WINS short report - a SPAC called SMAC - another example of China Fraud, Inc.

Crediblock.com LLC – Second Sight Markets Analysis 6/27/2020 — WINS is a publicly traded company which is involved in a financial scandal so great, the CFO quit. They have until July 2nd to appoint a new one, who must sign off on the financials. If they fail to do so, the stock will likely be delisted from NASDAQ and the value will plummet to zero. You may ask how such a steaming pile of dung may be able to trade on a market like NASDAQ? The answer is SPACs, or Special-purpose acquisition company. In this case, a SPAC called SMAC (Sino Mercury Acquisition Corporation) was formed in 2014, with the purpose of ‘allowing backdoor entry to US markets for Chinese companies:’ according to a report by Seeking Alpha:

The intention of forming the shell company was to raise money and serve as a backdoor for a Chinese company in the non-traditional financial sector to become listed in the US.

Was this SMAC SPAC just another way to launder hot money from mainland China into the US banking system? Let’s look at what’s going on now. From our internal research analysis, WINS has all the objective hallmarks of fraud.

B Objective hallmarks of Fraud.
Failed file annual report for fiscal ended 6-30-19. CFO resigns 6-15-20 as does a board member. The COO appointed in Nov 19 resigns May 25, 2020 as does another board member. On Nov 19, 2019, Chairman resigns from Chairmanship and CFO resigns from board. The Company was sued in 2017 http://securities.stanford.edu/filings-documents/1061/WFHI00_01/2018228_r01x_17CV02983.pdf
WINS’ auditor (Centurion ZD CPA) Centurion also served as auditor for Yangtze River Port & Logistics,
The SEC grilled the company company in a letter demanding future changes in accounting in the imminent 20F filing. This letter is responded to by the company assuring these changes will be made in the 20F has not been filed. The notice of late filing was 10-31-2019 – or 9 months ago! There is no CFO. There is a hearing date July 2, 2020, just four days from now and the issue is the failure to file financials including the 9 no late annual report which still is not filed. No CFO. The auditor is same as another Chinese atrocity.

Nasdaq will likely delist this company following the July 2nd hearing.

(The company has promised since October 2019, and there’s no CFO. You need a CFO to file an annual report.)

In SEC correspondence, the Company promises to change and clarify its reporting in the next 20F which as you will see is never filed (included at end of report in Research section)

Let’s also mention the findings of Hindenburg Research in a short report:

1. Wins Operating Subsidiary Had Its Assets Frozen by the Chinese Courts the Day Before the Mysterious Stock Spike

2. Wins Has Failed to Disclose That Its Parent Entity, Which Owns 67.7% of Its Equity, Is Insolvent, Has Ceased Trading in Hong Kong, and Is in Liquidation

3. We Visited Wins’ Headquarters in China and Found it Mostly Empty

4. We Visited Wins’ Operating Entity’s Listed Address and Found it Empty—Neighbors Said the Location Had Been Abandoned for a “Year or Two”

5. We Emailed Wins Last Night Inquiring as To Whether The CFO Was Still Active, Given That He Resigned From Wins Subsidiaries in November. This Morning the Company Announced the CFO Had Resigned

6. Wins’ (Now Former) CFO’s Immediate Work History Prior to Wins Including Financial Controller at Agria, Which Later was Delisted by the NYSE and Settled Charges with the SEC Over Alleged Stock Manipulation and Accounting Fraud

7. Wins’ Auditor Has a Storied History of Auditing U.S. Listed Chinese Firms That Have Imploded Amidst Accounting Irregularities

8. Even Wins’ Outdated, Year and a Half Old Financials Show an Organization Crumbling. Recent Disclosures Show $83 Million Has Gone Missing into an Opaque Chinese Entity

9. We Expect WINS Will be Delisted Due to Failure to File Financials. This View Is Reinforced By The Company’s Lack of A CFO, Per Its Announcement This Morning.

So what’s the obvious move here? Short the stock. Skip options or other creative ways to profit as the options market is already thin and such contracts may be voided if WINS is delisted. If you own it, sell it. Take a look at the chart:

As you can imagine, there are 8,000 Robinhood traders in this stock hoping it will go back to 400 without doing any research. As we learned with the Crypto bubble popping, hopium can be a powerful drug.

This is also a signal of a trend of Chinese fraud seeping through the regulatory cracks of the U.S. system. All Chinese companies are not frauds of course, but there are so many shades of grey. In a recent report issued about GSX Techedu which led to a class action case, nearly 70% of their ‘users’ are fake. According to Fox News:

GSX Techedu is a “near-total fraud” and worthless, according to one investment firm.Muddy Waters Research says at least 70 percent of the Beijing-based GSX’s users are bots and that the real number is likely 80 percent or more. The company doesn’t generate revenue without users and its expenses are greatly understated, the report found.

What happens in China stays in China. But when Chinese firms choose to list on US exchanges it opens them up to abide by US rules and especially comply with US transparency standards. The fact that WINS is part of a trend of Chinese would be ponzi scammers trying to ‘regulate’ their illicit activities just makes this even more toxic.

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WINS Short Report Research

On July 31, 2019 SEC and WINS were in deep discussion relating classify this as “short-term investments” to “investment securities”
WINS assured the SEC that it would correct its errors in the annual report (odd fiscal year) where WINS filed a notice of Late filing in 10/31/2019. This is for the period ending 6/30/19. This is 1 year ago.
Then a July 31, 2019 letter from the SEC appears to have shaken management which turns over often.
However management has repeatedly promised and missed filing its annual report for 6-30-2019 will be filed by x , y and z dates. Now despite no CFO and turnover in management and audit committee , the company has created and maintained the illusion that “this time” the filing is going to happen and this is why.
Most recently, it’s the hiring of a new audit committee member that Management has used in press releases as magically,

A major shareholder of WINS ( FREEMAN FINTECH CORPORATION LIMITED )
, revealed the following issues with one of its “wealth management products.” https://www1.hkexnews.hk/listedco/listconews/sehk/2020/0110/2020011001017.pdf

• Balance represented the fair value of the Group’s investment in wealth management products from financial institutions in the PRC which were not yet due nor early redeemed as at the end of each of the reporting periods.

• The Company has set up an investigation committee and engaged an external independent law firm in the PRC with Wins Finance to assist in such investigation. Based on the investigation report dated 9 January 2020, it was discovered that the asset manager and certain other parties had executed some additional documents in respect of the investment of RMB750,000,000 in other investments.
•
• Wins Finance was not a party to these additional documents and was not aware of these additional documents previously. The Company is taking legal advice as to how to proceed with a view to maximising the interests of the Company and its shareholders.
•
• The Company reserves its right to and will exhaust all possible remedies in order to seek for compensation for the loss under the investment including without limitation the institution of legal proceedings against the relevant parties.
•
• As the recoverability of the outstanding principal amount and related interest receivable is highly uncertain, a fair value loss of HK$766,936,000 has been recorded for the six months ended 30 September 2019. Details in relation to the results of the investigation were set out in the announcement of the Company dated 9 January 2020.
https://www1.hkexnews.hk/listedco/listconews/sehk/2020/0110/2020011001017.pdf

EVENTS AFTER THE REPORTING PERIOD
The Group, through Wins Finance, held certain wealth management products (the “Products”) managed by certain financial institutions in the PRC (the “Financial Institutions”). One of the Products with original investment amount of RMB750 million and remaining principal amount of RMB740 million (equivalent to HK$812 million as at 30 September 2019) was due to mature on 23 October 2019.
As at the date of this announcement, an outstanding principal amount of RMB580 million (equivalent to HK$637 million as at 30 September 2019) has not been redeemed and no investment portfolio has been returned by the relevant Financial Institutions.
The Company has set up an investigation committee and engaged an external independent law firm in the PRC with Wins Finance to assist in such investigation. https://www1.hkexnews.hk/listedco/listconews/sehk/2020/0110/2020011001017.pdf

A.
Short report: https://hindenburgresearch.com/losing-with-wins/
Chinese Company with $1B mkt cap this am and an easy business to commit accounting fraud for years before being tagged looks like it’s catching attention of the shorts. The Company buys non marketable bonds and claims they can sell them without impairment when they wish
.
B Objective hallmarks of Fraud.
Failed file annual report for fiscal ended 6-30-19. CFO resigns 6-15-20 as does a board member. The COO appointed in Nov 19 resigns May 25, 2020 as does another board member. On Nov 19, 2019, Chairman resigns from Chairmanship and CFO resigns from board. The Company was sued in 2017 http://securities.stanford.edu/filings-documents/1061/WFHI00_01/2018228_r01x_17CV02983.pdf
Wins’ auditor (Centurion ZD CPA) Centurion also served as auditor for Yangtze River Port & Logistics,
The SEC grilled the company company in a letter demanding future changes in accounting in the imminent 20F filing. This letter is responded to by the company assuring these changes will be made in the 20F has not been filed. The notice of late filing was 10-31-2019 – or 9 months ago! There is no CFO. There is a hearing date July 2, 2020, just four days from now and the issue is the failure to file financials including the 9 no late annual report which still is not filed. No CFO. The auditor is same as another Chinese atrocity.

Nasdaq will likely delist this company following the July 2nd hearing.

(The company has promised since October 2019, and there’s no CFO. You need a CFO to file an annual report.)

C. In SEC correspondence, the Company promises to change and clarify its reporting in the next 20F which as you will see is never filed:

We have responded to the comments set forth in the Staff’s Letter on a point-by-point basis. The numbered paragraphs set forth below respond to the Staff’s comments and correspond to the numbered paragraph in the Staff’s Letter.

Form 20-F filed October 31, 2018
Financial Statements, page F-4

1. We note your response to comments 1 and 2 and that it appears that you generally transfer the amounts recognized in the allowance (B/S) and provision (I/S) from guarantee losses to “guarantee paid on behalf of guarantee services customers” related accounts at the time a payment is made. To allow investors to more fully understand the financial reporting related to your guarantee business, in future filings please revise the rollforwards of the “Allowance on financial guarantee” and newly named “Receivable from guarantee customers” as noted in response 10 in your May 31, 2019 letter to present a separate line item for these transfers.

Response: In our future filings we will revise the rollforwards of the “Allowance on financial guarantee” and the newly named “Receivable from guarantee customers” to present a separate line item for these transfers as follows. https://www.sec.gov/Archives/edgar/data/1640251/000114420419036802/filename1.htm

2. We note your response to comment 5. We note that ASC 320-10-25-1 requires you to have the positive intent and ability to hold the security to maturity, at the acquisition of the security. Based on disclosure throughout the December 31, 2018 Form 20-F regarding your ability to redeem the investments at any time and information in your response to comment 38 in your July 14, 2015 letter, it is unclear how you are able to assert that you had the intent, at acquisition, to hold each security to maturity. To the extent you cannot assert that you had the positive intent and ability to hold a security to maturity, at acquisition, please revise to account for the security as available-for-sale and revise your disclosure accordingly. If you can make the assertion, please ensure you revise all relevant disclosure in your future filings to disclose information consistent with your held to-maturity classification.

Additionally, in order to provide investors with an understanding of the correction of an error and your change in your accounting policy to available-for-sale or held-to-maturity, please revise future filings to disclose the impact of the change in the financial statement footnotes for the periods presented in accordance with ASC 250-10-50.

Response: Before committing to an investment in asset management products portfolio, management evaluates factors such as the Company’s business strategy and current business plans, the nature and type of securities, including their expected life, the Company’s current financial condition and liquidity demands, the current economic environment and related market conditions and the Company’s past practices. Taking into account such factors, management makes a positive determination at acquisition regarding the Company’s ability and intent to hold such securities to maturity and would invest only in asset management products meeting the standards necessary to allow the Company to have the positive intent and ability to hold to maturity.

The Company will restate all relevant disclosure in its future filings to disclose information consistent with its held-to-maturity classification. Also, the Company will provide the following disclosures in the financial statement footnotes of its 2019 Form 20-F in accordance with ASC 250-10-50:

CORRECTION OF ERROR AND CHANGE IN ACCOUNTING POLICY
The Company has determined its previously issued audited consolidated financial statements for the three years ended June 30, 2018 contained an error with respect to ASC 320, Investments – Debt and Equity Securities. Specifically, investments in non-marketable asset management products issued by banks and financial institutions (the issuers) with original maturities of one year to five years should be accounted for as held-to-maturity and recorded at amortized cost, as the Company had the positive intent and ability, at acquisition, to hold each security to maturity.

Such correction of error and change in accounting policy had no impact on the carrying amount of these investments as of June 30, 2018 and 2017, and it had no effect on net income, the Company’s consolidated statements of income and comprehensive income, the consolidated balance sheets, or the consolidated statements of cash flows, except that the description of these investments are changed from “short-term investments” to “investment securities”.

Please contact Giovanni Caruso, our counsel, at 212 407-4866 if you would like additional information with respect to any of the foregoing. Thank you.

Sincerely,

(CHINESE SCRIPT)

D.Notice of Delisting or Failure to Satisfy a Continued Listing Rule or Standard; Transfer of Listing.

On November 18, 2019. Wins Finance Holdings Inc. (the “Company”) received a notification letter from the NASDAQ Stock Market (“NASDAQ”) stating the Company was not in compliance with NASDAQ Listing Rule 5250(c)(1) due to its failure to timely file its Annual Report on Form 20-F for the year ended June 30, 2019 (the “2019 20-F”). The NASDAQ notification letter provides the Company 60 calendar days from the date of the notification, or until January 17, 2020, to submit a plan to NASDAQ to regain compliance with the NASDAQ’s continued listing requirements. If the plan is accepted, NASDAQ can grant an exception of up to 180 calendar days, or until May 13, 2020, for the Company to regain compliance. The Company may regain compliance at any time by filing its 2019 20-F. If NASDAQ does not accept the Company’s compliance plan, the Company will have the opportunity to appeal that decision to a Hearing Panel under Listing Rule 5815(a). The NASDAQ notification letter has no immediate effect on the listing of the Company’s common stock on the NASDAQ Capital Market. The Company intends to provide a plan of compliance to the NASDAQ Staff on or before January 17, 2020.

Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.

On November 19, 2019, (i) Renhui Mu resigned from his position as Chairman of the Board of Directors of the Company (he remains the Chief Executive Officer and a directors of the Company), and (ii) Junfeng Zhao resigned from his position as a director of the Company (he remains the Chief Financial Officer of the Company).

Also on November 19, 2019, the Company appointed Haoying Yang as Chairman of the Board of Directors of the Company and Zhide Zhou was appointed as Chief Operating Officer of the Company.

Yang Haoying (“Mr. Yang”), aged 40, joined Freeman FinTech Corporation Ltd, the major shareholder of the Company, in August 2016 and was appointed as an Executive Director in October 2016.

Mr. Yang was re-designated as Chief Operating Officer in January 2017 and re-designated from Chief Operating Officer to Chief Executive Officer in July 2018.

– Then-

Mr. Yang resigned as Chief Executive Officer in April 2019 but remains an Executive Director.

Mr. Yang currently also serves as a director of certain subsidiaries of Freeman FinTech Corporation Ltd.

Mr. Yang holds a Master’s degree in IMBA (Financial) from Shanghai Jiaotong University and a Bachelor’s degree in Mechanical Engineering and Automation from Jilin University in China. Mr. Yang has over 12 years of experience in corporate finance, asset management and private equity in Hong Kong and China. Mr. Yang led the private equity department Shenzhen team in Pingan Trust Co., Ltd, from March 2011 to April 2015, and served as a managing director of the private equity department in Zhongtai International Asset Management Limited, an asset management company, from April 2015 to September 2015. Mr. Yang acted as a managing director of the private equity department in Mason Group Holdings Limited (Stock Code: 273) from September 2015 to August 2016 which is a company listed on the main board of the Stock Exchange.

F.
Notice of Delisting or Failure to Satisfy a Continued Listing Rule or Standard; Transfer of Listing.

On May 22, 2020, Wins Finance Holdings Inc. (the “Company”) received a delisting determination letter (the “Determination Letter”) from the staff of the Listing Qualifications Department of The Nasdaq Stock Market LLC (“Nasdaq”). The Determination Letter notified the Company that since it had not filed its Annual Report on Form 20-F for the fiscal year ended June 30, 2019 (the “2019 20-F”) by May 13, 2020, the deadline by which the Company was to file the 2019 20-F in order to regain compliance with Listing Rule 5250(c)(1), the Company’s common stock is subject to delisting from The Nasdaq Capital Market. The Company intends to timely request a hearing before the Nasdaq Hearings Panel (the “Panel”) under Listing Rule 5815(a) to present its plan to regain compliance with Listing Rule 5250(c)(1).

Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.

On May 25, 2020, (i) Haoying Yang resigned from his position as a member of the Board of Directors of the Company, and (ii) Zhide Zhou resigned from his position as Chief Operating Officer of the Company.

G.
Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.

On June 15, 2020, (i) Shihai Wang resigned from his position as a member of the Board of Directors of the Company, and
(ii) Junfeng Zhao resigned from his position as Chief Financial Officer of the Company.

—————————————————

H. Wins Finance Comments on Unusual Market Activity
BEIJING and NEW YORK, June 11, 2020 /PRNewswire/ — Wins Finance Holdings Inc. (“Wins Finance” or the “Company”) (NASDAQ: WINS), a diversified investment and asset management company that provides integrated financing solutions to small and medium enterprises (“SMEs”) in China, today announced that that while it ordinarily does not comment on market activity or market speculation, in view of the recent high trading volume and significant price increase of the Company’s ordinary shares, Wins Finance wanted to confirm to the market that it is not aware of any material corporate developments that could account for this unusual trading activity.

I. BEIJING and NEW YORK, June 15, 2020 /PRNewswire/ — Wins Finance Holdings Inc. (“Wins Finance” or the “Company”) (NASDAQ: WINS), a diversified investment and asset management company that provides integrated financing solutions to small and medium enterprises (“SMEs”) in China, today announced that it has been granted an extended stay as to the suspension of the Company’s ordinary shares from trading on the Nasdaq Capital Market pending the Company’s scheduled hearing before the Nasdaq Hearings Panel (the “Panel”) on July 2, 2020 and the issuance of a final Panel decision.

On May 29, 2020, the Company submitted a request for a hearing before the Panel under Listing Rule 5815(a) to present its plan to regain compliance with Listing Rule 5250(c)(1). This request automatically stayed the delisting of the Company’s securities until June 15, 2020. The Panel notified the Company that it has extended the stay until it fully reviews the facts of the matter and makes a final determination regarding the Company’s listing status following the July 2, 2020 hearing.

The Company received a delisting determination letter on May 22, 2020 from the staff of the Listing Qualifications Department of Nasdaq which notified the Company that because it had not filed its Annual Report on Form 20-F for the fiscal year ended June 30, 2019 (the “2019 20-F”) by May 13, 2020, the deadline by which the Company was to file the 2019 20-F in order to regain compliance with Listing Rule 5250(c)(1), the Company’s common stock is subject to delisting from The Nasdaq Capital Market.

As disclosed previously, the Company is working assiduously to complete its delayed SEC filings of its financial statements and to regain compliance with the NASDAQ rules as soon as possible.

J. Wins Finance Holdings Inc. Announces Submission of Compliance Plan to Nasdaq JAN 20 2020

Wins Finance Holdings Inc. (“Wins Finance” or the “Company”) (NASDAQ: WINS), a diversified investment and asset management company that provides integrated financing solutions to small and medium enterprises (“SMEs”) in China, today announced that on January 17, 2020, the Company submitted its plan of compliance in connection with its failure to timely file its Annual Report on Form 20-F for the year ended June 30, 2019 (the “2019 20-F”) for continued listing on the NASDAQ Capital Market, as set forth in NASDAQ Listing Rule 5550(c)(1).

K, 2019-10-31 16:15:17
The Annual Report on Form 20-F of Wins Finance Holdings Inc. (the “Company”) could not be filed within the prescribed time period due to the process with the Company’s auditors being delayed.” https://www.sec.gov/Archives/edgar/data/1640251/000110465919058346/tm1921577-1_nt20f.htm

L. This was the last earnings release from WINS
https://www.sec.gov/Archives/edgar/data/1640251/000114420419032477/tv524321_ex99-1.htm

M. May 2, 2019
Letter from the SEC accountants : https://www.sec.gov/Archives/edgar/data/1640251/000000000019007996/filename1.pdf

N. May 10th 2019 In addition, on 10 May 2019, the Company received a petition from one of the above lenders in the matter of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Chapter 32 of the Laws of Hong Kong) from the High Court of the Hong Kong Special Administrative Region (the “High Court”) that the Company be wound up by the High Court on the ground that the Company is insolvent and unable to pay its debts. These conditions indicate the existence of material uncertainties which may cast significant doubt about the ability of the Group to continue as a going concern.

O. The last 20 F reaked of potential of pervasive audit issued – this is for 6-30-2018. The last audited financials are 2years old

We hold a significant amount of short term investments in asset management products. It is possible that we could lose the principal and interest of these assets, or the current return may not be maintained. Furthermore, it is possible that the banks and financial institutions that manage the short-term investments may not be able to redeem the short-term investments at our request, resulting in our being unable to utilize the related funds to support our business.

As of June 30, 2018, we hold $178.3 million of short-term investments in assets management products managed by banks and financial institutions, which have invested in fixed-income financial products permitted by the CSRC such as government bonds, corporate bonds and central bank notes. We believe that the risk of loss of principal and interest on these assets is very low. However, if the Chinese economic environment changes significantly, for instance, if China’s economy enters a serious recession resulting in many enterprises being unable to repay their bonds and other obligations, or if China’s central bank cuts interest rates significantly, China’s asset management companies may be unable to protect their interests in the assets under management. In such event, we might lose any return or even the principal from these investments. The current annualized return rate for assets held by these asset management companies on behalf of us is between 5% and 9% annually. The return on these funds is highly dependent on the management ability of the asset management companies, and on the market interest rate of the investment products. Current levels of return may not be sustainable if the market interest rate continues to decrease in the near future. Further, the banks and financial institutions that manage the short term investments may be unable to redeem such investments at a price equal to the principal and undistributed interests due to market events or, in extreme circumstances, such as significant redemptions or a deterioration of liquidity in the financial markets, may be unable to redeem them at all. As a result, we may not have access to the capital related to the short-term investments for our business when needed.

We failed to comply with certain laws and regulations and the non-compliance may expose us to potential penalties or legal actions imposed by relevant government authorities.

We failed to comply with certain social insurance contributions and Provident Housing Fund requirements under PRC regulations (collectively “Social Benefit Regulations”). Dongsheng Guarantee failed to make social insurance contributions and Provident Housing Fund contributions for some of its employees. As of the latest practicable date, we had not received any notice from any of the relevant government authorities regarding our non-compliance with Interim Measures for our guarantee business and the Social Benefit Regulations. However, we cannot assure that the relevant regulatory authorities will not impose penalties and/or bring legal action against us retrospectively, which may adversely affect our business and cause a significant penalty payment.

Our risk management framework, policies and procedures and internal controls may not fully protect us against various risks inherent in our business.

We have established an internal risk management framework, policies and procedures to manage our risk exposures, primarily credit risk, operational risk, compliance risk and legal risk as well as liquidity risk. These risk management policies and procedures are based upon historical behaviors and our experience in the industry. They may not be adequate or effective in managing our future risk exposures or protecting us against unidentified or unanticipated risks, which could be significantly greater than those historically experienced. Although we are continuously updating our policies and procedures, we may fail to predict future risks due to rapid changes in the market and regulatory conditions, and new markets we enter. Although we have established internal controls to ensure our risk management policies and procedures are adhered to by our employees as we conduct our business, our internal controls may not effectively prevent or detect any non-compliance of our policies and procedures, which may have a material adverse effect on our business, financial condition and results of operations. Effective implementation of our risk management and internal controls also depends on our employees. Human error or other mistakes may significantly undercut the effectiveness and performance of our risk management and internal controls, resulting in a material adverse effect on our business, results of operations and financial position.

We had material weaknesses in our internal control in financial reporting as of June 30, 2018 and such material weaknesses could adversely affect our ability to report our results of operations and financial condition accurately and in a timely manner.

Our management identified material weaknesses and concluded that our internal control over financial reporting were not effective as of June 30, 2018. A material weakness is a deficiency, or a combination of deficiencies, in internal controls over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.

The specific material weaknesses we identified in our internal control over financial reporting as of June 30, 2018 related to:

· lack of sufficient accounting personnel qualified in US GAAP and SEC reporting; and
· insufficient accounting staff, which results in a failure to segregate duties sufficiently to ensure a timely and proper preparation and review of the financial statements.

Although we provided more training to our accounting personnel relating to US GAAP and SEC reporting to partially address the foregoing material weaknesses, we do not believe such weaknesses have been remediated and we can provide no assurance that they will be remediated in a timely manner.

Any failure to maintain effective internal controls could adversely impact our ability to report our financial results on a timely and accurate basis. If our financial statements are not accurate, investors may not have a complete understanding of our operations. Likewise, if our financial statements are not filed on a timely basis as required by the SEC and NASDAQ, we could face severe consequences from those authorities. In either case, this could result in a material adverse effect on our business. Inferior internal control could also cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our stock. We can give no assurance that additional material weaknesses or restatements of financial results will not arise in the future due to a failure to implement and maintain adequate internal control over financial reporting or circumvention of these controls. In addition, even if we are successful in strengthening our controls and procedures, in the future these controls and procedures may not be adequate to prevent or identify irregularities or errors or to facilitate the fair presentation of our consolidated financial statements.

We may be subject to employee misconduct which is often difficult to detect and could harm our reputation and business.

Employee misconduct may include approving a transaction beyond authorized credit limits, hiding key customer information in the due diligence process, engaging in fraudulent or other improper activities, or otherwise not complying with laws or our risk management procedures. Employee misconduct is often difficult to detect and could take significant time to uncover. We cannot assure you that future incidents of employee misconduct will not subject us to serious penalties or limitations on our business activities. We could also suffer from negative publicity, reputational damage, monetary losses or litigation losses as a result of the misconduct of our employees.

There is often limited information regarding our customers and our ability to perform customer due diligence or detect customer fraud may be compromised as a result.

The information available on SMEs including microenterprises is often limited. Our credit evaluation depends primarily on customer due diligence. We cannot assure you that our customer due diligence will uncover all material information necessary to make a fully informed decision, nor can we assure you that our due diligence efforts will be sufficient to detect fraud committed by our customers. If we fail to perform thorough due diligence or discover customer fraud or intentional deceit, the quality of our credit evaluation may be compromised. A failure to effectively measure and limit the credit risk associated with our guarantee and loan portfolio could have a material adverse effect on our business, financial condition, results of operations and prospects. In addition, we may be unable to monitor our customers’ actual use of the financing we guaranteed or provided, or verify if our customers have other undisclosed private money or borrowings. We may not be able to detect our customers’ suspicious or illegal transactions, such as money laundering activities, in our business and we may suffer financial and/or reputational damage as a result.