NOTE 7 - DEBTS PAYABLE

On February 9, 2015, Wuhan Kingold received a Notice of Acceptance of Registration (the “Acceptance”) from the PRC’s National Association of Financial Market Institutional Investors (the “NAFMII”), registering the issuance of up to RMB 750 million (approximately $120 million) of debt financing instruments by Wuhan Kingold pursuant to a Non-Public Oriented Debt Financing Instruments Private Placement Agreement, by and among Wuhan Kingold, Shanghai Pudong Development Bank Co., Ltd (“Pufa Bank”) and the other institutional investors named therein (together with Pufa Bank, the “Investors”), dated July 21, 2014 (the “Private Placement Agreement”). Such Private Placement Agreement became valid upon the Acceptance. In connection with the Private Placement Agreement, Wuhan Kingold and Pufa Bank entered into an Underwriting Agreement dated August 12, 2014, appointing Pufa Bank as the lead underwriter and bookkeeping manager for the issuance of the debt securities. The debt financing program is intended to operate similar to a commercial paper program. Under the program, Wuhan Kingold may issue the debt securities at any time within two years from the date of the Acceptance, with the initial issuance completed within six months from the date of the Acceptance. Wuhan Kingold is required to report any issuance to the NAFMII. The Private Placement Agreement provides that the Investors are entitled to, but are not required to, participate in any issuance, and prohibits using the proceeds from any issuance of debt securities for real estate and equity acquisition transactions.

On March 26, 2015, the Company completed the issuance of the first phase of debt financing instruments with the total amount of RMB 400 million (approximately $63 million) under the Private Placement Agreement. The debt has a one-year term and the annual interest rate is 7% and was secured by certain gold or gold products held by Wuhan Kingold and RMB 35 million (approximately $5.5 million) security deposit. The interest expense incurred on the debt financing instruments amounted to approximately $1.1 million for the three months ended September 30, 2015 and approximately $2.3 million for the nine months ended September 30, 2015.

A one-time financing cost of RMB 4 million (approximately $0.65 million) related to the issuance has been offset against the debts payable carrying amount and is being amortized on quarterly basis. As of September 30, 2015, deferred financing cost was $157,386. Amortization expense for the nine months and three months ended September 30, 2015 was $472,158 and $144,761.

	As of
	September 30,		December 31,
	2015		2014
Gross Debts Payble for Phase One	$	62,954,452	$	-
Net financing cost		(157,386)		-
Debts Payable, net	$	62,797,066	$	-

The total amount of the second phase issuance will be RMB 350 million (approximately $56 million), and will be secured by certain real property and construction in progress (including the Jewelry Park project). In connection with the foregoing, Wuhan Kingold and Pufa Bank have entered into a Credit Agent Agreement (the “Credit Agent Agreement”), pursuant to which Pufa Bank serves as the agent of the holders of the debt securities. Zhihong Jia, Chairman and Chief Executive Officer of the Company, has executed a guaranty, to guarantee Wuhan Kingold’s obligations under the Credit Agent Agreement. The second phase issuance of RMB 350 million has not been realized as of September 30, 2015. The issuance is expected to happen before the first phase debt expiration date in March 2016 and the proceeds received will be used to pay back the first phase debt.