Company Quick10K Filing
Consumer Capital Group
Price3.90 EPS-0
Shares27 P/E-60
MCap106 P/FCF-48
Net Debt-0 EBIT-2
TEV106 TEV/EBIT-60
TTM 2019-09-30, in MM, except price, ratios
10-Q 2019-09-30 Filed 2019-11-19
10-Q 2019-06-30 Filed 2019-08-14
10-Q 2019-03-31 Filed 2019-05-20
10-K 2018-12-31 Filed 2019-04-01
10-Q 2018-09-30 Filed 2018-11-14
10-Q 2018-06-30 Filed 2018-08-14
10-Q 2018-03-31 Filed 2018-05-21
10-K 2017-12-31 Filed 2018-05-17
10-Q 2017-09-30 Filed 2017-11-20
10-Q 2017-06-30 Filed 2017-08-14
10-Q 2017-03-31 Filed 2017-05-16
10-K 2016-12-31 Filed 2017-04-17
10-Q 2016-09-30 Filed 2016-11-14
10-Q 2016-06-30 Filed 2016-08-15
10-Q 2016-03-31 Filed 2016-05-17
10-K 2015-12-31 Filed 2016-05-04
10-Q 2014-09-30 Filed 2014-11-19
10-Q 2014-06-30 Filed 2014-08-19
10-Q 2014-03-31 Filed 2014-05-15
10-K 2013-12-31 Filed 2014-03-31
10-Q 2013-09-30 Filed 2013-11-14
10-Q 2013-06-30 Filed 2013-08-14
10-Q 2013-03-31 Filed 2013-05-15
10-K 2012-12-31 Filed 2013-04-01
10-Q 2012-09-30 Filed 2012-11-14
10-Q 2012-06-30 Filed 2012-08-14
10-Q 2012-03-31 Filed 2012-05-15
10-K 2011-12-31 Filed 2012-03-30
10-Q 2011-09-30 Filed 2011-11-14
10-Q 2011-06-30 Filed 2011-08-15
10-Q 2011-03-31 Filed 2011-05-23
10-Q 2010-09-30 Filed 2010-11-02
10-K 2010-06-30 Filed 2010-09-08
10-Q 2010-03-31 Filed 2010-05-12
10-Q 2009-12-31 Filed 2010-02-05
8-K 2020-03-30 Other Events
8-K 2020-01-04 Officers
8-K 2018-12-31 Amendment, Exhibits
8-K 2018-03-29 Leave Agreement, Exhibits
8-K 2018-03-11 Accountant, Exhibits

CCGN 10Q Quarterly Report

Part I&Mdash;Financial Information
Item 1. Financial Statements.
Item 2. Management's Discussion and Analysis of Financial Conditions and Results of Operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Item 4. Controls and Procedures.
Part Ii&Mdash;Other Information
Item 1. Legal Proceedings.
Item 1A. Risk Factors.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Item 3. Defaults Upon Senior Securities.
Item 4. Mine Safety Disclosures.
Item 5. Other Information.
Item 6. Exhibits.
EX-31.1 f10q0919ex31-1_consumer.htm
EX-31.2 f10q0919ex31-2_consumer.htm
EX-32.1 f10q0919ex32-1_consumer.htm
EX-32.2 f10q0919ex32-2_consumer.htm

Consumer Capital Group Earnings 2019-09-30

Balance SheetIncome StatementCash Flow
0.10.10.0-0.0-0.1-0.12012201420172020
Assets, Equity
0.10.10.0-0.0-0.1-0.12012201420172020
Rev, G Profit, Net Income
0.10.10.0-0.0-0.1-0.12012201420172020
Ops, Inv, Fin

10-Q 1 f10q0919_consumercapital.htm QUARTERLY REPORT

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark One)

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

 

For the quarterly period ended September 30, 2019

 

or

 

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

 

For the transition period from ___________ to ___________

 

Commission File Number: 000-54998

 

CONSUMER CAPITAL GROUP INC.

(Exact name of registrant as specified in its charter)

 

Delaware   26-2517432
(State or other jurisdiction of
incorporation or organization)
  (I.R.S. Employer
Identification No.)
     
1125 Route 9W S
Nyack, NY 10960
  10960
(Address of principal executive offices)   (Zip Code)

 

  (646) 346-3735  
  (Registrant’s telephone number, including area code)  

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒      No ☐ 

 

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

 

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

 

Large accelerated filer Accelerated filer
Non-accelerated filer Smaller reporting company
  Emerging growth company 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

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

 

Securities registered pursuant to Section 12(b) of the Act: None.

 

Title of each class   Trading Symbol(s)   Name of each exchange on
which registered
         
         
         

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: As of November 1, 2019, there were 27,208,849 shares of common stock issued and outstanding.

  

 

 

 

 

CONSUMER CAPITAL GROUP, INC.

 

QUARTERLY REPORT ON FORM 10-Q

 

September 30, 2019

 

TABLE OF CONTENTS

 

    PAGE
     
PART I FINANCIAL INFORMATION  
     
Item 1. Financial Statements (Unaudited) 1
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 35
     
Item 3. Quantitative and Qualitative Disclosures About Market Risk 50
     
Item 4. Controls and Procedures 50
     
PART II OTHER INFORMATION  
     
Item 1. Legal Proceedings 51
     
Item 1A. Risk Factors 51
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 51
     
Item 3. Defaults Upon Senior Securities 51
     
Item 4. Mine Safety Disclosures 51
     
Item 5. Other Information 51
     
Item 6. Exhibits 52
     
SIGNATURES 53

   

i

 

 

USE OF CERTAIN DEFINED TERMS

 

In this Report, unless otherwise noted or as the context otherwise requires: “the Company,” “we,” “us,” and “our” refers to the combined company Consumer Capital Group, Inc. and its subsidiaries and variable interest entities.

  

ii

 

 

PART I—FINANCIAL INFORMATION

 

Item 1. Financial Statements.

 

CONSUMER CAPITAL GROUP, INC AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED BALANCE SHEETS

(IN U.S. $)

  

   September 30,   December 31, 
   2019   2018 
   (Unaudited)     
ASSETS        
Current assets:        
Cash and cash equivalents  $67,381   $501,350 
Prepayments and deposits (Note 5)   421,142    508,499 
Other receivables (Note 7)   423,478    35,544 
Due from related parties (Note 15)   2,097    - 
Loans receivable – third parties, net (Note 6)   -    331,039 
           
Total current assets  $914,098   $1,376,432 
           
Non-current assets:          
Property and equipment, net (Note 8)  $55,610   $74,080 
Right-of-use assets (Note 9)   296,631    - 
           
Total non-current assets  $352,241   $74,080 
           
TOTAL ASSETS  $1,266,339   $1,450,512 

  

See accompanying notes to the condensed consolidated financial statements.

  

1

 

 

CONSUMER CAPITAL GROUP, INC AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)

(IN U.S. $)

  

   September 30,   December 31, 
   2019   2018 
   (Unaudited)     
LIABILITIES AND STOCKHOLDERS’ DEFICIT        
Current liabilities:        
Loans payable to third parties, current portion (Note 10)  $1,264,532   $1,994,667 
Loans payable to related parties, current portion (Note 10)   3,911,102    2,869,881 
Accrued interest payable   1,794,346    2,099,427 
Accrued fee payable   164,305    - 
Other payable   150,882    86,204 
Payable to shareholder (Note 11)   109,009    117,767 
Due to related parties (Note 15)   153,172    183,955 
Deferred tax liabilities (Note 14)   76,233    79,232 
Lease liabilities, current (Note 9)   151,926    - 
Total current liabilities  $7,775,507   $7,431,133 
           
Non-current liabilities:          
Loans payable to third parties, non-current (Note 10)  $-   $203,538 
Loans payable to related parties, non-current (Note 10)   -    1,017,688 
Lease liabilities, non-current (Note 9)   154,312    - 
Total non-current liabilities  $154,312   $1,221,226 
           
Total Liabilities   7,929,819    8,652,359 
           
Stockholders’ deficit:          
Common stock - $0.0001 par value, 100,000,000 shares authorized, 27,208,849 and 27,208,849 shares issued and outstanding as of September 30, 2019 and December 31, 2018 respectively.  $2,721   $2,721 
Common stock subscribed (602,689 shares)   60    - 
Additional paid-in capital   10,587,105    8,021,677 
Accumulated deficit   (13,401,268)   (12,247,478)
Accumulated other comprehensive loss   (310,237)   (138,453)
           
Stockholders’ deficit before non-controlling interests  $(3,121,619)  $(4,361,533)
           
Non-controlling interests   (3,541,861)   (2,840,314)
           
Total stockholders’ deficit  $(6,663,480)  $(7,201,847)
           
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT  $1,266,339   $1,450,512 

   

See accompanying notes to the condensed consolidated financial statement

  

2

 

 

CONSUMER CAPITAL GROUP, INC AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2019 AND 2018

(IN U.S. $)

 

   For the three months ended
September 30,
   For the nine months ended
September 30,
 
   2019   2018   2019   2018 
   (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited) 
                 
Revenue                
Interest income on loans-third parties  $-   $174,048   $-   $201,486 
Interest income on loans-related parties   -    552,793    -    686,755 
Service fee income on loans-third parties   -    87,025    -    100,744 
Service fee income on loans-related parties   -    276,396    -    343,377 
Commission income – third parties   39,345    255,313    39,345    255,313 
Commission income – related parties   -    280,203    188,814    280,203 
Total revenue  $39,345   $1,625,778   $228,159   $1,867,878 
                     
Cost of revenue   -    (242,280)   -    (296,080)
Gross profit  $39,345   $1,383,498   $228,159   $1,571,798 
                     
Operating expenses:                    
General and administrative   (191,828)   (213,020)   (811,455)   (830,541)
Total operating expenses  $(191,828)  $(213,020)  $(811,455)  $(830,541)
                     
Loss from operations  $(152,483)  $1,170,478   $(583,296)  $741,257 
                     
Other income (expenses):                    
Interest income  $40,156   $-   $1,226   $25,372 
Interest expense to third parties   -    (260,921)   (401,340)   (413,451)
Interest expense to related parties   (174,995)   (1,525,100)   (865,505)   (2,090,781)
Other income   2,018    -    2,018    - 
Other expense   (615)   (169)   (221)   (229)
(Provision for)/ Reversal of provision for loan loss   (38)   (81,937)   3,352    (81,937)
Total other income (expenses)  $(133,474)  $(1,868,127)  $(1,260,470)  $(2,561,026)
                     
Loss before provision for income taxes  $(285,957)  $(697,649)  $(1,843,766)  $(1,819,769)
                     
Provision for income taxes   58    -    (5,183)   - 
Loss from operations  $(285,899)  $(697,649)  $(1,848,949)  $(1,819,769)
Less: Net loss attributable to the non-controlling interest   (76,814)   (577,071)   (701,547)   (861,707)
Net loss attributable to the Company’s shareholders  $(209,085)  $(120,578)  $(1,147,402)  $(958,062)

   

3

 

 

CONSUMER CAPITAL GROUP, INC AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (CONTINUED)

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2019 AND 2018

(IN U.S. $)

 

   For the three months ended
September 30,
(Unaudited)
   For the nine months ended
September 30,
(Unaudited)
 
   2019   2018   2019   2018 
   (Unaudited)   (As
Restated,
See Note 3)
   (Unaudited)   (As
Restated,
See Note 3)
 
                 
Comprehensive Loss:                
Net Loss   (285,899)   (697,649)   (1,848,949)   (1,819,769)
                     
Foreign currency translation adjustment   (41,734)   100,193    (171,784)   201,229 
                     
Comprehensive loss   (327,633)   (597,456)   (2,020,733)   (1,618,540)
                     
Less: comprehensive income (loss) attributable to non-controlling interest   (76,814)   -    (701,547)   - 
Comprehensive loss attributable to the Company   (250,819)   (597,456)  $(1,319,186)  $(1,618,540)
                     
Weighted average number of common shares outstanding basic and diluted   27,208,849    27,208,849    27,208,849    27,485,092 
                     
Loss per share – Basic and Diluted                    
NET LOSS PER SHARE                    
-Basic  $(0.01)  $(0.00)  $(0.04)  $(0.03)
-Diluted   (0.01)   (0.00)  $(0.04)  $(0.03)
                     
NET LOSS PER SHARE ATTRIBUTABLE TO THE COMPANY                    
-Basic   (0.01)   (0.00)  $(0.04)  $(0.03)
-Diluted   (0.01)   (0.00)  $(0.04)  $(0.03)

 

See accompanying notes to the condensed consolidated financial statements. 

  

4

 

 

CONSUMER CAPITAL GROUP, INC AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019 AND 2018

(IN U.S. $)

  

   Common stock   Common stock
subscribed
   Additional paid-in   Accumulated (deficit) /   Accumulated other comprehensive   Stockholders’
equity /
   Non-controlling     
   Shares   Amount   Shares   Amount   capital   earnings   income   (deficit)   interest   Total 
Balance at December 31, 2018   27,208,849   $2,721    -    -   $8,021,677   $(12,247,478)  $(138,453)  $(4,361,533)  $(2,840,314)  $(7,201,847)
Net Loss   -    -    -    -    -    (341,473)   -    (341,473)   (269,000)   (610,473)
Foreign currency Translation adjustment   -    -    -    -    -    -    394,208    394,208    -    394,208 
Balance at March 31, 2019   27,208,849   $2,721    -   $-   $8,021,677   $(12,588,951)  $255,755   $(4,308,798)  $(3,109,314)  $(7,418,112)
Impact of Adoption of ASU 2016-02, Leases (Topic 842)   -    -    -    -    -    (6,460)   -    (6,460)   -    (6,460)
Stock subscription   -    -    44,000   $4    237,758    -    -    237,762    -    237,762 
Net Loss   -    -    -    -    -    (596,844)   -    (596,844)   (355,733)   (952,577)
Foreign currency Translation adjustment   -    -    -    -    -    -    (524,258)   (524,258)   -    (524,258)
Balance at June 30, 2019   27,208,849   $2,721    44,000   $4   $8,259,435   $(13,192,255)  $(268,503)  $(5,198,598)  $(3,465,047)  $(8,663,645)
Impact of Adoption of ASU 2016-02, Leases (Topic 842)   -    -    -    -    -    72    -    72    -    72 
Stock subscription   -    -    558,689   $56    2,327,670    -    -    2,327,726    -    2,327,726 
Net Loss   -    -    -    -    -    (209,085)   -    (209,085)   (76,814)   (285,899)
Foreign currency Translation adjustment   -    -    -    -    -    -    (41,734)   (41,734)   -    (41,734)
Balance at September 30, 2019   27,208,849   $2,721    602,689   $60   $10,587,105   $(13,401,268)  $(310,237)  $(3,121,619)  $(3,541,861)  $(6,663,480)

 

   Common stock   Common stock
subscribed
   Additional paid-in   Accumulated (deficit) /   Accumulated other comprehensive   Stockholders’
equity /
   Non-controlling     
   Shares   Amount   Shares   Amount   capital   earnings   income   (deficit)   interest   Total 
Balance at December 31, 2017   32,208,849   $3,221    -    -   $8,021,677   $(10,264,149)  $(64,466)  $(2,303,717)  $(1,260,676)  $(3,564,393)
Net Loss   -    -    -    -    -    (623,452)   -    (623,452)   (255,874)   (879,326)
Foreign currency Translation adjustment   -    -    -    -    -    -    (136,946)   (136,946)   (3,394)   (140,340)
Balance at March 31, 2018   32,208,849   $3,221    -    -   $8,021,677   $(10,887,601)  $(201,412)  $(3,064,115)  $(1,519,944)  $(4,584,059)
Cancellation of shares   (5,000,000)  (500)   -    -    -    -    -   (500)   -   (500)
Net Loss   -    -    -    -    -   (214,032)   -    (214,032)  (25,368)   (239,400)
Foreign currency Translation adjustment   -    -    -    -    -    -   $237,982    237,982    -    237,982 
Balance at June 30, 2018   27,208,849   $2,721    -    -   $8,021,677   $(11,101,633)  $36,570   $(3,040,665)  $(1,545,312)  $(4,585,977)
Cancellation of shares   -    -    -    -    -    -    -    -    -    - 
Net Loss   -    -    -    -    -    (120,578)   -    (120,578)  (577,071)   (697,649)
Foreign currency Translation adjustment   -    -    -    -    -    -    100,193    100,193    -    100,193 
Balance at September 30, 2018   27,208,849   $2,721    -    -   $8,021,677   $(11,222,211)  $136,763   $(3,061,050)  $(2,122,383)  $(5,183,433)

 

See accompanying notes to the condensed consolidated financial statements.

  

5

 

 

CONSUMER CAPITAL GROUP, INC AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019 AND 2018

(IN U.S. $)

 

   For the Nine Months Ended
September 30,
 
   2019   2018 
   (Unaudited)   (Unaudited) 
Cash flows from operating activities:        
Net loss  $(1,848,949)  $(1,819,769)
           
Adjustments to reconcile net loss to net cash used in operating activities:          
Depreciation   18,293    17,057 
(Reversal of) Allowance for loan losses   (3,352)   81,937 
           
Changes in operating assets and liabilities:          
Decrease (Increase) in prepaid expenses   70,866    (13,451)
Increase in fees receivable   -    (482,985)
Increase in other receivables   (405,582)   (51,376)
Increase in right-of-use assets   (394,440)   - 
Increase in accrued liabilities   69,586    36,877 
Increase (Decrease) in taxes payable   95    (550)
Increase in fees payable   171,184    296,080 
(Decrease) Increase in interest payable   (235,076)   2,504,232 
Decrease in due from/(to) related parties   (38,989)   (1,584,892)
Decrease in payable to Caesar Capital Mgmt Ltd   -    (8,758)
Increase in received in advance   -    - 
Increase in lease liabilities   397,971    - 
           
Cash flows used in operating activities   (2,198,393)   (1,025,598)
           
Cash flows from investing activities:          
Originated loans disbursement  $-    (15,111,473)
Repayment of loans from customers   335,199    6,902,794 
Equipment purchased   (831)   - 
Redemption of short-term investment   -    461,184 
Cash flow provided by (used in) investing activities   334,368    (7,747,495)

  

6

 

 

CONSUMER CAPITAL GROUP, INC AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019 AND 2018

(IN U.S. $)

 

   For the Nine Months Ended
September 30,
 
   2019   2018 
   (Unaudited)   (Unaudited) 
Cash flows from financing activities:        
Proceeds from related party debt  $-    1,616,458 
Proceeds from stock subscriptions   2,670,082    - 
Withdrawal of capital   -    (500)
Proceeds from loans payable – third parties   1,221,289   $3,514,225 
Proceeds from loan payable – related parties   1,501,107    12,242,907 
Repayment of loans payable – third parties   (1,957,269)   (1,203,691)
Repayment of loans payable – related parties   (1,473,417)   (5,963,113)
           
Cash flows provide by financing activities  $1,961,792   $10,206,286 
           
Effect of exchange rate changes on cash  $(531,736)  $(189,262)
           
Net changes in cash and cash equivalents  $(433,969)  $1,243,931 
           
Cash and cash equivalents, beginning balance  $501,350   $725,774 
           
Cash and cash equivalents, ending balance  $67,381   $1,969,705 
           
Supplemental disclosure of cash flow information          
Cash paid for interest  $335,199   $2,062,539 
           
Cash paid for income taxes  $-   $- 

 

See accompanying notes to the condensed consolidated financial statements.

  

7

 

 

CONSUMER CAPITAL GROUP, INC AND SUBSIDIARIES

 

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019 AND 2018 (unaudited)

(IN U.S. $)

 

1.ORGANIZATION

 

Consumer Capital Group, Inc. (“CCG” or the “Company”) was incorporated in Delaware on April 25, 2008. The accompanying consolidated financial statements include the financial statements of the Company, its wholly owned subsidiaries, and an affiliated PRC entity (“Affiliated PRC Entity”) that is controlled through contractual arrangements. On February 5, 2010, in connection with the execution of a Stock Right Transfer Agreement, America Pine Group Inc. transferred both 100% of the stock rights of its wholly owned subsidiary Arki (Beijing) E-commerce Technology Co., Ltd. and 100% of its stock rights of America Pine (Beijing) Bio-Tech to Consumer Capital Group, Inc., a California corporation and wholly owned subsidiary of the Company (“CCG California”).

 

On February 4, 2011, pursuant to a Plan and Agreement of Merger by and among Mondas Minerals Corp., its wholly owned subsidiary, CCG Acquisition Corp., a Delaware corporation (“CCG Delaware”), CCG California, and Scott D. Bengfort, Mondas Minerals Corp. merged its wholly-owned subsidiary CCG Delaware into CCG California, with CCG California surviving and CCG Delaware ceasing to exist. On February 7, 2011, the Company formed a new wholly-owned subsidiary by the name of “Consumer Capital Group Inc.” (“CCG Name Sub”) in Delaware solely for purposes of changing its corporate name to “Consumer Capital Group Inc.” in conjunction with the closing of the Merger. On February 17, 2011, the Company changed its name to Consumer Capital Group Inc. pursuant to a Certificate of Ownership filed with the Secretary of State of Delaware by merging CCG Name Sub into the Company with the Company surviving and the CCG Name Sub ceasing to exist. Unless the context specifies otherwise, references to the “Company” refers to CCG California prior to the Merger and the Company, its subsidiaries and Affiliated PRC Entity combined after the Merger.

 

Consumer Capital Group Inc. is authorized to issue up to 100,000,000 shares of common stock, par value $0.0001 per share. On February 4, 2011, Consumer Capital Group Inc. effected a reverse stock split (the “Stock Split”), as a result of which each 21.96 shares of Consumer Capital Group’s common stock then issued and outstanding was converted into one share of Mondas Minerals’ common stock.

 

Immediately prior to the merger, Consumer Capital Group, Inc. had 390,444,109 shares of its common stock issued and outstanding. In connection with the merger, Mondas Minerals issued 17,777,778 shares of its common stock in exchange for the issued and outstanding shares of common stock of CCG California. Immediately prior to the closing of the merger, there were 2,500,000 issued and outstanding shares of the Company’s common stock, 60% of which were held by the then principal stockholder, CEO, and sole director of the Company, Mr. Bengfort. As a part of the merger, CCG paid $335,000 in cash to Mr. Bengfort in exchange for his agreement to enter into various transaction agreements relating to the merger, as well as the cancellation of 1,388,889 shares of the Company’s common stock directly held by him, constituting 92.6% of his pre-merger holdings of common stock of the Company.

 

Effectively on June 26, 2018, one of the Company’s subsidiary, America Arki Fuxin Network Management Co. Ltd. (“America Arki”), ceased operation and cancelled its registration record in local industrial and commercial bureau in China. The disposal of America Arki did not represent a strategic shift that has a major effect on the Company’s operations and financial results. America Arki is not accounted for as a discontinued operation in the consolidated financial statements.

 

On August 21, 2018, the Company incorporated Arki (Tianjin) E-Commerce Technology Corp (“Arki Tianjin E-Commerce”), a wholly-owned subsidiary of Arki Network and a limited liability company formed under the laws of the PRC. The Company developed the e-commerce business for art and antique through Arki Network and Arki Tianjin E-Commerce.

  

8

 

 

CONSUMER CAPITAL GROUP, INC AND SUBSIDIARIES

 

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019 AND 2018 (unaudited)

(IN U.S. $)

 

1.ORGANIZATION (continued)

 

Details of the Company’s wholly owned subsidiaries and its Affiliated PRC Entity as of September 30, 2019 are as follows:

 

Company   Date of
Establishment
  Place of
Establishment
  Percentage of
Ownership by the
Company
    Principal Activities
Consumer Capital Group Inc. (“CCG”)   October 14, 2009   California USA     100 %   U.S. holding company and headquarters of the consolidated entities. Commencing in July 2011, CCG performs the U.S. e-commerce operations.
                     
Arki (Beijing) E-Commerce Technology Corp. (“Arki E-Commerce”)   March 6, 2008   PRC     100 %   Maintains the various computer systems, software and data. Owns the intellectual property rights of the “consumer market network”.
                     
America Pine (Beijing)
Bio-Tech, Inc. (“America Pine”)
   March 21, 2007   PRC     100 %(1)   Assists in payment collection for e-commerce business.
                     
America Arki Network Service Beijing Co. Ltd. (“Arki Network” and Affiliated PRC Entity”)    November 26, 2010   PRC     0 %(2)   Entity under common control through relationships between Fei Gao and the Company. Holds the business license and permits necessary to conduct e-commerce operations in the PRC
                     
America Arki (Tianjin) Capital Management Partnership (“Arki Capital”)   October 22, 2015   PRC     51 %(3)   Offer asset management, management consulting, internet information services as well as advertising design, production, agent, publishing.
                     
Arki (Tianjin) E-Commerce, Ltd. (“Arki Tianjin E-Commerce”)   August 21, 2018   PRC     100 %   Collects service fees of 25% of the sales amount for all the revenues realized on the platform for trading of antiques.
                     
Arki (Guangzhou) Investment Consulting Co. Ltd   March 21, 2019   PRC     100 %   A wholly owned subsidiary of Arki Capital. It extends the business of Arki Capital from Northern China to the Grangdong-Hong Kong-Macao Great Bay Area to offer asset management and management consulting services to this area.

 

(1)Wholly foreign owned entities (WFOE)

 

(2)VIE

 

(3)Arki Network owned entities

  

9

 

 

CONSUMER CAPITAL GROUP, INC AND SUBSIDIARIES

 

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019 AND 2018

(IN U.S. $)

 

1.ORGANIZATION (continued)

 

In order to comply with PRC laws and regulations which prohibit foreign control of companies involved in internet content, the Company operates its website using the licenses and permits held by Arki Network, a 100% PRC owned entity. The equity interests of Arki Network are legally held directly by Mr. Jianmin Gao and Mr. Fei Gao, shareholders and directors of the Company. The effective control of Arki Network is held by Arki E-Commerce and America Arki (ceased operation on June 26, 2018) through a series of contractual arrangements (the “Contractual Agreements”). As a result of the Contractual Agreements and cessation of operation of America Arki, Arki E-Commerce maintain the ability to control Arki Network, and are entitled to substantially all of its economic benefits and are obligated to absorb all of its losses. Therefore, the Company consolidates Arki Network as a variable interest entity (“VIE”) in accordance with SEC Regulation SX-3A-02 and the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 810, “Consolidation in accounting for a variable interest entity (“VIE”).”

 

The following is a summary of the Contractual Agreements of the Company’s VIE structure:

  

The shareholders of Arki Network, namely Mr. Jianmin Gao and Mr. Fei Gao, entered into a loan agreement with America Arki on February 3, 2011. Under this loan agreement, America Arki granted an interest-free loan of RMB 1.0 million to Mr. Jianmin Gao and Mr. Fei Gao, collectively, for their capital contributions to Arki Network, as required by the PRC. The term of the loan is for ten years from the date of execution until the date when America Arki requests repayment. America Arki may request repayment of the loan with 30 days’ advance notice. The loan is not repayable at the discretion of the shareholders and is eliminated upon consolidation. As America Arki subsequently ceased operations, the recourse right of the RMB 1.0 million has been transferred to substituted controller, Arki E-Commerce.

  

10

 

 

CONSUMER CAPITAL GROUP, INC AND SUBSIDIARIES

 

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019 AND 2018

(IN U.S. $)

 

1.ORGANIZATION (continued)

 

The shareholders of Arki Network entered into an option agreement with America Arki on February 3, 2011, under which the shareholders of Arki Network jointly and severally granted to America Arki an option to purchase their equity interests in Arki Network. The purchase price will be set off against the loan repayment under the loan agreement. America Arki may exercise such option at any time until it has acquired all equity interests of Arki Network or freely transferred the option to any third party and such third party assumes the rights and obligations of the option agreement. As America Arki ceased operation subsequently, the option rights are held by Arki E-Commerce.

 

America Arki and Arki Network entered into an exclusive business cooperation agreement deemed effective on November 26, 2010, under which Arki Network engaged America Arki as its exclusive provider of technical support, consulting services, maintenance and other commercial services. Arki Network shall pay to America Arki service fees determined based on the net income of Arki Network and which are eliminated in consolidation. America Arki shall exclusively own any intellectual property arising from the performance of this agreement. This agreement has a term of ten years from the effective date and can only be terminated mutually by the parties in a written agreement. During the term of the agreement, Arki Network may not enter into any agreement with third parties for the provision of identical or similar service without the prior consent of America Arki. As America Arki subsequently ceased operations, the rights are held by Arki E-Commerce. 

 

The shareholders of Arki Network entered into a share pledge agreement with America Arki on February 3, 2011 under which the shareholders pledged all of their equity interests in Arki Network to America Arki as collateral for all of the payments due to America Arki and to secure their obligations under the above agreements. The shareholders of Arki Network may not transfer or assign the shares or the rights and obligations in the share pledge agreement or create or permit any pledges which may have an adverse effect on the rights or benefits of America Arki without America Arki’s preapproval. America Arki is entitled to transfer or assign in full or in part the shares pledged. In the event of default, America Arki, will be entitled to request immediate repayment of the loan or to dispose of the pledged equity interests through transfer or assignment. As America Arki subsequently ceased operations, the rights are held by Arki E-Commerce. 

 

The shareholders of Arki Network entered into a power of attorney agreement with America Arki effective on November 26, 2010 under which the shareholders irrevocably appointed Arki E-Commerce and America Arki to vote on their behalf on all matters they are entitled to vote on, including matters relating to the transfer of any or all of their respective equity interests in the entity and the appointment of the chief executive officer and other senior management members. As America Arki subsequently ceased operations the rights are held by Arki E-Commerce. 

  

11

 

 

CONSUMER CAPITAL GROUP, INC AND SUBSIDIARIES

 

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019 AND 2018

(IN U.S. $)

 

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of accounting and presentation

 

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. The consolidated financial statements include those of the Company and its wholly-owned subsidiaries based in the PRC, which include America Pine, Arki E-Commerce, America Arki, 51% majority ownership in Arki Capital, and the discontinued operations of Shanghai Zhonghui and Yin Hang. As a result of contractual arrangements, the Company consolidates Arki Network in accordance with SEC Regulation SX-3A-02 and Accounting Standards Codification (“ASC”) 810, Consolidation. All significant intercompany accounts and transactions have been eliminated in consolidation.

 

The unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and the rules and regulations of the Securities and Exchange Commission (the “SEC”) which apply to financial statements. Accordingly, they do not include all of the information and footnotes normally required by accounting principles generally accepted in the United States of America for annual financial statements. The consolidated financial information should be read in conjunction with the consolidated financial statements and the notes thereto, included in the Company’s Form 10-Q filed with the SEC. In the opinion of management, such information contains all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the results for the periods presented. The results of operations for the nine months ended September 30, 2019 are not necessarily indicative of the results to be expected for future years.

 

All consolidated financial statements and notes to the consolidated financial statements are presented in United States dollars (“US Dollar” or “US$” or “$”).

  

12

 

 

CONSUMER CAPITAL GROUP, INC AND SUBSIDIARIES

 

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019 AND 2018

(IN U.S. $)

 

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Variable interest entity

 

Pursuant to Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Section 810, “Consolidation” (“ASC 810”), the Company is required to include in its consolidated financial statements, the financial statements of its variable interest entities (“VIEs”). ASC 810 requires a VIE to be consolidated if that company is subject to a majority of the risk of loss for the VIE or is entitled to receive a majority of the VIE’s residual returns. VIEs are those entities in which a company, through contractual arrangements, bears the risk of, and enjoys the rewards normally associated with ownership of the entity, and therefore the company is the primary beneficiary of the entity.

 

Under ASC 810, a reporting entity has a controlling financial interest in a VIE, and must consolidate that VIE, if the reporting entity has both of the following characteristics: (a) the power to direct the activities of the VIE that most significantly affect the VIE’s economic performance; and (b) the obligation to absorb losses, or the right to receive benefits, that could potentially be significant to the VIE. The reporting entity’s determination of whether it has this power is not affected by the existence of kick-out rights or participating rights, unless a single enterprise, including its related parties and de - facto agents, have the unilateral ability to exercise those rights. Arki Network Service’s actual stockholders do not hold any kick-out rights that affect the consolidation determination.

 

Through the VIE agreements disclosed in Note 1, the Company is deemed the primary beneficiary of Arki Network Service. Accordingly, the results of Arki Network Service have been included in the accompanying consolidated financial statements. Arki Network Service has no assets that are collateral for or restricted solely to settle their obligations. The creditors of Arki Network Service do not have recourse to the Company’s general credit.

  

13

 

 

CONSUMER CAPITAL GROUP, INC AND SUBSIDIARIES

 

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019 AND 2018

(IN U.S. $)

 

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

The following financial statement amounts and balances of Arki Network Service, Inc. have been included in the accompanying consolidated financial statements:

 

    September 30,     December 31,  
    2019     2018  
    (Unaudited)        
             
Cash and cash equivalent   $ 45,112     $ 486,178  
Loan receivables, net     -       331,039  
Prepaid expenses     393,262       478,222  
Due from inter-company     7,104,158       7,181,347  
Due from related party     1,526,538       1,584,983  
Other receivables     293,526       17,065  
Total current assets   $ 9,362,596     $ 10,078,834  
                 
Property and equipment, net     25,387       35,529  
Long-term investment     142,629       300,679  
Right-of-use assets     171,040       -  
Total non-current assets   $ 339,056     $ 336,208  
                 
Total assets   $ 9,701,652     $ 10,415,042  
                 
Loans payable, current portion   $ 5,175,634     $ 4,864,548  
Interest payable     1,794,346       2,099,427  
Fee payable     164,305       -  
Accrued liabilities     143,012       48,244  
Tax payable     97       -  
Due to inter-company     6,420,777       7,079,406  
Due to related parties     1,651,643       1,722,601  
Deferred tax liability     109,429       113,734  
Lease liabilities, current portion     96,807       -  
Total Current liabilities   $ 15,556,050     $ 15,927,960  
                 
Loans payable, non-current portion     -       1,221,226  
Lease liabilities, non-current portion     81,635       -  
Total non-current liabilities   $ 81,635     $ 1,221,226  
                 
Total liabilities   $ 15,637,685     $ 17,149,186  

  

14

 

 

CONSUMER CAPITAL GROUP, INC AND SUBSIDIARIES

 

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019 AND 2018

(IN U.S. $)

 

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

  

    For the Nine Months Ended
September 30,
    For the Three Months Ended
September 30,
 
    2019     2018     2019     2018  
    (Unaudited)     (Unaudited)     (Unaudited)     (Unaudited)  
                         
Net revenue   $ 228,159     $ 1,867,878     $ 39,345     $ 1,383,498  
                                 
Net loss before provision for income taxes   $ (1,695,413 )   $ (1,290,726 )   $ (232,226 )   $ (602,927 )
Less: Provision for income taxes     (5,183 )     -       58       -  
Net losses   $ (1,700,596 )   $ (1,290,726 )   $ (232,168 )   $ (602,927 )
                                 
Less: Net income attributable to non-controlling interest     (701,547 )     (861,707 )     (76,814 )     (577,072 )
Net losses attributable to the Company’s shareholders   $ (999,049 )   $ (429,019 )   $ (155,354 )   $ (25,855 )

 

    For the Nine Months Ended
September 30,
 
    2019     2018  
    (Unaudited)     (Unaudited)  
             
Cash flow used in by operating activities   $ (2,487,063 )   $ (600,397 )
                 
Cash flow provided by (used in) investing activities   $ 488,011     $ (8,193,247 )
                 
Cash flow provided by financing activities   $ 1,558,688     $ 10,162,320  

 

Use of estimates

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect certain reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

 

Foreign currency translations

 

Almost all of the Company assets are located in the PRC. The functional currency for the Company’s operations is the Renminbi (“RMB”). The Company uses the United States Dollar (“US Dollar” or “US$” or “$”) for financial reporting purposes. The financial statements of the Company have been translated into US Dollars in accordance with FASB ASC Section 830, “Foreign Currency Matters.”

  

15

 

 

CONSUMER CAPITAL GROUP, INC AND SUBSIDIARIES

 

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019 AND 2018

(IN U.S. $)

 

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Foreign currency translations (continued)

 

All asset and liability accounts have been translated using the exchange rate in effect at the balance sheet date. Equity accounts have been translated at their historical exchange rates when the capital transactions occurred. Statements of operations and comprehensive income (loss) and cash flows have been translated using the average exchange rate for the periods presented. Adjustments resulting from the translation of the Company’s financial statements are recorded as other comprehensive income (loss).

 

The exchange rates used to translate amounts in RMB into US Dollars for the purposes of preparing the financial statements are as follows:

 

   As of
September 30,
2019
   As of
December 31,
2018
 
   (Unaudited)     
         
Balance sheet items, except for stockholders’ equity accounts   0.1399    0.1454 

 

   For the nine months ended
September 30,
 
   2019   2018 
   (Unaudited)   (Unaudited) 
         
Items included in the statements of operations and comprehensive income (loss) and cash flows for the periods presented   0.1457    0.1537 

  

  

16

 

 

CONSUMER CAPITAL GROUP, INC AND SUBSIDIARIES

 

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019 AND 2018

(IN U.S. $)

 

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Foreign currency translations (continued)

 

Foreign currency translation adjustments of $(171,784) and $201,229 for the Nine months ended September 30, 2019 and 2018, respectively, have been reported as other comprehensive (loss) income. Other comprehensive (loss) income of the Company consists entirely of foreign currency translation adjustments.

 

Although PRC government regulations now allow convertibility of the RMB for current account transactions, significant restrictions still remain. Hence, such translations should not be construed as representations that the RMB could be converted into US Dollars at that rate or any other rate.

 

The value of the RMB against the US Dollar and other currencies may fluctuate and is affected by, among other things, changes in the PRC’s political and economic conditions. Any significant revaluation of the RMB may materially affect the Company’s financial condition in terms of US Dollar reporting.

 

Revenue recognition

 

ASC 606, Revenue from Contracts with Customers (“ASC 606”), establishes principles for reporting information about the nature, amount, timing and uncertainty of revenue and cash flows arising from the entity’s contracts to provide goods or services to customers. The core principle requires an entity to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration that it expects to be entitled to receive in exchange for those goods or services recognized as performance obligations are satisfied. Effective January 1, 2018, the Company adopted ASU 2014-09 Revenue from Contracts with Customers – Topic 606 and all subsequent ASCs that modified ASC 606.  The Company has elected to apply the standard utilizing the modified retrospective approach with a cumulative effect of adoption for the impact from uncompleted contracts as the date of adoption.  The implementation of the new standard had no material impact to the measurement or recognition of revenue of prior periods.

 

The Company’s revenue is comprised of:

 

  1) Interest and fee income - Management determined that the primary sources of revenue emanating from interest and fee income on loans receivable are not within the scope of ASC 606.  As a result, no changes were made during the period related to these sources of revenue.

 

  2) Noninterest income – The primary sources of noninterest income are within the scope of ASC 606, which are presented in the income statements as commission income.

  

17

 

 

CONSUMER CAPITAL GROUP, INC AND SUBSIDIARIES

 

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019 AND 2018

(IN U.S. $)

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Revenue recognition (continued)

 

Interest and Fee Income

 

Interest income on loans

 

Interest on loan receivables is accrued monthly in accordance with their contractual terms and recorded in accrued interest receivable. The Company does not charge a prepayment penalty if they repay the loans in advance with or without notice.

 

Servicing fee income

 

Borrowers typically pay the Company a servicing fee on each payment received. The service fees compensate the Company for the costs it incurs in servicing the related loan, including managing funding from investors, payments to investors and maintaining borrower’ account portfolios. The Company records servicing fees paid by borrower as a component of operating revenue when received.

  

Noninterest Income

 

E-commerce Revenue Recognition

 

The Company evaluates whether it is appropriate to record the net amount of sales earned as commissions. The Company is not the primary obligor nor is it subject to inventory risk as the agreements with its suppliers specify that they have the responsibility to provide the product or service to the customer. Also, the amounts it earns from its vendors/suppliers is based on a fixed percentage and bound contractually. Additionally, the Company does not have any obligation to resolve disputes between the vendors and the customers that purchase the products on its website. Any disputes involving damaged, non-functional, product returns, and/or warranty defects are resolved between the customer and the vendor.

 

The Company has no obligation for right of return and/or warranty for any of the sales completed using its website. Since the Company is not primarily obligated and amounts earned are determined using a fixed percentage, a fixed-payment schedule, or a combination of the two, it records its revenues as commissions earned on a net basis.

 

The Company records deferred revenue when cash is received in advance of the performance of services or delivery of goods. Deferred revenue is also recorded to account for the seven-day grace period offered to customers for potential product disputes, if any.

 

Commission income for art & antique trading platform

 

The Company started to operate its platform for art and antique trading in the third quarter of 2018. On August 21, 2018, the Company incorporated Arki (Tianjin) E-Commerce Technology Corp (“Arki Tianjin E-Commerce”), as a wholly-owned subsidiary of Arki Network under the laws of the PRC. The Company plans to develop its e-commerce business for art and antique trading through Arki Network and Arki Tianjin E-Commerce. The Company anticipates that this platform will allow sellers to place their art and antiques on this platform for sale. The Company will receive a percentage commission of the selling price as the commission income.

 

Cost of revenue

 

The cost of revenue represented the fees paid to agents for the introduction of customers.

  

18

 

 

CONSUMER CAPITAL GROUP, INC AND SUBSIDIARIES

 

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019 AND 2018

(IN U.S. $)

 

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Non-controlling interest

 

Non-controlling interests held 49% shares of one of subsidiary is recorded as a component of our equity, separate from the Company’s equity. Purchase or sales of equity interests that do not result in a change of control are accounted for as equity transactions. Results of operations attributable to the non-controlling interest are included in our consolidated results of operations and, upon loss of control, the interest sold, as well as interest retained, if any, will be reported at fair value with any gain or loss recognized in earnings.

 

Comprehensive income (loss)

 

Comprehensive income (loss) includes all changes in equity except those resulting from investments by owners and distributions to owners. Among other disclosures, Accounting Standards Codification (ASC) 220, Comprehensive Income, requires that all items that are required to be recognized under current accounting standards as components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements. For the periods presented, the Company’s comprehensive income (loss) includes net income (loss) and foreign currency translation adjustments and is presented in the consolidated statements of operations and comprehensive income (loss).

 

Earnings per share

 

The Company calculates basic earnings per share by dividing its net income (loss) by the weighted average number of common shares outstanding for the period, without considering common stock equivalents.

 

Diluted EPS is computed by dividing net income by the weighted average number of common shares outstanding for the period and the weighted average number of dilute common stock equivalents, such as options and warrants.

 

Options and warrants are only included in the calculation of diluted EPS when their effect is not anti-dilute or the Company has a loss.

 

Cash and cash equivalents

 

The Company considers all demand and time deposits and all highly liquid investments with an original maturity of three months or less to be cash equivalents.

 

Loans receivable

 

Loans receivable primarily represents the principle lent to the borrowers. Management regularly reviews the aging of the loans receivable and changes in payment trends and records an allowance when management believes collection of amounts due are at risk. Loans receivable considered non-collectable are written off after exhaustive efforts at collection.

  

19

 

 

CONSUMER CAPITAL GROUP, INC AND SUBSIDIARIES

 

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019 AND 2018

(IN U.S. $)

 

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Allowance for loan losses

 

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

 

The Company calculates the provision amount as below:

 

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

 

  2. Specific Reserve - is an allowance set aside covering losses due to risks related to a particular country, region, industry, borrower or type of loan. The reserve rate can also be decided based on management’s estimate of loan collectability.

 

The allowance for bad debt is based on the Company’s several factors, including past loan loss history with its borrowers, known and inherent risks in its loan receivables, adverse situations that may affect borrowers’ ability to repay, the estimated value of any underlying collateral, composition of the applicable loan portfolio, current economic conditions and other relevant factors. In estimating the probable loss of the loan receivable, the Company also considers qualitative factors such as current economic conditions and/or events in specific industries and geographical areas, including unemployment levels, peer comparisons, and other pertinent factors such as regulatory guidance.  This evaluation is inherently subjective as it requires material estimates by management that may be susceptible to significant revision as more information becomes available.

 

Management also is cognizant of accounting literature including FASB accounting standards (specifically ASC 310-10 and related pronouncements) regarding loan losses and reserves and discusses such policies with its outside auditors in establishing loss reserves.  

 

To date, the Company has had a limited loan portfolio in terms of exposure as to loan amounts, type of borrowers, location of borrowers and the industry of the borrowers.  It has not experienced any uncollected amounts or loan losses to date and does not believe that its borrowers have experienced any deteriorated credit quality to date.  Further, through the UnionPay arrangement,  the Company is able to control its exposure to potential borrowers who may have lesser credit worthiness and the UnionPay system, which is common in China, further ensures likelihood of repayment by borrowers because borrowers utilize UnionPay as their banking system and we are able to collect loan principal through the borrower’s accounts.   As stated elsewhere in this Report and the Company’s other Exchange Act filings, UnionPay also conducts due diligence on participants in its system.   As a result of the foregoing factors, management believes that a 1% reserve is warranted and appropriate.  

 

Interest receivable

 

Interest receivable represents the amount of interest that has been earned as of the balance sheet date, but which has not yet been received in cash. Management regularly reviews the aging of interest receivable and changes in payment trends and records as allowance when management believes collection of amounts due are at risk. Interest receivable considered non-collectable is written off after exhaustive efforts at collection.

 

Loans payable

 

Loans from individuals primarily represent the principle of lending funds received from the individuals through the Company’s internet platform. The interest rates of such loans are 10% - 54% per annum with a term lasting from one to two years.

  

20

 

 

CONSUMER CAPITAL GROUP, INC AND SUBSIDIARIES

 

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019 AND 2018

(IN U.S. $)

 

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Property and equipment, net

 

Property and equipment is recorded at cost and consists of computer equipment, office equipment and furniture and is depreciated using the straight-line method over the estimated useful lives of the related assets (generally three years or less). Costs incurred for maintenance and repairs are expended as incurred and expenditures for major replacements and improvements are capitalized and depreciated over their estimated remaining useful lives.

 

Impairment of long-lived assets

 

The Company evaluates long-lived assets for impairment whenever events or changes in circumstances (such as a significant adverse change in market conditions that will impact the future use of the assets) indicate its net book value may not be recoverable. The Company compares the projected undiscounted future cash flows associated with the related asset or group of assets over its estimated useful lives against their respective carrying amount. Impairment, if any, is based on the excess of the carrying amount over the fair value, based on market value when available, or discounted expected cash flows, of those assets and is recorded in the period in which the determination is made. The Company’s management currently believes there is no impairment of its long-lived assets. There can be no assurance, however, that market conditions will not change or demand for the Company’s services will continue. Either of these could result in the future impairment of long-lived assets. For the periods September 30, 2019 and 2018, the Company has not experienced impairment losses on its long-lived assets for both the continuing and discontinued operations. However, there can be no assurances that demand for the Company’s products or services will continue, which could result in an impairment of long-lived assets in the future.

  

21

 

 

CONSUMER CAPITAL GROUP, INC AND SUBSIDIARIES

 

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019 AND 2018

(IN U.S. $)

 

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Income taxes

 

The Company accounts for income taxes in accordance with FASB ASC 740, “Income Taxes”, which requires the recognition of deferred income taxes for differences between the basis of assets and liabilities for financial statement and income tax purposes. Deferred tax assets and liabilities represent the future tax consequences for those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled. Deferred taxes are also recognized for operating losses that are available to offset future taxable income. A valuation allowance is established when necessary to reduce deferred tax assets to the amount expected to be realized.

 

ASC 740 addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under ASC 740, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position would be measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. ASC 740 also provides guidance on de-recognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, and accounting for interest and penalties associated with tax positions. As of September 30, 2019 and December 31, 2018, the Company does not have liability for any unrecognized tax benefits. The Company’s tax filings are subject to examination by the tax authorities. The tax years of 2018 and 2017 and 2016 remain open to examination by tax authorities in the PRC.

 

Generally, the Company remains subject to PRC examination of its income tax returns annually. It believes that its income tax filing positions and deductions will be sustained on audit and do not anticipate any adjustments that will result in a material change to our financial position. Therefore, no reserves for uncertain income tax positions have been recorded pursuant to ASC 740. Its tax provision for interim periods is determined using an estimate of our annual effective tax rate based on rates established within the PRC and, adjusted for discrete items, if any, that are taken into account in the relevant period. Each quarter the Company updates its estimate of the annual effective tax rate, and if the estimated tax rate changes, the Company makes a cumulative adjustment.

 

Going Concern 

 

As shown in the consolidated financial statements, the Company has generated a net loss of $1,147,402 for the nine months ended September 30, 2019 and an accumulated deficit of $13,401,268 as of September 30, 2019. The Company also experienced insufficient cash flows from operations and will be required continuous financial support from its controlling shareholder. The Company will need to raise capital to fund its operations until it is able to generate sufficient revenue to support the future development. Moreover, the Company may be continuously raising capital through the sale of debt and equity securities. 

 

The Company’s ability to achieve these objectives cannot be determined at this stage. If the Company is unsuccessful in its endeavors, it may be forced to cease operations. These consolidated financial statements do not include any adjustments that might result from this uncertainty which may include adjustments relating to the recoverability and classification of recorded asset amounts, or amounts and classifications of liabilities that might be necessary should the Company be unable to continue as a going concern. 

 

These factors have raised substantial doubt about the Company’s ability to continue as a going concern. There can be no assurances that the Company will be able to obtain adequate financing or achieve profitability. These financial statements do not include any adjustments that might result from the outcome of this uncertainty.

  

22

 

 

CONSUMER CAPITAL GROUP, INC AND SUBSIDIARIES

 

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019 AND 2018

(IN U.S. $)

 

3.RESTATEMENTS OF PRIOR FINANCIAL INFORMATION

 

The Company has restated its unaudited condensed consolidated statements of comprehensive loss for the three and nine months ended September 30, 2018 as the Company identified errors in the unaudited condensed consolidated statements of comprehensive loss for such periods. In its original Quarterly Report on Form 10-Q for the quarter ended September 30, 2018, the Company erroneously presented foreign currency translation adjustments of $100,193 as losses on its unaudited condensed consolidated statements of comprehensive losses for the three months ended September 30, 2018, and also erroneously presented foreign currency translation adjustments of $201,229 as losses on its unaudited condensed consolidated statements of comprehensive losses for the nine months ended September 30, 2018, respectively. Due to these errors, the calculation for comprehensive loss as originally included in the Company’s unaudited condensed consolidated statements of comprehensive loss for such periods was affected. The Company has determined that it would be appropriate to make adjustments to correct such errors. The adjustments as reflected in the restated unaudited condensed consolidated statements of comprehensive loss for the three and nine months ended June 30, 2018 reflect the corrections to the foreign currency translation adjustments and comprehensive loss. The restatements did not affect the consolidated balance sheets, consolidated statements of operations, consolidated statements of changes in stockholders’ equity and consolidated statements of cash flows for the nine months ended September 30, 2018.

 

The restatements of the unaudited condensed consolidated statements of comprehensive loss for the three and nine months ended September 30, 2018 are as follows:

 

   For the three months ended
September 30, 2018
 
   As
previously
reported
   Adjustments   As restated 
   (Unaudited)       (Unaudited) 
Comprehensive Loss:            
Net Loss  $(697,649)       $(697,649)
                
Foreign currency translation adjustment   (100,193)   200,386    100,193 
                
Comprehensive loss   (797,842)   200,386    (597,456)
                
Less: comprehensive income (loss) attributable to non-controlling interest   -         - 
Comprehensive loss attributable to the Company  $(797,842)   200,386   $(597,456)

   

   For the nine months ended
September 30, 2018
 
   As
previously
reported
   Adjustments   As restated 
   (Unaudited)       (Unaudited) 
Comprehensive Loss:            
Net Loss  $(1,819,769)       $(1,819,769)
                
Foreign currency translation adjustment   (201,229)   402,458    201,229 
                
Comprehensive loss   (2,020,998)   402,458    (1,618,540)
                
Less: comprehensive income (loss) attributable to non-controlling interest   -         - 
Comprehensive gain attributable to the Company  $(2,020,998)   402,458   $(1,618,540)

 

4.RECENTLY ISSUED ACCOUNTING STANDARDS

 

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, which reduces the diversity in practice on how certain transactions are classified in the statement of cash flows. The guidance is effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. Early adoption is permitted.

    

23

 

 

CONSUMER CAPITAL GROUP, INC AND SUBSIDIARIES

 

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019 AND 2018

(IN U.S. $)

 

4.RECENTLY ISSUED ACCOUNTING STANDARDS (continued)

 

On October 2, 2017, The FASB has issued Accounting Standards Update (ASU) No. 2017-13, “Revenue Recognition (Topic 605), Revenue from Contracts with Customers (Topic 606), Leases (Topic 840), and Leases (Topic 842): Amendments to SEC Paragraphs Pursuant to the Staff Announcement at the July 20, 2017 EITF Meeting and Rescission of Prior SEC Staff Announcements and Observer Comments.” The ASU adds SEC paragraphs to the new revenue and leases sections of the Codification on the announcement the SEC Observer made at the 20 July 2017 Emerging Issues Task Force (EITF) meeting. The SEC Observer said that the SEC staff would not object if entities that are considered public business entities only because their financial statements or financial information is required to be included in another entity’s SEC filing use the effective dates for private companies when they adopt ASC 606, Revenue from Contracts with Customers, and ASC 842, Leases. This would include entities whose financial statements are included in another entity’s SEC filing because they are significant acquirees under Rule 3-05 of Regulation S-X, significant equity method investees under Rule 3-09 of Regulation S-X and equity method investees whose summarized financial information is included in a registrant’s financial statement notes under Rule 4-08(g) of Regulation S-X. The ASU also supersedes certain SEC paragraphs in the Codification related to previous SEC staff announcements and moves other paragraphs, upon adoption of ASC 606 or ASC 842. The Company does not expect that the adoption of this guidance will have a material impact on its consolidated financial statements.

 

On November 22, 2017, the FASB ASU No. 2017-14, “Income Statement—Reporting Comprehensive Income (Topic 220), Revenue Recognition (Topic 605), and Revenue from Contracts with Customers (Topic 606): Amendments to SEC Paragraphs Pursuant to Staff Accounting Bulletin No. 116 and SEC Release 33-10403.” The ASU amends various paragraphs in ASC 220, Income Statement — Reporting Comprehensive Income; ASC 605, Revenue Recognition; and ASC 606, Revenue From Contracts With Customers, that contain SEC guidance. The amendments include superseding ASC 605-10-S25-1 (SAB Topic 13) as a result of SEC Staff Accounting Bulletin No. 116 and adding ASC 606-10-S25-1 as a result of SEC Release No. 33-10403. The Company does not expect that the adoption of this guidance will have a material impact on its consolidated financial statements.

 

In March 2018, the FASB issued ASU 2018-05 — Income Taxes (Topic 740): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118 (“ASU 2018-05”), which amends the FASB Accounting Standards Codification and XBRL Taxonomy based on the Tax Cuts and Jobs Act (the “Act”) that was signed into law on December 22, 2017 and Staff Accounting Bulletin No. 118 (“SAB 118”) that was released by the Securities and Exchange Commission. The Act changes numerous provisions that impact U.S. corporate tax rates, business-related exclusions, and deductions and credits and may additionally have international tax consequences for many companies that operate internationally. The Company does not believe this guidance will have a material impact on its consolidated financial statements.

 

In July 2018, the FASB issued ASU 2018-10, “Codification Improvements to Topic 842, Leases.” The ASU addresses 16 separate issues which include, for example, a correction to a cross reference regarding residual value guarantees, a clarification regarding rates implicit in lease contracts, and a consolidation of the requirements about lease classification reassessments. The guidance also addresses lessor reassessments of lease terms and purchase options, variable lease payments that depend on an index or a rate, investment tax credits, lease terms and purchase options, transition guidance for amounts previously recognized in business combinations, and certain transition adjustments, among others. For entities that early adopted Topic 842, the amendments are effective upon issuance of this Update, and the transition requirements are the same as those in Topic 842. For entities that have not adopted Topic 842, the effective date and transition requirements will be the same as the effective date and transition requirements in Topic 842.

 

In July 2018, the FASB issued ASU 2018-11 - Leases (Topic 842): Targeted Improvements. The ASU simplifies transition requirements and, for lessors, provides a practical expedient for the separation of nonlease components from lease components. Specifically, the ASU provides: (1) an optional transition method that entities can use when adopting ASC 842 and (2) a practical expedient that permits lessors to not separate nonlease components from the associated lease component if certain conditions are met. For entities that have not adopted Topic 842 before the issuance of this Update, the effective date and transition requirements for the amendments in this Update are the same as the effective date and transition requirements in Update 2016-02. For entities that have adopted Topic 842 before the issuance of this Update, the transition and effective date of the amendments in this Update are as follows: 1) The practical expedient may be elected either in the first reporting period following the issuance of this Update or at the original effective date of Topic 842 for that entity. 2) The practical expedient may be applied either retrospectively or prospectively. All entities, including early adopters, that elect the practical expedient related to separating components of a contract in this Update must apply the expedient, by class of underlying asset, to all existing lease transactions that qualify for the expedient at the date elected.

 

The Company has considered all new accounting pronouncements and has concluded that there are no new pronouncements that may have a material impact on results of operations, financial condition, or cash flows, based on current information.

 

5.PREPAID EXPENSES

 

Prepaid expenses consisted of prepaid rent for our office in China, security deposit for Wancangnet, prepaid consulting fees and other prepaid expenses incurred in Arki Network and Arki E-Commerce as of September 30, 2019 and December 31, 2018, respectively.

  

24

 

 

CONSUMER CAPITAL GROUP, INC AND SUBSIDIARIES

 

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019 AND 2018

(IN U.S. $)

 

6.LOANS RECEIVABLE, NET

 

The monthly interest rates on loans issued were at 2% and range from 8% to 30% for the nine months ended September 30, 2019 and 2018, respectively.

 

As of September 30, 2019 and December 31, 2018, loans receivable were $0 and $331,039, net of provision for loan losses of $0, and $3,344, respectively; all the loans receivable are from related parties.

 

Loans receivable consisted of the following as of September 30, 2019 and December 31, 2018:

 

   September 30,
2019
   December 31,
2018
 
   (Unaudited)     
         
Loans receivable - third parties  $-   $- 
Loans receivable - related parties   -    334.383 
Total loans receivable  $-   $334.383 
Allowance for loan losses   -    (3,344)
           
Loans receivable, net  $-   $331,039 

 

The following table represents the aging of loan receivables as of September 30, 2019 and December 31, 2018:

 

September 30, 3019  1-29 days
past due
   30-59 days
past due
   60-89 days
past due
   Over 90 days
past due
   Total
past due
   Current   Total
Loans
 
Loans receivables  $-   $-   $-   $-   $-   $-   $- 

 

December 31, 2018  1-29 days
past due
   30-59 days
past due
   60-89 days
past due
   Over 90 days
past due
   Total
past due
   Current   Total
Loans
 
Loans receivables  $-   $-   $-   $334,383   $334,383   $-   $334,383 

 

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

 

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

 

Finally, as appropriate, the Company also considers individual borrower circumstances and the condition and fair value of the loan collateral, if any.

 

25

 

 

CONSUMER CAPITAL GROUP, INC AND SUBSIDIARIES

 

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019 AND 2018

(IN U.S. $)

 

6. LOANS RECEIVABLE, NET (continued)

 

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

 

For the nine months ended September 30, 2019 and 2018, the reversal and the provision of allowance for loan losses were and $0 and $3,344, respectively.

 

Loans with modified terms are classified as troubled debt restructurings if the Company grants such borrowers concessions and it is deemed that those borrowers are experiencing financial difficulty. Concessions granted under a troubled debt restructuring generally involve a temporary below market rate reduction in interest rate or an extension of a loan’s stated maturity date. Non-accrual troubled debt restructurings are restored to accrual status if principal and interest payments, under the modified terms, are current for six consecutive months after modification. Loans classified as troubled debt restructurings are designated as impaired. There were no loans considered impaired as of September 30, 2019 and December 31, 2018.

 

7.OTHER RECEIVABLES

 

Other receivables consist of the following as of September 30, 2019 and December 31, 2018:

 

   As of
September 30,
2019
   As of
December 31,
2018
 
   (Unaudited)     
         
Advances to unrelated third-parties  $423,478   $33,144 
Deposit paid   -    - 
Other deposits   -    2,400 
           
Total  $423,478   $35,544 

 

8.PROPERTY AND EQUIPMENT, NET

 

Property and equipment consisted of the following as of September 30, 2019 and December 31, 2018:

 

   As of  
September 30,
   As of
December 31,
 
   2019   2018 
   (Unaudited)     
         
Leasehold improvement  $65,262   $67,187 
Office equipment   26,348    25,629 
Furniture & fixtures   6,364    6,615 
Motor vehicles   20,710    20,710 
   $118,684   $120,141 
Less: accumulated depreciation   (63,074)   (46,061)
Total property & equipment, net  $55,610   $74,080 

 

For the nine months ended September 30, 2019 and 2018, depreciation expenses were $18,293 and $17,057, respectively.

  

26

 

 

CONSUMER CAPITAL GROUP, INC AND SUBSIDIARIES

 

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019 AND 2018

(IN U.S. $)

 

9.RIGHT-OF-USE ASSETS AND LEASE LIABILITIES

 

The Company has entered into lease agreements with various parties. The terms of operating leases are one to five years. These operating leases are included in "Right-of-Use Assets" on the Company's Consolidated Balance Sheet, and represent the Company’s right to use the underlying assets for the lease term. The Company’s obligation to make lease payments are included in "Lease liabilities" on the Company's Consolidated Balance Sheet. Upon adoption of ASC Topic 842, Leases (Topic 842), based on the present value of the lease payments for the remaining lease term of the Company's existing leases, the Company recorded net right-of-use assets of $303,347 and lease liabilities of $309,731 on January 1, 2019. Operating lease right-of-use assets and liabilities commencing after January 1, 2019 are recognized at commencement date based on the present value of lease payments over the lease term. As of September 30, 2019, total right-of-use assets and operating lease liabilities were $488,251 and $306,238, respectively.

 

Information related to the Company's right-of-use assets and related lease liabilities were as follows:

 

   September 30,
2019
   December 31,
2018
 
   (Unaudited)     
         
Right-of-use assets in exchange for operating lease obligations  $488,251   $- 
Less: accumulated depreciation   (191,620)   - 
           
Right-of-use assets, net  $296,631   $- 

 

   September 30,
2019
   December 31,
2018
 
   (Unaudited)     
         
Lease liabilities  $306,238   $- 
Weighted-average remaining lease term   3 years    - 
Weighted-average discount rate   4.75%   - 
           

 

Due in 12 months ended September 30,

 

2020   163,193 
2021   131,556 
2022   27,240 
Thereafter   - 
    321,989 
Less: imputed interest   (15,751)
Total lease liabilities  $306,238 
      
Current lease liabilities   151,926 
Non-Current lease liabilities   154,312 

  

27

 

 

CONSUMER CAPITAL GROUP, INC AND SUBSIDIARIES

 

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019 AND 2018

(IN U.S. $)

 

10.LOANS PAYABLE

 

Individuals can invest in loans that are offered through the Company’s marketplace and network. All the loans have maturities from one to two years with interest rates varying from 4% to 54% per annum.

 

Loans payable consisted of the following as of September 30, 2019 and December 31, 2018:

  

    Remaining  September 30,   December 31, 
Interest rate   maturity  2019   2018 
       (Unaudited)     
                
 4%  Within 1 year  $-   $103,223 
 10%  Within 1 year   18,185    - 
 12%  Within 1 year   90,923    202,084 
 13%  Within 1 year   43,363    45,069 
 14%  Within 1 year   -    2,908 
 16%  Within 1 year   1,063,103    - 
 18%  Within 1 year   1,853,437    799,610 
 40%-54%  Within 1 year   2,106,623    3,711,654 
 40%-54%  Between 1 to 2 years   -    1,221,226 
        $5,175,634   $6,085,774 
                
     Current portion  $5,175,634   $4,864,548 
     Non-current portion  $-   $1,221,226 

 

The Company has loans payable to related parties of $3,911,102 and $3,887,569, and loans payable to third parties of $1,264,532 and $2,198,205 as of September 30, 2019 and December 31, 2018, respectively. For the nine months ended September 30, 2019 and 2018, the Company recorded $1,266,845 and $2,504,232 of interest expenses, respectively.

 

11.PAYABLE TO SHAREHOLDER

 

The amount was advanced from Caesar Capital Management Ltd. (“Caesar”), a shareholder of the Company. The outstanding amount were $109,009 and $117,767 as of September 30, 2019 and December 31, 2018, respectively. The loans were borrowed by the Company for operating purposes, without collateral, and were originally due in 2013, with an annual interest rate of 6%. On July 1, 2013, the Company entered into an agreement with Caesar Capital Management Ltd. which amended the maturity date for all the existing loans between the Company and Caesar Capital Management Ltd. The loans became due on demand and are non-interest bearing.

  

28

 

 

CONSUMER CAPITAL GROUP, INC AND SUBSIDIARIES

 

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019 AND 2018

(IN U.S. $)

 

12.STOCK SUBCRIPTION

 

During the nine months ended September 30, 2019, the Company entered into a series of Securities Purchase Agreements with various unrelated third-party purchasers, pursuant to which the Company is obligated to issue these purchasers an aggregate of 602,689 shares of the Company’s common stock for an aggregate offering price of $2,565,488 approximately. As of September 30, 2019, $406,923 was received by the Company and $2,158,565 was settled by the principal and interest of loan payables of these purchasers. The aggregate received amount of $2,565,488 was recognized as stock subscription in the condensed consolidated statements of changes in stockholders’ equity.

 

13.NONCONTROLLING INTEREST

 

As of September 30, 2019 and December 31, 2018, non-controlling interest of Arki Capital of $3,541,861 and $2,840,314, respectively, was recognized in the Company’s consolidated balance sheets, representing Arki Capital’s cumulative results of operations attributable to shareholders other than CCG Group.

 

For the nine months ended September 30, 2019 and 2018, net losses of $701,547 and $861,707, respectively, attributable to the non-controlling interest of Arki Capital were recognized in the Company’s consolidated statements of comprehensive loss, representing Arki Capital’s net losses attributable to shareholders other than CCG Group.

 

14. INCOME TAXES

 

The income tax laws of various jurisdictions in which the Company and its subsidiaries operate are summarized as follows:

 

United States

 

Consumer Capital Group Inc. was incorporated in United States, and is subject to corporate income tax rate of 21% for the nine months ended September 30, 2019 and 2018.

 

The People’s Republic of China (PRC)

 

Arki (Beijing) E-commerce Technology Corp., America Pine (Beijing) Bio-Tech, Inc., America Arki (Fuxin) Network Management Co. Ltd., America Arki Network Service Beijing Co. Ltd., America Arki (Tianjin) Capital Management Partnership and Arki (Tianjin) E-Commerce Ltd. and Arki (Guangzhou) Investment Consulting Co. Ltd were incorporated in the People’s Republic of China and subject to PRC income tax at 25%. The Company did not generate taxable income in the People’s Republic of China for the nine months ended September 30, 2019 and 2018, respectively.

  

29

 

 

CONSUMER CAPITAL GROUP, INC AND SUBSIDIARIES

 

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019 AND 2018

(IN U.S. $)

 

14. INCOME TAXES (continued)

 

The new EIT Law also imposes a withholding income tax of 10% on dividends distributed by a foreign invested enterprise to its immediate holding company outside of China, if such immediate holding company is considered as a non-resident enterprise without any establishment or place within China or if the received dividends have no connection with the establishment or place of such immediate holding company within China, unless such immediate holding company’s jurisdiction of incorporation has a tax treaty with China that provides for a different withholding arrangement. Such withholding income tax was exempted under the previous income tax regulations.

 

The income tax laws of various jurisdictions in which the Company and its subsidiaries operate are summarized as follows:

 

   For the nine months ended
September 30,
 
   2019   2018 
   (Unaudited)   (Unaudited) 
         
Tax expense at statutory rate US   21%   21%
Foreign income not recognized in the U.S.   (21)%   (21)%
           
PRC enterprise income tax rate   25%   25%
Changes in valuation allowance and others   (25)%   (25)%
           
Effective income tax rates   -    - 

 

Loss before income taxes consists of:

  

    For the Nine Months Ended
September 30,
    For the Three Months Ended
September 30,
 
    2019     2018     2019     2018  
    (Unaudited)     (Unaudited)     (Unaudited)     (Unaudited)  
                         
Non-PRC   $ (99,893 )   $ (63,240 )   $ (35,467 )   $ (27,564 )
PRC     (1,743,873 )     (1,756,529 )     (250,490 )     (670,085 )
                                 
Total   $ (1,843,766 )   $ (1,819,769 )   $ (285,957 )   $ (697,649 )

  

30

 

 

CONSUMER CAPITAL GROUP, INC AND SUBSIDIARIES

 

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019 AND 2018

(IN U.S. $)

 

14. INCOME TAXES (continued)

 

The principal components of the Company’s deferred income tax assets and liabilities are as follows: 

 

   September 30,
2019
   December 31,
2018
 
   (Unaudited)     
Deferred tax assets:        
Accrued interest payable  $21,013   $21,839 
Accrual   31,315    32,546 
Provision for loan losses   18,639    19,372 
Total deferred tax assets  $70,966   $73,757 
Less: Valuation allowance   (70,966)   (73,757)
Net total deferred tax assets  $-   $- 
           
Deferred tax liabilities:          
Accrued interest receivable  $33,210   $34,516 
Accrued interest payable   43,023    44,716 
Net total deferred liabilities  $76,233   $79,232 

 

As of September 30, 2019 and December 31, 2018, the Company has deferred tax asset of $0 and $0, respectively, and deferred tax liabilities of $76,233 and $79,232, respectively, resulting from the net operating losses in the PRC. The ultimate realization of deferred tax assets depends on the generation of future taxable income during the periods in which those net operating losses are available. The Company considers projected future taxable income and tax planning strategies in making its assessment. As of September 30, 2019 and December 31, 2018, the Company does not have sufficient operations to generate taxable income in Arki E-Commerce, America Pine, Arki Network, Arki Capital and Arki Tianjin E-Commerce to conclude that it is more-likely-than-not that the Company will be able to realize all of its tax benefits in the near future and therefore a valuation allowance has been provided for the full value of the deferred tax asset. A valuation allowance will be maintained until sufficient positive evidence exists to support the reversal of any portion or all of the valuation allowance. Should Arki E-Commerce, America Pine, Arki Network, Arki Capital and Arki Tianjin E-Commerce have sufficient operation to generate taxable income in future periods with a supportable trend; the valuation allowance will be reduced accordingly. As of September 30, 2019 and December 31, 2018, $70,966 and $73,757 valuation allowance was recorded respectively.

   

15. RELATED PARTY TRANSACTIONS

 

  a) Related parties:

 

Name of related parties   Relationship with the Company
Mr. Jianmin Gao   Stockholder, Chief Executive Officer and Chairman of the Board of the Company
Mr. Fei Gao   Stockholder, Director and Chief Operating Officer
Mr. Dong Yao   Stockholder, Director and Chief Technology Officer
Ms. Lihua Xiao   Stockholder, Management of the Company
Beijing Daogao Trade Ltd.   Legal representative is Lihua Xiao, a stockholder and management of the Company.

 

31

 

 

CONSUMER CAPITAL GROUP, INC AND SUBSIDIARIES

 

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019 AND 2018

(IN U.S. $)

 

15. RELATED PARTY TRANSACTIONS (continued)

 

  b) The Company had the following related party balances as of September 30, 2019 and December 31, 2018:

  

   September 30,
2019
   December 31,
2018
 
   (Unaudited)     
Due from related parties:        
Mr. Jianmin Gao  $-    - 
Dong Yao   2,097    - 
           
   $2,097    - 

 

   September 30,
2019
   December 31,
2018
 
   (Unaudited)     
Due to related parties:        
Mr. Jianmin Gao  $(4,852)  $(20,327)
Mr. Fei Gao   (123,141)   (136,338)
Ms Lihua Xiao   -    (833)
Dong Yao   -    (288)
Related companies controlled by a non-controlled stockholder   (25,179)   (26,169)
           
   $(153,172)  $(183,955)

 

As of September 30, 2019 and December 31, 2018, the amounts owed to related parties are without interest and due on demand.

 

  c) Loans receivable from related parties

 

   September 30,   December 31, 
   2019   2018 
   (Unaudited)     
         
Company controlled by non-controlling shareholders  $           -   $334,383 
Less: Allowance for loan losses   -    (3,344)
Total  $-   $331,039 

 

Interest income derived from the above loans receivable from related parties were $0 and $686,755 for the nine months ended September 30, 2019 and 2018, respectively. Service fee income derived from the above loans receivable from related parties were $0 and $343,377 for the nine months ended September 30, 2019 and 2018, respectively.

 

  d) Loans payable to related parties

 

    September 30,
2019
    December 31,
2018
 
    (Unaudited)        
             
Non-controlling stockholders   $ 3,911,102     $ 3,230,433  
Related companies of non-controlling stockholders     -       657,136  
                 
    $ 3,911,102     $ 3,887,569  

 

Interest expenses incurred on the above loans payable to related parties were $865,505 and $2,090,781 for the nine months ended September 30, 2019 and 2018, respectively.

 

32

 

 

CONSUMER CAPITAL GROUP, INC AND SUBSIDIARIES

 

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019 AND 2018

(IN U.S. $)

 

15. RELATED PARTY TRANSACTIONS (continued)

 

  e) Commission income received from related parties

 

   For the nine months ended
September 30,
 
   2019   2018 
   (Unaudited)   (Unaudited) 
         
Non-controlling stockholders  $188,814   $253,800 
Company controlled by non-controlling shareholders   -    26,403 
           
   $188,814   $280,203 

 

16. COMMITMENTS AND CONTINGENCIES

 

Legal Proceedings

 

The Company is not currently a party to any legal proceeding, investigation or claim which, in the opinion of the management, is likely to have a material adverse effect on the business, financial condition or results of operations.

 

17. CONCENTRATION OF CREDIT AND BUSINESS RISKS

 

Assets that potentially subject the Company to significant concentration of credit risk primarily consist of cash and cash equivalents, loans receivable and other receivables. The maximum exposure of such assets to credit risk is their carrying amounts as of the balance sheet dates.

 

As of September 30, 2019 and December 31, 2018, substantially all of the Company’s cash and cash equivalents were deposited in financial institutions located in the PRC, which management believes are of high credit quality. Management believes the credit risk on bank deposits is limited because the counter-parties are banks with high credit-ratings assigned by international credit rating agencies, or state-owned banks in China.

 

Cash includes cash on hand and demand deposits in accounts maintained with state-owned banks within the PRC and the United States of America. Balances at financial institutions or state owned banks within the PRC are not covered by insurance.

  

33

 

 

CONSUMER CAPITAL GROUP, INC AND SUBSIDIARIES

 

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019 AND 2018

(IN U.S. $)

 

17. CONCENTRATION OF CREDIT AND BUSINESS RISKS (continued)

 

Non-performance by these institutions could expose the Company to losses for amounts in excess of insured balances. As of September 30, 2019 and December 31, 2018, we had no uninsured balances with the banks in U.S. Our bank balances in the PRC were $61,420 and $489,358 as of September 30, 2019 and December 31, 2018, respectively, which are uninsured and subject to credit risk. We have not experienced nonperformance by these institutions.

 

Financial instruments that potentially subject us to significant concentrations of credit risk consist principally of loans receivable from borrowers and the related accrued interest receivable. The aforementioned borrowers paid service fees and interest regularly according to the contract during the reporting period, and the Company believes that the default risk from these borrowers is low in the foreseeable future.

 

The Company’s operations may be adversely affected by significant political, economic and social uncertainties in the PRC. Although the PRC government has been pursuing economic reform policies for more than twenty years, no assurance can be given that the PRC government will continue to pursue such policies or that such policies may not be significantly altered, especially in the event of a change in leadership, social or political disruption or unforeseen circumstances affecting the PRC’s political, economic and social conditions. There is also no guarantee that the PRC government’s pursuit of economic reforms will be consistent or effective. The economy in the PRC has recently started to narrow.

 

On December 15, 2014, the Company entered into a six-year agreement with the Chief Operating Officer, Mr. Fei Gao, for a compensation of approximately $2,655 (RMB 18,000) per month.

 

18. SUBSEQUENT EVENT

 

There were no subsequent event or transactions that would require recognition or disclosure in our unaudited condensed consolidated financial statements for the nine months ended September 30, 2019.

 

34

 

 

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

 

This Quarterly Report on Form 10-Q and other reports filed by Consumer Capital Group, Inc. (“we,” “us,” “our,” or the “Company”) from time to time with the U.S. Securities and Exchange Commission (the “SEC”) contain or may contain forward-looking statements (collectively the “Filings”) and information that are based upon beliefs of, and information currently available to, the Company’s management as well as estimates and assumptions made by Company’s management. Readers are cautioned not to place undue reliance on these forward-looking statements, which are only predictions and speak only as of the date hereof. When used in the filings, the words “anticipate,” “believe,” “estimate,” “expect,” “future,” “intend,” “plan,” or the negative of these terms and similar expressions as they relate to the Company or the Company’s management identify forward-looking statements. Such statements reflect the current view of the Company with respect to future events and are subject to risks, uncertainties, assumptions, and other factors. Should one or more of these risks or uncertainties materialize, or should the underlying assumptions prove incorrect, actual results may differ significantly from those anticipated, believed, estimated, expected, intended, or planned.

 

Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, the Company cannot guarantee future results, levels of activity, performance, or achievements. Except as required by applicable law, including the securities laws of the United States, the Company does not intend to update any of the forward-looking statements to conform these statements to actual results.

 

Our financial statements are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). These accounting principles require us to make certain estimates, judgments, and assumptions. We believe that the estimates, judgments, and assumptions upon which we rely are reasonable based upon information available to us at the time that these estimates, judgments, and assumptions are made. These estimates, judgments, and assumptions can affect the reported amounts of assets and liabilities as of the date of the financial statements as well as the reported amounts of revenues and expenses during the periods presented. Our financial statements would be affected to the extent there are material differences between these estimates and actual results. In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP and does not require management’s judgment in its application. There are also areas in which management’s judgment in selecting any available alternative would not produce a materially different result. The following discussion should be read in conjunction with our consolidated financial statements and notes thereto appearing elsewhere in this report.

 

Overview

 

We are primarily engaged in the businesses of lending and strive to become a one-stop provider of business lending service for micro, small-to-medium sized enterprises (“SMEs”) in China. We operate our direct lending business through our subsidiary, Arki E-Commerce, and variable interest entity, or “VIE”, Arki Network and its subsidiaries. With the increased difficulty of obtaining sufficient financing through traditional channels by SMEs, we offer SMEs alternative financing means through risk-controlled private lending to meet their capital needs and develop their business. It is our belief that the growth of SMEs will become an important factor of China’s economic growth in the next decade. We believe that our expertise in streamlining the business lending process will place our company in a unique position in the marketplace.

 

Business Lending

 

Currently, we engage in business lending business through our VIE, Arki Network, and its subsidiary, Arki Capital to provide direct loans to SMEs, primarily car dealerships based in Liaoning Province. Our relationship with Arki Network is governed by a series of contractual relationships among Arki Network, the shareholders of Arki Network, and two of our subsidiaries, Arki E-Commerce and America Arki. However, effective in June 2018, America Arki ceased operations and cancelled its registration records. The cessation of America Arki’s operations does not represent a strategic shift with a material effect to our operations and financial results and America Arki is not accounted for discontinued operation in the consolidated financial statements. Subsequent to the cessation of America Arki’s operations, our relationship with Arki Network continues to be governed by the ongoing contractual arrangements with Arki E-Commerce. Prior to focusing our targeted customers base on car dealerships, we provided loans to small and medium sized enterprises and sole proprietors. We do not lend to individuals. Through Arki Network’s collaboration with China UnionPay Merchant Service (Liaoning) Co. Ltd (“UnionPay Liaoning”), Arki Capital provides private loans to borrowers and receives interest income of 3% per month for the term of the loan (usually three months). Arki Network and UnionPay Liaoning act as intermediaries to facilitate loan transactions for an additional service fee of 2.5% to Arki Network and 0.5% to Unionpay. Arki Network charges a service fee of 3% per loan term (usually 3 months) of the loan proceeds, of which 0.5% is paid to UnionPay Liaoning. Our practice of business lending has been limited to certain businesses which are pre-screened and recommended by UnionPay Liaoning based on historical sales volume generated through debit card transactions using UnionPay’s system. We believe that UnionPay Liaoning is incentivized to recommend as many borrowers to us as possible as the potential for additional service fees is a source of revenue for their operations. We have a contractual arrangement with UnionPay to provide us with such information and related due diligence information on car dealers and their customers.

 

35

 

 

Since the beginning of 2017, we have been focusing our business lending business on car dealerships referred by Unionpay Liaoning. During 2018, we provided 47 direct loans to car dealerships, totaling RMB98,300,000 (approximately $14,500,000), and we received full payment on all loans at maturity. However, we have not initiated new loans to car dealerships in 2019.

 

Investment Opportunity Marketing

 

Arki Network through its 51%-owned subsidiary, Arki Capital, engages in the business of marketing investment opportunities. In practice, this business has provided a source of funds used to make loans for our lending business. Arki Capital operates its business on its financial advisory platform “Bangnitou”, which translates to “Help You Invest” in English and attracts capital from investors to invest in fixed income opportunities such as inter-bank loans, currency exchange products and other debt and equity investment opportunities to help investors obtain a return on their investment. Among the potential investment opportunities for this business are the car dealerships loans that are made through Arki Network. This business does not operate in the United States. Still in its development stage, Bangnitou intends to commercialize a number of financial products that aim to generate annual returns ranging from 8-12%. Once each product reaches its maximum subscription or the end of its offering period, the investments are held for a period of time before being redeemable by the investors, along with the return. For the nine months ended September 30, 2019, Arki Capital received funds of RMB 18,680,000 (approximately $2,722,396), which were presented as cash as an asset and loan payable as a liability on our consolidated balance sheet. The funds carry terms between 6 months and 2 years, without interest charged during the period. Upon the redemption date, the investors may demand back the funding with interest or stay on as a limited partner. Since the beginning of 2018, we have been focusing on providing loans to car dealerships and Arki Capital is generating revenues from the borrowers’ interest payments.

 

Our subsidiaries in the PRC (primarily, Arki Capital) obtain loans from lenders/investors through the Bangnitou platform. Arki Capital receives the loan funds and allows investors two options regarding repayment. In alternative A, investors may elect to receive a return of principal together with the interest at the end of the investment period (other than the prepaid interest amount). No other interest is paid during the loan period. In alternative B, the investors may elect to receive repayment through shares of our common stock at a pre-determined conversion rate. Interest, other than prepaid interest, is payable at the end of the loan term, either in cash or in additional shares of our common stock. Any shares of our common stock that may be issued as part of this business line are shares previously obtained by Arki Capital from a third-party non-affiliate shareholder. This business is not conducted in the United States. We expect Arki Capital to derive substantially all of its revenues from the returns generated by the performance of the underlying investment products. It would keep all returns in excess of the return that is marketed to the retail investors for the product.   

 

Recent Development

 

On March 21, 2019, the Company incorporated Arki Investment Consulting Ltd. (Arki Guangzhou) with a registered capital of RMB 200,000. Arki Investment Consulting Ltd is 100% owned by Arki Capital and is engaged in providing financial management consulting services and internet information services.

 

36

 

 

Key Factors that Affect Operating Results

 

Our operating subsidiaries are incorporated, and our operations and assets are primarily located, in the PRC. Accordingly, our results of operations, financial condition and prospects are affected by China’s economic and regulation conditions in the following factors: (a) an economic downturn in China or any regional market in China; (b) economic policies and initiatives undertaken by the PRC government; (c) changes in the PRC or regional business or regulatory environment affecting the SME and microenterprise sector; (d) changes to prevailing market interest rates; (e) a higher rate of bankruptcy; (f) the deterioration of the creditworthiness of SMEs and microenterprises in general; and (g) the change of currency exchange rate of RMB to USD. Unfavorable changes could affect demand for the services that we provide and could materially and adversely affect the results of operations. Although we have generally benefited from China’s economic growth and the policies to encourage lending to SMEs, we are also affected by the complexity, uncertainties and changes in the PRC economic conditions and regulations governing the non-banking financial industry.

 

Our results of operations are also affected by the provision for loan losses and impairment allowance for the investment in financial assets which are a noncash item and represent an assessment of the risk of future loan losses and impairment losses. The amount of provisions or allowances has been recorded based on management’s assessment. We may increase or decrease the allowance for loan losses and impairment losses for investment in financial assets based on any such change of economic conditions and the change of management’s assessment. Any change in the allowance for loan losses would have an effect on our financial condition and results of operations.

 

Significant Accounting Policies

 

We prepare our consolidated financial statements in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Our management periodically evaluates the estimates and judgments made. Management bases its estimates and judgments on historical experience and on various factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates as a result of different assumptions or conditions. The methods, estimates, and judgment we use in applying our most critical accounting policies have a significant impact on the results we report in our financial statements. The SEC has defined “critical accounting policies” as those accounting policies that are most important to the portrayal of our financial condition and results, and require us to make our most difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. For additional information see Note 2, “Summary of Significant Accounting Policies” in the notes to our consolidated financial statements appearing elsewhere in this report. Although we believe that our estimates and assumptions are reasonable, they are based upon information presently available, and actual results may differ significantly from these estimates.

 

Use of Estimates

 

The preparation of consolidated financial statements in conformity with US GAAP requires our management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

Foreign Currency Translation

 

The Company’s reporting currency is the U.S. dollar. The Company’s functional currency is the local currency in the PRC, the Chinese Yuan (RMB). The financial statements of the Company are translated into United States dollars in accordance with ASC 830, Foreign Currency Matters, using yearend rates of exchange for assets and liabilities, and average rates of exchange for the period for revenues, costs, and expenses and historical rates for equity. Translation adjustments resulting from the process of translating the local currency financial statements into U.S. dollars are included in determining comprehensive income.

 

37

 

 

In accordance with ASC 830, Foreign Currency Matters, the Company translated the assets and liabilities into US $ using the rate of exchange prevailing at the applicable balance sheet date and the statements of income and cash flows are translated at an average rate during the reporting period. Adjustments resulting from the translation are recorded in investors’ equity as part of accumulated other comprehensive income.

 

   September 30,
2019
   December 31,
2018
 
Balance sheet items, except for the equity accounts   7.1489    6.8783 
Items in the statements of income and comprehensive loss and statement of cash flow   6.8616    6.6031 

 

Revenue Recognition

 

ASC 606, Revenue from Contracts with Customers (“ASC 606”), establishes principles for reporting information about the nature, amount, timing and uncertainty of revenue and cash flows arising from the entity’s contracts to provide goods or services to customers. The core principle requires an entity to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration that it expects to be entitled to receive in exchange for those goods or services recognized as performance obligations are satisfied. Effective January 1, 2018, the Company adopted ASU 2014-09 Revenue from Contracts with Customers – Topic 606 and all subsequent ASCs that modified ASC 606.  The Company has elected to apply the standard utilizing the modified retrospective approach with a cumulative effect of adoption for the impact from uncompleted contracts as the date of adoption.  The implementation of the new standard had no material impact to the measurement or recognition of revenue of prior periods.

  

38

 

 

The Company’s revenue is comprised of:

 

1)Interest and fee income - Management determined that the primary sources of revenue emanating from interest and fee income on loans receivable are not within the scope of ASC 606.  As a result, no changes were made during the period related to these sources of revenue.

 

2)Noninterest income – The primary sources of noninterest income are within the scope of ASC 606, which are presented in the income statements as commission income.

 

Interest and Fee Income

 

Interest income on loans

 

Interest on loan receivables is accrued monthly in accordance with their contractual terms and recorded in accrued interest receivable. The Company does not currently charge prepayment penalties from its customers.

 

Servicing fee income

 

Borrowers typically pay us a servicing fee on each payment received. The service fees compensate us for the costs we incur in servicing the related loan, including managing funding from investors, payments to investors and maintaining borrower’ account portfolios. We record servicing fees paid by borrower as a component of operating revenue when received.

 

Noninterest Income

 

E-commerce Revenue Recognition

 

We evaluate whether it is appropriate to record the net amount of sales earned as commissions. We are not the primary obligor nor are we subject to inventory risk as the agreements with our suppliers specify that they have the responsibility to provide the product or service to the customer. Also, the amounts we earn from our vendors/suppliers is based on a fixed percentage and bound contractually. Additionally, the Company does not have any obligation to resolve disputes between the vendors and the customers that purchase the products on our website. Any disputes involving damaged, non-functional, product returns, and/or warranty defects are resolved between the customer and the vendor. The Company has no obligation for right of return and/or warranty for any of the sales completed using its website. Since we are not primarily obligated and amounts earned are determined using a fixed percentage, a fixed-payment schedule, or a combination of the two, we record our revenues as commissions earned on a net basis.

 

We record deferred revenue when cash is received in advance of the performance of services or delivery of goods. Deferred revenue is also recorded to account for the seven-day grace period offered to customers for potential product disputes, if any.

 

Commission income for art & antique trading platform

 

The Company started to operate the platform for art and antique trading in the third quarter of 2018. On August 21, 2018, the Company incorporated Arki Tianjin E-Commerce, as a wholly-owned subsidiary of Arki Network under the laws of the PRC. The Company plans to develop the e-commerce business for art and antique through Arki Network and Arki Tianjin E-Commerce. Sellers will place their art and antiques on our platform for sale. The Company will receive commission income as a percentage of the selling price. The Company is constantly monitoring and developing the operations and offerings on the platform and may make changes thereto.

  

39

 

 

Cash and Cash Equivalents

 

We consider all investments with an original maturity of three months or less to be cash equivalents. Cash and cash equivalents primarily represent funds invested in bank checking accounts, money market funds and domestic Chinese bank certificates of deposit. As of September 30, 2019 and December 31, 2018 the Company had no cash equivalents.

 

Fair Value of Financial Instruments

 

The Company’s financial instruments include cash and cash equivalents, accounts receivable, prepaid expenses, other receivables, other assets, accounts payable, accrued liabilities, other payable, related party payable, short term debt and derivative liabilities. These financial instruments are measured at their respective fair values. For fair value measurement, US GAAP establishes a three-tier hierarchy which prioritizes the inputs used in the valuation methodologies in measuring fair value:

 

Level 1 observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.

Level 2 include other inputs that are directly or indirectly observable in the marketplace.

Level 3 unobservable inputs which are supported by little or no market activity.

 

Fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

 

The carrying value of cash and cash equivalents, accounts receivable, advance to suppliers, prepaid expenses, other receivables, other assets, account payable, accrued liabilities, other payable, and short-term debt approximates their fair value due to their short-term maturities.

 

The Company has determined the estimated fair value amounts presented in these financial statements using available market information and appropriate methodologies. However, considerable judgment is required in interpreting market data to develop the estimates of fair value. The estimates presented in the financial statements are not necessarily indicative of the amounts that could be realized in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.

 

Management believes it is not practical to estimate the fair value of related party payable because the transactions cannot be assumed to have been consummated at arm’s length, the terms are not deemed to be market terms, there are no quoted values available for these instruments, and an independent valuation would not be practical due to the lack of data regarding similar instruments, if any, and the associated potential costs.

 

40

 

 

Recent Accounting Pronouncements  

 

A discussion of recently issued accounting pronouncements is described in Note 4 in the Notes to Consolidated Financial Statements filed with this Quarterly Report, and we incorporate such discussion by reference.

 

Restatement

 

In this Form 10-Q, we are restating the unaudited condensed consolidated statements of comprehensive losses for the three and nine months ended September 30, 2018. The restatement is to correct the amounts previously recorded as foreign currency translation adjustment and comprehensive loss for the three and nine month periods ended September 30, 2018. The restatements did not affect the consolidated balance sheets, consolidated statements of operations, consolidated statements of changes in stockholders’ equity and consolidated statements of cash flows for the three and nine months ended September 30, 2018. The restatement is more fully described in Note 3 of the notes to the financial statements included herein.

 

Results of Operations - Comparison of the Nine Months Ended September 30, 2019 and 2018

 

The following table sets forth the results of our operations for the periods indicated in U.S. dollars, as restated as described in Note 3 to the condensed financial statements filed with this Quarterly Report on Form 10-Q.

 

    For the three months ended September 30,
(Unaudited)
    For the nine months ended
September 30,
(Unaudited)
 
    2019     2018     2019     2018  
REVENUE                        
Interest income on loans-third parties   $ -     $ 174,048     $ -     $ 201,486  
Interest income on loans-related parties     -       552,793       -       686,755  
Service fee income on loans-third parties     -       87,025       -       100,744  
Service fee income on loans-related parties     -       276,396       -       343,377  
Commission income – third parties     39,345       255,313       39,345       255,313  
Commission income – related parties             280,203       188,814       280,203  
      39,345       1,625,778       228,159       1,867,878  
                                 
COST OF REVENUE     -       (242,280 )     -       (296,080 )
                                 
GROSS PROFIT     39,345       1,383,498       228,159       1,571,798  
                                 
General and administrative expenses     (191,828 )     (213,020 )     (811,455 )     (830,541 )
                                 
LOSS FROM OPERATIONS     (152,483 )     1,170,478       (583,296 )     741,257  
                                 
Interest income     40,156       -       1,226       25,372  
Interest expense to third parties     -       (260,921 )     (401,340 )     (413,451 )
Interest expense to related parties     (174,995 )     (1,525,100 )     (865,505 )     (2,090,781 )
Other income     2,018       -       2,018       -  
Other expense     (615 )     (169 )     (221 )     (229 )
(Reversal of) provision for loan losses     (38 )     (81,937 )     3,352       (81,937 )
Total other income (expenses)     (133,474 )     (1,868,127 )     (1,260,470 )     (2,561,026 )
                                 
Loss before income taxes     (285,957 )     (697,649 )     (1,843,766 )     (1,819,769 )
                                 
Income tax expense     58       -       (5,183 )     -  
                                 
Net Loss     (285,899 )     (697,649 )     (1,848,949 )     (1,819,769 )
Less: Net loss attributable to the non-controlling interest     (76,814 )     (577,071 )     (701,547 )     (861,707 )
Net loss attributable to the Company   $ (209,085 )   $ (120,578 )   $ (1,147,402 )   $ (958,062 )

  

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    For the three months ended September 30,     For the nine months ended September 30,  
    (Unaudited)     (Unaudited)  
    2019     2018     2019     2018  
Comprehensive income        

(as restated)

         

(as restated)

 
Net income/(loss)   $ (285,899 )   $ (697,649 )   $ (1,848,949 )   $ (1,819,769 )
Foreign currency translation adjustment     (41,734     100,193       (171,784 )     201,229  
Comprehensive income (loss)     (327,633 )     (597,456 )     (2,020,733 )     (1,618,540 )
Less: Comprehensive income/(loss) attributable to the non-controlling interest     (76,814 )     -       (701,547 )     -  
                                 
Comprehensive income(loss) attributable to the Company   $ (250,819 )   $ (597,456 )   $ (1,319,186 )   $ (1,618,540 )
                                 
Weighted average number of common shares outstanding basic and diluted     27,208,849       27,208,849       27,208,849       27,485,092  
                                 
(Loss) earnings per share – Basic and Diluted                                
CONTINUING OPERATIONS                                
-Basic   $ (0.01 )   $ (0.00 )   $ (0.04 )   $ (0.03 )
-Diluted   $ (0.01 )   $ (0.00 )   $ (0.04 )   $ (0.03 )
                                 
NET LOSS PER SHARE ATTRIBUTABLE TO THE COMPANY                                
-Basic   $ (0.01 )   $ (0.00 )   $ (0.04 )   $ (0.03 )
-Diluted   $ (0.01 )   $ (0.00 )   $ (0.04 )   $ (0.03 )

 

Results of Operations - Comparison of the Three Months Ended September 30, 2019 and 2018

 

Revenue

 

For the three months ended September 30, 2019, we generated revenues of $39,345, a $1,586,433 decrease compared with the revenue of $1,625,778 for the three months ended September 30, 2018. The revenues generated for the three months ended September 30, 2019 was from commission income earned by Arki Tianjin E-Commerce for the financial products sold on our online platform. Arki Tianjin E-Commerce received a 30% service fee for the product sold on its platform. The revenues for the three months ended September 30, 2018 was commission income from loans earned by Arki Capital and the service fee income Arki Network earned to facilitate the loans.

 

We did not generate interest income or service fee income from the lending business for the three months ended September 30, 2019.

 

Cost of Sales

 

Cost of sales for the three months ended September 30, 2019 and 2018 were $0 and $242,280. There were no costs related to the commission income of $39,345 for the three months ended September 30, 2019, and our costs of sales for the same quarter in 2018 were incurred related to the interest and service fee income for the three months ended September 30, 2018.

 

Gross Profit

 

Gross profit was $39,345 for the three months ended September 30, 2019, a decrease of $1,344,153 compared to gross profit of $1,383,498 for the three months ended September 30, 2018. The reason for the decrease was due to the absence of loans income generated from the Company’s lending business during the three months ended September 30, 2019.

 

Operating expenses.

 

Operating expenses for the three months ended  September 30,
2019
   September 30,
2018
 
Selling Expenses  $-   $- 
General and Administrative   191,828    213,020 
Total  $191,828   $213,020 

  

Operating expenses totaled $191,828 for the three months ended September 30, 2019, a slight decrease of $21,192 or 10% compared to $213,020 for the three months ended September 30, 2018. Operating expenses consist of salaries, office expenses, utilities, business travel, depreciation expenses, public company expenses (including legal, accounting expenses and investor relations expenses, etc.). The following table details general and administrative expenses we incurred for the three months ended September 30, 2019 and 2018.

  

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General and Administrative expenses for the three months ended  September 30,
2019
   September 30,
2018
 
Consulting and investor relations  $31,418   $62,026 
Legal, audit fees and professional services   9,253    20,449 
Salaries   54,679    43,840 
Rent   38,392    17,390 
Office expenses   30,744    39,424 
Travel   7,607    10,402 
Depreciation   5,405    11,444 
Advertising & promotion          
Meal and entertainment   10,133    255 
Insurance        4,194 
Bank charges   2,572    552 
Miscellaneous   1,625    3,044 
           
Total  $191,828    213,020 

 

Losses from operations.

 

As a result of the factors described above, operating loss was $152,483 for the three months ended September 30, 2019, a net decrease of $1,322,961 compared to $1,170,478 for the quarter ended September 30, 2018.

 

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Other income (expenses).

 

Net Other income (expenses) was $(133,474) for the three months ended September 30, 2019, a decrease of $1,734,653 compared to $1,868,127 for the three months ended September 30, 2018. The decrease in other expenses is caused mainly by a decrease in interest expense totaled of $1,651,182, from $134,839 for the three months ended September 30, 2019 from $1,786,021 for the three months ended September 30, 2018. The reduction of interest expenses accrued is due to the reduction of the loan initiated in the according quarter.

 

Provision for loan losses

 

Provision for loan losses is $38 for the three months ended September 30, 2019, compared to $81,937 for the three months ended September 30, 2018. We accrual 1% of total loan receivable as provision for loan losses. Balance of loan receivable for the currently quarter is zero, compared to $7,683,245 for the quarter ended September 30, 2018

  

Provision for income tax

 

The provision for income tax is $58 for the three months ended September 30, 2019, compared to $0 for the three months ended September 30, 2018. The income tax provision for the three months ended September 30, 2019 was from Arki Tianjin E-Commerce due to the gain from its operations.

 

Net loss

 

Net loss for the three months ended September 30, 2019 was $285,899, a decrease of $411,750 compared to a net loss of $697,649 for the three months ended September 30, 2018. The decrease in net loss is mainly due to the reduction of revenues, decrease of operating expenses and sharp decrease of interest expenses.

 

Foreign currency translation

 

Our consolidated financial statements are expressed in U.S. dollars but the functional currency of our operating subsidiary is RMB. Results of operations and cash flows are translated at average exchange rates during the period, assets and liabilities are translated at the unified exchange rate at the end of the period and equity is translated at historical exchange rates. Translation adjustments resulting from the process of translating the financial statements denominated in RMB into U.S. dollars are included in determining comprehensive income. Foreign currency translation loss for the three months ended September 30, 2019 was $41,734, compared to translation gain of $100,193 for the three months ended September 30, 2018, a net decrease of foreign currency translation gain of $141,927. The decrease in foreign currency translation gain is caused by the fluctuation of RMB versus US $ for the two comparison periods.

 

Result of Operations - Comparison of the Nine Months Ended September 30, 2019 and 2018

 

Revenue

 

For the nine months ended September 30, 2019, we generated revenue of $228,159, a decrease of $1,639,719 compared to revenue of $1,867,878 for the nine months ended September 30, 2018. The decrease in revenue was mainly attributable to our lack of loan activities and therefore the absence of loan interest income and loan initiation fees generated from our lending business. The only type of income generated during the 2019 period was the commission income we earned in Arki Tianjin E-Commerce.

  

Revenue  for the nine months ended   September 30,
2019
    September 30,
2018
 
Arki Tianjin E-commerce:            
Commission Income   $ 228,159     $ 535,516  
Arki Network:                
Interest Income     -       888,241  
Service Fee Income     -       444,121  
Total   $ 228,159     $ 1,867,878  

 

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Cost of Revenue.

 

Cost of revenue was $0 and $296,080 for the nine months ended September 30, 2019 and 2018, respectively. There were no costs for the commission income we earned on the online platform for the nine months ended September 30, 2019, while the cost of revenue incurred for the 2018 period was the service fee we paid for the loans generated from our business lending business for the nine months ended September 30, 2018.

 

Gross Profit

 

As a result of the revenue and cost of revenue described above, we had gross profit of $228,159 for the nine months ended September 30, 2019, a decrease of $1,343,639 comparing to the gross profit of $1,571,798 for the nine months ended September 30, 2018. The decrease was mainly caused by the absence of loans generated from our business lending business and the commencement of the online platform for the nine months ended September 30, 2019.

 

Selling, general and administrative expenses.

 

Operating expenses for the nine months ended  September 30,
2019
   September 30,
2018
 
Selling Expenses  $-   $- 
General and Administrative   811,455    830,541 
Total  $811,455   $830,541 

 

General and administrative expenses were $811,455 for the nine months ended September 30, 2019, a slight decrease of $19,086 compared to $830,541 for the nine months ended September 30, 2018. General and administrative expenses consist of salaries, professional fees, office expenses, rent, utilities, business travel, depreciation and amortization expenses, listing company expenses (including legal expenses, accounting expenses and investor relations expenses, etc.).

 

General and Administrative expenses for the nine months ended  September 30,
2019
   September 30,
2018
 
Consulting and investor relations  $108,314   $148,125 
Legal, audit fees and professional services   262,035    275,942 
Salaries   86,500    75,661 
Rent   137,036    116,034 
Office expenses   64,830    30,896 
Travel   29,403    32,197 
Depreciation   68,293    74,331 
Advertising & promotion   16,659    45,347 
Meal and entertainment   12,006    2,128 
Insurance   2,861    8,903 
Bank charges   6,593    4,572 
Miscellaneous   16,925    16,403 
           
Total  $811,455    830,541 

 

Loss from operations.

  

As a result of the factors described above, operating losses was $583,296 for the nine months ended September 30, 2019, a net decrease of operating gain of $1,324,553 comparable to the operating gain of $741,257 for the nine months ended September 30, 2018.

 

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Other income (expenses)

 

Net other expenses were $1,260,470 for the nine months ended September 30, 2019, a decrease of $1,300,556 compared to the net other expenses of $2,561,026 for the nine months ended September 30, 2018. The decrease was mainly caused by the decrease of interest expense of $1,237,387, a net decrease of provision for loan losses of $85,289, offset by the decrease of interest income of $24,146 and net income increase of $2,018. Interest expense decrease was caused by the reduction of the Bangnitou business in Arki Capital.

 

Income tax.

 

We had income tax expense of $5,183 and $0 for the nine months ended September 30, 2019 and 2018, respectively, due to the net income we had in Arki Tianjin E-Commerce for the nine months ended September months ended September 30, 2019 and operating loss for the same period in 2018.

  

Net loss

 

As a result of the factors described above, our net loss was $1,848,949 and $1,819,769, respectively for the nine months ended September 30, 2019 and 2018, a slight increase in loss of $29,180 or 2%.

 

Net loss attributable to the company.

 

Net loss attributable to the Company was $1,147,402, or $0.04 per share (basic and diluted), for the nine months ended September 30, 2019, compared to a net loss of $958,062, or $0.03 per share (basic and diluted), for the nine months ended September 30, 2018.

 

Foreign currency translation.

 

Our consolidated financial statements are expressed in U.S. dollars while the functional currency of our operating subsidiary is RMB. Results of operations and cash flows are translated at average exchange rates during the period, assets and liabilities are translated at the unified exchange rate at the end of the periods and equity is translated at historical exchange rates. Translation adjustments resulting from the process of translating the financial statements denominated in RMB into U.S. dollars are included in determining comprehensive income. Foreign currency translation loss for the nine months ended September 30, 2019 was $171,784, compared to a translation gain of $201,229 for the nine months ended September 30, 2018. The foreign currency translation gain and loss is due to the fluctuation of the exchange rate between USD and RMB for the comparable periods.

 

Liquidity and Capital Resources

 

All of our business operations are carried out by our PRC subsidiaries or variable interest entities, and all of the cash generated by our operations has been held by those entity. In order to transfer such cash to our parent entity, Consumer Capital Group, Inc., which is a Delaware corporation, we would need to rely on dividends, loans or advances made by our PRC subsidiaries. Such transfers may be subject to certain regulations or risks. To date, our parent entity has paid its expenses by raising capital through private placement transactions. In the future, in the event that our parent entity is unable to raise needed funds from private investors, our PRC subsidiaries or variable interest entities would have to transfer funds to our parent entity.

 

As shown in our financial statements, we have negative cash flows from operations. Over the past years, we have been funded through advances from related parties, including our CEO Jianmin Gao and COO Fei Gao. These advances are non-interest bearing and have no specified maturity date. Because these individuals are also shareholders of the company, they are willing to provide continuing funding on an as-needed basis. However, as of the date of hereof, such related parties do not have any existing obligation to advance funds or working capital to support our business, nor can our company rely on any advance funds from such related parties. In the event that we do not have sufficient working capital to fund the expansion of our operations and to provide working capital necessary for our ongoing operations and obligations, we may need to raise additional capital to fund our operating expenses, pay our obligations and grow our company. Financing transactions may include the issuance of equity or debt securities, obtaining credit facilities, or other financing mechanisms. In addition, a downturn in the U.S. equity and debt markets could make it more difficult to obtain financing through the issuance of equity or debt securities. Even if we are able to raise the funds required, it is possible that we could incur unexpected costs and expenses, fail to collect amounts owed to us, or experience unexpected cash requirements that would force us to seek alternative financing. We may incur additional interest expense on new external debt due to paying market rates of interest if we decided to fund the operation through external debt. Furthermore, if we issue additional equity or debt securities, stockholders may experience additional dilution or the new equity securities may have rights, preferences or privileges senior to those of existing holders of our common stock. The inability to obtain additional capital will restrict our ability to grow and may reduce our ability to continue to conduct business operations.

 

46

 

 

The RMB cannot be freely exchanged into Dollars. The State Administration of Foreign Exchange (“SAFE”) administers foreign exchange dealings and requires that they be conducted though designated financial institutions.

 

These factors will limit the amount of funds that we can transfer from our PRC Subsidiaries to our parent entity and may delay any such transfer. In addition, upon repatriation of earnings of PRC Subsidiaries to the United States, those earnings may become subject to United States federal and state income taxes. We have not accrued any U.S. federal or state tax liability on the undistributed earnings of our foreign subsidiary because those funds are intended to be indefinitely reinvested in our international operations. Accordingly, taxes imposed upon repatriation of those earnings to the U.S. would reduce the net worth of the Company.

 

For the nine months ended September 30, 2019 and 2018, there were no shares issued or retired.

 

As of September 30, 2019 and December 31, 2018, cash and cash equivalents were $67,381 and $501,350, respectively.

 

The following table sets forth information about our net cash flow for the nine months ended September 30, 2019 and 2018:

 

Cash Flows Data:

 

   For nine months ended
September 30,
 
   2019   2018 
Net cash flows used in operating activities  $(2,198,393)  $(1,025,598)
Net cash flows provided by (used in) investing activities   334,368    (7,747,495)
Net cash flows provided by financing activities   1,961,792    10,206,286 

 

Net cash flow used in operating activities was $2,198,393 for the nine months ended September 30, 2019, compared to $1,025,598 used by operating activities for the nine months ended September 30, 2018, a decrease in cash used of $1,172,795. The decrease in cash flow used in operating activities was mainly due to the cash flow used in other receivables, right-of-use assets, and amounts repaid to related parties.

 

Net cash flow provided by investing activities was $334,368 for the nine months ended September 30, 2019, compared to $7,747,495 cash used in investing activities for the nine months ended September 30, 2018, a net increase of cash provided of $8,081,863. The cash flow was provided by the loans from customers of $335,199, net of usage in equipment purchasing of $831.

 

Net cash flow provided by financing activities was $1,961,792 for the nine months ended September 30, 2019, compared to the cash provided of $10,206,286 for the nine months ended September 30, 2018, a decrease of cash provided of $8,244,494. The change is due to the decrease of loan proceeds for the nine months ended September 30, 2019 compared to the same period of 2018.

  

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Going Concern

 

We expect existing resources, revenues generated from operations, and proceeds received from other transactions we are considering (of which there can be no assurance) to satisfy working capital requirements for at least the next twelve months, however, no assurances can be given, that we will be able to generate sufficient cash flow from operations or complete other transactions to satisfy our other obligations. The accompanying consolidated financial statements do not include any adjustments to the recoverability and classification of assets carrying amounts or the amounts and classifications of liabilities that might result from the outcome of these uncertainties. Accordingly, the Company needs to raise additional capital and is exploring potential transactions to improve its capital position. Unless we increase revenues substantially or generate additional capital from other transactions, current cash resources will only satisfy working capital needs for a limited period of time.

 

Management has concluded that due to the conditions described above, there is substantial doubt about the entity’s ability to continue as a going concern. While our plan is to raise capital from commercial operations to address our capital deficiencies and meet our operating cash requirements, we will need to seek capital from other sources will need to seek capital from other sources. We would expect to raise additional funds through obtaining a credit facility from an institutional lender or undertaking a private or registered financing. Raising additional funds by issuing equity or convertible debt securities may cause stockholders to experience substantial dilution in their ownership interests and new investors may have rights superior to the rights of other stockholders. Raising additional funds through debt financing or preferred stock, if available, may involve covenants that restrict the Company’s business activities and options and such additional securities may have powers, designations, preferences or rights senior to currently outstanding securities. We may also enter into financing transactions which involve the granting of liens on the Company’s assets or which grant preferences of payment from its revenue streams, all of which could adversely impact the Company’s ability to rely on revenue from operations to support ongoing operating costs. Currently, we do not have any definitive agreements with any third parties for such transactions and there can be no assurance that we will be successful in raising additional capital or securing financing when needed or on terms satisfactory to the Company. We cannot assure you that financing will be available on favorable terms or at all. If we are unable to raise additional capital when required, or on acceptable terms, we will need to reduce costs and operations substantially, which would have a material adverse effect on the Company’s business, financial condition and results of operations.

 

Concentration of Credit Risk

 

Assets that potentially subject our Company to significant concentration of credit risk primarily consist of cash and cash equivalents, and accounts receivable. The maximum exposure of such assets to credit risk is our carrying amounts as of the balance sheet dates. As of September 30, 2019 and December 31, 2018, substantially all of our cash and cash equivalents were deposited in financial institutions located in the PRC, which management believes are of high credit quality. We believe the credit risk on bank deposits is limited because the counterparties are banks with high credit ratings assigned by international credit rating agencies, or state-owned banks in China. Cash includes cash on hand and demand deposits in accounts maintained with state-owned banks within the PRC and the United States of America. Balances at financial institutions or state-owned banks within the PRC are not covered by insurance. Nonperformance by these institutions could expose our Company to losses for amounts in excess of insured balances. As of September 30, 2019 and December 31, 2018, no bank balances with the banks in U.S. exceeded the U.S. federal insured amount. As of September 30, 2019 and December 31, 2018, bank balances with the banks in the PRC amounted to $61,420 and $489,358, respectively, which are uninsured and subject to credit risk. We have not experienced nonperformance by these institutions since the beginning of our operations.

 

Financial instruments that potentially subject us to significant concentrations of credit risk consist principally of cash and cash equivalents, loan receivable from borrowers and the related accrued interest receivable. The aforementioned borrowers paid service fee and interest regularly according to the contract during the reporting period, and the Company believed that the default risk from this borrower is low in the foreseeable future.

 

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We had no bad debt from the loans since we started the business lending business in 2016. For conservative purpose, we keep a bad debt reserve of 1% for the amount that is past due. No single borrower has a loan balance over 10% of the total loan outstanding as of September 30, 2019 and December 31, 2018.

 

Lease commitments

 

Our corporate headquarters are located at 1125 Route 9W S., Nyack, NY 10960. We signed a lease agreement with a related party individual to rent this property as our headquarter in New York starting from January 1, 2019 to December 31, 2021 for a monthly rent of $5,000. It includes all utilities and other fees. Pursuant to the lease agreement, we pay for leasehold improvements and have the right to renew the lease agreement at the end of the lease term.

 

We operate our business in China in an office leased by Arki Network in Beijing. On January 3, 2017, Arki Network entered into a Lease Transfer Agreement pursuant to which Arki Network became the lessee of an office located at Gaobeiidian Section 1, Unit 7-2, Chaoyang District, Beijing, China. Pursuant to the terms of the Lease Transfer Agreement, Arki Network agreed to pay an annual rent of RMB 350,000 (approximately US$50,000) for 450 square meters of office space. The Lease Transfer Agreement became effective on January 16, 2017 and will expire on January 15, 2022.

 

We signed a lease agreement under Arki Capital to lease an office location of 190 square meters located at 17 Zhujiang West Road, Tianhe District, Guangzhou, China. The lease term is from March 1, 2019 to February 28, 2021. It calls for a monthly rent of RMB32,310 (approximately $4,790). The initial deposit for the lease is RMB 96,930 (approximately $14,360).

 

Other Receivables

 

Other receivables were $423,478 as of September 30, 2019, comparing to $35,544 as of December 31, 2018. Other receivables consist of:

  

  a) $21,269 and $13,483 as of September 30, 2019 and December 31, 2018, respectively, were incurred by Arki Network. These amounts represent sums paid by Arki Network for other parties. Arki Network received all amount subsequently.

 

  b) $66,373 and $2,823 as of September, 2019 and December 31, 2018, respectively, were paid by Arki Capital for other parties.

 

  c) $15,285 and $15,886 as of September 30, 2019 and December 31, 2018, respectively, were paid by American Pine for other parties.

 

  d) $0 and $2,400 as of September 30, 2019 and December 31, 2018, respectively, represent refundable deposits for the rent of Consumer Capital Group, Inc. at its former premises in the U.S. This was treated as the last rent payment when we vacated such premises at the end of 2018.

 

  e) $114,667 and $193 as of September 30, 2019 and December 31, 2018, respectively, were paid by Arki E-commerce for other parties.

 

  f) $205,884 and $759 as of September 30, 2019 and December 31, 2018, respectively, belong to Arki Tianjin E-commerce.

 

Prepaid Expenses

 

Prepaid expenses were $421,142 and $508,499 as of September 30, 2019 and December 31, 2018, respectively. The prepaid expenses as of September 30, 2019 consist of three parts: (1) $320,896 representing Arki Capital’s security deposit, (2) $72,240 represents prepaid expense incurred by Arki Network for prepaid rent at the beginning of the year, and (3) $27,976 was incurred in Arki E-Commerce.

 

The prepaid expenses as of December 31, 2018 consisted of $54,064 of prepaid expense by Arki Network; a security deposit of $453,235, and $1,200 prepaid rent of Consumer Capital Group, Inc.

 

STOCK SUBCRIPTION

 

The Company entered into a series of Securities Purchase Agreements with various unrelated third-party purchasers, pursuant to which the Company is obligated to issue an aggregate of 602,689 shares of common stock for an aggregate offering price of $2,565,488 approximately. Of these shares, (1) 507,328 shares were subscribed to by five Bangnitou investors who elected to take the Company’s shares at prices ranging from $4.00 to $4.50 per share and (2) 95,361 shares were subscribed to by other persons at prices ranging from $2.50 to $5.30 per share. The aggregate amount of $2,565,488 was recognized as stock subscription in the condensed consolidated statements of changes in stockholders’ equity.

 

49

 

  

Off-Balance Sheet Arrangements

 

We have not entered into any other financial guarantees or other commitments to guarantee the payment obligations of any third parties. We have not entered into any derivative contracts that are indexed to our shares and classified as stockholders’ equity or that are not reflected in our financial statements. Furthermore, we do not have any retained or contingent interests in assets transferred to an unconsolidated entity that serves as credit, liquidity, or market risk support to such entity. We do not have any variable interests in any unconsolidated entity that provides financing, liquidity, market risk, or credit support to us or engages in leasing, hedging, or research and development services with us. 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

 

Not required because we are a smaller reporting company. 

 

Item 4. Controls and Procedures.

 

Evaluation of Disclosure Controls and Procedures

 

Pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934 (“Exchange Act”), the Company carried out an evaluation, with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Company’s disclosure controls and procedures (as defined under Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures and internal control over financial reporting were not effective as of September 30, 2019 due to the material weaknesses describe below.

 

As previously reported, our management identified the following material weaknesses in the Company’s internal control over financial reporting environment:

 

  a) Inadequate segregation of duties. In various accounting processes, applications and systems we did not design, establish and maintain procedures and controls to adequately segregate job responsibilities for initiating, authorizing and recording transactions, nor were there adequate mitigating or monitoring controls in place.

 

  b) Inadequate policies and procedures. We did not design, establish and maintain effective GAAP compliant financial accounting policies and procedures.

 

  c) Inadequate personnel. We had a lack of experienced personnel with relevant financial reporting and accounting expertise and knowledge of U.S. GAAP and SEC reporting requirements to properly address complex U.S. GAAP accounting issues and to prepare and review our consolidated financial statements and related disclosures to fulfill U.S. GAAP and SEC financial reporting requirements.

 

Due to these material weaknesses, we were not able to timely file our Annual Report on Form 10-K for the year ended December 31, 2017 and also determined that we needed to file amendments to our Annual Report on Form 10-K for the year ended December 31, 2017, our Quarterly Reports on Form 10-Q for the fiscal quarters ended June 30, 2017 and June 30, 2018, and our Quarterly Reports on Form 10-Q for the fiscal quarters ended March 31, 2019 and June 30, 2019. Additionally, in light of these material weaknesses, we have restated certain financial information from our Quarterly Report on Form 10-Q for the quarter ended September 30, 2018 in this report, as described in Note 3 to the condensed financial statements filed with this report. In addition, we need to perform additional analyses and other post-closing procedures to ensure that our financial statements are prepared in accordance with GAAP.

 

To further remediate these weaknesses, we intend to undertake the following steps: (i) hire, as needed, additional accounting personnel with technical accounting expertise and reorganize the finance department to ensure that accounting personnel with adequate experience, skills and knowledge relating to complex, non-routine transactions are directly involved in the review and accounting evaluation of our complex, non-routine transactions; (ii) improve the documentation of corporate policies and procedures to ensure our financial statements are prepared in accordance with GAAP, including adequately describing in detail the controls necessary for each transaction cycle and the controls that are necessary to properly account and communicate transactions on a timely basis to both financial and non-financial personnel; and (iii) provide training to personnel in our accounting and reporting functions on a continuing basis to ensure the correct application of GAAP to our financial statements and adherence to the written policies and procedures. Our ability to implement these remedial measures, however, is impacted by our limited financial resources.

 

Changes in Internal Controls over Financial Reporting

 

There has been no change in our internal control over financial reporting that occurred during the fiscal quarter covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. We will continue to monitor and remediate the weaknesses identified in our internal controls and make changes that our management deems necessary, subject to the constraints imposed on us due to our limited financial resources.

 

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PART II—OTHER INFORMATION

 

Item 1. Legal Proceedings.

 

There are no other actions, suits, proceedings, inquiries or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of our company or any of our subsidiaries, threatened against or affecting our company, our common stock, any of our subsidiaries or of our companies or our subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.

 

Item 1A. Risk Factors.

 

Our operating results and financial condition have varied in the past and may in the future vary significantly depending on a number of factors. In addition to the other information set forth in this report, you should carefully consider the factors discussed in the “Risk Factors” section in our Annual Report on Form 10-K for the year ended December 31, 2018 and in our other reports filed with the SEC for a discussion of the risks associated with our business, financial condition and results of operations. These factors, among others, could have a material adverse effect upon our business, results of operations, financial condition or liquidity and cause our actual results to differ materially from those contained in statements made in this report and presented elsewhere by management from time to time. The risks identified by the Company in its reports are not the only risks facing it. Additional risks and uncertainties not currently known to us or that we currently believe are immaterial also may materially adversely affect our business, results of operations, financial condition or liquidity. Other than the risks described elsewhere in this Quarterly Report, we believe there have been no material changes in our risk factors from those disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018.

 

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

 

There were no unregistered sales of the Company’s equity securities during the three months ended September 30, 2019 that were not otherwise disclosed in a Current Report on Form 8-K or elsewhere in this report. In addition, we have accepted subscriptions for an aggregate of 602,689 of common stock from certain persons and the Company has received, or anticipates receiving, a total of $2,565,488. The sales of these shares transpired solely in China and were believed by management to be exempt from the registration requirements of Securities Act of 1933, as amended. However, if these transactions were not properly executed pursuant to available exemptions under the Securities Act of 1933 or exemptions promulgated thereunder, the Company may be required to offer rescission rights to purchasers of such shares. The Company is re-evaluating these transactions in order to ensure compliance with applicable regulations and if necessary, will modify the structure of these transactions accordingly. The Company has not issued these shares as of the date of this report.

 

Item 3. Defaults Upon Senior Securities.

 

There has been no default in the payment of principal, interest, sinking or purchase fund installment, or any other material default, with respect to any indebtedness of the Company. 

 

Item 4. Mine Safety Disclosures.

 

Not applicable.

 

Item 5. Other Information.

 

There is no other information required to be disclosed under this item which was not previously disclosed. 

  

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Item 6. Exhibits.

 

Exhibit
Number
  Description
     
31.1   Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of Sarbanes-Oxley Act of 2002.
31.2   Certification of Principal Accounting Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of Sarbanes-Oxley Act of 2002.
32.1+   Certification of Principal Executive Officer pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2+   Certification of Principal Accounting Officer pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS   XBRL Instance Document
101.SCH   XBRL Taxonomy Schema Document
101.CAL   XBRL Taxonomy Calculation Linkbase Document
101.DEF   XBRL Taxonomy Definition Linkbase Document
101.LAB   XBRL Taxonomy Label Linkbase Document
101.PRE   XBRL Taxonomy Presentation Linkbase Document

 

+In accordance with SEC Release 33-8238, Exhibits 32.1 and Exhibit 32.2 are being furnished and not filed.

  

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

  CONSUMER CAPITAL GROUP, INC.
   
Dated: November 19, 2019 By: /s/ Jianmin Gao
    Jianmin Gao
    Chief Executive Officer

 

Dated: November 19, 2019 By: /s/ Crystal L. Chen
    Crystal L. Chen
    Chief Financial Officer

 

 

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