UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2017March 31, 2024
☐ 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.BAIYU HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Delaware | 45-4077653 | |
(State or other jurisdiction of
| (I.R.S. Employer
|
No.1 Zhongying Commercial Plaza,
Zhong Ying Road,
Wujiang, Suzhou,
Jiangsu Province, China
(Address of principal executive offices)
139, Xinzhou 11th Street, Futian District Shenzhen, Guangdong, PRC | 518000 | |
(Address of principal executive offices) | (Zip Code) |
+86-512 6396-002286 (0755) 82792111
(Registrant’s(Registrant’s telephone number, including area code)
25th Floor, Block C, Tairan Building
No. 31 Tairan 8th Road, Futian District, Shenzhen, Guangdong, PRC
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Common Stock, par value $0.001 | BYU | Nasdaq Capital Market |
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 ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☐ |
Non-accelerated filer | Smaller reporting company | ☒ | |
Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of NovemberMay 10, 2017, 19,030,9152024, 19,935,688 shares of the Company’s Common Stock, $0.001 par value per share, were issued and outstanding.
PART I.1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CHINA COMMERCIAL CREDIT,BAIYU HOLDINGS, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
As of March 31, 2024 and December 31, 2023
September 30, | ||||||||
2017 (Unaudited) | December 31, 2016 | |||||||
ASSETS | ||||||||
Cash and cash equivalent | $ | 3,030,468 | $ | 768,501 | ||||
Restricted cash | 9,596 | 9,163 | ||||||
Notes receivable | 279,493 | 107,995 | ||||||
Loans receivable, net of allowance for loan losses of $54,821,187 and $51,708,062 for September 30, 2017 and December 31, 2016, respectively | 3,445,533 | 6,814,919 | ||||||
Investment in direct financing lease, net of allowance for direct financing lease losses of $2,615,635 and $2,441,663 for September 30, 2017 and December 31, 2016, respectively | 450,795 | 871,159 | ||||||
Interest receivable | 77,329 | 11,408 | ||||||
Due from a related party | - | 469,418 | ||||||
Property and equipment, net | 15,727 | 19,969 | ||||||
Guarantee paid on behalf of guarantee service customers, net of allowance for repayment on behalf of guarantee service customers losses of $12,089,724 and $11,543,868 for September 30, 2017 and December 31, 2016, respectively | 54 | 98,887 | ||||||
Guarantee paid on behalf of a related party, net of allowance for repayment on behalf of a related party losses of $102,270 and $98,000 for September 30, 2017 and December 31, 2016, respectively | 102,270 | 98,000 | ||||||
Other assets | 302,748 | 301,324 | ||||||
Total Assets | $ | 7,714,013 | $ | 9,570,743 | ||||
LIABILITIES AND SHAREHOLDERS’ (DEFICIT) /EQUITY | ||||||||
Liabilities | ||||||||
Deposits payable | $ | 781,379 | $ | 748,765 | ||||
Unearned income from financial guarantee services and finance lease services | 1,878 | 20,819 | ||||||
Accrual for financial guarantee services | 7,058,187 | 6,005,608 | ||||||
Other current liabilities | 324,180 | 273,447 | ||||||
Income tax payable | 240,739 | 169,226 | ||||||
Deferred tax liability | 81,901 | 139,947 | ||||||
Total Liabilities | 8,488,264 | 7,357,812 | ||||||
Shareholders' (Deficit)/ Equity | ||||||||
Series A Preferred Stock (par value $0.001 per share, 1,000,000 shares authorized at September 30, 2017 and December 31, 2016, respectively; nil and nil shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively) | $ | - | $ | - | ||||
Series B Preferred Stock (par value $0.001 per share, 5,000,000 shares authorized at September 30, 2017 and December 31, 2016, respectively; nil and nil shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively) | - | - | ||||||
Common stock (par value $0.001 per share, 100,000,000 shares authorized; 19,030,915 and 16,637,679 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively) | 19,030 | 16,638 | ||||||
Subscription receivable | (1,062 | ) | (1,062 | ) | ||||
Additional paid-in capital | 68,664,627 | 63,124,040 | ||||||
Statutory reserve | 5,442,150 | 5,442,150 | ||||||
Due from a non-controlling shareholder | (1,051,857 | ) | (1,007,953 | ) | ||||
Accumulated deficit | (78,764,900 | ) | (70,234,656 | ) | ||||
Accumulated other comprehensive income | 4,917,761 | 4,873,774 | ||||||
Total Shareholders’ (Deficit)/ Equity | (774,251 | ) | 2,212,931 | |||||
Total Liabilities and Shareholders’ (Deficit)/Equity | $ | 7,714,013 | $ | 9,570,743 |
(Expressed in U.S. dollars, except for the number of shares)
March 31, | December 31, | |||||||
2024 | 2023 | |||||||
ASSETS | ||||||||
Current Assets | ||||||||
Cash and cash equivalents | $ | 557,451 | $ | 1,516,358 | ||||
Loans receivable from third parties | 247,049,634 | 240,430,865 | ||||||
Inventories, net | - | 259,806 | ||||||
Other current asset | 11,727,715 | 10,134,829 | ||||||
Total current assets | 259,334,800 | 252,341,858 | ||||||
Non-Current Assets | ||||||||
Plant and equipment, net | 28,921 | 32,090 | ||||||
Goodwill | 157,268,963 | 157,542,081 | ||||||
Intangible assets, net | 43,228,852 | 45,285,617 | ||||||
Right-of-use assets, net | 60,532 | 83,375 | ||||||
Total non-current assets | 200,587,268 | 202,943,163 | ||||||
Total Assets | $ | 459,922,068 | $ | 455,285,021 | ||||
LIABILITIES AND EQUITY | ||||||||
Current Liabilities | ||||||||
Bank borrowings | 1,055,814 | 1,057,648 | ||||||
Third party loans payable | 481,704 | 476,627 | ||||||
Contract liabilities | 4,477,564 | 3,090,201 | ||||||
Income tax payable | 17,671,662 | 16,187,826 | ||||||
Lease liabilities | 63,303 | 86,691 | ||||||
Other current liabilities | 7,018,000 | 6,578,349 | ||||||
Convertible promissory notes | 4,107,742 | 4,284,622 | ||||||
Total current liabilities | 34,875,789 | 31,761,964 | ||||||
Non-Current Liabilities | ||||||||
Deferred tax liabilities | 2,065,053 | 2,256,696 | ||||||
Due to related parties | 38,054,968 | 38,121,056 | ||||||
Total non-current liabilities | 40,120,021 | 40,377,752 | ||||||
Total liabilities | 74,995,810 | 72,139,716 | ||||||
Commitments and Contingencies (Note 16) | ||||||||
Equity | ||||||||
Common stock (par value $0.001 per share, 600,000,000 shares authorized; 19,785,688 and 19,335,220 shares issued and outstanding as of March 31, 2024 and December 31, 2023, respectively)* | 19,786 | 19,335 | ||||||
Additional paid-in capital | 439,430,236 | 438,980,687 | ||||||
Statutory surplus reserve | 2,602,667 | 2,602,667 | ||||||
Accumulated deficit | (37,140,024 | ) | (39,520,164 | ) | ||||
Accumulated other comprehensive income | (16,812,601 | ) | (16,144,752 | ) | ||||
Total BAIYU Shareholders’ Equity | 388,100,064 | 385,937,773 | ||||||
Non-controlling interest | (3,173,806 | ) | (2,792,468 | ) | ||||
Total Equity | 384,926,258 | 383,145,305 | ||||||
Total Liabilities and Equity | $ | 459,922,068 | $ | 455,285,021 |
* | On October 30, 2023, the Company completed a 50:1 reverse stock split of our common stock issued and outstanding. All shares and associated amounts have been retroactively restated to reflect the reverse stock split. See Note 13 - Reverse stock split of |
SeeThe accompanying notes toare an integral part of the unaudited condensed consolidated financial statements
statements.
CHINA COMMERCIAL CREDIT,
BAIYU HOLDINGS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE LOSSINCOME (LOSS)
For the Three Months Ended March 31, 2024 and 2023
(Expressed in U.S. dollars, except for the number of shares)
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||
2017 (Unaudited) | 2016 (Unaudited) | 2017 (Unaudited) | 2016 (Unaudited) | |||||||||||||
Interest income | ||||||||||||||||
Interests and fees on loans and direct financing lease | $ | 128,460 | $ | 722,117 | $ | 290,566 | $ | 1,203,663 | ||||||||
Interests on deposits with banks | 4,042 | 263 | 4,728 | 3,526 | ||||||||||||
Total interest and fee income | 132,502 | 722,380 | 295,294 | 1,207,189 | ||||||||||||
Interest expense | ||||||||||||||||
Interest expense on short-term bank loans | - | - | - | (30,057 | ) | |||||||||||
Net interest income | 132,502 | 722,380 | 295,294 | 1,177,132 | ||||||||||||
Reversal of provision/(Provision) for loan losses | 452,786 | 226,694 | (2,420,698 | ) | 133,177 | |||||||||||
(Provision)/Reversal of provision for direct financing lease losses | (18,616 | ) | 242,180 | (66,113 | ) | 242,180 | ||||||||||
Net interest income/(loss) after provision for loan losses and financing lease losses | 566,672 | 1,191,254 | (2,191,517 | ) | 1,552,489 | |||||||||||
Commissions and fees on financial guarantee services | - | 9,117 | 2,843 | 26,308 | ||||||||||||
(Provision)/Reversal of provision for financial guarantee services | (1,142,807 | ) | (599,808 | ) | (830,140 | ) | 385,352 | |||||||||
Commission and fee (loss)/income on guarantee services, net | (1,142,807 | ) | (590,691 | ) | (827,297 | ) | 411,660 | |||||||||
Net (Loss)/Revenue | (576,135 | ) | 600,563 | (3,018,814 | ) | 1,964,149 | ||||||||||
Non-interest income | ||||||||||||||||
Other non-interest income | - | - | - | 48,945 | ||||||||||||
Total non-interest income | - | - | - | 48,945 | ||||||||||||
Non-interest expense | ||||||||||||||||
Salaries and employee surcharge | (180,461 | ) | (120,130 | ) | (707,012 | ) | (548,978 | ) | ||||||||
Rental expenses | (13,975 | ) | (28,132 | ) | (41,242 | ) | (64,850 | ) | ||||||||
Business taxes and surcharge | (1,376 | ) | 9,617 | (3,221 | ) | (21,798 | ) | |||||||||
Transaction costs relating to acquisition | (1,356,285 | ) | - | (2,136,285 | ) | - | ||||||||||
Litigation and settlement cost for the shareholders’ lawsuit | - | - | (1,838,500 | ) | (690,000 | ) | ||||||||||
Other operating expenses | (387,003 | ) | (1,086,092 | ) | (784,815 | ) | (1,893,027 | ) | ||||||||
Total non-interest expense | (1,939,100 | ) | (1,224,737 | ) | (5,511,075 | ) | (3,218,653 | ) | ||||||||
Foreign exchange loss | (57 | ) | (271 | ) | (355 | ) | (557 | ) | ||||||||
Loss Before Income Taxes | (2,515,292 | ) | (624,445 | ) | (8,530,244 | ) | (1,206,116 | ) | ||||||||
Income tax expense | - | - | - | - | ||||||||||||
Net Loss | $ | (2,515,292 | ) | $ | (624,445 | ) | $ | (8,530,244 | ) | $ | (1,206,116 | ) | ||||
Loss per Share- Basic and Diluted | (0.139 | ) | (0.039 | ) | (0.491 | ) | (0.086 | ) | ||||||||
Weighted Average Shares Outstanding-Basic and Diluted | 18,092,369 | 15,889,853 | 17,371,183 | 14,026,815 | ||||||||||||
Net Loss | (2,515,292 | ) | (624,445 | ) | (8,530,244 | ) | (1,206,116 | ) | ||||||||
Other comprehensive income | ||||||||||||||||
Foreign currency translation adjustment | 14,699 | 260,803 | 43,987 | 205,546 | ||||||||||||
Comprehensive Loss | $ | (2,500,593 | ) | $ | (363,642 | ) | $ | (8,486,257 | ) | $ | (1,000,570 | ) |
For the Three Months Ended March 31, | ||||||||
2024 | 2023 | |||||||
Revenues | ||||||||
- Sales of commodity products – third parties | $ | 28,089,681 | $ | 34,571,288 | ||||
- Supply chain management services – third parties | 2,466 | 6,350 | ||||||
Total revenue | 28,092,147 | 34,577,638 | ||||||
Cost of revenues | ||||||||
- Commodity product sales-third parties | (28,144,823 | ) | (34,653,239 | ) | ||||
- Supply chain management services-third parties | (16 | ) | (40 | ) | ||||
Total operating costs | (28,144,839 | ) | (34,653,279 | ) | ||||
Gross loss | (52,692 | ) | (75,641 | ) | ||||
Operating expenses | ||||||||
Selling, general, and administrative expenses | (2,707,183 | ) | (2,743,061 | ) | ||||
Total operating expenses | (2,707,183 | ) | (2,743,061 | ) | ||||
Net Operating Loss | (2,759,875 | ) | (2,818,702 | ) | ||||
Other income (expenses), net | ||||||||
Interest income | 6,269,463 | 4,449,000 | ||||||
Interest expenses | (121,438 | ) | (109,987 | ) | ||||
Amortization of beneficial conversion feature relating to issuance of convertible promissory notes | (92,552 | ) | (220,652 | ) | ||||
Other income, net | 25,918 | 4,523 | ||||||
Total other income, net | 6,081,391 | 4,122,884 | ||||||
Net income before income taxes | 3,321,516 | 1,304,182 | ||||||
Income tax expenses | (1,322,714 | ) | (852,905 | ) | ||||
Net income | 1,998,802 | 451,277 | ||||||
Less: Net loss attributable to non-controlling interests | (381,338 | ) | (398,966 | ) | ||||
Net income attributable to BAIYU Holdings, Inc.’s Stockholders | 2,380,140 | 850,243 | ||||||
Comprehensive Income | ||||||||
Net income | 1, 998,802 | 451,277 | ||||||
Foreign currency translation adjustments | (667,849 | ) | 3,045,818 | |||||
Comprehensive Income | $ | 1,330,953 | $ | 3,497,095 | ||||
Less: Total comprehensive loss attributable to non-controlling interests | (381,338 | ) | (398,966 | ) | ||||
Comprehensive income attributable to BAIYU Holdings, Inc.’s Stockholders | $ | 1,712,291 | $ | 3,896,061 | ||||
Income per share - basic and diluted | ||||||||
Continuing Operation- income per share – basic* | $ | 0.26 | $ | 0.16 | ||||
Continuing Operation- income per share –diluted* | $ | 0.17 | $ | 0.04 | ||||
Weighted Average Shares Outstanding-Basic* | 7,624,124 | 2,800,903 | ||||||
Weighted Average Shares Outstanding- Diluted* | 11,723,885 | 10,877,671 |
* | On October 30, 2023, the Company completed a 50:1 reverse stock split of our common stock issued and outstanding. All shares and associated amounts have been retroactively restated to reflect the reverse stock split. See Note 13 - Reverse stock split of common stock. |
See
The accompanying notes toare an integral part of the unaudited condensed consolidated financial statementsstatements.
CHINA COMMERCIAL CREDIT,
BAIYU HOLDINGS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
For the Three Months Ended March 31, 2024 and 2023
(Expressed in U.S. dollars, except for the number of shares)
Common Stock | Additional paid-in | Accumulated | Surplus | Accumulated other comprehensive | Non-controlling | Total | ||||||||||||||||||||||||||
Shares | Amount | capital | Deficit | Reserve | income(loss) | interests | Equity | |||||||||||||||||||||||||
Balance as of December 31, 2022 | 106,742,117 | $ | 106,742 | $ | 344,295,992 | $ | (38,800,375 | ) | 2,602,667 | $ | (8,984,925 | ) | $ | (1,245,932 | ) | $ | 297,974,169 | |||||||||||||||
Issuance of common stocks in connection with private placements | 35,000,000 | 35,000 | 42,315,000 | - | - | - | - | 42,350,000 | ||||||||||||||||||||||||
Issuance of common stocks pursuant to exercise of convertible promissory notes | 2,409,900 | 2,410 | 2,072,590 | - | - | - | - | 2,075,000 | ||||||||||||||||||||||||
Issuance of common stocks pursuant to ATM transaction | 689,306 | 689 | 558,384 | - | - | - | - | 559,073 | ||||||||||||||||||||||||
Beneficial conversion feature relating to issuance of convertible promissory notes | - | - | 913,000 | - | - | - | - | 913,000 | ||||||||||||||||||||||||
Net income (loss) | - | - | - | 850,243 | - | - | (398,966 | ) | 451,277 | |||||||||||||||||||||||
Foreign currency translation adjustments | - | - | - | - | - | 3,045,818 | 3,045,818 | |||||||||||||||||||||||||
Balance as of March 31, 2023 | 144,841,323 | $ | 144,841 | $ | 390,154,966 | $ | (37,950,132 | ) | 2,602,667 | $ | (5,939,107 | ) | $ | (1,644,898 | ) | $ | 347,368,337 | |||||||||||||||
Balance as of December 31, 2023 | 19,335,220 | $ | 19,335 | $ | 438,980,687 | $ | (39,520,164 | ) | 2,602,667 | $ | (16,144,752 | ) | $ | (2,792,468 | ) | $ | 383,145,305 | |||||||||||||||
Issuance of common stocks pursuant to exercise of convertible promissory notes | 450,438 | 451 | 449,549 | - | - | - | - | 450,000 | ||||||||||||||||||||||||
Net income (loss) | - | - | - | 2,380,140 | - | - | (381,338 | ) | 1,998,802 | |||||||||||||||||||||||
Foreign currency translation adjustments | - | - | - | - | - | (667,849 | ) | - | (667,849 | ) | ||||||||||||||||||||||
Balance as of March 31, 2024 | 19,785,658 | $ | 19,786 | $ | 439,430,236 | $ | (37,140,024 | ) | 2,602,667 | $ | (16,812,601 | ) | $ | (3,173,806 | ) | $ | 384,926,258 |
* | On October 30, 2023, the Company completed a 50:1 reverse stock split of our common stock issued and outstanding. All shares and associated amounts have been retroactively restated to reflect the reverse stock split. See Note 13 - Reverse stock split of common stock. |
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
BAIYU HOLDINGS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31, 2024 and 2023
(Expressed in U.S. dollar)
For The Nine Months Ended September 30, | ||||||||
2017 (Unaudited) | 2016 (Unaudited) | |||||||
Cash Flows from Operating Activities: | ||||||||
Net loss | $ | (8,530,244 | ) | $ | (1,206,116 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Depreciation and amortization | 4,999 | 46,455 | ||||||
Provision/(Reversal of provision) for loan losses | 2,420,698 | (133,177 | ) | |||||
Provision/(Reversal of provision) for direct financing lease losses | 66,113 | (242,180 | ) | |||||
Provision/(Reversal of provision) of provision for financial guarantee services | 830,140 | (385,352 | ) | |||||
Deferred tax credit | - | (40,364 | ) | |||||
Income from disposal of property and equipment | - | (48,945 | ) | |||||
Shares issued to executive officers and professional services | 2,159,480 | 1,354,424 | ||||||
Provision for settlement expenses against legal proceedings | 1,843,500 | 465,000 | ||||||
Changes in operating assets and liabilities: | ||||||||
Restricted cash | (34 | ) | - | |||||
Interest receivable | (63,967 | ) | - | |||||
Other assets | 11,439 | 8,060 | ||||||
Unearned income from guarantee services and finance lease services | (19,406 | ) | (23,572 | ) | ||||
Other current liabilities | 28,653 | 118,255 | ||||||
Income tax payable | - | 39,641 | ||||||
Net Cash Used in Operating Activities | (1,248,629 | ) | (47,871 | ) | ||||
Cash Flows from Investing Activities: | ||||||||
Loans collection from third parties | 1,155,055 | 2,147,593 | ||||||
Payment of loans on behalf of guarantees | - | (127,886 | ) | |||||
Collection from guarantees for loan paid on behalf of customers | 44,075 | 1,825,730 | ||||||
Collection of principal of finance lease, in installments | 227,723 | 484,361 | ||||||
Deposit released from banks for financial guarantee services | - | 801,530 | ||||||
Deposit paid to banks for financial guarantee services | - | (694,403 | ) | |||||
Purchases of property and equipment and intangible asset | - | (48,342 | ) | |||||
Disposal of property and equipment | - | 56,557 | ||||||
Short-term loan paid to a related party | - | (1,945,224 | ) | |||||
Short-term loan collected from a related party | 478,954 | - | ||||||
Net Cash Provided by Investing Activities | 1,905,807 | 2,499,916 | ||||||
Cash Flows From Financing Activities: | ||||||||
Cash raised in private placement | 1,560,000 | 1,000,000 | ||||||
Repayment of short-term bank borrowings | - | (2,600,832 | ) | |||||
Net Cash Provided by/ (Used in) Financing Activities | 1,560,000 | (1,600,832 | ) | |||||
Effect of Exchange Rate Changes on Cash and Cash Equivalents | 44,789 | 9,747 | ||||||
Net Increase In Cash and Cash Equivalents | 2,261,967 | 860,960 | ||||||
Cash and Cash Equivalents at Beginning of Period | 768,501 | 306,401 | ||||||
Cash and Cash Equivalents at End of Period | $ | 3,030,468 | $ | 1,167,361 | ||||
Supplemental Cash Flow Information | ||||||||
Cash paid for interest expense | $ | - | $ | 30,057 | ||||
Cash paid for income tax | $ | - | $ | - |
For the Three Months Ended March 31, | ||||||||
2024 | 2023 | |||||||
Cash Flows from Operating Activities: | ||||||||
Net income | $ | 1,998,802 | $ | 451,277 | ||||
Adjustments to reconcile net income to net cash used in operating activities: | ||||||||
Depreciation of plant and equipment | 3,110 | 1,215 | ||||||
Amortization of intangible assets | 1,976,086 | 2,049,732 | ||||||
Amortization of right of use assets | 22,674 | 30,846 | ||||||
Amortization of discount on convertible promissory notes | 66,667 | 93,333 | ||||||
Interest expense for convertible promissory notes | 113,901 | 101,330 | ||||||
Amortization of beneficial conversion feature of convertible promissory notes | 92,552 | 220,652 | ||||||
Deferred tax liabilities | (187,526 | ) | (194,515 | ) | ||||
Inventories impairment | - | (17,229 | ) | |||||
Inventories | 259,071 | 66,033 | ||||||
Other current assets | 407,897 | (24,222 | ) | |||||
Prepayments | (800,396 | ) | 447,960 | |||||
Contract liabilities | 1,391,191 | (426,158 | ) | |||||
Due from third parties | (1,165,090 | ) | (628,474 | ) | ||||
Due from related parties | - | (685,488 | ) | |||||
Accounts payable | - | (1,291 | ) | |||||
Income tax payable | 1,510,240 | 1,047,382 | ||||||
Other current liabilities | 447,472 | 259,083 | ||||||
Lease liabilities | (23,213 | ) | (30,476 | ) | ||||
Due to third party loans payable | 5,897 | 6,050 | ||||||
Net cash provided by operating activities | 6,119,335 | 2,767,040 | ||||||
Cash Flows from Investing Activities: | ||||||||
Loans made to third parties | (32,073,939 | ) | (46,678,620 | ) | ||||
Collection of loans from related parties | 25,046,081 | - | ||||||
Investments in other investing activities | (49,282 | ) | (10,707 | ) | ||||
Net cash used in investing activities | (7,077,140 | ) | (46,689,327 | ) | ||||
Cash Flows from Financing Activities: | ||||||||
Proceeds from issuance of common stock under ATM transaction | - | 559,073 | ||||||
Proceeds from issuance of common stock under private placement transactions | - | 42,350,000 | ||||||
Proceeds from convertible promissory notes | - | 3,000,000 | ||||||
Net cash provided by financing activities | - | 45,909,073 | ||||||
Effect of exchange rate changes on cash and cash equivalents | (1,102 | ) | (898,831 | ) | ||||
Net increase/(decrease) in cash and cash equivalents | (958,907 | ) | 1,087,955 | |||||
Cash and cash equivalents at beginning of period | 1,516,358 | 893,057 | ||||||
Cash and cash equivalents at end of period | $ | 557,451 | $ | 1,981,012 | ||||
Supplemental Cash Flow Information | ||||||||
Cash paid for interest expenses | $ | 19,218 | $ | 19,934 | ||||
Supplemental disclosure of Non-cash investing and financing activities | ||||||||
Issuance of common stocks in connection with conversion of convertible promissory notes | $ | 450,000 | $ | 2,988,000 |
SeeThe accompanying notes toare an integral part of the unaudited condensed consolidated financial statementsstatements.
1. ORGANIZATION AND BUSINESS DESCRIPTION
CHINA COMMERCIAL CREDIT, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
China Commercial Credit,BAIYU Holding, Inc. (“CCC” or “the Company”) is a holding company that wasDelaware corporation, incorporated under the laws of the Statestate of Delaware on December 19, 2011.
VIE AGREEMENTS WITH WUJIANG LUXIANG
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 Wujiang Luxiang 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.Delaware.
The significant termsCompany primarily conducts business through Shenzhen Baiyu Jucheng Data Technology Co., Ltd., Shenzhen Qianhai Baiyu Supply Chain Co., Ltd., Hainan Jianchi Import and Export Co., Ltd., and Shenzhen Tongdow Internet Technology Co., Ltd. to offer the commodity trading business and supply chain management services to customers in the PRC. Supply chain management services consist of the VIE Agreements are summarized below:loan recommendation services and commodity product distribution services.
Name | Background | Ownership | ||
HC High Summit Holding Limited (“HC High BVI”) | A BVI company Incorporated on March 22, 2018 A holding company | 100% owned by the Company | ||
TD Internet of Things Technology Company Limited (“TD Internet Technology”) (Formerly Named: Tongdow Block Chain Information Technology Company Limited) | A Hong Kong company Incorporated on February 14, 2020 A holding company | 100% owned by HC High BVI | ||
Hainan Baiyu Cross-border E-commerce Co., Ltd. (“Hainan Baiyu”) | A Hong Kong company Incorporated on June 19, 2002 A holding company | WFOE, 100% owned by Tongdow HK | ||
Zhong Hui Dao Ming Investment Management Limited (“ZHDM HK”) | A Hong Kong company Incorporated on June 19, 2002 A holding company | 100% owned by HC High BVI | ||
Hong Kong Tongyuan Energy Storage Smart Electric Co., Ltd (“Tongdow HK”) (Formerly Named: Tongdow E-trade Limited) | A Hong Kong company Incorporated on November 25, 2010 A holding company | 100% owned by HC High BVI | ||
Shanghai Jianchi Supply Chain Co., Ltd. (“Shanghai Jianchi”) | A PRC company and deemed a wholly foreign owned enterprise (“WFOE”) Incorporated on April 2, 2020 Registered capital of $10 million A holding company | WFOE, 100% owned by TD Internet Technology | ||
Tongdow (Hainan) Data Technology Co., Ltd. (“Tondow Hainan”) | A PRC limited liability company Incorporated on July 16, 2020 Registered capital of $1,417,736 (RMB10 million) | A wholly owned subsidiary of Shanghai Jianchi | ||
Hainan Jianchi Import and Export Co., Ltd. (“Hainan Jianchi”) | A PRC limited liability company Incorporated on December 21, 2020 Registered capital of $7,632,772 (RMB50 million) with registered capital of $0 (RMB0) paid-up | A wholly owned subsidiary of Shanghai Jianchi |
Exclusive Business Cooperation Agreement
Shenzhen Baiyu Jucheng Data Techonology Co., Ltd. (“Shenzhen Baiyu Jucheng”) | A PRC limited liability company Incorporated on December 30, 2013 Registered capital of $1,417,736 (RMB10 million) with registered capital fully paid-up | VIE of Hao Limo Technology (Beijing) Co., Ltd. before June 25, 2020, and a wholly owned subsidiary of Shanghai Jianchi | ||
Shenzhen Qianhai Baiyu Supply Chain Co., Ltd. (“Qianhai Baiyu”) | A PRC limited liability company Incorporated on August 17, 2016 Registered capital of $4,523,857 (RMB30 million) with registered capital of $736,506 (RMB5 million) paid-up | A wholly owned subsidiary of Shenzhen Baiyu Jucheng | ||
Shenzhen Tongdow Internet Technology Co., Ltd. (“Shenzhen Tongdow”) | A PRC limited liability company Incorporated on November 11, 2014 Registered capital of $1,628,320 (RMB10 million) with registered capital of $1,628,320 (RMB10 million) paid-up | VIE of Shenzhen Baiyu Jucheng | ||
Yangzhou Baiyu Venture Capital Co. Ltd. (“Yangzhou Baiyu Venture”) | A PRC limited liability company Incorporated on April 19, 2021 Registered capital of $30 million with registered capital of $7 million paid-up | WFOE, 100% owned by Tongdow HK | ||
Yangzhou Baiyu Cross-broder E-commerce Co., Ltd. (“Yangzhou Baiyu E-commerce”) | A PRC limited liability company Incorporated on May 14, 2021 Registered capital of $30 million (RMB200 million) with registered capital of $7 million (RMB48 million) paid-up | 100% owned by Yangzhou Baiyu Venture | ||
Zhejiang Baiyu Lightweight New Material Co., Ltd. (“Zhejiang Baiyu”) | A PRC limited liability company Incorporated on August 5, 2022 Registered capital of $1,483,569 (RMB10 million) | 100% owned by Yangzhou Baiyu E-commerce | ||
Baiyu International Supply Chain PTE.LTD | A Singapore company Incorporated on Jun 28, 2023 | 100% owned by HC High BVI | ||
Beijing Baiyu Jucheng Technology Co., LTD | A PRC limited liability company Incorporated on January 19, 2024 | 100% owned by Qianhai Baiyu |
The following diagram illustrates our corporate structure as of March 31, 2024.
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
(1) | A variable interest entity. |
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Basis 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.presentation
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.
Share Pledge Agreement
Under the Share Pledge Agreement between the Wujiang Luxiang Shareholders and WFOE, the 12 Wujiang Luxiang 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 Luxiang 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 Luxiang 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 Luxiang 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 Luxiang Shareholders subject to any appraisal or restrictions required by applicable PRC laws and regulations.
Power of Attorney
Under the Power of Attorney, the Wujiang Luxiang 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.
CHINA COMMERCIAL CREDIT, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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 September 30, 2017, PFL had one finance lease transaction.
Theaccompanying unaudited condensed interim consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The realization of assets and the satisfaction of liabilities in the normal course of business are dependent on, among other things, the Company’s ability to operate profitably, to generate cash flows from operations, and to pursue financing arrangements to support its working capital requirements. The conditions described below raises substantial doubt about the Company’s ability to continue as a going concern within one year from the date of this filing.
The Company had an accumulated deficit of US$78,764,900 as of September 30, 2017. In addition, the Company had a negative net asset of US$774,251 as of September 30, 2017. As of September 30, 2017, the Company had cash and cash equivalents of US$3,030,468, and total short-term borrowings of nil. Caused by the limited funds, the management assessed that the Company was not able to keep the size of lending business within one year from the filing of Form 10-Q.
The Company is actively seeking other strategic investors with experience in lending business. If necessary, the shareholders of Wujiang Luxiang will contribute more capital into Wujiang Luxiang.
During the nine months ended September 30, 2017, the Company incurred operating loss of US$8,530,244. Affected by the reduction of lending business and guarantee business and increased loss loans, the management was in the opinion that recurring operating losses would be made within one year from the issuance of the filing.
The Company continues to use its best effort to improve collection of loan receivable and interest receivable. Management engaged two PRC law firms to represent the Company in the legal proceedings against the borrowers and their counter guarantors.
During the nine months ended September 30, 2017, the Company incurred negative operating cash flow of US$1,248,629. Affected by significant balance of charged-off interest receivable, the management assessed the Company would continue to have negative operating cash flow within one year from the issuance of the filing.
The Company continues to reduce the redundant headcount and entered into a new office lease with lower rent commitment since January 1, 2017 to improve operating cash flow.
CHINA COMMERCIAL CREDIT, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Most loan customers are from textile industry which has been facing downward pressure. Additionally adversely affected by emergence of internet finance entities, the Company was facing fierce competition. Considering the high risks from both customers and competitors, management assessed the Company would further reduced the loan business without strong financial support.
Considering the above factors, the Company, on August 9, 2017, entered into Certain Share Exchange Agreement (“Exchange Agreement”) with the parent company of Sorghum Investment Holdings Limited (“Sorghum”). Pursuant to the terms of the Exchange Agreement, CCCR will acquire 100% of the outstanding shares of Sorghum through issuance of 152,587,000 of its common shares. This transaction will be accounted for as a “reverse acquisition” since, immediately following completion of the transaction, the shareholders of Sorghum immediately prior to the transaction will effectuate control of the Company, through its 87.9% ownership interest in the post-merger entity.
While management believes that the measures in the liquidity plan will be adequate to satisfy its liquidity and cash flow requirements for the twelve months after the financial statements are available to be issued, there is no assurance that the liquidity plan will be successfully implemented. Failure to successfully implement the liquidity plan will have a material adverse effect on the Company’s business, results of operations and financial position, and may materially adversely affect its ability to continue as a going concern.
The unaudited condensed interim consolidated financial statements are prepared and presented in accordanceconformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”GAAP”). All transactions and balances among the Company and its subsidiaries have been eliminated upon consolidation.
The unaudited interim condensed interimconsolidated financial information as of September 30, 2017March 31, 2024 and for the three and nine months ended September 30, 2017March 31, 2024 and 20162023 have been prepared, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”“SEC”) and pursuant to Regulation S-X.. Certain information and footnote disclosures, which are normally included in annual condensed consolidated financial statements prepared in accordance with U.S. GAAP, have been omitted pursuant to those rules and regulations. The unaudited interim condensed interimconsolidated financial information should be read in conjunction with the auditedconsolidated financial statements and the notes thereto, included in the Company’s Form 10-K for the fiscal year ended December 31, 20162023 previously filed with the SEC on April 6, 2017.March 22, 2024.
In the opinion of management, all adjustments (which include normal recurring adjustments) necessary to present a fair statement of the Company’s unaudited condensed consolidated financial position as of September 30, 2017,March 31, 2024 and its unaudited condensed consolidated results of operations for the three and nine months ended September 30March 31, 2024 and 2016,2023, and its unaudited condensed consolidated cash flows for the ninethree months ended September 30, 2017March 31, 2024 and 2016,2023, 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.
All significant inter-company accounts and transactions have been eliminated in consolidation.
CHINA COMMERCIAL CREDIT, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Interest on loans receivable is accrued and credited to income as earned. The Company determines a loan past due status by the number(b) Use 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.estimates
The interest reversed duepreparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the above reason was US$2,604,172reported amounts of assets and US$2,604,172 asliabilities, disclosure of September 30, 2017contingent assets and December 31, 2016, respectively.
Certain itemsliabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. On an ongoing basis, management reviews these estimates using the currently available information. Changes in facts and circumstances may cause the Company to revise its estimates. Significant accounting estimates reflected in the financial statements include: (i) useful lives and residual value of comparative period have been reclassified to conform tolong-lived assets; (ii) the financial statementsimpairment of long-lived assets and investments; (iii) the valuation allowance of deferred tax assets; (iv) estimates of allowance for the current period.doubtful accounts, including loans receivable from third parties and related parties, (v) valuation of Inventory, and (vi) contingencies and litigation.
(c) Foreign currency translation
The reportingCompany’s financial information is presented in U.S. dollars (“USD”). The functional currency of the Company is United States Dollarsthe Chinese Yuan Renminbi (“US$RMB”), 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 PRC. Any transactions which are denominated in currencies other than RMB are translated into RMB at the economic environmentexchange rate quoted by the People’s Bank of China prevailing at the dates of the transactions, and exchange gains and losses are included in which these entities operate.
For financial reporting purposes, the statements of operations as foreign currency transaction gain or loss. The consolidated financial statements of the Company have been translated into U.S. dollars in accordance with ASC 830, Foreign Currency Matters. The financial information is first prepared usingin RMB and then translated into U.S. dollars at period-end exchange rates for assets and liabilities and average exchange rates for revenue and expenses. Capital accounts are translated into the Company’s reporting currency, United States Dollars, at thetheir historical exchange rates quoted by www.oanda.com. Assets and liabilitieswhen the capital transactions occurred. The effects of foreign currency translation adjustments 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 recordedincluded as a separate component of accumulated other comprehensive income (loss) in shareholders’stockholders’ equity.
September 30, 2017 | December 31, 2016 | |||||||
Balance sheet items, except for equity accounts | 6.6549 | 6.9448 |
For the nine months ended September 30, | ||||||||
2017 | 2016 | |||||||
Items in the statements of operations and comprehensive loss, and statements of cash flows | 6.8065 | 6.5802 |
Transactions denominated in Cash flows from the Company’s operations are calculated based upon the local currencies other thanusing the functional currency are translated into prevailing functional currency ataverage translation rate. As a result, amounts related to assets and liabilities reported on the exchange rates prevailing at the datesstatements of the transactions. The resulting exchange differences are includedcash flows will not necessarily agree with changes in the condensed consolidated statements of comprehensive loss.
corresponding balances on the balance sheets.
CHINA COMMERCIAL CREDIT, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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.(d) Convertible promissory notes
The contract amounts reflectConvertible promissory notes are recognized initially at fair value, net of upfront fees, debt discounts or premiums, debt issuance costs and other incidental fees. Upfront fees, debt discounts or premiums, debt issuance costs and other incidental fees are recorded as a reduction of the extent of involvementproceeds received and the Company hasrelated accretion is recorded as interest expense in the guarantee transaction and also representconsolidated income statements over the Company’s maximum exposure to credit loss in its guarantee business.estimated term of the facilities using the effective interest method.
(e) Beneficial conversion feature
The Company evaluates the conversion feature to determine whether it was beneficial as described in ASC 470-20. The intrinsic value of a beneficial conversion feature inherent to a convertible note payable, which is not bifurcated and accounted for separately from the convertible notes payable and may not be settled in cash upon conversion, is treated as a partydiscount to financial instruments with off-balance-sheet riskthe convertible notes payable. This discount is amortized over the period from the date of issuance to the date the notes are due using the effective interest method. If the notes payable are retired prior to the end of their contractual term, the unamortized discount is expensed in the normal courseperiod of businessretirement to meetinterest expense. In general, the financing needs of its customers. Financial instruments representing credit risk are as follows:
September 30, 2017 (Unaudited) | December 31, 2016 | |||||||
Guarantee | $ | 11,367,564 | $ | 10,893,089 |
A provision for possible loss to be absorbedbeneficial conversion feature is measured by comparing the Company foreffective conversion price, after considering 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 condensed consolidated balance sheets. This liability represents probable losses and is increased or decreased by accruing a “(Provision)/ Reversal of provision for financial guarantee services” against the income of commissions and fees on guarantee services.
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 and expected customer default status of financial guarantee services, the Company estimates the probable loss for immature financial guarantee services to be approximately 62% and 55% of contract amount as of September 30, 2017 and December 31, 2016, 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. The Company reviews the provision on a quarterly basis. The allowance are detailed in following table:
September 30, 2017 (Unaudited) | December 31, 2016 | |||||||
Allowance for immature financial guarantee services | $ | 7,058,187 | $ | 6,005,608 | ||||
Allowance for repayment on behalf of guarantee service customers losses | 12,089,724 | 11,543,868 | ||||||
Allowance for repayment on behalf of a related party losses | 102,270 | 98,000 | ||||||
Total allowance for repayment on behalf of guarantee customers losses | $ | 12,191,994 | $ | 11,641,868 |
The Company recorded a provision of US$1,142,807 and US$599,808 for the three months ended September 30, 2017 and 2016, respectively, and recorded a provision of US$830,140 and reversed a provision of US$385,352 for the nine months ended September 30, 2017 and 2016, respectively. As the Company collected from guarantee customers for payments on behalf of in the amount of US$44,075 and US$1,825,730, for the nine month ended September 30, 2017 and 2016, respectively. Among the collection, US$44,075 and US$1,825,730 were accrued of 100% allowance as of pervious year end.
As of September 30, 2017 and December 31, 2016, the management charged off specific provision for three and two customers in the amount of US$164,220 and US$142,966, considering remote collectability from the customers.
CHINA COMMERCIAL CREDIT, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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.
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.
Comprehensive loss includes net loss and foreign currency adjustments. Comprehensive loss is reported in the statements of operations and comprehensive loss.
Accumulated other comprehensive income, as presented on the balance sheets are the cumulative foreign currency translation adjustments.
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. Therelative fair value of restricted shares is determined with referencedetachable instruments included in the financing transaction, if any, to the fair value of the underlying shares.shares of common stock at the commitment date to be received upon conversion.
(f) Recent accounting pronouncement
AtIn November 2023, the FASB issued guidance to enhance disclosure of expenses of a public entity’s reportable segments. The new guidance requires a public entity to disclose: (1) on an annual and interim basis, significant segment expenses that are regularly provided to the chief operating decision maker (CODM) and included within each reported measure of segment profit or loss, (2) on an annual and interim basis, an amount for other segment items (the difference between segment revenue less the significant expenses disclosed under the significant expense principle and each reported measure of segment profit or loss), including a description of its composition, (3) on an annual and interim basis, information about a reportable segment’s profit or loss and assets previously required to be disclosed only on an annual basis, and (4) the title and position of the CODM and an explanation of how the CODM uses the reported measure(s) of segment profit or loss in assessing segment performance and how to allocate resources. The new guidance also clarifies that if the CODM uses more than one measure of a segment’s profit or loss, one or more of those measures may be reported and requires that a public entity that has a single reportable segment provide all the disclosures required by the amendments in this update and all existing segment disclosures. The guidance is effective for the current fiscal year 2024 annual reporting, and in the first quarter of 2025 for interim period reporting, with early adoption permitted. Upon adoption, this guidance should be applied retrospectively to all prior periods presented. We do not expect the adoption of this accounting standard to have an impact on our Consolidated Financial Statements.
In December 2023, the FASB issued guidance to enhance transparency of income tax disclosures. On an annual basis, the new guidance requires a public entity to disclose: (1) specific categories in the rate reconciliation, (2) additional information for reconciling items that are equal to or greater than 5% of the amount computed by multiplying income (or loss) from continuing operations before income tax expense (or benefit) by the applicable statutory income tax rate, (3) income taxes paid (net of refunds received) disaggregated by federal (national), state, and foreign taxes, with foreign taxes disaggregated by individual jurisdictions in which income taxes paid is equal to or greater than 5% of total income taxes paid, (4) income (or loss) from continuing operations before income tax expense (or benefit) disaggregated between domestic and foreign, and (5) income tax expense (or benefit) from continuing operations disaggregated between federal (national), state and foreign. The guidance is effective for fiscal year 2025 annual reporting, with early adoption permitted, to be applied on a prospective basis, with retrospective application permitted. We do not expect the adoption of this accounting standard to have an impact on our Consolidated Financial Statements but will require certain additional disclosures.
Other accounting standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption. The Company does not discuss recent pronouncements that are not anticipated to have an impact on or are unrelated to its consolidated financial condition, results of measurement,operations, cash flows or disclosures.
3. LOANS RECEIVABLE FROM THIRD PARTIES
March 31, 2024 | December 31, 2023 | |||||||
Loans receivable from third parties | $ | 247,049,634 | $ | 240,430,865 |
As of March 31, 2024, the Company reviews internalhas thirteen loan agreements compared with thirteen loan agreements on December 31, 2023. The Company provided loans aggregating $32,073,939 for the purpose of making use of idle cash and external sourcesmaintaining long-term customer relationship and collected $25,046,081 during the three months ended March 31, 2024. These loans will mature from May 2024 through February 2025, and charge an interest rate of information10.95% per annum on these customers. The company has the right to assistpledge account receivable or inventory.
Interest income of $6,269,380 and $4,448,860 was accrued for the three months ended March 31, 2024 and 2023, respectively. As of March 31, 2024 and December 31, 2023, the Company recorded an interest receivable of $6,652,850 and $5,931,541 as reflected under “other current assets” in the estimationcondensed consolidated balance sheets.
As of various attributesMarch 31, 2024 and December 31,2023, there was no allowance recorded as the Company considers all of the loans receivable fully collectible.
4. INVENTORIES, NET
The Company’s inventories consist of aluminum ingots, etc., that were purchased from third parties for resale to determinethird parties. Inventories consisted of the following:
March 31, 2024 | December 31, 2023 | |||||||
Aluminum ingots | $ | - | $ | 259,806 | ||||
Inventories, net | $ | - | $ | 259,806 |
For the three months ended March 31, 2024, the Company did not accrue or charge back any impairment as the impaired inventories have been sold.
5. OTHER CURRENT ASSETS
March 31, 2024 | December 31, 2023 | |||||||
Other current assets: | ||||||||
Deposit | $ | 42,632 | $ | 35,888 | ||||
Interest receivables | 6,652,849 | 5,931,541 | ||||||
Prepayments | 4,885,130 | 4,089,210 | ||||||
Others | 147,104 | 78,190 | ||||||
Total | $ | 11,727,715 | $ | 10,134,829 |
6. PLANT AND EQUIPMENT, NET
March 31, 2024 | December 31, 2023 | |||||||
Cost: | ||||||||
Office equipment | $ | 43,924 | $ | 43,999 | ||||
Accumulated depreciation: | ||||||||
Office equipment | $ | (15,003 | ) | $ | (11,909 | ) | ||
Plant and equipment, net | $ | 28,921 | $ | 32,090 |
Depreciation expense was $3,110, and currency translation difference was $16 for the three months ended March 31, 2024. Depreciation expense was $1,215, and currency translation difference was $36 for the year ended March 31, 2023.
7. GOODWILL
Changes in the carrying amount of goodwill by segment for the years ended March 31, 2024, and December 31, 2023 were as follows:
Acquisition of Qianhai Baiyu | Contractual arrangement with Tongdow Internet Technology | Total | ||||||||||
Balance as of December 31, 2022 | $ | 65,022,402 | $ | 95,191,148 | $ | 160,213,550 | ||||||
Foreign currency translation adjustments | (1,084,211 | ) | (1,587,258 | ) | (2,671,469 | ) | ||||||
Balance as of December 31, 2023 | 63,938,191 | 93,603,890 | 157,542,081 | |||||||||
Foreign currency translation adjustments | $ | (110,845 | ) | $ | (162,273 | ) | $ | (273,118 | ) | |||
Balance as of March 31, 2024 | 63,827,346 | 93,441,617 | 157,268,963 |
Based on an assessment of the qualitative factors, management determined that it is more-likely-than-not that the fair value of the share-based awards granted byreporting unit is in excess of its carrying amount. Therefore, management concluded that it was not necessary to proceed with the Company, including but not limited totwo-step goodwill impairment test. No impairment loss or other changes were recorded, except for the influence of foreign currency translation for the three months ended March 31, 2024 and the year ended December 31, 2023.
8. INTANGIBLE ASSETS
March 31, 2024 | December 31, 2023 | |||||||
Customer relationships | $ | 18,522,903 | $ | 18,555,071 | ||||
Software copyright | 46,934,462 | 47,015,968 | ||||||
Total | 65,457,365 | 65,571,039 | ||||||
Less: accumulative amortization | (22,228,513 | ) | (20,285,422 | ) | ||||
Intangible assets, net | $ | 43,228,852 | $ | 45,285,617 |
The Company’s intangible assets consist of customer relationships and software copyrights. Customer relationships are generally recorded in connection with acquisitions at their fair value, one kind of software copyright was purchased in March 2021 and the other kind of software copyright was recorded in connection with the contractual arrangement with Shenzhen Tongdow Internet Technology Co., Ltd. in October 2022. Intangible assets with estimable lives are amortized, generally on a straight-line basis, over their respective estimated useful lives: 6.2 years for customer relationships, 6.83 years for one kind of software copyright purchased in March 2021 and 10 years for the other kind of software copyright recorded in connection with the contractual arrangement with Shenzhen Tongdow Internet Technology Co., Ltd, to their estimated residual values and reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.
Amortization expense for the three months ended March 31, 2024 and the year ended December 31, 2023 was $1,976,068 and $7,967,272, respectively. The currency translation difference was $32,994 for the three months ended March 31, 2024.
No impairment loss was made against the intangible assets during the three months ended March 31, 2024.
The estimated amortization expense for these intangible assets in the next five years and thereafter is as follows:
Period ending March 31, 2024: | Amount | |||
current year | $ | 5,934,776 | ||
2025 | 7,913,034 | |||
2026 | 7,913,034 | |||
2027 | 4,907,049 | |||
2028 | 4,228,330 | |||
Thereafter | 12,332,629 | |||
Total: | $ | 43,228,852 |
9. BANK BORROWINGS
Bank borrowings represent the amounts due to Baosheng County Bank that are due within one year. As of March 31, 2024 and December 31, 2023, bank loans consisted 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.following:
March 31, 2024 | December 31, 2023 | |||||||
Short-term bank loans: | ||||||||
Loan from Baosheng County Bank | $ | 986,610 | $ | 988,324 | ||||
Loan from Bank of Communications | 69,204 | 69,324 | ||||||
Total | $ | 1,055,814 | $ | 1,057,648 |
In August 2022, Qianhai Baiyu entered into another five loan agreements with Baosheng County Bank to borrow a total amount of RMB7.0 million as working capital for one year, with the maturity date of August 2023. In August 2023, the company and the bank renewed the contract, extending the borrowing time to August 2024. The five loans bear a fixed interest rate of 7.8% per annum and are guaranteed by Shenzhen Herun Investment Co., Ltd, Li Hongbin and Wang Shuang.
In August 2023, Qianhai Baiyu entered into a loan agreement with the Bank of Communications, borrowing a total of RMB 0.49 million yuan as a one-year working capital, with the maturity date of August 2024.The loan bears a fixed interest rate of 4.15% per annum.
10. LEASES
The Company leases its principalan office space under non-cancelable operating leases, with terms of 24 months. The Company considers those renewal or termination options that are reasonably certain to be exercised in the determination of the lease term and initial measurement of right of use assets and lease liabilities. The amortization of right of use assets for lease payment is recognized on a straight-line basis over the lease term. Leases with an initial term of 12 months or less are not recorded on the balance sheet.
The Company determines whether a contract is or contains a lease agreementat inception of the contract and whether that qualifies as anlease meets the classification criteria of a finance or operating lease. TheWhen available, the Company recordsuses the rental underrate implicit in the lease agreement into discount lease payments to present value; however, most of the Company’s leases do not provide a readily determinable implicit rate. Therefore, the Company discounts lease payments based on an estimate of its incremental borrowing rate.
The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.
Supplemental consolidated balance sheet information related to the operating expense when incurred.lease was as follows:
March 31, 2024 | December 31, 2023 | |||||||
Right-of-use lease assets, net | $ | 60,532 | $ | 83,375 | ||||
Lease Liabilities-current | $ | 63,303 | $ | 86,691 | ||||
Lease liabilities-non current | - | - | ||||||
Total | $ | 63,303 | $ | 86,691 |
The weighted average remaining lease terms and discount rates for the operating lease were as follows as of March 31, 2024:
Weighted average remaining lease term (years) | ||||
Weighted average discount rate | 4.75 | % |
InFor the normal coursethree months ended March 31, 2024 and 2023, the Company charged total amortization of right-of-use assets of $121,063 and $30,846 respectively.
The following is a schedule, by fiscal quarter, of maturities of lease liabilities as of March 31, 2024:
Period ended March 31, 2024: | Amount | |||
current year | $ | 64,412 | ||
Total lease payments | 64,412 | |||
Less: imputed interest | 1,109 | |||
Present value of lease liabilities | 63,303 |
11. OTHER CURRENT LIABILITIES
March 31, 2024 | December 31, 2023 | |||||||
Accrued payroll and benefit | $ | 1,830,702 | $ | 3,210,615 | ||||
Other tax payable | 5,185,305 | 3,352,643 | ||||||
Others | 1,993 | 15,091 | ||||||
Total | $ | 7,018,000 | $ | 6,578,349 |
12. CONVERTIBLE PROMISSORY NOTES
March 31, 2024 | December 31, 2023 | |||||||
Convertible promissory notes – principal | $ | 2,539,358 | $ | 3,043,358 | ||||
Convertible promissory notes – discount | - | (159,219 | ) | |||||
Convertible promissory notes – interest | 1,514,384 | 1,400,483 | ||||||
Convertible promissory notes, net | $ | 4,107,742 | $ | 4,284,622 |
On May 6, 2022, the Company entered into a securities purchase agreement with Streeterville Capital, LLC, a Utah limited liability company, pursuant to which the Company issued the investor a convertible promissory note in the original principal amount of $3,320,000, convertible into shares of Common Stock, $0.001 par value per share, of the Company, for $3,000,000 in gross proceeds. By written consent dated May 10, 2022, as permitted by Section 228 of the Delaware General Corporation Law and Section 8 of Article II of our bylaws, the stockholders who have the authority to vote a majority of the outstanding shares of Common Stock approved the following corporate actions: (i) the entry into a purchase agreement dated as of May 6, 2022 by and between the Company and Investor, pursuant to which the Company issued the note dated as of May 6, 2022 to the investor; and (ii) the issuance of shares of Common Stock in excess of 19.99% of the currently issued and outstanding shares of Common Stock of the Company upon the conversion of the note. The Company settled a convertible promissory note of $375,000 on November 16, 2022, and issued 445,749 shares of the Company’s Common Stock on November 17, 2022. The Company settled convertible promissory notes of $200,000 on January 18, 2023, $200,000 on February 3, 2023, $175,000 on February 8, 2023, $250,000 on February 15, 2023, $250,000 on March 8, 2023, $125,000 on March 24, 2023,$150,000 on September 14,2023,$200,000 on October 7,2023 and $175,000 on November 8, 2023, respectively, and issued 4,719, 4,688, 4,102, 5,860, 5,591, 2,913, 3,496, 131,585 and 115,137 shares of the Company’s common stock on January 19, 2023, February 6, 2023, February 8, 2023, February 15, 2023, March 15, 2023, March 29, 2023, March 29, 2023, September 14,2023, October 7,2023 and November 8, 2023, respectively for the year ended December 31, 2023.
On March 13, 2023, the Company entered into a securities purchase agreement with Streeterville Capital, LLC, a Utah limited liability company, pursuant to which the Company issued the investor a convertible promissory note in the original principal amount of $3,320,000, convertible into shares of Common Stock, $0.001 par value per share, of the Company, for $3,000,000 in gross proceeds. By written consent dated March 6, 2023, as permitted by Section 228 of the Delaware General Corporation Law and Section 8 of Article II of our bylaws, the stockholders who have the authority to vote a majority of the outstanding shares of Common Stock approved the following corporate actions: (i) the entry into a purchase agreement, with terms substantially the same as the agreement attached in the aforesaid purchase agreement, by and between the Company and Investor, pursuant to which the Company issued an unsecured convertible promissory to the investor; and (ii) the issuance of shares of Common Stock in excess of 19.99% of the currently issued and outstanding shares of Common Stock of the Company upon the conversion of the note. The Company settled convertible promissory notes of $300,000 on September 7, 2023, $200,000 on October 10, 2023, $175,000 on October 13, 2023, $150,000 on November 16, 2023, $150,000 on December 5, 2023, and $150,000 on December 29, 2023, respectively, and issued 41,829, 41,736, 36,920, 109,075, 109,075, and 137,644, shares of the Company’s common stock on September 12, 2023, October 11, 2023, October 13, 2023, November 20, 2023, December 7, 2023, and December 29, 2023, respectively, for the year ended December 31, 2023. The Company settled convertible promissory notes of $150,000 on February 1, 2024 and $150,000 on February 15, 2024 respectively, and issued 160,174 and 152,620 shares of the Company’s common stock on February 1, 2024 and February 10, 2024, respectively, for the three months ended March 31, 2024.
The above two unsettled convertible promissory notes, issued on May 6, 2022 and March 13, 2023, have a maturity date of 12 months with an interest rate of 10% per annum. The Company retains the right to prepay the note at any time prior to conversion with an amount in cash equal to 125% of the principal that the Company elects to prepay at any time six months after the issue date, subject to maximum monthly redemption amount of $375,000 and $375,000, respectively. On or before the close of business on the third trading day of redemption, the Company should deliver conversion shares via “DWAC” (DTC’s Deposit/Withdrawal at Custodian system). The Company will be required to pay the redemption amount in cash, or chooses to satisfy a redemption in registered stock or unregistered stock, such stock shall be issued at 80% of the average of the lowest “VWAP” (the volume-weighted average price of the Common Stock on the principal market for a particular Trading Day or set of Trading Days) during the fifteen trading days immediately preceding the redemption notice is delivered.
For the above two unsettled convertible promissory notes, upon evaluation, the Company determined that the Agreements contained embedded beneficial conversion features which met the definition of Debt with Conversion and Other Options covered under the Accounting Standards Codification topic 470 (“ASC 470”). According to ASC 470, an embedded beneficial conversion feature present in a convertible instrument shall be recognized separately at issuance by allocating a portion of the proceeds equal to the intrinsic value of that feature to additional paid-in capital. Pursuant to the agreements, the Company shall recognize embedded beneficial conversion features three months after commitment date of $913,000 and $913,000 respectively. Beneficial conversion features have been recognized into discount on convertible promissory notes and additional paid-in capital and such discount will be amortized in 12 months until the notes will be settled. For the year ended December 31, 2023, the Company has recognized the amortization of beneficial conversion feature $218,750 and $820,448 to profit with respect to these two unsettled convertible promissory notes. For the three months ended March 31, 2024, the Company has recognized the amortization of beneficial conversion feature of $nil and $92,552 to profit for the above two unsettled convertible promissory notes.
13. EQUITY
Common stock issued in private placements
On January 9, 2023, the Company entered into a certain securities purchase agreement with Ms. Huiwen Hu, an affiliate of the Company, and certain other purchasers who are non-U.S. Persons (as defined in Regulation S under the Securities Act of 1933, as amended), pursuant to which the Company agreed to sell an aggregate of 700,000 shares of its common stock, at a purchase price of $60.5 per share (“January 2023 PIPE”). The gross proceeds to the Company from the January 2023 PIPE were $42.35 million. Since Ms. Huiwen Hu is an affiliate of the Company, the January 2023 PIPE has been approved by the Audit Committee as well as the Board of Directors of the Company.
On July 31, 2023, the Company entered into a certain securities purchase agreement with Mr. Wenhao Cui, an affiliate of the Company, and certain other purchasers who are non-U.S. Persons (as defined in Regulation S under the Securities Act of 1933, as amended), pursuant to which the Company agreed to sell an aggregate of 560,000 shares of its common stock, at a purchase price of $17.50 per share (“August 2023 PIPE”). The gross proceeds to the Company from the January 2023 PIPE were $9.8 million.
On November 16, 2023, the Company entered into a certain securities purchase agreement with certain purchasers who are non-U.S. Persons (as defined in Regulation S under the Securities Act of 1933, as amended), pursuant to which the Company agreed to sell an aggregate of 15,000,000 shares of its common stock, at a purchase price of $2.09 per share (“November 2023 PIPE”). The gross proceeds to the Company from the November 2023 PIPE were $31.35 million.
Solely for accounting purposes, the number of shares and the purchase price per share have been retroactively restated to reflect the reverse stock split. Please refer to “Note 13 - Reverse Stock Split of Common Stock” for further details.
Settlement and Restated Common Stock Purchase Agreement
On December 12, 2022, the Company entered into a Settlement and Restated Common Stock Purchase Agreement (the “Restated Agreement”) with White Lion Capital, LLC (the “investor”). Pursuant to the Restated Agreement, in consideration for the investor’s execution and delivery of, and performance under the Restated Agreement, the Company agreed to issue to the investor 6,000 unregistered shares of Common Stock within five business days of execution of the Restated Agreement. In addition, within thirty days of the execution of the Restated Agreement, the Company shall deliver to the investor a purchase notice for 9,786 shares of Common Stock (the “First Purchase Notice”) at a purchase price of 80% of the lowest daily volume-weighted average price (“VWAP”) of the Company’s Common Stock during the valuation period as defined in the Restated Agreement (the “Purchase Price”). Within thirty days of the closing of the First Purchase Notice, the Company shall deliver to the investor a purchase notice for 4,000 purchase notice shares (the “Second Purchase Notice”) at the Purchase Price. Between the closing date of the Second Purchase Notice and the period ending on the earlier of (i) March 31, 2023 or (ii) the date on which the investor shall have purchased an aggregate of 57,786 purchase notice shares, the Company shall have the right, but not the obligation, to direct the Investor to purchase up to 38,000 purchase notice shares at which (i) the first 12,000 purchase notice shares shall be at the Purchase Price and (ii) any remaining purchase notice shares shall be at a purchase price of 85% of the lowest daily VWAP of the Company’s Common Stock during the valuation period as defined in the Restated Agreement.
According to the agreement, the company has issued 9,569 and 4,000 shares of common stock on January 20 2023 and February 1 2023, and received proceeds of $400,182 and $158,891 in January 2023 and February 2023.
Common stock issued pursuant to the conversion of convertible promissory notes
The Company settled the convertible promissory note issued on May 6, 2022 of $375,000 on November 16, 2022, and issued 445,749 shares of the Company’s Common Stock on November 17, 2022.In addition, The Company settled convertible promissory notes of $200,000 on January 18, 2023, $200,000 on February 3, 2023, $175,000 on February 8, 2023, $250,000 on February 15, 2023, $250,000 on March 8, 2023, $125,000 on March 24, 2023,$150,000 on September 14,2023,$200,000 on October 7,2023 and $175,000 on November 8, 2023, respectively, and issued 4,719, 4,688, 4,102, 5,860, 5,591, 2,913, 3,496, 131,585 and 115,137 shares of the Company’s common stock on January 19, 2023, February 6, 2023, February 8, 2023, February 15, 2023, March 15, 2023, March 29, 2023, March 29, 2023, September 14, 2023, October 7,2023 and November 8, 2023, respectively for the year ended December 31, 2023.
The Company settled convertible promissory notes issued on March 13, 2023 of $300,000 on September 7, 2023, $200,000 on October 10, 2023, $175,000 on October 13, 2023, $150,000 on November 16, 2023, $150,000 on December 5, 2023, and $150,000 on December 29, 2023, respectively, and issued 41,829, 41,736, 36,920, 109,075, 109,075, and 137,644, shares of the Company’s common stock on September 12, 2023, October 11, 2023, October 13, 2023, November 20, 2023, December 7, 2023, and December 29, 2023, respectively, for the year ended December 31, 2023. The Company settled convertible promissory notes of $150,000 on February 1, 2024 and $150,000 on February 15, 2024 respectively, and issued 160,174 and 152,620 shares of the Company’s common stock on February 1, 2024 and February 10, 2024, respectively, for the three months ended March 31, 2024.
Solely for accounting purposes, the number of shares and the purchase price per share have been retroactively restated to reflect the reverse stock split. Please refer to “Note 13 - Reverse Stock Split of Common Stock” for further details.
Reverse stock split of common stock
On October 30, 2023, The Company completed a 1-for-50 reverse stock split, where every fifty (50) shares of the Company’s pre-split issued and outstanding common stock, par value $0.001 per share, were combined into one (1) share of the Company’s post-split common stock, without any change in par value per share.
The reverse stock split applied to the issued shares of the Company on the date of the reverse stock split and does not have any retroactive effect on the Company’s shares prior to that date. However, for accounting purposes only, references to our ordinary shares in this quarterly report are stated as having been retroactively adjusted and restated to give effect to the reverse stock split, as if the reverse stock split had occurred by the relevant earlier date.
Share Issuances to Service Providers
In June 2023, the Company issued under its 2023 Stock Incentive Plan a total of 220,000 shares of common stock to certain service providers, and recorded $5,698,000 in stock-based compensation expenses.
Common stocks issued for exercise of warrants by holders of warrants
Warrants
A summary of warrants activity for the three months ended March 31, 2024 was as follows:
Number of shares | Weighted average life | Weighted average exercise price | Intrinsic Value | |||||||||||||
Balance of warrants outstanding as of December 31, 2023 | 77,093 | 3.70 years | $ | 7.15 | - | |||||||||||
Granted | - | - | - | - | ||||||||||||
Exercised | - | - | $ | - | - | |||||||||||
Balance of warrants outstanding as of March 31, 2024 | 77,093 | 3.70 years | $ | 7.15 | - |
As of March 31, 2024, the Company had 77,093 shares of warrants, among which 1,093 shares of warrants were issued to two individuals in private placements, and 76,000 shares of warrants were issued in three private placements closed on September 22, 2021.
In connection with 76,000 shares of warrants, the Company issued warrants to investors to purchase a total of 76,000 ordinary shares with a warrant term of five (5) years. The warrants have an exercise price of $28.75 per share.
The Warrants ended on March 31, 2024 are subject to anti-dilution provisions to reflect stock dividends and splits or other similar transactions, but not as a result of future securities offerings at lower prices. The warrants did not meet the definition of liabilities or derivatives, and as such they are classified as equity.
14. INCOME PER SHARE
Basic income per share is computed by dividing the net profit or loss by the weighted average number of common shares outstanding during the period. As of March 31, 2024, the principal amount and interest expense of convertible promissory notes are $5,298,982 and $580,905. Total obligations of $5,879,887 may be dilutive common shares in the future.
The number of warrants is excluded from the computation as the anti-dilutive effect.
The following table sets forth the computation of basic and diluted loss per common share for the three months ended March 31, 2024 and 2023 respectively:
For the Three Months Ended March 31, | ||||||||
2024 | 2023 | |||||||
Net income | $ | 1,998,802 | $ | 451,277 | ||||
Weighted Average Shares Outstanding-Basic | 7,624,124 | 2,800,903 | ||||||
Weighted Average Shares Outstanding- Diluted | 11,723,885 | 10,877,671 | ||||||
Net income per share - basic and diluted | ||||||||
Net income per share – basic | $ | 0.26 | $ | 0.16 | ||||
Net income per share – diluted | $ | 0.17 | $ | 0.04 |
15. INCOME TAXES
The Enterprise Income Tax Law of the People’s Republic of China (“PRC tax law”), which was effective on January 1, 2008, stipulates those domestic enterprises and foreign-invested enterprises are subject to a uniform tax rate of 25%. Under the PRC tax law, companies are required to make quarterly estimate payments based on 25% tax rate; companies that received preferential tax rates are also required to use a 25% tax rate for their installment tax payments. The overpayment, however, will not be refunded and can only be used to offset future tax liabilities.
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 three months ended March 31, 2024, the Company had no unrecognized tax benefits. Due to uncertainties surrounding future utilization, the Company estimates there will not be sufficient future income to realize the deferred tax assets for certain subsidiaries and a VIE. As of March 31, 2024 and December 31, 2023, the Company had deferred tax assets of $11,405,416 and $11,294,960, respectively. The Company maintains a full valuation allowance on its net deferred tax assets as of March 31, 2024 and December 31, 2023.
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.
For the three months ended March 31, 2024 and 2023, the Company had current income tax expenses of $1,135,188 and $1,047,420, respectively, and deferred income tax expense of $187,526 and benefit of $194,515 in the connection of intangible assets generated from Baiyu acquisition, respectively.
The Company accounts for uncertainty in income taxes using a two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely to be realized upon settlement. Interest and penalties related to uncertain tax positions are recognized and recorded as necessary in the provision for income taxes. The Company is subject to loss contingencies, suchincome taxes in the PRC. According to the PRC Tax Administration and Collection Law, the statute of limitations is three years if the underpayment of taxes is due to computational errors made by the taxpayer or the withholding agent. The statute of limitations is extended to five years under special circumstances, where the underpayment of taxes is more than RMB 100,000. In the case of transfer pricing issues, the statute of limitation is ten years. There is no statute of limitation in the case of tax evasion. There were no uncertain tax positions as legal proceedingsof March 31, 2024 and claims arising out of its business, that cover a wide range of matters, including, among others, government investigationsDecember 31, 2023, 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 probabledoes not believe that a liability has been incurred andits unrecognized tax benefits will change over the amount of loss can be reasonably estimated.next twelve months.
CHINA COMMERCIAL CREDIT, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS16. RELATED PARTY TRANSACTIONS AND BALANCES
1) |
Name | Relationship with the Company | |
Guangzhou Chengji Investment Development Co., Ltd. (“Guangzhou Chengji”) | Controlled by Mr. Weicheng Pan, who is a former independent director of the Company. | |
Yunfeihu International E-commerce Group Co., Ltd (“Yunfeihu”) | An affiliate of the Company, over which an immediate family member of Chief Executive Officer owns equity interest and plays a role of director and senior management | |
Shenzhen Tongdow International Trade Co., Ltd. (“TD International Trade”) | Controlled by an immediate family member of Chief Executive Officer of the Company | |
Beijing Tongdow E-commerce Co., Ltd. (“Beijing TD”) | Wholly owned by TD E-commerce, which is controlled by an immediate family member of Chief Executive Officer of the Company | |
Shanghai Tongdow Supply Chain Management Co., Ltd. (“Shanghai TD”) | Controlled by an immediate family member of Chief Executive Officer of the Company | |
Guangdong Tongdow Xinyi Cable New Material Co., Ltd. (“Guangdong TD”) | Controlled by an immediate family member of Chief Executive Officer of the Company | |
Yangzhou Lishunwu E-commerce Co., Ltd. (Formerly named: Yangzhou Tongdow E-commerce Co., Ltd.) (“Yangzhou TD”) | Controlled by an immediate family member of Chief Executive Officer of the Company | |
Ningbo Xinwurong Supply Chain Management Co., Ltd. (Formerly named: Tongdow (Zhejiang) Supply Chain Management Co., Ltd.) (“Zhejiang TD”)* | Controlled by an immediate family member of Chief Executive Officer of the Company | |
Shenzhen Meifu Capital Co., Ltd. (“Shenzhen Meifu”) | Controlled by Chief Executive Officer of the Company | |
Shenzhen Tiantian Haodian Technology Co., Ltd. (“TTHD”) | Wholly owned by Shenzhen Meifu | |
Hainan Tongdow International Trade Co., Ltd. (“Hainan TD”) | Controlled by an immediate family member of Chief Executive Officer of the Company | |
Yunfeihu modern logistics Co., Ltd. (“Yunfeihu Logistics”) | Controlled by an immediate family member of Chief Executive Officer of the Company | |
Shenzhen Tongdow Jingu Investment Holding Co., Ltd. (“Shenzhen Jingu”) | Controlled by an immediate family member of Chief Executive Officer of the Company | |
Tongdow E-commerce Group Co., Ltd. (“TD E-commerce”) | Controlled by an immediate family member of Chief Executive Officer of the Company | |
Katie Ou | Shareholder of BAIYU Holdings Inc. |
2) | Balances with related parties |
- | Due to related party |
March 31, 2024 | December 31, 2023 | |||||||
TD E-commerce | $ | 38,054,968 | $ | 38,121,056 | ||||
Total due to related party | $ | 38,054,968 | $ | 38,121,056 |
The amount due to related parties are non-trade in nature, unsecured, non-interest bearing and are not expected to be repaid in the next 9 months.
17. COMMITMENTS AND CONTINGENCIES
1) | Commitments |
As of September 30, 2017, the Company had only one VIE.a Non-cancellable operating leases
The following financial statement amounts and balances of the VIE were included in the unaudited condensed interim consolidated financial statementstable sets forth our contractual obligations as of September 30, 2017 and DecemberMarch 31, 2016 and for the three and nine months ended September 30, 2017, 2017 and 2016:2024:
September 30, 2017 (Unaudited) | December 31, 2016 | |||||||
Total assets | $ | 4,332,304 | $ | 7,968,077 | ||||
Total liabilities | $ | 7,725,585 | $ | 8,012,892 |
For the three months ended September 30, | For the nine months ended September 30, | |||||||||||||||
2017 (Unaudited) | 2016 (Unaudited) | 2017 (Unaudited) | 2016 (Unaudited) | |||||||||||||
Revenue | $ | 120,030 | $ | 672,646 | $ | 239,202 | $ | 1,151,308 | ||||||||
Net (loss)/income | $ | (641,053 | ) | $ | 2,807 | $ | (3,271,977 | ) | $ | 910,203 |
Payment due by March 31 | ||||||||||||||||
Total | 2024 | 2025 | 2026 | |||||||||||||
Operating lease commitments for property management expenses under lease agreements | $ | 8,534 | $ | 8,534 | $ | - | $ | - |
2) |
None.
18. Risks and uncertainties
(1) Credit risk
Assets that potentially subject the Company to a significant concentration of credit risk primarily consist of cash and cash equivalents and trade receivables with its customers. The maximum exposure of such assets to credit risk is onetheir carrying amount as of the most significant risks forbalance sheet dates. As of March 31, 2024, approximately $0.19 million was primarily deposited in financial institutions located in Mainland China, which were uninsured by the Company’s business. Creditgovernment authority. To limit exposure to credit risk exposures arise principallyrelating to deposits, the Company primarily place cash deposits with large financial institutions in lending activities, finance lease and financial guarantee activitiesChina, which is an off-balance sheet financial instrument.
Creditmanagement believes are of high credit quality. The Company considers the credit standing of customers when making sales to manage the credit risk. Considering the nature of the business at current, the Company believes that the 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 rightsnot material to cash, securities or property and equipment.its operations.
The Company identifies credit risk collectively based on industry, geographyCompany’s operations are carried out in Mainland China. Accordingly, the Company’s business, financial condition and customer type. This information is monitored regularly by management.
1.1 Lending activities
In measuring the credit riskresults of lending loans to corporate customers, the Company mainly reflects the “probability of default”operations may be influenced by the customer on its contractual obligationspolitical, economic and considerslegal environments in the current financial positionPRC as well as by the general state 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.
PRC’s economy. In addition, the Company calculatesCompany’s business may be influenced by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, rates and methods of taxation, and the provision amount as below:
CHINA COMMERCIAL CREDIT, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1.2 Guarantee activitiesextraction of mining resources, among other factors.
The off-balance sheet commitments arising from guarantee activities carry similar credit(2) Liquidity 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.
The Company is also exposed to liquidity risk which is the 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.
(3) Foreign currency risk
A majoritySubstantially all of the Company’s operating activities and a significant portion of the Company’s major 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”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. Where there is a significant change in value of RMB, the gains and losses resulting from translation of financial statements of a foreign subsidiary will be significantly affected.
Translation of amounts from RMB into US$ has been made at the following exchange rates for the respective periods:
March 31, | December 31, | |||||||
2024 | 2023 | |||||||
Balance sheet items, except for equity accounts | 7.0950 | 7.0827 |
For the three months ended March 31, | ||||||||
2024 | 2023 | |||||||
Items in the statements of operations and comprehensive income (loss), and statements of cash flows | 7.1028 | 6.8476 |
As of September 30, 2017(4) Economic and December 31, 2016, the Company held cash and cash equivalent of US$3,030,468 and US$768,501, 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.political risks
The Company’s operations are carried outconducted in the PRC. Accordingly, the Company’s business, financial condition and results of operations may be influenced by the political, economic and legal environmentsenvironment in the PRC, as well asand by the general state of the PRC’sPRC 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 September 30, 2017 and December 31, 2016.
CHINA COMMERCIAL CREDIT, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The interest rates on loan issued ranged between 9.6%~ 19.44% and 9.6%~ 19.44% % for the nine months ended September 30, 2017 and 2016, respectively.
6.1 Loans receivable consist of the following:
September 30, 2017 (Unaudited) | December 31, 2016 | |||||||
Business loans | $ | 36,783,453 | $ | 37,786,657 | ||||
Personal loans | 21,483,267 | 20,736,324 | ||||||
Total Loans receivable | 58,266,720 | 58,522,981 | ||||||
Allowance for loan losses | ||||||||
Collectively assessed | (19,835 | ) | (50,481,240 | ) | ||||
Individually assessed | (54,801,352 | ) | (1,226,822 | ) | ||||
Allowance for loan losses | (54,821,187 | ) | (51,708,062 | ) | ||||
Loans receivable, net | $ | 3,445,533 | $ | 6,814,919 |
The Company originates loans(5) Risks related 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 September 30, 2017 and December 31, 2016, the Company had 67 and 70 business loan customers, and 40 and 41 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 loan by loan on a quarterly basis based on an assessment of specific evidence indicating doubtful collection, historical experience, loan balance aging and prevailing economic conditions.
For the three months ended September 30, 2017 and 2016, a reversal of provision of US$452,786 and US$226,694 were charged to the condensed consolidated statements of operation, respectively. For the nine months ended September 30, 2017 and 2016, a provision of US$2,420,698 and a reversal of provision of US$133,177 were charged to the condensed consolidated statements of operation, respectively. Write-offs of $1,579,009 against allowances have occurred for the three and nine months ended September 30, 2017. No write-offs against allowances have occurred for the three and nine months ended September 30, 2016, respectively.
The following table presents nonaccrual loans with aging over 90 days by classes of loan portfolio as of September 30, 2017 and December 31, 2016, respectively:
September 30, 2017 (Unaudited) | December 31, 2016 | |||||||
Business loans | $ | 34,799,952 | $ | 35,885,947 | ||||
Personal loans | 21,483,267 | 20,693,126 | ||||||
$ | 56,283,219 | $ | 56,579,073 |
CHINA COMMERCIAL CREDIT, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following table represents the aging of loans as of September 30, 2017 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 | $ | - | $ | - | $ | 11,437,290 | $ | 23,362,662 | $ | 34,799,952 | $ | 1,983,501 | $ | 36,783,453 | ||||||||||||||
Personal loans | - | - | 6,544,051 | 14,939,216 | 21,483,267 | - | 21,483,267 | |||||||||||||||||||||
$ | - | $ | - | $ | 17,981,341 | $ | 38,301,878 | $ | 56,283,219 | $ | 1,983,501 | $ | 58,266,720 |
The following table represents the aging of loans as of December 31, 2016 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 | $ | - | $ | 10,992,518 | $ | 5,585,728 | $ | 19,307,701 | $ | 35,885,947 | $ | 1,900,710 | $ | 37,786,657 | ||||||||||||||
Personal loans | 43,198 | 6,234,908 | 428,956 | 14,029,262 | 20,736,324 | - | 20,736,324 | |||||||||||||||||||||
$ | 43,198 | $ | 17,227,426 | $ | 6,014,684 | $ | 33,336,963 | $ | 56,622,271 | $ | 1,900,710 | $ | 58,522,981 |
CHINA COMMERCIAL CREDIT, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
6.2 Analysis of loans by credit quality indicator
The following table summarizes the Company’s loan portfolio by credit quality indicator as of September 30, 2017 and December 31, 2016, respectively:
Five Categories | September 30, 2017 (Unaudited) | % | December 31, 2016 | % | ||||||||||||
Pass | $ | 1,983,501 | 3.4 | % | $ | 1,900,710 | 3.2 | % | ||||||||
Special mention | - | - | - | - | ||||||||||||
Substandard | - | - | - | - | ||||||||||||
Doubtful | 2,750,359 | 4.7 | % | 9,866,430 | 16.9 | % | ||||||||||
Loss | 53,532,860 | 91.9 | % | 46,755,841 | 79.9 | % | ||||||||||
Total | $ | 58,266,720 | 100 | % | $ | 58,522,981 | 100 | % |
6.3 Analysis of loans by collateral
The following table summarizes the Company’s loan portfolio by collateral as of September 30, 2017:
September 30, 2017 (Unaudited) | ||||||||||||
Business Loans | Personal Loans | Total | ||||||||||
Guarantee backed loans | $ | 34,682,867 | $ | 20,650,801 | $ | 55,333,668 | ||||||
Collateral backed loans | 2,100,586 | 832,466 | 2,933,052 | |||||||||
$ | 36,783,453 | $ | 21,483,267 | $ | 58,266,720 |
The following table summarizes the Company’s loan portfolio by collateral as of December 31, 2016:
December 31, 2016 | ||||||||||||
Business Loans | Personal Loans | Total | ||||||||||
Guarantee backed loans | $ | 35,557,758 | $ | 19,904,043 | $ | 55,461,801 | ||||||
Collateral backed loans | 2,228,899 | 832,281 | 3,061,180 | |||||||||
$ | 37,786,657 | $ | 20,736,324 | $ | 58,522,981 |
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 September 30, 2017 and December 31, 2016, guaranteed loans make up 95.0% and 94.8% of our direct loan portfolio, respectively.
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.
CHINA COMMERCIAL CREDIT, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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 September 30, 2017 and 2016:
Business Loans (Unaudited) | Personal Loans (Unaudited) | Total (Unaudited) | ||||||||||
For the three months ended September 30, 2017 | ||||||||||||
Beginning balance | $ | 35,315,516 | $ | 20,584,442 | $ | 55,899,958 | ||||||
Charged off | (1,579,009 | ) | - | (1,579,009 | ) | |||||||
Recoveries | (367,925 | ) | (113,862 | ) | (481,787 | ) | ||||||
Provisions | - | - | - | |||||||||
Foreign exchange loss | 605,711 | 376,314 | 982,025 | |||||||||
Ending balance | 33,974,293 | 20,846,894 | 54,821,187 | |||||||||
Ending balance: individually evaluated for impairment | 33,954,458 | 20,846,894 | 54,801,352 | |||||||||
Ending balance: collectively evaluated for impairment | $ | 19,835 | $ | - | $ | 19,835 |
Business Loans (Unaudited) | Personal Loans (Unaudited) | Total (Unaudited) | ||||||||||
For the three months ended September 30, 2016 | ||||||||||||
Beginning balance | $ | 34,326,727 | $ | 20,161,476 | $ | 54,488,203 | ||||||
Recoveries | (50,612 | ) | (121,435 | ) | (172,047 | ) | ||||||
Provisions | (360 | ) | - | (360 | ) | |||||||
Foreign exchange gain | (133,237 | ) | (78,256 | ) | (211,493 | ) | ||||||
Ending balance | 34,142,518 | 19,961,785 | 54,104,303 | |||||||||
Ending balance: individually evaluated for impairment | - | - | - | |||||||||
Ending balance: collectively evaluated for impairment | $ | 34,142,518 | $ | 19,961,785 | $ | 54,104,303 |
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 nine months ended September 30, 2017 and 2016:
Business Loans (Unaudited) | Personal Loans (Unaudited) | Total (Unaudited) | ||||||||||
For the nine months ended September 30, 2017 | ||||||||||||
Beginning balance | $ | 32,356,953 | $ | 19,351,109 | $ | 51,708,062 | ||||||
Charged off | (1,579,009 | ) | - | (1,579,009 | ) | |||||||
Recoveries | (634,227 | ) | (149,122 | ) | (783,349 | ) | ||||||
Provisions | 2,416,558 | 787,479 | 3,204,037 | |||||||||
Foreign exchange loss | 1,414,018 | 857,428 | 2,271,446 | |||||||||
Ending balance | 33,974,293 | 20,846,894 | 54,821,187 | |||||||||
Ending balance: individually evaluated for impairment | 33,954,458 | 20,846,894 | 54,801,352 | |||||||||
Ending balance: collectively evaluated for impairment | $ | 19,835 | $ | - | $ | 19,835 |
CHINA COMMERCIAL CREDIT, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Business Loans (Unaudited) | Personal Loans (Unaudited) | Total (Unaudited) | ||||||||||
For the nine months ended September 30, 2016 | ||||||||||||
Beginning balance | $ | 35,083,738 | $ | 20,511,915 | $ | 55,595,653 | ||||||
Recoveries | (127,977 | ) | (1,155 | ) | (129,132 | ) | ||||||
Provisions | 125,729 | - | 125,729 | |||||||||
Foreign exchange gain | (938,972 | ) | (548,975 | ) | (1,487,947 | ) | ||||||
Ending balance | 34,142,518 | 19,961,785 | 54,104,303 | |||||||||
Ending balance: individually evaluated for impairment | - | - | - | |||||||||
Ending balance: collectively evaluated for impairment | $ | 34,142,518 | $ | 19,961,785 | $ | 54,104,303 |
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 September 30, 2017:
Pass (Unaudited) | Special Mention (Unaudited) | Substandard (Unaudited) | Doubtful (Unaudited) | Loss (Unaudited) | Total (Unaudited) | |||||||||||||||||||
Business loans | $ | 1,983,501 | $ | - | $ | - | $ | 1,669,953 | $ | 33,129,999 | $ | 36,783,453 | ||||||||||||
Personal loans | - | - | - | 1,080,406 | 20,402,861 | 21,483,267 | ||||||||||||||||||
$ | 1,983,501 | $ | - | $ | - | $ | 2,750,359 | $ | 53,532,860 | $ | 58,266,720 |
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, 2016:
Pass (Unaudited) | Special Mention (Unaudited) | Substandard (Unaudited) | Doubtful (Unaudited) | Loss (Unaudited) | Total (Unaudited) | |||||||||||||||||||
Business loans | $ | 1,900,710 | $ | - | $ | - | $ | 7,096,000 | $ | 28,789,947 | $ | 37,786,657 | ||||||||||||
Personal loans | - | - | - | 2,770,430 | 17,965,894 | 20,736,324 | ||||||||||||||||||
$ | 1,900,710 | $ | - | $ | - | $ | 9,866,430 | $ | 46,755,841 | $ | 58,522,981 |
CHINA COMMERCIAL CREDIT, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2017 (Unaudited) | December 31, 2016 | |||||||
Guarantee paid on behalf of guarantee service customers | $ | 12,089,778 | $ | 11,642,755 | ||||
Allowance for repayment on behalf of guarantee service customers losses | (12,089,724 | ) | (11,543,868 | ) | ||||
Guarantee paid on behalf of guarantee service customers, net | $ | 54 | $ | 98,887 | ||||
Guarantee paid on behalf of a related party | 204,540 | 196,000 | ||||||
Allowance for repayment on behalf of a related party losses | (102,270 | ) | (98,000 | ) | ||||
Total | $ | 102,270 | $ | 98,000 |
As of September 30, 2017, 2017 and December 31, 2016, guarantee paid on behalf of guarantee service customers represents payment made by the Company to banks on behalf of thirty-two of its third-party guarantee service customers who defaulted on their loan repayments to the banks. Guarantee paid on behalf of a related party represents payment made by the Company to banks on behalf of one and one of its related party customers. 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.
On September 25, 2014, PFL entered into a finance lease agreement for the leasing of manufacturing equipment with a total lease receivable of US$2.73 million, with a lease term of 2 years. The lease bears an interest rate of 10.36% per annum. As of September 30, 2017, the fiancé lease agreement expired with an outstanding investment in finance lease of $976,724. The Company recorded an allowance of $751,326 on the outstanding investment.
On October 13, 2014, PFL entered into another finance lease agreement for the leasing of manufacturing equipment with a total lease receivable of US$2.88 million, with a lease term of 3 years. The lease bears an interest rate of 11.11% per annum. On October 13, 2017, the fiancé lease agreement expired with an outstanding investment in finance lease of $2,089,706. The Company recorded an allowance of $1,864,309 on the outstanding investment.
CHINA COMMERCIAL CREDIT, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Following is a summary of the components of the Company’s net investment in direct financing leases as of September 30, 2017 and December 31, 2016:
September 30, 2017 (Unaudited) | December 31, 2016 | |||||||
Total minimum lease payments to be received | $ | 3,365,941 | $ | 3,599,831 | ||||
Less: Amounts representing estimated executory costs | - | - | ||||||
Minimum lease payments receivable | 3,365,941 | 3,599,831 | ||||||
Less Allowance for uncollectible | (2,615,635 | ) | (2,441,663 | ) | ||||
Net minimum lease payments receivable | 750,306 | 1,158,168 | ||||||
Estimated residual value of leased property | - | |||||||
Less: Unearned income | (299,511 | ) | (287,009 | ) | ||||
Net investment in direct financing lease | $ | 450,795 | $ | 871,159 |
CHINA COMMERCIAL CREDIT, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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) | September 30, 2017 (Unaudited) | December 31, 2016 | ||||||||
Furniture and fixtures | 5 | $ | 21,715 | $ | 20,808 | |||||
Electronic equipment | 3 | 137,033 | 131,314 | |||||||
Leasehold improvement | 3 | 166,617 | 159,662 | |||||||
Less: accumulated depreciation | (309,638 | ) | (291,815 | ) | ||||||
Property and equipment, net | $ | 15,727 | $ | 19,969 |
Depreciation expense totaled US$1,700 and US$11,053 for the three months ended September 30, 2017 and 2016, respectively. Depreciation expense totaled US$4,999 and US$43,062 for the nine months ended September 30, 2017 and 2016, respectively.
Other current liabilities as of September 30, 2017 and December 31, 2016 consisted of:
September 30, 2017 | December 31, 2016 | |||||||
Accrued payroll | $ | 40,470 | $ | 37,575 | ||||
Accrued office rental expenses | 28,550 | 34,558 | ||||||
Other tax recoverable | (43,353 | ) | (44,007 | ) | ||||
Accrued provision for cash settlement against legal proceedings | 245,000 | 225,000 | ||||||
Other payable | 53,513 | 20,321 | ||||||
$ | 324,180 | $ | 273,447 |
On November 22, 2016, we filed a stipulation and agreement of settlement (“Stipulation”) with all persons and entities that purchased or otherwise acquired CCCR shares between August 14, 2013 and July 25, 2014 (collectively “Led Defendants”). On June 1, 2017, following a final fairness hearing on May 30, 2017 regarding the proposed settlement, the Court entered a final judgment and order that: (i) dismisses with prejudice the claims asserted in the Securities Class Action against all named defendants in connection with the Securities Class Action, including the Company, and releases any claims that were or could have been asserted that arise from or relate to the facts alleged in the Securities Class Action, such that every member of the settlement class will be barred from asserting such claims in the future; and (ii) approves the payment of $220,000 in cash and the issuance of 950,000 shares of its common stock (the “Settlement Shares”) to members of the settlement class. In addition, the Company would incur a payment of $25,000 in cash to class administrator.industry
The Company accounted forsells precious products to customers through our industrial relationship. Sales contracts are entered into with each customer. The Company is the cash payment aggregating $245,000principal under the precious metal direct sales model as an accrued liabilitythe Company controls the products with the ability to direct the use of, and obtain all the share settlement of 950,000 shares inremaining benefits from the precious metal products substantially before they are sold to its customers. The Company has a single performance obligation to sell metal products to the buyers. The Company estimates the amount of US$2,308,500 (at marketvariable consideration, including sales return using the expected value of $2.43 per share on June 1, 2017) as an additional paid-in capital. Accordinglymethod and includes variable consideration in the Company recorded expenses of $1,838,500 and $690,000transaction price to the extent that it is probable that a significant reversal will not occur. Revenue for the nine months ended September 30, 2017 and 2016, respectively,precious metal trading under the accountdirect sales model is recognized at a point in time when the single performance obligation is satisfied when the products are delivered to the customer. We are under the risk of “Litigationthe economic environment in general and settlement cost forspecific to the shareholders’ lawsuit”. The $245,000 cashprecious metal industry and China as well as changes to the existing governmental regulations.
Commodity trading in China is subject to seasonal fluctuations, which may cause our revenues to fluctuate from quarter to quarter. We generally experience less user traffic and purchase orders during national holidays in China, particularly during the Chinese New Year holiday season in the first quarter of each year. Consequently, the first quarter of each calendar year generally contributes the smallest portion of the settlement has been paid in October subsequently.
CHINA COMMERCIAL CREDIT, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Other operating expenses for the threeour annual revenues. Furthermore, as we are substantially dependent on sales of precious metals, our quarterly revenues and nine months ended September 30, 2017 and 2016 consisted of:
For the three months ended September 30, | For the nine months ended September 30, | |||||||||||||||
2017 (Unaudited) | 2016 (Unaudited) | 2017 (Unaudited) | 2016 (Unaudited) | |||||||||||||
Depreciation and amortization | $ | 1,700 | $ | 12,168 | $ | 4,999 | $ | 46,455 | ||||||||
Travel expenses | 14,633 | 9,647 | 29,617 | 13,134 | ||||||||||||
Entertainment expenses | 6,148 | 42 | 10,623 | 11,970 | ||||||||||||
Legal and consulting expenses | 220,291 | 1,002,804 | 380,003 | 1,642,316 | ||||||||||||
Car expenses | 2,878 | 3,726 | 11,489 | 21,541 | ||||||||||||
Bank charges | 707 | 540 | 2,313 | 2,256 | ||||||||||||
Audit-related expense | 78,458 | 31,382 | 175,944 | 100,955 | ||||||||||||
Other expenses | 62,188 | 25,783 | 169,827 | 54,400 | ||||||||||||
Total | $ | 387,003 | $ | 1,086,092 | $ | 784,815 | $ | 1,893,027 |
Common Stock
The Company is authorizedresults of operations are likely to issue up to 100,000,000 shares of Common Stock.
On March 2, 2017, the Company issued 92,875 and 92,875 unrestricted shares to Long Yi, the Company’s Chief Financial Officer and Yang Jie, the Company’s VP of Finance, respectively. The shares were issued at a market value of US$1.04 per share, in the total amount of US$193,180, for the services provided.
On April 20, 2017, the Company issued 500,000 unregistered shares to four individuals, all of whom are citizens of P.R.C, for their services in seeking financial support for the Company. The Company compensates each of the individuals with 125,000 shares of common stock of the Company as incentive. The transaction was at arm’s length. The shares were issued at a market value of US$1.44 per share, in the total amount of US$720,000, for the services provided.
CHINA COMMERCIAL CREDIT, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
On May 11, 2017 and June 21, 2017, the Company closed two private placements to two third party individual investors to issue 60,000 and 625,000 common shares, respectively, at a per sharebe affected by price of US$1.0 and US$0.8, in the total amount of US$60,000 and US$500,000, respectively. These transactions were at arm’s length. The shares shall be authorized for listing on the NASDAQ capital market before closing, and the net proceeds of the sale of the shares shall be used by the Company for working capital and general corporate purpose.
On September 29, 2017, the Company closed two private placements to two individual investors to issue 452,486 and 100,000 common shares, respectively, at a per share price of US$1.81, in the total amount of US$1,000,000. Among the two individuals, one of them is the Vice President of Finance of the Company (Note 16(2)). These transactions were at arm’s length. The net proceeds of the sale of the shares shall be used by the Company for working capital and general corporate purpose, payment of the transactional expenses related to the acquisition of all the outstanding issued shares of Sorghum Investment Holding Limited (“Sorghum”) from certain shareholders of Sorghum, and payments related to the securities class action and derivative action disclosed in Note 17(3).
During the three months ended September 30, 2017, the Company issued an aggregation of 470,000 unregistered shares to eight professional service providers for legal and consulting services provided to the Company. The common shares were issued as compensations for the services provided to the Company. The transaction was at arm’s length. The fair value of the services provided was in in the total amount of US$1,226,300, at a per share price at the market price of the issuance dates.fluctuation under macroeconomic circumstances these years.
As our revenues have grown rapidly in recent years, these factors are difficult to discern based on our historical results, which, therefore, should not be relied on to predict our future performance. Our financial condition and results of September 30, 2017, there were 19,030,915 shares of Common Stock issued and outstanding.
Warrants
As of December 31, 2016, the Company had outstanding warrants to purchase 1,123,400 shares.
During the nine months ended September 30, 2017, the outstanding warrants to purchase 1,123,400 shares expired.
On September 29, 2017, the Company issued warrants to purchase 158,370 and 35,000 shares to two investors, respectively, as part of the private placements mentioned above. The warrant has an exercise price of $2.26 per share and is exercisable on the date of issuance and expire five years from the date of issuance. The fair value of the warrants aggregated $186,268, estimated by using the Black-Scholes valuation model.
As of September 30, 2017, the Company had outstanding warrants to purchase 193,370 shares.
CHINA COMMERCIAL CREDIT, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following table sets forth the computation of basic and diluted earnings per common shareoperations for the three and nine months ended September 30, 2017 and 2016, respectively:
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||
2017 (Unaudited) | 2016 (Unaudited) | 2017 (Unaudited) | 2016 (Unaudited) | |||||||||||||
Net loss attributable to the common shareholders | $ | (2,515,292 | ) | $ | (624,445 | ) | $ | (8,530,244 | ) | $ | (1,206,116 | ) | ||||
Basic weighted-average common shares outstanding | 18,092,369 | 15,889,853 | 17,371,183 | 14,026,815 | ||||||||||||
Effect of dilutive securities | - | - | - | - | ||||||||||||
Diluted weighted-average common shares outstanding | 18,092,369 | 15,889,853 | 17,371,183 | 14,026,815 | ||||||||||||
Loss per share: | ||||||||||||||||
Basic | $ | (0.139 | ) | $ | (0.039 | ) | $ | (0.491 | ) | $ | (0.086 | ) | ||||
Diluted | $ | (0.139 | ) | $ | (0.039 | ) | $ | (0.491 | ) | $ | (0.086 | ) |
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 loss per share due to the lack of dilutive items in the Company for the three and nine months ended September 30, 2017 and 2016. The number of warrants is omitted from the computation as the anti-dilutive effect.
CHINA COMMERCIAL CREDIT, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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 treatmentfuture periods 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 is subject to preferential tax rate of 12.5%.fluctuate. As a result, the Company is subjecttrading price of our stock may fluctuate from time 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%. However since 2015, the excess enterprise income taxes paid will not be refunded but can be usedtime due to offset the future income tax payable arising from taxable income.
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 three and nine months ended September 30, 2017 and 2016, the Company had no unrecognized tax benefits. For the nine months ended September 30, 2017, the Company made net tax operating loss from its PRC subsidiaries and its consolidated VIE of US$3,073,360. As of September 30, 2017, the Company has carry-forward tax operating losses from its PRC subsidiaries and its condensed consolidated VIE of US$64,500,641, which will expire from the year ending December 31, 2019 to 2022. The Company recognized deferred income tax assets of US$12,099,165 as of September 30, 2017. However, the Company estimates there will be no sufficient net income before income tax from years ending December 31, 2017 to 2022 to realize the deferred income tax assets. The Company provided valuation allowance for deferred income tax assets of US$12,099,165 as of September 30, 2017. As such, the effective tax rates for the three and nine months ended September 30, 2017 and 2016 are 0% and 0%, respectively.
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.
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 September 30, 2017 and December 31, 2016, subsidy of US$1,715,510 and US$1,353,810 did not fulfill the purpose within due date and the related deferred tax liability was transferred to income tax payable. As of September 30, 2017 and December 31, 2016, the deferred tax liability amounted to US$81,901 and US$139,947, respectively.
seasonality.
CHINA COMMERCIAL CREDIT, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS19. SUBSEQUENT EVENTS
(1) |
During the year ended December 31, 2016, the Company made a loan of US$1,945,224 to Suzhou Rongshengda Investment Holding Co., Ltd., a company controlled by shareholders of Wujiang Luxiang. Due to the short-term borrowing, the Company did not charge any interest or fees. By September 30, 2017, the balance was collected.
On September 29, 2017, the Company closed a private placements to Mr. Yang Jie to issue 452,486 common shares, respectively, at a per share price of US$1.81, in the total amount of US$819,000. These transactions were at arm’s length. The net proceeds of the sale of the shares shall be used by the Company for working capital and general corporate purpose, payment of the transactional expenses related to the acquisition of all the outstanding issued shares of Sorghum Investment Holding Limited (“Sorghum”) from certain shareholders of Sorghum, and payments related to the securities class action and derivative action disclosed in Note 17(3).
Amount due from related parties were as follows:
September 30, 2017 (Unaudited) | December 31, 2016 | |||||||
Suzhou Rongshengda Investment Holding Co., Ltd. | $ | - | $ | 469,418 | ||||
Chunjia Textile | 204,540 | 196,001 | ||||||
Huichun Qin | $ | 1,051,857 | $ | 1,007,953 |
As of September 30, 2017, the Company provided financial guarantee service for Chunjia Textile to guarantee loans of US$204,540. The Company accrued provision of US$102,270 on the outstanding balance as of September 30, 2017.
Huichun Qin transferred $1,098,197(equivalent of RMB 7 million) to his personal account without proper authorization on July 2, 2014. As of September 30, 2017, Huichun Qin has not repaid the balance. The amount was recorded as a deduction of the Company’s equity as of September 30, 2017 and December 31, 2016, respectively.
CHINA COMMERCIAL CREDIT, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
During the year ended December 31, 2016, the Company leased its new office under a lease agreement from January 1, 2017 to December 31, 2019. As a result, in January 2017, the Company terminated the lease agreement for its former principal office which agreement was to expire on May 31, 2021. No default penalty was paid for the earlier termination. The following table sets forth the Company’s contractual obligations as of September 30, 2017 in future periods:
Rental payments (Unaudited) | ||||
Year ending September 30, 2018 | 30,643 | |||
Year ending September 30, 2019 | 25,202 | |||
Year ending September 30, 2020 | 6,392 | |||
Total | $ | 62,237 |
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 12 to 24 months and the average percentage of the guarantee amount as security deposit is 10% ~ 20%. As of September 30, 2017 and December 31, 2016, the loan amount guaranteed by the Company was US$11,367,564 and US$10,893,089, respectively, for its financial guarantee service customers.
CHINA COMMERCIAL CREDIT, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The Company is involved in various legal actions arising in the ordinary coursesettled convertible promissory note of its business. As of September 30, 2017, the Company was involved in 109 lawsuits, among which 76 were related to its loan business$150,000 and 32 were related to guarantee business and 1 was related to financial lease. The Company initiated legal proceedings to collect delinquent balances from borrowers and guarantees. 84 of these cases with an aggregated claim of US$41.16 million have been adjudicated by the Court in favorissued 159,547 shares of the Company and these cases are settled or in the process of enforcement. The remaining 25 cases with an aggregated claim of US$18.17 million have not been adjudicated by the Court as of September 30, 2017.Company’s common stock on April 18, 2024.
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.). (the “Securities Class Action”)
CHINA COMMERCIAL CREDIT, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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. 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.
On November 22, 2016, the Company entered into a Stipulation and Agreement of Settlement (the “Stipulation”) to settle the Securities Class Action. The Stipulation resolves the claims asserted against the Company and certain of its current and former officers and directors in the Securities Class Action without any admission or concession of wrongdoing or liability by the Company or the other defendants. On June 1, 2017, following a final fairness hearing on May 30, 2017 regarding the proposed settlement, the Court entered a final judgment and order that (i) dismisses with prejudice the claims asserted in the Securities Class Action against all named defendants in connection with the Securities Class Action, including the Company, and releases any claims that were or could have been asserted that arise from or relate to the facts alleged in the Securities Class Action, such that every member of the settlement class will be barred from asserting such claims in the future; and (ii) approves the payment of $220,000 in cash and the issuance of 950,000 shares of its common stock (the “Settlement Shares”) to members of the settlement class. In addition, the Company would incur a payment of $25,000 in cash to class administrator. At present, the Company is waiting for the Court to approve the disbursement of the Settlement Shares. Plaintiff is filing a motion to obtain such approval. The $245,000 cash portion of the settlement has been paid in full. The Company accrued settlement cost aggregating US$1,863,500 and US$690,000 during the nine months ended September, 2017 and 2016, respectively.
On July 28, 2017, the Court entered a clarifying order to specify the allocation of attorneys’ fees in accordance with the Stipulation.
The Settlement Shares are exempt from registration under Section 3(a)(10) of the Securities Act of 1933, as amended. The settlement does not constitute any admission of fault or wrongdoing by the Company or any of the individual defendants.
CHINA COMMERCIAL CREDIT, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Two of the Underwriter Defendants, Axiom Capital Management, Inc., and ViewTrade Securities, Inc., have asserted their respective rights to indemnification under the Underwriting Agreements entered into in connection with the Company’s initial public offering and secondary offering. On or about March 16, 2016, CCCR entered into an Advance Funding and Escrow Agreement, under which the CCCR agreed to deposit shares into escrow to fund the advancement obligation, with the initial deposit to be shares valued at Two Hundred Thousand Dollars ($200,000), based upon 80% of the 30 day volume weighted average Trading Price (“VWAP”) for each of the 30 consecutive trading days prior to the date of the Agreement.
On February 3, 2015, a purported shareholder KiramKodali filed a putative shareholder derivative complaint in the United States District Court for the Southern District of New York, captioned KiranKodali 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. The Company has since learned that Mr. Qin has been convicted and sentenced to a term of incarceration of approximately five years. In view of this information, the Company is evaluating its strategic options.
The Company and its directors were parties to a lawsuit filed on September 1, 2017, by Juan C. Rojas (“Plaintiff”), on behalf of himself and all other similarly situated stockholders of China Commercial Credit, Inc., in the Chancery Court of the State of Delaware (the “Delaware Chancery Court”) (Case No. 2017-0633-JTL) (the “Action”), which sought injunctive relief, costs, and attorney’s fees. Plaintiff’s Verified Class Action Complaint (“Complaint”) alleged that the Company’s directors breached their fiduciary duties to the Company’s stockholders by failing to disclose all necessary material information relating to the Company’s entry into an Exchange Agreement (“Exchange Agreement”) with Sorghum Investment Holdings Limited (“Sorghum”) on August 9, 2017, and preventing the Company’s stockholders from casting a fully informed vote on the Company’s acquisition of Sorghum, and other proposals contained in the Company’s preliminary proxy statement, dated August 14, 2017 (“Preliminary Proxy Statement). Plaintiff filed a Motion to Expedite the Proceeding (“Motion to Expedite”) seeking to expedited consideration of Plaintiff’s Motion for Preliminary Injunction, which was filed simultaneously with Plaintiff’s Complaint. The Company opposed the Motion to Expedite on September 20, 2017, and the Delaware Chancery Court held a hearing on the Motion to Expedite on September 22, 2017, wherein it denied Plaintiff’s Motion to Expedite without prejudice. On September 28, 2017, the Company filed a motion to dismiss Plaintiff’s Complaint (“Motion to Dismiss”). Plaintiff has not responded to the Company’s Motion to Dismiss.
On October 10, 2017, the Company filed Amendment No. 1 to its Preliminary Proxy Statement (the “Amended Preliminary Proxy”) with the U.S. Securities and Exchange Commission (the “Commission”) in response to the Commission’s September 8, 2017 comment letter (“Comment Letter”). After reviewing the Amended Preliminary Proxy, Plaintiff determined that the Company’s Amended Preliminary Proxy rendered the claims asserted in Plaintiff’s Complaint moot and/or otherwise unsuitable for further pursuit. On October 19, 2017, the Company and Plaintiff entered into a stipulation (“Stipulation”) wherein Plaintiff agreed to voluntarily dismiss his claims against the Company, and its directors, with prejudice. The Delaware Chancery Court granted the Stipulation on October 20, 2017, and entered an Order dismissing the Action with prejudice. In accordance with the Order, the Company will advise the Delaware Chancery Court within fifteen (15) days of the earlier of (a) the stockholder vote on the Exchange Agreement relating to the proposals, or (b) the termination of the Exchange Agreement, and whether the parties to the Action have reached an agreement with respect to Plaintiff’s anticipated request for fees and expenses. Currently, no compensation in any form has passed from the Company, or its directors, to Plaintiff or Plaintiff’s attorneys in the Action, and the Company has not made a promise to give any such compensation. On November 6, 2017, the Company filed Amendment No. 2 to its Preliminary Proxy Statement with the Commission in further response to comments from the Commission
On August 9, 2017, China Commercial Credit, Inc. (“the Company” or “CCCR”), has entered into Certain Share Exchange Agreement (“Exchange Agreement”) with the parent company of Sorghum Investment Holdings Limited (“Sorghum”). Pursuant to the terms of the Exchange Agreement, CCCR will acquire 100% of the outstanding shares of Sorghum through issuance of 152,587 of its common shares. This transaction will be accounted for as a “reverse acquisition” since, immediately following completion of the transaction, the shareholders of Sorghum immediately prior to the transaction will effectuate control of the Company, through its 87.9% ownership interest in the post-merger entity. For accounting purpose, Sorghum will be deemed to be the accounting acquirer and CCCR will be deemed to be the accounting acquiree in the transaction. As of the date of this filing, the transaction is still in progress.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
As of March 31, 2024, the Company had two business lines, which are the commodities trading business and supply chain management services.
Commodities trading business
The commodities trading business primarily involves purchasing non-ferrous metal products, such as aluminum ingots, copper, silver, and gold, from metal and mineral suppliers and then selling to customers. In connection with the Company’s commodity sales, in order to help customers to obtain sufficient funds to purchase various metal products and also help upstream metal and mineral suppliers to sell their metal products, the Company launched its supply chain management service in December 2019. The Company primarily generates revenues from selling bulk non-ferrous commodity products and providing related supply chain management services in the PRC.
For the three months ended March 31, 2024, the Company recorded revenue of $28,089,681 from its commodities trading business and $2,466 from its supply chain management services, respectively.
The Company sources bulk commodity products from non-ferrous metal and mines or its designated distributors and then sells to manufacturers who need these metals in large quantities. The Company works with suppliers in the sourcing of commodities. Major suppliers include various metal and mineral suppliers such as Kunsteel Group, Baosteel Group, Aluminum Corporate of China Limited, Yunnan Benyuan, Yunnan Tin, and Shanghai Copper. The Company’s target customers include large infrastructure companies such as China National Electricity, Datang Power, China Aluminum Foshan International Trade, Tooke Investment (China), CSSC International Trade Co., Ltd., Shenye Group, and Keliyuan.
Supply Chain Management Services
We areoffer a financial services firm operating in China. Our current operations are mainly conducted through Wujiang Luxiang,distribution service to bulk suppliers of precious metals by acting as a fully licensed microcredit company which we controlsales intermediary, procuring small to medium-sized buyers through our subsidiariesown professional sales team and certain contractual arrangements,channels and consistdistributing the bulk precious metals of providing short-term direct loans and loan guaranteesthe suppliers. Upon executing a purchase order from our sourced buyers, we charge the suppliers a commission fee ranging from 1% to small and medium enterprises (“SME”s) located in Wujiang City, Jiangsu Province2% of China. As of September 30, 2017, we have built a US$58.3 million portfolio of direct loans to 107 borrowers and a total of US$11.4 million in loan guarantees for 14 borrowers. We were established under the 2008 Guidancedistribution order, depending on the Small Loan Company Pilotsize of the China Banking Regulatory Commissionorder. We also offer some other supply chain management services business. For the three months ended March 31, 2024, the Company generated revenue from supply chain management services of $2,466 from three third-party customers, compared with a commodity distribution services revenue of $6,350 with four third-party customers for the same period in 2022.
Competition
The Company mainly competes against other large domestic commodity metal product trading service providers such as Xiamen International Trade and Yijian Shares. Currently, 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 underservedprincipal competitive factors 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 needsnon-ferrous metal commodities trading business are price, product availability, quantity, service, and financing terms for purchases and sales of SMEscommodities.
Applicable Government Regulations
Shenzhen Baiyu Jucheng has obtained all material approvals, permits, licenses and high interest rate “underground” lenders, andcertificates required for our loans provide capital at more favorable terms and sustainable interest rates.
As the rate of fees and commissions generatedmetal product trading operations, including registrations 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 guaranteelocal business and hold off on pursuingadministrative department authorizing 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.purchase of raw materials.
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. During the period from its inception to the date of this quarterly report, PFL entered into two financial leasing agreements for an aggregate lease receivable of US$5.61 million. We do not currently have further funds to deploy in the financial leasing business. As of the date of this quarterly report, both financial leasing agreements expired.
Key Factors Affecting Our Results of Operation
Our business and operating results are affected byThe commodities trading industry has been experiencing decreasing demand as a result of China’s overall economic growth, local, economic condition, market interest rateslowdown. We expect competition in the commodities trading business to persist and the borrowers’ repayment ability. Unfavorable changes could affect the demand for the services that we provide and could materially and adversely affectintensify.
We have a limited operating history, having just started our results ofcommodities trading business in late November 2019. We believe our future success depends on our ability to significantly increase sales as well as maintain profitability from our operations. Our results of operations are also affected by the regulationslimited operating history makes it difficult to evaluate our business and industry policies related to the microcredit industryfuture prospects. You should consider our future prospects in the PRC.
Our results of operations are also affected by the provision for loan losses and provision for financial guarantee loss which are noncash items and represent an assessmentlight of the risk of future loan losses. Increasesrisks and challenges encountered by a company with a limited operating history 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 growthan emerging and the policies to encourage lending to farmersrapidly evolving industry. These risks 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.challenges include, among other things,
our ability to continue our growth as well as maintain profitability; |
● | preservation of our competitive position in the commodities trading industry in China; |
● | our ability to implement our strategies and make timely and effective responses to competition and changes in customer preferences; and |
● | recruitment, training and retaining of qualified managerial and other personnel. |
Our business requires a significant amount of capital in large part due to our need to purchase a bulk volume of commodities and expand our business in existing markets and to additional markets where we currently do not have operations.
Results of Operations
Three Months Ended September 30, 2017March 31, 2024 as Compared to Three Months Ended September 30, 2016March 31, 2023
For the Three Months Ended September 30, | Change | |||||||||||||||
2017 | 2016 | Amount | % | |||||||||||||
Interest income | ||||||||||||||||
Interests and fees on loans and direct financing lease | $ | 128,460 | $ | 722,117 | $ | (593,657 | ) | -82 | % | |||||||
Interests on deposits with banks | 4,042 | 263 | 3,779 | 1437 | % | |||||||||||
Total interest and fee income | 132,502 | 722,380 | (589,878 | ) | -82 | % | ||||||||||
Net interest income | 132,502 | 722,380 | (589,878 | ) | -82 | % | ||||||||||
Reversal of provision for loan losses | 452,786 | 226,694 | 226,092 | 100 | % | |||||||||||
(Provision)/Reversal of provision for direct financing lease losses | (18,616 | ) | 242,180 | (260,796 | ) | -108 | % | |||||||||
Net interest income after provision for loan losses and financing lease losses | 566,672 | 1,191,254 | (624,582 | ) | -52 | % | ||||||||||
Commissions and fees on financial guarantee services | - | 9,117 | (9,117 | ) | -100 | % | ||||||||||
Provision for financial guarantee services | (1,142,807 | ) | (599,808 | ) | (542,999 | ) | 91 | % | ||||||||
Commission and fee loss on guarantee services, net | (1,142,807 | ) | (590,691 | ) | (552,116 | ) | 93 | % | ||||||||
Net (Loss)/Revenue | (576,135 | ) | 600,563 | (1,176,698 | ) | -196 | % | |||||||||
Non-interest expense | ||||||||||||||||
Salaries and employee surcharge | (180,461 | ) | (120,130 | ) | (60,331 | ) | 50 | % | ||||||||
Rental expenses | (13,975 | ) | (28,132 | ) | 14,157 | -50 | % | |||||||||
Business taxes and surcharge | (1,376 | ) | 9,617 | (10,993 | ) | -114 | % | |||||||||
Transaction costs relating to acquisition | (1,356,285 | ) | - | (1,356,285 | ) | >100 | % | |||||||||
Other operating expenses | (387,003 | ) | (1,086,092 | ) | 699,089 | -181 | % | |||||||||
Total non-interest expense | (1,939,100 | ) | (1,224,737 | ) | (714,363 | ) | 58 | % | ||||||||
Foreign exchange loss | (57 | ) | (271 | ) | 214 | -79 | % | |||||||||
Loss Before Income Taxes | (2,515,292 | ) | (624,445 | ) | (1,890,847 | ) | 303 | % | ||||||||
Income tax expense | - | - | - | 0 | % | |||||||||||
Net Loss | (2,515,292 | ) | $ | (624,445 | ) | (1,890,847 | ) | 303 | % | |||||||
Loss per Share- Basic and Diluted | (0.139 | ) | (0.039 | ) | (0.100 | ) | 256 | % | ||||||||
Weighted Average Shares Outstanding-Basic and Diluted | 18,092,369 | 15,889,853 | 2,202,516 | 14 | % | |||||||||||
Net Loss | (2,515,292 | ) | (624,445 | ) | (1,890,847 | ) | 303 | % | ||||||||
Other comprehensive income | ||||||||||||||||
Foreign currency translation adjustment | 14,699 | 260,803 | (246,104 | ) | -94 | % | ||||||||||
Comprehensive Loss | $ | (2,500,593 | ) | $ | (363,642 | ) | $ | (2,136,951 | ) | 588 | % |
For the Three Months Ended March 31, | Change | |||||||||||||||
2024 | 2023 | Amount | % | |||||||||||||
Revenues | ||||||||||||||||
- Sales of commodity products – third parties | $ | 28,089,681 | $ | 34,571,288 | $ | (6,481,607 | ) | (19 | )% | |||||||
- Supply chain management services | 2,466 | 6,350 | (3,884 | ) | (61 | )% | ||||||||||
Total Revenues | 28,092,147 | 34,577,638 | (6,485,491 | ) | (19 | )% | ||||||||||
Cost of revenues | ||||||||||||||||
- Commodity product sales – third parties | (28,144,823 | ) | (34,653,239 | ) | 6,508,416 | (19 | )% | |||||||||
- Supply chain management services | (16 | ) | (40 | ) | 24 | (60 | )% | |||||||||
Total operating cost | (28,144,839 | ) | (34,653,279 | ) | 6,508,440 | (19 | )% | |||||||||
Gross loss | (52,692 | ) | (75,641 | ) | 22,949 | (30 | )% | |||||||||
Operating expenses | ||||||||||||||||
Selling, general, and administrative expenses | (2,707,183 | ) | (2,743,061 | ) | 22,545 | (1 | )% | |||||||||
Total operating expenses | (2,707,183 | ) | (2,743,061 | ) | 22,545 | (1 | )% | |||||||||
Other income, net | ||||||||||||||||
Interest income | 6,269,463 | 4,449,000 | 1,820,463 | 41 | % | |||||||||||
Interest expenses | (121,438 | ) | (109,987 | ) | (11,451 | ) | 10 | % | ||||||||
Amortization of beneficial conversion feature relating to convertible promissory notes | (92,552 | ) | (220,652 | ) | 128,100 | (58 | )% | |||||||||
Other income, net | 25,918 | 4,523 | 21,395 | 473 | % | |||||||||||
Total other income, net | 6,081,391 | 4,122,884 | 1,958,507 | 48 | % | |||||||||||
Net income before income taxes | 3,321,516 | 1,304,182 | 2,004,001 | 155 | % | |||||||||||
Income tax expenses | (1,322,714 | ) | (852,905 | ) | (469,809 | ) | 55 | % | ||||||||
Net income | $ | 1,998,802 | $ | 451,277 | $ | 1,534,192 | 343 | % |
The Company’s net lossRevenue
For the three months ended March 31, 2024, we generate revenue from the following two sources, including (1) revenue from sales of commodity products, (2) revenue from supply chain management services. Total revenue decreased by $6,485,491 or 19%, from $34,577,638 for the three months ended September 30, 2017 was US$2,515,292, representing an increase of US$1,890,847,or 303%, from net loss of US$624,445March 31, 2023 to $28,092,147 for the three months ended September 30, 2016. The change in net lossMarch 31, 2024, among which almost all of our revenue was generated from sales of commodity products for the three months ended September 30, 2017 was the net effect of the changes in the following components:
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The following paragraphs discuss changes in the components of net loss in greater details duringMarch 31, 2024. For the three months ended September 30, 2017, as compared toMarch 31, 2024, 99.99% of our revenue was generated from sales of commodity products and 0.01% was from supply chain management services.
(1) | Revenue from sales of commodity products |
For the three months ended September 30, 2016.March 31, 2024, the Company sold non-ferrous metals to fourteen third-party customers at fixed prices compared with thirteen third-party customers for the same period in 2023, and earned revenues when the product ownership was transferred to its customers.
Net Interest Income
Net interest income is equal to interest income we generated less interest expenses on short-term bank loans. During the three months ended September 30, 2017 and 2016, the Company did not record any interest expenses on short-term bank loans. As a result, the Company’s net interest income and the interests and fees on loans, direct financing leases and deposits with banks decreased by US$589,878, or 82% to US$132,502 during the three months ended September 30, 2017, as compared to net interest income of US$722,380 during the three months ended September 30, 2016. The decrease is the combined effect of: (2) the decrease in the amount of monthly interest received from long-aged loans resulting from the existing customers’ deteriorating loan quality; and (2) No new loans or renewal of loans during the three months ended September 30, 2017, leading to a significant decrease in interest income.
As a traditional industry, the textile industry, which is the pillar industry in Wujiang area, as well as other industries, has been facing downward pressure. Additionally, 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 September 30, 2017, we did not grant new loans or renew existing loans. As of September 30, 2017, we had 107 loans with an average loan size of US$544,549. The loan balance of $54,821,187 was accrued of an allowance for uncollectibilty which was equal to the loan balance.
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 US$4,042 during the three months ended September 30, 2017 as compared to US$263 during the three months ended September 30, 2016. Caused by the contraction of our traditional guarantee business with banks, we have closed several restricted deposit accounts with banks through which we provided guarantee services to our customers. As a result, the interest income on deposits with bank was insignificant during the three months ended September 30, 2017 and 2016, respectively.
Provision for Loan Losses
The Company reversed provision for loan lossesearned revenues of US$452,786 and US$226,694$28,089,681 from sales of commodity products for the three months ended September 30, 2017 and 2016, 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 condensed consolidated statements of operations and comprehensive loss and the components of the provision for loan losses were disclosed in Note 6 of financial statements.
Reversal of provision for loan losses increased by $226,092March 31, 2024 compared with $34,571,288 for the three months ended September 30, 2017, as compared to the same period last year. ThisMarch 31, 2023, with a decrease of $6,481,607 or 19%. The decrease of revenue from sales of commodity products is mainly due that less “doubtful” loans rolled to “loss” loans during the three months ended September 30, 2017 as compared to that during the three months ended September 30, 2016. As of September 30, 2017 and December 31, 2016, the “loss” loans accounted for 91.9% and 79.9% of total loan amount, respectively. The fact leads to more reversal of provision on loan losses during the three months ended September 30, 2017 as compared to the same perioddecrease in the average unit sales price of 2016.
From October 1, 2017 to the date of the report, the Company assessed the charged-off loan balances recorded as of September 30, 2017 and was of the opinion that these balances were uncollectible.
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 loanszinc ingots 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.
As of September 30, 2017, the off-balance-sheet financial guarantee amounted to US$11.4 million. The commissions and fees generated from our financial guarantee services decreased from US$9,117$3.32 per kilogram for the three months ended September 30, 2016March 31, 2023 to US$nil$2.94 per kilogram for the three months ended September 30, 2017.March 31, 2024. And based on a downward trend in FY2023, the annual consumption of zinc plating in China is declining year by year.
(2) | Revenue from supply chain management services |
In connection with the Company’s commodity sales, in order to help customers to obtain sufficient funds to purchase various metal products and also help upstream metal and mineral suppliers sell their metal products, the Company launched its supply chain management service business in December 2019, which primarily consisted of loan recommendation services and distribution services.
For the three months ended March 31, 2024, the Company recorded revenue of $ 2,466 from supply chain management services to third-party customers compared with $ 6,350 to third-party customers for the same period in 2023. The reduction wasdecrease in revenue from sales of commodity products is mainly due to the fact thatdownsizing of the Company did not increase any financial guarantee business since March 31, 2016zinc plating market, as management reducedwell as less customers in the guarantee portfolio to controlfierce competition.
Cost of revenue
Our cost of revenue primarily includes the default risk.
Ascost of September 30, 2017, we have provided guarantees for a totalrevenue associated with commodity product sales and the cost of US$11.4 million underlying loans to approximately 14 financial guarantee service customers, as compared to a total of US$10.9 million as of December 31, 2016.
Provision on Financial Guarantee Services
The Company provided a provision for financial guaranteerevenue associated with management services of US$1,142,807the supply chain. Total cost of revenue decreased by $ 6,508,440 or 19% from $34,653,279 for the three months ended September 30, 2017, as comparedMarch 31, 2023 to US$599,808$28,144,839 for the three months ended September 30, 2017, representing a change of $542,999. The increase was mainly attributableMarch 31, 2024, due to the increased allowance on guarantee paid on behalfdecrease in the cost of financial guarantee customers who were classified as “loss customers” asrevenue associated with commodity product sales.
Cost of September 30, 2017.revenue associated with commodity trading
The methodologycost of revenue primarily consists of purchase costs of non-ferrous metal products.
For the three months ended March 31, 2024, the Company used to estimatepurchased non-ferrous metal products of $28,144,823 from eleven third-party suppliers.
For 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. Based on the recent lawsuit results and repayment status by defaulted customers,three months ended March 31, 2023, the Company estimated approximately 50%purchased non-ferrous metal products of off-balance-sheet financial guarantee services may be subject to default$34,653,239 from eleven third-party suppliers.
Selling, general, and their repayment may be “not likely”. As of September 30, 2017administrative expenses
Selling, general and December 31, 2016, the Company accrued approximately 62% and 55% of contract amount, respectively.
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.
Since the beginning of 2016, People’s Bank of China injected a significant amount of liquidity to the market to encourage the development of emerging industries such as online-game, filming and virtual reality, which has made it easier than previous two years for entities in such emerging industries to gain access to capital. However, the bank lenders are still cautious with SMEs in traditional industries. The bank lenders usually require an old loan be paid in full upon maturity before they approve a new loan to the same borrower. Since the end of the year 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 have brought collection actions against both the borrowers and their counter-guarantors. However, management was advised by counsel in the collection action that the chance of collection is remote given the large scale bad debt prevalent in Wujiang region. As of September 30, 2017 and December 31, 2016, the management charged off specific provision for three and two customers in the amount of US$164,220 and US$142,966, respectively.
Non-interest Expenses
Non-interestadministrative expenses increaseddecreased from US$1,224,737$2,743,061 for the three months ended September 30, 2016March 31, 2023 to US$1,939,100$2,707,183 for the three months ended September 30, 2017,March 31, 2024, representing an increasea decrease of US$714,363$35,878, or 58%. Non-interest1% within a normal range of fluctuation. Selling, general and administrative expenses primarily consisted of salary and employee surcharge,benefits, office rental expense, business taxexpenses, amortizations of intangible assets and surcharge, depreciation of equipment, travel expenses, entertainment expenses,convertible notes, professional service fees and other office supplies. The increasefinance offering related fees. There was mainly attributable to net effects of an increase of salaries and employee surcharge by US$60,331 or 50% and an increase in transaction cost relating to acquisition of $1,356,285 netting off against a decrease of other operating expenses by US$699,089, or 181%. The increase of salaries and employee surcharge was mainly caused by increased salary compensations made to managementno material change for the efforts in the acquisition of Sorghum Investment Holdings Limited (“Sorghum”). The increase of transaction cost relating to acquisition is primarily attributable to issuance of unregistered shares to the professional service providers for their services in the acquisition of Sorghum. The decrease of other operating expenses is mainly due to a decrease of US$782,513 in legal and consulting expenses as during the three months ended September 30, 2016, the Company issued 300,000 restricted shares at a fair value of $771,000,March 31, 2024 with respect to a financial service provider who was involved to assist the Company to find out a new business modelselling, general and increase profitability.
Results of Operations
Nine Months Ended September 30, 2017 as Compared to Nine Months Ended September 30, 2016
For the Nine Months Ended September 30, | Change | |||||||||||||||
2017 | 2016 | Amount | % | |||||||||||||
Interest income | ||||||||||||||||
Interests and fees on loans and direct financing lease | $ | 290,566 | $ | 1,203,663 | $ | (913,097 | ) | -76 | % | |||||||
Interests on deposits with banks | 4,728 | 3,526 | 1,202 | 34 | % | |||||||||||
Total interest and fee income | 295,294 | 1,207,189 | (911,895 | ) | -76 | % | ||||||||||
Interest expense | ||||||||||||||||
Interest expense on short-term bank loans | - | (30,057 | ) | 30,057 | -100 | % | ||||||||||
Net interest income | 295,294 | 1,177,132 | (881,838 | ) | -75 | % | ||||||||||
(Provision)/Reversal of provision for loan losses | (2,420,698 | ) | 133,177 | (2,553,875 | ) | -1918 | % | |||||||||
(Provision)/Reversal of provision for direct financing lease losses | (66,113 | ) | 242,180 | (308,293 | ) | -127 | % | |||||||||
Net interest (loss)/income after provision for loan losses and financing lease losses | (2,191,517 | ) | 1,552,489 | (3,744,006 | ) | -241 | % | |||||||||
Commissions and fees on financial guarantee services | 2,843 | 26,308 | (23,465 | ) | -89 | % | ||||||||||
(Provision)/Reversal of provision for financial guarantee services | (830,140 | ) | 385,352 | (1,215,492 | ) | -315 | % | |||||||||
Commission and fee (loss)/income on guarantee services, net | (827,297 | ) | 411,660 | (1,238,957 | ) | -301 | % | |||||||||
Net (Loss)/Revenue | (3,018,814 | ) | 1,964,149 | (4,982,963 | ) | -254 | % | |||||||||
Non-interest income | ||||||||||||||||
Other non-interest income | - | 48,945 | (48,945 | ) | -100 | % | ||||||||||
Total non-interest income | - | 48,945 | (48,945 | ) | -100 | % | ||||||||||
Non-interest expense | ||||||||||||||||
Salaries and employee surcharge | (707,012 | ) | (548,978 | ) | (158,034 | ) | 29 | % | ||||||||
Rental expenses | (41,242 | ) | (64,850 | ) | 23,608 | -36 | % | |||||||||
Business taxes and surcharge | (3,221 | ) | (21,798 | ) | 18,577 | -85 | % | |||||||||
Transaction costs relating to acquisition | (2,136,285 | ) | - | (2,136,285 | ) | >100 | % | |||||||||
Litigation and settlement cost for the shareholders’ lawsuit | (1,838,500 | ) | (690,000 | ) | (1,148,500 | ) | 166 | % | ||||||||
Other operating expenses | (784,815 | ) | (1,893,027 | ) | 1,108,212 | -58 | % | |||||||||
Total non-interest expense | (5,511,075 | ) | (3,218,653 | ) | (2,292,422 | ) | 71 | % | ||||||||
Foreign exchange loss | (355 | ) | (557 | ) | 202 | -36 | % | |||||||||
Loss Before Income Taxes | (8,530,244 | ) | (1,206,116 | ) | (7,324,128 | ) | 607 | % | ||||||||
Income tax expense | - | - | - | 0 | % | |||||||||||
Net Loss | (8,530,244 | ) | (1,206,116 | ) | (7,324,128 | ) | 607 | % | ||||||||
Loss per Share-Basic and Diluted | (0.491 | ) | (0.086 | ) | (0.405 | ) | 471 | % | ||||||||
Weighted Average Shares Outstanding-Basic and Diluted | 17,371,183 | 14,026,815 | 3,344,368 | 24 | % | |||||||||||
Net Loss | (8,530,244 | ) | (1,206,116 | ) | (7,324,128 | ) | 607 | % | ||||||||
Other comprehensive income | ||||||||||||||||
Foreign currency translation adjustment | 43,987 | 205,546 | (161,559 | ) | -79 | % | ||||||||||
Comprehensive Loss | $ | (8,486,257 | ) | $ | (1,000,570 | ) | $ | (7,455,702 | ) | 748 | % |
The Company’s net loss for the nine months ended September 30, 2017 was US$8,530,244, representing an increase of US$7,324,128, or 607%, from net loss of US$1,206,116 for the nine months ended September 30, 2016. The change in net income for the nine months ended September 30, 2017 was the net effect of the changes in the following components:
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The following paragraphs discuss changes in the components of net loss in greater details during the nine months ended September 30, 2017 as compared to the nine months ended September 30. 2016.
Net Interest Income
Net interest income is equal to interest income we generated less interestadministrative expenses, on short-term bank loans. The Company’s net interest income decreased by US$881,838 or 75% to US$295,294 during the nine months ended September 30, 2017, as compared to net interest income of US$1,177,132 during the nine months ended September 30, 2016.
The interests and fees on loans, direct financing leases and deposits with banks decreased by US$911,895, or 76% to US$295,294 during the nine months ended September 30, 2017, as compared to net interest income of US$1,207,189 during the nine months ended September 30, 2016. The decrease is the combined effect of: (1) the decrease in the amount of monthly interest received from long-aged loans resulting from the existing customers’ deteriorating loan quality; and (2) No new loans or renewal of loans during the nine months ended September 30, 2017, leading to a significant decrease in interest income.
As a traditional industry, the textile industry, which is the pillar industry in Wujiang area, as well as other industries, has been facing downward pressure. Additionally, 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 nine months ended September 30, 2017, we did not grant new loans or renew existing loans. As of September 30, 2017, we had 107 loans with an average loan size of US$544,549. The loan balance of $54,821,187 was accrued of an allowance for uncollectibilty which was equal to the loan balance.
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 US$4,728 during the nine months ended September 30, 2017 as compared to US$3,526 during the nine months ended September 30, 2016. Caused by the contraction of our traditional guarantee business with banks, we have closed several restricted deposit accounts with banks through which we provided guarantee services to our customers. As a result, the interest income on deposits with bank was insignificant during the nine months ended September 30, 2017 and 2016, respectively.
Provision for Loan Losses
The Company provided a provision for loan losses of US$2,420,698 and reversed a provision for loan losses of US$133,177 for the nine months ended September 30, 2017 and 2016, 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 condensed consolidated statements of operations and comprehensive loss and the components of the provision for loan losses were disclosed in Note 8 of financial statements.
Provision for loan losses increased by $2,553,875 for the nine months ended September 30, 2017, as compared to the same period last year. Based onin 2023.
Interest income
Interest income was primarily generated from loans made to third parties and related parties. For the management assessment over each individual loan in terms the customers’ payment ability and payment intention, more “doubtful” loans rolled to “loss” loans during the ninethree months ended September 30, 2017 as compared to that duringMarch 31, 2024, interest income was $6,269,463 representing an increase of $1,820,463, or 41% from $4,449,000 for the ninethree months ended September 30, 2016.March 31, 2023. The fact leads to more accrual of provision on loan losses during the nine months ended September 30, 2017 as compared to the same period of 2016.
From October 1, 2017 to the date of the report, the Company assessed the charged-off loan balances recorded as of September 30, 2017 and was of the opinion that these balances were uncollectible.
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.
As of September 30, 2017, the off-balance-sheet financial guarantee amounted to US$11.4 million. The commissions and fees generated from our financial guarantee services decreased from US$26,308 for the nine months ended September 30, 2016 to US$2,843 for the nine months ended September 30, 2017. The reductionincrease was due to the fact thatgrowth of loans made to third party vendors for the Company did not increase any financial guarantee business sincethree months ended March 31, 2016 as management reduced the guarantee portfolio to control the default risk.
As2024. The balance of September 30, 2017, we have provided guarantees for a total of US$11.4 million underlying loans to approximately 14 financial guarantee service customers, as compared to a total of US$10.9loan receivables was $247.05 million as of DecemberMarch 31, 2016.2024 which was $55.42 million higher than that as of March 31,2023.
Provision on Financial Guarantee ServicesAmortization of beneficial conversion feature and relative fair value of warrants relating to convertible promissory notes
The Company provided a provision for financial guarantee services of US$830,140 forFor the ninethree months ended September 30, 2017, as compared to a reversalMarch 31, 2024, the item represented the amortization of provisionthe beneficial conversion feature of US$385,352 for$92,552 of the ninetwo convertible promissory notes issued on May 6, 2022 and March 13, 2023.
For the three months ended September 30, 2016, representing a change of $1,215,492. The change was mainly attributable toMarch 31, 2023, the decrease of repayment from several financial guarantee customers who were classified as “loss customers” as of September 30, 2017.
The methodologyitem represented 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 performanceamortization of the customers, actual defaults, estimated future defaults, historical loss experience, estimated valuebeneficial conversion feature of collaterals or guarantees the costumers or third parties offered, and other economic conditions such as the economic trend$220,652 of the area and the country. The estimates are based upon currently available information. Basedtwo convertible promissory notes issued on the recent lawsuit results and repayment status by defaulted customers, the Company estimated approximately 50% of off-balance-sheet financial guarantee services may be subject to default and their repayment may be “not likely”. As of September 30, 2017 and December 31, 2016, the Company accrued approximately 62% and 55% of contract amount, respectively.
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.
Since the beginning of 2016, People’s Bank of China injected a significant amount of liquidity to the market to encourage the development of emerging industries such as online-game, filming and virtual reality, which has made it easier than previous two years for entities in such emerging industries to gain access to capital. However, the bank lenders are still cautious with SMEs in traditional industries. The bank lenders usually require an old loan be paid in full upon maturity before they approve a new loan to the same borrower. Since the end of the year 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 have brought collection actions against both the borrowers and their counter-guarantors. However, management was advised by counsel in the collection action that the chance of collection is remote given the large scale bad debt prevalent in Wujiang region. As of September 30, 2017 and December 31, 2016, the management charged off specific provision for two customers in the amount of US$164,220 and US$142,966, respectively.
In FebruaryMay 6, 2022 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. 13, 2023.
Net income
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 twelve months to one and a half 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 claimforegoing, net income for the Company.
Non-interest Expenses
Non-interest expenses increased from US$3,218,653 for the ninethree months ended September 30, 2016 to US$5,511,075 for the nine months ended September 30, 2017,March 31, 2024 was $1,998,802, representing an increase of US$2,292,422, or 71%. 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 net effects of an increase of salaries and employee surcharge by US$158,034, or 29%, an increase of transaction cost relating to acquisition of $2,136,285 and an increase of litigation and settlement cost$1,547,525 from $451,277 for the shareholders’ lawsuit of $1,148,500, or 166% netting off against a decrease of other operating expenses by US$1,108,212, or 58%. The increase of salaries and employee surcharge was mainly caused by increased issuance of restricted shares to management for the nine months ended September 30, 2017. The increase of transaction cost relating to acquisition is primarily attributable to issuance of unregistered shares to the professional service providers for their services in the acquisition of Sorghum. The increase of legal and settlement cost of shareholders’ lawsuit was attributable to accrual of expenses on the basis of a final fairness hearing on May 30, 2017 when the share price increased significantly as compared with initial estimation of the contingent expenses. The decrease of other operating expenses is mainly due to a decrease of US$1,262,313 in legal and consulting expenses as during the three months ended September 30, 2016, the Company issued 300,000 restricted shares at a fair value of $771,000, to a financial service provider who was involved to assist the Company to find out a new business model and increase profitability.
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 nine months ended September 30, 2017, 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. During the nine months ended September 30, 2017, we assessed the loan portfolio quality and charged-off loan receivable balances recorded as of September 30, 2017 and were of the opinion that these balances were uncollectible.
In addition, we plan to minimize our risks by concentrating on smaller amount loans that are below US$451,000 (or approximately RMB 3.0 million).
Currently, the banking industry encourages SMEs to apply for loans as individuals 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 September 30, 2017, our loan balance did not significant change in both business loans and personal loans as compared to that as of DecemberMarch 31, 2016.
2023.
The following table sets forth the classification of loans receivable as of September 30, 2017 and December 31, 2016, respectively:
September 30, 2017 (unaudited) Amount | Percent of Total | December 31, 2016 Amount | Percent of Total | |||||||||||||
Business loans | $ | 36,783,453 | 63.13 | % | $ | 37,786,657 | 64.57 | % | ||||||||
Personal loans | 21,483,267 | 36.87 | % | 20,736,324 | 35.43 | % | ||||||||||
Total Loans receivable | $ | 58,266,720 | 100 | % | $ | 58,522,981 | 100 | % |
Nonaccrual loans totaled US$56.28 million, or 96.60% of loans receivable as of September 30, 2017, as compared with US$56.58 million, or 96.68% of loans receivable, as of December 31, 2016. The allowance for loan losses was US$54.82 million, representing 94.09% of loans receivable and 97.40% of non-accrual loans as of September 30, 2017. As of December 31, 2016, the allowance for loan losses was US$51.71 million, representing 88.36% of loans receivable and 91.39% of non-accrual loans.
The following table sets forth information concerning our nonaccrual loans as of September 30, 2017 and December 31, 2016, respectively:
September 30, 2017 (unaudited) | December 31, 2016 | |||||||
Nonaccrual loans | $ | 56,283,219 | $ | 56,579,073 | ||||
Allowance for loan losses | $ | 54,821,187 | $ | 51,708,062 | ||||
Loans receivable | $ | 58,266,720 | $ | 58,522,981 | ||||
Total assets | $ | 7,714,013 | $ | 9,570,743 | ||||
Nonaccrual loans to loans receivable | 96.60 | % | 96.68 | % | ||||
Nonperforming assets to total assets | 729.62 | % | 591.17 | % | ||||
Allowance for loan losses to loans receivable | 94.09 | % | 88.36 | % | ||||
Allowance for loan losses to non-accrual loans | 97.40 | % | 91.39 | % |
As a traditional industry, the textile industry, which is the pillar industry in 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 remained at a high level as of September 30, 2017.
Cash Flows and Capital Resources
We have financed our operations primarily through shareholder contributions, cash flow from operations, borrowings from third parties and related parties, and equity financing through private placement and public offerings of securities. As a result of our total cash activities, net cash increased from US$768,501 as of December 31, 2016 to US$3,030,468 as of September 30, 2017.offerings.
Going Concern
TheAs reflected in the accompanying unaudited condensed interim consolidated financial statements, have been prepared on a going concern basis, which contemplatesfor the realizationthree months ended March 31, 2024, the Company reported cash inflows of assets and$6,119,335 from operating activities. As of March 31, 2024, the satisfaction of liabilities in the normal course of business. The realization of assets and the satisfaction of liabilities in the normal course of business are dependent on, among other things, the Company’s ability to operate profitably, to generate cash flows from operations, and to pursue financing arrangements to support itsCompany has positive working capital requirements. of approximately $224 million.
During the three months ended March 31, 2023, the cash used in investing activities was mainly attributable to cash raised of $25,046,081 from collection of loans from third parties, cash paid $32,073,939 from payment made on loans to third parties.
The conditions described below raises substantial doubt aboutCompany expects to use the Company’s abilityproceeds from the equity financing as working capital to expand its commodities trading business.
Based on the foregoing capital market activities, the management believes that the Company will continue as a going concern within one year from the date of this filing.
The Company had an accumulated deficit of US$78,734,900 as of September 30, 2017. In addition, the Company had a negative net asset of US$774,251 as of September 30, 2017. As of September 30, 2017, the Company had cash and cash equivalents of US$3,030,468, and total short-term borrowings of nil. Caused by the limited funds, the management assessed that the Company was not able to keep the size of lending business within one year from the filing of Form 10-Q.
The Company is actively seeking other strategic investors with experience in lending business. If necessary, the shareholders of Wujiang Luxiang will contribute more capital into Wujiang Luxiang.
During the nine months ended September 30, 2017, the Company incurred operating loss of US$8,530,244. Affected by the reduction of lending business and guarantee business and increased loss loans, the management was in the opinion that recurring operating losses with be made within one year from the issuance of the filing.
The Company continues to use its best effort to improve collection of loan receivable and interest receivable. Management engaged two PRC law firms to represent the Company in the legal proceedings against the borrowers and their counter guarantors.
During the nine months ended September 30, 2017, the Company incurred negative operating cash flow of US$1,248,629. Affected by significant balance of charged-off interest receivable, the management assessed the Company would continue to have negative operating cash flow within one year from the issuance of the filing.
The Company continues to reduce the redundant headcount and entered into a new office lease with lower rent commitment since January 1, 2017 to improve operating cash flow.
Most loan customers are from textile industry which has been facing downward pressure. Additionally adversely affected by emergence of internet finance entities, the Company was facing fierce competition. Considering the high risks from both customers and competitors, management assessed the Company would further reduced the loan business without strong financial support.
Considering the above factors, the Company, on August 9, 2017, entered into Certain Share Exchange Agreement (“Exchange Agreement”) with the parent company of Sorghum Investment Holdings Limited (“Sorghum”). Pursuant to the terms of the Exchange Agreement, CCCR will acquire 100% of the outstanding shares of Sorghum through issuance of 152,587,000 of its common shares. This transaction will be accounted for as a “reverse acquisition” since, immediately following completion of the transaction, the shareholders of Sorghum immediately prior to the transaction will effectuate control of the Company, through its 87.9% ownership interest in the post-merger entity.12 months.
While management believes that the measures in the liquidity plan will be adequate to satisfy its liquidity and cash flow requirements for the twelve months after the financial statements are available to be issued, there is no assurance that the liquidity plan will be successfully implemented. Failure to successfully implement the liquidity plan will have a material adverse effect on the Company’s business, results of operations and financial position, and may materially adversely affect its ability to continue as a going concern.
Statement of Cash Flows
The following table sets forth a summary of our cash flows forflows. For the ninethree months ended September 30, 2017March 31, 2024 and 2016,2023, respectively:
For the nine months ended September 30, | ||||||||
2017 | 2016 | |||||||
Net cash used in operating activities | $ | (1,248,629 | ) | $ | (47,871 | ) | ||
Net cash provided by investing activities | 1,905,807 | 2,499,916 | ||||||
Net cash provided by (used in) financing activities | 1,560,000 | (1,600,832 | ) | |||||
Effects of exchange rate changes on cash | 44,789 | 9,747 | ||||||
Net cash inflow | $ | 2,261,967 | $ | 860,960 |
For the three months Ended March 31, | ||||||||
2024 | 2023 | |||||||
Net Cash Provided by Operating Activities | $ | 6,119,335 | $ | 2,767,040 | ||||
Net Cash Used in Investing Activities | (7,077,140 | ) | (46,689,327 | ) | ||||
Net Cash Provided by Financing Activities | - | 45,909,073 | ||||||
Effect of exchange rate changes on cash and cash equivalents | (1,102 | ) | (898,831 | ) | ||||
Net increase/(decrease) in cash and cash equivalents | (958,907 | ) | (1,087,955 | ) | ||||
Cash and cash equivalents at beginning of period | 1,516,358 | 893,057 | ||||||
Cash and cash equivalents at end of period | $ | 557,451 | $ | 1,981,012 |
Net Cash Used inProvided by Operating Activities
During the ninethree months ended September 30, 2017,March 31, 2024, we had a cash outflowinflow from operating activities of US$1,248,629,$6,119,335, an increase of US$1,200,798$3,352,295 from a cash outflowinflow of US$47,871$2,767,040 for the same period last year.three months ended March 31, 2023. We generatedincurred a net lossprofit for the ninethree months ended September 30, 2017March 31, 2024 of US$8,530,244,$1,985,468, an increase of US$7,324,128$1,534,191 from the ninethree months ended September 30, 2016,March 31, 2023, during which we incurredrecorded a net lossprofit of US$1,206,116. $451,277.
In addition to the change in profitability, the decreaseincrease in net cash used inprovided by operating activities was the result of several factors, including:
● | Non-cash effects adjustments include amortization of beneficial conversion feature of convertible promissory notes of $92,552, amortization of intangible assets of $1,976,086, accrual convertible interest expense of $113,901 and amortization of discount on convertible promissory notes of $80,000. |
● | An increase of |
● | A decrease of | |
| ||
|
Net Cash Provided byUsed in Investing Activities
Net cash provided byused in investing activities for the ninethree months ended September 30, 2017March 31, 2024 was US$1,905,807 as compared to net cash provided by investing activities of US$2,499,916 for the nine months ended September 30, 2016. The cash provided by investing activities for the nine months ended September 30, 2017 was net effects of collection of principals of US$1,155,055 from third party customers of direct loan business, collection of principal of US$227,723 from direct financing lease customers, and collection of short-term loans from a related party of US$478,954. The cash provided by investing activities for the nine months ended September 30, 2016 was mainly collection of principals of $2,147,593 from third party customers of direct loan business, collection of $1,427,674 from third party customers of financial guarantee services, netting off against a short-term loan of US$1,945,224 advanced to a related party
Net Cash Provided/ (Used) in Financing Activities
Net cash provided by financing activities for the nine months ended September 30, 2017 was US$1,560,000$7,077,140 as compared to net cash used in financinginvesting activities of US$1,600,832$46,689,327 for the ninethree months ended September 30, 2016. March 31, 2023.
The cash used in investing activities for the three months ended March 31, 2024 was mainly for the loans disbursed to third parties of $32,073,939, partly offset by the collection of loans from related parties of $25,046,081.
The cash used in investing activities for the three months ended March 31, 2023 was for the loans disbursed to third parties of $46,678,620.
Net Cash Provided by Financing Activities
During the three months ended March 31, 2024, the Company did not occur any cash movement for financing activities.
During the three months ended March 31, 2023, the cash provided by financing activities for the nine months ended September 30, 2017 was mainly from private placement of 1,237,486 shares with four individuals. The cash used in financing activities for the nine months ended September 30, 2016 was mainly attributable to cash raised of $42,350,000 from certain private placements by the repaymentissuance of bank borrowing.35,000,000 shares of common stocks, cash raised of $559,073 from a registered direct offering by the issuance of 689,306 shares of common stocks, cash raised of $3,000,000 from issuance of unsecured senior convertible promissory notes in the aggregate principal amount of $3,320,000.
Off-balance Sheet Arrangements
We did not have any off-balance sheet arrangements as of March 31, 2024.
Contractual Obligations
As of September 30, 2017, the annual amounts of future minimum payments under certain of our contractual obligations were:
Payment due by period | ||||||||||||||||||||||||
Total | Less than 1 year | 1-2 years | 2-3 years | 3-5 years | 5 years and after | |||||||||||||||||||
Contractual obligations: | ||||||||||||||||||||||||
Operating lease (1) (2) | 62,237 | 30,643 | 25,202 | 6,392 | - | - | ||||||||||||||||||
$ | 62,237 | $ | 30,643 | $ | 25,202 | $ | 6,392 | $ | - | $ | - |
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 involvementMarch 31, 2024, the Company hashad one lease arrangement with an unrelated third party. The lease term was within 24 months, which will be due in November 2024. As of the guarantee business and also representsdate of this report, the Company’s maximum exposure to credit loss.Company cannot reasonably assess whether it will renew the lease term. The lease commitment was as following table:
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.
Less than | ||||||||||||||||
Total | 1 year | 1-2 years | Thereafter | |||||||||||||
Contractual obligations: | ||||||||||||||||
Operating lease | $ | 8,534 | $ | 8,534 | $ | - | $ | - | ||||||||
Total | $ | 8,534 | $ | 8,534 | $ | - | $ | - |
September 30, 2017 (unaudited) | December 31, 2016 | |||||||
Guarantee | 11,367,564 | 10,893,089 |
Critical Accounting Policies
Please refer to Note 32 of ourthe Condensed Consolidated Financial Statements included in this Form 10Q10-Q for details of our critical accounting policies.
Recently issued accounting standards
Please refer to Note 3(u) of our Consolidated Financial Statements included in Form 10-K for details of our recently issued accounting standards.
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 September 30, 2017 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, summarizedMarch 31, 2024.
Certain personnel primarily responsible for preparing our financial statements require additional requisite levels of knowledge, experience and reported within the time periods specifiedtraining in the Securitiesapplication of U.S. GAAP commensurate with our financial reporting requirements. The management thought that in light of the inexperience of our accounting staff with respect to the requirements of U.S. GAAP-based reporting and Exchange Commission (“SEC”)SEC rules and forms,regulations, we did not maintain effective controls and (ii) accumulateddid not implement adequate and communicatedproper supervisory review to the Company’s management, including its principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.ensure that significant internal control deficiencies can be detected or prevented.
Inherent Limitations Over Internal ControlsManagement’s assessment of the control deficiency over accounting and finance personnel as of March 31, 2024 includes:
● | There is a lack of formal procedures for handling different types of revenue recognition. |
The
● | There is a lack of procedures and documentation for dealing with related parties. |
● | There was no accountant with adequate U.S. GAAP knowledge working in the Company’s Accounting Department. |
● | The Company has insufficient written policies and procedures for accounting and financial reporting, which led to an inadequate financial statement closing process. |
Based on the above factors, management concluded that the control deficiency over accounting and finance personnel was the material weakness as of March 31, 2024, as our accounting staff continues to lack sufficient U.S. GAAP experience and requires further substantial training.
Limitations on the Effectiveness of Disclosure Controls. Readers are cautioned that our management does not expect that our disclosure controls and procedures or our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reportingwill necessarily prevent all fraud and the preparation of financial statements for external purposes in accordance with U.S GAAP. The Company’smaterial error. An internal control over financial reporting includes those policies and procedures that:
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 designedwell-conceived 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, within the Company have been detected. Also,The design of any evaluation of the effectivenesssystem of controls is also based partly on certain assumptions about the likelihood of future events, and there can be no assurance that any control design will succeed in achieving its stated goals under all potential 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.conditions.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the quarter ended September 30, 2017March 31, 2024 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.
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 SanjivMehrotra (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. 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.
On November 22, 2016, the Company entered into a Stipulation and Agreement of Settlement (the “Stipulation”) to settle the Securities Class Action. The Stipulation resolves the claims asserted against the Company and certain of its current and former officers and directors in the Securities Class Action without any admission or concession of wrongdoing or liability by the Company or the other defendants. On June 1, 2017, following a final fairness hearing on May 30, 2017 regarding the proposed settlement, the Court entered a final judgment and order that: (i) dismisses with prejudice the claims asserted in the Securities Class Action against all named defendants in connection with the Securities Class Action, including the Company, and releases any claims that were or could have been asserted that arise from or relate to the facts alleged in the Securities Class Action, such that every member of the settlement class will be barred from asserting such claims in the future; and (ii) approves the payment of $220,000 in cash and the issuance of 950,000 shares of its common stock (the “Settlement Shares”) to members of the settlement class. In addition, the Company would incur a payment of $25,000 in cash to class administrator. At present, the Company is waiting for the Court to approve the disbursement of the Settlement Shares. Plaintiff is filing a motion to obtain such approval. The $245,000 cash portion of the settlement has been paid in full. The Company accrued settlement cost aggregating US$1,863,500 and US$690,000 during the nine months ended September, 2017 and 2016, respectively.
On July 28, 2017, the Court entered a clarifying order to specify the allocation of attorneys’ fees in accordance with the Stipulation.
The Settlement Shares are exempt from registration under Section 3(a)(10) of the Securities Act of 1933, as amended. The settlement does not constitute any admission of fault or wrongdoing by the Company or any of the individual defendants.None.
Two of the Underwriter Defendants, Axiom Capital Management, Inc., and ViewTrade Securities, Inc., have asserted their respective rights to indemnification under the Underwriting Agreements entered into in connection with the Company’s initial public offering and secondary offering. On or about March 16, 2016, CCCR entered into an Advance Funding and Escrow Agreement, under which the CCCR agreed to deposit shares into escrow to fund the advancement obligation, with the initial deposit to be shares valued at Two Hundred Thousand Dollars ($200,000), based upon 80% of the 30 day volume weighted average Trading Price (“VWAP”) for each of the 30 consecutive trading days prior to the date of the Agreement.
On February 3, 2015, a purported shareholder KiramKodali filed a putative shareholder derivative complaint in the United States District Court for the Southern District of New York, captioned KiranKodali 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. The Company has since learned that Mr. Qin has been convicted and sentenced to a term of incarceration of approximately five years. In view of this information, the Company is evaluating its strategic options.
The Company and its directors were parties to a lawsuit filed on September 1, 2017, by Juan C. Rojas (“Plaintiff”), on behalf of himself and all other similarly situated stockholders of China Commercial Credit, Inc., in the Chancery Court of the State of Delaware (the “Delaware Chancery Court”) (Case No. 2017-0633-JTL) (the “Action”), which sought injunctive relief, costs, and attorney’s fees. Plaintiff’s Verified Class Action Complaint (“Complaint”) alleged that the Company’s directors breached their fiduciary duties to the Company’s stockholders by failing to disclose all necessary material information relating to the Company’s entry into an Exchange Agreement (“Exchange Agreement”) with Sorghum Investment Holdings Limited (“Sorghum”) on August 9, 2017, and preventing the Company’s stockholders from casting a fully informed vote on the Company’s acquisition of Sorghum, and other proposals contained in the Company’s preliminary proxy statement, dated August 14, 2017 (“Preliminary Proxy Statement). Plaintiff filed a Motion to Expedite the Proceeding (“Motion to Expedite”) seeking to expedited consideration of Plaintiff’s Motion for Preliminary Injunction, which was filed simultaneously with Plaintiff’s Complaint. The Company opposed the Motion to Expedite on September 20, 2017, and the Delaware Chancery Court held a hearing on the Motion to Expedite on September 22, 2017, wherein it denied Plaintiff’s Motion to Expedite without prejudice. On September 28, 2017, the Company filed a motion to dismiss Plaintiff’s Complaint (“Motion to Dismiss”). Plaintiff has not responded to the Company’s Motion to Dismiss.
On October 10, 2017, the Company filed Amendment No. 1 to its Preliminary Proxy Statement (the “Amended Preliminary Proxy”) with the U.S. Securities and Exchange Commission (the “Commission”) in response to the Commission’s September 8, 2017 comment letter (“Comment Letter”). After reviewing the Amended Preliminary Proxy, Plaintiff determined that the Company’s Amended Preliminary Proxy rendered the claims asserted in Plaintiff’s Complaint moot and/or otherwise unsuitable for further pursuit. On October 19, 2017, the Company and Plaintiff entered into a stipulation (“Stipulation”) wherein Plaintiff agreed to voluntarily dismiss his claims against the Company, and its directors, with prejudice. The Delaware Chancery Court granted the Stipulation on October 20, 2017, and entered an Order dismissing the Action with prejudice. In accordance with the Order, the Company will advise the Delaware Chancery Court within fifteen (15) days of the earlier of (a) the stockholder vote on the Exchange Agreement relating to the proposals, or (b) the termination of the Exchange Agreement, and whether the parties to the Action have reached an agreement with respect to Plaintiff’s anticipated request for fees and expenses. Currently, no compensation in any form has passed from the Company, or its directors, to Plaintiff or Plaintiff’s attorneys in the Action, and the Company has not made a promise to give any such compensation. On November 6, 2017, the Company filed Amendment No. 2 to its Preliminary Proxy Statement with the Commission in further response to comments from the Commission.
ITEM 1A. RISK FACTORS
Not applicable.As of the date of this report, there have been no material changes to the risk factors disclosed in our annual report on Form 10-K filed with the SEC on March 22, 2024.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On August 10, 2017, the Company issued 4,500 and 5,500 restricted shares to Axiom Capital Management, Inc. and Michael S. Jacobs, respectively, as compensation for the issuance of a fairness opinion. All these shares areCommon stock issued pursuant to Section 4(a)(2)the conversion of the Securities Act and/or Regulation D promulgated thereunder.convertible promissory notes
On September 14, 2017, theThe Company settled convertible promissory notes issued 460,000 restricted shares to certain advisorson October 4, 2021 of $125,000 on December 30, 2022, $125,000 on January 10, 2023, $125,000 on January 18, 2023, $250,000 on February 2, 2023, $250,000 on March 2, 2023, respectively, and finders as compensation for their services rendered in connection with the acquisition of Sorghum Investment Holdings Limited. All these shares are issued pursuant to Section 4(a)(2) of the Securities Act.
On September 27, 2017, the Company entered into a securities purchase Agreement (the “SPA”) with certain accredited147,824, 147,475, 292,987, and sophisticated investors in connection with a private placement offering (the “Offering”) of 552,486 shares (“Shares”) of common stock, par value $0.001 per share, of the Company, for gross proceeds to the Company of one million dollars. The purchase price per share of the Offering is $1.81. In connection with the purchase of the Shares, the Purchasers received a warrant (the “Warrant”) to purchase up to the number of279,567 shares of the Company’s common stock equal to 193,370on January 6, 2023, January 12, 2023, January 18, 2023, February 3, 2023, and March 2, 2023, respectively for the three months ended March 31, 2023.
The Company settled convertible promissory notes issued on May 6, 2022 of $200,000 on January 18, 2023, $200,000 on February 3, 2023, $175,000 on February 8, 2023, $250,000 on February 15, 2023, $250,000 on March 8, 2023, and $125,000 on March 24, 2023, respectively, and issued 235,960, 234,389, 205,090, 292,987, 279,567 and 145,660 shares of the Company’s common stock on January 19, 2023, February 6, 2023, February 8, 2023, February 15, 2023, March 15, 2023, and March 29, 2023, respectively for the three months ended March 31, 2023.
The Company settled convertible promissory notes issued on March 13, 2023 of $300,000 on September 7, 2023, $200,000 on October 10, 2023, $175,000 on October 13, 2023, $150,000 on November 16, 2023, $150,000 on December 5, 2023, and $150,000 on December 29, 2023, respectively, and issued 41,829, 41,736, 36,920, 109,075, 109,075, and 137,644, shares of the Company’s common stock purchased by the Purchasers pursuant to the SPA. The Warrant has an exercise price of $2.26 per share and is exercisable on the date of issuance and expire five years form the date of issuance. The Offering closed on September 12, 2023, October 11, 2023, October 13, 2023, November 20, 2023, December 7, 2023, and December 29, 2017.2023, respectively, for the year ended December 31, 2023. The SharesCompany settled convertible promissory notes of $150,000 on February 1, 2024 and $150,000 on February 15, 2024 respectively, and issued in the Offering are exempt from the registration requirements160,174 and 152,620 shares of the Securities Act, pursuant to Section 4(a)(2) ofCompany’s common stock on February 1, 2024 and February 10, 2024, respectively, for the Securities Act and/or Regulation D promulgated thereunder.three months ended March 31, 2024.
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:
* Filed herewith.
** Furnished herewith.
* | Previously filed |
** | Filed herewith |
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.
BAIYU HOLDINGS, INC.
/s/ Renmei Ouyang | ||
Name: | Renmei Ouyang | |
Title: | Chief Executive Officer | |
(Principal Executive Officer) | ||
By: | /s/ | |
Name: | Wenhao Cui | |
Title: | Chief Financial Officer | |
(Principal Financial and Accounting Officer) |
* Filed herewith.29
** Furnished herewith.
46