Annual and Transition Report (foreign Private Issuer) (20-f)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 20-F

(Mark One)

¨	REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

¨	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended .

x	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from April 1, 2014 to December 31, 2014.

¨	SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Date of event requiring this shell company report

Commission file number: 001-34988

SKY-MOBI LIMITED

(Exact name of Registrant as specified in its charter)

N/A

(Translation of Registrant’s name into English)

Cayman Islands

(Jurisdiction of incorporation or organization)

10/F, Building B, United Mansion

No. 2 Zijinghua Road, Hangzhou

Zhejiang 310013

People’s Republic of China

(Address of principal executive offices)

Fischer Xiaodong Chen, Chief Financial Officer

Tel: +(86) 571-8777-0978

E-mail: ir@sky-mobi.com

Facsimile number: +(86) 571-8775-8616

10/F, Building B, United Mansion

No. 2, Zijinghua Road, Hangzhou

Zhejiang 310013

People’s Republic of China

(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)

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

Title of Each Class

Name of Each Exchange on Which Registered

American Depositary Shares, each representing eight

common shares of par value US$0.00005 per share

NASDAQ Global Market

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

NONE

(Title of Class)

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

NONE

(Title of Class)

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 transition report:

222,266,678 common shares of par value US$0.00005 per share, as of December 31, 2014.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ¨ 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. ¨ Yes x No

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 ¨ 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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). ¨ Yes ¨ 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):

¨ Large accelerated filer ¨ Accelerated filer x Non-accelerated filer

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

U.S. GAAP

International Financial Reporting Standards as issued by the International Accounting Standards Board

Other

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. ¨ Item 17 ¨ 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). ¨ 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. ¨ Yes ¨ No

TABLE OF CONTENTS

CONVENTIONS USED IN THIS TRANSITION REPORT		1
PART I		2
ITEM 1.	IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS	2
ITEM 2.	OFFER STATISTICS AND EXPECTED TIMETABLE	2
ITEM 3.	KEY INFORMATION	2
ITEM 4.	INFORMATION ON THE COMPANY	34
ITEM 4A.	UNRESOLVED STAFF COMMENTS	57
ITEM 5.	OPERATING AND FINANCIAL REVIEW AND PROSPECTS	57
ITEM 6.	DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES	80
ITEM 7.	MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS	87
ITEM 8.	FINANCIAL INFORMATION	90
ITEM 9.	THE OFFER AND LISTING	91
ITEM 10.	ADDITIONAL INFORMATION	92
ITEM 11.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	104
ITEM 12.	DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES	105
PART II		107
ITEM 13.	DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES	107
ITEM 14.	MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS	107
ITEM 15.	CONTROLS AND PROCEDURES	107
ITEM 16A.	AUDIT COMMITTEE FINANCIAL EXPERT	108
ITEM 16B.	CODE OF ETHICS	108
ITEM 16C.	PRINCIPAL ACCOUNTANT FEES AND SERVICES	108
ITEM 16D.	EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES	109
ITEM 16E.	PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS	109
ITEM 16F.	CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT	109
ITEM 16G.	CORPORATE GOVERNANCE	109
ITEM 16H.	MINE SAFETY DISCLOSURE	109
PART III		110
ITEM 17.	FINANCIAL STATEMENTS	110
ITEM 18.	FINANCIAL STATEMENTS	110
ITEM 19.	EXHIBITS	110

CONVENTIONS USED IN THIS TRANSITION REPORT

In this transition report, unless otherwise indicated, (1) “we,” “us,” “our company,” “our” or “Sky-mobi” refers to Sky-mobi Limited, a Cayman Islands company, its predecessor entities, subsidiaries and consolidated special purpose entities, or SPEs, controlled by Sky-mobi Limited; (2) “SPEs” refers to Hangzhou Sky Network Technologies Co., Ltd., or Hangzhou Sky, Hangzhou Mijia Technologies Co., Ltd., or Mijia, Hangzhou Fanyi Technologies Co., Ltd., or Fanyi, Hangzhou Feineng Technologies Co., Ltd., or Feineng, Hangzhou Miyi Technologies Co., Ltd., or Miyi, Hangzhou Najia Technologies Co., Ltd., or Najia, Shanghai Tianchu Technologies Co., Ltd., or Tianchu, Nanjing Zunqi Network Information Technologies Co., Ltd., or Zunqi, Nanjing Geyuan Information Technologies Co., Ltd., or Geyuan, Hangzhou Dangyi Technologies Co., Ltd., or Dangyi, Shanghai Mugu Business Information Consulting Co., Ltd., or Mugu, Shenzhen Feidong Network Technologies Co., Ltd., or Feidong, Hangzhou Fuyun Technologies Co., Ltd., or Fuyun and Hangzhou Duoqu Technologies Co., Ltd., or Duoqu; (3) “China” or “PRC” refers to the People’s Republic of China, excluding Taiwan, Hong Kong and Macau; (4) “shares” or “common shares” refers to our common shares, par value US$0.00005 per share; “ADSs” refers to our American depositary shares, each of which represents eight common shares; and “ADRs” refers to the American depositary receipts which evidence our ADSs; (5) all references to “RMB” or “Renminbi” are to the legal currency of China; and all references to “$,” “US$” and “U.S. dollars” are to the legal currency of the United States; (6) all discrepancies in any table between the amounts identified as total amounts and the sum of the amounts listed therein are due to rounding; and (7) all translations from RMB to U.S. dollars and from U.S. dollars to RMB in this transition report were made at a rate of RMB6.2046 to US$1.00, the noon buying rate in effect as of December 31, 2014, as set forth in the H.10 statistical release of the Federal Reserve Board. The translation is not intended to imply that the RMB amounts could have been, or could be, converted, realized or settled into U.S. dollars at that rate on December 31, 2014, or at any other rate.

“Maopao platform” or “Maopao platform products” refers to, collectively, our Maopao products and services, including but not limited to Maopao App Store, Maopao Game Center, Maopao Community and Maopao Browser.

When calculating the number of Maopao platform users, we count a handset with a particular SIM card to access Maopao platform as one user. Therefore, an individual who accesses Maopao platform through one handset with two different SIM cards will be counted as two users, while an individual who accesses Maopao platform through two different handsets using the same SIM card will also be counted as two users.

“DNU” stands for daily new users, which represents the number of new users to Maopao Platform during a particular day, adjusted to eliminate double-counting of the same user. Average DNU for a particular period is the average of the DNU during that period.

“MAU” stands for monthly active users, which represents the number of users that visit Maopao Platform for at least once in a particular month, adjusted to eliminate double-counting of the same user. Average MAU for a particular period is the average of the MAU during that period.

“MPU” stands for monthly paying user, which represents the number of users that have purchased in-app virtual items or other contents in a particular month, adjusted to eliminate double-counting of the same user. Average MPU for a particular period is the average of the MPU during that period.

“Paying ratio” equals to the average MPU divided by the average MAU during a particular period of time.

“Fiscal 2013” and “fiscal 2014” represent the fiscal years ended March 31, 2013 and 2014, respectively.

This transition report on Form 20-F includes (i) our audited consolidated statements of operations for the fiscal years ended March 31, 2013 and 2014 and for the nine months ended December 31, 2014 and our unaudited consolidated statements of operations for the nine months ended December 31, 2013, and (ii) our audited consolidated balance sheet data as of March 31, 2013 and 2014 and December 31, 2014.

On December 15, 2010, we completed the initial public offering of 6,125,000 ADSs, each representing eight common shares of par value US$0.00005 per share. On December 10, 2010, we listed our ADSs on the NASDAQ Global Market, or NASDAQ, under the ticker symbol “MOBI.”

We changed our fiscal year-end from March 31 to December 31 in May 2014, effective from the calendar year ended December 31, 2014. This transition report on Form 20-F covers the nine-month period from April 1, 2014 through December 31, 2014 (the “Transition Period”) and reflects our financial results thereof. Prior to this transition report on Form 20-F, our two most recent annual reports on Form 20-F cover the fiscal years ended March 31, 2013 and March 31, 2014, respectively, and reflect financial results for the respective twelve-month periods from April 1 to March 31. Unless otherwise noted, all references to “fiscal years” in this transition report on Form 20-F refer to the fiscal year which, prior to the Transition Period, ended on March 31.

PART I

ITEM 1.

IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not Applicable.

ITEM 2.

OFFER STATISTICS AND EXPECTED TIMETABLE

Not Applicable.

ITEM 3.

KEY INFORMATION

Selected Financial Data

We have changed our fiscal year end from March 31 to December 31 in May 2014. We have derived our selected consolidated statement of profit or loss and other comprehensive income data for the fiscal years ended March 31, 2013 and 2014 and for the nine months ended December 31, 2014 and the selected consolidated statement of financial position data as of March 31, 2013 and 2014 and December 31, 2014 from our audited consolidated financial statements included in this transition report. The unaudited financial data as of and for the nine months ended December 31, 2013 are presented solely for the purpose of providing meaningful comparisons with the nine-month period ended December 31, 2014. Our selected consolidated statement of profit or loss and other comprehensive income data for the fiscal years ended March 31, 2011 and 2012 and the selected consolidated statement of financial position data as of March 31, 2011 and 2012 have been derived from our audited consolidated financial statements not included in this transition report. Our consolidated financial statements are prepared and presented in accordance with International Financial Reporting Standards, or IFRS, as issued by the International Accounting Standards Board, or IASB.

You should read the selected consolidated financial data set forth below in conjunction with the related notes and “Item 5. Operating and Financial Review and Prospects.”

	For the Fiscal Year Ended March 31,												For the Nine Months Ended December 31,
	2011			2012			2013			2014			2013			2014
	RMB			RMB			RMB			RMB			RMB			RMB			US$
													(Unaudited)
	(in thousands, except number of shares and per share data)
Consolidated Statements of Profit or Loss and Other Comprehensive Income Data
Revenues		675,294			685,563			601,107			485,551			356,987			586,033			94,452
Cost of revenues from third parties		(461,422	)		(465,479	)		(412,246	)		(339,982	)		(248,081	)		(437,919	)		(70,580	)
Cost of revenues from related parties		(3,415	)		(5,546	)		(6,534	)		(24,453	)		(20,348	)		(26,519	)		(4,274	)
Gross profit		210,457			214,538			182,327			121,116			88,558			121,595			19,598
Operating expenses⁽¹⁾:
Research and development expenses		(52,260	)		(71,088	)		(73,027	)		(38,644	)		(29,525	)		(25,943	)		(4,181	)
Sales and marketing expenses		(38,200	)		(37,361	)		(35,369	)		(36,351	)		(26,357	)		(31,219	)		(5,032	)
General and administration expenses		(98,938	)		(83,996	)		(69,491	)		(58,401	)		(43,909	)		(46,966	)		(7,570	)
Other operating income, net		—			3,675			2,320			5,772			3,973			1,481			239
Profit (Loss) from operations		21,059			25,768			6,760			(6,508	)		(7,260	)		18,948			3,054
Other gains and losses		11,179			11,649			15,531			17,482			11,572			17,741			2,859
Impairment of investment in associates		(5,760	)		—			(1,367	)		(727	)		(727	)		(2,673)			(431	)
Impairment of an available-for-sale investment		—			—			—			(800	)		(800	)		—			—
Finance costs		(4,333	)		—			—			—			—			—			—
Share of results of associates		(6,012	)		(886	)		(935	)		2,428			3,390			8,510			1,372
Gain on disposal of an associate		—			—			—			—			—			57,351			9,243
Gain on changes in fair value of convertible redeemable preferred shares		106,684			—			—			—			—			—			—
Gain on changes in fair value of warrants		7,377			—			—			—			—			—			—
Profit before tax		130,194			36,531			19,989			11,875			6,175			99,877			16,097
Income tax benefit(expense)		5,367			(3,602	)		(2,733	)		(7,218	)		(6,147	)		(1,156	)		(186	)
Profit for the year		135,561			32,929			17,256			4,657			28			98,721			15,911
Profit and total comprehensive income for the year		135,561			32,929			17,256			4,657			28			98,721			15,911
Profit and total comprehensive income attributable to:
Owners of the Company		136,310			32,969			17,112			5,251			486			99,008			15,957
Non-controlling interests		(749	)		(40	)		144			(594	)		(458	)		(287	)		(46	)
		135,561			32,929			17,256			4,657			28			98,721			15,911
Earnings per share:
Basic		0.74			0.13			0.07			0.02			0.00			0.42			0.07
Diluted		0.06			0.13			0.07			0.02			0.00			0.42			0.07
Earnings per ADS⁽²⁾:
Basic		5.92			1.01			0.53			0.17			0.02			3.36			0.54
Diluted		0.48			1.00			0.53			0.17			0.02			3.35			0.54

________________________

⁽¹⁾

Includes share-based compensation expenses as follows:

	For the Fiscal Year Ended March 31,								For the Nine Months Ended December 31,
	2011		2012		2013		2014		2013		2014
Share-Based Compensation Data	RMB		RMB		RMB		RMB		RMB		RMB		US$
									(Unaudited)
	(in thousands)
Research and development expenses		9,528		8,536		5,900		4,338		3,716		360		58
Sales and marketing expenses		4,738		3,552		2,067		3,613		3,398		127		20
General and administration expenses		33,368		30,656		14,017		8,691		5,520		3,365		542
Total share-based compensation expenses		47,634		42,744		21,984		16,642		12,634		3,852		620

⁽²⁾

Each ADS represents eight common shares.

The following table sets forth the reconciliation of non-IFRS net profit for the period, a non-IFRS financial measure, from profit for the period, our most directly comparable financial measure presented in accordance with IFRS, for the periods indicated.

	For the Fiscal Year Ended March 31,									For the Nine Months ended December 31,
	2011			2012		2013		2014		2013		2014
	RMB			RMB		RMB		RMB		RMB		RMB		US$

	(in thousands)
Non-IFRS Financial Data
IFRS profit for the period		135,561			32,929		17,256		4,657		28		98,721		15,911
Share-based compensation charges		50,290			45,683		24,457		17,478		13,227		4,038		651
Initial public offering expenses charged into current expenses		3,659			—		—		—		—		—		—
Gain on changes in fair value of warrants		(7,377	)		—		—		—		—		—		—
Gain on changes in fair value of convertible redeemable preferred shares		(106,684	)		—		—		—		—		—		—
Foreign exchange gain relating to gain on changes in fair value of convertible redeemable preferred shares and warrants		(12,240	)		—		—		—		—		—		—
Reversal of withholding tax on shareholding dividend ⁽¹⁾		(8,305	)		—		—		—		—		—		—
Non-IFRS net profit for the period⁽²⁾		115,670			54,904		78,612		41,713		13,255		102,759		16,562

________________________

⁽¹⁾

Reversal of withholding tax on shareholding dividend represents the reversal of the accrued withholding tax related to the dividend to preferred shareholders.

⁽²⁾

We define non-IFRS net profit for the period, a non-IFRS financial measure, as profit for the period excluding share-based compensation charges, loss from initial public offering expenses charged into current expenses, gain on changes in the fair value of convertible redeemable preferred shares and warrants and the foreign exchange gain relating thereto, and the reversal of withholding tax on shareholding dividends. We review non-IFRS net profit for the period together with profit for the period to obtain a better 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 charges, loss from initial public offering expenses charged into current expenses, gain on changes in the fair value of convertible redeemable preferred shares and warrants and the foreign exchange gain relating thereto, and the reversal of withholding tax on shareholding dividends. However, the use of non-IFRS net profit for the period has material limitations as an analytical tool. One of the limitations of using non-IFRS net profit for the period is that it does not include all items that affect our profit for the period. In addition, because non-IFRS net profit for the period is not calculated in the same manner by all companies, it may not be comparable to other similarly titled measures used by other companies. In light of the foregoing limitations, you should not consider non-IFRS net profit for the period in isolation from or as an alternative to total profit or other financial measures prepared in accordance with IFRS.

	As of March 31,								As of December 31,
	2011		2012		2013		2014		2014
	RMB		RMB		RMB		RMB		RMB		US$
	(in thousands)
Consolidated Statement of Financial Position
Cash and cash equivalents		367,214		137,538		135,025		79,057		204,967		33,035
Term deposits		152,718		438,393		473,277		295,804		282,383		45,512
Short-term investments and investment at fair value through profit or loss (“FVTPL”)		—		—		—		218,642		21,373		3,445
Total assets		656,543		718,751		741,140		785,653		878,067		141,519
Total liabilities		155,003		138,516		140,022		181,724		270,511		43,600
Total equity (deficit)		501,540		580,235		601,118		603,929		607,556		97,919
Total equity and liabilities		656,543		718,751		741,140		785,653		878,067		141,519
Share capital		92		92		89		86		81		13
Dividends		13,000		—		—		—		—		—

Exchange Rate Information

Our business is primarily conducted in China and almost all of our revenues are denominated in RMB. This transition report contains translations of RMB amounts into U.S. dollars based on the noon buying rate on December 31, 2014, as set forth in H.10 statistical release of the Federal Reserve Board. For your convenience, this transition report contains translations of some RMB or U.S. dollar amounts for the nine months ended December 31, 2014 at US$1.00: RMB6.2046, which was the noon buying rate in effect as of December 31, 2014. The prevailing rate on April 17, 2015 was US$1.00: RMB6.1976. We make no representation that any RMB or U.S. dollar amounts could have been, or could be, converted into U.S. dollars or RMB, as the case may be, at any particular rate, the rates stated below, or at all. The PRC government imposes control over its foreign currency reserves in part through direct regulation of the conversion of RMB into foreign currency and through restrictions on foreign exchange activities.

The following table sets forth information concerning exchange rates between the RMB and the U.S. dollar for the periods indicated. These rates are provided solely for your convenience and are not necessarily the exchange rates that we used in this transition report or will use in the preparation of our other periodic reports or any other information to be provided to you. The source of these rates is H.10 statistical release of the Federal Reserve Board.

	Noon Buying Rate
Period	Period End		Average⁽¹⁾		Low		High

Fiscal Year ended March 31, 2011		6.5483		6.6972		6.8323		6.5483
Fiscal Year ended March 31, 2012		6.2975		6.3980		6.5477		6.2935
Fiscal Year ended March 31, 2013		6.2108		6.2783		6.3684		6.2108
Fiscal Year ended March 31, 2014		6.2164		6.1185		6.0402		6.2273
2014		6.2046		6.1704		6.2591		6.0402
October		6.1124		6.1251		6.1385		6.1107
November		6.1429		6.1249		6.1429		6.1117
December		6.2046		6.1886		6.2256		6.1490
2015
January		6.2495		6.2181		6.2535		6.1870
February		6.2695		6.2518		6.2695		6.2399
March		6.1990		6.2386		6.2741		6.1955
April (through April 17, 2015)		6.1976		6.2010		6.2152		6.1930

________________________

⁽¹⁾

Annual averages were calculated by using the average of the exchange rates on the last day of each month during the relevant fiscal or calendar year. Monthly averages were calculated by using the average of the daily rates during the relevant month.

Capitalization and Indebtedness

Not Applicable.

Reasons for the Offer and Use of Proceeds

Not Applicable.

Risk Factors

Risks Related to Our Business and Our Industry

We have a limited operating history and the long-term potential of our business model is unproven, which makes it difficult to evaluate our business.

We commenced our business in 2005 and launched Maopao App Store for feature phones and smartphones in December 2006 and May 2012, respectively. As such, we have a limited operating history for you to evaluate our business, financial performance and prospects, particularly in connection with our smartphone business. Evolved from our feature phone business, our smartphone business is relatively new in the fast growing mobile application industry in China.

Our revenue declined from 2012 to 2013 due to the continuous decline of our feature phone business. Although our revenue increased from the nine months ended December 31, 2013 to the nine months ended December 31, 2014 as we shifted our strategic focus from feature phones to smartphones, we may not be able to maintain revenue growth in future periods. Our business model may become obsolete due to the development of other business models or technologies. It is also difficult to evaluate our prospects because we may not have sufficient experience to address the risks frequently encountered by early stage companies entering new and rapidly evolving markets, such as the mobile application market in China. Although our Maopao platform products for smartphones are rapidly gaining popularity across China, sustainability of user demand and the continued growth of these smartphone products are subject to uncertainty. If our smartphone business does not grow as expected or at all for any reason, the trading price of our ADSs may decline and the value of your investment may be materially and adversely affected.

We generated net profit in the fiscal years ended March 31, 2013 and 2014 and the nine months ended December 31, 2014. Our ability to maintain profitability depends on, among other factors, the growth of the mobile applications industry in China, the continued acceptance of Maopao platform by smartphone users, our ability to provide new applications and other content to meet the changing demands of our users, our ability to maintain good relationships with industry participants and to control our costs and expenses. We may not be able to sustain profitability on a quarterly or annual basis. Accordingly, you should not rely on our results of operations for any prior periods as an indication of our future performance.

Significant changes in the policies, guidelines or practices of mobile network operators or the PRC government with respect to mobile applications and other content may result in lower revenues or additional costs for us and materially adversely affect our business operations, financial condition and results of operations.

PRC mobile network operators may change their policies, guidelines or business practices which affect all mobile service providers and companies using their networks. Because we rely on mobile network operators directly or through mobile service providers who in turn utilize mobile network operators’ billing channels for the collection of a substantial portion of our sales proceeds, a significant change in mobile network operators’ policies or guidelines may cause our revenues to decrease or operating costs to increase. Furthermore, our mobile service providers and us are subject to review by mobile network operators from time to time and may be denied access to mobile network operators’ billing channels should we or our mobile service providers fail such reviews. As a result, our financial condition and results of operations may be materially adversely affected by policy or guideline changes by PRC mobile network operators. For example, an increasing number of branches and divisions of mobile network operators we cooperate with have been restructured into separate corporations in the past few years. In response to such restructuring, we have been, and may continue to be prompted to enter into new cooperation agreements and/or partnership agreements with these new entities and be subject to their policies and guidelines. These new agreements, policies and guidelines may significantly deviate from the ones imposed by their predecessor branches and divisions. If any of these entities adopt measures, guidelines, policies or revenue sharing arrangements that are less favorable to us, our business and results of operations may be materially adversely affected.

PRC mobile network operators or the PRC government could impose additional requirements with respect to the subscription or download of applications and other content offered on Maopao platform, billing notifications or other consumer-protection measures or adopt other policies that may require significant changes in how we promote and sell the applications and content on Maopao platform, which could materially adversely affect our financial condition and results of operations.

Our failure to maintain cooperative relationships with handset companies to pre-install our applications onto mobile handsets or to cooperate with additional handset companies would result in a decrease in our market share.

We rely on handset companies to pre-install our Maopao App Store, Maopao Game Center and other applications onto their mobile phones, which is the primary way we have developed our large user base. We had entered into cooperation agreements with over 370 smartphone and 940 feature phone handset companies as of December 31, 2014 to pre-install Maopao platform applications on their products. Our agreements with handset companies generally have one- to two-year terms and contain automatic renewal provisions, pursuant to which we share with them a percentage of revenues generated from user purchases or pay a fixed amount based on number of activations. Due to our reliance on handset companies to pre-install our Maopao platform products on mobile phones, any termination of or deterioration in our existing relationships with handset companies or our failure to cooperate with additional handset companies, particularly those with a substantial market share or growth potential, would decrease our user base and market share.

The handset companies we partner with face fierce competition in an industry characterized by evolving technological standards. Our handset company partners that have traditionally focused on feature phones have experienced market share declines in recent years, which has resulted in a decrease in our feature phone revenue. Furthermore, the amount paid to handset companies under revenue sharing arrangements constitutes a significant portion of our total cost of revenues in recent years. Unfavorable changes to our revenue sharing arrangements with handset companies could adversely affect our results of operations.

Handset companies often pre-install other mobile application stores in addition to Maopao App Store or Maopao Game Center, which could adversely affect purchases from Maopao App Store or Maopao Game Center, causing our revenues to decrease. In addition, certain handset companies may consider developing their own mobile application store, which could adversely affect our relationships with them.

Our failure to increase the installation base of Maopao platform among economic handsets would adversely affect our market share and results of operations.

We primarily collaborate with handset companies to pre-install Maopao platform products on economic smartphones and feature phones. Our ability to increase the pre-installation of Maopao platform depends on many factors, some of which are beyond our control. Although we work with a large number of economic smartphone and feature phone manufacturers and brands that in aggregate hold a large market share in China, these handset companies may not be able to maintain their market shares. The mobile phone market in China is rapidly evolving. On the one hand, after years of high growth in feature phone sales in China, the feature phone market in China has declined since the second half of 2012, causing the market share of certain feature phone manufacturers we partner with to decline. On the other hand, although we have been increasing our collaboration with smartphone manufacturers in recent years, there is no guarantee that these companies will continue to occupy substantial market share in the future. If the operations of the handset companies we partner with deteriorate, our business could be materially and adversely affected.

In addition, mobile network carrier-subsidized handsets, most of which have other mobile application stores pre-installed, historically have had a relatively large market share in China, and their market share in China is continuously growing, which may adversely affect the pre-installation of Maopao platform products onto handsets, particularly economic handsets. Our failure to increase the installation base of our Maopao App Store and other Maopao platform products among economic handsets would adversely affect our market share and results of operations.

If we fail to establish a substantial market presence in the rapidly growing smartphone market, our growth prospects could be materially adversely affected.

The mobile phone market in China has been transitioning from feature phones to smartphones in recent years. Smartphones are technologically advanced devices with personal computer-level versatility that operate advanced operating systems such as Android, Apple’s iOS, BlackBerry OS, Linux, Symbian and Windows Phone. Smartphones are becoming more affordable in China partly because of PRC government-subsidized programs. Smartphones are characterized by more powerful processors, larger screens and higher data storage capacity compared to feature phones, and are able to easily install and run high performance multimedia applications. To maintain our user base and pursue monetization opportunities in the ever growing smartphone market, we have since 2012 shifted the focus of our mobile application business from feature phones to smartphones. We have launched a portfolio of Maopao platform products for smartphones, including our Maopao App Store and Maopao Game Center.

Although we are actively pursuing strategic cooperation to pre-install Maopao platform products on an increasing number of smartphone models, we cannot assure you that we will be able to establish and maintain a substantial market presence in the smartphone market in China.

Our smartphone products operate mainly on Android-based operating systems. If Android fails to maintain market share in the smartphone segment, our smartphone business may be adversely affected.

Android is currently the dominant smartphone operating system in China, especially in the economic smartphone market. Our current smartphone products are developed for and operate solely on Android-based operating systems. Android may face competition from existing operating systems such as Apple’s iOS, Microsoft’s Windows Phone and Blackberry OS, as well as new entrants to the mobile phone operating system market. We cannot assure you that Android-based operating systems will continue to maintain or grow their market shares. If non Android-based smartphones begin capturing significant market share in the future, we will be prompted to spend substantial resources to develop and launch Maopao platform products for these operating systems. If we fail to develop products and services on new and emerging operating systems, our smartphone user base may decline and our growth prospects could be adversely affected.

If our smartphone products do not achieve wide market acceptance or if we fail to generate profits with respect to such products, our results of operations may be adversely affected.

In May 2012, we launched Maopao App Store for smartphones, in particular Android-based smartphones, which we believe will be one of the major smartphone operating systems in China. We have also launched a series of smartphone products, including Maopao Game Center and Maopao Browser. For the nine months ended December 31, 2014, approximately 84.1% of our total revenues were generated from our smartphone business, an increase from approximately 34.3% for the nine months ended December 31, 2013. However, we are new entrants to the smartphone market and have limited development and operating experience in this emerging market, which has different characteristics than the feature phone market.

For example, the smartphone market employs open-source technologies by which our users can freely download our applications through alternative sources and without accessing our Maopao App Store. We cannot assure you that we can keep abreast of the technical developments of the smartphone market to provide quality smartphone products or that we can successfully establish relationships with smartphone companies in order to increase the pre-installation of our Maopao platform products on their handsets. In addition, many smartphone companies have developed their own application stores. If Maopao App Store is installed on these smartphones, it will compete with the application stores operated by these smartphone companies and smartphone users may not use our Maopao App Store as frequently as feature phone users.

We may face increased competition, which could reduce our market share and materially adversely affect our results of operations.

The mobile application market in China is fast evolving and highly competitive. The market is characterized by the frequent introduction of new products and services, short product life cycles, evolving industry standards, improved performance characteristics, rapid adoption of technological and product advancement, and price sensitivity on the part of users. We compete primarily with mobile application store operators and mobile game distributors. See “Item 4. Information on the Company—A. Business Overview—Competition.”

We may also face alliances between our existing and new competitors and emergence of new competitors. Mobile service providers, handset companies or other industry players may introduce a mobile application store or other business model to compete with us. In addition, some wireless communication chip manufacturers have launched or plan to launch their own application stores.

Some of our competitors have significantly greater financial, technological and marketing resources, stronger relationships with industry participants and a larger portfolio of applications and content offerings than we do. Some of our competitors, especially major multinational application store operators, have greater development experience and resources than we have. If new competitors emerge or competition among existing competitors intensifies, we may be forced to provide more favorable revenue sharing arrangements to our business partners, which could adversely affect our profitability. If we fail to compete effectively, our market share would decrease and our results of operations would suffer.

If we fail to maintain cooperative relationships with mobile network operators, our revenues and growth prospects may be adversely affected.

We cooperate with mobile network operators in various aspects of our business, including the provision of customized software services at their physical stores, distribution and promotion of applications and mobile content and payment collection. Three mobile network operators, China Mobile, China Unicom and China Telecom, dominate the wireless telecommunications sector in China. As of the date of this transition report, we have entered into strategic cooperation with each of China Mobile, China Unicom and China Telecom in various aspects of our operations:

China Mobile, the largest mobile network operator in China, has granted us access to their payment channels since 2012, which enables us to collect a large portion of our sales proceeds through China Mobile directly from users without using mobile service providers as intermediaries. In March 2012, we entered into a partnership agreement with China Mobile, pursuant to which we offer its mobile games and mobile reading application on Maopao platform and share a percentage of revenue based on user purchases of China Mobile’s in-game virtual items, premium features and reading content from Maopao platform;

in March 2014, we entered into a strategic partnership with the Wo Store, the official application store of China Unicom, China’s second largest mobile network operator. Under this partnership, China Unicom designated us as an official business partner to provide customized software services through its extensive network of physical stores;

in September 2014, we entered into a strategic partnership with E Surfing (“Tianyi”), China Telecom’s mobile internet services platform. China Telecom designated us as an official business partner to provide customized software services through its extensive network of physical stores; and

we have also entered into game cooperation agreements with each of the three major mobile network operators, pursuant to which we collect proceeds from distribution of selected games on third-party distribution channels through these mobile network operators.

See “Item 4. Information on the Company—A. Business Overview — Cooperation with Mobile Network Operators.”

We plan to deepen our cooperation with the mobile network operators to enlarge our user base, benefit from lower payment channel costs and faster payment collection and supplement our mobile application and content offerings. If we fail to maintain our relationships with any of the mobile network operators, we may not be able to find replacement operators in a timely manner or at all, and our business and prospects may be adversely affected. Furthermore, mobile network operators monitor our operations and may impose sanctions if we fail to comply with their policies or guidelines, including denying us access to their billing channels, which could adversely affect our financial condition and results of operations.

We depend on mobile service providers, and ultimately mobile network operators, for the collection of a portion of our revenues, and any termination of or deterioration in our relationships with mobile service providers, or a disruption in our mobile service providers’ relationships with mobile network operators, may result in disruptions to our operations.

For the fiscal years ended March 31, 2013 and 2014 and the nine months ended December 31, 2014, we collected a large portion of our revenues through mobile service providers, who utilize mobile network operators’ billing channels pursuant to their agreements with mobile network operators to provide billing and payment collection services. As of December 31, 2014, we had entered into agreements with over 60 mobile service providers. Our agreements with mobile service providers generally have one- to three-year terms and sometimes include automatic renewal provisions. We cannot assure you that we could renew these agreements or enter into new ones when the existing agreements expire. Because we rely on mobile service providers to collect a portion of the sales proceeds from our users, any termination of or deterioration in our relationships with mobile service providers may disrupt our operations and materially adversely affect our financial condition and results of operations.

Our mobile service providers rely on mobile network operators’ billing channels for the provision of payment collection services. A large portion of our sales proceeds collected by mobile service companies were collected through billing channels of China Mobile, who has the largest subscriber base in China. Any disruption or termination of our mobile service providers’ cooperation with the mobile network operators, particularly China Mobile, could render these billing channels unavailable, which could materially adversely affect our operations.

We depend on the billing and collection systems of mobile network operators and mobile service providers. The inaccuracy of these systems or changes in the operations of mobile network operators and mobile service providers could affect our business and results of operations.

We depend on mobile network operators, either directly or through mobile service companies, to maintain accurate records of payments by users and collect such payments. We receive periodic statements from mobile network operators and mobile service providers that indicate the aggregate amount of fees charged to users for purchases of in-app virtual items, premium features and other content. While we conduct independent sampling tests to verify information provided to us, our sampling is on a relatively small scale and the inaccuracies identified are usually resolved through negotiations with mobile service providers. Our business and results of operations could be adversely affected if the mobile network operators or mobile service providers miscalculate our sales proceeds.

We have been collecting a large portion of our revenues directly through China Mobile’s billing channels since 2012. We depend on China Mobile to maintain accurate records of payments by users and collect payments. However, China Mobile may change its policies or business practices which could affect our results of operations. For example, in 2012, China Mobile began implementing more stringent billing and collection practices. Under these measures, if China Mobile detects abnormal data transmissions in billing, the underlying transaction will be considered suspicious and the proceeds associated with such transaction will be written off. China Mobile may implement further changes to its billing and collection practices in the future, which could materially adversely affect our financial condition and results of operations.

We generally grant our mobile network operators and mobile service providers credit terms ranging from 60 to 90 days. Receivables from the three major mobile network operators accounted for 69.4% of our total trade receivables as of December 31, 2014. Receivables from our top ten mobile service providers accounted for approximately 21.4% and 22.6% of our total trade receivables as of March 31, 2014 and December 31, 2014, respectively. Failure to timely collect our receivables from mobile network operators or mobile service providers may adversely affect our cash flows. In addition, our mobile service providers may from time to time experience cash flow difficulties and consequently delay their payments to us. Any delay in payment or inability of mobile service providers to pay us may adversely affect our operations and cash flows.

Our revenues and cost of revenues are affected by billing and transmission failures that are often beyond our control. Failure to accurately record billing and transmission failures in a timely manner could harm the credibility of our system and our relationships with industry participants.

After a mobile user confirms a purchase of in-app virtual items, premium features or other content, the mobile service provider sends the user a confirmation SMS with transaction details and a simultaneous message to the mobile network operator, which we refer to as a message original, or MO. We also record such MO data on Maopao platform. Upon receipt of the MO data, the mobile network operator verifies the execution of a transaction. If the transaction has been effected, the mobile network operator usually receives, from the user’s mobile phone, a confirmation message, which we refer to as a message received, or MR. Based on MR data, the mobile network operator records the transaction and bills the user.

The MR data are usually lower than the MO data due to billing and transaction failures, which are caused by various reasons, including:

the mobile network operator experiencing technical problems with its network that prevent the transmission of MR data;

the delivery of mobile applications and content from Maopao platform to a user being prevented because the user’s mobile phone is turned off for an extended period of time, or the user’s prepaid phone card has run out of value; and

we experiencing technical problems with Maopao platform that prevent the delivery of our applications and content.

We recognize our revenues based on MR data. In line with industry practice, we make payments to content providers and handset companies based on our MO data rather than MR data, because MR data generally does not contain sufficient information to enable us to identify which application or content is purchased through which handset model. Consequently, revenue sharing based on MO data may not accurately reflect content providers’ and handset companies’ contribution to transactions. Recognizing the difference between MO and MR data, we apply discount ratios to our MO data to account for billing and transmission failures. If we fail to accurately reward our content providers and handset companies pursuant to our revenue sharing arrangement with them due to billing and transmission failures, our relationship with them could be materially and adversely affected, which may in turn materially and adversely affect our business and results of operations.

Policy changes by PRC government authorities and mobile network operators may also augment billing and transmission failures. See “—Significant changes in the policies, guidelines or practices of mobile network operators or the PRC government with respect to mobile applications and other content may result in lower revenues or additional costs for us and materially adversely affect our business operations, financial condition and results of operations.”

Any adverse developments relating to Maopao Community may adversely affect our results of operations.

Maopao Community has served and is expected to continue to serve as an effective tool to retain and migrate our loyal Maopao Community users along with our transition to smartphones. Accordingly, any of the following could materially adversely affect our business, financial condition and results of operations:

our failure to maintain or grow the user base of our Maopao Community;

our failure to maintain or increase average spending per user in Maopao Community;

any decrease in the popularity of applications and content offered in Maopao Community;

failure by us or third-party content providers to upgrade, enhance or improve these applications and content in a timely manner in response to changing preferences of Maopao Community users; and

failure by us or third-party content providers to develop and launch new applications and content appealing to Maopao Community users.

We may not be successful in effectively promoting or developing our brand.

We believe our future success depends on, among other things, continued market recognition and acceptance of our “Maopao” brand. We have been actively promoting our “Maopao” brand by implementing various marketing initiatives including pre-installation of our Maopao platform products on smartphones and feature phones by cooperating with handset companies and mobile network operators. If these marketing efforts turn out to be inadequate, our growth may be adversely affected.

In addition, negative publicity or disputes involving us, our brand, product offerings or management could materially adversely affect public perception of our brand. Many of the factors that affect our brand may be outside our control. Concerns over the quality of products and services of handset companies and content providers we partner with could also have a negative impact on our brand image and materially adversely affect our sales, profits and prospects.

Our ability to generate revenues could suffer if the mobile application market in China does not develop as anticipated.

The mobile application market in China has evolved rapidly in recent years, with the introduction of new business models, changing user preferences, the increasing popularity of smartphones over feature phones, new service and product offerings, new competitors and evolving strategies by existing competitors. We expect these trends to continue, and in turn must adapt our strategies to stay competitive in this market.

In particular, we are focused on offering a wide range of applications and other content on Maopao platform by cooperating with various industry participants including Chinese handset companies, content providers, mobile network operators and mobile service providers. As smartphones become increasingly popular in China, we have since 2012 shifted our strategic focus from feature phones to smartphones and have launched a portfolio of smartphone products, including our Maopao App Store and Maopao Game Center for smartphones.

However, it is difficult to accurately predict the user demand and future size, composition and growth of the mobile application market in China. Furthermore, given the limited history and rapidly evolving nature of this market, we cannot predict the price that users will be willing to pay for applications and content we offer or whether users will have concerns over security, reliability, cost and quality of customer service. If the mobile application market in China does not develop as anticipated, our results of operations could be materially adversely affected.

Laws and regulations regulating online games in China are developing and may change. If we fail to obtain or maintain all applicable permits and approvals, our business and results of operations would be materially adversely affected.

Operating online games in China requires a series of permits and approvals. For example, we have obtained a license from the Ministry of Culture with respect to the operation of online games. In addition, the Internet publication of online games requires pre-approval from the General Administration of Press and Publication, or GAPP. Effective on March 22, 2013, GAPP and the State Administration of Radio, Film and Television merged into one entity, namely the State General Administration of Press, Publication, Radio, Film and Television, or SAPPRFT, which oversees the press, publication, radio, film and TV sectors in China. We operate a substantial majority of our online games in collaboration with third-party content providers, and such content providers are in charge of obtaining the approvals from SAPPRFT. For the remaining online games we operate, we are responsible for obtaining approvals from SAPPRFT. Because the requirement for SAPPRFT approval of online games was imposed in late 2009 and the approval process is lengthy, SAPPRFT has not yet approved any online games that we operate. With respect to the online games that we operate alone, we have not submitted applications for SAPPRFT approval as we are first required to obtain an online publication license from SAPPRFT. We cannot assure you that we will be able to obtain such license in a timely manner or at all.

With respect to the online games that we operate in collaboration with third-party content providers, the third-party content providers have submitted applications for SAPPRFT approval for some of the games. We have requested content providers to submit applications to SAPPRFT for approval of the remaining games as soon as possible. In case we or such content providers fail to obtain SAPPRFT approval, we may be subject to various penalties, including fines and discontinuation of the relevant games. As online games are at an early stage of development in China, new laws and regulations may require additional licenses and permits. As a result, substantial uncertainties exist regarding the interpretation and implementation of PRC laws and regulations applicable to the operation of online games. We cannot assure you that we will be able to timely obtain required licenses or any other new license required, and we may be found in violation of PRC laws and regulations.

The PRC government has introduced various measures aimed at regulating online games, the provision of virtual currency and other related content. If we are deemed to have violated any of the rules and regulations, we may be subject to penalties and our results of operations may be materially adversely affected.

On June 3, 2010, the PRC Ministry of Culture, or the MOC, issued the Tentative Rule on Administration of Online Games, or the Rule on Online Games, effective as of August 1, 2010. According to the Rule on Online Games, companies that plan to engage in the operation of online games, issue virtual currencies and provide virtual currency transaction services must obtain a license from the provincial counterpart of the MOC. This rule also regulates content review and other aspects of the operation of online games as well as virtual currency transaction services. In addition, the Rule on Online Games provides that all domestic online games must be filed with MOC within 30 days from the commencement of their online operation, and all imported online games must be approved by the MOC before the commencement of their online operation. See “Item 4. Information on the Company — B. Business Overview — Regulations.”

In addition, the Notice on the Reinforcement of the Administration of Internet Cafés and Online Games, or the Internet Cafés Notice, issued by the MOC in February 2007, directs the People’s Bank of China, or PBOC, to strengthen the administration of virtual currency in online games to avoid any adverse impact on the PRC economy and financial system. This notice provides that the total amount of virtual currency issued by online game operators and the amount purchased by individual game players should be strictly limited, with a strict and clear division between virtual transactions and real transactions carried out by way of electronic commerce. This notice also provides that virtual currency should only be used to purchase in-game virtual items.

Our mobile games may be subject to government approval before placement on Maopao platform. A portion of our revenues from Maopao Community are collected through the sale of our virtual currency, the K Currency. Our item-based revenue model may cause additional concerns with PRC regulators who have been implementing regulations intended to limit the total amount of virtual currency issued by online game operators and the amount purchased by an individual game player. The restrictions imposed by the above rules may result in lower sales of our virtual currency, and could adversely affect our revenues from Maopao Community. If our operations or the applications and content on Maopao platform are deemed to have violated any of these rules and regulations, we may be subject to penalties and our results of operations may be materially adversely affected.

Regulation and censorship of information disseminated over the Internet and wireless telecommunication networks in China may adversely affect our business, and we may be liable for information displayed on, retrieved from or linked to our Maopao platform.

China has enacted regulations governing telecommunication mobile service providers, Internet and wireless access and the distribution of news and other information over the Internet and wireless telecommunication networks. Under these regulations, Internet content providers and Internet publishers, such as our company, are prohibited from posting or displaying over the Internet or wireless networks content that, among other things, violates PRC laws and regulations, impairs the national dignity of China, or is obscene, superstitious, fraudulent or defamatory. When Internet content providers and Internet publishers find that information falling within the categories above is transmitted on their websites or platforms, they must terminate the transmission or delete such information immediately, maintain records of the violations and report the violations to the authorities.

Failure to comply with these requirements could result in the revocation of required licenses and the closure of the websites or platforms involved. The website or platform operator may also be held liable for such prohibited information displayed on, retrieved from or linked to such website or platform. Mobile network operators such as China Mobile also have their own policies prohibiting or restricting the distribution of inappropriate content. Since December 2009, the Chinese government has been increasing its efforts to crack down on inappropriate content disseminated over the Internet and wireless networks.

On December 15, 2009, the Ministry of Industry and Information Technology of the PRC, or MIIT (formerly the Ministry of Information Industry, or the MII), issued the Notice Regarding Plan for Further Regulating Obscene Materials on Mobile Phones, or Circular 672. Under Circular 672, mobile network operators are required to examine their business and promotional channels, as well as the business of their partners, and must immediately terminate such business if any obscene material is involved. Mobile service providers involved in distributing or publishing obscene material on mobile handsets are subject to immediate suspension or termination of cooperation with mobile network operators, and a violation will be reported to the authorities. Mobile network operators and mobile service providers must examine all websites accessed through mobile handsets and conduct daily inspections of such websites. If any obscene material is found, access and transmission must cease and be reported to authorities.

On June 3, 2010, the MOC issued the Rule on Online Games, according to which companies that plan to operate online games, issue virtual currency and provide virtual currency transaction services must obtain a license from the provincial counterpart of the MOC. The MOC is responsible for content review of online games. Online game operators are also required to establish a self-censorship mechanism and ensure the lawfulness of the content of their games and corporate operations. On January 30, 2013, the State Council issued the Decision of the State Council on Revising the “Regulations on the Protection of Right of Dissemination via Information Network” (“Order No. 634”). Order No. 634 became effective on March 1, 2013. According to Order No. 634, the fines against several infringement acts of right of dissemination via information network have been increased. A fine of five times of the illegal business revenue or RMB 250,000 may be imposed.

As these regulations are subject to interpretation by the authorities, we may not be able to determine the type of content that could result in liability as a mobile application store operator. Although we may determine that the mobile applications and content provided on Maopao platform comply with regulatory requirements, regulatory authorities may hold a different view. In addition, we may not be able to control or restrict the content of other Internet content providers linked to or accessible through Maopao platform, despite our attempt to monitor such content. For example, many industry participants we partner with, such as handset companies and content providers, have access to our technology. Personnel who have access to our technology may develop malware and other inappropriate content.

Although we strive to closely monitor the content displayed on Maopao platform, a distributor of malware or other inappropriate content developed in our proprietary format could disseminate such content directly through the Internet without accessing our server and users may download such content onto their mobile handsets. To the extent that regulatory authorities find any of the applications and content on Maopao platform objectionable, they may require us to limit or eliminate the dissemination of such information or otherwise curtail such content on Maopao platform, which may reduce our user traffic.

We may be subject to significant penalties for violations of regulations arising from information displayed on, retrieved from or linked to Maopao platform, including a suspension or shutdown of our operations. Any violation or perceived violation of such regulations may subject us to claims of contractual breaches from the industry participants we work with, including mobile service providers and handset companies, and we may face suspensions or termination of our cooperative relationships with other industry participants and/or claims for monetary damages, and our financial condition and results of operations would be materially adversely affected.

We rely on third-party content providers for a majority of the applications and content available on Maopao platform. Our failure to license or otherwise obtain applications or content that meet user demand would materially adversely affect our business.

We contract with third-party content providers to distribute their mobile applications and other content through Maopao platform. We typically enter into exclusive/non-exclusive licensing agreements for a term of one to three years with third-party content providers, majority of which do not contain automatic renewal provisions. If we fail to renew or enter into new licensing agreements with our content providers upon expiration of the existing agreements at commercially acceptable terms, our operations may be negatively impacted. In addition, some third-party content providers may introduce competing mobile applications and content, which could make it more difficult or impossible for us to license their mobile applications and content in the future. There is no assurance that our content providers will continue to develop and launch mobile applications and other content for Maopao platform on a timely basis or at all. If we fail to offer a wide variety of mobile applications and content at reasonable prices, our financial condition and operating results may be materially adversely affected.

Furthermore, we develop certain applications and content available on Maopao platform in-house, such as our card game center. Such applications and content may compete with those of our content providers and may discourage our content providers from developing and upgrading similar applications or content for Maopao platform. If our collaboration with content providers deteriorates or terminates, the availability and quality of applications and content for Maopao platform may suffer.

If we are unable to successfully develop, license, launch and operate additional mobile applications and other attractive content that grows our user base and increases our revenues, our results of operations will be adversely affected.

Our success largely depends on our ability to anticipate and timely and effectively respond to changing user tastes and preferences and technological advances. To further increase our user base and revenues, we are prompted to develop, license, launch and operate mobile games and other popular application and content to replace our existing ones as they reach the end of their useful economic lives.

Our applications and other content are either developed in-house or licensed from third-party content providers. We cannot assure you that we will be able to license from third-party content providers or develop in-house a sufficient number of mobile games and other applications and content on commercial acceptable terms or at all, nor can we assure you that they will be well received among users. If we fail to develop, license or acquire mobile applications and other content that are commercially successful and appeal to users, our profitability and growth prospects will decline.

Our failure to anticipate or successfully implement new technologies could render Maopao platform uncompetitive or obsolete and reduce our revenues and market share.

The mobile applications industry is developing rapidly. We invest in our proprietary Maopao platform and related technologies, including standard software development kits and tool suites that are critical to our success. We need to anticipate the emergence of new technologies and keep abreast of technological advances in order to maintain the competitiveness of our technologies, product offerings and development capabilities. We have been devoting significant financial resources in research, development and operations to penetrate the emerging smartphone market in China.

However, development activities are inherently uncertain, and we might encounter practical difficulties in commercializing our products. Our significant expenditures on research and development may not generate corresponding benefits. Given the fast pace mobile application store technology has developed, we may not be able to timely improve Maopao platform and related technologies in a cost-effective manner, or at all. In addition, new technologies in the mobile application industry in China could render the technologies and product offerings we are developing or expect to develop obsolete or less competitive, decreasing our revenues and market share.

Undetected programming errors or flaws in our Maopao platform products and applications available through Maopao platform could harm our reputation or decrease market acceptance of Maopao platform.

Our Maopao platform products and applications available through our Maopao platform, such as multi-player games, which are subject to frequent improvement and update, may contain errors or flaws. As we launch new features and updates under tight time constraint, these errors or flaws may not become apparent until the updated features or version are accessed by users. As a result, we mostly rely on our users to inform us of programming flaws compromising their experience. If we fail to promptly resolve programming errors or flaws, we may lose users and our operating results, brand name and the market acceptance of Maopao platform products may suffer. In addition, Chinese government authorities have promulgated rules and regulations targeting mobile service providers that charge for applications and other content without user consent. If our programming error or flaw inadvertently charges users without their consent, we may be subject to administrative penalties and fines.

Failure to maintain effective customer service could harm our reputation or decrease market acceptance of Maopao platform, which would materially adversely affect out results of operations.

Customer service is critical to retaining current users and attracting potential users. If Maopao platform or the mobile applications and other content offered through Maopao platform contains errors or other flaws, or if we otherwise fail to provide quality customer service, our users may be less inclined to use or recommend Maopao platform products to other potential users, and may switch to our competitors’ products.

Some China-based Internet companies have experienced group complaints, sometimes organized by their competitors or people attempting to profit from such complaints. We may not be able to timely and effectively address such complaints. Unsatisfactory customer service may disrupt our operations, compromise user experience, harm our reputation, cause the number of our users to decline, and negatively affect market acceptance of Maopao platform products, any of which could materially adversely affect our results of operations.

Unexpected network interruptions, data loss, security breaches, computer virus attacks or other risks relating to the operation of Maopao platform could materially adversely affect our business, financial condition and results of operations.

Any failure to maintain the satisfactory performance, reliability, security and availability of Maopao platform products may harm our reputation and market share. Major risks include, among others, any breakdowns or system failures in our network infrastructure resulting in a prolonged shutdown of all or a material portion of our servers, including failures attributable to sustained power outages or unauthorized attempts to access our systems.

Our critical servers and backup servers are placed at different locations in Hangzhou. As a result, our network systems are vulnerable to natural disasters or accidents affecting Hangzhou and its surrounding areas, such as fire, flood, power outage, telecommunications failures, computer viruses, hacking and other similar occurrences. Any interruptions in the availability of our product offerings could reduce user satisfaction and our competitiveness.

In addition, any security breach caused by hacking, which involves unauthorized attempts to access our systems, or to cause intentional malfunctions or loss or corruption of data, software, hardware or other computer equipment, and the inadvertent transmission of computer viruses could materially adversely affect our business, financial condition and results of operations. We do not maintain insurance policies covering losses relating to our systems, nor do we carry business interruption insurance.

The growth of our business may be adversely affected due to our failure to ensure the security and privacy of confidential user information.

A significant barrier to the development of wireless businesses is the secure transmission of confidential information over the mobile network. We rely on proprietary encryption and authentication technology to provide the security and authentication necessary to effect secure transmission of confidential user information, such as user names and passwords. While we have not experienced any material breach of our security measures to date, technology advancements, new discoveries in the field of cryptography or other developments could result in a compromise or breach of the algorithms we use to protect user information.

A party who is able to circumvent these security measures could misappropriate proprietary information or cause interruptions in our operations. We may be required to expend significant capital and other resources to protect against or resolve such security breaches. Concerns over the security and privacy of user information may have a material and adverse effect on our operations. To the extent that our activities involve proprietary information, security breaches could damage our reputation and expose us to risks of loss or litigation. There can be no assurance that our security measures will be sufficient to prevent security breaches, and failure to prevent security breaches may materially adversely affect our business, prospects, financial condition and results of operations.

We could be liable for breaches of security of payment processing agents, which may materially adversely affect our reputation and business.

In addition to collection through mobile network operators and mobile service providers, we collect a small portion of our revenues through payment processing agents, which assist us in collecting sales proceeds through third-party payment channels such as game cards and other prepaid cards, bank remittances, China Post and virtual currency, such as QQ Currency. In transactions utilizing third-party payment channels, secured transmission of confidential information, such as customers’ card numbers and expiration dates, personal information and billing addresses, over mobile networks, the Internet and/or third-parties’ databases, is essential to maintain consumer confidence.

We do not have control over the security measures of third-party payment channels and we cannot assure you that these security measures will be adequate in light of our expected increased usage of their payment channels. Security breaches in these payment channels could expose us to litigation and possible liability for failure to secure customer transaction data and could harm our reputation and user experience and discourage users to pay through these third-party payment channels.

Our business is increasingly subject to the risks of international operations.

International expansion forms an important component of our growth strategy. Expanding our business internationally exposes us to a number of risks, including:

fluctuations in currency exchange rates;

our ability to select the appropriate geographical regions for international expansion;

difficulty in identifying appropriate local content providers, handset companies, mobile service providers or joint venture partners and establishing and maintaining good relationships with them;

difficulty in understanding local markets and cultures;

compliance with foreign laws and regulations, including import and export requirements, foreign exchange controls and cash repatriation restrictions, data privacy requirements, labor laws and anti-competition regulations; and

increased costs associated with doing business in foreign jurisdictions.

Our financial condition and operating results could be significantly affected by these and other risks associated with international operations. Although we have implemented policies and procedures designed to facilitate compliance with laws and regulations in foreign jurisdictions applicable to us, our employees or business partners could violate such laws and regulations or our policies. Any such violations could materially adversely affect our financial condition and operating results.

Our business could suffer if we do not successfully manage our growth.

We have experienced a period of rapid growth and expansion that has placed a strain on our management personnel, systems and resources. To accommodate our growth, we may need to implement and maintain a variety of new and improved operational and financial systems, procedures and controls, and improve our accounting and other internal management systems, all of which require substantial management efforts.

We will also need to expand, train, manage and motivate our workforce, and manage our relationships with our users and other industry participants, such as content providers, mobile service providers and mobile handset companies. All of these endeavors will require substantial management effort and skill and additional costs. We cannot assure you that we will be able to effectively implement our growth strategies and manage the growth of our operations, and any failure to do so may hamper our business strategy.

We may not be able to adequately protect our intellectual property rights, which could harm our business and competitive position.

Trademarks, trade secrets, copyrights and other intellectual property are important to our business. We rely on a combination of trademark, copyright and trade secret protection laws in China and other jurisdictions, as well as confidentiality procedures and contractual provisions, to protect our intellectual property and our brand. We have invested significant resources to develop our intellectual property and acquire licenses to use and distribute the intellectual property of others for our business. Our failure to maintain or protect these rights could harm our business. In addition, any unauthorized use of our intellectual property by third parties may adversely affect our revenues and reputation.

The validity, enforceability and scope of protection available under intellectual property laws with respect to the mobile and Internet industries in China are uncertain and still evolving. Implementation and enforcement of PRC intellectual property laws have historically been deficient, ineffective and hampered by corruption and local protectionism. Accordingly, protection of intellectual property rights in China may not be as effective as in the United States or other developed countries. Furthermore, policing unauthorized use of proprietary technology is difficult and expensive, and we may need to resort to litigation to enforce or defend our patents or to determine the enforceability, scope and validity of our proprietary rights or those of others. Such litigation and an adverse determination in any such litigation could result in substantial costs and divert resources and management attention, which could harm our business and competitive position.

Our results of operations, financial performance and business may suffer from intellectual property rights infringement claims against us.

We may be subject to claims alleging that we are improperly using intellectual property owned by others or otherwise infringing their intellectual property rights. We license a substantial portion of the applications and content available on Maopao platform from third-party content providers, including single-player games, multiplayer games, mobile music and book titles. Although we implement measures to ensure that the licensors are the rightful owners of intellectual property rights with respect to the licensed content, we may be subject to infringement claims regarding such licensed content.

Regardless of the validity of such claims, we could incur costs defending or settling any intellectual property infringement disputes. Intellectual property litigation could force us to, among other things, cease offering certain mobile applications or content, develop alternatives or obtain licenses from the owners of the infringed intellectual property. We may not be successful in developing alternatives or in obtaining licenses on commercially acceptable terms or at all, materially adversely affecting our results of operations, financial performance and business.

We substantially depend on our management and other key personnel. If we lose their services, we could incur significant costs in finding suitable replacements and our business may be severely disrupted.

Our success heavily depends upon the continued services of our management and other key personnel. In particular, we rely on the expertise and experience of Mr. Michael Tao Song, our chairman and chief executive officer. If one or more of our senior management or other key personnel were unable or unwilling to continue their employment with us, we may not be able to replace them easily or at all. Our business, financial condition and results of operations may suffer, and we may incur additional expenses to recruit, train and retain personnel.

If any of our management or key personnel joins a competitor or forms a competing company, we may lose business partners, know-how, key professionals and staff members. Each of our executive officers has entered into an employment agreement which contains confidentiality clauses and certain confidentiality agreements with us. However, if any dispute arises with our officers, the non-competition provisions contained in their confidentiality and non-competition clauses or agreements may not be enforceable, especially in China, where most of these executive officers and key employees reside, on the grounds that we have not provided adequate compensation to these executive officers for their non-competition obligations as required under PRC law.

We may not be successful in attracting and retaining qualified personnel.

Hiring and retaining additional qualified employees are critical to our operations and planned expansion. The mobile application industry in China is characterized by high demand and intense competition for talent, and we may need to offer higher compensation and other benefits in order to attract and retain key personnel, particularly considering our location in Hangzhou, a region less attractive to some potential employees compared to cities such as Beijing or Shanghai. We cannot assure you that we will be able to attract or retain a sufficient number of qualified personnel to achieve our business objectives. In addition, as our business has grown rapidly, our ability to train and integrate new employees into our operations may not meet the increasing demands of our business.

Our principal shareholders have substantial influence over our company and their interests may not be aligned with the interests of our other holders of our common shares and ADSs.

Our principal shareholders, Xplane Ltd., a British Virgin Islands company, and Mr. Michael Tao Song, our chief executive officer and chairman, held 30.0% and 33.2% (including 10.4% held by Ms. Qinyi Zhu, wife of Mr. Song, through Xplane Ltd.) of our outstanding share capital as of December 31, 2014, respectively. Accordingly, Xplane Ltd. and Mr. Song have substantial influence over our business, including decisions regarding mergers, consolidations and the sale of all or substantially all of our assets, the election of directors and other significant corporate actions. This concentration of ownership may discourage, delay or prevent a change in control of our company, which could deprive our shareholders of an opportunity to receive a premium for their shares as part of a sale of our company and might reduce the price of our ADSs. Alternatively, our principal shareholders may cause a merger, consolidation or change of control transaction even our other shareholders oppose such a transaction.

We have limited insurance coverage, which could expose us to significant costs and business disruption.

Other than insurance for some of our vehicles, we have not purchased any insurance to cover our assets, property and business. If we were to incur substantial losses or liabilities due to fire, explosion, flood or a wide range of other natural disasters or accidents or business interruption, our financial condition and results of operations could be materially adversely affected.

The audit report included in this transition report is prepared by auditors who are not inspected by the PCAOB and, as such, you are deprived of the benefits of such inspection.

Our independent registered public accounting firm that issues the audit reports included in this transition report, as auditors of companies that are traded publicly in the United States and a firm registered with the U.S. Public Company Accounting Oversight Board (United States), or the PCAOB, is required by the laws of the United States to undergo regular inspections by the PCAOB to assess its compliance with the laws of the United States and professional standards. Because our auditors are located in the Peoples’ Republic of China, a jurisdiction where the PCAOB is currently unable to conduct inspections without the approval of the Chinese authorities, our auditors are not currently inspected by the PCAOB.

Inspections of other firms that the PCAOB has conducted outside China have identified deficiencies in those firms’ audit procedures and quality control procedures, which may be addressed as part of the inspection process to improve future audit quality. This lack of PCAOB inspections in China prevents the PCAOB from regularly evaluating our auditor’s audits and its quality control procedures. As a result, investors may be deprived of the benefits of PCAOB inspections.

The inability of the PCAOB to conduct inspections of auditors in China makes it more difficult to evaluate the effectiveness of our auditor’s audit procedures or quality control procedures as compared to auditors 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.

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, with respect to requests for the production of documents, we could be unable to timely file future financial statements in compliance with the requirements of the Securities Exchange Act of 1934, as amended.

Starting in 2011, the Chinese affiliates of the “big four” accounting firms (including our independent registered public accounting firm) were affected by a conflict between U.S. and Chinese law. Specifically, for certain U.S. listed companies operating and audited in mainland China, the SEC and the PCAOB sought to obtain from the Chinese firms access to their audit work papers and related documents. The firms were, however, advised and directed that under China law they could not respond directly to the U.S. regulators on those requests, and that requests by foreign regulators for access to such papers in China had to be channeled through the China Securities Regulatory Commission, or CSRC.

In late 2012, this impasse led the SEC to commence administrative proceedings under Rule 102(e) of its Rules of Practice and also under the Sarbanes-Oxley Act of 2002 against the Chinese accounting firms (including our independent registered public accounting firm). A first instance trial of the proceedings in July 2013 in the SEC’s internal administrative court resulted in an adverse judgment against the firms. The administrative law judge proposed penalties on the firms including a temporary suspension of their right to practice before the SEC, although that proposed penalty did not take effect pending review by the Commissioners of the SEC. On February 6, 2015, before a review by the Commissioners of the SEC had taken place, the firms reached a settlement with the SEC. Under the settlement, the SEC accepts that future requests by the SEC for the production of documents will normally be made to the CSRC. The firms will receive matching Section 106 requests, and are required to abide by a detailed set of procedures with respect to such requests, which in substance require them to facilitate production via the CSRC. If they fail to meet specified criteria, the SEC retains authority to impose a variety of additional remedial measures on the firms depending on the nature of the failure. Remedies for any future noncompliance could include, as appropriate, an automatic six-month bar on a single firm’s performance of certain audit work, commencement of a new proceeding against a firm, or in extreme cases the resumption of the current proceeding against all four firms.

In the event that the SEC restarts the administrative proceedings, depending upon the final outcome, listed companies in the United States with major PRC operations may find it difficult or impossible to retain auditors in respect of their operations in the PRC, which could result in financial statements being determined to not be in compliance with the requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act, including possible delisting. Moreover, any negative news about any such future proceedings against these audit firms may cause investor uncertainty regarding China-based, United States-listed companies and the market price of our ADSs may be adversely affected. If our independent registered public accounting firm were denied, even temporarily, the ability to practice before the SEC and we were unable to timely find another registered public accounting firm to audit and issue an opinion on our financial statements, our financial statements could be determined not to be in compliance with the requirements of the Exchange Act. Such a determination could ultimately lead to the delisting of our common shares from the Nasdaq or deregistration from the SEC, or both, which would substantially reduce or effectively terminate the trading of our ADSs in the United States.

Failure to maintain an effective system of internal control over financial reporting may adversely affecting investor confidence and the market price of our ADSs.

As a public company in the United States, we are subject to the Sarbanes-Oxley Act of 2002. Section 404 of the Sarbanes-Oxley Act of 2002 and related rules, or Section 404, require us to include a management report which contains management’s assessment of the effectiveness of our internal controls over financial reporting in our annual report. In addition, an independent registered public accounting firm must attest to the effectiveness of our internal control over financial reporting.

Our management has identified a material weakness in our internal controls related to the lack of oversight review due to the short-term vacancy of chief financial officer, resulting from our ex-chief financial officer’s departure in November 2014. Our management has concluded that our internal control over financial reporting was not effective as of December 31, 2014. Our independent registered public accounting firm has issued an adverse opinion on our effectiveness of internal control over financial reporting as of December 31, 2014. See “Item 15. Controls and Procedures.”

As describe under Item 15. “Controls and Procedures”, we have taken steps to address this material weakness. Simultaneously, other well-established internal control measures were continuously followed and enhanced. However, we can make no assurance that we can address additional material weaknesses or significant deficiencies that may subsequently arise. Our failure to achieve and maintain effective internal control over financial reporting and disclosure controls and procedures may cause us to fail to meet our periodic reporting obligations, result in material misstatements in our financial statements, restatement of financial statements, Sanctions or investigations by regulatory authorities and loss of investor confidence in the reliability of our reported financial information. Any of these events could limit our access to capital markets, harm our results of operations, and decrease the trading price of our ADSs.

Furthermore, we have incurred and anticipate that we will continue to incur considerable costs and use significant management time and other resources in an effort to comply with Section 404 and other requirements of the Sarbanes-Oxley Act.

We may undertake acquisitions, investments, joint ventures or other strategic alliances, which could materially adversely affect our business. In addition, such undertakings may not be successful.

Our strategy includes plans to grow both organically and through acquisitions, joint ventures or other strategic alliances. Acquisitions, joint ventures and strategic alliances may expose us to new operational, regulatory and market risks, as well as risks associated with additional capital requirements. We may not be able to identify suitable acquisition candidates or alliance partners. Even if we identify suitable candidates or partners, we may be unable to complete an acquisition or alliance on terms commercially acceptable to us. If we fail to identify appropriate candidates or partners, or complete desired acquisitions, we may not be able to implement our strategies effectively or efficiently.

In addition, our ability to successfully integrate acquired companies and their operations may be adversely affected by a number of factors. These factors include:

diversion of management’s attention;

difficulties in retaining personnel of the acquired companies;

unanticipated problems or legal liabilities; and

tax and accounting issues.

If we fail to integrate acquired companies efficiently, our earnings, revenue growth and business could be negatively affected.

Furthermore, the acquired companies may not perform to our expectations for various reasons, including legislative or regulatory changes that affect the products in which the acquired companies specialize and the loss of key personnel and users. If we do not realize the benefits envisioned from such acquisitions, joint ventures or other strategic alliances, our overall profitability and growth plans may suffer.

We may not realize gains from our equity investments.

We have made capital investments in a number of start-up companies in the mobile network and mobile games industry. As of December 31, 2014, our equity investments included RMB105.5 million (US$17.0 million) in 25 companies primarily engaged in wireless technology development and related applications in the PRC. We have also invested in one private equity fund targeting the mobile and technology space to achieve long term returns. Our equity investments may fail to appreciate or decline in value and our ability to recover our investments will depend on the success of the companies in which we invest.

Equity investments involve significant risks. Any equity investment we make in a company could be subject to dilution as a result of the issuance of additional equity interests. In addition, equity interests are subordinate to indebtedness in the event that the issuer cannot meet its obligations or files for bankruptcy. In addition, if a company in which we invest requires additional capital and is unable to obtain it, we may not recover our investment.

We may not recover our equity investments if the companies in which we invest do not perform well and we could incur impairment losses, which could materially and adversely affect our results of operations. For example, we recognized a RMB0.8 million (US$0.1 million) impairment of our investment in Shanghai Mingyou Network Technologies Co. Ltd., or Mingyou, and a RMB1.9 million (US$0.3 million) impairment of our investment in Beijing Brtech Co., Ltd., or Brtech, during the nine months ended December 31, 2014 due to the continuing underperformance and negative cash flow forecast of these entities.

We may be unable to secure additional funding or to obtain such funding on favorable terms.

We believe that our current cash and cash equivalents and the anticipated cash flow from operations will be sufficient to meet our anticipated cash needs for the next 12 months. We may, however, require additional cash resources to finance our growth or other future developments, including investments or acquisitions. The amount and timing of such additional financing needs will vary principally depending on the timing of new product or service launches, investments or acquisitions, and cash flow from our operations.

If our resources are insufficient to satisfy our cash requirements, we may seek to sell additional equity or debt securities or obtain a credit facility. The sale of additional equity securities or securities convertible into our common shares could result in additional dilution to our shareholders. The incurrence of indebtedness would result in increased debt service obligations and could result in operating and financing covenants that would restrict our operations.

Our ability to obtain additional capital on acceptable terms is subject to a variety of uncertainties, including:

investors’ perception of, and demand for, securities of mobile application store operators in China;

conditions of the United States and other capital markets in which we may seek to raise funds;

our results of operations, financial condition and cash flows;

PRC governmental regulation of foreign investment in China;

economic, political and other conditions in China; and

PRC governmental policies relating to foreign currency borrowings.

Financing may not be available in amounts or on terms acceptable to us, if at all, especially if there is a recession or other events causing volatility in capital markets worldwide.

We may experience fluctuations in quarterly operating results.

Our quarterly operating results have experienced fluctuations due to a variety of factors, including policy changes, the demand for our products and competing products, our launch of new mobile applications and content and our revenue sharing arrangements with industry participants. Although our revenue sharing arrangements with industry participants vary within a small range, such differences may result in gross margin fluctuations from period to period.

For instance, our cost of revenues as a percentage of total revenues may be higher in a particular period if a handset company that is entitled to a relatively higher percentage of revenue introduces a new handset model through which we generate a substantial amount of revenues, compared to other periods when revenues are generated through handsets from handset companies that are entitled to a relatively lower percentage of revenue. In addition, changes in policies and practices of network operators may affect the availability of mobile service providers and user experience in a particular period, result in increased billing and transmission failure rates, cause delays associated with switching from certain mobile service providers to others, and affect our quarterly results of operations.

Our revenues may be affected by seasonality. For example, our revenues tend to be higher during holiday seasons when users tend to purchase more in-app virtual items, premium features and other content through Maopao platform. Such seasonality was less prominent in recent periods, but may become more prominent in the future. Operating results for a particular period are not necessarily indicative of our future results. If our operating results for any quarter fall below investor expectations or estimates by securities research analysts, the trading price of our ADSs may decline.

Risks Related to Doing Business in China

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

We conduct substantially all of our operations 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. The growth of the Chinese economy slowed in the past few years and there is also uncertainty with respect to the Chinese economy for 2015 and beyond. Any prolonged slowdown in the Chinese economy, in particular the mobile applications industry, could negatively impact our business, operating results and financial condition. For example, our users may decrease spending on our offerings, while we may have difficulty expanding our user base to offset the impact of decreased spending by our existing users.

The PRC government exercises 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 economy or specific markets. Government involvement has been instrumental in China’s significant growth in the past 30 years. If the PRC government’s policies fail to help the Chinese economy achieve further growth or otherwise negatively affect our business, our growth rate, strategy and results of operations could be adversely affected.

If the PRC government determines that the contractual arrangements that establish the structure for operating our business do not comply with applicable PRC laws and regulations, we could be subject to severe penalties.

We are a Cayman Islands company and, as such, we are classified as a foreign enterprise under Chinese law, and our PRC subsidiaries, Hangzhou Dianneng Technologies Co., Ltd., or Dianneng, Pusida (Beijing) Technologies Co., Ltd., or Pusida, and Hangzhou Tiandian Investment Consulting Co., Ltd., or Tiandian, are foreign-invested enterprises. Various regulations in China restrict foreign-invested entities from holding certain licenses required to operate mobile application store business, including telecommunications value-added services operation licenses, and from making certain strategic investments in China.

In light of these restrictions, we rely on our SPEs to hold and maintain the licenses necessary to operate our mobile application store business and make strategic investments in China. We do not have any equity interest in our SPEs, but receive their economic benefits through various contractual arrangements and certain corporate governance and shareholder rights arrangements.

We have entered into contractual arrangements with each of our SPEs and each of their shareholders which provide us with control over our SPEs. For a description of these contractual arrangements, see “Item 4. Information on the Company — B. Organizational Structure — Contractual Arrangements with the SPEs and their Shareholders.”

Under the equity pledge agreements included in these contractual arrangements, the shareholders of each of our SPEs pledged their respective equity interests in these SPEs to Dianneng. According to PRC law, such a pledge must be registered with the relevant administration for industry and commerce. We have registered the pledge of our SPEs’ equity interests with the local Administration for Industry and Commerce. However, we cannot assure you that Dianneng will be able to enforce these pledges if PRC laws and regulations applicable to the equity pledge change in the future.

The Notice Regarding Strengthening the Administration of Foreign Investment in and Operation of Value-added Telecommunications Business, or the MII Notice, issued by the MII in July 2006, reiterated the regulations on foreign investment in telecommunications businesses, which require foreign investors to set up foreign-invested enterprises and obtain a business operating license to conduct any value-added telecommunications business in China. Under the MII Notice, 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.

The relevant trademarks and domain names that are used in the value-added telecommunications business must be owned by the local license holder. The MII Notice further requires each telecommunications value-added services operation license holder to have the necessary facilities for its approved operations and to maintain such facilities in the regions covered by its license. In addition, all value-added telecommunications mobile service providers must maintain network and information security in accordance with the standards set forth under relevant PRC regulations. Due to a lack of regulatory interpretations, it is unclear what impact the MII Notice will have on us or the other Chinese telecommunications and Internet companies that have adopted the same or similar corporate and contractual structures as ours.

On September 28, 2009, the GAPP, together with the National Copyright Administration and the National Office of Combating Pornography and Illegal Publications, jointly issued a Notice on Further Strengthening of the Administration of Pre-examination and Approval of Online Games and the Examination and Approval of Imported Online Games, or the GAPP Notice. The GAPP Notice provides that foreign investors may not invest in online game operating businesses in China via wholly-owned, equity joint venture or cooperative joint venture investments, and expressly prohibits foreign investors from gaining control over or participating in domestic online game operators through indirect measures such as establishing joint venture companies, contractual, or technical arrangements, or through a disguised form, such as incorporating user registration, user account management or payment system into online gaming platforms that are ultimately controlled or owned by foreign investors. We are not aware of any online game companies adopting the same or similar contractual arrangements as ours having been penalized or ordered to be terminated since the GAPP Notice first became effective. Due to the ambiguity among various regulations on online games and a lack of interpretative materials from the relevant PRC authorities governing online game operations, there are uncertainties regarding whether PRC authorities would consider our corporate structure and contractual arrangements to be foreign investment in online game operation businesses. If our contractual arrangements were deemed to be such an “indirect means” or “disguised form” under the GAPP Notice, our contractual arrangements may be challenged by the SAPPRFT. If we, our PRC subsidiary or SPEs are found to be in violation of the GAPP Notice to operate our mobile games, the SAPPRFT, in conjunction with relevant regulatory authorities, would have the power to investigate and deal with such violations, including in the most serious cases where relevant licenses and registrations would be suspended or revoked.

In the opinion of DaHui Lawyers, our PRC counsel, as of the date of this transition report, (i) the ownership structure and the business and operation model of each of our SPEs are in compliance with all existing PRC laws and regulations in all material respects and (ii) each contract under Dianneng’s contractual arrangements with our SPEs and each of their shareholders is valid and binding and does not result in any violation of PRC laws or regulations currently in effect. However, there are substantial uncertainties regarding the interpretation and application of PRC laws and regulations, including the MII Notice and the GAPP Notice. Accordingly, we cannot assure you that PRC regulatory authorities will ultimately take a view that is consistent with the opinion of our PRC counsel.

If we are found to be in violation of any existing or future PRC laws or regulations, including the MII Notice and the GAPP Notice, or fail to obtain or maintain any of the required permits or approvals, the relevant regulatory authorities would have broad discretion in dealing with such violation, including, without limitation:

revoking the business and operating licenses of our wholly owned subsidiaries, consolidated SPEs and subsidiaries incorporated in the PRC;

discontinuing or restricting any related party transactions among our wholly-owned subsidiaries, consolidated SPEs and subsidiaries incorporated in the PRC;

levying fines or imposing other requirements on our wholly owned subsidiaries, consolidated SPEs and subsidiaries incorporated in the PRC;

requiring us to change our ownership structure or restructure our operations; or

restricting or prohibiting us from using the proceeds from public offerings to finance our operations in the PRC.

Any of these or similar actions could significantly disrupt our business and materially reduce our revenues, profitability and cash flows.

If any of these penalties results in our inability to direct the activities of any of our SPEs that significantly impacts our economic performance, and/or our failure to receive the economic benefits from any of them, we may not be able to consolidate the financial results of these SPEs into our consolidated financial statements in accordance with IFRS.

Our contractual arrangements with the SPEs and their respective shareholders may not provide control over the SPEs as effectively as direct ownership of these companies.

We conduct our mobile application business and pursue strategic investment opportunities in China through our SPEs. We enter into contractual arrangements with our SPEs and their respective shareholders in order to provide us with effective control over these companies. See “Item 4. Information on the Company — B. Organizational Structure — Contractual Arrangements with the SPEs and their Shareholders.”

As a result of these contractual arrangements, we have control over our SPEs. Accordingly, we consolidate the results of operations, assets and liabilities of the SPEs in our financial statements.

Although DaHui Lawyers, our PRC counsel, has advised us that each contract under these contractual arrangements is valid, binding and enforceable under current PRC laws and regulations, there are substantial uncertainties regarding the interpretation and application of current and future PRC laws and regulations. Accordingly, we cannot guarantee that our contractual arrangements will remain compliant with PRC law in the future, or that PRC authorities will not take a view contrary to the opinion of our PRC counsel. In addition, these contractual arrangements may not be as effective in providing us with control over the SPEs as direct ownership. Furthermore, the SPEs or their respective shareholders may breach the contractual arrangements.

We cannot assure you that when conflicts of interest arise, the SPEs and their respective shareholders will act completely in our interests or that these conflicts of interests will be resolved in our favor. In any such event, we would have to rely on legal remedies under PRC law. These remedies may not always be effective, particularly in light of uncertainties in the PRC legal system. See “ — Uncertainties with respect to the PRC legal system could materially adversely affect us.”

In the fiscal years ended March 31, 2013 and 2014 and the nine months ended December 31, 2014, our SPEs contributed in aggregate 95.8%, 90.0% and 98.2%, respectively, of our total revenues. In the event that we are unable to enforce the contractual arrangements, we may not be able to direct the activities of our SPEs, and as a result, our ability to conduct our business may be negatively affected, and we may not be able to consolidate the financial results of the SPEs into our consolidated financial statements in accordance with IFRS.

We believe that we have the ability to renew the contractual arrangements with our consolidated SPEs when necessary based on (i) our exclusive option to purchase all or part of the equity interests in our consolidated SPEs, when and to the extent permitted by PRC law, or to request any existing shareholders of our consolidated SPEs to transfer all or part of their equity interests in our consolidated SPEs to another PRC person or entity designated by us at any time at our discretion, and (ii) the powers of attorney that shareholders of our consolidated SPEs’ have granted to us.

Our ability to enforce the equity pledge agreements between us and the shareholders of our consolidated SPEs may be subject to limitations imposed by PRC laws, rules and regulations.

Under our equity pledge agreements with our consolidated SPEs and their respective shareholders, these shareholders have agreed to pledge all of their respective equity interests in the consolidated SPEs to us. These pledges secure the performance of our consolidated SPEs’ obligations under the various contractual arrangements, including the business operation agreements and technology development agreements. As of December 31, 2014, the pledges of equity interests by shareholders of our consolidated SPEs were registered with the relevant local branch of the State Administration for Industry & Commerce.

According to applicable PRC laws, when an obligor fails to pay its debt, the pledgee may choose to either conclude an agreement with the pledgor to obtain the pledged equity or seek payments from the proceeds of the auction or sale of the pledged equity. If our consolidated SPEs or their shareholders fail to perform their respective obligations secured by the pledges under the equity pledge agreements, one remedy in the event of default under the equity pledge agreements is to require the pledgor to sell the pledged equity interests in an auction or private sale and remit the proceeds to our wholly owned subsidiary in the PRC, net of related taxes and expenses. Such an auction or private sale may not result in our receipt of the full value of the equity interests in our consolidated SPEs.

In addition, the registration forms of the local branch of the State Administration for Industry & Commerce, indicate that, the amounts of registered equity interests pledged to our wholly owned subsidiary by Hangzhou Sky, Mijia, Fanyi, Feineng, Miyi, Najia, Tianchu, Zunqi ,Geyuan, Dangyi, Mugu, Feidong, Fuyun and Duoqu, were RMB20.0 million, RMB10.0 million, RMB10.0 million, RMB1.0 million, RMB56.0 million, RMB10.0 million, RMB1.0 million, RMB0.5 million, RMB0.5 million, RMB1.0 million, RMB0.5 million, RMB1.0 million, RMB1.0 million and RMB0.5 million, respectively, which in aggregate represent 100% of the registered capital of our consolidated SPEs. A PRC court may take the position that the amounts listed on the equity pledge registration forms represent the full amounts of the collateral that have been registered and perfected. In that event, a PRC court could deem the obligations secured under the equity pledge agreements in excess of the amounts listed on the equity pledge registration forms to be unsecured debt, materially adversely affecting our ability to be repaid.

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

The Ministry of Commerce, or MOFCOM, published a discussion draft of the proposed Foreign Investment Law in January 2015 aiming to, upon its enactment, replace the trio of existing laws regulating foreign investment in China, namely, the Sino-foreign Equity Joint Venture Enterprise Law, the Sino-foreign Cooperative Joint Venture Enterprise Law and the Wholly Foreign-invested Enterprise Law. 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. While the MOFCOM solicited comments on this draft earlier this year, 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 a company is considered a foreign-invested enterprise, or an FIE. The draft Foreign Investment Law specifically provides that entities established in China but “controlled” by foreign investors will be treated as FIEs, whereas an entity set up in a foreign jurisdiction would nonetheless be, upon market entry clearance by the MOFCOM, treated as a PRC domestic investor provided that the entity is “controlled” by PRC entities and/or citizens. In this connection, “foreign investors” refers to the following subjects making investments within the PRC: (i) natural persons without PRC nationality; (ii) enterprises incorporated under the laws of countries or regions other than China; (iii) the governments of countries or regions other than the PRC and the departments or agencies thereunder; and (iv) international organizations. Domestic enterprises under the control of the subjects as mentioned in the preceding sentence are deemed foreign investors, and “control” is broadly defined in the draft law to cover the following summarized categories: (i) holding, directly or indirectly, not less than 50% of shares, equities, share of voting rights or other similar rights of the subject entity; (ii) holding, directly or indirectly, less than 50% of the voting rights of the subject entity but having the power to secure at least 50% of the seats on the board or other equivalent decision making bodies, or having the voting power to material influence on the board, the shareholders’ meeting or other equivalent decision making bodies; or (iii) 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. Once an entity is determined to be an FIE, it will be subject to the foreign investment restrictions or prohibitions set forth in a catalogue of special administrative measures, which is classified into the “catalogue of prohibitions” and “the catalogue of restrictions”, to be separately issued by the State Council later. Foreign investors are not allowed to invest in any sector set forth in the catalogue of prohibitions. However, unless the underlying business of the FIE falls within the catalogue of restrictions, which calls for market entry clearance by the MOFCOM, prior approval from the government authorities as mandated by the existing foreign investment legal regime would no longer be required for establishment of the FIE.

The “variable interest entity” structure, or VIE structure, has been adopted by many PRC-based companies, including us, to obtain necessary licenses and permits in the industries that are currently subject to foreign investment restrictions in China. See “—If the PRC government determines that the contractual arrangements that establish the structure for operating our business do not comply with applicable PRC laws and regulations, we could be subject to severe penalties.” Under the draft Foreign Investment Law, variable interest entities that are controlled via contractual arrangement would also be deemed as FIEs, if they are ultimately “controlled” by foreign investors. Therefore, for any 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/are of PRC nationality (either PRC companies or PRC citizens). Conversely, if the actual controlling person(s) is/are of foreign nationalities, then the variable interest entities will be treated as FIEs and any operation in the industry category on the “negative list” without market entry clearance may be considered as illegal.

Our controlling shareholder, Mr. Michael Tao Song, a PRC citizen, directly and through his wife, possesses and controls 33.2% of the voting power of our company. However, 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, whether or not these companies are controlled by Chinese parties, while it is soliciting comments from the public on this point. Moreover, it is uncertain whether the mobile application industry, in which our variable interest entities operate, will be subject to the foreign investment restrictions or prohibitions set forth in the “negative list” to be issued. If the enacted version of the Foreign Investment Law and the final “negative list” mandate further actions, such as MOC market entry clearance, to be completed by companies with existing VIE structure like us, we face uncertainties as to whether such clearance can be timely obtained, or at all.

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 FIEs. Aside from investment implementation report and investment amendment report that are required at each investment and alteration of investment specifics, an annual report is mandatory, and large foreign investors meeting certain criteria are required to report on a quarterly basis. Any company found to be non-compliant with these 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.

The shareholders of our consolidated SPEs may have potential conflicts of interest with us, which may substantially disrupt our business.

The registered shareholders of our consolidated SPEs are our current or former directors, officers or employees and their relatives. For example, Mr. Michael Tao Song, our founder, chairman and chief executive officer, is one of the registered shareholders of Mijia, a consolidated SPE incorporated in 2007. In addition, Mr. Song owned approximately 33.2% of our outstanding common shares as of the date of this transition report on Form 20-F. See “Item 4. Information on the Company — B. Organizational Structure” for a list of the registered shareholders of our consolidated SPEs and their respective shareholdings.

Conflicts of interest may arise with respect to such shareholders’ duties to us and our consolidated SPEs. If any conflicts arise, these shareholders may not act in our best interests and such conflicts of interest may not be resolved in our favor. In addition, these shareholders may breach or cause our consolidated SPEs to breach or refuse to renew their existing contractual arrangements that allow us to exercise effective control over them and to receive economic benefits from them.

The laws of the Cayman Islands provide that directors of a company owe a fiduciary duty to the company, which requires them to act in good faith and in the best interests of the company and not to use their positions for personal gain. If certain shareholders of our consolidated SPEs do not comply with their fiduciary duties to us as our designated directors, or if we cannot resolve any conflicts of interest or disputes between us and any current or future registered shareholders of our consolidated SPEs, we would have to rely on legal proceedings to remedy the situation, the outcome of which would be uncertain and which could substantially disrupt our business.

Contractual arrangements we have entered into may be subject to scrutiny by PRC tax authorities, and a finding that we or our SPEs owe additional taxes could reduce our net income and the value of your investment.

Under applicable PRC laws and regulations, arrangements and transactions among related parties may be subject to audit or challenge by PRC tax authorities. We could face adverse tax consequences if PRC tax authorities determine that the contractual arrangements between our PRC subsidiary on the one hand, and our SPEs on the other, do not represent an arm’s-length price and adjust our SPEs’ income in the form of a transfer pricing adjustment.

A transfer pricing adjustment could, among other things, result in a reduction, for PRC tax purposes, of expense deductions recorded by our SPEs, which could in turn increase their respective tax liabilities. In addition, PRC tax authorities may impose late payment fees and other penalties on our SPEs for underpaid taxes. Our net income may be adversely affected if our SPEs’ tax liabilities increase or if they are found to be subject to late payment fees or other penalties.

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

We are currently entitled to and benefiting from the following government tax incentives:

Hangzhou Sky, one of our SPEs, as a “software enterprise,” was entitled to a full exemption from enterprise income tax, or EIT, in 2008 and 2009 and a 50% reduced EIT rate from 2010 to 2012. The reduced applicable EIT rate for Hangzhou Sky from 2010 to 2012 was 12.5%. Hangzhou Sky was qualified as a “high and new technology enterprise” in 2011, entitling it to a preferential EIT tax rate of 15% from 2011 to 2013. In 2013, Hangzhou Sky obtained the “key software development enterprise” status, which entitled it to a preferential EIT tax rate of 10% for two years from 2013 to 2014. In 2014, Hangzhou Sky renewed the status of its “high and new technology enterprise”, entitling it to a preferential EIT tax rate of 15% from 2014 to 2016;

Mijia, one of our SPEs, as a “software enterprise,” was entitled to a full exemption from EIT in 2010 and 2011 and a 50% reduced EIT rate from 2012 to 2014. The reduced applicable EIT rate for Mijia from 2012 to 2014 is 12.5%. In 2013, Mijia qualified as a “high and new technology enterprise”, entitling it to a preferential EIT tax rate of 15% from 2013 to 2015;

Miyi, one of our SPEs, as a “software enterprise,” is entitled to a full exemption from EIT in 2013 and 2014 and a 50% reduced EIT rate from 2015 to 2017. The reduced applicable EIT rate for Miyi from 2015 to 2017 is 12.5%;

Najia, one of our SPEs, as a “software enterprise,” is entitled to a full exemption from EIT in 2013 and 2014 and a 50% reduced EIT rate from 2015 to 2017. The reduced applicable EIT rate for Najia from 2015 to 2017 is 12.5%; and

Mopin, one of our subsidiaries, as a “software enterprise,” is entitled to a two-year full exemption from EIT from the first year of profitable operation after offsetting prior years’ tax losses, and a 50% reduction of the applicable EIT rate for the succeeding three years.

Once these entities cease to qualify as “high and new technology entities” or “software enterprises”, as applicable, their applicable EIT rates may increase to up to 25%, which could adversely affect our results of operations.

Prior to January 1, 2012, pursuant to Provisional Regulation of China on Business Tax and its implementing rules, any entity or individual rendering services in the territory of PRC was generally subject to a business tax at the rate of 5% on the revenues generated from provision of such services. In November 2011, the Ministry of Finance, or the MOF, and the State Administration of Taxation, or the SAT, jointly issued two circulars setting out the details of the VAT Pilot Program, which changes business tax to value-added tax for certain industries, including, among others, research and development and technical services, information technology services, and cultural and creative services. The VAT Pilot Program initially applied only to these industries in Shanghai, and has been expanded to eight additional provinces, including Beijing, Tianjin, Zhejiang Province (including Ningbo), Anhui Province, Guangdong Province (including Shenzhen), Fujian Province (including Xiamen), Hubei Province and Jiangsu Province in 2012. On May 24, 2013, the MOF and the SAT jointly issued the Circular on Tax Policies on the Nationwide Expansion of the Pilot Program for the Collection of Value Added Tax in Lieu of Business Tax in the Transportation Industry and Certain Modern Services Industries, or Circular 37, which expanded the VAT Pilot Program nationwide as of August 1, 2013. Pursuant to the Circular on the Inclusion of Telecommunications Industry in the Pilot Collection of Value-added Tax in Lieu of Business Tax promulgated by MOF and the SAT on April 29, 2014, or Circular 43, Circular 37 has been replaced by Circular 43 and the VAT Pilot Program has been expanded to cover telecommunication service, as currently conducted by us, as of June 1, 2014. See “Item 5. Operating and Financial Review and Prospects — Taxation.”

Various local governments in China have provided discretionary preferential tax treatments to us. However, these local governments may decide to reduce or eliminate these preferential tax treatments 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 or discontinuation of, or changes to, these tax incentives will increase our tax burden and reduce our net income and materially adversely affect our operating results.

We may rely on dividends and other distributions on equity paid by our subsidiaries to fund any cash and financing requirements we may have, and any limitation on the ability of our subsidiaries to make payments to us, or the tax implications of making payments to us, could materially adversely affect our ability to conduct our business.

We are a holding company, and we may rely on dividends and other distributions on equity from our PRC subsidiaries for our cash requirements. PRC regulations permit our subsidiaries to pay dividends to us only out of their accumulated profits, if any, determined in accordance with Chinese accounting standards and regulations. In addition, each of our PRC subsidiaries is required to set aside at least 10% of its after-tax profits each year, if any, to fund a statutory reserve until such reserve reaches 50% of its registered capital. These reserves are not distributable as cash dividends.

Furthermore, if our PRC subsidiaries incur debt 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 PRC subsidiaries. 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 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.

In addition, under the PRC Enterprise Income Tax Law and the Implementing Rules, both of which became effective on January 1, 2008, dividends generated from 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 a tax treaty with China provides for a different withholding arrangement.

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

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

In April 2009, the SAT released a circular that sets out the standards and procedures for determining the location of the “effective management” of an enterprise registered outside of the PRC and funded by Chinese enterprises as controlling investors, or a Chinese Funded Enterprise. Under the circular, a Chinese Funded Enterprise shall be considered a resident enterprise if all of the following apply: (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.

The circular provides that the above standards shall apply to enterprises 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 “effective management” is in the PRC or not. Accordingly, it is still uncertain whether we may be considered a resident enterprise under the PRC Enterprise Income Tax Law. If we are considered a resident enterprise and earn income other than dividends from our PRC subsidiaries such as income from our international operations, we will be subject to a 25% PRC income tax rate on our global income, which could significantly increase our tax burden and materially adversely affect our cash flow and profitability.

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

Under the PRC Enterprise Income Tax Law and related 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 source within the PRC. Similarly, any gain realized on the transfer of ADSs or shares by such investors is also subject to the 10% PRC income tax rate if such gain is regarded as income derived from sources within the PRC unless a treaty otherwise provides.

Under the PRC Individual Income Tax Law and related tax rules, dividends from sources within the PRC paid to foreign individual investors who are not PRC residents are generally subject to a PRC withholding income tax at a rate of 20%, and gains from PRC sources realized by such investors on the transfer of our ADSs or common shares are generally subject to a 20% PRC withholding income tax, and in each case, are subject to any reduction or exemption set forth in the applicable tax treaties and PRC laws.

If we are considered a PRC “resident enterprise,” it is unclear whether dividends we pay with respect to our common shares or ADSs, or the gain you may realize from the transfer of our common 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 PRC Enterprise Income Tax 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 common shares or ADSs, the value of your investment in our common shares or ADSs may be materially adversely affected.

We face uncertainty regarding PRC tax reporting obligations and consequences for certain indirect transfers of the stock of our operating company.

On February 3, 2015, SAT issued the Announcement of the State Administration of Taxation on Several Issues concerning the Enterprise Income Tax on the Indirect Transfers of Properties by Non-Resident Enterprises, or Circular 7, to revise and strengthen the administration of corporate income tax on indirect transfers of equities and other properties of PRC resident enterprises, or PRC Taxable Property, by non-resident enterprises. Pursuant to Circular 7, where a non-resident enterprise indirectly transfers PRC Taxable Property to avoid tax liability by implementing arrangements without reasonable commercial purpose, such indirect transfer will be re-identified and recognized as a direct transfer of PRC Taxable Property. As a result, gains derived from such indirect transfer attributable to the PRC Taxable Property may be subject to PRC withholding tax at a rate of up to 10%. In the case of the indirect transfer of property of unregistered establishments set up by a foreign enterprise in the PRC, the applicable tax rate would be 25%. Circular 7 imposes tax filing obligations on both the transferors and the transferees, as well as the PRC resident entity being indirectly transferred. As a result, we and our subsidiaries may be subject to filing obligations or being taxed under Circular 7, and may be required to expend valuable resources to comply with Circular 7 or to establish that we and our non-resident enterprises should not be taxed under Circular 7 for any previous or future restructuring or disposal of shares of offshore entities.

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

We conduct our business primarily through our subsidiaries and SPEs 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 retroactive effect. As a result, we may not be aware of our violation of these policies and rules until sometime after the violation. In addition, any litigation in China may be protracted and result in substantial costs and divert resources and management attention.

PRC regulation of loans and direct investment by offshore holding companies to PRC entities may delay or prevent us from making additional loans or capital contributions to our PRC operating subsidiaries, which could materially adversely affect our liquidity and our ability to fund and expand our business.

As an offshore holding company of our PRC operating subsidiaries, we may extend additional loans or make additional capital contributions to our PRC subsidiaries. Loans by us to our PRC subsidiaries, which are foreign-invested enterprises, to finance their activities cannot exceed statutory limits and must be registered with the State Administration of Foreign Exchange, or 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 capitalize our PRC operations may be negatively affected, which could adversely affect our liquidity and our ability to fund and expand our business.

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

The PRC government imposes controls on the convertibility of the RMB into foreign currencies and, in certain cases, the remittance of currency out of China. We receive substantially all of our revenues in RMB. Under our current corporate structure, our income primarily comes from dividends and other payments from our PRC subsidiaries. Shortages in the availability 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 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 State Administration of Foreign Exchange, or SAFE, by complying with certain procedural requirements. However, approval from appropriate government authorities is required where RMB 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 in the future to foreign currencies for current account transactions. 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.

In addition, on August 29, 2008, 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 its business scope approved by the applicable governmental authority and may not be used for equity investments within the PRC. In addition, SAFE strengthened its oversight of the flow and use of the registered capital of a foreign-invested company settled in Renminbi converted from foreign currencies.

The use of such Renminbi capital may not be changed without 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. Violations of Circular 142 will result in severe penalties, such as heavy fines. As a result, Circular 142 may significantly limit our ability to transfer the net proceeds from any offering of our securities to our subsidiaries in the PRC. We may not be able to convert the net proceeds into Renminbi to invest in or acquire any other PRC companies, or establish other SPEs in the PRC.

On November 16, 2011, SAFE promulgated the Circular of the State Administration of Foreign Exchange on Issues Relating to Further Clarification and Regulation of Certain Capital Account Items under Foreign Exchange Control (“Circular 45”) to further strengthen and clarify its existing regulations on foreign exchange control under SAFE Circular 142. Circular 45 expressly prohibits foreign invested entities, including wholly foreign owned enterprises, from converting registered capital in foreign exchange into RMB for the purpose of equity investment, granting certain loans, repayment of intercompany loans, and repayment of bank loans which have been transferred to a third party.

Further, Circular 45 generally prohibits foreign invested entities, such as our PRC subsidiaries, from converting registered capital in foreign exchange into RMB for the payment of various types of cash deposits. If our variable interest entity requires financial support from us or our PRC subsidiaries in the future and we find it necessary to use foreign currency-denominated capital to provide such financial support, our ability to fund our variable interest entity’s operations will be subject to statutory limits and restrictions, including those described above.

On March 30, 2015, the SAFE issued the Circular on Reforming the Administration Approach Regarding the Foreign Exchange Capital Settlement of Foreign-invested Enterprises, or Circular 19, which will replace the Circular 142 when it becomes effective on June 1, 2015. Circular 19 provides that, among other things, the Renminbi capital converted from the foreign currency registered capital of a foreign-invested enterprise may be used for equity investments within the PRC. Since Circular 19 was recently issued, there are uncertainties in interpretation and implementation as to actual transactions. In light of the various requirements imposed by existing PRC regulations on loans to and direct investment in PRC entities by offshore holding companies, we cannot assure you that we will be able to complete the necessary government registrations or obtain the necessary government approvals on a timely basis, if at all, with respect to future loans by us to our PRC subsidiaries or any consolidated affiliated entities or with respect to future capital contributions by us to our PRC subsidiaries. If we fail to complete such registrations or obtain such approvals, our ability to capitalize or otherwise fund our PRC operations may be negatively affected, which could materially and adversely affect our liquidity and our ability to fund and expand our business.

Fluctuations 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, remaining within 1% of its July 2008 high. In June 2010, the PRC government announced that it would increase Renminbi exchange rate flexibility. From June 2010 to March 2012, the RMB appreciated by 7.8% against the U.S. dollar. In March 2014, the People’s Bank of China widened the band around which the value of the Renminbi is allowed to deviate from the daily reference rate, which may allow for greater volatility in the U.S. dollar and Renminbi exchange rate. 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 a significant portion of our financial assets, are denominated in RMB. We principally rely on dividends and other distributions paid to us by our PRC subsidiaries. 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.

We may be subject to penalties, including restrictions on our ability to inject capital into our PRC subsidiaries and our PRC subsidiaries’ ability to distribute profits to us, if our PRC resident shareholders or beneficial owners fail to comply with relevant PRC foreign exchange rules.

On October 21, 2005, SAFE issued Relevant Issues Concerning Foreign Exchange Control on Domestic Residents’ Corporate Financing and Roundtrip Investment Through Offshore Special Purpose Vehicles, or the SAFE Circular 75, which became effective as of November 1, 2005. The SAFE Circular 75 requires PRC residents to register with the local SAFE branch before establishing or controlling any company outside of China for the purpose of capital financing with assets or equities of PRC companies, or an “offshore special purpose vehicle.”

In addition, any PRC resident that is a shareholder of an offshore special purpose vehicle is required to amend its SAFE registration with respect to that offshore special purpose company in connection with any increase or decrease of capital, transfer of shares, merger, division, equity investment or creation of any security interest over any assets located in China or other material changes in share capital. In May 2007, SAFE issued relevant guidance to its local branches with respect to the process for SAFE registration, which standardized more specific and stringent supervision of the registration relating to the SAFE Circular 75.

On July 4, 2014, the SAFE issued the Circular on the Administration of Foreign Exchange Issues Related to Overseas Investment, Financing and Roundtrip Investment by Domestic Residents through Offshore Special Purpose Vehicles, or the SAFE Circular 37, which replaced the SAFE Circular 75. The SAFE Circular 37 requires PRC residents to register with the competent local SAFE branch in connection with their direct establishment or indirect control of an offshore special purpose vehicle, for the purpose of overseas investment and financing, with such PRC residents’ legally owned assets or equity interests in domestic enterprises or offshore assets or interests. The SAFE Circular 37 further requires amendment to the registration in the event of any significant changes with respect to the special purpose vehicle, such as any change of basic information (including change of the PRC residents, name and operation term), increase or decrease of capital contribution by the PRC residents, share transfer or exchange, merger, division or other material events. In the event that a PRC resident holding interests in a special purpose vehicle fails to fulfill the required SAFE registration, the PRC subsidiaries of that special purpose vehicle may be prohibited from making profit distributions to the offshore parent and from carrying out subsequent cross-border foreign exchange activities, and the special purpose vehicle may be restricted in its ability to contribute additional capital into its PRC subsidiary. Moreover, failure to comply with the various SAFE registration requirements described above could result in liability under the PRC law for evasion of foreign exchange controls.

We are committed to comply with the SAFE Circular 37 and have taken steps to ensure that our shareholders and beneficial owners who are subject to the SAFE Circular 37 also comply with the relevant rules. However, we cannot provide any assurance 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 other requirements required by the SAFE Circular 37 or other related rules. In case of any non-compliance on any of our PRC resident shareholders or beneficial owners, our PRC subsidiaries and such shareholders and beneficial owners may be subject to fines and other legal sanctions, including restriction on our ability to contribute additional capital into our PRC subsidiaries and our PRC subsidiaries’ ability to distribute dividends to our offshore holding companies, which will adversely affect our business.

Failure to comply with the registration requirements for employee share option plans may subject our PRC equity incentive plan participants or us to fines and other legal or administrative sanctions.

On February 15, 2012, SAFE promulgated the Notice on Foreign Exchange Administration of PRC Residents Participating in Share Incentive Plans of Offshore Listed Companies, or SAFE Circular No. 7, to replace the previous Operating Procedures for Administration of Domestic Individuals Participating in the Employee Stock Ownership Plan or Stock Option Plan of Offshore Listed Companies. SAFE Circular No. 7 regulates foreign exchange matters associated with employee stock option incentives or similar incentives permitted under applicable laws and regulations granted to PRC residents by companies whose shares are listed on offshore stock exchanges. Pursuant to SAFE Circular No. 7, all PRC residents participating in share incentive plans of offshore listed companies shall, through their employers, jointly retain qualified PRC agents to register with local SAFE branches. PRC residents include PRC nationals or foreign citizens having been consecutively residing in PRC for not less than one year, acting as directors, supervisors, senior management personnel or other employees of PRC entities affiliated with such offshore listed company. A qualified PRC agent may be a PRC entity involved in the share incentive plan or a PRC institution eligible for asset trusteeship, which is lawfully selected to handle various foreign exchange matters related to share incentive plans and applies annually for a quota for conversion and/or payment of foreign currencies in connection with the domestic individuals’ exercise of their employee stock options. The foreign exchange proceeds received by PRC residents from sale of shares under share incentive plans granted by offshore listed companies must be remitted to bank accounts in China opened by their employers or PRC agents.

Furthermore, a Notice Concerning Individual Income Tax on Earnings from Employee Stock Options, jointly issued by the MOF and SAT, provides that domestic companies that implement employee share option programs must file the employee share option plans and other relevant documents with local tax authorities having jurisdiction over the companies before implementing such plans, and must file share option exercise notices and other relevant documents with local tax authorities before exercise by their employees of any share options, and clarify whether the shares issuable under the employee share options referenced in the notices are shares of publicly-listed companies.

We have registered with the local SAFE bureau on behalf of our employees who have been granted shares or share options under our share incentive plan and follow other procedures set forth in SAFE Circular No. 7 and other applicable regulations and we have filed the employee share option plans and other relevant documents with local tax authorities with competent jurisdiction. If we or any of our PRC option holders fail to comply with SAFE Circular No. 7, Notice Concerning Individual Income Tax on Earnings from Employee Stock Options or other relevant regulations in connection with our future grants of shares or share options, we or the relevant PRC option holders may be subject to fines and other legal or administrative sanctions.

The approval of the CSRC may have been required in connection with our initial public offering in December 2010 under PRC regulations. 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.

On August 8, 2006, six PRC regulatory agencies, including the MOFCOM, the State Assets Supervision and Administration Commission, the SAT, the State Administration for Industry and Commerce, the CSRC and SAFE jointly adopted the Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, or the M&A Rule, which became effective on September 8, 2006 and was amended on June 22, 2009. The M&A Rule requires offshore special purpose vehicles 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 website 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 Rule remain unclear, and our initial public offering may have required approval from the CSRC. If CSRC approval had been required for our initial public offering in December 2010, our failure to obtain or delay in obtaining such approval would subject us to sanctions imposed by the CSRC and other PRC regulatory agencies, which could include fines and penalties on our operations in China, restrictions or limitations on our ability to pay dividends outside of China, and other forms of sanctions that may materially adversely affect our business, results of operations and financial condition.

Our PRC counsel, DaHui Lawyers, 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 PRC domestic companies and (ii) no provision in the M&A Rule explicitly classifies the contractual arrangements with Hangzhou Sky and Mijia as a type of transaction subject to the M&A Rule. However, our PRC counsel further advised us that since there has been no official interpretation or clarification of the M&A Rule, there remains some uncertainty as to how the M&A Rule will be interpreted or implemented in the context of an overseas offering and the opinions summarized above are subject to any new laws and regulations or further implementations and interpretations of competent government authorities in any form relating to the M&A Rule. If the CSRC or other PRC government authorities determine that prior CSRC approval is required, any future registered offering will be delayed until we obtain the approval from the CSRC, which may take several months or longer. If a prior approval from the CSRC is required but not obtained, we may face regulatory actions or other sanctions from the CSRC or other PRC regulatory authorities.

The M&A Rule also established additional procedures and requirements that are expected to make merger and acquisition activities in China by foreign investors more time-consuming and complex, including requirements in some instances that the MOFCOM be notified in advance of any change-of-control transaction in which a foreign investor takes control of a PRC domestic enterprise, or that the approval from the MOFCOM be obtained in circumstances where overseas companies established or controlled by PRC enterprises or residents acquire affiliated domestic companies.

We may grow our business in part by acquiring other companies operating in our industry. Complying with the M&A Rule to complete such transactions could be time-consuming, and any required approval processes, including approval from MOFCOM, may delay or inhibit our ability to complete such transactions, which could affect our ability to expand our business or maintain our market share.

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

Our business could be materially adversely affected by the outbreak of H1N1, or swine influenza, avian influenza, severe acute respiratory syndrome, or SARS, influenza A virus subtype H7N9, or another epidemic. For instance, in early 2013, there were outbreaks of influenza A virus subtype H7N9 in nine provinces of China. 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 and adversely affect our results of operations.

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. If we significantly change or decrease our workforce in the PRC, the labor contract law could adversely affect our ability to effect such changes in a timely and cost effective manner, and 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’ employments expire or terminate, which will increase employers’ operating expenses. According to Interpretation (IV) of the Supreme People’s Court of Several Issues on the Application of Law in the Trial of Labor Dispute Cases, promulgated on January 18, 2013, a court will sustain an employees’ claim of three months’ compensation even when the employer requests to terminate the non-competition obligations.

Risks Related to Our ADSs

The market price for our ADSs may be volatile, which could result in substantial losses to you.

The market price for our ADSs may be volatile and subject to wide fluctuations in response to factors such as actual or anticipated fluctuations in our quarterly results of operations, changes in financial estimates by securities research analysts, changes in the economic performance or market valuations of other companies operating in our industry, announcements by us or our competitors of material acquisitions, strategic partnerships, joint ventures or capital commitments, fluctuations in exchange rates between the RMB and the U.S. dollar, intellectual property litigation, release of transfer restrictions on our outstanding shares or ADSs, and economic or political conditions in China. In addition, the performance and fluctuation in market prices of other companies with operations located mainly in China that have listed their securities in the United States may affect the volatility in the price 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 market has from time to time experienced significant price and volume fluctuations that are not related to the operating performance of particular companies. These market fluctuations may also materially adversely affect the market price of our ADSs.

Future sales or issuances of a substantial number of our ADSs or common shares could adversely affect the price of our ADSs.

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 common shares, the prevailing market price for our ADSs could decline.

In addition, we may issue additional common shares or ADSs to fund future acquisitions or our operations. Your ownership interest in our company would be diluted and this, in turn, could materially adversely affect the price of our ADSs.

You may not have the same voting rights as the holders of our common shares and must act through the depositary to exercise your rights.

As an ADS holder, you may only exercise voting rights with respect to the underlying common shares in accordance with the provisions of the deposit agreement. Under the deposit agreement, you must vote by giving voting instructions to the depositary. Upon receipt of your voting instructions, the depositary will vote the underlying common shares in accordance with these instructions. Otherwise, you will not be able to exercise your right to vote unless you withdraw the common shares underlying your ADSs.

Pursuant to our amended and restated memorandum and articles of association, we may convene a shareholders’ meeting upon ten clear days’ notice. When a shareholder’s meeting is convened, you may not receive sufficient advance notice to withdraw the common shares underlying your ADSs to allow you to vote with respect to any specific matter. If we give timely notice, the depositary will notify you of the upcoming vote and arrange to deliver our voting materials to you.

We cannot assure you that you will receive the voting materials in time to instruct the depositary to vote the common shares underlying your ADSs. In addition, the depositary and its agents are not responsible for failing to carry out voting instructions or for the manner of carrying out voting instructions. This means that you may not be able to exercise your right to vote and the common shares underlying your ADSs may not be voted as you requested.

Your right to participate in any future rights offerings may be limited, which may dilute your holdings and you may not receive cash dividends if it is impractical to make them available to you.

From time to time, we may distribute rights to our shareholders, including rights to acquire our securities. However, we cannot make any such rights available to you in the United States unless we register such rights and the securities to which such rights relate under the Securities Act of 1933, as amended, or the Securities Act, or an exemption from the registration requirements is available. Also, under the deposit agreement, the depositary 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 exempt 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 common shares or other deposited securities after deducting its fees and expenses. You will receive these distributions in proportion to the number of common shares your ADSs represent. However, the depositary may, at its discretion, decide that it is inequitable or impractical 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 the such property and you will not receive such distribution.

You may be subject to limitations on the 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.

You may face difficulties in protecting your interests, and your ability to protect your rights through the U.S. federal courts may be limited because we are organized under Cayman Islands law, conduct substantially all of our operations in China and all of our directors and officers reside outside the United States.

We are organized in the Cayman Islands and substantially all of our assets are located outside of the United States. We conduct substantially all of our operations in China through our subsidiaries and SPEs in China. All of our officers and directors reside outside the United States and a substantial portion of their assets are located outside of the United States. As a result, it may be difficult for you to bring an action against us or against these individuals in the United States in the event that you believe that your rights have been infringed under the securities laws or otherwise.

Even if you are successful in bringing an action of this kind, the laws of the Cayman Islands and of China may render you unable to enforce a judgment against our assets or the assets of our directors and officers. In addition, it is uncertain whether the courts of the Cayman Islands or the PRC would recognize or enforce judgments of U.S. courts against us or such persons predicated upon the civil liability provisions of the securities laws of the United States or any state, and it is uncertain whether Cayman Islands or PRC courts would be competent to hear original actions brought in the Cayman Islands or the PRC against us or such persons predicated upon the securities laws of the United States or any state.

Our corporate affairs are governed by our memorandum and articles of association and by the Companies Law and common law of the Cayman Islands. The rights of shareholders to take legal action against our directors and us, actions by minority shareholders and the fiduciary responsibilities of our directors to us 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 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 Exchange Act, 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.

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 common shares represented by our ADSs, at a premium.

Our amended and restated articles of association contain provisions that limit the ability of others to acquire control of our company. These provisions could deprive our shareholders of an opportunity to sell their shares at a premium over prevailing market prices by discouraging third parties from seeking to obtain control of our company in a tender offer or similar transaction. For example, our board of directors has the authority, without further action by our shareholders, to issue preferred shares in one or more series and to fix their designations, powers, preferences, privileges, and relative participating, optional or special rights and the qualifications, limitations or restrictions, including dividend rights, conversion rights, voting rights, terms of redemption and liquidation preferences, any or all of which may be greater than the rights associated with our common shares, in the form of ADS or otherwise. Preferred shares could be issued quickly with terms calculated to delay or prevent a change in control of our company or make removal of management more difficult.

If our board of directors decides to issue preferred shares, the price of our ADSs may fall and the voting and other rights of the holders of our common shares and ADSs may be materially adversely affected. Furthermore, our amended and restated articles of association provide for a staggered board, which means that our directors are divided into three classes, with one-third of our board standing for election every year. This means that at least two annual shareholders’ meetings, instead of one, are generally required in order to effect a change in a majority of our directors. Our staggered board can discourage proxy contests for the election of our directors and purchases of substantial blocks of our shares by making it more difficult for a potential acquirer to take control of our board in a relatively short time. In addition, our shareholders holding, in aggregate, less than 25% of the paid up capital of our company do not have the ability to call general meetings or to propose special matters for consideration at such meetings.

We believe we may be a passive foreign investment company, which could result in adverse U.S. federal income tax consequences to U.S. Holders of our ADSs or common shares.

Based on the market price of our ADSs, the value of our assets and the composition of our income and assets, we believe that it is likely that we were a passive foreign investment company, or PFIC, for U.S. federal income tax purposes for the nine-month period ended December 31, 2014. A non-U.S. corporation will be a PFIC for any taxable year if either (i) at least 75% of its gross income for such year is passive income or (ii) at least 50% of the value of its assets (based on an average of the quarterly values of the assets) during such year is attributable to assets that produce passive income or are held for the production of passive income. A separate determination must be made after the close of each taxable year as to whether we were a PFIC for that year.

Because the value of our assets for purposes of the PFIC test will generally be determined by reference to the market price of our ADSs and common shares, our PFIC status will depend in large part on the market price of our ADSs and common shares, which may fluctuate significantly. Because we believe that it is likely that we were a PFIC for the nine-month period ended December 31, 2014, certain adverse U.S. federal income tax consequences could apply to U.S. Holders (as defined in “Item 10. Additional Information — E. Taxation — United States Federal Income Taxation”) of our ADSs or common shares with respect to any “excess distribution” received from us and any gain from a sale or other disposition of our ADSs or common shares. See “Item 10. Additional Information — E. Taxation — United States Federal Income Taxation — Passive Foreign Investment Company.”

ITEM 4.

INFORMATION ON THE COMPANY

Our legal and commercial name is Sky-mobi Limited. We commenced operations through Hangzhou Sky, a limited liability company established in China, in 2005. Hangzhou Sky is principally engaged in our cooperation with handset companies and providing mobile applications and content to our users. To enable us to raise capital from international investors, our holding company, Sky-mobi Limited (formerly Profit Star Limited), was incorporated under the laws of the Cayman Islands as an exempted limited liability company in April 2007. In October 2010, Profit Star Limited changed its name to Sky-mobi Limited.

In June 2007 and December 2009, we incorporated Pusida and Dianneng, our wholly-owned subsidiaries in China, respectively. In May 2010, we incorporated Profit Star Software (HK) Limited, or Profit Star HK, our wholly-owned subsidiary, in Hong Kong. We transferred all of our equity interest in Pusida and Dianneng to Profit Star HK.

In October 2010, we incorporated Sky Network International Limited, or Sky BVI, our wholly-owned subsidiary, in the British Virgin Islands. We made Sky BVI our intermediary holding company by transferring all of our equity interest in Profit Star HK to Sky BVI.

In December 2010, we completed our initial public offering of 6,125,000 ADSs, each representing eight common shares of par value US$0.00005 per share. We listed our ADSs on NASDAQ on December 10, 2010.

In September 2011, we incorporated Me Share Limited in Hong Kong, which was 100% held by Sky BVI. Me Share Limited primarily engages in mobile application store services for overseas markets, with a majority of its R&D support from Shanghai Texuan Information Technologies Co., Ltd., Me Share Limited’s wholly owned subsidiary in China. In December 2011, we incorporated Sky Technologies International Limited, or Sky Technologies BVI, our subsidiary, in the British Virgin Islands. We then transferred all of our equity interest in Me Share Limited to Sky Technologies BVI. In April 2012, Me Share Limited changed its name to Powerplay Technologies Limited.

In December 2011, we incorporated Tiandian, our wholly-owned subsidiary in China.

In June 2013, we established Hangzhou Mopin Technologies Co., Ltd. which primarily focuses on cooperation with mobile network operators. As of December 31, 2014, we held 79.88% equity interest in this subsidiary and the remaining equity interest is held by certain of our officers.

PRC laws restrict foreign-invested entities engaging in value-added telecommunication services. To comply with PRC laws, we conduct our value-added telecommunication services and strategic investment in China through 14 SPEs, namely Hangzhou Sky, Mijia, Fanyi, Feineng, Miyi, Najia, Tianchu, Zunqi ,Geyuan, Dangyi, Mugu, Feidong, Fuyun Duoqu and their respective subsidiaries. These SPEs and their subsidiaries primarily focus on the provision of mobile application services. We have entered into a series of contractual arrangements with each of these SPEs and their respective shareholders, through our wholly-owned subsidiary, Dianneng, through which we exercise effective control over the operations of these entities and receive the economic benefits of the shareholders’ equity interests in these entities. See “—B. Organizational Structure—Contractual Arrangements with the SPEs and their shareholders.” Our principal executive offices are located at 10/F, Building B, United Mansion, No. 2, Zijinghua Road, Hangzhou, Zhejiang 310013, People’s Republic of China. Our telephone number at this address is +86-571-87770978. Our registered office in the Cayman Islands is located at the offices of Codan Trust Company (Cayman) Limited, our registered agent, at Cricket Square, Hutchins Drive, P.O. Box 2681, Grand Cayman KY1-1111, Cayman Islands.

Business Overview

We are a leading mobile application platform in China. Our core product, Maopao App Store, allows users to browse and download a wide range of entertainment-oriented mobile applications and content, including mobile games, music and books.

We launched our Maopao App Store for feature phones in December 2006, followed by a variety of other feature phone applications, through which we captured substantial market share in China. In response to the rise of smartphones and increasing demand for applications and mobile content designed for smartphones, we launched Maopao App Store for smartphones in May 2012. Throughout the years, we have developed a portfolio of Maopao platform products, including Maopao Game Center, Maopao Browser and Maopao Community that provide rich functionality and engaging user experience to Android smartphone and feature phone users. As of December 31, 2014, our Maopao platform products had attracted an aggregate of over 1.5 billion users, including approximately 291.6 million smartphone users. For the three months ended December 31, 2014, our average DNU and MAU were approximately 530,000 and 33,690,000, respectively.

Building upon our success in Maopao App Store, we are in the process of enhancing our Maopao platform to integrate a broad spectrum of Maopao platform products and third-party applications and mobile content that cater to the varying interests, needs and preferences of smartphone and feature phone users in China.

As a leading mobile application platform in China with a large and highly engaged user base, we are centrally positioned in China’s mobile application sector, which includes:

users, especially younger users with modest income, who constitute the majority of China’s mobile phone user base. Maopao platform enables smartphone and feature phone users to access and download a wide selection of mobile games and other applications and content for free and purchase in-app virtual items, premium features and other content at attractive price points;

handset companies, including handset manufacturers and independent handset design houses. We contract with a large number of handset companies to pre-install our Maopao App Store as their default app store, together with a combination of other Maopao platform applications that may appeal to their customers, on their handsets before shipment. We provide these handset companies’ customers with a standardized interface to access and download applications and content from our Maopao platform. Such strategic collaboration effectively extends our user reach to the customers of these handsets. We work closely with handset companies to optimize the performance of Maopao platform applications on each of their handset models and enhance user experience. As of December 31, 2014, we had cooperation agreements with over 370 smartphone and 940 feature phone handset companies to pre-install Maopao platform applications on their products, respectively;

mobile network operators’ retail locations. We work closely with China Mobile, China Unicom and China Telecom to provide customized software services at their physical stores, including the pre-installation of a wide range of applications that appeal to their customers.

content providers, including application developers and content title owners. Through Maopao platform, their applications and content are distributed to thousands of handset models and hundreds of millions of potential users without extensive customization. We had entered into licensing agreements with over 600 content providers as of December 31, 2014 to provide a variety of applications and other content, ranging from single-player games and multi-player games to social network applications that appeal to Chinese users;

third-party distribution partners. In addition to offering games through Maopao platform, we also publish a selection of licensed and self-developed games by partnering with major app stores and mobile browsers in China, such as 91 Wireless, Qihoo 360, Xiaomi App Store and iOS App Store. Partnership with these distribution channels allows us to expand our customer base and take advantage of the popularity of their platforms and user base;

payment service providers, including mobile network operators, mobile service providers and other payment processing agents. We primarily collect sales proceeds from mobile network operators and mobile service providers when users purchase in-app virtual items, premium features and other content from Maopao platform. In addition, we work with independent payment processing agents to collect sales proceeds through a variety of payment channels, including pre-paid phone cards, pre-paid game cards, bank debit cards, wire-transfers and Alipay. As of December 31, 2014, we had entered into agreements with over 60 mobile service providers in China and overseas and 20 independent payment processing agents. We are also increasingly collaborating with mobile network operators directly to collect payment from users to enhance channel efficiency and ultimately improve our gross margin; and

mobile network operators, whom we cooperate with in various aspects of our business, including the provision of customized software services at their physical stores, distribution of applications and mobile content and payment collection. As of the date of this transition report, we have entered into strategic cooperation with all three dominate mobile network operators in China, namely, China Mobile, China Unicom and China Telecom.

We share revenue from our Maopao platform with handset manufacturers, mobile network operators, content providers, third-party distribution partners and payment service providers. We believe that our revenue sharing approach aligns the interests of other industry participants with ours, motivates them to launch better products and services and fosters a long-term mutually beneficial relationship with us. The below chart sets forth our current business model:

Note:

⁽¹⁾

In addition to offering games through our proprietary platform, we also publish a selection of licensed and self-developed games by partnering with major app stores and mobile browsers in China.

We have grown substantially since we launched Maopao App Store for feature phones in 2006. Since 2012, we have gradually shifted the strategic focus of our business from feature phones to smartphones by launching a portfolio of Maopao platform products for smartphones. As of December 31, 2014, our Maopao platform products had attracted an aggregate of over 1.5 billion users, including approximately 291.6 million smartphone users. The following table sets forth our average DNU, MAU and paying ratio of Maopao smartphone platform for the periods indicated:

	For the Three Months Ended
	June 30, 2014		September 30, 2014		December 31, 2014
	(In thousands, except for percentages)

Average DNU		450		500		528

Average MAU		30,000		33,000		33,686

Paying Ratio (%)		11.9%		15.1%		14.1%

Our Products and Services

We focus on providing entertainment-oriented applications and mobile content primarily through our Maopao App Store, complemented by a range of other Maopao platform applications that are popular among our users, including Maopao Game Center, Maopao Community and Maopao Browser.

Maopao App Store

Maopao App Store is a leading mobile application store in China. Through Maopao App Store, our users can conveniently browse and download a wide variety of mobile games as well as other applications and mobile content.

Maopao App Store enables:

	·	handset companies to pre-install Maopao App Store onto smartphones and feature phones to enhance mobile phone features and user experience. It expands the portfolios of mobile applications and content available to mobile phone users, enhancing the attractiveness of handsets;

	·	content providers to gain access to a large number of users and potential users without incurring significant marketing efforts or extensively customizing their content for different handset models;

	·	users to conveniently browse and download mobile applications from Maopao App Store and purchase in-app virtual items, premium features and other content from their handsets; and

us and other industry participants to collect payments from users through payment service providers, including mobile network operators, mobile service providers and independent payment processing agents. The availability of these user-friendly payment channels incentivizes other industry participants by aligning their interest with ours via revenue sharing.

Other Maopao Platform Products

Building upon the success of our Maopao App Store, we have developed a portfolio of Maopao platform products to further improve the functionality and user experience of smartphones and feature phones. Our most downloaded Maopao platform applications include Maopao Game Center, Maopao Community and Maopao Browser.

Maopao Game Center. Our dedicated game store, Maopao Game Center, features an extensive selection of mobile games sourced from third-party game publishers or developed in-house. We categorize these games by topic, popularity, date of release and various other groupings for our users to conveniently browse, search and download.

Since 2012, we have been promoting, primarily through our Maopao Game Center, an increasing number of “light games”, which are mainly easy-to-play micropayment single-player games that do not require significant data usage or constant mobile network connection. Our “light games” primarily target students and working-class frequent gamers with lower-end handsets and smaller data plans.

Maopao Community. On our Maopao Community, members may create virtual profiles, befriend others who share similar ideas, interests or activities and view the profiles or track the status of their friends through blogs, pictures, instant messages and other social networking functions. Our Maopao Community also features a wide selection of multi-player games, enabling our Maopao Community members interact with each other in the wireless game world. We have launched Maopao Community for smartphones in May 2013 which maintains the user interface our feature phone users are accustomed to and enables feature phone users to transfer their game status, virtual items and community contacts to Maopao Community installed on their smartphones. Maopao Community has served and is expected to continue to serve as an effective tool to retain and migrate our loyal Maopao Community users along with our transition to smartphones.

Maopao Browser. Our Maopao Browser offers mobile users the ability to locate vast amount of information available online. It also features as-your-type suggestions, complemented with direct links to websites where relevant, and an automatically generated directory of popular websites and applications grouped by various categories for users to conveniently browse and access.

Applications and Content Available Through Maopao Platform

The main categories of mobile applications and content available through Maopao platform include:

single-user applications and content, including single-player games, multimedia applications and other single-user content; and

multi-user applications, including multi-player games and social network applications.

In the fiscal years ended March 31, 2013 and 2014, our total number of single-user applications and content titles offered on Maopao platform was 469,256 and 378,955, respectively, and our total number of multi-user applications was 598 and 1,582, respectively. In the nine months ended December 31, 2014, our total number of single-user applications and content titles offered on Maopao platform was 674,72, and our total number of multi-user applications was 2,679.

We organize the applications and content we offer based on popularity and functions, and update the user interface for each of our Maopao platform products on a weekly basis to prioritize new and popular applications and content offerings. We actively position our content offerings on Maopao platform based on our analysis of statistical user behavior data and user preferences. We aim to eliminate duplication and competition among the applications and content offered on our Maopao platform.

Most of our games are free to download and play, and we generate revenues primarily from sales of in-game virtual items and premium features. The paying ratio of our games increased from 10.2% in the three months ended March 31, 2014 to 14.1% in the three months ended December 31, 2014. Other applications and mobile content we offer on Maopao platform are generally free to download in an effort to increase our customer base and loyalty. We intend to launch additional applications and content that complement our existing offerings based on future collaborative efforts with third parties and in-house development capabilities.

The following table sets forth the key operating data for our smartphone platform for the periods indicated:

	For the Three Months Ended
	June 30, 2014		September 30, 2014		December 31, 2014
Single-player games

Average MPU (in thousands)		3,513		4,929		4,725

Average ARPU (RMB)		8.8		9.5		10.0

Multi-player games

Average MPU (in thousands)		54		49		41

Average ARPU (RMB)		161.4		168.5		175.8

Single-Player Games

Single-player games, such as card games, simple strategic games and action games, involve a single player and usually relatively simple rules. Our most popular single-player games include Raging Sharks, a leisure game, and Infinity Wars, a tower defense card game.

Most of our single-player games are free to download and play. We usually charge RMB2 to RMB10 for each in-game purchase, such as performance-enhancement skills, weapons and accessories. On our feature phone Maopao App Store, for some single-player games, we charge a one-time subscription fee for unlimited access over a period of time, typically less than one month. We also introduce special offers where mobile phone users can download a bundle of single-player games at a discount.

Other Single-User Mobile Applications

Users can access a broad range of other applications through Maopao platform. Some of the most popular applications include video players, music players, screen lockers, instant maps, real-time stock quotes and analysis, weather, network clock and electronic dictionary. We offer most of these applications for free.

Multi-Player Games and Social Network Functions

We offer an expanding selection of multi-player games on our Maopao platform, such as multi-player role-playing games and multi-player version of popular card games and strategy games. Our most popular multi-player games include Fantasy of Three Kingdoms, Armed Heroes Online and the Xian Jian Wen Qing.

Most of our multi-player games are free to download and play. We charge users for each in-game purchase, such as performance-enhancement skills, weapons and accessories. For example, more than a hundred in-game virtual items are available for download in the Fantasy of the Three Kingdoms, one of our most popular multi-player games, and each item typically costs RMB1 to RMB15. During the three months ended December 31, 2014, the average MPU for our multi-player games was approximately 41,000 and the average ARPU was RMB175.8.

We also offer a wide selection of social network tools on Maopao platform, including the mobile versions of popular Internet applications in China, such as QQ instant messenger and Weibo, as well as our own Maopao Community social network. We have a strategic cooperative relationship with Weibo Corporation, a leading online media company and mobile value-added service provider in China, under which we promote its brand and products through our Maopao platform products and in return receive commissions based on number of user registrations through our Maopao platform products.

Content Sourcing and Management

The popularity and success of our Maopao platform depends on the quality of applications and content we offer, a substantial majority of which are sourced from third-party content providers. We have also developed certain applications in-house that are popular among our users, such as our mobile book reader, mobile music player, single-player games and social network applications. Leveraging our statistical user behavior data and user feedback, we provide our in-house development team and content providers with suggestions and guidance to develop quality applications and content that address our users’ varying needs and interests.

We selectively collaborate with content providers and had entered into licensing agreements with over 600 content providers as of December 31, 2014. Our content providers include some of the largest Internet companies in China, such as Baidu and many independent content developers, as well as certain of our mobile network operators and mobile service providers who offer their mobile applications and content through Maopao platform. We select content providers based on their reputation and track record and the needs, preferences and interests of mobile users and handset companies.

We strive to maintain close relationships with our content providers and motivate them to continuously introduce appealing applications through Maopao platform. Maopao platform effectively extends the customer reach of our content providers, enabling them to design content that can be delivered to handsets with a myriad of hardware and operation system configurations without significant marketing spending or extensive customization for different handset models.

In order to diversify our mobile games offerings and further expand our user base, we have been promoting an increasing number of “light games” since 2012, primarily through our Maopao Game Center, which target students and working-class frequent gamers with lower-end handsets and smaller data plans. “Light games” are mainly easy-to-play micropayment single-player games that do not require significant data usage or constant mobile network connection. Partly attributable to our ongoing marketing efforts and the surging popularity of our “light games”, we have achieved significant growth in our revenue from single-player games in the nine months ended December 31, 2014. We expect the growth of our light gaming business to deepen our relationships with additional small and mid-size mobile game developers, which account for a large percentage of our content providers.

Contract Terms with Content Providers

We typically enter into exclusive or non-exclusive licensing agreements with a term of one to three years with selected third-party content providers and share with them a percentage of revenue or a fixed fee based on number of activations. To incentivize developers’ investment in certain applications that may require substantial resources and a longer development cycle, such as multi-player games, we sometimes pay content developers a minimum guaranteed amount in advance to cover part of their development costs in addition to revenue sharing with them once launched.

Support to Content Providers

We emphasize cooperating with content providers. We license our standard software development kits and related tool suites for free to encourage content providers to develop content in our proprietary format. We have designed our standard software development kits and related tool suites with modularized functions to allow content providers to focus on content creation and improvements without concerns over compatibility with handset hardware, software or network environments. This simplifies our content providers’ development process and shortens their time-to-market.

We have also established a standardized process to assist content providers to develop and launch applications and content. Our specialized content provider support team assists content providers in better utilizing our development tools and accelerating their development process. Our field engineers, some of whom are temporarily stationed at the offices of content providers, assist content providers with project management and other technical aspects of application development. For example, our field engineers provide technical support to content providers developing applications and content for the 3G network environment. We also work with selected content providers to test applications and content before launching them on Maopao platform. After launching an application or content title on Maopao platform, we give suggestions to content providers to improve their applications and content based on user feedback. We believe these efforts facilitate the development process of our content providers and enhance our relationship with them. We also host industry events and sponsor large industry conferences for the content developer community, such as the 3G Application Software Forum we held in Hangzhou in February 2010, the Global Mobile Internet Conference we sponsored in May 2012, May 2013 and May 2014, and the 2014 TFC Global Mobile Game Developer Conference and Game Expo we sponsored in September 2014, which is the latest mobile gaming business exhibition in China. We believe our close collaboration with content providers has well positioned us to offer creative and well-integrated digital lifestyle and entertainment solutions to our users.

Cooperation with Handset Companies

We primarily promote our Maopao platform by collaborating with handset companies, including handset manufacturers and independent design houses, to pre-install our Maopao platform products in their mobile handsets. We believe that, in the highly fragmented and competitive handset market in China, pre-installation of a mobile application onto handsets before they reach mobile users is a highly effective way for a mobile application to achieve success.

We have formed strong collaborative relationships with handset companies to embed our Maopao platform products for different types of mobile baseband, chipsets and reference designs. We have cooperated with over 370 smartphone and 940 feature phone handset companies as of December 31, 2014. The handset companies we collaborate with include branded handset manufacturers such as K-Touch, Coolpad, Konka, ZTE, Gionee and OPPO, as well as independent design houses such as Topwise and Water World. We select handset companies based on their reputation, development capabilities and market share and geographic reach of their handsets.

Pursuant to our agreements with handset companies, which typically have two-year terms and contain automatic renewal provisions, we generally pay handset companies a percentage of the revenues generated from user purchases within the pre-installed applications or a fixed amount based on number of activations. Handset companies also place high value on our content selection which is based on years of analysis of statistical data obtained from an extensive user base and an insight into market trends and user preferences. Pre-installing Maopao platform products that cater to handset customers’ needs and interests enhances the functionality and user experience of mobile handsets and helps promote handset sales.

In addition, collaboration with us enables handset companies to take advantage of our large user base and economics of scale to reduce development costs and costs associated with negotiating with individual content providers and payment processing agents. We work closely with handset companies to develop new handset features and optimize the operating environment of individual handset models. Our knowledge of their handset designs and functions in turn helps us to develop our Maopao platform products to better utilize the hardware and software resources of mobile handsets. We believe we have built a reputation among handset companies on our competitive value proposition and track record.

Cooperation with Mobile Network Operators

We have established strategic cooperation with all three dominant mobile network operators in China, namely China Mobile, China Unicom and China Telecom and collaborate with them in various aspects of our business.

Pre-installation. We contract with each of China Mobile, China Unicom and China Telecom to pre-install a wide range of applications that appeal to customers at their physical stores nationwide and share with them a percentage of revenue generated from the pre-installed applications. In March 2014, we entered into a strategic partnership with the Wo Store of China Unicom, the official application store of China’s second largest mobile network operator. Under this partnership, China Unicom designated us as its official business partner to provide customized software services through China Unicom’s extensive network of physical stores. As of December 31, 2014, this strategic partnership covered China Unicom’s physical stores in the fast growing smartphone markets of Zhejiang, Hubei, Guangdong and Guangxi provinces. We have designed and developed specifically for mobile network operators a smartphone assistant software, Mopin Smartphone Assistant, which provides a one-stop solution for the installation of various smartphone applications that cater to different customer demographics at the time a customer purchases smartphones at physical stores of mobile network operators. In addition, Mopin Smartphone Assistant enables mobile network operators to track and analyze user download and purchases, which helps promote their mobile data plans and enhance their customer services.

Payment collection services. Each of China Mobile, China Unicom and China Telecom has entered into cooperation agreements with us, granting us access to their payment channels for us to collect sales proceeds from them directly without using mobile service providers as intermediaries, thus effectively improving the efficiency of payment collection. See “—Payment channels—Mobile Network Operators.”

Mobile content distribution services. We have entered into partnership agreements with each of China Mobile, China Unicom and China Telecom, pursuant to which we offer their applications on Maopao platform and share with them a percentage of revenue based on user purchases or fixed commission based on user downloads or activations.

We plan to intensify our cooperation with mobile network operators to increase our user base, benefit from lower payment channel costs and faster payment collection and supplement our mobile application and content offerings.

Cooperation with Third-Party Distribution Partners

To complement our proprietary distribution channels, we also distribute our mobile games, primarily high-grossing games licensed from third-party game developers, through a wide range of third-party distribution partners, including app stores, mobile browsers and web portals in China, such as 91 Wireless, Qihoo 360, Xiaomi App Store and iOS App Store. We generally share with these third-party distribution partners a percentage of the sales proceeds from distributing our games on their properties.

We believe our cooperation with these third-party distribution network effectively extends our customer reach and diversifies our revenue streams.

Payment Channels

Mobile Network Operators

We rely primarily on mobile network operators for payment collection. We have entered into cooperation agreements with all three dominant mobile network operators in China, granting us access to their payment channels, which enables us to collect payment directly from them without using mobile service providers as intermediaries. Our cooperation agreements with mobile network operators usually contain provisions relating to proceeds sharing ratios, processing fee ratios and billing rates. We usually settle our balances with mobile network operators every month. Revenues collected through the three mobile network operators, China Mobile, China Unicom and China Telecom, contributed approximately 30.8%, 11.2% and 7.1%, respectively, of our total revenues for the nine months ended December 31, 2014, as compared to approximately 20.5%, 1.5% and 0.1% in the nine months ended December 31, 2013, respectively.

Mobile Service Providers

We collected a portion of our revenues through the billing channels of mobile service providers, who have access to mobile network operators’ payment channels pursuant to their respective agreements with mobile network operators. After a mobile user confirms his or her purchase of in-app virtual items, premium features or other content, Maopao platform prompts the user to send an SMS to one of our selected mobile service providers, who will then send the user a confirmation SMS with transaction details and a simultaneous message to the mobile network operator. Upon receipt of the confirmation SMS, the mobile network operator records the transaction and bills the user. As of December 31, 2014, we had entered into agreements with over 60 mobile service providers. We select mobile service providers based on their network coverage, service quality, proceeds sharing arrangements and track record of payment collection. Our cooperation agreements with mobile service providers usually contain provisions relating to proceeds sharing ratios, processing fee ratios and billing rates of mobile network operators and generally have terms of one to three years without automatic renewal provisions. We generally share with mobile service providers a percentage of the payments they collect, which are net of the fees they pay to mobile network operators. We receive settlement statements from mobile service providers on a monthly basis, which indicate the aggregate amount of fees that were charged to users for purchases through Maopao platform. We usually settle our balances with mobile service providers every month. Revenues generated through our top three mobile service providers, Union Mobile Pay, A8 New Media and Guojiao Shixun, contributed approximately 7.7%, 1.9% and 1.5%, respectively, of our total revenues for the nine months ended December 31, 2014.

Our mobile service providers depend on mobile network operators for billing and collection services. See “Item 3. Key Information — D. Risk Factors — Risks Related to Our Business and Our Industry — We depend on mobile service providers, and ultimately mobile network operators, for the collection of a substantial majority of our revenues, and any loss of or deterioration in our relationships with mobile service providers, or a disruption in our mobile service providers’ relationships with mobile network operators, may result in severe disruptions to our operations and loss of revenues.”

Third-party Payment Channels

In addition to mobile network operators and mobile service providers’ billing channels, we offer a variety of other payment options to our users, including game cards of third-party companies such as Giant Interactive, Netease, Perfect World and Shanda, other prepaid cards, bank remittance, China Post, and virtual currency such as QQ Currency, among others. Users may use game cards or other prepaid cards to make purchases in our Maopao Community. For these payment channels, we usually collect through independent payment processing agents and share a percentage of proceeds with them, which is usually lower than the commission we pay mobile service providers. Our agreements with the independent payment processing agents generally have terms of one year with automatic renewal provisions.

Sales and Marketing

We aim to increase sales by continuously introducing applications and content that appeal to our users, increasing our users’ purchasing frequency and average spending. Our market research team keeps abreast of the latest market trends and user preferences by analyzing user statistical data and provide content development suggestions to third-party content providers and our in-house development team on a real-time basis. We market and promote Maopao App Store and our applications and other content to users through the following channels.

Pre-installation. We primarily promote our Maopao platform by collaborating with handset companies, including handset manufacturers and independent design houses, to pre-install our Maopao platform products in their handsets. We emphasize maintaining close relationships with handset companies to increase the number of mobile handsets pre-installing Maopao platform products. As of December 31, 2014, we had cooperated with over 370 smartphone and 940 feature phone handset companies. We are also developing relationships with additional handset companies to further extend our user reach. In addition, we collaborate with China Mobile, China Unicom and China Telecom to pre-install our Maopao platform applications at their physical stores nationwide.

Advertising and promotions. We regularly introduce sales events based on certain themes and grouping similar applications and content into packages. We have implemented a Talented User program, under which some of our users who are familiar with Maopao platform and its applications and content recommend and promote applications and content to other users in forums that discuss frequently asked questions about Maopao platform. We also attend and sponsor various industry events and conferences, such as the Global Mobile Internet Conference in May 2014 in Beijing, China, the Daiwa Hong Kong China Investment Seminar 2014 in June 2014 in Tokyo, Japan, the 2014 MarcumBP China Best Ideas Investment Conference in September 2014 in Beijing, China and the 2014 TFC Global Mobile Game Developer Conference and Game Expo in September 2014 in Guangzhou, China, to introduce our Maopao platform products to potential users and business partners and increase product visibility internationally.

Prior to launching new applications and content, we usually conduct test marketing by offering the new applications or content to selected users. We analyze user purchases and feedback to forecast demand, growth potential and acceptable price range of the applications and content, and plan our launch and marketing accordingly to enhance marketing efficiency.

International Expansion

We believe we are well-equipped to expand into overseas markets with a large number of users of China-manufactured mobile handsets, such as India, Indonesia, Malaysia and other emerging markets in Southeast Asia and South America and have already initiated our expansion efforts in these markets. We have identified key mobile market participants, including local mobile network operators, content providers and handset manufacturers in these markets and have integrated them into our global network. We have a dedicated research and development and sales team covering each of our major overseas markets and we have translated the user interface of many of our single-player games and other applications into local languages, including English, Hindi and Thai.

We will continue to collaborate with China-based handset companies to have Maopao platform products pre-installed onto their handsets for export.

Operation of Maopao Platform

Maopao platform is operated on our network infrastructure of over 1,100 computer servers. Our network infrastructure automatically reports any detected malfunctions on a real-time basis to our network control center, which allows us to quickly respond to and resolve issues to ensure the stability and security of our network.

Our operations team, which consisted of 96 employees as of December 31, 2014, is responsible for the operation of applications and other mobile content available on Maopao platform. They ensure the proper functioning of wireless connection and data transmission systems and application features, initiate remediation processes once bugs or other defects are detected and provide application updates for users to download. Our operations team also polices against rampant piracy in China, which allows users to bypass mobile application stores, damaging the operations and reputation of application store operators, content providers and other industry participants. We regularly analyze the download and billing records of handsets using Maopao platform in order to detect piracy.

Customer Service

We place high value on quality customer services. We have an in-house call center and a website forum that provide real-time assistance to Maopao platform users. Our in-house call center provides customer service 24 hours a day, seven days a week.

Our customer service representatives are trained to address user inquires and complaints and educate users and potential users about Maopao platform products. We actively monitor user complaints and provide feedback to content providers to identify and address potential issues. We were granted the “Golden Ear Microphone Award” by Customer Care & Management World Group in 2011 for our call center providing the best customer experience.

We endeavor to hire qualified customer representatives and regularly evaluate their performance. Each customer representative completes monthly mandatory training conducted by experienced managers on product knowledge, service attitude, complaint handling and communication skills.

Our Technologies

We have focused on and will continue to invest in our technologies, which help us connect the various resources of the mobile application ecosystem and deliver superior user experience. Our technologies enable users to search and download an expanding collection of applications and purchase virtual items, premium features and other content that cater to their varying interests on a platform that is highly scalable and reliable. We believe Maopao platform and related technologies provide practical solutions to the problems facing mobile application providers in China.

Data Mining and Big Data Analytic Technologies

We apply big data analytic technologies to ensure the quality of our Maopao platform products, enhance user experience and achieve higher user engagement and monetization. Leveraging our advanced data mining and big data analytic capabilities, we are able to extract, process and analyze a vast and growing amount of user behavior and preference data, such as user demographics, preferred log-in time, in-app activity levels, purchase patterns and effectiveness of promotional activities, to identify applications and content that our users will be most interested in. By comparing the user behavior and preference data we have compiled against an index of user-specific parameters, our personalized recommendation engine provides real-time tailored mobile application recommendations that appeal to each individual user.

Cloud Computing Platform

Our cloud computing platform, Maopao Cloud Services, is a distributed computing platform tailored for mobile gaming business. It is built with proprietary technology that enables servers clusters to perform with enhanced computing power and higher stability to facilitate the low-latency and long running time of mobile games. Maopao Cloud Services offers a suite of cloud services such as elastic computing, database storage and services and large-scale data processing. It identifies the most efficient and stable connection in our network for each task which enables real-time dynamic allocation of our servers, bandwidth and other resources to support the requirements of our users and content providers.

Content Delivery Network

By integrating our proprietary content distribution network with third-party content delivery networks, we have built in a distributed, load-balanced mobile application distribution system based on cloud-based infrastructure and distributed storage technologies that achieves high availability at high speed. This system allows heavy traffic on our Maopao platform to be redistributed to different servers based on the processing capability of each server to minimize our users’ waiting time. Designed specifically for a large Chinese mobile user base that is geographically dispersed, this infrastructure can be expanded easily as data storage and user visits increase and is optimized to handle small files, fragmented small file retrieval and remote backup.

Compatibility with Mobile Handsets

China’s mobile handset market is characterized by the fragmentation of handset hardware, ranging from economic feature phones designed for basic telecommunication functions to top-of-the-line smartphone models. A successful mobile application must be compatible with such diversified hardware, as well as a myriad of operating systems and other software available on handsets in China.

Maopao platform is designed to be compatible with or customized for all mainstream handset development hardware and software and to facilitate the operation of individual applications on various mobile operating systems. With our familiarity of various handset models in China through our cooperation with handset companies and involvement in their handset design process, we design Maopao platform products to better utilize the resources of popular handset models’ hardware and software and bypass their system bottlenecks, enhancing the performance of our applications and content in the actual operative environment.

Connectivity with Mobile Networks

China’s mobile network environment also presents challenges to mobile application providers. Each of the three dominant mobile network operators has numerous provincial subsidiaries operating local networks in their respective regions. Therefore, a national mobile application provider must deal with diverse network operating environments. Utilizing our core development team’s experience in telecommunications networking, we have a good grasp of the local network operating environments in different regions in China, including their connectivity, interconnection among different networks and their respective fee standards.

Maopao platform is designed to make the best use of network resources, accommodating varying network operating conditions. For example, when users use the applications and content on Maopao platform, Maopao platform automatically detects local network conditions, lists network connection alternatives and selects the optimal connection solution. When connecting to a local wireless network with data transmission problems, our built-in algorithms will minimize data error during transmission.

Digital Rights Management

Maopao platform is designed to protect against piracy. Unlike other application stores that rely on open source software like Java based programs, our proprietary MRP format has built-in encryption features for content-protection and secured billing. Each mobile handset installing Maopao platform products is assigned with an individual computing method for its billing records. Even if hackers attack a handset, the impact is usually limited to that specific handset.

Scalable Hardware Infrastructure

Each physical server in our infrastructure network functions as a virtualized central server, which supports simultaneous mobile application access by approximately one million mobile users. We utilize this technological foundation for mass computing and operational stability, supporting most sophisticated applications such as multi-player games and complicated social network functions.

Single Socket Solution and Easy Upgrade Process

We implement a single socket solution, which significantly improves wireless data transmission speed and application stability. Unlike certain other mobile application stores that require users to open a socket for each application, our single-socket approach saves users the time and resources needed for opening and closing different sockets and switching among sockets. Maopao platform and the cloud computing at our servers allow the concurrent operation of several functions through one socket on a given handset.

For certain applications, such as multi-player games, users generally have to reload the entire application for application upgrades, which drastically slows down the application and compromises user experience. Maopao platform simplifies the upgrade process by reloading only the part of the applications that requires upgrade, significantly reducing the reloading time.

Competition

The mobile application market in China is fast evolving and highly competitive. The market is characterized by frequent introduction of new products and services, short product life cycles, evolving industry standards, regular improvement in performance characteristics, rapid adoption of technological and product advancements, user price sensitivity and aggressive price cutting by competitors with resulting downward pressure on gross margins. We compete with:

other independent application store operators;

handset companies, mobile service providers, mobile operating systems and other industry participants that have developed or may develop their own application stores;

large Chinese Internet companies that may develop their own mobile application stores, applications or other mobile content; and

other mobile application distributors and other content providers, such as mobile game distributors.

Our major competitors include 91 Wireless, Tencent, Qihoo 360 and Wandoujia. We may also face alliances between our existing and new competitors. New competitors may also emerge. Some of our competitors or potential competitors may have greater development experience and resources than we have. We compete primarily on the basis of user base, relationships with mobile handset companies, mobile network operators, mobile service providers and mobile network operators, key technologies and research and development capabilities. For a discussion of risks relating to the mobile application market in China, see “Item 3. Key Information — D. Risk Factors — Risks Related to Our Business and Our Industry — We may face increased competition, which could reduce our market share and materially adversely affect our results of operations.”

Intellectual Property

We regard our copyrights, trademarks, trade secrets and other intellectual property critical to our success, and rely on a combination of trademark and copyright law, trade secret protection and confidentiality and/or license agreements with our employees, content providers and others to protect our proprietary rights. Our research and development personnel have entered into confidentiality and proprietary information agreements or agreements containing confidentiality and proprietary clauses with us, pursuant to which they are required to assign to us all of the inventions, designs and technologies they develop during their employment with us.

Licenses from Third Parties

While we develop certain applications in-house, a majority of the applications and content offered on our Maopao platform are developed by and sourced from third-party content developers. We selectively collaborate with content providers and had entered into licensing agreements with over 600 content providers as of December 31, 2014. Under the license agreements, we generally share a percentage of revenue with the content developers or pay a fixed fee based on number of activations. We sometimes pay content providers a minimum guaranteed amount in advance to cover part of their development costs in addition to revenue sharing.

Trademarks, Trade Names, Copyrights and Domain Names

As of the date of this transition report, we have applied for the registration of , , , and other trademarks in China. We have obtained 132 copyright registrations for software we developed, including development tools for our MRP format, as well as our Maopao platform products. In addition, we have registered 103 domain names, including sky-mobi.com and 51mrp.com, our primary websites.

While we actively protect our proprietary rights, these efforts may not be adequate to prevent the infringement or misappropriation of our intellectual property. This is particularly the case in China, where intellectual property laws may not protect our proprietary rights as fully as in the United States. Infringement or misappropriation of our intellectual property could materially harm our business.

In addition, our product offerings may infringe patents, copyrights or other intellectual property rights held by third parties, subjecting us to legal proceedings and claims, see “Item 3. Key Information — D. Risk Factors — Risks Related to Our Business and Our Industry — Our results of operations, financial performance and business may be adversely affected by potential intellectual property rights infringement claims against us.”

Seasonality

Our results of operations may be affected by seasonal trends caused by user behavior and demand for our applications and content offerings. Our revenues are generally higher during holiday seasons, when users tend to download more applications and content from Maopao platform and incur higher purchases. Such seasonality has appeared less prominent in recent periods as our user base continue to increase.

Insurance

We maintain directors and officers liability insurance and do not maintain any property insurance other than insurance for our vehicles. Consistent with industry practice in China, we do not maintain business interruption insurance. Damage to any of our equipment or buildings or a significant product liability claim that is not covered by our insurance policies could have a material adverse effect on our results of operations. See “Item 3. Key Information — D. Risk Factors — Risks Related to Our Business and Our Industry — We have limited insurance coverage, which could expose us to significant costs and business disruption.”

Regulations

Regulation of the Telecommunications Industry

Telecommunications Services

The Regulations on Telecommunications of the PRC, or the Regulations on Telecommunications, promulgated by the State Council of the PRC, or the State Council, on September 25, 2000 and amended on July 29, 2014, regulate the telecommunications industry and related activities and services in the PRC. The MIIT regulates the telecommunications industry on a national level and the relevant provincial-level Communications Administrative Bureaus, or the CABs, supervise and regulate the telecommunications industry in their respective administrative regions.

The Regulations on Telecommunications classify telecommunications services into two main categories: (1) basic telecommunications services and (2) telecommunications value-added services, and further divide each main category into several sub-categories. The provision of telecommunications value-added services in the PRC is subject to the examination and approval of, and requires a license issued by, the MIIT or the relevant CABs. According to the Catalog for Classification of Telecommunications Businesses, which became effective on April 1, 2003, our business constitutes provision of information services through mobile networks and the Internet, and is classified in the category of telecommunications value-added services.

On September 25, 2000, the State Council promulgated the Administrative Measures on Internet Information Services, or the Internet Measures, as amended in January 2011, which regulate the provision of Internet information services. Under the Internet Measures, “Internet information services” refer to services that provide Internet information to online users, and are categorized as either commercial services or non-commercial services. Pursuant to the Internet Measures, commercial Internet information services operators must obtain a value-added telecommunications license for Internet information services from the MIIT or the relevant CABs before engaging in any commercial Internet information services operations within the PRC. In addition, if the Internet information services involve provision of information relating to news, publication, education, medicine, health, pharmaceuticals, medical equipment and other services for which statutory approvals are required from other additional governmental authorities, such approvals must be obtained before applying for such license.

On March 1, 2009, the MIIT issued the Administrative Measures for the Licensing of Telecommunications Business Operations, which set forth the basic requirements that an applicant must satisfy when applying for a license to provide telecommunications value-added services in the PRC. Such requirements include the following:

the applicant is a duly incorporated company;

the applicant has the necessary funds and professional staff suitable for its business activities;

the applicant has the reputation or capability to provide customers with long-term services;

to operate telecommunications value-added services business across two or more provinces, autonomous regions or centrally administered municipalities, the applicant should have a minimum registered capital of RMB10.0 million; to operate telecommunications value-added services business within one province, autonomous region or centrally administered municipality only, the applicant should have a minimum registered capital of RMB1.0 million;

the applicant has the necessary premises, facilities and technical scheme;

the applicant and its major capital contributors and key business managers have no record of violating rules of the telecommunication supervision and administration during the past three years; and

other requirements provided by relevant authorities.

Provision of telecommunications value-added services across two or more provinces, autonomous regions or centrally administered municipalities requires the approval of the MIIT and a Trans-regional Telecommunications Value-added Services Operation License issued by the MIIT. Provision of such services to one province, autonomous region or centrally administered municipality requires only the approval of the relevant CAB, which will issue a Telecommunications Value-added Services Operation License. We provide our telecommunications services from Zhejiang province only and we do not have servers in other parts of China. As such, we only need the approval of the Zhejiang CAB. Each of Hangzhou Sky, Mijia, Fanyi, Feineng, Miyi, Najia and Leidong has been granted a Telecommunications Value-added Services Operation License by Zhejiang CAB.

On March 13, 2005, the MII issued the Specifications for Telecommunications Services, which specify the telecommunications service standards to which telecommunications service providers in the PRC should conform. It also requires telecommunications services providers to establish a sound service quality management system and make periodic reports to the relevant telecommunications authorities.

Foreign Investments in the Telecommunications Value-added Services Industry

Foreign direct investment in the telecommunications services industry in China is regulated by the Regulations on the Administration of Foreign-Invested Telecommunications Enterprises, or the FITE Regulations, issued by the State Council on December 11, 2001, became effective on January 1, 2002 and was amended by the State Council on September 10, 2008. According to the FITE Regulations, a foreign investor’s ultimate equity interests in any entity providing telecommunications value-added services in the PRC may not exceed 50% and a foreign investor wishing to acquire any equity interest in a telecommunications value-added services business in the PRC must demonstrate a good track record and prior experience in providing telecommunications value-added services outside the PRC.

The Guiding Catalog for Foreign Investment Industries (2015 Revision), which was promulgated by MOFCOM and the National Development and Reform Commission on March 10, 2015, or the Guiding Catalog 2015, also imposes the 50% restriction on foreign ownership in value-added telecommunications business.

On July 13, 2006, the MII issued the MII Notice, which prohibits holders of telecommunications value-added services operating licenses, including Trans-regional Telecommunications Value-added Services Operation Licenses and Telecommunications Value-added Services Operation Licenses, from leasing, transferring or selling their licenses to any foreign investors in any manner, or providing any resources, premises or facilities to any foreign investors for illegal operation of telecommunications services businesses in the PRC.

The MII Notice also requires that (1) holders of telecommunications value-added services operation licenses or their shareholders must directly own the domain names and trademarks used by such license holders in their daily operations; (2) each license holder must have the necessary facilities for its approved business operations and maintain such facilities in the regions covered by its license; and (3) all value-added telecommunications service providers maintain network and Internet security in accordance with the standards set forth in relevant PRC regulations. If a license holder fails to comply with the requirements in the MII Notice and fails to remedy such non-compliance within a designated period, the MIIT or relevant CABs may take administrative actions against such license holders, including revoking their telecommunications valued-added services operation licenses. We provide our services through our controlled SPEs that own Telecommunications Value-added Services Operation Licenses.

Regulation of the Software Development Industry

Software Development

On October 16, 2000, the MII, Ministry of Education, Ministry of Science and Technology and the SAT promulgated the Certifying Standards and Administrative Measures for Software Enterprises (Proposed), which specify the certifying standards of software enterprises. Circular of Printing and Distributing the Administrative Measures for the Recognition of Software Enterprise promulgated by SAT, MOF, MIIT and National Development and Reform Commission on February 6, 2013 further provides that the standards of software enterprises should comply with relevant provisions stipulated by Circular on Relevant Taxation Policies for Further Encouraging the Development of the Software and Integrated Circuit Industries, or Circular No. 27 (2012).

Enterprises that are qualified as “software enterprises” are entitled to certain preferential policies in the PRC. According to the Circular on Relevant Taxation Policies for Encouraging the Development of the Software and Integrated Circuit Industries, or Circular No. 25, issued by the MOF, SAT and General Administration of Customs on September 12, 2000 , newly-established software development enterprises may be exempted from income tax in the first two years of profitability and pay income taxes at half the standard rate for the next three years.

On February 22, 2008, the MOF and SAT promulgated the Notice on Several Preferential Policies in Respect of Enterprise Income Tax, or Notice 2008 No. 1, reiterating the policy that a software enterprise newly established within China may, upon determination, be exempted from income taxes for its first two profit-making years and will be subject to income tax at half the standard rate for the next three years. On April 24, 2009, the MOF and SAT promulgated the Notice on Several Issues Relevant to the Implementation of the Preferential Policies on Enterprise Income Tax, which states that software enterprises and integrated circuit production enterprises established prior to the end of 2007 may, upon certification, enjoy the preferential policies on EIT reductions and exemptions within specified periods as provided in the Notice 2008 No. 1. An enterprise that made profits in 2007 or in the years preceding 2007 and started enjoying the EIT reductions and exemptions within specified periods may enjoy the relevant preferential policies from 2008 until the expiration of the specified periods.

According to the Circular No. 27 (2012), issued by the MOF and SAT on April 20, 2012 and became effective on January 1, 2011, enterprises which enjoyed preferential treatment under Notice 2008 No. 1before December 31, 2010 may continue to enjoy preferential treatment until the expiration of the original five-year period.

The software development enterprise certification is subject to annual examination. Hangzhou Sky was granted a software enterprise certification on December 14, 2007, and passed the annual inspection for 2008 and 2009. It enjoyed the preferential income tax policy, i.e., income tax exemption for the first two profit-making years (i.e., 2008 and 2009), and a reduced rate for the next three years. Mijia was granted a software enterprise certification on September 10, 2009, and passed the annual inspection for 2010 and 2011. It enjoyed the preferential income tax policy, i.e., income tax exemption for the first two profit-making years (i.e., 2010 and 2011), and a reduced rate for the next three years.

On March 1, 2009, the MIIT issued the Administrative Measures for Software Products, or the Measures for Software Products, to regulate the development, production, sale and import of software products, including computer software, software embedded in information systems and equipment, and computer software provided in conjunction with other information or technology services. The Measures for Software Products forbid the development, production, sale and import of software products that infringe intellectual property rights of third parties, contain computer viruses, harm computer system security, do not conform with applicable software standards of PRC or contain content prohibited by PRC law.

The Measures for Software Products require registration and filing of software products with provincial level software registration institutions authorized to accept and review software products registration applications. Once accepted for review, the software product registration application will be publicly announced, and if no objection is received within a seven-working-day publication period, a software registration number and a software product registration certificate will be granted. A software registration certificate is valid for five years and may be renewed upon expiration.

Foreign Investments in the Software Development Industry

According to the Guiding Catalog 2015, foreign investment is encouraged in the sector of software development and production. As such, there are no restrictions on foreign investment in the software development industry in the PRC aside from requirements to obtain business licenses and other permits that every software developer in the PRC must obtain.

Regulation of Intellectual Property Rights

Trademarks

Registered trademarks in the PRC are protected by the Trademark Law of the PRC, which came into effect in 1982 and was revised in 1993, 2001 and 2013 as well as the Implementation Regulation of the PRC Trademark Law adopted by the State Council in 2002. A trademark can be registered in the PRC with the Trademark Office under the State Administration for Industry and Commerce. The protection period for a registered trademark in the PRC is ten years starting from the registration date and may be renewed if an application for renewal is filed within twelve months prior to expiration. The PRC 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 which 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 may not prejudice the existing right first obtained by others, nor may any person register in advance a trademark that has already been used by another party and has already gained a “sufficient degree of reputation” through such party’s use.

Copyright

Copyright in the PRC is protected by the Copyright Law of the PRC, which was promulgated in 1990 and revised in 2001 and 2010. Under the revised Copyright Law, copyright protection has been extended to Internet activities, products disseminated over the Internet and software products. The amended Copyright Law also requires registration of a copyright pledge. Copyrights are reserved by the author, unless otherwise specified by law. According to Article 16 of the Copyright Law, if a work constitutes “work for hire,” the employer, instead of the employee, is considered the legal author of the work and will enjoy the copyrights of such “work for hire” other than rights of authorship.

“Works for hire” include (1) drawings of engineering designs and product designs, maps, computer software and other works for hire, which are created mainly with the materials and technical resources of the legal entity or organization with responsibilities being assumed by such legal entity or organization and (2) those works the copyrights of which are, in accordance with the laws or administrative regulations or under contractual arrangements, enjoyed by a legal entity or organization. The actual creator may enjoy the rights of authorship of such “work for hire.”

A copyright owner may transfer its copyrights to others or permit others to use its copyrighted works. Use of copyrighted works of others generally requires a license from the copyright owner. The protection period for copyrights in the PRC varies, with 50 years as the minimum period of protection. The protection period for a “work for hire” for which a legal entity or organization owns the copyright (except for the right of authorship) is 50 years, expiring on December 31 of the fiftieth year after the first publication of such work.

In China, computer software copyrights are protected by the Copyright Law. The State Council and the State Copyright Administration of the PRC have promulgated various regulations relating to the protection of software copyrights in China. Under these regulations, computer software that is independently developed and exists in a physical form is protected, and a software copyright owner may license or transfer its software copyrights to others. Registration of software copyrights, exclusive licenses and transfer contracts with the Copyright Protection Center of China (previously, the State Copyright Administration) or its local branches is encouraged.

Although such registration is not mandatory under PRC law, it provides owners with more protection. On January 30, 2013, the State Council issued the Decision of the State Council on Revising the “Regulations for the Protection of Computer Software” (“Order No. 632”), which became effective on March 1, 2013. Order No. 632 increases fines for the following actions.

(1)

Reproducing in full or in part a copyright owner’s software;

(2)

Distributing, renting, or disseminating via an information network a copyright owner’s software to the public;

(3)

Intentionally evading or disabling a copyright owner’s technical measures for protecting the software copyright thereof;

(4)

Intentionally deleting or modifying electronic information on software rights management; or

(5)

Transferring, or granting license, to others the right to exercise a copyright owner’s software copyright.

Under the circumstances specified in Item (1) or Item (2) of the previous paragraph, a fine of RMB 100 per item or a fine of between one and five times the value of the goods may be imposed (in addition to the sanctions initially imposed by the original regulations); under the circumstances specified in Item (3), Item (4) or Item (5) of the previous paragraph, a fine of less than RMB 200,000 may be imposed (in addition to the sanctions initially imposed by the original regulations).

Regulation of the Internet

Internet domain names

Internet domain names in the PRC are regulated by (i) the Administrative Measures on Registration of Chinese Domain Name (Proposed), which was promulgated on November 3, 2000 by PRC’s domain name registrar, the China Internet Network Information Center, or CNNIC , (ii) the Administrative Measures on the PRC Internet Domain Name, which was promulgated by the MII and became effective on December 20, 2004, (iii) the Implementation Rules of Registration of Domain Name, which was promulgated by CNNIC and became effective on May 29, 2012, and (iv) the Measures on Domain Name Disputes Resolution for the Chinese Internet issued by CNNIC which became effective on June 28, 2012.

Domain name service organizations accept applications for network domain names and domain name registration applicants become holders of the registered domain or name after registration. A holder needs to pay operation fees on time to keep its registered domain name or the domain name registrar may revoke the domain name. In case any registration information of a domain name changes, the holder must file the change with the domain name registrar within 30 days after such change. CNNIC is responsible for the administration of .cn domain names and Chinese domain names.

Provision of Internet Information Services

Internet content providers are not allowed to provide services beyond the scope of the content that has been licensed or registered. The Internet Measures also provide a list of prohibited content on the Internet. Internet information service providers are required to monitor and censor the information on their websites, and when prohibited content is found, they should terminate the transmission immediately, keep relevant records and report the prohibited content immediately to relevant authorities.

According to these measures, commercial Internet information service providers must obtain a License for Internet Content Providers, or ICP license.

On February 17, 2011, the MOC issued the Provisional Regulations for the Administration of Internet Culture, or the Internet Culture Regulations, which took effect on April 1, 2011 and replaced the Provisional Regulations for the Administration of Internet Culture, which were issued by the MOC on May 10, 2003 and were amended on July 1, 2004.

The Internet Culture Regulations apply to entities engaging in activities related to “Internet cultural products,” including music and video files, network games, animation features and audiovisual products, performed plays and artwork converted for dissemination via the internet. Pursuant to these regulations, commercial entities are required to apply to the relevant local branch of the MOC for an Internet Culture Operating Permit if they engage in any of the following types of activities:

the production, duplication, importation, wholesale, retail, leasing or broadcasting of Internet cultural products;

the dissemination of Internet cultural products on the Internet or transmission thereof to (i) client end devices such as computers, fixed-line or mobile phones, television sets or gaming consoles and (ii) places offering internet access services, such as internet cafes, for the purpose of browsing, reading, using or downloading such products; or

the exhibition or holding of contests related to Internet cultural products.

Online Games

On July 11, 2008, the General Office of the State Council promulgated the Regulation on Main Functions, Internal Organization and Staffing of GAPP, or the Regulation on Three Provisions. On September 7, 2009, the Central Organization Establishment Commission issued the corresponding interpretations, or the Interpretations on Three Provisions. The Regulation on Three Provisions and the Interpretation on Three Provisions granted the MOC overall jurisdiction to regulate the online game industry, and granted the SAPPRFT the authority to issue approvals for the Internet publication of online games. Specifically, (a) the MOC is empowered to administrate online games (other than the pre-examination and approval before Internet publication of online games); (b) subject to the MOC’s overall administration, the SAPPRFT is responsible for the pre-examination and approval of the Internet publication of online games; and (c) once an online game is launched, the online game will be only administrated and regulated by the MOC.

On June 3, 2010, the MOC issued the Tentative Rule on Administration of Online Games, or the Rule on Online Games, effective as of August 1, 2010. According to the Rule on Online Games, companies that plan to operate online games, issue virtual currency and provide virtual currency transaction services must obtain a license from the provincial counterpart of the MOC. The MOC is responsible for reviewing the content of online games. Online game operators are also required to establish a self-censorship mechanism and ensure the lawfulness of the content of their games and corporate operations. In addition, the Rule on Online Games provides that all domestic online games must be filed with MOC, and all imported online games must be approved by the MOC.

Online game operators must provide instructions to users and necessary warnings regarding content, functions and targeted players of online games, and display them conspicuously on their website and in the games. Online games targeting minors must not include any content that allures minors to imitate behavior undermining public morality or instigate crimes, or any content which is harmful to minors’ health, such as content depicting terror or cruelty.

Online game operators must take technical measures to prevent minors from accessing unsuitable games or game functions, restrict minors’ playing time and prevent minors from becoming addicted to online games. Online game operators must require Internet users to go through an identity registration process with valid identification and online game operators must keep such registration information. In addition, the Rule on Online Games prohibits providers of virtual currency transaction services from offering these services to minors.

On September 28, 2009, GAPP, the National Copyright Administration and National Office of Combating Pornography and Illegal Publications jointly issued the GAPP Notice. The GAPP Notice provides, among other things, that foreign investors are not permitted to invest in online game operating businesses in China via wholly-owned equity joint venture or cooperative joint venture investments, and expressly prohibits foreign investors from gaining control over or participating in PRC operating companies’ online game operations through indirect ways, such as establishing other joint venture companies, entering into contractual arrangements with or providing technical support for such operating companies, or through a disguised form such as incorporating user registration, user account management or payment through game cards into online gaming platforms that are ultimately controlled or owned by foreign investors. Violations of the GAPP Notice will result in severe penalties.

Network Information Protection

On December 28, 2012, the Standing Committee of the National People’s Congress issued the Decision on Strengthening Network Information Protection.

According to the Decision on Strengthening Network Information Protection, organizations and individuals shall neither steal nor otherwise unlawfully obtain the personal electronic information of citizens, nor sell or illegally provide others with such electronic information. To collect and use the personal electronic information of citizens during business activities, network service providers and other enterprises and public institutions shall follow the principles of lawful, righteous and necessary collection and use, specify the purposes, ways and scope of information collection and use, obtain the consent of the persons whose information is collected, and shall not collect and use such information in violation of laws or regulations, or in breach of mutual agreements.

Network service providers and other enterprises and public institutions shall make public the rules on collecting and using the personal electronic information of citizens. No organization and individual may send commercial electronic information to the landline number, mobile phone number or personal e-mail address of an electronic information recipient without his/her consent or request, or after he/she has given an explicit refusal.

Punishments against violations of this decision includes giving a warning, imposing fines, confiscating illegal gains, revoking licenses or cancelling record-filing, shutting down the websites concerned, and prohibiting the persons subject to liability from engaging in network services business. In addition, the violations shall be recorded in the social credit files of the parties concerned, and be made public. Violations that constitute violations of public security administration shall be given public security administration punishments in accordance with PRC law. Criminal liabilities shall be investigated in accordance with the law against violations hereof that constitute criminal offenses. Whoever infringes upon the civil rights and interests of others shall bear civil liabilities in accordance with the law.

On July 16, 2013, the MIIT issued the Order for the Protection of Telecommunication and Internet User Personal Information, or the Order, which became effective on September 1, 2013. Under the Order, if an Internet service provider wishes to collect or use personal information, it may do so only if such collection is necessary for the services it provides. Further, the Internet service provider must disclose to its users the purpose, method and scope of any such collection or use, and must obtain consent from its users whose information is being collected or used. Internet service providers are also required to establish and publish their rules relating to personal information collection or use, keep any collected information strictly confidential, and implement technological and other measures to maintain the security of such information. Internet service providers are required to cease any collection or use of the user personal information, and de-register the relevant user account, when a given user stops using the relevant Internet.

Dividend Distribution

The principal regulations governing distribution of dividends of wholly foreign-owned enterprises include the Foreign-invested Enterprise Law promulgated by the Standing Committee of the National People’s Congress, as amended on October 31, 2000, and the Implementation Rules of the Foreign-invested Enterprise Law issued by the State Council, as amended on April 12, 2001.

Under these laws and regulations, foreign-invested enterprises in China may pay dividends only out of their accumulated profits, if any, determined in accordance with PRC accounting standards and regulations. In addition, foreign-invested enterprises in China are required to allocate at least 10% of their respective net profits each year, if any, to fund certain reserve funds unless these reserves have reached 50% of the registered capital of the enterprises. Foreign-invested enterprises are not allowed to distribute profits until deficits of previous fiscal years have been made up.

Foreign Currency Exchange

The principal regulations governing foreign currency exchange in the PRC are the Foreign Exchange Administration Regulations promulgated by the State Council, as amended on August 5, 2008, or the Foreign Exchange Regulations. Under the Foreign Exchange Regulations, RMB are freely convertible for current account items, as long as true and lawful transaction basis is provided, but not for capital account items, such as capital transfers, direct investments, loans, repatriation of investments and investments in securities and derivatives outside of the PRC, unless the prior approval of the State Administration of Foreign Exchange, or SAFE, is obtained and prior registration with SAFE is made.

On December 25, 2006, the People’s Bank of China issued the Administration Measures on Individual Foreign Exchange Control and SAFE issued its Implementation Rules on January 5, 2007, both of which became effective on February 1, 2007. Under these regulations, all foreign exchange matters involved in employee stock ownership plans, stock option plans and similar plans participated in by onshore individuals must be transacted upon approval from SAFE or its authorized branch.

On March 28, 2007, SAFE promulgated the Operating Procedures for Administration of Domestic Individuals Participating in the Employee Stock Option Plan or Stock Option Plan of An Overseas Listed Company, or Circular 78. Under Circular 78, PRC citizens who participate in stock incentive plans or equity compensation plans of an overseas publicly listed company are required, through a PRC agent or PRC subsidiaries of such overseas publicly-listed company, to complete certain foreign exchange registration procedures with respect to the plans upon the examination by, and approval of, SAFE.

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 SAFE Circular No. 142. Pursuant to SAFE Circular No. 142, RMB-converted capital invested by a foreign-invested enterprise must be used within the enterprise’s business scope as approved by the examination and approval authority, and cannot be used to make equity investments in China unless otherwise provided for in the enterprise’s business scope. Documents certifying the purposes of RMB converted from foreign capital, including a business contract, must be submitted for such conversion.

In addition, SAFE strengthened its oversight of the flow and use of RMB-converted capital invested by a foreign-invested enterprise. The use of such RMB capital may not be altered without SAFE’s approval, and such RMB capital may not in any case be used to repay an existing RMB loan if the proceeds of such loan have not been used. Furthermore, on November 19, 2010, SAFE issued the Notice on Strengthening the Administration of Foreign Exchange, or Notice No. 59, which requires the authenticity of settlement of net proceeds from offshore offerings to be closely examined and the net proceeds to be used in the manner described in the offering documents. Violations of SAFE Circular No. 142 and Notice No. 59 could result in severe monetary or other penalties.

Offshore Financing

On October 21, 2005, SAFE issued the SAFE Circular 75, which became effective as of November 1, 2005. The SAFE Circular 75 requires PRC residents to register with the local SAFE branch before establishing or controlling any company outside of China for the purpose of capital financing with assets or equities of PRC companies, or an “offshore special purpose vehicle.”

PRC residents that are shareholders or beneficial owners of offshore special purpose vehicles established before November 1, 2005 were required to register with the local SAFE branch before March 31, 2006. In addition, any PRC resident that is a shareholder of an offshore special purpose vehicle is required to amend its SAFE registration with respect to that offshore special purpose company in connection with any increase or decrease of capital, transfer of shares, merger, division, equity investment or creation of any security interest over any assets located in China or other material changes in share capital.

In May 2007, SAFE issued guidance to its local branches with respect to the process for SAFE registration, which standardized more specific and stringent supervision on the registration relating to the SAFE Circular 75. SAFE issued a series of subsequent rules, including the Notice on Printing and Distributing the Implementing Rules for the Administration of Foreign Exchange in Fund-Raising and Round-Trip Investment Activities of Domestic Residents Conducted via Offshore Special Purpose Companies, or Circular 19, which became effective on July 1, 2011. Circular 75 and these implementing rules require PRC residents and PRC enterprises to register or file with relevant PRC government authorities their direct or indirect offshore investment activities, round-trip investments in the PRC conducted through an offshore entity and subsequent changes in their share capital.

We have requested our shareholders and beneficial owners to disclose whether they or their shareholders or beneficial owners fall within the scope of the SAFE Circular 75 and urge those who are PRC residents to register with the local SAFE branch as required under the SAFE Circular 75. However, we cannot provide any assurance 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 other requirements required by the SAFE Circular 75 or other related rules. In case of any non-compliance on any of our PRC resident shareholders or beneficial owners, our PRC subsidiaries and such shareholders and beneficial owners may be subject to fines and other legal sanctions, including restrictions on our ability to contribute additional capital to our PRC subsidiaries and our PRC subsidiaries’ ability to distribute dividends to our offshore holding companies, which may adversely affect our business.

On July 4, 2014, the SAFE issued the SAFE Circular 37, which replaced the SAFE Circular 75. Under the SAFE Circular 37, PRC residents must register with the competent local SAFE branch in connection with their direct establishment or indirect control of an offshore special purpose vehicle, for the purpose of overseas investment and financing, with such PRC residents’ legally owned assets or equity interests in domestic enterprises or offshore assets or interests. The SAFE Circular 37 further requires amendment to the registration in the event of any significant changes with respect to the special purpose vehicle, such as any change of basic information (including change of the PRC residents, name and operation term), increase or decrease of capital contribution by the PRC residents, share transfer or exchange, merger, division or other material events. In the event that a PRC resident holding interests in a special purpose vehicle fails to fulfill the required SAFE registration, the PRC subsidiaries of that special purpose vehicle may be prohibited from making profit distributions to the offshore parent and from carrying out subsequent cross-border foreign exchange activities, and the special purpose vehicle may be restricted in its ability to contribute additional capital into its PRC subsidiary. Moreover, failure to comply with the various SAFE registration requirements described above could result in liability under the PRC law for evasion of foreign exchange controls.

We have registered with the local SAFE bureau on behalf of our employees who have been granted shares or share options under our share/option incentive plan and follow other procedures set forth in SAFE Circular No. 7 and other applicable regulations and we have filed the employee share option plans and other relevant documents with local tax authorities with competent jurisdiction.

Overseas Listing

On August 8, 2006, six PRC regulatory agencies, namely the MOFCOM, SAT, the SAT, the CSRC and SAFE, jointly adopted the M&A Rule, which became effective on September 8, 2006. The M&A Rule, as amended by the MOFCOM on June 22, 2009, requires offshore special purpose vehicles 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 website 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 Rule remain unclear, and our initial public offering might have required approval from the CSRC. If it did, it is uncertain how long it will take us to obtain the approval. If CSRC approval was required for our initial public offering, our failure to obtain or delay in obtaining the CSRC approval would subject us to sanctions imposed by the CSRC and other PRC regulatory agencies, which could include fines and penalties on our operations in China, restrictions or limitations on our ability to pay dividends outside of China, and other forms of sanctions that may materially adversely affect our business, results of operations and financial condition.

Following the State Council’s decision to establish the security review system for mergers and acquisitions of domestic enterprises by foreign investors on February 3, 2011, the MOFCOM promulgated the Regulations on Implementing the Security Review System for Mergers and Acquisitions of Domestic Enterprises by Foreign Investors on August 25, 2011, or the Security Review System Regulations, which specifically prohibits foreign investors from using contractual control to circumvent the aforesaid security review.

Organizational Structure

The following diagram illustrates our shareholding and corporate structure and the place of incorporation of each of our significant subsidiaries and SPEs as of the date of this transition report. For a listing of all of our subsidiaries and SPEs as of the date of this transition report, see Exhibit 8.1 filed herewith.

(1)

Mijia is one of our SPEs in China and is currently 46.4% owned by Mr. Michael Tao Song, 23.2% owned by Mr. Li Ou, our former chief technology officer, 9.28% owned by Mr. Yan Tang, a former officer of our Company and the remaining 21.12% owned by seven of our employees.

(2)

Hangzhou Sky is one of our SPEs in China and is currently 80% owned by Mijia and 20% owned by Ms. Qinyi Zhu, wife of Mr. Michael Tao Song.

(3)

Miyi is one of our SPEs in China and is currently 99.29% owned by Mr. Michael Tao Song and 0.71% owned by Mr. Yan Tang.

(4)

Najia is one of our SPEs in China and is currently 60% owned by Mr. Li Ou and 40% owned by Mr. Yan Tang.

(5)

Including the following 10 SPEs: Fanyi, which is currently 100% owned by Mr. Li Ou; Feineng, which is currently 60% owned by Mr. Michael Tao Song, our founder, chairman and chief executive officer, and 40% owned by Mr. Li Ou; Tianchu, which is currently 60% owned by Mr. Michael Tao Song and 40% owned by Mr. Li Ou; Zunqi, which is currently 100% owned by Ms. Zi Jin, an officer of the Company; Geyuan, which is currently 100% owned by Mr. Peng Jin, an employee of the Company; Dangyi, which is currently 100% owned by Mr. Guoping Ou, an employee of the Company; Mugu, which is currently 100% owned by Mr. Wenjie Wu, an officer of the Company; Feidong, which is currently 100% owned by Mr. Wanyan Shao, an employee of the Company; Fuyun, which is currently 100% owned by Mr. Guodong Xu, an employee of the Company and Duoqu, which is currently 90% owned by Ms. Zi Jin and 10% owned by Mr. Rui Zeng, an officer of the Company.

(6)

Hangzhou Mopin Technologies Co., Ltd. is one of our PRC subsidiaries and is currently 79.88% owned by us and 20.12% owned by certain of our officers.

We have entered into contractual arrangements with each of our SPEs and their respective shareholders through which we exercise effective control over the operations of these entities and receive the economic benefits of the shareholders’ equity interests in these entities. As a result of these contractual arrangements, under IFRS, we are considered to have control over each of our SPEs, and thus consolidate their results in our consolidated financial statements. See “Item 3. Key Information — D. Risk Factors — Risks Related to Doing Business in China — If the PRC government determines that the contractual arrangements that establish the structure for operating our business do not comply with applicable PRC laws and regulations, we could be subject to severe penalties.”

Unless terminated at Dianneng’s sole discretion, each agreement with the SPEs has a term of ten years or 20 years and is renewable at Dianneng’s sole discretion.

Contractual Arrangements with the SPEs and their Shareholders

Our relationships with our SPEs and their shareholders are governed by a series of contractual arrangements. Under PRC law, each of our SPEs and Dianneng is an independent legal person and none of them is exposed to liabilities incurred by the other parties. Other than pursuant to the contractual arrangements among our SPEs and their respective shareholders and Dianneng, our SPEs are not required to transfer any funds generated from their operations to Dianneng.

Exclusive Business Cooperation or Service Agreements. Our SPEs have entered into the following service agreements with Dianneng: a technical support service agreement, a strategy consulting service agreement and an intellectual property license agreement, under which our SPEs engage Dianneng as their exclusive provider of technical support and strategy consulting services and Dianneng agrees to grant to our SPEs a non-exclusive and non-transferable license to use certain intellectual property owned by it. Our SPEs pay Dianneng service fees and royalties as determined by Dianneng based on the services provided and the actual use of the intellectual property, respectively. Dianneng own any intellectual property created or obtained by SPEs under the strategy consulting service agreement.

Equity Pledge Agreements. Our SPEs and their respective shareholders have entered into equity pledge agreements with Dianneng, under which the shareholders of our SPEs pledged all of their equity interests in the SPEs to Dianneng as collateral for all of payments from the SPEs due to Dianneng under the above service agreements. If any event of default as defined under these agreements occurs, Dianneng, as pledgee, will be entitled to dispose of the pledged equity interests in certain ways, including by negotiating with such shareholders for the transfer of the pledged equity interests.

Purchase Option Agreements. Our SPEs and their shareholders have entered into a purchase option agreements with Dianneng, under which the shareholders of the SPEs irrevocably granted to Dianneng or their designee an exclusive option to purchase equity interests in the SPEs or all or a part of the assets owned by the SPEs at a purchase price equal to their respective initial contributions to the registered capital of the SPEs.

Dianneng may exercise such options at any time. In addition, the SPEs and their shareholders agree that without Dianneng’s consent, the SPEs will not sell, transfer, mortgage or otherwise dispose of any of its assets, business or beneficial interests, engage in any transactions that could substantially affect its assets, liabilities, operations, equity interests or other legal rights, or declare any dividend, unless all the equity interests in or assets of the SPEs have been transferred to Dianneng pursuant to the option under this agreement.

Powers of Attorney. The shareholders of the SPEs have executed a power of attorney to irrevocably grant to Dianneng or its designees the power of attorney to exercise all of their rights as shareholders of the SPEs, including the right to appoint and elect board members and senior management members and other voting rights.

Property, Plant and Equipment

Our principal executive offices are located at 10/F, Building B, United Mansion, No. 2, Zijinghua Road, Hangzhou, Zhejiang 310013, People’s Republic of China. We also maintain offices in Beijing, Shanghai, and Shenzhen under leases with terms ranging from one to three years. In aggregate, we maintained a total of approximately 6,300 square meters of office space as of December 31, 2014. We lease all of our facilities from independent third parties and do not own any real property.

The following table sets forth a summary of our material leases as of the date of this transition report:

Location	Space (in square meters)		Usage of Property	Expiration
Hangzhou		3,112	Headquarters	December 2018
		2,600	Office	December 2018
Beijing		176	Office	April 2016
		133	Office	March 2016
Shanghai		140	Office	January 2016
Shenzhen		128	Office	January 2016

We believe that our leased facilities are adequate to meet our needs for the foreseeable future, and that we will be able to obtain adequate facilities, principally through leasing of additional properties, to accommodate our future expansion.

ITEM 4A.

UNRESOLVED STAFF COMMENTS

None.

ITEM 5.

OPERATING AND FINANCIAL REVIEW AND PROSPECTS

The following discussion of our financial condition and results of operations is based upon and should be read in conjunction with our consolidated financial statements and their related notes included in this transition report. This transition report contains forward-looking statements. See “ — H. Safe Harbor.” Our actual results and the timing of selected events could differ materially from those anticipated in these forward-looking statements, which involve risks and uncertainties. In evaluating our business, you should also carefully consider the information provided under the caption “Item 3. Key Information—D. Risk Factors” in this transition report.

Operating Results

Overview

We are a leading mobile application platform in China. Since inception, we have focused on building a large and engaged user base. Our core product, Maopao App Store, allows users to browse and download a wide range of entertainment-oriented mobile applications and content, including games, music and books. Throughout the years, we have developed a portfolio of Maopao platform products that provide rich functionality and engaging user experience to Android smartphone and feature phone users, including Maopao Game Center, Maopao Community and Maopao Browser. We collaborate with over 370 smartphone and 940 feature phone handset companies to pre-install Maopao platform products on their handsets before shipment. In addition, we partner with mobile network operators to provide customized software services at their physical stores, including the pre-installation of a wide range of applications that appeal to their customers. As of December 31, 2014, our Maopao platform products in aggregate had attracted approximately 291.6 million smartphone users and approximately 1.3 billion feature phone users. For the three months ended December 31, 2014, our average DNU and MAU were approximately 530,000 and 33,690,000, respectively.

We have experienced substantial growth since we launched Maopao platform in 2006. In response to the rise of smartphones and increasing demand for applications and mobile content designed for smartphones, we have shifted our strategic focus to the smartphone market in 2012, launching a series of Maopao platform products for smartphones. For the nine months ended December 31, 2014, approximately 84.1% and 15.9% of our revenues were derived from our smartphone and feature phone business, respectively. As the growth of China’s smartphone market is increasingly driven by economic smartphones, we are focused on the monetization opportunities in this segment. As we transition from the feature phone business to the smartphone business, we do not expect the transition to require significant additional resources in terms of personnel, server capacity and customer support other than promotional expenses.

We generate revenues primarily through our users’ in-app purchase of virtual-items and premium features. We source the majority of these applications and content from third-party content providers and develop the remainder of the applications and content in-house. We collect payments primarily through mobile service providers, who utilize mobile network operators’ billing channels to collect payment for user purchases of Maopao platform products. We have established and are deepening our partnership with mobile network operators to collect payments directly. In addition, we work with independent payment processing agents to collect payments through a variety of third-party payment channels, including prepaid cards, bank remittance and online payments.

We share revenue from Maopao platform with handset companies, content providers, mobile network operators and mobile service providers. Costs associated with payments under proceeds sharing arrangements with these industry participants account for most of our cost of revenues.

Factors Affecting Our Results of Operations

We have benefited from general conditions affecting the mobile applications industry in China, including overall economic growth, which has resulted in increases in disposable income and discretionary consumer spending; government and industry initiatives accelerating the technological advancement and growth of the mobile handset and mobile applications industry; the growing popularity of and increasing reliance on mobile handsets for communication needs, sourcing of information and entertainment; and favorable demographic trends, particularly increasing urbanization of young people, who are more inclined to use mobile applications and content. Our results of operations will continue to be affected by such general conditions.

Our results of operations are also directly affected by the following specific factors:

The continued growth of China’s mobile handset industry, especially the smartphone segment

We generate revenues from both our smartphone and feature phone businesses. A primary factor impacting our revenues is the sales volume of mobile handsets in China. In response to the rise of smartphones and increasing demand for applications and mobile content designed for smartphones, we have since 2012 gradually shifted the strategic focus of our business from feature phones to smartphones by launching a portfolio of Maopao platform products for smartphones. For the fiscal years ended March 31, 2013 and 2014 and the nine months ended December 31, 2014, our revenue from smartphone business accounted for nil, 43.3% and 84.1% of our total revenues, respectively.

Another factor that may drive the growth of our business is the growth of the domestic mobile handset industry in China. The rapid growth of the domestic mobile handset market in recent years makes mobile handsets more affordable to a wider variety of people and enables users of economic mobile handsets to upgrade their mobile phones at relatively low cost. These mobile users typically pay greater attention to mobile handsets’ performance-to-price ratio and tend to be more attracted to mobile phones’ entertainment functionality. We believe that the mobile entertainment industry will benefit from the proliferation of economic domestic mobile handsets in China.

Our ability to increase the installation base of our products

Our results of operations significantly depend on the overall size of our user base, which in turn largely depends on the size of the installation base of our Maopao platform products and demand for handsets pre-installing Maopao platform products. To build and broaden our user base, we have primarily relied on pre-installing our Maopao platform products onto smartphones and feature phones. We believe our success substantially depends on our ability to maintain and enhance our relationships with handset companies and establish cooperation with additional handset companies, particularly those with substantial market share or high growth potential.

As of December 31, 2014, we had pre-installation arrangements with over 370 smartphone and 940 feature phone handset companies. As of December 31, 2014, our Maopao platform products had approximately 291.6 million cumulative smartphone users and 1.3 billion cumulative feature phone users. Our large user base has contributed to our growth and our central position in the mobile application sector.

Our ability to continue to source and offer popular applications and content and monetize our large user base

We generate revenues primarily through users’ in-app purchase of virtual-items and premium features. This substantially depends on our ability to source applications and content that cater to rapidly changing user preferences, mobilize our user base into a community of active paying members and appropriately price our content offerings. Our ability to identify and offer applications and other content appealing to our target users in China, such as single-player games, multi-player games, mobile books, dating-related applications and other social network functions, has significantly contributed to our growth.

We believe the popularity of our applications and content on Maopao platform affects the loyalty and spending of our users. Our results of operations significantly depend on our ability to source, aggregate and update applications and content on Maopao platform to cater to users’ changing interests, needs and preferences and attract users to download and pay for such applications and content.

Revenues from single-player games have experienced significant growth in recent years. Since 2012, we have gradually shifted our strategic focus from feature phones to mobile phones and have been collaborating with an increasing number of third-party small- to mid-sized game developers to promote an expanding selection of “light games”, which are mainly easy-to-play micropayment single-player games that do not require significant data usage or constant mobile network connection. We expect to enhance and deepen our cooperation with third-party developers and distribute additional single-player games going forward through our Maopao platform and third-party distribution channels.

Revenues from multi-player games have also grown rapidly since February 2010 when we launched Fantasy of the Three Kingdoms, our first major top-selling multi-player game, and we continue to increase our offerings of multi-player games to capture user interest. During the nine months ended December 31, 2014, we offered over 2,000 multi-player games on our Maopao platform, among which Fantasy of the Three Kingdoms, Armed Heroes Online and Xian Jian Wen Qing ranked in the top of our best-selling games. We expect to introduce new multi-player games going forward by collaborating with third-party game developers.

We typically determine the prices of applications and content we offer. Most of our applications are free to download, and we generate our revenues from sales of in-app virtual items and premium features. In addition, we offer certain applications and content free of charge to complement our product offerings and stimulate user interest. We believe our results of operations significantly depend on our ability to balance free offerings with paid offerings and price our product offerings competitively to optimize user monetization.

From an industry perspective, we believe that the mobile games sector is the most popular mobile applications and one of the fastest growing mobile application sectors in China. In order to enhance our monetization opportunities, we have been since 2012 promoting, primarily through our Maopao Game Center, an increasing number of “light games”, which are mainly easy-to-play micropayment mobile games that do not require significant data usage or constant mobile network connection. Our “light games” target students and working class frequent gamers with lower-end handsets and smaller data plans. Our Maopao Game Center provides distribution, billing and data analysis capabilities for small and mid-sized game developers and easy downloads of mobile games for economic mobile handset users. We believe that Maopao Game Center enhances our collaboration with game developers, especially small and mid-sized game developers, and further expands our user base.

Our ability to more efficiently collect sales proceeds

We collect a portion of our sales proceeds through mobile service providers who utilize mobile network operators’ billing channels to collect sales proceeds from user purchases on Maopao platform. Billing and transmission failures, such as failures to transmit MR data due to technical problems with the network or mobile service providers’ failure to collect all or part of sales proceeds, adversely affect collection efficiency. Mobile service providers’ ability to avoid and address such failures varies. When users make a purchase, we direct the purchase to the mobile service provider of our choice.

We aim to maximize collection of sales proceeds by collaborating with mobile service providers with better collection performance, shorter payment periods and lower transmission error rates, and closely monitoring them to lower collection related risks. We share a percentage of sales proceeds with mobile service providers. We have established and are deepening our partnership with mobile network operators directly without using mobile service providers as intermediaries to collect payment. In addition, users can make purchases in our Maopao Community through various third-party payment channels. Payment channel cost represented the largest component of our cost of revenues in each of the fiscal years ended March 31, 2013 and 2014 and the nine months ended December 31, 2014.

To reduce payment channel cost as a percentage of our cost of revenues, we intend to increasingly collect payments (i) directly through mobile network operators or (ii) through independent payment processing agents.

Our ability to control costs related to handset companies and content providers

We share revenue with handset companies that pre-install Maopao platform products as well as content providers from whom we license applications and content. Payments to handset companies and content providers constituted a significant portion of our cost of revenues in each of the fiscal years ended March 31, 2013 and 2014 and the nine months ended December 31, 2014. Therefore, any change in our revenue sharing arrangements with handset companies and content providers could significantly affect our results of operations. In addition, we selectively purchase third-party applications and mobile content from content providers, and have developed certain applications and mobile content in-house. As the applications or mobile content purchased or developed in-house do not involve revenue sharing with content providers, we may achieve higher profit margins if these applications and mobile content gain increasing popularity among our users.

In line with industry practice in China, we share revenue with content providers and handset companies based on user transaction data recorded by mobile service providers. To identify a particular handset company and applications and content users purchase from its handsets, a designated authorization code is built in to its handset when pre-installing Maopao platform products. There has been instances where handset companies, when introducing a new handset model in tight time frame, pre-installed our Maopao platform products to enhance handset features without obtaining authorization codes from us. In such circumstances, we were not able to recognize the handset models purchasing from Maopao platform and as a result was not able to share revenue with these handset companies.

Our track record of revenue sharing with handset companies has promoted our brand and our capability to generate additional revenue streams for handset companies. As such, an increasing number of handset companies have partnered with us to pre-install our authorized codes in each of the fiscal years ended March 31, 2013 and 2014 and the nine months ended December 31, 2014.

Our ability to address challenges associated with policy changes and mobile network operators’ business practices

PRC government authorities and mobile network operators may issue or revise rules, policies or guidelines that affect our results of operations. For example, an increasing number of branches and divisions of mobile network operators we cooperate with have been restructured into separate corporations in the past few years. In response to such restructuring, we have been, and may continue to be prompted to enter into new cooperation agreements and/or partnership agreements with these new entities and be subject to their policies and guidelines. These new agreements, policies and guidelines may significantly deviate from the ones imposed by their predecessor branches and divisions. If more stringent measures are imposed by the government or mobile network operators, our results of operations may be materially adversely affected.

Revenues

Our revenues amounted to RMB601.1 million, RMB485.6 million and RMB586.0 million (US$94.5 million) in the fiscal years ended March 31, 2013 and 2014 and the nine months ended December 31, 2014, respectively. We began generating revenues from our smartphone business in the fiscal year ended March 31, 2014.

Revenues from Smartphone Business

Along with our shift in business focus, our revenues from smartphone business has increased significantly from RMB122.6 million for the nine months ended December 31, 2013 to RMB492.7 million (US$79.4 million) for the nine months ended December 31, 2014. Revenues from smartphone business accounted for 34.3% and 84.1% of our total revenues for the nine months ended December 31, 2013 and 2014, respectively. Revenues from smartphone business consist of:

revenues from single-player games. We derive a significant portion of our revenues from sales of self-developed and licensed single-player games, such as card games, simple strategic games and action games, through Maopao platform and third-party distribution channels. Most of our single-player games are free to download and play whereas we charge RMB2 to RMB10 for each in-game purchase of virtual items or premium features. Our smartphone users can make in-app purchases from a wide variety of single-player games we offered through our mobile network operators and mobile service providers.

revenues from multi-player games. We offer a wide selection of multi-player games, such as multi-player role-playing games, through our Maopao platform and third-party distribution channels. Most of our multi-player games are free to download and play, whereas we charge RMB1 to RMB15 for each in-game purchase of virtual items or premium features. Our smartphone users can make in-game purchases in the multi-player games we offered through (i) third-party payment channels including pre-paid phone cards and game cards, bank debit cards and online payment solutions, (ii) mobile network operators, and (iii) mobile service providers.

other revenues. Other revenues primarily include the commission we earn by allowing content providers, mobile network operators and mobile service providers to distribute their mobile applications and other contents to mobile users through our Maopao platform, which is based on a percentage of the revenue generated from, or number of activations of, these mobile applications or other contents. Other revenues also include single-player game revenues generated from overseas markets.

Revenues from Feature Phone Business

Revenues from feature phone business primarily represent revenues generated from single-player games offered in the feature phone version of Maopao Application Store, and multi-player games and social network applications offered in the feature phone version of Maopao Community. Maopao Community has served and is expected to continue to serve as an effective tool to retain our loyal Maopao Community users.

The following table sets forth our smartphone revenue and feature phone revenue, both in absolute amount and as a percentage of total revenues, for the periods indicated:

	For the Fiscal Year Ended March 31,								For the Nine Months Ended December 31,
	2013				2014				2013				2014
	RMB		%		RMB		%		RMB		%		RMB		US$		%
									(Unaudited)
	(in thousands, except percentage)
Revenues

Revenues from smartphone business
Revenues from single-player games		-		-		138,794		28.6		81,781		22.9		375,068		60,450		64.0
Revenues from multi-player games		-		-		42,476		8.7		21,936		6.1		72,416		11,671		12.4
Other revenues		-		-		28,836		5.9		18,840		5.3		45,240		7,291		7.7
		-		-		210,106		43.3		122,557		34.3		492,724		79,413		84.1

Revenues from feature phone business		601,107		100.0		275,445		56.7		234,430		65.7		93,309		15,039		15.9
Total Revenues		601,107		100.0		485,551		100.0		356,987		100.0		586,033		94,452		100.0

Cost of Revenues and Gross Margin

Our cost of revenues consists primarily of costs associated with payments to industry participants and direct costs. The following table sets forth our cost of revenues, both in absolute amount and as a percentage of total revenues, for the periods indicated:

	For the Fiscal Year Ended March 31,								For the Nine Months Ended December 31,
	2013				2014				2013				2014
	RMB		%		RMB		%		RMB		%		RMB		US$		%
									(Unaudited)
	(in thousands, except percentage)
Cost of Revenues
Costs associated with payments to industry participants		375,987		89.8		334,839		91.9		245,648		91.5		442,346		71,293		95.2
Direct costs		42,793		10.2		29,596		8.1		22,781		8.5		22,092		3,561		4.8
Total cost of revenues		418,780		100.0		364,435		100.0		268,429		100.0		464,438		74,854		100.0

Costs associated with payments to industry participants represent consideration paid to (i) payment channels for collecting sales proceeds from users; (ii) handset companies for pre-installing Maopao platform products onto their handsets before shipment; (iii) third-party distribution channels through which we publish our licensed games; and (iv) content providers for licensing applications and content that we offer on our Maopao platform or through third-party distribution channels.

Payment channels. We have been collecting a large portion of our proceeds from the three dominant mobile network operators in China directly without engaging mobile service providers as intermediaries, and in return share with them a percentage of our sales proceeds collected through them. We plan to deepen our cooperation with the mobile network operators to achieve faster payment collection at lower payment channel costs. To a lesser extent, we also collaborate with a number of mobile service providers to collect sales proceeds through payment channels of mobile network operators and in turn generally share with them a percentage of our sales proceeds collected through them. See “Item 4. Information on the Company — A. Business Overview. — Payment Channels.”

Handset companies. We generally pay handset companies a percentage of the revenue that are generated from their handsets or a fixed fee based on number of activations. To identify a particular handset company and users purchases from its handsets, a designated authorization code is built in to its handset when pre-installing Maopao platform products.

Third-party distribution partners. We generally pay third-party distribution partners a percentage of sales proceeds from the games distributed through their properties.

Content providers. We typically pay content providers a percentage of the revenue derived from their applications or mobile content or a fixed fee based on number of activations. To a lesser extent, we selectively purchase applications and mobile contents from content providers, the payment of which is included in our cost of revenues at the time of the acquisition. We do not capitalize and amortize such payments over the life of the application or mobile content because such applications and mobile content usually have short life cycles and the acquisition cost for each application or mobile content is relatively low.

Direct costs primarily include employee salaries and benefits, utilities, depreciation of equipment and office expenses directly related to the operation of Maopao platform. The decrease in direct costs was primarily due to decreased headcounts for our feature phone business as we transitioned to the smartphone business.

Our gross margins were 30.3%, 24.9%, 24.8% and 20.7% in the fiscal years ended March 31, 2013 and 2014 and in the nine months ended December 31, 2013 and 2014, respectively. The decrease in our gross margin from the fiscal year ended March 31, 2013 to the fiscal year ended March 31, 2014 and from the nine months ended December 31, 2013 to the nine months ended December 31, 2014 was primarily a result of the higher revenue contribution of our smartphone business. Our smartphone business in general has a lower profit margin compared to our feature phone business as we generally offer more attractive revenue sharing propositions to smartphone content providers and handset companies, in an effort to facilitate our transition to the smartphone business.

Operating Expenses

Our operating expenses consist of research and development expenses, sales and marketing expenses, general and administration expenses and other operating income. The following table sets forth a breakdown of our operating expenses in absolute amount and as a percentage of our total operating expenses for the periods indicated:

	For the Fiscal Year Ended March 31,												For the Nine Months Ended December 31,
	2013						2014						2013						2014
	RMB			%			RMB			%			RMB			%			RMB			US$			%
													(Unaudited)
	(in thousands, except percentage)
Operating Expenses*
Research and development expenses		73,027			41.6			38,644			30.3			29,525			30.8			25,943			4,181			25.3
Sales and marketing expenses		35,369			20.1			36,351			28.5			26,357			27.5			31,219			5,032			30.4
General and administration expenses		69,491			39.6			58,401			45.7			43,909			45.8			46,966			7,570			45.7
Other operating income, net		(2,320	)		(1.3	)		(5,772	)		(4.5	)		(3,973	)		(4.1	)		(1,481	)		(239	)		(1.4	)

Total operating expenses		175,567			100.0			127,624			100.0			95,818			100.0			102,647			16,544			100.0

____________

* Includes share-based compensation expenses as follows:

	For the Fiscal Year Ended March 31,				For the Nine Months Ended December 31,
Share-Based Compensation	2013		2014		2013		2014
Data	RMB		RMB		RMB		RMB		US$
					(Unaudited)
	(in thousands)
Research and development expenses		5,900		4,338		3,716		360		58

Sales and marketing expenses		2,067		3,613		3,398		127		20

General and administration expenses		14,017		8,691		5,520		3,365		542

Total share-based compensation expenses		21,984		16,642		12,634		3,852		620

Research and development expenses

Our research and development expenses consist primarily of salaries and benefits for personnel engaged in the research and development of Maopao platform products and communication fees we paid for testing our research and development work. Research and development expenses accounted for 12.1%, 8.0%, 8.3% and 4.4% of our total revenues in the fiscal years ended March 31, 2013 and 2014 and the nine months ended December 31, 2013 and 2014, respectively.

Our research and development expenses decreased from the fiscal year ended March 31, 2013 to the fiscal year ended March 31, 2014 and from the nine months ended December 31, 2013 to the nine months ended December 31, 2014, primarily because we reduced resources allocated to our feature phone business.

Sales and marketing expenses

Our sales and marketing expenses primarily consist of salaries and benefits for our sales and marketing staff, training expenses for our sales team, traveling, entertainment, office expenses and market survey fees related to our sales and marketing activities. Sales and marketing expenses accounted for 5.9%, 7.5%, 7.4% and 5.3% of our total revenues in the fiscal years ended March 31, 2013 and 2014 and the nine months ended December 31, 2013 and 2014, respectively.

Our sales and marketing expenses increased from the fiscal year ended March 31, 2013 to the fiscal year ended March 31, 2014 and from the nine months ended December 31, 2013 to the nine months ended December 31, 2014, primarily due to increased sales and marketing efforts, which was in line with the expansion of our smartphone business. We expect that our sales and marketing expenses to continue to increase as we promote our Maopao brand and expand our smartphone business.

General and administration expenses

Our general and administration expenses primarily consist of salaries and benefits for our general and administration, finance and human resources personnel, training expenses, depreciation and amortization expenses, office rentals, professional service fees and other expenses incurred for general corporate purposes. General and administration expenses accounted for approximately 11.6%, 12.0%, 12.3% and 8.0% of our total revenues in the fiscal years ended March 31, 2013 and 2014 and in the nine months ended December 31, 2013 and 2014, respectively.

Our general and administration expenses decreased from the fiscal year ended March 31, 2013 to the fiscal year ended March 31, 2014, primarily due to decreased headcounts for our general and administrative personnel in an effort to enhance labor efficiency. Our general and administration expenses increased from the nine months ended December 31, 2013 to the nine months ended December 31, 2014, primarily due to the increased professional fee in line with the continued expansion of our business and change of our fiscal year. We expect our general and administration expenses, including expenses related to maintaining effective internal control over financial reporting and complying with our reporting obligations, to remain relatively stable in the future. We also expect to incur additional general and administrative expenses in line with the expansion of our business.

Other operating income, net

Our other operating income in the nine months ended December 31, 2014 was RMB1.5 million (US$0.2 million), which primarily related to local government grants of RMB1.5 million. Our other operating income in the fiscal year ended March 31, 2014 was RMB5.8 million, which primarily related to local government grants of RMB4.0 million and reimbursement from the depositary of RMB1.9 million related to the ADS program. Other operating income in the fiscal year ended March 31, 2013 was RMB2.3 million, which primarily related to local government grants of RMB2.9 million for certain research and development projects.

Other Gains and Losses

We had other gains of RMB15.5 million, RMB17.5 million, RMB11.6 million and RMB17.7 million (US$2.9 million) in fiscal 2013 and 2014 and the nine months ended December 31, 2013 and 2014, respectively. Other gains in the nine months ended December 31, 2014 primarily related to interest income of RMB15.1 million and change in fair value of investment at FVTPL of RMB3.8 million, partially offset by an exchange loss of RMB0.6 million. Other gains in the fiscal year ended March 31, 2014 primarily related to interest income of RMB15.9 million, income on short-term investments of RMB2.6 million and change in fair value of investment at FVTPL of RMB1.1 million, partially offset by an exchange loss of RMB2.1 million. Other gains in the fiscal year ended March 31, 2013 primarily related to interest income of RMB16.2 million, partially offset by an exchange loss of RMB0.4 million.

Impairment on Investment in Associates

We recognized a RMB0.8 million impairment of our investment in Mingyou and a RMB1.9 million impairment of our investment in Brtech during the nine months ended December 31, 2014, a RMB0.7 million impairment of our investment in Dream Sky during the fiscal year ended March 31, 2014, and a RMB1.4 million impairment of our investment in DigiMobi during the fiscal year ended March 31, 2013, due to their continued underperformance and the negative discounted cash flow forecasts.

Impairment on an Available-for-sale Investment

We recognized a RMB0.8 million impairment of our investment in Mokee during the fiscal year ended March 31, 2014 due to its continued underperformance and the negative discounted cash flow forecast. We did not recognize any impairment on an available-for-sale investment in the nine months ended December 31, 2014 or the fiscal year ended March 31,2013.

Share of Results of Associates

We had 26 associates as of December 31, 2014, all of which are private companies primarily engaged in wireless technology development and related applications in the PRC. The results, assets and liabilities of these associates are incorporated in our consolidated financial statements using the equity method of accounting.

Share-based Compensation

In March 2010, we adopted our 2010 Share Incentive Plan, or the 2010 Plan. The maximum number of shares that may be issued under the 2010 Plan initially was 15,000,000 shares. As of December 31, 2014, an aggregate of 8,033,146 restricted shares and options to purchase 1,394,193 common shares were outstanding under the 2010 Plan. See “—Item 6. Directors, Senior Management and Employees—B. Compensation of Directors and Senior Executive Officers—Share Incentive Plan.”

On April 1, 2010, we granted 1,443,600 share options to our employees. On September 15, 2010, we granted an aggregate of 3,320,400 share options with exercise prices of US$0.26 per share to our executive officers and other employees. On January 6, 2011, we granted an aggregate of 100,000 share options with exercise prices of US$1.00 per share to our executive officers and other employees. On January 9, 2011, we granted an aggregate of 100,000 share options with exercise prices of US$1.00 per share to our executive officers and other employees.

On April 1, 2010, Xplane Ltd. issued 493,400 of its restricted shares to its shareholders who were also our employees. Of these 493,400 shares, 40% vest on the second anniversary of the grant date and 20% vest on the third, fourth, and fifth anniversaries of the grant date. We measured the fair value of these restricted shares based on the fair value of our shares, as Xplane Ltd. has no other assets except for its investment in us. The fair value of such restricted shares as of April 1, 2010 was RMB126 (US$19) per share. We recognize the total amount of approximately RMB62.4 million as compensation expense over the five-year deemed service, or vesting, period with a corresponding increase in reserve in the statement of changes in equity.

On March 7, 2012, we issued 4,038,176 of our restricted shares to our employees. At the same time, Xplane Ltd. granted 3,340,400 of our restricted shares to employees of our company. The holders of these shares retain the voting and dividends rights of, but are restricted from selling, such non-vested restricted shares. The 7,378,576 shares vest 25% on each anniversary of the grant date. We measured the fair value of the restricted shares based on the open market quote of our shares, which was RMB2.88 (US$0.46). We recognize the total amount of approximately RMB21.3 million as compensation expense over the four-year deemed service, or vesting period with a corresponding increase in reserve in the statement of changes in equity.

On April 15, October 30 and November 18, 2013, we issued 100,000, 1,600,000 and 40,000 restricted shares to our directors and senior management. The holders of these shares retain the voting and dividend rights of, but are restricted from selling, such non-vested restricted shares. These shares vest one-fourth or one-third on each anniversary of the respective grant dates. We measured the fair value of the restricted shares based on the open market quote of our shares, which was RMB1.24 (US$0.20), RMB2.99 (US$0.49) and RMB2.61 (US$0.43), respectively. We will recognize the total amount of RMB5,008,000 as compensation expense over the deemed service years, or vesting period with a corresponding increase in reserve in the consolidated statement of changes in equity. During the fiscal year ended March 31, 2014 and the nine-month period ended December 31, 2014, we recognized an aggregate of RMB1,436,000 and RMB271,000 as compensation expense.

On April 21, April 29, May 8 and June 30, 2014, we issued 24,000, 120,000, 160,000 and 160,000 restricted shares to our directors, senior management and employees. The holders of these shares retain the voting and dividend rights of, but is restricted from selling, such non-vested restricted shares. The shares granted on May 8 was immediately vested. The remaining shares vest one-fourth on each anniversary of the respective grant dates or 30%, 30%, 40% on the first, second and third anniversaries of the respective grant dates. We measured the fair value of the restricted shares based on the open market quote of our shares, which was RMB5.91 (US$0.96), RMB5.09 (US$0.83), RMB4.70 (US$0.76) and RMB6.37 (US$1.04), respectively. We will recognize the total amount of RMB2,249,000 as compensation expense over the deemed service years, or vesting period with a corresponding increase in reserve in the consolidated statement of changes in equity. During the nine-month period ended December 31, 2014, we recognized an aggregate of RMB1,065,000 as compensation expense.

On December 31, 2014, we issued 6,252,992 restricted shares to certain of our senior management and employees. The holders of these shares retain the voting and dividend rights of, but is restricted from selling, such non-vested restricted shares. These shares vest 20%, 20%, 30% and 30% at the end of 4 months, 12 months, 24 months and 36 months of the respective grant dates, respectively. We measured the fair value of the restricted shares based on the open market quote of our shares, which was RMB2.91 (US$0.48). We will recognize the total amount of RMB18,222,000 as compensation expense over the deemed service years, or vesting period with a corresponding increase in reserve in the consolidated statement of changes in equity.

Taxation

Cayman Islands

We are incorporated in the Cayman Islands. Under Cayman Islands law, we are not subject to income or capital gains tax. In addition, payment of dividends by us to our shareholders is not subject to withholding tax in the Cayman Islands.

China

PRC Enterprise Income Tax, or EIT

Prior to January 1, 2008, companies established in China were generally subject to a state tax and local EIT at statutory rates of 30% and 3%, respectively. Our SPE, Hangzhou Sky, was established in 2005 and qualified as a “software enterprise” in 2007. Under PRC tax laws and regulations, an enterprise qualified as a “software enterprise” was entitled to an exemption from EIT for its first two profitable years and a 50% reduction of its applicable EIT rate for the subsequent three years. Hangzhou Sky was thus entitled to a full exemption from the EIT in 2008 and 2009 and a 50% reduced EIT rate from 2010 to 2012.

On March 16, 2007, the National People’s Congress of China enacted a new enterprise income tax law, or the PRC Enterprise Income Tax Law, which took effect beginning January 1, 2008. On December 6, 2007, the State Council also adopted the Implementing Rules for the Enterprise Income Tax Law, or the Implementing Rules, which also took effect beginning January 1, 2008. Under the PRC Enterprise Income Tax Law, foreign invested enterprises, or FIEs, and Chinese domestic companies are subject to EIT at a uniform rate of 25%. Our PRC subsidiaries and SPEs other than Hangzhou Sky, Mijia, Miyi, Najia and Mopin are currently subject to the EIT rate of 25%.

Preferential tax treatments will continue to be granted to entities that are classified as “high and new technology enterprises strongly supported by the State” or that conduct business in encouraged sectors, whether FIEs or domestic companies. On February 22, 2008, the MOF and SAT promulgated the Notice on Several Preferential Policies in Respect of Enterprise Income Tax, or Notice No. 1, reiterating the policy that a software enterprise newly established within China may, upon determination, be exempted from income taxes for its first two profit-making years and shall be subject to the income tax at half the standard rate for the next three years.

On April 24, 2009, the MOF and SAT promulgated the Notice on Several Issues Relevant to the Implementation of the Preferential Policies on Enterprise Income Tax, which states that software enterprises and integrated circuit production enterprises established prior to the end of 2007 may, upon certification, enjoy the preferential policies on the EIT reductions and exemptions within specified periods as provided in Notice No. 1. Therefore, as a “software enterprise,” Hangzhou Sky was entitled to an exemption from the EIT in 2008 and 2009 and a 50% reduced EIT rate from 2010 to 2012. The reduced applicable EIT rate for Hangzhou Sky from 2010 to 2012 was 12.5%. In addition, Hangzhou Sky qualified as a “high and new technology enterprise” in 2011, entitling it to a 15% preferential EIT rate from 2011 to 2013. In 2013, Hangzhou Sky obtained the “key software development enterprise” status, which entitles it to a preferential EIT tax rate of 10% for two years from 2013 to 2014. In 2014, Hangzhou Sky renewed the status of its “high and new technology enterprise”, entitling it to a preferential EIT tax rate of 15% from 2014 to 2016.

Mijia, as a “software enterprise,” was entitled to a full exemption from EIT in 2010 and 2011 and is entitled to a 50% reduced EIT rate from 2012 to 2014. The reduced applicable EIT rate for Mijia from 2012 to 2014 was 12.5%. In 2013, Mijia was qualified as a “high and new technology enterprise”, entitling it to a preferential EIT tax rate of 15% from 2013 to 2015.

Miyi, as a “software enterprise,” is entitled to a full exemption from EIT in 2013 and 2014 and a 50% reduced EIT rate from 2015 to 2017. The reduced applicable EIT rate for Miyi from 2015 to 2017 is 12.5%.

Mopin, as a “software enterprise,” is entitled to a two-year full exemption from EIT from the first year of profitable operation after offsetting prior years’ tax losses, and a 50% reduction of the applicable EIT rate for the succeeding three years.

However, continued qualification as a “high and new technology enterprise” is subject to a review every three years by the relevant government authorities in China, and continued qualification as a “software enterprise” is subject to an annual assessment by the relevant government authorities in China. Consequently, Hangzhou Sky, Mijia, Miyi, Najia or Mopin may not meet the qualifications and the relevant government authorities may revoke their “high and new technology enterprise” or “software enterprise” status in the future. Any increase in these entities’ EIT rate may materially adversely affect our results of operations.

In addition, under the PRC Enterprise Income Tax Law and the Implementing Rules, 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% as we are a non-resident enterprise incorporated outside of the PRC and the Cayman Islands does not have a tax treaty with China that provides for a different withholding arrangement. Distributions of earnings generated before January 1, 2008 are exempt from PRC withholding tax.

The PRC Enterprise Income Tax Law provides that enterprises established outside China whose “effective management” is located in China are considered “resident enterprises” and will generally be subject to the uniform 25% EIT rate on their global income. Under the Implementing Rules, “effective management” is defined as substantial and overall management and control over such aspects as the production and business, personnel, accounts and properties of an enterprise. We may be deemed to be a PRC resident enterprise under the PRC Enterprise Income Tax Law and we may be subject to PRC EIT at the rate of 25% on our worldwide income. See “Item 3. Key Information – D. Risk Factors — Risks Related to Doing Business in China — We may be classified as a “resident enterprise” for PRC EIT purposes, which could result in our global income becoming subject to the 25% PRC EIT rate.”

PRC Business Tax and Value Added Tax

Prior to January 1, 2012, pursuant to Provisional Regulation of China on Business Tax and its implementing rules, any entity or individual rendering services in the territory of PRC was generally subject to a business tax at the rate of 5% on the revenues generated from provision of such services. In November 2011, the MOF and the SAT jointly issued two circulars setting out the details of the VAT Pilot Program, which changes business tax to value-added tax for certain industries, including, among others, transportation services, research and development and technical services, information technology services, and cultural and creative services. The VAT Pilot Program initially applied only to these industries in Shanghai, and has been expanded to eight additional provinces, including Beijing, Tianjin, Zhejiang Province (including Ningbo), Anhui Province, Guangdong Province (including Shenzhen), Fujian Province (including Xiamen), Hubei Province and Jiangsu Province in 2012. On May 24, 2013, the MOF and the SAT jointly issued the Circular on Tax Policies on the Nationwide Expansion of the Pilot Program for the Collection of Value Added Tax in Lieu of Business Tax in the Transportation Industry and Certain Modern Services Industries, or Circular 37, which expanded the VAT Pilot Program nationwide as of August 1, 2013. Pursuant to the Circular on the Inclusion of Telecommunications Industry in the Pilot Collection of Value-added Tax in Lieu of Business Tax promulgated by MOF and the SAT on April 29, 2014, or Circular 43, Circular 37 has been replaced by Circular 43 and the VAT Pilot Program has been expanded to cover telecommunication service, as currently conducted by us, as of June 1, 2014.

Critical Accounting Policies and Estimates

We prepare our financial statements in conformity with IFRS, which requires us to make judgments, estimates and assumptions. We regularly evaluate these estimates and assumptions based on the most recently available information, our own historical experience and various other assumptions that we believe to be reasonable under the circumstances. Since the use of estimates is an integral component of the financial reporting process, actual results could differ from our expectations as a result of changes in our estimates.

An accounting policy is considered critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time such estimate is made, and if different accounting estimates that reasonably could have been used, or changes in the accounting estimates that are reasonably likely to occur periodically, could materially impact the consolidated financial statements.

We believe that the following accounting policies involve a higher degree of judgment and complexity in their applications and require us to make significant accounting estimates. The following descriptions of critical accounting policies, judgments and estimates should be read in conjunction with our consolidated financial statements and other disclosures included in this transition report.

Fiscal Year

We have changed our fiscal year to end on December 31, effective from the calendar year ended December 31, 2014. Previously, our fiscal year ended on March 31.

Revenue Recognition

Single-player Game Revenue

We generate single-player game revenue from sales of self-developed and licensed single-player games through our Maopao platform and third-party distribution channels. We operate most of our single-player games under a free-to-play model. Under the free-to-play model, mobile game players can download the games to their mobile devices free-of-charge, while they may also purchase in-game virtual items or premium features to enhance gaming experience. We have entered into cooperation agreements with handset companies to pre-install our Maopao platform products on mobile handsets before they reach users. The applications and contents are predominantly delivered to customers through mobile network operators in China. We contract with mobile service providers, who further contract with and utilize mobile network operators’ billing channels, as well as contract directly with mobile network operators to collect payment from the our customers on our behalf. Mobile network operators and mobile service providers are entitled to commissions, which are a percentage of the gross fees collected from our customers by the mobile network operators. We also pay content fees and service fees to content developers and handset companies, respectively, based on a prescribed percentage of the gross proceeds confirmed by the mobile network operators.

For revenues from the sale of in-app virtual items, premium features and other contents from our application stores, we recognize revenue on a gross basis at the time when each purchase is successfully made and the collectability is reasonably assured. We act as the primary obligor and recognize 1) the commissions retained by mobile network operators and mobile service providers and 2) content fees and service fees mentioned above as cost of revenues in our consolidated statements of profit or loss and other comprehensive income. As the virtual items are immediately consumed, revenue is recognized upon consumption.

For certain single player games, we act as the agent of the relevant content providers to facilitate the payment collection, as we are not involved in the operation of the games and the relevant content providers are the primary obligors in the arrangement. Under such circumstances, the amount of revenue we recognize equals the net proceeds after deducting the amount shared by the content providers. As we have no further obligations to the content providers upon the completion of the in-game purchase, revenue is recognized upon the purchase of such in-game virtual items and premium features.

Multiplayer Game Revenue

We offer multiplayer games through our Maopao Community and other distribution channels. Users can top up their accounts using a number of payment options including pre-paid phone cards, pre-paid game cards, bank debit cards and online payment solutions, to purchase virtual items and premium features in the multiplayer games. We collect payment through payment processing agents or mobile service providers, who are entitled to a commission for processing customer prepayments. Customer accounts are first charged up with cash credit and recorded as advance payment, which may be consumed to purchase in-game virtual items and later recorded into deferred revenue.

Multiplayer game revenues are derived from the purchase of in-game virtual items having an unlimited life. Such revenues are initially deferred and are subsequently recognized following the historical user retention pattern over the estimated consumption period of the durable virtual items, ranging from 1 to 12 months. The user retention pattern and consumption period are estimated based on the historical data and log-in patterns of paying users. We assess these estimates on a regular basis to ensure the accuracy of the data.

For certain multiplayer games, we act as the agent of the relevant content providers to facilitate the payment collection, as we are not involved in the operation of the games and the content providers are the primary obligor in the arrangement. Under such circumstances, the amount of revenue we recognize equals the net proceeds after deducting the amounts shared by the content providers. As we have no further obligations to the content providers upon the completion of the in-game purchase, revenue is recognized upon the purchase of in-game virtual items and premium features.

Other Revenue

We also allow content providers, mobile network operators and mobile service providers to sell their mobile applications and other contents to mobile users through Maopao Platform, for which we charge a commission based on a percentage of the revenue earned from those applications or number of active users. We record such revenue as other revenues upon receipt of monthly statements from the content providers, mobile network operators and mobile service providers.

Other revenue also include single-player game revenues we generated from overseas through overseas mobile service providers in the same way disclosed above. We recognize such revenue upon receipt of acknowledgement of successful downloads from these mobile service providers.

Taxation

We estimate income tax expense for each jurisdiction in which we operate and for each period presented, which includes estimating current tax exposure as well as assessing realizable deferred tax assets and deferred tax liabilities.

As of March 31, 2013, 2014 and December 31, 2014, our deferred tax assets were RMB1.8 million, RMB2.0 million and RMB2.7 million (US$0.4 million), respectively, primarily resulting from temporary differences between accounting and tax bases. We recognize deferred income taxes for temporary differences between the tax basis of assets and liabilities and their reported amounts in the consolidated financial statements, as net operating loss carry forwards and credits, by applying enacted statutory tax rates applicable to future years. In the event we were to determine that we would be able to realize our deferred tax assets in the future in excess of their recorded amount, an adjustment to the carrying amount of our deferred tax assets would increase our net income in the period in which such determination was made. Likewise, if we determined that we would not be able to realize all or part of our net deferred tax assets in the future, an adjustment to the carrying amount of our deferred tax assets would be charged to our consolidated statements of profit or loss and other comprehensive income in the period in which such determination is made.

We consider positive and negative evidence to determine whether some portion or all of the deferred tax assets will more likely than not be realized. This assessment considers, among other matters, the nature, frequency and severity of recent losses, forecasts of future profitability, the duration of statutory carry forward periods, our experience with tax attributes expiring unused and tax planning alternatives. Our ability to realize deferred tax assets depends on our ability to generate sufficient taxable income within the carry forward periods provided for in the tax law. As of December 31, 2014, no deferred tax assets had been recognized in respect of tax losses of RMB32.9 million (US$5.3 million).

Impairment of investments in associates

We assess the impairment of our equity investments accounted for under the equity method by considering factors including, but not limited to, current economic and market conditions, the operating performance of the companies, including current earnings trends and undiscounted cash flows, and other company-specific information, such as recent financing rounds. The fair value determination, particularly for investments in privately held companies whose revenue models remain unclear, requires significant judgment to determine appropriate estimates and assumptions. Changes in these estimates and assumptions could affect the calculation of the fair value of the investments. If any impairment exists, we will write down the investment to its fair value and take a corresponding charge to our consolidated statements of profit or loss and other comprehensive income. Any reversal of impairment loss is recognized to the extent that the recoverable amount of the investment subsequently increases.

Consolidation of SPEs

PRC laws restrict foreign ownership of telecommunication businesses. To comply with the PRC laws, we conduct substantially all of our telecommunication business through our SPEs and their subsidiaries. Through Dianneng, one of our subsidiaries in the PRC, we have entered into contractual arrangements with each of our SPEs and their shareholders, such that they are considered special purpose entities that we control. We believe we have substantive termination rights pursuant to the purchase option agreements, which allow us to control the shareholders of these SPEs. We believe that the purchase option agreements are currently exercisable and legally enforceable under PRC law.

We also believe that the amount of consideration to exercise the option under PRC law does not represent a financial barrier or disincentive for us to exercise our rights under the purchase option agreements. Under the powers of attorney entered into by each of the shareholders of the SPEs, each of the shareholders of the SPEs irrevocably grants any person designated by us the power to exercise all voting rights of the shareholders of the SPEs. We believe this gives us the power to direct the activities that most significantly impact the SPEs’ economic performance. We believe that our ability to exercise effective control, together with the exclusive business cooperation agreements or service agreements and equity pledge agreements, entitles us to receive substantially all of the economic benefits from the SPEs in consideration for the services provided by our PRC subsidiaries. Accordingly, in accordance with IFRS, we consolidate their financial results and assets and liabilities in our consolidated financial statements.

We believe that our contractual arrangements with the SPEs could limit our ability to enforce these contractual arrangements and the interests of the shareholders of the SPEs may diverge from those of our company. This may potentially increase the risk that they would seek to act contrary to the contractual terms of these agreements, for example by influencing the SPEs not to pay the service fees when required to do so. See “Item 3. Key Information — D. Risk Factors — Risks Relating to Doing Business in China – Our Contractual arrangements with our SPEs and their respective shareholders may not be as effective in providing control over these entities as direct ownership.

Consolidated Results of Operations

The following table sets forth a summary of our consolidated results of operations by amount and as a percentage of our total revenues for the periods indicated. This information should be read together with our audited consolidated financial statements and related notes included elsewhere in this transition report. The operating results in any period are not necessarily indicative of the results that may be expected for any future period.

	For the Fiscal Year Ended March 31,												For the Nine Months Ended December 31,
	2013						2014						2013						2014
	RMB			%			RMB			%			RMB			%			RMB			US$			%
													(Unaudited)
	(in thousands, except number of shares and per share data)
Consolidated Statements of Profit or Loss and Other Comprehensive Income Data
Revenues		601,107			100.0			485,551			100.0			356,987			100.0			586,033			94,452			100.0
Cost of revenues from third parties		(412,246	)		(68.6	)		(339,982	)		(70.0	)		(248,081	)		(69.5	)		(437,919	)		(70,580	)		(74.7	)
Cost of revenues from related parties		(6,534	)		(1.1	)		(24,453	)		(5.1	)		(20,348	)		(5.7	)		(26,519	)		(4,274	)		(4.5	)
Gross profit		182,327			30.3			121,116			24.9			88,558			24.8			121,595			19,598			20.7
Research and development expenses		(73,027	)		(12.1	)		(38,644	)		(8.0	)		(29,525	)		(8.3	)		(25,943	)		(4,181	)		(4.4	)
Sales and marketing expenses		(35,369	)		(5.9	)		(36,351	)		(7.5	)		(26,357	)		(7.4	)		(31,219	)		(5,032	)		(5.3	)
General and administration expenses		(69,491	)		(11.6	)		(58,401	)		(12.0	)		(43,909	)		(12.3	)		(46,966	)		(7,570	)		(8.0	)
Other operating income, net		2,320			0.4			5,772			1.2			3,973			1.1			1,481			239			0.3
Profit (loss) from operations		6,760			1.1			(6,508	)		(1.4	)		(7,260	)		(2.0	)		18,948			3,054			3.2
Other gains and losses		15,531			2.6			17,482			3.6			11,572			3.2			17,741			2,859			3.0
Impairment of investment in associates		(1,367	)		(0.2	)		(727	)		(0.1	)		(727	)		(0.2	)		(2,673	)		(431	)		(0.5	)
Impairment of an available-for-sale investment		—			—			(800	)		(0.2	)		(800	)		(0.2	)		—			—			—
Share of results of associates		(935	)		(0.2	)		2,428			0.5			3,390			0.9			8,510			1,372			1.5
Gain on disposal of an associate		—			—			—			—			—			—			57,351			9,243			9.8
Profit before tax		19,989			3.3			11,875			2.4			6,175			1.7			99,877			16,097			17.0
Income tax expense		(2,733	)		(0.4	)		(7,218	)		(1.4	)		(6,147	)		(1.7	)		(1,156	)		(186	)		(0.2	)
Profit for the year		17,256			2.9			4,657			1.0			28			0.0			98,721			15,911			16.8

Nine Months Ended December 31, 2014 Compared to Nine Months Ended December 31, 2013

Revenues increased by 64.2%, or RMB229.0 million, to RMB586.0 million (US$94.5 million) in the nine months ended December 31, 2014 from RMB357.0 million in the nine months ended December 31, 2013, primarily due to the continued strong growth in our smartphone business, partially offset by the continued decline in our feature phone business. We have since 2012 gradually shifted our strategic focus from feature phones to smartphones. Approximately 84.1% and 15.9% of our revenues were derived from our smartphone and feature phone business in the nine months ended December 31, 2014, respectively, compared to 34.3% and 65.7% of revenues derived from our smartphone and feature phone business in the nine months ended December 31, 2013, respectively.

Revenue from Smartphone Business

Revenue from single-player games increased significantly by 358.6%, or RMB293.3 million, to RMB375.1 million (US$60.5 million) in the nine months ended December 31, 2014 from RMB81.8 million in the nine months ended December 31, 2013. Revenue from single-player games as a percentage of our total revenues increased from 22.9% in the nine months ended December 31, 2013 to 64.0% in the nine months ended December 31, 2014. The increases were primarily attributable to (i) the increased popularity of our single-player games for smartphones, as we invested significantly in further expanding our content offerings with more diversified single-player games that cater to our growing customer base, and (ii) our continued efforts in strengthening the distribution and monetization of single-user games for smartphones through our Maopao platform and third-party distribution partners.

Revenue from multi-player games increased significantly by 230.1%, or RMB50.5 million, to RMB72.4 million (US$11.7 million) in the nine months ended December 31, 2014 from RMB21.9 million in the nine months ended December 31, 2013. Revenue from multi-player games as a percentage of our total revenues increased from 6.1% in the nine months ended December 31, 2013 to 12.4% in the nine months ended December 31, 2014. The increases were primarily attributable to our continued efforts to strengthen the distribution and monetization of multi-player games for smartphone through our Maopao platform and third-party distribution partners.

Other revenues increased significantly by 140.1%, or RMB26.4 million, to RMB45.2 million (US$7.3 million) in the nine months ended December 31, 2014 from RMB18.8 million in the nine months ended December 31, 2013. Other revenues as a percentage of our total revenues increased from 5.3% in the nine months ended December 31, 2013 to 7.7% in the nine months ended December 31, 2014. The increases were primarily attributable to our increased distribution of applications and contents from content providers and mobile network operators through our Maopao platform.

Revenue from Feature Phone Business

Our revenue from feature phone business decreased by 60.2%, or RMB141.1 million, to RMB93.3 million (US$15.0 million) in the nine months ended December 31, 2014 from RMB234.4 million in the nine months ended December 31, 2013. Our revenue from feature phone business as a percentage of our total revenues decreased from 65.7% in the nine months ended December 31, 2013 to 15.9% in the nine months ended December 31, 2014. The decreases were primarily due to the continued decline in our feature phone business, which reflected (i) the shift in our strategic focus from feature phones to smartphones since 2012, and (ii) the continued decline in the Chinese feature phone market in general.

Cost of Revenues. Cost of revenues increased by 73.0%, or RMB196.0 million, from RMB268.4 million in the nine months ended December 31, 2013 to RMB464.4 million (US$74.9 million) in the nine months ended December 31, 2014, primarily attributable to the rapid growth of our smartphone business, partially offset by the continued decline in our feature phone business.

Gross Profit. As a result of the foregoing, gross profit increased by 37.3%, or RMB33.0 million, from RMB88.6 million in the nine months ended December 31, 2013 to RMB121.6 million (US$19.6 million) in the nine months ended December 31, 2014. Our gross margin was 20.7% in the nine months ended December 31, 2014, compared to 24.8% in the nine months ended December 31, 2013, primarily due to the higher revenue contribution of our smartphone business in the nine months ended December 31, 2014, which generally has a lower profit margin as we typically offer more attractive revenue sharing propositions to our smartphone business partners, in an effort to expand our smartphone user base and further improve our smartphone content offerings, as opposed to the revenue sharing arrangements with our feature phone business partners.

Operating Expenses. Operating expenses increased by 7.1%, or RMB6.8 million, from RMB95.8 million in the nine months ended December 31, 2013 to RMB102.6 million (US$16.5 million) in the nine months ended December 31, 2014. The increase in our operating expenses was primarily due to the significant expansion of our smartphone business, partially offset by the decrease in headcount for our declining feature phone business and our efforts to enhance labor efficiency.

Sales and marketing expenses increased by 18.4%, or RMB4.9 million, to RMB31.2 million (US$5.0 million) in the nine months ended December 31, 2014 from RMB26.4 million in the nine months ended December 31, 2013, primarily due to increased sales and marketing activities to promote our Maopao brand and smartphone business. The number of our sales and marketing employees increased from 128 as of December 31, 2013 to 157 as of December 31, 2014. In the nine months ended December 31, 2014, we recorded RMB0.1 million (US$20 thousand) in share-based compensation under sales and marketing expenses, which decreased by RMB3.3 million from RMB3.4 million in the nine months ended December 31, 2013.

General and administration expenses increased by 7.0%, or RMB3.1 million, from RMB43.9 million in the nine months ended December 31, 2013 to RMB47.0 million (US$7.6 million) in the nine months ended December 31, 2014, primarily due to the increased professional fee, primarily including audit and legal fee, in line with the continued expansion of our business, partially offset by cost savings associated with our strengthened cost control efforts. In the nine months ended December 31, 2014, we recorded RMB3.4 million (US$0.5 million) in share-based compensation under general and administration expenses, which decreased by RMB2.1 million from RMB5.5 million in the nine months ended December 31, 2013.

Research and development expenses decreased by 12.1%, or RMB3.6 million, from RMB29.5 million in the nine months ended December 31, 2013 to RMB25.9 million (US$4.2 million) in the nine months ended December 31, 2014, primarily due to the decreased staff cost as we rebalanced resources between the smartphone and feature phone businesses. In the nine months ended December 31, 2014, we recorded RMB0.4 million (US$58 thousand) in share-based compensation under research and development expenses, which decreased by RMB3.3 million from RMB3.7 million in the nine months ended December 31, 2013.

Profit (loss) from Operations. As a result of the foregoing, we incurred profit from operations of RMB18.9 million (US$3.1 million) in the nine months ended December 31, 2014, compared to loss from operations of RMB7.3 million in the nine months ended December 31, 2013.

Other Gains and Losses. Other gains increased by 53.3%, or RMB6.2 million, from RMB11.6 million in the nine months ended December 31, 2013 to RMB17.7 million (US$2.9 million) in the nine months ended December 31, 2014. The increase in other gains was primarily attributable to change in fair value of investment at FVTPL of RMB3.8 million (US$0.6 million) and increase in interest income of RMB1.3 million (US$0.2 million).

Impairment of Investment in Associates. Impairment of investment in associates in the nine months ended December 31, 2014 primarily related to our investment in Mingyou and Brtech due to their poor business performance and negative discounted cash flow forecasts. Impairment of investment in an associate in the nine months ended December 31, 2013 primarily related to our investment in Dream Sky due to its poor business performance and negative discounted cash flow forecast.

Share of Results of Associates. Our share of results of associates increased from RMB3.4 million in the nine months ended December 31, 2013 to RMB8.5 million (US$1.4 million) in the nine months ended December 31, 2014, primarily attributable to our investments in 25 companies in the nine months ended December 31, 2014, which are primarily engaged in wireless technology development and related applications in the PRC.

Profit before Tax. As a result of the foregoing, our profit before tax increased significantly from RMB6.2 million in the nine months ended December 31, 2013 to RMB99.9 million (US$16.1 million) in the nine months ended December 31, 2014.

Income Tax Expense. Our income tax expenses decreased by 81.1%, or RMB5.0 million, from RMB6.1 million in the nine months ended December 31, 2013 to RMB1.2 million (US$0.2 million) in the nine months ended December 31, 2014. The decrease in our income tax expenses was primarily due to the additional income tax expenses in the nine months ended December 31, 2013, which was triggered by the inter-group transfer of an associate due to our change of investment strategy.

Profit for the Period. As a result of the foregoing, profit for the period increased from RMB28 thousand in the nine months ended December 31, 2013 to RMB98.7 million (US$15.9 million) in the nine months ended December 31, 2014.

Fiscal Year Ended March 31, 2014 Compared to Fiscal Year Ended March 31, 2013

Revenues decreased by 19.2%, or RMB115.6 million, to RMB485.6 million in fiscal 2014 from RMB601.1 million in fiscal 2013, primarily due to the continued decline in our feature phone business, partially offset by the stronger than expected growth in our smartphone business.

Prior to the second calendar quarter of 2014, we categorized our revenues into application store revenues and Maopao community revenues. Application store revenues refer to revenues from sales of mobile applications and other content through our mobile application stores, Maopao App Store and Maopao Game Center. Maopao community revenues refer to revenue generated from user purchases of virtual items and premium features in Maopao Community.

Application store revenues decreased by 28.6%, or RMB109.3 million, from RMB381.6 million in fiscal 2013 to RMB272.3 million in fiscal 2014, primarily due to the continued decline in our feature phone business, partially offset by the stronger than expected growth in our smartphone business. Our cumulative number of users increased from approximately 1.2 billion as of March 31, 2013 to approximately 1.4 billion as of March 31, 2014, among which approximately 147.3 million were smartphone users. Average revenue per download on Maopao platform increased due to improved content installations. See “— Factors Affecting Our Results of Operations — Our ability to address challenges associated with policy changes and mobile network operators’ business practices.” We have invested significantly in further expanding our content offerings with more diversified applications and licensed games from third party developers in China.

Our Maopao Community revenues decreased by 18.9%, or RMB33.6 million, from RMB177.7 million in fiscal 2013 to RMB144.0 million in fiscal 2014, primarily due to the continued decline in our feature phone business. We expect that our Maopao Community revenues to continue to represent a significant percentage of total revenues in the near future as we focus on increasing the average revenue per user in our Maopao Community and migrating our feature phone Maopao Community users to smartphones.

Other revenues increased by 65.3%, or RMB27.3 million, from RMB41.9 million in fiscal 2013 to RMB69.2 million in fiscal 2014, primarily attributable to our increased distribution of applications and contents from content providers, mobile network operators and mobile service providers through our Maopao platform.

Cost of Revenues. Cost of revenues decreased by 13.0%, or RMB54.3 million, from RMB418.8 million in fiscal 2013 to RMB364.4 million in fiscal 2014, primarily attributable to (i) the decline in our feature phone business and (ii) decreased payment channel costs as we have been increasingly collaborating directly with mobile network operators to collect sales proceeds.

Gross Profit. As a result of the foregoing, gross profit decreased by 33.6%, or RMB61.2 million, from RMB182.3 million in fiscal 2013 to RMB121.1 million in fiscal 2014. Our gross margin was 24.9% in fiscal 2014, compared to 30.3% in fiscal 2013, primarily due to the higher revenue contribution of our smartphone business in fiscal 2014 which generally has a lower profit margin as we generally offer more attractive revenue sharing propositions to our smartphone business partners, in an effort to facilitate our transition to the smartphone business.

Operating Expenses. Operating expenses decreased by 27.3%, or RMB47.9 million, from RMB175.6 million in fiscal 2013 to RMB127.6 million in fiscal 2014. The decrease in our operating expenses was primarily due to the decrease in total headcount for our declining feature phone business and our efforts to enhance labor efficiency.

Sales and marketing expenses increased by 2.8%, or RMB1.0 million, to RMB36.4 million in fiscal 2014 from RMB35.4 million in fiscal 2013, primarily due to increased sales and marketing activities to promote our Maopao brand and smartphone business. The number of our sales and marketing employees increased from 111 as of March 31, 2013 to 128 as of March 31, 2014. In fiscal 2014, we recorded RMB3.6 million in share-based compensation under sales and marketing expenses, which increased by RMB1.5 million from RMB2.1 million in fiscal 2013.

General and administration expenses decreased by 16.0%, or RMB11.1 million, from RMB69.5 million in fiscal 2013 to RMB58.4 million in fiscal 2014, primarily due to our strengthened cost control efforts. In fiscal 2014, we recorded RMB8.7 million in share-based compensation under general and administration expenses, which decreased by RMB5.3 million from RMB14.0 million in fiscal 2013.

Research and development expenses decreased by 47.1%, or RMB34.4 million, from RMB73.0 million in fiscal 2013 to RMB38.6 million in fiscal 2014, primarily due to decreased headcount for our research and development personnel as we balanced resources between the smartphone and feature phone businesses. Our research and development staff decreased from 218 as of March 31, 2013 to 157 as of March 31, 2014. In fiscal 2014, we recorded RMB4.3 million in share-based compensation under research and development expenses, which decreased by RMB1.6 million from RMB5.9 million in fiscal 2013.

Profit (loss) from Operations. As a result of the foregoing, we incurred loss from operations of RMB6.5 million in fiscal 2014, compared to profit from operations of RMB6.8 million in fiscal 2013.

Other Gains and Losses. Other gains increased by 12.6%, or RMB2.0 million, from RMB15.5 million in fiscal 2013 to RMB17.5 million in fiscal 2014. The increase in other gains was primarily attributable to income on short-term investments of RMB2.6 million, which related to a fixed-income financial product we purchased from a Chinese bank, partially offset by a 1.8% decrease in interest income from RMB16.2 million in fiscal 2013 to RMB15.9 million in fiscal 2014.

Impairment of Investment in Associates. Impairment of investment in associates in fiscal 2014 primarily related to our investment in Dream Sky due to its poor business performance and negative discounted cash flow forecast. Impairment of investment in an associate in fiscal 2013 primarily related to our investment in DigiMobi due to its poor business performance and negative discounted cash flow forecast.

Share of Results of Associates. Our share of results of associates increased from RMB0.9 million in fiscal 2013 to RMB2.4 million in fiscal 2014, primarily attributable to our investments in Shanghai Fangcun Information Technology Co., Ltd. and eight additional associates in fiscal 2014, all of which are private companies primarily engaged in wireless technology development and related applications in the PRC.

Profit before Tax. As a result of the foregoing, our profit before tax decreased by 40.6%, or RMB8.1 million, from RMB20.0 million in fiscal 2013 to RMB11.9 million in fiscal 2014.

Income Tax Expense. Our income tax expenses increased by 164.1%, or RMB4.5 million, from RMB2.7 million in fiscal 2013 to RMB7.2 million in fiscal 2014. The increase in our income tax expenses was primarily due to additional income tax expenses triggered by the inter-group transfer of an associate due to our change of investment strategy. Such additional income tax was paid to the relevant tax bureau in April 2014.

Profit for the Year. As a result of the foregoing, profit for the year decreased from RMB17.3 million in fiscal 2013 to RMB4.7 million in fiscal 2014.

Liquidity and Capital Resources

We have financed our operations primarily through cash generated from operations, the issuance of Series A preferred shares and our initial public offering. All of our Series A preferred shares were automatically converted into common shares immediately upon the completion of our initial public offering in December 2010. Our cash and cash equivalents consist of cash on hand and highly liquid investments which are unrestricted as to withdrawal or use, and which have maturities of three months or less when purchased. As of March 31, 2013 and 2014 and December 31, 2014, we had RMB135.0 million, RMB79.1 million and RMB205.0 million (US$33.0 million) in cash and cash equivalents, respectively.

As a holding company, we may rely on dividends and other distributions from our PRC subsidiaries for our cash requirements. PRC regulations permit our subsidiaries to pay dividends to us only out of their accumulated profits, if any, determined in accordance with Chinese accounting standards and regulations. In addition, each of our subsidiaries and SPEs in China is required to set aside at least 10% of its after tax profits, as determined on a calendar year basis and in accordance with relevant accounting principles and financial regulations applicable to enterprises established in the PRC (“PRC GAAP”), if any, to fund a statutory reserve until such reserve reaches 50% of its registered capital. The statutory reserve, equal to RMB1.0 million as of December 31, 2014, is the same under both PRC GAAP and IFRS and is reflected as statutory reserve in the consolidated statements of changes in equity in our consolidated financial statements. These reserves are not distributable as cash dividends. The difference between net profit, as determined under PRC GAAP, and the amount allocated to statutory reserve, for each of our subsidiaries and SPEs in China, represents amounts that are free of restriction.

Such amounts differ from subsidiary or SPE equity less statutory reserve as determined under IFRS due to accounting differences between PRC GAAP and IFRS. The aggregate retained earnings of our PRC subsidiaries and SPEs after setting aside required statutory reserve funding, determined in accordance with PRC GAAP, amounted to RMB355.6 million (US$57.3 million) as of December 31, 2014. However, the amount of retained earnings distributable to our offshore entities may be less than such amounts, as any dividend distribution may be subject to relevant taxes in the PRC when our SPEs make payments to our PRC subsidiaries under contractual arrangements and when our PRC subsidiaries distribute dividends to the offshore entities. As discussed in “Item 8. Financial Information — A. Consolidated Statements and Other Financial Information — Dividend Policy,” we do not plan to declare and pay any dividends on our shares or ADSs in the near future and currently intend to retain most, if not all, of our available funds and any future earnings to operate and expand our business. Furthermore, if our PRC subsidiaries incur debt in the future, the instruments governing the debt may restrict their ability to pay dividends or make other payments to us.

Prior to July 1, 2010, we received economic benefits generated from our SPEs through various contractual arrangements entered into by Pusida, our PRC subsidiary, with the SPEs. On July 1, 2010, through Dianneng, our other PRC subsidiary, we entered into contractual arrangements with Hangzhou Sky, Mijia and their respective shareholders to replace their previous contractual arrangements with Pusida. Such contractual arrangements include technical support service agreements, strategy consulting service agreements and intellectual property license agreements with Hangzhou Sky and Mijia, respectively, and an exclusive business cooperation agreement with Fanyi.

In addition, in February 2011, through Dianneng, we entered into similar contractual arrangements with Feineng and its shareholders, including a technical support service agreement, strategy consulting service agreement and intellectual property license agreement. In December 2012, through Dianneng, we entered into similar contractual arrangements with each of Najia, Miyi and Tianchu and their respective shareholders, including a technical support service agreement, strategy consulting service agreement and intellectual property license agreement. During the fiscal year ended March 31, 2014, through Dianneng, we entered into similar contractual arrangements with each of Zunqi, Geyuan, Kaimi, Dangyi and their respective shareholders, including a technical support service agreement, strategy consulting service agreement and intellectual property license agreement. Under these contractual arrangements, our SPEs pay their earnings in the form of services fees and royalties to our PRC subsidiaries. Our PRC subsidiaries pay their earnings to our offshore intermediate holding company primarily through dividends.

The following table sets forth a summary of our net cash flows for the periods indicated:

	For the Fiscal Year Ended March 31,						For the Nine Months Ended December 31,
	2013			2014			2013			2014
	RMB			RMB			RMB			RMB			US$
							(Unaudited)
	(in thousands)
Net cash provided by (used in) operating activities		73,289			47,846			64,967			(16,534	)		(2,665	)
Net cash (used in) provided by investing activities		(54,543	)		(76,051	)		7,851			244,147			39,351
Net cash used in financing activities		(20,830	)		(25,818	)		(23,190	)		(101,132	)		(16,300	)

Net decrease in cash and cash equivalents		(2,084	)		(54,023	)		49,628			126,481			20,386
Cash and cash equivalents at beginning of year		137,538			135,025			135,025			79,057			12,741
Effect of foreign exchange rate changes		(429	)		(1,945	)		(2,844	)		(571	)		(92	)
Cash and cash equivalents at end of year		135,025			79,057			181,809			204,967			33,035

Cash provided by operating activities was RMB73.3 million, RMB47.8 million and RMB65.0 million in the fiscal years ended March 31, 2013 and 2014 and the nine months ended December 31, 2013, respectively, and cash used in operating activities was RMB16.5 million (US$2.7 million) in the nine months ended December 31, 2014. The cash outflow in the nine months ended December 31, 2014 was primarily due to the increased turnover date of trade receivables from mobile network operators as we offered more favorable payment terms to our smartphone business partners. The decrease in the fiscal year ended March 31, 2014 was primarily attributable to a decrease in profit before tax resulted from (i) the continued decline in our feature phone business, and (ii) the higher revenue contribution of our smartphone business, which generally has a lower gross margin. The increase in the fiscal year ended March 31, 2013 was primarily attributable to cost savings from direct cooperation with China Mobile on the game platform. For a detailed reconciliation of our net income to net cash provided by/used in operating activities, please refer to our consolidated cash flow statements contained in this transition report.

We had RMB244.1 million (US$39.4 million) net cash from investing activities for the nine months ended December 31, 2014 primarily due to (i) RMB148.5 million in disposal of investment at FVTPL, (ii) RMB92.3 million of proceeds of disposal of an associate, (iii) RMB50.0 million of redemption of short-term investments, and (iv) a RMB13.4 million decrease in term deposits, partially offset by RMB58.1 million of payment of investment in associates. We had RMB7.9 million net cash provided by investing activities for the nine months ended December 31, 2013 primarily due to RMB7.1 million of interest income received. We had RMB76.0 million net cash used in investing activities for the fiscal year ended March 31, 2014 primarily due to (i) RMB215.0 million in purchase of investment at FVTPL and short-term investments, (ii) a RMB50.2 million investment in associates, and (iii) RMB2.0 million in purchases of property and equipment, partially offset by a RMB177.5 million decrease in term deposits and a RMB12.8 million interest income received. We had RMB54.5 million net cash used in investing activities for the fiscal year ended March 31, 2013 primarily due to (i) a RMB34.9 million increase in term deposits, (ii) a RMB32.1 million increase in investment in payment of investment in associates and available-for-sale investments, and (iii) RMB3.4 million in purchases of property and equipment, partially offset by a RMB16.2 million interest income received.

We had RMB101.1 million (US$16.3 million) net cash used in financing activities for the nine months ended December 31, 2014 primarily due to RMB103.1 million in payments for share repurchase, partially offset by RMB1.0 million from the exercise of share options. We had RMB23.2 million net cash used in financing activities for the nine months ended December 31, 2013 primarily due to RMB28.0 million in payments for repurchase of common shares, partially offset by RMB3.6 million from the exercise of share options and RMB1.2 million of capital contributions from non-controlling interests. We had RMB25.8 million net cash used in financing activities for the fiscal year ended March 31, 2014, primarily consisting of RMB34.2 million in payments for repurchase of common shares, partially offset by RMB7.1 million from the exercise of share options and RMB1.2 million of capital contributions from non-controlling interests. We had RMB20.8 million net cash used in financing activities for the fiscal year ended March 31, 2013, primarily consisting of RMB25.3 million in payments for repurchase of common shares, partially offset by RMB2.5 million from the exercise of share options and RMB2.0 million of capital contributions from non-controlling interests.

Capital Expenditures

We had capital expenditures of RMB3.4 million, RMB2.0 million, RMB1.4 million and RMB5.7 million (US$0.9 million ) in the fiscal years ended March 31, 2013 and 2014 and the nine months ended December 31, 2013 and 2014, respectively, which were mainly used to purchase servers and computers to support the expansion of our business.

We anticipate that we will be able to meet our needs to fund operations for at least the next 12 months with operating cash flow and existing cash balances, including any investments or acquisitions we may decide to pursue. If these sources are insufficient to satisfy cash requirements, we may seek to sell additional equity or debt securities or to obtain a credit facility. The sale of additional equity or equity-linked securities could result in additional dilution to shareholders. The incurrence of indebtedness would result in increased debt service obligations and could result in operating and financial covenants that would restrict operations. Financing may not be available in amounts or on terms acceptable to us, if at all.

Recently Issued Accounting Pronouncements

We have not early adopted the following new and revised standards, amendments or interpretations that have been issued but are not yet effective.

Annual Improvements to IFRSs 2010 - 2012 Cycle

The Annual Improvements to IFRSs 2010 - 2012 Cycle include a number of amendments to various IFRSs, in which the relevant amendments are summarized below.

The amendments to IFRS 2 (i) change the definitions of “vesting condition” and “market condition”; and (ii) add definitions for “performance condition” and “service condition” which were previously included within the definition of “vesting condition”. The amendments to IFRS 2 are effective for share-based payment transactions for which the grant date is on or after July 1, 2014.

The amendments to the basis for conclusions of IFRS 13 clarify that the issue of IFRS 13 and consequential amendments to IAS 39 and IFRS 9 did not remove the ability to measure short- term receivables and payables with no stated interest rate at their invoice amounts without discounting, if the effect of discounting is immaterial.

Our directors anticipate that the application of the amendments included in the Annual Improvements to IFRSs 2010 – 2012 Cycle will have no material impact on our consolidated financial statements.

Annual Improvements to IFRSs 2011 - 2013 Cycle

The Annual Improvements to IFRSs 2011 - 2013 Cycle include a number of amendments to various IFRSs, in which the relevant amendments are summarized below.

The amendments to IFRS 13 clarify that the scope of the portfolio exception for measuring the fair value of a group of financial assets and financial liabilities on a net basis includes all contracts that are within the scope of, and accounted for in accordance with, IAS 39 or IFRS 9, even if those contracts do not meet the definitions of financial assets or financial liabilities within IAS32.

The amendments to IAS 40 clarify that IAS 40 and IFRS 3 are not mutually exclusive and application of both standards may be required. Consequently, an entity acquiring investment property must determine whether:

(a)

The property meets the definition of investment property in terms of IAS 40; and

(b)

The transaction meets the definition of a business combination under IFRS 3.

Our directors anticipate that the application of the amendments included in the Annual Improvements to IFRSs 2011 – 2013 Cycle will have no material impact on our consolidated financial statements.

Annual Improvements to IFRSs 2012 - 2014 Cycle

The Annual Improvements to IFRSs 2012-2014 Cycle include a number of amendments to various IFRSs, which are summarized below.

The amendments to IFRS 5 introduce specific guidance in IFRS 5 for when an entity reclassifies an asset (or disposal group) from held for sale to held for distribution to owners (or vice versa), or when held-for-distribution accounting is discontinued. The amendments apply prospectively.

The amendments to IFRS 7 provide additional guidance to clarify whether a servicing contract is continuing involvement in a transferred asset for the purpose of the disclosures required in relation to transferred assets and clarify that the offsetting disclosures (introduced in the amendments to IFRS 7 Disclosure – Offsetting Financial Assets and Financial Liabilities issued in December 2011 and effective for periods beginning on or after 1 January 2013) are not explicitly required for all interim statements to comply with IAS 34 Interim Financial Reporting.

The amendment to IAS 19 clarify that the high quality corporate bonds used to estimate the discount rate for post-employment benefits should be issued in the same currency as the benefits to be paid. These amendments would result in the depth of the market for high quality corporate bonds being assessed at currency level. The amendments apply from the beginning of the earliest comparative period presented in the financial statements in which the amendments are first applied. Any initial adjustment arising should be recognized in retained earnings at the beginning of that period.

The amendments to IAS 34 clarify the requirements relating to information required by IAS 34 that is presented elsewhere within the interim financial report but outside the interim financial statements. The amendments require that such information be incorporated by way of a cross-reference from the interim financial statements to the other part of the interim financial report that is available to users on the same terms and at the same item as the interim financial statements.

Our directors do not anticipate that the application of these will have a material effect on our consolidated financial statements.

Amendments to IAS 16 and IAS 38: Clarification of Acceptable Methods of Depreciation and Amortization

The amendments of IAS 16 prohibit entities from using a revenue-based depreciation method for items of property, plant and equipment. The amendments to IAS 38 introduce a rebuttable presumption that revenue is not an appropriate basis for amortization of an intangible asset. This presumption can only be rebutted in the following two limited circumstances:

(a)

When the intangible asset is expressed as a measure of revenue; or

(b)

When it can be demonstrated that revenue and consumption of the economic benefits of the intangible assets are highly correlated.

The amendments apply prospectively for annul periods beginning on or after 1 January 2016. Currently, we use the straight-line method for depreciation and amortization for its property, plant and equipment, and intangible assets respectively. Our directors believe that the straight-line method is the most appropriate method to reflect the consumption of economic benefits inherent in the respective assets and accordingly, our directors do not anticipate that the application of these amendments to IAS 16 and IAS 38 will have a material impact on our consolidated financial statements.

IFRS 9 Financial Instruments

IFRS 9 issued in 2009 introduces new requirements for the classification and measurement of financial assets. IFRS 9 was subsequently amended in 2010 to include the requirements for the classification and measurement of financial liabilities and for de-recognition, and was further amended in 2013 to include the new requirements for hedge accounting.

Key requirements of IFRS 9 are described as follows:

All recognized financial assets that are within the scope of IAS 39 Financial Instruments: Recognition and Measurement are subsequently measured at amortized cost or fair value. Specifically, debt investments that are held within a business model whose objective is to collect the contractual cash flows, and that have contractual cash flows that are solely payments of principal and interest on the principal outstanding are generally measured at amortized cost at the end of subsequent accounting periods. All other debt investments and equity investments are measured at their fair value at the end of subsequent reporting periods. In addition, under IFRS 9, entities may make an irrevocable election to present subsequent changes in the fair value of an equity investment (that is not held for trading) in other comprehensive income, with only dividend income generally recognized in profit or loss.

With regard to the measurement of financial liabilities designated as at fair value through profit or loss, IFRS 9 requires that the amount of change in the fair value of the financial liability, that is attributable to changes in the credit risk of that liability is presented in other comprehensive income, unless the recognition of the effects of changes in the liability’s credit risk in other comprehensive income would create or enlarge an accounting mismatch in profit or loss. Changes in fair value of financial liabilities attributable to change in the financial liabilities’ credit risk are not subsequently reclassified to profit or loss. Under IAS 39, the entire amount of the change in the fair value of the financial liability designated as at fair value through profit or loss was presented in profit or loss.

In relation to the impairment of financial assets, IFRS 9 requires an expected credit loss model, as opposed to an incurred credit loss model under IAS 39. The expected credit loss model requires an entity to account for expected credit losses and changes in those expected credit losses at each reporting date to reflect changes in credit risk since initial recognition. In other words, it is no longer necessary for a credit event to have occurred before credit losses are recognized.

Based on our financial assets and financial liabilities as at December 31, 2014, our directors anticipate that the adoption of IFRS 9 in the future will affect the classification and measurement of our available-for-sale investments and is not likely to have significant impact on the amounts of our other financial assets and financial liabilities. Regarding our available-for-sale investments, it is not practicable to provide a reasonable estimate of that effect until a detailed review has been completed.

Our directors anticipate that the application of the other new and revised IFRSs will have no material impact on our consolidated financial statements.

IFRS 15 Revenue from Contracts with Customers

In May 2014, IFRS 15 was issued which establishes a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. IFRS 15 will supersede the current revenue recognition guidance including IAS 18 Revenue, IAS 11 Construction Contracts and the related Interpretations when it becomes effective.

The core principle of IFRS 15 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Specifically, the Standard introduces a 5-step approach to revenue recognition:

Step 1: Identify the contract(s) with a customer.

Step 2: Identify the performance obligations in the contract.

Step 3: Determine the transaction prices.

Step 4: Allocate the transaction price to the performance obligations in the contract.

Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation.

Under IFRS 15, an entity recognizes revenue when (or as) a performance obligation is satisfied, i.e. when ‘control’ of the goods or services underlying the particular performance obligation is transferred to the customer. Far more prescriptive guidance has been added in IFRS 15 to deal with specific scenarios. Furthermore, extensive disclosures are required by IFRS 15.

Our directors anticipate that the application of IFRS 15 in the future may have a material impact on the amounts reported and disclosures made in our consolidated financial statements. However, it is not practicable to provide a reasonable estimate of the effect of IFRS 15 until we perform a detailed review.

Our directors anticipate that the application of the other new and revised IFRSs will have no material impact on our consolidated financial statements.

Research and Development, Patents and Licenses, etc.

We have an experienced team of engineers. As of December 31, 2014, our research and development staff consisted of 182 software, hardware and system engineers. We recruit our engineers throughout China and have established various recruiting and training programs with leading universities in China.

Our senior management team heads our research and development efforts and sets out strategic directions for the advancement of our offerings. Under their guidance, our research and development plans currently focus on the following areas:

Improving our hardware infrastructure and computational capability. In order to prevent system malfunctions and downtime that may result from our expanding user base, we focus on investing in our hardware infrastructure and computational capability to support more mobile users concurrently accessing more diversified applications and content and interacting with each other through Maopao Community.

Developing systematic solutions for smartphone applications along with our transition from feature phone business to smartphone business.

Developing new versions of Maopao platform products for both smartphone and feature phone operating systems, which will help expand our user base and facilitate interaction among users.

Improving the capabilities and functionalities of Maopao platform products while enabling users with older versions of Maopao platform products to easily access newly developed applications. We believe this will enable us to further enrich the applications available on Maopao platform and capitalize on market growth following the popularization of 3G networks. We will continue to utilize in-house and third-party development capabilities to diversify our content portfolio, particularly video chat and video streaming related applications.

We believe that the improvement of our technology is vital to maintaining our long-term competitiveness. We have established laboratories for advanced mobile user experience testing, mobile applications testing and system simulation.

In each of the fiscal years ended March 31, 2013 and 2014 and the nine months ended December 31, 2013 and 2014, our research and development expenses were RMB73.0 million, RMB38.6 million, RMB29.5 million and RMB25.9 million (US$4.2 million), representing 12.1%, 8.0%, 8.3% and 4.4% of our total revenues during the same periods, respectively.

Trend Information

Other than as disclosed elsewhere in this transition report, we are not aware of any trends, uncertainties, demands, commitments or events for the period from December 31, 2013 to December 31, 2014 that are reasonably likely to materially adversely affect our net revenues, income, profitability, liquidity or capital resources, or that would cause the disclosed financial information to be not necessarily indicative of future operating results or financial conditions.

Off-Balance Sheet Arrangements

We have not entered into any financial guarantees or other commitments to guarantee the payment obligations of any third parties. In addition, we have not entered into any derivative contracts that are indexed to our own shares and classified as shareholder’s equity, or that are not reflected in our consolidated financial statements. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. Moreover, we do not have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support to us or engages in leasing, hedging or research and development services with us.

Contractual Obligations

The following table sets forth our contractual obligations as of December 31, 2014:

	Payment Due by Period
	total		Less than 1 year		1-3 years		3-5 years		More than 5 years
	(RMB in thousands)
Operating lease commitments		12,004		10,780		1,224		—		—
Capital commitments		9,102		9,102		—		—		—

Total		21,106		19,882		1,224		—		—

Safe Harbor

This transition report contains forward-looking statements that relate to future events, including our prospects, future operating results and future financial performance and condition, all of which are largely based on our current expectations and projections. The forward-looking statements are contained principally in the sections entitled “Item 3. Key Information — D. Risk Factors,” “Item 4. Information on the Company” and “Item 5. Operating and Financial Review and Prospects.” These statements are made under the “safe harbor” provisions of the U.S. Private Securities Litigation Reform Act of 1995. You can identify these forward-looking statements by words or phrases such as “may,” “will,” “expect,” “anticipate,” “aim,” “estimate,” “intend,” “plan,” “believe,” “potential,” “continue,” “is/are likely to” or other similar expressions.

We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. These forward-looking statements include, among others, statements relating to: our business strategies and initiatives as well as our business plans; our future business development, results of operations and financial condition; expected changes in our revenues and certain cost or expense items; our expectations with respect to increased revenue growth and our ability to sustain profitability; our products under development or planning; our ability to attract clients and further enhance our brand recognition; and trends and competition in the mobile applications industry.

This transition report also contains data related to the mobile applications industry in China, including projections that are based on a number of assumptions. The mobile applications industry in China may not grow at projected rates, or at all. The failure of the market to grow at projected rates may materially adversely affect our business and the market price of our ADSs. In addition, the rapidly changing nature of the mobile applications industry in China subjects any projections or estimates relating to the growth prospects or future condition of our market to significant uncertainties. If any one or more of the assumptions underlying the market projections is incorrect, our actual results may differ from the projections based on these assumptions. You should not place undue reliance on these forward-looking statements.

The forward-looking statements made in this transition report relate only to events or information as of the date on which the statements are made in this transition report on Form 20-F. Except as required by law, we undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, after the date on which the statements are made or to reflect the occurrence of unanticipated events. You should read this transition report on Form 20-F in its entirety and review the factors and risks we describe in reports we will file from time to time with the SEC after the date of this transition report. See “Item 10. Additional Information — H. Documents on Display.” with the understanding that our actual future results may be materially different from what we expect. Moreover, we operate in an evolving environment. New risk factors and uncertainties emerge from time to time and it is not possible for our management to predict all risk factors and uncertainties, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.

ITEM 6.

DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

Directors and Senior Management

The following table sets forth information regarding our directors and executive officers as of the date of this transition report. There are no family relationships among any of the directors or executive officers of our company.

Directors and Executive Officers	Age	Position/Title
Michael Tao Song	38	Founder, Chairman and Chief Executive Officer
Kui Zhou	47	Independent Director
Wei Zhou	36	Independent Director
Jimmy Lai	58	Independent Director
Carl Yeung	35	Director
Fischer Xiaodong Chen	45	Chief Financial Officer
Long Zhang	38	Senior Vice President of Game Operations

Mr. Michael Tao Song is our founder, chairman and chief executive officer. Mr. Song was appointed as a director by Xplane Ltd., a holder of our common shares. Prior to founding our company, Mr. Song worked as a product director at Eastcom Communications Co., Ltd., a telecommunications technology company listed on the Shanghai Stock Exchange, from 2000 to 2005. Mr. Song received his bachelor’s degree in applied mathematics from Tianjin University in 2000.

Mr. Kui Zhou has been an independent director of our company since August 2007. Mr. Zhou was appointed as a director by Sequoia Capital China II, L.P., our shareholder. Mr. Zhou has been a principal of Sequoia Capital China since 2005 and a partner of Sequoia Capital China since May 2007. He is also a director of Boyaa Interactive International Limited, a China-based online card and board game developer and operator listed on the Hong Kong Stock Exchange, a director of VanceInfo Technologies Inc., a China-based IT service provider listed on the New York Stock Exchange, and a director of Xiamen Changelight Co., Ltd., a China-based LED and solar cell research and manufacturing company listed on the Growth Enterprises Market of the Shenzhen Stock Exchange. He also serves on the board of several privately held companies, including HDT Holding Technologies Inc., a China-based online advertising and marketing company; Shanghai Hintsoft Software Co., Ltd., a China-based Internet cafe software provider; and Beijing Speedpay Technology Co., Ltd., a high-tech company committed to wireless payment and mobile e-commerce business, all of which are invested by Sequoia Capital China. Prior to joining Sequoia Capital China, Mr. Zhou served as a senior vice president at Legend Capital from 2001 to 2005. From 1999 to 2001, he served as a manager of the corporate business development department of Legend Holdings Ltd. Mr. Zhou received his bachelor’s degree in electrical automation from Wuhan Technology University in 1989 and his master’s of business administration degree from Tsinghua University in 2000.

Mr. Wei Zhou has served as our independent director since December 2010. Mr. Zhou has served as the chief financial officer and managing partner of Locojoy Holdings Limited, a leading mobile game company in China since December 2013. Mr. Zhou was the chief financial officer of Charm Communications Inc., a leading domestic television advertising agency in China listed on NASDAQ from November 2009 to November 2013. Mr. Zhou was the chief financial officer of Zhaopin Limited, which operates a China-based online recruitment website (www.zhaopin.com), from June 2008 to October 2009. Mr. Zhou also served as Zhaopin Limited’s director of strategic planning from July 2005 to May 2007. Mr. Zhou served as an associate director with Abax Global Capital, a Hong Kong based investment fund focusing on direct investments in private and public-sector Chinese companies, from June 2007 to May 2008. From 2001 to 2005, Mr. Zhou worked in the Hong Kong office of Goldman Sachs in the investment banking division and the Asian Special Situations Group. Mr. Zhou received his bachelor’s degree from Harvard University in 2001.

Mr. Jimmy Lai became our independent director since April 2013. Mr. Lai has served as the chief financial officer of Chukong Holdings Limited, an innovative mobile entertainment platform operator in China since August 2013. Prior to that, Mr. Lai recently served as the chief financial officer of Gamewave Group Ltd, a leading online game company in China from 2011 to 2013. Previously, he served as the chief financial officer for several US-listed and private companies, including Daqo New Energy Corp, a leading polysilicon manufacturer based in China listed on the NYSE from 2009 to 2011, and Linktone Ltd, a leading provider of interactive entertainment products and services in China listed on the Nasdaq from 2008 to 2009. From 2006 to 2008, Mr. Lai was the chief financial officer of Palm Commerce Holdings, a leading information technology solution provider for the China lottery industry. Prior to that, he served as an associate vice president of investor relations at Semiconductor Manufacturing International Corporation, a company listed on the NYSE and the Main Board of the Hong Kong Stock Exchange, from 2002 to 2006, and as a controller and director of financial planning at AMX Corporation, a leading system control company, from 1997 to 2001. Mr. Lai received his MBA degree from the University of Texas at Dallas and a bachelor’s degree in statistics from the National Cheng Kung University in Taiwan. Mr. Lai is a certified public accountant licensed in the State of Texas.

Mr. Carl Yeung has been a non-executive director of the Company since October 2013. Mr. Yeung has been the chief financial officer of BAIOO Family Interactive Limited, an online entertainment destination designed for children and listed on the HKSE, since October 2013. Mr. Yeung served as our chief financial officer since February 2010 to October 2013. Prior to joining us, Mr. Yeung was the chief financial officer of ATA Inc., a computer-based testing and testing-related service provider based in China and listed on NASDAQ from 2006 to 2010. From 2002 to 2006, Mr. Yeung worked as an analyst and associate at Merrill Lynch (Asia Pacific) Limited. Mr. Yeung also served as an independent non-executive director of China Natural Gas, Inc. from 2008 to November 2010. Mr. Yeung received his bachelor’s degree in economics with concentrations in finance and operations management from the Wharton School, University of Pennsylvania, and his bachelor’s degree in applied science with a concentration in systems engineering from the School of Engineering and Applied Sciences, University of Pennsylvania, in 2002.

Mr. Fischer Xiaodong Chen has been our chief financial officer since April 2015. Prior to joining us, Mr. Chen served as the chief financial officer of ET Solar Group Corp, a leading provider of smart energy solutions, responsible for the company’s equity financing, merger and acquisitions, financial reporting and business restructuring from 2008 to 2015. From 2006 to 2008, Mr. Chen served as the vice president of financing and investor relations at China Sunergy Co., Ltd (NASDAQ: CSUN), where he was instrumental to the company’s 2007 IPO. Between 1993 and 2006, Mr. Chen worked at JPMorgan Chase, where he executed many investment and commercial banking transactions for China-based clients. Mr. Chen received his bachelor’s degree in International Finance from Tianjin College of Finance and Economics.

Mr. Long Zhang has been our senior vice president of game operations since September 2014. Prior to joining us, Mr. Zhang served as the managing director of the China division of Glu Mobile, a leading global developer and publisher of mobile games.

During his tenure at Glu Mobile, Mr. Zhang led initiatives in establishing operations in the China market, forging licensing partnerships with major Chinese game publishers, localizing and distributing mobile games and developing the overall business infrastructure. Prior to Glu Mobile, Mr. Zhang served a similar role at Gameloft China, a global mobile game developer, where he oversaw the company's business development initiatives in China. Mr. Zhang received a bachelor's degree in information management from Beijing Union University.

Compensation of Directors and Executive Officers

For the nine months ended December 31, 2014, we paid an aggregate of approximately RMB2.0 million (US$0.3 million) in cash to our directors and executive officers. For share-based compensation awards granted to our directors and executive officers, see “— Share Incentive Plan.”

Other than the below-mentioned statutory contributions mandated by applicable PRC law, we have not set aside or accrued any amount of cash to provide pension, retirement or other similar benefits to our officers and directors. Our PRC subsidiaries and SPEs are required by law to make contributions equal to certain percentages of each employee’s salary for his or her retirement benefit, medical insurance benefits, housing funds, unemployment and other statutory benefits. Our subsidiaries and the SPEs contributed an aggregate of approximately RMB4,102 (US$661) for retirement and similar benefits for our officers and directors in the nine months ended December 31, 2014.

Share Incentive Plan

We have adopted our 2010 Share Incentive Plan, or the 2010 Plan, to motivate, attract, and retain employees, directors and consultants and promote the success of our business. The maximum number of common shares which could be issued pursuant to all awards under the 2010 Plan was initially 15,000,000 shares. The amount increases annually on the first business day of each calendar year by an amount equal to the lesser of (x) one percent of the number of common shares outstanding as of such date, or (y) a lesser number of common shares determined by the compensation committee; provided, however, that no more than 15,000,000 shares may be issued upon the exercise of incentive options. As of December 31, 2014, an aggregate of 8,033,146 restricted shares and option to purchase 1,394,193 common shares were outstanding under the 2010 Plan.

Types of Awards. The types of awards we may grant under the 2010 Plan include, among others, options, restricted shares and restricted share units.

Plan Administration. The compensation committee of our board of directors administers the 2010 Plan, and may delegate its administrative authority to a committee of one or more members of our board or one or more of our officers, subject to certain restrictions. The compensation committee will designate the eligible individuals who may receive awards, and determine the types and number of awards to be granted and the terms and conditions of each award grant, including, but not limited to, the exercise price, grant price or purchase price, any reload provision, any restrictions or limitations on the award, any schedule for vesting, lapse of forfeiture restrictions or restrictions on the exercisability of an award and accelerations or waivers thereof, any provisions related to non-competition and recapture of gain on an award, based in each case on such considerations as the committee in its sole discretion determines. The compensation committee has the sole power and discretion to cancel, forfeit or surrender an outstanding award.

Award Agreements. Options and other awards granted under the 2010 Plan are evidenced by a written award agreement that sets forth the material terms and conditions for each grant.

Eligibility. We may grant awards to employees, consultants of a service recipient, which includes our subsidiaries or any affiliated entities designated by our board for purposes of the 2010 Plan, as well as our non-employee directors.

Acceleration of Awards upon Corporate Transactions. The compensation committee may, in its sole discretion, upon or in anticipation of a corporate transaction, accelerate awards, purchase the awards from the holder or replace the awards.

Vesting Schedule. In general, the compensation committee determines, or the relevant award agreement specifies, the vesting schedules.

Amendment and Termination. The compensation committee may at any time amend, modify or terminate the 2010 Plan. Amendments to the 2010 Plan are subject to shareholder approval to the extent required by law or security exchange rules. In addition, shareholder approval is specifically required to increase the number of shares available under the 2010 Plan, or to permit the compensation committee to extend the term or the exercise period of an option beyond ten years, or if amendments result in material increases in benefits or a change in eligibility requirements. Any amendment, modification or termination of the 2010 Plan must not impair any rights or obligations under awards already granted without consent of the holder of such awards. Unless terminated earlier, the 2010 Plan will expire and no further awards may be granted after the tenth anniversary of the shareholders’ approval of the 2010 Plan.

The following table summarizes, as of the date of this transition report, the outstanding options that we have granted our directors, executive officers and other individuals as a group under the 2010 Plan.

Name

Common Shares
Underlying
Outstanding Options

Exercise Price
(US$/Share)

Grant Date

Expiration Date

Zhou Wei

1.00

January 6, 2011

Other individuals as a group

802,389

0.26

March 1, 2010

242,868

0.26

April 1, 2010

248,936

0.26

September 15, 2010

________________________

*Less than 1% of our outstanding common shares.

**The expiration date for the options is the earlier of the tenth anniversary of the grant date of such options or upon the termination of the option holder’s services by reason of cause, or two years following the termination of the option holder’s services by reason of death or disability, or 90 days following the termination of the option holder’s services for any reason other than death or disability and not for cause.

Board Practices

Board of Directors

Our board of directors consists of five members. A director is not required to hold any shares in our company by way of qualification. A director may vote with respect to any contract or transaction in which he or she is materially interested provided the nature of the interest is disclosed prior to its consideration and any vote on such contract or transaction. The directors may exercise all the powers of our company to borrow money, mortgage its undertaking, property and uncalled capital, and issue debentures or other securities whether outright or as security for any debt, liability or obligation of our company or of any third-party. None of our non-executive directors has a service contract with us that provides for benefits upon termination of employment.

Committees of the Board of Directors

We have three committees under the board of directors: an audit committee, a compensation committee and a corporate governance and nominating committee. We have adopted a charter for each of the three committees.

Audit Committee

Our audit committee consists of Wei Zhou, Kui Zhou and Jimmy Lai. Wei Zhou, Kui Zhou and Jimmy Lai satisfy the “independence” requirements of Rule 5605 of the NASDAQ Stock Market Marketplace Rules and Rule 10A-3 under the Exchange Act. Wei Zhou is the chairman of our audit committee and meets the criteria of an audit committee financial expert as set forth under the applicable rules of the SEC. Our audit committee oversees our accounting and financial reporting processes and the audits of the financial statements of our company. Our audit committee is responsible for, among other things:

selecting our independent registered public accounting firm and pre-approving all auditing and non-auditing services permitted to be performed by our independent registered public accounting firm;

reviewing with the independent registered public accounting firm any audit problems or difficulties and management’s response;

reviewing and approving all proposed related-party transactions, as defined in Item 404 of Regulation S-K under the Securities Act;

discussing the annual audited financial statements with management and our independent registered public accounting firm;

annually reviewing and reassessing the adequacy of our audit committee charter;

meeting separately and periodically with management and our independent registered public accounting firms;

reporting regularly to the full board of directors; and

such other matters that are specifically delegated to our audit committee by our board of directors from time to time.

Compensation Committee

Our compensation committee consists of Kui Zhou, Wei Zhou, and Jimmy Lai. Kui Zhou, Wei Zhou and Jimmy Lai satisfy the “independence” requirements of Rule 5605 of the NASDAQ Stock Market Marketplace Rules. Our compensation committee assists the board of directors in reviewing and approving the compensation structure of our directors and executive officers, including all forms of compensation to be provided to our directors and executive officers. Our chief executive officer may not be present at any committee meeting during which his compensation is deliberated. The compensation committee is responsible for, among other things:

reviewing and making recommendations to the board with respect to the total compensation package for our four most senior executives;

approving and overseeing the total compensation package for our executives other than the four most senior executives;

reviewing and making recommendations to the board with respect to the compensation of our directors; and

reviewing periodically and approving any long-term incentive compensation or equity plans, programs or similar arrangements, annual bonuses, employee pension and welfare benefit plans.

Corporate Governance and Nominating Committee

Our corporate governance and nominating committee consists of Wei Zhou, Kui Zhou and Jimmy Lai. All of them satisfy the “independence” requirements of Rule 5605 of the NASDAQ Stock Market Marketplace Rules. The corporate governance and nominating committee assists our board of directors in identifying individuals qualified to become our directors and in determining the composition of the board and its committees. The corporate governance and nominating committee is responsible for, among other things:

identifying and recommending nominees for election or re-election to our board of directors, or for appointment to fill any vacancy;

reviewing annually with our board of directors its current composition in light of the characteristics of independence, age, skills, experience and availability of service to us;

identifying and recommending to our board the directors to serve as members of committees;

advising the board periodically with respect to significant developments in the law and practice of corporate governance as well as our compliance with applicable laws and regulations, and making recommendations to our board of directors on all matters of corporate governance and on any corrective action to be taken; and

monitoring compliance with our code of business conduct and ethics, including reviewing the adequacy and effectiveness of our procedures to ensure proper compliance.

Duties of Directors

Under Cayman Islands law, our directors have a fiduciary duty to act honestly, in good faith and with a view to our best interests. Our directors also have a duty to exercise the skill they actually possess and such care and diligence that a reasonably prudent person would exercise in comparable circumstances. In fulfilling their duty of care to us, our directors must ensure compliance with our memorandum and articles of association, amended from time to time.

Terms of Directors and Officers

Pursuant to our amended and restated memorandum and articles of incorporation, our board of directors are divided into three classes, Class A directors, Class B directors and Class C directors, who shall retire from office and be eligible for re-election at the first, second and third annual general meeting, respectively. Mr. Michael Tao Song has been designated as a Class A director. Mr. Kui Zhou and Mr. Wei Zhou have been designated as Class B directors. Mr. Jimmy Lai and Mr. Carl Yeung have been designated as Class C directors. At each subsequent annual general meeting after the third annual general meeting, the directors of the class who have been longest in office shall retire and shall be eligible for re-election. A director may only be removed by the shareholders. Officers are elected by and serve at the discretion of the board of directors.

Employment Agreements

We have entered into a three-year employment agreement with each of our executive officers. We may terminate an executive officer’s employment for cause, at any time, without prior notice or remuneration, for certain acts of the officer, including, but not limited to, conviction of a crime, material violation of our rules and regulations, or other misconduct that causes material damage to us. Furthermore, an executive officer may terminate the employment at any time upon prior written notice to us. Each executive officer is entitled to severance pay equal to a certain specified number of months of his base salary if we terminate his employment without any of the causes specified above.

Each of our executive officers has agreed to hold in strict confidence any trade secrets or confidential information of our company or trade secrets of any third-party received by us. Each executive officer has agreed that the intellectual property rights related to all work products, inventions, computer software, or other technological information which he has developed while performing his duties at our company or through mainly using our resources shall belong to us. Each executive officer has agreed to assist us to obtain and exercise all such intellectual property rights.

Employees

We had 489, 453 and 515 full-time employees as of March 31, 2013 and 2014 and December 31, 2014, respectively. We consider our relations with our employees to be good. The following table sets forth the number of our employees categorized by areas of operations as of December 31, 2014:

Function	Number of Employees		Percentage
Research and development		182		35.3	%
Sales and marketing (including customer service)		157		30.5	%
Operations		96		18.7	%
General and administration		80		15.5	%
Total		515		100.0	%

Our success depends on our ability to attract, retain and motivate qualified personnel. We believe we offer our employees competitive compensation packages, and we have generally been able to attract and retain qualified personnel and maintain a stable core management team. We believe that we maintain a good working relationship with our employees and we have not experienced any significant labor disputes. For a description of the employment agreement we signed with some members of our senior management, see “Item 6. Director, Senior Management and Employees — C. Board Practices — Employment Agreements.”

Substantially all of our employees are based in the PRC. In accordance with PRC laws, our full-time employees in China participate in various employee benefit plans including pension, medical benefit plans, unemployment insurance, work-related injury insurance and childbirth insurance.

Compensation for our full-time employees typically consists of a base salary, seniority pay and other subsidies. In addition, based on our results of operations, we may award bonuses to our employees solely at our discretion. Our employees are also eligible for equity incentives. For more information on the terms of our share incentive plan, see “Item 6. Director, Senior Management and Employees — B. Compensation of Directors and Executive Officers — Share Incentive Plan.”

We hire a portion of our employees through on-campus recruiting programs at various universities, including Zhejiang University, Zhejiang Sci-Tech University, Nanjing University, Nanjing University of Science and Technology, Huazhong University of Science and Technology, Wuhan University of Zhejiang University of Technology, Northwest Hangzhou Electronics University, and Xi’an Jiaotong University.

Share Ownership

As of December 31, 2014, we had 222,266,678 common shares outstanding. The following table sets forth information with respect to the beneficial ownership of our common shares as of December 31, 2014, by:

(1)

each of our directors and executive officers who are also our shareholders; and

(2)

each person known to us to own beneficially more than 5% of our common shares.

Beneficial ownership is determined in accordance with the rules and regulations of the SEC. In computing the number of shares beneficially owned by a person and the percentage ownership of that person, we have included shares that the person has the right to acquire within 60 days of this transition report, including through the exercise of any option, warrant or other right, the vesting of restricted shares or the conversion of any other security. These shares, however, are not included in the computation of the percentage ownership of any other person.

	Common Shares Beneficially Owned
	Number		%
Directors and Executive Officers:
Michael Tao Song ⁽¹⁾		73,811,801		33.2
Kui Zhou ⁽²⁾		9,389,800		4.2
Wei Zhou ⁽³⁾		*		*
Jimmy Lai ⁽³⁾		—		—
Carl Yeung ⁽³⁾		—		—
Fischer Xiaodong Chen ⁽³⁾		—		—
Long Zhang ⁽³⁾		—		—
All Directors and Executive Officers as a Group ⁽⁴⁾		83,301,601		37.5

Principal Shareholders:
Mobi Joy Limited⁽⁵⁾		50,647,288		22.8
Xplane Ltd.⁽⁶⁾		66,597,976		30.0
Sequoia Capital China II, L.P.⁽⁷⁾		7,871,480		3.5
Sequoia Capital China Principals Fund II, L.P.⁽⁷⁾		1,322,136		0.6
Sequoia Capital China Partners Fund II, L.P.⁽⁷⁾		196,184		0.1

______________________

Less than 1% of our total outstanding shares.

⁽¹⁾

Represents (i) 50,647,288 common shares held by Mobi Joy Limited., a British Virgin Islands company controlled by Mr. Song, and (ii) 23,164,513 common shares held by Ms. Qinyi Zhu, wife of Mr. Song, through Xplane Ltd.

⁽²⁾

Represents 10,470,248 common shares held by the Sequoia Funds. Mr. Zhou disclaims beneficial ownership with respect to the shares held by the Sequoia Funds except to the extent of his pecuniary interest therein. The business address for Mr. Zhou is Room 3606, Tower 3, China Central Place, No 77 Jianguo Road, Chaoyang District, Beijing 100025, People’s Republic of China.

⁽³⁾

The business address for Mr. Zhou is Building No.4, Tianchang Park, Media Village, Beiyuan Road, Beijing, People’s Republic of China. The business address for Mr. Lai is Tower 3 28th floor, Wangjing Soho, 1 Futong East Avenue, Beijing, People’s Republic of China. The business address for Mr. Yeung is 10/F #36 Han Zhong Road, Tianhe Software Park, Guangzhou, Guangdong, People’s Republic of China. The business address for Mr. Chen and Mr. Zhang is 10/F, Building B, United Mansion, No. 2 Zijinghua Road, Hangzhou, Zhejiang, People’s Republic of China.

⁽⁴⁾

Represents common shares held by all of our directors and executive officers as a group.

⁽⁵⁾

The registered address for Mobi Joy Limited is Romasco place, Wickhams Cay 1, P.O.Box 3140, Road Town, Tortola. British Virgin Islands, VG1110. Mr. Song is the sole shareholder of Mobi Joy Limited.

⁽⁶⁾

The registered address for Xplane Ltd. is Romasco Place, Wickhams Cay 1, P. O. Box 3140, Road Town, Tortola, British Virgin Islands, VG1110.

⁽⁷⁾

Each of the Sequoia Funds is a limited partnership incorporated in Cayman Islands. The general partner of each of the Sequoia Funds is Sequoia Capital China Management II, L.P., whose general partner is SC China Holding Limited, a company incorporated in the Cayman Islands. SC China Holding Limited is wholly owned by Max Wealth Enterprises Limited, a British Virgin Islands company wholly owned by Neil Nanpeng Shen. Mr. Shen disclaims beneficial ownership with respect to the shares held by each of the Sequoia Funds except to the extent of his pecuniary interest therein. Mr. Shen has voting and dispositive control over the shares being offered by the Sequoia Funds. The address of each of the Sequoia Funds is Suite 2215, Two Pacific Place, 88 Queensway, Hong Kong, PRC.

ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

Major Shareholders

See “Item 6. Directors, Senior Management and Employees — E. Share Ownership.”

Related Party Transactions

Contractual Arrangements

PRC law restricts foreign ownership of businesses providing telecommunications value-added services. To comply with PRC law, we operate our mobile application store and strategic investment business through Dianneng’s contractual arrangements with our SPEs. See “Item 4. Information on the Company — B. Organizational Structure” for a description of these contractual arrangements.

Shareholders Agreement

Pursuant to our shareholders agreement entered into in August 2007, as amended and restated, in connection with our pre-IPO preferred share financing, we have granted certain registration rights to holders of our registrable securities, which include our common shares issued upon conversion of our preferred shares, including preferred shares issued upon exercise of our warrants. Set forth below is a description of the registration rights granted under the agreement.

Demand Registration Rights. Holders of at least 50% of the registrable securities then outstanding have the right to demand that we file a registration statement for at least 20% of the registrable securities then held by such holders (or any lesser percentage if the anticipated gross proceeds from the offering exceed US$5,000,000). However, we are not obliged to effect a demand registration if we have already effected two demand registrations.

Form F-3 or Form S-3 Registration Rights. At any time when we are eligible for registration on Form F-3 or Form S-3, holders of our registrable securities then outstanding have the right to request that we file a registration statement under Form F-3 or Form S-3. However, we are not obliged to effect any such registration if we have already effected two registrations on Form F-3 or Form S-3 for the holders within the 12-month period preceding the date of request.

Deferral of Registration. We are not obligated to effect the above demand registration or Form F-3 or Form S-3 registration (i) if we intend to effect the filing for our own account of a registration statement of common shares within 60 days of receipt of a request, and we are actively employing in good faith our reasonable best efforts to cause such registration statement to become effective within 60 days of initial filing, or (ii) during the period starting with the date of filing by us of, and ending six months following the effective date of, any registration statement pertaining to our common shares, provided that in either case, the holders of registrable securities are entitled to join such registration under the piggyback registration rights described below. Furthermore, we have the right to defer filing a registration statement for up to 90 days under demand registration rights or up to 60 days under Form F-3 or Form S-3 registration rights if we provide the requesting holders a certificate signed by our chief executive officer stating that in the good faith judgment of the board of directors filing a registration statement will be detrimental to us and our shareholders, but we cannot exercise the deferral right more than once in any 12-month period.

Piggyback Registration Rights. If we propose to file a registration statement for a public offering of our securities other than pursuant to a demand registration right or an F-3 or S-3 registration statement, or relating to an employee benefit plan or a corporate reorganization, then we must offer holders of registrable securities an opportunity to include in this registration all or any part of their registrable securities.

Expenses of Registration. We will bear all registration expenses incurred in connection with any demand, piggyback or F-3 or S-3 registration, other than any underwriting discounts and selling commissions.

Employment Agreement

We have entered into employment agreements with each of our management members and each of the individual shareholders of Xplane Ltd. For a description of the employment agreement with our management, see “Item 6. Directors, Senior Management and Employees — C. Board Practices — Employment Agreements.”

Transactions with Certain Officers, Shareholders and Affiliates and Key Management Personnel

We license certain mobile content from our associates, namely Zhang Xing Wu Xian Technologies (Beijing) Co., Ltd., or Zhang Xing, Hangzhou Sibi Technologies Co., Ltd., or Sibi, Beijing Brtech Co., Ltd., or Brtech, Hangzhou Breaking Dawn Network Technologies Co. Ltd., or Breaking Dawn, Hangzhou TaiKu Technologies Co. Ltd., or Taiku, Hangzhou Quyuan Technologies Co. Ltd., or Quyuan, Hangzhou Qianlong Technologies Co. Ltd., or Qianlong, Hangzhou Joyreach Technologies Co., Ltd., or Joyreach, Shanghai Mihoyo Network Technology Co. Ltd., or Mihoyo, Shanghai Tongyu Network Technology Co., Ltd., or Tongyu and Beijing Jamo Games Technologies Co.,Ltd., or Jamo. The following table sets forth the related cost of revenues we have recorded for the periods indicated:

	For the Fiscal Year Ended March 31,				For the Nine Months Ended December 31,
	2012		2014		2013		2014
	RMB		RMB		RMB		RMB		US$
	(in thousands)
Zhang Xing		357		81		70		14		2
Sibi		2,271		1,545		1,204		647		104
Brtech		982		349		302		65		10
Breaking Dawn		2,924		12,137		11,108		9,047		1,458
Taiku		—		1,178		360		2,814		454
Quyuan		—		1,875		761		885		143
Qianlong		—		7,288		6,541		3,461		558
Joyreach		—		—		—		2,008		324
Mihoyo		—		—		—		6,667		1,075
Tongyu		—		—		—		6		1
Jamo		—		—		—		905		146

We also provide pre-installation and distribution service for Qianlong, Taiku and Jamo and charge a commission based on the number of active users or share proceeds from user purchases. In the nine months ended December 31, 2014, we charged a total of RMB1.8 million (US$0.3 million), RMB5.2 million (US$0.8 million) and RMB1.3 million (US$0.2 million) commission or revenue sharing from Qianlong, Taiku and Jamo, respectively.

In addition, we have certain amounts due to and from the related parties, namely Zhang Xing, Sibi, Brtech, Breaking Dawn, TaiKu, Quyuan, Qianlong, Joyreach, Mihoyo and Tongyu, ten of our associates, and Xplane Ltd., our principle shareholder. The following table sets forth the amounts due to and from those related parties for the periods indicated:

		For the Fiscal Year Ended March 31,				For the Nine Months Ended December 31,
		2013		2014		2013		2014
		RMB		RMB		RMB		RMB		US$
		(In thousands)
Amounts Due from Related Parties	Nature of Advances or Payment
Xplane Ltd.	Non-trading in nature, unsecured, interest-free advances and repayable on demand		125		—		122		—		—
Taiku	Non-trading in nature, unsecured, interest-free advances and repayable on demand		306		1		68		—		—
Breaking Dawn	Non-trading in nature, unsecured, interest-free advances and repayable on demand		92		11		244		18		3
Qianlong	Trading in nature, unsecured, interest-free advances and repayable on demand		—		148		3,000		4,693		756
Taiku	Trading in nature, unsecured, interest-free advances and repayable on demand		—		—		—		593		96
Jamo	Trading in nature, unsecured, interest-free advances and repayable on demand		—		—		—		220		35
Amounts Due to Related Parties
Zhang Xing	Trading in nature, unsecured, non-interest bearing and repayable on demand		577		604		569		171		28
Sibi	Trading in nature, unsecured, non-interest bearing and repayable on demand		426		211		155		135		22
Brtech	Trading in nature, unsecured, non-interest bearing and repayable on demand		127		39		51		65		10
Breaking Dawn	Trading in nature, unsecured, non-interest bearing and repayable on demand		2,924		4,662		12,686		11,133		1,794
Taiku	Trading in nature, unsecured, non-interest bearing and repayable on demand		—		587		24		—		—
Quyuan	Trading in nature, unsecured, non-interest bearing and repayable on demand		—		875		526		1,370		221
Qianlong	Trading in nature, unsecured, non-interest bearing and repayable on demand		—		188		6,614		5,080		819
Joyreach	Trading in nature, unsecured, non-interest bearing and repayable on demand		—		4,035		569		234		38
Mihoyo	Trading in nature, unsecured, non-interest bearing and repayable on demand		—		—		—		6,664		1,074
Tongyu	Trading in nature, unsecured, non-interest bearing and repayable on demand		—		—		—		2,116		341

The amounts due from the Sequoia Funds represent a capital injection made by Fanyi on behalf of the Sequoia Funds for their 15% equity interest in Hangzhou Guanzhun Technologies Co., Ltd., or Guanzhun, one of our associates.

Other Related Party Transactions

In June 2013, we established Hangzhou Qianlong Technology Limited, or Qianlong, with Li Ou, our former chief technology officer, to carry out mobile games development and operation related business. We and Li Ou signed definitive agreements to contribute RMB 10.0 million and RMB 15.0 million into Qianlong, and hold a 40% equity interest and a 60% equity interest in Qianlong, respectively. We also entered into a RMB 25.0 million loan agreement with Qianlong to fund its future operations. The loan bears a 3% annual interest rate and can only be used to develop Qianlong’s business. In order to focus on the management of Qianlong and to avoid conflict of interests, Li Ou resigned from our Company in June 2013.

The above-mentioned related party transactions have been unanimously approved by the Board, the audit committee and a special independent committee formed by the Board.

Share Incentive Plan

See “Item 6. Directors, Senior Management and Employees — B. Compensation of Directors and Executive Officers — Share Incentive Plan.”

Interests of Experts and Counsel

Not applicable.

ITEM 8.

FINANCIAL INFORMATION

Consolidated Statements and Other Financial Information

We have appended consolidated financial statements as part of this transition report.

Legal Proceedings

Mr. Carl Yeung, currently our non-executive director and our previous chief financial officer, served as an independent director and the chairman of the audit committee of China Natural Gas, Inc., or CHNG, a Delaware corporation whose shares of common stock were listed on NASDAQ from 2008 to November 2010. CHNG and certain of its officers and directors, including Mr. Yeung, have been named as defendants in a putative class action lawsuit alleging violations of the federal securities laws. The action, captioned Vandevelde v. China Natural Gas, Inc., et al., No. 10-cv-00728, was filed in the United States District Court for the District of Delaware on August 26, 2010. On August 12, 2011, the Court entered an order appointing Robert Skeway, an individual investor, as lead plaintiff and approving his selection of lead counsel.

Lead plaintiff and Raimundo Jo-Fung, another individual investor, who together seek to represent a class of all persons who purchased CHNG common stock between March 10, 2010 and September 21, 2011, filed an amended complaint on October 11, 2011. Plaintiffs assert claims for violations of Section 10(b) of the Exchange Act, and Rule 10b-5 thereunder. The amended complaint alleges the defendants made false or misleading statements in CHNG’s Annual Reports on Form 10-K for the years ended December 31, 2009, and December 31, 2010, and in various quarterly reports, by purportedly failing to disclose a series of loans and related party transactions. The amended complaint also asserts claims against certain of CHNG’s current and former officers and directors for violations of Section 20(a) of the Exchange Act, including Mr. Yeung. The suit seeks unspecified monetary damages. Mr. Yeung could potentially be held individually liable for civil damages in these actions.

On December 12, 2011 CHNG filed a motion to dismiss and the motion is now fully briefed. Mr. Yeung has not been served with a copy of the summons and complaint.

Since July 27, 2012, Mr. Yeung has no longer been named as a co-defendant in this case.

Other than the foregoing, we are not a party to any material litigation or other legal proceeding and are not aware of any pending or threatened litigation or other legal proceeding that may materially adversely affect our business or operations.

Dividend Policy

We are a holding company incorporated in the Cayman Islands. We may rely on dividends from our PRC subsidiaries for our cash requirements, including any payment of dividends to our shareholders. Current PRC regulations permit our PRC subsidiaries to pay dividends to us only out of their accumulated profits, if any, determined in accordance with Chinese accounting standards and regulations. In addition, each of our PRC subsidiaries is required to set aside a certain amount of its after-tax profits each year, if any, to fund certain statutory reserves. These reserves are not distributable as cash dividends. Furthermore, if our PRC subsidiaries 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.

In May 2010, we declared and paid dividends in the amount of RMB13.0 million to our common shareholders, and we also approved a distribution payable to our preferred shareholders who have participating rights in the amount of RMB4.3 million. However, we do not plan to declare and pay any dividends on our shares or ADSs in the near future. We intend to retain most, if not all, of our available funds and any future earnings to operate and expand our business.

Our board of directors has discretion as to whether to distribute dividends, subject to the approval of our shareholders. Even if our board of directors decides to pay dividends, the form, frequency and amount will depend upon our future operations and earnings, capital requirements and surplus, general financial condition, contractual restrictions and other factors that the board of directors may deem relevant. If we pay any dividends, we will pay our ADS holders to the same extent as holders of our common shares, subject to the terms of the deposit agreement, including the fees and expenses payable thereunder. Cash dividends on our common shares, if any, will be paid in U.S. dollars.

Significant Changes

Except as disclosed elsewhere in this transition report, we have not experienced any significant changes since the date of our audited consolidated financial statements included in this transition report.

ITEM 9.

THE OFFER AND LISTING

Offer and Listing Details

Our ADSs, each representing eight common shares, have been listed on NASDAQ since December 10, 2010. Our ADSs are traded under the symbol “MOBI.”

The following table provides the high and low trading prices for our ADSs on NASDAQ for the periods shown.

	Sales Price
	High		Low
Annual Highs and Lows
Fiscal Year ended March 31, 2012 (since December 10, 2010)		23.25		2.75
Fiscal Year ended March 31, 2013		3.45		1.61
Fiscal Year ended March 31, 2014		11.47		1.59
Calendar Year ended December 31, 2014		11.47		3.81

Quarterly Highs and Lows
First Fiscal Quarter ended June 30, 2013		3.44		1.59
Second Fiscal Quarter ended September 30, 2013		4.78		3.21
Third Fiscal Quarter ended December 31, 2013		5.53		3.05
Fourth Fiscal Quarter ended March 31, 2014		11.47		3.89
Second Calendar Quarter ended June 30, 2014		9.40		6.08
Third Calendar Quarter ended September 30, 2014		10.42		5.96
Fourth Calendar Quarter ended December 31, 2014		7.78		3.81
First Calendar Quarter ended March 31, 2015

Monthly Highs and Lows
November 2014		7.35		5.18
December 2014		4.76		3.81
January 2015		4.10		3.59
February 2015		4.48		3.50
March 2015		4.80		3.42
April 2015 (through April 24, 2015)		5.17		3.83

Plan of Distribution

Not applicable.

Markets

Our ADSs, each representing eight common shares, have been listed on NASDAQ since December 10, 2010. Our ADSs are traded under the symbol “MOBI.”

Selling Shareholders

Not applicable.

Dilution

Not applicable.

Expenses of the Issue

Not applicable.

ITEM 10.

ADDITIONAL INFORMATION

Share Capital

Not applicable.

Memorandum and Articles of Association

We are a Cayman Islands company and our affairs are governed by our memorandum and articles of association and the Companies Law of the Cayman Islands, which is referred to as the Companies Law below.

All share and per share data have been adjusted to reflect a 100-for-1 share split that became effective on August 2, 2007 and a further 200-for-1 share split that became effective on November 18, 2010. As of the date of this transition report, our authorized share capital is US$1,000,000 consisting of 20,000,000,000 shares with par value of US$0.00005 each. The following are summaries of material provisions of our currently effective amended and restated memorandum and articles of association and the Companies Law insofar as they relate to the material terms of our common shares. This summary is not complete, and you should read our currently effective amended and restated memorandum and articles of association.

Registered Office

The registered office of our company is at the offices of Codan Trust Company (Cayman) Limited, Cricket Square, Hutchins Drive, PO Box 2681, Grand Cayman, KY1-1111, Cayman Islands or at such other place as the Directors may from time to time decide.

Board of Directors

See “Item 6.C. Board Practices — Board of Directors.”

Common Shares

General. All of our outstanding common shares are fully paid and non-assessable. Certificates representing the common shares are issued in registered form. Our shareholders who are nonresidents of the Cayman Islands may freely hold and vote their shares.

Dividends. The holders of our common shares are entitled to such dividends as may be declared by our board of directors subject to the Companies Law and to the amended and restated articles of association.

Voting Rights. Each common share is entitled to one vote on all matters upon which the common shares are entitled to vote. Voting at any shareholders’ meeting is by show of hands unless a poll is demanded. A poll may be demanded by our chairman or any shareholder, present in person or by proxy.

A quorum required for a meeting of shareholders consists of at least two shareholders present in person or by proxy or, if a corporation or other non-natural person, by its duly authorized representative, who hold not less than one-third of our voting share capital. An annual general meeting shall be held in each year other than the year in which the amended and restated articles of association was adopted. Extraordinary general meetings may be held at such times as may be determined by our board of directors and may be convened by a majority of our board of directors or the chairman of the board on its/his own initiative. Also, any one or more shareholders holding not less than 25% of our voting share capital may require an extraordinary general meeting to be called by the board of directors by written requisition to our board of directors or secretary. Advance notice of at least 10 clear days is required for the convening of our annual general meeting and other shareholders’ meetings.

An ordinary resolution to be passed by the shareholders requires the affirmative vote of a simple majority of the votes attaching to the common shares cast in a general meeting, while a special resolution requires the affirmative vote of no less than two-thirds of the votes cast attaching to the common shares. A special resolution is required for important matters such as amendments to the memorandum and articles of association, a change of name or voluntary liquidation. Holders of the common shares may effect certain changes by ordinary resolution, including altering the amount of our authorized share capital, consolidate and divide all or any of our share capital into shares of larger amount than our existing share capital, and cancel any unissued shares.

Transfer of Shares. Subject to the restrictions of our amended and restated memorandum and articles of association, as applicable, any of our shareholders may transfer all or any of his or her common shares by an instrument of transfer in the usual or common form or any other form approved by our board.

Our board of directors may, in its sole discretion, decline to register any transfer of any common share which is not fully paid up or on which we have a lien. Our directors may also decline to register any transfer of any common share unless (a) the instrument of transfer is lodged with us, accompanied by the certificate for the common shares to which it relates and such other evidence as our board of directors may reasonably require to show the right of the transferor to make the transfer; (b) the instrument of transfer is in respect of only one class of common shares; (c) the instrument of transfer is properly stamped, if required; (d) in the case of a transfer to joint holders, the number of joint holders to whom the common share is to be transferred does not exceed four; (e) the shares concerned are free of any lien in favor of us; or (f) a fee of such maximum sum as NASDAQ may determine to be payable, or such lesser sum as our board of directors may from time to time require, is paid to us in respect thereof.

If our directors refuse to register a transfer they shall, within three months after the date on which the instrument of transfer was lodged, send to each of the transferor and the transferee notice of such refusal. The registration of transfers may, on notice being given by advertisement in such one or more newspapers or by electronic means, be suspended and the register closed at such times and for such periods as our board of directors may from time to time determine, provided, however, that the registration of transfers shall not be suspended nor the register closed for more than 30 days in any year.

Liquidation. On a return of capital on winding up or otherwise (other than on conversion, redemption or purchase of shares), assets available for distribution among the holders of common shares shall be distributed among the holders of the common shares on a pro rata basis.

Calls on Shares and Forfeiture of Shares. Our board of directors may from time to time make calls upon shareholders for any amounts unpaid on their shares in a notice served to such shareholders at least 14 clear days prior to the specified time and place of payment. The shares that have been called upon and remain unpaid on the specified time are subject to forfeiture.

Redemption of Shares. Subject to the provisions of the Companies Law, we may issue shares on terms that are subject to redemption, at our option or at the option of the holders, on such terms and in such manner, including out of capital, as may, before the issue of such shares, be determined by our board of directors.

Variations of Rights of Shares. All or any of the special rights attached to any class of shares may, subject to the provisions of the Companies Law, be varied with the sanction of a special resolution passed at a general meeting of the holders of the shares of that class.

Inspection of Books and Records. Holders of our common shares will have no general right under Cayman Islands law to inspect or obtain copies of our list of shareholders or our corporate records. However, we will provide our shareholders with annual audited financial statements. See “Where You Can Find Additional Information.”

Changes in Capital. We may from time to time by ordinary resolutions:

increase the share capital by such sum, to be divided into shares of such classes and amount, as the resolution shall prescribe;

consolidate and divide all or any of our share capital into shares of a larger amount than our existing shares;

sub-divide our existing shares, or any of them into shares of a smaller amount; and

cancel any shares that, at the date of the passing of the resolution, have not been taken or agreed to be taken by any person and diminish the amount of our share capital by the amount of the shares so cancelled.

Subject to the Companies Law and our amended and restated memorandum and articles of association with respect to matters to be dealt with by ordinary resolution, we may, by special resolution, reduce our share capital and any capital redemption reserve in any manner authorized by law.

Issuance of Additional Shares. Our amended and restated memorandum and articles of association authorizes our board of directors to issue additional common shares from time to time as our board of directors shall determine, to the extent there are available authorized but unissued shares.

Our amended and restated memorandum and articles of association authorizes our board of directors to establish from time to time one or more series of preferred shares and to determine, with respect to any series of preferred shares, the terms and rights of that series, including:

designation of the series;

the number of shares of the series;

the dividend rights, conversion rights and voting rights; and

the rights and terms of redemption and liquidation preferences.

The issuance of preferred shares may be used as an anti-takeover device without further action on the part of the shareholders. Issuance of these shares may dilute the voting power of holders of common shares.

Differences in Corporate Law

The Companies Law is modeled after that of England and Wales but does not follow recent statutory enactments in England. In addition, the Companies Law differs from laws applicable to United States corporations and their shareholders. Set forth below is a summary of the significant differences between the provisions of the Companies Law applicable to us and the laws applicable to companies incorporated in the State of Delaware.

Mergers and Similar Arrangements. A merger of two or more constituent companies under Cayman Islands law requires a plan of merger or consolidation to be approved by the directors of each constituent company and authorization by (a) a special resolution and (b) such other authorization, if any, as may be specified in its articles of association.

A merger between a Cayman parent company and its Cayman subsidiary or subsidiaries does not require authorization by a resolution of shareholders. For this purpose a subsidiary is a company of which at least ninety percent (90%) of the issued shares entitled to vote are owned by the parent company.

The consent of each holder of a fixed or floating security interest over a constituent company is required unless this requirement is waived by a court in the Cayman Islands.

Except in certain circumstances, a shareholder of a Cayman constituent company is entitled to payment of the fair value of his shares upon dissenting to a merger or consolidation. The exercise of appraisal rights will preclude the exercise of any other rights save for the right to seek relief on the grounds that the merger or consolidation is void or unlawful.

In addition, there are statutory provisions that facilitate the reconstruction and amalgamation of companies, provided that the arrangement is approved by a majority in number of each class of shareholders and creditors representing 75% in value of each such class of shareholders or creditors, as the case may be, that are present and voting either in person or by proxy at a meeting, or meetings, convened for that purpose. The convening of the meetings and subsequently the arrangement must be sanctioned by the Grand Court of the Cayman Islands. While a dissenting shareholder has the right to express to the court the view that the transaction ought not to be approved, the court can be expected to approve the arrangement if it determines that:

the statutory provisions as to the required majority vote have been met;

the shareholders have been fairly represented at the meeting in question and the statutory majority are acting bona fide without coercion of the minority to promote interests adverse to those of the class;

the arrangement is such that may be reasonably approved by an intelligent and honest man of that class acting in respect of his interest; and

the arrangement is not one that would more properly be sanctioned under some other provision of the Companies Law.

When a take-over offer is made and accepted by holders of 90.0% of the shares within four months, the offeror may, within a two-month period commencing on the expiration of such four month period, require the holders of the remaining shares to transfer such shares on the terms of the offer. An objection can be made to the Grand Court of the Cayman Islands but this is unlikely to succeed in the case of an offer which has been so approved unless there is evidence of fraud, bad faith or collusion.

If an arrangement and reconstruction is thus approved, the dissenting shareholder would have no rights comparable to appraisal rights, which would otherwise ordinarily be available to dissenting shareholders of Delaware corporations, providing rights to receive payment in cash for the judicially determined value of the shares.

Shareholders’ Suits. In principle, we will normally be the proper plaintiff and as a general rule a derivative action may not be brought by a minority shareholder. However, based on English authorities, which would in all likelihood be of persuasive authority in the Cayman Islands, there are exceptions to the foregoing principle, including when:

a company acts or proposes to act illegally or ultra vires;

the act complained of, although not ultra vires, could only be effected duly if authorized by more than a simple majority vote that has not been obtained; and

those who control the company are perpetrating a “fraud on the minority.”

Indemnification of Directors and Executive Officers and Limitation of Liability. Cayman Islands law does not limit the extent to which a company’s memorandum and articles of association may provide for indemnification of officers and directors, except to the extent any such provision may be held by the Cayman Islands courts to be contrary to public policy, such as to provide indemnification against civil fraud or the consequences of committing a crime.

Our amended and restated memorandum and articles of association permit indemnification of officers and directors for losses, damages costs and expenses incurred in their capacities as such unless such losses or damages arise from dishonesty or fraud which may attach to such directors or officers. This standard of conduct is generally the same as permitted under the Delaware General Corporation Law for a Delaware corporation. In addition, we intend to enter into indemnification agreements with our directors and senior executive officers that will provide such persons with additional indemnification beyond that provided in our amended and restated memorandum and articles of association.

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers or persons controlling us under the foregoing provisions, we have been informed that, in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.

Directors’ Fiduciary Duties. Under Delaware corporate law, a director of a Delaware corporation has a fiduciary duty to the corporation and its shareholders. This duty has two components: the duty of care and the duty of loyalty. The duty of care requires that a director act in good faith, with the care that an ordinarily prudent person would exercise under similar circumstances. Under this duty, a director must inform himself of, and disclose to shareholders, all material information reasonably available regarding a significant transaction. The duty of loyalty requires that a director act in a manner he or she reasonably believes to be in the best interests of the corporation. He or she must not use his or her corporate position for personal gain or advantage. This duty prohibits self-dealing by a director and mandates that the best interest of the corporation and its shareholders take precedence over any interest possessed by a director, officer or controlling shareholder and not shared by the shareholders generally. In general, actions of a director are presumed to have been made on an informed basis, in good faith and in the honest belief that the action taken was in the best interests of the corporation. However, this presumption may be rebutted by evidence of a breach of one of the fiduciary duties. Should such evidence be presented concerning a transaction by a director, a director must prove the procedural fairness of the transaction, and that the transaction was of fair value to the corporation.

As a matter of Cayman Islands law, a director of a Cayman Islands company is in the position of a fiduciary with respect to the company and therefore it is considered that he owes the following duties to the company — a duty to act bona fide in the best interests of the company, a duty not to make a profit based on his or her position as director (unless the company permits him to do so) and a duty not to put himself in a position where the interests of the company conflict with his or her personal interest or his or her duty to a third party. A director of a Cayman Islands company owes to the company a duty to act with skill and care. It was previously considered that a director need not exhibit in the performance of his or her duties a greater degree of skill than may reasonably be expected from a person of his or her knowledge and experience. However, English and Commonwealth courts have moved towards an objective standard with regard to the required skill and care and these authorities are likely to be followed in the Cayman Islands.

Shareholder Action by Written Consent. Under the Delaware General Corporation Law, a corporation may eliminate the right of shareholders to act by written consent by amendment to its certificate of incorporation. Similarly, our amended and restated articles of association provide that any action required or permitted to be taken at any annual or extraordinary general meetings of the company may be taken only upon the vote of the members at an annual or extraordinary general meeting duly noticed and convened in accordance with our amended and restated articles of association and the law and may not be taken by a written resolution of members without a meeting.

Shareholder Proposals. Under the Delaware General Corporation Law, a shareholder has the right to put any proposal before the annual meeting of shareholders, provided it complies with the notice provisions in the governing documents. A special meeting may be called by the board of directors or any other person authorized to do so in the governing documents, but shareholders may be precluded from calling special meetings.

Our amended and restated articles of association allow any shareholder holding 25% or more of our paid up capital carrying the right of voting at general meetings to requisition a shareholder’s meeting. As an exempted Cayman Islands company, we are not obliged by law to call shareholders’ annual general meetings. However, our amended and restated articles of association require us to call such meetings.

Cumulative Voting. Under the Delaware General Corporation Law, cumulative voting for elections of directors is not permitted unless the corporation’s certificate of incorporation specifically provides for it. Cumulative voting potentially facilitates the representation of minority shareholders on a board of directors since it permits the minority shareholder to cast all the votes to which the shareholder is entitled on a single director, which increases the shareholder’s voting power with respect to electing such director. As permitted under Cayman Islands law, our amended and restated articles of association do not provide for cumulative voting. As a result, our shareholders are not afforded any less protections or rights on this issue than shareholders of a Delaware corporation.

Removal of Directors. Under the Delaware General Corporation Law, a director of a corporation with a classified board may be removed only for cause with the approval of a majority of the outstanding shares entitled to vote, unless the certificate of incorporation provides otherwise. Under our amended and restated articles of association, directors may be removed by ordinary resolution at any time before the expiration of their period of office.

Transactions with Interested Shareholders. The Delaware General Corporation Law contains a business combination statute applicable to Delaware corporations whereby, unless the corporation has specifically elected not to be governed by such statute by amendment to its certificate of incorporation, it is prohibited from engaging in certain business combinations with an “interested shareholder” for three years following the date that such person becomes an interested shareholder. An interested shareholder generally is a person or a group who or which owns or owned 15% or more of the target’s outstanding voting stock within the past three years. This has the effect of limiting the ability of a potential acquirer to make a two-tiered bid for the target in which all shareholders would not be treated equally. The statute does not apply if, among other things, prior to the date on which such shareholder becomes an interested shareholder, the board of directors approves either the business combination or the transaction which resulted in the person becoming an interested shareholder. This encourages any potential acquirer of a Delaware corporation to negotiate the terms of any acquisition transaction with the target’s board of directors.

Cayman Islands law has no comparable statute. As a result, we cannot avail ourselves of the types of protections afforded by the Delaware business combination statute. However, although Cayman Islands law does not regulate transactions between a company and its significant shareholders, such transactions must be entered into bona fide in the best interests of the company for a proper corporate purpose and not with the effect of constituting a fraud on the minority shareholders.

Dissolution; Winding up. Under the Delaware General Corporation Law, unless the board of directors approves the proposal to dissolve, dissolution must be approved by shareholders holding 100% of the total voting power of the corporation. Only if the dissolution is initiated by the board of directors may it be approved by a simple majority of the corporation’s outstanding shares. Delaware law allows a Delaware corporation to include in its certificate of incorporation a supermajority voting requirement in connection with dissolutions initiated by the board. Under Cayman Islands law, a company may be wound up by either an order of the courts of the Cayman Islands or by a special resolution of its members or, if the company is unable to pay its debts as they fall due, by an ordinary resolution of its members. The court has authority to order winding up in a number of specified circumstances including where it is, in the opinion of the court, just and equitable to do so.

Under the Companies Law of the Cayman Islands and our amended and restated articles of association, our company may be dissolved, liquidated or wound up by a special resolution.

Variation of Rights of Shares. Under the Delaware General Corporation Law, a corporation may vary the rights of a class of shares with the approval of a majority of the outstanding shares of such class, unless the certificate of incorporation provides otherwise. Under Cayman Islands law and our amended and restated articles of association, if our share capital is divided into more than one class of shares, we may vary the rights attached to any class only with a special resolution passed at a general meeting of the holders of the shares of that class.

Amendment of Governing Documents. Under the Delaware General Corporation Law, a corporation’s governing documents may be amended with the approval of a majority of the outstanding shares entitled to vote, unless the certificate of incorporation provides otherwise. As permitted by Cayman Islands law, our amended and restated memorandum and articles of association may only be amended by special resolution.

Inspection of Books and Records. Under the Delaware General Corporation Law, any shareholder of a corporation may for any proper purpose inspect or make copies of the corporation’s stock ledger, list of shareholders and other books and records.

Holders of our shares will have no general right under Cayman Islands law to inspect or obtain copies of our list of shareholders or our corporate records. However, we intend to provide our shareholders with transition reports containing audited financial statements.

Anti-takeover Provisions in Our Memorandum and Articles of Association. Some provisions of our amended and restated memorandum and articles of association may discourage, delay or prevent a change of control of our company or management that shareholders may consider favorable, including a provision that authorizes our board of directors to issue preference shares in one or more series and to designate the price, rights, preferences, privileges and restrictions of such preference shares without any further vote or action by our shareholders.

Such shares could be issued quickly with terms calculated to delay or prevent a change in control of our company or make removal of management more difficult. If our board of directors decides to issue these preference shares, the price of our ADSs may fall and the voting and other rights of the holders of our common shares and ADSs may be materially adversely affected.

However, under Cayman Islands law, our directors may only exercise the rights and powers granted to them under our amended and restated memorandum and articles of association for a proper purpose and for what they believe in good faith to be in the best interests of our company.

Rights of Non-resident or Foreign Shareholders. There are no limitations imposed by our amended and restated memorandum and articles of association on the rights of non-resident or foreign shareholders to hold or exercise voting rights on our shares. In addition, there are no provisions in our amended and restated memorandum and articles of association governing the ownership threshold above which shareholder ownership must be disclosed.

Material Contracts

We have not entered into any material contracts other than in the ordinary course of business and other than those described in “Item 4. Information on the Company” or elsewhere in this transition report on Form 20-F.

Exchange Controls

See “Item 4. Information on the Company — B. Business Overview — Regulations — Dividend Distribution” and “— Foreign Currency Exchange.”

Taxation

The following summary of the material Cayman Islands, PRC and U.S. federal income tax consequences of an investment in our ADSs or common shares is based upon laws and relevant interpretations thereof in effect as of the date of this transition report, all of which are subject to change. This summary does not deal with all possible tax consequences relating to an investment in our ADSs or common shares, such as the tax consequences under state, local and other tax laws not addressed herein.

Cayman Islands Taxation

The Cayman Islands currently levies no taxes on individuals or corporations based upon profits, income, gains or appreciation and there is no taxation in the nature of inheritance tax or estate duty or withholding tax applicable to us or to any holder of our ADSs and common shares. There are no other taxes likely to be material to us levied by the Government of the Cayman Islands except for stamp duties which may be applicable on instruments executed in, or after execution brought within the jurisdiction of the Cayman Islands. No stamp duty is payable in the Cayman Islands on transfers of shares of Cayman Islands companies, except those which hold interests in land in the Cayman Islands. The Cayman Islands is not party to any double tax treaties save for a double tax treaty entered into with the United Kingdom in 2010. There are no exchange control regulations or currency restrictions in the Cayman Islands.

Pursuant to Section 6 of the Tax Concessions Law (1999 Revision) of the Cayman Islands, we have obtained an undertaking from the Governor-in-Council:

(1) that no law which is enacted in the Cayman Islands imposing any tax to be levied on profits or income or gains or appreciation shall apply to us or our operations; and

(2) that the aforesaid tax or any tax in the nature of estate duty or inheritance tax shall not be payable on or in respect of our shares, debentures or other obligations or by way of the withholding in whole or in part of any relevant payment as defined in Section 6 (3) of the Tax Concessions Law (1999 Revision) of the Cayman Islands.

The undertaking for us is for a period of twenty years from August 10, 2010.

People’s Republic of China Taxation

If the PRC tax authorities determine that our Cayman Islands holding company is a “resident enterprise” for EIT purposes, a withholding tax rate of 10% for our non-PRC enterprise shareholders or potentially 20% for non-PRC individual shareholders may be imposed on dividends they receive from us and on gains they recognize from transferring our shares or ADSs. See “Item 3. Key Information — D. Risk Factors — Risks Related to Doing Business in China — We may be classified as a ‘resident enterprise’ for PRC EIT purposes, which could result in our global income becoming subject to the 25% PRC EIT rate.”

United States Federal Income Taxation

The following discussion describes certain U.S. federal income tax consequences to U.S. Holders (as defined below) under present law of an investment in our ADSs or common shares. This discussion applies only to U.S. Holders that hold the ADSs or common shares as capital assets (generally, property held for investment) and that have the U.S. dollar as their functional currency. This discussion is based on the tax laws of the United States as of the date of this transition report and on U.S. Treasury regulations in effect or, in some cases, proposed, as of the date of this transition report, as well as judicial and administrative interpretations thereof available on or before such date. All of the foregoing authorities are subject to change, which change could apply retroactively and could affect the tax consequences described below.

The following discussion neither deals with the tax consequences to any particular investor nor describes all of the tax consequences applicable to persons in special tax situations such as:

banks;

certain financial institutions;

insurance companies;

regulated investment companies;

real estate investment trusts;

broker-dealers;

traders that elect to mark to market;

U.S. expatriates;

tax-exempt entities;

persons liable for alternative minimum tax;

persons holding ADSs or common shares as part of a straddle, hedging, conversion or integrated transaction;

persons that actually or constructively own 10% or more of the total combined voting power of all classes of our voting stock;

persons who acquired ADSs or common shares pursuant to the exercise of any employee share option or otherwise as compensation; or

partnerships or pass-through entities, or persons holding ADSs or common shares through such entities.

INVESTORS ARE URGED TO CONSULT THEIR TAX ADVISORS ABOUT THE APPLICATION OF THE U.S. FEDERAL TAX RULES TO THEIR PARTICULAR CIRCUMSTANCES AS WELL AS THE STATE, LOCAL, NON-U.S. AND OTHER TAX CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF ADSs OR COMMON SHARES.

The discussion below of the U.S. federal income tax consequences to “U.S. Holders” will apply to you if you are the beneficial owner of our ADSs or common shares and you are, for U.S. federal income tax purposes,

an individual who is a citizen or resident of the United States;

a corporation (or other entity taxable as a corporation for U.S. federal income tax purposes) created or organized in the United States or under the laws of the United States, any State thereof or the District of Columbia;

an estate, the income of which is subject to U.S. federal income taxation regardless of its source; or

a trust that (1) is subject to the primary supervision of a court within the United States and the control of one or more U.S. persons for all substantial decisions or (2) has a valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person.

If you are a partner in a partnership or other entity taxable as a partnership that holds common shares, your tax treatment will depend on your status and the activities of the partnership. If you are a partner in such a partnership, you should consult your tax advisor.

The discussion below assumes that the representations contained in the deposit agreement are true and the obligations in the deposit agreement and any related agreement have been and will be complied with in accordance with their terms. If you own ADSs, you should be treated as the owner of the underlying common shares represented by those ADSs for U.S. federal income tax purposes.

The U.S. Treasury has expressed concerns that intermediaries in the chain of ownership between the holder of an ADS and the issuer of the security underlying the ADS may be taking actions that are inconsistent with the beneficial ownership of the underlying security (for example, pre-releasing ADSs to persons that do not have the beneficial ownership of the securities underlying the ADSs). Accordingly, the creditability of any PRC taxes and the availability of the reduced tax rate for any dividends received by certain non-corporate U.S. Holders, including individual U.S. Holders (as discussed below), could be affected by actions taken by intermediaries in the chain of ownership between the holders of ADSs and our company if as a result of such actions the holders of ADSs are not properly treated as beneficial owners of underlying common shares.

Passive Foreign Investment Company

Based on the market price of our ADSs, the value of our assets and the composition of our income and assets, we believe that it is likely that we were a PFIC for U.S. federal income tax purposes for the nine-month period ended December 31, 2014. A non-U.S. corporation will be a PFIC for U.S. federal income tax purposes for any taxable year if either:

at least 75% of its gross income for such year is passive income; or

at least 50% of the value of its assets (based on an average of the quarterly values of the assets) during such year is attributable to assets that produce passive income or are held for the production of passive income.

For this purpose, we will be treated as owning our proportionate share of the assets and earning our proportionate share of the income of any other corporation in which we own, directly or indirectly, more than 25% (by value) of the stock. In applying this rule, while it is not clear, we believe the contractual arrangements between us and our affiliated entities should be treated as ownership of stock.

A separate determination must be made after the close of each taxable year as to whether we were a PFIC for that year. Because the value of our assets for purposes of the asset test will generally be determined by reference to the market price of our ADSs or equity shares, our PFIC status will depend in large part on the market price of the ADSs or common shares, which may fluctuate significantly.

If we are a PFIC for any taxable year during which you hold ADSs or common shares, we generally will continue to be treated as a PFIC with respect to you for all succeeding years during which you hold ADSs or common shares, unless we cease to be a PFIC and you make a “deemed sale” election with respect to the ADSs or common shares. If such election is made, you will be deemed to have sold ADSs or common shares you hold at their fair market value on the last day of the last taxable year in which we qualified as a PFIC and any gain from such deemed sale would be subject to the consequences described in the following two paragraphs. After the deemed sale election, your ADSs or common shares with respect to which the deemed sale election was made will not be treated as shares in a PFIC unless we subsequently become a PFIC.

For each taxable year that we are treated as a PFIC with respect to you, you will be subject to special tax rules with respect to any “excess distribution” you receive and any gain you recognize from a sale or other disposition (including a pledge) of the ADSs or common shares, unless you make a “mark-to-market” election as discussed below. Distributions you receive in a taxable year that are greater than 125% of the average annual distributions you received during the shorter of the three preceding taxable years or your holding period for the ADSs or common shares will be treated as an excess distribution. Under these special tax rules:

the excess distribution or recognized gain will be allocated ratably over your holding period for the ADSs or common shares;

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the amount allocated to the current taxable year, and any taxable years in your holding period prior to the first taxable year in which we were a PFIC, will be treated as ordinary income; and

the amount allocated to each other taxable year will be subject to the highest tax rate in effect for individuals or corporations, as applicable, for each such year and the interest charge generally applicable to underpayments of tax will be imposed on the resulting tax attributable to each such year.

The tax liability for amounts allocated to taxable years prior to the year of disposition or excess distribution cannot be offset by any net operating losses for such years, and gains (but not losses) realized on the sale or other disposition of our ADSs or common shares cannot be treated as capital, even if you hold the ADSs or common shares as capital assets.

If we are treated as a PFIC with respect to you for any taxable year, to the extent any of our subsidiaries are also PFICs or we make direct or indirect equity investments in other entities that are PFICs, you may be deemed to own shares in such lower-tier PFICs that are directly or indirectly owned by us in that proportion which the value of the ADSs or common shares you own bears to the value of all of our ADSs or common shares, and you may be subject to the adverse tax consequences described in the preceding two paragraphs with respect to the shares of such lower-tier PFICs that you would be deemed to own. You should consult your tax advisors regarding the application of the PFIC rules to any of our subsidiaries.

A U.S. Holder of “marketable stock” (as defined below) in a PFIC may make a mark-to-market election for such stock to elect out of the PFIC rules described above regarding excess distributions and recognized gains. If you make a mark-to-market election for our ADSs or common shares, you will include in income for each year we are a PFIC an amount equal to the excess, if any, of the fair market value of the ADSs or common shares as of the close of your taxable year over your adjusted basis in such ADSs or common shares. You will be allowed an ordinary deduction for the excess, if any, of the adjusted basis of the ADSs or common shares over their fair market value as of the close of the taxable year. However, deductions will be allowable only to the extent of any net mark-to-market gains on the ADSs or common shares included in your income for prior taxable years. Amounts included in your income under a mark-to-market election, as well as gain on the actual sale or other disposition of the ADSs or common shares, will be treated as ordinary income. Ordinary loss treatment will also apply to the deductible portion of any mark-to-market loss on the ADSs or common shares, as well as to any loss realized on the actual sale or other disposition of the ADSs or common shares, to the extent that the amount of such loss does not exceed the net mark-to-market gains previously included for such ADSs or common shares. Your basis in the ADSs or common shares will be adjusted to reflect any such income or loss amounts. If you make a mark-to-market election, any distributions we make would generally be subject to the rules discussed above under “— Taxation of Dividends and Other Distributions on the ADSs or Common Shares,” except that the lower tax rate applicable to qualified dividend income would not apply.

The mark-to-market election is available only for “marketable stock,” which is stock that is regularly traded on a qualified exchange or other market, as defined in applicable U.S. Treasury regulations. Our ADS are listed on NASDAQ which is a qualified exchange or other market for these purposes. Consequently, if the ADSs continue to be listed on NASDAQ and are regularly traded, and you are a holder of ADSs, we expect the mark-to-market election would be available to you if we were to become a PFIC. Because a mark-to-market election cannot be made for equity interests in any lower-tier PFICs that we own, a U.S. Holder may continue to be subject to the PFIC rules with respect to its indirect interest in any investments held by us that are treated as an equity interest in a PFIC for U.S. federal income tax purposes. You should consult your tax advisors as to the availability and desirability of a mark-to-market election, as well as the impact of such election on interests in any lower-tier PFICs.

Alternatively, if a non-U.S. corporation is a PFIC, a holder of shares in that corporation may avoid taxation under the PFIC rules described above regarding excess distributions and recognized gains by making a “qualified electing fund” election to include in income its share of the corporation’s income on a current basis. However, you may make a qualified electing fund election with respect to your ADSs or common shares only if we agree to furnish you annually with certain tax information, and we currently do not intend to prepare or provide such information.

Subject to certain exceptions based on the value of PFIC stock held, each U.S. Holder of a PFIC is required to file an annual report containing such information as the U.S. Treasury may require. If we are or become a PFIC, you should consult your tax advisor regarding any reporting requirements that may apply to you.

You are strongly urged to consult your tax advisor regarding the application of the PFIC rules to your investment in ADSs or common shares and the advisability of making any election described in this section.

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Taxation of Dividends and Other Distributions on the ADSs or Common Shares

Subject to the PFIC rules discussed above, the gross amount of any distributions we make to you with respect to our ADSs or common shares generally will be includible in your gross income as dividend income on the date of receipt by the depositary, in the case of ADSs, or on the date of receipt by you, in the case of common shares, but only to the extent the distribution is paid out of our current or accumulated earnings and profits (as determined under U.S. federal income tax principles). Any such dividends will not be eligible for the dividends-received deduction allowed to corporations in respect of dividends received from other U.S. corporations. To the extent the amount of the distribution exceeds our current and accumulated earnings and profits (as determined under U.S. federal income tax principles), such excess amount will be treated first as a tax-free return of your tax basis in your ADSs or common shares, and then, to the extent such excess amount exceeds your tax basis in your ADSs or common shares, as capital gain. We currently do not, and we do not intend to, calculate our earnings and profits under U.S. federal income tax principles. Therefore, a U.S. Holder should expect any distribution will generally be reported as a dividend even if that distribution would otherwise be treated as a non-taxable return of capital or as capital gain under the rules described above.

With respect to certain non-corporate U.S. Holders, including individual U.S. Holders, any dividends may be taxed at the lower capital gains rate applicable to “qualified dividend income,” provided (1) either (a) the ADSs or common shares, as applicable, are readily tradable on an established securities market in the United States or (b) we are eligible for the benefits of a qualifying income tax treaty with the United States that includes an exchange of information program, (2) we are neither a PFIC nor treated as such with respect to you (as discussed above) for the taxable year in which the dividend was paid and the preceding taxable year and (3) certain holding period requirements are met. Under U.S. Internal Revenue Service authority, ADSs are considered for purposes of clause (1) above to be readily tradable on an established securities market in the United States if they are listed on NASDAQ as are our ADSs. However, based on existing guidance, it is not entirely clear whether dividends you receive with respect to the common shares will be taxed as qualified dividend income, because the common shares are not themselves listed on a U.S. exchange. As discussed above in “— Passive Foreign Investment Company,” we believe that it is likely that we were a PFIC for the nine-month period ended December 31, 2014. If we are treated as a “resident enterprise” for PRC tax purposes under the PRC Enterprise Income Tax Law, we may be eligible for the benefits of the income tax treaty between the United States and the PRC. You should consult your tax advisors regarding the availability of the lower capital gains rate applicable to qualified dividend income for any dividends paid with respect to our ADSs or common shares.

Any dividends will constitute foreign source income for foreign tax credit limitation purposes. If the dividends are taxed as qualified dividend income (as discussed above), the amount of the dividend taken into account for purposes of calculating the foreign tax credit limitation will in general be limited to the gross amount of the dividend, multiplied by the reduced tax rate applicable to qualified dividend income and divided by the highest tax rate normally applicable to dividends. The limitation on foreign taxes eligible for credit is calculated separately with respect to specific classes of income. For this purpose, dividends distributed by us with respect to our ADSs or common shares will generally constitute “passive category income” but could, in the case of certain U.S. Holders, constitute “general category income.”

If PRC withholding taxes apply to any dividends paid to you with respect to our ADSs or common shares, the amount of the dividend would include the withheld PRC taxes and, subject to certain conditions and limitations, such PRC withholding taxes generally will be treated as foreign taxes eligible for credit against your U.S. federal income tax liability. The rules relating to the determination of the foreign tax credit are complex and you should consult your tax advisors regarding the availability of a foreign tax credit in your particular circumstances, including the effects of any applicable income tax treaties.

Taxation of Disposition of ADSs or Common Shares

Subject to the PFIC rules discussed above, you will recognize taxable gain or loss on any sale, exchange or other taxable disposition of ADSs or common shares equal to the difference between the amount realized for the ADSs or common shares and your tax basis in the ADSs or common shares. The gain or loss generally will be capital gain or loss. If you are a non-corporate U.S. Holder, including an individual U.S. Holder, that has held the ADSs or common shares for more than one year, you may be eligible for reduced tax rates. The deductibility of capital losses is subject to limitations. As discussed above in “— Passive Foreign Investment Company,” we believe that it is likely that we were a PFIC for the nine-month period ended December 31, 2014. Any gain or loss you recognize on a disposition of ADSs or common shares will generally be treated as U.S. source income or loss for foreign tax credit limitation purposes. However, if we are treated as a “resident enterprise” for PRC tax purposes, we may be eligible for the benefits of the income tax treaty between the United States and the PRC. In such event, if PRC tax were to be imposed on any gain from the disposition of the ADSs or common shares, a U.S. Holder that is eligible for the benefits of the income tax treaty between the United States and the PRC may elect to treat the gain as PRC source income for foreign tax credit purposes. You should consult your tax advisors regarding the proper treatment of gain or loss in your particular circumstances, including the effects of any applicable income tax treaties.

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Information Reporting and Backup Withholding

Any dividend payments with respect to ADSs or common shares and proceeds from the sale, exchange or redemption of ADSs or common shares may be subject to information reporting to the U.S. Internal Revenue Service and possible U.S. backup withholding. Backup withholding will not apply, however, to a U.S. Holder that furnishes a correct taxpayer identification number and makes any other required certification or that is otherwise exempt from backup withholding. U.S. Holders that are required to establish their exempt status generally must provide such certification on U.S. Internal Revenue Service Form W-9. U.S. Holders should consult their tax advisors regarding the application of the U.S. information reporting and backup withholding rules.

Backup withholding is not an additional tax. Amounts withheld as backup withholding may be credited against your U.S. federal income tax liability, and you may obtain a refund of any excess amounts withheld under the backup withholding rules by filing the appropriate claim for refund with the U.S. Internal Revenue Service and furnishing any required information in a timely manner.

Additional Reporting Requirements

Certain U.S. Holders who are individuals are required to report information relating to an interest in our ADSs or common shares, subject to certain exceptions (including an exception for ADSs or common shares held in accounts maintained by certain financial institutions). U.S. Holders should consult their tax advisors regarding the effect, if any, of these rules on their ownership and disposition of the ADSs and common shares.

Dividends and Paying Agents

Not Applicable.

Statement by Experts

Not Applicable.

Documents on Display

We previously filed with the SEC our registration statement on Form F-1, as amended, and related prospectus under the Securities Act of 1933, with respect to our common shares represented by the ADSs. We also filed with the SEC a related registration statement on Form F-6 with respect to the ADSs.

We are subject to periodic reporting and other informational requirements of the Exchange Act as applicable to foreign private issuers. Accordingly, we are required to file reports, including annual reports on Form 20-F, and other information with the SEC. All documents filed by us with the SEC can be inspected and copied at the public reference facilities maintained by the SEC at 100 F Street, N.E., Washington, D.C. 20549. You can request copies of these documents, upon payment of a duplicating fee, by writing to the SEC. Please call the SEC at 1-800-SEC-0330 for further information on the operation of the public reference rooms. The SEC also maintains a web site at www.sec.gov that contains reports, proxy and information statements, and other information regarding registrants that make electronic filings with the SEC using its EDGAR system.

As a foreign private issuer, we are exempt from the rules of the Exchange Act prescribing the furnishing and content of quarterly reports and proxy statements, and our executive officers, directors and principal shareholders are exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act. In addition, we are not required under the Exchange Act to file periodic reports and financial statements with the SEC as frequently or as promptly as U.S. companies whose securities are registered under the Exchange Act.

We intend to furnish Citibank, N.A., the depositary of our ADSs, with all notices of shareholders’ meeting and other reports and communications that are made generally available to our shareholders. The depositary will make such notices, reports and communications available to holders of ADSs and, upon our written request, will mail to all record holders of ADSs the information contained in any notice of a shareholders’ meeting received by the depositary from us.

In accordance with Rule 5250(d) of the NASDAQ Listing Rules, we will post this transition report on Form 20-F on our website at http://ir.sky-mobi.com/sec.cfm. In addition, we will provide hard copies of our transition report free of charge to shareholders and ADS holders upon request.

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Subsidiary Information

For a listing of our subsidiaries, see “Item 4. Information on the Company — B. Organizational Structure,” as well as Exhibit 8.1 filed herewith.

ITEM 11.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Foreign Exchange Risk

Our revenues and purchases are generally denominated in Renminbi. Our assets and liabilities are also denominated in Renminbi, except for cash held in other currencies, which amounted to RMB88.2 million (US$14.2 million) as of December 31, 2014. As a result, fluctuations in the exchange rates between the U.S. dollar and Renminbi will affect our results of operations and financial condition. The Renminbi’s exchange rate with the U.S. dollar is affected by, among other things, changes in China’s political and economic conditions and China’s foreign exchange policies. The People’s Bank of China regularly intervenes in the foreign exchange market to limit fluctuations in RMB exchange rates and achieve policy goals.

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 five years. 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. 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.

To the extent that we need to convert U.S. dollars into RMB for our operations or other uses within the PRC, appreciation of the RMB against the U.S. dollar would have an adverse effect on the RMB amount we would receive from the conversion. On the other hand, a decline in the value of RMB against the U.S. dollar could reduce the U.S. dollar equivalent amounts of our financial results, the value of your investment in our company and the dividends we may pay in the future, if any, all of which may have a material adverse effect on the price of our ADSs. As of December 31, 2014, we had RMB-denominated cash balances of RMB399.1 million. Assuming we had converted the RMB399.1 million into U.S. dollars at the exchange rate of $1.00 for RMB6.2046 as of December 31, 2014, this cash balance would have been US$64.3 million. Assuming a 5% depreciation of the RMB against the U.S. dollar, this cash balance would have decreased to US$61.3 million as of December 31, 2014 resulting in US$3.0 million of foreign exchange loss.

Interest Rate Risk

We do not have any outstanding long-term or short-term loans. Our exposure to interest rate risk primarily relates to interest income generated by excess cash invested in bank deposits with original maturities of three months or less and time deposits with maturity terms of three months or more but less than one year. If we borrow money in future periods, we may be exposed to interest rate risk related to interest expenses incurred by any short-term or long-term bank borrowings. We have not used any derivative financial instruments to manage our interest risk exposure. We have not been exposed, nor do we anticipate being exposed, to material risks due to changes in interest rates. However, our future interest income may be lower than expected due to changes in market interest rates.

Inflation Risk

In recent years, inflation has not had a material impact on our results of operations. According to the National Bureau of Statistics of China, the change in China’s Consumer Price Index was 2.6%, 2.6% and 2.0% in calendar year 2012, 2013 and 2014, respectively. If inflation rises, it may materially adversely affect our business.

Credit Risk

Our maximum exposure to credit risks is equivalent to the total carrying amount of loan receivables, trade and other receivables, amounts due from related parties, cash and cash equivalents, term deposits, investments at FVTPL and available-for-sale investments in the aggregate amount of RMB693.0 million, RMB688.0 million and RMB745.6 million (US$120.2 million) as of March 31, 2013 and 2014 and December 31, 2014, respectively.

Collection of our revenues is substantially done through mobile network operators. We had RMB125.4 million trade receivables from mobile network operators as of December 31, 2014. We also collect a portion of our revenues through mobile service providers with whom we have co-operative service agreements. The total carrying amount of trade receivables from mobile service providers was RMB36.8 million, RMB22.3 million and RMB64.4 million (US$10.4 million), respectively as of March 31, 2013 and 2014 and December 31, 2014. In order to minimize credit risk, we assess the credit worthiness of the mobile service providers prior to contracting with them.

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In addition, we allocate revenue payments among mobile service providers based on their payment history and our assessment of their relationship with mobile network operators, which will impact the mobile service providers’ ability to pay. We monitor the subsequent performance of the mobile service providers in order to mitigate collection risk going forward. In addition, we review the recoverable amount of each individual trade receivable at the end of each reporting period to determine if a provision should be made for uncollectible amounts.

We have concentration of credit risk with exposure limited to certain mobile service providers and one mobile network operator. As of March 31, 2013 and 2014 and December 31, 2014, our ten mobile service providers and the mobile network operator accounted for approximately RMB51.9 million, RMB47.4 million and RMB161.8 million (US$26.1 million), or 80%, 78% and 85%, of our trade receivables, respectively. We closely monitor the subsequent settlement of trade receivables and do not grant long credit periods to the counterparties.

As of March 31, 2013 and 2014 and December 31, 2014, all of our cash and cash equivalents and time deposits were held by reputable financial institutions. We believe that we are not exposed to unusual risks as these financial institutions have high credit quality. We have not experienced any losses on deposits of cash and cash equivalents and short-term investments. Prior to entering into contracts, we make a credit assessment of our counterparties to assess the collectability of the contracts.

ITEM 12.

DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

Debt Securities

Not applicable.

Warrants and Rights

Not applicable.

Other Securities

Not applicable.

American Depositary Shares

Fees and Charges Our ADS holders May Have to Pay

ADS holders will be required to pay the following service fees to the depository:

Service		Fee
• Issuance of ADSs		Up to US$0.05 per ADS issued

• Cancellation of ADSs		Up to US$0.05 per ADS canceled

• Distribution of cash dividends or other cash distributions		Up to US$0.05 per ADS held

• Distribution of ADSs pursuant to stock dividends, free stock distributions or exercise of rights.		Up to US$0.05 per ADS held

• Distribution of securities other than ADSs or rights to purchase additional ADSs		Up to US$0.05 per ADS held

• Depositary services		Up to US$0.05 per ADS held on the applicable record date(s) established by the depositary

• Transfer of ADSs		US$1.50 per certificate presented for transfer

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ADS holders will also be responsible to pay certain fees and expenses incurred by the depositary and certain taxes and governmental charges such as:

fees for the transfer and registration of common shares charged by the registrar and transfer agent for the common shares in the Cayman Islands (i.e., upon deposit and withdrawal of common shares);

expenses incurred for converting foreign currency into U.S. dollars;

expenses for cable, telex and fax transmissions and for delivery of securities;

taxes and duties upon the transfer of securities (i.e., when common shares are deposited or withdrawn from deposit); and

fees and expenses incurred in connection with the delivery or servicing of common shares on deposit.

Depositary fees payable upon the issuance and cancellation of ADSs are typically paid to the depositary by the brokers (on behalf of their clients) receiving the newly issued ADSs from the depositary and by the brokers (on behalf of their clients) delivering the ADSs to the depositary for cancellation. The brokers in turn charge these fees to their clients. Depositary fees payable in connection with distributions of cash or securities to ADS holders and the depositary services fee are charged by the depositary to the holders of record of ADSs as of the applicable ADS record date.

The depositary fees payable for cash distributions are generally deducted from the cash being distributed. In the case of distributions other than cash (such as stock dividends and rights distributions), the depositary charges the applicable fee to the ADS record date holders concurrent with the distribution. In the case of ADSs registered in the name of the investor (whether certificated or uncertificated in direct registration), the depositary sends invoices to the applicable record date ADS holders. In the case of ADSs held in brokerage and custodian accounts (via DTC), the depositary generally collects its fees through the systems provided by DTC (whose nominee is the registered holder of the ADSs held in DTC) from the brokers and custodians holding ADSs in their DTC accounts. The brokers and custodians who hold their clients’ ADSs in DTC accounts in turn charge their clients’ accounts the amount of the fees paid to the depositary.

In the event of refusal to pay the depositary fees, the depositary may, under the terms of the deposit agreement, refuse the requested service until payment is received or may set off the amount of the depositary fees from any distribution to be made to the ADS holder.

The fees and charges that ADS holders may be required to pay may vary over time and may be changed by us and by the depositary.

The depositary may reimburse us for certain expenses incurred by us in respect of the ADR program established pursuant to the deposit agreement, by making available a portion of the depositary fees charged in respect of the ADR program or otherwise, upon such terms and conditions as we and the depositary may agree from time to time. As described in the deposit agreement, we or the depositary may withhold or deduct from any distributions made in respect of common shares and may sell for the account of a holder any or all of the common shares and apply such distributions and sale proceeds in payment of any taxes (including applicable interest and penalties) or charges that are or may be payable by holders in respect of the ADSs.

Fees and Other Payments Made by the Depositary to Us

The depositary has agreed to reimburse us for certain expenses we incur that are related to establishment and maintenance of the ADS program, including investor relations expenses and exchange application and listing fees. There are limits on the amount of expenses for which the depositary will reimburse us, but the amount of reimbursement available to us is not related to the amounts of fees the depositary collects from investors. The depositary has reimbursed us for an expenses related to the establishment and maintenance of the ADS program in an amount of US$0.4 million, after deduction of applicable U.S. taxes, as of December 31, 2014.

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PART II

ITEM 13.

DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

Not Applicable.

ITEM 14.

MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

A. – D. Material Modifications to the Rights of Security Holders

None.

E. Use of Proceeds

Not Applicable.

ITEM 15.

CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our chief executive officer and chief financial officer, has performed an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report, as required by Rule 13a-15(b) under the Exchange Act.

Based upon that evaluation, our chief executive officer and chief financial officer have concluded that, as of December 31, 2014, our disclosure controls and procedures were not effective in ensuring that the information required to be disclosed by us in the reports that we file or submit under the Exchange Act was recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and that the information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our chief executive officer and chief financial officer, to allow timely decisions regarding required disclosure.

Management’s Annual Report on Internal Control over Financial Reporting and Attestation Report of the Independent Registered Public Accounting Firm

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a-15(f) under the Exchange Act. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. In addition, projections of any evaluation of 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 conditions, or that the degree of compliance with the policies and procedures may deteriorate.

Our management evaluated the effectiveness of our internal control over financial reporting, as required by Rule 13a-15(c) of the Exchange Act, based on criteria established in the framework in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Our management’s assessment identified a material weakness related to the lack of oversight review due to the short-term vacancy of chief financial officer, resulting from our ex-chief financial officer’s departure in November 2014. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim consolidated financial statements will not be prevented or detected on a timely basis.

Based on this assessment, and because of the material weakness described above, our management concluded that our internal control over financial reporting was not effective as of December 31, 2014.

We have taken the following measures to address the material weakness identified above: (i) we assigned the relevant members of our management team, including our financial controller, to assume and discharge the internal control responsibilities of our chief financial officer during the vacancy, and (ii) we actively sought candidates and appointed a new chief financial officer experienced in U.S. GAAP and SEC reporting in April 2015. Simultaneously, other well-established internal control measures were continuously followed and enhanced. We believe the foregoing measures will remediate the identified material weakness in future periods.

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Notwithstanding the conclusion that our internal control over financial reporting was not effective as of December 31,2014, our management believe that the financial statements and other information contained in this transition report present fairly, in all material respects, its business, financial condition and results of operations. Nothing has come to the attention of management that causes them to believe that any material inaccuracies or errors exist in our financial statements as of December, 2014.

Our independent registered public accounting firm, Deloitte Touche Tohmatsu Certified Public Accountants LLP, has audited the effectiveness of our internal control over financial reporting as of December 31, 2014, as stated in its report, which appears on page F-3 of this transition report on Form 20-F.

Changes in Internal Control over Financial Reporting

As required by Rule 13a-15(d), under the Exchange Act, our management, including our chief executive officer and our chief financial officer, also conducted an evaluation of our internal control over financial reporting to determine whether any changes occurred during the period covered by this report have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Based on that evaluation, other than as described above, there have not been any other changes in our internal control over financial reporting during the period covered by this transition report, which have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. As described above, we plan to implement changes to our internal controls over financial reporting in 2015. We appointed a new chief financial officer experienced in U.S. GAAP and SEC reporting in April 2015 and we are committed to monitoring the effectiveness of these measures and making any changes that are necessary and appropriate in 2015.

ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT

Mr. Wei Zhou qualifies as an “audit committee financial expert” as defined in Item 16A of Form 20-F. Mr. Zhou satisfies the independence requirements of Rule 5605 of NASDAQ Stock Market, Marketplace Rules and Rule 10A-3 under the Exchange Act.

ITEM 16B. CODE OF ETHICS

Our board of directors adopted a code of business conduct and ethics that applies to our directors, officers and employees. We have filed our code of business conduct and ethics as an exhibit to Exhibit 99.1 of our registration statement on Form F-1 (file No. 333-170707) filed with the Securities and Exchange Commission on November 26, 2010 and posted a copy of our code of business conduct and ethics on our investor relations website at http://ir.sky-mobi.com/governance.cfm. We hereby undertake to provide to any person without charge, upon a written request, a copy of our code of business conduct and ethics.

ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The following table sets forth the aggregate fees by categories specified below in connection with certain professional services rendered by Deloitte Touche Tohmatsu Certified Public Accountant LLP, our principal external auditors, for the periods indicated.

	For the fiscal year ended March 31, 2014		For the nine months ended December 31, 2014
	RMB		RMB		US$
Audit fees⁽¹⁾		4,689		5,508		888
Audit-related fees⁽²⁾		844		390		63
Tax fees⁽³⁾		297		104		17

⁽¹⁾

“Audit fees” means the aggregate fees billed for professional services rendered in connection with the audit or review of our financial statements.

⁽²⁾

“Audit-related fees” represents aggregate fees billed for professional services rendered in connection with the assurance and related services.

⁽³⁾

“Tax fees” represents the aggregated fees billed for professional services rendered in connection with tax compliance, tax advice and tax planning.

108

The policy of our audit committee is to pre-approve all audit and non-audit services provided by Deloitte Touche Tohmatsu Certified Public Accountants LLP, including audit services, audit-related services, tax services and other services as described above, and the services provided by Ernst & Young related to the internal controls over financial reporting for the nine months ended December 31, 2014, other than those for de minimus services which are approved by our audit committee prior to the completion of the audit. Prior to our initial public offering, all initial public offering related accountant fees were approved by the Board.

ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES

Not applicable.

ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS.

Below is a table containing information about purchases made by us or by affiliated purchasers for the nine months ended December 31, 2014.

Period	(a) Total Number of Common Shares Purchased			(b) Average Price Paid Per Common Share⁽²⁾		(c) Total Number of Common Shares Purchased as Part of Publicly Announced Plans or Programs		(d) Maximum Approximate Dollar Value of Common Shares that May Yet Be Purchased Under the Plans or Programs

June 1, 2014 – June 30, 2014		877,304	⁽¹⁾	$	0.827		877,304	$	20,867,954	⁽³⁾

⁽¹⁾

On August 13, 2012, we announced a share repurchase program to repurchase up to an aggregate of $10 million of our issued and outstanding ADSs representing common shares from August 13, 2012 to August 11, 2014. This share repurchase program complies with the conditions of Rule 10b-18 under the Exchange Act.

⁽²⁾

The average price paid per common share is calculated using the execution price for each repurchase excluding commissions paid to brokers.

⁽³⁾

On May 26, 2014, we announced another share repurchase program to repurchase up to an aggregate of $20 million of our issued and outstanding ADSs representing common shares from May 26, 2014 to May 25, 2015. This share repurchase program complies with the conditions of Rule 10b-18 under the Exchange Act. As of the date of this transition report, no repurchase has been made pursuant to this plan.

ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT

Not Applicable.

ITEM 16G. CORPORATE GOVERNANCE

We are incorporated in the Cayman Islands and our corporate governance practices are governed by applicable Cayman Islands law. In addition, because our ADSs are listed on NASDAQ, we are subject to the corporate governance requirements of NASDAQ. However, NASDAQ Marketplace Rule 5615(a)(3) permits foreign private issuers like us to follow “home country practice” with respect to certain corporate governance matters, and we may decide to follow “home country practice” on a case-by-case basis.

In particular, we have elected to follow “home country practice” with respect to the composition of our audit committee. In the opinion of Conyers Dill & Pearman, under Cayman Islands law, our audit committee may comprise two directors rather than three as required under NASDAQ Marketplace Rule 5605(c)(2). We are committed to a high standard of corporate governance. Accordingly, we endeavor to comply with most NASDAQ corporate governance practices and believe that we are currently in compliance with the NASDAQ corporate governance practices applicable to foreign private issuers.

Item 16H. MINE SAFETY DISCLOSURE

Not applicable.

109

PART III

ITEM 17.

FINANCIAL STATEMENTS

We have elected to provide financial statements pursuant to Item 18.

ITEM 18.

FINANCIAL STATEMENTS

The consolidated financial statements for Sky-mobi Limited and its subsidiaries are included at the end of this transition report.

ITEM 19.

EXHIBITS

Exhibit Number		Description of Document

1.1		Third Amended and Restated Memorandum and Articles of Association of the Registrant (incorporated by reference to Exhibit 3.2 of our registration statement on Form F-1 (File No. 333-170707), as amended, initially filed with the Commission on November 19, 2010)

2.1		Registrant’s Specimen American Depositary Receipt (incorporated by reference to Exhibit 99.A of our registration statement on Form F-6 (File No. 333-170849) filed with the Commission on November 26, 2010)

2.2		Registrant’s Specimen Certificate for Common Shares (incorporated by reference to Exhibit 4.2 of our registration statement on Form F-1 (File No. 333-170707), as amended, initially filed with the Commission on November 19, 2010)

2.3		Form of Deposit Agreement among the Registrant, the depositary and holder of the American Depositary Receipts (incorporated by reference to Exhibit 99.A of our registration statement on Form F-6 (File No. 333-170849) filed with the Commission on November 26, 2010)

4.1		Amendment No. 1 to Series A Preferred Share and Warrant Purchase Agreement and Amendment No. 2 to Shareholders Agreement, dated as of March 1, 2010, among Profit Star Limited, Sequoia Capital China II, L.P., Sequoia Capital China Principals Fund II, L.P., Sequoia Capital China Partners Fund II, L.P., Xplane Ltd., shareholders of Xplane Ltd. and certain other parties listed thereunder (incorporated by reference to Exhibit 4.5 of our registration statement on Form F-1 (File No. 333-170707), as amended, initially filed with the Commission on November 19, 2010)

4.2		Shareholders Agreement, dated as of August 2, 2007, among Profit Star Limited, Sequoia Capital China II, L.P., Xplane Ltd., shareholders of Xplane Ltd. and certain other parties listed thereunder (incorporated by reference to Exhibit 4.6 of our registration statement on Form F-1 (File No. 333-170707), as amended, initially filed with the Commission on November 19, 2010)

4.3		Amendment to Shareholders Agreement, dated as of September 5, 2008, among Profit Star Limited, Sequoia Capital China II, L.P., Sequoia Capital China Principals Fund II, L.P., Sequoia Capital China Partners Fund II, L.P., Xplane Ltd., shareholders of Xplane Ltd. and certain other parties listed thereunder (incorporated by reference to Exhibit 4.7 of our registration statement on Form F-1 (File No. 333-170707), as amended, initially filed with the Commission on November 19, 2010)

4.4		Amended and Restated Warrant to Purchase Series A Preferred Shares, dated as of June 29, 2009, among Profit Star Limited, Sequoia Capital China II, L.P., Sequoia Capital China Principals Fund II, L.P., Sequoia Capital China Partners Fund II, L.P., Xplane Ltd., shareholders of Xplane Ltd. and certain other parties listed thereunder (incorporated by reference to Exhibit 4.9 of our registration statement on Form F-1 (File No. 333-170707), as amended, initially filed with the Commission on November 19, 2010)

4.5		2010 Share Incentive Plan (incorporated by reference to Exhibit 10.1 of our registration statement on Form F-1 (File No. 333-170707), as amended, initially filed with the Commission on November 19, 2010)

4.6		Form of Indemnification Agreement with the Registrant’s directors and/or officers (incorporated by reference to Exhibit 10.2 of our registration statement on Form F-1 (File No. 333-170707), as amended, initially filed with the Commission on November 19, 2010)

4.7		English translation of Form of Employment Agreement with the Registrant’s certain senior executives and its amendment (incorporated by reference to Exhibit 10.3 of our registration statement on Form F-1 (File No. 333-170707), as amended, initially filed with the Commission on November 19, 2010)

110

4.8		English translation of Form of Confidentiality Agreement with the Registrant’s certain senior executives (incorporated by reference to Exhibit 10.4 of our registration statement on Form F-1 (File No. 333-170707), as amended, initially filed with the Commission on November 26, 2010)

4.9		English translation of Form of Employment Agreement with the Registrant’s certain senior executives and its amendment (incorporated by reference to Exhibit 10.5 of our registration statement on Form F-1 (File No. 333-170707), as amended, initially filed with the Commission on November 19, 2010)

4.10		English translation of Form of Technical Support Service Agreement between the Registrant’s PRC subsidiary and each SPE (incorporated by reference to Exhibit 4.10 of our annual report on Form 20-F (File No. 001-34988), initially filed with the Commission on July 30, 2014)

4.11		English translation of Form of Strategy Consulting Service Agreement between the Registrant’s PRC subsidiary and each SPE (incorporated by reference to Exhibit 4.10 of our annual report on Form 20-F (File No. 001-34988), initially filed with the Commission on July 30, 2014)

4.12		English translation of Form of Intellectual Property License Agreement between the Registrant’s PRC subsidiary and each SPE (incorporated by reference to Exhibit 4.10 of our annual report on Form 20-F (File No. 001-34988), initially filed with the Commission on July 30, 2014)

4.13		English translation of Purchase Option and Cooperation Agreement among the Registrant’s PRC subsidiary, each SPE and the shareholders of each SPE( incorporated by reference to Exhibit 4.10 of our annual report on Form 20-F (File No. 001-34988), initially filed with the Commission on July 30, 2014)

4.14		English translation of Form of Power of Attorney issued by the shareholders of each SPE( incorporated by reference to Exhibit 4.10 of our annual report on Form 20-F (File No. 001-34988), initially filed with the Commission on July 30, 2014)

4.15		English translation of Form of Equity Pledge Agreement among the Registrant’s PRC subsidiary, each SPE and the shareholders of each SPE (incorporated by reference to Exhibit 4.10 of our annual report on Form 20-F (File No. 001-34988), initially filed with the Commission on July 30, 2014)

4.16		Form of Director Agreement with independent directors of the Registrant (incorporated by reference to Exhibit 10.33 of our registration statement on Form F-1 (File No. 333-170707), as amended, initially filed with the Commission on November 19, 2010)

8.1*		Subsidiaries of the Registrant

11.1		Code of Business Conduct and Ethics of the Registrant (incorporated by reference to Exhibit 99.1 of our registration statement on Form F-1 (File No. 333-170707), as amended, initially filed with the Commission on November 26, 2010)

12.1*		CEO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

12.2*		CFO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

13.1**		CEO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

13.2**		CFO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

15.1*		Consent of DaHui Lawyers

15.2*		Consent of Deloitte Touche Tohmatsu Certified Public Accountants LLP

15.3*		Consent of Conyers Dill and Pearman

Filed with this transition report on Form 20-F.

Furnished with this transition report on Form 20-F.

111

SIGNATURES

The registrant hereby certifies that it meets all of the requirements for filing its transition report on Form 20-F and that it has duly caused and authorized the undersigned to sign this transition report on its behalf.

	SKY-MOBI LIMITED

	By:	/s/ Michael Tao Song

		Name: Michael Tao Song
		Title: Chairman and Chief Executive Officer

Date: April 27, 2015

112

SKY-MOBI LIMITED

INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS

	PAGE(S)

Reports of Independent Registered Public Accounting Firm	F-2
Consolidated Statements of Profit or Loss and Other Comprehensive Income for the Years Ended March 31, 2013 and 2014 and Nine-month period ended December 31, 2014	F-4
Consolidated Statements of Financial Position as of March 31, 2013 and 2014 and December 31, 2014	F-5
Consolidated Statements of Changes in Equity for the Years Ended March 31, 2013 and 2014 and Nine-month period ended December 31, 2014	F-6
Consolidated Statements of Cash Flows for the Years Ended March 31, 2013 and 2014 and Nine-month period ended December 31, 2014	F-7
Notes to the Consolidated Financial Statements	F-8

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To The Board of Directors and Shareholders of

Sky-mobi Limited

We have audited the accompanying consolidated statements of financial position of Sky-mobi Limited and subsidiaries (the “Group”) as of March 31, 2013 and 2014 and December 31, 2014, and the related consolidated statements of profit or loss and other comprehensive income, changes in equity, and cash flows for each of the two years ended March 31, 2014 and nine-month period ended December 31, 2014. These financial statements are the responsibility of the Group’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Sky-mobi Limited and subsidiaries as of March 31, 2013 and 2014 and December 31, 2014, and the related consolidated statements of profit or loss and other comprehensive income, changes in equity, and cash flows for each of the two years ended March 31, 2014 and nine-month period ended December 31,2014, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Group’s internal control over financial reporting as of December 31, 2014, based on the criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated April 27, 2015 expressed an adverse opinion on the Group’s internal control over financial reporting.

Our audits also comprehended the translation of Renminbi amounts into United States dollar amounts and, in our opinion, such translation has been made in conformity with the basis stated in Note 2. Such United States dollar amounts are presented solely for the convenience of readers in the United States of America.

/s/ Deloitte Touche Tohmatsu Certified Public Accountants LLP

Shanghai, China

April 27, 2015

F-2

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To The Board of Directors and Shareholders of

Sky-mobi Limited

We have audited the internal control over financial reporting of Sky-mobi Limited and subsidiaries (the “Group”) as of December 31, 2014, based on the criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Group’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Group’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim consolidated financial statements will not be prevented or detected on a timely basis. The following material weakness has been identified and included in management’s assessment: the company lack of oversight review due to the vacancy of chief financial officer as of December 31, 2014. This material weakness was considered in determining the nature, timing, and extent of audit tests applied in our audit of the consolidated financial statements and the related financial statement schedule as of and for the nine-month period ended December 31, 2014, of the Company and this report does not affect our report on such financial statements and financial statement schedule.

In our opinion, because of the effect of the material weakness identified above on the achievement of the objectives of the control criteria, the Company has not maintained effective internal control over financial reporting as of December 31, 2014, based on the criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements as of and for the nine-month period ended December 31, 2014 of the Group and our report dated April 27, 2015 expressed an unqualified opinion on those financial statements and included an explanatory paragraph regarding the translation of Renmimbi amounts into United States dollar amounts for the convenience of readers in the United States of America.

/s/ Deloitte Touche Tohmatsu Certified Public Accountants LLP

Shanghai, China

April 27, 2015

F-3

CONSOLIDATED STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

		Year Ended			Year Ended			Nine months Ended			Nine months Ended
		March 31			March 31			December 31			December 31
	NOTES	2013			2014			2014			2014
		RMB’000			RMB’000			RMB’000			US$’000
											(Note 2)
Revenues	7		601,107			485,551			586,033			94,452
Cost of revenues from third parties			(412,246	)		(339,982	)		(437,919	)		(70,580	)
Cost of revenues from related parties			(6,534	)		(24,453	)		(26,519	)		(4,274	)
Gross profit			182,327			121,116			121,595			19,598
Research and development expenses			(73,027	)		(38,644	)		(25,943	)		(4,181	)
Sales and marketing expenses			(35,369	)		(36,351	)		(31,219	)		(5,032	)
General and administration expenses			(69,491	)		(58,401	)		(46,966	)		(7,570	)
Other income, net	8		2,320			5,772			1,481			239
Profit (loss) from operations			6,760			(6,508	)		18,948			3,054
Other gains and losses	9		15,531			17,482			17,741			2,859
Impairment of investment in associates	20		(1,367	)		(727	)		(2,673	)		(431	)
Impairment of an available-for-sale investment			—			(800	)		—			—
Share of results of associates	20		(935	)		2,428			8,510			1,372
Gain on disposal of associates	21		—			—			57,351			9,243
Profit before tax	10		19,989			11,875			99,877			16,097
Income tax expense	11		(2,733	)		(7,218	)		(1,156	)		(186	)
Profit for the year			17,256			4,657			98,721			15,911
Total comprehensive income for the year			17,256			4,657			98,721			15,911
Profit and total comprehensive income attributable to:
Owners of the Company			17,112			5,251			99,008			15,957
Non-controlling interests			144			(594	)		(287	)		(46	)
			17,256			4,657			98,721			15,911

Earnings per share:
Basic	12		0.07			0.02			0.42			0.07
Diluted	12		0.07			0.02			0.42			0.07

F-4

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

		March 31			March 31			December 31			December 31
	NOTES	2013			2014			2014			2014
		RMB’000			RMB’000			RMB’000			US’$000
											(Note 2)
ASSETS
Current assets
Cash and cash equivalents			135,025			79,057			204,967			33,035
Term deposits	14		473,277			295,804			282,383			45,512
Short-term investments	15		—			52,569			—			—
Investment at fair value through profit or loss ("FVTPL")	16		—			166,073			21,373			3,445
Trade and other receivables	18		80,274			95,499			234,962			37,868
Amounts due from related parties	25		523			160			5,524			890
			689,099			689,162			749,209			120,750
Assets classified as held for sale	20		—			35,274			—			—
Total current assets			689,099			724,436			749,209			120,750
Non-current assets
Property and equipment	19		15,170			7,605			8,886			1,432
Interest in associates	20		22,371			41,339			105,486			17,002
Available-for-sale investments	17		7,167			6,250			9,228			1,487
Other non-current assets			5,568			4,055			2,512			405
Deferred tax assets	11		1,765			1,968			2,746			443
Total non-current assets			52,041			61,217			128,858			20,769
Total assets			741,140			785,653			878,067			141,519
EQUITY AND LIABILITIES
Current liabilities
Trade and other payables (including trade and other payables of the consolidated SPEs without recourse to Sky-mobi Limited of RMB110,691,000, RMB92,924,000 and RMB221,488,000 as of March 31, 2013 and 2014 and December 31, 2014, respectively)	22		122,119			153,474			232,747			37,514
Income tax liabilities (including income tax liabilities of the consolidated SPEs without recourse to Sky-mobi Limited of RMB4,787,000, RMB10,699,000 and RMB7,029,000 as of March 31, 2013 and 2014 and December 31, 2014, respectively)			4,787			10,699			7,029			1,133
Amounts due to related parties (including amounts due to related parties of the consolidated SPEs without recourse to Sky-mobi Limited of RMB4,054,000, RMB11,201,000 and RMB26,968,000 as of March 31, 2013 and 2014 and December 31, 2014, respectively)	25		4,054			11,201			26,968			4,346
Deferred revenue (including deferred revenue of the consolidated SPEs without recourse to Sky-mobi Limited of RMB9,062,000, RMB6,350,000 and RMB3,767,000 as of March 31, 2013 and 2014 and December 31, 2014, respectively)			9,062			6,350			3,767			607
Total current liabilities			140,022			181,724			270,511			43,600
Total liabilities			140,022			181,724			270,511			43,600
Equity
Share capital (US$0.00005 par value, 937,857,200 shares authorized; 250,411,948, 239,461,886 and 222,266,678 shares issued and outstanding as of March 31, 2013 and 2014 and December 31, 2014, respectively)	23		89			86			81			13
Share premium			625,651			637,451			600,147			96,726
Reserves			171,718			154,326			151,902			24,482
Statutory reserve			1,000			1,000			1,000			161
Accumulated deficit			(197,826	)		(192,644	)		(149,653	)		(24,120	)
Treasury stock			(2	)		(1	)		—			—
Equity attributable to owners of the Company			600,630			600,218			603,477			97,262
Non-controlling interests			488			3,711			4,079			657
Total equity			601,118			603,929			607,556			97,919
Total equity and liabilities			741,140			785,653			878,067			141,519

F-5

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

																					Total equity
																					attributable to			Non-
	Share			Treasury			Share						Statutory		Subscription			Accumulated			owners of			controlling
	capital			shares			premium			Reserves *			reserve		receivables			deficit			the Company			interests			Total
	RMB’000			RMB’000			RMB’000			RMB’000			RMB’000		RMB’000			RMB’000			RMB’000			RMB’000			RMB’000

Balance at April 1, 2012		92			—			642,495			152,526			1,000		(1,284	)		(214,938	)		579,891			344			580,235
Profit and total comprehensive profit for the year		—			—			—			—			—		—			17,112			17,112			144			17,256
Share-based compensation		—			—			—			24,457			—		—			—			24,457			—			24,457
Partial disposal of subsidiaries		—			—			—			2,001			—		—			—			2,001			—			2,001
Exercise of share options		—			—			6,384			(5,191	)		—		1,284			—			2,477			—			2,477
Restricted share vested		—			—			2,075			(2,075	)		—		—			—			—			—			—
Repurchase of ordinary shares		(3	)		(2	)		(25,303	)		—			—		—			—			(25,308	)		—			(25,308	)
Balance at March 31, 2013		89			(2	)		625,651			171,718			1,000		—			(197,826	)		600,630			488			601,118
Profit and total comprehensive profit for the year		—			—			—			—			—		—			5,251			5,251			(594	)		4,657
Share-based compensation		—			—			—			14,562			—		—			—			14,562			2,916			17,478
Derecognition of a subsidiary		—			—			—			—			—		—			—			—			(304	)		(304	)
Capital injection from non-controlling shareholder		—			—			—			—			—		—			—			—			1,205			1,205
Exercise of share options		2			—			37,590			(30,456	)		—		—			—			7,136			—			7,136
Restricted share vested		—			—			1,498			(1,498	)		—		—			—			—			—			—
Repurchase of ordinary shares		—			(4	)		(27,288	)		—			—		—			(69	)		(27,361	)		—			(27,361	)
Cancellation of repurchased shares		(5	)		5			—			—			—		—			—			—			—			—
Balance at March 31, 2014		86			(1	)		637,451			154,326			1,000		—			(192,644	)		600,218			3,711			603,929
Profit and total comprehensive profit for the year		—			—			—			—			—		—			99,008			99,008			(287	)		98,721
Share-based compensation		—			—			—			4,038			—		—			—			4,038			—			4,038
Partial disposal of a subsidiary		—			—			—			317			—		—			—			317			655			972
Exercise of share options		—			—			5,653			(4,650	)		—		—			—			1,003			—			1,003
Restricted share vested		1			—			2,128			(2,129	)		—		—			—			—			—			—
Issue new shares to settle bonus accrual**		—			—			335			—			—		—			—			335			—			335
Repurchase of ordinary shares		—			—			(2,358	)		—			—		—			(2,120	)		(4,478	)		—			(4,478	)
Repurchase of ordinary shares from Sequoia Capital***		—			(5	)		(43,062	)		—			—		—			(53,897	)		(96,964	)		—			(96,964	)
Cancellation of repurchased shares		(6	)		6			—			—			—		—			—			—			—			—
Balance at December 31, 2014		81			—			600,147			151,902			1,000		—			(149,653	)		603,477			4,079			607,556

Reserves include share-based compensation reserves, reserve from the modification of convertible redeemable preferred shares, and reserve from partial disposal of subsidiaries that do not result in the Group losing control. At the time when the share options are exercised, the amount previously recognized in reserves will be transferred to share premium.

During the nine-month period ended December 31, 2014, the Company settled a bonus due to a senior management individual through the issuance of an aggregate 70,288 shares.

***

During the nine-month period ended December 31, 2014, the Company repurchased an aggregate 16,000,000 common shares from its shareholders, Sequoia Capital China Partners Fund II, L.P., Sequoia Capital China Principals Fund II, L.P. and Sequoia Capital China II, L.P., of par value US$0.00005 per share at a purchase price of US$0.985 per share, for a total consideration of RMB96,964,000 (US$15,760,000). All the 16,000,000 repurchased shares were cancelled as of December 31, 2014.

F-6

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Year Ended			Year Ended			Nine months Ended			Nine months Ended
	March 31			March 31			December 31			December 31
	2013			2014			2014			2014
	RMB’000			RMB’000			RMB’000			US$’000
										(Note 2)
Operating activities
Profit before tax		19,989			11,875			99,877			16,097
Adjustments for:
Share of results of associates		935			(2,428	)		(8,510	)		(1,372	)
Gain on disposal of associates		—			—			(57,351	)		(9,243	)
Net foreign exchange loss		429			2,061			629			101
Interest income		(16,209	)		(15,913	)		(15,080	)		(2,430	)
Amortization of government grant related to property and equipment		(489	)		—			—			—
Loss (gain) on disposal of property and equipment		68			(208	)		(212	)		(34	)
Depreciation		21,596			8,654			3,631			585
Changes in fair value of investment at FVTPL		—			(1,073	)		(3,778	)		(609	)
Income on short-term investment and loan receivable		—			(2,569	)		(74	)		(12	)
Share-based compensation		24,457			17,478			4,038			651
Impairment of investment in an associate		1,367			727			2,673			431
Impairment of an available-for-sale investment		—			800			—			—
Decrease (increase) in trade and other receivables		22,072			(6,158	)		(128,765	)		(20,753	)
Increase in amounts due from related parties		—			(148	)		(1,364	)		(220	)
(Decrease) increase in trade and other payables		(446	)		31,822			80,172			12,921
Increase in amounts due to related parties		3,183			7,147			15,767			2,541
Decrease in deferred revenue		(487	)		(2,712	)		(2,583	)		(416	)
Cash generated from operations		76,465			49,355			(10,930	)		(1,762	)
Income tax paid		(3,176	)		(1,509	)		(5,604	)		(903	)
Net cash from (used in) operating activities		73,289			47,846			(16,534	)		(2,665	)
Investing activities
Interest income received		16,209			12,832			7,315			1,179
Net cash outflow on derecognition of a subsidiary		—			(304	)		—			—
Purchase of term deposits		(667,687	)		(330,804	)		(432,383	)		(69,687	)
Redemption of term deposits		632,803			508,277			445,804			71,851
Purchases of property and equipment		(3,424	)		(2,019	)		(5,678	)		(915	)
Proceeds from disposal of property and equipment		79			672			413			67
Investments in associates (including down payment)		(25,859	)		(50,216	)		(64,475	)		(10,392	)
Withdraw of investment in associates		—			—			5,390			869
Proceeds of disposal of an associate		—			—			92,225			14,864
Dividend received from an associate		—			—			1,500			242
Investments in available-for-sale investment		(6,267	)		—			(3,085	)		(497	)
Purchases of investment at FVTPL		—			(165,000	)		(594,600	)		(95,832	)
Purchases of short-term investments		—			(50,000	)		—			—
Redemption of short-term investments		—			—			50,000			8,059
Payment of loan receivable to related parties		—			—			(4,000	)		(645	)
Proceeds from disposal of investments at FVTPL		—			—			743,078			119,762
(Increase) decrease in amounts due from related parties		(397	)		511			—			—
Investment income received		—			—			2,643			426
Net cash (used in) from investing activities		(54,543	)		(76,051	)		244,147			39,351
Financing activities
Capital contribution from non-controlling shareholder		—			1,205			—			—
Proceeds from partial disposal of subsidiaries		2,001			—			972			157
Payments and advance payments for share repurchase		(25,308	)		(34,159	)		(103,107	)		(16,618	)
Proceeds from exercise of share options		2,477			7,136			1,003			162
Net cash used in financing activities		(20,830	)		(25,818	)		(101,132	)		(16,300	)

Net (decrease) increase in cash and cash equivalents		(2,084	)		(54,023	)		126,481			20,386
Cash and cash equivalents at beginning of year		137,538			135,025			79,057			12,741
Effect of foreign exchange rate changes on the balance of cash held in foreign currencies		(429	)		(1,945	)		(571	)		(92	)
Cash and cash equivalents at end of year		135,025			79,057			204,967			33,035

Supplemental information of non-cash transaction:

As of March 31, 2013 and 2014 and as of December 31, 2014, acquisitions of property and equipment amounted to approximately RMB1,031,000, RMB565,000 and Nil, respectively, were unsettled and included in other payables.

F-7

SKY-MOBI LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

ORGANIZATION AND PRINCIPAL ACTIVITIES

Sky-mobi Limited (the “Company”) was incorporated as an exempted company with limited liability under the laws of the Cayman Islands on April 20, 2007. The Company through its subsidiaries (collectively referred to as the “Group”) is principally engaged in the operation of a mobile application platform embedded on mobile phones to provide mobile application store and services in the People’s Republic of China (the “PRC”). The address of the principal place of the Group’s business is 10/F, Building B, United Building, No. 2 Zijinghua Road, Hangzhou, Zhejiang Province, PRC. The Company’s registered office is located at Cricket Square, Hutchins Drive, P.O. Box 2681, Grand Cayman KY1-1111, Cayman Islands.

The consolidated financial statements of the Group are presented in Renminbi (“RMB”), which is the functional currency of the Company.

The Company holds its interests in its operating subsidiaries through Hangzhou Dianneng Technologies Co., Ltd. (“Dianneng”) (“PRC holding entity”), which was established in the PRC on December 24, 2009. The Company does not conduct any substantive operations of its own, but conducts its primary business operation through Hangzhou Sky Network Technologies Co., Ltd. (“Sky”), Hangzhou Mijia Technologies Co., Ltd. (“Mijia”), Hangzhou Fanyi Technologies Co., Ltd. (“Fanyi”), Hangzhou Feineng Technologies Co., Ltd. (“Feineng”), Hangzhou Miyi Technologies Co., Ltd. (“Miyi”), Hangzhou Najia Technologies Co., Ltd. (“Najia”), Hangzhou Tianchu Technologies Co., Ltd. (“Tianchu”), Nanjing Zunqi Network Information Technologies Co., Ltd. (“Zunqi”), Nanjing Geyuan Information Technologies Co., Ltd. (“Geyuan”) , Hangzhou Dangyi Technologies Co., Ltd. (“Dangyi”), Shanghai Mugu Business Information Consulting Co., Ltd. (“Mugu”), Shenzhen Feidong Network Technologies Co., Ltd. (“Feidong”), and Hangzhou Fuyun Technologies Co.,Ltd. (“Fuyun”) (collectively the “PRC Operational Entities”, or the “special purpose entities”), which are controlled by Dianneng through certain contractual arrangements as of December 31, 2014. These special purpose entities ("SPEs") hold the requisite licenses and permits necessary to conduct the telecommunication related business.

PRC laws and regulations restrict foreign ownership of telecommunication businesses. To comply with these foreign ownership restrictions, Pusida (Beijing) Technologies Co., Ltd. (“Pusida”) entered into certain exclusive agreements with the equity holders of Mijia and Sky on August 1, 2007 and then Pusida transferred these exclusive agreements with the equity holders of Mijia and Sky to Dianneng on July 1, 2010. In addition, Dianneng entered into certain exclusive agreements with the equity holders of Fanyi, Feineng, Miyi, Najia, Tianchu, Zunqi, Geyuan, Dangyi, Mugu, Feidong, and Fuyun, on December 24, 2009, December 3, 2010, November 30, 2012, November 30, 2012, December 6, 2012, June 26, 2013, October 29, 2013, March 3, 2014, March 25, 2014, May 16, 2014 and December 2, 2014, respectively. The exclusive agreements, namely, Exclusive Business Cooperation or Services Agreements, Purchase Option Agreements, Equity Pledge Agreements and Power of Attorney Agreements, taken as a whole, provide the Company with the rights to receive substantially all of the economic benefits from each of the PRC Operational Entities. In addition, all the directors in each of the PRC Operational Entities shall be assigned by the Company. Accordingly, the Company is able to monitor, supervise and effectively control the PRC Operational Entities’ businesses, operations and financial policies so as to use its power to affect the amount of returns to the Company. In addition, through such agreements, the Company is able to acquire the equity interests in the PRC Operational Entities when permitted by PRC law.

In determining whether the Group has the control over the SPEs, the Group believes the Group’s rights under the terms of the purchase option agreements provide it with a substantive kick out right. More specifically, the Group believes the terms of the purchase option agreements are valid, binding and enforceable under PRC laws and regulations currently in effect. A simple majority vote of the Group’s board of directors is required to pass a resolution to exercise the Group’s rights under the purchase option agreements, for which consent of the shareholders of the SPEs is not required. The Group’s rights under the purchase option agreements give the Group the power to control the shareholders of the SPEs and thus the power to direct the activities that most significantly impact the SPEs’ economic performance. In addition, the Group’s rights under the powers of attorney also reinforce the Group’s abilities to direct the activities that most significantly impact the SPEs' economic performance. The Group also believes that this ability to exercise control ensures that the SPEs will continue to execute and renew Exclusive Business Cooperation or Services Agreements and pay service fees to the Group. The Exclusive Business Cooperation or Services Agreements can be renewed and may only be terminated at the Group’s sole discretion. The Group has the sole discretion to determine the amounts of the technical and consulting service fees. As a result, the Group believes that it has the rights to receive substantially all of the economic benefits from the SPEs.

F-8

Following is a summary of the material provisions of the aforementioned agreements:

Exclusive Business Cooperation or Services Agreements. The equity owners of the SPEs have entered into service agreements with the PRC holding entities under which SPEs engage the relevant PRC holding entities as their exclusive providers of technical and business support and strategy consulting services. SPEs shall pay to the relevant PRC holding entities service fees and royalties. The PRC holding entities have the sole discretion to determine the amounts of the service fee. Each agreement has a term of 10 years or 20 years and is renewable at the PRC holding entities’ sole discretion.

Purchase Option Agreements. The equity owners of the relevant SPEs have granted the relevant PRC holding entities or their designees an exclusive option to purchase all or part of their equity interests in the relevant SPEs, or all or part of the assets of the relevant SPEs, for a purchase price equal to the registered capital of the relevant SPEs or such higher price as required under PRC law at the time of purchase, at any time determined by the relevant PRC holding entities and to the extent permitted by PRC law. Also each relevant shareholder has agreed not to transfer, assign, pledge or otherwise dispose of their interest in the relevant SPE without the prior written consent of the relevant PRC holding entities. Except for the purchase option agreement for Fanyi which has a term of 10 years and is renewable at Dianneng’s sole discretion, the purchase option agreements for other SPEs will terminate when the equity interests in those SPEs are legally transferred to the relevant PRC holding entities or their designees.

Equity Pledge Agreements. The equity owners of the SPEs pledge their respective equity interest in the relevant SPEs, to the relevant PRC holding entities to secure their obligations under the respective Exclusive Business Cooperation or Services Agreements. The equity pledge agreements are continuously effective until the full performance of the contractual obligations and the full repayment of the liabilities under the Exclusive Cooperation or Services Agreements.

Power of Attorney. The equity owners of the SPEs have executed a power of attorney to irrevocably grant to PRC holding entities or their designees the power of attorney to exercise all of their rights as shareholders of SPEs, including the right to declare dividends, appoint and elect board members and senior management members and other voting rights. The power of attorney for Fanyi does not contain any expiration provision. Each power of attorney of the remaining SPEs has a term of 10 years or 20 years and is renewable at the relevant PRC holding entities’ sole discretion.

Effective control over the PRC Operational Entities’ businesses was transferred to the Company through the series of contractual arrangements without transferring legal ownership in the PRC Operational Entities. As a result of these contractual arrangements, the Group has power over the PRC Operational Entities, has rights to variable returns from its involvement with the PRC Operational Entities and has the ability to affect those returns through its power over the PRC Operational Entities and is considered to have control over the PRC Operational Entities. Accordingly, the Company consolidates the PRC Operational Entities.

Risks in relation to the SPE structure are disclosed in Note 4.

F-9

The Company has the following major subsidiaries and consolidated SPEs:

	Place and date of	Portion of economic ownership interest and voting power held at
	establishment/	March 31,			March 31,			December 31
Company name	incorporation	2013			2014			2014			Principal activities

Subsidiaries:
Pusida	PRC August 1, 2007		100	%		100	%		100	%	Provision of management consultancy and technical services. Inactive since July 1, 2010.
Dianneng	PRC December 24, 2009		100	%		100	%		100	%	Provision of management consultancy and technical services
Profit Star Software (Hong Kong) Limited (“Profit Star HK”)	Hong Kong May 25, 2010		100	%		100	%		100	%	Investment holding
Powerplay Technology Limited (“Powerplay”)	Hong Kong September 14, 2011		100	%		100	%		100	%	Provision of mobile application services
Tiandian	PRC December 6, 2011		100	%		100	%		100	%	Investment and consulting
Shanghai Texuan Information Technologies Co., Ltd. (“Texuan”)	PRC March 6, 2012		100	%		100	%		100	%	Development of mobile application software

Consolidated SPEs:
Sky	PRC November 21, 2005		100	%		100	%		100	%	Development of mobile application software and provision of mobile application services
Mijia	PRC January 12, 2007		100	%		100	%		100	%	Provision of mobile application services
Fanyi	PRC December 24, 2009		100	%		100	%		100	%	Provision of mobile application services
Feineng	PRC December 3, 2010		100	%		100	%		100	%	Provision of mobile application services
Miyi	PRC November 30, 2012		100	%		100	%		100	%	Provision of mobile application services
Najia	PRC November 30, 2012		100	%		100	%		100	%	Provision of mobile application services
Tianchu	PRC December 6, 2012		100	%		100	%		100	%	Provision of mobile application services

F-10

Zunqi	PRC June 26, 2013	Nil	100	%	100	%	Provision of mobile application services
Geyuan	PRC October 29, 2013	Nil	100	%	100	%	Provision of mobile application services
Dangyi	PRC March 3, 2014	Nil	100	%	100	%	Provision of mobile application services
Mugu	PRC March 25, 2014	Nil	100	%	100	%	Provision of information consultancy and technical services
Feidong *	PRC May 16, 2014	Nil	Nil		100	%	Provision of mobile application services

Subsidiary of consolidated SPEs:
Hangzhou Mopin Technologies Co., Ltd. ("Mopin")	PRC June 14, 2013	Nil	83.88	%	79.88	%	Provision of mobile application services
Hangzhou Shunwei Technologies Co.,Ltd. ("Shunwei") *	PRC August 11, 2014	Nil	Nil		100	%	Provision of mobile application services
Beijing Shishilian Technologies Co.,Ltd. ("Shishilian") *	PRC December 1, 2014	Nil	Nil		100	%	Provision of mobile application services

The group acquired these shell companies during the nine-month period ended December 31, 2014 at the cost equal to the carrying amount. New business was commenced after the acquisition.

The above table lists the subsidiaries and consolidated SPEs of the Group which, in the opinion of the Directors, principally affected the results or assets of the Group. To give details of other subsidiaries would, in the opinion of the directors, result in particulars of excessive length.

SIGNIFICANT ACCOUNTING POLICIES

Statement of compliance

The Group’s consolidated financial statements comply with International Financial Reporting Standards (“IFRSs”) as issued by the International Accounting Standards Board (“IASB”).

Basis of preparation

The Group’s consolidated financial statements have been prepared on the historical cost basis except for certain financial instruments, which are measured at fair value as explained in the accounting policies set out below. Historical cost is generally based on fair value of the consideration given in exchange of assets, goods or services.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, regardless of whether that price is directly observable or estimated using another valuation technique. In estimating the fair value of an asset or a liability, the Group takes into account the characteristics of the asset or liability if market participants would take those characteristics into account when pricing the asset or liability at the measurement date. Fair value for measurement and/or disclosure purposes in the Financial Information is determined on such basis, except for share-based payment transactions that are within the scope of IFRS 2 Share-based Payment, leasing transactions that are within the scope of IAS 17 Leases, and measurements that have some similarities to fair value but are not fair value, such as net realizable value in IAS 2 Inventories or value in use in IAS 36 Impairment of Assets.

F-11

In addition, for financial reporting purposes, fair value measurements are categorized into Level 1, 2 or 3 based on the degree to which the inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement in its entirety, which are described as follows:

Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date;

Level 2 inputs are inputs, other than quoted prices included within Level 1, that are observable for the asset or liability, either directly or indirectly; and

Level 3 inputs are unobservable inputs for asset or liability.

The principal accounting policies are set out below.

Change in Fiscal Year-End

In May 2014, the Board of Directors of the Company approved a change to the Company's fiscal year-end to December 31 from March 31, effective December 31, 2014 (the "Year-end change"). As a result, the Company is presenting an 9 month period ended December 31, 2014 as its transition period (the "2014 Transition period") in this Form 20-F. Due to the Year-end change, many of the differences in comparisons of the Company's results are impacted by the three-month difference between the 2014 Transition period and the full years. The Company believes the Year-end change is important and useful to its financial statement users to allow for increased comparability of its performance to its peers.

Basis of consolidation

The consolidated financial statements incorporate the financial statements of the Company and entities, including SPEs, controlled by the Company (its subsidiaries). Control is achieved where the Company

has power over the investee;

is exposed, or has rights, to variable returns from its involvement with the investee; and

has the ability to use its power to affect its returns.

The Group reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control listed above.

Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary. Specifically, income and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated statements of profit or loss and other comprehensive income from the date the Group gains control until the date when the Group ceased to control the subsidiary.

Profit or loss and each item of other comprehensive income are attributed to the owners of the Company and to the non-controlling interests. Total comprehensive income of subsidiaries is attributed to the owners of the Company and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance.

All intragroup assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation.

Changes in the Group's ownership interests in existing subsidiaries

Changes in the Group's ownership interests in existing subsidiaries that do not result in the Group losing control over the subsidiaries are accounted for as equity transactions. The carrying amounts of the Group's interests and the non-controlling interests are adjusted to reflect the changes in their relative interests in the subsidiaries. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognized directly in equity and attributed to owners of the Company.

F-12

When the Group loses control of a subsidiary, a gain or loss is recognized in profit or loss and is calculated as the difference between (i) the aggregate of the fair value of the consideration received and the fair value of any retained interest and (ii) the previous carrying amount of the assets (including goodwill), and liabilities of the subsidiary and any non-controlling interests. All amounts previously recognized in other comprehensive income in relation to that subsidiary are accounted for as if the Group had directly disposed of the related assets or liabilities of the subsidiary (i.e. reclassified to profit or loss or transferred to another category of equity as specified/permitted by applicable IFRSs). The fair value of any investment retained in the former subsidiary at the date when control is lost is regarded as the fair value on initial recognition for subsequent accounting under IAS 39 Financial Instruments: Recognition and Measurement or, when applicable, the cost on initial recognition of an investment in an associate or a joint venture.

Investments in associates

An associate is an entity over which the Group has significant influence and that is neither a subsidiary nor an interest in a joint venture. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies.

The results and assets and liabilities of associates are incorporated in the consolidated financial statements using the equity method of accounting, except when the investment is classified as held for sale, in which case it is accounted for in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations. Under the equity method, investments in associates are carried in the consolidated statements of financial position at cost as adjusted for post-acquisition changes in the Group’s share of the profit or loss and other comprehensive income of the associate, less any impairment in the value of the investment. When the Group’s share of the loss of an associate equals or exceeds its interest in that associate, the Group discontinues recognizing its share of further losses. An additional share of losses is provided for and a liability is recognized only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of that associate.

Any excess of the cost of the investment in associates over the amount of the Group's share of net fair value of the net assets of the associates at the date of acquisition is included in the carrying amount of the investment. The requirements of IAS 39 are applied to determine whether it is necessary to recognize any impairment loss with respect to the Group’s investment in an associate. The Group assesses the impairment of the investments in associates by considering factors including, but not limited to, current economic and market conditions, operating performance of the associates, including current earnings trends and undiscounted cash flows, and other company-specific information, such as recent financing rounds. When necessary, the entire carrying amount of the investment (including goodwill) is tested for impairment in accordance with IAS 36 Impairment of Assets as a single asset by comparing its recoverable amount (higher of value in use and fair value less costs of disposal) with its carrying amount. Any reversal of impairment loss is recognized to the extent that the recoverable amount of the investment subsequently increases.

The Group discontinues the use of the equity method from the date when the investment ceases to be an associate, or when the investment is classified as held for sale. The difference between the carrying amount of the associate at the date the equity method was discontinued, and any proceeds from disposing of an interest in the associate is included in the determination of the gain or loss on disposal of the associate.

When a group entity transacts with an associate of the Group, profits and losses resulting from the transactions with the associates are recognized in the Group's consolidated financial statements only to the extent of the Group’s interest in the relevant associate that are not related to the Group.

Non-current assets held for sale

Non-current assets and disposal groups are classified as held for sale in current assets if their carrying amount will be recovered principally through a sale transaction rather than through continuing use. This condition is regarded as met only when the asset (or disposal group) is available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such asset (or disposal group) and its sale is highly probable. Management must be committed to the sale, which should be expected to qualify for recognition as a completed sale within one year from the date of classification.

When the Group is committed to a sale plan involving disposal of an investment in an associate, the investment that will be disposed of is classified as held for sale when the criteria described above are met, and the Group discontinues the use of the equity method in relation to the investment from the time when the investment is classified as held for sale.

Non-current assets (and disposal groups) classified as held for sale are measured at the lower of their previous carrying amount or fair value less costs of disposal.

F-13

Revenue recognition

Revenue is recognized when it is probable that the economic benefits will flow to the Group, the revenue can be measured reliably and collectability is reasonably assured.

The Group evaluates agreements with the industry participants including mobile service providers, mobile network operators, content providers, handset companies and independent payment processing agents in order to determine whether or not it acts as the principal or as an agent in each arrangement, and therefore the relevant revenues should be reported on a gross or net basis. The determination is based on an assessment of various factors, including but not limited to whether the Group (i) is the primary obligor in the arrangement; (ii) has general inventory risk; (iii) changes the product or performs part of the services; (iv) has latitude in establishing the selling price; (v) has involvement in the determination of product and service specifications.

Single-player Game Revenue

The Group generates single-player game revenue from sales of self-developed and licensed single-player games through Maopao Platform and other distribution channels. The Group operates most of the single-player games under a free-to-play model. Under the free-to-play model, mobile game players can download the games to their mobile devices free-of-charge, while they may also purchase in-game virtual item or premium features to enhance game experience or enjoy additional functions of the game. The Group has cooperation agreements with handset companies to pre-install the Maopao platform products on mobile handsets before they reach users. The applications and contents are predominantly delivered to customers through mobile network operators in China. The Group contracts with mobile service providers, who further contract with and utilize mobile network operators’ billing channels, as well as contracts directly with mobile network operators to collect payment from the Group’s customers on behalf of the Group. Mobile service providers and mobile network operators are entitled to commissions, which are a percentage of the gross fees collected from the Group’s customers by the mobile network operators. The Group also pays content fees and service fees to content developers and handset companies respectively, based on a prescribed percentage of the gross proceeds confirmed by the mobile network operators.

For revenues from the sale of in-app virtual items, premium features and other contents from the Group’s application stores, the Group recognizes revenue on a gross basis at the time when each purchase is successfully made and the collectability is reasonably assured. The Group acts as the primary obligor and recognizes 1) the commissions retained by mobile service providers and mobile network operators and 2) content fees and service fees mentioned above as cost of revenues in the consolidated statements of profit or loss and other comprehensive income. As the virtual items are immediately consumed, revenue is recognized upon consumption.

In some instances, the Group acts as the agent of content providers to facilitate the payment collection of certain single player games, as the Group is not involved in the operation of the game whilst the content provider is the primary obligor in the arrangement. Therefore, the net proceeds after deducting the amounts shared by the content providers represent the amount of revenue to be recognized by the Group. As the Group has no further obligations to the content providers upon the completion of the in-game purchase, revenue is recognized upon the purchase of in-game virtual items and premium features.

Multiplayer Game Revenue

The Group offers multiplayer games through its Maopao Community and other distribution channels. Users can charge up with their accounts through a number of payment options, including pre-paid phone cards, pre-paid game cards, bank debit cards and online payment solutions, to purchase virtual items and premium features in the multiplayer games. The Group collects payment through payment processing agents or service providers, who are entitled to a commission for processing customer prepayments. Customer accounts are charged up with cash credit and recorded as advance payment first, which may be consumed to purchase in-game virtual items and recorded into deferred revenue later.

Multiplayer game revenues are derived from the purchase of in-game virtual items having an unlimited life. Such revenues are initially deferred and are subsequently recognized following the historical user retention pattern over the estimated consumption period of the durable virtual items, ranging from one to 12 months. The user retention pattern and consumption period are estimated based on the historical data and log-in patterns of paying users. The Group assesses these estimates on a regular basis to ensure the accuracy of the data.

In some instances, the Group acts as the agent of content providers to facilitate the payment collection of certain multiplayer games, as the Group is not involved in the operation of the game whilst the content provider is the primary obligor in the arrangement. Therefore, the net proceeds after deducting the amounts shared by the content providers represent the amount of revenue to be recognized by the Group. As the Group has no further obligations to the content providers upon the completion of the in-game purchase, revenue is recognized upon the purchase of in-game virtual items and premium features.

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Other Revenue

The Group also allows content providers, service providers and mobile network operators to sell their mobile applications and other contents to mobile users through Maopao Platform, for which the Group charges a commission based on a percentage of the revenue earned from those applications or number of active users. The Group records such revenue as other revenues upon receipt of monthly statements from the content providers, service providers and mobile network operators.

The Group also generates single-player game revenues from overseas countries through overseas mobile service providers in the same way disclosed above. The Group recognizes such revenue upon receipt of acknowledgement of successful downloads from these mobile service providers.

Cost of revenues

Cost of revenues primarily includes commissions paid to mobile service providers, mobile network operators, content providers, handset companies and independent payment processing agents. Cost of revenues also includes staff salaries, utilities, depreciation of equipment, and office expenses directly related to the operation of the Maopao Platform. The Group usually pays content providers a percentage of the proceeds that are derived from their content. For certain applications and content titles, the Group makes an insignificant one-time payment to the content provider to acquire all associated rights, all of which are recorded as cost of revenues at the time of payment because such applications and content titles usually have short life cycles and the acquisition cost for each application or content title is relatively low.

Leases

Leases are classified as operating leases unless the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee, which would be classified as finance leases.

The Group as lessee

Operating lease payments are recognized as expenses on a straight-line basis over the lease term.

Foreign currencies

In preparing the financial statements of each group entity, transactions in currencies other than the functional currency, which is the currency of the primary economic environment in which the entity operates, of that entity, or foreign currency, are recorded in the respective entities’ functional currency at the rates of exchange prevailing on the dates of the transactions. At the end of the reporting period, monetary items denominated in foreign currencies are retranslated at the rates prevailing at that date. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.

Exchange differences arising from the settlement of monetary items, and the retranslation of monetary items are recognized in profit or loss in the period in which they arise.

Government grants

Government grants are not recognized until there is reasonable assurance that the Group will comply with the conditions attaching to them and that the grants will be received.

Government grants are recognized in profit or loss on a systematic basis over the periods in which the Group recognizes as expenses the related costs for which the grants are intended to compensate. Specifically, government grants whose primary condition is that the Group should purchase, construct or otherwise acquire non-current assets are recognized as deferred revenue in the consolidated statements of financial position and transferred to profit or loss on a systematic and rational basis over the useful lives of the related assets.

Government grants that are receivable as compensation for expenses or losses already incurred or for the purpose of giving immediate financial support to the Group with no future related costs are recognized in profit or loss in the period in which they become receivable.

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Share-based payments

The fair value of services received determined by reference to the fair value of share options granted at the grant date is expensed on a graded basis over the vesting period with a corresponding increase in equity.

The Group reviews its estimate of the number of options that are expected to ultimately vest. The impact of the revision of the estimates during the vesting period, if any, is recognized in profit or loss such that the cumulative expense reflects the revised estimate, with a corresponding adjustment to reserves.

At the time when the share options are exercised, the amount previously recognized in reserves will be transferred to share premium. When the share options are forfeited after the vesting date or are still not exercised at the expiry date, the amount previously recognized in reserve will be transferred to accumulated deficit.

Taxation

Income tax expense represents the sum of the tax currently payable and deferred tax.

The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit before tax as reported in the consolidated statements of profit or loss and other comprehensive income because of income or expense that are taxable or deductible in other years and items that are never taxable or deductible. The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the end of the reporting period.

Deferred tax is recognized on temporary differences between the carrying amounts of assets and liabilities in the consolidated financial statements and the corresponding tax bases used in the computation of taxable profit. Deferred tax liabilities are generally recognized for all taxable temporary differences. Deferred tax assets are generally recognized for all deductible temporary differences to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilized. Such deferred tax assets and liabilities are not recognized if the temporary difference arises from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.

Deferred tax liabilities are recognized for taxable temporary differences associated with investments in subsidiaries and associates, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated with such investments are only recognized to the extent that it is probable that there will be sufficient taxable profits against which to utilize the benefits of the temporary differences and they are expected to reverse in the foreseeable future.

The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset is realized, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.

Current and deferred tax are recognized in profit or loss.

Research and development expenses

Expenditure on research activities is recognized as an expense in the period in which it is incurred. An internally-generated intangible asset arising from development, or from the development phase of an internal project, is recognized if all of the following have been demonstrated:

•

the technical feasibility of completing the intangible asset so that it will be available for use or sale;

•

the intention to complete the intangible asset and use or sell it;

•

the ability to use or sell the intangible asset;

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	•	how the intangible asset will generate probable future economic benefits;

•

the availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset; and

•

the ability to measure reliably the expenditure attributable to the intangible asset during its development.

The amount initially recognized for an internally-generated intangible asset is the sum of the expenditure incurred from the date when the intangible asset first meets the recognition criteria listed above.

Subsequent to initial recognition, an internally-generated intangible asset is measured at cost less accumulated amortization and accumulated impairment losses (if any), on the same basis as intangible assets acquired separately.

The Group currently expenses internal and external development costs incurred as all current development costs do not fulfill the above conditions.

Property and equipment

Property and equipment are stated in the consolidated statements of financial position at cost less subsequent accumulated depreciation and accumulated impairment losses, if any.

Depreciation is computed on a straight-line basis over the following estimated useful lives:

Electronic equipment		2-10 years
Furniture		5 years
Office equipment		3 years
Leasehold improvements		the shorter of the lease term or 3 years
Motor vehicles		5 years

The useful lives of the property and equipment are evaluated annually. An item of property and equipment is derecognized upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on derecognition of the asset is included in profit or loss in the period in which the item is derecognized.

Impairment of tangible assets

At the end of the reporting period, the Group reviews the carrying amounts of its tangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indicator exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss, if any. Recoverable amount is defined as the higher of an asset’s fair value, less costs of disposal, and its value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted. If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. An impairment loss is recognized as an expense immediately.

When an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset in prior years. A reversal of an impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase.

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Cash and cash equivalents/Term deposits

Cash and cash equivalents include cash on hand and in banks and other short-term highly liquid investments with original maturities of three months or less which are not restricted as to use. Term deposits represent bank deposits with original maturities of over three months but less than two years when purchased. Such deposits are available for general use by the Company, which are unrestricted as to withdraw and use.

Financial instruments

Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities, other than financial assets or financial liabilities at fair value through profit or loss, are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognized immediately in profit or loss.

Financial assets

The Group’s financial assets are classified into loans and receivables, financial assets at fair value through profit or loss (“FVTPL”) and available-for-sale financial assets. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition. Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Loans and receivables, including cash and cash equivalents, term deposits, short-term investments, loan receivable due from related parties, trade and other receivables (excluding prepayments) and amounts due from related parties, are carried at amortized cost using the effective interest method, less any identified impairment, unless the effect of discounting is not material, in which case they are carried at cost, less any identified impairment.

A financial asset may be designated as FVTPL upon initial recognition if:

	•	such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise; or

	•	the financial asset forms part of a group of financial assets or financial liabilities or both, which is managed and its performance is evaluated on a fair value basis, in accordance with the Group’s documented risk management or investment strategy, and information about the grouping is provided internally on that basis; or

•

it forms part of a contract containing one or more embedded derivatives, and IAS 39 permits the entire combined contract (asset or liability) to be designated as FVTPL.

Financial assets at FVTPL are measured at fair value, with changes in fair value recognized directly in profit or loss. The net gain or loss recognized in profit or loss excludes any dividend or interest earned on the financial assets which is included in other gains and losses in the consolidated statements of comprehensive income.

Available-for-sale financial assets

AFS equity investments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured are measured at cost less any identified impairment losses at the end of each reporting period.

Dividends on AFS equity instruments are recognized in profit or loss when the Group’s right to receive the dividends is established.

Impairment of financial assets

Financial assets, other than those at FVTPL, are assessed for indicators of impairment at the end of the reporting period or when there is objective evidence that an impairment may exist. Financial assets are considered to be impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the financial assets have been affected. Objective evidence of impairment could include:

	•	significant financial difficulty of the issuer or counterparty,

•

default or delinquency in interest or principal payments, or

•

it becoming probable that the borrower will enter bankruptcy or financial reorganization.

For certain categories of financial assets, such as trade receivables, assets that are assessed not to be impaired individually are subsequently assessed for impairment on a collective basis. Objective evidence of impairment for a portfolio of receivables could include the Group’s past experience of collecting payments, an increase in the number of delayed payments in the portfolio past the average credit period of 90 days and observable changes in national or local economic conditions that correlate with default on receivables.

F-18

For financial assets carried at amortized cost, an impairment loss is recognized in profit or loss and is measured as the difference between the asset’s carrying amount and the present value of the estimated future cash flows discounted at the financial asset's original effective interest rate.

The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of trade receivables, where the carrying amount is reduced through the use of an allowance account. Changes in the carrying amount of the allowance account are recognized in profit or loss. When a trade receivable is considered uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited to profit or loss.

For financial assets measured at amortized cost, if, in a subsequent period, the amount of impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment loss was recognized, the previously recognized impairment loss is reversed through profit or loss to the extent that the carrying amount of the asset at the date the impairment is reversed does not exceed what the amortized cost would have been had the impairment not been recognized.

For financial assets carried at cost, the amount of impairment loss is measured as the difference between the assets' carrying amount and the present value of the estimated future cash flow, discounted at the current market rate of return for similar financial assets. Such impairment loss will not be reversed in subsequent period.

Financial liabilities and equity instruments

Financial liabilities and equity instruments issued by a group entity are classified according to the substance of the contractual arrangements entered into and the definitions of a financial liability and an equity instrument.

An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities. Equity instruments issued by the Group are recognized at the proceeds received, net of direct issue costs. Repurchase of the Company's own equity instruments is recognized and deducted directly in equity. No gain or loss is recognized in profit or loss on the purchase, sale, issue or cancellation of the Company's own equity instruments.

Financial liabilities

Financial liabilities, including trade and other payables and amounts due to related parties, are subsequently measured at amortized cost, using the effective interest method unless the effect of discounting is not material, in which case, they are carried at cost.

Effective interest method

The effective interest method is a method of calculating the amortized cost of a financial asset or financial liability and of allocating interest income or interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts or payments through the expected life of the financial asset or liability, or, where appropriate, a shorter period, to the net carrying amount on initial recognition

Interest income and expense is recognized on an effective interest basis.

Derecognition

The Group derecognizes a financial asset only when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity. On derecognition of a financial asset in its entirety, the difference between the asset’s carrying amount and the sum of the consideration received and receivable is recognized in profit or loss.

Financial liabilities are derecognized when the obligation is discharged, cancelled or expires. The difference between the carrying amount of the financial liability derecognized and the consideration paid and payable is recognized in profit or loss.

F-19

Translation into United States Dollars

The consolidated financial statements of the Group are stated in RMB. Translations of amounts from RMB into U.S. dollars are solely for the convenience of the reader and were calculated at the rate of US$1.00 = RMB6.2046, on December 31, 2014, as set forth in the H.10 statistical release of the Federal Reserve Board. The translation is not intended to imply that the RMB amounts could have been, or could be, converted, realized or settled into U.S. dollars at that rate on December 31, 2014, or at any other rate.

3.	APPLICATION OF NEW INTERNATIONAL FINANCIAL REPORTING STANDARDS

In the current nine-month period ended December 31, 2014, the Group has applied the following new and revised IFRSs issued by the IASB for the first time.

Amendments to IFRS 10, IFRS 12 and IAS 27		Investment Entities
Amendments to IAS 32		Offsetting Financial Assets and Financial Liabilities
Amendments to IAS 36		Recoverable Amounts Disclosures for Non-Financial Assets
Amendments to IAS 39		Novation of Derivatives and Continuation of Hedge Accounting
IFRIC 21		Levies

Except as described below, the application of the new and revised IFRSs in the current year has had no material impact on the Group's financial performance and positions for the current period and prior years and/or disclosures set out in these consolidated financial statements.

Impact of the Amendments to IAS 32

The Group has applied the amendments to IAS 32 Offsetting Financial Assets and Financial Liabilities for the first time in the current period. The amendments to IAS 32 clarify the requirements relating to the offset of financial assets and financial liabilities. Specifically, the amendments clarify the meaning of ‘currently has a legally enforceable right of set-off’ and ‘simultaneous realization and settlement’.

The Group has assessed whether certain of its financial assets and financial liabilities qualify for offset based on the criteria set out in the amendments and concluded that the application of the amendments has had no impact on the amounts recognized in the Group’s consolidated financial statements.

Impact of the Amendments to IAS 36

The Group has applied the amendments to IAS 36 Recoverable Amount Disclosures for Non-Financial Assets for the first time in the current period. The amendments to IAS 36 remove the requirement to disclose the recoverable amount of a cash-generating unit (CGU) to which goodwill or other intangible assets with indefinite useful lives had been allocated when there has been no impairment of reversal of impairment of the related CGU. Furthermore, the amendments introduce additional disclosure requirements applicable to when the recoverable amount of an asset or a CGU is measured at fair value less costs of disposal. These new disclosures include the fair value hierarchy. Key assumptions and valuation techniques used which are in line with the disclosure required by IFRS 13 Fair Value Measurements.

The application of these amendments has had no material impact on the disclosures in the Group’s consolidated financial statements.

IFRIC 21 Levies

The Group has applied IFRIC 21 Levies for the first time in the current period. IFRIC 21 addresses the issue as to when to recognize a liability to pay a levy imposed by a government. The interpretation defines a levy, and specifies that the obligating event that gives rise to the liability is the activity that triggers the payment of the levy, as identified by legislation. The Interpretation provides guidance on how different levy arrangements should be accounted for, in particular, it clarifies that neither economic compulsion nor the going concern basis of financial statements preparation implies that an entity has a present obligation to pay a levy that will be triggered by operating in a future period.

IFRIC 21 has been applied retrospectively. The application of this interpretation has had no material impact on the disclosures or on the amounts recognized in the Group’s consolidated financial statements.

F-20

The Group has not early adopted the following new and revised standards, amendments or interpretations that have been issued but are not yet effective.

IFRS 9	Financial Instruments¹
IFRS 14	Regulatory Deferral Accounts²
IFRS 15	Revenue from Contracts with Customers³
Amendments to IFRS 11	Accounting for Acquisitions of Interests in Joint Operations⁵
Amendments to IAS 1	Disclosure Initiative⁵
Amendments to IAS 16 and IAS 38	Clarification of Acceptable Methods of Depreciation and Amortisation⁵
Amendments to IAS 19	Defined Benefit Plans: Employee Contributions⁴
Amendments to IFRSs	Annual Improvements to IFRSs 2010-2012 Cycle⁶
Amendments to IFRSs	Annual Improvements to IFRSs 2011-2013 Cycle⁴
Amendments to IFRSs	Annual Improvements to IFRSs 2012-2014 Cycle⁵
Amendments to IAS 16 and IAS 41	Agriculture: Bearer Plants⁵
Amendments to IAS 27	Equity Method in Separate Financial Statements⁵
Amendments to IFRS 10 and IAS 28	Sale or Contribution of Assets between an Investor and its Associate or Joint Venture⁵
Amendments to IFRS 10, IFRS 12 and IAS 28	Investment Entities: Applying the Consolidation Exception⁵

¹Effective for annual periods beginning on or after 1 January 2018

²Effective for first annual IFRS financial statements beginning on or after 1 January 2016

³Effective for annual periods beginning on or after 1 January 2017

⁴Effective for annual periods beginning on or after 1 July 2014

⁵Effective for annual periods beginning on or after 1 January 2016

⁶Effective for annual periods beginning on or after 1 July 2014, with limited exceptions

Annual Improvements to IFRSs 2010 - 2012 Cycle

The Annual Improvements to IFRSs 2010 - 2012 Cycle include a number of amendments to various IFRSs, in which the relevant amendments are summarized below.

The amendments to IFRS 2 (i) change the definitions of ‘vesting condition’ and ‘market condition’; and (ii) add definitions for ‘performance condition’ and ‘service condition’ which were previously included within the definition of ‘vesting condition’. The amendments to IFRS 2 are effective for share-based payment transactions for which the grant date is on or after July 1, 2014.

The directors of the Company anticipate that the application of the amendments included in the Annual Improvements to IFRSs 2010 – 2012 Cycle will have no material impact on the consolidated financial statements.

Annual Improvements to IFRSs 2011 - 2013 Cycle

The Annual Improvements to IFRSs 2011 - 2013 Cycle include a number of amendments to various IFRSs, in which the relevant amendments are summarized below.

(a)

The property meets the definition of investment property in terms of IAS 40;

F-21

(b)

The transaction meets the definition of a business combination under IFRS 3.

The directors of the Company anticipate that the application of the amendments included in the Annual Improvements to IFRSs 2011 – 2013 Cycle will have no material impact on the consolidated financial statements.

Annual Improvements to IFRSs 2012 - 2014 Cycle

The Annual Improvements to IFRSs 2012-2014 Cycle include a number of amendments to various IFRSs, which are summarised below.

The amendment to IAS 19 clarify that the high quality corporate bonds used to estimate the discount rate for post-employment benefits should be issued in the same currency as the benefits to be paid. These amendments would result in the depth of the market for high quality corporate bonds being assessed at currency level. The amendments apply from the beginning of the earliest comparative period presented in the financial statements in which the amendments are first applied. Any initial adjustment arising should be recognised in retained earnings at the beginning of that period.

The directors of the Company do not anticipate that the application of these will have a material effect on the Group's consolidated financial statements.

Amendments to IAS 16 and IAS 38: Clarification of Acceptable Methods of Depreciation and Amortisation

(a)

When the intangible asset is expressed as a measure of revenue; or

(b)

When it can be demonstrated that revenue and consumption of the economic benefits of the intangible assets are highly correlated.

The amendments apply prospectively for annul periods beginning on or after 1 January 2016. Currently, the Group uses the straight-line method for depreciation and amortization for its property, plant and equipment, and intangible assets respectively. The directors of the Company believe that the straight-line method is the most appropriate method to reflect the consumption of economic benefits inherent in the respective assets and accordingly, the directors of the Company do not anticipate that the application of these amendments to IAS 16 and IAS 38 will have a material impact on the Group’s consolidated financial statements.

F-22

IFRS 9 Financial Instruments

IFRS 9 issued in 2009 introduces new requirements for the classification and measurement of financial assets. IFRS 9 was subsequently amended in 2010 to include the requirements for the classification and measurement of financial liabilities and for derecognition, and further amended in 2013 to include the new requirements for hedge accounting.

Key requirements of IFRS 9 are described as follows:

•

Based on the Group's financial assets and financial liabilities as of December 31, 2014, the directors anticipate that the adoption of IFRS 9 in the future will affect the classification and measurement of the Group's available-for-sale investments and is not likely to have significant impact on the amounts of the Group's other financial assets and financial liabilities. Regarding the Group's available-for-sale investments, it is not practicable to provide a reasonable estimate of that effect until a detailed review has been completed.

IFRS 15 Revenue from Contracts with Customers

Step 1: Identify the contract(s) with a customer.

Step 2: Identify the performance obligations in the contract.

Step 3: Determine the transaction prices.

Step 4: Allocate the transaction price to the performance obligations in the contract.

Step 5: Recognise revenue when (or as) the entity satisfies a performance obligation.

F-23

The directors of the Company anticipate that the application of IFRS 15 in the future may have a material impact on the amounts reported and disclosures made in the Group’s consolidated financial statements. However, it is not practicable to provide a reasonable estimate of the effect of IFRS 15 until the Group performs a detailed review.

The directors anticipate that the application of the other new and revised IFRSs will have no material impact on the consolidated financial statements.

4.	CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY

In the application of the Group’s accounting policies, which are described in Note 2, the Company is required to make judgments, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods.

Critical judgments in applying the entity's accounting policies

The following are the critical judgments that the directors have made in the process of applying the entity's accounting policies and that have the most significant effect in the amounts recognized in financial statements.

Contractual arrangements with SPEs

The Group considers that its contractual arrangements with Sky, Mijia, Fanyi, Feineng, Miyi, Najia, Tianchu, Zunqi, Geyuan, Dangyi, Mugu, Feidong and Fuyun are in compliance with PRC law and are legally enforceable. The shareholders of the consolidated SPEs are also shareholders or senior managements of the Group and therefore the Group considers that under most circumstances they have no current interest in seeking to act contrary to the contractual arrangements. However, the consolidated SPEs and their shareholders may fail to take certain actions required for the Group’s business or to follow the Group’s instructions despite their contractual obligations to do so. Furthermore, if the SPEs or their shareholders do not act in the best interests of the Group under the contractual arrangements and any dispute relating to these contractual arrangements remains unresolved, the Group will have to enforce its rights under these contractual arrangements through the operations of PRC law and courts and therefore will be subject to uncertainties in the PRC legal system. All of these contractual arrangements are governed by PRC law and provide for the resolution of disputes through arbitration in the PRC. Accordingly, these contracts would be interpreted in accordance with PRC law and any disputes would be resolved in accordance with PRC legal procedures. As a result, uncertainties in the PRC legal system could limit the Group’s ability to enforce these contractual arrangements, which may make it difficult to exert effective control over the Group’s consolidated SPEs, and its ability to conduct the Group’s business may be adversely affected.

If the legal structure and contractual arrangements were found to be in violation of PRC laws and regulations, the PRC government could:

•

Revoke the business and operating licenses of the PRC holding entities, SPEs and their subsidiaries;

•

Discontinue or restrict the operations of any related-party transactions among the PRC holding entities, SPEs and their subsidiaries;

•

Impose fines or other requirements on the PRC holding entities, SPEs and their subsidiaries;

•

Require the Company or PRC holding entities, SPEs and their subsidiaries to revise the relevant ownership structure or restructure operations; and/or

•

Restrict or prohibit the Company’s use of the proceeds of the additional public offering to finance the Group’s business and operations in China.

The Company's ability to conduct its business may be negatively affected if the PRC government were to carry out of any of the aforementioned actions. As a result, the Company may not be able to continue to consolidate the SPEs in its consolidated financial statements as it may lose the ability to exert effective control over the SPEs and their shareholders, and it may lose the ability to receive economic benefits from the SPEs.

F-24

Certain equity holders of the SPEs are also shareholders of the Company. The interests of the equity holders of the SPEs may diverge from shareholders of the Company and that may potentially increase the risk that they would seek to act contrary to the contractual terms, for example by influencing the SPEs not to pay the service fees when required to do so. The Company cannot assure that when conflicts of interest arise, equity holders of the SPEs will act in the best interests of the Company or that conflicts of interests will be resolved in the Company’s favor. Currently, the Company does not have existing arrangements to address potential conflicts of interest the equity holders of the SPEs may encounter in their capacity as beneficial owners and directors of the SPEs. The Company believes the equity holders of the SPEs will not act contrary to any of the contractual arrangements which provide the Company with a mechanism to remove the current equity holders of the SPEs as beneficial shareholders of the SPEs should they act to the detriment of the Company. The Company relies on the current equity holders of SPEs, as directors and executive officers of the Company, to fulfill their fiduciary duties and abide by laws of the PRC and Cayman Islands and act in the best interest of the Company. If the Company cannot resolve any conflicts of interest or disputes between the Company and the equity holders of the SPEs, the Company would have to rely on legal proceedings, which could result in disruption of its business, and there is substantial uncertainty as to the outcome of any such legal proceedings.

The Company’s ability to control the SPEs also depends on the power of attorney that the PRC holding entities have to vote on all matters requiring shareholder approval in the SPEs. As noted above, the Company believes this power of attorney is legally enforceable but may not be as effective as direct equity ownership.

The following is the summarized financial information of the Group’s SPEs which was included in the Company’s consolidated financial statements:

	At March 31,			At March 31,			At December 31,
	2013			2014			2014
	RMB’000			RMB’000			RMB’000

Total current assets		442,741			463,224			655,241
Total assets		516,174			585,490			824,354

Total current liabilities		128,594			121,174			259,252
Total liabilities		128,594			121,174			259,252

	Year Ended			Year Ended			Nine months Ended
	March 31			March 31			December 31
	2013			2014			2014
	RMB’000			RMB’000			RMB’000

Revenues		576,060			444,709			569,272
Net income		13,538			5,198			93,991

Net cash from (used in) operating activities		75,943			50,690			(15,904	)
Net cash (used in) from investing activities		(92,265	)		(73,607	)		116,461
Net cash (used in) from financing activities		—			(69	)		972

The SPEs contributed an aggregate of 95.8%, 91.6% and 97.1% of the consolidated revenues for the years ended March 31, 2013 and 2014 and for the nine-month period ended December 31,2014, respectively. The Company’s operations not conducted through contractual arrangements with the SPEs primarily consist of its overseas and promotion business. As of March 31, 2013 and 2014 and as of December 31, 2014, the SPEs accounted for an aggregate of 69.6%, 74.5% and 93.9%, respectively, of the consolidated total assets, and 91.8%, 66.7% and 95.8%, respectively, of the consolidated total liabilities. The assets not associated with the SPEs primarily consist of the cash and cash equivalents held by the offshore companies and PRC holding entities.

Key sources of estimation uncertainty

Following are the key assumptions and other key sources of estimation uncertainty at the end of the reporting period that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year.

F-25

Multiplayer Game Revenues

Multiplayer game revenues are derived from the purchase of in-game virtual items having an unlimited life. Such revenues are initially deferred and are subsequently recognized following the historical user retention pattern over the estimated consumption period of the durable virtual items, ranging from one to 12 months. The user retention pattern and consumption period are estimated based on the historical data and log-in patterns of paying users. Future paying user usage patterns and behavior may differ from the historical usage patterns and therefore the estimated average playing periods are assessed on a regular basis and may change in the future.

Recognition of deferred tax assets

As of March 31, 2013 and 2014 and as of December 31, 2014, the carrying amount of deferred tax assets of the Group are approximately RMB1,765,000, RMB1,968,000 and RMB2,746,000, respectively. No deferred tax asset has been recognized in respect of tax losses of RMB37,008,000, RMB42,433,000 and RMB 32,910,000 as of March 31, 2013 and 2014 and as of December 31, 2014 due to the unpredictability of future profit streams. The recognition of deferred tax assets is based upon whether it is more probable that sufficient taxable profit will be available in the future, against which the reversal of temporary differences can be deducted. Recognition, therefore, involves estimation regarding the future financial performance of the particular legal entity or tax group in which the deferred tax asset has been recognized. In cases where the actual future profits generated are less or more than expected, a material reversal or recognition of deferred tax assets may arise, which would be recognized in profit or loss for the period in which such a reversal or recognition takes place.

5.	FINANCIAL INSTRUMENTS

Capital risk management

The primary objective of the Group’s capital management is to safeguard the Group’s ability to continue as a going concern, so that it can provide an adequate return to shareholders by pricing its services commensurately with the level of risk. The Group’s overall strategy remains unchanged during the reporting periods.

The capital structure of the Group consists of equity attributable to owners of the Company, which includes share capital and reserves.

The Group reviews the capital structure regularly and considers the cost of capital and the risks associated with each class of capital and, to the extent necessary, balances its overall capital structure through the repurchase of share and issuance of new shares.

Categories of financial instruments

The carrying amounts of financial assets and financial liabilities are as follows:

	At March 31,		At March 31,		At December 31,
	2013		2014		2014
	RMB’000		RMB’000		RMB’000

Financial assets
Amortized cost		685,824		515,719		714,959
Available-for-sale investments		7,167		6,250		9,228
Investment at FVTPL		—		166,073		21,373

Financial liabilities
Amortized cost		82,289		117,692		210,639

Financial risk management objectives and policies

Foreign currency risk management

The Group mainly operates in the PRC with most of its transactions settled in RMB. The foreign currency risk is mainly attributable to the Group’s U.S. dollar (“US$”) bank account balances. The carrying amount of the US$ bank account balances was approximately RMB87,220,000 and RMB88,327,000 and RMB88,231,000 as of March 31, 2013 and 2014 and as of December 31, 2014, respectively. The Group has not used any forward contracts, currency borrowings or other means to hedge its foreign currency risk exposure.

F-26

If the RMB exchange rate against the US$ had strengthened or weakened by 5% with all other variables held constant, the carrying value of bank accounts denominated in US$ would have decreased or increased by RMB3,765,000, RMB3,685,000 and RMB4,205,000 as of March 31, 2013 and 2014 and as of December 31, 2014, respectively, with a corresponding decrease or increase in net profit for the respective years. The sensitivity analysis only details the Group’s sensitivity to a 5% appreciation and depreciation in RMB, against the foreign currency, US$. The 5% figure is the sensitivity rate used when reporting foreign currency risk internally to key management personnel and represents management’s assessment of the reasonably possible change in foreign exchange rate.

Interest rate risk management

The Group has exposure to cash flow interest rate risk due to the fluctuation of the variable interest rates associated with its cash and cash equivalents which are based on prevailing market interest rates. Currently, the Group does not have a specific policy to manage their interest rate risk. The Group does not have significant exposure to cash flow interest rate risk as of March 31, 2013 and 2014 and as of December 31, 2014 as the interest rates have not fluctuated significantly in recent years.

Credit risk management

The Group’s maximum exposure to credit risks is equivalent to the total carrying amount of trade and other receivables, amounts due from related parties, cash and cash equivalents, short-term investments, term deposits, available-for-sale investments and investments at FVTPL of RMB692,991,000, RMB688,042,000 and RMB745,560,000 as of March 31, 2013 and 2014 and as of December 31, 2014, respectively.

Collection of the Group’s revenues is substantially done through mobile service providers with whom the Group has co-operative service agreements. The total carrying amount of trade receivables from mobile service providers was RMB36,828,000, RMB22,302,000 and RMB64,418,000, respectively, as of March 31, 2013 and 2014 and as of December 31, 2014. The Group also had RMB28,196,000, RMB38,669,000 and RMB132,336,000 trade receivables from mobile network operators as of March 31, 2013 and 2014 and as of December 31, 2014, respectively. In order to minimize the credit risk of trade receivables from mobile service providers and mobile network operators, the Group assesses the credit worthiness of the mobile service providers and mobile network operators prior to contracting with them. In addition, the Group selects mobile service providers based on their payment history and the assessment of their relationship with the mobile network operators which will impact the mobile service providers’ ability to pay. The Group further monitors the subsequent performance of the mobile service providers and mobile network operators in order to mitigate collection risk going forward. In addition, the Group reviews the recoverable amount of each individual trade receivable at the end of each reporting period to determine if provision should be made for uncollectible amounts.

The Group has concentration of credit risks with exposure limited to certain mobile service providers and mobile network operators. As of March 31, 2013 and 2014 and as of December 31, 2014, ten mobile service providers or mobile network operators accounted for approximately RMB51,892,000, RMB47,361,000 and RMB 161,837,000, or 80%, 78% and 85% of the Group’s trade receivables, respectively. The Group closely monitors the subsequent settlement of trade receivables and does not grant long credit periods to the counterparties.

The Group’s cash and cash equivalents, term deposits and short investments are held by large banks established in the PRC and Hong Kong Special Administrative Region. The Group's available-for-sale investments are mainly a limited partnership interest in a private equity fund, and the investment at FVTPL are managed by a state owned fund company. The Group does not expect any losses arising from non-performance of these financial institutions.

Liquidity risk

The Group monitors and attempts to maintain a level of cash and cash equivalents adequate to finance the Group’s operations and mitigate the effects of fluctuations in cash flows.

F-27

The following tables present the maturities of the Group’s financial liabilities based upon the undiscounted cash flows of financial liabilities assuming payment on the earliest date on which the Group can be required to pay. The table includes both interest, if any, and principal cash flows.

	On demand or less than 1 month		Total undiscounted cash flow and carrying amount
	RMB’000		RMB’000

March 31, 2013
Trade and other payables		78,235		78,235
Amounts due to related parties		4,054		4,054
		82,289		82,289
March 31, 2014
Trade and other payables		106,491		106,491
Amounts due to related parties		11,201		11,201
		117,692		117,692

December 31, 2014
Trade and other payables		183,671		183,671
Amounts due to related parties		26,968		26,968
		210,639		210,639

Fair value

(i) Fair value of the Group's financial assets that are measured at fair value on a recurring basis

Some of the Group's financial assets are measured at fair value at the end of each reporting period. The following table gives information about how the fair values of these financial assets are determined (in particular, the valuation technique and inputs used).

	At March 31,		At March 31,		At December 31,
	2013		2014		2014
	RMB’000		RMB’000		RMB’000
Financial assets
Investment at FVTPL*		—		166,073		21,373

* Investment at FVTPL is in Level 2 of Fair value Hierarchy that is valued through discounted cash flow. Future cash flows are based on expected return and credit risks of investments underlying the monetary fund.

The carrying amounts of all financial assets (except for the AFS equity investments and investment at FVTPL) and financial liabilities as of March 31, 2013 and 2014 and as of December 31, 2014 are recorded at amortized cost, using the effective interest method unless the effect of discounting is not material, in which case, they are carried at cost. Such amounts approximate their fair value.

6.	UNAUDITED CONDENSED CONSOLIDATED INCOME STATEMENT

During the nine-month period ended December 31, 2014, the Group changed its fiscal year to end on December 31, effective December 31, 2014. The Group included in the transition report the audited consolidated financial statements as of and for the nine-month period ended December 31, 2014 and as of and for the years ended March 31, 2014 and 2013.

The consolidated financial statements for the nine-month period ended December 31, 2014 is not comparable to that as of and for the years ended March 31, 2014 and 2013. For comparison purposes, the Group also included in this transition report the unaudited condensed consolidated income statement and net cash flows for the nine-month period ended December 31, 2013 as below:

F-28

	Nine months Ended			Nine months Ended
	December 31			December 31
	2014			2013
				(Unaudited)
	RMB’000			RMB’000
Revenues from third parties		586,033			356,987
Cost of revenues from third parties		(437,919	)		(248,081	)
Cost of revenues from related parties		(26,519	)		(20,348	)
Gross profit		121,595			88,558
Research and development expenses		(25,943	)		(29,525	)
Sales and marketing expenses		(31,219	)		(26,357	)
General and administration expenses		(46,966	)		(43,909	)
Other operating income, net		1,481			3,973
Profit (loss) from operations		18,948			(7,260	)
Other gains and losses		17,741			11,572
Impairment of investment in associates		(2,673	)		(727	)
Impairment of an available-for sale investment		—			(800	)
Share of results of associates		8,510			3,390
Gain on disposal of associates		57,351			—
Profit before tax		99,877			6,175
Income tax expense		(1,156	)		(6,147	)
Profit for the year		98,721			28
Total comprehensive income for the year		98,721			28
Profit and total comprehensive income attributable to:
Owners of the Company		99,008			486
Non-controlling interests		(287	)		(458	)
		98,721			28

	Nine months Ended December 31 2014			Nine months Ended December 31 2013
				(Unaudited)
	RMB’000			RMB’000
Net cash (used in) from operating activities		(16,534	)		64,967
Net cash from investing activities		244,147			7,851
Net cash used in financing activities		(101,132	)		(23,190	)
Net decrease in cash and cash equivalents		126,481			49,628
Cash and cash equivalents at beginning of year		79,057			135,025
Effect of foreign exchange rate changes		(571	)		(2,844	)
Cash and cash equivalents at end of year		204,967			181,809

F-29

7.	REVENUES AND SEGMENT INFORMATION

	Years Ended		Years Ended		Nine months Ended
	March 31		March 31		December 31
	2013		2014		2014
	RMB’000		RMB’000		RMB’000

Single-player games		381,573		272,300		425,894
Multiple-player games		177,658		144,015		87,799
Other revenues		41,876		69,236		72,340
Total		601,107		485,551		586,033

Segment information

The Group operates and manages its business as a single segment. The Group’s chief operating decision maker has been identified as the Chief Executive Officer, who reviews the revenue analysis by revenue driven from single-player games and multiple-player games and other revenues and the profit from operation of the Group as a whole when making decisions about allocating resources and assessing performance of the Group.

Geographical information

All of the Group’s non-current assets are located in the PRC. Revenues are primarily derived from the PRC, with minimal revenues derived from Indonesia and other countries. The following table sets forth revenues by geographic area:

	Years Ended		Years Ended		Nine months Ended
	March 31		March 31		December 31
	2013		2014		2014
	RMB’000		RMB’000		RMB’000

PRC		581,442		466,778		580,893
Non-PRC		19,665		18,773		5,140
Total		601,107		485,551		586,033

Information about major customers

During the years ended March 31, 2013 and 2014 and the nine-month period ended December 31, 2014, there was no customer that individually accounted for over 10% of the Group’s total revenue.

8.	OTHER INCOME, NET

	Years Ended			Years Ended			Nine months Ended
	March 31			March 31			December 31
	2013			2014			2014
	RMB’000			RMB’000			RMB’000

Government grant		2,931			4,030			1,547
Reimbursement from depository bank		—			1,922			—
Others		(611	)		(180	)		(66	)
Total		2,320			5,772			1,481

F-30

9.	OTHER GAINS AND LOSSES

	Years Ended			Years Ended			Nine months Ended
	March 31			March 31			December 31
	2013			2014			2014
	RMB’000			RMB’000			RMB’000

Interest income		16,209			15,913			15,080
Income on short-term investments		—			2,569			74
Change in fair value of investment at FVTPL		—			1,073			3,778
Exchange loss		(429	)		(2,061	)		(629	)
Others		(249	)		(12	)		(562	)
Total		15,531			17,482			17,741

10.

PROFIT BEFORE TAX

	Years Ended		Years Ended			Nine months Ended
	March 31		March 31			December 31
	2013		2014			2014
	RMB’000		RMB’000			RMB’000

Profit before tax has been arrived at after charging (crediting):
Staff salary and other benefits		100,106		74,147			55,505
Retirement benefit scheme contributions		2,095		1,668			1,556
Share-based compensation (Note 24)		24,457		17,478			4,038
Total staff costs		126,658		93,293			61,099
Depreciation of property and equipment		21,596		8,654			3,631
Loss (gain) on disposal of property and equipment		68		(208	)		(212	)
Operating lease rentals in respect of rented premises		10,192		9,273			7,200
Operating lease rentals in respect of rented servers		9,523		9,904			7,582
Bad debt written off (reversal)		3,693		(541	)		67

11.

INCOME TAX

Cayman Islands

Under the current laws of the Cayman Islands, the Company is not subject to Cayman Islands' income tax.

PRC

On January 1, 2008, a new Enterprise Income Tax Law (the “New EIT Law”) in China took effect. The New EIT Law applies a uniform 25% enterprise income tax rate to both foreign invested and domestic enterprises.

In 2007, Sky was granted the status of Software Enterprise under the PRC tax laws that entitled it to a preferential Enterprise Income Tax ("EIT") rate of two-year EIT exemption from its first year of profitable operation, after offsetting prior years’ tax losses, and a 50% reduction of its applicable EIT rate for the succeeding three years. On April 24, 2009, the PRC government promulgated the Notice on Several Issues Relevant to the Implementation of the Preferential Policies on EIT which allows Software Enterprises to continue to enjoy their unexpired tax holiday under the old EIT Law. The first profit-making year of Sky was 2008. As a result, Sky was subject to a tax rate of 12.5% for calendar year 2011 and 2012. In 2013, Sky obtained the “key software development enterprise” (KSDE”) status under the New EIT Law. The KSDE status allows qualifying China-based enterprises to use a 10% tax rate for two calendar years 2013 and 2014.

In 2009, Mijia was granted the status of Software Enterprise under the PRC tax laws that entitled it to a preferential EIT rate of two-year EIT exemption from its first year of profitable operation, after offsetting prior years’ tax losses, and a 50% reduction of its applicable EIT rate for the succeeding three years. The first profit-making year of Mijia was 2010. As a result, Mijia’s EIT rates are 12.5% for calendar year 2012, 2013 and 2014, respectively.

F-31

In 2013, Miyi and Najia were granted the status of Software Enterprise under the PRC tax laws, respectively, that entitled them to a preferential EIT rate of two-year EIT exemption from their first year of profitable operation, after offsetting prior years’ tax losses, and a 50% reduction of their applicable EIT rate for the succeeding three years. The first profit-making year of Miyi and Najia was 2013. As a result, Miyi and Najia’s EIT rates are 0% for calendar year 2013 and 2014, respectively.

In 2014, Mopin was granted the status of Software Enterprise under the PRC tax laws, that entitled it to a preferential EIT rate of two-year EIT exemption from their first year of profitable operation, after offsetting prior years’ tax losses, and a 50% reduction of their applicable EIT rate for the succeeding three years. Mopin is still in accumulated loss as of December 31, 2014.

	Years Ended		Years Ended			Nine months Ended
	March 31		March 31			December 31
	2013		2014			2014
	RMB’000		RMB’000			RMB’000
Current tax expense:
PRC enterprise income tax		2,288		7,421			1,934
Deferred tax		445		(203	)		(778	)
Total		2,733		7,218			1,156

The tax expense can be reconciled to the profit per the consolidated statements of profit or loss and other comprehensive income as follows:

	Years Ended			Years Ended			Nine months Ended
	March 31			March 31			December 31
	2013			2014			2014
	RMB’000			RMB’000			RMB’000
Profit before tax		19,989			11,875			99,877
Income tax expense at PRC tax rate of 25% (i)		4,997			2,969			24,969
Tax effect of:
Non-deductible share-based compensation		6,114			4,370			1,010
Tax effect of shares of results of associates		234			(607	)		(2,127	)
Other non-deductible expenses		1,723			916			1,291
Tax incentives relating to research and development expenditures		(6,470	)		(4,888	)		(4,618	)
Tax exemption and concession to PRC subsidiaries		(2,747	)		(2,608	)		(17,513	)
Tax effect of deferred tax assets not recognized from deductible temporary differences		(831	)		374			525
Tax effect of utilization of tax loss not recognized previously and unused tax loss not recognized		(247	)		1,442			(2,381	)
Tax effect of inter-group transfer of an associate (ii)		—			5,250			—
Others		(40	)		—			—
Tax expense for the year		2,733			7,218			1,156

(i)

The applicable PRC statutory income tax rate is used since the Group’s taxable income is generated in the PRC. The applicable PRC income tax rate of 25% was used in the above computation for all reporting periods.

(ii)

Due to the Group's change of investment strategy, an equity investment was transferred from Sky Investment with 25% EIT rate to Miyi with 0% EIT tax rate during year ended March 31, 2014. Income tax of RMB 5,250,000 calculated based on the transferred price was accrued and paid to the relevant tax bureau in April, 2014 accordingly.

F-32

Without tax exemption and tax concession, PRC enterprise income taxes would have increased and basic and diluted earnings per share would have decreased by the following amounts:

	Years Ended		Years Ended			Nine months Ended
	March 31		March 31			December 31
	2013		2014			2014
	RMB’000		RMB’000			RMB’000
Increase in PRC income tax		2,747		2,608			17,513
Increase (decrease) in deferred tax		445		(93	)		(310	)
Decrease in basic and diluted earnings per share		RMB0.01		RMB0.01			RMB0.07

As of March 31, 2013 and 2014 and as of December 31,2014, the Group has unused tax losses of RMB37,008,000, RMB42,433,000 and RMB32,910,000 available for offset against future profits that may be carried forward in following four years. No deferred tax asset has been recognized in respect of the tax losses due to the unpredictability of future profit streams.

The following table reflects the movements in deferred tax assets:

	Accrued expenses			Tax losses		Total
	RMB’000			RMB’000		RMB’000
Balance at April 1, 2012		2,210			—		2,210
Charge to profit or loss during the year		(445	)		—		(445	)
Balance at March 31, 2013		1,765			—		1,765
Credit to profit or loss during the year		203			—		203
Balance at March 31, 2014		1,968			—		1,968
Credit to profit or loss during the nine-month period		517			261		778
Balance at December 31, 2014		2,485			261		2,746

The Group declared dividends in March 2010 and May 2010, however, the Group has no plan to declare dividends in the foreseeable future. There were undistributed earnings of the subsidiaries and consolidated SPEs of approximately RMB240,163,000, RMB267,622,000 and RMB355,632,000 as of March 31, 2013 and 2014 and December 31, 2014, respectively. As of March 31, 2013 and 2014 and December 31, 2014, deferred tax liability has not been provided on the remaining undistributed earnings as the Group is able to control the timing of the reversal of the temporary differences and it is probable that the temporary difference will not reverse in the foreseeable future.

12.

EARNINGS PER SHARE

Holders of the Group’s Restricted Shares (Note 24) are entitled to participate in dividends on an equal basis with holders of the Group’s unrestricted common shares. As such dividends are not subject to restriction as to use, the Restricted Shares are considered participating and basic earnings per share has been computed using the two-class method as follows:

F-33

	Years Ended			Years Ended			Nine months Ended
	March 31			March 31			December 31
	2013			2014			2014
Profit for the year attributable to the owners of the Company		17,112			5,251			99,008
Less: amount allocated to restricted shares (RMB’000)		(221	)		(54	)		(1,675	)
Profit for the year for the purpose of diluted earnings per share		16,891			5,197			97,333

Weighted average common shares outstanding - basic		255,983,883			244,460,993			231,609,428
Share options		—			1,068,460			1,067,909
Weighted average common shares outstanding - diluted		255,983,883			245,529,453			232,677,337
Basic earnings per share		0.07			0.02			0.42
Diluted earnings per share		0.07			0.02			0.42

The computation of diluted earnings per share for the year ended March 31, 2013 does not assume the exercise of the Company’s options because the exercise price of those options was higher than the average market price for shares.

13.

DIVIDENDS

The Company did not pay or declare any dividends on ordinary shares in the years ended March 31, 2013 and 2014 and in the nine-month period ended December 31, 2014.

14.

TERM DEPOSITS

Term deposits had an average interest rate of 3.12%, 3.84% and 3.48% per annum at March 31, 2013 and 2014 and nine-month period ended December 31, 2014, respectively.

15.

SHORT-TERM INVESTMENTS

Short-term investments consist primarily of a financial product purchased from a bank. The maturity of the financial product is one year, with an interest rate of 5.3% per annum. It is classified as short-term investments on the consolidated statements of financial position as its contractual maturity date is equal to one year. The repayment of the financial product and its return is guaranteed by the bank from which the fixed-income financial product was purchased. The Company has received the principal and interest in full upon maturity in April 2014.

The Company estimated that their fair value as of March 31, 2014 approximate their amortized costs considering their short term maturities and high credit quality.

16.

INVESTMENT AT FVTPL

In the nine-month period ended December 31, 2014, the Group totally purchased and sold RMB594,600,000 and RMB743,078,000 of monetary fund, respectively. The fair value of the monetary fund varies depending on the interest rates and credit risks of the underlying investments. As of December 31, 2014, the fair value of such monetary fund was RMB21,373,000. Gains from investment in monetary fund recognized in the consolidated statement of profit or loss and other comprehensive income for the year ended March 31, 2014 and nine-month period ended December 31, 2014 were RMB1,073,000 and RMB3,778,000, respectively. The investment was classified as financial assets at FVTPL upon initial recognition.

F-34

17.

AVAILABLE-FOR-SALE INVESTMENTS

The Group’s AFS financial assets are equity investments in two unlisted companies, established in the PRC, with 5% (RMB800,000) interest in Shanghai Mokee Technology Co., Ltd. (“Mokee”) and 1% (RMB100,000) interests in Beijing SFW Technology Co., Ltd. (“Beijing SFW”), respectively, as of March 31, 2013 and 2014; and an investment in a limited partnership of venture capital fund with investment amount of RMB6,267,000 (US$1,000,000) , RMB6,150,000 (US$1,000,000) and RMB9,179,000 (US$1,500,000), respectively, as of March 31, 2013 and 2014 and December 31, 2014.

During the nine-month period ended December 31, 2014, the Group further invested RMB6,000,000 and obtained additional 9.09% equity interest in Beijing SFW. After that, the Group held 10% equity interest in Beijing SFW and can exercise significant influence over the financial and operational policies of Beijing SFW, therefore, Beijing SFW is considered as an associate and accounted for using the equity method after the investment.

During the nine-month period ended December 31, 2014, the Group purchased 0.83% equity interest (RMB50,000) of an unlisted company, established in the PRC. This investment is recorded in the Group's AFS financial assets as well.

During the year ended March 31, 2014, the Group recognized an impairment of RMB800,000 in respect of its 5% interest in one of the two unlisted companies, due to its poor business performance and negative discounted cash flow forecast.

18.

TRADE AND OTHER RECEIVABLES

	At March 31,		At March 31,		At December 31,
	2013		2014		2014
	RMB’000		RMB’000		RMB’000
Trade receivables		65,024		60,971		189,770
Deposits and other receivables		9,406		23,779		29,804
Prepayments		5,844		10,749		15,388
Total		80,274		95,499		234,962

The Group normally grants credit for an average period of 90 days to its mobile service providers and mobile network operators.

Aging of trade receivables which are not past due nor impaired:

	At March 31,		At March 31,		At December 31,
	2013		2014		2014
	RMB’000		RMB’000		RMB’000
Within 90 days		60,028		58,677		175,826

The group has not recognized an allowance for receivables not past due because all amounts are considered recoverable.

Aging of trade receivables which are past due but not impaired:

	At March 31,		At March 31,		At December 31,
	2013		2014		2014
	RMB’000		RMB’000		RMB’000
Over 90 days		4,996		2,294		13,944

The Group has not recognized an allowance for doubtful receivables because there has not been a significant change in credit quality and the amounts are still considered recoverable. The Group does not hold any collateral or other credit enhancements over these balances. The Group wrote off RMB3,693,000, Nil and RMB67,000 trade and other receivables during the year ended March 31, 2013 and 2014 and during the nine-month period ended December 31, 2014, respectively, due to mobile network operators unilaterally terminating services provided by certain mobile service providers. The Group does not believe in foreseeable future, such termination of services provided by mobile service providers would occur.

F-35

19.

PROPERTY AND EQUIPMENT

	Electronic equipment			Furniture			Office equipment			Leasehold improvements			Motor vehicles			Total
	RMB’000			RMB’000			RMB’000			RMB’000			RMB’000			RMB’000
Cost:
At April 1, 2012		64,067			1,896			682			4,507			876			72,028
Additions		3,833			39			146			39			—			4,057
Disposals		(1,107	)		(48	)		(26	)		—			—			(1,181	)
At March 31, 2013		66,793			1,887			802			4,546			876			74,904
Additions		1,351			18			39			145			—			1,553
Disposals		(1,099	)		—			(10	)		(419	)		—			(1,528	)
At March 31, 2014		67,045			1,905			831			4,272			876			74,929
Additions		4,076			51			64			713			209			5,113
Disposals		(2,316	)		(31	)		(33	)		(113	)		—			(2,493	)
At December 31, 2014		68,805			1,925			862			4,872			1,085			77,549

Depreciation:
At April 31, 2012		(34,640	)		(712	)		(457	)		(2,949	)		(414	)		(39,172	)
Charge for the year		(19,386	)		(376	)		(199	)		(1,460	)		(175	)		(21,596	)
Eliminated on disposals		994			18			22			—			—			1,034
At March 31, 2013		(53,032	)		(1,070	)		(634	)		(4,409	)		(589	)		(59,734	)
Charge for the year		(7,883	)		(366	)		(72	)		(171	)		(162	)		(8,654	)
Eliminated on disposals		637			—			8			419			—			1,064
At March 31, 2014		(60,278	)		(1,436	)		(698	)		(4,161	)		(751	)		(67,324	)
Charge for the year		(3,145	)		(273	)		(48	)		(41	)		(124	)		(3,631	)
Eliminated on disposals		2,251			6			32			3			—			2,292
At December 31, 2014		(61,172	)		(1,703	)		(714	)		(4,199	)		(875	)		(68,663	)

Carrying values
At March 31, 2013		13,761			817			168			137			287			15,170
At March 31, 2014		6,767			469			133			111			125			7,605
At December 31, 2014		7,633			222			148			673			210			8,886

20.

INTEREST IN ASSOCIATES

	At March 31,			At March 31,			At December 31,
	2013			2014			2014
	RMB’000			RMB’000			RMB’000

Cumulative cost of investments in associates		38,669			61,211			121,021
Cumulative share of results of associates		(9,171	)		(12,018	)		(5,008	)
Impairment of investment in associates (i)		(7,127	)		(7,854	)		(10,527	)
		22,371			41,339			105,486

F-36

(i)

The Group recognized impairment of RMB1,367,000 in respect of its investment in Beijing DigiMobi Studio Co., Ltd. (“DigiMobi”) during the year ended March 31, 2013, impairment of RMB727,000 in respect of its investment in Beijing Dream Sky Technology Co. Ltd., ("Dream Sky") during the year ended March 31, 2014, impairment of RMB765,000 in respect of its investment in Shanghai Mingyou Network Technologies Co.,Ltd. (“Mingyou”) and impairment of RMB1,908,000 in respect of its investment in Beijing Brtech Co., Ltd. ("Brtech")during the nine-month period ended December 31, 2014, respectively, due to the poor business performance and negative discounted cash flow forecast of the two investees. The investments in DigiMobi, Dream Sky, Mingyou and Brtech have then been fully impaired.

The Group utilized the income approach valuation method to compute the recoverable amount of its reporting units. The key assumptions used in the income approach, requires significant management judgment on business forecast.

Particulars of the Group’s investments in associates are as follows:

	Issued and paid up capital		Portion of registered capital held by the Group									Principal activities
			March 31			March 31			December 31
Name of associates	RMB		2013			2014			2014
			%			%			%
Zhang Xing Wu Xian Technologies (Beijing) Co., Ltd.		500,000		37	%		37	%		37	%	Mobile application and content provider
Hangzhou Sibi Technologies Co., Ltd.		300,000		33.3	%		33.3	%		33.3	%	Mobile application and content provider
Hangzhou Guanzhun Technologies Co., Ltd.		15,000,000		45	%		45	%		45	%	Development of mobile application software
Shenzhen Heisha Technologies Co., Ltd. (a)		11,445,878		31	%		31	%		0	%	Provision of mobile application service
Brtech (b)		1,176,500		15	%		15	%		15	%	Development of mobile application software
Shanghai Mihoyo Network Technology Co., Ltd. (c)		1,070,000		15	%		15	%		15	%	Development of mobile application software
Shanghai Fangcun Information Technology Co., Ltd. (d)		10,000,000		20	%		37.9	%		0	%	Development of mobile application software
DigiMobi (e)		117,647		15	%		15	%		15	%	Development of mobile application software
Shanghai Gameba Co., Ltd. (f)		375,000		15	%		20	%		20	%	Development of mobile application software
Hangzhou Mr. Glee Tech. Co., Ltd. (g)		1,430,600		10	%		10	%		12	%	Development of mobile application software
Dream Sky (h)		125,000		20	%		20	%		20	%	Development of mobile application software
Hangzhou Taiku Technologies Co., Ltd. (i)		8,500,000		65	%		65	%		65	%	Operation of mobile video services
Hangzhou Breaking Dawn Network Technologies Co. Ltd. (j)		10,000,000		70	%		70	%		70	%	Operation of mobile leisure games
Hangzhou Quyuan Technologies Co., Ltd. (k)		1,000,000		Nil			20	%		20	%	Development of mobile application software
Hangzhou Lonshin E-Commerce Co., Ltd. (l)		1,111,111		Nil			10	%		10	%	Operation of car service platform
Shanghai Mingyou Network Technologies Co., Ltd. (m)		1,250,000		Nil			13.3	%		13.3	%	Development of mobile application software
Hangzhou Qianlong Technologies Co., Ltd. (n)		10,000,000		Nil			40	%		40	%	Development of mobile application software
Shanghai Vtime Information Technologies Co., Ltd. (o)		166,668		Nil			12.5	%		10	%	Operation of mobile game advertising platform
Shanghai Halfmeters Network Technologies Co., Ltd. (p)		133,300		Nil			12.5	%		13.9	%	Development of mobile application software
Guangzhou Eyesblack Network Technologies Co., Ltd. (q)		125,000		Nil			20	%		20	%	Development of mobile application software
Hangzhou Joyreach Technologies Co., Ltd. (r)		1,291,445		Nil			12	%		10.1	%	Operation and Development of mobile application software
Beijing SFW (s)		1,375,000		1	%		1	%		10	%	Operating and Development of online game and social platforms
Hangzhou Funyou Network Technology Co., Ltd. (t)		1,000,000		Nil			Nil			24.1	%	Operation and Development of mobile application software
Shanghai Leyi Information Technology Co., Ltd. (u)		75,000,000		Nil			Nil			66.5	%	Investment of new TMT company
Beijing Jamo Games Technologies Co.,Ltd. (v)		10,000,000		Nil			Nil			20	%	Operation and Development of mobile application software
Shanghai Tongyu Network Technology Co., Ltd. (w)		3,000,000		Nil			Nil			20	%	Operation and Development of mobile application software

F-37

All of the above associates are accounted for using the equity method in the consolidated financial statements.

The financial year end date of all of the above associates is December 31. This was the reporting date as required by the Company Law of PRC. For the purposes of applying the equity method of accounting, the financial statements of the above associates for the years ended December 31, 2012, 2013 and 2014 have been used, and appropriate adjustments have been made for the effects of significant transactions between those dates and March 31, 2013 and 2014 and December 31, 2014.

(a)	The Group held 65% interest of Shenzhen Heisha Technologies Co., Ltd. (“Heisha”) and consolidated it before April 2011. In April 2011, the Group partially disposed its interests in Heisha and retained 31% equity interest, the fair value of the remaining 31% interest of Heisha was approximately RMB 1,600,000. The Group disposed the remaining 31% interest in Heisha for RMB1,000,000 during the nine-month period ended December 31, 2014 (Note 21).

(b)	In April 2012, the Group acquired 15% of the equity interest in Brtech for a cash consideration of RMB2,200,000. One out of three directors of Brtech is appointed by the Group and the Group can exercise significant influence over the financial and operational policies of Brtech, therefore, Brtech is considered as an associate. The Group recognized full impairment in September 2014 in regards of the investment in Brtech due to its poor operating performance and negative discounted cash flow.

(c)	In June 2012, the Group acquired 15% of the equity interest in Shanghai Mihoyo Network Technology Co., Ltd. (“Mihoyo”) for a cash consideration of RMB1,000,000. One out of three directors of Mihoyo is appointed by the Group and the Group can exercise significant influence over the financial and operational policies of Mihoyo, therefore, Mihoyo is considered as an associate.

(d)	In July 2012, the Group acquired 12% of the equity interest in Shanghai Fangcun Information Technology Co., Ltd. (“Fangcun”) for a cash consideration of RMB2,500,000. In March 2013, the Group further invested RMB2,500,000 and obtained 8% equity interest in Fangcun. In July 2013, the Group further acquired 17.9% of the equity interest in Fangcun for a cash consideration of RMB 25,000,000. After that, the Group held 37.9% equity interest in Fangcun. One out of three directors is appointed by the Group and the Group can exercise significant influence over the financial and operational policies of Fangcun, therefore, Fangcun is considered as an associate. In late 2013, the Group and other shareholders of Fangcun signed the share transfer agreement with Guangdong Alpha Animation & Culture Co., Ltd. ("Alpha") and planned to sell 100% shares of Fangcun to Alpha at the consideration of approximately RMB250,000,000. The deal was approved by China Securities Regulatory Commission ("CSRC") in February 2014, investment in Fangcun was reclassified as asset held-for-sale after that. This transaction was completed in May 2014 and all the cash consideration of RMB91,625,000 was received (Note 21).

(e)	In July 2012, the Group acquired 15% of the equity interest in DigiMobi for a cash consideration of RMB1,500,000. One out of three directors of DigiMobi is appointed by the Group and the Group can exercise significant influence over the financial and operational policies of DigiMobi, therefore, DigiMobi is considered as an associate.

(f)	In October 2012, the Group acquired 15% of the equity interest in Shanghai Gameba Co., Ltd. (“Gameba”) for a cash consideration of RMB1,125,000. One out of three directors of Gameba is appointed by the Group and the Group can exercise significant influence over the financial and operational policies of Gameba, therefore, Gameba is considered as an associate. In December 2013, the Group acquired 5% of the equity interest in Gameba from another investor for a cash consideration of RMB407,500. After that, the Group held 20% of the equity interest in Gameba.

F-38

(g)	In October 2012, the Group acquired 10% of the equity interest in Hangzhou Mr. Glee Tech. Co., Ltd. (“Mr. Glee”) for a cash consideration of RMB5,000,000. One out of three directors of Mr. Glee is appointed by the Group and the Group can exercise significant influence over the financial and operational policies of Mr. Glee, therefore, Mr. Glee is considered as an associate. In April 2014, the Group acquired 2% equity interest of Mr. Glee for a cash consideration of RMB1,000,000. After that, the Group held 12% of equity interest in Mr. Glee.

(h)	In November 2012, the Group acquired 20% of the equity interest in Beijing Dream Sky Technology Ltd. (“Dream Sky”) for a cash consideration of RMB1,000,000. One out of three directors of Dream Sky is appointed by the Group and the Group can exercise significant influence over the financial and operational policies of Dream Sky, therefore, Dream Sky is considered as an associate.

(i)	In January 2013, the Group, together with another two independent individuals, established Hangzhou Taiku Technologies Co., Ltd. (“Taiku”). The Group invested RMB5,525,000 and obtained a 65% equity interest in Taiku. Only one out of three directors of Taiku is appointed by the Group, while a valid board resolution requires half of the total votes. The Group does not have the power to control or jointly control the financial and operational policies of Taiku. Therefore, Taiku is considered as an associate.

(j)	In January 2013, the Group, together with another two independent individuals, established Hangzhou Breaking Dawn Network Technologies Co. Ltd. (“Breaking Dawn”). The Group invested RMB1,610,000 and obtained a 70% equity interest in Breaking Dawn. Only one out of three directors of Breaking Dawn is appointed by the Group, while a valid board resolution requires half of the total votes. The Group does not have the power to control or jointly control the financial and operational policies of Breaking Dawn. Therefore, Breaking Dawn is considered as an associate. In September 2013, the Group further invested RMB5,390,000 while the other shareholders increased their investment proportionately. In April 2014, the Group withdrew RMB 5,390,000 while the other shareholders decreased their investment proportionately.

(k)	In April 2013, the Group acquired 20% of the equity interest in Hangzhou Quyuan Technologies Co., Ltd. (“Quyuan”) for a cash consideration of RMB3,000,000. One out of three directors of Quyuan is appointed by the Group and the Group can exercise significant influence over the financial and operational policies of Quyuan, therefore, Quyuan is considered as an associate.

(l)	In June 2013, the Group acquired 10% of the equity interest in Hangzhou Lonshin E-Commerce Co., Ltd. (“Lonshin”) for a cash consideration of RMB2,500,000. One out of three directors of Lonshin is appointed by the Group and the Group can exercise significant influence over the financial and operational policies of Lonshin, therefore, Lonshin is considered as an associate.

(m)	In August 2013, the Group acquired 13.3% of the equity interest in Shanghai Mingyou Network Technologies Co., Ltd. (“Mingyou”) for a cash consideration of RMB1,000,000. One out of three directors of Mingyou is appointed by the Group and the Group can exercise significant influence over the financial and operational policies of Mingyou, therefore, Mingyou is considered as an associate.

(n)	In July 2013, the Group acquired 40% of the equity interest in Hangzhou Qianlong Technologies Co., Ltd. (“Qianlong”) for a cash consideration of RMB2,600,000. In September 2013, the Group further invested RMB1,400,000 while the other shareholders increased their investment proportionately. One out of three directors of Qianlong is appointed by the Group and the Group can exercise significant influence over the financial and operational policies of Qianlong, therefore, Qianlong is considered as an associate.

(o)	In October 2013, the Group acquired 12.5% of the equity interest in Shanghai Vtime Information Technologies Co., Ltd. (“Vtime”) for a cash consideration of RMB750,000. One out of three directors of Vtime is appointed by the Group and the Group can exercise significant influence over the financial and operational policies of Vtime, therefore, Vtime is considered as an associate. Two new shareholders invested in Vtime in June 2014 and the paid-in capital increased accordingly to RMB166,668. After that, the Group held 10% equity interest in Vtime.

(p)	In October 2013, the Group acquired 12.5% of the equity interest in Shanghai Halfmeters Network Technologies Co., Ltd. (“Halfmeters”) for a cash consideration of RMB700,000. One out of three directors of Halfmeters is appointed by the Group and the Group can exercise significant influence over the financial and operational policies of Halfmeters, therefore, Halfmeters is considered as an associate. In June 2014, one shareholder of Halfmeters voluntarily resigned and according to the investment agreement, his shares were transferred to the remaining shareholders unconditionally, which led to the Group's ownership increasing from 12.5% to 13.9%.

(q)	In January 2014, the Group acquired 20% of the equity interest in Guangzhou Eyesblack Network Technologies Co., Ltd. (“Eyesblack”) for a cash consideration of RMB1,500,000. One out of three directors of Eyesblack is appointed by the Group and the Group can exercise significant influence over the financial and operational policies of Eyesblack, therefore, Eyesblack is considered as an associate.

(r)	In March 2014, the Group acquired 12% of the equity interest in Hangzhou Joyreach Technologies Co., Ltd. (“Joyreach”) for a cash consideration of RMB8,295,000. One out of four directors of Joyreach is appointed by the Group and the Group can exercise significant influence over the financial and operational policies of Joyreach, therefore, Joyreach is considered as an associate. Another shareholder invested in Joyreach in May, 2015, which increased the paid-in capital to RMB1,291,445. After that, the group held 10.1% equity interest in Joyreach.

F-39

(s)	In June 2014, the Group further invested RMB 6,000,000 and obtained 9.09% of the equity interest in Beijing SFW, after that, the Group held 10% of the equity interest in Beijing SFW. One out of five directors of Beijing SFW is appointed by the Group and the Group can exercise significant influence over financial and operational policies of Beijing SFW, therefore, Beijing SFW is considered as an associate.

(t)	In May 2014, the Group acquired 24.1% of the equity interest in Hangzhou Funyou Network Technologies Co., Ltd. (“Funyou”) for a cash consideration of RMB 2,800,000. One out of three directors of Funyou is appointed by the Group and the Group can exercise significant influence over the financial and operational policies of Funyou, therefore, Funyou is considered as an associate.

(u)	In May 2014, the Group acquired 66.5% of the equity interest in Shanghai Leyi Information Technology Co., Ltd ("Leyi") for a cash consideration of RMB 49,900,000. Leyi is an investment fund targeting PRC early stage companies in high technology industry or with new business models. The Group is a limited partner. One out of four member of investment decision committee is appointed by the Group and the Group can exercise significant influence over the financial and operational policies of Leyi, and therefore, Leyi is considered as an associate.

(v)	In August 2014, the Group acquired 20% of the equity interest in Beijing Jamo Games Technologies Co., Ltd. (“Jamo”) for a cash consideration of RMB 4,000,000. One out of four directors of Jamo is appointed by the Group and the Group can exercise significant influence over the financial and operational policies of Jamo, therefore, Jamo is considered as an associate.

(w)	In October 2014, the Group acquired 20% of the equity interest in Shanghai Tongyu Network Technology Co., Ltd (“Tongyu”) for a cash consideration of RMB 1,400,000. One out of five directors of Tongyu is appointed by the Group and the Group can exercise significant influence over the financial and operational policies of Tongyu, therefore, Tongyu is considered as an associate.

A summary of financial information in respect of the Group’s associates is set out below:

	At March 31,			At March 31,		At December 31,
	2013			2014		2014
	RMB’000			RMB’000		RMB’000
Total assets		36,872			58,982		283,389
Total liabilities		12,072			14,865		73,111
Net assets		24,800			44,117		210,278
Aggregate carrying amount of the Group's interests in these associates		22,371			41,339		105,486

	Years Ended			Years Ended		Nine months Ended
	March 31,			March 31,		December 31,
	2013			2014		2014
	RMB’000			RMB’000		RMB’000
Total revenue		16,198			96,155		208,689
(Loss) profit for the year		(14,306	)		14,206		54,073
Group’s share of (loss) profit of associates		(935	)		2,428		8,510

21.

Gains on disposal of associates

In May 2014, the Group completed the disposal of its entire 37.9% equity interest in Fangcun and received the cash consideration of RMB91,625,000 (note 20). The Group recognized RMB56,351,000 gain on disposal accordingly.

In August 2014, the Group sold its remaining 31.0% equity interest in Heisha at a cash consideration of RMB1,000,000. The group recognized RMB1,000,000 gain on disposal accordingly. RMB600,000 has been received by the end of December 31, 2014.

F-40

22.

TRADE AND OTHER PAYABLES

	At March 31,		At March 31,		At December31,
	2013		2014		2014
	RMB’000		RMB’000		RMB’000
Trade payable		70,571		94,994		173,200
Accrued payroll and employee welfare		10,621		14,062		18,672
Other taxes payable		6,420		5,145		6,751
Payable for acquisition of property and equipment		1,031		565		—
Accrued expenses		6,511		5,551		6,067
Advance from customers		20,332		22,225		17,587
Other payables		6,633		10,932		10,470
Total		122,119		153,474		232,747

23.

SHARE CAPITAL

	Number of shares				Amount US$			Amount RMB’000
Common shares
Authorized:
As of March 31, 2013 and 2014 and December 31, 2014		937,857,200				46,893			338
Issued and fully paid:
At April 1, 2012 (of US$0.00005 each)		258,174,600				12,908			92
Exercise of share options		732,248		(i)		37			—
Restricted share vested		697,916		(i)		35			—
Cancellation of repurchased shares		(9,192,816	)	(ii)		(460	)		(3	)
At March 31, 2013 (of US$0.00005 each)		250,411,948				12,520			89
Exercise of share options		4,456,776		(iii)		223			2
Restricted share vested		549,146		(iii)		27			—
Cancellation of repurchased shares		(15,955,984	)	(iv)		(798	)		(5	)
At March 31, 2014 (of US$0.00005 each)		239,461,886				11,972			86
Exercise of share options		627,520		(v)		31			—
Restricted share vested		1,298,128		(v)		65			1
Issue new shares to replace the payroll payable		70,288		(vi)		3			—
Cancellation of repurchased shares		(19,191,144	)	(vii)		(960	)		(6	)
At December 31, 2014 (of US$0.00005 each)		222,266,678				11,111			81

(i)

During the year ended March 31, 2013, 732,248 fully vested options were exercised and converted into 732,248 common shares with a par value of US$0.00005 per share, and 697,916 fully vested restricted shares became unrestricted with a par value of US$0.00005 per share.

(ii)

On August 12, 2012, the Board of Directors authorized the Company to repurchase up to US$10 million of its common shares on the open market during the period from August 13, 2012 to August 12, 2013. As of March 31, 2013, the Company has repurchased 15,173,920 common shares for a total consideration of RMB25,308,000 (US$4,086,010). The Company cancelled 9,192,816 common shares which were repurchased during the year ended March 31, 2013. The remaining 5,981,104 common shares repurchased were cancelled during the year ended March 31 2014.

(iii)

During the year ended March 31, 2014, 4,456,776 fully vested options were exercised and converted into 4,456,776 common shares with a par value of US$0.00005 per share, and 549,146 fully vested restricted shares became unrestricted with a par value of US$0.00005 per share.

(iv)

During the year ended March 31, 2014, the Company repurchased 12,288,720 common shares for a total consideration of RMB27,361,000 (US$4,452,086) and cancelled 15,955,984 repurchased common shares. The remaining 2,313,840 common shares repurchased were cancelled during the nine-month period ended December 31, 2014.

F-41

(v)	During the nine-month period ended December 31, 2014, 627,520 fully vested options were exercised and converted into 627,520 common shares with a par value of US$0.00005 per share, and 1,298,128 fully vested restricted shares became unrestricted with a par value of US$0.00005 per share.
(vi)	During the nine-month period ended December 31, 2014, the Company issued 70,288 common shares with a par value of US$0.00005 per share to one senior management to replace the payroll payable of RMB335,000. The share numbers is calculated based on the carry amount of the payroll payable and the share price of the issuance date.

(vii)	During the nine-month period ended December 31, 2014, the Company repurchased 16,877,304 common shares for a total consideration of RMB101,442,000 (US$16,488,013) and all the outstanding repurchased 19,191,144 shares were cancelled as of December 31, 2014.

24.

SHARE-BASED PAYMENTS

Employee Share Option Plan (the “Plan”)

On March 1, 2010, the Company approved an ownership-based compensation scheme for executives and senior employees under which the Company could grant up to 15,000,000 shares.

In accordance with the terms of the Plan, executives and senior employees may be granted options to purchase common shares at an exercise price approved by the shareholders that should be no less than US$0.07 per common share of the Company. The option holders are not entitled to dividends nor do they have voting rights. The number of options granted is calculated and approved by shareholders. Options have a life of 10 years from the date of grant.

A summary of the option activity is as follows:

	Number of options			Weighted average exercise prices		Weighted average remaining contractual Life
				RMB
Outstanding on April 1, 2012		8,521,650			1.907	8.1 years
Forfeited		(1,101,967	)		1.775
Exercised		(732,248	)		1.775
Outstanding on March 31, 2013		6,687,435			1.993	7.1 years
Forfeited		(189,881	)		4.289
Exercised		(4,456,776	)		1.775
Outstanding on March 31, 2014		2,040,778			2.009	6.2 years
Forfeited		(19,065	)		1.775
Exercised		(627,520	)		1.775
Outstanding on December 31, 2014		1,394,193			2.118	5.4 years

The Company recorded compensation expense of RMB8,357,000, RMB4,537,000 and RMB106,000 for the years ended March 31, 2013 and 2014 and the nine-month period ended December 31, 2014, respectively.

Options exercisable were 3,385,035, 1,600,728 and 1,369,193 as of March 31, 2013 and 2014 and December 31, 2014, respectively.

In respect of the share options exercised during the year ended March 31, 2013 and 2014 and the nine-month period ended December 31, 2014, the weighted average share price at the dates of exercise was RMB1.849, RMB 4.404 and RMB5.918 per share, respectively.

F-42

Restricted Shares

On April 1, 2010, Xplane Ltd.(“Xplane”), the Company’s parent company, issued 493,400 of its restricted shares to its shareholders, who are also employees of the Group. Of these shares, 40% vest on the second anniversary of the grant date and 20% vest on the third, fourth and fifth anniversaries of the grant date, respectively. The Group measured the fair value of the restricted shares based on the fair value of the Company’s shares, as Xplane has no other assets except for its investment in the Group. The fair value of the restricted shares as of April 1, 2010 was RMB126 (US$19) per share. The Group recognized the total amount of approximately RMB62,351,000 as compensation expense over the five year deemed service, or vesting, period with a corresponding increase in reserve in the statement of changes in equity. During the years ended March 31, 2013 and 2014 and the nine-month period ended December 31, 2014, the Group recognized RMB9,768,000, RMB5,612,000 and RMB1,871,000 as compensation expense, respectively.

On March 7, 2012, the Group issued 4,038,176 restricted shares to its employees. At the same time, Xplane also granted 3,340,400 of Sky-mobi's restricted shares to employees of the Group. The holders of these shares retain the voting and dividend rights of, but are restricted from selling, such non-vested restricted shares. 25% of the total 7,378,576 restricted shares vest on each anniversary of the grant date. The Group measured the fair value of the restricted shares based on the open market quote of the Company’s shares, which was RMB2.88 (US$0.46). The Group recognizes the total amount of RMB21,327,000 as compensation expense over the four year deemed service, or vesting, period with a corresponding increase in reserve in the consolidated statements of changes in equity. During the years ended March 31, 2013 and 2014 and the nine-month period ended December 31, 2014, the Group recognized RMB6,332,000, RMB2,977,000 and RMB725,000, respectively, as compensation expense. On October 23, 2014, as approved by the board, all the unvested restricted shares to be granted by Xplane will be issued by the Group, with all the terms unchanged.

On April 15, October 30 and November 18, 2013, the Company issued 100,000, 1,600,000 and 40,000 restricted shares to the Group’s director and senior management. The holders of these shares retain the voting and dividend rights of, but is restricted from selling, such non-vested restricted shares. These shares vest one-fourth, one-third and one-fourth on each anniversary of the grant date respectively. The Group measured the fair value of the restricted shares based on the open market quote of the Company’s shares, which was RMB1.24 (US$0.20), RMB2.99 (US$0.49) and RMB2.61 (US$0.43), respectively. The Group will recognize the total amount of RMB5,008,000 as compensation expense over the deemed service years, or vesting period with a corresponding increase in reserve in the consolidated statement of changes in equity. During the year ended March 31, 2014 and the nine-month period ended December 31, 2014, the Group totally recognized RMB1,436,000 and RMB271,000 as compensation expense.

On April 21, April 29, May 8 and June 30, 2014, the Company issued 24,000, 120,000, 160,000 and 160,000 restricted shares to the Group’s director, senior management and employees. The holders of these shares retain the voting and dividend rights of, but is restricted from selling, such non-vested restricted shares. The shares granted on May 8 was immediately vested. The rest shares vest one-fourth on each anniversary of the grant date or 30%, 30%, 40% on the first, second and third anniversaries of the grant date. The Group measured the fair value of the restricted shares based on the open market quote of the Company’s shares, which was RMB5.91 (US$0.96), RMB5.09 (US$0.83), RMB4.70 (US$0.76) and RMB6.37 (US$1.04), respectively. The Group will recognize the total amount of RMB2,523,000 as compensation expense over the deemed service years, or vesting period with a corresponding increase in reserve in the consolidated statement of changes in equity. During the nine-month period ended December 31, 2014, the Group totally recognized RMB1,065,000 as compensation expense.

On December 31, 2014, the Company issued 6,252,992 restricted shares to the Group’s senior management and employees. The holders of these shares retain the voting and dividend rights of, but is restricted from selling such non-vested restricted shares. These shares vest 20%, 20%, 30% and 30% at the end of 4 months, 12 months, 24 months and 36 months of the grant date, respectively. The Group measured the fair value of the restricted shares based on the open market quote as of grant date of the Company’s shares, which was RMB2.91 (US$0.48). The Group will recognize the total amount of RMB18,222,000 as compensation expense over the deemed service years, or vesting period with a corresponding increase in reserve in the consolidated statement of changes in equity.

F-43

A summary of the restricted shares activity is as follows:

	Number of Restricted Shares

Outstanding on April 1, 2012		4,038,176
Forfeited		(1,349,768	)
Vested		(697,916	)
Outstanding on March 31, 2013		1,990,492
Granted on April 15, 2013		100,000
Granted on October 30, 2013		1,600,000
Granted on November 18, 2013		40,000
Forfeited		(354,920	)
Vested		(549,146	)
Outstanding on March 31, 2014		2,826,426
Granted on April 21, 2014		24,000
Granted on April 29, 2014		120,000
Granted on May 8, 2014		160,000
Granted on June 30, 2014		160,000
Granted on December 31, 2014		6,252,992
Transferred from Xplane on October 23, 2014		1,288,000
Forfeited		(1,500,144	)
Vested		(1,298,128	)
Outstanding on March 31, 2014		8,033,146

Other Equity Compensation

As an incentive to the key management of Mopin, a subsidiary of the Group, the Group granted 12% equity interests of Mopin held by Sky-mobi to certain key management in June 2013, without requiring future service. The Group measured the fair value of the shares of Mopin based on the net asset value as Mopin was newly set up in June 2013. The Group recognized RMB2,916,000 compensation expense immediately.

25.

RELATED PARTY TRANSACTIONS

(a)

Related party balances

	At March 31,		At March 31,		At December 31,
	2013		2014		2014
	RMB’000		RMB’000		RMB’000
Amounts due from related parties
Non-trade balances
Amount due from associates
— Hangzhou TaiKu Technologies Co. Ltd.		306		1		—
— Hangzhou Breaking Dawn Network Technologies Co., Ltd.		92		11		18
— Hangzhou Qianlong Technologies Co., Ltd.		—		—		693

Amount due from a shareholder
Non-trade balances
— Xplane Ltd.		125		—		—
Trade balances
Amount due from associates
— Hangzhou TaiKu Technologies Co., Ltd.		—		—		593
— Hangzhou Qianlong Technologies Co., Ltd.		—		148		—
— Beijing Jamo Games Technologies Co., Ltd.		—		—		220
		523		160		1,524

F-44

At March 31,

At December 31,

2013

2014

RMB’000

Loan receivable due from related parties

Non-trade balances

Amounts due from associates

— Hangzhou Qianlong Technologies Co., Ltd.

—

4,000

The amounts due from related parties are tading and non-trading in nature. The trade balances are unsecured, non-interest bearing and repayable on contract credit term of 90 days. The non-trade balances are unsecured, non-interest bearing and repayable on demand.

During the nine-month period ended December 31, 2014, the Company granted loan of RMB4,000,000 to its investee, Qianlong to support its daily operation. The loan receivable due from related parties is unsecured, with 3% interest rate and repayable on demand.

	At March 31		At March 31		At December 31
	2013		2014		2014
	RMB’000		RMB’000		RMB’000
Amounts due to related parties
Trade balances
Amounts due to associates		577		604		171
— Zhang Xing Wu Xian Technologies (Beijing) Co., Ltd.		426		211		135
— Hangzhou Sibi Technologies Co., Ltd.		127		39		65
— Beijing Brtech Co., Ltd.		2,924		4,662		11,133
— Hangzhou Breaking Dawn Network Technologies Co., Ltd.		—		587		—
— Hangzhou TaiKu Technologies Co., Ltd.		—		875		1,370
— Hangzhou Quyuan Technologies Co., Ltd.		—		188		5,080
— Hangzhou Qianlong Technologies Co., Ltd.		—		4,035		234
— Hangzhou Joyreach Technologies Co., Ltd.		—		—		6,664
— Shanghai Mihoyo Network Technology Co., Ltd.		—		—		2,116
— Shanghai Tongyu Network Technology Co., Ltd.		577		604		171
		4,054		11,201		26,968

The amounts due to associates are trading in nature. The trade balances are unsecured, non-interest bearing and repayable on contract credit term of 90 days.

(b) Related party transactions

During the years ended March 31, 2013 and 2014 and the nine-month period ended December 31, 2014, respectively, significant related party transactions were as follows:

	Year Ended		Year Ended		Nine months Ended
	March 31		March 31		December 31
	2013		2014		2014
	RMB’000		RMB’000		RMB’000
Cost of revenues (for content)
Associates
— Zhang Xing Wu Xian Technologies (Beijing) Co., Ltd.		357		81		14
— Hangzhou Sibi Technologies Co., Ltd.		2,271		1,545		647
— Beijing Brtech Co., Ltd.		982		349		65
— Hangzhou Breaking Dawn Network Technologies Co. Ltd.		2,924		12,137		9,047
— Hangzhou TaiKu Technologies Co. Ltd.		—		1,178		2,814
— Hangzhou Quyuan Technologies Co. Ltd.		—		1,875		885
— Hangzhou Qianlong Technologies Co. Ltd.		—		7,288		3,461
— Hangzhou Joyreach Technologies Co., Ltd.		—		—		2,008
— Shanghai Mihoyo Network Technology Co. Ltd.		—		—		6,667
— Shanghai Tongyu Network Technology Co., Ltd.		—		—		6
— Beijing Jamo Games Technologies Co., Ltd.		—		—		905
		6,534		24,453		26,519

F-45

	Year Ended		Year Ended		Nine months Ended
	March 31		March 31		December 31
	2013		2014		2014
	RMB’000		RMB’000		RMB’000
Revenues
Associates
— Hangzhou Qianlong Technologies Co. Ltd.		—		2,830		1,792
— Hangzhou TaiKu Technologies Co. Ltd.		—		—		5,187
— Beijing Jamo Games Technologies Co., Ltd.		—		—		1,271
		—		2,830		8,250

The compensation of directors and other key management during the years was as follows:

	Year Ended		Year Ended		Nine months Ended
	March 31		March 31		December 31
	2013		2014		2014
	RMB’000		RMB’000		RMB’000
Salary and other benefits		6,152		3,669		2,044
Retirement benefit contribution		22		10		4
Share-based compensation		8,393		2,212		743
		14,567		5,891		2,791

26.

PARTIAL DISPOSAL OF SUBSIDIARIES

During the year ended March 31, 2013, the Group disposed 12.5% equity interest in Sky Technologies International Limited ("Sky Tech") for a cash consideration of RMB 2,001,000. After the sale, the Group still held 87.5% shares and retained control over Sky Tech. The transaction was accounted for as an equity transaction. The carrying amounts of the Group's interests and the non-controlling interests were adjusted to reflect the changes in their relative interests in this subsidiary. The difference between the amount by which the non-controlling interests were adjusted and the fair value of the consideration received was recognized directly in equity.

During the fiscal year ended March 31, 2014, Sky Tech additionally issued 30,000,000 shares, that diluted the equity interest of non-controlling shareholders from 12.5% to 10%. After that, the Group held 90% shares and retained control over Sky Tech.

During nine-month period ended December 31, 2014, the Group disposed 4% of equity interest in Mopin for a cash consideration of RMB972,000. After the sale, the Group held 79.88% shares and retained control over Mopin. The transaction was accounted for as an equity transaction. The carrying amounts of the Group's interests and the non-controlling interests were adjusted to reflect the changes in their relative interests in this subsidiary. The difference between the amount by which the non-controlling interests were adjusted and the fair value of the consideration received was recognized directly in equity.

F-46

27.

OPERATING LEASES

The Group has operating lease agreements principally for its office properties and servers in the PRC with lease terms between one to two years. These leases are renewable upon negotiation.

The Group’s commitments for future minimum lease payments under non-cancelable operating lease agreements are as follows:

	At March 31, 2013		At March 31, 2014		At December 31, 2014
	RMB’000		RMB’000		RMB’000
Within one year		15,849		9,767		10,780
In the second to fifth years, inclusive		9,122		924		1,224
Total		24,971		10,691		12,004

28.

CAPITAL COMMITMENTS

The Group’s commitments for capital injections contracted for but not provided in the consolidated financial statements in respect of investment in venture capital fund and associate is RMB9,102,000 as of December 31, 2014, respectively.

29.

PROFIT APPROPRIATION

Pursuant to the relevant laws and regulations in the PRC applicable to foreign-investment corporations, the Group’s PRC subsidiaries are required to maintain a statutory reserve which is non-distributable. They are required to transfer 10% of their profit after taxation, as determined on a calendar year basis and in accordance with relevant accounting principles and financial regulations applicable to enterprises established in the PRC (“PRC GAAP”), if any, to the statutory reserve until the balance reaches 50% of their registered capital. The amount of this statutory reserve is the same under both PRC GAAP and IFRS and is reflected as statutory reserve in the consolidated statements of changes in equity. These reserves are not distributable as cash dividends. The difference between the net profit, as determined under PRC GAAP, and the amount allocated to statutory reserve, for each of PRC subsidiaries represents amounts that are free of restriction. Such amounts differ from the amounts under IFRS due to accounting differences between PRC GAAP and IFRS.

At their discretion, the PRC subsidiaries may allocate a portion of their after-tax profits based on PRC accounting standards to staff welfare and bonus funds. PRC regulations currently permit payment of dividends only out of the Group’s PRC subsidiaries’ accumulated profits as determined in accordance with PRC accounting standards and regulations. The statutory reserve amounted to 1,000,000, RMB1,000,000 and RMB1,000,000 as of March 31, 2013 and 2014 and December 31, 2014, respectively. The Group’s PRC subsidiaries have not allocated any of their after-tax profits to the staff welfare and bonus funds for any period presented.

In addition, the registered capital of the Company’s PRC subsidiaries of RMB108,694,000 as of December 31, 2014 was considered restricted due to restrictions on the distribution of registered share capital.

As a result of these PRC laws and regulations, the Company’s PRC subsidiaries are restricted in their ability to transfer a portion of their net assets, either in the form of dividends, loans or advances. Such restricted portion amounted to RMB112,734,000, RMB111,618,000 and RMB123,971,000 as of March 31, 2013 and 2014 and December 31, 2014, respectively.

30.

SUBSEQUENT EVENT

In February 2015, the Group purchased 10% of equity interest in Sky Tech from the non-controlling shareholder for a cash consideration of RMB2,000,000. As a result, the group held 100% of equity interest in Sky Tech after this purchase.

31.

APPROVAL OF FINANCIAL STATEMENTS

The financial statements were approved by the board of directors and authorized for issue on April 27, 2015.

* * * * *

F-47

Exhibit 8.1

Subsidiaries of The Registrant

As of April 27, 2015

Wholly-Owned Subsidiaries

Sky Network International Limited, a British Virgin Islands company

Profit Star Software (HK) Limited, a Hong Kong company

Pusida (Beijing) Technologies Co., Ltd., a PRC company

Hangzhou Dianneng Technologies Co., Ltd., a PRC company

Sky-Mobi Venture Limited, a Cayman Islands company

Hangzhou Tiandian Investment Consulting Co., Ltd., a PRC company

Sky Technologies International Limited, a British Virgin Islands company

Powerplay Technologies Limited, a Hong Kong company

Powerplay Network Technology SDN. BHD., a Malaysia company

10.

Powerplay Technology Co.,Limited, a Thailand company

11.

Shanghai Texuan Information Technology Co., Ltd., a PRC company

Special Purpose Entities and Their Subsidiaries Consolidated in the Registrant’s Financial Statements

12.

Hangzhou Mijia Technologies Co., Ltd., a PRC company

13.

Hangzhou Sky Network Technologies Co., Ltd., a PRC company

14.

Hangzhou Fanyi Technologies Co., Ltd., a PRC company

15.

Hangzhou Feineng Technologies Co., Ltd., a PRC company

16.

Sky Global Network Technologies Limited, a Hong Kong company and a wholly-owned subsidiary of Hangzhou Fanyi Technologies Co., Ltd.

17.

Hangzhou Miyi Technologies Co., Ltd., a PRC company

18.

Hangzhou Najia Technologies Co., Ltd., a PRC company

19.

Shanghai Tianchu Technologies Co., Ltd., a PRC company

20.

Nanjing Zunqi Network Information Technologies Co., Ltd., a PRC company

21.

Nanjing Geyuan Information Technologies Co., Ltd., a PRC company

22.

Hangzhou Dangyi Technologies Co., Ltd., a PRC company

23.

Shanghai Mugu Business Information Consulting Co., Ltd., a PRC company

24.

Shenzhen Feidong Network Technologies Co., Ltd., a PRC company

25.

Hangzhou Fuyun Technologies Co.,Ltd, a PRC company

26.

Hangzhou Duoqu Technologies Co.,Ltd, a PRC company

27.

Hangzhou Mopin Technologies Co., Ltd., a PRC company and a subsidiary of Hangzhou Sky Network Technologies Co., Ltd.

28.

Hangzhou Shunwei Technologies Co.,Ltd., a PRC company and a subsidiary of Hangzhou Sky Network Technologies Co., Ltd.

29.

Hangzhou Dabi Technologies Co.,Ltd., a PRC company and a subsidiary of Hangzhou Sky Network Technologies Co., Ltd.

30.

Hangzhou Kaimi Technologies Co., Ltd., a PRC company and a subsidiary of Hangzhou Miyi Technologies Co., Ltd.

31.

Guangdong Leidong Culture Communication Co.,Ltd., a PRC company and a subsidiary of Hangzhou Miyi Technologies Co., Ltd.

32.

Beijing Shishilian Technologies Co.,Ltd., a PRC company and a subsidiary of Hangzhou Miyi Technologies Co., Ltd.

33.

Hangzhou Zhimeng Technologies Co.,Ltd., a PRC company and a subsidiary of Hangzhou Mijia Technologies Co., Ltd.

34.

Hangzhou Moao Technologies Co.,Ltd. , a PRC company and a subsidiary of Hangzhou Mijia Technologies Co., Ltd.

35.

Chengdu Weipin Technologies Co., Ltd., a PRC company and a subsidiary of Hangzhou Mopin Technologies Co., Ltd.

Exhibit 12.1

Certification by the Chief Executive Officer

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Michael Tao Song, certify that:

1. I have reviewed this transition report on Form 20-F of Sky-mobi Limited (the “Company”);

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report;

4. The Company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have:

(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)

Evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)

Disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the period covered by the transition report that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting; and

5. The Company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditors and the audit committee of the Company’s board of directors (or persons performing the equivalent functions):

(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting.

Date: April 27, 2015

By:	/s/ Michael Tao Song
	Name:	Michael Tao Song
	Title:	Chief Executive Officer

Exhibit 12.2

Certification by the Chief Financial Officer

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Fischer Xiaodong Chen, certify that:

1. I have reviewed this transition report on Form 20-F of Sky-mobi Limited (the “Company”);

(a)

(b)

(c)

(d)

(a)

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting.

Date: April 27, 2015

By:	/s/ Fischer Xiaodong Chen
	Name:	Fischer Xiaodong Chen
	Title:	Chief Financial Officer

Exhibit 13.1

Certification by the Chief Executive Officer

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Transition Report of Sky-mobi Limited (the “Company”) on Form 20-F for the nine months ended December 31, 2014 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Michael Tao Song, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: April 27, 2015

By:	/s/ Michael Tao Song
	Name:	Michael Tao Song
	Title:	Chief Executive Officer

Exhibit 13.2

Certification by the Chief Financial Officer

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Transition Report of Sky-mobi Limited (the “Company”) on Form 20-F for the nine months ended December 31, 2014 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Fischer Xiaodong Chen, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: April 27, 2015

By:	/s/ Fischer Xiaodong Chen
	Name:	Fischer Xiaodong Chen
	Title:	Chief Financial Officer

Exhibit 15.1

April 27, 2015

Sky-mobi Limited

10/F, Building B, United Mansion

No. 2 Zijinghua Road, Hangzhou

Zhejiang 310013

People’s Republic of China

Dear Sir/Madam:

We hereby consent to the reference of our name and inclusion of the summary and quotation of our opinion under the headings “Item 3.D. Key Information—Risk Factors” and “Item 4.A. Information on the Company—Business Overview—Regulations” in Sky-mobi Limited’s Transition Report on Form 20-F for the fiscal year ended December 31, 2014 (the “Transition Report”), which will be filed with the Securities and Exchange Commission (the “SEC”) in the month of April 2015. We also consent to the filing with the SEC of this consent letter as an exhibit to the Transition Report.

In giving such consent, we do not thereby admit that we come within the category of persons whose consent is required under Section 7 of the Securities Act of 1933, or under the Securities Exchange Act of 1934, in each case, as amended, or the regulations promulgated thereunder.

Yours faithfully,

/s/ DaHui Lawyers

Exhibit 15.2

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in Registration Statement No. 333-175709 on Form S-8 of our reports dated April 27, 2015, relating to the financial statements of Sky-mobi Limited and the effectiveness of Sky-mobi Limited’s internal control over financial reporting (which report expresses an adverse opinion on the effectiveness of Sky-mobi Limited 's internal control over financial reporting because of a material weakness and includes an explanatory paragraph relating to the translation of Renminbi amounts to United States dollar amounts for the convenience of readers in the United States of America), appearing in this Transition Report on Form 20-F of Sky-mobi Limited for the nine-month transition period ended December 31, 2014.

/s/Deloitte Touche Tohmatsu Certified Public Accountants LLP

Shanghai, China
April 27, 2015

Exhibit 15.3

27 April, 2015

Matter No.:820912

Doc Ref: AC/al/101820977v1

+852 2842 9531

Anna.Chong@conyersdill.com

The Directors

10/F, Building B

United Mansion

No. 2 Zijinghua Road

Hangzhou

Zhejiang 310013

People’s Republic of China

Dear Sirs,

Re: Sky-mobi Limited (the “Company”)

We refer to the transition report of the Company for the transition period from 1 April, 2014 to 31 December, 2014 on Form 20-F filed pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 on or about 27 April, 2015 (the “Form 20-F”).

We consent to the filing of this letter as an exhibit to the transition report of the Company on Form 20-F with the U.S. Securities Exchange Commission (the “Commission”) and to the inclusion therein of the reference to our name in the Form 20-F in the form and context in which they appear.

In giving such consent, we do not hereby admit that we are experts within the meaning of Section 11 of the Securities Act of 1933 or that we are in the category of persons whose consent is required under Section 7 of the Securities Act of 1933 or the Rules and Regulations of the Commission promulgated thereunder.

Yours faithfully,

/s/ Conyers Dill & Pearman

Conyers Dill & Pearman

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