WHERE
YOU CAN FIND MORE INFORMATION
We
have filed a registration statement with the Securities and Exchange Commission under the Securities Act of 1933, as amended,
with respect to the shares of our common stock offered by this prospectus. This prospectus is part of that registration statement
and does not contain all the information included in the registration statement.
For
further information with respect to our common stock and us, you should refer to the registration statement, its exhibits and
the material incorporated by reference therein. Portions of the exhibits have been omitted as permitted by the rules and regulations
of the Securities and Exchange Commission. Statements made in this prospectus as to the contents of any contract, agreement or
other document referred to are not necessarily complete. In each instance, we refer you to the copy of the contracts or other
documents filed as an exhibit to the registration statement, and these statements are hereby qualified in their entirety by reference
to the contract or document.
The
registration statement may be inspected and copied at the public reference facilities maintained by the Securities and Exchange
Commission at Room 1024, Judiciary Plaza, 100 F Street, N.E., Washington, D.C. 20549 and the Regional Offices at the Commission
located in the Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661, and at 233 Broadway, New York, New
York 10279. Copies of those filings can be obtained from the Commission’s Public Reference Section, Judiciary Plaza, 100
F Fifth Street, N.E., Washington, D.C. 20549 at prescribed rates and may also be obtained from the web site that the Securities
and Exchange Commission maintains at http://www.sec.gov. You may also call the Commission at 1-800-SEC-0330 for more information.
We file annual, quarterly and current reports and other information with the Securities and Exchange Commission. You may read
and copy any reports, statements or other information on file at the Commission’s public reference room in Washington, D.C.
You can request copies of those documents upon payment of a duplicating fee, by writing to the Securities and Exchange Commission.
DISCLOSURE
OF COMMISSION POSITION ON
INDEMNIFICATION FOR SECURITIES LAW VIOLATIONS
Our
certificate of incorporation, as amended, provides that all our directors, officers, employees and agents shall be entitled to
be indemnified by us to the fullest extent permitted under the Delaware General Corporation Law, provided that they acted in good
faith and that they reasoned their conduct or action was in, or not opposed to, the best interest of our company.
Our
Bylaws provide for indemnification of our officers, directors and others who become a party to an action on our behalf by us to
the fullest extent not prohibited under the Delaware General Corporation Law. Further, we maintain officer and director liability
insurance.
Insofar
as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling
us pursuant to the foregoing provisions, we have been informed that in the opinion of the Commission such indemnification is against
public policy as expressed in the Act and is therefore unenforceable.
DATED July 21, 2017
PROSPECTUS
CHINA
COMMERCIAL CREDIT, INC.
$30,000,000
Common
Stock
Preferred
Stock
Debt
Securities
Warrants
Rights
Units
We
may from time to time, in one or more offerings at prices and on terms that we will determine at the time of each offering, sell
common stock, preferred stock, warrants, or a combination of these securities, or units, for an aggregate offering price of up
to $30 million. This prospectus describes the general manner in which our securities may be offered using this prospectus. Each
time we offer and sell securities, we will provide you with a prospectus supplement that will contain specific information about
the terms of that offering. Any prospectus supplement may also add, update, or change information contained in this prospectus.
You should carefully read this prospectus and the applicable prospectus supplement as well as the documents incorporated or deemed
to be incorporated by reference in this prospectus before you purchase any of the securities offered hereby. This prospectus may
not be used to offer and sell securities unless accompanied by a prospectus supplement.
Our common stock is listed on the NASDAQ Capital Market
under the symbol “CCCR.” On July 11, 2017, the last reported sales price of our common stock was $3.11. We
will apply to list any shares of common stock sold by us under this prospectus and any prospectus supplement on the NASDAQ Capital
Market. The prospectus supplement will contain information, where applicable, as to any other listing of the securities on the
NASDAQ Capital Market or any other securities market or exchange covered by the prospectus supplement.
As of July 11, 2017, the aggregate market value of
our outstanding common stock held by non-affiliates is $54,062,464.2, based on 17,383,429 shares of outstanding common stock,
of which approximately 14,073,654 shares are held by non-affiliates, and a per share price of $3.11 based on the closing sale
price of our common stock on July 11, 2017.
During the 12 calendar month period ended July 12, 2017,
3,124,025 shares
of the common
stock of the Company have been offered.
Pursuant
to General Instruction I.B.6 of Form S-3, in no event will we sell our common stock in a public primary offering with a value
exceeding more than one-third of our public float in any 12-month period so long as our public float remains below $75 million.
We have not offered any securities pursuant to General Instruction I.B.6 of Form S-3 during the 12 calendar months prior to and
including the date of this prospectus.
Investing
in any of our common stock involves risk. You should carefully consider the Risk Factors beginning on page 3
of
this prospectus in addition to Risk Factors contained in the applicable prospectus supplement, before you make an investment in
the securities.
Neither
the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or
determined if this prospectus if truthful or complete. Any representation to the contrary is a criminal offense.
We
may offer the securities directly or through agents or to or through underwriters or dealers. If any agents or underwriters are
involved in the sale of the securities their names, and any applicable purchase price, fee, commission or discount arrangement
between or among them, will be set forth, or will be calculable from the information set forth, in an accompanying prospectus
supplement. We can sell the securities through agents, underwriters or dealers only with delivery of a prospectus supplement describing
the method and terms of the offering of such securities. See “Plan of Distribution.”
The
date of this prospectus is July 11, 2017
TABLE
OF CONTENTS
You
should rely only on the information contained or incorporated by reference in this prospectus and any prospectus supplement. We
have not authorized any dealer, salesman or any other person to provide you with additional or different information. This
prospectus and any prospectus supplement are not an offer to sell or the solicitation of an offer to buy any securities other
than the securities to which they relate and are not an offer to sell or the solicitation of an offer to buy securities in any
jurisdiction to any person to whom it is unlawful to make an offer or solicitation in that jurisdiction. You should
not assume that the information in this prospectus or any prospectus supplement or in any document incorporated by reference in
this prospectus or any prospectus supplement is accurate as of any date other than the date of the document containing the information. We
will disclose any material changes in our affairs in a post-effective amendment to the registration statement of which this prospectus
is a part, a prospectus supplement, or a future filing with the Securities and Exchange Commission incorporated by reference in
this prospectus.
Note
Regarding Forward-Looking Statements
The
information contained in this Annual Report on Form 10-K 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:
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Our
ability to improve internal controls and procedures;
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Our
ability to develop and market our microcredit lending and guarantee business in the future;
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Our
ability to effectively control the lending risk and collect from default borrowers;
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Our
ability to make timely adjustment to ensure adequate loan loss and financial guarantee provisions;
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Inflation
and fluctuations in foreign currency exchange rates;
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Our
on-going ability to obtain all mandatory and voluntary government and other industry certifications, approvals, and/or licenses
to conduct our business;
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Development
of a liquid trading market for our securities; and
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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.
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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.
We
qualify all of our forward-looking statements by these cautionary statements. The Company assumes no obligation to revise or update
any forward-looking statements for any reason, except as required by law.
PROSPECTUS SUMMARY
This prospectus is part of a registration statement that we filed
with the Securities and Exchange Commission, or SEC, using a “shelf” registration process. Under this shelf registration
process, we may sell any combination of the securities described in this prospectus in one of more offerings up to a total dollar
amount of proceeds of $30,000,000. This prospectus describes the general manner in which our securities may be offered by this
prospectus. Each time we sell securities, we will provide a prospectus supplement that will contain specific information about
the terms of that offering. The prospectus supplement may also add, update or change information contained in this prospectus
or in documents incorporated by reference in this prospectus. The prospectus supplement that contains specific information about
the terms of the securities being offered may also include a discussion of certain U.S. Federal income tax consequences and any
risk factors or other special considerations applicable to those securities. To the extent that any statement that we make in
a prospectus supplement is inconsistent with statements made in this prospectus or in documents incorporated by reference in this
prospectus, you should rely on the information in the prospectus supplement.
You should carefully read both this prospectus and any prospectus
supplement together with the additional information described under “Where You Can Find Additional Information” before
buying any securities in this offering.
The terms “we,” “us,” “our,”
and the “Company” refer only to China Commercial Credit, Inc. (“CCC”) and its subsidiaries, unless the
context suggests otherwise. Additionally, unless we indicate otherwise, references in this prospectus to:
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“China” and the “PRC”
are to the People’s Republic of China, excluding, for the purposes of this prospectus only, Taiwan and the special administrative
regions of Hong Kong and Macau;
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“RMB” and “Renminbi”
are to the legal currency of China; and
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“$,” “US$” and “U.S.
dollars” are to the legal currency of the United States.
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The Company
China Commercial Credit, Inc., is a financial services firm operating
in China. Our mission is to fill the significant void in the market place by offering lending, financial guarantee and financial
leasing products and services to a target market which has been significantly under-served by the traditional Chinese financial
community. Our current operations consist of providing direct loans, loan guarantees and financial leasing services to small-to-medium
sized businesses (“SMEs”), farmers and individuals in the city of Wujiang, Jiangsu Province.
Our loan and loan guarantee business is conducted through Wujiang
Luxiang, a fully licensed microcredit company which we control through our subsidiaries and certain contractual arrangements.
Our financial leasing business is conducted through PFL, our wholly owned subsidiary. Historically, many SMEs and farmers have
been borrowing at high interest rates from unregulated and often illegal lenders, referred to as “underground” lenders,
to finance their operations and growth, contrary to the preferences of Chinese banking authorities. Such high interest rate borrowing
makes it difficult for businesses to grow, and also exacerbates China’s concerns about inflation. By operating through licensed
and regulated businesses, we seek to bridge the gap between Chinese state-owned and commercial banks that have not traditionally
served the capital needs of SMEs and higher interest rate “underground” lenders.
Jiangsu, which is an eastern coastal province, has among the highest
population density in China and is home to many of the world’s leading exporters of electronic equipment, chemicals and
textiles. As a result, the city of Wujiang ranks as one of the most economically successful cities in China. The SMEs, both in
Jiangsu and other provinces in China, have historically been an under-served segment of the Chinese banking market.
Since Wujiang Luxiang’s inception in October
2008, it has developed a large number of borrowers in Wujiang City. All of our loans are made from our sole office, located in
Wujiang City. As of December 31, 2016, we have built a $58.5 million portfolio of direct loans to 111 borrowers and a total of
$10
.9 million in loan guarantees for 14 borrowers.
During
2015 and 2016, the microcredit companies in Wujiang area went through the most difficult time since their inceptions in 2008.
Three of them went bankrupt while the remainder are struggling with high default rates due to the poor economic condition, especially
the slow-down in the textile industry. The operations of Wujiang Luxiang were also affected. For the year ended December 31, 2016,
we had a revenue of $2.2 million and a net loss of $2.0 million compared to a loss of $55.8 million and net loss of $61.3 million
in 2015, a decrease of 104% and 97%, respectively. As a result of the deteriorating economic condition, we experienced a substantial
increase in the amount of default loans in both our direct lending and guarantee business. The amount of underlying loans we guaranteed
has been reduced by 6.5% to $10.9 million as of December 31, 2016 compared to $11.7 million as of December 31, 2015. As the rate
of fees and commissions generated from the guarantee business has been decreasing, the Company decided that the revenue does not
justify the default risks involved in the guarantee business, and therefore expects to further reduce the traditional guarantee
business and hold off on pursuing the guarantee business to be provided via the Kaixindai Financing Services Jiangsu Co. Ltd (“Kaixindai”)
platform as previously planned. Management may actively resume the guarantee business in the future if economic conditions improve.
Our
financial leasing services are anticipated to be provided to a diverse base of customers, including textile and other manufacturing
companies, railroads, port facilities, local bus, and rail companies and municipal governments. Customers will include existing
clients of Wujiang Luxiang in addition to new clients. PFL, our wholly owned subsidiary, plans to provide leases on both new and
used manufacturing equipment, medical devices, transportation vehicles and industrial equipment, purchased both domestically and
from foreign suppliers, to meet its customer’s needs. As of the date of this Annual Report, PFL entered into two financial
leasing agreements for an aggregate of $5.61 million in lease receivables. We do not currently have further funds to deploy in
the financial leasing business and plan to hold off expansion of the leasing business until the economic environment improves.
Our
principal executive offices are located at No. 1 Zhongying Commercial Plaza, Zhong Ying Road, Wujiang, Suzhou, Jiangsu Province,
China, 215200. Our telephone number is: 86-0512 6396-0022.
Going
Concern
The
accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization
of assets and the satisfaction of liabilities in the normal course of business. The realization of assets and the satisfaction
of liabilities in the normal course of business are dependent on, among other things, the Company’s ability to operate profitably,
to generate cash flows from operations, and to pursue financing arrangements to support its working capital requirements.
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 December 31, 2016, its results of operations for the years ended December 31,
2016 and 2015, and its cash flows for the years ended December 31, 2016 and 2015, as applicable, have been made. The results of
operations are not necessarily indicative of the operating results for the full fiscal year or any future periods.
The Company has suffered an accumulated deficit
of US$70,234,656 as of December 31, 2016. In addition, the Company had a working capital (total consolidated current assets exceeding
total consolidated current liabilities) of US$2,332,909, as of December 31, 2016. As of December 31, 2016, the Company had cash
and cash equivalents of US$768,501, and total short-term borrowings of US$ nil.
These and other factors disclosed raise substantial
doubt as to the Company’s ability to continue as a going concern within one year from the date of this filing. Management
believes that it has developed a liquidity plan, as summarized below, that, if executed successfully, will provide sufficient
liquidity to meet the Company obligations for a reasonable period of time.
The Company is actively seeking other strategic
investors with experience in lending business. If necessary, the shareholders of Wujiang Luxiang plans to contribute more capital
into Wujiang Luxiang. These shareholders’ undertaking to contribute more capital is not legally binding. On June 8, 2016,
the Company closed a private placement with a third-party individual investor to issue 2,439,025 common shares, at a price of
US$0.41 per share, and raised US$1,000,000 therefrom. This transaction was at arm’s length. The shares shall be authorized
for listing on the NASDAQ capital market, and the net proceeds of the sale of the shares shall be used by the Company for working
capital and general corporate purpose. These issued and outstanding shares are deemed a permanent equity of the Company.
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Improvement
in Working Capital Management
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In
order to meet the capital needs for our continued operations, we continue to use our best effort to improve our collection of
loan receivable and interest receivable. We engaged four law firms, Jiangsu Zhenyuzhen Law Firm, Jiangsu Tianbian Law Firm, Jiangsu
Mingren Law Firm and He-Partners Law Firm to represent us in the legal proceedings against the borrowers and their counter guarantors.
Among them, He-Partners Law Firm, is one of the largest law firms in Suzhou City.
While
management believes that the measures in the liquidity plan will be adequate to satisfy its liquidity and cash flow requirements
for the twelve months after the financial statements are available to be issued, there is no assurance that the liquidity plan
will be successfully implemented. Failure to successfully implement the liquidity plan will have a material adverse effect on
the Company’s business, results of operations and financial position, and may materially adversely affect its ability to
continue as a going concern.
RISK
FACTORS
You
should carefully consider the following material risk factors and other information in this report. If any of the following risks
actually occur, our business, financial condition, results of operations and prospects for growth could be seriously impacted.
As a result, the trading price, if any, of our Common Stock could decline and you could lose part or all of your investment.
Risks
Relating to Our Lending and Guarantee Business
The
substantial and continuing losses, and significant operating expenses incurred in the past few years may cause us to be unable
to pursue all of our operational objectives if sufficient financing and/or additional cash from revenues is not realized.
We
have an accumulated deficit of US$70,234,656 as of December 31, 2016 and a working capital (total consolidated current assets
exceeding total consolidated current liabilities) of US$2,332,909, as of December 31, 2016. Although we have previously been able
to attract financing as needed, such financing may not continue to be available at all, or if available, on reasonable terms as
required. Further, the terms of such financing may be dilutive to existing shareholders or otherwise on terms not favorable to
existing shareholders or us. If we are unable to secure additional financing, as circumstances require, or do not succeed in meeting
our sales objectives, we may be required to change or significantly reduce our operations or ultimately may not be able to continue
our operations.
Our
independent registered public accounting firm’s report contains an explanatory paragraph that expresses substantial doubt
about our ability to continue as a “going concern.”
Because
of our historical accumulated deficit in working capital, among others, our independent auditor has raised substantial doubt about
our ability to continue as a going concern. The financial statements contained elsewhere in this prospectus do not include any
adjustments that might result from our inability to consummate this offering or our inability to continue as a going concern.
Our
limited operating history makes it difficult to evaluate our business and prospects and we may not be able to adapt to the changing
market condition.
Wujiang
Luxiang commenced operations in October 2008 and has a limited operating history. It is difficult to evaluate our prospects, as
we may not have sufficient experience in addressing the risks to which companies operating in new and rapidly evolving markets
such as the microcredit industry, may be exposed. We will continue to encounter risks and difficulties that companies at a similar
stage of development frequently experience, including the potential failure to:
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timely
respond to the liquidity changes driven by PBOC’s policy and manage the credit risk inherent to our loan and guarantee
business;
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obtain
sufficient working capital and increase our registered capital to support expansion of our loan and guarantee portfolios;
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comply
with any changes in the laws and regulations of the PRC or local province that may affect our lending operations;
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expand
our borrowers base;
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collect
from default borrowers;
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maintain
adequate control of default risks and expenses allowing us to realize anticipated revenue growth;
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implement
our customer development, risk management and acquisition strategies and adapt and modify them as needed;
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integrate
any future acquisitions; and
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anticipate
and adapt to changing conditions in the Chinese lending industry resulting from changes in government regulations, mergers
and acquisitions involving our competitors, and other significant competitive and market dynamics.
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As
a matter of fact, for the year ended December 31, 2016, we had a revenue of $2.2 million and a net loss of $2.0 million compared
to a loss of $55.8 million and net loss of $61.3 million in 2015, a decrease of 104% and 97%, respectively. If we are unable to
address any or all of the foregoing risks, our business may be materially and adversely affected.
PRC
regulation of loans to, and direct investments in, PRC entities by offshore holding companies and the unauthorized transfer of
certain funds by our former chief executive officer have prevented us from using the entire proceeds from our initial public offering
to increase the registered capital of Wujiang Luxiang.
As
an offshore holding company with PRC subsidiaries, we may transfer funds to our PRC subsidiaries or finance our operating entity
by means of loans or capital contributions. Any loans to our PRC subsidiaries, which are foreign-invested enterprises, cannot
exceed statutory limits based on the difference between the amount of our investments and registered capital in such subsidiaries,
and shall be registered with SAFE, State Administration of Foreign Exchange, or its local counterparts. Furthermore, any capital
increase contributions we make to our PRC subsidiaries, which are foreign-invested enterprises, shall be approved by MOFCOM, Ministry
of Commerce, or its local counterparts. The majority of the net proceeds from our initial public offering completed in August
2013, approximately $7 million, is intended to increase the registered capital of Wujiang Luxiang and therefore its corresponding
lending and guarantee capacity. Approximately $5.6 million of the net proceeds have already been contributed to Wujiang Luxiang
and approved as an increase of the registered capital of Wujiang Luxiang. An additional $1.4 million was supposed to be transferred
from WFOE to Wujiang Luxiang to further increase its registered capital. $1.5 million of the proceeds was initially transferred
to WFOE to be used for the registered capital requirements of WFOE. Due to the subsequent reduction of WFOE’s registered
capital requirement from $10 million to $100,000, $100,000 was supposed to remain at WFOE to satisfy its new registered capital
requirement and the remaining $1.4 million was supposed to be used to further increase the registered capital of Wujiang Luxiang.
However, as previously reported by the Company, RMB 7 million (approximately $1.1 million) was transferred from the bank account
of WFOE to the personal account of Mr. Huichun Qin, the Company’s former CEO and Chairman of the Board. The Company has
not been able to recover the missing funds. The delay and potential failure to use the remaining IPO proceeds to increase Wujiang
Luxiang’s registered capital, currently prevents us from further expanding Wujiang Luxiang’s business.
Our
current operations in China are geographically limited to the city of Wujiang.
In
accordance with the PRC state and provincial laws and regulations with regard to microcredit companies, we are not allowed to
make loans and provide guarantees to businesses and individuals located outside of the city of Wujiang. Our future growth opportunities
depend on the growth and stability of the economy in the city of Wujiang. A downturn in the local economy or the implementation
of local policies unfavorable to SMEs may cause a decrease in the demand for our loan or guarantee services and may negatively
affect borrowers’ ability to repay their loans on a timely basis, both of which could have a negative impact on our profitability
and business.
If
the Jiangsu government subsidy we currently receive from the Jiangsu government for loans to farmers is not renewed, we would
suffer a loss of revenues.
Pursuant
to certain Jiangsu government policies on promotion of rural economic reform, the interest on loans to farmers is subsidized by
the government. Therefore, we charge the farmers at an interest rate lower than that of loans to SME’s. A portion of the
difference between the lower rate charged to farmers and the rate charged to SME’s is remitted to us annually by the Jiangsu
government as a government subsidy. We also received other types of government subsidies from Jiangsu government which are, among
other things, intended to incentivize microcredit companies to establish and maintain strict financial operation systems. Applicants
for these subsidies are required to apply for such subsidies annually. The standards for granting this subsidy is presently flexible
and the number of applicants applying for such subsidies varies from year to year. In addition, the amount of funds which will
be available for the Jiangsu government to use for these government subsidies each year is uncertain and depend on the needs of
microeconomic development of Jiangsu province, the government’s budget and other factors. In the event our application for
such subsidy in the future is not granted or the funds we receive are reduced, we would suffer loss of revenues.
Changes
in the interest rates and spread could have a negative impact on our revenues and results of operations.
Our
revenues and financial condition are primarily dependent on interest income, which is the difference between interest earned from
loans we provide and interest paid to the lines of credit we obtain from other financial institutions. A narrowing interest rate
spread could adversely affect our earnings and financial conditions. If we are not able to control our funding costs or adjust
our lending interest rate in a timely manner, our interest margin will decline. In addition, the interest rates we charge to the
borrowers in our direct loan business are linked to the PBOC benchmark interest rate (the “PBOC Benchmark Rate”).
The PBOC Benchmark Rate may fluctuate significantly due to changes in the PRC government’s monetary policy. Due to the restriction
that our interest rate cannot be higher than three times the PBOC Benchmark Rate pursuant to certain Jiangsu banking regulations
released in October 2012, if we have to reduce the interest rate we charge the borrowers to reflect the decrease of the PBOC Benchmark
Rate, our interest rate spread will be negatively affected.
As
a microcredit company, our business is subject to greater credit risks than larger lenders, which could adversely affect our results
of operations.
There
are inherent risks associated with our lending and guarantee activities, including credit risk, which is the risk that borrowers
may not repay the outstanding loans balances in our direct loan business or that we may not recover the full amount of the payment
we made to the lender in our guarantee business. As a microcredit company, we extend credits to SMEs, farmer and individuals.
These borrowers generally have fewer financial resources in terms of capital or borrowing capacity than larger entities and may
have fewer financial resources to weather a downturn in the economy. Such borrowers may expose us to greater credit risks than
lenders lending to larger, better-capitalized state-owned businesses with longer operating histories. Conditions such as inflation,
economic downturn, local policy change, adjustment of industrial structure and other factors beyond our control may increase our
credit risk more than such events would affect larger lenders. In addition, since we are only permitted to provide financial services
to borrowers located in the city of Wujiang, our ability to geographically diversify our economic risks is limited by the local
markets and economies. Also, decreases in local real estate value could adversely affect the values of the real property used
as collateral in our direct loan and guarantee business. Such adverse changes in the local economy may have a negative impact
on the ability of borrowers to repay their loans and the value of our collateral and our results of operations and financial condition
may be adversely affected.
Our
allowance for loan losses may not be sufficient to absorb future losses or prevent a material adverse effect on our business,
financial condition, or results of operations.
Our
risk assessment procedure uses historical information to estimate any potential losses based on our experience, judgment, and
expectations regarding our borrowers and the economic environment in which we and our borrowers operate. The allowance for both
loan losses and guarantee services were estimated based on 1% of the quarterly outstanding loan and guarantee portfolio balances.
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. We believe we are required to establish an allowance for loan losses pursuant to “
The
Guidance on Provisioning for Loan Losses
” (the “Provision Guidance”) issued by PBOC and “Financial
Practices of Rural Microcredit Companies of Jiangsu Province Pilot” (the “Jiangsu Financial Practices”) issued
by Finance Office of Jiangsu Province in 2009. However, our implementation of the measurements set forth in the Provision Guidance
and the Jiangsu Financial Practices, especially the Five-Tier approach in making the specific reserve, may be deemed not in compliance
with the applicable banking regulations. Our loan loss reserves may not be sufficient to absorb future loan losses or prevent
a material adverse effect on our business, financial condition, or results of operations.
Increases
to the provision for loan losses and provision on financial guarantee services will cause our net income to decrease.
Our
business is subject to fluctuations based on local economic conditions. These fluctuations are neither predictable nor within
our control and may have a material adverse impact on our operations and financial condition. We may decide to increase our provision
for loan losses and provision on financial guarantee services in light of the borrower’s repayment ability and/or the lack
of clarity in the applicable banking regulations with regard to microcredit companies. The regulatory authority may also require
an increase in the provision for loan losses and provision on financial guarantee services or the recognition of further loan
charge-offs, based on judgments different from those of our management. Any increase in the provision for loan losses and provision
on financial guarantee services will result in a decrease in net income and may have a material adverse effect on our financial
condition and results of operations.
We
lack significant product and business diversification. Accordingly, our future revenues and earnings are more susceptible to fluctuations
than a more diversified company.
Currently,
our primary business activities include offering direct loans and providing guarantee services to our customers. If we are unable
to maintain and grow the operating revenues from our business or develop additional revenue streams, our future revenues and earnings
are not likely to grow and could decline. Our lack of significant product and business diversification could inhibit the opportunities
for growth of our business, revenues and profits.
Competition
in the microcredit industry is growing and could cause us to lose market share and revenues in the future.
We
believe that the microcredit industry is an emerging market in China. We may face growing competition in the microcredit industry
and we believe that the microcredit market is becoming more competitive as this industry matures and begins to consolidate. We
currently compete with traditional financial institutions, other microcredit companies, and some cash-rich state-owned companies
or individuals that lend to SMEs. Some of our competitors have larger and more established borrower bases and substantially greater
financial, marketing and other resources than we do. As a result, we could lose market share and our revenues could decline, thereby
adversely affecting our earnings and potential for growth.
If
we fail to remediate the material weaknesses in our internal control over financial reporting that have been identified, we may
be unable to accurately report our results of operations or prevent misstatements, and investor confidence and the market price
of our Common Stock may be materially and adversely affected.
Prior to our IPO,
we were a private company with limited accounting personnel and other resources with which to address our internal controls and
procedures. Our independent registered public accounting firm is not required to and has not conducted an audit or assessment
of our internal control over financial reporting. In August 2014, the Company discovered RMB 7 million (approximately $1.1 million)
was transferred (the “Transfer at Issue”) from the bank account of WFOE, without authorization, to the personal account
of Mr. Qin, the then CEO of the Company. The Company appointed a special committee (the “Special Committee”) of the
Board of Directors to conduct an internal review surrounding the Transfer at Issue. The internal review indicated that the Company’s
control deficiencies contributed to the Transfer at Issue. Since Mr. Qin had the sole authority to approve fund transfers, there
was a lack of checks and balances over transfers. The Company filed a report with a local Wujiang Police Department charging Mr.
Qin with misappropriating RMB 7 million. The Company retained a local law firm to assist the Company in following up with the
Police Department with regard to the development of the case and collection of the missing funds. According to the PRC counsel,
if the prosecutors agree to criminally indict Mr. Qin, there will be an accompanying civil collection suit. If the prosecutors
determined not to criminally indict Mr. Qin, then the Company will initiate a civil proceeding against Mr. Qin to collect such
funds. The prosecutors have not notified the Company of their decision as of the date of this prospectus. There is no assurance
that we would be able to collect the missing funds, if any.
As
a result of the control deficiencies in the fund transfer procedure and other material weaknesses identified, the Company concluded
its internal controls over financial reporting were not effective as of December 31, 2014. See Item 9A
Controls and Procedures
for
a detailed discussion of the material weakness and the remediation measures the Company plans to take. Such material weaknesses
may result in our inability to accurately report our financial results or prevent material misstatements.
Our
business depends on the continuing efforts of members of our management. If we lose their services, our business may be severely
disrupted.
Our
business operations depend on the continuing efforts of members of our management. If one or more of our management were unable
or unwilling to continue their employment with us, we might not be able to replace them in a timely manner, or at all. We may
incur additional expenses to recruit and retain qualified replacements. Our business may be severely disrupted and our financial
condition and results of operations may be materially and adversely affected. In addition, members of our management team may
join a competitor or form a competing company. We may not be able to successfully enforce any contractual rights we have with
our management team, in particular in China, where all of these individuals reside and where our business is operated through
Wujiang Luxiang through various VIE Agreements. As a result, our business may be negatively affected due to the loss of one or
more members of our management.
We
require highly qualified personnel and if we are unable to hire or retain qualified personnel, we may not be able to grow effectively.
Our
future success also depends upon our ability to attract and retain highly qualified personnel. Expansion of our business and our
management will require additional managers and employees with industry experience, and our success will be highly dependent on
our ability to attract and retain skilled management personnel and other employees. We may not be able to attract or retain highly
qualified personnel. Competition for skilled personnel is significant in China. This competition may make it more difficult and
expensive to attract, hire and retain qualified managers and employees.
We
have no insurance coverage for our lending or guarantee business or our bank accounts, which could expose us to significant costs
and business disruption.
Risks
associated with our business and operations include, but are not limited to, borrowers’ failure to repay the outstanding
principal and interest when due and our loss reserve is not sufficient to cover such failure, losses of key personnel, business
interruption due to power shortages or network failure, and risks posed by natural disasters including storms, floods and earthquakes,
any of which may result in significant costs or business disruption. We do not maintain any credit insurance, business interruption
insurance, general third-party liability insurance, nor do we maintain key-man life insurance or any other insurance coverage
except the mandatory social insurance for the employees of Wujiang Luxiang. If we incur any loss that is not covered by our loss
reserve, our business, financial condition and results of operations could be materially and adversely affected.
We
maintain our cash with various banks. Our cash accounts are not insured or otherwise protected. Should any bank or trust company
holding our cash deposits become insolvent, or if we are otherwise unable to withdraw funds, we could lose the cash on deposit
with that particular bank or trust company.
Risks
Relating to Our Financial Leasing Business
We
only generated a small amount of revenue from our financial leasing operations as of now and our financial leasing business plan
may not be executed as planned.
We
are currently at the initial stage of developing our financial leasing business. In February 2015, we signed two leasing contracts
worth a total of total $4.88 million. The success of our financial leasing operations will highly depend upon our ability to obtain
funds to deploy and successfully develop and market our financial leasing services to the targeted customers. We may not be able
to develop our financial leasing business as planned and generate significant revenues. The revenue and income potential of our
proposed financial leasing business is unproven and the lack of operating history makes it difficult to evaluate the future prospects
of this business.
We
have no experience in the equipment leasing and financing business and our knowledge of the Chinese financial leasing market is
limited.
None
of the PFL management has any prior experience in the operation or management of equipment financing and leasing. Our knowledge
of the Chinese financial leasing industry and market is very limited. Our perception of the potential customers’ needs and
their acceptance of our financial leasing services may not be accurate. We may not be able to work with equipment providers to
successfully purchase qualified equipment identified by our customers on terms acceptable to us. We may not be able to establish
sound financial modeling in the calculation of the interest rate and residual value. Such inexperience and lack of active knowledge
may lead to failure of our financial leasing business.
Lack
of knowledge of financial leasing benefits among potential customers may make it difficult for us to market our services.
Currently,
a high proportion of Chinese management, especially management of SMEs, still perceive leasing companies as a “second-class
bank”, and very few recognize the flexibility and benefits that financial leasing provides. We may need to invest a tremendous
amount of time and effort toward lease education so that potential customers can fully appreciate the flexibility leasing offers
to deploy their assets. Failure in such education may make it difficult for us to market our financial leasing services.
A
protracted economic downturn may cause an increase in defaults under our leases and lower demand for the commercial equipment
we lease.
A
protracted economic downturn, similar to the one China experienced in recent years, could result in a decline in the demand for
some of the types of equipment or services we finance, which could lead to a decline in originations. A protracted economic downturn
may slow the development and continued operation of small commercial businesses, which is one of the primary markets for the commercial
equipment leased by us. In addition, a protracted downturn could result in an increase in delinquencies and defaults by our lessees
and other obligors, which could have an adverse effect on our cash flow and earnings. These factors could have a material adverse
effect on our business, financial condition and results of operations.
Our
allowance for lease credit losses may prove to be inadequate to cover future credit losses.
We
will maintain an allowance for credit losses on our leases, at an amount we believe is sufficient to provide adequate protection
against losses on the leases. We cannot be sure that our allowance for credit losses will be adequate over time to cover losses
caused by adverse economic factors, or unfavorable events affecting specific leases, industries or geographic areas. Losses in
excess of our allowance for credit losses may have a material adverse effect on our business, financial condition and results
of operations.
We
are vulnerable to changes in the demand for the types of equipment we plan on leasing or price reductions in such equipment.
Our
leasing portfolio will be comprised of a wide variety of equipment including, but not limited to, public transportation vehicles
such as subway cars, trains, buses, medical equipment, equipment used in textile production and agricultural equipment. Reduced
demand for financing of the types of equipment we lease could adversely affect our lease origination volume, which in turn could
have a material adverse effect on our business, financial condition and results of operations. Technological advances may lead
to a decrease in the price of these types of equipment and a consequent decline in the need for financing of such equipment. These
changes could reduce the need for outside financing sources that would reduce our lease financing opportunities and origination
volume in such products. In the event that demand for financing the types of equipment that we lease declines, we will need to
expand our efforts to provide lease financing for other products.
We
may face growing competition, which could cause us to lower our lease rates, hurt our origination volume and strategic position
and adversely affect our financial results.
The
Chinese financial leasing industry is becoming competitive in recent years. We will compete for customers with a number of international,
national, regional and local banks and finance companies and financial leasing companies. Our competitors also include equipment
manufacturers that lease or finance the sale of their own products. Our competitors include larger, more established companies,
some of which may possess substantially greater financial, marketing and operational resources than us, including lower cost of
funds and access to capital markets and other funding sources which may be unavailable to us. If a competitor was to lower its
lease rates, we could be forced to follow such trend or be unable to retain origination volume, either of which would have a material
adverse effect on our business, financial condition and results of operations.
If
PFL were to lose key personnel, its operating results may suffer.
The
success of our financial leasing business depends to a large extent upon the abilities and continued efforts of senior management.
The loss of the services of one or more of the key members of our senior management before we are able to attract and retain qualified
replacement personnel could have a material adverse effect on the development and success of our financial leasing business.
Recently
proposed accounting changes may negatively impact the demand for equipment leases.
On
August 17, 2010, the International Accounting Standards Board (IASB) and Financial Accounting Standards Board (FASB) released
a joint exposure draft that would dramatically change lease accounting for both lessees and lessors by requiring balance sheet
recognition of all leases. At their June 13, 2012 joint board meeting, the International Accounting Standards Board (IASB) and
the FASB (collectively, the “Boards”) agreed on an approach for the accounting for lease expenses as part of their
joint project to revise lease accounting. In September 2012, the Boards reached tentative decisions regarding sale and leaseback
transactions and other lease accounting issues. The Boards issued revised exposure draft in May 2013, with a 120-day comment period.
As part of the deliberation process, the Boards reviewed nearly 800 comment letters and held public roundtable meetings and preparer
workshops. A key issue raised by stakeholders in this process was the front-loading of expense recognition for lessees in the
proposal. The Boards have tentatively agreed to change the expense recognition pattern and income statement presentation for certain
leases. If these accounting changes are adopted in a form that makes equipment leasing less attractive to small business owners,
it could result in a reduction in the demand for equipment leases, and could have an adverse effect on our results of operations
and financial condition.
Risks
Relating to Doing Business in China
PRC
regulation of loans to, and direct investments in, PRC entities by offshore holding companies may delay or prevent us from using
proceeds from financing activities to make loans or additional capital contributions to our PRC operating subsidiaries.
As
an offshore holding company with PRC subsidiaries, we may transfer funds to our PRC subsidiaries or finance our operating entity
by means of loans or capital contributions. Any loans to our PRC subsidiaries, which are foreign-invested enterprises, cannot
exceed statutory limits based on the difference between the amount of our investments and registered capital in such subsidiaries,
and shall be registered with SAFE, or its local counterparts. Furthermore, any capital increase contributions we make to our PRC
subsidiaries, which are foreign-invested enterprises, shall be approved by MOFCOM, or its local counterparts. We may not be able
to obtain these government registrations or approvals on a timely basis, if at all. If we fail to receive such registrations or
approvals, our ability to provide loans or capital to increase contributions to our PRC subsidiaries may be negatively affected,
which could adversely affect our liquidity and our ability to fund and expand our business.
A
slowdown of the Chinese economy or adverse changes in economic and political policies of the PRC government could negatively impact
China’s overall economic growth, which could materially adversely affect our business.
We
are a holding company and all of our operations are entirely conducted in the PRC. Although the PRC economy has grown in recent
years, such growth may not continue. A slowdown in overall economic growth, an economic downturn or recession or other adverse
economic developments in the PRC may materially reduce the demand for our direct lending, guarantee and financial leasing services
and may have a materially adverse effect on our business.
China’s
economy differs from the economies of most other countries in many respects, including the amount of government involvement in
the economy, the general level of economic development, growth rates and government control of foreign exchange and the allocation
of resources. While the PRC economy has grown significantly over the past few decades, this growth has remained uneven across
different periods, regions and economic sectors.
The
PRC government also exercises significant control over China’s economic growth by allocating resources, controlling the
payment of foreign currency-denominated obligations, setting monetary policy and providing preferential treatment to particular
industries or companies. Any actions and policies adopted by the PRC government could negatively impact the Chinese economy, which
could materially adversely affect our business.
Substantial
uncertainties and restrictions with respect to the political and economic policies of the PRC government and PRC laws and regulations
could have a significant impact upon the business we may be able to conduct in the PRC and accordingly on the results of our operations
and financial condition.
Our
business operations may be adversely affected by the current and future political environment in the PRC. The Chinese government
exerts substantial influence and control over the manner in which we must conduct our business activities. Our ability to operate
in China may be adversely affected by changes in Chinese laws and regulations. Under the current government leadership, the government
of the PRC has been pursuing economic reform policies that encourage private economic activities and greater economic decentralization.
However, the government of the PRC may not continue to pursue these policies, or may significantly alter these policies from time
to time without notice.
There
are substantial uncertainties regarding the interpretation and application of PRC laws and regulations, including, but not limited
to, the laws and regulations governing our business, or the enforcement and performance of our arrangements with borrowers in
the event of the imposition of statutory liens, death, bankruptcy or criminal proceedings. Only after 1979 did the Chinese government
begin to promulgate a comprehensive system of laws that regulate economic affairs in general, deal with economic matters such
as foreign investment, corporate organization and governance, commerce, taxation and trade, as well as encourage foreign investment
in China. Although the influence of the law has been increasing, China has not developed a fully integrated legal system and recently
enacted laws and regulations may not sufficiently cover all aspects of economic activities in China. Also, because these laws
and regulations are relatively new, and because of the limited volume of published cases and their lack of force as precedents,
interpretation and enforcement of these laws and regulations involve significant uncertainties. New laws and regulations that
affect existing and proposed future businesses may also be applied retroactively. In addition, there have been constant changes
and amendments of laws and regulations over the past 30 years in order to keep up with the rapidly changing society and economy
in China. Because government agencies and courts provide interpretations of laws and regulations and decide contractual disputes
and issues, their inexperience in adjudicating new business and new polices or regulations in certain less developed areas causes
uncertainty and may affect our business. Consequently, we cannot clearly foresee the future direction of Chinese legislative activities
with respect to either businesses with foreign investment or the effectiveness on enforcement of laws and regulations in China.
The uncertainties, including new laws and regulations and changes of existing laws, as well as judicial interpretation by inexperienced
officials in the agencies and courts in certain areas, may cause possible problems to foreign investors.
Our
microcredit business is subject to extensive regulation and supervision by state, provincial and local government authorities,
which may interfere with the way we conduct our business and may negatively impact our financial results.
We
are subject to extensive and complex state, provincial and local laws, rules and regulations with regard to our loan and guarantee
operations, capital structure, allowance for loan losses, among other things. These laws, rules and regulations are issued by
different central government ministries and departments, provincial and local governments while enforced by different local authorities
in the city of Wujiang. In addition, it is not clear whether microcredit companies are subject to certain banking regulations
the state-owned and commercial banks are subject to, including the regulation with regard to loan loss reserves. Therefore, the
interpretation and implementation of such laws, rules and regulations may not be clear and occasionally we have to depend on oral
inquiries with local government authorities. As a result of the complexity, uncertainties and constant changes in these laws,
rules and regulation, including changes in interpretation and implementation of such, our business activities and growth may be
adversely affected if we do not respond to the changes in a timely manner or are found to be in violation of the applicable laws,
regulations and policies as a result of a different position from ours taken by the competent authority in the interpretation
of such applicable laws, regulations and policies. If we were found to be not in compliance with these laws and regulations, we
may be subject to sanctions by regulatory authorities, monetary penalties and/or reputation damage, which could have a material
adverse effect on our business operation and profitability.
Lack
of financial leasing regulations could negatively impact our business.
Currently,
there is no uniform equipment title registration process and system in China, as each municipality adopts different procedures.
The pending China Financial Leasing Law is expected to unify the registration procedures and protect the lessor against a “good-faith”
third-party claim if the leased assets are registered in the lessor’s name. In the absence of such central title registration
system, the lessors’ ownership interest on the leased equipment may be threatened. Loss of ownership to the leased equipment
will have a negative effect on our financial position.
We
may be subject to administrative sanctions in the event we are found to have charged excessive interest rates on some of the historical
direct loans we extended.
During
2010, 2011 and 2012, we provided certain financing consulting services to an aggregate of approximately 114 individuals and companies
and generated consulting fees of approximately US$693,555(RMB 4.6 million). According to the consulting arrangements we had with
these parties, we agreed to provide consulting services such as advising on the applicable lending rules and regulations, making
recommendations about financing plans, assisting the parties to complete and submit financing applications and providing general
guidance in the capital raising process. Some of these clients were also borrowers. We also charged additional consulting fees
when such borrowers asked to expedite the review and approval process of their loan applications, as such expedited lendings require
funds to be allocated from other positions at an additional cost to us. The maximum interest rate a microcredit lender is allowed
to charge on microcredit loans was four times the PBOC’s Benchmark Rate, according to Circular 23 and Several Opinion Regarding
the Trial of Cases promulgated by Supreme Court of PRC. Although none of these loans had interest rates higher than four times
the PBOC Benchmark Rate, the aggregate amount of interest we charged such borrower plus the consulting fee would exceed four times
the PBOC Benchmark Rate if the consulting fees paid by these borrowers were deemed as additional interest payments. We believe
such consulting fees were compensation payments for the consulting services we provided. Also we have stopped providing such consulting
services since July 31, 2012 and we do not anticipate engaging in such consulting service in the foreseeable future. However,
in the event the competent government authority determines these historical consulting fees were
de facto
interest
payments, we may be found to have charged excessive rates on these loans and, as a result, we may be subject to sanctions by the
government authority, which may include return of the excessive interest to affected borrowers, confiscation of illegal gains,
fine, suspension of operation and/or revocation of our business license.
We
may be subject to administrative sanctions in the event the extension we obtained on contribution of PFL’s registered capital
is reversed or determined to be not effective or if we are not able to contribute the remainder of the registered capital as required.
Pursuant
to Foreign Wholly-Owned Enterprise Law and relevant implementation rules, 15% of the U.S. $50 million registered capital of PFL
is required to be contributed within initial three months of PFL obtaining its business license on September 5, 2013 and the remainder
to be contributed within two years after the business license is granted. We did not make any contributions within the three-month
period since we expected to fund such contribution with the proceeds from the follow-on offering. Based on our oral inquiries
with the local Commission of Commerce of Wujiang, we were told that the required initial installment would be reduced to 10% in
2014 and that the competent authority would refrain from taking specific administrative measures against us once the first installment
of capital contribution is paid. In addition, we were told by Wujiang Economic and Technological Development Zone (“WETDZ”),
where PFL is incorporated and located, that there will be no penalty for the delayed contribution of the first installment of
the registered capital. In the event the orally granted extension or the advice we received from WETDZ is reversed or found to
be not valid by a relevant authority, we may be subject to administrative sanctions, including monetary penalties ranging from
5% to 15% of the portion that has not been paid on time, or from $375,000 to $1,125,000 if none was contributed at the time of
the sanction. In October 2014, we contributed substantially all of the net proceeds raised in the follow-on offering to the registered
capital requirement of PFL.
In
addition, the new PRC Company Law that became effective on March 1, 2014, radically changed the registered capital requirements,
including deleting the requirement to contribute the registered capital within certain time frames and the minimum registered
capital requirement. However, it is unclear whether PFL will be subject to the loosened registered capital requirements under
the new PRC Company Law and, as a result, be exempted from contributing the remainder of the registered capital within two years
after the business license is granted. If it is later determined that PFL cannot enjoy the loosened registered capital requirement
set forth in the new Company Law, we would have to contribute 85% of the then registered capital of PFL prior to September 4,
2015. In the event we are not able to make such contribution, we may be subject to administrative sanctions, including monetary
penalties ranging from 5% to 15% of the portion that has not been paid on time, or from $2,125,000 to $6,375,000 if none of the
remaining 85% was contributed at the time of the sanction.
Since
we conduct substantially all of our operations in China, and almost all of our officers and directors reside outside the United
States, our stockholders may face difficulties in protecting their interests and exercising their rights as a stockholder of CCC.
Although
we are incorporated in Delaware, we conduct substantially all of our operations in China through Wujiang Luxiang, our consolidated
VIE in China and PFL. All of our current officers and almost all of our directors reside outside the United States and substantially
all of the assets of those persons are located outside of the United States. It may be difficult for the stockholders to conduct
due diligence on the Company or such directors in your election of the directors and attend shareholders meeting if the meeting
is held in China. We plan to have one shareholder meeting each year at a location to be determined, potentially alternating between
United States and China. As a result of all of the above, our public shareholders may have more difficulty in protecting their
interests through actions against our management, directors or major shareholders than would shareholders of a corporation doing
business entirely or predominantly within the United States.
Stockholders
may experience difficulties in effecting service of legal process, enforcing foreign judgments or bringing original actions in
China based upon United States laws, including the federal securities laws or other foreign laws against us or our management.
Substantially
all of our operations are conducted in China, and all of our assets are located in China. A majority of our officers are nationals
or residents of the PRC and a substantial portion of their assets are located outside the United States. As a result, Dacheng
Law Firm, our counsel as to PRC law, advised us that it may be difficult for a shareholder to effect service of process within
the United States upon these persons, or to enforce judgments against us which are obtained in United States courts, including
judgments predicated upon the civil liability provisions of the securities laws of the United States or any state in the United
States.
Dacheng
Law Firm further advised us that the recognition and enforcement of foreign judgments are provided for under the PRC Civil Procedures
Law. PRC courts may recognize and enforce foreign judgments in accordance with the requirements of the PRC Civil Procedures Law
based either on treaties between China and the country where the judgment is made or on principles of reciprocity between jurisdictions.
China does not have any treaties or other form of reciprocity with the United States that provide for the reciprocal recognition
and enforcement of foreign judgments. In addition, according to the PRC Civil Procedures Law, courts in the PRC will not enforce
a foreign judgment against us or our directors and officers if they decide that the judgment violates the basic principles of
PRC laws, national sovereignty, security or public interest. As a result, it is uncertain whether and on what basis a PRC court
would enforce a judgment rendered by a court in the United States.
Dacheng
Law Firm also advised us that in the event that shareholders originate an action against a company without domicile in China for
disputes related to contracts or other property interests, the PRC courts may accept a course of action if (a) the disputed contract
was concluded or performed in the PRC, or the disputed subject matter is located in the PRC, (b) the company (as defendant) has
properties that can be seized within the PRC, (c) the company has a representative organization within the PRC, (d) the parties
choose to submit to jurisdiction of the PRC courts in the contract, or (e) the contract is executed or performed within the PRC.
The action may be initiated by the shareholder through filing a complaint with the PRC courts. The PRC courts will determine whether
to accept the complaint in accordance with the PRC Civil Procedures Law. The shareholder may participate in the action by itself
or entrust any other person or PRC legal counsel to participate on behalf of such shareholder. Foreign citizens and companies
will have the same right as PRC citizens and companies in an action unless such foreign country restricts the rights of PRC citizens
and companies.
We
may have difficulty in establishing adequate management and financial controls in China.
The
PRC has only recently begun to adopt the management and financial reporting concepts and practices that investors in the U.S.
are familiar with. We may have difficulty in hiring and retaining employees in China who have the experience necessary to implement
the kind of management and financial controls that are required of a U.S. public company. If we cannot establish such controls,
or if we are unable to collect the financial data required for the preparation of our financial statements, or if we are unable
to keep our books and accounts in accordance with the U.S. accounting standards for business, we may not be able to continue to
file required reports with the SEC, which would likely have a material adverse effect on the performance of our shares of Common
Stock.
WFOE’s
ability to pay dividends to us may be restricted due to foreign exchange control and other regulations of China.
As
an offshore holding company, we may rely principally on dividends from our subsidiaries in China, WFOE and PFL, for our cash requirements.
Under the applicable PRC laws and regulations, foreign-invested enterprises in China may pay dividends only out of their accumulated
profits, if any, determined in accordance with PRC accounting standards and regulations. In addition, a foreign-invested enterprise
in China is required to set aside a portion of its after-tax profit to fund specific reserve funds prior to payment of dividends.
In particular, at least 10% of its after-tax profits based on PRC accounting standards each year is required to be set aside towards
its general reserves until the accumulative amount of such reserves reach 50% of its registered capital. These reserves are not
distributable as cash dividends.
Furthermore,
WFOE’s and PFL’s ability to pay dividends may be restricted due to foreign exchange control policies and the availability
of its cash balance. Substantially all of our operations are conducted in China and all of our revenue received, by WFOE through
VIE arrangement and by PFL, are denominated in RMB. RMB is subject to exchange control regulation in China, and, as a result,
WFOE and PFL may be unable to distribute any dividends outside of China due to PRC exchange control regulations that restrict
our ability to convert RMB into U.S. dollars.
The
lack of dividends or other payments from WFOE may limit our ability to make investments or acquisitions that could be beneficial
to our business, pay dividends or otherwise fund, and conduct our business. Our funds may not be readily available to us to satisfy
obligations which have been incurred outside the PRC, which could adversely affect our business and prospects or our ability to
meet our cash obligations. Accordingly, if we do not receive dividends from WFOE or PFL, our liquidity and financial condition
will be materially and adversely affected.
There
is uncertainty in the preferential tax treatment we currently enjoy and financial subsidy commitment we expect to enjoy. Any change
in the preferential tax treatment we currently enjoy in the PRC may materially adversely impact our net income.
Effective
January 1, 2008, the New Enterprise Income Tax Law of PRC stipulates that domestically owned enterprises and foreign invested
enterprises (the “FIEs”) are subject to a uniform income tax rate of 25%. While the New Enterprise Income Tax Law
equalizes the income 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. Pursuant to the Jiangsu Document No. 132 issued in November 2009, microcredit companies
in Jiangsu Province are subject to a preferential tax rate of 12.5%. As a result, Wujiang Luxiang has been subject to the preferential
income tax rate of 12.5% since its inception in 2008. The taxation practice implemented by the tax authority governing our business
from 2008 through 2011 was that we paid enterprise income taxes at a rate of 25% on a quarterly basis, and upon annual tax settlement
done by the Company and the tax authority within five (5) months after December 31, the tax authority refunded us the excess enterprise
income taxes we paid beyond the rate of 12.5% in tax credit. In 2013and 2012 the tax authority allowed us to pay enterprise income
tax, on a monthly basis, at 12.5% for our income generated from our direct loan business and at 25% for income generated from
our guarantee business. During the twelve-month period ended December 31, 2013, we paid an aggregate $2,191,329 for income tax.
We received a refund of $985,332 in April 2014. The refund is the difference between actual income tax prepayment, which is made
at 25% for income generated from both our direct loan business and our guarantee business, and the income tax expense, which is
calculated at 12.5% for direct loan and 25% for our guarantee business. In addition, Wujiang Luxiang has been subject to business
tax at the preferential rate of 3% since its inception in 2008.
In
April 2012 Wujiang Luxiang received a notice from local tax authority, informing us that only income generated from Wujiang Luxiang’s
direct loan business was qualified to enjoy a preferential income tax rate of 12.5% and business tax of 3% under the Jiangsu Document
No. 132, but its taxable income arising from Wujiang’s other business such as the guarantee business was still subject to
a standard tax rate of 25% for income tax and 5% for business tax. The local tax authority required Wujiang Luxiang to implement
the above-mentioned policy starting with the tax filing for 2011 which was filed in April 2012, and the policy applies to all
years thereafter. The impact of the changed policy on the income tax provision on the issued financial statements of 2011 was
$225,445. However, we believe the underpayment was comparatively minimal as it only accounted for less than 3% of net income of
2011, thus it recorded the underpayment of $225,445 in the financial statements for financial year of 2012. There was no underpayment
penalty assessed. Furthermore, such tax policy change may be applied retroactively to financial year of 2008, 2009 and 2010. Although
we have not received any notice from local tax authority to request Wujiang Luxiang to make any underpayment with surcharge, there
is no assurance that the local tax authority will not do so in the future.
There
is a risk that the competent tax authority may decide that Wujiang Luxiang will not be eligible for the preferential tax rates
for the direct loan business in the future. Moreover, the PRC government could eliminate any of these preferential tax treatments
before their scheduled expiration. Expiration, reduction or elimination of such preferential tax treatments will increase our
income tax expenses and in turn decrease our net income.
There
is uncertainty in the policy at the state and provincial levels as to how the direct loan and guarantee businesses carried out
by the microcredit companies shall be treated with regard to income tax and business tax. If the tax authority determines that
the income tax, business tax or other applicable tax we previously paid were less than what was required, we may be requested
to make payment for the overdue tax and interest on the overdue payment.
In
addition, pursuant to an agreement PFL has with the WETDZ, PFL expects to receive a financial award equal to 100% of the portion
of the enterprise income tax proceeds contributed by PFL that is reserved by the WETDZ for the first five years following the
date of its establishment, and will further receive a financial award equal to 50% of the portion of the enterprise income tax
proceeds contributed by PFL that is reserved by the WETDZ for the following five years. PFL will receive a science and technology
financial award from the WETDZ for up to approximately $325,000 (RMB 2 million) to be paid pro rata according to the actually
contributed registered capital. In the event that the central government promulgates laws or regulations that expressly prohibit
local governments from providing financial subsidies for enterprises’ income tax payment obligation, this agreement with
WETDZ may be rendered illegal and/or unenforceable and therefore PFL’s business plan may be negatively affected.
Our
global income may be subject to PRC taxes under the PRC Enterprise Income Tax Law, which could have a material adverse effect
on our results of operations.
Under
the PRC Enterprise Income Tax Law, or the New EIT Law, and its implementation rules, which became effective in January 2008, an
enterprise established outside of the PRC with a “de facto management body” located within the PRC is considered a
PRC resident enterprise and will be subject to the enterprise income tax at the rate of 25% on its global income. The implementation
rules define the term “de facto management bodies” as “establishments that carry out substantial and overall
management and control over the manufacturing and business operations, personnel and human resources, finance and treasury, and
acquisition and disposition of properties and other assets of an enterprise.” On April 22, 2009, the State Administration
of Taxation (the “SAT”), issued a circular, or SAT Circular 82, which provides certain specific criteria for determining
whether the “de facto management body” of a PRC-controlled enterprise that is incorporated offshore is located in
China. Although the SAT Circular 82 only applies to offshore enterprises controlled by PRC enterprises or PRC enterprise groups,
not those controlled by PRC individuals or foreigners, the determining criteria set forth in the SAT Circular 82 may reflect the
SAT’s general position on how the “de facto management body” text should be applied in determining the resident
status of all offshore enterprises for the purpose of PRC tax, regardless of whether they are controlled by PRC enterprises or
individuals. Although we do not believe that our legal entities organized outside of the PRC constitute PRC resident enterprises,
it is possible that the PRC tax authorities could reach a different conclusion. In such case, we may be considered a PRC resident
enterprise and may therefore be subject to the 25% enterprise income tax on our global income. If we are considered a resident
enterprise and earn income other than dividends from our PRC subsidiary, a 25% enterprise income tax on our global income could
significantly increase our tax burden and materially and adversely affect our cash flow and profitability. In addition to the
uncertainty regarding how the new PRC resident enterprise classification for tax purposes may apply, it is also possible that
the rules may change in the future, possibly with retroactive effect.
Fluctuations
in the foreign currency exchange rate between U.S. Dollars and Renminbi could adversely affect our financial condition.
The
value of the RMB against the U.S. dollar and other currencies may fluctuate. Exchange rates are affected by, among other things,
changes in political and economic conditions and the foreign exchange policy adopted by the PRC government. On July 21, 2005,
the PRC government changed its policy of pegging the value of the RMB to the U.S. dollar. Under the new policy, the RMB is permitted
to fluctuate within a narrow and managed band against a basket of foreign currencies. Following the removal of the U.S. dollar
peg, the RMB appreciated more than 20% against the U.S. dollar over three years. From July 2008 until June 2010, however, the
RMB traded stably within a narrow range against the U.S. dollar. There remains significant international pressure on the PRC government
to adopt a more flexible currency policy, which could result in a further and more significant appreciation of the RMB against
foreign currencies. On June 20, 2010, the PBOC announced that the PRC government would reform the RMB exchange rate regime and
increase the flexibility of the exchange rate. We cannot predict how this new policy will impact the RMB exchange rate.
Our
revenues and costs are mostly denominated in the RMB, and a significant portion of our financial assets are also denominated in
the RMB. Any significant fluctuations in the exchange rate between the RMB and the U.S. dollar may materially adversely affect
our cash flows, revenues, earnings and financial position, and the amount of and any dividends we may pay on our Common Stock
in U.S. dollars. In addition, fluctuations in the exchange rate between the RMB and the U.S. dollar could also result in foreign
currency translation losses for financial reporting purposes.
Future
inflation in China may inhibit economic activity and adversely affect our operations.
The
Chinese economy has experienced periods of rapid expansion in recent years which can lead to high rates of inflation or deflation.
This has caused the PRC government to, from time to time, enact various corrective measures designed to restrict the availability
of credit or regulate growth and contain inflation. High inflation may in the future cause the PRC government to once again impose
controls on credit and/or prices, or to take other action, which could inhibit economic activity in China. Any action on the part
of the PRC government that seeks to control credit and/or prices may adversely affect our business operations.
PRC
laws and regulations have established more complex procedures for certain acquisitions of Chinese companies by foreign investors,
which could make it more difficult for us to pursue growth through acquisitions in China.
Further
to the Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, or the New M&A Rules, the Anti-monopoly
Law of the PRC, the Rules of Ministry of Commerce on Implementation of Security Review System of Mergers and Acquisitions of Domestic
Enterprises by Foreign Investors promulgated by MOFCOM or the MOFCOM Security Review Rules, was issued in August 2011, which established
additional procedures and requirements that are expected to make merger and acquisition activities in China by foreign investors
more time-consuming and complex, including requirements in some instances that MOFCOM be notified in advance of any change of
control transaction in which a foreign investor takes control of a PRC enterprise, or that the approval from MOFCOM be obtained
in circumstances where overseas companies established or controlled by PRC enterprises or residents acquire affiliated domestic
companies. PRC laws and regulations also require certain merger and acquisition transactions to be subject to merger control review
and or security review.
The
MOFCOM Security Review Rules, effective from September 1, 2011, which implement the Notice of the General Office of the State
Council on Establishing the Security Review System for Mergers and Acquisitions of Domestic Enterprises by Foreign Investors promulgated
on February 3, 2011, further provide that, when deciding whether a specific merger or acquisition of a domestic enterprise by
foreign investors is subject to the security review by MOFCOM, the principle of substance over form should be applied and foreign
investors are prohibited from bypassing the security review requirement by structuring transactions through proxies, trusts, indirect
investments, leases, loans, control through contractual arrangements or offshore transactions.
Further,
if the business of any target company that we seek to acquire falls into the scope of security review, we may not be able to successfully
acquire such company either by equity or asset acquisition, capital contribution or through any contractual arrangement. We may
grow our business in part by acquiring other companies operating in our industry. Complying with the requirements of the relevant
regulations to complete such transactions could be time consuming, and any required approval processes, including approval from
MOFCOM, may delay or inhibit our ability to complete such transactions, which could affect our ability to maintain or expand our
market share.
In
addition, SAFE promulgated the Circular on the Relevant Operating Issues concerning Administration Improvement of Payment and
Settlement of Foreign Currency Capital of Foreign-invested Enterprises, or Circular 142, on August 29, 2008. Its subsequent Supplementary
Notice on Issues Relating to the Improvement of Business Operations over Payment and Settlement of Foreign Exchange Capital of
Foreign-Invested Enterprises was promulgated by SAFE on July 18, 2011. Under Circular 142, registered capital of a foreign-invested
company settled in RMB converted from foreign currencies may only be used within the business scope approved by the applicable
governmental authority and may not be used for equity investments in the PRC. In addition, foreign-invested companies may not
change how they use such capital without SAFE’s approval, and may not in any case use such capital to repay RMB loans if
they have not used the proceeds of such loans according to the loan agreement. Furthermore, SAFE promulgated a circular on November
19, 2012, or Circular 59, which requires the authenticity of settlement of net proceeds from offshore offerings to be closely
examined and the net proceeds to be settled in the manner described in the offering documents. Circular 142 and Circular 59 may
significantly limit our ability to effectively use the proceeds from future financing activities as the WFOE may not convert the
funds received from us in foreign currencies into RMB, which may adversely affect our liquidity and our ability to fund and expand
our business in the PRC.
Failure
to comply with the United States Foreign Corrupt Practices Act could subject us to penalties and other adverse consequences.
As
our ultimate holding Company is a Delaware corporation, we are subject to the United States Foreign Corrupt Practices Act, which
generally prohibits United States companies from engaging in bribery or other prohibited payments to foreign officials for the
purpose of obtaining or retaining business. Foreign companies, including some that may compete with us, are not subject to these
prohibitions. Corruption, extortion, bribery, pay-offs, theft and other fraudulent practices may occur from time-to-time in the
PRC. Our employees or other agents may engage in such conduct for which we might be held responsible. If our employees or other
agents are found to have engaged in such practices, we could suffer severe penalties and other consequences that may have a material
adverse effect on our business, financial condition and results of operations.
Recent
SEC’s administrative proceedings against the China affiliates of the five multi-national accounting firms may lead to the
deregistering of Chinese accounting firms by the PCAOB, which may affect our ability to engage qualified independent auditors.
The
SEC recently commenced administrative proceedings against BDO China Dahua Co. Ltd., Deloitte Touche Tohmatsu Certified Public
Accountants Ltd., Ernst & Young Hua Ming LLP, KPMG Huazhen (Special General Fund) and PricewaterhouseCoopers Zhong Tian CPAs
Limited for refusing to produce audit work papers and other documents related to PRC-based companies under investigation by the
SEC for potential accounting fraud against U.S. investors. The SEC has launched an initiative to address concerns arising from
reverse mergers and foreign issuers. The SEC charged these accounting firms with violations of the Securities Exchange Act and
the Sarbanes-Oxley Act, which requires foreign public accounting firms to provide, upon the request of the SEC, audit work papers
involving any company trading on U.S. markets. Under PRC law, auditors are not permitted to hand over audit work papers as books
and records of Chinese companies are afforded protection of secrecy laws. We are not in a position to assess the outcome or ramifications
of these ongoing proceedings and investigations. Unless the PRC government changes its secrecy laws, there are risks that the
Public Company Accounting Oversight Board (“PCAOB”) may deregister Chinese accounting firms whose audit work papers
the PCAOB cannot inspect and such deregistering of Chinese accounting firms by the PCAOB would, in turn, make it difficult for
us to engage qualified independent auditors.
If
we become directly subject to the recent scrutiny, criticism and negative publicity involving U.S.-listed Chinese companies, we
may have to expend significant resources to investigate and resolve the matter which could harm our business operations, and our
reputation and could result in a loss to our stockholders, especially if such matter cannot be addressed and resolved favorably.
Recently,
U.S. public companies that have substantially all of their operations in China, have been the subject of intense scrutiny, criticism
and negative publicity by investors, financial commentators and regulatory agencies, such as the SEC. Much of the scrutiny, criticism
and negative publicity has centered around financial and accounting irregularities, a lack of effective internal controls over
financial accounting, inadequate corporate governance policies or a lack of adherence thereto and, in many cases, allegations
of fraud. As a result of the scrutiny, criticism and negative publicity, the publicly traded stock of many U.S. listed Chinese
companies has sharply decreased in value and, in some cases, has become virtually worthless. Many of these companies are now subject
to shareholder lawsuits and SEC enforcement actions and are conducting internal and external investigations into the allegations.
It is not clear what effect this sector-wide scrutiny, criticism and negative publicity will have on our company and our business.
If we become the subject of any unfavorable allegations, whether such allegations are proven to be true or untrue, we will have
to expend significant resources to investigate such allegations and/or defend the Company. This situation may be a major distraction
to our management. If such allegations are not proven to be groundless, our company and business operations will be severely hampered
and your investment in our stock could be rendered worthless.
The
disclosures in our reports and other filings with the SEC and our other public pronouncements are not subject to the scrutiny
of any regulatory bodies in the PRC.
Our
reports and other filings with the SEC are subject to SEC review in accordance with the rules and regulations promulgated by the
SEC under the Securities Act and the Exchange Act. Our SEC filings and other disclosure and public pronouncements are not subject
to the review or scrutiny of any PRC regulatory authority. For example, the disclosure in our SEC reports and other filings are
not subject to the review by CSRC, a PRC regulator that is tasked with oversight of the capital markets in China. Accordingly,
you should review our SEC reports, filings and our other public pronouncements with the understanding that no local regulator
has done any review of our company, our SEC reports, other filings or any of our other public pronouncements.
Risks
Relating to Our Corporate Structure
We
conduct our lending and guarantee business through Wujiang Luxiang by means of contractual arrangements. If the PRC courts or
administrative authorities determines that these contractual arrangements do not comply with applicable regulations, we could
be subject to severe penalties and our business could be adversely affected. In addition, changes in such Chinese laws and regulations
may materially and adversely affect our business.
There
are uncertainties regarding the interpretation and application of PRC laws, rules and regulations, including but not limited to
the laws, rules and regulations governing the validity and enforcement of the contractual arrangements between WFOE and each of
Wujiang Luxiang. Although we were advised by our PRC counsel, Dacheng Law Offices, that based on their understanding of the current
PRC laws, rules and regulations, the structure for operating our business in China (including our corporate structure and contractual
arrangements with Wujiang Luxiang and its shareholders) comply with all applicable PRC laws, rules and regulations, and do not
violate, breach, contravene or otherwise conflict with any applicable PRC laws, rules or regulations, the PRC courts or regulatory
authorities may determine that our corporate structure and contractual arrangements violate PRC laws, rules or regulations. We
are aware of a recent case involving Chinachem Financial Services where certain contractual arrangements for a Hong Kong Company
to gain economic control over a PRC Company were declared to be void by the PRC Supreme People’s Court. If the PRC courts
or regulatory authorities determine that our contractual arrangements are in violation of applicable PRC laws, rules or regulations,
our contractual arrangements will become invalid or unenforceable.
If
WFOE, Wujiang Luxiang or their ownership structure or the contractual arrangements, are determined to be in violation of any existing
or future PRC laws, rules or regulations, or WFOE, or Wujiang Luxiang fails to obtain or maintain any of the required governmental
permits or approvals, the relevant PRC regulatory authorities would have broad discretion in dealing with such violations, including:
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revoking
the business and operating licenses of WFOE, or Wujiang Luxiang;
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discontinuing
or restricting the operations of WFOE or Wujiang Luxiang;
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imposing
conditions or requirements with which we, WFOE or Wujiang Luxiang may not be able to comply;
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requiring
us, WFOE or Wujiang Luxiang to restructure the relevant ownership structure or operations;
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restricting
or prohibiting our use of the proceeds from our initial public offering to finance our business and operations in China; or
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imposing
fines.
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The
imposition of any of these penalties would severely disrupt our ability to conduct business and have a material adverse effect
on our financial condition, results of operations and prospects.
On
or around September 2011, various media sources reported that the China Securities Regulatory Commission (the “CSRC”)
had prepared a report proposing pre-approval by a competent central government authority of offshore listings by China-based companies
with variable interest entity structures, such as ours, that operate in industry sectors subject to foreign investment restrictions.
However, it is unclear whether the CSRC officially issued or submitted such a report to a higher level government authority or
what any such report provides, or whether any new PRC laws or regulations relating to variable interest entity structures will
be adopted or what they would provide. If our ownership structure, contractual arrangements or businesses of Wujiang Luxiang are
found to be in violation of any existing or future PRC laws or regulations, the relevant governmental authorities, including the
CSRC, would have broad discretion in dealing with such violation, including levying fines, confiscating our income or the income
of Wujiang Luxiang, revoking the business licenses or operating licenses of Wujiang Luxiang, discontinuing or placing restrictions
or onerous conditions on our operations, requiring us to undergo a costly and disruptive restructuring, restricting or prohibiting
our use of proceeds from overseas financings to finance our business and operations in China, and taking other regulatory or enforcement
actions that could be harmful to our business. Any of these actions could cause significant disruption to our business operations
and severely damage our reputation, which would in turn materially and adversely affect our business, financial condition and
results of operations.
Our
contractual arrangements with Wujiang Luxiang may not be effective in providing control over Wujiang Luxiang.
All
of our current revenue and net income is derived from Wujiang Luxiang. According to our inquiries with Jiangsu provincial authorities,
provincial direct foreign controlling equity ownership in for-profit companies engaged in rural microcredit services in Jiangsu
Province has never been approved and such position will not change in the foreseeable future. Therefore, we do not intend to have
an equity ownership interest in Wujiang Luxiang but rely on contractual arrangements with Wujiang Luxiang to control and operate
its business. However, these contractual arrangements may not be effective in providing us with the necessary control over Wujiang
Luxiang and its operations. Any deficiency in these contractual arrangements may result in our loss of control over the management
and operations of Wujiang Luxiang, which will result in a significant loss in the value of an investment in our company. Because
of the practical restrictions on direct foreign equity ownership imposed by the Jiangsu provincial government authorities, we
must rely on contractual rights through our VIE structure to effect control over and management of Wujiang Luxiang, which exposes
us to the risk of potential breach of contract by the shareholders of Wujiang Luxiang. In addition, as Wujiang Luxiang is jointly
owned by its shareholders, it may be difficult for us to change our corporate structure if such shareholders refuse to cooperate
with us.
The
failure to comply with PRC regulations relating to mergers and acquisitions of domestic enterprises by offshore special purpose
vehicles may subject us to severe fines or penalties and create other regulatory uncertainties regarding our corporate structure.
On
August 8, 2006, MOFCOM, joined by the CSRC, the State-owned Assets Supervision and Administration Commission of the State Council,
the SAT, the State Administration for Industry and Commerce (the “SAIC”), and SAFE, jointly promulgated regulations
entitled the Provisions Regarding Mergers and Acquisitions of Domestic Enterprises by Foreign Investors (the “M&A Rules”),
which took effect as of September 8, 2006, and as amended on June 22, 2009. This regulation, among other things, has certain provisions
that require offshore special purpose vehicles formed for the purpose of acquiring PRC domestic companies and controlled directly
or indirectly by PRC individuals and companies, to obtain the approval of MOFCOM prior to engaging in such acquisitions and to
obtain the approval of the CSRC prior to publicly listing their securities on an overseas stock market. On September 21, 2006,
the CSRC published on its official website a notice specifying the documents and materials that are required to be submitted for
obtaining CSRC approval.
The
application of the M&A Rules with respect to our corporate structure remains unclear, with no current consensus existing among
leading PRC law firms regarding the scope and applicability of the M&A Rules. We believe that the MOFCOM and CSRC approvals
under the M&A Rules were not required in the context of our share exchange transaction because at such time the share exchange
was a foreign related transaction governed by foreign laws, not subject to the jurisdiction of PRC laws and regulations. However,
we cannot be certain that the relevant PRC government agencies, including the CSRC and MOFCOM, would reach the same conclusion,
and we cannot be certain that MOFCOM or the CSRC will not deem that the transactions effected by the share exchange circumvented
the M&A Rules, and other rules and notices, or that prior MOFCOM or CSRC approval is required for overseas financing. Further,
we cannot rule out the possibility that the relevant PRC government agencies, including MOFCOM, would deem that the M&A Rules
required us or our entities in China to obtain approval from MOFCOM or other PRC regulatory agencies in connection with WFOE’s
control of Wujiang Luxiang through contractual arrangements.
If
the CSRC, MOFCOM, or another PRC regulatory agency subsequently determines that CSRC, MOFCOM or other approval was required for
the share exchange transaction and/or the VIE arrangements between WFOE and Wujiang Luxiang, or if prior CSRC approval for overseas
financings is required and not obtained, we may face severe regulatory actions or other sanctions from MOFCOM, the CSRC or other
PRC regulatory agencies. In such event, these regulatory agencies may impose fines or other penalties on our operations in the
PRC, limit our operating privileges in the PRC, delay or restrict the repatriation of the proceeds from overseas financings into
the PRC, restrict or prohibit payment or remittance of dividends to us or take other actions that could have a material adverse
effect on our business, financial condition, results of operations, reputation and prospects, as well as the trading price of
our Common Stock. The CSRC or other PRC regulatory agencies may also take actions requiring us, or making it advisable for us,
to delay or cancel overseas financings, to restructure our current corporate structure, or to seek regulatory approvals that may
be difficult or costly to obtain.
The
M&A Rules, along with certain foreign exchange regulations discussed below, will be interpreted or implemented by the relevant
government authorities in connection with our future offshore financings or acquisitions, and we cannot predict how they will
affect our acquisition strategy. For example, Wujiang Luxiang’s ability to remit its profits to us, or to engage in foreign-currency-denominated
borrowings, may be conditioned upon compliance with the SAFE registration requirements by such Chinese domestic residents, over
whom we may have no control.
Regulations
relating to offshore investment activities by PRC residents may limit our ability to acquire PRC companies and could adversely
affect our business.
In
July 2014, SAFE promulgated the
Circular on Issues Concerning Foreign Exchange Administration Over the Overseas Investment
and Financing and Roundtrip Investment by Domestic Residents Via Special Purpose Vehicles
, or Circular 37, which replaced
Relevant
Issues Concerning Foreign Exchange Control on Domestic Residents’ Corporate Financing and Roundtrip Investment
through Offshore Special Purpose Vehicles
, or Circular 75. Circular 37 requires PRC residents to register with local branches
of SAFE in connection with their direct establishment or indirect control of an offshore entity, referred to in Circular 37 as
a “special purpose vehicle” for the purpose of holding domestic or offshore assets or interests. Circular 37 further
requires amendment to a PRC resident’s registration in the event of any significant changes with respect to the special
purpose vehicle, such as an increase or decrease in the capital contributed by PRC individuals, share transfer or exchange, merger,
division or other material event. Under these regulations, PRC residents’ failure to comply with specified registration
procedures may result in restrictions being imposed on the foreign exchange activities of the relevant PRC entity, including the
payment of dividends and other distributions to its offshore parent, as well as restrictions on capital inflows from the offshore
entity to the PRC entity, including restrictions on its ability to contribute additional capital to its PRC subsidiaries. Further,
failure to comply with the SAFE registration requirements could result in penalties under PRC law for evasion of foreign exchange
regulations.
As
Circular 37 is newly-issued, it is unclear how these regulations will be interpreted and implemented. In addition, different local
SAFE branches may have different views and procedures as to the interpretation and implementation of the SAFE regulations, and
it may be difficult for our ultimate shareholders or beneficial owners who are PRC residents to provide sufficient supporting
documents required by the SAFE or to complete the required registration with the SAFE in a timely manner, or at all. Any failure
by any of our shareholders who is a PRC resident, or is controlled by a PRC resident, to comply with relevant requirements under
these regulations could subject us to fines or sanctions imposed by the PRC government, including restrictions on WFOE’s
ability to pay dividends or make distributions to us and on our ability to increase our investment in the WFOE.
Our
agreements with Wujiang Luxiang are governed by the laws of the PRC and we may have difficulty in enforcing any rights we may
have under these contractual arrangements.
As
all of our contractual arrangements with Wujiang Luxiang are governed by the PRC laws and provide for the resolution of disputes
through arbitration 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 the United States. As a result, uncertainties
in the PRC legal system could further limit our 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 we are unable to enforce these contractual
arrangements, we may not be able to exert effective control over Wujiang Luxiang, and our ability to conduct our business may
be materially and adversely affected.
The
Wujiang Luxiang Shareholders have potential conflicts of interest with us, which may adversely affect our business.
All
ultimate individual shareholders of the 11 Chinese entities and Mr. Huichun Qin, which collectively own 100% of Wujiang Luxiang’s
outstanding equity interests, or their representatives, are beneficial owners of shares of Common Stock of CCC through their BVI
entities. Equity interests held by each of these shareholders in CCC is less than its interest in Wujiang Luxiang as a result
of our introduction of outside investors as shareholders of CCC. In addition, such shareholders’ equity interest in our
company will be further diluted as a result of any future offering of equity securities. As a result, conflicts of interest may
arise as a result of such dual shareholding and governance structure.
If
such conflicts arise, these shareholders may not act in our best interests and such conflicts of interest may not be resolved
in our favor. In addition, these shareholders may breach or cause Wujiang Luxiang to breach or refuse to renew the VIE Agreements
that allow us to exercise effective control over Wujiang Luxiang and to receive economic benefits from Wujiang Luxiang. Delaware
law provides that directors owe a fiduciary duty to a company, which requires them to act in good faith and in the best interests
of the company and not to use their positions for personal gain. If we cannot resolve any conflicts of interest or disputes between
us and such shareholders or any future beneficial owners of Wujiang Luxiang, we would have to rely on arbitral or legal proceedings
to remedy the situation. Such arbitral and legal proceedings may cost us substantial financial and other resources and result
in disruption of our business, the outcome of which may adversely affect the Company.
If
Wujiang Luxiang, or PFL fail to maintain the requisite registered capital, licenses and approvals required under PRC law, our
business, financial condition and results of operations may be materially and adversely affected.
Foreign
investment is highly regulated by the PRC government and the foreign investment in the lending industry is restricted by local
authorities. Numerous regulatory authorities of the central PRC government, provincial and local authorities are empowered to
issue and implement regulations governing various aspects of the lending industry. Foreign investment in the financial leasing
industry is also subject to foreign investment regulations. Each of Wujiang Luxiang and PFL are required to obtain and maintain
certain assets relevant to its business as well as applicable licenses or approvals from different regulatory authorities in order
to provide their current services. These registered capital and licenses are essential to the operation of our business and are
generally subject to annual review by the relevant governmental authorities. Furthermore, Wujiang Luxiang and PFL may be required
to obtain additional licenses. If we fail to obtain or maintain any of the required registered capital, licenses or approvals,
our continued business operations in the lending, and leasing industries may subject us to various penalties, such as confiscation
of illegal net revenue, fines and the discontinuation or restriction of our operations. Any such disruption in the business operations
of Wujiang Luxiang or PFL will materially and adversely affect our business, financial condition and results of operations.
Risks
Relating to Our Securities
Our
Common Stock may be thinly traded and our stockholders may be unable to sell at or near ask prices or at all if they need to sell
their shares to raise money or otherwise desire to liquidate their shares.
Our
Common Stock may be “thinly-traded”, meaning that the number of persons interested in purchasing our Common Stock
at or near bid prices at any given time may be relatively small or non-existent. This situation may be attributable to a number
of factors, including the fact that we are a small company which is relatively unknown to stock analysts, stock brokers, institutional
investors and others in the investment community that generate or influence sales volume, and that even if we came to the attention
of such persons, they tend to be risk-averse and might be reluctant to follow an unproven company such as ours or purchase or
recommend the purchase of our shares until such time as we became more seasoned. As a consequence, there may be periods of several
days or more when trading activity in our shares is minimal or non-existent, as compared to a seasoned issuer which has a large
and steady volume of trading activity that will generally support continuous sales without an adverse effect on share price. Broad
or active public trading market for our Common Stock may not develop or be sustained.
The
market price for our Common Stock may be volatile.
The
market price for our Common Stock may be volatile and subject to wide fluctuations due to factors such as:
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the
perception of U.S. investors and regulators of U.S. listed Chinese companies;
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actual
or anticipated fluctuations in our quarterly operating results;
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changes
in financial estimates by securities research analysts;
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negative
publicity, studies or reports;
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conditions
in Chinese credit markets;
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changes
in the economic performance or market valuations of other microcredit companies;
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announcements
by us or our competitors of acquisitions, strategic partnerships, joint ventures or capital commitments;
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addition
or departure of key personnel;
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fluctuations
of exchange rates between RMB and the U.S. dollar; and
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general
economic or political conditions in China.
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In
addition, the securities market has from time to time experienced significant price and volume fluctuations that are not related
to the operating performance of particular companies. These market fluctuations may also materially and adversely affect the market
price of our Common Stock.
Volatility
in our Common Stock price may subject us to securities litigation.
The
market for our Common Stock may have, when compared to seasoned issuers, significant price volatility and we expect that our share
price may continue to be more volatile than that of a seasoned issuer for the indefinite future. In the past, plaintiffs have
often initiated securities class action litigation against a company following periods of volatility in the market price of its
securities. We may, in the future, be the target of similar litigation. Securities litigation could result in substantial costs
and liabilities and could divert management’s attention and resources.
As
an “emerging growth company” under applicable law, we will be subject to lessened disclosure requirements. Such reduced
disclosure may make our Common Stock less attractive to investors.
For
as long as we remain an “emerging growth company” as defined in the JOBS Act, we will elect to take advantage of certain
exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth
companies”, including, but not limited to, not being required to comply with the auditor attestation requirements of Section
404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy
statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder
approval of any golden parachute payments not previously approved. Because of these lessened regulatory requirements, our stockholders
would be left without information or rights available to stockholders of more mature companies. If some investors find our Common
Stock less attractive as a result, there may be a less active trading market for our Common Stock and our stock price may be more
volatile.
Our
status as an “emerging growth company” under the JOBS Act may make it more difficult to raise capital when we need
to do it.
Because
of the exemptions from various reporting requirements provided to us as an “emerging growth company”, we may be less
attractive to investors and it may be difficult for us to raise additional capital as and when we need it. If we are unable to
raise additional capital as and when we need it, our financial condition and results of operations may be materially and adversely
affected.
We
will incur increased costs and demands upon management as a result of complying with the laws and regulations that affect public
companies, which could materially adversely affect our results of operations, financial condition, business and prospects.
As
a public company and particularly after we cease to be an “emerging growth company,” we will incur significant legal,
accounting and other expenses that we did not incur as a private company, including costs associated with public company reporting
and corporate governance requirements. These requirements include compliance with Section 404(b) and other provisions of the Sarbanes-Oxley
Act, as well as Section 14 rules implemented by the SEC and NASDAQ. In addition, our management team will also have to adapt to
the requirements of being a public company. We expect that compliance with these rules and regulations will substantially increase
our legal and financial compliance costs and will make some activities more time-consuming and costly.
The
increased costs associated with operating as a public company will decrease our net income or increase our net loss, and may require
us to reduce costs in other areas of our business or increase the prices of our products or services. Additionally, if these requirements
divert our management’s attention from other business concerns, they could have a material adverse effect on our results
of operations, financial condition, business and prospects.
We
are obligated to develop and maintain proper and effective internal control over financial reporting. We may not complete our
analysis of our internal control over financial reporting in a timely manner, or these internal controls may not be determined
to be effective, which may adversely affect investor confidence in our company and, as a result, the value of our Common Stock.
We
will be required, pursuant to Section 404 of the Sarbanes-Oxley Act, to furnish a report by management on, among other things,
the effectiveness of our internal control over financial reporting for fiscal 2014, the first fiscal year beginning after our
initial public offering. This assessment will need to include disclosure of any material weaknesses identified by our management
in our internal control over financial reporting and, after we cease to be an “emerging growth company,” a statement
that our independent registered public accounting firm has issued an opinion on our internal control over financial reporting.
We
are in the early stages of the costly and challenging process of compiling the system and processing documentation necessary to
perform the evaluation needed to comply with Section 404. We may not be able to complete our evaluation, testing and any required
remediation in a timely fashion. During the evaluation and testing process, if we identify one or more material weaknesses in
our internal control over financial reporting, we will be unable to assert that our internal controls are effective.
If
we are unable to assert that our internal control over financial reporting is effective, or if, when required, our independent
registered public accounting firm is unable to express an opinion on the effectiveness of our internal controls, we could lose
investor confidence in the accuracy and completeness of our financial reports, which would cause the price of our Common Stock
to decline, and we may be subject to investigation or sanctions by the SEC.
We
will be required to disclose changes made in our internal controls and procedures on a quarterly basis. However, our independent
registered public accounting firm will not be required to formally attest to the effectiveness of our internal control over financial
reporting pursuant to Section 404 until the later of the year following our first annual report required to be filed with the
SEC, or the date we are no longer an “emerging growth company” as defined in the JOBS Act, if we take advantage of
the exemptions contained in the JOBS Act. We will remain an “emerging growth company” for up to five years. However,
if the market value of our Common Stock that is held by non-affiliates exceeds $700 million as of any July 31 before that time,
our revenues exceed $1 billion, or we issue more than $1 billion in non-convertible debt in a three-year period, we would cease
to be an “emerging growth company” as of the following January 31. To comply with the requirements of being a public
company, we may need to undertake various actions, such as implementing new internal controls and procedures and hiring accounting
or internal audit staff.
Our
independent registered public accounting firm is not required to formally attest to the effectiveness of our internal control
over financial reporting until the later of the year following our first annual report required to be filed with the SEC, or the
date we are no longer an “emerging growth company.” At such time, our independent registered public accounting firm
may issue a report that is adverse in the event it is not satisfied with the level at which our controls are documented, designed
or operating. Our remediation efforts may not enable us to avoid a material weakness in the future.
Provisions
in our By-laws and Delaware laws might discourage, delay or prevent a change of control of our company or changes in our management
and, therefore, depress the trading price of our Common Stock.
Provisions
of our by-laws and Delaware laws may discourage, delay or prevent a merger, acquisition or other change in control that stockholders
may consider favorable, including transactions in which you might otherwise receive a premium for your shares of our Common Stock.
These provisions may also prevent or frustrate attempts by our stockholders to replace or remove our management. These provisions
include:
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the
inability of stockholders to act by written consent or to call special meetings;
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the
ability of our board of directors to make, alter or repeal our by-laws; and
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the
ability of our board of directors to designate the terms of and issue new series of preferred stock without stockholder approval.
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In
addition, we are subject to Section 203 of the Delaware General Corporation Law, which generally prohibits a Delaware corporation
from engaging in any of a broad range of business combinations with an interested stockholder for a period of three years following
the date on which the stockholder became an interested stockholder, unless such transactions are approved by our board of directors.
The existence of the foregoing provisions and anti-takeover measures could limit the price that investors might be willing to
pay in the future for shares of our Common Stock. They could also deter potential acquirers of our company, thereby reducing the
likelihood that you could receive a premium for your Common Stock in an acquisition.
The
elimination of monetary liability against our directors, officers and employees under our certificate of incorporation and the
existence of indemnification of our directors, officers and employees under Delaware law may result in substantial expenditures
by us and may discourage lawsuits against our directors, officers and employees.
Our
certificate of incorporation contains provisions which eliminate the liability of our directors for monetary damages to us and
our stockholders to the maximum extent permitted under the corporate laws of Delaware. We may also provide contractual indemnification
obligations under agreements with our directors, officers and employees. These indemnification obligations could result in our
incurring substantial expenditures to cover the cost of settlement or damage awards against directors, officers and employees,
which we may be unable to recoup. These provisions and resultant costs may also discourage us from bringing a lawsuit against
directors, officers and employees for breach of their fiduciary duties, and may similarly discourage the filing of derivative
litigation by our shareholders against our directors, officers and employees even though such actions, if successful, might otherwise
benefit the Company and our shareholders.
DISCLOSURE
REGARDING FORWARD-LOOKING INFORMATION
This
prospectus and the documents incorporated by reference herein contain forward-looking statements within the meaning of Section
27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These
forward-looking statements are based on our current expectations and beliefs, including estimates and projections about our industry. Forward-looking
statements may be identified by use of terms such as “anticipates,” “expects,” “intends,”
“plans,” “seeks,” “estimates,” “believes” and similar expressions, although some
forward-looking statements are expressed differently. Statements concerning our financial position, business strategy
and plans or objectives for future operations are forward-looking statements. These statements are not guarantees of
future performance and are subject to certain risks, uncertainties and assumptions that are difficult to predict and may cause
actual results to differ materially from management’s current expectations. Such risks and uncertainties include
those set forth herein under “Risk Factors.” The forward-looking statements in this prospectus speak only
as of the time they are made and do not necessarily reflect our outlook at any other point in time.
Except
as may be required under the federal securities laws, we undertake no obligation to publicly update forward-looking statements,
whether as a result of new information, future events or otherwise. You are advised, however, to read any further disclosures
we make on related subjects in our filings with the SEC, including Form 10-K, Form 10-Q and Form 8-K reports. Also
note that under the caption “Risk Factors,” we provide a cautionary discussion of risks, uncertainties and possibly
inaccurate assumptions relevant to our business. These are factors that we think could cause our actual results to
differ materially from expected and historical results. Other factors besides those listed in “Risk Factors,”
including factors described as risks in our filings with the SEC, could also adversely affect us. For any forward-looking
statements contained in any document, we claim the protection of the safe harbor for forward-looking statements contained in the
Private Securities Litigation Reform Act of 1995.
DESCRIPTION
OF CAPITAL STOCK
General
The
following description of our capital stock (which includes a description of securities we may offer pursuant to the registration
statement of which this prospectus, as the same may be supplemented, forms a part) does not purport to be complete and is subject
to and qualified in its entirety by our certificate of incorporation, our bylaws and by the applicable provisions of Delaware
law.
Our
authorized capital stock consists of 110,000,000 shares, par value $0.001 per share, consisting of 100,000,000 shares of common
stock and 10,000,000 shares of preferred stock. The following description of our capital stock is intended as a summary only and
is qualified in its entirety by reference to our amended certificate of incorporation and bylaws, which have been filed previously
with the SEC, and applicable provisions of Delaware law.
We,
directly or through agents, dealers or underwriters designated from time to time, may offer, issue and sell, together or separately,
up to $30,000,000 in the aggregate of:
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common
stock;
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preferred
stock;
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secured
or unsecured debt securities consisting of notes, debentures or other evidences of indebtedness which may be senior debt securities,
senior subordinated debt securities or subordinated debt securities, each of which may be convertible into equity securities;
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warrants
to purchase our securities;
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rights
to purchase our securities; or
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units
comprised of, or other combinations of, the foregoing securities.
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We
may issue the debt securities as exchangeable for or convertible into shares of common stock, preferred stock or other securities.
The preferred stock may also be exchangeable for and/or convertible into shares of common stock, another series of preferred stock
or other securities. The debt securities, the preferred stock, the common stock and the warrants are collectively referred to
in this prospectus as the “securities.” When a particular series of securities is offered, a supplement to this prospectus
will be delivered with this prospectus, which will set forth the terms of the offering and sale of the offered securities.
Common
Stock
As of July 11, 2017, there were 17,323,429
shares of our common stock issued and outstanding, held of record by approximately 162 stockholders. The outstanding shares of
common stock are fully paid and non-assessable. The holders of common stock are entitled to one vote for each share held of record
on all matters submitted to a vote of the stockholders.
Our
board is divided into three classes, each of which will generally serve for a term of three years with only one class of directors
being elected in each year. The common stock has no cumulative voting rights, including with respect to the election of directors.
Subject
to preferential rights with respect to any outstanding preferred stock, holders of common stock are entitled to receive ratably
such dividends as may be declared by our board of directors out of funds legally available therefore. Pursuant to Section 281
of Delaware General Corporation Law, in the event of our dissolution, the holders of common stock are entitled to the remaining
assets after payment of all liabilities of the company.
Our
common stock has no preemptive or conversion rights or other subscription rights.
Preferred
Stock
Our
certificate of incorporation, as amended, empowers our board of directors, without action by our shareholders, to issue up to
10,000,000 shares of preferred stock from time to time in one or more series, which preferred stock may be offered by this prospectus
and supplements thereto. As of the date of this prospectus, no shares of preferred stock were designated or issued and outstanding.
Our board may fix the rights, preferences, privileges and restrictions of our authorized but undesignated preferred shares, including:
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dividend
rights and preferences over dividends on our common stock or any series of preferred stock;
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the
dividend rate (and whether dividends are cumulative);
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conversion
rights, if any;
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voting
rights;
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rights
and terms of redemption (including sinking fund provisions, if any);
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redemption
price and liquidation preferences of any wholly unissued series of any preferred stock and the designation thereof of any
of them; and
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to
increase or decrease the number of shares of any series subsequent to the issue of shares of that series but not below the
number of shares then outstanding.
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You
should refer to the prospectus supplement relating to the series of preferred stock being offered for the specific terms of that
series, including:
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title
of the series and the number of shares in the series;
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the
price at which the preferred stock will be offered;
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the
dividend rate or rates or method of calculating the rates, the dates on which the dividends will be payable, whether or not
dividends will be cumulative or noncumulative and, if cumulative, the dates from which dividends on the preferred stock being
offered will cumulate;
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the
voting rights, if any, of the holders of shares of the preferred stock being offered;
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the
provisions for a sinking fund, if any, and the provisions for redemption, if applicable, of the preferred stock being offered,
including any restrictions on the foregoing as a result of arrearage in the payment of dividends or sinking fund installments;
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the
liquidation preference per share;
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the
terms and conditions, if applicable, upon which the preferred stock being offered will be convertible into our common stock,
including the conversion price, or the manner of calculating the conversion price, and the conversion period;
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the
terms and conditions, if applicable, upon which the preferred stock being offered will be exchangeable for debt securities,
including the exchange price, or the manner of calculating the exchange price, and the exchange period;
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any
listing of the preferred stock being offered on any securities exchange;
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a
discussion of any material federal income tax considerations applicable to the preferred stock being offered;
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any
preemptive rights;
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the
relative ranking and preferences of the preferred stock being offered as to dividend rights and rights upon liquidation, dissolution
or the winding up of our affairs;
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any
limitations on the issuance of any class or series of preferred stock ranking senior or equal to the series of preferred stock
being offered as to dividend rights and rights upon liquidation, dissolution or the winding up of our affairs; and
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any
additional rights, preferences, qualifications, limitations and restrictions of the series.
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Upon
issuance, the shares of preferred stock will be fully paid and nonassessable, which means that its holders will have paid their
purchase price in full and we may not require them to pay additional funds.
Any
preferred stock terms selected by our board of directors could decrease the amount of earnings and assets available for distribution
to holders of our common stock or adversely affect the rights and power, including voting rights, of the holders of our common
stock without any further vote or action by the stockholders. The rights of holders of our common stock will be subject to, and
may be adversely affected by, the rights of the holders of any preferred stock that may be issued by us in the future. The issuance
of preferred stock could also have the effect of delaying or preventing a change in control of our company or make removal of
management more difficult.
Debt
Securities
As
used in this prospectus, the term “debt securities” means the debentures, notes, bonds and other evidences of indebtedness
that we may issue from time to time. The debt securities will either be senior debt securities, senior subordinated debt or subordinated
debt securities. We may also issue convertible debt securities. Debt securities issued under an indenture (which we refer to herein
as an Indenture) will be entered into between us and a trustee to be named therein. It is likely that convertible debt securities
will not be issued under an Indenture.
The
Indenture or forms of Indentures, if any, will be filed as exhibits to the registration statement of which this prospectus is
a part.
Events
of Default Under the Indenture
Unless
we provide otherwise in the prospectus supplement or free writing prospectus applicable to a particular series of debt securities,
the following are events of default under the indentures with respect to any series of debt securities that we may issue:
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if we fail to pay the principal or premium, if any, when due and payable at maturity, upon redemption or repurchase or otherwise;
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if we fail to pay interest when due and payable and our failure continues for certain days;
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if we fail to observe or perform any other covenant contained in the Securities of a Series or in this Indenture, and
our failure continues for certain days after we receive written notice from the trustee or holders of at least certain percentage
in aggregate principal amount of the outstanding debt securities of the applicable series. The written notice must specify
the Default, demand that it be remedied and state that the notice is a “Notice of Default”;
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if specified events of bankruptcy, insolvency or reorganization occur; and
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if any other event of default provided with respect to securities of that series, which is specified in a Board Resolution, a
supplemental indenture hereto or an Officers’ Certificate as defined in the Form of Indenture.
We
covenant in the Form of Indenture to deliver a certificate to the trustee annually, within certain days after the close of the
fiscal year, to show that we are in compliance with the terms of the indenture and that we have not defaulted under the indenture.
Nonetheless, if we issue debt securities, the terms of the debt securities and the final form of indenture will be provided in
a prospectus supplement. Please refer to the prospectus supplement and the form of indenture attached thereto for the terms and
conditions of the offered debt securities. The terms and conditions may or may not include whether or not we must furnish periodic
evidence showing that an event of default does not exist or that we are in compliance with the terms of the indenture.
The
statements and descriptions in this prospectus or in any prospectus supplement regarding provisions of the Indentures and debt
securities are summaries thereof, do not purport to be complete and are subject to, and are qualified in their entirety by reference
to, all of the provisions of the Indentures (and any amendments or supplements we may enter into from time to time which are permitted
under each Indenture) and the debt securities, including the definitions therein of certain terms.
General
Unless
otherwise specified in a prospectus supplement, the debt securities will be direct secured or unsecured obligations of our company.
The senior debt securities will rank equally with any of our other unsecured senior and unsubordinated debt. The subordinated
debt securities will be subordinate and junior in right of payment to any senior indebtedness.
We
may issue debt securities from time to time in one or more series, in each case with the same or various maturities, at par or
at a discount. Unless indicated in a prospectus supplement, we may issue additional debt securities of a particular series without
the consent of the holders of the debt securities of such series outstanding at the time of the issuance. Any such additional
debt securities, together with all other outstanding debt securities of that series, will constitute a single series of debt securities
under the applicable Indenture and will be equal in ranking.
Should
an indenture relate to unsecured indebtedness, in the event of a bankruptcy or other liquidation event involving a distribution
of assets to satisfy our outstanding indebtedness or an event of default under a loan agreement relating to secured indebtedness
of our company or its subsidiaries, the holders of such secured indebtedness, if any, would be entitled to receive payment of
principal and interest prior to payments on the senior indebtedness issued under an Indenture.
Prospectus
Supplement
Each
prospectus supplement will describe the terms relating to the specific series of debt securities being offered. These terms will
include some or all of the following:
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the
title of debt securities and whether they are subordinated, senior subordinated or senior debt securities;
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any
limit on the aggregate principal amount of debt securities of such series;
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the
percentage of the principal amount at which the debt securities of any series will be issued;
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the
ability to issue additional debt securities of the same series;
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the
purchase price for the debt securities and the denominations of the debt securities;
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the
specific designation of the series of debt securities being offered;
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the
maturity date or dates of the debt securities and the date or dates upon which the debt securities are payable and the rate
or rates at which the debt securities of the series shall bear interest, if any, which may be fixed or variable, or the method
by which such rate shall be determined;
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the
basis for calculating interest if other than 360-day year or twelve 30-day months;
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the
date or dates from which any interest will accrue or the method by which such date or dates will be determined;
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the
duration of any deferral period, including the maximum consecutive period during which interest payment periods may be extended;
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whether
the amount of payments of principal of (and premium, if any) or interest on the debt securities may be determined with reference
to any index, formula or other method, such as one or more currencies, commodities, equity indices or other indices, and the
manner of determining the amount of such payments;
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the
dates on which we will pay interest on the debt securities and the regular record date for determining who is entitled to
the interest payable on any interest payment date;
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the
place or places where the principal of (and premium, if any) and interest on the debt securities will be payable, where any
securities may be surrendered for registration of transfer, exchange or conversion, as applicable, and notices and demands
may be delivered to or upon us pursuant to the applicable Indenture;
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the
rate or rates of amortization of the debt securities;
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if
we possess the option to do so, the periods within which and the prices at which we may redeem the debt securities, in whole
or in part, pursuant to optional redemption provisions, and the other terms and conditions of any such provisions;
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our
obligation or discretion, if any, to redeem, repay or purchase debt securities by making periodic payments to a sinking fund
or through an analogous provision or at the option of holders of the debt securities, and the period or periods within which
and the price or prices at which we will redeem, repay or purchase the debt securities, in whole or in part, pursuant to such
obligation, and the other terms and conditions of such obligation;
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the
terms and conditions, if any, regarding the option or mandatory conversion or exchange of debt securities;
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the
period or periods within which, the price or prices at which and the terms and conditions upon which any debt securities of
the series may be redeemed, in whole or in part at our option and, if other than by a board resolution, the manner in which
any election by us to redeem the debt securities shall be evidenced;
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any
restriction or condition on the transferability of the debt securities of a particular series;
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the
portion, or methods of determining the portion, of the principal amount of the debt securities which we must pay upon the
acceleration of the maturity of the debt securities in connection with any event of default if other than the full principal
amount;
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the
currency or currencies in which the debt securities will be denominated and in which principal, any premium and any interest
will or may be payable or a description of any units based on or relating to a currency or currencies in which the debt securities
will be denominated;
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provisions,
if any, granting special rights to holders of the debt securities upon the occurrence of specified events;
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any
deletions from, modifications of or additions to the events of default or our covenants with respect to the applicable series
of debt securities, and whether or not such events of default or covenants are consistent with those contained in the applicable
Indenture;
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any
limitation on our ability to incur debt, redeem stock, sell our assets or other restrictions;
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the
application, if any, of the terms of the applicable Indenture relating to defeasance and covenant defeasance (which terms
are described below) to the debt securities;
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what
subordination provisions will apply to the debt securities;
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the
terms, if any, upon which the holders may convert or exchange the debt securities into or for our common stock, preferred
stock or other securities or property;
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whether
we are issuing the debt securities in whole or in part in global form;
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any
change in the right of the trustee or the requisite holders of debt securities to declare the principal amount thereof due
and payable because of an event of default;
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the
depositary for global or certificated debt securities, if any;
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any
material federal income tax consequences applicable to the debt securities, including any debt securities denominated and
made payable, as described in the prospectus supplements, in foreign currencies, or units based on or related to foreign currencies;
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any
right we may have to satisfy, discharge and defease our obligations under the debt securities, or terminate or eliminate restrictive
covenants or events of default in the Indentures, by depositing money or U.S. government obligations with the trustee of the
Indentures;
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the
names of any trustees, depositories, authenticating or paying agents, transfer agents or registrars or other agents with respect
to the debt securities;
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to
whom any interest on any debt security shall be payable, if other than the person in whose name the security is registered,
on the record date for such interest, the extent to which, or the manner in which, any interest payable on a temporary global
debt security will be paid if other than in the manner provided in the applicable Indenture;
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if
the principal of or any premium or interest on any debt securities is to be payable in one or more currencies or currency
units other than as stated, the currency, currencies or currency units in which it shall be paid and the periods within and
terms and conditions upon which such election is to be made and the amounts payable (or the manner in which such amount shall
be determined);
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the
portion of the principal amount of any debt securities which shall be payable upon declaration of acceleration of the maturity
of the debt securities pursuant to the applicable Indenture if other than the entire principal amount;
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if
the principal amount payable at the stated maturity of any debt security of the series will not be determinable as of any
one or more dates prior to the stated maturity, the amount which shall be deemed to be the principal amount of such debt securities
as of any such date for any purpose, including the principal amount thereof which shall be due and payable upon any maturity
other than the stated maturity or which shall be deemed to be outstanding as of any date prior to the stated maturity (or,
in any such case, the manner in which such amount deemed to be the principal amount shall be determined); and
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any
other specific terms of the debt securities, including any modifications to the events of default under the debt securities
and any other terms which may be required by or advisable under applicable laws or regulations.
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Unless
otherwise specified in the applicable prospectus supplement, the debt securities will not be listed on any securities exchange.
Holders of the debt securities may present registered debt securities for exchange or transfer in the manner described in the
applicable prospectus supplement. Except as limited by the applicable Indenture, we will provide these services without charge,
other than any tax or other governmental charge payable in connection with the exchange or transfer.
Debt
securities may bear interest at a fixed rate or a variable rate as specified in the prospectus supplement. In addition, if specified
in the prospectus supplement, we may sell debt securities bearing no interest or interest at a rate that at the time of issuance
is below the prevailing market rate, or at a discount below their stated principal amount. We will describe in the applicable
prospectus supplement any special federal income tax considerations applicable to these discounted debt securities.
We
may issue debt securities with the principal amount payable on any principal payment date, or the amount of interest payable on
any interest payment date, to be determined by referring to one or more currency exchange rates, commodity prices, equity indices
or other factors. Holders of such debt securities may receive a principal amount on any principal payment date, or interest payments
on any interest payment date, that are greater or less than the amount of principal or interest otherwise payable on such dates,
depending upon the value on such dates of applicable currency, commodity, equity index or other factors. The applicable prospectus
supplement will contain information as to how we will determine the amount of principal or interest payable on any date, as well
as the currencies, commodities, equity indices or other factors to which the amount payable on that date relates and certain additional
tax considerations.
Warrants
We
may issue warrants for the purchase of our common stock, preferred stock or debt securities or any combination thereof. Warrants
may be issued independently or together with our common stock, preferred stock or debt securities and may be attached to or separate
from any offered securities. To the extent warrants that we issue are to be publicly-traded, each series of such warrants will
be issued under a separate warrant agreement to be entered into between us and a bank or trust company, as warrant agent. The
warrant agent will act solely as our agent in connection with such warrants. The warrant agent will not have any obligation or
relationship of agency or trust for or with any holders or beneficial owners of warrants.
We
will file as exhibits to the registration statement of which this prospectus is a part, or will incorporate by reference from
a current report on Form 8-K that we file with the SEC, forms of the warrant and warrant agreement, if any. The prospectus supplement
relating to any warrants that we may offer will contain the specific terms of the warrants and a description of the material provisions
of the applicable warrant agreement, if any. These terms may include the following:
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the
title of the warrants;
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the
price or prices at which the warrants will be issued;
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the
designation, amount and terms of the securities or other rights for which the warrants are exercisable;
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the
designation and terms of the other securities, if any, with which the warrants are to be issued and the number of warrants
issued with each other security;
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the
aggregate number of warrants;
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any
provisions for adjustment of the number or amount of securities receivable upon exercise of the warrants or the exercise price
of the warrants;
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the
price or prices at which the securities or other rights purchasable upon exercise of the warrants may be purchased;
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if
applicable, the date on and after which the warrants and the securities or other rights purchasable upon exercise of the warrants
will be separately transferable;
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a
discussion of any material U.S. federal income tax considerations applicable to the exercise of the warrants;
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the
date on which the right to exercise the warrants will commence, and the date on which the right will expire;
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the
maximum or minimum number of warrants that may be exercised at any time;
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information
with respect to book-entry procedures, if any; and
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any
other terms of the warrants, including terms, procedures and limitations relating to the exchange and exercise of the warrants.
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Exercise
of Warrants. Each warrant will entitle the holder of warrants to purchase the amount of securities or other rights, at the exercise
price stated or determinable in the prospectus supplement for the warrants. Warrants may be exercised at any time up to the close
of business on the expiration date shown in the applicable prospectus supplement, unless otherwise specified in such prospectus
supplement. After the close of business on the expiration date, if applicable, unexercised warrants will become void. Warrants
may be exercised in the manner described in the applicable prospectus supplement. When the warrant holder makes the payment and
properly completes and signs the warrant certificate at the corporate trust office of the warrant agent, if any, or any other
office indicated in the prospectus supplement, we will, as soon as possible, forward the securities or other rights that the warrant
holder has purchased. If the warrant holder exercises less than all of the warrants represented by the warrant certificate, we
will issue a new warrant certificate for the remaining warrants.
Rights
We
may issue rights to purchase our securities. The rights may or may not be transferable by the persons purchasing or receiving
the rights. In connection with any rights offering, we may enter into a standby underwriting or other arrangement with one or
more underwriters or other persons pursuant to which such underwriters or other persons would purchase any offered securities
remaining unsubscribed for after such rights offering. Each series of rights will be issued under a separate rights agent agreement
to be entered into between us and one or more banks, trust companies or other financial institutions, as rights agent, that we
will name in the applicable prospectus supplement. The rights agent will act solely as our agent in connection with the rights
and will not assume any obligation or relationship of agency or trust for or with any holders of rights certificates or beneficial
owners of rights.
The
prospectus supplement relating to any rights that we offer will include specific terms relating to the offering, including, among
other matters:
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the
date of determining the security holders entitled to the rights distribution;
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the
aggregate number of rights issued and the aggregate amount of securities purchasable upon exercise of the rights;
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the
exercise price;
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the
conditions to completion of the rights offering;
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the
date on which the right to exercise the rights will commence and the date on which the rights will expire; and
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any
applicable federal income tax considerations.
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Each
right would entitle the holder of the rights to purchase for cash the principal amount of securities at the exercise price set
forth in the applicable prospectus supplement. Rights may be exercised at any time up to the close of business on the expiration
date for the rights provided in the applicable prospectus supplement. After the close of business on the expiration date, all
unexercised rights will become void.
If
less than all of the rights issued in any rights offering are exercised, we may offer any unsubscribed securities directly to
persons other than our security holders, to or through agents, underwriters or dealers or through a combination of such methods,
including pursuant to standby arrangements, as described in the applicable prospectus supplement.
Units
We
may issue units consisting of any combination of the other types of securities offered under this prospectus in one or more series.
We may evidence each series of units by unit certificates that we may issue under a separate agreement. We may enter into unit
agreements with a unit agent. Each unit agent, if any, may be a bank or trust company that we select. We will indicate the name
and address of the unit agent, if any, in the applicable prospectus supplement relating to a particular series of units. Specific
unit agreements, if any, will contain additional important terms and provisions. We will file as an exhibit to the registration
statement of which this prospectus is a part, or will incorporate by reference from a current report that we file with the SEC,
the form of unit and the form of each unit agreement, if any, relating to units offered under this prospectus.
If
we offer any units, certain terms of that series of units will be described in the applicable prospectus supplement, including,
without limitation, the following, as applicable
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the
title of the series of units;
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identification
and description of the separate constituent securities comprising the units;
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the
price or prices at which the units will be issued;
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the
date, if any, on and after which the constituent securities comprising the units will be separately transferable;
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a
discussion of certain United States federal income tax considerations applicable to the units; and
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any
other material terms of the units and their constituent securities.
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Transfer
Agent and Registrar
The
transfer agent and registrar for our common stock is VStock Transfer, LLC, 18 Lafayette Place, Woodmere, NY 11598, and their telephone
number is (212) 828-8436 .
NASDAQ
Capital Market Listing
Our
common stock is listed on the NASDAQ Capital Market under the symbol “CCCR.”
PLAN
OF DISTRIBUTION
We
may sell the securities offered through this prospectus (i) to or through underwriters or dealers, (ii) directly to purchasers,
including our affiliates, (iii) through agents, or (iv) through a combination of any these methods. The securities may be distributed
at a fixed price or prices, which may be changed, market prices prevailing at the time of sale, prices related to the prevailing
market prices, or negotiated prices. The prospectus supplement will include the following information:
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the
terms of the offering;
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the
names of any underwriters or agents;
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the
name or names of any managing underwriter or underwriters;
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the
purchase price of the securities;
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any
over-allotment options under which underwriters may purchase additional securities from us;
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the
net proceeds from the sale of the securities;
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any
delayed delivery arrangements;
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any
underwriting discounts, commissions and other items constituting underwriters’ compensation;
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any
initial public offering price;
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any
discounts or concessions allowed or reallowed or paid to dealers;
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any
commissions paid to agents; and
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any
securities exchange or market on which the securities may be listed.
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