NOTE 5 – LOANS, NET
The
following lists the components of loans, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
$
382,767
|
$
253,268
|
|
Less: Provision for
credit losses
|
(5,239
)
|
(2,609
)
|
|
Less: Deferred loan
origination fees
|
(3,145
)
|
─
|
|
|
|
|
|
Loans,
net
|
$
374,383
|
$
250,659
|
Loans,
net arise from loans made from the CeraVest P2P platform, for which
the Company enters into a six-month lending agreement with SMBs
with principal and interest payable in full at maturity by the
SMBs. As of June 30, 2016 and December 31, 2015, the effective
interest rate charged for CeraVest loans was approximately 8.62%
per annum.
Deferred
loan origination fees arise from the 1.5% origination fee charged
to CeraVest borrowers. The Company amortizes origination fees into
interest income over the term of the respective loans.
Credit quality of loans, net
The
carrying amount of the current and past due loans as of June 30,
2016 and December 31, 2015 were as follows:
|
June 30, 2016
(Unaudited)
|
|
|
|
|
|
|
|
|
|
Gross
loans
|
$
362,682
|
$
20,086
|
$
382,768
|
|
Less: Provision for
credit losses
|
(3,554
)
|
(1,686
)
|
(5,239
)
|
|
Less: Deferred loan
origination fees
|
(3,145
)
|
─
|
(3,145
)
|
|
Loans,
net
|
$
355,983
|
$
18,400
|
$
374,383
|
|
December 31,
2015
|
|
|
|
|
|
|
|
|
|
Gross
loans
|
$
246,279
|
$
6,989
|
$
253,268
|
|
Less: Provision for
credit losses
|
(2,407
)
|
(202
)
|
(2,609
)
|
|
Less: Deferred loan
origination fees
|
─
|
─
|
─
|
|
Loans,
net
|
$
243,872
|
$
6,787
|
$
250,659
|
The
analysis of the age of the carrying amount of the past due
receivables as of June 30, 2016 and December 31, 2015 were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 90
days
|
$
9,954
|
$
5,749
|
|
Over 90
days
|
10,132
|
1,240
|
|
Subtotal
|
20,086
|
6,989
|
|
Less: allowance for
credit losses
|
(1,686
)
|
(202
)
|
|
Total
|
$
18,400
|
$
6,787
|
Provisions
for credit losses charged in the consolidated statement of income
for the CeraVest business were approximately $2,727 and $1,070 for
the six months ended June 30, 2016 and 2015,
respectively.
NOTE 6 – PREPAID EXPENSES AND OTHER CURRENT
ASSETS
Summaries
of prepaid expenses and other current assets are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term
advances
|
521
|
161
|
|
Temporary advances
to employees
|
210
|
28
|
|
Prepaid
rent
|
359
|
288
|
|
Prepaid other
taxes
|
364
|
314
|
|
Other current
assets
|
883
|
729
|
|
Total
|
$
2,338
|
$
1,520
|
NOTE 7 – PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS,
NET
Summaries
of property, equipment and leasehold improvements are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Buildings and
leasehold improvements
|
$
70,138
|
$
72,134
|
|
Furniture and
fixtures
|
5,797
|
6,970
|
|
Equipment
|
5,735
|
5,857
|
|
Company
automobiles
|
1,235
|
1,441
|
|
Total
|
82,905
|
86,402
|
|
|
|
|
|
Less: Accumulated
depreciation and amortization
|
(11,985
)
|
(12,585
)
|
|
Property, equipment
and leasehold improvements, net
|
$
70,920
|
$
73,817
|
Depreciation
and amortization expense for the operations was approximately
$1,561 and $1,877 for the six months ended June 30, 2016 and 2015,
respectively.
The
following schedule provides an analysis of Fincera’s
investment in property on operating leases and property held for
lease by major classes as of June 30, 2016 and December 31,
2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Buildings and
leasehold improvements
|
$
58,524
|
$
57,827
|
|
Equipment
|
4,814
|
4,838
|
|
Total
|
63,338
|
62,665
|
|
|
|
|
|
Less: Accumulated
depreciation
|
(5,798
)
|
(4,378
)
|
|
Total
|
$
57,540
|
$
58,287
|
NOTE 8 – OTHER PAYABLES AND ACCRUED LIABILITIES
Other
payables and accrued liabilities consist of the
following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CeraVest security
deposits from borrowers
|
$
36,352
|
$
22,755
|
|
Temporary payables
to CeraPay merchants
|
8,914
|
3,042
|
|
Funds due to
CeraVest borrowers
|
15,572
|
—
|
|
Purchasing funds
from CeraVest loan investors
|
2,943
|
—
|
|
Payables related to
properties
|
617
|
747
|
|
Rental
deposits
|
1,760
|
2,032
|
|
Accrued
expenses
|
6,459
|
2,646
|
|
Business and other
tax payables
|
1,291
|
940
|
|
Salary
payable
|
1,915
|
1,584
|
|
Interest payable
for bank borrowings
|
227
|
253
|
|
Other current
liabilities
|
—
|
1,807
|
|
Total
|
$
73,107
|
$
35,806
|
CeraVest security deposits from borrowers represent security
deposits received from CeraVest borrowers upon the funding of their
respective loans; Temporary payables to CeraPay merchants represent
monetary credits CeraPay merchant members that are yet to be
claimed from the Company;
Funds due to CeraVest borrowers
represent the approved borrowing requests not yet released to the
borrowers;and purchasing funds from CeraVest loan investors
represent the unspent CeraVest purchasing funds deposited by the
loan investors, with its counterpart recorded under restricted
cash.
NOTE 9 – THIRD PARTY BORROWINGS
Short-term bank borrowings
A
summary of the Company’s short-term borrowings is as
follows:
|
|
|
Weighted-average interest rate
|
|
|
|
|
|
|
|
|
|
|
|
|
June
30
|
|
|
December 31,
|
|
|
|
|
June
30
|
|
|
December 31,
|
|
|
|
|
2016
|
|
|
2015
|
|
|
Maturities
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term
bank loans
|
|
|
5.18
|
%
|
|
|
5.93
|
%
|
|
November
2016 to March 2017
|
|
$
|
88,370
|
|
|
$
|
75,921
|
|
Short-term
bank loans represent loans from local banks that were used for
working capital and capital expenditures purposes. The loans bore
interest at rates in the range of 4.35% to 5.90% as of June 30,
2016, are denominated in RMB and have terms maturing within one
year. All of the loans due before the filing date, September 30,
2016, were repaid.
Long-term bank borrowings
A
summary of the Company’s long-term borrowings is as
follows:
|
|
|
Weighted-average interest rate
|
|
|
|
|
|
|
|
|
|
|
|
|
June
30,
|
|
|
December 31,
|
|
|
|
|
June
30,
|
|
|
December 31,
|
|
|
|
|
2016
|
|
|
2015
|
|
|
Maturities
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
bank loans, current portion
|
|
|
6.77
|
%
|
|
|
6.77
|
%
|
|
August
2016
|
|
$
|
12,064
|
|
|
$
|
13,860
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
$
|
12,064
|
|
|
|
13,860
|
|
Long-term
bank borrowings represent the loan borrowed from Bank of East Asia
for working capital purposes. The loan bears a weighted average
interest at 6.77% as of June 30, 2016 and December 31, 2015 and is
denominated in RMB. The loan is secured by a collateral pledge of
property of the Company. All of the loans due before the filing
date were repaid.
The
total carrying amount of property, equipment and leasehold
improvements that have been pledged as collateral to secure
financing from commercial banks is $66.6 million and $67.5 million
as of June 30, 2016 and December 31, 2015
respectively.
NOTE 10 – BORROWED FUNDS FROM CERAVEST LOAN
INVESTORS
A
summary of the Company’s borrowed funds from CeraVest loan
investors is as follows:
|
|
|
Weighted-average interest rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June
30,
|
|
|
December 31,
|
|
|
|
|
|
June
30,
|
|
|
December 31,
|
|
|
|
|
2016
|
|
|
2015
|
|
|
Maturities
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
Borrowed
funds from CeraVest loan investors-CeraVest Fixed (inclusive of
interest payable $2,001 and $1,965 as of June 30, 2016 and December
31, 2015, respectively)
|
|
|
8.32
|
%
|
|
|
8.33
|
%
|
|
|
July
2016 toDecember 2016
|
|
|
$
|
102,981
|
|
|
$
|
97,392
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-CeraVest
Flex (inclusive of interest payable $2,006 and $511 as of June 30,
2016 and December 31, 2015, respectively)
|
|
|
8.03
|
%
|
|
|
8.03
|
%
|
|
|
—
|
|
|
|
243,392
|
|
|
|
105,333
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
346,373
|
|
|
$
|
202,725
|
|
Borrowed
funds from CeraVest loan investors represents 1) the funds provided
by investors through the CeraVest platform for the purpose of
funding CeraVest loans with a six-month term and are secured by the
counterpart loans, net; and 2) the funds provided by investors
through CeraVest Flex were for the investment in the monetary
collection rights generated by the Company due from the CeraPay
users.
NOTE 11 – INCOME TAXES
Cayman Islands:
Under the current tax laws of the
Cayman Islands, the Company and its subsidiaries are not subject to
tax on their income or capital gains.
Hong Kong:
The Company’s subsidiary in Hong Kong
did not have assessable profits that were derived from Hong Kong
during the six months ended June 30, 2016 and during 2015.
Therefore, no Hong Kong profit tax has been provided for in the
periods presented.
China:
The foreign invested enterprises
and domestic companies are generally subject to enterprise income
tax at a uniform rate of 25%.
Summaries
of the income tax provision (benefit) attributable to continued
operations in the consolidated statements of income and
comprehensive income are as follows:
|
|
Three months ended June
30,
|
Six
months ended June 30,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
$
1,956
|
$
—
|
$
2,912
|
$
142
|
|
Deferred
|
(1,553
)
|
80
|
(2,082
)
|
(1,118
)
|
|
Total
|
$
403
|
$
80
|
$
884
|
$
(976
)
|
The tax
effects of temporary differences of continuing operations
representing deferred income tax assets / liabilities result
principally from the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income tax
assets:
|
|
|
|
Provision for
credit losses
|
$
4,676
|
$
2,451
|
|
Accrued
liabilities
|
3,704
|
2,785
|
|
Tax loss carry
forward
|
2,766
|
1,775
|
|
Deferred income tax
assets
|
$
11,146
|
$
7,011
|
As of
June 30, 2016 and December 31, 2015, deferred income tax assets are
derived from accrued liabilities, tax loss carried forward, and
provision for credit losses arising from the same tax jurisdictions
in China.
At June
30, 2016, the Company had $37,580 of deductible tax loss carry
forwards that expires through June, 2021.
The
difference between the effective income tax rate and the expected
statutory rate on income (loss) from operations was as
follows:
|
|
Three months ended June 30,
|
Six months ended June 30,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statutory
rate
|
25.0
%
|
25.0
%
|
25.0
%
|
25.0
%
|
|
Non-deductible
expenses
|
14.6
%
|
138.1
%
|
13.6
%
|
(4.0
)%
|
|
Non-taxable
income
|
(7.2
)%
|
(87.4
)%
|
(4.3
)%
|
3.4
%
|
|
Effective tax
rate
|
32.4
%
|
75.6
%
|
34.3
%
|
24.4
%
|
The
non-deductible expenses and non-taxable income represented the
expenditures and revenues generated outside of main land
PRC.
The
guidance on accounting for uncertainties in income taxes prescribes
a more likely than not threshold for financial statement
recognition and measurement of a tax position taken or expected to
be taken in a tax return. Guidance was also provided on
derecognition of income tax assets and liabilities, classification
of current and deferred income tax assets and liabilities,
accounting for interest and penalties associated with tax
positions, accounting for income taxes in interim periods, and
income tax disclosures. Significant judgment is required in
evaluating the Company’s uncertain tax positions and
determining its provision for income taxes. The Company did not
have any significant interest and penalties associated with
uncertain tax positions for the six months ended June 30, 2016 and
2015. As of June 30, 2016 and December 31, 2015, the Company did
not have any significant unrecognized uncertain tax
positions.
PRC Withholding Tax on Dividends
The
current PRC Enterprise Income Tax Law imposes a 10% withholding
income tax for dividends distributed by foreign invested
enterprises to their immediate holding companies outside the PRC. A
lower withholding tax rate will be applied if there is a tax treaty
arrangement between the PRC and the jurisdiction of the foreign
holding company. Distributions to holding companies in Hong Kong
that satisfy certain requirements specified by PRC tax authorities,
for example, will be subject to a 5% withholding tax
rate.
As of
June 30, 2016 and December 31, 2015, the Company had not recorded
any withholding tax on the retained earnings of its foreign
invested enterprises in the PRC, since the Company intends to
reinvest its earnings to further expand its business in mainland
China, and its foreign invested enterprises do not intend to
declare dividends to their immediate foreign holding
companies.
NOTE 12 – COMMITMENTS AND CONTINGENCIES
Lease Commitments
The
Company leases certain facilities under long-term, non-cancelable
leases and month-to-month leases. These leases are accounted for as
operating leases. Rent expense amounted to $998 and $1,481 for the
six months ended June 30, 2016 and 2015, respectively, and $510 and
$713 for the three months ended June 30, 2016 and 2015,
respectively.
Future
minimum payments under long-term, non-cancelable leases as of June
30, 2016, are as follows:
|
Year Ending December 31,
|
|
|
2016 (six
months)
|
$
178
|
|
2017
|
221
|
|
2018
|
46
|
|
2019
|
2
|
|
2020
|
—
|
|
Total
|
$
446
|
Legal Proceedings
In the
opinion of management, there are no material claims, assessments or
litigation pending against the Company.
NOTE 13 – FUTURE MINIMUM RENTAL INCOME UNDER OPERATING
LEASES
Fincera’s
operations include the leasing of commercial property at the Kai
Yuan Center. The leases thereon expire at various dates through
2021. The following is a schedule of minimum future rents on
non-cancelable operating leases at June 30, 2016:
|
Year Ending December 31,
|
|
|
2016 (six
months)
|
$
4,743
|
|
2017
|
5,119
|
|
2018
|
2,317
|
|
2019
|
1,475
|
|
2020 and
after
|
1,451
|
|
Total
|
$
15,105
|
There
are no contingent rentals as of June 30, 2016.
NOTE 14 – SEGMENT REPORTING
The
Company’s chief operating decision maker (“CODM”)
has been identified as the CEO, who reviews the financial
information of separate operating segments when making decisions
about allocating resources and assessing performance of the
Company. The Company measures segment income as income from
operations less provision for credit losses, interest expenses,
interest expenses of related parties, and property and management
cost. The reportable segments are components of the Company,
which offer different products or services and are separately
managed, with separate financial information available that is
separately evaluated regularly by the Company’s Chief
Executive Officer in determining the performance of the
business. Income tax expenses are not allocated to the
segments.
The
Company operated two segments: the internet-based business segment
and the office leasing segment.
Discontinued
operations have been excluded from the segment information for
periods presented.
Three
months ended June 30, 2016 (unaudited)
|
|
|
|
|
|
|
|
|
|
|
Segment
Income
|
$
25,787
|
$
2,496
|
$
28,283
|
|
Property and
management cost
|
—
|
502
|
502
|
|
Provision for
credit losses
|
6,849
|
—
|
6,849
|
|
Interest
expense
|
8,171
|
—
|
8,171
|
|
Interest expense,
related parties
|
571
|
578
|
1,149
|
|
Segment income
before taxes
|
$
10,196
|
$
1,416
|
$
11,612
|
Six
months ended June 30, 2016 (unaudited)
|
|
|
|
|
|
|
|
|
|
|
Segment
Income
|
$
44,213
|
$
4,996
|
$
49,209
|
|
Property and
management cost
|
—
|
999
|
999
|
|
Provision for
credit losses
|
9,250
|
—
|
9250
|
|
Interest
expense
|
14,627
|
—
|
14,627
|
|
Interest expense,
related parties
|
1,749
|
872
|
2,621
|
|
Segment income
before taxes
|
$
18,587
|
$
3,125
|
$
21,712
|
Three
months ended June 30, 2015 (unaudited)
|
|
|
|
|
|
|
|
|
|
|
Segment
Income
|
$
8,818
|
$
2,433
|
$
11,251
|
|
Property and
management cost
|
—
|
556
|
556
|
|
Provision for
credit losses
|
1,094
|
—
|
1,094
|
|
Interest
expense
|
4,435
|
—
|
4,435
|
|
Interest expense,
related parties
|
639
|
138
|
777
|
|
Segment (loss)
income before taxes
|
$
2,650
|
$
1,739
|
$
4,389
|
Six
months ended June 30, 2015 (unaudited)
|
|
|
|
|
|
|
|
|
|
|
Segment
Income
|
$
12,392
|
$
4,629
|
$
17,021
|
|
Property and
management cost
|
—
|
1,126
|
1,126
|
|
Provision for
credit losses
|
1,743
|
—
|
1,743
|
|
Interest
expense
|
7,838
|
—
|
7,838
|
|
Interest expense,
related parties
|
1,927
|
582
|
1,879
|
|
Segment income
before taxes
|
$
1,514
|
$
2,921
|
$
4,435
|
The
assets of the office leasing segment as of June 30, 2016 and
December 31, 2015 amounted to $92.5 million and $87.4 million,
respectively. The remaining balances of assets as of June 30, 2016
and December 31, 2015 are $818.7 million and $543.1 million,
respectively, which are related to the internet-based business
segment.
NOTE 15 – RELATED PARTY BALANCES AND
TRANSACTIONS
Financing payables, related parties
During
the periods presented, the Company has borrowed from the
Company’s Chairman and Chief Executive Officer, Mr. Li, and
companies affiliated with Mr. Li. Each of these loans was entered
into to satisfy the Company’s short-term capital
needs.
The
amount due to Alliance Rich represented a portion of the
consideration paid in the acquisition of Heat Planet Holdings
Limited (“Heat Planet”), which was discussed in greater
detail in Item 4.A, “History and Development of the
Company”, of the Company’s Annual Report on Form 20-F,
filed with the Securities and Exchange Commission on April 18,
2014. The amount was payable within six months of occupation of the
Kai Yuan Finance Center by the Company, which was completed in
April 2013 and delivery of the audited financial statements for the
five months ended May 31, 2012 of Heat Planet, which were delivered
in December 2012. In October 2013, the unpaid amount began to
accrue interest at the one-year rate announced by the
People’s Bank of China (4.35% as of June 30, 2016). As of
June 30, 2016 approximately $4.2 million is still owed to Alliance
Rich for the acquisition of Heat Planet.
In
September 2011, Hebei Kaiyuan Real Estate Development Co., Ltd.
(“Hebei Kaiyuan”), an entity indirectly owned by our
Chairman and CEO, Mr. Yong Hui Li (also refer to group structure
chart contained in this report), began charging interest at 8.00%
per annum, and amounts owed continue to be unsecured and due on
demand by the lender.
Hebei
Ruijie Hotel Management Company, an entity controlled by our
Chairman and CEO, Mr. Yong Hui Li, charges interest at 5.60% per
annum on amounts owed to it.
The
amount due to Mr. Li and Smart Success Investment Limited
(“Smart Success”) were non-interest bearing, unsecured
and due on demand by the lenders.
During
the periods presented, the Company received internet-based
financings from Ruituo, a company controlled by Mr. Li’s
brother. The amount due to Ruituo is unsecured and due on demand by
Ruituo and bore an interest at approximately 8.00% per annum, based
on the weighted average outstanding payable balances at month
end.
In
2015, the Company obtained internet-based financings from Beiguo
Auto and Xinji Beiguo Mall, companies affiliated with Mr. Li. Mr.
Li holds 20.92% of indirect beneficial ownership in both Beiguo
Auto and Xinji Beiguo Mall. The Company pays a financing charge of
approximately 9% per annum to Beiguo Auto and Xinji Beiguo Mall for
the funds obtained due to this financing arrangement. The financing
arrangement is personally guaranteed by Mr. Li, who has a long term
business relationship with Beiguo, on behalf of the Company. In
addition, the payable balances of each loan are unsecured and due
in 180 days.
The
outstanding financing payables, related parties as of June 30, 2016
and December 31, 2015 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mr. Li
|
|
$
144
|
$
144
|
|
Alliance
Rich
|
(1
)
|
4,167
|
4,088
|
|
Hebei
Kaiyuan
|
(1
)
|
4,423
|
4,400
|
|
Smart
Success
|
(1
)
|
9
|
9
|
|
Hebei Ruijie Hotel
Management Company
|
(1
)
|
45,572
|
39,608
|
|
Ruituo
|
(2
)
|
63,523
|
58,536
|
|
Beiguo
Auto
|
(3
)
|
—
|
23
|
|
Xinji Beiguo
Mall
|
(3
)
|
—
|
61
|
|
Total
|
|
$
117,838
|
$
106,869
|
Notes:
|
|
(1)
|
Entity
controlled by Mr. Li.
|
|
|
(2)
|
Entity
controlled by Mr. Li’s brother.
|
|
|
(3)
|
Entity
in which Mr. Li is the indirect beneficial owner of approximately
20.92%.
|
Borrowed funds from CeraVest loan investor, related
party:
A
summary of the Company’s borrowed funds from CeraVest loan
investor, related party is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mr. Chen
Lei
|
(1
)
|
$
3,341
|
$
2,716
|
|
Total
|
|
$
3,341
|
$
2,716
|
(1)
During
the periods presented, Chen Lei, the senior vice president, has
provided to the Company through the CeraVest platform for the
purpose of funding CeraVest loans with a six-month term and are
secured by the counterpart loans, net. These payables represent two
types of investment, CeraVest Fixed and CeraVest Flex, amounting to
$3.3 million and $2.7 million, with weighted average interest rate
of 8.62% and 8.03% per annum as of June 30, 2016 and December 31,
2015, respectively.
Related Party Transactions
During
the periods presented, the details of the related party
transactions were as follows:
|
|
|
Six months ended June 30,
|
|
|
|
|
|
|
|
|
|
|
|
Capital nature:
|
|
|
|
|
Ruituo
|
(3
) (c)
|
$
402,278
|
$
48,394
|
|
Ruituo
|
(3
) (d)
|
1,522
|
494
|
|
Mr.
Li
|
(4
) (a)
|
125,031
|
183,868
|
|
Hebei
Ruijie Hotel Management Company
|
(1
) (b)
|
43,286
|
39,776
|
|
Hebei
Ruijie Hotel Management Company
|
(1
) (a)
|
—
|
24,472
|
|
Beiguo
Auto
|
(5
) (c)
|
—
|
182
|
|
Beiguo
Auto
|
(5
) (d)
|
1
|
37
|
|
Xinji
Beiguo Mall
|
(5
) (c)
|
—
|
36,666
|
|
Xinji
Beiguo Mall
|
(5
) (d)
|
—
|
529
|
|
Ruituo
|
(3
) (a)
|
|
24,472
|
|
Alliance
Rich
|
(1
) (d)
|
83
|
84
|
|
Mr.
Wei
|
(6
) (a)
|
15,322
|
16,314
|
|
|
|
|
|
|
Trading nature:
|
|
|
|
|
Hebei
Kaiyuan
|
(1
) (d)
|
142
|
155
|
|
Hebei
Ruijie Hotel Management Company
|
(1
) (d)
|
867
|
581
|
|
Hebei
Ruijie Hotel Management
|
(1
) (e)
|
589
|
572
|
Related
party transactions classified as capital nature principally involve
providing sources of financing for the Company. Those classified as
trading nature tend to be periodic in nature or for operating
purposes.
Notes:
(1)
Entity
controlled by Mr. Li.
(2)
Entity
in which Mr. Li’s brother holds a 40% equity
interest.
(3)
Entity
controlled by Mr. Li’s brother.
(4)
The
Chairman and Chief Executive Officer of Fincera.
(5)
Entity
in which Mr. Li is the indirect beneficial owner of approximately
20.92%.
(6)
The
Chief Operating Officer of Fincera.
Nature
of transaction:
(a)
Bank
loan guarantee provided by the affiliates to the
Company.
(b)
Loan
provided to the Company during the period.
(c)
Internet-based
financing provided to the Company during the year.
(d)
Interest expenses
incurred by the Company during the period.
NOTE 16 – SUBSEQUENT EVENTS
On
August 8, 2016, the Company entered into an agreement to purchase
from a related party the remaining portions of the Kai Yuan Finance
Center building that it does not already own. The remaining
property, which consists of 31 floors and an underground parking
garage, totals over 119,000 square meters, and houses the Hilton
Shijiazhuang, a premiere 594-room hotel operated by Hilton
Worldwide. The purchase, which includes the entity that operates
the Hilton Shijiazhuang, is being purchased for approximately
$119.9 million. The Company will also assume approximately $257.0
million in debt as part of the acquisition. The $119.9 million
purchase price will be payable within 12 months of the signing of
the equity transfer agreement, and any unpaid amounts after 12
months will begin to accrue interest at the one-year rate announced
by the People's Bank of China.
As of the filing
date, September 30, 2016, the acquisition has not been completed
yet.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
Fincera
Inc. (the “Company” or “Fincera”) is a
holding company whose only business operations are conducted
through its wholly owned subsidiary, AutoChina Group Inc.
(“ACG”). ACG’s operations consist of 1)
Internet-business and 2) Property lease and management business.
The Company has been winding down its commercial vehicle sales,
leasing and support business and insurance agency business starting
near the end of 2015. All the business is conducted in the
People’s Republic of China (the “PRC” or
“China”).
Internet-based business
CeraVest,
launched at the end of 2014, is a proprietary peer-to-peer
(“P2P”) lending platform, through which the Company
offers small and medium sized businesses (“SMBs”)
short-term, 6-month financing at competitive interest rates. These
loans are funded by CeraVest loan investors, who can invest in
notes through the CeraVest platform simply by visiting the
platform’s website (
www.qingyidai.com
), completing
the registration process and selecting which notes to invest in.
Due to regulatory restrictions under PRC law, the SMBs assign
certain individuals to apply for the loans through the platform by
signing a borrowing agreement and service agreement, which state
that the ownership of the debt may be transferred to CeraVest loan
investors at the Company’s option during the six-month loan
period and that the interest is established at approximately 8.62%
per annum. The loan is guaranteed by the SMBs and 8.0% of the loan
is remitted to the Company as a loan deposit recorded as CeraVest
security deposits under other payable and accrued liabilities (Note
8).
The
debt is transferred, partly or in full, to CeraVest loan investors
through a transfer agreement at a quoted rate of return of
approximately 8.62% per annum with a 6-month term. This product is
called “CeraVest Fixed.”
No
clauses in the transfer agreement require the Company to repurchase
any default loans. However, the Company voluntarily commits to
assist the investors to eliminate their investment risks, and
preserve the principal and the stated interest.
In
September 2015, the Company launched a flexible term investment
product called CeraVest Flex in order to give investors more
flexibility with respect to the term of their investment, as
opposed to the fixed 6-month term of the regular CeraVest Fixed
products. CeraVest Flex is designed to offer investors the
flexibility to add or withdraw funds as they please with no
specific lending period or maturity date. The investors are free to
add to or withdraw their investment at any time. The rate of return
is fixed at approximately 8.03% per annum regardless of the holding
period. The Company adjusts the size of the underlying pool of
CeraPay receivables according to the total amount of investment in
CeraVest Flex. All of the foregoing is reflected in the applicable
transfer agreement.
CeraPay
is our proprietary online payments platform that operates on our
own closed-loop network. The platform’s website is
www.dianfubao.com
.
Having features similar to a credit card, CeraPay is free for users
to use as long as any outstanding balances are paid in full each
month. The Company charges transaction fees to merchants in the
network.
TruShip
launched in December 2015, is our online ecommerce platform run by
Beijing One Auto Technology whereby trucking industry merchants,
such as dealerships and leasing companies, can establish an online
store-front and conveniently conduct sales transactions through
CeraPay. The platform’s website is
www.che001.com
. The platform
charges approximately 0.2% facilitation fees to the online
registered stores for each successful transaction conducted with
the customers.
In
August 2016, the Company entered into an agreement to purchase the
remaining portions of the Kai Yuan Finance Center building that it
does not already own. The remaining property, which consists of 31
floors and an underground parking garage, totals over 119,000
square meters, and houses the Hilton Shijiazhuang, a premiere
594-room hotel. The transaction is valued at approximately $376.9
million, including assumption of debt, and includes the purchase of
the entity that operates the hotel. See Note 16 to the financial
statements included herewith.
Property lease and management business
We own
and lease out office space in the Kai Yuan Finance Center, which is
a 54 story large-scale commercial building with hotel, office and
ancillary facilities, erected on a land parcel with a site area of
approximately 10,601 square meters in the central business district
of Shijiazhuang, China. We own floors 5 to 11 and 13 to 27, which
comprises a total gross floor area of approximately 62,972 square
meters. Our corporate headquarters occupies floors 26 and 27 and we
lease out the space that we do not occupy (approximately 56,092
square meters).
On
August 8, 2016, the Company entered into an agreement to purchase
from a related party the remaining portions of the Kai Yuan Finance
Center building that it does not already own. The remaining
property, which consists of 31 floors and an underground parking
garage, totals over 119,000 square meters, and houses the Hilton
Shijiazhuang, a premiere 594-room hotel operated by Hilton
Worldwide. After the acquisition is completed, it is anticipated
that the Company will continue to utilize Hilton Worldwide to
operate the Hilton Shijiazhuang hotel.
Discontinued Operations
The
Company has discontinued its
commercial vehicle sales,
leasing and support business, which includes its insurance agency
business. Accordingly, the activities of the Company’s
commercial vehicle sales, leasing and support business and its
insurance agency business have been segregated and reported as
discontinued operations for all periods presented. Summarized
financial data for the businesses classified as discontinued
operations are provided in Note 3 – Discontinued
Operations.
Group structure
A group
chart as of September 1, 2016 is shown below:
(1)
The
public company, quoted on the OTC QB Board under the symbol
“AUTCF”.
(2)
Top
Auto International Inc. was formed in November 2013. It was
originally anticipated to hold the Companies internet-based
businesses. However, the Company no longer plans to use the entity
and it is in the process of being deregistered.
(3)
First
Auto Limited was formed in February 2014. It was originally
anticipated to hold the Companies internet-based businesses.
However, the Company no longer plans to use the entity and it is in
the process of being deregistered.
(4)
Hebei
Xuwei Trading is an investment holding entity. In August 2016 it
transferred its 100% equity interest in Hebei Ruiliang Trading and
its 20% equity interest in Hebei Chuanglian Financing Leasing to
Ganglian Financing Leasing
(5)
Hebei
Ruiliang Trading holds the ownership of the office segment of Kai
Yuan Finance Center building.
(6)
Hebei
Ruiliang Property Services was formed in June 2013. It engages in
property management of the Kai Yuan Finance Center.
(7)
Chuangjin World
Investment was formed in September 2014 to facilitate the CeraVest
business.
(8)
Hebei
Remittance Guarantee was formed in October 2014 to facilitate the
CeraVest business.
(9)
Hebei
Shengrong Investment is an entity 100% indirectly controlled by Mr.
Yong Hui Li, our Chairman and Chief Executive Officer. (“Mr.
Li”)
(10)
Hebei
Xuhua Trading is the entity that Fincera indirectly acquired
control of through contractual arrangements and which held the cash
consideration paid to Fincera in connection with its sale of its
automobile dealership business in December 2009. Since December
2010, Hebei Xuhua Trading commenced the trading of commercial
vehicles by purchasing vehicles from outside suppliers for delivery
to other group companies.
(11)
Shenzhen Kaiyuan
Financial Services was formed in April 2015 to facilitate the new
internet-based businesses. In June 2015 its registered capital was
increased from 10 million RMB to 600 million RMB. Ganglian Finance
Leasing’s interest was transferred to Hebei Xuhua Trading who
contributed an additional 170 million RMB for a total 30%
ownership. The balance was contributed by Kaiyuan Auto Trade
Group.
(12)
Shenzhen Kaiyuan
Inclusive Financial Services was formed in April 2015 to facilitate
the new internet-based businesses. In June 2015 its registered
capital was increased from 10 million RMB to 600 million RMB.
Kaiyuan Auto Trade Group contributed an additional 410 million RMB
for a total 70% interest, while Hebei Xuhua Trading contributed 180
million RMB for 30% ownership.
(13)
Dian
Fu Bao Investment was formed in August 2014 to facilitate the
CeraVest and CeraPay businesses.
(14)
Easy
Technology was formed in September 2014 and operates the CeraVest
platform. In July 2015, its registered capital was increased from 2
billion to 2.5 billion RMB.
(15)
Beijing One Auto
Technology was originally formed in February 2012 as Kaiyuan
Information Processing. It engages in developing and management of
the Companies internet-based businesses.
(16)
Ganglian Finance
Leasing was formed in September 2010 for the purpose of conducting
our leasing business. It commenced the leasing business in the
fourth quarter of 2010.
(17)
Each
truck financing center is held by a separate legal entity, most of
which are jointly owned by Kaiyuan Auto Trade Group and Hebei Xuhua
Trading.
(18)
Kaiyuan Insurance
was established to conduct insurance brokerage services in China.
It commenced operations in December 2011.
RESULTS OF OPERATIONS
Three months ended June 30, 2016 as compared to three months ended
June 30, 2015
Overview
Fincera’s
net income decreased significantly during the three months ended
June 30, 2016, as compared to the three months ended June 30, 2015.
During the three-month period ended June 30, 2016, the Company
continued to ramp up its internet-based businesses, which grew
significantly, while containing the wind down of its discontinued
commercial vehicle sales, leasing and support business. While net
income contributed by continuing operations increased, the increase
was more than offset by a decline in the net income contributed by
discontinued operations, resulting in an overall decline in total
net income.
Operational Highlights
|
(RMB in
millions)
|
For the Three
Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CeraPay Transaction
Volume
|
6,024.1
|
4,362.7
|
38.1
%
|
1,829.9
|
229.2
%
|
|
CeraVest Loans
Issued
|
1,264.2
|
1,109.7
|
13.9
%
|
517.4
|
144.3
%
|
CeraPay
was used to make payment transactions totaling RMB6.0 billion
during the second quarter of 2016, a 229.2% increase compared to
the prior-year period and a 38.1% sequential increase compared to
the first quarter of 2016.
CeraVest
originated RMB1.3 billion in loans during the second quarter of
2016, a 144.3% increase compared to the prior-year period and a
13.9% sequential increase compared to the second quarter of 2016.
CeraVest had a total loan portfolio unpaid principal balance of
approximately RMB2.5 billion at June 30, 2016.
The
following charts display operational statistics for CeraPay and
CeraVest by quarter.
Income
The
table below sets forth certain line items from the Company’s
Statement of Income as a percentage of income:
|
(in
thousands)
|
Three
months ended June 30, 2016
|
Three
months ended June 30, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
charges
|
$
17,165
|
60.7
%
|
$
6,983
|
62.1
%
|
145.8
%
|
|
Interest
income
|
7,855
|
27.8
%
|
1,835
|
16.3
%
|
328.1
%
|
|
Other
income
|
767
|
2.7
%
|
—
|
—
%
|
100.0
%
|
|
Property
lease and management
|
2,496
|
8.8
%
|
2,433
|
21.6
%
|
2.6
%
|
|
Total
income
|
$
28,283
|
100.0
%
|
$
11,251
|
100.0
%
|
151.4
%
|
Income
for the second quarter of 2016 was $28.3 million, an increase of
151.4% from $11.3 million in the comparable prior year period, as a
result of the continued ramp-up of our internet-based business
segment, in particular our CeraVest and CeraPay products, which
were launched in November 2014.
Service
charges, which represents CeraPay transaction fees, and penalty and
late fees for both CeraVest and CeraPay, totaled $17.2 million in
the three months ended June 30, 2016, an increase of $10.2 million
compared to the prior year period. This was due to the significant
increase in the volume of CeraPay transactions processed. CeraPay
was used to make payment transactions totaling over $923 million
during the three months ended June 30, 2016, a 229.2% increase
compared to the prior-year period and a 38.1% increase compared to
the first quarter of 2016. It had over 50,000 users during the
month of June 2016.
Interest
income, which mainly represents interest earned on CeraVest loans
and amortized origination fees charged to CeraVest borrowers,
totaled $7.9 million in the three months ended June 30, 2016, an
increase of $6.0 million compared to the prior year period. This
was due to a significant increase in the volume of CeraVest loans
facilitated by the Company. CeraVest originated $193.7 million in
loans during the three months ended June 30, 2016, a 463.9%
increase compared to the prior-year period and a 35.3% increase
compared to the first quarter of 2016. CeraVest had a net loan
portfolio of $374.3 million and borrowed funds from CeraVest loan
investors of $349.7 million as of June 30, 2016. Both CeraVest and
CeraPay were initially launched in November 2014.
Other
income, which represents governmental subsidies, totaled $0.8
million in the three months ended June 30, 2016. There was no other
income in the prior year period.
Property
lease and management revenues totaled $2.5 million in the three
months ended June 30, 2016, and represent the revenues of the
property lease and management business. This represents an increase
of 2.6% compared to the prior year period due to a higher
percentage of available space in the Kai Yuan Finance Center being
leased out to tenants. At June 30, 2016, the occupancy rate of the
Kai Yuan Finance Center was 81%, as compared to 80% at June 30,
2015. The property lease and management business commenced
operations during the third quarter of 2013.
Operating Costs and Expenses
The
table below sets forth the components of our operating costs and
expenses as a percentage of income, for the periods
indicated:
|
(in thousands)
|
Three months
ended June 30, 2016
|
Three months
ended June 30, 2015
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
$
8,171
|
28.9
%
|
$
4,435
|
39.4
%
|
84.2
%
|
|
Interest expense,
related parties
|
1,149
|
4.1
%
|
777
|
6.9
%
|
47.9
%
|
|
Provision for
credit losses
|
6,849
|
24.2
%
|
1,094
|
9.7
%
|
526.1
%
|
|
Product development
expense
|
2,235
|
7.9
%
|
1,434
|
12.7
%
|
55.9
%
|
|
Property and
management cost
|
502
|
1.8
%
|
556
|
4.9
%
|
(9.7
)%
|
|
Selling and
marketing
|
2,914
|
10.3
%
|
357
|
3.2
%
|
716.2
%
|
|
General and
administrative
|
5,220
|
18.5
%
|
2,493
|
22.2
%
|
109.4
%
|
|
Total operating
costs and expenses
|
$
27,040
|
95.6
%
|
$
11,146
|
99.1
%
|
142.6
%
|
Interest Expense
Interest
expense totaled $9.3 million for the three months ended June 30,
2016, of which $1.1 million of interest expense was incurred to
related parties: Beiguo Auto, Hebei Kaiyuan, Hebei Ruijie Hotel
Management Company and Hebei Ruituo Auto Trading Co., Ltd.
(“Ruituo”). It includes interest of $0.1 and $0.6
million incurred for loans advanced from Hebei Kaiyuan and Hebei
Ruijie Hotel Management Company, respectively. It also included
interest of $0.3 and $0.1 million incurred for the internet-based
business financing for CeraVest customers from Ruituo and Beiguo
Auto, respectively.
Interest
expense totaled $5.2 million for the three months ended June 30,
2015, of which $0.8 million of interest expense was incurred to
related parties. Other interest expenses increased to $8.2 million
during the three months ended June 30, 2016 from $4.4 million
during the prior period due primarily to interest paid to CeraVest
loan investors. CeraVest was launched in November
2014.
Provision for credit losses
From
June 30, 2015 to June 30, 2016, we increased the provision for
credit losses from $1.1 million to $6.8 million for the three month
periods then ended. The increase was based on the growth of our new
CeraPay and CeraVest businesses, as well as our management’s
ongoing analysis of credit losses for the corresponding other
financing receivables and loans, net due from our customers. The
Company determines that both the other financing receivables and
loans, net represent large groups of smaller-balance homogeneous
loans to the CeraPay and CeraVest customers based on their similar
general credit risk characteristics, and evaluates the allowance
for receivables due from CeraPay and CeraVest customers
respectively. When evaluating the credit losses, the Company
normally bases it on its historical loss experience derived from
the commercial vehicle sales, leasing and support business, which
has a similar credit portfolio with the existing Internet-based
borrowers, and also makes reference to the experience of other
entities in the same business.
The
Company performs periodic and systematic detailed reviews of its
other financing receivables and loans, net, to identify credit
risks and to assess the overall collectability of those portfolios,
and may adjust its estimates on allowance of credit losses when new
circumstances arise.
Product development expense
Product
development expense totaled $2.2 million for the three months ended
June 30, 2016 as compared to $1.4 million for the prior year period
primarily as a result of an increase in the headcount of technical
staff as compared to the prior year period.
Property and management cost
Property
and management cost totaled $0.5 million for the three months ended
June 30, 2016 as compared to $0.6 million for the prior year. The
reduction was due to a decrease in the allocated portion of
building taxes from the unleased portion of the building. As the
occupancy rate increases, the allocated building tax
decreases.
Selling and marketing
Selling
and marketing expenses for the three months ended June 30, 2016
were $2.9 million, an increase of $2.5 million as compared to the
same period of 2015. This was mainly due to increased selling and
marketing costs incurred to promote the Company’s ramping up
of its new internet-based businesses. These costs include but are
not limited to sales commissions and salaries for sales
staff.
General and administrative
General
and administrative expenses for the three months ended June 30,
2016 were $5.2 million, an increase of $2.7 million as compared to
the same period of 2015. The increase was primarily due to costs
associated with establishing and running the Company’s new
internet-based businesses. These costs include but are not limited
to salaries for administrative personnel, registration fees and
fees from third-party payment providers.
Income tax provision (benefit)
In the
three months ended June 30, 2016, the Company recorded an income
tax expense of $0.4 million, as compared to an income tax expense
of $0.1 million in the prior year period.
Income from continuing operations
Income
from continuing operations in the three months ended June 30, 2016
was $0.8 million, as compared to $25,000 in the prior year period.
The increase resulted from the ramping up of the Company’s
new internet-based businesses.
(Loss) income from discontinued operations, net of
taxes
Discontinued
operations consist of the Company’s commercial vehicle sales,
leasing and support business and insurance agency business (see
Note 3 to the financial statements included herewith). Loss from
discontinued operations in the three months ended June 30, 2016 was
$0.8 million, as compared to income of $3.0 million in the prior
year period. The decrease resulted from the winding down of the
businesses classified as discontinued operations.
Net income
Net
income in the three months ended June 30, 2016 was $5,000, as
compared to $3.0 million in the prior year period. The decrease was
because the Company’s income from continuing operations did
not completely counteract the effect of declining income from our
discontinued operations.
Six months ended June 30, 2016 as compared to Six months ended June
30, 2015
Income
The
table below sets forth certain line items from the Company’s
Statement of Income as a percentage of income:
|
(in thousands)
|
Six months ended
June 30, 2016
|
Six months ended
June 30, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
charges
|
$
32,252
|
65.5
%
|
$
9,752
|
57.3
%
|
230.7
%
|
|
Interest
income
|
11,194
|
22.7
%
|
2,640
|
15.5
%
|
324.0
%
|
|
Other
income
|
767
|
1.6
%
|
—
|
0.0
%
|
100.0
%
|
|
Property lease and
management
|
4,996
|
10.2
%
|
4,629
|
27.2
%
|
7.9
%
|
|
Total
income
|
$
49,209
|
100.0
%
|
$
17,021
|
100.0
%
|
189.1
%
|
Income
for the first six months of 2016 was $49.2 million, an increase of
189.1% from $17.0 million in the comparable prior year period, as a
result of the continued ramp-up of our internet-based business
segment, in particular our CeraVest and CeraPay products, which
were launched in November 2014.
Service
charges, which represents CeraPay transaction fees, and penalty and
late fees for both CeraVest and CeraPay, totaled $32.3 million in
the six months ended June 30, 2016, an increase of $22.5 million
compared to the prior year period. This was due to the significant
increase in the volume of CeraPay transactions processed. CeraPay
was used to make payment transactions totaling over $1,591 million
during the six months ended June 30, 2016, a 274.9% increase
compared to the prior-year period.
Interest
income, which represents interest earned on CeraVest loans and
amortized origination fees charged to CeraVest borrowers, totaled
$11.2 million in the six months ended June 30, 2016, an increase of
$8.6 million compared to the prior year period. This was due to a
significant increase in the volume of CeraVest loans facilitated by
the Company. CeraVest originated $363.7 million in loans during the
six months ended June 30, 2016, a 222.1% increase compared to the
prior-year period.
Other
income, which represents governmental subsidies, totaled $0.8
million in the six months ended June 30, 2016. There was no other
income in the prior year period.
Property
lease and management revenues totaled $5.0 million in the six
months ended June 30, 2016, and represent the revenues of the
property lease and management business. This represents an increase
of 7.9% compared to the prior year period due to a higher
percentage of available space in the Kai Yuan Finance Center being
leased out to tenants.
Operating Costs and Expenses
The
table below sets forth the components of our operating costs and
expenses as a percentage of income, for the periods
indicated:
|
(in thousands)
|
Six months ended
June 30, 2016
|
Six months ended
June 30, 2015
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
$
14,627
|
29.7
%
|
$
7,838
|
46.0
%
|
86.6
%
|
|
Interest expense,
related parties
|
2,621
|
5.3
%
|
1,879
|
11.0
%
|
39.5
%
|
|
Provision for
credit losses
|
9,250
|
18.8
%
|
1,743
|
10.2
%
|
430.7
%
|
|
Product development
expense
|
4,207
|
8.5
%
|
2,757
|
16.2
%
|
52.6
%
|
|
Property and
management cost
|
999
|
2.0
%
|
1,126
|
6.6
%
|
(11.3
)%
|
|
Selling and
marketing
|
5,141
|
10.4
%
|
524
|
3.1
%
|
881.1
%
|
|
General and
administrative
|
9,784
|
19.9
%
|
5,167
|
30.4
%
|
89.4
%
|
|
Total operating
costs and expenses
|
$
46,629
|
94.8
%
|
$
21,034
|
123.6
%
|
121.7
%
|
Interest Expense
Interest
expense totaled $17.2 million for the six months ended June 30,
2016, of which $2.6 million of interest expense was incurred to
related parties: Alliance Rich, Beiguo Auto, structure, Hebei
Ruijie Hotel Management Company and Hebei Ruituo Auto Trading Co.,
Ltd. (“Ruituo”). It includes interest of $0.2 and $0.9
million incurred for loans advanced from Hebei Kaiyuan and Hebei
Ruijie Hotel Management Company, respectively. It also included
interest of $1.4 million incurred for the internet-based business
financing for CeraVest customers from Ruituo. $0.1 million of
interest expense was incurred to Alliance Rich for amounts still
outstanding from the acquisition of Heat Planet.
Interest
expense totaled $9.7 million for the six months ended June 30,
2015, of which $1.9 million of interest expense was incurred to
related parties. Other interest expenses increased to $14.6 million
during the six months ended June 30, 2016 from $7.8 million during
the prior period due primarily to interest paid to CeraVest loan
investors. CeraVest was launched in November 2014.
Provision for credit losses
From
June 30, 2015 to June 30, 2016, we increased the provision for
credit losses from $1.7 million to $9.3 million for six month
periods then ended. The increase was based on the growth of our new
CeraPay and CeraVest businesses, as well as our management’s
ongoing analysis of credit losses for the corresponding other
financing receivables and loans, net due from our customers. The
Company determines that both the other financing receivables and
loans, net represent large groups of smaller-balance homogeneous
loans to the CeraPay and CeraVest customers based on their similar
general credit risk characteristics, and evaluates the allowance
for receivables due from CeraPay and CeraVest customers
respectively. When evaluating the credit losses, the Company
normally bases it on its historical loss experience derived from
the commercial vehicle sales, leasing and support business, which
has a similar credit portfolio with the existing Internet-based
borrowers, and also makes reference to the experience of other
entities in the same business.
The
Company performs periodic and systematic detailed reviews of its
other financing receivables and loans, net, to identify credit
risks and to assess the overall collectability of those portfolios,
and may adjust its estimates on allowance of credit losses when new
circumstances arise.
Product development expense
Product
development expense totaled $4.2 million for the six months ended
June 30, 2016 as compared to $2.8 million for the prior year period
primarily as a result of an increase in the headcount of technical
staff as compared to the prior year period.
Property and management cost
Property
and management cost totaled $1.0 million for the six months ended
June 30, 2016 as compared to $1.1 million for the prior year. The
reduction was due to a decrease in the allocated portion of
building taxes from the unleased portion of the building. As the
occupancy rate increases, the allocated building tax
decreases..
Selling and marketing
Selling
and marketing expenses for the six months ended June 30, 2016 were
$5.1 million, an increase of $4.6 million as compared to the same
period of 2015. This was mainly due to increased selling and
marketing costs incurred to promote the Company’s ramping up
of its new internet-based businesses. These costs include but are
not limited to sales commissions and salaries for sales
staff.
General and administrative
General
and administrative expenses for the six months ended June 30, 2016
were $9.8 million, an increase of $4.6 million as compared to the
same period of 2015. The increase was primarily due to costs
associated with establishing and running the Company’s new
internet-based businesses. These costs include but are not limited
to salaries for administrative personnel, registration fees and
fees from third-party payment providers.
Income tax provision (benefit)
In the
six months ended June 30, 2016, the Company recorded an income tax
expense of $0.9 million, as compared to an income tax benefit of
$1.0 million in the prior year period.
Income (loss) from continuing operations
Income
from continuing operations in the six months ended June 30, 2016
was $1.7 million, as compared to a loss from continuing operations
of $3.0 million in the prior year period. The increase resulted
from the ramping up of the Company’s new internet-based
businesses.
(Loss) income from discontinued operations, net of
taxes
Discontinued
operations consist of the Company’s commercial vehicle sales,
leasing and support business and insurance agency business (see
Note 3 to the financial statements included herewith). Loss from
discontinued operations in the six months ended June 30, 2016 was
$1.2 million, as compared to income of $8.7 million in the prior
year period. The decrease resulted from the winding down of the
businesses classified as discontinued operations.
Net income
Net
income in the six months ended June 30, 2016 was $0.5 million, as
compared to $5.7 million in the prior year period. The decrease was
because the Company’s increase in income from continuing
operations did not completely counteract the effect of declining
income from our discontinued operations.
LIQUIDITY AND CAPITAL RESOURCES
Financing arrangements
The
Company’s capital expenditures have been financed primarily
through short-term borrowings from financial institutions and
affiliates. The interest rates of short-term borrowings during the
periods ranged from 4.35% to 8.00% per annum. The Company also
utilized a long-term bank loan, which matured in August 2016 and
bore interest at a rate of 6.77% per annum.
As of
June 30, 2016, the Company’s outstanding borrowings from
affiliates amounted to $4.2 million, $4.4 million, $144,000, $45.6
million, $63.5 million and $9,000 from Alliance Rich, Hebei
Kaiyuan, Mr. Li, Hebei Ruijie Hotel Management Company, Ruituo and
Smart Success Investment Limited (“Smart Success”),
respectively. Alliance Rich, Hebei Kaiyuan, and Smart Success are
indirectly controlled by Mr. Li. Each of these loans was entered
into to satisfy the Company’s short-term capital needs. The
amount due to Alliance Rich includes a portion of the consideration
for the acquisition of Heat Planet ($4.2 million as of June 30,
2016). The amount due for the acquisition of Heat Planet accrues
interest at the one-year rate announced by the People’s Bank
of China (4.35% as of June 30, 2016). The amount due to Hebei
Kaiyuan was originally non-interest bearing, unsecured and due on
demand. In September 2011, Hebei Kaiyuan began charging interest at
8.00% per annum on amounts owed to it. Hebei Ruijie Hotel
Management Company charges interest at 5.60% per annum on amounts
owed to it. The amounts due to Mr. Li and Smart Success Investment
Limited are non-interest bearing, unsecured and are due on demand
by the lenders.
As of
June 30, 2016, the Company had short-term borrowings of $88.4
million, represented by loans from various Chinese banks, which
have terms within one year. The Company also had borrowed funds
from CeraVest loan investors of $349.7 million, which represent
proceeds from CeraVest loan investors, both third parties and
related parties.
After
taking into consideration our financing arrangements with our
affiliates and our existing cash resources, we believe we have
adequate sources of liquidity to meet our short-term obligations
and working capital requirements for at least the next 12 months
from the date this report is filed. The Company expects to use cash
to expand the CeraPay and CeraVest businesses and may elect to
obtain addition funding to expand and grow its operations, which
may include borrowings from financial institutions and/or the sale
of equity.
Working Capital
As of
June 30, 2016 and December 31, 2016, the Company had working
capital of $161.0 million and $162.6 million,
respectively.
During
the six months ended June 30, 2016, the Company’s short-term
borrowings increased by $12.4 million. The Company increased its
borrowed funds from CeraVest loan investors, including third
parties and related parties, by $144.3 million. The Company had a
net increase of financing payables, related party amounting to
$11.0 million. The net impact generated cash from operations during
the six months ended June 30, 2016 of $75.5 million.
Financial Condition
The
following table sets forth the major balance sheet accounts of the
Company at June 30, 2016 and December 31, 2015 (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
Cash and cash
equivalents
|
$
119,940
|
$
61,957
|
|
Other financing
receivables, net
|
278,960
|
235,349
|
|
Loans,
net
|
374,383
|
250,659
|
|
Assets of
discontinued operations
|
49,274
|
119,845
|
|
Property, equipment
and improvements, net
|
70,920
|
73,817
|
|
Liabilities:
|
|
|
|
Short-term bank
borrowings
|
$
88,370
|
$
75,921
|
|
Long-term bank
borrowings, current portion
|
12,064
|
13,860
|
|
Borrowed funds from
CeraVest loan investor, related party
|
3,341
|
2,716
|
|
Borrowed funds from
CeraVest loan investors
|
346,373
|
202,725
|
|
Financing payables,
related parties
|
117,838
|
106,869
|
|
Other payables and
accrued liabilities
|
73,107
|
35,806
|
|
Liabilities of
discontinued operations
|
12,884
|
53,032
|
Other
financing receivables, net began in November 2014 as a result of
the inception of the CeraPay payments business under which the
Company provides SMBs with an electronic form of payment with
features similar to a credit card. As the CeraPay usage and revenue
increased during the period, the balance of other financing
receivables, net increased accordingly.
Loans,
net began in November 2014 as a result of the inception of the
CeraVest P2P lending platform business under which the Company
provides short-term loans to SMBs which are partially funded by
investors through the platform. As the CeraVest business and the
amount of loans provided to SMBs has grown, the balance of loans,
net has increased accordingly.
Assets
of discontinued operations represent the current and non-current
assets of the commercial vehicle sales, leasing and support
business and insurance agency business (see Note 3 to the financial
statements included herewith).
Property,
equipment and improvements decreased to $70.9 million as of June
30, 2016, a decrease of $2.9 million, or 3.9%, as compared with
December 31, 2015. The decrease mainly relates to depreciation on
property and equipment.
Short-term
bank borrowings represent loans from various banks in the PRC.
Short-term bank borrowings were used for working capital and
capital expenditure purposes. The borrowings increased to $88.4
million as of June 30, 2016, from $75.9 million as of December 31,
2015, because the Company increased bank borrowings by $12.5
million during the six months ended June 30, 2016 for the purpose
of supporting its expanded online-financing businesses. The terms
of the remaining outstanding bank borrowings are all 12 months and
begin to expire in November 2016.
Long-term
bank borrowings, current portion represents the current portion of
a long-term loan from a bank in the PRC. The loan was used for
working capital and capital expenditure purposes. The loan was due
and repaid in August 2016.
Other
payables and accrued liabilities consist of the default assurance
received from CeraVest borrowers, the restricted cash deposited
into CeraVest loan investor accounts that belong to the respective
investors, customer deposits from tenants, payables to construction
supplier, payables to CeraPay registered stores and other items. It
increased to $73.1 million as of June 30, 2016 from $35.8 million
as of December 31, 2015, which was mainly due to growth in the
CeraPay and CeraVest businesses.
Borrowed
funds from CeraVest loan investors began in November 2014 as a
result of the inception of the CeraVest P2P lending platform
business. Since borrowed funds from CeraVest loan investors
represent the amounts invested by and therefore owed to CeraVest
loan investors, as the CeraVest business and the amount of
investment received from investors has grown, the balance of
borrowed funds from CeraVest loan investors has increased
accordingly.
Financing
payables, related parties are related to the financing
arrangement provided by the related parties for the CeraVest
business and borrowings from related parties of the Company.
Financing payables, related parties increased from $106.9 million
to $117.8 million as of June 30, 2016, an increase of $10.9
million, as compared with December 31, 2015. Such amounts were
primarily related to the payables to our related parties: Ruituo,
Hebei Kaiyuan, Hebei Ruijie Hotel Management Company, Alliance
Rich, Smart Success and Mr. Li.
Liabilities
of discontinued operations represent the current and non-current
liabilities of the commercial vehicle sales, leasing, and support
business and insurance agency business (see Note 3 to the financial
statements attached herewith).
The
following table sets forth certain historical information with
respect to the Company’s statements of cash flows (in
thousands):
|
|
Six months ended June
30,
|
|
|
|
|
|
Net cash provided
by operating activities
|
$
75,543
|
$
171,482
|
|
Net cash (used in)
investing activities
|
(192,751
)
|
(219,632
)
|
|
Net cash provided
by financing activities
|
176,863
|
65,749
|
|
Effect of exchange
rate change
|
(1,672
)
|
80
|
|
|
|
|
|
Net increase in
cash and cash equivalents
|
$
57,983
|
$
17,679
|
Operating Activities
. Net cash provided by operating
activities for the six months ended June 30, 2016 was $75.5
million, as compared to net cash provided of $171.5 million for the
six months ended June 30, 2015, representing a decrease of $96.0
million in cash generated. This decrease in the cash provided by
operating activities was attributable primarily to a decrease in
collections on outstanding commercial vehicle leases as the Company
continues to wind down its discontinued commercial vehicle sales
servicing, leasing and support business.
In the
six months ended June 30, 2016, the Company generated $75.5 million
of cash from operating activities. During this period, the Company
had net income of $0.5 million. In addition, the Company had an
increase of restricted cash of $4.1 million, an increase of
provision for credit losses of $9.3 million, an increase of $38.8
million of other payables and accrued liabilities, an increase of
prepaid expense and other current assets of $0.9 million and cash
provided by operating activities of discontinued operations of
$28.5 million. The remaining balance arises from changes in income
tax payable, depreciation and amortization and other
items.
In the
six months ended June 30, 2015, the Company generated $171.5
million of cash from operating activities. During this period, the
Company had net income of $5.7 million. In addition, the Company
had a decrease of restricted cash of $0.8 million, an increase of
provision for credit losses of $1.7 million, an increase of $20.2
million of other payables and accrued liabilities, an increase of
prepaid expense and other current assets of $6.6 million and cash
provided by operating activities of discontinued operations of
$155.0 million. The remaining balance arises from changes in income
tax payable, depreciation and amortization and other
items.
Investing Activities
. Net cash used in investing activities
was $192.8 million in the six months ended June 30, 2016, as
compared to $219.6 million for the six months ended June 30, 2015.
During the six months ended June 30, 2016, the Company had an
increase from change in loans, net, of $136.8 million, an increase
form change in other financing receivables of $55.7 million, and an
increase from purchase of property, equipment and leasehold
improvements of $0.3 million.
Net
cash used in investing activities was $219.6 million in the six
months ended June 30, 2015. During the six months ended June 30,
2015, the Company had an increase from change in loans of $103.0
million, an increase from change in other financing receivables of
$114.9 million, and an increase from purchase of property,
equipment and leasehold improvements of $1.7 million.
Financing Activities
. Net cash provided by financing
activities was $176.9 million in the six months ended June 30,
2016, as compared to $65.8 million for the six months ended June
30, 2015. During the six months ended June 30, 2016, the Company
had net proceeds from bank borrowings of $12.7 million. The Company
received proceeds of $45.0 million from its related parties, and
also repaid the amount of $31.6 million to related parties. The
company also received net proceeds of $150.8 million from CeraVest
loan investors.
During
the six months ended June 30, 2015, the Company had net repayments
of bank borrowings of $57.9 million. The Company received proceeds
of $101.5 million from its related parties, and also repaid the
amount of $95.9 million to related parties. The Company also
received net proceeds of $79.1 million from CeraVest loan
investors. Net cash provided by financing activities of
discontinued operations totaled $39.0 million
Historically,
most or all available cash is used to fund the loans, other
financing receivables and capital expenditures. To the extent the
investment in loans, other financing receivables and capital
expenditures exceed income from operations, the Company generally
increases the bank borrowings under its financing facilities and
from related parties and CeraVest loan investors.
The
Company currently leases all of the properties where regional sales
offices are located. It expects to continue to lease the majority
of the properties where new stores or centers are
located.
As of
June 30, 2016, Fincera’s borrowings primarily consisted of:
(i) Short-term bank borrowings; (ii) Long-term bank borrowings,
current portion; (iii) Borrowed funds from CeraVest loan investors;
(iv) Financing payables, related parties.
Short-term borrowings.
Short-term borrowings represented
loans from various financial institutions that were used for
working capital and capital expenditures purposes. The loans from
various financial institutions bear interest at rates ranging from
4.35% to 5.9% as of June 30, 2016 and have terms of up to one
year.
Long-term bank borrowings.
Long-term bank borrowings
represents a loan from a PRC bank that was used for working capital
and capital expenditures purposes. The loan bears interest at 6.77%
and matures in August 2016.
Borrowed funds from CeraVest loan investors.
Borrowed funds
from CeraVest loan investors represent amounts invested by and
therefore owed to CeraVest loan investors through the CeraPay
platform. The loans bear interest at up to 8.03% for the flexible
term and 8.62% for fixed term to six months.
Financing payables, related parties.
Financing payables
from related parties was primarily related to 1) the received
internet-based financings from Ruituo, a company controlled by Mr.
Li’s brother (the amount due to Ruituo is unsecured and due
on demand by Ruituo and bore an interest at approximately 8.00% per
annum, based on the weighted average outstanding payable balances
at month end); 2) the internet-based financings from Beiguo Auto
and Xinji Beiguo Mall during 2015, companies affiliated with Mr. Li
(Li holds 20.92% of indirect beneficial ownership in both Beiguo
Auto and Xinji Beiguo Mall. The Company pays a financing charge of
approximately 9% per annum to Beiguo Auto and Xinji Beiguo Mall for
the funds obtained due to this financing arrangement. The financing
arrangement is personally guaranteed by Mr. Li, who has a long term
business relationship with Beiguo, on behalf of the Company. In
addition, the payable balances of each loan are unsecured and due
in 180 days.); 3) with respect to the amount due to Alliance Rich,
a portion of the consideration paid in the acquisition of Heat
Planet Holdings Limited (“Heat Planet”) (The amount due
to Alliance Rich was payable within six months of occupation of the
Kai Yuan Center by the Company, which was completed in April 2013
and delivery of the audited financial statements for the five
months ended May 31, 2012 of Heat Planet, which were delivered in
December 2012. In October 2013, the unpaid amount began to accrue
interest at the one-year rate announced by the People’s Bank
of China (4.35% as of June 30, 2016). As of June 30, 2016
approximately $4.2 million is still owed to Alliance Rich for the
acquisition of Heat Planet.); and 4) with respect to the amount due
to Hebei Kaiyuan, an initially non-interest bearing, unsecured and
due on demand by the lender. The Company expects to continue
relying on the financing from the related parties and believes the
related parties have sufficient capital to continue provide such
financing to us in the foreseeable future.
The
Company’s borrowings fluctuate based upon a number of
factors, including (i) income, (ii) changes in other financing
receivables and loans, net and (iii) capital expenditures.
Historically, income from operations, as well as borrowings on the
revolving credit facilities have driven accounts and notes
receivable growth, inventory growth and capital
expenditures.
We
believe that our available cash and cash equivalents and cash
provided by operating activities, together with cash available from
borrowings, will be adequate to meet presently anticipated cash
needs for at least the next twelve months.
Cash
and cash equivalents as of June 30, 2016 are mainly held by the
Company’s subsidiaries and VIEs. These cash balances cannot
be transferred to the Company by loan or advance according to
existing PRC laws and regulations. However, these cash balances can
be utilized by the Company for its normal operations pursuant to
the Enterprise Agreements entered into with Hebei Kaiyuan and Hebei
Chuanglian Finance Leasing.
Regulations on Dividend Distribution
The
principal laws and regulations in China governing distribution of
dividends by foreign-invested companies include:
●
The
Sino-foreign Equity Joint Venture Law (1979), as
amended;
●
The
Regulations for the Implementation of the Sino-foreign Equity Joint
Venture Law (1983), as amended;
●
The
Sino-foreign Cooperative Enterprise Law (1988), as
amended;
●
The
Detailed Rules for the Implementation of the Sino-foreign
Cooperative Enterprise Law (1995), as amended;
●
The
Foreign Investment Enterprise Law (1986), as amended;
and
●
The
Regulations of Implementation of the Foreign Investment Enterprise
Law (1990), as amended.
Under
these regulations, foreign-invested enterprises in China may pay
dividends only out of their accumulated profits, if any, determined
in accordance with Chinese accounting standards and regulations. In
addition, wholly foreign-owned enterprises in China are required to
set aside at least 10% of their respective accumulated profits each
year, if any, to fund certain reserve funds unless such reserve
funds have reached 50% of their respective registered capital.
These reserves are not distributable as cash dividends. Each of our
PRC subsidiaries is continuing to make contributions to their
respective reserve funds as none of them have reached the 50%
threshold. We record these as contributions to equity.
Off-Balance Sheet Arrangements
In
March 2013, Ganglian Finance Leasing entered into a financing
arrangement with China CITIC Bank, Shijiazhuang, Hebei Province
Branch (“CITIC Bank”), whereby CITIC Bank agreed to
provide up to 50% of the financing to Ganglian Finance
Leasing’s lessees of commercial vehicles. Ganglian Finance
Leasing agreed to provide a full guarantee to CITIC Bank for such
financing and will provide a pledge of the ownership of the
commercial vehicle to CITIC Bank to secure its guarantees. As of
June 30, 2016, there was no loan balance guaranteed by the Company
as the agreement has concluded.
Recently Issued Accounting Pronouncements
See
Note 2 to the financial statements included herewith.
Critical Accounting Policies and Estimates
The
discussion and analysis of the Company’s financial condition
and results of operations is based upon its consolidated financial
statements, which have been prepared in accordance with accounting
principles generally accepted in the United States of America. The
preparation of these financial statements requires the Company to
make estimates and judgments that affect the reported amounts of
assets, liabilities, revenues and expenses, and related disclosure
of contingent assets and liabilities. On an ongoing basis, the
Company evaluates its estimates, including those related to
accounts receivable and the related provision for doubtful
accounts, tangible and intangible long-lived assets, the assessment
of the valuation allowance on deferred tax assets, the purchase
price allocation on acquisitions, and contingencies and litigation,
among others. The Company bases its estimates on historical
experience and on various other assumptions that it believes to be
reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying values of assets and
liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates under different
assumptions or conditions.
For a
detailed discussion of the application of these and other
accounting policies, refer to “Note 2 – Basis of
presentation and summary of significant accounting policies”
of the consolidated financial statements included in our Annual
Report on Form 20-F for the year ended December 31, 2015 filed with
SEC on May 2, 2016.
Quantitative and Qualitative Disclosures About Market
Risk
Interest Rate Risk
Fincera’s
exposure to interest rate risk primarily relates to its outstanding
debts and interest income generated by excess cash, which is mostly
held in interest-bearing bank deposits. Fincera has not used
derivative financial instruments in its investment portfolio.
Interest-earning instruments carry a degree of interest rate risk.
As of June 30, 2016, Fincera’s total outstanding
interest-bearing loans amounted to $68.0 million with interest
rates ranging from 4.35% to 8.00% per annum. Changes in the
interest rates could impact the amount of interest that we are
required to pay.
Credit Risk
Fincera
is exposed to credit risk from its cash and cash equivalents,
accounts receivable, long-term net investment in direct financing
and sales-type leases, short-term net investment in sales-type
leases, loans receivable, net and other finance receivables. The
credit risk on cash and cash equivalents is limited because the
counterparties are recognized financial institutions. Accounts
receivable, long-term net investment in direct financing and
sales-type leases, short-term net investment in sales-type leases
and other finance receivables are subjected to credit evaluations
and evaluation analysis on the residual value of the relevant
leased commercial vehicles. An allowance would be made, if
necessary, for estimated irrecoverable amounts by reference to past
default experience and other credit risks, if any, and by reference
to the current economic environment.
Foreign Currency Risk
Substantially
all of Fincera’s revenues and expenditures are denominated in
Renminbi. As a result, fluctuations in the exchange rate between
the U.S. dollars and Renminbi will affect Fincera’s financial
results in U.S. dollars terms without giving effect to any
underlying change in Fincera’s business or results of
operations. The Renminbi’s exchange rate with the U.S. dollar
and other currencies is affected by, among other things, changes in
China’s political and economic conditions. The exchange rate
for conversion of Renminbi into foreign currencies is heavily
influenced by intervention in the foreign exchange market by the
People’s Bank of China. On July 21, 2005, the PRC government
began allowing modest appreciation of the Renminbi versus the U.S.
dollar. However, the Renminbi is restricted to a rise or fall of no
more than 0.5% per day versus the U.S. dollar, and the
People’s Bank of China continues to intervene in the foreign
exchange market to prevent significant short-term fluctuations in
the Renminbi exchange rate. Nevertheless, under China’s
current exchange rate regime, the Renminbi may appreciate or
depreciate significantly in value against the U.S. dollar in the
medium to long term. There remains significant international
pressure on the PRC government to adopt a substantial
liberalization of its currency policy, which could result in a
further and more significant appreciation in the value of the
Renminbi against the U.S. dollar.
Net
income for the three months ended June 30, 2016 of RMB 33,000 is
reported as $5,000 based on the 2016 second quarter-to-date average
RMB to U.S. dollar exchange rate of 6.5302. Net income
would decrease slightly based on the June 30, 2016 exchange rate of
6.6312 RMB per U.S. dollar.
Net
income for the six months ended June 30, 2016 of RMB 3.2 million is
reported as $489,000 based on the 2016 year-to-date average RMB to
U.S. dollar exchange rate of 6.5264. Net income would
decrease $8,000 to $481,000 based on the June 30, 2016 exchange
rate of 6.6312 RMB per U.S. dollar.
Very
limited hedging transactions are available in China to reduce
Fincera’s exposure to exchange rate fluctuations. To date,
Fincera has not entered into any hedging transactions in an effort
to reduce its exposure to foreign currency exchange risk. While
Fincera may decide to enter into hedging transactions in the
future, the availability and effectiveness of these hedging
transactions may be limited and it may not be able to successfully
hedge its exposure at all. In addition, Fincera’s currency
exchange losses may be magnified by PRC exchange control
regulations that restrict its ability to convert Renminbi into
foreign currency.
Seasonality
Our
first quarter (January through March) is expected to be slower for
CeraVest and CeraPay. This is due to the Chinese New Year holiday,
which occurs in January or February depending on the year, and has
an adverse effect on business activity in the transportation
sector. We expect this trend to continue in future periods. If
conditions arise that impair transportation sector business
activity during the second to fourth quarters, the adverse effect
on our revenues and operating profit for the year could be
disproportionately large.
Impact of Inflation
Inflation
has not historically been a significant factor impacting the
Company’s results.
Exhibits
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Press
Release dated September 30, 2016
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