BAIYU 10Q 2014 Q1 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2014

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

For the transition period from ____________ to ____________

Commission file number: 001-36055

China Commercial Credit, Inc.

(Exact name of registrant as specified in its charter)

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

No. 1688, Yunli Road, Tongli

Wujiang

Jiangsu Province

People’s Republic of China

(Address of principal executive offices)

(86-0512) 6396-0022

(Registrant’s telephone number, including area code)

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

Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

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

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

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

As of May 14, 2014, 12,246,812 shares of the Company’s Common Stock, $0.001 par value per share, were issued and outstanding.

CHINA COMMERCIAL CREDIT, INC.

FORM 10-Q

INDEX

Note Regarding Forward-Looking Statements

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

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

	●	Our ability to develop and market our microcredit lending and guarantee business in the future;

	●	Our ability to implement our financial leasing and peer to peer (“P2P”) business plans;

	●	Our ability to maintain and attract qualified personnel;

	●	Any changes in the laws of the PRC or local province that may affect our operations;

	●	Inflation and fluctuations in foreign currency exchange rates;

	●	Our on-going ability to obtain all mandatory and voluntary government and other industry certifications, approvals, and/or licenses to conduct our business;

	●	Development of a public trading market for our securities; and

	●	The costs we may incur in the future from complying with current and future governmental regulations and the impact of any changes in the regulations on our operations.

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

You should review the factors described in the section entitled “Risk Factors” in our prospectus filed with the SEC on May 9, 2014 and other documents we file from time to time with the SEC. We qualify all of our forward-looking statements by these cautionary statements.

PART 1 - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

CHINA COMMERCIAL CREDIT, INC.

CONSOLIDATED BALANCE SHEETS

	March 31, 2014			December 31, 2013
	(Unaudited)
ASSETS
Cash	$	5,197,772		$	9,405,865
Restricted cash		7,202,559			10,784,960
Loans receivable, net of allowance for loan losses $1,948,400and $1,375,948 for March 31, 2014 and December 31, 2013, respectively,		87,350,379			88,827,465
Due from a non-controlling shareholder		1,143,886			-
Interest receivable		1,706,950			1,124,734
Tax receivable, net		1,072,339			820,526
Property and equipment, net		224,941			254,795
Guarantee paid on behalf of guarantee service customers		5,447,488			1,082,486
Other assets		763,801			702,617
Total Assets	$	110,110,115		$	113,003,448

LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities
Short-term bank loans	$	16,225,337		$	16,360,721
Deposits payable		6,893,294			9,659,362
Unearned income from financial guarantee services		208,400			482,029
Accrual for financial guarantee services		891,434			588,740
Other current liabilities		205,512			629,073
Deferred tax liability		330,856			333,617
Total Liabilities		24,754,833			28,053,542

Shareholders' Equity
Series A Preferred Stock (par value $0.001 per share, 1,000,000 shares authorized at March 31, 2014 and December 31, 2013, respectively; nil and nil shares issued and outstanding at March 31, 2014 and December 31, 2013, respectively)	$	-		$	-
Series B Preferred Stock (par value $0.001 per share, 5,000,000 shares authorized at March 31, 2014 and December 31, 2013, respectively; nil and nil shares issued and outstanding at March 31, 2014 and December 31, 2013, respectively)		-			-
Common stock (par value $0.001 per share, 100,000,000 shares authorized; 10,446,426 and 10,430,657 shares issued and outstanding at March 31, 2014 and December 31, 2013, respectively)		10,446			10,431
Subscription receivable		(1,062	)		(1,062	)
Additional paid-in capital		52,823,462			52,704,107
Statutory reserve		5,628,451			5,442,150
Retained earnings		21,208,021			20,300,689
Accumulated other comprehensive income		5,677,523			6,493,591
Total Shareholders’ Equity		85,355,282			84,949,906
Total Liabilities and Shareholders’ Equity	$	110,110,115		$	113,003,448

See notes to the consolidated financial statements

Certain of the assets of the VIEs can be used only to settle obligations of the consolidated VIEs. Conversely, liabilities recognized as a result of consolidating these VIEs do not represent additional claims on the Company’s general assets.

F-1

CHINA COMMERCIAL CREDIT, INC

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

	For the Three Months Ended March 31,
	2014 (Unaudited)			2013 (Unaudited)
Interest income
Interests and fees on loans	$	2,856,474		$	2,912,078
Interests on deposits with banks		42,448			97,167
Total interest and fees income		2,898,922			3,009,245

Interest expense
Interest expense on short-term bank loans		(245,190	)		(306,155	)
Net interest income		2,653,732			2,703,090

Provision for loan losses		(588,180	)		(488,216	)
Net interest income after provision for loan losses		2,065,552			2,214,874

Commissions and fees on financial guarantee services		298,310			411,209
Under/(over) provision on financial guarantee services		(309,853	)		44,170
Commission (loss)/income and fees on guarantee services, net		(11,543	)		455,379

Net Revenue		2,054,009			2,670,253

Non-interest income
Government incentive		-			25,775
Other non-interest income		120,960			-
Total non-interest income		120,960			25,775

Non-interest expense
Salaries and employee surcharge		(186,135	)		(197,944	)
Rental expenses		(65,750	)		(64,037	)
Business taxes and surcharge		(112,612	)		(114,447	)
Other operating expenses		(532,114	)		(450,864	)
Total non-interest expense		(896,611	)		(827,292	)

Income Before Taxes		1,278,358			1,868,736
Income tax expense		(184,725	)		(298,868	)
Net Income		1,093,633			1,569,868

Earnings per Share- Basic and Diluted	$	0.105		$	0.174

Weighted Average Shares Outstanding-Basic and Diluted		10,434,862			9,000,000

Net Income		1,093,633			1,569,868
Other comprehensive income
Foreign currency translation adjustment		(807,627	)		371,361
Comprehensive Income	$	286,006		$	1,941,229

See notes to the consolidated financial statements

F-2

CHINA COMMERCIAL CREDIT, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

	For The Three Months Ended March 31,
	2014 (Unaudited)			2013 (Unaudited)
Cash Flows from Operating Activities:
Net income	$	1,093,633		$	1,569,868
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		27,951			26,494
Provision for loan losses		588,180			488,216
Under/(over) provision on financial guarantee services		309,853			(44,170	)
Deferred tax expense		-			3,701
Changes in operating assets and liabilities:
Interest receivable		(595,922	)		(92,231	)
Tax receivable		(260,526	)		48,808
Other assets		151,465			137,980
Unearned income from guarantee services		(271,646	)		(89,921	)
Other current liabilities		(342,846	)		(246,826	)
Net Cash Provided by Operating Activities		700,142			1,801,919

Cash Flows from Investing Activities:
Originated loans disbursement to third parties		(15,227,945	)		(45,166,683	)
Loans collection from third parties		15,308,707			42,882,456
Payment of loans on behalf of guarantees		(6,171,860	)		-
Collection from guarantees for loan paid on behalf of guarantees		1,059,222			-
Deposit released from banks for financial guarantee services		5,026,478			493,521
Deposit paid to banks for financial guarantee services		(3,507,310	)		(826,578	)
Purchases of property and equipment		(14,139	)		-
Net Cash Used in Investing Activities		(3,526,847	)		(2,617,284	)

Cash Flows From Financing Activities:
Issuance of Series B Preferred Stocks		-			10,000
Issuance cost of Series A and Series B Preferred Stocks		-			(7,744	)
Common stock issuance cost		(91,000	)		(45,019	)
Capital contribution from a shareholder		11,571			-
Cash disbursed to a non-controlling shareholder		(1,150,820	)		-
Cash proceeds from a founder shareholder		-			15,000
Net Cash Used in Financing Activities		(1,230,249	)		(27,763	)

Effect of Exchange Rate Changes on Cash and Cash Equivalents		(151,139	)		7,324

Net Decrease In Cash and Cash Equivalents		(4,208,093	)		(835,804	)
Cash and Cash Equivalents at Beginning of Year		9,405,865			1,588,061
Cash and Cash Equivalents at End of Year	$	5,197,772		$	752,257

Supplemental Cash Flow Information
Cash paid for interest expense	$	211,272		$	306,155
Cash paid for income tax	$	445,955		$	246,493

See notes to the consolidated financial statements

F-3

1. ORGANIZATION AND PRINCIPAL ACTITIVIES

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

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

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

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

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

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

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

VIE AGREEMENTS

Subsequent to the share exchange, on September 26, 2012, the Company through its indirectly wholly owned subsidiary, Wujiang Luxiang Information Technology Consulting Co. Ltd. (“WFOE”), entered into a series of VIE Agreements with 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.

The significant terms of the VIE Agreements are summarized below:

Exclusive Business Cooperation Agreement

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

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

F-4

1. ORGANIZATION AND PRINCIPAL ACTITIVIES (CONTINUED)

Share Pledge Agreement

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

Exclusive Option Agreement

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

Power of Attorney

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

Timely Reporting Agreement

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

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

INCORPORATION OF PFL

On September 5, 2013, CCC HK established Pride Financial Leasing (Suzhou) Co. Ltd. (“PFL”) in Jiangsu Province, China. PFL is 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 March 31, 2014, PFL did not have any significant operations except for initial organizational activities.

VIE AGREEMENTS WITH PRIDE ONLINE

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

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

Pride Information operates an online portal (www. pridelendingclub.com) to match prospective borrowers with lenders. As of the date of this Report, Pride Information is in the beginning stage of operation and has generated minimum revenue.

F-5

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Basis of presentation and principle of consolidation

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

The interim financial information as of March 31, 2014 and for the three months ended March 31, 2014 and 2013 have been prepared without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) pursuant to Regulation S-X. Certain information and footnote disclosures, which are normally included in annual financial statements prepared in accordance with U.S. GAAP, have been omitted pursuant to those rules and regulations. The unaudited interim financial information should be read in conjunction with the audited financial statements and the notes thereto, included in the Form 10-K for the fiscal year ended December 31, 2013 filed with the SEC on March 31, 2014.

In the opinion of management, all adjustments (which include normal recurring adjustments) necessary to present a fair statement of the Company’s financial position as of March 31, 2014, its results of operations for the three months ended March 31, 2014 and 2013, and its cash flows for the three months ended March 31, 2014 and 2013, as applicable, have been made. The unaudited interim results of operations are not necessarily indicative of the operating results for the full fiscal year or any future periods.

(b) Operating segments

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

The Company has only one reportable segment, which is to provide financial services in the PRC domestic market, primarily in Wujiang City, Jiangsu Province. The Company’s chief operating decision-maker (“CODM”) has been identified as the Chief Executive Officer, who reviews operating results to make decisions about allocating resources and assessing performance for both the direct lending and guarantee business and the anticipated financial leasing business. The Company’s net revenues are all generated from customers in the PRC. Hence, the Company operates and manages its business without segments. For the three month ended March 31, 2014 and 2013, there was no one customer that accounted for more than 10% of the Company's revenue.

Certain items in the financial statements for the 3-month period ended March 31, 2013 have been reclassified to conform to the financial statements for the 3-month period ended March 31, 2014 classification.

(d) Cash

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

(e) Restricted cash

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

(f) Loans receivable, net

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

F-6

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(g) Allowance for loan losses

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

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

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

(h) Interest receivable

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

The interest reversed due to the above reason was $337,654 and $210,136 as of March 31, 2014 and December 31, 2013, respectively.

F-7

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(i) Property and equipment

The property and equipment are stated at cost less accumulated depreciation. The depreciation is computed on a straight-line method over the estimated useful lives of the assets with 5% salvage value. Estimated useful lives of property and equipment are stated in Note 11.

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

(j) Impairment of long-lived assets

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

The Company tests long-lived assets, including property and equipment and finite lived intangible assets, for impairment at least annually or more frequently upon the occurrence of an event or when circumstances indicate that the net carrying amount is greater than its fair value. Assets are grouped and evaluated at the lowest level for their identifiable cash flows that are largely independent of the cash flows of other groups of assets. The Company considers historical performance and future estimated results in its evaluation of potential impairment and then compares the carrying amount of the asset to the future estimated cash flows expected to result from the use of the asset. If the carrying amount of the asset exceeds estimated expected undiscounted future cash flows, the Company measures the amount of impairment by comparing the carrying amount of the asset to its fair value. The estimation of fair value is generally measured by discounting expected future cash flows as the rate the Company utilizes to evaluate potential investments. The Company estimates fair value based on the information available in making whatever estimates, judgments and projections are considered necessary. There were no impairment losses in the three months ended March 31, 2014 and 2013.

(k) Fair values of financial instruments

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

Level 1

inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.

Level 2

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

Level 3

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

As of March 31, 2014 and December 31, 2013, financial instruments of the Company primarily comprise of cash, restricted cash, accrued interest receivable, other receivable, short-term bank loans, deposits payable and accrued expenses, which were carried at cost on the consolidated balance sheets, and carrying amounts approximated their fair values because of their generally short maturities.

F-8

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(l) Foreign currency translation

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

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

		March 31, 2014				December 31, 2013
Balance sheet items, except for equity accounts			6.1632				6.1122

	For the three months ended March 31,
		2014	2013
Items in the statements of income and comprehensive income, and statements of cash flows		6.1177	6.2814

(m) Use of estimates

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

(n) Revenue recognition

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

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

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

●

Non-interest income. Non-interest income mainly includes government incentive and rental income from the sub-leasing of certain of the Company’s leased office space to third parties. Government incentive is provided by Jiangsu Provincial government on a yearly basis to promote the development of micro credit agencies in Jiangsu Province.

(o) Financial guarantee service contracts

Financial guarantee contracts provides guarantee which protects the holder of a debt obligation against non-payment when due. Pursuant to such guarantee, the Company makes payments if the obligor responsible for making payments fails to do so when scheduled.

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

F-9

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(o) Financial guarantee service contracts (continued)

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

	March 31, 2014		December 31, 2013
	(Unaudited)
Guarantee	$	42,340,018	$	59,692,091

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

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

Based on the past experience, the Company estimates the probable loss for immature financial guarantee services to be 1% of contract amount and made a provision of $423,400 as of March 31, 2014 for possible credit risk of its guarantees. Besides the Company accrued specific provisions for repayment on behalf of guarantee customers who defaulted on their loans, in the amount of $468,034. The total accrual for financial guarantee services amounted to $891,434 and $588,740 as of March 31, 2014 and December 31, 2013, respectively. The Company reviews the provision on a quarterly basis.

(p) Non-interest expenses

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

(q) Income tax

Current income taxes 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 method. 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.

(r) Comprehensive income

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

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

(s) Operating leases

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

F-10

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(t) Commitments and contingencies

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

(u) Recently issued accounting standards

The FASB has issued ASU, No. 2014-03, Derivatives and Hedging (Topic 815): Accounting for Certain Receive-Variable, Pay-Fixed Interest Rate Swaps - Simplified Hedge Accounting Approach. This ASU gives private companies (other than financial institutions) the option to use a simplified hedge accounting approach to account for interest rate swaps that are entered into for the purpose of economically converting variable-rate interest payments to fixed-rate payments. This ASU provides for interest rate swaps when a private company applies the simplified hedge accounting approach, the income statement charge for interest expense will be similar to the amount that would result if the company had directly entered into a fixed-rate borrowing instead of a variable-rate borrowing and an interest rate swap. The simplified hedge accounting approach will be effective for annual periods beginning after December 15, 2014, and interim periods within annual periods beginning after December 15, 2015, with early adoption permitted. The adoption of this standard is not expected to have any impact on the Company’s financial position.

3. VARIABLE INTEREST ENTITIES AND OTHER CONSOLIDATION MATTERS

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

On February 19, 2014, WFOE entered into certain contractual arrangements, having substantially the same terms as those of the VIE Agreements with Pride Information and its sole shareholder, Mr. Huichun Qin.

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

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

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

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

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

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

F-11

3. VARIABLE INTEREST ENTITIES AND OTHER CONSOLIDATION MATTERS (CONTINUED)

The following financial statement amounts and balances of the VIEs were included in the accompanying consolidated financial statements as of March 31, 2014 and December 31, 2013 and for the three months ended March 31, 2014 and 2013:

	March 31, 2014		December 31, 2013
		(Unaudited)
Total assets	$	108129,225	$	105,477,241
Total liabilities		24,754,833		28,053,542

	For The Three Months Ended March 31,
	2014 (Unaudited)			2013 (Unaudited)
Revenue		$	3,192,952		$	3,420,454
Net income			1,238,036			1,639,228

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

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

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

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

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

F-12

4. RISKS

(a) Credit risk

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

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

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

1.1 Lending activities

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

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

The five categories are defined as follows:

(1)

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

(2)

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

(3)

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

(4)

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

(5)

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

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

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

F-13

4. RISKS (CONTINUED)

(a) Credit risk (continued)

1.2 Guarantee activities

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

Off-balance sheet commitments with credit exposures are also assessed and categorized with reference to the Guideline.

(b) Liquidity risk

The Company is also exposed to liquidity risk which is risk that it is unable to provide sufficient capitalf 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.

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

5. RESTRICTED CASH

Restricted cash represents cash pledged with banks as guarantor deposit for the Company's guarantee service customers, amounting to $7.2 million and $10.8 million as of March 31, 2014 and December 31, 2013, respectively. The banks providing loans to the Company’s guarantee service customers generally require the Company, as the guarantor of the loans, to pledge a cash deposit usually in the range of 10% to 20% of the guaranteed amount. The deposits are released after the guaranteed bank loans are paid off and the Company’s guarantee obligation expires which is usually within 12 months.

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

6. LOANS RECEIVABLE, NET

The interest rates on loan issued ranged between 9.6%~ 18.0% and 9.6% ~ 21.6% for the three months ended March 31, 2014 and 2013, respectively.

6.1 Loans receivable consist of the following:

	March 31, 2014			December 31, 2013
	(Unaudited)
Business loans	$	55,907,034		$	56,620,893
Personal loans		33,391,745			33,582,520
Total Loans receivable		89,298,779			90,203,413
Allowance for impairment losses
Collectively assessed		(1,948,400	)		(1,375,948	)
Individually assessed		-			-
Allowance for loan losses		(1,948,400	)		(1,375,948	)
Loans receivable, net	$	87,350,379		$	88,827,465

F-14

6. LOANS RECEIVABLE, NET (CONTINUED)

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

All loans are short-term loans that the Company has made to either business or individual customers. As of March 31, 2014 and December 31, 2013, the Company had 105 and 105 business loan customers, and 105 and 112 personal loan customers, respectively. Most loans are either guaranteed by a third party whose financial strength is assessed by the Company to be sufficient or secured by collateral. Allowance on loan losses are estimated on quarterly basis in accordance with “The Guidance on Provision for Loan Losses” published by PBOC (Note 7).

For the three months ended March 31, 2014 and 2013, a provision of $588,180 and $488,216 were charged to the consolidated statement of income, respectively. No write-offs against allowances have occurred for these years.

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

The following table presents nonaccrual loans with aging over 90 days by classes of loan portfolio as of March 31, 2014 and December 31, 2013, respectively:

	March 31, 2014		December 31, 2013
	(Unaudited)
Business loans	$	3,743,871	$	1,866,436
Personal loans		1,135,774		948,922
	$	4,879,645	$	2,815,358

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

	1-89 Days Past Due		Greater Than 90 Days Past Due		Total Past Due		Current		Total Loans (Unaudited)

Business loans	$	1,763,578	$	3,743,871	$	5,507,449	$	50,399,585	$	55,907,034
Personal loans		1,573,858		1,135,774		2,709,632		30,682,113		33,391,745
	$	3,337,436	$	4,879,645	$	8,217,081	$	81,081,698	$	89,298,779

The following table represents the aging of loans as of December 31, 2013 by type of loan:

	1-89 Days Past Due		Greater Than 90 Days Past Due		Total Past Due		Current		Total Loans

Business loans	$	2,039,559	$	1,866,436	$	3,905,995	$	52,714,898	$	56,620,893
Personal loans		312,993		948,922		1,261,915		32,320,605		33,582,520
	$	2,352,552	$	2,815,358	$	5,167,910	$	85,035,503	$	90,203,413

F-15

6. LOANS RECEIVABLE, NET (CONTINUED)

6.2 Analysis of loans by credit quality indicator

The following table summarizes the Company’s loan portfolio by credit quality indicator as of March 31, 2014 and December 31, 2013, respectively:

Five Categories	March 31, 2014		%			December 31, 2013		%
	(Unaudited)
Pass	$	80,255,959		89.8	%	$	85,035,503		94.2	%
Special mention		4,244,302		4.8	%		2,207,565		2.4	%
Substandard		2,430,556		2.7	%		867,118		1.0	%
Doubtful		2,224,174		2.5	%		1,948,240		2.2	%
Loss		143,788		0.2	%		144,987		0.2	%
Total	$	89,298,779		100	%	$	90,203,413		100	%

6.3 Analysis of loans by collateral

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

	March 31, 2014
	Business Loans		Personal Loans		Total (Unaudited)
Guarantee backed loans	$	50,990,756	$	29,505,777	$	80,496,533
Pledged assets backed loans		3,537,124		3,885,968		7,423,092
Collateral backed loans		1,379,154		-		1,379,154
	$	55,907,034	$	33,391,745	$	89,298,779

The following table summarizes the Company’s loan portfolio by collateral as of December 31, 2013:

	December 31, 2013
	Business Loans		Personal Loans		Total
Guarantee backed loans	$	51,909,006	$	29,576,912	$	81,485,918
Pledged assets backed loans		3,321,226		4,005,608		7,326,834
Collateral backed loans		1,390,661		-		1,390,661
	$	56,620,893	$	33,582,520	$	90,203,413

Collateral Backed Loans

A collateral 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 entities 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 judgment for the remaining balance.

Pledged Asset Backed Loans

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

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

Guarantee Backed Loans

A guaranteed loan is a loan guaranteed by a third party who is usually a corporation or high net worth individual. As of March 31, 2014 and December 31, 2013, guaranteed loans make up 90.1% and 90.3% of our direct loan portfolio, respectively.

F-16

7. ALLOWANCE FOR LOAN LOSSES

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

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

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

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

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

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

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

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

To the extent the general loan loss reserve rate of 1% as required by PBOC differs from management’s estimates, the management elects to use the higher rate. As of December 31, 2013, the Company utilized Specific Reserve in estimating the loan loss as it is higher than the amount calculated based on the General Reserve.

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

The following tables present the activity in the allowance for loan losses and related recorded investment in loans receivable by classes of the loans individually and collectively evaluated for impairment as of and for the three months ended March 31, 2014 and 2013:

	Business Loans		Personal Loans		Total
					(Unaudited)
For the three months ended March 31, 2014
Beginning balance	$	1,049,836	$	326,112	$	1,375,948
Charge-offs		-		-		-
Recoveries		-		-		-
Provisions		388,439		184,013		572,452
Ending balance		1,438,275		510,125		1,948,400
Ending balance: individually evaluated for impairment		-		-		-
Ending balance: collectively evaluated for impairment	$	1,438,275	$	510,125	$	1,948,400

F-17

7. ALLOWANCE FOR LOAN LOSSES (CONTINUED)

	Business Loans		Personal Loans			Total
						(Unaudited)
For the three months ended March 31, 2013
Beginning balance	$	638,471	$	219,342		$	857,813
Charge-offs		-		-			-
Recoveries		-		-			-
Provisions/(Reversals)		538,939		(45,438	)		493,501
Ending balance		1,177,410		173,904			1,351,314
Ending balance: individually evaluated for impairment		-		-			-
Ending balance: collectively evaluated for impairment	$	1,177,410	$	173,904		$	1,351,314

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

	Pass		Special Mention		Substandard		Doubtful		Loss		Total
											(Unaudited)

Business loans	$	49,492,719	$	2,670,444	$	2,235,852	$	1,364,231	$	143,788	$	55,907,034
Personal loans		30,763,240		1,573,858		194,704		859,943		-		33,391,745
	$	80,255,959	$	4,244,302	$	2,430,556	$	2,224,174	$	143,788	$	89,298,779

	Pass		Special Mention		Substandard		Doubtful		Loss		Total

Business loans	$	52,714,898	$	1,894,572	$	130,886	$	1,735,550	$	144,987	$	56,620,893
Personal loans		32,320,605		312,993		736,232		212,690		-		33,582,520
	$	85,035,503	$	2,207,565	$	867,118	$	1,948,240	$	144,987	$	90,203,413

F-18

8. LOAN IMPAIRMENT

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

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

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

Even though the Company allows a one-time loan extension with a period up to the original loan period, which is usually twelve months. Such extension is not considered to be a troubled debt restructuring because the Company does not grant a concession to borrowers. The principal of the loan remains the same and the interest rate is fixed at the current interest rate at the time of extension. Therefore, there were no troubled debt restructurings during the three months ended March 31, 2014 and 2013, respectively.

9. Guarantee paid on behalf of guarantee service customers

	March 31, 2014		December 31, 2013
	(Unaudited)
Guarantee paid on behalf of guarantee service customers	$	5,447,488	$	1,082,486

Payments on behalf of guarantee service customers represents payment made by the Company to banks on behalf of eleven of its guarantee service customers who defaulted on their loan repayments to the banks. Management performs an evaluation of the adequacy of the allowance. The allowance is based on the Company’s past loan loss history, known and inherent risks in the portfolio, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying collateral, composition of the loan portfolio, current economic conditions and other relevant factors. As of March 31, 2014, the Company accrued allowance on the balance in “accrual for financial guarantee services” in the value of $891,434.

10. Other assets

Other assets as of March 31, 2014 and December 31, 2013 consisted of:

	March 31, 2014		December 31, 2013
	(Unaudited)
Prepaid bank service charges		119,293		181,641
Prepaid interest expense to bank		46,219		80,554
Prepaid issuance cost for second offering		91,000		-
Other prepaid expense		272,180		283,800
Other receivables		235,109		156,622
	$	763,801	$	702,617

Prepaid interest expense to banks represents prepaid borrowing costs for its short-term bank borrowings. The balance is amortized over the period of the bank borrowings which is within 12 months.

F-19

11. PROPERTY AND EQUIPMENT

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

Property and equipment consist of the following:

	Useful Life (years)	March 31, 2014			December 31, 2013
			(Unaudited)
Furniture and fixtures	5	$	23,009		$	23,201
Vehicles	4		242,199			244,220
Electronic equipment	3		124,983			126,026
Leasehold improvement	3		179,908			181,410
Less: accumulated depreciation			(345,158	)		(320,062	)
Property and equipment, net		$	224,941		$	254,795

Depreciation expense totaled $27,951 and $26,494 for the three months ended March 31, 2014 and 2013, respectively.

12. SHORT-TERM BANK LOANS

Bank Name	Interest rate	Term	March 31, 2014		December 31, 2013
			(Unaudited)
Agricultural Bank Of China	Fixed annual rate of 6.00%	From September 26, 2013 to September 25, 2014		4,867,601		4,908,216
Agricultural Bank Of China	Fixed annual rate of 6.00%,	From October 15, 2013 to October 14, 2014		4,867,601		4,908,216
Agricultural Bank Of China	Fixed annual rate of 6.00%,	From October 18, 2013 to October 17, 2014		6,490,135		6,544,289
			$	16,225,337	$	16,360,721

As of March 31, 2014 and December 31, 2013, the short-term bank loans have maturity terms within 1 year. These loans were not guaranteed by any guarantors. The guarantee agreement was still under negotiation with the Bank.

Interest expense incurred on short-term loans for the three months ended March 31, 2014 and 2013 was $245,190 and $306,155, respectively.

13. DEPOSITS PAYABLE

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

14. UNEARNED INCOME FROM GUARANTEE SERVICES

The Company receives guarantee commissions in full at the inception and records unearned income before amortizing it throughout the guarantee service life. Unearned income from guarantee services was $208,400 and $482,029 as of March 31, 2014 and December 31, 2013, respectively.

F-20

15. OTHER CURRENT LIABILITIES

Other current liabilities as of March 31, 2014 and December 31, 2013 consisted of:

	March 31, 2014		December 31, 2013
	(Unaudited)
Accrued payroll	$	49,255	$	459,623
Other tax payable		145,324		157,507
Other payable		10,933		11,943
	$	205,512	$	629,073

16. OTHER OPERATING EXPENSE

Other operating expense for the three months ended March 31, 2014 and 2013 consisted of:

	For the three months ended
	March 31,
	2014		2013
	(Unaudited)		(Unaudited)
Depreciation	$	27,951	$	26,494
Travel expenses		14,740		7,796
Entertainment expenses		25,479		19,704
Promotion expenses		7,111		41,392
Legal and consulting expenses		136,121		130,245
Car expenses		24,435		24,405
Bank charges		63,996		98,734
Audit-related expenses		119,472		72,911
Insurance expenses		70,875		-
Other expenses		41,934		29,183
Total	$	532,114	$	450,864

17. EMPLOYEE RETIREMENT BENEFIT

The Company has made employee benefit contribution in accordance with Chinese relevant regulations, including retirement insurance, unemployment insurance, medical insurance, housing fund, work injury insurance and birth insurance. The Company recorded the contribution in the salary and employee charges when incurred. The contributions made by the Company were $22,356 and $22,479 for the three months ended March 31, 2014 and 2013, respectively.

18. DISTRIBUTION OF PROFIT

The Company did not distribute any dividend to its shareholders for the three months ended March 31, 2014 and 2013, respectively.

19. CAPITAL TRANSACTION

Initial Public Offering

On August 16, 2013, the Company closed an initial public offering (“IPO”) of 1,370,000 shares of Common Stock. On August 26, 2013, the Company sold additional 45,657 shares of Common Stock from the exercise of the overallotment option of shares granted to representative of the underwriters. The public offering price of the shares sold in the initial public offering was $6.50 per share. The total gross proceeds from the offering were $9.2 million. After deducting underwriting discounts and commissions and offering expenses payable by the Company, the aggregate net proceeds received by the Company totaled approximately $7.6 million.

Upon the consummation of the Company’s IPO on August 16, 2013, the Series A Stock and the Series B Stock (defined below) were automatically converted into shares of Common Stock.

F-21

19. CAPITAL TRANSACTION (CONTINUED)

Common Stock

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

As of December 31, 2012, there were 9,000,000 shares of Common Stock issued and outstanding.

On August 16, 2013, the Company closed an initial public offering (“IPO”) of 1,370,000 shares of Common Stock.

On August 26, 2013, the Company sold additional 45,657 shares of Common Stock from the exercise of the overallotment option of shares granted to representative of the underwriters.

On August 30, 2013, the Company issued an aggregate of 15,000 shares of Common Stock to 2 individuals who are providers of certain investor relations services to the Company, at a par value of $0.001 and recorded it as additional paid in capital.

On March 7, 2014, the Company issued an aggregate of 15,769 shares of Common Stock to one individual who is provider of certain investor relations services to the Company, at a par value of $0.001 and recorded it as a deferred expense and amortized over service tem.

As of March 31, 2014, there were 10,446,426 shares of Common Stock issued and outstanding.

Warrants

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

Preferred Stock

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

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

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

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

F-22

19. CAPITAL TRANSACTION (CONTINUED)

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

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

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

20. STATUTORY RESERVE

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

21. EARNINGS PER COMMON SHARE

The following table sets forth the computation of basic and diluted earnings per common share for the three months ended March 31, 2014 and 2013, respectively:

	For The Three Months Ended
	March 31,
	2014		2013
	(Unaudited)		(Unaudited)

Net income attributable to the common shareholders	$	1,093,633	$	1,569,868

Basic weighted-average common shares outstanding		10,434,862		9,000,000
Effect of dilutive securities		-		-
Diluted weighted-average common shares outstanding		10,434,862		9,000,000

Earnings per share:
Basic	$	0.105	$	0.174
Diluted	$	0.105	$	0.174

As of March 31, 2014 and December 31, 2013, the Company did not have dilutive securities outstanding.

F-23

22. INCOME TAXES AND TAX RECEIVABLE

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

The Company evaluates the level of authority for each uncertain tax position (including the potential application of interest and penalties) based on the technical merits, and measures the unrecognized benefits associated with the tax positions., For the years ended December 31, 2013 and 2012, the Company had no unrecognized tax benefits.

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

Income tax receivable/ (payable) is comprised of:

	As of March 31, 2014		As of December 31, 2013
	(Unaudited)
Income tax payable	$	-	$	(164,806	)
Income tax receivable		1,072,339		985,332
Total income tax receivable /(payable), net	$	1,072,339	$	820,526

Income tax payables represented enterprise income tax at a rate of 25% the Company accrued but not paid as of March 31, 2014 and December 31, 2013, respectively. And income tax receivable represented the income tax refund the Company will receive from the tax authority in the annual income tax settlement.

Income tax expense is comprised of:

	For The Three Months Ended
	March 31,
	2014 (Unaudited)		2013 (Unaudited)

Current income tax	$	184,725	$	295,167
Deferred income tax		-		3,701
Total provision for income taxes	$	184,725	$	298,868

The effective tax rate for the three months ended March 31, 2014 and 2013 are 16.89% and 15.42%, respectively.

Deferred tax liability arises from government incentive for the purpose of covering the Company’s actual loan losses and ruled that the income tax will be imposed on the subsidy if the purpose is not fulfilled within 5 years after the Company receives the subsidy. As of March 31, 2014 and December 31, 2013, the deferred tax liability amounted to $330,856 and $333,617, respectively.

As of March 31, 2014 and December 31, 2013, the Company intends to permanently reinvest the undistributed earnings from its foreign subsidiaries to fund future operations. The amount of unrecognized deferred tax liabilities for temporary differences related to investments in foreign subsidiaries is not determined because such a determination is not practicable.

F-24

23. DUE FROM A NON-CONTROLLING SHAREHOLDER

	As of March 31, 2014		As of December 31, 2013
		(Unaudited)
Due from a non-controlling shareholder	$	1,143,886	$	-

The Company transferred the amount to a non-controlling shareholder of China Commercial Credit, Inc. for the purpose of increasing the registered capital of Wujiang Luxiang. As of March 31, 2014, the necessary PRC government approvals to authorize such increase in the registered capital have not yet been received.

24. CONCENTRATION AND CREDIT RISKS

As of March 31, 2014 and December 31, 2013, the Company held cash of $5,197,772 and $9,405,865, respectively that is uninsured by the government authority. To limit exposure to credit risk relating to deposits, the Company primarily places cash deposits only with large financial institutions in the PRC with acceptable credit ratings.

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

No customer accounted for more than 10% of total loan balance as of March 31, 2014 and December 31, 2013.

25. COMMITMENTS AND CONTINGENCIES

1)	Lease Commitments

The Company extended its lease agreement of its principal office for a 5-year period from October 1, 2013 to September 30, 2018. The following table sets forth the Company’s contractual obligations as of March 31, 2014 in future periods:

	Rental payments
	(Unaudited)
Within 1 year	$	261,059
Within 1 – 2 years		261,059
Within 2- 3 years		261,059
Within 3-4 years		261,059
Within 4-5 years		130,530
Total	$	1,174,766

F-25

25. COMMITMENTS AND CONTINGENCIES (CONTINUED)

2)	Guarantee Commitments

The guarantees will terminate upon payment and/or cancellation of the obligation; however, payments by the Company would be triggered by failure of the guaranteed party to fulfill its obligation covered by the guarantee. Generally, the average guarantee expiration terms ranged within 6 to 12 months and the average percentage of the guarantee amount as security deposit is 10% ~ 20% .

3)	Contingencies

The Company is involved in various legal actions arising in the ordinary course of its business. During three month ended March 31, 2014, the Company was involved in 12 lawsuits, among which 8 were related to its loan business and 4 were related to guarantee business. The Company is the plaintiff asking for the recovery of delinquent balances to customers. 7 of these cases with an aggregated claim of $4.0 million have been adjudicated by the Court in favor of the Company and these cases are settled or in the process of enforcement. The remaining 5 cases with an aggregated claim of $3.5 million have not been adjudicated by the Court as of March 31, 2014.

26. SUBSEQUENT EVENT

Contingencies

During the period from April 1, 2014 to the date of this report, the Company was involved in one new lawsuit, which is related to loan business. The Company is the plaintiff asking for the recovery of delinquent loan balance to the customer. This case with a claim of $0.77 million has not been adjudicated by the Court.

Additionally as of the report date, one case with a claim of $0.3 million has been adjudicated by the Court in favor of the Company which is in the process of enforcement.

Launch of a peer to peer online lending platform

In April 2014, the Company launched a peer to peer online lending platform designed to pair SME borrowers with willing lenders. The Company pairs prospective borrowers with lenders using our proprietary credit risk assessment system. The Company works with qualified guarantee providers who provide guarantees to the underlying loans.

Issuance of new shares

On April 9 and April 24, 2014, the Company issued an aggregate of 20,000 and 130,000 shares of Common Stock, respectively, to a consulting firm in consideration of certain management consulting and advisory services to be rendered by such firm. Such amounts are recorded as a deferred expense and amortized over the service term.

Closing of public offering

On May 7, 2014, the SEC declared effective the Company’s registration statement on Form S-1 (File No. 333-199360) (“Registration Statement”). Pursuant to this Registration Statement, along with the accompanying prospectus, the Company registered an offering of 1,750,000 shares of common stock and accompanying warrants to purchase 875,000 shares of common stock at a price of $3.99 per share and $0.01 per accompanying warrant. On May 13, 2014, the Company closed the Offering and received gross proceeds of $6,601,544 and net proceeds of approximately $5,798,000.

F-26

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

The following discussion and analysis of our financial condition and results of operations for the three months ended March 31, 2014 should be read in conjunction with the Financial Statements and corresponding notes included in this Quarterly Report on Form 10-Q. Our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations, and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including those set forth under the Risk Factors included in our prospectus filed on May 9, 2014 and Note Regarding Forward-Looking Statements in this report.

Overview

We are a financial services firm operating in China. Our current operations are mainly conducted through Wujiang Luxiang, a fully licensed microcredit company which we control through our subsidiaries and certain contractual arrangement, and consist of providing short-term direct loans and loan guarantees to SMEs located in Wujiang City, Jiangsu Province of China. Since our inception in October 2008, we have developed a large and growing number of borrowers in Wujiang City. As of March 31, 2014, we have built a $89.3 million portfolio of direct loans to 210 borrowers and a total of $42.3 million in loan guarantees for 53 borrowers. We were established under the 2008 Guidance on the Small Loan Company Pilot of the China Banking Regulatory Commission and the People's Bank of China (“PBOC”) (No.23) (“Circular No. 23”) to extend short term loans and loan guarantees to SMEs, a class of borrowers that we believe have been underserved in the Chinese lending market. The loans that we provide bridge the gap between Chinese-state run banks that have not traditionally served the capital needs of SMEs and high interest rate “underground” lenders, and our loans provide capital at more favorable terms and sustainable interest rates.

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 is 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 three month ended March 31, 2013, PFL did not have any operations except for initial organizational activities.

On February 19, 2014, WFOE entered into certain contractual arrangements with Mr. Huichun Qin and Suzhou Pride Information Technology Co. Ltd. (“Pride Online”), a domestic entity established on February 19, 2014 and 100% owned by Mr. Qin. Pursuant to these contractual arrangements, WFOE shall have the power, rights and obligations equivalent in all material respects to those it would possess as the sole equity holder of Pride Online, including absolute control rights and the rights to the assets, property and revenue of Pride Online and as a result, approximately 100% of the net income of Pride Online will be paid as a service fee to WFOE. Pride Online operates an online platform (www. pridelendingclub.com) to match prospective borrowers with lenders. As of the date of this quarterly report, Pride Online is in the beginning stages of operation.

Key Factors Affecting Our Results of Operation

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

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

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

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

Results of Operations

Three Months Ended March 31, 2014 as Compared to Three Months ended March 31,2013

CHINA COMMERCIAL CREDIT, INC.

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

	For the Three Months Ended March 31,						Change
	2014			2013			Amount			%
	(Unaudited)			(Unaudited)
Interest income
Interests and fees on loans	$	2,856,474		$	2,912,078		$	(55,604	)		-2	%
Interests on deposits with banks		42,448			97,167			(54,719	)		-56	%
Total interest and fees income		2,898,922			3,009,245			(110,323	)		-4	%

Interest expense
Interest expense on short-term bank loans		(245,190	)		(306,155	)		60,965			-20	%
Net interest income		2,653,732			2,703,090			(49,358	)		-2	%

Provision for loan losses		(588,180	)		(488,216	)		(99,964	)		20	%
Net interest income after provision for loan losses		2,065,552			2,214,874			(149,322	)		-7	%

Commissions and fees on financial guarantee services		298,310			411,209			(112,899	)		-27	%
(Under)/over provision on financial guarantee services		(309,853	)		44,170			(354,023	)		-802	%
Commission and fees on guarantee services, net		(11,543	)		455,379			(466,922	)		-103	%

Net Revenue		2,054,009			2,670,253			(616,244	)		-23	%

Non-interest income
Government incentive		-			25,775			(25,775	)		-100	%
Other non-interest income		120,960			-			120,960		>>100%
Total non-interest income		120,960			25,775			95,185			369	%

Non-interest expense
Salaries and employee surcharge		(186,135	)		(197,944	)		11,809			-6	%
Rental expenses		(65,750	)		(64,037	)		(1,713	)		3	%
Business taxes and surcharge		(112,612	)		(114,447	)		1,835			-2	%
Other operating expenses		(532,114	)		(450,864	)		(81,250	)		18	%
Total non-interest expense		(896,611	)		(827,292	)		(69,319	)		8	%

Income Before Taxes		1,278,358			1,868,736			(590,378	)		-32	%
Income tax expense		(184,725	)		(298,868	)		114,143			-38	%

Net Income		1,093,633			1,569,868			(476,235	)		-30	%

Earnings per Share- Basic and Diluted	$	0.105		$	0.174		$	(0.069	)		-40	%

Weighted Average Shares Outstanding-Basic and Diluted		10,434,862			9,000,000			1,434,862			16	%

Net Income		1,093,633			1,569,868			(476,235	)		-30	%
Other comprehensive income
Foreign currency translation adjustment		(807,627	)		371,361			(1,178,988	)		-317	%
Comprehensive Income	$	286,006		$	1,941,229		$	(1,655,223	)		-85	%

The Company’s net income for the three months ended March 31, 2014 was $1,093,633, representing a decrease of $476,235 or 30%, from $1,569,868 for the three months ended March 31, 2013. The decrease in net income for the three months ended March 31, 2014 was the net effect of the changes in the following components:

·	a decrease in net interest income of $49,358;

·	an increase in the provision for loan losses of $99,964;

·	a decrease in net commission and fees on guarantee services of $112,899;

·	an increase of provision on financial guarantee services of $354,023;

·	an increase in total non-interest expense of $69,319; and

·	a decrease in enterprise income tax of $114,143.

The following paragraphs discuss changes in the components of net income in greater details during the three months ended March 31, 2014, as compared to the three months ended March 31, 2013.

Net Interest Income

Net interest income is equal to interest income we generated less interest expenses we incurred. The Company’s net interest income decreased by $49,358, or 2%, to $2,653,732 during the three month ended March 31, 2014, as compared to net interest income of $2,703,090 for the three months ended March 31, 2013.

The interest and fees on loans decreased by $55,604, or 2% from $2,912,078 for the three months ended March 31, 2013 to $2,856,474 for the three months ended March 31, 2014. The decrease is the net effect of decrease in effective weighted average loan interest rate from 15.01% for the loan portfolio as of March 31, 2013 to 14.40% as of March 31, 2014. The reason for the decrease was due to the mandatory requirement promulgated by Jiangsu Finance Bureau in June of 2013 that effective from October 1, 2013 the maximum interest rate a microcredit company in Jiangsu province is permitted to charge shall be fifteen percent compared to eighteen percent previously permitted. For loan portfolio as of March 31, 2014, the interest income decreased during the three months ended March 31, 2014, against the increase of loan portfolio by $0.8 million from $88.5 million as of March 31, 2013 to $89.3 million as of March 31, 2014.

During the three months ended March 31, 2014, we added 44 new loans and the average loan size was approximately $344,000, as compared to 129 new loans with an average loan size of $351,000 during the three months ended March 31, 2013.

During the three month ended March 31, 2014, People’s Bank of China withdrew a significant amount of liquidity from the market, which has made it even harder for SMEs to gain access to capital. Often unable to obtain bank loans, many SMEs have to borrow from so-called “underground” lenders. “Underground” lenders, or shadow banks, take on various forms. Management is concerned that the borrowers may use the proceeds from the loans we grant to them as a means of repayment to the underground lenders, instead of using them in operations. Therefore, management decided to grant new loans in a more cautious manner.

Due to the long-term nature of our restricted deposits with third party banks, we utilized these deposits as term deposits during the three months ended March 31, 2014 which in turn generated interest income on deposits with banks of $42,448 as compared to $97,167 during the three months ended March 31, 2013. The decrease was mainly due to the reduction of our traditional guarantee business with banks. In anticipation of the higher margin guarantee business to be provided via the Kaixindai Financing Services Jiangsu Co. Ltd (“Kaixindai”) platform, since the second half of 2013, we have closed several restricted deposit accounts with banks through which we provided guarantee services to our customers. As of March 31, 2014, the amount of restricted deposits was $7,202,559, a decrease of 43.5% as compared to $12,755,736 as of March 31, 2013.

Interest expense represents interest incurred on short-term bank loans. The interest incurred on short term bank loans decreased by $60,965, or 20%. This was mainly caused by a decrease of the total bank borrowing balance of $4.5 million, from $20.7 million as of March 31, 2013 to $16.2 million as of March 31, 2014. In both three months ended March 31, 2014 and 2013, there was no interest expense related to the loans from related parties, respectively, as a result of our effort to reduce related party transactions.

Provision for Loan Losses for Direct Lending

The Company’s provision for loan losses were $588,180 and $488,216 for the three months ended March 31, 2014 and 2013, respectively. The provision for loan losses was determined by comparing the beginning and ending balance of allowance for loan losses for business and personal loans. If the ending balance of the allowance of loan losses after any charge offs (net of recoveries) is less than the beginning balance, it will be recorded as a “reversal”; if it is larger, it will be recorded as a “provision” in the allowance for loan loss. The netting amount of “reversal” and “provision” is presented in the consolidated statements of income and comprehensive income and the components of the provision for loan losses were disclosed in Note 7.

Increase in provision for loan losses reflects the increase in the allowance for loan losses for the reporting period as our loan receivable balance increased and hence higher risk was assessed. In accordance with the aging schedule, during the three months ended March 31, 2014, more loans in category of “special mention” were moved down to the “substandard” and “doubtful” category subject to the higher provision ratio of 25% and 50%, respectively. We have initiated several legal proceedings against long-aging customers and it may take a long time to settle the case. In order to speed up the collection of past due loans, we, engaged He-Partners Law Firm, the largest law firm in Suzhou City to represent us in the lawsuit cases.

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 1.62%-3.60% multiplied by the amount of loans being guaranteed, based on the nature of the guarantee and whether the customer is new or existing. The commissions and fees generated from our financial guarantee services decreased from $411,209 for the three months ended March 31, 2013, to $298,310 for the three months ended March 31, 2014, representing a decrease of $112,899, or 27%.

As of March 31, 2014, we have provided guarantees for a total of $42.3 million underlying loans to approximately 53 borrowers, a reduction of 50% compared to March 31, 2013. We expect to further reduce our traditional guarantee services as we increase similar services originated through the Kaixindai platform since the service fees generated by our traditional guarantee service are significantly less than the service fees expected to be generated by the new platform. As we were rated AAA by the Finance Office of Jiangsu Province in October 2013, we are permitted to provide guarantee services to borrowers on the Kaixindai platform.

Provision for Financial Guarantee Services

The provision on financial guarantee services increased from an over provision of $44,170 for the three months ended March 31, 2013, to an under provision of $309,853 for the three months ended March 31, 2014, representing an increase of $354,023.

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

Based on the past experience, we estimates the probable loss for immature financial guarantee services to be 1% of contract amount and made a provision for possible credit risk of its guarantee. Additionally we accrued allowance on matured but defaulted financial guarantee services. During the three months ended March 31, 2014, a number of our financial guarantee customers defaulted on their loans and we repaid the underlying loans. As of March 31, 2014, the outstanding repayment balance amounted to $5.4 million. We are in the process of negotiating and possibly litigating against both the borrowers and their counter-guarantors. Due to the uncertainty of the outcome, we increased our provision for the guarantee services significantly from an over provision of $44,170 for the three months ended March 31, 2013, to an under provision of $309,853 for the three months ended March 31, 2014, representing an increase of $354,023. We anticipate we can recover most of the repayment amount and anticipate the repayment will not continue to grow at the same rate in the following quarters.

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

Non-interest Expenses

Non-interest expenses increased from $827,292 for the three months ended March 31, 2013 to $896,611 for the three months ended March 31, 2014, representing an increase of $69,319 or 8%. Non-interest expenses primarily consisted of salary and employee surcharge, office rental expense, business tax and surcharge, depreciation of equipment, travel expenses, entertainment expenses, professional service fees, and other office supplies. The increase was mainly attributable to an increase in other operating expenses of $81,250, or 18%. Other operating expenses were higher during the three months ended March 31, 2014 as compared to the three months ended March 31, 2013, primarily due to a net effect of an increase in audit-related fees of $46,561, an increase in D&O insurance premium of $70,875 against a decrease in bank charge of $34,738.

Income Tax

Income taxes decreased from $298,868 for the three months ended March 31, 2013 to $184,725 for the three months ended March 31, 2014, representing a decrease of $114,143 or 38%. The decrease in income tax is mainly attributable to a decrease of income before tax of $590,378 or 32%, from $1,868,736 for the three months ended March 31, 2013 to $1,278,358 for the three months ended March 31, 2014.

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 it is showing signs of slow-down. To maintain our loan portfolio quality, we have modified our loan policy to accept only textile companies with real estate as collateral or guaranteed by guarantee companies.

In addition, we plan to diversify our risks by concentrating in smaller amount loans that are below $730,000 (or approximately RMB 4.5 million). We have also eliminated related party loans and extended more loans to agriculture related business since 2012.

Currently, the banking industry encourages SMEs to apply for loans as individual with recourse so that when it is past due, both the SME and the responsible individual are both liable for the past due amount and the individual borrower carries personal liability. As of March 31, 2014, our business loan balance decreased by 1.26% as compared to that as of March 31, 2013, while personal loan balance decreased by 0.57% over such period.

The following table sets forth the classification of loans receivable as of March 31, 2014 and 2013, respectively:

	March 31, 2014					March 31, 2013
	(Unaudited)
	Amount		Percent of Total			Amount		Percent of Total

Business loans	$	55,907,034		62.61	%	$	56,620,893		62.77	%
Personal loans		33,391,745		37.39	%		33,582,520		37.23	%

Total Loans receivable, gross		89,298,779					90,203,413

Nonaccrual loans totaled $4.9 million, or 4.43% of total assets as of March 31, 2014, up from $2.8 million, or 2.49% of total assets, at December 31, 2013. The allowance for loan losses was $1.95 million, representing 2.18% of loans receivable and 39.93% of non-accrual loans as of March 31, 2014. As of December 31, 2013, the allowance for loan losses was $1.38 million, representing 1.53% of loans receivable and 48.87% of non-accrual loans.

The following table sets forth information concerning our nonaccrual loans as of March 31, 2014 and December 31, 2013, respectively:

	March 31, 2014			December 31, 2013
Nonaccrual loans	$	4,879,645		$	2,815,358
Allowance for loan losses	$	1,948,400		$	1,375,948
Loans receivable	$	89,298,779		$	90,203,413
Total assets	$	110,110,115		$	113,003,448
Nonaccrual loans to loans receivable		5.46	%		3.12	%
Nonperforming assets to total assets		4.43	%		2.49	%
Allowance for loan losses to loans receivable		2.18	%		1.53	%
Allowance for loan losses to non-accrual loans		39.93	%		48.87	%

Liquidity and Capital Resources

Cash Flows and Capital Resources

We have financed our operations primarily through shareholder contributions, cash flow from operations and bank loans, and from public offering. As a result of our total cash activities, net cash decreased from $9,405,865 as of December 31, 2013 to $5,197,772 as of March 31, 2014.

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

However, as a micro-credit company regulated by the Chinese Banking Regulatory Commission, we are prohibited from providing saving or checking services to our customers; our borrowing capacity from other financial institutions is also limited to 50% of our equity. Our currently available capital resources may not be sufficient to fund our anticipated expansion of our direct lending and guarantee business and the anticipated financial leasing business.

In order to meet the capital needs for our anticipated business expansion, we may take the following actions: (1) continue to improve our collection of loan receivable and interest receivable; (2) if necessary, raise additional capital through the sale of equity. On May 8th, 2014, our Company announced its offering of 1.75 million common shares to be priced at $4.00 per share and accompanying warrants. The public offering proceeds will used to start our financial leasing business. (3) enter into new, or refinance existing, short- and/or long term commercial loans. We cannot assure you that financing will be available in the amounts we need or on terms acceptable to us, if at all. The sale of additional equity securities, including convertible debt securities, would dilute our current shareholders. The incurrence of debt could result in operating and financial covenants that would restrict our operations and our ability to pay dividends to our shareholders. If we are unable to obtain additional equity or debt financing as required, our business, operations and prospects may be adversely affected.

In March 2014, approximately $5.6 million of the net proceeds raised in the initial public offering (“IPO”) have been transferred and have already been contributed to Wujiang Luxiang and approved as an increase of the registered capital of Wujiang Luxiang.

Statement of Cash Flows

The following table sets forth a summary of our cash flows for the three months ended March 31, 2014 and 2013, respectively:

	For the Three Months Ended March 31
	2014 (Unaudited)			2013 (Unaudited)
Net cash provided by operating activities	$	700,142		$	1,801,919
Net cash used in investing activities	$	(3,526,847	)	$	(2,617,284	)
Net cash used in financing activities	$	(1,230,249	)	$	(27,763	)
Effects of exchange rate changes on cash	$	(151,139	)	$	7,324
Net cash outflow	$	(4,208,093	)	$	(835,804	)

Net Cash Provided by Operating Activities

During the three months ended March 31, 2014, we had positive cash flow from operating activities of $700,142, a decrease of $1,101,777 from the three months ended March 31, 2013, during which we had cash flow from operating activities of $1,801,919. The net income for the three months ended March 31, 2014 decreased by $476,235 as compared to the three months ended March 31, 2013. The decrease in net cash provided by operating activities was the result of several factors, including:

	·	An increase in cash flow due to an increase of non-cash items which was primarily due to the increase in the provision for loan losses of $99,964 and the increase in the provision for financial guarantee services of $354,023.

	·	A decrease in cash flow due to the increase in changes in interest receivable by $503,691. The interest receivable increased by $595,922 and $92,231 as of March 31, 2014 and 2013, respectively, as compared to December 31, 2013 and 2012. This is mainly attributable to significant increase in interest receivable overdue 90 days as of March 31, 2014.

	·	A decrease in cash flow due to the increase in changes in net tax receivable by $309,334. The net tax receivable as of March 31, 2014 and 2013 increased by $260,526 and decreased by $48,808, respectively as compared to December 31, 2013 and 2012. The Company was required to prepay enterprise income taxes at a rate of 25% on a quarterly basis when the applicable tax rate was 12.5% to loan business and 25% to guarantee business, respectively. Within five months after fiscal year end, the Company and the tax authority resolved the difference between the taxes paid and taxes due.

Net Cash Used in Investing Activities

Net cash used in investing activities for the three months ended March 31, 2014 was $3,526,847, as compared to net cash used in investing activities of $2,617,284 for the three months ended March 31, 2013. The cash used in investing activities for the three months ended March 31, 2014 was mainly used for repayment of defaulted customers in the financial guarantee service.

Net Cash Used in Financing Activities

Net cash used in financing activities for the three months ended March 31, 2013 totaled $1,230,249, as compared to net cash used in financing activities of $27,763 for the three months ended March 31,2013. The cash used in financing activities for the three months ended March 31, 2014 was mainly attributable to the money transferred to increase the registered capital of Wujiang Luxiang.

Contractual Obligations

As of March 31, 2014, the annual amounts of future minimum payments under certain of our contractual obligations were:

	Payment due by period
	Total		Less than		1-2 years		2-3 years		3-4 years		4-5 years		5 years
	Total		1 year		1-2 years		2-3 years		3-4 years		4-5 years		and after
Contractual obligations:
Short term bank loans	$	16,225,337		16,225,337		-		-		-		-
Operating lease	$	1,174,766		261,059		261,059		261,059		261,059		130,530

	$	17,400,103		16,486,396		261,059		261,059		261,059		130,530

(1)	The bank loans bear an average annual interest rate of 6.0%.

(2)	Our renewed lease for our office in Wujiang commenced on October 1, 2013 and will expire on September 30, 2018. The Company has the right to extend the lease before its expiration with a one-month's prior written notice.

Off-Balance Sheet Arrangements

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

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

	March 31, 2014		December 31, 2013
	(Unaudited)
Guarantee	$	42,340,018	$	59,692,091

Critical Accounting Policies

We prepare our financial statements in conformity with accounting principles generally accepted in the United States (“U.S. GAAP”), which requires us to make judgments, estimates and assumptions that affect our reported amount of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the financial statements, and reported amounts of revenue and expenses during the reporting periods. We continually evaluate these estimates and assumptions based on the most recently available information, our own historical experience and various other assumptions that we believe to be reasonable under the circumstances. Since the use of estimates is an integral component of the financial reporting process, actual results could differ from our expectations as a result of changes in our estimates.

An accounting policy is considered critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time such estimate is made and if different accounting estimates that reasonably could have been used, or changes in the accounting estimates that are reasonably likely to occur, could materially impact the condensed financial statements. We believe that the following accounting policies involve a higher degree of judgment and complexity in their application and require us to make significant accounting estimates. The following descriptions of critical accounting policies, judgments and estimates should be read in conjunction with our condensed financial statements and other disclosures included in this report.

Revenue recognition

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

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

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

	●	Non-interest income. Non-interest income mainly includes government incentive and rental income from the sub-leasing of certain of the Company’s leased office space to third parties. Government incentive is provided by Jiangsu Provincial government on a yearly basis to promote the development of micro credit agencies in Jiangsu Province.

Loans receivable, net

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

Allowance for loan losses and loan impairment

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

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

	1.	General Reserve - is based on total loan receivable balance and to be used to cover unidentified probable loan loss. The General Reserve is required to be no less than 1% of total loan receivable balance.
	2.	Specific Reserve - is based on the level of loss of each loan after categorizing the loan according to their risk. According to the so-called “Five-Tier Principle” set forth in the Provision Guidance, the loans are categorized as “pass”, “special-mention”, “substandard”, “doubtful” or “loss”. Normally, the provision rate is 2% for “special-mention”, 25% for “substandard”, 50% for “doubtful” and 100% for “loss”.

To the extent the mandatory loan loss reserve rate of 1% as required by PBOC differs from management’s estimates, the management elects to use the higher rate. As of December 31, 2013, the Company utilized Specific Reserve in the determination of the loan loss reserve as it is higher than the amount calculated based on the General Reserve.

Income Tax

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 March 31, 2014 to provide reasonable assurance that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission (“SEC”) rules and forms, and (ii) accumulated and communicated to the Company’s management, including its principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

Inherent Limitations Over Internal Controls

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

(i)	pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the Company’s assets;
(ii)	provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that the Company’s receipts and expenditures are being made only in accordance with authorizations of the Company’s management and directors; and
(iii)	provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.

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

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the first quarter of 2014 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

We know of no pending legal proceedings to which we are a party which are material or potentially material, either individually or in the aggregate. We are from time to time, during the normal course of our business operations, subject to various litigation claims and legal disputes. We do not believe that the ultimate disposition of any of these matters will have a material adverse effect on our financial position, results of operations or liquidity.

ITEM 1A. RISK FACTORS

There were no material changes to the risks included in the Company’s prospectus filed with the SEC on May 9, 2014.

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

In March 2014, we issued a total of 15,769 shares of our Common Stock to Perceptive Programs, LLC in consideration of certain investor relations services rendered.

In April 2014, we issued a total of 150,000 shares of our Common Stock to Beyond Century Overseas Ltd in consideration of certain management consulting and advisory services to be rendered.

The above transactions were not registered under the Securities Act of 1933, as amended, in reliance on an exemption from registration set forth in Section 4(a)(2) thereof as a transaction by the Company not involving any public offering,. These securities may not be offered or sold in the United States in the absence of an effective registration statement or exemption from the registration requirements under the Securities Act of 1933, as amended.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

The following exhibits are filed herewith:

Exhibit No.		Description

31.1*		Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934
31.2*		Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934
32.1*		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2*		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS**		XBRL Instance Document
101.SCH**		XBRL Taxonomy Extension Schema Document
101.CAL**		XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF**		XBRL Taxonomy Extension Definition Linkbase Document
101.LAB**		XBRL Taxonomy Extension Label Linkbase Document
101.PRE**		XBRL Taxonomy Extension Presentation Linkbase Document

* filed herein.

** XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

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.

May 16, 2014	CHINA COMMERCIAL CREDIT, INC.

	By:	/s/ Huichun Qin
		Huichun Qin
		Chief Executive Officer
		(Principal Executive Officer)

	By:	/s/ Long Yi
		Long Yi
		Chief Financial Officer
		(Principal Financial and Accounting Officer)

EXHIBIT INDEX

Exhibit No.		Description

31.1*		Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934
31.2*		Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934
32.1*		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2*		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS**		XBRL Instance Document
101.SCH**		XBRL Taxonomy Extension Schema Document
101.CAL**		XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF**		XBRL Taxonomy Extension Definition Linkbase Document
101.LAB**		XBRL Taxonomy Extension Label Linkbase Document
101.PRE**		XBRL Taxonomy Extension Presentation Linkbase Document

* filed herein.

Positive
Negative
Uncertain
Constraining
Legalese
Litigous
Readability	H.S. freshman Avg

		Page Number

NOTE REGARDING FORWARD-LOOKING STATEMENTS		2

PART I. FINANCIAL INFORMATION		F-1

Item 1.	Financial Statements	F-1

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	14

Item 4.	Controls and Procedures	14

PART II. OTHER INFORMATION		15

Item 1.	Legal Proceedings	15

Item 1A.	Risk Factors	15

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	15

Item 3.	Defaults Upon Senior Securities	15

Item 4.	Mine Safety Disclosures	15

Item 5.	Other Information	15

Item 6.	Exhibits	15

SIGNATURES		16

BAIYU (BYU) 10-Q2014 Q1 Quarterly report

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