CONSUMER CAPITAL GROUP, INC. This Quarterly Report on Form 10-Q and other reports filed byConsumer Capital Group, Inc. ("we," "us," "our," or the "Company") from time to time with theU.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 ofthe 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 inthe 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.
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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 inthe 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 endedSeptember 30, 2019 ,Arki Capital received funds ofRMB 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 andArki 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 byArki Capital from a third-party non-affiliate shareholder. This business is not conducted inthe United States . We expectArki 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
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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 byChina's economic and regulation conditions in the following factors: (a) an economic downturn inChina or any regional market inChina ; (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 fromChina'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 inthe 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. TheSEC 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 theU.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 intoUnited 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 intoU.S. dollars are included in determining
comprehensive income.
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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, December 31,
2019 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.
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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. OnAugust 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.
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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 ofSeptember 30, 2019 andDecember 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.
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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 endedSeptember 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 endedSeptember 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 endedSeptember 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
The following table sets forth the results of our operations for the periods indicated inU.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 For the nine months ended September 30, September 30, (Unaudited) (Unaudited) 2019 2018 2019 2018
REVENUE
Interest income on loans-third parties $ -
$ -$ 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 ) 41 For the three months ended For the nine months ended September 30, 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 )
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
Revenue For the three months endedSeptember 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 endedSeptember 30, 2018 . The revenues generated for the three months endedSeptember 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 endedSeptember 30, 2018 was commission income from loans earned byArki 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
Cost of Sales Cost of sales for the three months endedSeptember 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 endedSeptember 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 endedSeptember 30, 2018 . Gross Profit
Gross profit was
Operating expenses.
September 30, September 30,
Operating expenses for the three months ended 2019 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 $213,020 for the three
months ended September 30, 2018 . Operating expenses consist of salaries, office
expenses, utilities, business travel, depreciation expenses, public company
expenses (including legal, accounting expenses and investor relations expenses,
etc.). The following table details general and administrative expenses we
incurred for the three months ended September 30, 2019 and 2018.
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September 30, September 30,General and Administrative expenses for the three months ended 2019 2018 Consulting and investor relations$ 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 endedSeptember 30, 2019 , a net decrease of$1,322,961 compared to$1,170,478 for the quarter endedSeptember 30, 2018 . 43 Other income (expenses). Net Other income (expenses) was$(133,474) for the three months endedSeptember 30, 2019 , a decrease of$1,734,653 compared to$1,868,127 for the three months endedSeptember 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 endedSeptember 30, 2019 from$1,786,021 for the three months endedSeptember 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 endedSeptember 30, 2019 , compared to$81,937 for the three months endedSeptember 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 endedSeptember 30, 2018 Provision for income tax The provision for income tax is$58 for the three months endedSeptember 30, 2019 , compared to$0 for the three months endedSeptember 30, 2018 . The income tax provision for the three months endedSeptember 30, 2019 was from Arki Tianjin E-Commerce due to the gain from its operations. Net loss Net loss for the three months endedSeptember 30, 2019 was$285,899 , a decrease of$411,750 compared to a net loss of$697,649 for the three months endedSeptember 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 inU.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 intoU.S. dollars are included in determining comprehensive income. Foreign currency translation loss for the three months endedSeptember 30, 2019 was$41,734 , compared to translation gain of$100,193 for the three months endedSeptember 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
Revenue For the nine months endedSeptember 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 endedSeptember 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.
September 30, September 30,
Revenue for the nine months ended 2019 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 endedSeptember 30, 2019 and 2018, respectively. There were no costs for the commission income we earned on the online platform for the nine months endedSeptember 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 endedSeptember 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 endedSeptember 30, 2019 , a decrease of$1,343,639 comparing to the gross profit of$1,571,798 for the nine months endedSeptember 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 endedSeptember 30, 2019 .
Selling, general and administrative expenses.
September 30, September 30,
Operating expenses for the nine months ended 2019 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 endedSeptember 30, 2019 , a slight decrease of$19,086 compared to$830,541 for the nine months endedSeptember 30, 2018 . General and administrative expenses consist of salaries, professional fees, office expenses, rent, utilities, business travel, depreciation and amortization expenses, listing company expenses (including legal expenses, accounting expenses and investor relations expenses, etc.).September 30 ,September 30 ,
General and Administrative expenses for the nine months ended 2019 2018 Consulting and investor relations$ 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 endedSeptember 30, 2019 , a net decrease of operating gain of$1,324,553 comparable to the operating gain of$741,257 for the nine months
endedSeptember 30, 2018 . 45 Other income (expenses)
Net other expenses were$1,260,470 for the nine months endedSeptember 30, 2019 , a decrease of$1,300,556 compared to the net other expenses of$2,561,026 for the nine months endedSeptember 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 inArki Capital . Income tax. We had income tax expense of$5,183 and$0 for the nine months endedSeptember 30, 2019 and 2018, respectively, due to the net income we had in Arki Tianjin E-Commerce for the nine months ended September months endedSeptember 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
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 endedSeptember 30, 2019 , compared to a net loss of$958,062 , or$0.03 per share (basic and diluted), for the nine months endedSeptember 30, 2018 .
Foreign currency translation.
Our consolidated financial statements are expressed inU.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 intoU.S. dollars are included in determining comprehensive income. Foreign currency translation loss for the nine months endedSeptember 30, 2019 was$171,784 , compared to a translation gain of$201,229 for the nine months endedSeptember 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 aDelaware 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 CEOJianmin Gao and COOFei 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 theU.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
As of
The following table sets forth information about our net cash flow for the nine
months ended
Cash Flows Data:
For nine months ended
September 30,
2019 2018Net 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.
47
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 ofSeptember 30, 2019 andDecember 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 inChina . Cash includes cash on hand and demand deposits in accounts maintained with state-owned banks within the PRC andthe 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 ofSeptember 30, 2019 andDecember 31, 2018 , no bank balances with the banks inU.S. exceeded theU.S. federal insured amount. As ofSeptember 30, 2019 andDecember 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. 48 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 ofSeptember 30, 2019 andDecember 31, 2018 . Lease commitments Our corporate headquarters are located at1125 Route 9W S. ,Nyack, NY 10960. We signed a lease agreement with a related party individual to rent this property as our headquarter inNew York starting fromJanuary 1, 2019 toDecember 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 inChina in an office leased by Arki Network inBeijing . OnJanuary 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 ofRMB 350,000 (approximatelyUS$50,000 ) for 450 square meters of office space. The Lease Transfer Agreement became effective onJanuary 16, 2017 and will expire onJanuary 15, 2022 . We signed a lease agreement underArki Capital to lease an office location of 190 square meters located at17 Zhujiang West Road ,Tianhe District ,Guangzhou, China . The lease term is fromMarch 1, 2019 toFebruary 28, 2021 . It calls for a monthly rent ofRMB32,310 (approximately$4,790 ). The initial deposit for the lease isRMB 96,930 (approximately$14,360 ). Other Receivables
Other receivables were
a)
respectively, were incurred by Arki Network. These amounts represent sums
paid by Arki Network for other parties. Arki Network received all amount
subsequently.
b)
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)
represent refundable deposits for the rent of
its former premises in the
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 inArki E-Commerce. The prepaid expenses as ofDecember 31, 2018 consisted of$54,064 of prepaid expense by Arki Network; a security deposit of$453,235 , and$1,200 prepaid rent ofConsumer 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.
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