act of 2002. In particular, Section 404 of the Sarbanes-Oxley Act of 2002 requires that we include a report of management on our internal control over financial reporting in our annual reports on Form 20-F that contains an assessment by our management of the effectiveness of our internal control over financial reporting. In addition, our independent registered public accounting firm must issue an auditor’s report on the effectiveness of our internal control over financial reporting.

Internal controls may not prevent or detect misstatements because of their inherent limitations, including the possibility of human error, the circumvention or overriding of controls, or fraud. In addition, projections of any evaluation of the effectiveness of our internal control over financial reporting to future periods are subject to the risk that controls may become inadequate because of changes in operating conditions or a deterioration in the degree of compliance with our policies or procedures. As a result, even effective internal controls are able to provide only reasonable assurance with respect to the preparation and fair presentation of financial statements. If we fail to maintain the adequacy of our internal control over financial reporting, our management may not be able to conclude on an ongoing basis that we have effective internal control over financial reporting. Moreover, even if our management concludes that our internal control over financial reporting is effective, our independent registered public accounting firm may disagree. If our independent registered public accounting firm is not satisfied with our internal control over financial reporting or the level at which our controls are designed or operated, or if the independent registered public accounting firm interprets the requirements, rules or regulations differently from us, it may decline to express an opinion on the effectiveness of our internal control over financial reporting or may issue an adverse opinion. Any of these possible outcomes could result in a loss of investor confidence in the reliability of our consolidated financial statements, which could cause the market prices of our ADSs to decline significantly. In addition, any deficiency in our internal control over financial reporting could expose us to increased risk of fraud or misuse of corporate assets and subject us to potential delisting from the Nasdaq Global Select Market, regulatory investigations and civil or criminal sanctions.

Future strategic alliances or acquisitions may have a material and adverse effect on our business, reputation and results of operations.

We have in the past and may in the future enter into strategic alliances with various third parties.  Strategic alliances with third parties could subject us to a number of risks, including risks associated with sharing proprietary information, non-performance by the counterparty and an increase in expenses incurred in establishing new strategic alliances, any of which may materially and adversely affect our business.  We may have little ability to control or monitor their actions and to the extent strategic third parties suffer negative publicity or harm to their reputation from events relating to their business, we may also suffer negative publicity or harm to our reputation by virtue of our association with such third parties.

In addition, if we become aware of appropriate opportunities, we may acquire additional assets, technologies or businesses that are complementary to our existing business, such as our acquisition of certain assets of Beijing Juedui100 Network Technologies Ltd., or Beijing Juedui100 , and our investment in Wuhan Didi Network Technologies Ltd., or Wuhan Didi.  Future acquisitions and the subsequent integration of new assets and businesses into our own would require significant attention from our management and could result in a diversion of resources from our existing business, which in turn could have an adverse effect on our business operations.  Acquired assets or businesses may not generate the financial results we expect.  In addition, acquisitions could result in the use of substantial amounts of cash, potentially dilutive issuances of equity securities, the incurrence of debt, the occurrence of significant goodwill impairment charges, amortization expenses for other intangible assets and exposure to potential unknown liabilities of the acquired business.  Moreover, the costs of identifying and consummating acquisitions may be significant.  In addition to possible shareholders’ approval, we may also have to obtain approvals and licenses from the government authorities in the PRC for the acquisitions and comply with applicable PRC laws and regulations, which could result in increased costs and delays.

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If we are unable to protect our Internet domain names or proprietary rights upon which our business relies or to avoid claims that we infringe upon the proprietary rights of others, our profitability may be materially and adversely affected.

We regard substantial elements of our platforms and the underlying technology as proprietary, and attempt to protect them by relying on copyright, service mark, trademark and trade secret laws as well as restrictions on disclosure, transferring title and other methods.  Contracts with our employees and consultants generally contain confidentiality provisions, and we generally seek to control access to and the distribution of our technology, documentation and other proprietary information.  We also enter into agreements with key employees and officers, pursuant to which our key employees and officers assign to us the intellectual property rights in works generated by them as a result of their employment duties or from our resources while they are employed by us.  Despite these precautions, it may be possible for a third party to copy or otherwise obtain and use our proprietary information without authorization, or to develop similar or superior technology independently.  Copyright, service mark, trademark and trade secret protection may not be effective and policing unauthorized use of our proprietary information is difficult.  In addition, if our applications for our key trademarks or other intellectual property rights are unsuccessful or a third party is able to register them, we may lose our ability to use our key trademarks and be unable to prevent others from using similar or identical trademarks.  Any such misappropriation or development of similar or superior technology by third parties could adversely impact our profitability and our future financial results. Losing the right to use our key trademarks or other proprietary rights for any reason may adversely affect our ability to maintain and protect our brands.

We believe that our platforms, services and other proprietary technologies do not infringe upon the rights of third parties.  However, there can be no assurance that our business activities do not and will not infringe upon the proprietary rights of others, or that other parties will not assert infringement claims against us.  From time to time and in the ordinary course of business, we have been, and expect to continue to be, subject to claims of alleged infringement of the copyrights, service marks and other intellectual property rights of third parties.  Although such claims have not resulted in any significant litigation or had a material adverse effect on our business to date, any such claims and resultant litigation might subject us to temporary injunctive restrictions on the use of our services or brand names and could result in significant liability for damages for intellectual property infringement, require us to enter into royalty agreements, or restrict us from using infringing software, services, trademarks or technologies in the future.  Even if not meritorious, such litigation could be time-consuming and expensive and could result in the diversion of management’s time and attention away from our day-to-day business.

We currently hold various domain names relating to our brands and in the future may acquire new web domain names.  The regulation of domain names in China and in foreign countries is subject to change.  Governing bodies may establish additional top level domains, appoint additional domain name registrars or modify the requirements for holding domain names.  As a result, we may be unable to acquire or maintain relevant domain names.  Furthermore, the relationship between regulations governing domain names and laws protecting trademarks and similar proprietary rights are unclear.  We may be unable to prevent third parties from acquiring domain names that are similar to, infringe upon or otherwise decrease the value of our existing trademarks and other proprietary rights or those we may seek to acquire.  Any such inability to protect ourselves could cause us to lose a significant portion of our users to our competitors.

We may face potential liability, loss of users and damage to our reputation for any failure or alleged failure to protect the confidential information of our users.

Our user database holds confidential information concerning our users.  We may be unable to prevent third parties, such as hackers or criminal organizations, from stealing information provided by our users to us through our platforms.  Confidential information of our users may also be misappropriated or inadvertently disclosed through employee misconduct or mistake.  We may also in the future be required to disclose to government authorities certain confidential information concerning our users.

In addition, many of our users pay for our services through third-party online payment services.  In such transactions, maintaining complete security during the transmission of confidential information, such as personal information, is essential to maintaining consumer confidence.  We have limited influence over the security measures of third-party online payment service providers.  In addition, our third-party merchants may violate their confidentiality obligations and disclose information about our users.  Any compromise of our security or third-party service providers’ security could have a material adverse effect on our reputation, business, prospects, financial condition and results of operations.

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If we are accused of failing to protect the confidential information of our users, we may be forced to expend significant financial and managerial resources in defending against these accusations and we may face potential liability.  Any negative publicity may adversely affect our public image and reputation.  In order to strengthen our security protocols to protect user information, we may from time to time introduce increasingly more complex registration and log-in procedures, requiring users to input more information which may negatively impact our user acquisition and user retention. In addition, any perception by the public that online commerce is becoming increasingly unsafe or that the privacy of user information is vulnerable to attack could inhibit the growth of online services generally, which in turn may reduce the number of our users.

Our quarterly results may fluctuate because of a number of factors, including seasonality, and, as a result, investors should not rely on quarterly operating results as indicative of future results.

Fluctuations in operating results or the failure of operating results to meet the expectations of public market analysts and investors may negatively impact the value of our ADSs.  Quarterly operating results may fluctuate in the future due to a variety of factors that could affect net revenues or expenses in any particular quarter.  Fluctuations in quarterly operating results could cause the value of our ADSs to decline.  Investors should not rely on quarter-to-quarter comparisons of results of operations as an indication of future performance.  Factors that may affect our quarterly results include:

·                   the demand for, and acceptance of, our online dating services and enhancements to these services;

·                   the introduction, development, timing, competitive pricing and market acceptance of our platforms and services and those of our competitors;

·                   the magnitude and timing of marketing initiatives and capital expenditures relating to expansion of our operations;

·                   the cost and timing of online and offline advertising and other marketing efforts;

·                   the maintenance and development of relationships with portals, search engines, Internet service providers and other web properties and other entities capable of attracting potential and paying users to our platforms;

·                   technical difficulties, systems failures, systems security breaches, or downtime of the Internet, in general, or of our services, in particular;

·                   costs related to any acquisitions or dispositions of technologies or businesses; and

·                   general economic conditions, as well as those specific to the Internet, online dating and related industries.

In addition, we experience seasonality in our businesses.  We generally experience lower user traffic and acquire fewer new users for our online dating services and hold fewer offline events during winter and the major national holidays in China, such as the Chinese New Year holidays, which fall in January or February, and the National Day holidays, which fall in the beginning of October.

As a result of the foregoing factors and because the online dating business is still immature, making it difficult to predict consumer demand, it is possible that in future periods results of operations may be below the expectations of public market analysts and investors.  This could cause the market price of our ADSs to decline.

We have a history of net losses prior to 2009 and may experience earnings declines or losses in the future.

We incurred net losses in all periods prior to 2009.  We cannot assure you that we can sustain profitability or avoid net losses in the future.  Although we experienced revenue growth in recent periods, such growth rates may not be sustainable and may decrease in the future.  In addition, our ability to be profitable depends on our ability to control our costs and operating expenses, which we expect will increase as we expand our business.  We incurred in the past and expect to continue to incur in future periods certain share-based compensation expenses, which will reduce our net income and may result in future losses.  If we fail to increase net revenues at the rate we anticipate or if our costs and operating expenses increase without a commensurate increase in our net revenues, our business, financial condition and results of operations will be negatively affected.

We may need additional capital to finance our growth or to compete, which may cause dilution to existing shareholders or limit our flexibility in conducting our business activities.

We believe that our current cash and cash equivalents and anticipated cash flow from operations will be sufficient to meet our anticipated cash needs, including for working capital and capital expenditures, for at least the next 12 months.  We may need to raise additional capital in the future to fund expansion, whether in new vertical affinity or geographic markets, to develop newer or enhanced services, respond to competitive pressures or acquire complementary businesses, technologies or services.  Such additional financing may not be available on terms acceptable to us or at all.  To the extent that we raise additional capital by issuing equity securities, our shareholders may experience substantial dilution, and to the extent we engage in debt financing, if available, we may become subject to restrictive covenants that could limit our flexibility in conducting future business activities.  If additional financing is not available or not available on acceptable terms, we may not be able to fund our expansion, promote our brands, take advantage of acquisition opportunities, develop or enhance services or respond to competitive pressures.

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We have limited experience in cooperating with matchmaking agencies, and our efforts to expand our personalized matchmaking services across China through matchmaking agencies may not be successful and could impair the value of our brands and our results of operations.

We began offering our personalized matchmaking services in cooperation with matchmaking agencies under an outsourcing model beginning in May 2013 and we had 100 locations offering personalized matchmaking services through such arrangements in China as of December 31, 2015.  Under these cooperation arrangements, we sign the service contracts with the personalized matchmaking clients and the clients also pay us directly while the services are provided by matchmaking agencies under our close supervision.  Prior to May 2013, we had no experience operating through such arrangements with matchmaking agencies, and we can provide no assurance that these arrangements will be successful. We expect to increase these types of arrangements to expand into less developed markets in China. The effect of such cooperation arrangements on our business and results of operations is uncertain and depends upon a variety of factors, including the demand for our services in new local markets and our ability to successfully identify and work with appropriate matchmaking agencies. The matchmaking agencies with whom we enter into such arrangements have certain flexibility in running their operations and their employees are not our employees. To the extent that the matchmaking agencies with whom we enter into such arrangements do not provide services in a manner consistent with our requirements regarding our brands and customer service standards, the value of our brands could suffer. Failure to protect the value of our brands or any other harmful acts or omissions from matchmaking agencies with whom we enter into such arrangements could adversely affect our results of operations and our reputation.  In addition, we also substantially rely on them to gauge market demand.

Furthermore, our arrangements with matchmaking agencies typically have a one-year term, and the matchmaking agencies with whom we enter into such arrangements may not be willing or able to renew their arrangements with us. If we are unable to renew such arrangements, our results of operations and financial condition may suffer.

We have limited experience in operating an internet finance business.

We commenced our internet finance business in 2015.  Expansion in this new business area involves new risks and challenges.  Our lack of familiarity with this new business may make it difficult for us to anticipate the demands and trends in the market and offer products that meet evolving demands and trends.  In addition, we may also be unable to successfully identify new products and service opportunities or develop and introduce new products and service opportunities in a timely or cost-effective manner.  There is no assurance that our efforts in the internet finance business will result in satisfactory results or have a positive effect on our results of operations.

The laws and regulations governing the internet finance business in China are developing and evolving and subject to changes.

Due to the relatively short history of the internet finance industry in China, the PRC government has not adopted a clear regulatory framework governing the internet finance industry.  As a result, substantial uncertainties exist regarding the evolution of the regulatory system and the interpretation and implementation of current and future PRC laws and regulations applicable to the internet finance services industry.  If new PRC internet financing regulations promulgated in the future require us to comply with additional requirements in order to continue to conduct any aspect of our business operations, we may not be able to comply in a timely fashion, or at all. For instance, on December 28, 2015, the China Banking Regulatory Commission published a discussion draft of the proposed Interim Administrative Measures for the Business Activities of P2P Lending Information Intermediaries , or the Draft P2P Measures, which was intended to further strengthen the administration of peer-to-peer lending services, one of a mostly commonly seen internet financing type. Pursuant to the Draft P2P Measures, operators providing peer-to-peer lending services via internet, are required to go through record-filing and registration with the local financing regulatory department and obtain appropriate telecommunication business operation license from competent telecommunication departments. In addition, we cannot guarantee that our current practices comply with regulations that may be promulgated in the future, and we may be required to change our business practices, fined or penalized by regulators, or ordered to cease operations due to any non-compliance in the future.  If any of these situations occur, our business, financial condition and prospects would be materially and adversely affected.

We do not have insurance coverage and thus may incur substantial costs in the event of any business interruption, litigation or natural disaster.

As the insurance industry in China is still in an early stage of development, insurance companies in China currently offer limited business insurance products.  We do not have any business liability, loss of data or disruption insurance coverage for our operations in China.  Any business disruption, litigation or natural disaster might result in our incurring substantial costs and the diversion of our resources.

Potential intellectual property rights infringement claims against us may materially affect our business and results of operations.

We could face claims by others that we are improperly using intellectual property owned by them or otherwise infringing upon their rights in intellectual property, including using unlicensed software.  Although we take measures to ensure that we obtain licenses with respect to the intellectual property we use, we cannot assure you that we will not be subject to infringement claims, including due to our failure to obtain necessary licenses.  Irrespective of the validity or the successful assertion of such claims, we could incur costs in either defending or settling any intellectual property disputes alleging infringement and the defense of these claims would be both costly and time-consuming, and could significantly divert the efforts and resources of our management and technical personnel.  Furthermore, an adverse determination in any such litigation or proceedings to which we may become a party could cause us to pay monetary damages, seek licenses from third parties on unfavorable terms, pay ongoing royalties or be restricted by injunctions.  Any of these factors could prevent or restrict us from pursuing some or all of our business and materially adversely affect our business and results of operations.

Our efforts to capitalize upon opportunities to expand into new services may fail and could result in a loss of capital and other valuable resources.

                One of our growth strategies is to expand into new services to increase our revenue base.  We intend to target identifiable groups of people who share common interests and the desire to meet other individuals with similar interests, backgrounds or traits.  We have also developed map-based search services and wireless applications which utilize location-based services to make it easier and more convenient for our users to find potential matches on our platforms.  In 2013, w e began offering our personalized matchmaking services in cooperation with matchmaking agencies in China.  Our planned expansion into new services will occupy our management’s time and attention and will require us to invest significant capital resources.  The results of our expansion efforts into new services are unpredictable and there is no guarantee that our efforts will have a positive effect on our revenue base.  We face many risks associated with our planned expansion into new services, including but not limited to the following possibilities:

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·                                           competition from pre-existing competitors with significantly stronger brand recognition in the markets we enter;

·                                           our erroneous evaluations of the potential of such markets;

·                                           diversion of capital and other valuable resources away from our core business;

·                                           foregoing opportunities that are potentially more profitable; and

·                                           weakening our current brands by over expansion into too many new markets.

We have a limited history of operating these new businesses, which makes predicting our future results of operations more difficult than it otherwise would be.  Therefore, our past results of operations should not be taken as indicative of our future performance.  Our ability to achieve satisfactory financial results in these new businesses is unproven.

Risks Relating to Our Industry

Our network is vulnerable to security breaches and inappropriate use by users, which could disrupt or deter future use of our services.

Concerns over the security of transactions conducted on the Internet and the privacy of users may inhibit the growth of the Internet and other online services generally, and online dating services like ours, in particular.  To date, we have not experienced any material breach of our security systems.  However, our failure to effectively prevent security breaches could significantly harm our business, reputation and results of operations and could expose us to lawsuits and sanctions by governmental authorities in the jurisdictions in which we operate, and by our users.  Anyone who is able to circumvent our security measures could misappropriate proprietary information, including the personal data of our users, and cause interruptions in our operations or damage our brand and reputation.  Such breach of our security measures could involve the disclosure of personal information and could expose us to a material risk of litigation, liability or governmental enforcement proceeding.  We cannot assure you that our financial systems and other technology resources are completely secure from security breaches or sabotage, and we have occasionally experienced security breaches and attempts at hacking.  We may be required to incur significant additional costs to protect against security breaches or to alleviate problems caused by such breaches.  Any well-publicized compromise of our security or the security of any other platform could deter people from using our services or the Internet to conduct transactions that involve transmitting confidential information or uploading personal information, which could have a detrimental impact on our potential user base.

Computer viruses may cause delays or other service interruptions and could damage our reputation, affect our ability to provide our services and adversely affect our revenues.  The inadvertent transmission of computer viruses could also expose us to a material risk of loss or litigation and possible liability.  Moreover, if a computer virus affecting our system were highly publicized, our reputation could be significantly damaged, resulting in the loss of current and future users and paying members.

Interruptions, delays or capacity problems on our computer and telecommunications infrastructure may have a material and adverse effect on our revenue.

Our services are dependent upon the use of the Internet and telephone and broadband communications to provide high-capacity data transmission without systems downtime.  There have been instances where regional and national telecommunications outages in China have caused us, and other Internet businesses, to experience systems interruptions, including the temporary cessation of corporate use of short messaging services provided by telecommunications carriers.  Any additional interruptions, delays or capacity problems experienced with telephone or broadband connections could adversely affect our ability to provide services to our customers.  The temporary or permanent loss of all, or a portion, of the telecommunications system could cause disruption to our business activities and result in a loss of revenue.  Additionally, the telecommunications industry in China is subject to strict regulatory control.  Changes in current regulations, which could affect our telecommunications providers, could disrupt or adversely affect the profitability of our business.

In addition, if any of our current agreements with telecommunications providers were terminated, we may not be able to replace any terminated agreements with equally beneficial agreements.  There can be no assurance that we will be able to renew any of our current agreements when they expire or, if we are able to do so, that such renewals will be available on acceptable terms.  We also do not know whether we will be able to enter into additional agreements or that any relationships, if entered into, will be on terms favorable to us.

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Our business depends, in part, on the stability of the Internet, and our ability to provide services to our users may be limited by outages, interruptions and diminished capacity in the Internet.

Our performance will depend, in part, on the continued stability of the Internet.  This includes maintenance of a reliable network backbone in China with the necessary speed, data capacity and security for providing reliable Internet services.  Internet infrastructure may be unable to support the demands placed on it if the number of Internet users continues to increase or if existing or future Internet users access the Internet more often or increase their bandwidth requirements.  In addition, viruses, worms and similar programs may harm the performance of the Internet.  We have no control over the third-party telecommunications, cable or other providers of access services to the Internet that our users rely upon.  There have been instances where regional and national telecommunications outages have caused us to experience service interruptions during which our users could not access our services. Any additional interruptions, delays or capacity problems experienced with any points of access between the Internet and our users could adversely affect our ability to provide services reliably to our users.  The temporary or permanent loss of all or a portion of our services on the Internet, the Internet infrastructure generally or our users’ ability to access the Internet could disrupt our business activities, harm our business reputation and result in a loss of revenue.  Additionally, the Internet, electronic communications and telecommunications industries are subject to national, provincial, municipal and foreign governmental regulation.  New laws and regulations governing such matters could be enacted or amendments may be made to existing regulations at any time that could adversely impact our services.  Any such new laws, regulations or amendments to existing regulations could disrupt or adversely affect the profitability of our business.

We may be liable as a result of information retrieved from or transmitted over the Internet.

We may be sued for defamation, negligence, copyright or trademark infringement, invasion of privacy or personal injury, or under other legal theories, relating to information that is published or made available through our platform and the other sites linked to it.  These types of claims have been brought, sometimes successfully, against online services in the past.  We also offer various messaging services, which may subject us to potential risks, such as liabilities or claims resulting from unsolicited messages, or spamming, lost or misdirected messages, security breaches, illegal or fraudulent use of personal information or interruptions or delays in the delivery of messages.  We do not have insurance coverage of these types of claims.  In addition, we could incur significant costs in investigating and defending such claims, even if we ultimately are not held liable.  If any of these events occurs, our revenues could be materially and adversely affected or we could incur significant additional expense, and the market price of our ADSs may decline.

Our business, financial condition and results of operations may be adversely affected by the downturn in the global or Chinese economy.

The global financial markets have experienced significant disruptions since 2008.  China’s economy has also faced challenges.  To the extent that there have been improvements in some areas, it is uncertain whether such recovery is sustainable. Since we derive substantially all of our net revenues from users in China, our business and prospects may be affected by economic conditions in China.  A slowdown in China’s economy may lead to a reduced amount of personal spending on dating services, which could materially adversely affect our financial condition and results of operations.

Moreover, a slowdown in the global or Chinese economy or the recurrence of any financial disruptions may have a material and adverse impact on financings available to us.  The weakness in the economy could erode investors’ confidence, which constitutes the basis of the equity markets.  The recent turmoil in the financial markets may significantly restrict our ability to obtain financing in the capital markets or from financial institutions on commercially reasonable terms, or at all.  Although we are uncertain about the extent to which the recent global financial and economic crisis and slowdown of the Chinese economy may impact our business in the short term and long term, there is a risk that our business, results of operations and prospects will be materially adversely affected by the ongoing global economic downturn or the slowdown of the Chinese economy.

Risks Relating to Regulation of Our Business and to Our Structure

If the PRC government finds that the agreements that establish the structure for operating our China business do not comply with restrictions on foreign investment in the online dating services and internet financing industry , the prohibitions on foreign investment in the online gaming industry and the prohibition on privately funded non-enterprise institutions from engaging in profit-making business operations, we could be subject to severe penalties, including discontinuation of our operations.

Under the Regulations for the Administration of Foreign-invested Telecommunications Enterprises , or the FITE Regulations, foreign ownership of companies that provide value-added telecommunication services, including online dating services and internet financing services, is limited to 50%.  Hence, foreign enterprises and wholly foreign-owned enterprises are currently not able to apply for the licenses required to operate online dating services and internet financing services in China.  In addition, foreign investors are prohibited from investing in online gaming industries under the Guidance Catalogue of Industries for Foreign Investment promulgated in 2015.  Since we are a Cayman Islands exempted company and therefore are a foreign enterprise under PRC law, neither we nor our PRC subsidiaries are eligible to hold a license to operate online dating services, internet financing services or online gaming businesses in China.  In order to comply with the foreign ownership restrictions and prohibitions, we operate our online dating businesses in China through Shanghai Huaqianshu Information Technology Co., Ltd., or Shanghai Huaqianshu, Beijing Huaqianshu Information Technology Co., Ltd., or Beijing Huaqianshu, Beijing Aizhenxin Information Technology Co., Ltd., or Beijing Aizhenxin, Beijing Shiji Xique Information Technology Co., Ltd., or Xique, and Beijing Youyue Hudong Information Technology Co., Ltd., or Beijing Youyue Hudong, our internet financing services through Shanghai Tengwan, and our online gaming business through Shanghai Huaqianshu, each of which is wholly owned by individual shareholders all of whom are PRC citizens, or by our VIE entities.  Our VIE entities hold the licenses and approvals that are required to operate our online dating businesses, Shanghai Huaqianshu holds the internet cultural operating license required to operate our online gaming business, and Shanghai Tengwan is in the process of applying for the ICP license for operation of our internet financing services and Beijing Miyuan Information Technology Co., Ltd., or Beijing Miyuan, has entered into a series of contractual arrangements with our VIE entities, including Shanghai Huaqianshu, and/or their respective shareholders.   As a result of these contractual arrangements, we are considered the primary beneficiary of our VIE entities and their subsidiaries and consolidate the results of operations of our VIE entities and their subsidiaries in our financial statements.  For a description of these contractual arrangements, see “Item 4.  Information on the Company — C. Organizational Structure.”

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In July 2006, the Ministry of Information Industry, or MII, issued the Circular on Strengthening the Administration of Foreign Investment in Value-added Telecommunication Services , or the MII Circular 2006.  According to the MII Circular 2006, a domestic company that holds a telecommunications value-added services operation license is prohibited from leasing, transferring or selling the license to foreign investors in any form, and from providing any assistance, including providing resources, sites or facilities, to foreign investors that conduct value-added telecommunications business illegally in China, and any domain name or registered trademark used in value-added telecommunication business operations should be directly owned by the telecommunication business operator or its shareholders.  The MII Circular 2006 also provides that the operational site and facilities of a value-added telecom carrier must be within the scope prescribed by the operating licenses obtained by the carrier and must correspond to the value-added telecom services that the carrier has been approved to provide.  Value-added telecom carriers are also required to establish or improve measures to ensure network security.  As to the companies which have obtained the operating licenses for value-added telecom services, they are required to conduct a self-examination and self-correction according to the above requirements and report the results of such self-examination and self-correction to the provincial branches of the MII.  As some of the trademarks that we use in our operations are not owned by our PRC operating companies or their shareholders, we may be in violation of the provisions of the MII Circular 2006.  As a result, we may be subject to various penalties, including fines and the discontinuation of, or restrictions on, our operations.

In addition, in October 1998, the PRC State Council promulgated the Provisional Regulations for the Registration Administration of Privately Funded Non-enterprise Institutions , or the Privately Funded Non-enterprise Institutions Regulation. According to the Privately Funded Non-enterprise Institutions Regulation, privately funded non-enterprise institutions may not engage in profit-making business operations, and lawful income accrued from their activities can only be used for business operations prescribed by their articles of association.  We have established a privately funded non-enterprise entity under the supervision of the Shanghai Yangpu District Bureau of Civil Affairs, Shanghai Shiji Jiayuan Matchmaking Service Center, or Jiayuan Shanghai Center, whose business scope includes marriage agency services, through which we operate some of our personalized matchmaking services.  Jiayuan Shanghai Center has entered into a series of contractual arrangements with Beijing Miyuan pursuant to which Jiayuan Shanghai Center agreed to pay service fees equal to a certain percentage of Jiayuan Shanghai Center’s annual revenues to Beijing Miyuan in exchange for technology services from Beijing Miyuan.  See “Item 4. Information on the Company.  C. Organizational Structure.”

In September 2009, the General Administration of Press and Publication, Radio, Film and Television, or GAPPRFT (formerly known as the General Administration of Press and Publication or GAPP), promulgated the Circular Regarding the Implementation of the Department Reorganization Regulation by the State Council and the Relevant Interpretation by the State Commission Office for Public Sector Reform to Further Strengthen the Administration of Pre-approval on Online Games and Approval on Import Online Games , or the GAPP Circular, which provides that foreign investors shall not control or participate in PRC online gaming businesses indirectly or in a disguised manner such as by establishing joint venture companies or entering into relevant agreements with, or by providing technical support to, PRC online gaming operation companies.  It is not clear whether the regulatory authority of GAPPRFT applies to the regulation of ownership structures of companies operating online gaming businesses in China.  Other government agencies that have regulatory jurisdiction over online gaming operations in China, such as the Ministry of Culture, or the MOC, and t he Ministry of Industry and Information Technology, or MIIT, the successor of MII, did not join GAPP in issuing the GAPP Circular.  To date, the GAPPRFT has not issued any interpretation of the GAPP Circular.  It is not yet clear how this GAPP Circular will be implemented.

In August 2011, the Ministry of Commerce, or MOFCOM, promulgated the Rules of the Ministry of Commerce on the Implementation of the Security Review System for Mergers and Acquisitions of Domestic Enterprises by Foreign Investors , or the MOFCOM Security Review Rules, to implement the Notice of the General Office of the State Council on Establishing the Security Review System for Mergers and Acquisitions of Domestic Enterprises by Foreign Investors promulgated on February 3, 2011, or Circular No. 6. The MOFCOM Security Review Rules came into effect on September 1, 2011 and replaced the Interim Provisions of the Ministry of Commerce on Matters Relating to the Implementation of the Security Review System for Mergers and Acquisitions of Domestic Enterprises by Foreign Investors promulgated by MOFCOM in March 2011. According to these circulars and rules, a security review is required for mergers and acquisitions by foreign investors having “national defense and security” concerns and mergers and acquisitions by which foreign investors may acquire the “de facto control” of domestic enterprises having “national security” concerns. In addition, when deciding whether a specific merger or acquisition of a domestic enterprise by foreign investors is subject to the security review, MOFCOM will look into the substance and actual impact of the transaction. The MOFCOM Security Review Rules further prohibit foreign investors from bypassing the security review requirement by structuring transactions through proxies, trusts, indirect investments, leases, loans, control through contractual arrangements or offshore transactions. There is no explicit provision or official interpretation stating that our online dating business falls into the scope subject to the security review, and there is no requirement for foreign investors in those mergers and acquisitions transactions already completed prior to the promulgation of Circular No. 6 to submit such transactions to MOFCOM for security review. As we have already obtained the “de facto control” over our variable interest entities, or VIEs, prior to the effectiveness of these circulars and rules and our current businesses do not raise “national defense and security” or “national security” concerns, we do not believe we are required to submit our existing contractual arrangement to MOFCOM for security review. However, as these circulars and rules are relatively new and there is a lack of clear statutory interpretation on the implementation of the same, there is no assurance that MOFCOM will have the same view as we do when applying these national security review-related circulars and rules.

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In the opinion of Zhong Lun Law Firm, our PRC legal counsel, (i) the corporate structure of our company, our PRC subsidiaries, our PRC operating companies and Jiayuan Shanghai Center are in compliance with existing PRC laws and regulations, and (ii) the contractual arrangements between Beijing Miyuan, on the one hand, and our VIE entities and/or their shareholders, on the other hand, are valid, binding and enforceable, and will not result in any violation of PRC laws or regulations currently in effect.  However, our PRC legal counsel has further advised us that substantial uncertainties still exist as to how the FITE Regulations, MII Circular 2006, the Privately Funded Non-enterprise Institutions Regulation and the GAPP Circular will be interpreted and implemented by the PRC authorities and its opinions summarized above are subject to any new laws, rules and regulations or detailed implementations and interpretations in any form relating to the FITE Regulations, MII Circular 2006, the Privately Funded Non-enterprise Institutions Regulation and the GAPP Circular.  Substantial uncertainties also exist as to how the draft PRC Foreign Investment Law or its implementation rules may impact the viability of our current corporate structure in the future. See “Item 3.  Key Information.  D. Risk Factors—Risks Relating to Regulation of Our Business and to Our Structure—Substantial uncertainties exist with respect to the enactment timetable, interpretation and implementation of the draft PRC Foreign Investment Law and how it may impact the viability of our current corporate structure, corporate governance and business operations.”  It is uncertain whether any other new PRC laws or regulations relating to variable interest entity structures will be adopted or if adopted, what they would provide.   If MIIT, MOFCOM, GAPPRFT, the MOC or another PRC regulatory agency subsequently takes a view contrary to ours or if we, our PRC subsidiaries, or any of our PRC operating companies and Jiayuan Shanghai Center are found to have violated any existing or future PRC laws or regulations, or our corporate structure is found to be in violation with any existing or future PRC laws or regulations, the relevant regulatory authorities would have broad discretion in dealing with such violations, including:

·                   revoking the business and operating licenses of our PRC operating companies or Jiayuan Shanghai Center;

·                   discontinuing or restricting the operations of our PRC operating companies or Jiayuan Shanghai Center;

·                   imposing conditions or requirements with which we or our PRC companies or Jiayuan Shanghai Center may not be able to comply;

·                   requiring us, our PRC companies or Jiayuan Shanghai Center to restructure the relevant corporate structure or operations; or

·                   taking other regulatory or enforcement actions, including levying fines and confiscating income, which could be harmful to our business.

Any of these actions could have a material adverse effect on our business, financial condition and results of operations to suffer and the market price of our ADSs to decline.

The contractual arrangements related to critical aspects of our operations with our VIE entities and /or their shareholders may not be as effective in providing operational control as direct ownership.

We rely on contractual arrangements with our VIE entities and/or their shareholders to operate our business.  These contractual arrangements may not be as effective as direct ownership in providing us with control over our VIE entities and their subsidiaries, including Beijing Caiyuanlai and Shanghai Tengwan.  Direct ownership would allow us, for example, to directly or indirectly exercise our rights as a shareholder to effect changes in the boards of directors of our PRC operating companies, which, in turn, could effect changes, subject to any applicable fiduciary obligations, at the management level.  However, under the current contractual arrangements, as a legal matter, if any of our VIE entities or any of their shareholders fails to perform its, his or her respective obligations under these contractual arrangements, we may have to incur substantial costs and expend significant resources to enforce those arrangements and rely on legal remedies under PRC law.  These remedies may include seeking specific performance or injunctive relief and claiming damages, any of which may not be effective.

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Under the equity pledge agreements described in “Item 4.  Information on the Company — C. Organizational Structure — Contractual Arrangements with Shanghai Huaqianshu, Beijing Huaqianshu, Beijing Aizhenxin, Xique , Beijing Youyue Hudong and their Respective Shareholders and Jiayuan Shanghai Center,” the shareholders of Shanghai Huaqianshu, Beijing Huaqianshu, Xique, Beijing Aizhenxin and Beijing Youyue Hudong have pledged their equity interests in Shanghai Huaqianshu, Beijing Huaqianshu, Xique, Beijing Aizhenxin and Beijing Youyue Hudong to Beijing Miyuan.  According to the PRC Property Rights Law, which became effective on October 1, 2007, a pledge is created only when such pledge is registered with the relevant office of the administration for industry and commerce.  We have completed the equity pledge registration as required under the amended and restated equity pledge agreements by and among Beijing Miyuan and the shareholders of Shanghai Huaqianshu, Beijing Huaqianshu, Beijing Aizhenxin, Xique and Beijing Youyue Hudong, as the case may be, with the relevant office of the Administration of Industry and Commerce.

However, all of these contractual arrangements, including the equity pledge agreements, are governed by PRC law and provide for the resolution of disputes through either arbitration or litigation in the PRC.  Accordingly, these contracts would be interpreted in accordance with PRC laws and any disputes would be resolved in accordance with PRC legal procedures.  The legal environment in the PRC is not as developed as in other jurisdictions, such as the United States.  As a result, uncertainties in the PRC legal system could limit our ability to enforce these contractual arrangements.  In the event we are unable to enforce these contractual arrangements, we may be unable to exert effective control over our VIE entities and their subsidiaries, and our ability to conduct our business may be materially adversely affected.

Shareholders of our VIE entities may potentially have a conflict of interest with us, and they may breach their contracts with us or cause such contracts to be amended in a manner contrary to the interest of our company.

We conduct substantially all of our operations, and generate substantially all of our revenues, through our VIE entities and their subsidiaries.  Our control over our VIE entities and their subsidiaries is based upon contractual arrangements with our VIE entities and their shareholders, which provide us with the substantial ability to control our VIE entities and their subsidiaries.  The interests of these shareholders may potentially conflict with ours, and these shareholders may breach their contracts with us or cause such contracts to be amended in a manner contrary to the interest of our company if they believe such action furthers their own interest or if they otherwise act in bad faith.  If the shareholders of our VIE entities breach their contracts with us or otherwise have disputes with us, we may have to initiate legal proceedings, which involve significant uncertainty.  Such disputes and proceedings may significantly disrupt our business operations, adversely affect our ability to control our VIE entities and their subsidiaries and otherwise result in negative publicity, and we cannot assure you that the outcome of such disputes and proceedings will be in our favor.

Our arrangements with our VIE entities may be reviewed by the PRC tax authorities for transfer pricing adjustments and subject us to material adverse tax consequences as well as penalties for the under-payment of taxes.

We could face material adverse tax consequences if the PRC tax authorities determine that the contractual arrangements between Beijing Miyuan and our VIE entities were not entered into based on arm’s length negotiations.  Although we based our contractual arrangements on those of similar businesses, if the PRC tax authorities determine that these contracts were not entered into on an arm’s length basis, they may adjust our income and expenses for PRC tax purposes in the form of a transfer pricing adjustment.  A transfer pricing adjustment could adversely affect us by increasing the tax liabilities of our VIE entities without reducing Beijing Miyuan’s tax liabilities, which could further result in late payment fees and other penalties to our VIE entities for the under-payment of taxes.  As a result, any transfer pricing adjustment could materially adversely affect our financial condition and results of operations.

Our holding company structure may restrict our ability to receive dividends from, or transfer funds to, our PRC subsidiaries, which could restrict our ability to act in response to changing market conditions and reallocate funds among our Chinese entities in a timely manner.

We are a Cayman Islands holding company and conduct substantially all of our operations through our PRC operating companies and Jiayuan Shanghai Center.  We may rely on dividends and other distributions on equity by our PRC subsidiaries for our cash requirements, including the funds to pay dividends on the ordinary shares underlying our ADSs and to service any debt we may incur or financing we may need for our operations.  If any of our PRC subsidiaries incurs its own debt in the future, the instruments governing the debt may restrict such PRC subsidiary’s ability to pay dividends or make other distributions to Jiayuan Hong Kong and to us.  Furthermore, under PRC laws and regulations, each PRC subsidiary is only permitted to pay dividends out of its retained earnings, if any, determined in accordance with PRC accounting standards and regulations.  Under PRC law, each PRC subsidiary is also required to set aside at least 10% of its after-tax profit (calculated based on PRC accounting standards) each year to its general reserves until the cumulative amount of such reserves reaches 50% of its registered capital.  These reserves are not distributable as cash dividends, loans or advances.  Each PRC subsidiary may also allocate a portion of its after-tax profits, as determined by its board of directors, to its staff welfare and bonus funds, which may not be distributed to us.  Furthermore, if our subsidiaries in China incur debt on their own behalf in the future, the instruments governing the debt may restrict their ability to pay dividends or make other payments to us.  Most of our assets are held by, and substantially all of our earnings and cash flows are attributable to, our VIE entities and their subsidiaries, which in turn transfer the economic benefit to our PRC subsidiaries through contractual arrangements.  If earnings from our PRC subsidiaries were to decline, our earnings and cash flow would be materially adversely affected.  Our cash flows are principally derived from dividends paid to us by our PRC subsidiaries.  As a result, our ability to distribute dividends largely depends on earnings from our PRC subsidiaries and their ability to pay dividends out of those earnings. We cannot assure you that our PRC subsidiaries will generate sufficient earnings and cash flows in the near future to make up the historical accumulated losses and pay dividends or otherwise distribute sufficient funds to enable us to meet our obligations, pay interest and expenses or declare dividends.  Any limitation on the ability of our PRC subsidiaries to transfer funds to us as dividends, loans or advances could materially adversely limit our ability to grow, make investments or acquisitions that could benefit our businesses, pay debt or dividends, and otherwise fund and conduct our business.

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In addition, as an offshore holding company of our PRC subsidiaries, we may make loans to our PRC subsidiaries, or we may make additional capital contributions to our PRC subsidiaries.  However, any funds we transfer to our PRC subsidiaries, either as a shareholder loan or as an increase in registered capital, is subject to registration or approval of PRC governmental authorities, including the relevant administration of foreign exchange and/or the relevant examining and approval authority.  Therefore, loans by us to our PRC subsidiaries in China to finance their activities cannot exceed statutory limits and must be registered with SAFE or its local counterpart.  Capital contributions must be approved by the MOFCOM or its local counterpart.  We may not be able to obtain these government approvals on a timely basis, if at all, with respect to future capital contributions by us to our PRC subsidiaries.  If we fail to receive such approvals, our ability to use the proceeds of our initial public offering and to capitalize our PRC operations may be negatively affected, which could adversely affect our liquidity and our ability to act in response to changing market conditions and reallocate funds among our PRC companies on a timely basis.

There are currently no laws or regulations in the PRC governing property rights of virtual assets and therefore it is not clear what liabilities, if any, we may have relating to the loss of virtual assets by our users.

In the course of using our online services, some virtual assets, such as virtual currencies and virtual gifts, can be acquired. In practice, virtual assets can be lost for various reasons, such as data loss caused by delay of network service, by a network crash, or by hacking activities.  There are currently no PRC laws or regulations governing property rights of virtual assets.  As a result, it is unclear who the legal owner of virtual assets is and whether the ownership of virtual assets is protected by law.  In addition, it is unclear under PRC law whether an operator of online services such as us would have any liability (whether in contract, tort or otherwise) for any loss of such virtual assets by users.  Based on several judgments in the online gaming industry, PRC courts have generally required the game operators to provide well-developed security systems to protect virtual assets owned by game players.  In some cases, courts have issued judgments in favor of users and required the game operator to restore the virtual assets and to pay the users for damages.  Such requirements may also be held to be applicable to other online operators, such as ourselves.  In the event of a loss of virtual assets, we may be sued by users and may be held liable for damages.

The laws and regulations governing the online dating industry and other related business in China are evolving and subject to substantial uncertainties and future changes and we may fail to obtain or maintain all applicable permits and approvals, subjecting us to severe penalties.

As the online dating industry is at an early stage of development in China, new laws and regulations may be adopted from time to time to require additional licenses and permits other than those we currently have, and address new issues that arise.  In addition, substantial uncertainties exist regarding the interpretation and implementation of current and any future PRC laws and regulations applicable to the online dating industry.  We cannot assure you that we will be able to obtain on a timely basis, or at all, required licenses or any other new license required in the future.  We cannot assure you that we will not be found in violation of any current PRC laws or regulations should their interpretations change, or that we will not be found in violation of any future PRC laws or regulations.  For example, the General Office of the State Council issued a rule in December 1994 pursuant to which no marriage agency or individual is permitted to engage in international marriage agency services.  We believe that this rule does not apply to our online dating services, but since the interpretation and application of this rule is unclear, there is no assurance that the relevant regulatory agencies will not interpret this rule to apply to online dating.  In addition, to the extent PRC regulatory authorities find our platforms objectionable, they may impose penalties on us, including revoking our operating licenses or suspending or shutting down our online operations, which would materially and adversely affect our business, results of operations and reputation.

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Furthermore, we have provided offline personalized matchmaking services to certain of our clients through Shanghai Huaqianshu and its Beijing branch, Beijing Huaqianshu and Jiayuan Shanghai Center in China, which may be deemed to be a type of marriage agency service. As China has not adopted a comprehensive and specific regulatory framework governing marriage agency services, there are substantial uncertainties regarding the interpretation and implementation of the relevant laws and regulations, especially by the local authorities in different areas, and no assurance can be given that we will not be found to be in violation of such laws and regulations.

If we fail to obtain or maintain all applicable permits and approvals, or fail to comply with PRC regulations, relating to online games and virtual currencies, our ability to conduct our online game business could be affected and we could be subject to penalties and other administrative sanctions.

Pursuant to PRC regulations regulating online games, in order to operate an online game business and virtual currencies used for online games, an operator should obtain an Online Culture Operating Permit from the MOC (with a business scope covering the operation of online games and issuance of virtual currencies) and an Network Publication Service License from GAPPRFT in order to directly make its online games publicly available in China. Furthermore, pursuant to the Provisional Measures on the Administration of Online Games promulgated by the MOC on June 3, 2010, an online mobile games operator should make a filing with the MOC in respect of each domestic game within 30 days of commencing operations. In addition, each online game must be screened by GAPPRFT by way of an approval process before it is first published and made publicly available.

Shanghai Huaqianshu is currently operating our online game business. Shanghai Huaqianshu has obtained the Online Culture Operating Permit from the MOC with respect to its operation of online games and is in the process of filing applications for issuance of virtual currencies and applying for the Network Publication Service License. In addition, we have not obtained approval from GAPPRFT or completed the filing with the MOC for our online and mobile games. We cannot assure you that (i) Shanghai Huaqianshu can complete the filing for issuance of virtual currencies and obtain the Network Publication Service License; or (ii) we can obtain all the required approvals and complete the relevant filing procedures with the relevant government authorities for each game we operate in a timely manner or at all. If the relevant authority challenges the commercial operation of our games and determines that we are in violation of the relevant laws and regulations regarding online and mobile games, it would have the power to, among other things, levy fines against us, confiscate our income and require us to discontinue our online game business.

Failure to obtain ICP license could materially and adversely affect our online dating and finance business

Pursuant to PRC laws and regulations, Internet information services, or ICP services, are classified as value-added telecommunications businesses, and any commercial operator engaging in value-added telecommunications services are required to first obtain an operating license for value-added telecommunications services, or the ICP License, from the MIIT or its provincial level counterparts.  Violations of such regulations may result in administrative penalties, such as rectification, fines, and the authority may even order the operat or to suspend operation under serious situation.  Shanghai Tengwan, which is currently operating our online financial service, is in the process of applying for ICP licenses. We cannot assure you that Shanghai Tengwan can obtain the ICP license in time, or at all.  If the relevant authority determines that we are in violation of the relevant laws and regulations regarding value-added telecommunication service, it would have the power to, among other things, levy fines against us, and require us to discontinue our online financial business and part of our online dating business.

Our operations may be adversely affected by the complexity, uncertainties and changes in PRC regulation of Internet-related businesses and companies.

The PRC government extensively regulates the Internet industry, including foreign ownership of, and the licensing and permit requirements pertaining to, companies in the Internet industry.  These Internet-related laws and regulations are relatively new and evolving, and their interpretation and enforcement involve significant uncertainty.  As a result, in certain circumstances it may be difficult to determine what actions or omissions may be deemed to be in violation of applicable laws and regulations.  Issues, risks and uncertainties relating to PRC regulation of the Internet business include, but are not limited to, the permits, licenses or operations at some of our companies being subject to challenge or our failure to obtain permits or licenses that may be deemed necessary for our operations or our inability to obtain or renew certain permits or licenses.  If we fail to obtain and maintain any required licenses or approvals, we may be subject to various penalties, including fines and discontinuation of or restrictions on our operations.  Any such disruption in our business operations may have a material and adverse effect on our results of operations.

The interpretation and application of existing PRC laws, regulations and policies and possible new laws, regulations or policies relating to the Internet industry have created substantial uncertainties regarding the legality of existing and future foreign investments in, and the businesses and activities of, Internet businesses in China, including our business.  We cannot assure you that we have obtained all the permits or licenses required for conducting our business in China or will be able to maintain our existing licenses or obtain any new licenses required under any new laws or regulations.  There are also risks that we may be found to violate the existing or future laws and regulations given the uncertainty and complexity of China’s regulation of internet business.

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Substantial uncertainties exist with respect to the enactment timetable, interpretation and implementation of the draft PRC Foreign Investment Law and how it may impact the viability of our current corporate structure, corporate governance and business operations.

The MOFCOM published a discussion draft of the proposed Foreign Investment Law in January 2015 aiming to, upon its enactment, replace the Sino-foreign Equity Joint Venture Enterprise Law, the Sino-foreign Cooperative Joint Venture Enterprise Law and the Wholly Foreign-invested Enterprise Law, together with their implementation rules and ancillary regulations, the trio of existing laws regulating foreign investment in China. The draft Foreign Investment Law embodies an expected PRC regulatory trend to rationalize its foreign investment regulatory regime in-line with prevailing international practice and the legislative efforts to unify the corporate legal requirements for both foreign and domestic investments. The MOFCOM is currently soliciting comments on this draft and substantial uncertainties exist with respect to its enactment timetable, interpretation and implementation. The draft Foreign Investment Law, if enacted as proposed, may materially impact the viability of our current corporate structure, corporate governance and business operations in many aspects.

Among other things, the draft Foreign Investment Law expands the definition of foreign investment and introduces the principle of “actual control” in determining whether the investment in China is made by a foreign investor or a PRC domestic investor. The draft Foreign Investment Law specifically provides that an entity established in China but “controlled” by foreign investors will be treated as a foreign investor, whereas an entity set up in a foreign jurisdiction would nonetheless be, upon market entry clearance by the MOFCOM or its local branches, treated as a PRC domestic investor provided that the entity is “controlled” by PRC entities and/or citizens. In this connection, “control” is broadly defined in the draft law to include, among others, having the power to exert decisive influence, via contractual or trust arrangements, over the subject entity’s operations, financial matters or other key aspects of business operations.  If the foreign investment falls within a “negative list” to be separately issued by the State Council in the future, market entry clearance by the MOFCOM or its local branches would be required.  In all other circumstances, foreign investors may make investments on the same terms as Chinese investors without being subjected to additional approvals from the government authorities as mandated by the existing foreign investment legal regime.

The “variable interest entity” structure, or VIE structure, has been adopted by many PRC-based companies in the industries that are currently subject to foreign investment restrictions in China. See “Item 3.  Key Information.  D. Risk Factors—Risks Relating to Regulation of Our Business and to Our Structure—If the PRC government finds that the agreements that establish the structure for operating our China business do not comply with restrictions on foreign investment in the online dating services and internet finance industry, the prohibitions on foreign investment in the online gaming industry and prohibitions on privately funded non-enterprise institutions from engaging in profit-making business operations, we could be subject to severe penalties, including discontinuation of our operations” and “Item 4.C. Information on the Company—Organizational Structure.” Under the draft Foreign Investment Law, if a variable interest entity is ultimately controlled by a foreign investor via contractual arrangements, it would be deemed as a foreign investment. Accordingly, for companies with a VIE structure in an industry category that is on the “negative list,” the VIE structure may be deemed legitimate only if the ultimate controlling person(s) is or are of PRC nationality. Conversely, if the actual controlling person(s) is or are of foreign nationalities, then the variable interest entities will be treated as foreign invested enterprises and any operation in the industry category on the “negative list” without market entry clearance may be considered illegal.

There is no assurance that we will be regarded as a company controlled by PRC nationals since the draft Foreign Investment Law does not provide clear guidance on the meaning of “control.” In addition, the draft Foreign Investment Law has not taken a position on what actions shall be taken with respect to the existing companies with a VIE structure, although a few possible options were proffered to solicit comments from the public. Under these options, a company with VIE structures and in the business on the “negative list” at the time of enactment of the new Foreign Investment Law has either the option or obligation to disclose its corporate structure to the authorities, while the authorities, after reviewing the ultimate control structure of the company, may either permit the company to continue its business by maintaining the VIE structure (when the company is deemed ultimately controlled by PRC citizens) or require the company to dispose of its businesses and/or VIE structure.  Moreover, it is uncertain whether the online dating, internet finance and online gaming industries, in which our VIE entities and their subsidiaries operate, will be subject to the foreign investment restrictions or prohibitions set forth in the “negative list” which may be issued.  If the enacted version of the Foreign Investment Law and the final “negative list” mandate further actions, such as MOFCOM market entry clearance, to be completed by companies with existing VIE structure like ourselves, or we plan to apply for determination on the PRC investor status during the clearance process, we face uncertainties as to whether such clearance or ratification can be timely obtained or at all.

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The draft Foreign Investment Law, if enacted as proposed, may also materially impact our corporate governance practice and increase our compliance costs. For instance, the draft Foreign Investment Law imposes stringent ad hoc and periodic information reporting requirements on foreign investors and the applicable foreign invested entities. In addition to the investment implementation report and any investment amendment report that is required at each investment and any alteration of investment details, an annual report will be mandatory and large foreign investors meeting certain criteria are required to report on a quarterly basis. Any company found to be non-compliant with the information reporting obligations may potentially be subject to fines and/or administrative or criminal liabilities, and the persons directly responsible may be subject to criminal liabilities.

Risks Relating to Doing Business in China

Changes in economic and political policies of the PRC government could materially adversely affect the overall economic growth of China, which could adversely affect our business.

Substantially all of our business operations are conducted in China.  Accordingly, our business, results of operations, financial condition and prospects are subject to a significant degree to economic, political and legal developments in China.  Due to the global financial crisis, the growth of the Chinese economy also slowed down in the second half of 2008 and early 2009.  While the effect of the global economic crisis subsided through 2010, the growth of the Chinese economy slowed down again in the second half of 2011 and in the period thereafter.  It is unclear whether the Chinese economy will resume its high growth rate.  Any prolonged slowdown in the Chinese economy, in particular in the online social network or online dating industry, could negatively impact our business, operating results and financial condition in a number of ways.  For example, our users may decrease spending on our services, while we may have difficulty expanding our user base fast enough, or at all, to offset the impact of decreased spending by our existing users.

Although the Chinese economy is no longer a planned economy, the PRC government continues to exercise significant control over China’s economic growth through direct allocation of resources, monetary and tax policies, and a host of other government policies such as those that encourage or restrict investment in certain industries by foreign investors, control the exchange between RMB and foreign currencies, and regulate the growth of the general or specific market.  The level of government involvement has been instrumental in China’s significant growth in the past 30 years.  If the PRC government’s current or future policies fail to help the Chinese economy achieve further growth or otherwise negatively affect our business, our growth rate or strategy, our results of operations could be adversely affected as a result.

China’s internet regulator, Cyberspace Administration of China, may enforce real-name registration on online dating sites , which could affect adversely our user base , user engagement with our platforms and our business .

The Cyberspace Administration of China launched a campaign in February 2015 targeting fraud rings, prostitution and service providers’ fraudulent practices on dating websites and other online match-making sites. The government body said it would require dating websites to enforce real-name registration and clearly label and gradually close user accounts which fail to submit real-name verification. However, the government body did not specify a timeline to enforce the real-name registration. If this regulation applies, our existing user base and the number of newly registered user accounts could be affected adversely, as some of our users may not provide real-name verification in order to maintain their privacy.

As a result of the campaign, 65 online dating sites have been shut down for spreading obscene content and allowing users to register with false names. Although we have controls in place in an effort to limit such activities, we cannot conclude that there is no illegal activity conducted by our members on our platforms. Such controls also require continuous effort to crack down on unhealthy dating behaviors on our platforms, which will result in an increase in our research and development expenses. Failure to discover illegal activities on our platforms on a timely basis may lead to government investigations and sanctions, which could have a material and adverse effect on our business.

Our business benefits from certain government tax preferential treatment and incentives.  Expiration, reduction or discontinuation of, or changes to, these incentives will increase our tax burden and reduce our net income.

Prior to January 1, 2008, under applicable PRC tax laws, companies established in China were generally subject to an enterprise income tax, or EIT, at the statutory rate of 33%.  However, certain types of foreign-invested enterprises and high or new-technology enterprises located in certain specified high-tech zones were entitled to preferential tax treatment.  In March 2007, the National People’s Congress enacted the Enterprise Income Tax Law, or the EIT Law, and in December 2007, the State Council promulgated the implementing rules of the EIT Law, or the Implementing Rules, both of which became effective on January 1, 2008.  The EIT Law significantly curtails tax incentives granted to foreign-invested enterprises under the previous tax law.  The EIT Law, however, (i) reduces the statutory rate of EIT from 33% to 25%, (ii) permits companies to continue to enjoy their existing tax incentives, subject to certain transitional phase-out rules and (iii) introduces new tax incentives, subject to various qualification criteria.  In addition, the Implementing Rules permit qualified “high and new technology enterprises,” or HNTEs, to enjoy a reduced EIT rate of 15%.  The qualification criteria are significantly higher than those prescribed by the old tax rules under which we had been granted preferential treatment.  In addition, according to a circular issued by the Ministry of Finance of the PRC and the State Administration of Taxation of the PRC on February 22, 2008, “software enterprises” are entitled to an exemption from income taxes for two years beginning with their first profitable year and a 50% tax reduction to a 12.5% income tax rate for the subsequent three years, provided the “software enterprise” annual inspection has been passed each year.

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Shanghai Huaqianshu has been deemed to qualify as an HNTE under the EIT Law for 2010, 2011 and 2012, and was qualified as key software enterprise in 2014 and was entitled to an income tax rate of 10% for 2013 and 2014. In March 2014, Shanghai H uaqianshu completed the application process for the renewal of HNTE status and expects to continue to enjoy a preferential income tax rate of 15% for 2013 to 2015. Beijing Miyuan has qualified as a “software enterprise,” allowing it to be exempt for two years beginning with its first profitable year and a 50% tax reduction to a 12.5% income tax rate for the subsequent three years if it passes the “software enterprise” annual inspection in each of these years.  Beijing Miyuan has also been deemed to qualify as an HNTE under the EIT Law for 2015, 2016 and 2017.  Although Shanghai Huaqianshu was qualified as a key software enterprise for 2013 and 2014 and as a HNTE for the three years starting from 2013 and Beijing Miyuan was qualified as a software enterprise in 2014, we cannot assure you that Shanghai Huaqianshu will pass the annual inspection of the software enterprise qualification and continue to qualify as a key software enterprise or a HNTE under the EIT Law or that Beijing Miyuan will pass the annual inspection of the software enterprise qualification and continue to qualify as a “software enterprise.”  Shanghai Miyuan had qualified as a “software enterprise,” allowing it to be exempt from income taxes for the 2011 and 2012 fiscal years and apply for a preferential tax rate of 12.5% for the 2013, 2014 and 2015 fiscal years.  However, as Shanghai Miyuan was not continually qualified as a software enterprise in 2014, it became subject to the standard EIT rate of 25% in 2014 and thererafter. In addition, various local governments in China have provided discretionary incentives to us.  However, these local governments may decide to reduce or eliminate these preferential tax treatments or incentives at any time. Furthermore, these local implementations of tax laws may be found to violate national laws or regulations and we may be subject to retroactive imposition of higher taxes as a result.  Any expiration, reduction, discontinuation or revocation of, or changes to, these tax incentives will increase our tax burden and reduce our net income and thus could materially and adversely affect our operating results.

Dividends we receive from our PRC subsidiaries may be subject to PRC withholding tax and we cannot assure you that we will be able to enjoy the preferential withholding tax treatment.

Under the EIT Law, and the Implementing Rules, both of which became effective on January 1, 2008, dividends generated from the business of our PRC subsidiaries after January 1, 2008 and payable to us may be subject to a withholding tax rate of 10% if the PRC tax authorities subsequently determine that we are a non-resident enterprise, unless there is a tax treaty with China that provides for a different withholding arrangement.  We are a Cayman Islands holding company and substantially all of our income may come from the dividends we received from our PRC subsidiaries through our Hong Kong subsidiary.  Under the Arrangement between Mainland China and the Hong Kong Special Administrative Region on the Avoidance of Double Taxation and Prevention of Fiscal Evasion, which became effective on January 1, 2007, income tax on dividends payable to a company resident in Hong Kong that holds more than a 25% equity interest in a PRC resident enterprise may be reduced to a rate of 5%.  However, we cannot assure you that we will be able to enjoy such preferential withholding tax treatment.  Pursuant to the Administrative Measures for Non-Resident Taxpayer to Enjoy Treatments under Tax Treaties issued by the State Administration of Taxation on August 28, 2015, any non-resident taxpayer may be entitled to such reduced withholding tax rate automatically if satisfying the conditions under relevant tax rules and regulations, subject to the subsequent administration by the tax authorities. In addition, according to the Notice on Certain Issues with Respect to the Enforcement of Dividend Provisions in Tax Treaties issued by the State Administration of Taxation, or the SAT, in February 2009, if the main purpose of an offshore arrangement is to obtain a preferential tax treatment, the PRC tax authorities have the discretion to adjust the preferential tax rate enjoyed by the relevant offshore entities.

We may be classified as a “resident enterprise” for PRC enterprise income tax purposes, which could result in our global income becoming subject to 25% PRC enterprise income tax.

The EIT Law also provides that enterprises established outside of China whose “de facto management bodies” are located in China are considered “resident enterprises” and will generally be subject to the uniform 25% EIT rate as to their global income. Under the Implementing Rules, “de facto management bodies” is defined as substantial and overall management and control over such aspects as the production and business, personnel, accounts and properties of an enterprise.

On April 22, 2009, the SAT released the Notice Regarding the Determination of Chinese-Controlled Overseas Incorporated Enterprises as PRC Tax Resident Enterprises on the Basis of De Facto Management Bodies, or SAT Circular 82, that sets out the standards and procedures for recognizing the location of the “de facto management bodies” of an enterprise registered outside of the PRC and funded by Chinese enterprises as controlling investors, or a Chinese Funded Enterprise.  Under SAT Circular 82, a Chinese Funded Enterprise shall be considered a resident enterprise if all of the following applies: (i) a Chinese Funded Enterprise’s major management department and personnel who are responsible for carrying out daily operations are located in the PRC; (ii) the department or the personnel who have the right to decide or approve the Chinese Funded Enterprise’s financial and human resource matters are located in the PRC; (iii) the major assets, account book, company seal and meeting minutes of the Chinese Funded Enterprise are located or stored in the PRC; and (iv) the directors or management personnel holding no less than 50% voting rights of the Chinese Funded Enterprise habitually reside in the PRC.  SAT Circular 82 explicitly provides that the above standards shall apply to the enterprises which are registered outside of the PRC and funded by Chinese enterprises as controlling investors, and therefore such standards may be cited for reference only and may not be directly adopted when considering whether our “de facto management bodies” is in the PRC or not.  Accordingly, it is still uncertain whether we may be considered a resident enterprise under the EIT Law. If we are considered a resident enterprise and earn income other than dividends from our PRC subsidiary such as income from our international operations, we will be subject to a 25% PRC enterprise income tax on our global income and such tax on our global income could significantly increase our tax burden and materially adversely affect our cash flow and profitability.

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If we are classified as a “resident enterprise” for PRC enterprise income tax purposes, you may be subject to PRC withholding tax on dividends from us or to PRC income tax on gain realized on the transfer of our ADSs or ordinary shares.

Under the EIT Law and Implementing Rules, PRC income tax at the rate of 10% is applicable to dividends payable to investors that are “non-resident enterprises,” which do not have an establishment or place of business in the PRC, or which have such establishment or place of business if the relevant income is not effectively connected with the establishment or place of business, to the extent such dividends have their sources within the PRC.  Similarly, any gain realized on the transfer of ADSs or shares by such investors is also subject to 10% PRC income tax if such gain is regarded as income derived from sources within the PRC unless a treaty otherwise provides.  If we are considered a PRC “resident enterprise,” it is unclear whether dividends we pay with respect to our ordinary shares or ADSs or preferred shares, or the gain you may realize from the transfer of our ordinary shares or ADSs, would be treated as income derived from sources within the PRC and be subject to PRC tax.  If we are required under the EIT Law to withhold PRC income tax on dividends payable to our non-PRC investors that are “non-resident enterprises,” or if you are required to pay PRC income tax on the transfer of our ordinary shares or ADSs, the value of your investment in our ordinary shares or ADSs may be materially adversely affected.

The heightened scrutiny by the PRC tax authorities over acquisition transactions may have a negative impact on our business operations, our acquisition or restructuring strategy or the value of your investment in us.

The State Administration of Taxation, or SAT, has issued several rules and notices to tighten the scrutiny over acquisition transactions in recent years, including the Notice on Strengthening Administration of Enterprise Income Tax for Share Transfers by Non-PRC Resident Enterprises issued in December 2009 with retroactive effect from January 1, 2008, or SAT Circular 698, the Notice on Several Issues Regarding the Income Tax of Non-PRC Resident Enterprises promulgated issued in March 28, 2011, or SAT Circular 24, and the Notice on Certain Corporate Income Tax Matters on Indirect Transfer of Properties by Non-PRC Resident Enterprises issued in February 2015, or SAT Circular 7.  Pursuant to these rules and notices, if a non-PRC resident enterprise indirectly transfers PRC taxable properties, such as properties of an establishment or a place in the PRC, real estate properties in the PRC or equity investments in a PRC tax resident enterprise, by disposing  equity interest in an overseas non-public holding company without a reasonable commercial purpose and resulting in the avoidance of PRC enterprise income tax, such an indirect transfer may be deemed a direct transfer of PRC taxable properties and gains derived from such indirect transfer may be subject to PRC withholding tax at a rate of up to 10%.  SAT Circular 7 has listed several factors to be taken into consideration by tax authorities in determining whether an indirect transfer has a reasonable commercial purpose.  However, despite these factors, an indirect transfer satisfying all the following criteria shall be deemed to lack reasonable commercial purpose and be taxable under the PRC laws: (i) 75% or more of the equity value of the intermediary enterprise being transferred is derived directly or indirectly from the PRC taxable properties; (ii) at any time during the one year period prior to the indirect transfer, 90% or more of the asset value of the intermediary enterprise (excluding cash) is comprised directly or indirectly of investments in the PRC, or 90% or more of its income is derived directly or indirectly from the PRC; (iii) the functions performed and risks assumed by the intermediary enterprise and any of its subsidiaries that directly or indirectly hold the PRC taxable properties are limited and are insufficient to prove their economic substance; and (iv) the foreign tax payable on the gain derived from the indirect transfer of the PRC taxable properties is lower than the potential PRC tax on the direct transfer of such assets.  Nevertheless, the indirect transfer falling into the scope of the safe harbor under SAT Circular 7 may not be subject to PRC tax and such safe harbor includes qualified group restructuring, public market trading and tax treaty exemptions.

Under SAT Circular 7, the entities or individuals obligated to pay the transfer price to the transferor shall be the withholding agent and shall withhold the PRC tax from the transfer price.  If the withholding agent fails to do so, the transferor shall report to and pay the PRC tax to the PRC tax authorities.  In case neither the withholding agent nor the transferor complies with the obligations under SAT Circular 7, other than imposing penalties such as late payment interest on the transferors, the tax authority may also hold the withholding agent liable and impose a penalty of 50% to 300% of the unpaid tax on the withholding agent, provided that such penalty imposed on the withholding agent may be reduced or waived if the withholding agent has submitted the relevant materials in connection with the indirect transfer to the PRC tax authorities in accordance with SAT Circular 7.

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However, as these rules and notices are relatively new and there is a lack of clear statutory interpretation on the implementation of the same, there is no assurance that the tax authorities will not apply SAT Circular 698, SAT Circular 24 and SAT Circular 7 to previous investments by non-PRC resident investors in our Company or our pre-listing restructuring, if any of such transactions were determined by the tax authorities to lack reasonable commercial purpose. As a result, we and our existing non-PRC resident investors may be at risk of being taxed under these rules and notices and may be required to expend valuable resources to comply with or to establish that we should not be taxed under such rules and notices, which may have a material adverse effect on our financial condition and results of operations or such non-PRC resident investors’ investments in us. We have conducted and may conduct acquisitions involving corporate structures, and historically our shares were transferred by certain then shareholders to our current shareholders. We cannot assure you that the PRC tax authorities will not, at their discretion, adjust any capital gains and impose tax return filing obligations on us or require us to provide assistance for the investigation of PRC tax authorities with respect thereto. Any PRC tax imposed on a transfer of our shares or any adjustment of such gains would cause us to incur additional costs and may have a negative impact on the value of your investment in us.

Uncertainties with respect to the PRC legal system could materially adversely affect us.

We conduct our business primarily through our PRC companies in China.  Our operations in China are governed by PRC laws and regulations.  The PRC legal system is based on statutes.  Prior court decisions may be cited for reference but have limited precedential value.

Since 1979, PRC legislation and regulations have significantly enhanced the protections afforded to various forms of foreign investments in China.  However, China has not developed a fully integrated legal system and recently enacted laws and regulations may not sufficiently cover all aspects of economic activities in China.  In particular, because these laws and regulations are relatively new, and because of the limited volume of published decisions and their nonbinding nature, the interpretation and enforcement of these laws and regulations involve uncertainties.  In addition, the PRC legal system is based in part on government policies and internal rules (some of which are not published on a timely basis or at all) that may have a retroactive effect.  As a result, we may not be aware of our violation of these policies and rules until some time after the violation.  In addition, any litigation in China may be protracted and result in substantial costs and diversion of resources and management attention.  We cannot predict any future development in the PRC legal system.  We may be required to procure additional permits, authorizations and approvals for our operations, which we may not be able to obtain.  Our inability to obtain such permits, authorizations or approvals may materially adversely affect our business, financial condition and results of operations.

Governmental control of currency conversion may affect the value of your investment.

The PRC government imposes controls on the convertibility of the Renminbi into foreign currencies and, in certain cases, the remittance of foreign currency out of China.  We currently receive substantially all of our revenues in Renminbi.  Under our current corporate structure, our income is primarily derived from dividend payments from our PRC subsidiaries.  The unavailability of foreign currency may restrict the ability of our PRC subsidiaries to remit sufficient foreign currency to pay dividends or other payments to us, or otherwise satisfy their foreign currency-denominated obligations.  Under existing PRC foreign exchange regulations, payments of current account items, including profit distributions, interest payments and expenditures from trade-related transactions, can be made in foreign currencies without prior approval from SAFE by complying with certain procedural requirements. However, approval from SAFE or its local branch is required where Renminbi is to be converted into foreign currency and remitted out of China to pay capital expenses such as the repayment of loans denominated in foreign currencies.  The PRC government may also at its discretion restrict access to foreign currencies for current account transactions in the future.  If the foreign exchange control system prevents us from obtaining sufficient foreign currency to satisfy our currency demands, we may not be able to pay dividends in foreign currencies to our shareholders, including holders of our ADSs. On August 29, 2008, the SAFE promulgated Circular 142 to regulate the conversion of foreign currency into Renminbi by a foreign-invested company by restricting the use of the converted Renminbi.  Circular 142 requires that the registered capital of a foreign-invested company that has been settled in Renminbi converted from foreign currencies may only be used for purposes within the business scope approved by the applicable governmental authority and may not be used for equity investments within the PRC unless otherwise permitted in its business scope or under applicable laws and regulations.  In addition, the SAFE strengthened its oversight of the flow and use of the funds of a foreign-invested company settled in Renminbi converted from foreign currencies.  The use of such Renminbi capital may not be changed without the SAFE’s approval, and may not in any case be used to repay Renminbi loans if the proceeds of such loans have not been used for purposes within the company’s approved business scope.  Violations of Circular 142 will result in severe penalties, such as heavy fines. SAFE issued a circular on March 30, 2015, SAFE Circular No. 19, which bec ame effective on June 1, 2015 and replaced SAFE Circular No. 142. Pursuant to SAFE Circular No. 19, up to 100% of the foreign currency capital of a foreign invested enterprise may be converted into RMB capital according to the actual business of the enterprise at its will and the RMB capital converted from the foreign currency registered capital of a foreign-invested enterprise may be used for equity investments within the PRC. However, under the SAFE Circular No. 19, RMB capital converted from the foreign currency registered capital of a foreign-invested company still may not in any case be used to advance RMB entrusted loans or repay inter-enterprise RMB loans. Such circulars may significantly limit our PRC subsidiaries’ ability to utilize the net proceeds transferred to it from our initial public offering.

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Fluctuation in the value of the RMB may materially adversely affect the value of your investment.

The value of the RMB against the U.S. dollar and other currencies may fluctuate and is affected by, among other things, changes in political and economic conditions.  On July 21, 2005, the PRC government changed its decade-old policy of pegging the value of the RMB to the U.S. dollar, and the RMB appreciated more than 20% against the U.S. dollar over the following three years. For almost two years after reaching a high against the U.S. dollar in July 2008, the Renminbi traded within a narrow band against the U.S. dollar.  As a consequence, the RMB has fluctuated significantly since July 2008 against other freely traded currencies, in tandem with the U.S. dollar.  In June 2010, the PRC government announced that it would increase Renminbi exchange rate flexibility and since that time the Renminbi has gradually appreciated against the U.S. dollar.  The PRC government announced it would increase the trading band between the RMB and U.S. dollar from 0.5% to 1% in April 2012, and then increased the trading band from 1% to 2% on March 14, 2014.  However, it remains unclear how this flexibility might be implemented.  There remains significant international pressure on the PRC government to adopt a more flexible currency policy, which could result in greater fluctuation of the Renminbi against the U.S. dollar.  Substantially all of our revenues and costs are denominated in RMB, and a significant portion of our financial assets are also denominated in RMB. We also record foreign transaction gains or losses in our income statement due to fluctuations in the exchange rate. We principally rely on dividends and other distributions paid to us by our subsidiaries in China.  Any significant revaluation of the RMB may materially adversely affect our cash flows, revenues, earnings and financial position, and the value of, and any dividends payable on, our ADSs in U.S. dollars.  Any fluctuations of the exchange rate between the RMB and the U.S. dollar could also result in foreign currency translation losses for financial reporting purposes.

PRC regulations relating to the establishment of offshore SPVs by PRC residents may subject our PRC resident beneficial owners or our PRC subsidiaries to liabilities or penalties, limit our ability to inject capital into our PRC subsidiaries, limit our PRC subsidiaries’ ability to increase their registered capital or distribute profits to us or may otherwise adversely affect us.

SAFE has promulgated several regulations, including the Notice on Issues Relating to the Administration of Foreign Exchange in Fund-Raising and Round-trip Investment Activities of Domestic Residents Conducted via Offshore Special Purpose Companies , or SAFE Circular No. 75, effective on November 1, 2005, the Circular on Several Issues Concerning Foreign Exchange Administration of Domestic Residents Engaging in Overseas Investment, Financing and Round-Trip Investment via Special Purpose Vehicles , or SAFE Circular 37, which replaced the SAFE Circular No.75 and became effective on the same date, and other related rules.  These rules require PRC residents to register with the local branch of SAFE before contributing their legally owned onshore or offshore assets or equity interest into any special purpose vehicle, or SPV, directly established, or indirectly controlled, by them for the purpose of investment or financing and when there is (a) any change to the basic information of the SPV, such as any change relating to its individual PRC resident shareholders, name or operation period or (b) any material change, such as increase or decrease in the share capital held by its individual PRC resident shareholders, a share transfer or exchange of the shares in the SPV, or a merger or split of the SPV, the PRC resident must register such changes with the local branch of SAFE on a timely basis.  According to the relevant SAFE rules, failure to comply with the registration procedures set forth in SAFE Circular 37 may result in restrictions being imposed on the foreign exchange activities of the relevant onshore companies of SPVs, including the payment of dividends and other distributions to its offshore parent or affiliate and the capital inflow from such offshore entity, and may also subject the relevant PRC residents and onshore companies to penalties under PRC foreign exchange administration regulations.  Further, failure to comply with various SAFE registration requirements described above would result in liability for foreign exchange evasion under PRC laws.

We have requested PRC residents who, to our knowledge, hold direct or indirect interests in our company to make the necessary applications, filings and amendments as required under SAFE Circular No. 37 and other related rules.  Ms. Haiyan Gong, Mr. Yongqiang Qian, Mr. Xu Liu, Mr. Fuping Yu, Mr. Cheng Li and Mr. Qingjun Zhu have completed the registrations in relation to our Reorganization and their ownership changes in accordance with SAFE Circular No. 75, and they are required to update the registration or amendment registration in relation to our initial public offering. We cannot assure you, however, that such registrations will be duly completed with the local SAFE branch.  In addition, we may not be informed of the identities of all the PRC residents holding direct or indirect interests in our company, and we cannot provide any assurances that all of our shareholders and beneficial owners who are PRC residents will comply with our request to make, obtain or update any applicable registrations or comply with SAFE Circular No. 37 or other related rules.  The failure or inability of our PRC resident shareholders to make any required registrations or comply with other requirements under SAFE Circular No. 37 and other related rules may subject such PRC residents or our PRC subsidiaries to fines and legal sanctions and may also limit our ability to contribute additional capital or provide loans to (including using the proceeds from our initial public offering) our PRC subsidiaries, limit our PRC subsidiaries’ ability to pay dividends or otherwise distribute profits to us, or otherwise adversely affect us.

The approval of the China Securities Regulatory Commission, or the CSRC, may have been required in connection with our initial public offering under PRC regulations and, if required, we cannot assure you that we will be able to obtain such approval.

On August 8, 2006, six PRC regulatory agencies, including the Ministry of Commerce, the State Assets Supervision and Administration Commission, the SAT, the State Administration for Industry and Commerce, the CSRC, and the SAFE, jointly adopted the Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors , or the M&A Rules, which became effective on September 8, 2006 and was amended on June 22, 2009.  The M&A Rules require Offshore SPVs that are controlled by PRC companies or residents and that have been formed for the purpose of seeking a public listing on an overseas stock exchange through acquisitions of PRC domestic companies or assets to obtain CSRC approval prior to publicly listing their securities on an overseas stock exchange.  On September 21, 2006, the CSRC published a notice on its websites specifying the documents and materials that special purpose vehicles are required to submit when seeking CSRC approval for their listings outside of China.  The interpretation and application of the M&A Rules remain unclear, and our initial public offering may have required approval from the CSRC, and if it did, it is uncertain how long it will take us to obtain the approval.

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Our PRC legal counsel, Zhong Lun Law Firm, has advised us that, based on their understanding of the current PRC laws, regulations and rules and the procedures announced on September 21, 2006, because (i) we established our PRC subsidiaries by means of direct investment other than by merger or acquisition of the equity or assets of a PRC domestic company owned by PRC companies or individuals as defined under the M&A Rules that are our beneficial owners after the effective date of the M&A Rules, and (ii) no provisions in the M&A Rules clearly classify our contractual arrangements with our VIE entities as the acquisition subject to the M&A Rules, we are not required to apply with the CSRC for the approval of the listing and trading of our ADSs on the Nasdaq Global Select Market.

However, our PRC legal counsel has further advised us that uncertainties still exist as to how the M&A Rules will be interpreted and implemented and its opinions summarized above are subject to any new laws, rules and regulations or detailed implementations and interpretations in any form relating to the M&A Rules.  If the CSRC or another PRC regulatory agency determines that prior CSRC approval was required, we may be unable to obtain a waiver of CSRC approval requirements and we may face regulatory actions or other sanctions from the CSRC or other PRC regulatory agencies.  These regulatory agencies may impose fines and penalties on our operations, limit our operating privileges, delay or restrict the injection of the proceeds from our initial public offering into the PRC or payment or distribution of dividends by our PRC subsidiaries, or take other actions that could materially adversely affect our business, financial condition, results of operations, reputation and prospects, as well as the trading price of our ADSs. Consequently, if you engage in market trading or other activities in anticipation of and prior to settlement and delivery, you do so at the risk that settlement and delivery may not occur.  In addition, if CSRC requires that we obtain its approval for our initial public offering, we may be unable to obtain a waiver of CSRC approval requirements, if and when procedures are established to obtain such a waiver.  Any uncertainties or negative publicity regarding CSRC approval requirements could have a material adverse effect on the trading price of our ADSs.

Failure to comply with PRC regulations regarding the registration of share options held by our employees who are “domestic individuals” may subject such employees or us to fines and legal or administrative sanctions.

Pursuant to the Implementation Rules of the Administrative Measures for Individual Foreign Exchange , or the Individual Foreign Exchange Rule, promulgated on January 5, 2007 by the SAFE and the Notices on Issues Concerning the Foreign Exchange Administration for Domestic Individuals Participating in Stock Incentive Plan of Overseas Publicly Listed Company issued by the SAFE in February 2012, or the Stock Incentive Plan Rules, which terminated the Processing Guidance on Foreign Exchange Administration of Domestic Individuals Participating in the Employee Stock Ownership Plans or Stock Option Plans of Overseas-Listed Companies issued by the SAFE in March 2007, “domestic individuals” (both PRC residents and non-PRC residents who reside in the PRC for a continuous period of not less than one year, excluding the foreign diplomatic personnel and representatives of international organizations) who are granted shares or share options by an overseas-listed company according to its stock incentive plan are required, through qualified PRC agents which could be the PRC subsidiary of such overseas-listed company, to register with the SAFE and complete certain other procedures related to the stock incentive plan.  In addition, such domestic individuals shall also retain an overseas entrusted institution to handle matters in connection with their exercise of stock options and their purchase and sale of stocks. Our employees and consultants, who are “domestic individuals” and have been granted share options, or PRC optionees, became subject to the Stock Incentive Plan Rules when our company became an overseas listed company upon the completion of our initial public offering.  If we or our PRC optionees fail to comply with the Individual Foreign Exchange Rule and the Stock Incentive Plan Rules, we and/or our PRC optionees may be subject to fines and other legal sanctions.  We may also face regulatory uncertainties that could restrict our ability to adopt additional option plans for our directors and employees under PRC law.  In addition, the SAT has issued certain circulars concerning employee share options.  Under these circulars, our employees working in the PRC who exercise share options will be subject to PRC individual income tax.  Our PRC subsidiaries have obligations to file documents related to employee share options with relevant tax authorities and to withhold individual income taxes of those employees who exercise their share options.  If our employees fail to pay or we fail to withhold their income taxes according to relevant laws and regulations, we may face sanctions imposed by the tax authorities or other PRC government authorities.  Furthermore, there are substantial uncertainties regarding the interpretation and implementation of the Individual Foreign Exchange Rule and the Stock Incentive Plan Rules.  See “Item 4—Information on the Company—B.  Regulation—Regulations on Stock Incentive Plan.”

We face risks of health epidemics and other disasters, which could severely disrupt our business operations.

Our business could be materially adversely affected by the outbreak of H1N1, or swine influenza, avian influenza, severe acute respiratory syndrome, or SARS, or another epidemic.  In 2009 and early 2010, there were outbreaks of swine influenza in certain regions of the world, including China.  In 2006 and 2007, there were reports on the occurrences of avian influenza in various parts of China, including a few confirmed human cases and deaths, and in early 2013, there were reports on the occurrences of a new strain of avian influenza in various parts of China, including a few confirmed human cases and deaths.  Any prolonged recurrence of swine influenza, avian influenza, SARS or other adverse public health developments in China could adversely affect economic activities in China and require the temporary closure of our offices.  Such closures could severely disrupt our business operations and adversely affect our results of operations.

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Our operations are vulnerable to interruption and damage from man-made or natural disasters, including wars, acts of terrorism, snowstorms, earthquakes, fire, floods, environmental accidents, power loss, communications failures and similar events.  If any man-made or natural disaster were to occur in the future, our ability to operate our business could be seriously impaired.

Labor laws in the PRC may adversely affect our results of operations.

China adopted a labor contract law effective on January 1, 2008, that establishes more restrictions and increases costs for employers to dismiss employees.  For example, the labor contract law requires certain terminations to be based upon seniority and not merit.  In the event we decide to significantly change or decrease our workforce in the PRC, the labor contract law could adversely affect our ability to effect such changes in a manner that is most advantageous to our circumstances or in a timely and cost effective manner, thus our results of operations could be adversely affected.  In addition, the labor contract law requires employers to pay compensation to their employees who agree to bear non-competition obligations on a monthly basis after the employees’ employment expires or terminates, which will increase employers’ operating expenses.

Our failure to fully comply with PRC labor-related laws exposes us to potential penalty risks.

Companies operating in China are required to participate in various government-sponsored employee benefit plans, including certain pension, housing and other welfare-oriented payment obligations.  One of our PRC operating companies, Shanghai Huaqianshu, has not fully paid the contributions to such plans, as required by applicable PRC regulations.  As of December 31, 2015, the outstanding contributions to social insurance funds and housing funds of Shanghai Huaqianshu for which we made provisions amounted to RMB 4.6 million (US$0.7 million).  While we believe we have made adequate provisions for such outstanding amounts in our audited financial statements, our prior failure to make payments may be in violation of applicable PRC labor-related laws and we may be subject to fines if we fail to rectify any violations within the period prescribed by the relevant authorities.  In addition, in the event that any current or former employee files a complaint with the PRC government, we may be required to make additional contributions to our employee benefit plans as well as to pay administrative fines.

According to applicable PRC regulations, employers failing to pay various government sponsored employee benefit plans in accordance with the relevant rules may be ordered to rectify violations and make the required contributions to such plans within a stipulated deadline and can be assessed a late fee of 0.2% or 0.05%, as the case may be, of the amount overdue per day from the original due date by the relevant authority.  If the payment is not made by the stipulated deadline, the employer may be assessed fines by the relevant government authority of up to three times the amount of any under-reported obligation of the employer. Employers failing to make housing fund contributions may be ordered to rectify any such violation within a prescribed time limit.  If an employer fails to rectify a failure to pay within the prescribed time limit, fines ranging between RMB10,000 and RMB50,000 may be imposed and an application may be made to a local court for compulsory enforcement.   Late fees, penalties or legal or administrative proceedings to which we may be subject could materially and adversely affect our reputation, financial condition and results of operations.

If additional remedial measures are imposed on the Big Four PRC-based accounting firms, including our independent registered public accounting firm, in administrative proceedings brought by the SEC alleging the firms’ failure to meet specific criteria set by the SEC, we could be unable to timely file future financial statements in compliance with the requirements of the Securities Exchange Act of 1934.

In December 2012, the SEC instituted administrative proceedings against Big Four PRC-based accounting firms, including our independent registered public accounting firm, alleging that these firms had violated U.S. securities laws and the SEC’s rules and regulations thereunder by failing to provide to the SEC the firms’ audit work papers with respect to certain PRC-based companies that are publicly traded in the United States. On January 22, 2014, the Administrative Law Judge presiding over the matter, or ALJ, rendered an initial decision that each of the firms had violated the SEC’s rules of practice by failing to produce audit workpapers to the SEC. The initial decision censured each of the firms and barred them from practicing before the SEC for a period of six months. The Big Four PRC-based accounting firms appealed the ALJ’s initial decision to the SEC. The ALJ’s decision does not take effect unless and until it is endorsed by the SEC. On February 6, 2015, the four China-based accounting firms each agreed to a censure and to pay a fine to the SEC to settle the dispute and avoid suspension of their ability to practice before the SEC and audit U.S.-listed companies. The settlement required the firms to follow detailed procedures and to seek to provide the SEC with access to Chinese firms’ audit documents via the CSRC. If future document productions fail to meet specified criteria or there is a failure on the process between the SEC and the CSRC, the SEC retains authority to impose a variety of additional remedial measures on the firms depending on the nature of the failure. If the accounting firms are subject to additional remedial measures, our ability to file our financial statements in compliance with SEC requirements could be impacted. A determination that we have not timely filed financial statements in compliance with SEC requirements could ultimately lead to the delisting of our ADSs from NASDAQ or the termination of the registration of our ordinary shares and ADSs under the Securities Exchange Act of 1934, or both, which would substantially reduce or effectively terminate the trading of our ADSs in the United States.

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The audit report included in this annual report has been prepared by an independent registered public accounting firm who is not inspected by the U.S. Public Company Accounting Oversight Board and, as a result, you are deprived of the benefits of such inspection.

Accounting firms of companies that are registered with the SEC and traded publicly in the United States, including our independent registered public accounting firm, must be registered with the U.S. Public Company Accounting Oversight Board, or the PCAOB, and are required by the laws of the United States to undergo regular inspections by the PCAOB to assess their compliance with the laws of the United States and professional standards. As our independent registered public accounting firm is located in the People’s Republic of China, a jurisdiction where the PCAOB is currently unable to conduct inspections without the approval of the PRC authorities, our independent registered public accounting firm is not currently inspected by the PCAOB.

This lack of PCAOB inspections in China prevents the PCAOB from regularly evaluating audits and quality control procedures of any accounting firm operating in China, including our independent registered public accounting firm. As a result, investors are deprived of the benefits of PCAOB inspections.

The inability of the PCAOB to conduct inspections of accounting firms in China makes it more difficult to evaluate the effectiveness of our independent registered public accounting firm’s audit procedures or quality control procedures as compared to accounting firms outside of China that are subject to PCAOB inspections. Investors may lose confidence in our reported financial information and procedures and the quality of our financial statements.

Risks Relating to Our Ordinary Shares and ADSs

There can be no assurance that the Agreement and Plan of Merger dated December 7, 2015 and the transaction contemplated thereby will be successfully consummated. Potential uncertainty involving the proposed transaction may adversely affect our business and the market price of our ADSs.

On December 7, 2015, we entered into an agreement and plan of merger, or the Merger Agreement, with LoveWorld Inc., or Parent, an exempted company with limited liability incorporated under the laws of the Cayman Islands, and FutureWorld Inc., or Merger Sub, an exempted company with limited liability incorporated under the laws of the Cayman Islands. Subject to satisfaction of the terms and conditions contained in the Merger Agreement, Merger Sub will merge with and into our company, with our company continuing as the surviving corporation and a wholly-owned subsidiary of Parent. Each of our ordinary shares and ADSs will be cancelled in exchange for the right to receive US$5.04 per ordinary share or US$7.56 per ADS in cash without interest, except for the ordinary shares (including ordinary shares represented by ADSs): (a) held by us as treasury shares, (b) held by our depositary and reserved for issuance upon the exercise of options and vesting of restricted shares under our equity compensation plan as well as ordinary shares represented by ADSs previously repurchased by us and (c) owned by shareholders who have validly exercised and have not effectively withdrawn or lost their appraisal rights under Section 238 of the Cayman Islands Companies Law. The Merger Agreement was approved by our shareholders at an extraordinary general meeting held on December 29, 2015. We expect that the proposed merger will close on May 13, 2016. However, there can be no assurance that the proposed merger will be consummated. If the merger is not consummated, you will not receive the proposed merger consideration and the price of our ADSs could decline. In addition, we could be subject to potential lawsuits in connection with the proposed merger transaction.

The proposed merger, whether or not consummated, presents a risk of diverting management focus, employee attention and resources from other strategic opportunities and from operational matters. In addition, we are subject to various restrictions under the Merger Agreement on the conduct of our business prior to the completion of the merger, which may delay or prevent us from undertaking business opportunities that may arise pending completion of the merger. Also, the development of the merger, such as completion of the merger or termination of the Merger Agreement, may increase volatility of the trading price of our ADSs.

The market price movement of our ADSs may be volatile, and the value of your investment in our ADSs may decrease.

The market price of our ADSs may be volatile and subject to wide fluctuations.  Among the factors that could affect the price of our ADSs are risk factors described in this section and other factors, including:

·                   announcements by us or our competitors of new services, acquisitions, strategic relationships, joint ventures or capital commitments;

·                   regulatory developments in our target markets affecting us, our users or our competitors;

·                   actual or anticipated fluctuations in our quarterly operating results;

·                   failure of our quarterly financial and operating results to meet market expectations or failure to meet our previously announced guidance;

·                   changes in financial estimates by securities research analysts;

·                   negative publicity, studies or reports;

·                   changes in the economic performance or market valuations of other Internet or online dating services companies;

·                   additions or departures of our executive officers and other key personnel;

·                   announcements regarding actual or threatened litigation involving us or any of our directors and officers;

·                   release or expiration of transfer restrictions on our outstanding ordinary shares and ADSs; and

·                   sales or anticipated sales of additional ordinary shares or ADSs.

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In addition, the performance, and fluctuation in market prices, of other companies with business operations located mainly in China that have listed their securities in the United States may affect the volatility in the price of and trading volumes of our ADSs. Volatility in global capital markets, as was experienced during the global financial crisis, could also have an adverse effect on the market price of our ADSs. Furthermore, the securities markets have from time to time experienced significant price and volume fluctuations that are not related to the operating performance of particular industries or companies.  These market fluctuations may also materially adversely affect the market price of our ADSs.

We may be required to withhold PRC income tax on the dividends we pay you (if any), and any gain you realize on the transfer of our ordinary shares and/or ADSs may also be subject to PRC withholding tax.

Pursuant to the EIT Law, we may be treated as a PRC resident enterprise for PRC tax purposes.  See “Item 3.  Key Information.  D. Risk Factors—Risks Relating to Doing Business in China—We may be classified as a ‘resident enterprise’ for PRC enterprise income tax purposes, which could result in our global income becoming subject to 25% PRC enterprise income tax.” If we are so treated by the PRC tax authorities, we would be obligated to withhold PRC income tax at the reduced rate of up to 5% on payments of dividends on our shares and/or ADSs to investors that are non-resident enterprises of the PRC located in Hong Kong (provided that the competent PRC tax authority approves payment of income tax at such reduced rate) and 10% on payments of dividends on our ordinary shares and/or ADSs to investors that are non-resident enterprises of the PRC located outside Hong Kong, because the dividends payable on our ordinary shares and/or ADSs would be regarded as being derived from sources within the PRC.  In addition, it is unclear if there will be any future guidance extending the withholding tax to dividends we pay to our non-PRC individual shareholders.  Furthermore, any gain realized by any investors who are non-resident enterprises of the PRC from the transfer of our ordinary shares and/or ADSs could be regarded as being derived from sources within the PRC and be subject to a 10% PRC withholding tax and likewise, gains realized by any investors who are non-resident individuals of the PRC from transfer of our ordinary shares and/or ADSs shall be subject to a 20% PRC withholding tax.  Such PRC withholding tax would reduce your investment return on our ordinary shares and/or ADSs and may also materially adversely affect the price of our ordinary shares and/or ADSs.

Substantial future sales of our ADSs or ordinary shares in the public market, or the perception that these sales could occur, could cause the price of our ADSs to decline.

If our shareholders sell substantial amounts of our ADSs, including those issued upon the exercise of outstanding options, in the public market, the market price of our ADSs could fall. Such sales also might make it more difficult for us to sell equity or equity-related securities in the future at a time and price that we deem appropriate. If any existing shareholder or shareholders sell a substantial amount of ordinary shares, the prevailing market price for our ADSs could be adversely affected.

In addition, we may issue additional ordinary shares or ADSs for future acquisitions. Your ownership interest in our company would be diluted and this, in turn, could have a material adverse effect on the price of our ADSs.

Your right as a holder of ADSs to participate in any future rights offerings may be limited, which may cause dilution to your holdings and you may not receive cash dividends if it is impractical to make them available to you.

We may, from time to time, distribute rights to our shareholders, including rights to acquire our securities.  However, we cannot make any such rights available to our ADS holders in the United States unless we register such rights and the securities to which such rights relate under the Securities Act or an exemption from the registration requirements is available.  In addition, the deposit agreement provides that the depositary bank will not make rights available to you unless the distribution to ADS holders of both the rights and any related securities are either registered under the Securities Act or exempted from registration under the Securities Act.  We are under no obligation to file a registration statement with respect to any such rights or securities or to endeavor to cause such a registration statement to be declared effective.  Moreover, we may not be able to establish an exemption from registration under the Securities Act.  Accordingly, you may be unable to participate in our rights offerings and may experience dilution in your holdings.

In addition, the depositary has agreed to pay you the cash dividends or other distributions it or the custodian receives on our ordinary shares or other deposited securities after deducting its fees and expenses.  You will receive these distributions in proportion to the number of ordinary shares your ADSs represent.  However, the depositary may, at its discretion, decide that it is not lawful or practical to make a distribution available to any holders of ADSs.  For example, the depositary may determine that it is not practicable to distribute certain property through the mail, or that the value of certain distributions may be less than the cost of mailing them.  In these cases, the depositary may decide not to distribute such property and you will not receive such distribution.

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You may be subject to limitations on transfer of your ADSs.

Your ADSs are transferable on the books of the depositary.  However, the depositary may close its transfer books at any time or from time to time when it deems expedient in connection with the performance of its duties.  In addition, the depositary may refuse to deliver, transfer or register transfers of ADSs generally when our books or the books of the depositary are closed, or at any time if we or the depositary deem it advisable to do so because of any requirement of law or of any government or governmental body, or under any provision of the deposit agreement, or for any other reason.

As we are a Cayman Islands company, you may face difficulties in protecting your interests, and your ability to protect your rights through the U.S. federal courts may be limited.

Our corporate affairs are governed by our second amended and restated memorandum and articles of association, the Companies Law and the common law of the Cayman Islands.  The rights of our shareholders to take action against the directors, actions by minority shareholders and the fiduciary responsibilities of our directors under Cayman Islands law are to a large extent governed by the common law of the Cayman Islands.  The common law of the Cayman Islands is derived in part from comparatively limited judicial precedent in the Cayman Islands, as well as that from English common law, which has persuasive, but not binding, authority on a court in the Cayman Islands.  The rights of our shareholders and the fiduciary responsibilities of our directors under Cayman Islands law are not as clearly established as they would be under statutes or judicial precedents in some jurisdictions in the United States.  In particular, because Cayman Islands law has no legislation specifically dedicated to the rights of investors in securities, and thus no statutorily defined private causes of action to investors in securities such as those found under the Securities Act or the Securities Exchange Act of 1934 in the United States, it provides significantly less protection to investors.  In addition, Cayman Islands companies may not have standing to initiate a shareholder derivative action before the federal courts of the United States.

As a result of all of the above, our public shareholders may have more difficulty in protecting their interests through actions against our management, directors or major shareholders than would shareholders of a corporation organized in a jurisdiction in the United States.

You may have difficulties in enforcing judgments obtained against us.

We are a Cayman Islands company and substantially all of our assets are located outside of the United States.  Substantially all of our current operations are conducted in the PRC.  In addition, a majority of our directors and officers are nationals and residents of countries other than the United States and a substantial portion of the assets of these persons are located outside the United States.  As a result, it may be difficult for you to effect service of process within the United States upon these persons.  We have been advised by our Cayman Islands legal counsel, Maples and Calder, that the courts of the Cayman Islands are unlikely (i) to recogni ze or enforce against us judgments of courts of the United States predicated upon the civil liability provisions of the securities laws of the United States or any State; and (ii) in original actions brought in the Cayman Islands, to impose liabilities against us predicated upon the civil liability provisions of the securities laws of the United States or any State, so far as the liabilities imposed by those provisions are penal in nature.  In those circumstances, although there is no statutory enforcement in the Cayman Islands of judgments obtained in the United States, the courts of the Cayman Islands will recognize and enforce a foreign money judgment of a foreign court of competent jurisdiction without retrial on the merits based on the principle that a judgment of a competent foreign court imposes upon the judgment debtor an obligation to pay the sum for which judgment has been given provided certain conditions are met.  For a foreign judgment to be enforced in the Cayman Islands, such judgment must be final and conclusive and for a liquidated sum, and must not be in respect of taxes or a fine or penalty, inconsistent with a Cayman Islands judgment in respect of the same matter, impeachable on the grounds of fraud or  obtained in a manner, and or be of a kind the enforcement of which is, contrary to natural justice or the public policy of the Cayman Islands (awards of punitive or multiple damages may well be held to be contrary to public policy).  A Cayman Islands Court may stay enforcement proceedings if concurrent proceedings are being brought elsewhere.

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The voting rights of holders of ADSs must be exercised in accordance with the terms of the deposit agreement, the ADRs and the procedures established by the depositary.  The process of voting through the depositary may involve delays that limit the time available for you to consider proposed shareholders’ actions and may restrict your ability to exercise your right to vote.

As a holder of our ADSs, you may only be able to exercise the voting rights with respect to the underlying ordinary shares in accordance with the provisions of the deposit agreement.  Under the deposit agreement, if the vote is by show of hands, the depositary will vote the underlying ordinary shares in accordance with the voting instructions received from a majority of holders of ADSs that provided timely voting instructions.  If the vote is by poll, the depositary will vote the underlying ordinary shares in accordance with the voting instructions it timely receives from ADS holders.  Upon receipt of voting instructions of a holder of ADSs in the manner set forth in the deposit agreement, the depositary will endeavor to vote the underlying ordinary shares in accordance with these instructions.  Under our second amended and restated memorandum and articles of association and Cayman Islands law, the minimum notice period required for convening a general meeting is five days.  When a general meeting is convened, you may not receive sufficient notice of a shareholders’ meeting to permit you to withdraw your ordinary shares to allow you to cast your vote with respect to any specific matter.  In addition, the depositary and its agents may not be able to send voting instructions to you or carry out your voting instructions in a timely manner.  We will make all reasonable efforts to cause the depositary to extend voting rights to you in a timely manner, but we cannot assure you that you will receive the voting materials in time to ensure that you can instruct the depositary to vote your shares.  Furthermore, the depositary and its agents will not be responsible for any failure to carry out any instructions to vote, for the manner in which any vote is cast or for the effect of any such vote.  As a result, you may not be able to exercise your right to vote and you may lack recourse if the ordinary shares underlying your ADSs are not voted as you requested.

The depositary for our ADSs will give us a discretionary proxy to vote our ordinary shares underlying your ADSs if you do not vote at shareholders’ meetings, except in limited circumstances, which could adversely affect your interests.

Under the deposit agreement for the ADSs, if you do not vote, the depositary will give us a discretionary proxy to vote our ordinary shares underlying your ADSs at shareholders’ meetings unless:

·                   we have instructed the depositary that we do not wish a discretionary proxy to be given;

·                   we have informed the depositary that there is substantial opposition as to a matter to be voted on at the meeting;

·                   a matter to be voted on at the meeting would have a material adverse impact on shareholders; or

·                   the voting at the meeting is to be made on a show of hands.

The effect of this discretionary proxy is that if you do not vote at shareholders’ meetings, you cannot prevent our ordinary shares underlying your ADSs from being voted, except under the circumstances described above.  This may make it more difficult for shareholders to influence the management of our company.  Holders of our ordinary shares are not subject to this discretionary proxy.

We may be classified as a passive foreign investment company, which could result in adverse United States federal income tax consequences to United States Holders of our ADSs or ordinary shares.

Although it is not clear how the contractual arrangements between us and our VIE entities will be treated for purposes of the “passive foreign investment company,” or PFIC, rules, we do not believe we were a PFIC for United States federal income tax purposes for our taxable year ended December 31, 2015 based upon the composition of our income and assets and valuation of our assets, including goodwill.  However, the application of the PFIC rules is subject to ambiguity in several respects and, in addition, we must make a separate determination each year as to whether we are a PFIC after the close of each taxable year.  Because we expect to continue to hold a substantial amount of cash and other passive assets, and because the determination of whether we are a PFIC will depend on the character of our income and assets and the value of our assets from time to time, which may be based in part on the market price of our ADSs, which is likely to fluctuate, we cannot assure you that we will not be a PFIC for any future taxable year.  If we were to be treated as a PFIC for any taxable year during which a United States Holder held an ADS or an ordinary share, the United States Holder could be subject to adverse United States federal income tax consequences upon certain distributions and on gain recognized with respect to the disposition of an ADS.  In addition, a United States Holder may be subject to additional reporting requirements.  See “Item 10. Additional Information—E. Taxation—United States Federal Income Tax Consequences—Passive Foreign Investment Company.”

Our articles of association contain anti-takeover provisions that could discourage a third party from acquiring us, which could limit our shareholders’ opportunity to sell their shares, including ordinary shares represented by our ADSs, at a premium.

Our second amended and restated memorandum and articles of association include provisions that could limit the ability of others to acquire control of us, including provisions that authorize our board of directors, without action by our shareholders, to issue preferred shares and to issue additional ordinary shares, including ordinary shares represented by ADSs.  These provisions could have the effect of depriving you of an opportunity to sell your ADSs at a premium over prevailing market prices by discouraging third parties from seeking to acquire control of us in a tender offer or similar transactions.

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In August 2012, we established Beijing Aizhenxin Information Technology Co., Ltd., or Beijing Aizhenxin, in the PRC, and Beijing Miyuan entered into a series of contractual arrangements with Beijing Aizhenxin and its shareholders to acquire effective control over Beijing Aizhenxin.  As a result, Beijing Aizhenxin became one of our variable interest entities.  Beijing Aizhenxin commenced operations in October 2012.

On December 26, 2012, we completed the acquisition of certain assets of Beijing Juedui100, an online dating website operator, for a consideration of RMB5.5 million.  The assets we acquired include the domain names of www.juedui100.com and www.juedui100.com.cn  and related trademarks, rights to any trademarks under pending applications and user database.

In March 2014, Shanghai Miyuan transferred and assigned its obligations and rights under the contractual arrangements with Shanghai Huaqianshu, Beijing Huaqianshu and Xique and their respective shareholders to Beijing Miyuan and the contractual arrangements with Shanghai Huaqianshu, Beijing Huaqianshu and Xique and their respective shareholders were amended and restated.

On December 1, 2015, Beijing Miyuan entered into a series of contractual arrangements with Beijing Youyue Hudong Information Technology Co., Ltd., or Beijing Youyue Hudong, in the PRC, and its legal shareholders to acquire effective control over Beijing Youyue Hudong. As a result, BeijingYouyue Hudong became a variable interest entity of Beijing Miyuan. Beijing Youyue Hudong commenced operations in April 2015.

Our principal executive offices are located at 15/F, Anhua Development Building, No. 35 Anding Road, Chaoyang District, Beijing, the People’s Republic of China, and our telephone number is 86-10-6113-6600. Our registered office in the Cayman Islands is P.O. Box 309, Ugland House, Grand Cayman, KY1-1104, Cayman Islands. Our agent for service of process in the United States is Law Debenture Corporate Services Inc., located at 400 Madison Avenue, 4th Floor, New York, NY 10017.

Merger agreement

We entered into an agreement and plan of merger, dated December 7, 2015, or the Merger Agreement, with LoveWorld Inc., an exempted company with limited liability incorporated under the laws of the Cayman Islands (“Parent”), and FutureWorld Inc., an exempted company with limited liability incorporated under the laws of the Cayman Islands and a wholly-owned subsidiary of Parent, pursuant to which Parent agreed to acquire our Company for US$5.04 per ordinary share. The Merger Agreement was approved by the shareholders at an extraordinary general meeting of shareholders held on December 29, 2015.

B.             Business overview

We operate Jiayuan.com, the largest online dating platform in China.  As a pioneer in China’s online dating market, we are committed to addressing the dating and marriage needs of China’s rapidly growing urban singles population by providing trusted, effective platforms and superior user experiences.  The Jiayuan.com platform provides single adults with unique opportunities to meet, interact and form a long-term relationship aimed towards marriage.  Our website Jiayuan.com ranked first in terms of number of monthly unique visitors and total time spent among all online dating websites in China in 2015, according to iResearch.

Our Jiayuan.com platform employs a results-based pricing model, which we believe distinguishes us from other online dating service providers.  Unlike dating websites that follow a subscription-based model, Jiayuan.com offers users free registration with immediate full search access to our database.  This feature engages new users in the site and entices them to begin exploring our database for potential companions.  Although the search capabilities and exploratory services are provided for free and our users are not required to pay to send an initial message to another user, either the sender or recipient must pay a RMB2.00 to RMB 4.00 fee in order to unlock communications.  After the initial message is read, future communications between the same users are free on the Jiayuan.com platform. Our pricing strategy for the initial message is designed to reach and target the mass market with its affordability.  Given the nominal cost to unlock communications, we believe this feature of our business is recession-resistant and serves as a strong foundation of our revenue model.  Furthermore, for users who intend to send or who have received a large amount of initial messages, we offer various types of fee plans that include the option to send up to 200 initial readable messages per day or unlimited message reading during a specified subscription period.

We believe our Jiayuan.com platform’s results-based pricing model is more attractive to users because they only pay for the results and services that they can see and has been one of the key factors enabling us to attract and retain a large user base.  We believe most of our users are well-educated singles seeking long-term relationships aimed towards marriage.  Our large and attractive user base combined with our results-based fee structure and user-friendly interface have created what we believe is a superior user experience.  According to a survey conducted by iResearch in December 2015, our Jiayuan platform was the most frequently used online dating platform in China and ranked first in customer satisfaction among our major competitors in China’s online dating industry.

We believe that our “ 世 纪 佳 缘 ” (Shiji Jiayuan) brand, which is our Chinese name, has become the most well-known and trusted online dating brand in China.  On December 31, 2015, “ 世 纪 佳 缘 ” (Shiji Jiayuan) was searched 50-times more often than “ 交友网站 ” (Jiao You Wang Zhan), a common term for “dating website” in Chinese, on Baidu.com .  Leveraging our brand and national recognition, we have attracted a critical mass of local users in not only first-tier cities, such as Beijing, Shanghai, Guangzhou and Shenzhen, but also in many second-tier cities across China.  We intend to continue expanding our user base into other second-tier and third-tier cities.  A large user base is a major attraction for new users because of the large number of potential companions available to each of our users at their preferred location.  We believe our localized critical mass on a national scale and well-regarded brand name are difficult for competitors to replicate and provide us with an important competitive advantage.

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In 2012, we launched our members-only website, izhenxin.com in connection with our segmentation strategy to provide busy singles a more focused and streamlined environment to search for marriage-minded partners. We believe it was the first online dating platform in China to provide a comprehensive information verification system. Using the information from the comprehensive information verification system, the izhenxin.com website provides each member with an initial “sincerity score.”  As members use the izhenxin.com website, our proprietary algorithm analyzes user behavior and adjusts members’ “sincerity scores” on a real-time basis. As of December 31, 2015, the izhenxin.com website had more than 1.1 million verified members.

In December 2012, we acquired certain assets of Beijing Juedui100 relating to the online dating website juedui100.com .

In May 2013, we began offering our personalized matchmaking services in China. At the end of 2015, we had s ix locations offering personalized matchmaking services through our own employees and 100 locations that offer the service through outsourced matchmakers.

In connection with furthering our segmentation strategy, in September 2013, we launched qiuai.com , an html-based mobile dating platform tailored to feature mobile users. Qiuai.com was developed specifically for users who have limited access to personal computers, or PCs, and includes core dating features supported by our proprietary matching algorithm. Adopting a subscription-based model to avoid micro-payments with relatively high operator billing costs, qiuai.com recorded more than 14.5 million registered users by the end of 2015.

In October 2013, we launched a limited beta testing of Qiuyuehui, an e-commerce app designed for users to send real gifts or pre-paid dinner invitations to initiate communications. The address of the recipients is kept private from the senders, which helps to ensure dating security for our users.

In October 2014, we completed the purchase of a 20% ownership in Wuhan Didi, a Chinese developer of “Love Note,” a mobile app for communications between lovers.

We continued to accelerate the expansion of our personalized matchmaking services in 2015, with national coverage increasing from 78 locations in 59 cities at the beginning of 2015 to 106 locations in 75 cities by the end of 2015. Leveraging our online resources and the largest online database of Chinese singles, our personalized matchmaking services provide one-on-one search and matchmaking services for clients who prefer more personalized services, helping them save time in finding love and extending the reach to eligible potential companions.

We also continued to expand our business in events and others. Since 2008, we have hosted large scale social gatherings in cities throughout China to provide our users offline opportunities to meet in person.  We began to operate a membership dating club in Beijing at the end of 2014 and opened another dating club in Shenzhen in November 2015 where members can date or participate in offline dating services hosted at the club. Under this type of service, users pay a single-entry fee or periodic subscription fee to join. Fees for these services are collected upfront. Such offline events also promote our national brand name and benefit our online platform.

We started charging fees for messaging services provided on our Jiayuan.com platform in October 2008, and currently we derive most of our revenues from our online business.  We had an average of 5,275,688 monthly active user accounts in 2015, compared to 5,668,840 in 2014.  In 2015, the number of our average monthly paying user accounts was 1,443,858, compared to 1,510,919 in 2014.  We generated net revenues of RMB492.6 million, RMB614.0 million and RMB713.6 million (US$110.2 million) in 2013, 2014 and 2015, respectively.  We had net income of RMB63.7 million, RMB20.1 million and RMB25.4 million (US$3.9 million) in 2013, 2014 and 2015, respectively.  Excluding non-cash share-based compensation expenses and professional fees related to previous announced proposals regarding a potential “going private” transaction and the proposed merger with LoveWorld Inc., we had a non-GAAP net income of RMB74.1 million, RMB29.7 million and RMB51.4 million (US$7.9 million)in 2013, 2014 and 2015, respectively.

Our Services

Online Services

Jiayuan.com

Our Jiayuan platform provides single adults unique opportunities to meet, interact with one another and form a long-term relationship aimed towards marriage.  Our Jiayuan platform can be accessed through Internet browsers, wireless applications, desktop clients and WAP mobile browsers. After registering on our Jiayuan platform for free, users can post their own profiles and pictures and have those profiles and pictures viewed by other users for free.  In addition, users can also browse the profiles and pictures of other users, save their preferences and send messages to other users for free.  However, in order for the recipient to read the message, either the sender or the recipient must either pay a nominal fee to unlock communications between the two parties , or have a periodic subscription package.

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We began charging fees for messaging services on our Jiayuan platform in October 2008.  We have a results-based fee structure designed to allow users to purchase our fee-based services based on their success in contacting other users.  We offer the following two primary fee plans for our online dating services.

·                                           Unlock Communications Fee.  Payment of our unlock communications fee allows a user to connect with one other user for RMB2.00 to RMB4.00.  While a user initiates contact by sending a message to another user free-of-charge, either the sender or the recipient must pay the fee in order for the recipient to be able to read the message.  Once the first message is sent and read, the sender and the recipient can continue to communicate with each other through our Jiayuan platform without additional fees.  Users can also purchase a single virtual stamp for RMB2.00 or four virtual coins for RMB1.00 each to unlock a communication, or purchase a set of virtual stamps or coins to unlock communications.  We also give users free stamps when they provide additional biographical information or pictures to encourage them to explore and utilize our messaging services.

·                                           Periodic Subscription Fees.  Users can also pay for periodic subscriptions that allow them to send messages to up to a maximum of 100 or 200 users per day, or read an unlimited number of messages during the duration of the subscription period.  For sending messages, we offer monthly, three-month, six-month and annual subscription plans.  For reading messages, we offer monthly, three-month, six-month and annual subscription plans.  Periodic subscription fees also include “diamond memberships,” which allow a user unlimited access to read messages as well as access to enhanced features under our value-added service “VIP memberships” and are available in monthly, three-month, six-month and annual plans. Monthly plans are also available for online chatting.  As part of our strategy to improve monetization and enhance user experience, we consistently evaluate the pricing of our periodic subscription fees and have implemented new packages priced above current subscription products.

Our Jiayuan platform offers a number of fee-based value-added services.  These value-added services primarily include purchasing virtual gifts for another user, improving one’s search ranking, priority rankings for sent messages, online chatting and premium display of their pictures and profile on our platform.  Users can also submit proof of information posted on their profiles so that other users will know they have submitted such information to us.

Our value-added services also include “VIP memberships.” “VIP memberships” are an improved version of our previous “advanced memberships” subscription and allow a user access to enhanced features on our platform such as customizing their profiles, seeing the users who have viewed their user profile, seeing the time of another user’s last log-in and more refined profile searches and are available in monthly, three-month, six-month and twelve-month plans.

We also offer web-based games and mobile games under an item-based revenue model where the basic game play functions are free of charge and players are charged for purchases of in-game virtual items or game points.  For web-based games, we cooperate with third-party game developers by entering into cooperation agreements with them. The web-based games designed, developed and hosted by these developers are made available to the players through our Jiayuan platform. We generally collect payments from players in connection with the sale of in-game virtual items and remit certain agreed-upon percentages of the proceeds to the game developers and record revenue net of such remittances.  For mobile games, we are primarily responsible for the operation and selling of game points to players through third party mobile application stores. The mobile application stores remit the proceeds to us after deducting certain agreed-upon percentages of commission fees.

Izhenxin.com

Our izhenxin.com platform gives marriage-minded singles a simple members-only platform in which to interact.  Izhenxin.com is based on Jiayuan’s industry-leading technology and includes enhanced verification and user behavior analysis methodologies to improve both user experience and matching results. Izhenxin.com is a subscription-based platform and users can subscribe to one-month, three-month and six-month periodic subscription packages. We launched the Android application for izhenxin.com in May 2014, followed by an iOS version in October 2014.

Qiuai.com

We commenced open beta testing for qiuai.com in September 2013, a mobile dating platform optimized for mobile browsers and WAP platforms. Qiuai.com was developed specifically for users who have limited access to PCs. Qiuai.com is free to register and to browse profiles, but male users are required to pay a daily, monthly, three-month or annual subscription fees to read and send messages, while female users can send unlimited messages for free. Qiuai.com also offers value-added services such as virtual gifts and VIP memberships that allow male users to view additional photos beyond the profile thumbnail photo. We generate advertising revenue from Qiuai.com . We began to charge female users under the same fee plan in February 2016. As of the end of 2015, qiuai.com recorded more than 14.5 million registered user accounts.

Jr.jiayuan.com

We launched our internet finance platform   Jr.jiayuan.com   in August, 2015. As an extension of Jiayuan’s dating products,  Jr.jiayuan.com has   improved user retention by combining dating with finance services. Users can access our finance services through Internet browsers, WAP mobile browsers and our Jr.jiayuan.com WeChat official account. We also launched applications in both Android and iOS versions for this service.

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Personalized Matchmaking Services

Our personalized matchmaking services, which we previously referred to as VIP services, consist of special, personalized services where our service representatives take a proactive approach in finding potential companions for our personalized matchmaking clients.  Depending on the needs of the clients, we provide tailor-made recommendations, conduct detailed background checks and provide dating and relationship consultation and advice.  Our personalized matchmaking services also include placement of targeted advertisements on our platform and arrangement of face-to-face interviews of potential companions on behalf of our clients.  We also host personalized offline matchmaking events where our personalized matchmaking clients can meet pre-selected candidates at cocktail gatherings or outdoor trips. We usually collect fees upfront when contracts are signed for the personalized matchmaking service engagement.  We occasionally will allow personalized matchmaking clients to pay within one month from when the personalized matchmaking service contract is signed.

We expanded our personalized matchmaking services at an accelerated pace since 2013 by leveraging our proprietary customer relations management, or CRM, system, which enables better resource management and allows greater scalability. We developed the business from 30 locations in 25 cities in the fourth quarter of 2013 to 78 locations in 59 cities by the end of 2014 to 106 locations in 75 cities by the end of 2015. The CRM system allows us to expand our coverage through an outsourcing model, by which we cooperate with local partners leveraging on their local physical presence, experience and management team while allowing them to use Jiayuan’s brand name and limited access to our online resources. Under this outsourcing model, service contracts are signed between Jiayuan and the clients receiving the personalized matchmaking services and such clients also pay directly to Jiayuan. At the end of the 2015, we had 100 out of 106 locations offering personalized matchmaking services through such matchmaking agencies. The number of locations providing matchmaking services increased from 30 locations in 25 cities at the end of 2013 to 78 locations in 59 cities at the end of 2014 to 106 locations in 75 cities at the end of 2015. At the end of 2015, Jiayuan’s personalized matchmaking locations employed 2,820 matchmakers, compared to 2,124 matchmakers at the end of 2014.

To further accelerate the expansion of personalized matchmaking services, we began limited testing of crowd-sourced matchmaking in Beijing during the second quarter of 2015, which leverages Chinese society’s traditional matchmaking done by relatives and neighbors and encourages them to introduce special clients or candidates in order to receive a commission. We expanded the model into other first tier and second tier cities at the beginning of 2016 and have currently developed approximately 5,000 verified crowd-sourced matchmakers in Beijing, Shanghai, Guangzhou and Shenzhen. We believe this crowd-sourced model complements the sales growth of our personalized matchmaking locations and will help us to consolidate the significant untapped market for our personalized matchmaking services.

Events and Others

We organize and host events that allow individuals to meet a large number of potential partners in person.  In 201 5, our events were typically large gatherings of approximately 100 to 200 participants with activities designed to facilitate social interaction.  These events include speed-dating, dance parties and other social events for our users.  In 2015, we organized a total of 489 offline events in 66 cities across China.  Attendance is free-of-charge for events where we obtain event sponsorship advertising. For non-sponsored events, we typically collect entry fees at the commencement of the event.

At the end of 2014, we began to operate a membership dating club in Beijing where members can date or participate in offline dating services hosted at the club. We opened another dating club in Shenzhen in November 2015. Under this type of service, users pay a pay-per-use fee or periodic subscription fee to join. Fees for these services are collected upfront.

Other services consist primarily of online advertising placed on our websites.

User Base

We have a large and active user base on our online dating platforms, consisting primarily of users indicating they are seeking serious relationships and marriage. On Jiayuan.com and izhenxin.com , we actively discourage users who are not looking for a serious relationship from using our services.  The primary categories we use to track our users are active user accounts, paying user accounts, average monthly revenue per paying user, or ARPU, and registered user accounts.

Our average monthly active user accounts were 5,668,840 in 2014 and 5,275,688 in 2015.  The average percentage of monthly active user accounts that were paying user accounts in 2015 was approximately 27.4%, compared to 26.7% over the corresponding period in the prior year.  In December 2015, 72.1% of our active user accounts were between the ages of 18 to 35, inclusive, and 76.6% of our active user accounts had some post-secondary education, both as reported by our users.  In addition, there were 82 cities in China in which we had at least 10,000 active user accounts in December 2015.

We have an active and engaged user base.  In the three months ended December 31, 2015, an average of 2,525 users per day changed their relationship status to “currently dating someone” or “in a relationship” on their Jiayuan profile on our Jiayuan.com platform.  Our monthly paying user accounts increased from an average of 1,339,258 in 2013 to an average of 1,510,919 in 2014 and recorded an average of 1,443,858 in 2015.  We generate revenue by converting active user accounts into paying user accounts and by encouraging our users to purchase more services.  Our average monthly ARPU for online services in 2015 was RMB23.6.

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Our personalized matchmaking clients are often busy professionals that are existing Jiayuan.com registered users who we have converted to paid matchmaking clients. Participants in our offline events are primarily also users of our online dating services.

Operations

Online Security Measures

We emphasize maintaining a serious and reliable online dating environment on Jiayuan.com and izhenxin.com and high satisfaction levels among our user experience on all of our platforms.  To that end, we have taken a number of steps to promote responsible and appropriate behavior among our users, establish user participation guidelines and disclaimers and allow telephone access to customer service representatives to address user concerns. In particular, we continued to upgrade our online intelligent security system in 201 5 to monitor and discourage unhealthy user behavior on a more timely and effective basis.

Information Verification.  We encourage users to provide proof of personal information such as proof of age, income and education level.  Users who provide proof of personal information are given a higher rating in our database.  Subsequent to registration, we do not allow users to improve certain basic personal information they previously provided such as height, salary and education level without verification.

User Feedback.  We ask users to alert our user support representatives as to other users who are suspected of violating our policies, such as users who are not committed to seeking a long-term relationship or who provide false personal information.

Black List.  If users behave inappropriately through our platforms, we will move such offenders to a “black list” and restrict their access to our databases and their ability to send messages through our platforms, even if they are paying users.

Key Word Screening.  We use proprietary computer algorithm to screen messages for offensive words and phrases and advertising as well as words and phrases that may indicate that a member is not otherwise seeking a serious relationship. When words and phrases in these categories are flagged, a user service representative reviews the message.  If the message violates our policies, the sender is put on our “watch list.” Repeat offenders are moved to our black list.

User Behavior Screening.  We use a proprietary computer algorithm to monitor for abnormal user behavior that may indicate that a member is not otherwise seeking a serious relationship.  When improper log-in, browsing or messaging behavior is detected, the user is flagged for review by a user service representative, who reviews the user activity and decides whether to move the user to the black list.

Cautionary Messages.  We post various cautionary messages on our platforms about the potential dangers of meeting people in an online environment and the precautions that a user should take when meeting other users in-person. On our platforms, we encourage our users to message users whose profiles have been verified each time they view profiles of unverified users. We also encourage our users to indicate their willingness to show their identity when they meet other users offline for the first time, and we will highlight the users who are willing to do so with a symbol below their profile photo and Jiayuan ID.

Payment Channels

We provide users of our online dating services the flexibility to choose from a number of payment options.  Payment options include online banking, online payment, wire transfer, postal remittance, prepaid cards and cash.  Many of our customers prefer online banking and online payment.  For online payment, we typically collect through nationally recognized payment processing agents and receive the fees within 48 hours.  We pay a percentage of the proceeds to these agents as commission.  Our agreements with the independent payment processing agents are generally for terms of one year.

Users can also pay for these services through mobile carriers.  For users who pay through mobile carriers, we will receive payments through our WVAS partners.  We do not bill users who pay for our services directly through their mobile phones.  Instead, we estimate revenue and cost of revenue based on internal billing records and adjust our revenue based on billing statements and fees remitted to us by our WVAS partners.  See “Item 3.  Key Information.  D. Risk Factors—Risks Relating to Our Business—We are required to estimate a portion of our reported revenues and cost of revenues at period-end, which may require subsequent adjustments to our financial statements.”

User Support

Our user support team operates 24 hours a day, seven days a week.  As of December 31, 2015, we employed a total of 89 full-time and 28 part-time user support representatives.  Our team of user support representatives helps users with matters such as completing profile descriptions and personal essays and choosing photos for their profiles, as well as answering questions about billing and technical issues.  Our user support team also reviews new and updated profiles and plays an integral role in implementing our online security measures. User support representatives receive ongoing training in an effort to better personalize the experience for users that call in.

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Marketing

We employ a variety of marketing and recruiting methods to attract users.  We believe that users have been attracted to our Jiayuan platform due to our excellent brand name, the quality of the online experience we offer, our large user base and our leading position in the industry.  Our user experience helps us to market through word-of-mouth and increases the time that users spend on our platforms.  We also engage in a variety of marketing activities intended to drive traffic to our platforms and to allow us to introduce our services to prospective users.  These include the following online marketing activities:

·                                           Paid search.  We utilize various popular search engines in China.  We pay for keywords or phrases relevant to our business and services so that when users search for these keywords or phrases on these search engines they will be directed to our platforms.

·                                           Banner and other display advertising.  We conduct marketing campaigns online through the use of banner and other display advertising on navigation websites, Internet portals and other specialized websites.

·                                           Co-branded dating channels. We operate co-branded dating channels on third party websites. The dating channels feature user profiles from Jiayuan’s user base and all activities by such users on the dating channels are redirected to Jiayuan’s main website.

We also engage in a variety of marketing activities targeting users that access our platforms through their wireless handsets, including advertising through WAP portals, application download stores and in-app advertising.

We have also initiated various offline marketing activities to further promote our brand awareness among existing and potential users.  For example, we market our services through direct marketing, trade shows and other media events, which include:

·                                           hosting or attending various public relations events, such as industry-related seminars and conferences, to promote our brand image and the value of online personal services;

In addition, we benefit from cross-promotional arrangements with third-party websites and television stations, under which we cooperate to help improve each other’s brand recognition.  We have collaborated with approximately 52 national and regional television shows as well as video and audio programs.  To enhance our market penetration, especially among working professionals, we also advertise in subway stations.

Intellectual Property

Intellectual property rights, including copyrights, trademarks, domain names and trade secrets, are important to our success.  We rely on a combination of trademark, copyright and trade secret laws in China as well as confidentiality procedures and contractual provisions to protect our proprietary technology, our brand and our domain name.

Employment agreements with our employees typically contain confidentiality and invention assignment provisions, assigning to us the intellectual property rights in the platform, designs, business documents, tools and other relevant work generated by them as a result of performing their employment duties or using our resources while they are employed with us.  We also provide regular training to our employees regarding procedures that should be taken to protect our intellectual property, including information relating to our users.

We have registered 172 trademarks, including “ 世 纪 佳 缘 ” (Shiji Jiayuan), “ 花千 树 ” (Huaqianshu), “jiayuan.com” , “ 爱 真心 ” (Aizhenxin) and “ 求 爱 ”(Qiuai) in the PRC and six trademarks abroad in Hong Kong, Taiwan and the United States.  We have also registered 85 domain names relating to our web sites, including www.jiayuan.com, the primary URL for our online dating platform, www.izhenxin.com, the primary URL for our members-only online dating platform and www.qiuai.com. We obtained the trademark registration for the “ 世纪佳缘 ”(Shiji Jiayuan) trademark and certain of our other trademarks for dating and marriage agency services in 2015.

We believe that our confidentiality procedures and contractual provisions adequately protect our intellectual property rights, and avoid infringing or potentially infringing activities, minimize our exposure to third-party claims and protect our reputation as a company.  Despite our efforts, it may be possible for third parties to obtain and use our intellectual property without authorization, or challenge our intellectual property rights.  See “Item 3.  Key Information.  D. Risk Factors—Risks Relating to Our Business—If we are unable to protect our Internet domain names or proprietary rights upon which our business relies or avoid claims that we infringe upon the proprietary rights of others, our profitability may be materially and adversely affected.”

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Competition

The online dating market in China is rapidly developing and there are currently few barriers to entry for potential competitors to set up online dating websites.  We compete with a number of different companies, both large and small, including vertically integrated Internet portals and specialty-focused media companies, that provide online and offline products and services similar to ours and that target the markets we serve.  Our principal competitors include Baihe.com and Zhenai.com , both of which operate online dating platforms.  We compete directly with online dating service providers such as Baihe.com , Zhenai.com and Youyuan.com .  We also compete with portals and classifieds websites that operate online dating sub-channels, such as 163.com , Ganji.com and 58.com .  In addition, we face competition from Internet portals and social networking websites such as Sina.com.cn , Sohu.com , QQ.com , Renren.com and Kaixin001.com , including applications on wireless devices from QQ.com , WeChat and Momo.  Due to the global accessibility of the Internet and because of the strong and growing demand for online dating services in China, we also face competition from overseas operators of online dating services and other foreign Internet companies.  There are also numerous other companies offering online dating services that compete with us that are smaller, less established and not as well known.

We also face competition from traditional offline dating service providers, such as matchmaking agencies, personal sections of newspapers and magazines and other conventional media companies that provide dating services.

We believe that the primary competitive factors in creating a successful online community focused on providing serious dating opportunities are functionality, brand recognition, having a critical mass of users, user affinity and loyalty, ease-of-use, quality of service and reliability.  Though the barriers to entry in setting up online dating websites are low, we believe it is difficult for new entrants to successfully compete because of the competitive factors listed above.

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Regulation on Telecommunications and Internet Information Services

The telecommunications industry, including the Internet sector, is highly regulated in the PRC.  Regulations issued or implemented by the State Council, the Ministry of Industry and Information Technology, or MIIT (formerly the Ministry of Information Industry, or MII), and other relevant government authorities cover many aspects of operation of telecommunications and Internet information services, including entry into the telecommunications industry, the scope of permissible business activities, licenses and permits for various business activities and foreign investment.

The principal regulations governing the telecommunications and Internet information services that we provide in the PRC include:

·                                           Telecommunications Regulations (2014, revised), or the Telecom Regulations.  The Telecom Regulations categorize all telecommunications businesses in the PRC as either basic or value-added services.  Value-added telecommunications services are defined as telecommunications and information services provided through public network infrastructures.  The “Catalog of Telecommunications Business,” an attachment to the Telecom Regulations and updated by the MII’s Notice on Adjusting the Catalog of Telecommunications Business effective from April 1, 2003, categorizes various types of telecommunications and telecommunications-related activities into basic or value-added telecommunications services, according to which, Internet information services, or ICP services, are classified as value-added telecommunications businesses.  Under the Telecom Regulations, commercial operators of value-added telecommunications services are required to first obtain an operating license for value-added telecommunications services, or the ICP License, from the MIIT or its provincial level counterparts.

·                                           Administrative Measures on Internet Information Services (2011, revised), or the Internet Measures.  According to the Internet Measures, a commercial ICP service operator must obtain an ICP License from the relevant government authorities before engaging in any commercial ICP service within the PRC.  When the ICP service involves areas of news, publication, education, healthcare, pharmaceuticals, medical equipment and other industries and if required by laws or relevant regulations, prior approval from the respective regulating authorities must be obtained prior to applying for the ICP License from MIIT or its local branch at the provincial level.  Moreover, an ICP service operator must display its ICP License number in a conspicuous location on its website and must monitor its website to remove categories of harmful content that are broadly defined.

·                                           Administrative Measures for Telecommunications Business Operating License (2009, revised), or the Telecom License Measures.  The Telecom License Measures set forth more specific provisions regarding the types of licenses required to operate value-added telecommunications services, the qualifications and procedures for obtaining such licenses and the administration and supervision of such licenses.  For example, an ICP service operator conducting business within a single province is required to apply for the ICP License from the MIIT’s applicable provincial level counterpart while an ICP service operator providing ICP services across provinces is required to apply for Trans-regional ICP License directly from MIIT.  An ICP service operator that has been granted the Trans-regional ICP License is required to file a record with the local branch of MIIT at the provincial level prior to conducting any value added telecommunications business in such provinces.  The appendix to the ICP License is required to detail the permitted activities to be conducted by the ICP service operator.  An approved ICP service operator is required to conduct its business in accordance with the specifications recorded on its ICP License.  The ICP License is subject to annual review and the annual review result will be recorded as an appendix to the ICP License, published to the public and notified to the applicable administrative authority for industry and commerce.

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·                                           Detailed Rules on the Administration of Internet Websites (2005), which set forth that a website operator is required to apply for the ICP filing from the MIIT or its local branches at the provincial level on its own or through the access service provider.

·                                           Regulations for Administration of Foreign-Invested Telecommunications Enterprises (2008, revised), or the FITE Regulations.  The FITE Regulations set forth detailed requirements with respect to, among others, capitalization, investor qualifications and application procedures in connection with the establishment of a foreign-invested telecommunications enterprise.  Under the FITE Regulations, a foreign entity is prohibited from owning more than 50% of the total equity interest in any value-added telecommunications service business in the PRC and the major foreign investor in any value-added telecommunications service business in the PRC is required to have good track record in such industry.

·                                           Circular on Strengthening the Administration of Foreign Investment in and Operation of Value-added Telecommunications Business (2006).  Under this circular, a domestic PRC company that holds an ICP License is prohibited from leasing, transferring or selling the ICP License to foreign investors in any form, and from providing any assistance, including providing resources, sites or facilities, to foreign investors that conduct value-added telecommunications business illegally in the PRC.  Further, the domain names and registered trademarks used by an operating company providing value-added telecommunications service are required to be legally owned by such company and/or its shareholders.  In addition, such company’s operation premises and equipment should comply with its approved ICP License, and such company should establish and improve its internal Internet and information security policies and standards and emergency management procedures.

·                                           Measures for the Administration of Commercial Website Filings for Record  (2004).  Under these measures, commercial websites operated by ICP service operators registered in Beijing must: (i) file with the Beijing Administration of Industry and Commerce and obtain electronic registration marks; and (ii) place the registration marks on their websites’ homepages.

·                                           Provisions on Administration of Internet User Account Names (2015).  Under these provisions,  Internet information service providers shall, pursuant to the principle of “mandatory real name registration at the back-office end, and voluntary real name display at the front-office end,” require users to pass an identity authentication process prior to creating an account.

To comply with these PRC laws and regulations, we operate our value-added telecommunications business through Shanghai Huaqianshu, Beijing Huaqianshu, Beijing Aizhenxin , Xique, Beijing Youyue Hudong and Shanghai Tengwan.  Shanghai Huaqianshu owns the essential domain names and trademarks and holds an ICP License in relation to our value-added telecommunications business on our Jiayuan.com website.  Beijing Aizhenxin owns the essential domain names in relation to value-added telecommunications business on qiuai.com website and owns the essential trademarks and holds an ICP License in relation to our value-added telecommunications business on our izhenxin.com website. Xique owns the essential domain names in relation to our value-added telecommunications business on our izhenxin.com website and is in the process of registering the relevant trademarks and holds an ICP License in relation to value-added telecommunications business on qiuai.com website. Shanghai Tengwan is currently in the process of applying for the ICP Licenses in relation to value-added telecommunications business they operate.

Under various laws and regulations governing ICP services, ICP services operators are required to monitor their websites.  They may not produce, duplicate, post or disseminate any content that falls within the prohibited categories and must remove any such content from their websites, including any content that:

·                                           opposes the fundamental principles determined in the PRC’s Constitution;

·                                           compromises state security, divulges state secrets, subverts state power or damages national unity;

·                                           sabotages the PRC’s religious policy or propagates heretical teachings or feudal superstitions;

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·                                           disseminates rumors, disturbs social order or disrupts social stability;

·                                           propagates obscenity, pornography, gambling, violence, murder or fear or incites the commission of crimes;

·                                           insults or slanders a third-party or infringes upon the lawful rights and interests of a third-party; or

·                                           includes other content prohibited by laws or administrative regulations.

The PRC government may shut down the websites of ICP License holders that violate any of such content restrictions and requirement, revoke their ICP Licenses or impose other penalties pursuant to applicable law.

Regulation of Online Cultural Activities and Online Games

The MOC promulgated the Provisional Regulations for the Administration of Online Games on June 3, 2010, the Provisional Measures on Administration of Internet Culture on February 17, 2011 and the Notice on Issues Relating to Implementing the Newly Amended Provisional Measures on Administration of Internet Culture on March 18, 2011. Pursuant to these regulations and notices, an entity that intends to commercially engage in the production, duplication, import, distribution, broadcasting, publication, exhibition or contest related to online cultural products, including online games, is required to obtain an Online Culture Operating Permit from the applicable provincial level culture administrative authority. Game operators are further required to file separate applications for issuance of virtual currencies and trading. In addition, in relation to virtual currencies trading, game operators can only issue virtual currencies in exchange of service they provide themselves rather than trading for services or products of third parties. Game operators cannot appropriate advance payments from players. Game operators are not allowed to provide trading services of virtual currency to minors. Records of all transactions in the accounts must be kept for minimum 180 days.

Pursuant to the Tentative Measures on Internet Publication , or the Internet Publication Measures, jointly promulgated by MII and GAPP and effective on August 1, 2002, Internet publishers must secure approval, or the Internet Publication License, from GAPP to conduct Internet publication activities, including operation of online games. In February 2016, the GAPPRFT and the MIIT jointly issued the Administrative Measures on Network Publication , which took effect in March 2016 and replaced the Internet Publication Measures. Pursuant to the Administrative Measures on Network Publication, Internet publishers shall be approved by and obtain a Network Publication Service License from GAPPRFT to engage in network publication service.

On September 28, 2009, GAPP and the National Office of Combating Pornography and Illegal Publications jointly published a circular, under which foreign investors are restricted from controlling and participating in the operation of online game services provided by domestic companies in any form, including entering into relevant agreements or providing technical support. This notice further states that all online games must be screened by GAPPRFT through advanced approvals before they are made available online, and any updated online game versions or any change to the online games are subject to further approvals before they can be made available online.

Shanghai Huaqianshu i s currently operating our online games business. Shanghai Huaqianshu has been granted the Online Culture Operating Permit to operate online games.  However, Shanghai Huaqianshu is still in the process of filing applications for issuance of virtual currencies and applying for the Network Publication Service License. For more information regarding regulatory risks of our online games business, see “Item 3. Key Information—D. Risk Factors—Risks Relating to Our Business and Industry—If we fail to obtain or maintain all applicable permits and approvals, or fail to comply with PRC regulations, relating to online games, our ability to conduct our online game business and certain other businesses could be affected and we could be subject to penalties and other administrative sanctions.”

Regulations of Online Peer-to-Peer Lending

Online peer-to-peer lending is regarded under PRC law as direct loans between parties through an internet platform, and governed by the PRC Contract Law, the General Principles of the Civil Law of the PRC and related judicial interpretations promulgated by the Supreme People’s Court.

Regulations on Loans between Individuals

The PRC Contract Law governs the formation, validity, performance, enforcement and assignment of contracts. The PRC Contract Law confirms the validity of loan agreements between individuals and provides that a loan agreement becomes effective when the individual lender provides the loan to the individual borrower. The PRC Contract Law requires that the interest rates charged under the loan agreement must not violate the applicable provisions of the PRC laws and regulations. Pursuant to the Provisions on Several Issues Concerning Laws Applicable to Trials of Private Lending Cases issued by the Supreme People’s Court on August 6, 2015, or the Private Lending Judicial Interpretations, which came into effect on September 1, 2015, private lending is defined as financing between individuals, legal entities and other organizations. When private loans between individuals are paid by wire transfer, through online peer-to-peer lending platforms or by other similar means, the loan contracts between individuals are deemed to be validated upon the deposit of funds to the borrower’s account. In the event that the loans are made through an online peer-to-peer lending platform and the platform only provides intermediary services, the courts shall dismiss the claims of the parties concerned against the platform demanding the repayment of loans by the platform as guarantors. However, if the online peer-to-peer lending service provider guarantees repayment of the loans as evidenced by its web page, advertisements or other media, or the court is provided with other proof, the lender’s claim alleging that the peer-to-peer lending service provider shall assume the obligations of a guarantor will be upheld by the courts. The Private Lending Judicial Interpretations also provide that agreements between the lender and borrower on loans with interest rates below 24% per annum are valid and enforceable. As to loans with interest rates per annum between 24% and 36%, if the interest on the loans has already been paid to the lender, and so long as such payment has not damaged the interest of the country, the community and any third parties, the courts will turn down the borrower’s request to demand the return of the interest payment. If the annual interest rate of a private loan is higher than 36%, the amount in excess of 36% will not be enforced by the courts.

Pursuant to the PRC Contract Law, a creditor may assign its rights under an agreement to a third party, provided that the debtor is notified. Upon due assignment of the creditor’s rights, the assignee is entitled to the creditor’s rights and the debtor must perform the relevant obligations under the agreement for the benefit of the assignee. In addition, according to the PRC Contract Law, an intermediation contract is a contract whereby an intermediary presents to its client an opportunity for entering into a contract or provides the client with other intermediary services in connection with the conclusion of a contract, and the client pays the intermediary service fees. Pursuant to the PRC Contract Law, an intermediary must provide true information relating to the proposed contract. If an intermediary conceals any material fact intentionally or provides false information in connection with the conclusion of the proposed contract, which results in harm to the client’s interests, the intermediary may not claim for service fees and is liable for the damages caused.

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Regulations on Peer-to-Peer Lending Service Provider

In a press conference on April 21, 2014, a senior officer of the China Banking Regulatory Commission, or CBRC, emphasized that a peer-to-peer lending services provider must operate as a platform that serves as an information intermediary between borrowers and lenders, and must not form any pool of capital, or provide any guarantee, or illegally raise any funds from the general public. Furthermore, in a public forum held on September 27, 2014, another senior officer of the CBRC mentioned several requirements that the CBRC is contemplating for future regulation of the peer-to-peer lending service industry, which include, among others, that (i) a peer-to-peer lending service provider is neither a credit intermediary bearing credit risk nor a transaction platform, but an information intermediary between lenders and borrowers; (ii) a peer-to-peer lending service provider should not hold investors’ funds or set up any capital pool; (iii) a peer-to-peer lending service provider must not provide guarantees for lenders in relation to the principal or interests, or bear any system risk or liquidity risk; (iv) the borrowers and lenders using the peer-to -peer lending service providers are required to register their real identity information; (v) a peer-to-peer lending service provider must meet some qualification requirements, such as those with respect to the registered capital, management and corporate governance; (vi) the transfer of funds between borrowers and lenders must be handled by independent third-party payment companies; (vii) peer-to-peer lending service providers must improve information disclosure; (viii) the loans and investments made through the platform should be “micro-financing” that target individuals and small enterprises; (ix) a peer-to-peer lending service provider should not unreasonably target high-interest financing projects; and (x) a peer-to-peer lending service provider should promote the promulgation and implementation of the rules for peer-to-peer lending service industry and strengthen the self regulation.

On July 18, 2015, ten PRC regulatory agencies, including the People’s Bank of China, or PBOC, the MIIT and the CBRC, jointly issued the Guidelines on Promoting the Healthy Development of Internet Finance , or the Guidelines. The Guidelines define online peer-to-peer lending as direct loans between parties through an internet platform, which is under the supervision of CBRC, and governed by the PRC Contract Law, the General Principles of the Civil Law of the PRC, and related judicial interpretations promulgated by the Supreme People’s Court. The Guidelines require that online peer-to-peer lending service providers must do the following: (i) act as an intermediary platform to provide information exchange, matching, credit assessment and other intermediary services, and must not provide credit enhancement services and/or engage in illegal fund-raising; (ii) complete registration with the relevant local counterpart of the MIIT in accordance with implementation regulations that may be promulgated by the MIIT or/and the Office for Cyberspace Affairs pursuant to the Guidelines; (iii) set up a custody account with a qualified bank in order to deposit, manage and supervise borrower and investor funds, and separate borrower and investor funds from the funds of the online peer-to-peer lending service provider, with that custody account being subject to independent audits, the results of which must be disclosed to investors and borrowers, all in accordance with implementation regulations that may be promulgated by the PBOC and other relevant regulatory agencies pursuant to the Guidelines; (iv) fully disclose all relevant information to customers, including but not limited to the online peer-to-peer lending service provider’s financial status, transaction model, the rights and obligations of customers, and provide customers with reminders of the risk of loss; (v) not disseminate any untrue information and conduct any bundle sales; (vi) protect the personal information of the online peer-to-peer lending service provider’s customers from any unauthorized disclosure, and must not sell and/or disclose such information illegally; and (vii) establish a customer identification program, monitor and report suspicious transactions, preserve customer information and transaction records, and provide assistance to the public security department and judicial authorities in investigations and proceedings in relation to anti-money laundering matters.

On December 28, 2015, the CBRC published a discussion draft of the proposed Interim Administrative Measures for the Business Activities of P2P Lending Information Intermediaries based on the above Guideline, or the Draft P2P Measures, which was intended to further strengthen the administration of peer-to-peer lending services. Pursuant to the Draft P2P Measures, a network-based lending information intermediary agency shall, after obtaining the business license, go through record-filing and registration with the local financial regulatory department. It is also required to complete the website record-filing formalities with or apply for appropriate telecommunication business operation license from competent telecommunication departments based on the type of telecommunication business it operates.  The comment solicitation period of the Draft P2P Measures concluded on January 27, 2016. There, however, remain substantial uncertainties with respect to the timing of its enactment, interpretation and implementation.

Regulation on Internet Privacy

The PRC Constitution states that PRC law protects the freedom and privacy of communications of citizens and prohibits infringement of such rights.  In recent years, PRC government authorities have enacted legislation on Internet use to protect personal information from any unauthorized disclosure.  The Internet Measures prohibit an ICP service operator from insulting or slandering a third party or infringing upon the lawful rights and interests of a third party.  Under the Several Provisions on Regulating the Market Order of Internet Information Services, issued by the MIIT in 2011, an ICP operator may not collect any user personal information or provide any such information to third parties without the consent of a user. An ICP service operator must expressly inform the users of the method, content and purpose of the collection and processing of such user personal information and may only collect such information necessary for the provision of its services. An ICP service operator is also required to properly keep the user personal information, and in case of any leak or likely leak of the user personal information, the ICP service operator must take immediate remedial measures and, in severe circumstances, to make an immediate report to the telecommunications regulatory authority. In addition, pursuant to the Decision on Strengthening the Protection of Online Information issued by the Standing Committee of the National People’s Congress in December 2012 and the Order for the Protection of Telecommunication and Internet User Personal Information issued by the MIIT in July 2013, any collection and use of user personal information must be subject to the consent of the user, abide by the principles of legality, rationality and necessity and be within the specified purposes, methods and scopes. An ICP service operator must also keep such information strictly confidential, and is further prohibited from divulging, tampering or destroying of any such information, or selling or proving such information to other parties. Any violation of the above decision or order may subject the ICP service operator to warnings, fines, confiscation of illegal gains, revocation of licenses, cancellation of filings, closedown of websites or even criminal liabilities.

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Regulation on Advertising Business

The State Administration for Industry and Commerce, or the SAIC, is the government agency responsible for regulating advertising activities in the PRC.  Regulations governing advertising business mainly include:

·                                           Advertisement Law promulgated by the Standing Committee of the National People’s Congress on October 27, 1994 and went into effect on February 1, 1995 and amended on September 1, 2015;

·                                           Administrative Regulations for Advertising promulgated by the State Council on October 26, 1987 and went into effect on December 1, 1987; and

·                                           Implementation Rules for the Administrative Regulations for Advertising promulgated by the State Council on January 9, 1988, and amended on December 3, 1998, December 1, 2000, November 30, 2004 and December 12, 2011, respectively.

According to the above regulations, companies that engage in advertising activities must obtain from SAIC or its local branches a business license which specifically includes operating an advertising business within its business scope.  An enterprise engaging in advertising business as specified in its business scope does not need to apply for an advertising operation license, provided that such enterprise is not a radio station, television station, newspaper or magazine publisher or any other entity as specified in laws or administrative regulations.  Enterprises conducting advertising activities without such a license may be subject to penalties, including fines, confiscation of advertising income and orders to cease advertising operations.  The business license of an advertising company is valid for the duration of its existence, unless the license is suspended or revoked due to a violation of any relevant law or regulation.  PRC advertising laws and regulations set forth certain content requirements for advertisements in the PRC including, among other things, prohibitions on false or misleading content, superlative wording, socially destabilizing content or content involving obscenities, superstition, violence, discrimination or infringement of the public interest. Furthermore, the Advertisement Law explicitly stipulates detailed requirements for the content of several different kinds of advertisement, including advertisements for medical treatment, pharmaceuticals, medical instruments, health food, alcoholic drinks, education or training, products or services having an expected return on investment, real estate, pesticides, feed and feed additives and certain other agriculture-related advertisement. Advertisers, advertising agencies, and advertising distributors are required by PRC advertising laws and regulations to ensure that the content of the advertisements they prepare or distribute is true and in full compliance with applicable law.  In providing advertising services, advertising operators and advertising distributors must review the supporting documents provided by advertisers for advertisements and verify that the content of the advertisements complies with applicable PRC laws and regulations.  Prior to distributing advertisements that are subject to government censorship and approval, advertising distributors are obligated to verify that such censorship has been performed and approval has been obtained.  In addition, the release or delivery of advertisements through the internet must not impair the normal use of the network by users. The advertisements released in pop-up form on a webpage and other forms must show the close flag prominently and ensure one-click close. Violation of these regulations may result in penalties, including fines, confiscation of advertising income, orders to cease dissemination of the advertisements and orders to eliminate the effect of illegal advertisements.  In circumstances involving serious violations, SAIC or its local branches may revoke violators’ licenses or permits for their advertising business operations.

Regulation on Information Security and Censorship

Several legislations have been enacted to regulate the information security and censorship conducts in relation to the Internet sector.  These legislations specifically prohibit the use of Internet infrastructure where it may breach public security, provide content harmful to the stability of society or disclose state secrets.  According to these legislations, it is mandatory for Internet companies in the PRC to complete security filing procedures and regularly update information security and censorship systems for their websites with the local public security bureau.  In addition, the newly amended Law on Preservation of State Secrets which became effective on October 1, 2010 provides that whenever an Internet service provider detects any leakage of state secrets in the distribution of online information, it should stop the distribution of such information and report to the authorities of state security and public security.  As per request of the authorities of state security, public security or state secrecy, the Internet service provider should delete any contents on its website that may lead to disclosure of state secrets.  Failure to do so on a timely and adequate basis may subject the Internet service provider to liability and certain penalties given by the State Security Bureau, the Ministry of Public Security and/or MIIT or their respective local counterparts.

As Shanghai Huaqianshu, Beijing Huaqianshu, Beijing Aizhenxin , Xique and Shanghai Tengwan are ICP operators, they are subject to the laws and regulations relating to information security and censorship.  We have completed the mandatory security filing procedures with the local public security authorities, and will regularly update our information security and content-filtering systems with newly issued content restrictions as required by the relevant laws and regulations.

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Regulation on Intellectual Property Rights

Copyright Law

Under the Copyright Law (1990) , as revised in 2001 and 2010, and its related Implementing Regulations (2002) , as revised in 2013, creators of protected works enjoy personal and property rights, including, among others, the right of dissemination via information network of the works.  The term of a copyright, other than the rights of authorship, alteration and integrity of an author which is unlimited in time, is life plus 50 years for individual authors and 50 years for corporations.

To address copyright issues relating to the Internet, several regulations, rules and interpretations were adopted by the PRC government and the PRC Supreme People’s Court.  Pursuant to these regulations, rules and interpretations, Internet service providers are required to bear joint liability with the infringer if they participate, assist or abet in infringing activities committed by any other person through Internet, are aware of the infringing activities committed by their website users through Internet or fail to remove infringing content or take other action to eliminate infringing consequences after receiving warning with evidence of such infringing activities from the copyright holder.  In addition, where an ICP service operator is clearly aware of the infringement of certain content against other’s copyright through the Internet or if the ICP service operator is aware of such infringement but fails to take measures to remove relevant contents upon receipt of the copyright owner’s notice, and as a result damages public interests, the ICP service operator could be subject to an order to stop the tortious act and other administrative penalties such as confiscation of illegal income and fines.

Furthermore, an ICP service provider may be exempted from indemnification liabilities under certain circumstances.  For instance, any ICP service provider, who provides automatic Internet access service upon instructions of its users or provides automatic transmission service of works, performance and audio-visual products provided by its users, will not be required to assume the indemnification liabilities if (i) it has not chosen or altered the transmitted works, performance and audio-visual products; and (ii) it provides such works, performance and audio-visual products to the designated user and prevents any person other than such designated user from obtaining the access.

Trademark Law

Registered trademarks are protected under the Trademark Law adopted in 1982 and amended in 1993 , 2001 and 2013.  The PRC Trademark Office of SAIC is responsible for the registration and administration of trademarks throughout the PRC.  The Trademark Law has adopted a “first-to-file” principle with respect to trademark registration.  Where a trademark for which a registration has been made is identical or similar to another trademark that has already been registered or been subject to a preliminary examination and approval for use on the same kind of or similar commodities or services, the application for registration of such trademark may be rejected.  Any person applying for the registration of a trademark should not prejudice the existing right of others obtained by priority, nor should any person register in advance a trademark that has already been used by another person and has already gained “sufficient degree of reputation” through that person’s use.  After receiving an application, the PRC Trademark Office will make a public announcement if the relevant trademark passes the preliminary examination.  Within three months after such public announcement, any person may file an opposition against a trademark that has passed a preliminary examination.  The PRC Trademark Office’s decisions on rejection, opposition or cancellation of an application may be appealed to the PRC Trademark Review and Adjudication Board, whose decision may be further appealed through judicial proceedings.  If no opposition is filed within three months after the public announcement period or if the opposition has been overruled, the PRC Trademark Office will approve the registration and issue a registration certificate, upon which the trademark is registered and will be effective for a renewable ten-year period, unless otherwise revoked.

Regulation on Domain Name

The domain names are protected under the Administrative Measures on the Internet Domain Names promulgated by MII on November 5, 2004 and effective on December 20, 2004.  MIIT is the regulatory body responsible for the administration of the PRC Internet domain names, under supervision of which China Internet Network Information Center, or CNNIC, is responsible for the daily administration of CN domain names and Chinese domain names.  CNNIC promulgated the Implementation Rules of Registration of Domain Name , or the CNNIC Rules, which took effect on May 29, 2012.  Pursuant to the Administrative Measures on the Internet Domain Names and the CNNIC Rules, the registration of domain names adopts the “first to file” principle and the registrant shall complete the registration via the domain name registration service institutions.  In the event of a domain name dispute, the disputed parties may lodge a complaint to the designated domain name dispute resolution institution to trigger the domain name dispute resolution procedure in accordance with the CNNIC Measures on Resolution of the Top Level Domains Disputes , file a suit to the People’s Court or initiate an arbitration procedure.

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The Labor Law and the Labor Contract Law

Pursuant to the Labor Law of the PRC effective on January 1, 1995, the Labor Contract Law of the PRC promulgated by the Standing Committee of National People’s Congress on June 29, 2007 and becoming effective on January 1, 2008, as amended on December 28, 2012 and such amendment becoming effective on July 1, 2013, and the Implementing Regulations of the PRC Labor Contract Law promulgated by the State Council and becoming effective on September  18, 2008, an employment relationship is established from the date when an employee commences working for an employer and a written employment contract shall be entered into on this same day.  If an employment relationship has already been established with an employee but no written employment contract has been entered into simultaneously, a written employment contract shall be entered into within one month from the date on which the employee commences work.  If an employer fails to enter into a written employment contract with an employee after one month but within one year from the date on which the employment relationship is established, it shall pay the employee twice his/her salary for the period from the day following the lapse of one month as of the date of establishment of the employment relationship to the day prior to the execution of written employment contract, and rectify the situation by subsequently entering into a written employment contract with the employee.

Regulation on Foreign Exchange Control and Administration

Foreign exchange regulation in the PRC is primarily governed by the following regulations:

·                                           Foreign Exchange Administration Rules , or the Exchange Rules, promulgated by the State Council on January 29, 1996, which was amended on January 14, 1997 and on August 5, 2008; and

·                                           Administration Rules of the Settlement, Sale and Payment of Foreign Exchange , or the Administration Rules, promulgated by the People’s Bank of The PRC on June 20, 1996.

Under the Exchange Rules, for capital account items, such as direct investments, loans, security investments and the repatriation of investment returns, the conversion of foreign currency is still subject to the approval of, or registration with, SAFE or its competent local branches; while for the foreign currency payments for current account items, including the distribution of dividends, interest payments, trade and service-related foreign exchange transactions, the SAFE approval is not necessary for the conversion of Renminbi except as otherwise explicitly provided by laws and regulations.  Under the Administration Rules, enterprises may only buy, sell or remit foreign currencies at banks that are authorized to conduct foreign exchange business after the enterprise provides valid commercial documents and relevant supporting documents and, in the case of certain capital account transactions, after obtaining approval from SAFE or its competent local branches.  Capital investments by enterprises outside of the PRC are also subject to limitations, which include approvals by the Ministry of Commerce, SAFE and the National Development and Reform Commission, or their respective competent local branches.  On July 21, 2005, the PRC government changed its policy of pegging the value of the Renminbi to the U.S. dollar.  Under the new policy, the Renminbi is permitted to fluctuate within a band against a basket of certain foreign currencies.

On August 29, 2008, SAFE issued the Circular on the Relevant Operating Issues Concerning the Improvement of the Administration of the Payment and Settlement of Foreign Currency Capital of Foreign-Invested Enterprises , or Circular No. 142.  Pursuant to Circular No. 142, the Renminbi capital from the settlement of foreign currency capital of a foreign-invested enterprise must be used within the business scope as approved by the applicable government authority, and unless otherwise stipulated by law or regulation, such Renminbi capital may not be used for domestic equity investment.  Documents certifying the purposes of the settlement of foreign currency capital into Renminbi, including a business contract, must also be submitted for the settlement of the foreign currency.  In addition, SAFE strengthened its oversight of the flow and use of the Renminbi capital converted from foreign currency registered capital of a foreign-invested company.  The use of such Renminbi capital may not be altered without the SAFE’s approval, and such Renminbi capital may not be used to repay Renminbi loans if such loans have not been used.  On March 30, 2015, SAFE issued SAFE Circular No. 19, which bec ame effective on June 1, 2015 and replaced SAFE Circular No. 142. Pursuant to SAFE Circular No. 19, up to 100% of the foreign currency capital of a foreign invested enterprise may be converted into RMB capital according to the actual business of the enterprise at its will and the RMB capital converted from the foreign currency registered capital of a foreign-invested enterprise may be used for equity investments within the PRC. However, under SAFE Circular No. 19, RMB capital converted from the foreign currency registered capital of a foreign-invested company still may not in any case be used to advance entrusted loans or repay inter-enterprise RMB loans.

Regulation on Foreign Exchange Registration of Offshore Investment by PRC Residents

On July 4, 2014, SAFE issued the Circular on Several Issues Concerning Foreign Exchange Administration of Domestic Residents Engaging in Overseas Investment, Financing and Round-Trip Investment via Special Purpose Vehicles , or SAFE Circular 37, which replaced the Circular on Several Issues Concerning Foreign Exchange Administration for Domestic Residents to Engage in Financing and in Return Investments via Overseas Special Purpose Companies , or Circular No. 75, which went into effect on November 1, 2005.  SAFE Circular 37 and its detailed guidelines require PRC residents to register with the local branch of SAFE before contributing their legally owned onshore or offshore assets or equity interest into any special purpose vehicle, or SPV, directly established, or indirectly controlled, by them for the purpose of investment or financing and when there is (a) any change to the basic information of the SPV, such as any change relating to its individual PRC resident shareholders, name or operation period or (b) any material change, such as increase or decrease in the share capital held by its individual PRC resident shareholders, a share transfer or exchange of the shares in the SPV, or a merger or split of the SPV, the PRC resident must register such changes with the local branch of SAFE on a timely basis.  According to the relevant SAFE rules, failure to comply with the registration procedures set forth in SAFE Circular 37 may result in restrictions being imposed on the foreign exchange activities of the relevant onshore companies of SPVs, including the payment of dividends and other distributions to its offshore parent or affiliate and the capital inflow from such offshore entity, and may also subject the relevant PRC residents and onshore companies to penalties under PRC foreign exchange administration regulations.  Further, failure to comply with various SAFE registration requirements described above would result in liability for foreign exchange evasion under PRC laws.

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On February 13, 2015, SAFE issued the Circular on Further Simplifying and Improving the Foreign Exchange Policies on Direct Investment , or SAFE Circular No.13, pursuant to which qualified banks are delegated the power to register all PRC residents’ investment in SPVs pursuant to the SAFE Circular No.37, save for supplementary registration applications made by PRC residents who failed to comply with the SAFE Circular No.37, which shall still fall into the jurisdiction of the local SAFE branch.  The SAFE Circular No.13 took effect on June 1, 2015.

We have requested PRC residents holding direct or indirect interest in our company to our knowledge to make the necessary applications, filings and amendments as required under SAFE Circular No.37 and other related rules.  Ms. Haiyan Gong, Mr. Yongqiang Qian and Mr. Xu Liu, Mr. Fuping Yu, Mr. Cheng Li and Mr. Qingjun Zhu have completed the amendment registration or registration in relation to our Reorganization and their ownership changes in accordance with SAFE Circular No. 75 and they are required to update the registration or amendment registration in relation to our initial public offering. We cannot assure you, however, that such amendment registration will be duly completed with the local SAFE branch.  See “Risk Factors—Risks Relating to Doing Business in China—PRC regulations relating to the establishment of offshore SPVs by PRC residents may subject our PRC resident beneficial owners or our PRC subsidiaries to liability or penalties, limit our ability to inject capital into our PRC subsidiaries, limit our PRC subsidiaries’ ability to increase their registered capital or distribute profits to us or may otherwise adversely affect us.”

Regulation on Stock Incentive Plan

On December 25, 2006, the People’s Bank of China promulgated the Administrative Measures for Individual Foreign Exchange .  On January 5, 2007, SAFE issued the Implementation Rules of the Administrative Measures for Individual Foreign Exchange , or the Individual Foreign Exchange Rule, which, among other things, specifies approval requirements for a PRC citizen’s participation in the employee stock ownership plans or stock option plans of an overseas publicly-listed company.  On February 15, 2012 , SAFE issued the Notices on Issues concerning the Foreign Exchange Administration for Domestic Individuals Participating in Stock Incentive Plan of Overseas Publicly-Listed Company , or the Stock Incentive Plan Rules, which terminated the Processing Guidance on Foreign Exchange Administration of Domestic Individuals Participating in the Employee Stock Ownership Plans or Stock Option Plans of Overseas-Listed Companies issued by SAFE on March 28, 2007.  According to the Stock Incentive Plan Rules, if “domestic individuals” (both PRC residents and non-PRC residents who reside in the PRC for a continuous period of not less than one year, excluding the foreign diplomatic personnel and representatives of international organizations) participate in any stock incentive plan of an overseas listed company, a qualified PRC domestic agent, which could be the PRC subsidiaries of such overseas listed company, shall, among other things, file, on behalf of such individual, an application with SAFE to conduct the SAFE registration with respect to such stock incentive plan, and obtain approval for an annual allowance with respect to the purchase of foreign exchange in connection with the stock purchase or stock option exercise.  Such PRC individuals’ foreign exchange income received from the sale of stocks and dividends distributed by the overseas listed company and any other income shall be fully remitted into a collective foreign currency account in the PRC opened and managed by the PRC domestic agent before distribution to such individuals.

Our employees and consultants, who are “domestic individuals” and have been granted share options, or PRC optionees, became subject to the Stock Incentive Plan Rules when our company became an overseas listed company upon the completion of our initial public offering.  However, we cannot assure you that each of the above optionees will fully comply with the Individual Foreign Exchange Rule and Stock Incentive Plan Rules.  See “Risk Factors—Risks Relating to Doing Business in China—Failure to comply with PRC regulations regarding the registration of share options held by our employees who are “domestic individuals” may subject such employee or us to fines and legal or administrative sanctions.”

Regulation on Overseas Listings

On August 8, 2006, six PRC regulatory agencies, namely, the Ministry of Commerce, the State Assets Supervision and Administration Commission, the State Administration for Taxation, SAIC, CSRC and SAFE, jointly adopted the Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors , or the M&A Rules, which became effective on September 8, 2006 and were amended on June 22, 2009.  The M&A Rules purport, among other things, to require that offshore special purpose vehicles, or SPVs, that are controlled by PRC companies or individuals and that have been formed for overseas listing purposes through acquisitions of PRC domestic interest held by such PRC companies or individuals, to obtain the approval of the CSRC prior to publicly listing their securities on an overseas stock exchange.  On September 21, 2006, the CSRC published a notice on its official website specifying documents and materials required to be submitted to it by SPVs seeking CSRC approval of their overseas listings.

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While the application of the M&A Rules remains unclear, our PRC legal counsel has advised us that based on its understanding of the current PRC laws, rules and regulations and the M&A Rules, prior approval from the CSRC is not required under the M&A Rules for the listing and trading of our ADSs on Nasdaq Global Select Market given that (i) we established our PRC subsidiaries by means of direct investment other than by merger or acquisition of any equity interest or assets of a PRC domestic company owned by PRC companies or individuals as defined under the M&A Rules, and (ii) no provisions in the M&A Rules clearly classify our contractual arrangements with our VIE entities as the acquisition subject to the M&A Rules.  See “Risk Factors—Risks Relating to Doing Business in China—The approval of the China Securities Regulatory Commission, or the CSRC, may be required in connection with our initial public offering under PRC regulations and, if required, we cannot assure you that we will be able to obtain such approval.  The regulation also establishes more complex procedures for acquisitions conducted by foreign investors that could make it more difficult for us to grow through acquisitions.”

C.              Organizational structure

We conduct substantially all of our business through two PRC subsidiaries , six VIE entities and their subsidiaries in China.  The following diagram illustrates our subsidiaries, their country of incorporation and the proportion of our ownership of each as of the date of this annual report.

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(1)          Contracting shareholders of Shanghai Huaqianshu are Ms. Haiyan Gong, Mr. Yongqiang Qian, Mr. Xu Liu, Mr. Fuping Yu, Mr. Qingjun Zhu and Mr. Cheng Li.

(2)          Contracting shareholders of Beijing Huaqianshu and Xique are Mr. Linguang Wu, Mr. Yongqiang Qian, Mr. Xu Liu, Mr. Fuping Yu, Mr. Qingjun Zhu and Mr. Cheng Li.

(3)          Contracting shareholders of Beijing Aizhenxin are Mr. Yang Si, Mr. Hui Song and Mr. Yu Zhang.

(4)          Contracting shareholders of Beijing Youyue Hudong are Mr. Tao Lu, Mr. Hui Song and Mr. Yu Zhang.

( 5)         Jiayuan Shanghai Center was established by Shanghai Huaqianshu as a privately funded non-enterprise institution that engages in non-profit social services. Since Jiayuan Shanghai Center is a privately funded non-enterprise institution, Shanghai Huaqianshu does not own any equity interest in Jiayuan Shanghai Center. Currently, Beijing Miyuan controls Jiayuan Shanghai Center through contractual arrangements.

Contractual Arrangements with Shanghai Huaqianshu, Beijing Huaqianshu, Beijing Aizhenxin, Xique , Beijing Youyue Hudong and their Respective Shareholders and Jiayuan Shanghai Center

In order to comply with PRC law restricting foreign ownership and investment in value-added telecommunications service businesses and the prohibition on privately funded non-enterprise institutions from engaging in profit-making business operations in China, we operate our online dating businesses, online gaming businesses and offline personalized matchmaking services through a series of contractual arrangements among Beijing Miyuan, Shanghai Huaqianshu, Beijing Huaqianshu, Xique, Beijing Aizhenxin , Beijing Youyue Hudong and their respective shareholders and Jiayuan Shanghai Center. Such contractual arrangements include exclusive technology licenses and service agreements, equity pledge agreements, exclusive purchase option agreements, shareholders’ voting rights entrustment agreements and loan agreements. As a result of these contractual arrangements,

·                                           through Beijing Miyuan, we exercise effective control over Shanghai Huaqianshu, Beijing Huaqianshu, Xique, Beijing Aizhenxin, Beijing Youyue Hudong and Jiayuan Shanghai Center, and their subsidiaries;

·                                           in exchange for the provision of services through Beijing Miyuan, we receive substantially all of the earnings and other economic benefits of Shanghai Huaqianshu, Beijing Huaqianshu, Xique, Beijing Aizhenxin, Beijing Youyue Hudong and Jiayuan Shanghai Center, and their subsidiaries, to the extent permissible under PRC law; and

·                                           through Beijing Miyuan, we have an exclusive option to purchase all or part of the equity interests in Shanghai Huaqianshu, Beijing Huaqianshu, Xique, Beijing Youyue Hudong and Beijing Aizhenxin, in each case when and to the extent permitted by PRC law.

Agreements That Transfer Economic Benefit to Us

Exclusive Technology License and Service Agreement with Shanghai Huaqianshu.     Pursuant to the amended and restated exclusive technology license and service agreement entered into on March 1, 2014 between Beijing Miyuan and Shanghai Huaqianshu, Shanghai Huaqianshu retains Beijing Miyuan as its exclusive provider of software and hardware licenses, technology support, hardware and data maintenance and updates, software development, maintenance and professional training, information collection and research, technology consulting services related to the business operations of Shanghai Huaqianshu. As consideration for such services, Shanghai Huaqianshu agreed to pay service fees equal to a certain percentage of Shanghai Huaqianshu’s annual revenues as agreed by the parties from time to time. This amended and restated exclusive technology license and service agreement will expire on January 24, 2021, and, except by mutual agreement upon early termination by the parties in writing, the term of this agreement will be automatically extended for ten years.

Exclusive Technology License and Service Agreement with Jiayuan Shanghai Center.     Pursuant to the amended and restated exclusive technology license and service agreement entered into on March 1, 2014 between Beijing Miyuan and Jiayuan Shanghai Center, Jiayuan Shanghai Center retains Beijing Miyuan as its exclusive provider of software and hardware licenses, technology support, hardware and data maintenance and updates, software development, maintenance and professional training, information collection and research, technology consulting services related to the business operations of Jiayuan Shanghai Center. As consideration for such services, Jiayuan Shanghai Center agreed to pay service fees equal to a certain percentage of Jiayuan Shanghai Center’s annual revenues as agreed by the parties from time to time. This amended and restated exclusive technology license and service agreement will expire on January 24, 2021, and, except by mutual agreement upon early termination by the parties in writing, the term of this agreement will be automatically extended for ten years.

Exclusive Technology License and Service Agreement with Beijing Huaqianshu.     Pursuant to the amended and restated exclusive technology license and service agreement entered into on March 1, 2014 between Beijing Miyuan and Beijing Huaqianshu, Beijing Huaqianshu retains Beijing Miyuan as its exclusive provider of software and hardware licenses, technology support, hardware and data maintenance and updates, software development, maintenance and update, professional training, information collection and research, technology consulting services related to the business operations of Beijing Huaqianshu. As consideration for such services, Beijing Huaqianshu agreed to pay service fees equal to a certain percentage of Beijing Huaqianshu’s annual revenues as agreed by the parties from time to time. This amended and restated exclusive technology license and service agreement will expire on February 16, 2021 and, except by mutual agreement upon early termination by the parties in writing, the term of this agreement will be automatically extended for ten years.

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Exclusive Technology License and Service Agreement with Xique.     Pursuant to the amended and restated exclusive technology license and service agreement entered into on March 1, 2014 between Beijing Miyuan and Xique, Xique retains Beijing Miyuan as its exclusive provider of software and hardware licenses, technology support, hardware and data maintenance, software development, maintenance and update, professional training, information collection and research, technology consulting services related to the business operations of Xique. As consideration for such services, Xique agreed to pay service fees equal to a certain percentage of Xique’s annual revenues as agreed by the parties from time to time. This amended and restated exclusive technology license and service agreement will expire on February 16, 2021 and, except by mutual agreement upon early termination by the parties in writing, the term of this agreement will be automatically extended for ten years.

Exclusive Technology License and Service Agreement with Beijing Aizhenxin.      Pursuant to the exclusive technology license and service agreement entered into on August 13, 2012 between Beijing Miyuan and Beijing Aizhenxin, Beijing Aizhenxin retains Beijing Miyuan as its exclusive provider of software and hardware licenses, technology support, hardware and data maintenance and updates, software development, maintenance and professional training, information collection and research, technology consulting services related to the business operations of Beijing Aizhenxin. As consideration for such services, Beijing Aizhenxin agreed to pay service fees equal to a certain percentage of Beijing Aizhenxin’s annual revenues as agreed by the parties from time to time. This exclusive technology license and service agreement will expire on August 12, 2022, and, except by mutual agreement upon early termination by the parties in writing, the term of this agreement will be automatically extended for ten years.

Exclusive Technology License and Service Agreement with Beijing Youyue Hudong.   Pursuant to the exclusive technology license and service agreement entered into on December 1, 2015, between Beijing Miyuan and Beijing Youyue Hudong, Beijing Youyue Hudong retains Beijing Miyuan as its exclusive provider of software and hardware licenses, technology support, hardware and data maintenance and updates, software development, maintenance and professional training, information collection and research, technology consulting services related to the business operations of Beijing Youyue Hudong. As consideration for such services, Beijing Youyue Hudong agreed to pay service fees equal to a certain percentage of Beijing Youyue Hudong’s annual revenues as agreed by the parties from time to time. This exclusive technology license and service agreement will expire on November 30, 2025, and, the term of this agreement will be extended by the written notice from Beijing Miyuan.

Agreements That Provide Us Effective Control Over Shanghai Huaqianshu and Jiayuan Shanghai Center

Loan Agreement.     Pursuant to the amended and restated loan agreement entered into on March 1, 2014, between Beijing Miyuan and the shareholders of Shanghai Huaqianshu, Beijing Miyuan made interest-free loans of the equivalent of US$541,560, US$452,880, US$86,400, US$47,760, US$35,880 and US$35,520, respectively, to Mr. Yongqiang Qian, Ms. Haiyan Gong, Mr. Fuping Yu, Mr. Qingjun Zhu, Mr. Xu Liu and Mr. Cheng Li. Beijing Miyuan also made interest-free loans of RMB4,061,700, RMB3,396,600, RMB648,000, RMB358,200, RMB269,100 and RMB266,400, respectively, to Mr. Yongqiang Qian, Ms. Haiyan Gong, Mr. Fuping Yu, Mr. Qingjun Zhu, Mr. Xu Liu and Mr. Cheng Li. The loans are repayable on demand. If the shareholders of Shanghai Huaqianshu intend to voluntarily repay the loans in whole or in part, or if Beijing Miyuan requires the shareholders of Shanghai Huaqianshu to repay the loans in whole or in part, Beijing Miyuan or its designee may acquire a proportionate amount of the equity interests of Shanghai Huaqianshu from such shareholders for a purchase price equal to the principal amount of the repaid loans.

Shareholders’ Voting Rights Entrustment Agreement.     Pursuant to the amended and restated shareholders’ voting rights entrustment agreement entered into on March 1, 2014, between Beijing Miyuan, Shanghai Huaqianshu and its shareholders, the shareholders of Shanghai Huaqianshu shall grant a PRC citizen, as agreed by Beijing Miyuan, the right to exercise all their voting rights as shareholders of Shanghai Huaqianshu under its then-effective articles of association. Upon Beijing Miyuan’s request, the grantors shall revoke the proxy and grant the same proxy to another PRC citizen as designated by the designee of Beijing Miyuan. This amended and restated shareholders’ voting rights entrustment agreement will remain effective until January 24, 2021, and, except by mutual agreement upon early termination by the parties in writing or any termination arising from Shanghai Huaqianshu or its shareholders’ material breach of obligations thereunder, the term of this agreement will be automatically extended for ten years.

Exclusive Purchase Option Agreement.     Pursuant to the amended and restated exclusive purchase option agreement entered into on March 1, 2014 between Beijing Miyuan, Shanghai Huaqianshu and its shareholders, Beijing Miyuan has an exclusive option to purchase, or to designate another qualified individual or entity to purchase, to the extent permitted by PRC law, part or all of the equity interests in Shanghai Huaqianshu owned by Shanghai Huaqianshu’s shareholders. The purchase price for the entire equity interest of Shanghai Huaqianshu shall be the proportionate amount of the registered capital owned by such shareholder or an amount agreed by the parties in writing provided that, in case of any compulsory requirement by then PRC laws, the purchase price shall be the minimum price permitted by applicable PRC law. This amended and restated exclusive purchase option agreement remains in effect until the completion of the transfer of all the shares in accordance with this agreement.

Equity Pledge Agreement.     Pursuant to the amended and restated equity pledge agreement entered into on March 1, 2014 between Beijing Miyuan and Shanghai Huaqianshu’s shareholders, Shanghai Huaqianshu’s shareholders pledged their equity interest in Shanghai Huaqianshu to Beijing Miyuan to secure such shareholders’ obligations under the amended and restated loan agreement, the amended and restated shareholders’ voting rights entrustment agreement and the amended and restated exclusive purchase option agreement as well as Shanghai Huaqianshu’s obligations under the amended and restated exclusive technology license and service agreement, each as described above. This amended and restated equity pledge agreement will expire when the shareholders and Shanghai Huaqianshu have fully performed their obligations under the agreements described above.

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Cooperative Operation Agreement.     Pursuant to the amended and restated cooperative operation agreement entered into on March 1, 2014 among Beijing Miyuan, Shanghai Huaqianshu and Jiayuan Shanghai Center, in order to ensure Jiayuan Shanghai Center’s ability to make payments to Beijing Miyuan under the amended and restated exclusive technology license and service agreement between Jiayuan Shanghai Center and Beijing Miyuan, Shanghai Huaqianshu agrees to appoint designees of Beijing Miyuan as the members of the management committee and the key employees of Jiayuan Shanghai Center upon the request of Beijing Miyuan. This agreement will expire on January 24, 2021 and, unless terminated early by Beijing Miyuan, the term will be automatically extended for ten years.

Agreements That Provide Us Effective Control Over Beijing Huaqianshu

Loan Agreement.     Pursuant to the amended and restated loan agreement entered into on March 1, 2014, between Beijing Miyuan and the shareholders of Beijing Huaqianshu, Beijing Miyuan made interest-free loans of RMB451,300, RMB377,400, RMB72,000, RMB39,800, RMB29,900 and RMB29,600, respectively, to Mr. Yongqiang Qian, Ms. Haiyan Gong, Mr. Fuping Yu, Mr. Qingjun Zhu, Mr. Xu Liu and Mr. Cheng Li, the shareholders of Beijing Huaqianshu. The loans are repayable on demand. If the shareholders of Beijing Huaqianshu intend to voluntarily repay the loans, Beijing Miyuan or its designee may acquire the equity investments of Beijing Huaqianshu from the shareholders of Beijing Huaqianshu for a purchase price equal to the principal amount of the loans.

Shareholders’ Voting Rights Entrustment Agreement.     Pursuant to the amended and restated shareholders’ voting rights entrustment agreement entered into on March 1, 2014, between Beijing Miyuan, Beijing Huaqianshu and its shareholders, the shareholders of Beijing Huaqianshu have granted Ms. Haiyan Gong, who is a PRC citizen, as agreed by Beijing Miyuan, the right to exercise all their voting rights as shareholders of Beijing Huaqianshu as provided under its articles of association. Upon Beijing Miyuan’s request, the grantors shall revoke the proxy and grant the same proxy to another PRC citizen as designated by Beijing Miyuan. This amended and restated shareholders’ voting rights entrustment agreement will remain effective until February 16, 2021 and, except by mutual agreement upon early termination by the parties in writing or any termination arising from Beijing Huaqianshu or its shareholders’ material breach of obligations thereunder, the term of this amended and restated shareholders’ voting rights entrustment agreement will be automatically extended for ten years.

Exclusive Purchase Option Agreement.     Pursuant to the amended and restated exclusive purchase option agreement entered into on March 1, 2014, between Beijing Miyuan, Beijing Huaqianshu and its shareholders, Beijing Miyuan has an exclusive option to purchase, or to designate another qualified individual or entity to purchase, to the extent permitted by PRC law, part or all of the equity interests in Beijing Huaqianshu owned by Beijing Huaqianshu’s shareholders. The purchase price for the entire equity interest of Beijing Huaqianshu shall be the amount of the proportionate registered capital owned by such shareholder or an amount agreed by the parties in writing, provided that, in case of any compulsory requirement by then PRC laws, the purchase price shall be the minimum price permitted by applicable PRC law. This amended and restated exclusive equity transfer option agreement remains in effect until the completion of the transfer of all the shares in accordance with this agreement.

Equity Pledge Agreement.     Pursuant to the amended and restated equity pledge agreement entered into on March 1, 2014, between Beijing Miyuan and Beijing Huaqianshu’s shareholders, Beijing Huaqianshu’s shareholders pledged their equity interest in Beijing Huaqianshu to Beijing Miyuan to secure such shareholders’ obligations under the amended and restated loan agreement, the amended and restated shareholders’ voting rights entrustment agreement and the amended and restated exclusive purchase option agreement and Beijing Huaqianshu’s obligations under the amended and restated exclusive technology license and service agreement, each as described above. This amended and restated equity pledge agreement will expire when the shareholders and Beijing Huaqianshu have fully performed their obligations under the agreements described above.

On Ju ne 20, 2015, Ms. Haiyan Gong transferred her equity interest in Beijing Huaqianshu to Mr. Linguang Wu.  On December 8, 2015, Mr. Linguang Wu entered into a commitment letter, under which Mr. Linguang Wu undertook to assume the rights and obligations of Ms. Haiyan Gong under the above contractual agreements in connection with Beijing Huaqianshu.  In addition, to further secure Beijing Miyuan’s control over Beijing Huaqianshu, Mr. Linguang Wu pledged the equity interest he owns in Beijing Huaqianshu to Beijing Miyuan and the equity pledge registration with the relevant local branch of the Administration of Industry and Commerce was completed on December 8, 2015.

Agreements That Provide Us Effective Control Over Xique

Loan Agreement.     Pursuant to the amended and restated loan agreement entered into on March 1, 2014, between Beijing Miyuan and the shareholders of Xique, Beijing Miyuan made interest-free loans of RMB451,300, RMB377,400, RMB72,000, RMB39,800, RMB29,900 and RMB29,600, respectively, to Mr. Yongqiang Qian, Ms. Haiyan Gong, Mr. Fuping Yu, Mr. Qingjun Zhu, Mr. Xu Liu and Mr. Cheng Li, the shareholders of Xique. The loans are repayable on demand. If the shareholders of Xique intend to voluntarily repay the loans, Beijing Miyuan or its designee may acquire the equity investments of Xique from the shareholders of Xique for a purchase price equal to the principal amount of the loans.

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Shareholders’ Voting Rights Entrustment Agreement.     Pursuant to the amended and restated shareholders’ voting rights entrustment agreement entered into on March 1, 2014, between Beijing Miyuan, Xique and its shareholders, the shareholders of Xique have granted Ms. Haiyan Gong, who is a PRC citizen, as agreed by Beijing Miyuan, the right to exercise all their voting rights as shareholders of Xique as provided under its articles of association. Upon Beijing Miyuan’s request, the grantors shall revoke the proxy and grant the same proxy to another PRC citizen as designated by Beijing Miyuan. This amended and restated shareholders’ voting rights entrustment agreement will remain effective until February 16, 2021 and, except by mutual agreement upon early termination by the parties in writing or any termination arising from Xique or its shareholders’ material breach of obligations thereunder, the term of this amended and restated shareholders’ voting rights entrustment agreement will be automatically extended for ten years.

Exclusive Purchase Option Agreement.     Pursuant to the amended and restated exclusive purchase option agreement entered into on March 1, 2014, between Beijing Miyuan, Xique and its shareholders, Beijing Miyuan has an exclusive option to purchase, or to designate another qualified individual or entity to purchase, to the extent permitted by PRC law, part or all of the equity interests in Xique owned by Xique’s shareholders. The purchase price for the entire equity interest of Xique shall be the amount of the proportionate registered capital owned by such shareholder or an amount agreed by the parties in writing, provided that, in case of any compulsory requirement by then PRC laws, the purchase price shall be the minimum price permitted by applicable PRC law. This amended and restated exclusive equity transfer option agreement remains in effect until the completion of the transfer of all the shares in accordance with this amended and restated exclusive purchase option agreement.

Equity Pledge Agreement.     Pursuant to the amended and restated equity pledge agreement entered into on March 1, 2014, between Beijing Miyuan and Xique’s shareholders, Xique’s shareholders pledged their equity interest in Xique to Beijing Miyuan to secure such shareholders’ obligations under the amended and restated loan agreement, the amended and restated shareholders’ voting rights entrustment agreement and the amended and restated exclusive purchase option agreement and Xique’s obligations under the amended and restated exclusive technology license and service agreement, each as described above. This amended and restated equity pledge agreement will expire when the shareholders and Xique have fully performed their obligations under the agreements described above.

On Ju ne 20, 2015, Ms. Haiyan Gong transferred her equity interest in Xique to Mr. Linguang Wu.  On December 8, Mr. Linguang Wu entered into a commitment letter, under which Mr. Linguang Wu undertook to assume the rights and obligations of Ms. Haiyan Gong under the above contractual agreements in connection with Xique.  In addition, to further secure Beijing’s Miyuan’s control over Xique, Mr. Linguang Wu pledged the equity interest in Xique to Beijing Miyuan and the equity pledge registration with the relevant local branch of the Administration of Industry and Commerce was completed on December 8, 2015.

Agreements That Provide Us Effective Control Over Beijing Aizhenxin

Loan Agreement.     Pursuant to a loan agreement entered into on August 13, 2012, between Beijing Miyuan and Mr. Tao Lu, Mr. Hui Song and Mr. Yu Zhang, Beijing Miyuan made interest-free loans of the equivalent of RMB6.0 million, RMB6.0 million and RMB8.0 million, respectively, to Mr. Tao Lu, Mr. Hui Song and Mr. Yu Zhang. The loans are repayable on demand. If Mr. Tao Lu, Mr. Hui Song and Mr. Yu Zhang intend to voluntarily repay the loans in whole or in part, or if Beijing Miyuan requires Mr. Tao Lu, Mr. Hui Song and Mr. Yu Zhang to repay the loans in whole or in part, Beijing Miyuan or its designee may acquire a proportionate amount of the equity interests of Beijing Aizhenxin from Mr. Tao Lu, Mr. Hui Song and Mr. Yu Zhang for a purchase price equal to the principal amount of the repaid loans. Pursuant to the rights and obligations transfer agreement entered into on December 1, 2015, among Mr. Tao Lu, Mr. Yang Si and other related parties, Mr. Tao Lu has transferred all the rights and obligations under aforesaid loan agreement to Mr. Yang Si.

Shareholders’ Voting Rights Entrustment Agreement.     Pursuant to the shareholders’ voting rights entrustment agreement entered into on August 13, 2012, between Beijing Miyuan, Beijing Aizhenxin and its original shareholders, and the rights and obligations transfer agreement entered into on December 1, 2015, among Mr. Tao Lu, Mr. Yang Si and other related parties, the shareholders of Beijing Aizhenxin have granted Ms. Haiyan Gong, who is a PRC citizen, as agreed by Beijing Miyuan, the right to exercise all their voting rights as shareholders of Beijing Aizhenxin as provided under its articles of association. Upon Beijing Miyuan’s request, the grantors shall revoke the proxy and grant the same proxy to another PRC citizen as designated by Beijing Miyuan. The shareholders’ voting rights entrustment agreement will remain effective until August 12, 2022 and, except by mutual agreement upon early termination by the parties in writing or any termination arising from Beijing Aizhenxin or its shareholders’ material breach of obligations thereunder, the term of the shareholders’ voting rights entrustment agreement will be automatically extended for ten years.

Exclusive Purchase Option Agreement.     Pursuant to the exclusive purchase option agreement entered into on August 13, 2012, between Beijing Miyuan, Beijing Aizhenxin and its original shareholders, and the rights and obligations transfer agreement entered into on December 1, 2015, among Mr. Tao Lu, Mr. Yang Si and other related parties, Beijing Miyuan has an exclusive option to purchase, or to designate another qualified individual or entity to purchase, to the extent permitted by PRC law, part or all of the equity interests in Beijing Aizhenxin owned by Beijing Aizhenxin’s shareholders. The purchase price for the entire equity interest of Beijing Aizhenxin shall be the amount of the proportionate registered capital owned by such shareholder or an amount agreed by the parties in writing, provided that, in case of any compulsory requirement by then PRC laws, the purchase price shall be the minimum price permitted by applicable PRC law. The exclusive purchase option agreement remains in effect until the completion of the transfer of all the shares in accordance with the exclusive purchase option agreement.

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Equity Pledge Agreement.     Pursuant to the equity pledge agreement entered into on August 13, 2012, between Beijing Miyuan and Beijing Aizhenxin’s original shareholders, and the rights and obligations transfer agreement entered into on December 1, 2015, among Mr. Tao Lu, Mr. Yang Si and other related parties, Beijing Aizhenxin’s shareholders pledged their equity interest in Beijing Aizhenxin to Beijing Miyuan to secure such shareholders’ obligations under the loan agreement, the shareholders’ voting rights entrustment agreement and exclusive purchase option agreement and Beijing Aizhenxin’s obligations under the exclusive technology license and service agreement, each as described above. The equity pledge agreement will expire when the shareholders and Beijing Aizhenxin have fully performed their obligations under the agreements described above.

Agreements That Provide Us Effective Control Over Beijing Youyue Hudong

Loan Agreement.      Pursuant to the loan agreement entered into on December 1, 2015, between Beijing Miyuan and the shareholders of Beijing Youyue Hudong, Beijing Miyuan made interest-free loans of RMB0.4 million, RMB0.3 million and RMB0.3 million, respectively, to Mr. Tao Lu, Mr. Hui Song, and Mr. Yu Zhang, the shareholders of Beijing Youyue Hudong. The loans are repayable on demand. If the shareholders of Beijing Youyue Hudong intend to voluntarily repay the loans, Beijing Miyuan or its designee may acquire the equity investments of Beijing Youyue Hudong from the shareholders of Beijing Youyue Hudong for a purchase price equal to the principal amount of the loans.

Shareholders’ Voting Rights Entrustment Agreement.      Pursuant to the shareholders’ voting rights entrustment agreement entered into on December 1, 2015, between Beijing Miyuan, Beijing Youyue Hudong and its shareholders, the shareholders of Beijing Youyue Hudong have granted Mr. Linguang Wu, who is a PRC citizen, as agreed by Beijing Miyuan, the right to exercise all their voting rights as shareholders of Beijing Youyue Hudong as provided under its articles of association. Upon Beijing Miyuan’s request, the grantors shall revoke the proxy and grant the same proxy to another PRC citizen as designated by Beijing Miyuan. This shareholders’ voting rights entrustment agreement will remain effective unless early terminated by Beijing Miyuan in writing or arising from any party’s material breach of obligations thereunder.