UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

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

 

For the quarterly period ended June 30, 2015

 

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

 

For the transition period from ____________ to ____________

 

Commission file number:  001-36055

 

China Commercial Credit, Inc.

(Exact name of registrant as specified in its charter)

 

Delaware		45-4077653
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

 

No.1688,Yunli Road, Tongli

Wujiang, Jiangsu Province

People’s Republic of China

(Address of principal executive offices)

 

(86-0512) 6396-0022

(Registrant’s telephone number, including area code)

 

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. Yes x    No o

 

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 x    No o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See definition of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. o

 

	Large accelerated filer	o	Accelerated filer	o
	Non-accelerated filer	o	Smaller reporting company	x

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes o    No x

 

As of August 10, 2015, 12,390,062 shares of the Company’s common stock, $0.001 par value per share, were issued and outstanding.

 

 

 

CHINA COMMERCIAL CREDIT, INC.

FORM 10-Q

 

INDEX

 

		Page Number
NOTE REGARDING FORWARD-LOOKING STATEMENTS		3
PART I.  FINANCIAL INFORMATION		4
Item 1.	Financial Statements	4
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	42
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	67
Item 4.	Controls and Procedures	67
PART II.  OTHER INFORMATION		68
Item 1.	Legal Proceedings	68
Item 1A.	Risk Factors	69
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	69
Item 3.	Defaults Upon Senior Securities	69
Item 4.	Mine Safety Disclosures	69
Item 5.	Other Information	69
Item 6.	Exhibits	69
SIGNATURES		70

 

 

Note Regarding Forward-Looking Statements

 

The information contained in this Quarterly Report on Form 10-Q includes some statements that are not purely historical and that are “forward-looking statements.” Such forward-looking statements include, but are not limited to, statements regarding our company and our management’s expectations, hopes, beliefs, intentions or strategies regarding the future, including our financial condition and results of operations. In addition, any statements that refer to projections, forecasts or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. The words “anticipates,” “believes,” “continue,” “could,” “estimates,” “expects,” “intends,” “may,” “might,” “plans,” “possible,” “potential,” “predicts,” “projects,” “seeks,” “should,” “will,” “would” and similar expressions, or the negatives of such terms, may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking.

 

The forward-looking statements contained herein are based on current expectations and beliefs concerning future developments and the potential effects on us. Future developments actually affecting us may not be those anticipated. These forward-looking statements involve a number of risks, uncertainties (some of which are beyond our control) or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. Examples are statements regarding future developments with respect to the following:

 

●	Our ability to improve internal controls and procedures;
●	Our ability to develop and market our microcredit lending guarantee business in the future;
●	Our ability to effectively control the lending risk and collect from default borrowers;
●	Our ability to make timely adjustment to ensure adequate loan loss provisions;
●	Inflation and fluctuations in foreign currency exchange rates;
●	Our on-going ability to obtain all mandatory and voluntary government and other industry certifications, approvals, and/or licenses to conduct our business;
●	Development of a liquid trading market for our securities; and
●	The costs we may incur in the future from complying with current and future governmental regulations and the impact of any changes in the regulations on our operations.

 

You should not rely upon forward-looking statements as predictions of future events. The events and circumstances reflected in the forward-looking statements may not be achieved or occur. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Moreover, neither we nor any other person assume responsibility for the accuracy and completeness of the forward-looking statements. Except as required by law, we undertake no obligation to update publicly any forward-looking statements for any reason after the date of this report to conform these statements to actual results or to changes in our expectations.

 

You should review the factors described in the section entitled “Risk Factors” herein and other documents we file from time to time with the SEC. We qualify all of our forward-looking statements by these cautionary statements.

 

 

 

PART I.  FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

CHINA COMMERCIAL CREDIT, INC.

CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

Index to consolidated financial statements

 

	Page
Consolidated Balance Sheets as of June 30, 2015 and December 31, 2014	5
Consolidated Statements of Income and Comprehensive Income for the six months and three months ended June 30, 2015 and 2014	6
Consolidated Statements of Cash Flows for the six months ended June 30, 2015 and 2014	7
Notes to the Consolidated Financial Statements	8 - 41

 

 

CHINA COMMERCIAL CREDIT, INC.

CONSOLIDATED BALANCE SHEETS

 

		June 30, 2015				December 31, 2014
		(Unaudited)
ASSETS
Cash		$	693,668			$	4,991,973
Restricted cash			1,231,268				1,983,285
Notes receivable			40,925				130,166
Loans receivable, net of allowance for loan losses $26,195,966 and $24,490,721 for June 30, 2015 and December 31, 2014, respectively			51,765,855				57,588,408
Investment in direct financing lease, net of allowance for direct financing lease losses of $104,955 and $610,153 June 30, 2015 and December 31, 2014, respectively			4,318,836				4,104,230
Interest receivable			741,454				543,603
Tax receivable, net			1,769,403				1,758,693
Property and equipment, net			85,705				142,154
Intangible asset			7,150				14,530
Guarantee paid on behalf of guarantee service customers			13,861,245				10,577,352
Guarantee paid on behalf of a related party			428,915				162,707
Other assets			569,902				387,227
Deferred tax assets			-				705,459
Total Assets		$	75,514,326			$	83,089,787
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities
Short-term bank loans		$	6,220,534			$	11,389,522
Deposits payable			1,668,086				2,725,363
Unearned income from financial guarantee services and finance lease service			120,190				182,657
Accrual for financial guarantee services			7,297,319				5,546,128
Other current liabilities			139,121				196,003
Tax payable, net			40,664				-
Deferred tax liability			199,390				313,874
Total Liabilities			15,685,304				20,353,547
Shareholders' Equity
Series A Preferred Stock (par value $0.001 per share, 1,000,000 shares authorized at June 30, 2015 and December 31, 2014, respectively; nil and nil shares issued and outstanding at June 30, 2015 and December 31, 2014, respectively)		$	-			$	-
Series B Preferred Stock (par value $0.001 per share, 5,000,000 shares authorized at June 30, 2015 and December 31, 2014, respectively; nil and nil shares issued and outstanding at June 30, 2015 and December 31, 2014, respectively)			-				-
Common stock (par value $0.001 per share, 100,000,000 shares authorized; 12,390,062 and 12,255,062 shares issued and outstanding at June 30, 2015 and December 31, 2014, respectively)			12,390				12,255
Subscription receivable			(1,062	)			(1,062	)
Additional paid-in capital			59,698,864				59,458,797
Statutory reserves			5,442,150				5,442,150
Due from a non-controlling shareholder			(1,145,996	)			(1,147,088	)
Retained earnings			(10,517,373	)			(6,989,806	)
Accumulated other comprehensive income			6,340,049				5,960,994
Total Shareholders’ Equity			59,829,022				62,736,240
Total Liabilities and Shareholders’ Equity		$	75,514,326			$	83,089,787

 

* All of the VIEs’ assets can be used to settle obligations of their primary beneficiary. Liabilities recognized as a result of consolidating these VIEs do not represent additional claims on the Company’s general assets (Note 1).

 

See notes to the consolidated financial statements

 

 

CHINA COMMERCIAL CREDIT, INC.

CONSOLIDATED STATEMENTS OF OPERATION AND COMPREHENSIVE LOSS

 

		For The Three Months Ended June 30,								For The Six Months Ended June 30,
		2015				2014				2015				2014
		(Unaudited)				(Unaudited)				(Unaudited)				(Unaudited)
Interest income
Interests and fees on loans and direct financing lease		$	907,526			$	1,673,559			$	2,188,995			$	4,530,033
Interests on deposits with banks			2,867				9,093				8,324				51,541
Total interest and fees income			910,393				1,682,652				2,197,319				4,581,574
Interest expense
Interest expense on short-term bank loans			(152,664	)			(247,935	)			(325,830	)			(493,125	)
Net interest income			757,729				1,434,717				1,871,489				4,088,449
Provision for loan losses			(1,338,787	)			(14,759,397	)			(1,551,890	)			(15,347,577	)
Over provision for direct financing lease losses			1,117,846				-				507,534				-
Net interest income/(loss) after provision for loan losses and financing lease losses			536,788				(13,324,680	)			827,133				(11,259,128	)
Commissions and fees on financial guarantee services			46,203				90,050				96,058				388,360
Provision on financial guarantee services			(1,433,866	)			(3,327,506	)			(1,712,764	)			(3,637,359	)
Commission and fees loss on guarantee services, net			(1,387,663	)			(3,237,456	)			(1,616,706	)			(3,248,999	)
Net Revenue			(850,875	)			(16,562,136	)			(789,573	)			(14,508,127	)
Non-interest income
Government incentive			-				81,408				-				81,408
Other non-interest income			-				48,369				14,585				169,329
Total non-interest income			-				129,777				14,585				250,737
Non-interest expense
Salaries and employee surcharge			(378,026	)			(222,268	)			(522,951	)			(408,403	)
Rental expenses			(72,409	)			(65,232	)			(140,285	)			(130,982	)
Business taxes and surcharge			(25,653	)			(45,776	)			(82,111	)			(158,388	)
Other operating expenses			(515,899	)			(600,380	)			(1,344,229	)			(1,132,494	)
Total non-interest expense			(991,987	)			(933,656	)			(2,089,576	)			(1,830,267	)
Foreign exchange loss			(9,176	)			-				(9,744	)			-
Loss Before Taxes			(1,852,038	)			(17,366,015	)			(2,874,308	)			(16,087,657	)
Income tax expense			(518,498	)			173,633				(653,259	)			(11,092	)
Net Loss			(2,370,536	)			(17,192,382	)			(3,527,567	)			(16,098,749	)
Loss per Share- Basic and Diluted		$	(0.192	)		$	(1.519	)		$	(0.287	)		$	(1.472	)
Weighted Average Shares Outstanding-Basic and Diluted			12,345,557				11,315,900				12,300,559				10,935,530
Net Loss			(2,370,536	)			(17,192,382	)			(3,527,567	)			(16,098,749	)
Other comprehensive income
Foreign currency translation adjustment			174,346				136,859				379,055				(670,768	)
Comprehensive Loss		$	(2,196,190	)		$	(17,055,523	)		$	(3,148,512	)		$	(16,769,517	)

 

See notes to the consolidated financial statements

 

 

CHINA COMMERCIAL CREDIT, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

		For The Six Months Ended June 30,
		2015 (Unaudited)				2014 (Unaudited)
Cash Flows from Operating Activities:
Net loss		$	(3,527,567	)		$	(16,098,749	)
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			62,012				55,890
Provision for loan losses			1,551,890				15,347,577
Provision for direct financing lease losses			(507,534	)			-
Provision on financial guarantee services			1,712,764				3,637,359
Deferred tax expense			591,752				11,092
Income from disposal of property and equipment			(14,585	)			-
Restricted shares issued to executive officers			248,400
Changes in operating assets and liabilities:			-				-
Interest receivable			(194,013	)			(339,850	)
Tax receivable			-				(929,440	)
Other assets			(184,507	)			(8,169	)
Unearned income from financial guarantee services			(63,407	)			(308,635	)
Other current liabilities			(57,810	)			(392,592	)
Tax payable			40,554				-
Net Cash (Used in)/Provided by Operating Activities			(342,051	)			974,483
Cash Flows from Investing Activities:
Originated loans disbursement to third parties			(17,290,541	)			(32,304,906	)
Loans collection from third parties			22,038,586				30,355,559
Originated loans disbursement to a related party			-				(1,139,712	)
Payment of loans on behalf of guarantee customers			(5,460,484	)			(11,053,637	)
Payment of loans on behalf of a related party			(263,687	)			-
Collection from guarantees for loan paid on behalf of guarantees			1,943,762				1,841,450
Collection of principal of finance lease, in installments			318,436				-
Deposit released from banks for financial guarantee services			-				8,660,612
Deposit paid to banks for financial guarantee services			-				(4,890,133	)
Purchases of property and equipment and intangible asset			(1,461	)			(15,191	)
Disposal of property and equipment			18,635				-
Net Cash Provided by/(Used in) Investing Activities			1,303,246				(8,545,958	)
Cash Flows From Financing Activities:
Proceeds from second public offering			-				6,601,544
Proceeds from exercise of underwriter over-allotment			-				25,000
Second public offering cost			-				(912,830	)
Repayment of short-term bank borrowings			(5,224,149	)			-
Capital contribution from a shareholder			-				11,571
Cash disbursed to a non-controlling shareholder			-				(1,150,820	)
Cash repaid from a non-controlling shareholder			-				1,135,940
Net Cash Used in Financing Activities			(5,224,149	)			5,710,405
Effect of Exchange Rate Changes on Cash and Cash Equivalents			(35,351	)			(145,028	)
Net Decrease In Cash and Cash Equivalents			(4,298,305	)			(2,006,098	)
Cash and Cash Equivalents at Beginning of Period			4,991,973				9,405,865
Cash and Cash Equivalents at End of Period		$	693,668				7,399,767
Supplemental Cash Flow Information
Cash paid for interest expense		$	325,830				425,556
Cash paid for income tax		$	-				930,437

 

See notes to the consolidated financial statements

 

 

CHINA COMMERCIAL CREDIT, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

1.

ORGANIZATION AND PRINCIPAL ACTIVITIES

 

China Commercial Credit, Inc. (“CCC” or “the Company”) is a holding company that was incorporated under the laws of the State of Delaware on December 19, 2011.

 

Wujiang Luxiang Rural Microcredit Co., Ltd (“Wujiang Luxiang”) is a company established under the laws of the PRC on October 21, 2008 and its shareholders consist of 11 companies established under the laws of the People's Republic of China (“PRC”) and 1 PRC individual, Mr. Qin Huichun, the Company's former CEO (collectively, the "Wujiang Luxiang Shareholders"). The Company is a microcredit company primarily engaged in providing direct loans and financial guarantee services to small-to-medium sized enterprises (“SMEs”), farmers and individuals in Wujiang City, Jiangsu Province, PRC.

 

On August 7, 2012 CCC entered into certain share exchange agreements with 16 PRC individuals, each of whom is the sole shareholder of a British Virgin Island company (collectively “16 BVI entities”) and the 16 BVI entities. These 16 PRC individuals represent the ultimate owners of the Wujiang Luxiang Shareholders.

 

Upon completion of the share exchange, the 16 PRC individuals, through their respective BVI entities, acquired 7,270,920 shares of Common Stock, par value $0.001 per share (the "Common Stock") of CCC in exchange for their agreement to cause the WujiangLuxiang Shareholders to enter into the Variable Interest Entity (the “VIE”) Agreements. As a result of the share exchange, the 16 BVI entities became CCC shareholders, who collectively owned approximately 90% of CCC’s total issued and outstanding shares of Common Stock at the time of the share exchange.

 

Since at the time of the share exchange neither CCC nor the 16 BVI entities had any operations and only a minor amount of net assets, the share exchange shall be considered as capital transaction in substance, rather than a business combination.

 

The share exchange is recorded as a “reverse recapitalization” equivalent to the issuance of stocks to the 16 BVI entities for the net monetary assets of CCC. The accounting for the transaction is identical to a reverse acquisition, except that no goodwill is recorded.

 

Management of the Company looked through the 16 BVI entities and treated the share exchange as a reverse merger between CCC and Wujiang Luxiang for accounting purposes, even though the share exchange was between CCC and the 16 BVI entities, because of the following reasons: (i) neither CCC nor the 16 BVI entities had any operations and only a minor amount of net assets; (ii) the 16 PRC individual, who are the owners of the 16 BVI entities, are the ultimate owners of Wujiang Luxiang, and (iii) the sole purpose of the share exchange was to issue approximately 90%of pre-public offering CCC shares to the ultimate owners of Wujiang Luxiang Shareholders.

 

VIE AGREEMENTSWITHWUJIANGLUXIANG

 

Subsequent to the share exchange, on September 26, 2012, the Company through its indirectly wholly owned subsidiary, Wujiang Luxiang Information Technology Consulting Co. Ltd. (“WFOE”), entered into a series of VIE Agreements with WujiangLuxiang and the Wujiang Luxiang Shareholders. The purpose of the VIE Agreements is solely to give WFOE the exclusive control over Wujiang Luxiang’s management and operations.

 

The significant terms of the VIE Agreements are summarized below:

 

Exclusive Business Cooperation Agreement

 

Pursuant to the Exclusive Business Cooperation Agreement between Wujiang Luxiang and WFOE, WFOE provides Wujiang Luxiang with technical support, consulting services and other management services relating to its day-to-day business operations and management, on an exclusive basis, utilizing its advantages in technology, human resources, and information. Additionally, Wujiang Luxiang grants an irrevocable and exclusive option to WFOE to purchase from Wujiang Luxiang any or all of its assets at the lowest purchase price permitted under PRC laws. For services rendered to Wujiang Luxiang by WFOE under the Agreement, the service fee Wujiang Luxiang is obligated to pay shall be calculated based on the time of services rendered multiplied by the corresponding rate, which is approximately equal to the net income of Wujiang Luxiang.

 

The Exclusive Business Cooperation Agreement shall remain in effect for ten years unless it is terminated by WFOE with 30-day prior notice. Wujiang Luxiang does not have the right to terminate the agreement unilaterally. WFOE may unilaterally extend the term of this agreement with prior written notice.

 

 

CHINA COMMERCIAL CREDIT, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

1.

ORGANIZATION AND PRINCIPAL ACTIVITIES (CONTINUED)

 

Share Pledge Agreement

 

Under the Share Pledge Agreement between the Wujiang Shareholders and WFOE, the 12 Wujiang Shareholders pledged all of their equity interests in Wujiang Luxiang to WFOE to guarantee the performance of Wujiang Luxiang’s obligations under the Exclusive Business Cooperation Agreement. Under the terms of the agreement, in the event that Wujiang Luxiang or its shareholders breach their respective contractual obligations under the Exclusive Business Cooperation Agreement, WFOE, as pledgee, will be entitled to certain rights, including, but not limited to, the right to collect dividends generated by the pledged equity interests. The Wujiang Shareholders also agreed that upon occurrence of any event of default, as set forth in the Share Pledge Agreement, WFOE is entitled to dispose of the pledged equity interest in accordance with applicable PRC laws. The Wujiang Shareholders further agree not to dispose of the pledged equity interests or take any actions that would prejudice WFOE’s interest.

 

Exclusive Option Agreement

 

Under the Exclusive Option Agreement, the Wujiang Shareholders irrevocably granted WFOE (or its designee) an exclusive option to purchase, to the extent permitted under PRC law, once or at multiple times, at any time, part or all of their equity interests in Wujiang Luxiang.The option price is equal to the capital paid in by the Wujiang Shareholders subject to any appraisal or restrictions required by applicable PRC laws and regulations.

 

Power of Attorney

 

Under the Power of Attorney, the Wujiang Shareholders authorize WFOE to act on their behalf as their exclusive agent and attorney with respect to all rights as shareholders, including but not limited to:(a) attending shareholders' meetings; (b) exercising all the shareholder's rights, including voting, that shareholders are entitled to under the laws of China and the Articles of Association, including but not limited to the sale or transfer or pledge or disposition of shares in part or in whole; and (c) designating and appointing on behalf of shareholders the legal representative, the executive director, supervisor, the chief executive officer and other senior management members of Wujiang Luxiang. The Power of Attorney is coupled with an interest and shall be irrevocable and continuously valid from the date of execution, so long as the Wujiang Shareholder is a shareholder of the Company.

 

Timely Reporting Agreement

 

To ensure Wujiang Luxiang promptly provides all of the information that WFOE and the Company need to file various reports with the SEC, a Timely Reporting Agreement was entered between Wujiang Luxiang and the Company.

 

Under the Timely Reporting Agreement, Wujiang Luxiang agrees that it is obligated to make its officers and directors available to the Company and promptly provide all information required by the Company so that the Company can file all necessary SEC and other regulatory reports as required.

 

INCORPORATION OF PFL

 

On September 5, 2013, our wholly owned subsidiary, CCC International Investment Holding Ltd. (“CCC HK”), established Pride Financial Leasing (Suzhou) Co. Ltd. (“PFL”) in Jiangsu Province, China. PFL was expected to offer financial leasing of machinery and equipment, transportation vehicles, and medical devices to municipal government agencies, hospitals and SMEs in Jiangsu Province and beyond. As of June 30, 2015, PFL incurred two finance lease transactions.

 

 

CHINA COMMERCIAL CREDIT, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

1.

ORGANIZATION AND PRINCIPAL ACTIVITIES (CONTINUED)

 

VIE AGREEMENTS WITH PRIDE INFORMATION

 

On February 19, 2014, WFOE entered into certain contractual arrangements with Mr. Huichun Qin and Pride Information Technology Co. Ltd. (“Pride Information”), a domestic entity established on February 19, 2014 and 100% owned by Mr. Qin. Pursuant to these contractual arrangements, WFOE shall have the power, rights and obligations equivalent in all material respects to those it would possess as the sole equity holder of Pride Information, including absolute control rights and the rights to the assets, property and revenue of Pride Information and as a result, approximately 100% of the net income of Pride Information will be paid as a service fee to WFOE.

 

The contractual arrangements between WFOE, Pride Information and its sole shareholder, Mr. Huichun Qin, have substantially the same terms as those between WFOE, Wujiang Luxiang and its shareholders.

 

On April 11, 2015, WFOE delivered a notice of termination to Pride Information. As a result, the contractual arrangements between WFOE, Pride Information and Mr. Qin were terminated effective on May 11, 2015 and WFOE no longer controls Pride Information.

 

Completion of the Internal Review

 

Based on the Chief Financial Officer’s review of the books and records of the Company, the Company has made a preliminary determination that following the close of the fiscal quarter ended June 30, 2014, RMB 7 million (approximately $1.1 million) was transferred (the “Transfer at Issue”) from the bank account of WFOE, without authorization to the personal account of a former executive officer of the Company, who was still an executive officer at the time of the transfer. The funds were supposed to be used for the purpose of increasing the registered capital account of Wujiang Luxiang. The Company has sought return of the funds but to date has not recovered them. The Company’s Board of Directors explored all means, including legal avenues, to recover the funds and had formed a Special Committee to undertake an internal review of the circumstances surrounding the transfer.

 

On January 26, 2015, the Special Committee notified the Board of Directors that the internal review surrounding the Transfer at Issue was completed. The internal review confirmed that Mr. Qin transferred RMB 7 million (approximately $1.1 million) from WFOE’s bank account to his personal bank account. The internal review team was unable to interview Mr. Qin. The missing funds have not yet been recovered and the Company has engaged local PRC counsel to assist in the matter.

 

During the internal review, the independent counsel examined whether other transfers had occurred that were similar to the Transfer at Issue, in that the Company’s funds were transferred to a related party in a manner that was not consistent with the Company’s corporate governance and internal control procedures. The independent counsel identified four transfers made by Mr. Qin that were not consistent with the Company’s corporate governance and internal control procedures. With respect to the first three transfers, all funds were either returned to the Company or applied to the Company’s business. With respect to the fourth transfer, the funds were used to increase the registered capital of Wujiang Luxiang, a variable interest entity the Company controls via a series of contractual arrangements, as intended and reflected in an application made to the PRC government for such increase of registered capital.

 

The internal review indicated that the Company’s control deficiencies contributed to the Transfer at Issue. The internal review also found that, since the discovery of the Transfer at Issue, the Company has taken various steps to improve its internal controls and procedures, including implementing a new fund transfer approval policy and procedures and new standards of credit risk assessment which are carried out by the newly formed Loan Review Committee. The internal review conducted by independent counsel engaged by the Special Committee of the Board of Directors observed that such new controls and procedures appear to be much more thorough and comprehensive.

 

 

CHINA COMMERCIAL CREDIT, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

(a)

Basis of presentation and principle of consolidation

 

The unaudited interim consolidated financial statements are prepared and presented in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”).

 

The interim financial information as of June 30, 2015 and for the three and six months ended June 30, 2015 and 2014 have been prepared without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) and pursuant to Regulation S-X. Certain information and footnote disclosures, which are normally included in annual financial statements prepared in accordance with U.S. GAAP, have been omitted pursuant to those rules and regulations. The unaudited interim financial information should be read in conjunction with the audited financial statements and the notes thereto, included in the Form 10-K for the fiscal year ended December 31, 2014 filed with the SEC on April 15, 2015.

 

In the opinion of management, all adjustments (which include normal recurring adjustments) necessary to present a fair statement of the Company’s financial position as of June 30, 2015, its results of operations for the three months and six months ended June 30, 2015 and 2014, and its cash flows for the six months ended June 30, 2015 and 2014, as applicable, have been made. The unaudited interim results of operations are not necessarily indicative of the operating results for the full fiscal year or any future periods.

 

(b)

Operating segments

 

ASC 280, Segment Reporting requires companies to report financial and descriptive information about their reportable operating segments, including segment profit or loss, certain specific revenue and expense items, and segment assets. The Company has no reportable segments. All of the Company's activities are interrelated, and each activity is dependent and assessed based on how each of the activities of the Company supports the others. For example, lending is dependent upon the ability of the Company to fund itself with registered capital and other borrowings and manage interest rate and credit risk.

 

The Company has only one reportable segment, which is to provide financial services in the PRC domestic market, primarily in Wujiang City, Jiangsu Province. The Company’s chief operating decision-maker (“CODM”) has been identified as the Chief Executive Officer, who reviews operating results to make decisions about allocating resources and assessing performance for both the direct lending and guarantee business and the anticipated financial leasing business. The Company’s net revenues are all generated from customers in the PRC. Hence, the Company operates and manages its business without segments. For the six months ended June 30, 2015 and 2014, there was no one customer that accounted for more than 10% of the Company's revenue.

 

(c)

Cash

 

Cash consists of bank deposits with original maturities of three months or less, which are unrestricted as to withdrawal and use The Company maintains accounts at banks and has not experienced any losses from such concentrations.

 

(d)

Restricted cash

 

Restricted cash represents cash pledged with banks as guarantor deposit for the guarantee business customers. The banks providing loans to the Company’s guarantee service customers generally require the Company, as the guarantor of the loans, to pledge a cash deposit of 10% to 20% of the guaranteed amount to an escrow account and is restricted from use. The deposits are released after the guaranteed bank loans are paid off and the Company’s guarantee obligation expires which is usually within 12 months.

 

(e)

Loans receivable, net

 

Loans receivable primarily represent loan amount due from customers. The management has the intent and ability to hold such receivable for the foreseeable future or until maturity or payoff. Loans receivable are recorded at unpaid principal balances, net of allowance for loan losses that reflects the Company’s best estimate of the amounts that will not be collected. Loan origination and commitment fees and certain direct loan origination costs collected from customers are directly recorded in current year interests and fees on loans. The loans receivable portfolio consists of corporate loans and personal loans (Note 6). The Company does not charge loan origination and commitment fees.

 

 

CHINA COMMERCIAL CREDIT, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

(f)

Allowance for loan losses

 

The allowance for loan losses is increased by charges to income and decreased by charge offs (net of recoveries). Recoveries represent subsequent collection of amounts previously charged-off. The increase in allowance for loan losses is the netting effect of “reversal” and “provision” for both business and personal loans. If the ending balance of the allowance for loan losses after any charge offs (net of recoveries) is less than the beginning balance, it will be recorded as a “reversal”; if it is larger, it will be recorded as a “provision” in the allowance for loan loss. The netting amount of the “reversal” and the “provision” is presented in the consolidated statements of operations and comprehensive income (loss).

 

The Company recognizes a charge-off when management determines that full repayment of a loan is not probable. The primary factor in making that determination is the potential outcome of a lawsuit against the delinquent debtor. The Company will recognize a charge-off when the Company loses contact with the delinquent borrower for more than six months or when the court rules against the Company to seize the collateral asset of the delinquent debt from either the guarantor or borrower.

 

The allowance for loan losses is maintained at a level believed to be reasonable by management to absorb probable losses inherent in the portfolio as of each balance sheet date. The allowance is based on factors such as the size and current risk characteristics of the portfolio, an assessment of individual loan and actual loss, delinquency, and/or risk rating record within the portfolio (Note 7). The Company evaluates its allowance for loan losses on a quarterly basis or more often as necessary.

 

(g)

Interest receivable

 

Interest on loans receivable is accrued and credited to income as earned. The Company determines a loan past due status by the number of days that have elapsed since a borrower has failed to make a contractual loan payment. Accrual of interest is generally discontinued when either (i) reasonable doubt exists as to the full, timely collection of interest or principal or (ii) when a loan becomes past due by more than 90 days. Additionally, any previously accrued but uncollected interest is reversed. Subsequent recognition of income occurs only to the extent payment is received, subject to management’s assessment of the collectability of the remaining interest and principal. Loans are generally restored to an accrual status when it is no longer delinquent and collectability of interest and principal is no longer in doubt and past due interest is recognized at that time.

 

The interest reversed due to the above reason was $2,159,181 and $1,684,691 as of June 30, 2015 and December 31, 2014, respectively.

 

 

CHINA COMMERCIAL CREDIT, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

(h)

Property and equipment

 

The property and equipment are stated at cost less accumulated depreciation. The depreciation is computed on a straight-line method over the estimated useful lives of the assets with 5% salvage value. Estimated useful lives of property and equipment are stated in Note 12.

 

The Company eliminates the cost and related accumulated depreciation of assets sold or otherwise retired from the accounts and includes any gain or loss in the statement of income. The Company charges maintenance, repairs and minor renewals directly to expenses as incurred; major additions and betterment to equipment are capitalized.

 

(i)

Impairment of long-lived assets

 

The Company applies the provisions of ASC No. 360 Sub topic 10, "Impairment or Disposal of Long-Lived Assets"(ASC 360- 10) issued by the Financial Accounting Standards Board ("FASB"). ASC 360-10 requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable through the estimated undiscounted cash flows expected to result from the use and eventual disposition of the assets. Whenever any such impairment exists, an impairment loss will be recognized for the amount by which the carrying value exceeds the fair value.

 

The Company tests long-lived assets, including property and equipment and finite lived intangible assets, for impairment at least annually or more frequently upon the occurrence of an event or when circumstances indicate that the net carrying amount is greater than its fair value. Assets are grouped and evaluated at the lowest level for their identifiable cash flows that are largely independent of the cash flows of other groups of assets. The Company considers historical performance and future estimated results in its evaluation of potential impairment and then compares the carrying amount of the asset to the future estimated cash flows expected to result from the use of the asset. If the carrying amount of the asset exceeds estimated expected undiscounted future cash flows, the Company measures the amount of impairment by comparing the carrying amount of the asset to its fair value. The estimation of fair value is generally measured by discounting expected future cash flows as the rate the Company utilizes to evaluate potential investments. The Company estimates fair value based on the information available in making whatever estimates, judgments and projections are considered necessary. There were no impairment losses in the three months ended June 30, 2015 and 2014.

 

(j)

Fair values of financial instruments

 

ASC Topic 825, Financial Instruments (“Topic 825”) requires disclosure of fair value information of financial instruments, whether or not recognized in the balance sheets, for which it is practicable to estimate that value. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instruments. Topic 825 excludes certain financial instruments and all nonfinancial assets and liabilities from its disclosure requirements. Accordingly, the aggregate fair value amounts do not represent the underlying value of the Company.

 

Level 1	inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2	inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the assets or liability, either directly or indirectly, for substantially the full term of the financial instruments.

 

Level 3

inputs to the valuation methodology are unobservable and significant to the fair value.

 

As of June 30, 2015 and December 31, 2014, financial instruments of the Company primarily comprise of cash, restricted cash, notes receivable, accrued interest receivable, other receivable, short-term bank loans, deposits payable and accrued expenses, which were carried at cost on the consolidated balance sheets, and carrying amounts approximated their fair values because of their generally short maturities.

 

 

CHINA COMMERCIAL CREDIT, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

(k)

Foreign currency translation

 

The reporting currency of the Company is United States Dollars (“US$”), which is also the Company’s functional currency. The PRC subsidiaries and VIEs maintain their books and records in its local currency, the Renminbi Yuan (“RMB”), which is their functional currencies as being the primary currency of the economic environment in which these entities operate.

 

For financial reporting purposes, the financial statements of the Company prepared using RMB are translated into the Company’s reporting currency, United States Dollars, at the exchange rates quoted by www.oanda.com. Assets and liabilities are translated using the exchange rate at each balance sheet date. Revenue and expenses are translated using average rates prevailing during each reporting period, and shareholders’ equity is translated at historical exchange rates. Adjustments resulting from the translation are recorded as a separate component of accumulated other comprehensive income in shareholders’ equity.

 

			June 30, 2015				December 31, 2014
Balance sheet items, except for equity accounts			6.1088				6.1460

 

		For the six months ended June 30,
			2015				2014
Items in the statements of income and comprehensive income, and statements of cash flows			6.1254				6.1419

 

Transactions denominated in currencies other than the functional currency are translated into prevailing functional currency at the exchange rates prevailing at the dates of the transactions. The resulting exchange differences are included in the consolidated statements of operation and comprehensive loss.

 

(l)

Use of estimates

 

The preparation of consolidated financial statements in conformity with U.S.GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. On an ongoing basis, management reviews these estimates using the currently available information. Changes in facts and circumstances may cause the Company to revise its estimates. Significant accounting estimates reflected in the financial statements include: (i) the allowance for doubtful debts; (ii) estimates of losses on unexpired loan contracts and guarantee service contracts; (iii) accrual of estimated liabilities; (iv) useful lives of long-lived assets; (v) the impairment of long-lived assets; (vi) the valuation allowance of deferred tax assets; and (vii) contingencies and litigation.

 

 

CHINA COMMERCIAL CREDIT, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

(m)

Revenue recognition

 

Revenue is recognized when there are probable economic benefits to the Company and when the revenue can be measured reliably, on the following:

 

●

Interest income on loans. Interest on loan receivables is accrued monthly in accordance with their contractual terms and recorded in accrued interest receivable. The Company does not charge prepayment penalty from customers.Additionally, any previously accrued but uncollected interest is discontinued of accrual and reversed, when either (i) reasonable doubt exists as to the full, timely collection of interest or principal or (ii) when a loan becomes past due by more than 90 days.

 

●	Commission on guarantee service. The Company receives the commissions from guarantee services in full at inception and records as unearned income before amortizing it throughout the period of guarantee.

 

●	Income on direct financing lease. The financing agreements are classified as direct financing lease as prescribed by the Financial Accounting Standards Board ("FASB Codification"). Revenues representing the capitalized costs of the investment are recognized as income upon inception of the leases. The portion of revenues representing the difference between the gross investment in the lease (the sum of the minimum lease payments and the guaranteed residual value, if any) and the sum of the present value of the two components is recorded as unearned income and amortized over the lease term.   Taxes assessed by governmental authorities that are directly imposed on revenue-producing transactions between the Company and its customers (which may include, but are not limited to, sales, use, value added and some excise taxes) are excluded from revenues.   Lessees are responsible for all taxes, insurance and maintenance costs.
●	Non-interest income. Non-interest income mainly includes rental income from the sub-leasing of certain of the Company’s leased office space to third parties and income from disposal of property and equipment.

 

(n)

Financial guarantee service contracts

 

Financial guarantee service contracts provides guarantee which protects the holder of a debt obligation against default. Pursuant to such guarantee, the Company makes payments if the obligor responsible for making payments fails to do so as scheduled.

 

The contract amounts reflect the extent of involvement the Company has in the guarantee transaction and also represent the Company’s maximum exposure to credit loss in its guarantee business.

 

 

CHINA COMMERCIAL CREDIT, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

(n) Financial guarantee service contracts (continued)

 

The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. Financial instruments representing credit risk are as follows:

 

			June 30, 2015				December 31, 2014
			(Unaudited)
Guarantee		$	15,223,939			$	21,794,663

 

A provision for possible loss to be absorbed by the Company for the financial guarantee it provides is recorded as an accrued liability when the guarantees are made and recorded as “Accrual for financial guarantee services” on the consolidated balance sheets. This liability represents probable losses and is increased or decreased by accruing a “Provision on financial guarantee services” against the income of commissions and fees on guarantee services reserve.

 

This is done throughout the life of the guarantee, as necessary when additional relevant information becomes available. The methodology used to estimate the liability for possible guarantee loss considers the guarantee contract amount and a variety of factors, which include, depending on the counterparty, latest financial position and performance of the borrowers, actual defaults, estimated future defaults, historical loss experience, estimated value of collaterals or guarantees the customers or third parties offered, and other economic conditions such as the economy trend of the area and the country. The estimates are based upon currently available information.

 

Based on the past experience, the Company estimates the probable loss for immature financial guarantee services to be 1% of contract amount and made a provision of $152,239 and $217,947 as of June 30, 2015 and December 31, 2014, respectively for possible credit risk of its guarantees. In addition, the Company accrued specific provisions for repayment on behalf of guarantee customers who defaulted on their loans, in the amount of $7,145,080 and $5,328,181 as of June 30, 2015 and December 31, 2014, respectively. The total accrual for financial guarantee services amounted to $7,297,319 and $5,546,128 as of June 30, 2015 and December 31, 2014, respectively. The Company reviews the provision on a quarterly basis.

 

(o)

Non-interest expenses

 

Non-interest expenses primarily consist of salary and benefits for employees, traveling cost, entertainment expenses, depreciation of equipment, office rental expenses, professional service fee, office supplies, etc.

 

(p)

Income tax

 

Current income tax expenses are provided for in accordance with the laws of the relevant taxing authorities. As part of the process of preparing financial statements, the Company is required to estimate its income taxes in each of the jurisdictions in which it operates. The Company accounts for income taxes using the liability approach. Under this method, deferred income taxes are recognized for tax consequences in future years of differences between the tax bases of assets and liabilities and their reported amounts in the financial statements at each year-end and tax loss carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates applicable for the differences that are expected to affect taxable income.

 

(q)

Comprehensive income

 

Comprehensive income includes net income and foreign currency adjustments. Comprehensive income is reported in the statements of operations and comprehensive income.

 

Accumulated other comprehensive income, as presented on the balance sheets are the cumulative foreign currency translation adjustments.

 

(r)

Share-based awards

 

Share-based awards granted to the Company's employees are measured at fair value on grant date and share-based compensation expense is recognized (i) immediately at the grant date if no vesting conditions are required, or (ii) using the accelerated attribution method, net of estimated forfeitures, over the requisite service period. The fair value of restricted shares is determined with reference to the fair value of the underlying shares.

 

 

CHINA COMMERCIAL CREDIT, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

(r)

Share-based awards (continued)

 

At each date of measurement, the Company reviews internal and external sources of information to assist in the estimation of various attributes to determine the fair value of the share-based awards granted by the Company, including but not limited to the fair value of the underlying shares, expected life, expected volatility and expected forfeiture rates. The Company is required to consider many factors and make certain assumptions during this assessment. If any of the assumptions used to determine the fair value of the share-based awards changes significantly, share-based compensation expense may differ materially in the future from that recorded in the current reporting period.

 

(s)

Operating leases

 

The Company leases its principal office under a lease agreement that qualifies as an operating lease. The Company records the rental under the lease agreement in the operating expense when incurred.

 

(t)

Commitments and contingencies

 

In the normal course of business, the Company is subject to loss contingencies, such as legal proceedings and claims arising out of its business, that cover a wide range of matters, including, among others, government investigations and tax matters. In accordance with ASC No. 450 Sub topic 20, “Loss Contingencies”, the Company records accruals for such loss contingencies when it is probable that a liability has been incurred and the amount of loss can be reasonably estimated.

 

(u)

Recently issued accounting standards

 

In January 2015, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2015-01 about Income Statement-Extraordinary and Unusual Items (Subtopic 225-20). ASU 2015-01 addresses the elimination from U.S. GAAP the concept of extraordinary items. Presently, an event or transaction is presumed to be an ordinary and usual activity of the reporting entity unless evidence clearly supports its classification as an extraordinary item. If an event or transaction meets the criteria for extraordinary classification, an entity is required to segregate the extraordinary item from the results of ordinary operations and show the item separately in the income statement, net of tax, after income from continuing operations. This amended guidance will prohibit separate disclosure of extraordinary items in the income statement. This amendment is effective for years, and interim periods within those years, beginning after December 15, 2015. Entities may apply the amendment prospectively or retrospectively to all prior periods presented in the financial statements. Early adoption is permitted provided that the guidance is applied from the beginning of the year of adoption. The Company intends to adopt the accounting standard during the first quarter of 2016, as required, with no material impact.

 

In February 2015, the FASB issued ASU 2015-02 "Consolidation: Amendments to the Consolidation Analysis" in order to clarify the basis for consolidation of certain legal entities. ASU 2015-02 changes the analysis that a reporting entity must perform to determine whether it should consolidate certain types of legal entities. Specifically, ASU 2015-02 (i) modifies the evaluation of whether limited partnerships and similar legal entities are variable interest entities (VIEs) or voting interest entities, (ii) eliminates the presumption that a general partner should consolidate a limited partnership, (iii) affects the consolidation analysis of reporting entities that are involved with VIEs, particularly those that have fee arrangements and related party relationships, and (iv) provides a scope exception from consolidation guidance for reporting entities with interests in certain legal entities. ASU 2015-02 is effective for public business entities for fiscal years and interim periods beginning on or after December 15, 2015. Early adoption is permitted. The Company is currently assessing the impact of ASU 2015-02 on its consolidated financial position, results of operations and cash flows.

 

In April 2015, the FASB issued ASU No. 2015-03, Simplifying the Presentation of Debt Issuance Costs, which changes the presentation of debt issuance costs in financial statements. Under this ASU, an entity presents such costs on the balance sheet as a direct deduction from the related debt liability rather than as an asset. This new standard is effective for annual reporting periods beginning after December 15, 2015, including interim periods within that reporting period, with early adoption permitted. We do not plan to adopt this standard early and do not expect that it will have a material impact on our consolidated financial statements or disclosures upon adoption.

 

 

CHINA COMMERCIAL CREDIT, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

(u)

Recently issued accounting standards (continued)

 

In May 2014, the FASB issued guidance on the accounting for revenue from contracts with customers that will supersede most existing revenue recognition guidance, including industry-specific guidance. The core principle requires an entity to recognize revenue to depict the transfer of goods and 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. In addition, the guidance requires enhanced disclosures regarding the nature, timing and uncertainty of revenue and cash flows arising from an entity's contracts with customers. This guidance is effective for interim and annual reporting periods beginning on or after December 15, 2016. Entities can choose to apply the guidance using either the full retrospective approach or a modified retrospective approach. Management believes that the adoption of this guidance will not have a material impact on our financial statements.

 

In June 2014, the FASB issued guidance that clarifies the accounting for share-based payments in which the terms of the award provide that a performance target that affects vesting could be achieved after the requisite service period. In this case, the performance target would be required to be treated as a performance condition, and should not be reflected in estimating the grant-date fair value of the award. The guidance also addresses when to recognize the related compensation cost. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2015. Management believes that the adoption of this guidance will not have a material impact on our financial statements.

 

In June 2014 Accounting Standards Update 2014-10 removed the definition of a development stage entity from the Master Glossary of the Accounting Standards Codification, thereby removing the financial reporting distinction between development stage entities and other reporting entities from U.S. GAAP. In addition, the amendments eliminate the requirements for development stage entities to (1) present inception-to-date information in the statements of income, cash flows, and shareholder equity, (2) label the financial statements as those of a development stage entity, (3) disclose a description of the development stage activities in which the entity is engaged, and (4) disclose in the first year in which the entity is no longer a development stage entity that in prior years it had been in the development stage. This ASU is effective for annual reporting periods beginning after December 15, 2014, and interim periods therein. Early adoption is permitted. The Company has elected to adopt this ASU effective with the December 31, 2014 annual report on Form 10-K and its adoption resulted in the removal of previously required development stage financial information.

 

ASU 2014-15 – "Presentation of Financial Statements—Going Concern—Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern ("ASU 2014-15")." In August 2014, the FASB issued ASU 2014-15 requiring management to assess an entity's ability to continue as a going concern, and to provide related footnote disclosures in certain circumstances. ASU 2014-15 is effective for annual periods, and interim periods within those annual periods, starting December 15, 2016; the Company's first quarter of fiscal 2018.

 

 

CHINA COMMERCIAL CREDIT, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

3.

VARIABLE INTEREST ENTITIES AND OTHER CONSOLIDATION MATTERS

 

On September 26, 2012, the Company, through WFOE, entered into a series of contractual arrangements, also known as “VIE Agreements” with Wujiang Luxiang and the Wujiang Luxiang Shareholders.

 

On February 19, 2014, WFOE entered into certain contractual arrangements, having substantially the same terms as those of the VIE Agreements with Pride Information and its sole shareholder, Mr. Huichun Qin. These VIE Agreements were terminated on May 11, 2015 and will be accounted for as a deconsolidation. Pride Information did not have any business since its inception. (See Note 1)

 

As of June 30, 2015, the Company had only one VIE.

 

The significant terms of the VIE Agreements are summarized in Note 1.

 

VIEs are entities that have either a total equity investment that is insufficient to permit the entity to finance its activities without additional subordinated financial support, or whose equity investors lack the characteristics of a controlling financial interest, such as through voting rights, right to receive the expected residual returns of the entity or obligation to absorb the expected losses of the entity. The variable interest holder, if any, that has a controlling financial interest in a VIE is deemed to be the primary beneficiary and must consolidate the VIE. WFOE is deemed to have a controlling financial interest and be the primary beneficiary of the entities mentioned in Note 1 above, because it has both of the following characteristics:

 

1.

power to direct activities of a VIE that most significantly impact the entity’s economic performance, and

 

2.

obligation to absorb losses of the entity that could potentially be significant to the VIE or right to receive benefits from the entity that could potentially be significant to the VIE.

 

In addition, as all of these contractual arrangements are governed by PRC law and provide for the resolution of disputes through either arbitration or litigation in the PRC, they would be interpreted in accordance with PRC law and any disputes would be resolved in accordance with PRC legal procedures. The legal environment in the PRC is not as developed as in other jurisdictions, such as the United States. As a result, uncertainties in the PRC legal system could further limit the Company’s ability to enforce these contractual arrangements. Furthermore, these contracts may not be enforceable in China if PRC government authorities or courts take a view that such contracts contravene PRC laws and regulations or are otherwise not enforceable for public policy reasons. In the event the Company is unable to enforce these contractual arrangements, it may not be able to exert effective control over Wujiang Luxiang, and Pride Information and its ability to conduct its business may be materially and adversely affected.

 

All of the Company’s main current operations are conducted through Wujiang Luxiang and PFL. Current regulations in China permit Wujiang Luxiang and PFL to pay dividends to us only out of its accumulated distributable profits, if any, determined in accordance with their articles of association and PRC accounting standards and regulations. The ability of Wujiang Luxiang and PFL to make dividends and other payments to the Company may be restricted by factors including changes in applicable foreign exchange and other laws and regulations.

 

 

CHINA COMMERCIAL CREDIT, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

3.

VARIABLE INTEREST ENTITIES AND OTHER CONSOLIDATION MATTERS (CONTINUED)

 

The following financial statement amounts and balances of the VIE were included in the accompanying unaudited consolidated financial statements as of June 30, 2015 and December 31, 2014 and for the three months and six months ended June 30, 2015 and 2014:

 

		June 30, 2015				December 31, 2014
		(Unaudited)
Total assets		$	70,770,536			$	77,513,966
Total liabilities			15,846,993				19,793,537

 

		For the Three Months Ended June 30,								For the Six Months Ended June 30,
		2015				2014				2015				2014
		(Unaudited)				(Unaudited)				(Unaudited)				(Unaudited)
Revenue		$	858,996				1,770,784			$	2,151,128			$	4,963,736
Net loss			2,948,815				16,791,587				3,158,805				15,553,551

 

All of the Company’s current revenue is generated in RMB. Any future restrictions on currency exchanges may limit our ability to use net revenues generated in RMB to make dividends or other payments in US$ or fund possible business activities outside China.

 

Foreign currency exchange regulation in China is primarily governed by the following rules:

 

●	Foreign Exchange Administration Rules (1996), as amended in August 2008, or the Exchange Rules;

 

●	Administration Rules of the Settlement, Sale and Payment of Foreign Exchange (1996), or the Administration Rules.

 

Under the Administration Rules, RMB is freely convertible for current account items, including the distribution of dividends, interest payments, trade and service related foreign exchange transactions, but not for capital account items, such as direct investments, loans, repatriation of investments and investments in securities outside of China, unless the prior approval of the State Administration of Foreign Exchange (“SAFE”) is obtained and prior registration with the SAFE is made. Foreign-invested enterprises like WFOE that need foreign currency for the distribution of profits to their shareholders may validate payment from their foreign currency accounts or purchase and pay foreign currencies at the designated foreign exchange banks to their foreign shareholders by producing board resolutions for such profit distribution. Based on their needs, foreign invested enterprises are permitted to open foreign currency settlement accounts for current account receipts and payments of foreign exchange along with specialized accounts for capital account receipts and payments of foreign currency at certain designated foreign exchange banks.

 

 

CHINA COMMERCIAL CREDIT, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

4.

RISKS

 

(a) Credit risk

 

Credit risk is one of the most significant risks for the Company’s business. Credit risk exposures arise principally in lending activities, finance lease and financial guarantee activities which is an off-balance sheet financial instrument.

 

Credit risk is controlled by the application of credit approvals, limits and monitoring procedures. The Company manages credit risk through in-house research and analysis of the Chinese economy and the underlying obligors and transaction structures. To minimize credit risk, the Company requires collateral in the form of rights to cash, securities or property and equipment.

 

The Company identifies credit risk collectively based on industry, geography and customer type. This information is monitored regularly by management.

 

1.1 Lending activities

 

In measuring the credit risk of lending loans to corporate customers, the Company mainly reflects the “probability of default” by the customer on its contractual obligations and considers the current financial position of the customer and the exposures to the customer and its likely future development. For individual customers, the Company uses standard approval procedures to manage credit risk for personal loans.

 

The Company measures and manages the credit quality of loans to corporate and personal customers based on the “Guideline for Loan Credit Risk Classification” (the “Guideline”) issued by the China Banking Regulatory Commission, which requires commercial banks and micro-credit institutions to classify their corporate and personal loans into five categories: (1) pass, (2) special-mention, (3) substandard, (4) doubtful and (5) loss, among which loans classified in the substandard, doubtful and loss categories are regarded as non-performing loans. The Guideline also determines the percentage of each category of non-performing loans as allowances, which are 2% on special-mention loan, 25% on substandard loans, 50% on doubtful loans and 100% on loss loans.

 

The five categories are defined as follows:

 

(1)

Pass: loans for which borrowers can honor the terms of the contracts, and there is no reason to doubt their ability to repay principal and interest of loans in full and on a timely basis.

 

(2)

Special-mention: loans for which borrowers are still able to service the loans currently, although the repayment of loans might be adversely affected by some factors.

 

(3)

Substandard: loans for which borrowers’ ability to service loans is apparently in question and borrowers cannot depend on their normal business revenues to pay back the principal and interest of loans. Certain losses might be incurred by the Company even when guarantees are executed.

 

(4)

Doubtful: loans for which borrowers cannot pay back principal and interest of loans in full and significant losses will be incurred by the Company even when guarantees are executed.

 

(5)

Loss: principal and interest of loans cannot be recovered or only a small portion can be recovered after taking all possible measures and resorting to necessary legal procedures.

 

Five-category loan classifications are re-examined on a quarterly basis. Adjustments are made to these classifications as necessary according to customers’ operational and financial position with loan loss reserves increased on a specific basis.

 

The Guideline stipulates that micro-credit companies, which are limited to provide short-term loans and financial guarantee services to only small to medium size businesses, should choose a reasonable methodology to provide allowance for the probable loss from the credit risk, and the allowance should not be less than the allowance amount derived from the five-category analysis. The Company continuously performs the analysis and believes that the allowance amount it provided is consistently more than the allowance amount derived from the five-category analysis.

 

 

CHINA COMMERCIAL CREDIT, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

4.

RISKS (CONTINUED)

 

(a) Credit risk (continued)

 

1.2 Guarantee activities

 

The off-balance sheet commitments arising from guarantee activities carry similar credit risk to loans and the Company takes a similar approach on risk management.

 

Off-balance sheet commitments with credit exposures are also assessed and categorized with reference to the Guideline and include additional amounts on a specific basis.

 

(b) Liquidity risk

 

The Company is also exposed to liquidity risk which is risk that it is unable to provide sufficient capital resources and liquidity to meet its commitments and business needs. Liquidity risk is controlled by the application of financial position analysis and monitoring procedures. When necessary, the Company will turn to other financial institutions and the owners to obtain short-term funding to meet the liquidity shortage.

 

(c) Foreign currency risk

 

A majority of the Company’s operating activities and a significant portion of the Company’s assets and liabilities are denominated in RMB, which is not freely convertible into foreign currencies. All foreign exchange transactions take place either through the Peoples’ Bank of China (“PBOC”) or other authorized financial institutions at exchange rates quoted by PBOC. Approval of foreign currency payments by the PBOC or other regulatory institutions requires submitting a payment application form together with suppliers' invoices and signed contracts. The value of RMB is subject to changes in central government policies and to international economic and political developments affecting supply and demand in the China Foreign Exchange Trading System market.

 

(d) Concentration risk

 

As of June 30, 2015 and December 31, 2014, the Company held cash of $693,668 and $4,991,973, respectively that is uninsured by the government authority. To limit exposure to credit risk relating to deposits, the Company primarily places cash deposits only with large financial institutions in the PRC with acceptable credit ratings.

 

The Company’s operations are carried out in the PRC. Accordingly, the Company’s business, financial condition and results of operations may be influenced by the political, economic and legal environments in the PRC as well as by the general state of the PRC’s economy. The business may be influenced by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among other things.

 

No customer accounted for more than 10% of total loan balance as of June 30, 2015 and December 31, 2014.

 

5.

RESTRICTED CASH

 

Restricted cash represents cash pledged with banks as guarantor deposit for the Company's guarantee service customers, amounting to $1.2 million and $2.0 million as of June 30, 2015 and December 31, 2014, respectively. The banks providing loans to the Company’s guarantee service customers generally require the Company, as the guarantor of the loans, to pledge a cash deposit usually in the range of 10% to 30% of the guaranteed amount. The deposits are released after the guaranteed bank loans are paid off and the Company’s guarantee obligation expires which is usually within 12 months.

 

At the same time, the Company requires the guarantee service customers to make a deposit to the Company of the same amount as the deposit the Company pledged to the banks for their loans. The Company recorded the deposit received as “deposits payable” on the unaudited consolidated balance sheet. The deposit is returned to the customer after the customer repays the bank loan and the Company’s guarantee obligation expires.

 

 

CHINA COMMERCIAL CREDIT, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

6.

LOANS RECEIVABLE, NET

 

The interest rates on loan issued ranged between 9.6%~19.44% and 9.6% ~ 18% for the six months ended June 30, 2015 and 2014, respectively.

 

6.1 Loans receivable consist of the following:

 

		June 30, 2015				December 31, 2014
		(Unaudited)
Business loans		$	51,972,725			$	52,254,805
Personal loans			25,989,096				29,824,324
Total Loans receivable			77,961,821				82,079,129
Allowance for loan losses
Collectively assessed			(26,195,966	)			(24,490,721	)
Individually assessed			-				-
Allowance for loan losses			(26,195,966	)			(24,490,721	)
Loans receivable, net		$	51,765,855			$	57,588,408

 

The Company originates loans to customers located primarily in Wujiang City, Jiangsu Province. This geographic concentration of credit exposes the Company to a higher degree of risk associated with this economic region.

 

All loans are short-term loans that the Company has made to either business or individual customers. As of June 30, 2015 and December 31, 2014, the Company had82 and 101 business loan customers, and 72 and 60 personal loan customers, respectively. Most loans are either guaranteed by a third party whose financial strength is assessed by the Company to be sufficient or secured by collateral. Allowance on loan losses are estimated on quarterly basis in accordance with “The Guidance on Provision for Loan Losses” published by PBOC (Note 7).

 

For the three months ended June 30, 2015 and 2014, a provision of $1,338,787 and $14,759,397 were charged to the unaudited consolidated statement of operations, respectively. For the six months ended June 30, 2015 and 2014, a provision of $1,551,890 and $15,347,577 were charged to the unaudited consolidated statement of operations, respectively. No write-offs against allowances have occurred for the three months and six months ended June 30, 2015 and 2014, respectively.

 

Interest on loans receivable is accrued and credited to income as earned. The Company determines a loan's past due status by the number of days that have elapsed since a borrower has failed to make a contractual loan payment. Accrual of interest is generally discontinued when either (i) reasonable doubt exists as to the full, timely collection of interest or principal or (ii) when a loan becomes past due by more than 90 days.

 

 

CHINA COMMERCIAL CREDIT, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

6.

LOANS RECEIVABLE, NET (CONTINUED)

 

The following table presents nonaccrual loans with aging over 90 days by classes of loan portfolio as of June 30, 2015 and December 31, 2014, respectively:

 

		June 30, 2015				December 31, 2014
		(Unaudited)
Business loans		$	25,326,136			$	16,331,544
Personal loans			10,550,712				16,975,317
		$	35,876,848			$	33,306,861

 

The following table represents the aging of loans as of June 30, 2015 by type of loan:

 

		1-89 Days Past Due				90 - 179 Days Past Due				180 - 365 Days Past Due				Over 1 year Past Due				Total Past Due				Current				Total Loans
		(Unaudited)				(Unaudited)				(Unaudited)				(Unaudited)				(Unaudited)				(Unaudited)				(Unaudited)
Business loans		$	17,286,323			$	3,241,226			$	12,244,631			$	9,840,279			$	42,612,459			$	9,360,266			$	51,972,725
Personal loans			3,339,445				3,683,211				1,276,077				5,591,424				13,890,157				12,098,939				25,989,096
		$	20,625,768			$	6,924,437			$	13,520,708			$	15,431,703			$	56,502,616			$	21,459,205			$	77,961,821

 

The following table represents the aging of loans as of December 31, 2014 by type of loan:

 

		1-89 Days Past Due				90 - 179 Days Past Due				180 - 365 Days Past Due				Over 1 year Past Due				Total Past Due				Current				Total Loans
Business loans		$	11,112,919			$	5,043,931			$	8,595,516			$	2,692,097			$	27,444,463			$	24,810,342			$	52,254,805
Personal loans			728,929				9,406,980				7,373,088				195,249				17,704,246				12,120,078				29,824,324
		$	11,841,848			$	14,450,911			$	15,968,604			$	2,887,346			$	45,148,709			$	36,930,420			$	82,079,129

 

 

CHINA COMMERCIAL CREDIT, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

6.

LOANS RECEIVABLE, NET (CONTINUED)

 

6.2 Analysis of loans by credit quality indicator

 

The following table summarizes the Company’s loan portfolio by credit quality indicator as of June 30, 2015 and December 31, 2014, respectively:

 

Five Categories		June 30, 2015				%				December 31, 2014				%
		(Unaudited)				(Unaudited)
Pass		$	2,576,609				3.3	%			32,129,840				39.1	%
Special mention			23,629,822				30.3	%			4,165,311				5.1	%
Substandard			7,439,630				9.5	%			2,501,627				3.0	%
Doubtful			40,904,592				52.5	%			39,559,908				48.2	%
Loss			3,411,168				4.4	%			3,722,443				4.5	%
Total		$	77,961,821				100	%			82,079,129				100	%

 

6.3 Analysis of loans by collateral

 

The following table summarizes the Company’s loan portfolio by collateral as of June 30, 2015:

 

		June 30, 2015
		Business Loans				Personal Loans				Total
		(Unaudited)				(Unaudited)				(Unaudited)
Guarantee backed loans		$	47,630,873			$	24,515,835			$	72,146,708
Pledged assets backed loans			3,687,059				1,473,261				5,160,320
Collateral backed loans			654,793				-				654,793
		$	51,972,725			$	25,989,096			$	77,961,821

 

The following table summarizes the Company’s loan portfolio by collateral as of December 31, 2014:

 

		December 31, 2014
		Business Loans				Personal Loans				Total
Guarantee backed loans		$	47,613,818			$	27,445,541			$	75,059,359
Pledged assets backed loans			3,990,157				2,378,783				6,368,940
Collateral backed loans			650,830				-				650,830
		$	52,254,805			$	29,824,324			$	82,079,129

 

Collateral Backed Loans

 

A collateral backed loan is a loan in which the borrower puts up an asset under their ownership, possession or control, as collateral for the loan. An asset usually is land use rights, inventory, equipment or buildings. The loan is secured against the collateral and we do not take physical possession of the collateral at the time the loan is made. We will verify ownership of the collateral and then register the collateral with the appropriate government agencies to complete the secured transaction. In the event that the borrower defaults, we can then take possession of the collateral asset and sell it to recover the outstanding balance owed. If the sale proceed of the collateral asset is not sufficient to pay off the debt, we will file a lawsuit against the borrower and seek payment for the remaining balance.

 

Pledged Asset Backed Loans

 

Pledged loans are loans with pledged assets. The pledged assets are usually certificates of deposit. Lenders take physical possession of the pledged assets at the time the loan is made and do not need to register them with government agencies to secure the loan. If the borrower defaults, we can sell the assets to recover the outstanding balance owed.

 

Both collateral loans and pledged loans are considered secured loans. The amount of a loan that lenders provide depends on the value of the collateral pledged. Beginning 2011, the Company does not provide unsecured loans.

 

Guarantee Backed Loans

 

A guaranteed loan is a loan guaranteed by a third party who is usually a corporation or high net worth individual. As of June 30, 2015 and December 31, 2014, guaranteed loans make up 92.5% and 91.4% of our direct loan portfolio, respectively.

 

 

CHINA COMMERCIAL CREDIT, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 

 

7.

ALLOWANCE FOR LOAN LOSSES

 

The allowance for loan losses is maintained at a level considered adequate to provide for losses that can be reasonably anticipated. Management performs a quarterly evaluation of the adequacy of the allowance. The allowance is based on the Company’s past loan loss history, known and inherent risks in the portfolio, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying collateral, composition of the loan portfolio, current economic conditions and other relevant factors. This evaluation is inherently subjective as it requires material estimates that may be susceptible to significant revision as more information becomes available.

 

The allowance is calculated at portfolio-level since our loans portfolio is typically of smaller balance homogenous loans and is collectively evaluated for impairment.

 

For the purpose of calculating portfolio-level reserves, we have grouped our loans into two portfolio segments: Corporate and Personal. The allowance consists of the combination of a quantitative assessment component based on statistical models, a retrospective evaluation of actual loss information to loss forecasts, value of collaterals and could include a qualitative component based on management judgment.

 

In estimating the probable loss of the loan portfolio, the Company also considers qualitative factors such as current economic conditions and/or events in specific industries and geographical areas, including unemployment levels, trends in real estate values, peer comparisons, and other pertinent factors such as regulatory guidance. Finally, as appropriate, the Company also considers individual borrower circumstances and the condition and fair value of the loan collateral, if any.

 

In addition, the Company also calculates the provision amount in accordance with PRC regulation “The Guidance for Loan Losses” (“The Provision Guidance”) issued by PBOC and is applied to all financial institutes as below:

 

1.

General Reserve - is based on total loan receivable balance and to be used to cover unidentified probable loan loss. The General Reserve is required to be no less than 1% of total loan receivable balance.

 

2.

Specific Reserve - is based on the level of loss of each loan after categorizing the loan according to their risk. According to the so-called “Five-Tier Principle” set forth in the Provision Guidance, the loans are categorized as “pass”, “special-mention”, “substandard”, “doubtful” or “loss”. Normally, the provision rate is 2% for “special-mention”, 25% for “substandard”, 50% for “doubtful” and 100% for “loss”.

 

3.

Special Reserve - is fund set aside covering losses due to risks related to a particular country, region, industry or type of loans. The reserve rate could be decided based on management estimate of loan collectability.

 

To the extent the general loan loss reserve rate of 1% as required by PBOC differs from management’s estimates, the management elects to use the higher rate. As of June 30, 2015, the Company utilized Specific Reserve in estimating the loan loss as it is higher than the amount calculated based on the General Reserve.

 

While management uses the best information available to make loan loss allowance evaluations, adjustments to the allowance may be necessary based on changes in economic and other conditions or changes in accounting guidance.

 

The following tables present the activity in the allowance for loan losses and related recorded investment in loans receivable by classes of the loans individually and collectively evaluated for impairment as of and for the three months ended June 30, 2015 and 2014:

		Business Loans				Personal Loans				Total
		(Unaudited)				(Unaudited)				(Unaudited)
For the three months ended June 30, 2015
Beginning balance		$	15,825,806			$	8,958,615			$	24,784,421
Charge-offs			-				-				-
Recoveries			-				-				-
Provisions			772,716				638,829				1,411,545
Ending balance			16,598,522				9,597,444				26,195,966
Ending balance: individually evaluated for impairment			-				-				-
Ending balance: collectively evaluated for impairment		$	16,598,522			$	9,597,444			$	26,195,966

 

 

CHINA COMMERCIAL CREDIT, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 

 

7.

ALLOWANCE FOR LOAN LOSSES (CONTINUED)

 

		Business Loans				Personal Loans				Total
		(Unaudited)				(Unaudited)				(Unaudited)
For the three months ended June 30, 2014
Beginning balance		$	1,438,275			$	510,125			$	1,948,400
Charge-offs			(784,308	)			(730,935	)			(1,515,243	)
Recoveries			-				-				-
Provisions			9,475,422				5,253,406				14,728,828
Ending balance			10,129,389				5,032,596				15,161,985
Ending balance: individually evaluated for impairment			-				-				-
Ending balance: collectively evaluated for impairment		$	10,129,389			$	5,032,596			$	15,161,985

 

The following tables present the activity in the allowance for loan losses and related recorded investment in loans receivable by classes of the loans individually and collectively evaluated for impairment as of and for the six months ended June 30, 2015 and 2014:

 

		Business Loans				Personal Loans				Total
		(Unaudited)				(Unaudited)				(Unaudited)
For the six months ended June 30, 2015
Beginning balance		$	14,836,650			$	9,654,071			$	24,490,721
Charge-offs			-				-				-
Recoveries			-				(56,627	)			(56,627	)
Provisions			1,761,872				-				1,761,872
Ending balance			16,598,522				9,597,444				26,195,966
Ending balance: individually evaluated for impairment			-				-				-
Ending balance: collectively evaluated for impairment		$	16,598,522			$	9,597,444			$	26,195,966

 

		Business Loans				Personal Loans				Total
		(Unaudited)				(Unaudited)				(Unaudited)
For the six months ended June 30, 2014
Beginning balance		$	1,049,836			$	326,112			$	1,375,948
Charge-offs			(784,308	)			(730,935	)			(1,515,243	)
Recoveries			-				-				-
Provisions			9,863,861				5,437,419				15,301,280
Ending balance			10,129,389				5,032,596				15,161,985
Ending balance: individually evaluated for impairment			-				-				-
Ending balance: collectively evaluated for impairment		$	10,129,389			$	5,032,596			$	15,161,985

 

 

CHINA COMMERCIAL CREDIT, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 

 

7.

ALLOWANCE FOR LOAN LOSSES (CONTINUED)

 

The following table presents the classes of the loan portfolio summarized by the aggregate pass rating and the classified ratings of special mention, substandard, doubtful and loss within the Company's internal risk rating system as of June 30, 2015:

 

		Pass				Special Mention				Substandard				Doubtful				Loss				Total
		(Unaudited)				(Unaudited)				(Unaudited)				(Unaudited)				(Unaudited)				(Unaudited)
Business loans		$	1,964,379			$	19,002,096			$	3,481,182			$	24,353,768			$	3,171,300			$	51,972,725
Personal loans			612,230				4,627,726				3,958,448				16,550,824				239,868				25,989,096
		$	2,576,609			$	23,629,822			$	7,439,630			$	40,904,592			$	3,411,168			$	77,961,821

 

The following table presents the classes of the loan portfolio summarized by the aggregate pass rating and the classified ratings of special mention, substandard, doubtful and loss within the Company's internal risk rating system as of December 31, 2014:

 

		Pass				Special Mention				Substandard				Doubtful				Loss				Total
Business loans		$	20,628,050			$	3,465,669			$	2,115,197			$	22,561,860			$	3,484,029			$	52,254,805
Personal loans			11,501,790				699,642				386,430				16,998,048				238,414				29,824,324
		$	32,129,840			$	4,165,311			$	2,501,627			$	39,559,908			$	3,722,443			$	82,079,129

 

 

CHINA COMMERCIAL CREDIT, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 

 

8.

LOAN IMPAIRMENT

 

A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan by loan basis for corporate and personal loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate or the fair value of the collateral if the loan is collateral dependent.

 

An allowance for loan losses is established for an impaired loan if its carrying value exceeds its estimated fair value. Currently, estimated fair values of substantially all of the Company’s impaired loans are measured based on the estimated fair value of the loan’s collateral which approximates to the carrying value due to the short term nature of the loans.

 

Loans with modified terms are classified as troubled debt restructurings if the Company grants such borrowers concessions and it is deemed that those borrowers are experiencing financial difficulty. Concessions granted under a troubled debt restructuring generally involve a temporary below market rate reduction in interest rate or an extension of a loan’s stated maturity date. Non-accrual troubled debt restructurings are restored to accrual status if principal and interest payments, under the modified terms, are current for six consecutive months after modification. Loans classified as troubled debt restructurings are designated as impaired.

 

Even though the Company allows a one-time loan extension with a period up to the original loan period, which is usually twelve months. Such extension is not considered to be a troubled debt restructuring because the Company does not grant a concession to borrowers. The principal of the loan remains the same and the interest rate is fixed at the current interest rate at the time of extension. Therefore, there were no troubled debt restructurings during the three months and six months ended June 30, 2015 and 2014, respectively.

 

9.

GUARANTEE PAID ON BEHALF OF GUARANTEE CUSTOMERS

 

		June 30, 2015				December 31, 2014
		(Unaudited)
Guarantee paid on behalf of guarantee service customers		$	14,290,160			$	10,740,059

 

Guarantee paid on behalf of guarantee service customers represents payment made by the Company to banks on behalf of thirty-one of its guarantee service customers who defaulted on their loan repayments to the banks. Management performs an evaluation of the adequacy of the allowance. The allowance is based on the Company’s past loan loss history, known and inherent risks in the portfolio, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying collateral, composition of the loan portfolio, current economic conditions and other relevant factors. As of June 30, 2015 and December 31, 2014, the Company accrued allowance on the balance in “accrual for financial guarantee services” in the value of $7,297,319 and $5,546,128, respectively.

 

10.

OTHER ASSETS

 

Other assets as of June 30, 2015 and December 31, 2014 consisted of:

 

		June 30, 2015				December 31, 2014
		(Unaudited)
Prepaid bank service charges		$	13,679			$	33,767
Prepaid expenses to investor relationship service providers (Note 21)			-				265,591
Other prepaid expense			72,027				-
Deposit for court filing fees and legal fees			434,966				53,318
Other receivables			49,230				34,551
		$	569,902			$	387,227

 

Deposit for court filing fees and legal fees will be claimed from default customers.

 

 

CHINA COMMERCIAL CREDIT, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 

 

11.

NET INVESTMENT IN DIRECT FINANCING LEASE

 

On September 25, 2014, PFL entered into a finance lease agreement for the leasing of manufacturing equipment with a total lease receivable of $2.73 million. The lease bears an interest rate of 10.36% per annum. .

 

On October 13, 2014, PFL entered into another finance lease agreement for the leasing of manufacturing equipment with a total lease receivable of $2.88 million. The lease bears an interest rate of 11.11% per annum.

 

Future minimum lease receipts under non-cancellable finance lease arrangements are as follows:

 

		June 30, 2015				December 31, 2014
		(Unaudited)
Within 1 year		$	3,382,006			$	2,549,619
2 years			1,306,312				1,981,777
3 years			320,849				797,267
Total minimum lease receipts			5,009,167				5,328,663
Less: amount representing interest			(585,376	)			(614,280	)
Present value of minimum lease receipts		$	4,423,791			$	4,714,383

 

Following is a summary of the components of the Company’s net investment in direct financing leases as of June 30, 2015 and December 31, 2014:

 

		June 30, 2015				December 31, 2014
		(Unaudited)
Total minimum lease payments to be received		$	5,009,167			$	5,328,663
Less: Amounts representing estimated executory costs			-				-
Minimum lease payments receivable			5,009,167				5,328,663
Less Allowance for uncollectible			(104,955	)			(610,153	)
Net minimum lease payments receivable			4,904,212				4,718,510
Estimated residual value of leased property			-				-
Less: Unearned income			(585,376	)			(614,280	)
Net investment in direct financing lease		$	4,318,836			$	4,104,230

 

12.

PROPERTY AND EQUIPMENT

 

The Company’s property and equipment used to conduct day-to-day business are recorded at cost less accumulated depreciation. Depreciation expenses are calculated using straight-line method over the estimated useful life with 5% salvage value below:

 

Property and equipment consist of the following:

 

		Useful Life (years)				June 30, 2015				December 31, 2014
						(Unaudited)
Furniture and fixtures			5			$	23,656			$	23,513
Vehicles			4				162,896				242,876
Electronic equipment			3				127,566				125,333
Leasehold improvement			3				181,511				180,413
Less: accumulated depreciation							(409,924	)			(429,981	)
Property and equipment, net						$	85,705			$	142,154

 

During the six months ended June 30, 2015, the Company disposed of two vehicles with net book value of $4,073 (original cost of $81,459, accumulated depreciation of $77,386). The Company generated non-interest income of $14,585 from the disposal.

 

Depreciation expense totaled $27,404 and $27,939 for the three months ended June 30, 2015 and 2014, respectively. Depreciation expense totaled $54,563 and $55,890 for the six months ended June 30, 2015 and 2014, respectively.

 

 

CHINA COMMERCIAL CREDIT, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  

 

13.

INTANGIBLE ASSET

 

Intangible asset represents the software used for P2P platform, the useful life is estimated at 5 years.

 

		June 30, 2015				December 31, 2014
		(Unaudited)
Software		$	7,150			$	14,530

 

Amortization expense totaled $1,235 and $0 for the three months ended June 30, 2015 and 2014, respectively. Amortization expense totaled $7,449 and $0 for the six months ended June 30, 2015 and 2014, respectively.

 

14.

SHORT-TERM BANK LOANS

 

Bank Name		Interest rate		Term				June 30, 2015				December 31, 2014
								(Unaudited)
Agricultural Bank Of China		Fixed annual rate of 6.72%		From October 17, 2014 to October 16, 2015				$	3,765,060			$	8,948,910
Agricultural Bank Of China		Fixed annual rate of 6.72%		From October 31, 2014 to October 30, 2015					2,455,474				2,440,612
								$	6,220,534			$	11,389,522

 

During the six month ended June 30, 2015, the Company prepaid bank borrowings of $5,224,149.

 

As of June 30, 2015 and December 31, 2014, the short-term bank loans have maturity terms within 1 year. These loans as of June 30, 2015 and December 31, 2014 were guaranteed by the Wujiang Luxiang shareholders.

 

Interest expense incurred on short-term loans for the three months ended June 30, 2015 and 2014 was $152,664 and $247,935, respectively. Interest expense incurred on short-term loans for the six months ended June 30, 2015 and 2014 was $325,830 and $493,125, respectively.

 

15.

DEPOSITS PAYABLE

 

Deposits payable are security deposits required from customers in order to obtain loans and guarantees from the Company. The deposits are refundable to the customers when the customers fulfill their obligations under loan and guarantee contracts.

 

16.

UNEARNED INCOME

 

The Company receives guarantee commissions in full at the inception and records unearned income before amortizing it throughout the guarantee service life. Unearned income from guarantee services was $32,202 and $109,439 as of June 30, 2015 and December 31, 2014, respectively.

 

The Company receives financing leasing service commissions at the inception and records unearned income before amortizing it throughout the guarantee service life. Unearned income from financing leasing services was $87,988 and $73,218 as of June 30, 2015 and December 31, 2014, respectively

 

 

CHINA COMMERCIAL CREDIT, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS   

 

17.

OTHER CURRENT LIABILITIES

 

Other current liabilities as of June 30, 2015 and December 31, 2014 consisted of:

 

		June 30, 2015				December 31, 2014
		(Unaudited)
Accrued payroll		$	58,437			$	84,791
Accrued rental fee			65,846				-
Other tax payable			2,888				99,335
Other payable			11,950				11,877
		$	139,121			$	196,003

 

18.

OTHER OPERATING EXPENSE

 

Other operating expense for the three and six months ended June 30, 2015 and 2014 consisted of:

 

		For the Three Months Ended June 30,								For the Six Months Ended June 30,
		2015				2014				2015				2014
		(Unaudited)				(Unaudited)				(Unaudited)				(Unaudited)
Depreciation		$	28,639			$	27,939			$	62,012			$	55,890
Travel expenses			4,896				13,591				5,862				28,331
Entertainment expenses			6,140				7,432				15,270				32,911
Promotion expenses			-				-				260				7,111
Legal and consulting expenses			238,969				358,492				833,521				494,613
Car expenses			10,735				18,882				27,916				43,317
Bank charges			10,921				74,950				22,398				138,946
Audit-related expense			132,672				13,808				230,450				133,280
Insurance expense			-				70,875				-				141,750
Other expenses			82,927				14,411				146,540				56,345
Total		$	515,899			$	600,380			$	1,344,229			$	1,132,494

 

The legal and consulting expenses mainly consisted of lawsuit fees for outstanding loans and financial guarantees and consulting fees for certain investment relationship service providers.

 

19.

EMPLOYEE RETIREMENT BENEFIT

 

The Company has made employee benefit contribution in accordance with relevant Chinese regulations, including retirement insurance, unemployment insurance, medical insurance, housing fund, work injury insurance and maternity insurance. The Company recorded the contribution in the salary and employee charges when incurred. The contributions made by the Company were $21,029 and $20,580 for the three months ended June 30, 2015 and 2014, respectively, and $37,634 and $42,936 for the six months ended June 30, 2015 and 2014, respectively.

 

20.

DISTRIBUTION OF PROFIT

 

The Company did not distribute any dividend to its shareholders for the three months and six months ended June 30, 2015 and 2014, respectively.

 

 

CHINA COMMERCIAL CREDIT, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  

 

21.

CAPITAL TRANSACTION

 

Secondary Public Offering

 

On May 13, 2014, the Company closed its second public offering (“Follow-on Offering”) of 1,750,000 shares of Common Stock and 1,750,000 warrants to purchase an additional 875,000 shares of Common Stock. The public offering price of the shares was $3.99 per share and the offering pricing for the warrants was $0.01 per warrant. 1,650,386 shares of Common Stock were newly issued by the Company and 99,614 shares of Common Stock were sold by certain selling stockholders. On June 12, 2014, the representative in the Follow-on Offering exercised its over-allotment option to purchase 252,000 warrants to purchase 126,250 shares of Common Stock. The total gross proceeds in the Follow-on Offering and the over-allotment were $6.6 million. After deducting underwriting discounts and commissions and offering expenses payable by the Company and the proceeds to the selling stockholders, the aggregate net proceeds received by the Company totaled approximately $5.7 million.

 

Common Stock

 

The Company is authorized to issue up to 100,000,000 shares of Common Stock.

 

As of December 31, 2014, there were 12,255,062 shares of Common Stock issued and outstanding.

 

On April 30 2015, the Company issued 60,000 unregistered shares to Long Yi, the Company’s CFO, and 75,000 unregistered shares to Jingen Lin, the Company’s CEO, in the total amount of $248,400, for their services provided.

 

As of June 30, 2015 and December 31, 2014, there were 12,390,062 and 12,255,062 shares of Common Stock issued and outstanding, respectively.

 

  

CHINA COMMERCIAL CREDIT, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS   

 

21.

CAPITAL TRANSACTION (CONTINUED)

 

Warrants

 

The IPO underwriters’ and their affiliates’ received warrants to purchase an aggregate of 95,900 shares of Common Stock, which are exercisable at any time, and from time to time, in whole or in part, during the three-year period from February 10, 2014. The warrants are initially exercisable at a per share price of $6.50.

 

Warrants to purchase an aggregate of 875,000 shares of Common Stock were issued in the Follow-on Offering on May 13, 2014. The issuance price was $0.01 per warrant, and the warrants are exercisable at any time, and from time to time, in whole or in part, during the three-year period from May 13, 2014. The warrants are initially exercisable at a per share price of $5.60 and are recorded as additional paid-in capital.

 

Warrants to purchase 252,500 shares of Common Stock were issued to the underwriters in the Follow-on Offering. The warrants have a cashless exercise provision and are exercisable at any time, and from time to time, in whole or in part, during the three-year period from May 13, 2014. The warrants are initially exercisable at a per share price of $4.80 and are recorded as additional paid-in capital.

 

 

CHINA COMMERCIAL CREDIT, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS   

 

21.

CAPITAL TRANSACTION (CONTINUED)

 

Preferred Stock

 

The Company is authorized to issue up to 10,000,000 shares of preferred stock, of which 1,000,000 shares are designated as Series A Convertible Preferred Stock (the “Series A Stock”) and 5,000,000 shares are designated as Series B Convertible Preferred Stock (the “Series B Stock”).

 

The Series A Stock ranked (i) prior to the Common Stock and to all other classes and series of equity securities of the Company which by their terms do not rank senior to the Series A Stock, and (ii) junior to any class or series of equity securities which by its terms ranked senior to the Series A Stock. The Series A Stocks was subordinate to and ranked junior to all indebtedness of the Company. Each share of the Series A Stock was on the day on which the Company consummated its IPO, automatically and without any action on the part of the holder thereof converted into issued and outstanding shares of Common Stock beneficially owned by a consultant who received the shares on December 19, 2011. The number of shares of Common Stock issued upon conversion of the Series A Stock was equal to the purchase price of the Series A Stock divided by a per share conversion price of 50% of the price of a share of Common Stock in the IPO. No new shares were issued by the Company at the conversion. In addition, the holders were not permitted to convert their preferred stock prior to consummation of the IPO. 

 

The Series B Preferred Stock ranked (i) prior to the Common Stock and to all other classes and series of equity securities of the Company which by their terms do not rank senior to the Series B Preferred Stock and (ii) junior to any class or series of equity securities which by its terms ranked senior to the Series B Preferred Stock. The Series B Stock was subordinate to and ranked junior to all indebtedness of the Company. Each share of the Series B Stock was on the day on which the Company consummated its IPO, automatically and without any action on the part of the holder thereof converted into issued and outstanding shares of Common Stock beneficially owned by a consultant who received the shares on December 19, 2011. The number of shares of Common Stock issued upon conversion of the Series B Stock was equal to the purchase price of the Series B Stock divided by a per share conversion price of 25% of the price of a share of Common Stock in the IPO. No new shares were issued by the Company at the conversion. In addition, the holders were not permitted to convert their preferred stock prior to consummation of the IPO.

 

 

CHINA COMMERCIAL CREDIT, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS   

 

21.

CAPITAL TRANSACTION (CONTINUED)

 

Between January 1, 2012 and April 1, 2013, the Company issued a total of 745 shares of Series A Stock to an aggregate of 11 investors pursuant to certain subscription agreements. We received gross proceeds of $372,500 and incurred costs associated with this private placement of $93,125.

 

Between October 12, 2012 and May 8, 2013, the Company issued a total of 760 shares of Series B Stock to an aggregate of 44 investors pursuant to certain subscription agreements. We received gross proceeds of $380,000 and incurred costs associated with this private placement of $95,000.

 

On August 16, 2013 when the Company closed its IPO, all outstanding shares of the Series A Stock and Series B Stock were converted into an aggregate of 348,462 shares of already issued and outstanding Common Stock beneficially owned by a consultant who received our shares on December 19, 2011, automatically and without any action on the part of the holder thereof. The per share conversion price of Series A Stock and Series B Stock was equal to $3.25 and $1.63, respectively.

 

The discount on the Series A and B Stock was accounted for as a beneficial conversion feature upon conversion. The total amount of discount was $752,500, which was accounted for as a reduction to retained earnings and an offsetting increase to additional paid in capital in the Company's financial statements.

 

22.

STATUTORY RESERVE

 

In accordance with the PRC Regulations on Enterprises with Foreign Investment and the articles of association of the Company’s PRC subsidiaries, a foreign-invested enterprise established in the PRC is required to provide statutory reserve, which is appropriated from net profit as reported in the enterprise’s PRC statutory accounts. A foreign-invested enterprise is required to allocate at least 10% of its annual after-tax profit to the general reserve until such reserve has reached 50% of its respective registered capital based on the enterprise’s PRC statutory accounts. The Company allocates 15% of its annual after-tax profit to the statutory reserve. The statutory reserve can only be used for specific purposes and are not distributable as cash dividends. WFOE was established as a foreign-invested enterprise and, therefore, is subject to the above mandated restrictions on distributable profits. For the six months ended June 30, 2015, the Company did not accrue the statutory reserve due to net loss.

 

23.

LOSS PER COMMON SHARE

 

The following table sets forth the computation of basic and diluted loss per common share for the three months and six months ended June 30, 2015 and 2014, respectively:

 

		For the Three Months Ended								For the Six Months Ended
		June 30,								June 30,
		2015				2014				2015				2014
		(Unaudited)				(Unaudited)				(Unaudited)				(Unaudited)
Net loss attributable to the common shareholders		$	(2,370,536	)		$	(17,192,382	)		$	(3,527,567	)		$	(16,098,749	)
Basic weighted-average common shares outstanding			12,345,557				11,315,900				12,300,559				10,935,530
Effect of dilutive securities			-				-				-				-
Diluted weighted-average common shares outstanding			12,345,557				11,315,900				12,300,559				10,935,530
Loss per share:
Basic		$	(0.192	)		$	(1.519	)		$	(0.287	)		$	(1.472	)
Diluted		$	(0.192	)		$	(1.519	)		$	(0.287	)		$	(1.472	)

 

Basic loss per share is computed by dividing the net loss by the weighted average number of common shares outstanding during the period. Diluted loss per share is the same as basic earnings per share due to the lack of dilutive items in the Company and the fact that Company is in net loss position for the three months and six months ended June 30, 2015 and June 30, 2014, respectively.

 

  

CHINA COMMERCIAL CREDIT, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS   

 

24.

INCOME TAXES AND TAX RECEIVABLE

 

Effective January 1, 2008, the New Taxation Law of PRC stipulates that domestically owned enterprises and foreign invested enterprises (the “FIEs”) are subject to a uniform tax rate of 25%. While the New Tax Law equalizes the tax rates for FIEs and domestically owned enterprises, preferential tax treatment may continue to be given to companies in certain encouraged sectors and to entities classified as high-technology companies, regardless of whether these are domestically-owned enterprises or FIEs. In November 2009, the Jiangsu Province Government issued Su Zheng Ban Fa [2009] No. 132 which stipulates that micro-credit companies in Jiangsu Province are subject to preferential tax rate of 12.5%. As a result, the Company is subject to the preferential tax rate of 12.5% for its loan business for the periods presented. The taxation practice implemented by the tax authority governing the Company is that the Company pays enterprise income taxes at rate of 25% on a quarterly basis, and upon annual tax settlement done by the Company and the tax authority in five (5) months after December 31 the tax authority will refund the Company the excess enterprise income taxes it paid beyond the rate of 12.5%.

 

The Company evaluates the level of authority for each uncertain tax position (including the potential application of interest and penalties) based on the technical merits, and measures the unrecognized benefits associated with the tax positions. For the six months ended June 30, 2015 and 2014, the Company had no unrecognized tax benefits. For the six months ended June 30, 2015, the Company had net tax operating losses from its PRC subsidiaries and its consolidated VIE of $912,324 which will expire in the year ending December 31, 2020. As of June 30, 2015, the Company has carry-forward tax operating losses from its PRC subsidiaries and its consolidated VIE of $21,263,660, which will expire from the year ending December 31, 2019 to 2020. The Company recognized deferred income tax assets of $4,182,511 as of June 30, 2015. However, the Company estimates there will be no sufficient net income before income tax from years ending December 31, 2015 to 2020 to realize the deferred income tax assets. The Company provided valuation allowance for deferred income tax assets of $4,182,511 as of June 30, 2015.

 

The Company does not anticipate any significant increase to its liability for unrecognized tax benefit within the next 12 months. The Company will classify interest and penalties related to income tax matters, if any, in income tax expense.

 

Income tax receivable and income tax payable are comprised of:

 

		June 30, 2015				December 31, 2014
		(Unaudited)
Tax receivable, net		$	1,769,403			$	1,758,693
Tax payable		$	40,664			$	-

 

Income tax receivable represented the income tax refund the Company will receive from the tax authority in the annual income tax settlement or can deduct future income tax payables. The income tax receivable was mainly generated from the Company’s VIE.

 

Income tax payables represented enterprise income tax at a rate of 25% that the Company accrued but had not paid as of June 30, 2015 and December 31, 2014, respectively. As of June 30, 2015, PFL, one of the Company’s PRC subsidiaries earned taxable profit for the six months ended June 30, 2015, and income tax payable was accrued therefrom.

 

 

CHINA COMMERCIAL CREDIT, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS   

 

24.

INCOME TAXES AND TAX RECEIVABLE (CONTINUED)

 

Income tax expense for the six months ended June 30, 2015 and 2014 is comprised of:

 

 

		For the Six Months Ended
		June 30,
		2015				2014
		(Unaudited)				(Unaudited)
Current income tax expense		$	61,507			$	-
Deferred income tax expense			591,752				11,092
Total provision for income taxes		$	653,259			$	11,092

 

The Company made taxable profit during the six months period ended June 30, 2015 in PFL, one of the Company’s PRC subsidiaries and accrued current income tax expenses therefrom.

 

The effective tax rates for the three months and six months ended June 30, 2015 and 2014 are 22.73% and 0.27%, respectively.

 

Deferred tax liability arises from government incentive for the purpose of covering the Company’s actual loan losses and ruled that the income tax will be imposed on the subsidy if the purpose is not fulfilled within 5 years after the Company receives the subsidy. As of June 30, 2015, subsidy of $1,075,301 did not fulfill the purpose within due date and the related deferred tax liability was reversed. As of June 30, 2015 and December 31, 2014, the deferred tax liability amounted to $199,390 and $313,874, respectively.

 

As of June 30, 2015 and December 31, 2014, the Company intends to permanently reinvest the undistributed earnings from its foreign subsidiaries to fund future operations. The amount of unrecognized deferred tax liabilities for temporary differences related to investments in foreign subsidiaries is not determined because such a determination is not practicable.

 

  

CHINA COMMERCIAL CREDIT, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS   

 

25.	RELATED PARTY TRANSACTIONS AND BALANCES

 

1)	Nature of relationships with related parties

 

Name		Relationship with the Company
Wujiang Chunjia Textile Trading Co., Ltd (“Chunjia Textile”)		Controlled by Huichun Qin
Huichun Qin		Non-controlling shareholder and former CEO and chairman of board of directors

 

2)	Related party balances

 

Amount due from related parties were as follows:

 

		June 30, 2015				December 31, 2014
		(Unaudited)
Chunjia Textile		$	428,915			$	162,707
Huichun Qin			1,145,996				1,147,088

 

During the year ended December 31, 2014, the Company provided financial guarantee service for Chunjia Textile to guarantee a loan of $816,193. As of June 30, 2015, the Company repaid Chunjia Textile’s loan on behalf of it for $428,915. The Company accrued provision of $214,458 on the outstanding balance as of June 30, 2015.

 

Huichun Qin transferred $1,145,996 (equivalent of RMB 7 million) to his personal account without proper authorization on July 2, 2014. As of June 30, 2015, Huichun Qin has not repaid the balance. The amount was recorded as a deduction of the Company’s equity as of June 30, 2015 and December 31, 2014, respectively.

 

3)	Related party transactions

 

The Company had no transaction with related parties during the three months and six months ended June 30, 2015.

 

 

CHINA COMMERCIAL CREDIT, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS   

 

26.

COMMITMENTS AND CONTINGENCIES

 

1)

Lease Commitments

 

The Company extended its lease agreement of its principal office for a 5-year period from October 1, 2013 to September 30, 2018. Additionally, the Company leased its new office under a lease agreement from June 1, 2015 to May 31, 2016 during the three months ended June 30, 2015. The following table sets forth the Company’s contractual obligations as of June 30, 2015 in future periods:

		Rental payments
		(Unaudited)
Year ending June 30, 2016		$	341,959
Year ending June 30, 2017			341,959
Year ending June 30, 2018			341,959
Year ending June 30, 2019			144,421
Year ending June 30, 2020 and thereafter			150,602
Total		$	1,320,900

 

2)

Guarantee Commitments

 

The guarantees will terminate upon payment and/or cancellation of the obligation; however, payments by the Company would be triggered by failure of the guaranteed party to fulfill its obligation covered by the guarantee. Generally, the average guarantee expiration terms ranged within 6 to 12 months and the average percentage of the guarantee amount as security deposit is 10% ~ 20%. As of June 30, 2015 and December 31, 2014, the loan amount guaranteed by the Company was $15,223,939 and $21,794,663, respectively, for its financial guarantee service customers.

 

3)

Contingencies

 

The Company is involved in various legal actions arising in the ordinary course of its business. As of June 30, 2015, the Company was involved in 66 collection lawsuits, among which 54 were related to its loan business and 12 were related to guarantee business. The Company initiated legal proceedings to collect delinquent balances from borrowers and guarantees. 22 of these cases with an aggregated claim of $7.7 million have been adjudicated by the Court in favor of the Company and these cases are settled or in the process of enforcement. The remaining 44 cases with an aggregated claim of $23.8 million have not been adjudicated by the Court as of June 30, 2015.

 

On August 6, 2014, a purported shareholder Andrew Dennison filed a putative class action complaint in the United States District Court District of New Jersey (the “N.J. district court”) relating to a July 25, 2014 press release about the Company’s progress in recovering a significant portion of the $5.4 million the Company paid in the first quarter of 2014 on behalf of loan guarantee customers. The action, Andrew Dennison v. China Commercial Credit, Inc., et al., Case No. 2:2014-cv-04956, alleges that the Company and its current and former officers and directors Huichun Qin, Long Yi, Jianming Yin, Jinggen Ling, Xiangdong Xiao, and John F. Levy violated the federal securities laws by misrepresenting in prior public filings certain material facts about the risks associated with its loan guarantee business. On October 2, 2014, purported shareholders Zhang Yun and Sanjiv Mehrotra (the “Yun Group”) asserted substantially similar claims against the same defendants in a putative class action captioned Zhang Yun v. China Commercial Credit, Inc., et al., Case No. 2:14-cv-06136 (D. N.J.). Neither complaint states the amount of damages sought.

 

On or about October 6, 2014, Dennison, the Yun Group and another purported shareholder, Jason Stark, filed motions to consolidate the cases, be appointed as lead plaintiff and to have their respective counsel appointed as lead counsel. On October 31, 2014, the N.J. district court entered an order consolidating the cases under the caption “In re China Commercial Credit Inc. Securities Litigation” and appointing the Yun Group as lead plaintiff (“Class Plaintiff”) and the Yun Group’s counsel as lead counsel.

 

On November 18, 2014, the Yun Group and the Company, which at that point was the only defendant served, entered into a stipulation to transfer of the case to the Southern District of New York. On December 18, 2014, Mr. Levy, who had by then been served, joined in the stipulation. On December 29, 2014, the N.J. district court entered an order transferring the action. The transfer was effected on January 22, 2015, and assigned docket number 1:15-cv-00557-ALC (S.D.N.Y.).

 

Under the schedule stipulated by the parties, the Yun Group was to file an amended complaint within 60 days of the date that the transfer was effected, and the defendants’ date to answer or move was within 60 days of that filing. On April 7, 2015, the Class Plaintiff filed a Second Amended Class Action Complaint (the “CAC”). The CAC also asserts securities law claims against defendants Axiom Capital Management, Inc., Burnham Securities Inc. and ViewTrade Securities, Inc. (collectively, the “Underwriter Defendants”). The CAC alleges that the Company engaged in a fraudulent scheme by engaging in undisclosed and improper lending practices and made misleading representations regarding its underwriting policies, the loan portfolio quality, the loan loss allowance, compliance with U.S. GAAP and its internal control systems. 

 

 

CHINA COMMERCIAL CREDIT, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

26.

COMMITMENTS AND CONTINGENCIES (CONTINUED)

 

3)

Contingencies (Continued)

 

In accordance with the Court’s procedures, the Company and Mr. Levy and the Underwriter Defendants requested a Pre-Motion Conference in anticipation of filing a motion to dismiss the CAC, which was held on June 25, 2015. At the conference, the Court adjourned the date to answer or move in order to provide the Class Plaintiff with time to serve certain overseas defendants. The Court has since set September 15, 2015, as the next date to update the Court. After the conference, the Class Plaintiff voluntarily dismissed Jianming Yin, Jinggen Ling and Xiangdong Xiao from the action, and Long Yi agreed to waive service, which left Huichun Qin as the sole remaining defendant to serve.

 

The Company believes that this lawsuit was without merit and intends to vigorously defend against it. At the early stage of the proceedings, the Company is not able to estimate the probability of success or loss.

 

On February 3, 2015, a purported shareholder Kiram Kodali filed a putative shareholder derivative complaint in the United States District Court for the Southern District of New York, captioned Kiran Kodali v. Huichun Qin, et al., Case No. 15-cv-806. The action alleges that the Company and its current and former officers and directors Huichun Qin, Long Yi, Jianming Yin, Jinggen Ling, Chunfang Shen, John F. Levy, Xiaofang Shen and Chunjiang Yu violated their fiduciary duties, grossly mismanaged the Company and were unjustly enriched based upon the transfer that was the subject of the Internal Review and other grounds substantially similar to those asserted in the class action complaints. Kodali did not serve a demand upon the Company and alleges that demand is excused. The Company and Mr. Levy have been served. An amended Consolidated Amended Class Action Complaint (the “CACAC”) was filed on April 20, 2015. On May 29, 2015, the Court “so ordered” a stipulation among Kodali, the Company and Mr. Levy staying all proceedings in the derivative case except for service of process on individual defendants until the earlier of thirty days of termination of the stipulation, dismissal of the class action with prejudice or the date any of the defendants in the class action file an answer to the CAC. The Company believes that this lawsuit is without merit and intends to vigorously defend against it. At this stage of the proceedings, the Company is not able to estimate the probability of success or loss.

 

On May 18, 2015, WFOE filed a civil complaint against Huichun Qin with the Wujiang Region Suzhou City People’s Court claiming Mr. Qin’s misappropriation of RMB 7 million in July 2014. The complaint was rejected due to a procedural issue and the Company is evaluating its strategic options. 

 

27.

SUBSEQUENT EVENT

 

Contingencies

 

During the period from July 1, 2015 to the date of this report, the Company was involved in two new lawsuits, one is related to its loan business and the other is related to guarantee business. The Company initiated legal proceedings to collect delinquent balance from the borrowers and guarantees. The cases, with total claim of $0.51million are still at the initial stage of the litigation.

 

 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF  FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following discussion and analysis of our financial condition and results of operations for the three and six months  ended June 30, 2015 should be read in conjunction with the Financial Statements and corresponding notes included in this and six Quarterly Report on Form 10-Q. Our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations, and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including those set forth under the Risk Factors and Notes Regarding Forward-Looking Statements in this report. We use words such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could,” “target”, “forecast” and similar expressions to identify forward-looking statements.

 

We are a financial services firm operating in China. Our current operations are mainly conducted through Wujiang Luxiang, a fully licensed microcredit company which we control through our subsidiaries and certain contractual arrangement, and consist of providing short-term direct loans and loan guarantees to SMEs located in Wujiang City, Jiangsu Province of China. As of June 30, 2015, we have built a $78.0 million portfolio of direct loans to 154 borrowers and a total of $15.2 million in loan guarantees for 18 borrowers. We were established under the 2008 Guidance on the Small Loan Company Pilot of the China Banking Regulatory Commission and the People's Bank of China (“PBOC”) (No.23) (“Circular No. 23”) to extend short term loans and loan guarantees to SMEs, a class of borrowers that we believe have been underserved in the Chinese lending market. The loans that we provide bridge the gap between Chinese-state run banks that have not traditionally served the capital needs of SMEs and high interest rate “underground” lenders, and our loans provide capital at more favorable terms and sustainable interest rates.

 

As the rate of fees and commissions generated from the guarantee business has been decreasing, the Company has decided that the revenue does not justify the default risks involved, and therefore expects to further reduce the traditional guarantee business and hold off on pursuing the guarantee business to be provided via the Kaixindai Financing Services Jiangsu Co. Ltd (“Kaixindai”) platform as previously planned. Management may actively resume the guarantee business if economic conditions improve in the future.

 

On September 5, 2013, our wholly owned subsidiary, CCC International Investment Holding Ltd. (“CCC HK”), established Pride Financial Leasing (Suzhou) Co. Ltd. (“PFL”) in Jiangsu Province, China. PFL was expected to offer financial leasing of machinery and equipment, transportation vehicles, and medical devices to municipal government agencies, hospitals and SMEs in Jiangsu Province and beyond. As of the date of this quarterly report, PFL entered into two financial leasing agreements for an aggregate lease receivable of $5.65 million (one with a monthly principle and interest income approximating $81,600 for the period during November 13, 2014 to May 12, 2015, and approximating $80,000 for the period from May 13, 2015 and thereafter, and the other with a quarterly principle and interest income approximating $342,800). We do not currently have further funds to deploy in the financial leasing business.

 

  

Key Factors Affecting Our Results of Operation

 

Our business and operating results are affected by China’s overall economic growth local, economic condition, market interest rate and the borrowers repayment ability. Unfavorable changes could affect the demand for the services that we provide and could materially and adversely affect our results of operations. Our results of operations are also affected by the regulations and industry policies related to the microcredit industry in the PRC.

 

Due to changes in the applicable microcredit lending regulations in Jiangsu Province, starting August 2012 we elected to charge no more than three times the PBOC Benchmark Rate. Prior to August 2012, we were allowed to charge up to four times the PBOC Benchmark Rate. The decrease in the PBOC Benchmark Rate and the revised restriction on the allowable points above PBOC Benchmark Rate have slowed our growth in net interest income. 

 

Our results of operations are also affected by the provision for loan losses and provision for financial guarantee loss which are noncash items and represents an assessment of the risk of future loan losses. Increases in the allowance for loan losses are achieved through provision for loan losses that are charged against net interest income.

 

Although we have generally benefited from China’s economic growth and the policies to encourage lending to farmers and SMEs, we are also affected by the complexity, uncertainties and changes in the PRC regulations governing the micro lending industry. Due to PRC legal restrictions on foreign equity ownership of and investment in the micro lending sector in China, we rely on contractual arrangements with Wujiang Luxiang, and its shareholders to conduct most of our current business in China. We face risks associated with our control over our variable interest entity, as our control is based upon contractual arrangements rather than equity ownership.

 

 

Results of operations

 

Three Months Ended June 30, 2015 as Compared to Three Months Ended June 30, 2014

 

		For the Three Months Ended June 30,
		2015				2014				Amount				Change %
Interest income
Interests and fees on loans and direct financing lease		$	907,526			$	1,673,559			$	(766,033	)			-46	%
Interest on deposits with banks			2,867				9,093				(6,226	)			-68	%
Total interest and fees income			910,393				1,682,652				(772,259	)			-46	%
Interest expense							-
Interest expense on short-term bank loans			(152,664	)			(247,935	)			95,271				-38	%
Net interest income			757,729				1,434,717				(676,988	)			-47	%
Provision for loan losses			(1,338,787	)			(14,759,397	)			13,420,610				-91	%
Over provision for direct financing lease losses			1,117,846				-				1,117,846				>100	%
Net interest income/(loss) after provision for loan losses and financing lease losses			536,788				(13,324,680	)			13,861,468				-104	%
Commissions and fees on financial guarantee services			46,203				90,050				(43,847	)			-49	%
Provision on financial guarantee services			(1,433,866	)			(3,327,506	)			1,893,640				-57	%
Commission and fees loss on guarantee services, net			(1,387,663	)			(3,237,456	)			1,849,793				-57	%
Net Revenue			(850,875	)			(16,562,136	)			15,711,261				-95	%
Non-interest income
Government incentive			-				81,408				(81,408	)			-100	%
Other non-interest income			-				48,369				(48,369	)			-100	%
Total non-interest income			-				129,777				(129,777	)			-100	%
Non-interest expense
Salaries and employee surcharge			(378,026	)			(222,268	)			(155,758	)			70	%
Rental expenses			(72,409	)			(65,232	)			(7,177	)			11	%
Business taxes and surcharge			(25,653	)			(45,776	)			20,123				-44	%
Other operating expense			(515,899	)			(600,380	)			84,481				-14	%
Total non-interest expense			(991,987	)			(933,656	)			(58,331	)			6	%
Foreign exchange loss			(9,176	)			-				(9,176	)			>100	%
Loss Before Taxes			(1,852,038	)			(17,366,015	)			15,513,977				-89	%
Income tax expense			(518,498	)			173,633				(692,131	)			-399	%
Net Loss			(2,370,536	)			(17,192,382	)			14,821,846				-86	%
Loss per Share-Basic and Diluted			(0.192	)			(1.519	)			1.327				-87	%
Weighted Average Shares Outstanding-Basic and Diluted			12,345,557				11,315,900				1,029,657				9	%
Net Loss			(2,370,536	)			(17,192,382	)			14,821,846				-86	%
Other comprehensive income
Foreign currency translation adjustment			174,346				136,859				37,487				27	%
Comprehensive Loss		$	(2,196,190	)		$	(17,055,523	)		$	14,859,333				-87	%

 

 

The Company’s net loss for the three months ended June 30, 2015 was $2,370,536 representing a decrease of $14,821,846 or 86%, from net loss of $17,192,382 for the three months ended June 30, 2014. The decrease in net loss for the three months ended June 30, 2015 was the net effect of the changes in the following components:

 

●

a decrease in net interest income of $676,988;

 

●

decreases in the provision for loan losses of $13,420,610 and in the provision for direct financing leases of $1,117,846;

 

●

a decrease in commission and fees loss on financial guarantee services of $43,847;

 

●

an decrease of provision on financial guarantee services of $1,893,640;

 

●

an increase in total non-interest expense of $58,331; and

 

●

an increase in enterprise income tax expense of $692,131;

 

The following paragraphs discuss changes in the components of net loss in greater details during the three months ended June 30, 2015, as compared to the three months ended June 30, 2014.

 

 

Net Interest Income

 

Net interest income is equal to interest income we generated less interest expenses on short-term bank loans we incurred. The Company’s net interest income decreased by $676,988, or 47% to $757,729 during the three months ended June 30, 2015, as compared to net interest income of $1,434,717 during the three months ended June 30, 2014.

 

The interest and fees on loans, direct financing leases and deposits with banks decreased by $772,259, or 46% from $1,682,652 for the three months ended June 30, 2014 to $910,393 for the three months ended June 30, 2015. The decrease is the combined effect of: (1) The increase of non-performing loans aging over 90 days which leads to reversal of more interest income; (2) decrease in effective weighted average loan interest rate from 14.36% for the loan portfolio as of June 30, 2014 to 12.79% as of June 30, 2015 due to the mandatory requirement promulgated by Jiangsu Finance Bureau in June of 2013 that effective from October 1, 2013 the maximum interest rate a microcredit company in Jiangsu province is permitted to charge shall be fifteen percent (15%) compared to eighteen percent (18%) previously permitted; and (3) the decrease in the amount of monthly interest received. Compared to the same period last year, a substantial amount of borrowers choose to repay the principal and the interest due at the maturity of the loan term instead of making monthly interest payments. Both payments are permissible under the agreements we have with the borrowers.

 

Since the beginning of 2014, People’s Bank of China continued to withdraw a significant amount of liquidity from the market, which has made it even harder for SMEs to gain access to capital. The bank lenders usually require an old loan be paid in full upon maturity before they approve a new loan to the same borrower. Some SMEs have to borrow from so-called “underground” lenders, or shadow banks to repay the loans due to the banks. Additionally, the banks denied to extend new loans to some SMEs even after they made the full repayment for the loans due and satisfied other conditions. Management is concerned that the borrowers may use the proceeds from the loans we grant to them as a means of repayment to the other banks or even to the underground lenders, instead of using them in operations. Therefore, management decided to grant new loans in a more cautious manner. During the three months ended June 30, 2015, we did not grant any loans, as compared to 44 loans with an average loan size of $378,000 during the three months ended June 30, 2014, and as a result, the interest income declined substantially.

 

Due to the long-term nature of our restricted deposits with third party banks, we utilized these deposits as term deposits which in turn generated interest income on deposits with banks of $2,867 during the three months ended June 30, 2015 as compared to $9,093 during the three months ended June 30, 2014. The decrease was mainly due to the reduction of our traditional guarantee business with banks, and we have closed several restricted deposit accounts with banks through which we provided guarantee services to our customers. As of June 30, 2015, the balance of restricted cash was $1,231,268, a decrease of 37.9% from $1,983,285 as of December 31, 2014.

 

Interest expense represents interest incurred on short-term bank loans. The interest incurred on short-term bank loans decreased by $95,271 or 38%. This was mainly caused by a decrease of total bank borrowing balance by $5.2 million from $11.4 million as of June 30, 2014 to $6.2 million as of June 30, 2015. During the three months ended June 30, 2015, the interest expense related to the loans from banks was $152,664.

 

 

Provision for Loan Losses

 

The Company’s provision for loan losses was $1,338,787 and $14,759,397 for the three months ended June 30, 2015 and 2014, respectively. The provision for loan losses was determined by comparing the beginning and ending balance of allowance for loan losses for business and personal loans. If the ending balance of the allowance of loan losses after any charge offs (net of recoveries) is less than the beginning balance, it will be recorded as a “reversal”; if it is larger, it will be recorded as a “provision” in the allowance for loan loss. The netting amount of “reversal” and “provision” is presented in the consolidated statements of income and comprehensive income and the components of the provision for loan losses were disclosed in Note 7 of financial statements.

 

Provision for loan losses decreased significant for the three months ended June 30, 2015. This is mainly caused by deterioration of loan quality commenced during the three months ended June 30, 2014, leading to dramatic increase in accrual of provision during that period.

 

Since the beginning of 2014, the economic conditions in the eastern part of China, especially the Yangtze River Delta region, has been challenging due to the downturn of the general economic situation in China. Wujiang, which is in the heart of this region, has been significantly affected. The textile industry, which is the pillar industry in the Wujiang area, as well as other industries, has been facing downward pressure. As the local SMEs’ profitability and repayment ability deteriorates, “special mentioned”, “substandard” and “doubtful’ bank loans drastically increased. As such, our provision for loan losses substantially increased since 2014.

 

In February and March 2015, the Company reviewed the classification of its loan portfolios within its rating system to test the adequacy of the allowances calculated thereby. As a result of such testing, the Company decided to reclassify certain loans into different categories. The Company reviewed the profile, financial condition and other relevant information and documents of each customer in the lending businesses. For customers with several loans with different due dates, if one of whose loans was past due, the Company decided to reclassify all loans of the customer's as past due (even the other loans that were not mature yet). For extended loans, the Company re-evaluated the customer's repayment ability in a more cautions manner and reclassified the loans of customers without very strong financial condition into the past due category. These reclassifications affected numerous customer accounts.

 

 

Net Commission and Fees on Guarantee Business

 

The Company also generated net income by charging fees for financial guarantee services provided to our customers to help them obtain loans from other banks. We generally charge a one-time fee of 1.8% - 3.6% multiplied by the amount of loans being guaranteed, based on the nature of the guarantee and whether the customer is new or existing. The commissions and fees generated from our financial guarantee services decreased from $90,050 for the three months ended June 30, 2014 to $46,203 for the three months ended June 30, 2015, representing a decrease of $43,847, or 49%. The reduction was due to the decreased number of guarantee transactions as management reduced the guarantee portfolio to control the default risk.

 

As of June 30, 2015, we have provided guarantees for a total of $15.2 million underlying loans to approximately 18 financial guarantee service customers, a reduction of 47.8% compared to a total of $29.1 as of June 30, 2014.

 

Provision on Financial Guarantee Services

 

The provision on financial guarantee services decreased from $3,327,506 for the three months ended June 30, 2014, to $1,433,866 for the three months ended June 30, 2015, representing a decrease of $1,893,640.

 

The methodology the Company used to estimate the liability for probable guarantee loss considers the guarantee contract amount and a variety of factors, which include, dependence on the counterparty, latest financial position and performance of the customers, actual defaults, estimated future defaults, historical loss experience, estimated value of collaterals or guarantees the costumers or third parties offered, and other economic conditions such as the economic trend of the area and the country. The estimates are based upon currently available information.

 

We accrued specific provision on the balance of repayment on behalf of defaulted customers according to “Five-Tier” principal. The Specific Reserve is based on the level of loss of each loan after categorizing the loan according to their risk. According to the “Five-Tier Principle” set forth in the Provision Guidance, the guarantees are categorized as “special-mention”, “substandard”, “doubtful” or “loss”. Normally, the provision rate is 2% for “special-mention”, 25% for “substandard”, 50% for “doubtful” and 100% for “loss”.

 

As explained above, since the beginning of 2014, People’s Bank of China continued to withdraw a significant amount of liquidity from the market, which has made it even harder for SMEs to gain access to capital. The bank lenders usually require an old loan be paid in full upon maturity before they approve a new loan to the same borrower. During the twelve months ended December 31, 2014, the banks denied to extend new loans to many SMEs even after they made the full repayment for the loans due and satisfied other conditions. As a result, some of the SME borrowers for which we provided the guarantees decided to default on the bank loans. Therefore the amount of repayment we made to the bank lenders substantially increased since the year ended December 31, 2014. We are in the process of negotiating and possibly litigating against both the borrowers and their counter-guarantors. Due to the uncertainty of the outcome, we increased our accrual for financial guarantee services significantly from $4,213,237 as of June 30, 2014 to $7,297,319 as of June 30, 2015.

 

 

In February and March 2015, the Company revisited the classification of its guarantee portfolios within its rating system to test the adequacy of the allowances calculated thereby. As a result of such testing, the Company decided to reclassify certain guarantees into different categories. The Company reviewed the profile, financial condition and other relevant information and documents of each customer in the guarantee businesses. For customers with several guarantees with different due dates, if one guaranteed loan was past due, the Company decided to reclassify all of this customer's guaranteed loans as past due (even the other loans that were not mature yet). These reclassifications affected numerous customer accounts. We engaged He-Partners Law Firm, one of the largest law firms in Suzhou City, to represent us in the legal proceedings against the borrowers and their counter guarantors, and expect to collect part of the outstanding balance in a period ranging from six months to one year upon adjudication by the court in favor of the Company. The timing of collection and ultimate amount of funds we can recover depend on a few factors, including the repayment ability of the borrower and their counter-guarantors, the execution time of the court, other obligations the borrowers have and priority over the claim for the Company.

 

Non-interest Expenses

 

Non-interest expenses decreased from $933,656 for the three months ended June 30, 2014 to $991,987 for the three months ended June 30, 2015, representing an increase of $58,331 or 6%. Non-interest expenses primarily consisted of salary and employee surcharge, office rental expense, business tax and surcharge, depreciation of equipment, travel expenses, entertainment expenses, professional service fees, and other office supplies. The increase was mainly attributable to an increase of salary and employee surcharge by $155,758, or 70%, against a decrease of other operating expenses by $84,481, or 14%. The increase of salary and employee surcharge was mainly caused by issuance of restricted shares to management of $248,400 against resignation of certain directors during May 2015. Other operating expenses were lower during the three months ended June 30, 2015 as compared to the six months ended June 30, 2014, primarily due to a net effect of a decrease in legal and consulting fee of $119,523, a decrease in insurance expense of $70,875, against an increase in audit-related expenses of $118,864.

 

Income Tax

 

Income tax expenses changed from an income tax credit of $173,633 for three months ended June 30, 2014 to an income tax expense of $518,498 for three months ended June 30, 2015, representing a fluctuation of $692,131, or 399%. Wujiang Luxiang, the Company’s VIE suffered a taxable loss incurred during the three months ended June 30, 2015, while PFL, the Company’s direct financing lease business made taxable profit during the three months ended June 30, 2015, leading to a current income tax expense of $61,507.

 

Besides, during the three months ended June 30, 2015, further allowance on deferred tax asset was made of $707,831, against reversal of deferred tax liability of $116,080, leading to a deferred tax expense of $591,751. While during the three months ended June 30, 2014, the income tax expenses represented the current income tax imposed on the taxable income made during that period.

 

 

Results of operations

 

Six Months Ended June 30, 2015 as Compared to Six Months Ended June 30, 2014

 

		For the Six Months Ended June 30,
		2015				2014				Amount				Change %
Interest income
Interests and fees on loans and direct financing lease		$	2,188,995			$	4,530,033			$	(2,341,038	)			-52	%
Interest on deposits with banks			8,324				51,541				(43,217	)			-84	%
Total interest and fees income			2,197,319				4,581,574				(2,384,255	)			-52	%
Interest expense							-
Interest expense on short-term bank loans			(325,830	)			(493,125	)			167,295				-34	%
Net interest income			1,871,489				4,088,449				(2,216,960	)			-54	%
Provision for loan losses			(1,551,890	)			(15,347,577	)			13,795,687				-90	%
Over provision for direct financing lease losses			507,534				-				507,534				>100	%
Net interest income/(loss) after provision for loan losses and financing lease losses			827,133				(11,259,128	)			12,086,261				-107	%
Commissions and fees on financial guarantee services			96,058				388,360				(292,302	)			-75	%
Provision on financial guarantee services			(1,712,764	)			(3,637,359	)			1,924,595				-53	%
Commission and fees loss on guarantee services, net			(1,616,706	)			(3,248,999	)			1,632,293				-50	%
Net Revenue			(789,573	)			(14,508,127	)			13,718,554				-95	%
Non-interest income
Government incentive			-				81,408				(81,408	)			-100	%
Other non-interest income			14,585				169,329				(154,744	)			-91	%
Total non-interest income			14,585				250,737				(236,152	)			-94	%
Non-interest expense
Salaries and employee surcharge			(522,951	)			(408,403	)			(114,548	)			28	%
Rental expenses			(140,285	)			(130,982	)			(9,303	)			7	%
Business taxes and surcharge			(82,111	)			(158,388	)			76,277				-48	%
Other operating expense			(1,344,229	)			(1,132,494	)			(211,735	)			19	%
Total non-interest expense			(2,089,576	)			(1,830,267	)			(259,309	)			14	%
Foreign exchange loss			(9,744	)			-				(9,744	)			>100	%
Loss Before Taxes			(2,874,308	)			(16,087,657	)			13,213,349				-82	%
Income tax expense			(653,259	)			(11,092	)			(642,167	)			5789	%
Net Loss			(3,527,567	)			(16,098,749	)			12,571,182				-78	%
Loss per Share-Basic and Diluted			(0.287	)			(1.472	)			1.185				-81	%
Weighted Average Shares Outstanding-Basic and Diluted			12,300,559				10,935,530				1,365,029				12	%
Net Loss			(3,527,567	)			(16,098,749	)			12,571,182				-78	%
Other comprehensive income
Foreign currency translation adjustment			379,055				(670,768	)			1,049,823				-157	%
Comprehensive Loss		$	(3,148,512	)		$	(16,769,517	)		$	13,621,005				-81	%

 

 

The Company’s net loss for the six months ended June 30, 2015 was $3,527,567 representing a decrease of $12,571,182 or 78%, from net loss of $16,098,749 for the six months ended June 30, 2014. The decrease in net loss for the six months ended June 30, 2015 was the net effect of the changes in the following components:

 

●

a decrease in net interest income of $2,216,960;

 

●

decreases in the provision for loan losses of $13,795,687 and in the provision for direct financing leases of $507,534, respectively;

 

●

a decrease in commission and fees loss on financial guarantee services of $292,302;

 

●

an decrease of provision on financial guarantee services of $1,924,595;

 

●

an increase in total non-interest expense of $259,309; and

 

●

an increase in enterprise income tax expense of $642,167;

 

The following paragraphs discuss changes in the components of net loss in greater details during the six months ended June 30, 2015, as compared to the six months ended June 30, 2014.

 

 

Net Interest Income

 

Net interest income is equal to interest income we generated less interest expenses on short-term bank loans we incurred. The Company’s net interest income decreased by $2,216,960, or 54% to $1,871,489 during the six months ended June 30, 2015, as compared to net interest income of $4,088,449 during the three months ended June 30, 2014.

 

The interest and fees on loans, direct financing leases and deposits with banks decreased by $2,384,255, or 52% from $4,581,574 for the six months ended June 30, 2014 to $2,197,319 for the six months ended June 30, 2015. The decrease is the combined effect of: (1) The increase of non-performing loans aging over 90 days which leads to reversal of more interest income; (2) decrease in effective weighted average loan interest rate from 14.36% for the loan portfolio as of June 30, 2014 to 12.79% as of June 30, 2015 due to the mandatory requirement promulgated by Jiangsu Finance Bureau in June of 2013 that effective from October 1, 2013 the maximum interest rate a microcredit company in Jiangsu province is permitted to charge shall be fifteen percent (15%) compared to eighteen percent (18%) previously permitted; and (3) the decrease in the amount of monthly interest received. Compared to the same period last year, a substantial amount of borrowers choose to repay the principal and the interest due at the maturity of the loan term instead of making monthly interest payments. Both payments are permissible under the agreements we have with the borrowers.

 

Since the beginning of 2014, People’s Bank of China continued to withdraw a significant amount of liquidity from the market, which has made it even harder for SMEs to gain access to capital. The bank lenders usually require an old loan be paid in full upon maturity before they approve a new loan to the same borrower. Some SMEs have to borrow from so-called “underground” lenders, or shadow banks to repay the loans due to the banks. Additionally, the banks denied to extend new loans to some SMEs even after they made the full repayment for the loans due and satisfied other conditions. Management is concerned that the borrowers may use the proceeds from the loans we grant to them as a means of repayment to the other banks or even to the underground lenders, instead of using them in operations. Therefore, management decided to grant new loans in a more cautious manner. During the six months ended June 30, 2015, we granted 35 loans and the average loan size was approximately $266,000, as compared to 92 loans with an average loan size of $361,000 during the six months ended June 30, 2014, and as a result, the interest income declined substantially.

 

Due to the long-term nature of our restricted deposits with third party banks, we utilized these deposits as term deposits which in turn generated interest income on deposits with banks of $8,324 during the six months ended June 30, 2015 as compared to $51,541 during the six months ended June 30, 2014. The decrease was mainly due to the reduction of our traditional guarantee business with banks, and we have closed several restricted deposit accounts with banks through which we provided guarantee services to our customers. As of June 30, 2015, the balance of restricted cash was $1,231,268, a decrease of 37.9% from $1,983,285 as of December 31, 2014.

 

Interest expense represents interest incurred on short-term bank loans. The interest incurred on short-term bank loans decreased by $167,295 or 34%. This was mainly caused by a decrease of total bank borrowing balance by $5.2 million from $11.4 million as of June 30, 2014 to $6.2 million as of June 30, 2015. During the six months ended June 30, 2015, the interest expense related to the loans from banks was $325,830.

 

 

Provision for Loan Losses

 

The Company’s provision for loan losses was $1,551,890 and $15,347,577 for the six months ended June 30, 2015 and 2014, respectively. The provision for loan losses was determined by comparing the beginning and ending balance of allowance for loan losses for business and personal loans. If the ending balance of the allowance of loan losses after any charge offs (net of recoveries) is less than the beginning balance, it will be recorded as a “reversal”; if it is larger, it will be recorded as a “provision” in the allowance for loan loss. The netting amount of “reversal” and “provision” is presented in the consolidated statements of income and comprehensive income and the components of the provision for loan losses were disclosed in Note 7 of financial statements.

 

Provision for loan losses decreased significant for the six months ended June 30, 2015. This is mainly caused by deterioration of loan quality commenced during the six months ended June 30, 2014, leading to dramatic increase in accrual of provision during that period.

 

Since the beginning of 2014, the economic conditions in the eastern part of China, especially the Yangtze River Delta region, has been challenging due to the downturn of the general economic situation in China. Wujiang, which is in the heart of this region, has been significantly affected. The textile industry, which is the pillar industry in the Wujiang area, as well as other industries, has been facing downward pressure. As the local SMEs’ profitability and repayment ability deteriorates, “special mentioned”, “substandard” and “doubtful’ bank loans drastically increased. As such, our provision for loan losses substantially increased since 2014.

 

In February and March 2015, the Company reviewed the classification of its loan portfolios within its rating system to test the adequacy of the allowances calculated thereby. As a result of such testing, the Company decided to reclassify certain loans into different categories. The Company reviewed the profile, financial condition and other relevant information and documents of each customer in the lending businesses. For customers with several loans with different due dates, if one of whose loans was past due, the Company decided to reclassify all loans of the customer's as past due (even the other loans that were not mature yet). For extended loans, the Company re-evaluated the customer's repayment ability in a more cautions manner and reclassified the loans of customers without very strong financial condition into the past due category. These reclassifications affected numerous customer accounts.

 

 

Net Commission and Fees on Guarantee Business

 

The Company also generated net income by charging fees for financial guarantee services provided to our customers to help them obtain loans from other banks. We generally charge a one-time fee of 1.8% - 3.6% multiplied by the amount of loans being guaranteed, based on the nature of the guarantee and whether the customer is new or existing. The commissions and fees generated from our financial guarantee services decreased from $388,360 for the six months ended June 30, 2014 to $96,058 for the six months ended June 30, 2015, representing a decrease of $292,302, or 75%. The reduction was due to the decreased number of guarantee transactions as management reduced the guarantee portfolio to control the default risk.

 

As of June 30, 2015, we have provided guarantees for a total of $15.2 million underlying loans to approximately 18 financial guarantee service customers, a reduction of 47.8% compared to a total of $29.1 as of June 30, 2014.

 

Provision on Financial Guarantee Services

 

The provision on financial guarantee services decreased from $3,637,359 for the six months ended June 30, 2014, to $1,712,764 for the six months ended June 30, 2015, representing a decrease of $1,924,595.

 

The methodology the Company used to estimate the liability for probable guarantee loss considers the guarantee contract amount and a variety of factors, which include, dependence on the counterparty, latest financial position and performance of the customers, actual defaults, estimated future defaults, historical loss experience, estimated value of collaterals or guarantees the costumers or third parties offered, and other economic conditions such as the economic trend of the area and the country. The estimates are based upon currently available information.

 

We accrued specific provision on the balance of repayment on behalf of defaulted customers according to “Five-Tier” principal. The Specific Reserve is based on the level of loss of each loan after categorizing the loan according to their risk. According to the “Five-Tier Principle” set forth in the Provision Guidance, the guarantees are categorized as “special-mention”, “substandard”, “doubtful” or “loss”. Normally, the provision rate is 2% for “special-mention”, 25% for “substandard”, 50% for “doubtful” and 100% for “loss”.

 

As explained above, since the beginning of 2014, People’s Bank of China continued to withdraw a significant amount of liquidity from the market, which has made it even harder for SMEs to gain access to capital. The bank lenders usually require an old loan be paid in full upon maturity before they approve a new loan to the same borrower. During the twelve months ended December 31, 2014, the banks denied to extend new loans to many SMEs even after they made the full repayment for the loans due and satisfied other conditions. As a result, some of the SME borrowers for which we provided the guarantees decided to default on the bank loans. Therefore the amount of repayment we made to the bank lenders substantially increased since the year ended December 31, 2014. We are in the process of negotiating and possibly litigating against both the borrowers and their counter-guarantors. Due to the uncertainty of the outcome, we increased our accrual for financial guarantee services significantly from $4,213,237 as of June 30, 2014 to $7,297,319 as of June 30, 2015.

 

 

In February and March 2015, the Company revisited the classification of its guarantee portfolios within its rating system to test the adequacy of the allowances calculated thereby. As a result of such testing, the Company decided to reclassify certain guarantees into different categories. The Company reviewed the profile, financial condition and other relevant information and documents of each customer in the guarantee businesses. For customers with several guarantees with different due dates, if one guaranteed loan was past due, the Company decided to reclassify all of this customer's guaranteed loans as past due (even the other loans that were not mature yet). These reclassifications affected numerous customer accounts. We engaged He-Partners Law Firm, one of the largest law firms in Suzhou City, to represent us in the legal proceedings against the borrowers and their counter guarantors, and expect to collect part of the outstanding balance in a period ranging from twelve months to one year upon adjudication by the court in favor of the Company. The timing of collection and ultimate amount of funds we can recover depend on a few factors, including the repayment ability of the borrower and their counter-guarantors, the execution time of the court, other obligations the borrowers have and priority over the claim for the Company.

 

Non-interest Expenses

 

Non-interest expenses increased from $1,830,267 for the six months ended June 30, 2014 to $2,071,291 for the six months ended June 30, 2015, representing an decrease of $241,024 or 13%. Non-interest expenses primarily consisted of salary and employee surcharge, office rental expense, business tax and surcharge, depreciation of equipment, travel expenses, entertainment expenses, professional service fees, and other office supplies. The increase was mainly attributable to an increase of salary and employee surcharge by $114,548, or 28%, and an increase in other operating expenses by $211,735, or 19%, respectively. The increase of salary and employee surcharge was mainly caused by issuance of restricted shares to management of $248,400 against resignation of several staff during May 2015. Other operating expenses were higher during the six months ended June 30, 2015 as compared to the six months ended June 30, 2014, primarily due to a net effect of an increase in legal and consulting fee of $338,908 and an increase in audit-related expenses of $97,170, against a decrease in insurance expense of $141,750 and a decrease in bank charge of $116,548

 

Income Tax

 

Income tax expenses increased from $11,092 for six months ended June 30, 2014 to $653,259 for six months ended June 30, 2015, representing an increase of $642,167. Wujiang Luxiang, the Company’s VIE suffered a taxable loss incurred during the six months ended June 30, 2015, while PFL, the Company’s direct financing lease business made taxable profit during the six months ended June 30, 2015, leading to a current income tax expense of $61,507.

 

Besides, during the six months ended June 30, 2015, further allowance on deferred tax asset was made of $707,831, against reversal of deferred tax liability of $116,080, leading to a deferred tax expense of $591,751. While during the six months ended June 30, 2014, the income tax expenses represented the current income tax imposed on the taxable income made during that period.

 

 

Loan Portfolio Quality

 

One of our key objectives is to maintain a high level of loan portfolio quality. When a borrower fails to make a scheduled payment, we attempt to cure the deficiency by personally contacting the borrower. Initial contacts typically are made seven days after the date the payment is due, and warning letters are sent by our legal counsel approximately 90 days after the default. In most cases, deficiencies are promptly resolved. If the outstanding amount cannot be collected within 180 days after the maturity date and the parties could not reach an agreement on a specific repayment program, we will initiate legal proceedings.

 

We also keep the frequency of visits to our customers and observe their daily production on site from time to time to observe their operating condition and collect their financial information.  Since most of our customers are in the Jiangsu area, it is also relatively easy to obtain information about our customers.

 

On loans where the collection of principal or interest payments is doubtful, the accrual of interest income ceases and become “non-accrual” loans. Except for loans that are sufficiently secured and in the process of collection, it is our policy to discontinue accruing additional interest and reverse any interest accrued on any loan which is 90 days or more past due.

 

We account for our impaired loans in accordance with U.S. GAAP. An impaired loan generally is one for which it is probable, based on current information, that the lender will not collect all the amounts due under the contractual terms of the loan. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment history and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan by loan basis for business and personal loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate or the fair value of the collateral if the loan is collateralized.

 

We allow a one-time loan extension with time duration up to the original loan term, which is usually within twelve months. In order to qualify, the borrower must be current with its interest payments. We do not grant concession to borrowers as the principal of the loan remains the same and interest rate is fixed at the current interest rate at the time of extension.

 

We use a comprehensive methodology to monitor credit quality and prudently manage credit concentration within our portfolio of loans. Currently our loan portfolio concentrates in the textile industry and during the three months and six months ended June 30, 2015, both the domestic and international demand for textile products have been decreasing. To maintain our loan portfolio quality, we have modified our loan policy to accept only textile companies with real estate as collateral or guaranteed by guarantee companies.

 

In addition, we plan to diversify our risks by concentrating in smaller amount loans that are below $491,000 (or approximately RMB 3.0 million).

 

Currently, the banking industry encourages SMEs to apply for loans as individual with recourse so that when it is past due, both the SME and the responsible individual are both liable for the past due amount and the individual borrower carries personal liability. As of June 30, 2015, our business loan balance decreased by $3.7 million as compared to that as of December 31, 2014 while personal loan decreased by $24.5 million.

 

 

The following table sets forth the classification of loans receivable as of June 30, 2015 and December 31, 2014, respectively:

 

		June 30, 2015								December 31,
		(Unaudited)				Percent				2014				Percent
		Amount				of Total				Amount				of Total
Business loans		$	51,972,725				66.66	%		$	52,254,805				63.66	%
Personal loans			25,989,096				33.34	%			29,824,324				36.34	%
Total Loans receivable		$	77,961,821				100.00	%		$	82,079,129				100.00	%

  

Nonaccrual loans totaled $35.9 million, or 46.02% of loans receivable as of June 30, 2015, as compared with $33.3 million, or 40.58% of loans receivable, as of December 31, 2014. The allowance for loan losses was $26.20 million, representing 33.60% of loans receivable and 73.02% of non-accrual loans as of June 30, 2014. As of December 31, 2014, the allowance for loan losses was $24.49 million, representing 29.84% of loans receivable and 73.53% of non-accrual loans.

 

The following table sets forth information concerning our nonaccrual loans as of June 30, 2015 and December 31, 2014, respectively:

 

		June 30, 2015				December 31, 2014
		(Unaudited)
Nonaccrual loans		$	35,876,848			$	33,306,861
Allowance for loan losses		$	26,195,966			$	24,490,721
Loans receivable		$	77,961,821			$	82,079,129
Total assets		$	75,514,326			$	83,089,787
Nonaccrual loans to loans receivable			46.02	%			40.58	%
Nonperforming assets to total assets			47.51	%			40.08	%
Allowance for loan losses to loans receivable			33.60	%			29.84	%
Allowance for loan losses to non-accrual loans			73.02	%			73.53	%

 

Since the beginning of 2014, the economic conditions in eastern part of China, especially the Yangtze River Delta region, has been challenging due to the downturn of the general economic situation in China. Wujiang, which is in the heart of this region, has been significantly affected. The textile industry, which is the pillar industry in Wujiang area, as well as other industries, have been facing downward pressure. As the local SMEs’ profitability and repayment ability deteriorates, “special mentioned”, “substandard” and “doubtful’ bank loans drastically increased. As such, our provision for loan losses kept at a high level as of June 30, 2015.

 

 

Cash Flows and Capital Resources

 

We have financed our operations primarily through shareholder contributions, cash flow from operations, bank loans, and public offerings of securities. As a result of our total cash activities, net cash decreased from $4,991,973 as of December 31, 2014 to $693,668 as of June 30, 2015.

 

We require cash for working capital, making loans, repayment of debt and guarantee, salaries, commissions and related benefits and other operating expenses and income taxes. We expect that without the needs of future business expansion, our current working capital is sufficient to support our routine operations for the next twelve months.

 

However, as a micro-credit company regulated by the Chinese Banking Regulatory Commission, we are prohibited from providing saving or checking services to our customers; our borrowing capacity from other financial institutions is also limited to 50% of our registered capital.

 

In order to meet the capital needs for our continued operations, we may take the following actions: (1) continue to improve our collection of loan receivable and interest receivable; (2) if necessary, raise additional capital through the sale of equity; and/or (3) enter into new, or refinance existing, short- and/or long term commercial loans. We cannot assure you that financing will be available in the amounts we need or on terms acceptable to us, if at all. The sale of additional equity securities, including convertible debt securities, would dilute our current shareholders. The incurrence of debt could result in operating and financial covenants that would restrict our operations and our ability to pay dividends to our shareholders. If we are unable to obtain additional equity or debt financing as required, our business, operations and prospects may be adversely affected.

 

 

Statement of Cash Flows

 

The following table sets forth a summary of our cash flows for the six months ended June 30, 2015 and 2014, respectively:

 

		For the six months ended
		June 30,
		2015				2014
			(Unaudited)				(Unaudited)
Net cash (used in)/provided by operating activities		$	(342,051	)		$	974,483
Net cash provided by/(used in) investing activities			1,303,246				(8,545,958	)
Net cash (used in)/provided by financing activities			(5,224,149	)			5,710,405
Effects of exchange rate changes on cash			(35,351	)			(145,028	)
Net cash outflow		$	(4,298,305	)		$	(2,006,098	)

 

Net Cash (Used in)/Provided by Operating Activities

 

During the six months ended June 30, 2015, we had a cash outflow from operating activities of $342,051, a decrease of $1,316,534 from the six months ended June 30, 2014, during which we had cash inflow from operating activities of $974,483. We incurred a net loss for the six months ended June 30, 2015 of $3,527,567, a decreased in net loss of $12,571,182 from the six months ended June 30, 2014, during which we generated net loss of $16,098,749. In addition to the decrease in profitability, the decrease in net cash provided by operating activities was the result of several factors, including:

 

●

A decrease in cash flow due to the increase in changes in other assets by $176,338. The other asset increased by $184,507 and $8,169 as of June 30, 2015 and 2014, respectively, as compared to December 31, 2014 and 2013, respectively. This is mainly attributable to a significant increase in court filing fees and legal fees which will be claimed from increased default customers;

 

●

An increase in cash flow due to the decrease in changes in interest receivable by $145,837. The interest receivable increased by $194,013 and $339,850 as of June 30, 2015 and 2014, respectively, as compared to December 31, 2014 and 2013. This is mainly attributable to a significant decrease in loan additions during the six months ended June 30, 2015;

 

●

An increase in cash flow due to the decrease in changes in net tax receivable by $929,440 and decrease in changes in net tax payable by $40,554. The net tax receivable incurred no changes as of June 30, 2015, and increased by $929,440 as of June 30, 2014, respectively, as compared to December 31, 2014 and 2013. On the other hand, the net tax payable increased by $40,554 as of June 30, 2015, and incurred no changes as of June 30, 2014, respectively, as compared to December 31, 2014 and 2013.

 

The Company was required to prepay enterprise income taxes at a rate of 25% on a quarterly basis when the applicable tax rate was 12.5% to loan business and 25% to guarantee business and direct financing lease business, respectively. Within five months after fiscal year end, the Company and the tax authority resolved the difference between the taxes paid and taxes due.

 

 

During the six months ended June 30, 2015, the Company incurred taxable loss in Wujiang Luxiang. This led to no changes in tax receivable for its loan and guarantee business except for impact of foreign currency translation between June 30, 2015 and December 31, 2014. On the other hand, PFL, the Company’s financing leasing business, made taxable profit during the six months ended June 30, 2015 and accrued net tax payable of $40,554.

 

Net Cash Provided by/(Used in) Investing Activities 

 

Net cash provided investing activities for the six months ended June 30, 2015 was $1,303,246 as compared to net cash used in investing activities of $8,545,958 for the six months ended June 30, 2014. The cash used in investing activities for the six months ended June 30, 2015 was mainly caused by payment on behalf of default guarantees of $5,724,171, loan disbursement to third party customers of $17,290,541, netting off collection from guarantees for loan paid on behalf of $1,943,762, collection from direct loan business of $22,038,586, and installment repayment from direct financing lease customers of $318,436.

 

Net Cash (Used in)/Provided by Financing Activities

 

Net cash used in financing activities for the six months ended June 30, 2015 totaled $5,224,149 as compared to net cash provided by financing activities of $5,710,405 for the six months ended June 30, 2014. The cash used in financing activities for the six months ended June 30, 2015 was mainly attributable the repayment of bank borrowing of $5,224,149.

 

 

Contractual Obligations

 

As of June 30, 2015, the annual amounts of future minimum payments under certain of our contractual obligations were:

 

		Payment due by period
		(Unaudited)
						Less than																5 years
		Total				1 year				1-2 years				2-3 years				3-5 years				and after
Contractual obligations:
Short term bank loans (1)		$	6,220,534			$	6,220,534			$	-			$	-			$	-			$	-
Operating lease (2)			1,320,900				341,959				341,959				341,959				222,996				72,027
		$	7,541,434			$	6,562,493			$	341,959			$	341,959			$	222,996			$	72,027

 

(1)

The bank loans bear an average annual interest rate of 6.72%.

 

(2)

Our renewed lease for our office in Wujiang commenced on October 1, 2013 and will expire on December 31, 2018. The Company has the right to extend the lease before its expiration with a one-month's prior written notice.

 

During the six months ended June 30, 2015, we leased a new office. The new lease commenced on June 1, 2015 and will expire on May 31, 2021. The Company has the right to extend the lease before its expiration with a one-month's prior written notice.

 

Off-Balance Sheet Arrangements

 

These financial guarantee contracts consist of providing guarantees to banks on behalf of borrowers to help them obtain loans from banks. The contract amounts reflect the extent of involvement the Company has in the guarantee business and also represents the Company’s maximum exposure to credit loss.

 

The Company is party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its borrowers. Financial instruments whose contract amounts represent credit risk are as follows.

 

		June 30, 2015				December 31, 2014
		(Unaudited)
Guarantee		$	15,223,939			$	21,794,663

 

 

Critical Accounting Policies

 

We prepare our financial statements in conformity with U.S. GAAP, which requires us to make judgments, estimates and assumptions that affect our reported amount of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the financial statements, and reported amounts of revenue and expenses during the reporting periods. We continually 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, could materially impact the condensed financial statements. We believe that the following accounting policies involve a higher degree of judgment and complexity in their application 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 condensed financial statements and other disclosures included in this report.

 

Termination of VIE agreements with Pride Information

 

On April 11, 2015, WFOE delivered a notice of termination to Pride Information. As a result, the contractual arrangements between WFOE, Pride Information and Mr. Qin were terminated effective on May 11, 2015 and WFOE no longer controls Pride Information.

 

Pride Information operates an online portal (www. pridelendingclub.com) to match prospective borrowers with lenders. As of March 31, 2015, Pride Information is in the beginning stage of operation and has generated minimal revenue. The derecognition of the VIE was accounted for as a deconsolidation.

 

Revenue recognition

 

Revenue is recognized when there are probable economic benefits to the Company and when the revenue can be measured reliably, on the following:

 

●

Interest income on loans. Interest on loan receivables is accrued monthly in accordance with their contractual terms and recorded in accrued interest receivable. The Company does not charge prepayment penalty from customers.

 

●

Commission on guarantee service. The Company receives the commissions from guarantee services in full at inception and records as unearned income before amortizing it throughout the period of guarantee.

 

●

Income on direct financing lease. The financing agreements are classified as direct financing lease as prescribed by the Financial Accounting Standards Board ("FASB Codification"). Revenues representing the capitalized costs of the investment are recognized as income upon inception of the leases. The portion of revenues representing the difference between the gross investment in the lease (the sum of the minimum lease payments and the guaranteed residual value, if any) and the sum of the present value of the two components is recorded as unearned income and amortized over the lease term.

 

 

Taxes assessed by governmental authorities that are directly imposed on revenue-producing transactions between the Company and its customers (which may include, but are not limited to, sales, use, value added and some excise taxes) are excluded from revenues.

 

Lessees are responsible for all taxes, insurance and maintenance costs.

 

●

Non-interest income. Non-interest income mainly includes government incentive and rental income from the sub-leasing of certain of the Company’s leased office space to third parties. Government incentive represents financial subsidy for promotion and successful listing granted by Jiangsu Provincial Government.

 

Loans receivable, net

 

Loans receivable primarily represent loan amount due from customers. The management has the intent and ability to hold such receivable for the foreseeable future or until maturity or payoff. Loans receivable are recorded at unpaid principal balances, net of unearned income and allowance that reflects the Company’s best estimate of the amounts that will not be collected. Loan origination and commitment fees and certain direct loan origination costs collected from customers are directly recorded in current year interests and fees on loans. The loans receivable portfolio consists of corporate loans and personal loans. The Company does not charge loan origination and commitment fees.

 

Allowance for loan losses and loan impairment

 

The allowance for loan losses is maintained at a level considered adequate to provide for losses that can be reasonably anticipated. Management performs a quarterly evaluation of the adequacy of the allowance. The allowance is based on the Company’s past loan loss history, known and inherent risks in the portfolio, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying collateral, composition of the loan portfolio, current economic conditions and other relevant factors. This evaluation is inherently subjective as it requires material estimates that may be susceptible to significant revision as more information becomes available.

 

The allowance is calculated at portfolio-level since our loans portfolio is typically of smaller balance homogenous loans and is collectively evaluated for impairment.

 

For the purpose of calculating portfolio-level reserves, we have grouped our loans into two portfolio segments: Corporate and Personal. The allowance consists of the combination of a quantitative assessment component based on statistical models, a retrospective evaluation of actual loss information to loss forecasts, value of collaterals and could include a qualitative component based on management judgment.

 

In estimating the probable loss of the loan portfolio, the Company also considers qualitative factors such as current economic conditions and/or events in specific industries and geographical areas, including unemployment levels, trends in real estate values, peer comparisons, and other pertinent factors such as regulatory guidance. Finally, as appropriate, the Company also considers individual borrower circumstances and the condition and fair value of the loan collateral, if any.

 

 

In addition, the Company also calculates the provision amount in accordance with PRC regulation “The Guidance for Loan Losses” (“The Provision Guidance”) issued by PBOC and is applied to all financial institutes as below:

 

1.

General Reserve - is based on total loan receivable balance and to be used to cover unidentified probable loan loss. The General Reserve is required to be no less than 1% of total loan receivable balance.

 

2.

Specific Reserve - is based on the level of loss of each loan after categorizing the loan according to their risk.  According to the so-called “Five-Tier Principle” set forth in the Provision Guidance, the loans are categorized as “pass”, “special-mention”, “substandard”, “doubtful” or “loss”. Normally, the provision rate is 2% for “special-mention”, 25% for “substandard”, 50% for “doubtful” and 100% for “loss”.

 

3.

Special Reserve - is fund set aside covering losses due to risks related to a particular country, region, industry or type of loans. The reserve rate could be decided based on management estimate of loan collectability.

 

To the extent the general loan loss reserve rate of 1% as required by PBOC differs from management’s estimates, the management elects to use the higher rate. As of March 31, 2015, the Company utilized Specific Reserve in estimating the loan loss as it is higher than the amount calculated based on the General Reserve.

 

While management uses the best information available to make loan loss allowance evaluations, adjustments to the allowance may be necessary based on changes in economic and other conditions or changes in accounting guidance.

 

Income Tax

 

Current income tax expenses are provided for in accordance with the laws of the relevant taxing authorities. As part of the process of preparing financial statements, the Company is required to estimate its income taxes in each of the jurisdictions in which it operates. The Company accounts for income taxes using the liability approach. Under this method, deferred income taxes are recognized for tax consequences in future years of differences between the tax bases of assets and liabilities and their reported amounts in the financial statements at each year-end and tax loss carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates applicable for the differences that are expected to affect taxable income.

 

 

Recently issued accounting standards

 

In January 2015, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2015-01 about Income Statement-Extraordinary and Unusual Items (Subtopic 225-20). ASU 2015-01 addresses the elimination from U.S. GAAP the concept of extraordinary items. Presently, an event or transaction is presumed to be an ordinary and usual activity of the reporting entity unless evidence clearly supports its classification as an extraordinary item. If an event or transaction meets the criteria for extraordinary classification, an entity is required to segregate the extraordinary item from the results of ordinary operations and show the item separately in the income statement, net of tax, after income from continuing operations. This amended guidance will prohibit separate disclosure of extraordinary items in the income statement. This amendment is effective for years, and interim periods within those years, beginning after December 15, 2015. Entities may apply the amendment prospectively or retrospectively to all prior periods presented in the financial statements. Early adoption is permitted provided that the guidance is applied from the beginning of the year of adoption. The Company intends to adopt the accounting standard during the first quarter of 2016, as required, with no material impact.

 

In February 2015, the FASB issued ASU 2015-02 "Consolidation: Amendments to the Consolidation Analysis" in order to clarify the basis for consolidation of certain legal entities. ASU 2015-02 changes the analysis that a reporting entity must perform to determine whether it should consolidate certain types of legal entities. Specifically, ASU 2015-02 (i) modifies the evaluation of whether limited partnerships and similar legal entities are variable interest entities (VIEs) or voting interest entities, (ii) eliminates the presumption that a general partner should consolidate a limited partnership, (iii) affects the consolidation analysis of reporting entities that are involved with VIEs, particularly those that have fee arrangements and related party relationships, and (iv) provides a scope exception from consolidation guidance for reporting entities with interests in certain legal entities. ASU 2015-02 is effective for public business entities for fiscal years and interim periods beginning on or after December 15, 2015. Early adoption is permitted. The Company is currently assessing the impact of ASU 2015-02 on its consolidated financial position, results of operations and cash flows.

 

In April 2015, the FASB issued ASU No. 2015-03, Simplifying the Presentation of Debt Issuance Costs, which changes the presentation of debt issuance costs in financial statements. Under this ASU, an entity presents such costs on the balance sheet as a direct deduction from the related debt liability rather than as an asset. This new standard is effective for annual reporting periods beginning after December 15, 2015, including interim periods within that reporting period, with early adoption permitted. We do not plan to adopt this standard early and do not expect that it will have a material impact on our consolidated financial statements or disclosures upon adoption.

 

In May 2014, the FASB issued guidance on the accounting for revenue from contracts with customers that will supersede most existing revenue recognition guidance, including industry-specific guidance. The core principle requires an entity to recognize revenue to depict the transfer of goods and 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. In addition, the guidance requires enhanced disclosures regarding the nature, timing and uncertainty of revenue and cash flows arising from an entity's contracts with customers. This guidance is effective for interim and annual reporting periods beginning on or after December 15, 2016. Entities can choose to apply the guidance using either the full retrospective approach or a modified retrospective approach. Management believes that the adoption of this guidance will not have a material impact on our financial statements.

 

 

In June 2014, the FASB issued guidance that clarifies the accounting for share-based payments in which the terms of the award provide that a performance target that affects vesting could be achieved after the requisite service period. In this case, the performance target would be required to be treated as a performance condition, and should not be reflected in estimating the grant-date fair value of the award. The guidance also addresses when to recognize the related compensation cost. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2015. Management believes that the adoption of this guidance will not have a material impact on our financial statements.

 

In June 2014 Accounting Standards Update 2014-10 removed the definition of a development stage entity from the Master Glossary of the Accounting Standards Codification, thereby removing the financial reporting distinction between development stage entities and other reporting entities from U.S. GAAP. In addition, the amendments eliminate the requirements for development stage entities to (1) present inception-to-date information in the statements of income, cash flows, and shareholder equity, (2) label the financial statements as those of a development stage entity, (3) disclose a description of the development stage activities in which the entity is engaged, and (4) disclose in the first year in which the entity is no longer a development stage entity that in prior years it had been in the development stage. This ASU is effective for annual reporting periods beginning after December 15, 2014, and interim periods therein. Early adoption is permitted. The Company has elected to adopt this ASU effective with the December 31, 2014 annual report on Form 10-K and its adoption resulted in the removal of previously required development stage financial information.

 

ASU 2014-15 – "Presentation of Financial Statements—Going Concern—Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern ("ASU 2014-15")." In August 2014, the FASB issued ASU 2014-15 requiring management to assess an entity's ability to continue as a going concern, and to provide related footnote disclosures in certain circumstances. ASU 2014-15 is effective for annual periods, and interim periods within those annual periods, starting December 15, 2016; the Company's first quarter of fiscal 2018.

 

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not applicable.

 

ITEM 4. CONTROLS AND PROCEDURES 

 

Evaluation of Disclosure Controls and Procedures

 

Based on an evaluation under the supervision and with the participation of the Company’s management, the Company’s principal executive officer and principal financial officer have concluded that the Company’s disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act were not effective as of June 30, 2015 to provide reasonable assurance that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission (“SEC”) rules and forms, and (ii) accumulated and communicated to the Company’s management, including its principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

 

Inherent Limitations Over Internal Controls

 

The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S GAAP. The Company’s internal control over financial reporting includes those policies and procedures that:

 

i)	pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the Company’s assets;

 

ii)	provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. GAAP, and that the Company’s receipts and expenditures are being made only in accordance with authorizations of the Company’s management and directors; and

 

iii)	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.

 

Management, including the Company’s principal executive officer and principal financial officer, does not expect that the Company’s internal controls will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of internal controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. Also, any evaluation of the effectiveness of controls in future periods are subject to the risk that those internal controls may become inadequate because of changes in business conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

Changes in Internal Control over Financial Reporting

 

There were no changes in our internal control over financial reporting during the quarter ended June 30, 2015 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

 

 

PART II.  OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

The Company is involved in various legal actions arising in the ordinary course of its business. As of June 30, 2015, the Company was involved in 66 collection lawsuits, among which 54 were related to its loan business and 12 were related to guarantee business. The Company initiated legal proceedings to collect delinquent balances from borrowers and guarantees. 22 of these cases with an aggregated claim of $7.7 million have been adjudicated by the Court in favor of the Company and these cases are settled or in the process of enforcement. The remaining 44 cases with an aggregated claim of $23.8 million have not been adjudicated by the Court as of June 30, 2015.

 

On August 6, 2014, a purported shareholder Andrew Dennison filed a putative class action complaint in the United States District Court District of New Jersey (the “N.J. district court”) relating to a July 25, 2014 press release about the Company’s progress in recovering a significant portion of the $5.4 million the Company paid in the first quarter of 2014 on behalf of loan guarantee customers. The action, Andrew Dennison v. China Commercial Credit, Inc., et al., Case No. 2:2014-cv-04956, alleges that the Company and its current and former officers and directors Huichun Qin, Long Yi, Jianming Yin, Jinggen Ling, Xiangdong Xiao, and John F. Levy violated the federal securities laws by misrepresenting in prior public filings certain material facts about the risks associated with its loan guarantee business. On October 2, 2014, purported shareholders Zhang Yun and Sanjiv Mehrotra (the “Yun Group”) asserted substantially similar claims against the same defendants in a putative class action captioned Zhang Yun v. China Commercial Credit, Inc., et al., Case No. 2:14-cv-06136 (D. N.J.). Neither complaint states the amount of damages sought.

 

On or about October 6, 2014, Dennison, the Yun Group and another purported shareholder, Jason Stark, filed motions to consolidate the cases, be appointed as lead plaintiff and to have their respective counsel appointed as lead counsel. On October 31, 2014, the N.J. district court entered an order consolidating the cases under the caption “In re China Commercial Credit Inc. Securities Litigation” and appointing the Yun Group as lead plaintiff (“Class Plaintiff”) and the Yun Group’s counsel as lead counsel.

 

On November 18, 2014, the Yun Group and the Company, which at that point was the only defendant served, entered into a stipulation to transfer of the case to the Southern District of New York. On December 18, 2014, Mr. Levy, who had by then been served, joined in the stipulation. On December 29, 2014, the N.J. district court entered an order transferring the action. The transfer was effected on January 22, 2015, and assigned docket number 1:15-cv-00557-ALC (S.D.N.Y.).

 

Under the schedule stipulated by the parties, the Yun Group was to file an amended complaint within 60 days of the date that the transfer was effected, and the defendants’ date to answer or move was within 60 days of that filing. On April 7, 2015, the Class Plaintiff filed a Second Amended Class Action Complaint (the “CAC”). The CAC also asserts securities law claims against defendants Axiom Capital Management, Inc., Burnham Securities Inc. and ViewTrade Securities, Inc. (collectively, the “Underwriter Defendants”). The CAC alleges that the Company engaged in a fraudulent scheme by engaging in undisclosed and improper lending practices and made misleading representations regarding its underwriting policies, the loan portfolio quality, the loan loss allowance, compliance with U.S. GAAP and its internal control systems.

 

In accordance with the Court’s procedures, the Company and Mr. Levy and the Underwriter Defendants requested a Pre-Motion Conference in anticipation of filing a motion to dismiss the CAC, which was held on June 25, 2015. At the conference, the Court adjourned the date to answer or move in order to provide the Class Plaintiff with time to serve certain overseas defendants. The Court has since set September 15, 2015, as the next date to update the Court. After the conference, the Class Plaintiff voluntarily dismissed Jianming Yin, Jinggen Ling and Xiangdong Xiao from the action, and Long Yi agreed to waive service, which left Huichun Qin as the sole remaining defendant to serve.

 

The Company believes that this lawsuit was without merit and intends to vigorously defend against it. At the early stage of the proceedings, the Company is not able to estimate the probability of success or loss.

 

On February 3, 2015, a purported shareholder Kiram Kodali filed a putative shareholder derivative complaint in the United States District Court for the Southern District of New York, captioned Kiran Kodali v. Huichun Qin, et al., Case No. 15-cv-806. The action alleges that the Company and its current and former officers and directors Huichun Qin, Long Yi, Jianming Yin, Jinggen Ling, Chunfang Shen, John F. Levy, Xiaofang Shen and Chunjiang Yu violated their fiduciary duties, grossly mismanaged the Company and were unjustly enriched based upon the transfer that was the subject of the Internal Review and other grounds substantially similar to those asserted in the class action complaints. Kodali did not serve a demand upon the Company and alleges that demand is excused. The Company and Mr. Levy have been served. An amended derivative complaint was filed on April 20, 2015. On May 29, 2015, the Court “so ordered” a stipulation among Kodali, the Company and Mr. Levy staying all proceedings in the derivative case except for service of process on individual defendants until the earlier of thirty days of termination of the stipulation, dismissal of the class action with prejudice or the date any of the defendants in the class action file an answer to the CAC. The Company believes that this lawsuit is without merit and intends to vigorously defend against it. At this stage of the proceedings, the Company is not able to estimate the probability of success or loss.

 

On May 18, 2015, WFOE filed a civil complaint against Huichun Qin with the Wujiang Region Suzhou City People’s Court claiming Mr. Qin’s misappropriation of RMB 7 million in July 2014. The complaint was rejected due to a procedural issue, and the Company is evaluating its strategic options.

 

 

ITEM 1A. RISK FACTORS

 

There were no material changes to the risks included in the Company’s annual report on Form 10-K for year ended December 31, 2014 filed with the SEC on April 15, 2015.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

None.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

None.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable.

 

ITEM 5. OTHER INFORMATION

 

None.

 

ITEM 6. EXHIBITS

 

The following exhibits are filed herewith:

 

Exhibit No.		Description
31.1		Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934
31.2		Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934
32.1		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS		XBRL Instance Document
101.SCH		XBRL Taxonomy Extension Schema Document
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document
101.LAB		XBRL Taxonomy Extension Label Linkbase Document
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

August 14, 2015	CHINA COMMERCIAL CREDIT, INC.
	By:	/s/ Jingen Lin
		Jingen Lin
		Chief Executive Officer
		(Principal Executive Officer)
	By:	/s/ Long Yi
		Long Yi
		Chief Financial Officer (Principal Financial and Accounting Officer)

 

 

EXHIBIT INDEX

 

Exhibit No.		Description
31.1		Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934
31.2		Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934
32.1		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS		XBRL Instance Document
101.SCH		XBRL Taxonomy Extension Schema Document
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document
101.LAB		XBRL Taxonomy Extension Label Linkbase Document
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

 

 

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