Attached files
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2011
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 333-152330
Consumer Capital Group Inc.
(Exact name of registrant as specified in its charter)
Delaware 26-2517432
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
35 North Lake Avenue, Suite 280, Pasadena, CA 91101
(Address of principal executive offices)
(626) 568-3368
(Registrant's telephone number, including area code)
No change
(Former name, former address and former fiscal year,
if changed since last report)
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 [X] No [ ].
Indicate by check mark whether the registrant has submitted electronically and
posted on its corporate website, if any, every Interactive Data File required to
be submitted and posted pursuant to Rule 405 of Regulation S-T (ss.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, or a non-accelerated file. See definition of accelerated
filer and large accelerated filer in Rule 12b-2 of the Exchange Act. (Check
one):
Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [ ] Smaller reporting company [X]
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes [ ] No [X].
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes [ ] No [ ].
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 18,888,889 shares of common
stock, par value $.0001 per share, outstanding as of May 16, 2011.
CONSUMER CAPITAL GROUP INC.
- INDEX -
Page
----
PART I - FINANCIAL INFORMATION:
Item 1. Financial Statements 3
Condensed Consolidated Balance Sheets as of March 31, 2011
(Unaudited) and December 31, 2010 3
Condensed Consolidated Statements of Operations (Unaudited)
for the Three Months Ended March 31, 2011 and 2010 4
Condensed Consolidated Statements of Changes in Stockholders'
Equity 5
Condensed Consolidated Statements of Cash Flows (Unaudited)
for the Three Months Ended March 31, 2011 and 2010 6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 28
Item 3. Quantitative and Qualitative Disclosures About Market Risk 34
Item 4. Controls and Procedures 34
PART II - OTHER INFORMATION:
Item 1. Legal Proceedings 35
Item 1A. Risk Factors 35
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 35
Item 3. Defaults Upon Senior Securities 35
Item 4. Removed and Reserved 35
Item 5. Other Information 35
Item 6. Exhibits 36
Signatures 37
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
CONSUMER CAPITAL GROUP, INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, December 31,
2011 2010
------------ ------------
(Unaudited)
ASSETS
Cash & cash equivalents $ 1,088,959 $ 3,015,219
Accounts receivable 398,237 306,935
Inventory 520,820 334,972
Prepaid expenses 115,338 259,272
Other receivables 963 64,512
Related party receivable -- 125,528
------------ ------------
Total current assets 2,124,317 4,106,438
------------ ------------
Equipment, net 50,257 47,644
Other assets 196,353 258,285
------------ ------------
Total noncurrent assets 246,610 305,929
------------ ------------
Total assets $ 2,370,927 $ 4,412,367
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 317,210 $ 531,729
Accrued liabilities 102,820 759,983
Deferred revenue 32,838 125,455
Taxes payable 88,649 494,057
Other payables 94,878 19,199
Related party payables 608,079 256,199
------------ ------------
Total current liabilities 1,244,474 2,186,622
------------ ------------
STOCKHOLDERS' EQUITY
Common stock, $0.0001 par value, 100,000,000 shares authorized
18,888,889 and 17,777,778 shares issued and outstanding as of
March 31, 2011 and December 31, 2010, respectively 1,889 1,778
Discount on common stock issued to founders (130,875) (130,741)
Additional paid-in capital (1) 2,218,252 2,253,354
Noncontrolling interest in subsidiary 1,582 1,039
Accumulated other comprehensive income 79,477 78,775
Accumulated earnings (Deficit) (1,043,872) 21,540
------------ ------------
Total stockholders' equity 1,126,453 2,225,745
------------ ------------
Total liabilities and stockholders' equity $ 2,370,927 $ 4,412,367
============ ============
(1) The December 31, 2010 capital accounts of the Company have been
retroactively restated to reflect the equivalent number of common shares
based on the exchange ratio of the merger transaction. See Note 2.
The accompanying notes are an integral part of these
condensed consolidated financial statements
3
CONSUMER CAPITAL GROUP, INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three months ended
-----------------------------------
March 31, March 31,
2011 2010
------------ ------------
Net revenues - ecommerce $ 606,791 $ --
Net revenues - distribution 1,340,413 --
Cost of sales - distribution 1,326,158 --
------------ ------------
Gross profit 621,046 --
Operating expenses:
Selling expenses 503,400 --
General & administrative expenses 872,472 100,443
------------ ------------
Total operating expenses 1,375,872 100,443
------------ ------------
Operating loss (754,826) (100,443)
Other income 80,958 --
Other (expense) (335,000) --
------------ ------------
Total other income (expense) (254,042) --
Loss before taxes (1,008,868) (100,443)
Provision for income taxes 56,544 --
------------ ------------
Net loss (1,065,412) (100,443)
Net income attributable to noncontrolling interest 543 --
------------ ------------
Net loss attributable to Consumer Capital Group, Inc. $ (1,064,869) $ (100,443)
============ ============
Loss per share - basic and diluted $ (0.06) $ (0.01)
============ ============
Weighted average number of common shares outstanding -
basic and diluted (2) 18,456,790 14,371,122
============ ============
Net loss (1,065,412) (100,443)
Other comprehensive income
Foreign currency translation adjustment 702 (5)
------------ ------------
Net comprehensive loss $ (1,064,710) $ (100,448)
============ ============
(2) The capital accounts of the Company have been retroactively restated to
reflect the equivalent number of common shares based on the exchange ratio
of the merger transaction in determining the basic and diluted weighted
average shares. See Note 2.
The accompanying notes are an integral part of these
condensed consolidated financial statements
4
CONSUMER CAPITAL GROUP, INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
Common Stock
----------------------- Discount on Additional
Amount Common Subscription Paid-In
Shares (par $.0001) Stock Receivable Capital
------ ------------ ----- ---------- -------
Balance at December 31, 2009 (1) 12,769,791 $1,277 $(104,457) $ (19,448) $ 756,973
Common stock for sales incentive 1,372,623 137 -- -- 301,325
Common stock to unrelated investors for cash 50,768 5 -- -- 551,249
Common stock to management and related parties
at a discount 2,628,419 263 (26,284) -- 26,221
Common stock to service providers 910,644 91 -- -- 199,909
Cash payment for stock subscription -- -- -- 19,448 407,682
Common stock for investment in joint venture 45,532 5 -- -- 9,995
Noncontrolling interest in subsidiary -- -- -- -- --
Foreign currency gain -- -- -- -- --
Net income -- -- -- -- --
---------- ------ --------- --------- ----------
Balance at December 31, 2010 (1) 17,777,777 1,778 (130,741) -- 2,253,354
Cancellation of stock to service providers (227,609) (23) -- -- (35,102)
Common Stock to management and related parties
at a discount 227,609 23 (23) -- --
Recapitalization on February 4, 2011 1,111,111 111 (111) -- --
Noncontrolling interest in subsidiary -- -- -- -- --
Foreign currency gain -- -- -- -- --
Net income -- -- -- -- --
---------- ------ --------- --------- ----------
Balance at March 31, 2011 (Unaudited) 18,888,888 $1,889 $(130,875) $ -- $2,218,252
========== ====== ========= ========= ==========
Accumulated
Other Accumulated
Noncontrolling Comprehensive Earnings
Interest Income (Deficit) Total
-------- ------ --------- -----
Balance at December 31, 2009 (1) $ -- $ 8,808 $ (795,408) $ (152,255)
Common stock for sales incentive -- -- -- 301,462
Common stock to unrelated investors for cash -- -- -- 551,254
Common stock to management and related parties
at a discount -- -- -- 200
Common stock to service providers -- -- -- 200,000
Cash payment for stock subscription -- -- -- 427,130
Common stock for investment in joint venture -- -- -- 10,000
Noncontrolling interest in subsidiary 970 -- -- 970
Foreign currency gain -- 69,967 -- 69,967
Net income 69 -- 816,948 817,017
------ ------- ----------- -----------
Balance at December 31, 2010 (1) 1,039 78,775 21,540 2,225,745
Cancellation of stock to service providers -- -- -- (35,125)
Common Stock to management and related parties
at a discount -- -- -- --
Recapitalization on February 4, 2011 -- -- -- --
Noncontrolling interest in subsidiary 543 -- -- 543
Foreign currency gain -- 702 -- 702
Net income -- -- (1,065,412) (1,065,412)
------ ------- ----------- -----------
Balance at March 31, 2011 (Unaudited) $1,582 $79,477 $(1,043,872) $ 1,126,453
====== ======= =========== ===========
(1) The December 31, 2010and 2009 capital accounts of the Company have been
retroactively restated to reflect the equivalent number of common shares
based on the exchange ratio of the merger transaction. See Note 2.
The accompanying notes are an integral part of these
condensed consolidated financial statements
5
CONSUMER CAPITAL GROUP, INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months ended
-----------------------------------
March 31, March 31,
2011 2010
------------ ------------
OPERATING ACTIVITIES
Net loss $ (1,065,412) $ (100,443)
Adjustments to reconcile net loss to cash
flows from operating activities:
Depreciation expense 3,504 834
Changes in operating assets and liabilities:
Accounts receivable (91,302) --
Inventory (185,848) --
Prepaid expenses 143,934 (3,087)
Other receivables 63,549 (261,817)
Other assets 61,932 (409)
Accounts payable (214,519) 221,332
Accrued liabilities (657,164) 90,869
Deferred revenue (92,617) --
Other payables 75,679 304,825
Taxes payable (405,408) (802)
Noncontrolling interest in subsidiary (543) --
------------ ------------
Cash flows provided by (used) in operating activities (2,364,215) 251,302
------------ ------------
INVESTING ACTIVITIES
Equipment purchased (6,117) (2,998)
------------ ------------
Cash flows used in investing activities (6,117) (2,998)
------------ ------------
FINANCING ACTIVITIES
Related party payable 351,880 (123,484)
Related party receivable 125,528 --
Repayment of short-term borrowings -- (250,100)
Proceeds from common stock issuance (34,038) 313,434
------------ ------------
Cash flows provided by financing activities 443,370 (60,150)
------------ ------------
Effect of exchange rate change on cash and cash equivalents 702 (109,256)
------------ ------------
Change in cash and cash equivalents during period (1,926,260) 78,898
Cash and cash equivalents, beginning of period 3,015,219 266,096
------------ ------------
Cash and cash equivalents, end of period $ 1,088,959 $ 344,994
============ ============
The accompanying notes are an integral part of these
condensed consolidated financial statements
6
CONSUMER CAPITAL GROUP, INC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION
ORGANIZATION
Consumer Capital Group, Inc. ("CCG" and/or the "Company") is a California
corporation incorporated on October 14, 2009. The accompanying condensed
consolidated financial statements include the financial statements of the
Company, its wholly owned subsidiaries and an affiliated PRC entity ("Affiliated
PRC Entity"), an entity controlled through contractual arrangements. On February
5, 2010, in connection with the execution of a Stock Right Transfer Agreement,
the Company formerly known as America Pine Bio-Tech, Inc. ("Former Company")
transferred 100% of the stock rights of its wholly owned subsidiary Arki
(Beijing) E-commerce Technology Co., Ltd. to CCG. The initial capitalization of
the Company was by way of an investment of $420,000 and registered capital of
$300,000 to Consumer Capital Group, Inc. Also on the same date, the Former
Company transferred 100% of its stock rights of America Pine (Beijing) Bio-Tech
to CCG.
On February 4, 2011, Mondas Minerals Corp. merged its newly-formed wholly-owned
subsidiary, CCG Acquisition Corp. into itself and changed its corporate name to
Consumer Capital Group, Inc. pursuant to a Plan and Agreement of Merger dated
February 4, 2011. On February 17, 2011, Mondas Minerals Corp. changed its name
to Consumer Capital Group, Inc. pursuant to Certificate of Ownership filed with
the Secretary of State of Delaware. On February 4, 2011, Consumer Capital
Group's wholly-owned subsidiary, CCG Acquisition Corp. was merged with and into
Consumer Capital Group, Inc. ("Subsidiary"), which survived and became Mondas
Minerals Corp. wholly-owned subsidiary (the "Merger"). Unless the context
specifies otherwise, as discussed in Note 2, references to the "Company" refers
to Subsidiary prior to the Merger, and Consumer Capital Group, Inc. and the
Subsidiary combined thereafter. The Company is principally engaged in the
development and operation of its nationwide online retailing platform "Chinese
Consumer Market Network" at www.ccmus.com, which provides a variety of
manufacturers and distributors a platform to promote and sell products and
services directly to consumers. The Company's principal operations and
geographic markets are in the People's Republic of China ("PRC").
Post 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 Subsidiary. 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 USD $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 Company common stock.
7
CONSUMER CAPITAL GROUP, INC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Details of the Company's wholly owned subsidiaries and its Affiliated PRC Entity
as of March 31, 2011 are as follows:
Consumer Capital Group Inc.
|
|
|
|
------------------------------------------------------------------------------------------
Investment { 100% 100% 100% 51%
Ratio { | | | |
| | | |
Company { Arki (Bejing) America Pine America Arki (Fuxin) Bejing Beitun
Name ( E-commerce (Bejing) Bio-Tech Inc Network Trade Co Ltd
Technology Corp Management Co. Ltd.
| |
| |
| Contractual
| Arrangements
| |
| |
----- Contractual Arrangements ---------- America Arki Network
Service Bejing Co, Ltd.
Percentage of
Date of Place of Ownership by Principal
Company Establishment Establishment the Company Activities
------- ------------- ------------- ----------- ----------
Consumer Capital Group October 14, 2009 Pasadena, n/a US holding company and
Inc. ("CCG" and "the California USA headquarters of the
Company") consolidated entities
Arki Beijing E-commerce March 6, 2008 PRC 100% (2) Maintains the various
Technology Corp. computer systems,
("Arki Beijing") software and data.
Owns the intellectual
property rights of
the "consumer market
network". Performed
principal e-commerce
operations prior to
December 2010
America Pine Beijing March 21, 2007 PRC 100% (2) Import and sales of
Bio-Tech, Inc. healthcare products
("America Pine Beijing") from the PRC. The
operations ceased
February 5, 2010
8
CONSUMER CAPITAL GROUP, INC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
America Arki Fuxin November 26, 2010 PRC 100% (2) Commencing in December
Network Management Co. 2010, performs the
Ltd. ("Arki Fuxin") principal daily
e-commerce operations,
transactions and
management of the
"consumer market network"
Beijing Beitun Trade November 29, 2010 PRC 51% (2)(2) Wholesale distribution
Co. Ltd. ("Beitun") and import/export of
domestic food and meat
products. Separate
business segment of
the Company
America Arki Network November 26, 2010 PRC 0%(2)(2)(2) Entity under common
Service Beijing Co. control through
Ltd. ("Arki Network contractual
Service" and "Affiliated relationships between
PRC Entity") Fei Gao and the
Company. Holds the
business license and
permits necessary to
conduct e-commerce
operations in the PRC
and maintains
compliance with
applicable PRC laws
----------
(2) Wholly foreign owned entities (WFOE)
(2)(2) Joint venture
(2)(2)(2) VIE
In order to comply with the PRC law 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 Service, a 100%
domestically owned entity. The equity interests of Arki Network Service are
legally held directly by Mr. Jian Min Gao and Mr. Fei Gao, shareholders and
directors of the Company. The effective control of Arki Network Service is held
by Arki Beijing and Arki Fuxin through a series of contractual arrangements (the
"Contractual Agreements"). As a result of the Contractual Agreements, Arki
Beijing and Arki Fuxin maintain the ability to control Arki Network Service, are
entitled to substantially all of the economic benefits from Arki Network Service
and are obligated to absorb all of Arki Network Services' expected losses.
Therefore, the Company consolidates Arki Network Service in accordance with SEC
Regulation SX-3A-02 and Accounting Standards Codification ("ASC") 810,
Consolidation.
The following is a summary of the Contractual Agreements:
LOAN AGREEMENT
The shareholders of Arki Network Service, namely Mr. Jian Min Gao and Mr. Fei
Gao, entered into a loan agreement with Arki Fuxin on February 3, 2011. Under
this loan agreement, Arki Fuxin granted an interest-free loan of RMB 1.0 million
to Mr. Jian Min Gao and Mr. Fei Gao, collectively, for their capital
contributions to Arki Network Service, as required by the PRC. The term of the
loan is for ten years from the date of execution until the date when Arki Fuxin
requests repayment. Arki Fuxin 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.
9
CONSUMER CAPITAL GROUP, INC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION (CONTINUED)
EXCLUSIVE CALL OPTION AGREEMENT
The shareholders of Arki Network Service entered into an option agreement with
Arki Fuxin on February 3, 2011, under which the shareholders of Arki Network
Service jointly and severally granted to Arki Fuxin an option to purchase their
equity interests in Arki Network Service. The purchase price will be set off
against the loan repayment under the loan agreement. Arki Fuxin may exercise
such option at any time until it has acquired all equity interests of Arki
Network Service or freely transferred the option to any third party and such
third party assumes the rights and obligations of the option agreement.
EXCLUSIVE BUSINESS COOPERATION AGREEMENT
Arki Fuxin and Arki Network Service entered into an exclusive business
cooperation agreement deemed effective on November 26, 2010, under which Arki
Network Service engages Arki Fuxin as its exclusive provider of technical
support, consulting services, maintenance and other commercial services. Arki
Network Service shall pay to Arki Fuxin service fees determined based on the net
income of Arki Network Service. Arki Fuxin 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 Service may not enter into any agreement with third
parties for the provision of identical or similar service without the prior
consent of Arki Fuxin.
SHARE PLEDGE AGREEMENT
The shareholders of Arki Network Service entered into a share pledge agreement
with Arki Fuxin on February 3, 2011 under which the shareholders pledged all of
their equity interests in Arki Network Service to Arki Fuxin as collateral for
all of the payments due to Arki Fuxin and to secure their obligations under the
above agreements. The shareholders of Arki Network Service 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 Arki Fuxin without Arki Fuxin's preapproval. Arki Fuxin is entitled
to transfer or assign in full or in part the shares pledged. In the event of
default, Arki Fuxin as the pledgee, will be entitled to request immediate
repayment of the loan or to dispose of the pledged equity interests through
transfer or assignment.
POWER OF ATTORNEY
The shareholders of Arki Network Service entered into a power of attorney
agreement with Arki Fuxin effective on November 26, 2010 under which the
shareholders irrevocably appointed Arki Beijing and
Arki Fuxin 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.
On March 28, 2011, the Company issued 300,000 prepaid debit cards in connection
with a previously executed definitive agreement with a Chinese domestic bank for
the purpose of establishing the capability of selling prepaid debit card
services to its customers and members. Under this agreement, the bank and
approved retail vendors can issue prepaid debit cards to the Company's customers
and members who sign up for the service and fund their individual accounts with
the bank. Members then use their card to purchase goods from the Company via its
website and also other retail point of sale transactions where Union Pay is
accepted. In order to incentivize members to sign up for the card, discounts are
offered at the point of sale.
10
CONSUMER CAPITAL GROUP, INC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVERSE MERGER ACCOUNTING
Since former Subsidiary security holders owned, after the Merger, approximately
94% of Consumer Capital Group Inc. shares of common stock, and as a result of
certain other factors, including that all members of the Company's executive
management are from Subsidiary, Subsidiary is deemed to be the acquiring company
for accounting purposes and the Merger was accounted for as a reverse merger and
a recapitalization in accordance with generally accepted accounting principles
in the United States ("GAAP"). These condensed consolidated financial statements
reflect the historical results of Subsidiary prior to the Merger and that of the
combined Company following the Merger, and do not include the historical
financial results of Consumer Capital Group Inc. prior to the completion of the
Merger. Common stock and the corresponding capital amounts of the Company
pre-Merger have been retroactively restated as capital stock shares reflecting
the exchange ratio in the Merger.
BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared in
accordance with United States generally accepted accounting principles ("U.S.
GAAP").
PRINCIPLES OF CONSOLIDATION
The accompanying unaudited condensed consolidated financial statements primarily
reflect the financial position, results of operations and cash flows of
Subsidiary (as discussed above). The accompanying unaudited condensed
consolidated financial statements of Subsidiary have been prepared in accordance
with GAAP for interim financial information and pursuant to the instructions to
Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange
Commission. Accordingly, these interim financial statements do not include all
of the information and footnotes required by GAAP for annual financial
statements. In the opinion of management, all adjustments (consisting only of
normal recurring adjustments) considered necessary for a fair presentation have
been included. Operating results for the three months ended March 31, 2011 are
not necessarily indicative of the results that may be expected for the year
ending December 31, 2011, or for any other period. Amounts related to
disclosures of December 31, 2010, balances within those interim condensed
consolidated financial statements were derived from the audited 2010
consolidated financial statements and notes thereto filed on Form 8-K on
February 10, 2011.
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries based in the PRC, which include America Pine
(Beijing) Bio-Tech, Inc., Arki (Beijing) E-Commerce Technology Corp., Beijing
Beitun Trading Co., Ltd. and America Arki (Fuxin) Network Management Co. Ltd. As
a result of contractual arrangements with Arki Network Service, the Company
consolidates Arki Network Service in accordance with SEC Regulation SX-3A-02 and
Accounting Standards Codification ("ASC") 810, Consolidation (see Note 1). All
significant intercompany transactions and balances have been eliminated in
consolidation.
11
CONSUMER CAPITAL GROUP, INC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America 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. Significant estimates and assumptions reflected in
the Company's financial statements include, but are not limited to, customer
incentives, allowances for doubtful accounts, lower of cost or market of
inventories, useful lives of long-lived assets, share-based compensation expense
and uncertain tax positions. Actual results could differ from those estimates.
FOREIGN CURRENCY TRANSLATION
The reporting currency is the U.S. dollar. The functional currency of the
Company is the local currency, the Chinese Yuan (RMB). The financial statements
of the Company are translated into United States dollars in accordance with ASC
830, FOREIGN CURRENCY MATTERS (Pre-codification: Statement of Financial Accounts
Standards ("SFAS") No. 52, FOREIGN CURRENCY TRANSLATION, using year-end 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. At March 31, 2011 and December 31, 2010, the cumulative
translation adjustment of $79,477 and $78,775, respectively, was classified as
an item of other comprehensive income in the stockholders' equity (deficit)
section of the consolidated balance sheets. At March 31, 2011 and March 31,
2010, the foreign currency translation adjustment to accumulated other
comprehensive income (loss) was $702 and ($5), respectively.
REVENUE RECOGNITION
We recognize revenue from product sales or services rendered when the following
four revenue recognition criteria are met: persuasive evidence of an arrangement
exists, delivery has occurred or services have been rendered, the selling price
is fixed or determinable, and collectability is reasonably assured.
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.
Our sales are net of promotional discounts and rebates and are recorded when the
products are shipped and title passes to customers. Revenues are recorded net of
sales and consumption taxes. We periodically provide incentive offers to our
customers to encourage purchases. Such offers include current discount offers,
such as percentage discounts off current purchases, inducement offers, such as
daily sweepstakes reward opportunities which is based on volume of purchases,
and other similar offers. Current discount offers and inducement offers are
presented as a net amount in "Net revenues."
12
CONSUMER CAPITAL GROUP, INC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 7 day grace period offered to customers for potential product
disputes, if any. Deferred revenues totaled $32,838 and $125,455 as of March 31,
2011 and December 31, 2010, respectively.
We offered a temporary limited time promotion for a fixed period during the year
ended December 31, 2010 where customers were incentivized to purchase from our
E-commerce platform and in exchange, were awarded points which were then
converted to common shares of the Company. These shares were valued using Level
2 inputs for determining fair value and deducted from revenues. For the year
ended December 31, 2010, $301,462 was recognized as contra revenue on a "net"
basis. During the Quarter ended March 31, 2011, there were no promotional
expenses incurred due to cancellation of the program.
DISTRIBUTION REVENUE RECOGNITION
Product sales and shipping revenues, net of return allowances, are recorded when
the products are shipped and title passes to customers. Return allowances, which
reduce product revenue, are estimated using historical experience. Revenue from
product sales and services rendered is recorded net of sales and consumption
taxes.
REWARD PROGRAMS
Customers may earn reward points from the purchase of merchandise and services
from the Company. Points are earned based on the amount and types of merchandise
and services purchased. Customers may redeem the reward points for drawings into
the Company's lottery sweepstakes for chances to win cash prizes. In addition,
customers may attain a tiered membership status based on the value of
merchandise and services purchased over the past twelve months. Membership
status entitles the holder to certain discounts on future purchases of selected
items on the Company's website. The Company accrues for the estimated cost of
redeeming the benefits at the time the benefits are earned by the customer. The
estimated lottery expense for the three months ending March 31, 2011 and March
31, 2010 was $351,970 and zero, respectively.
COST OF SALES
Cost of sales consists of the purchase price of consumer products and content
sold by us, inbound and outbound shipping charges, and packaging supplies.
Shipping charges to receive products from our suppliers are included in
inventory cost, and recognized as "Cost of sales" upon sale of products to our
customers. Payment processing and related transaction costs, including those
associated with seller transactions, are classified in "Selling Expenses" on our
consolidated statements of operations.
SHIPPING ACTIVITIES
Outbound shipping charges to customers are included in "Net sales." Outbound
shipping-related costs are included in "Cost of sales."
NONCONTROLLING INTEREST
Noncontrolling interests in our subsidiary is recorded as a component of our
equity, separate from the parent's equity. Purchase or sale of equity interests
that do not result in a change of control are accounted for as equity
transactions. Results of operations attributable to the noncontrolling 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.
13
CONSUMER CAPITAL GROUP, INC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
COMPREHENSIVE INCOME (LOSS)
Comprehensive income (loss) is defined to include all changes in equity except
those resulting from investments by owners and distributions to owners. Among
other disclosures, 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 years presented,
the Company's comprehensive income (loss) includes net income (loss) and foreign
currency translation adjustments and is presented in the consolidated statements
of changes in operations.
INCOME TAXES
We have implemented certain provisions of ASC 740, INCOME Taxes ("ASC 740"),
which clarifies the accounting and disclosure for uncertain in tax positions, as
defined. ASC 740 seeks to reduce the diversity in practice associated with
certain aspects of the recognition and measurement related to accounting for
income taxes. We adopted the provisions of ASC 740 as of January 1, 2007, and
have analyzed filing positions in each of the Peoples Republic of China ("PRC")
jurisdictions where we are required to file income tax returns, as well as all
open tax years in these jurisdictions. We have identified the PRC as our "major"
tax jurisdiction. Generally, we remain subject to PRC examination of our income
tax returns. We believe that our 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. In
addition, we did not record a cumulative effect adjustment related to the
adoption of ASC 740. Our policy for recording interest and penalties associated
with income-based tax audits is to record such items as a component of income
taxes. Our 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 we update our estimate of the annual effective tax rate,
and if our estimated tax rate changes, we make a cumulative adjustment. The 2011
and 2010 annual effective tax rates are estimated to be the 25% PRC statutory
rate primarily based on the expected taxable net income of our operating
subsidiaries, Arki Beijing and Arki Fuxin. Taxes payable as of March 31, 2011
and December 31, 2010 were $88,649 and $494,057, respectively.
NET INCOME (LOSS) PER SHARE
We calculate basic earnings per share ("EPS") by dividing our 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 (loss) by the weighted average number of common shares
outstanding for the period and the weighted average number of dilutive 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-dilutive. The Company had no dilutive securities as of March 31, 2011 and
December 31, 2010.
CASH AND CASH EQUIVALENTS
We consider all investments with an original maturity of three months or less to
be cash equivalents. Cash equivalents primarily represent funds invested in bank
checking accounts, money market funds and domestic Chinese bank certificates of
deposit. At March 31, 2011 and December 31, 2010, the Company had invested cash
of $153,846 in a highly liquid investment instrument with a PRC bank.
14
CONSUMER CAPITAL GROUP, INC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ACCOUNTS RECEIVABLE
Accounts receivable are carried at realizable value. The Company considers many
factors in assessing the collectability of its receivables, such as, the age of
the amounts due, the customer's payment history and
creditworthiness. An allowance for doubtful accounts is recorded in the period
in which a loss is determined to be probable. Accounts receivable balances are
written off after all collection efforts have been exhausted. Bad debt expense
for the three months ending March 31, 2011 and 2010 was zero and there was no
allowance for doubtful accounts at March 31, 2011 and December 31, 2010.
INVENTORIES
Inventories, consisting of food products available for sale, are accounted for
using the first-in first-out method, and are valued at the lower of cost or
market. This valuation requires the Company to make judgments, based on
currently available information, about the likely method of disposition, such as
through sales to individual customers, returns to product vendors, or
liquidations, and expected recoverable values of each disposition category.
EQUIPMENT, NET
Equipment is recorded at cost, 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 expensed as incurred and
expenditures for major replacements and improvements are capitalized and
depreciated over their estimated remaining useful lives. Depreciation expense
for the three months ending March 31, 2011 and 2010 was $3,504 and $834,
respectively. Accumulated depreciation for the Company's equipment was $16,845
and $7,262 at March 31, 2011 and 2010, respectively.
IMPAIRMENT OF LONG-LIVED ASSETS
We evaluate long-lived assets for impairment whenever events or changes in
circumstances (such as a significant adverse change to market conditions that
will impact the future use of the assets) indicate their net book value may not
be recoverable. When these events occur, we compare the projected undiscounted
future cash flows associated with the related asset or group of assets over
their 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 products will continue. Either of
these could result in the future impairment of long-lived assets.
SEGMENT REPORTING
The Company follows ASC 280, SEGMENT REPORTING. The Company's chief operating
decision maker, who has been identified as the executive chairman of the board
of directors and the chief executive officer, reviews the individual results of
the e-commerce and distribution businesses when making decisions about
allocating resources and assessing the performance of the Company as a whole and
hence, the Company has two reportable segments. The Company's operating business
are organized and based on the nature of markets and customers. As the Company's
long-lived assets are substantially all located in the PRC and substantially all
the Company's revenues are derived from within the PRC, no geographical segments
are presented.
15
CONSUMER CAPITAL GROUP, INC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments include cash and cash equivalents, accounts
receivable, accounts payables and accrued liabilities. These financial
instruments are measured at their respective fair values. For fair value
measurement, U.S. 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 Company's cash and cash equivalents are classified within Level
1 using quoted prices. The Company's carrying value of its investment in Beitun
is classified within Level 2 since it is valued using market observable inputs.
FINANCIAL INSTRUMENTS: The estimated fair values of our financial assets and
liabilities that are recognized at fair value on a recurring basis, using
available market information and other observable data are as follows:
March 31, 2011 December 31, 2010
----------------------------------------------- -----------------------------------------------
Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total
----------------------------------------------- -----------------------------------------------
Quoted Quoted
Prices in Prices in
Active Significant Active Significant
Markets or Other Significant Markets or Other Significant
Identical Observable Unobservable Identical Observable Unobservable
Assets Inputs Input Assets Inputs Input
------ ------ ----- ------ ------ -----
ASSETS:
Cash & cash
equivalents $1,088,959 $ -- $ -- $1,088,959 $3,015,219 $ -- $ -- $3,015,219
Other assets -- 196,353 -- 196,353 -- 258,285 -- 258,285
---------- -------- ------- ---------- ---------- -------- ------- ----------
Total assets $1,088,959 $196,353 $ -- $1,285,312 $3,015,219 $258,285 $ -- $3,273,504
========== ======== ======= ========== ========== ======== ======= ==========
LIABILITIES:
-- -- -- -- -- -- -- --
---------- -------- ------- ---------- ---------- -------- ------- ----------
Total liabilities $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ --
========== ======== ======= ========== ========== ======== ======= ==========
Common stock was issued in exchange for consulting services to be provided to
the Company over the next two years for the purpose of advising management on
public company matters. As a result, the Company recorded an asset to be
amortized over the term of the consulting contract, that was measured at its
fair value on the date of grant based on Level 2 inputs reflecting market based
and our own assumptions consistent with reasonably available assumptions made by
other market participants. These valuations require significant judgment. The
calculated fair values of the stock-based payment are amortized to expense over
the term of the contract. The carrying value of accounts receivable, trade
payables and accrued liabilities approximates their fair value due to their
short-term maturities.
16
CONSUMER CAPITAL GROUP, INC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SHARE-BASED COMPENSATION
The Company applies ASC 718, Compensation-Stock Compensation to account for its
service providers' share-based payments. Common stock of the Company was given
to service providers to retain their assistance in becoming a U.S. public
company, assistance with public company regulations, investors' communications
and public relations with broker-dealers, market makers and other investment
professionals. In accordance with ASC 718, the Company determines whether a
share payment should be classified and accounted for as a liability award or
equity award. All grants of share-based payments to service providers classified
as equity awards are recognized in the financial statements based on their grant
date fair values which are calculated using an option pricing model. The Company
has elected to recognize compensation expense using the straight-line method for
all equity awards granted with graded vesting based on service conditions
provided that the amount of compensation cost recognized at any date is at least
equal to the portion of the grant-date value of the options that are vested at
that date. To the extent the required vesting conditions are not met resulting
in the forfeiture of the share-based awards, previously recognized compensation
expense relating to those awards are reversed. ASC 718 requires forfeitures to
be estimated at the time of grant and revised, if necessary, in subsequent
period if actual forfeitures differ from initial estimates. Share-based
compensation expense was recorded net of estimated forfeitures such that expense
was recorded only for those share-based awards that are expected to vest.
CONCENTRATION OF CREDIT RISK
Assets that potentially subject the Company to significant concentration of
credit risk primarily consist of cash and cash equivalents, other receivables
and held-to-maturity investments. The maximum exposure of such assets to credit
risk is their carrying amounts as of the balance sheet dates. As of March 31,
2011, 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.
CONCENTRATION OF CUSTOMERS AND SUPPLIERS
There are no revenues from customers or purchases from suppliers which
individually represent greater than 10% of the total revenues or purchases at
March 31, 2011 and December 31, 2010.
CURRENCY CONVERTIBILITY RISK
The Company transacts all of its business in RMB, which is not freely
convertible into foreign currencies. On January 1, 1994, the PRC government
abolished the dual rate system and introduced a single rate of exchange as
quoted daily by the People's Bank of China (the "PBOC"). However, the
unification of the exchange rates does not imply that the RMB may be readily
convertible into United States dollars or other foreign currencies. All foreign
exchange transactions continue to take place either through the PBOC or other
banks authorized to buy and sell foreign currencies at the exchange rates quoted
by the PBOC.
Approval of foreign currency payments by the PBOC or other institutions requires
submitting a payment application form together with suppliers' invoices,
shipping documents and signed contracts.
Additionally, the value of the RMB is subject to changes in central government
policies and international economic and political developments affecting supply
and demand in the PRC foreign exchange trading system market.
FOREIGN CURRENCY EXCHANGE RATE RISK
From July 21, 2005, the RMB is permitted to fluctuate within a narrow and
managed band against a basket of certain foreign currencies. The depreciation of
the U.S. dollar against RMB was approximately 0.92% and zero for the three
months ending March 31, 2011 and 2010, respectively. While the international
17
CONSUMER CAPITAL GROUP, INC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
reaction to the RMB NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED) appreciation has generally been positive, there remains significant
international pressure on the PRC government to adopt an even more flexible
currency policy, which could result in a further and more significant
appreciation of the RMB against the U.S. dollar.
BUSINESS RISK
Foreign ownership of Internet-based businesses is subject to significant
restrictions under current PRC laws and regulations. Foreign investors are not
allowed to own more than a 50% equity interest in any entity with an Internet
content distribution business. Currently, the Company conducts its operations in
China through a series of contractual arrangements entered into among Arki
(Beijing) E-Commerce Technology Corp., America Arki (Fuxin) Network Management
Co. Ltd. and America Arki Network Service Beijing Co., Ltd. The relevant
regulatory authorities may find the current ownership structure, contractual
arrangements and businesses to be in violation of any existing or future PRC
laws or regulations. If so, the relevant regulatory authorities would have broad
discretion in dealing with such violations.
LITIGATION
From time to time, we may become involved in disputes, litigation and other
legal actions. We estimate the range of liability related to any pending
litigation where the amount and range of loss can be estimated. We record our
best estimate of a loss when the loss is considered probable. Where a liability
is probable and there is a range of estimated loss with no best estimate in the
range, we record a charge equal to at least the minimum estimated liability for
a loss contingency when both of the following conditions are met: (i)
information available prior to issuance of the financial statements indicates
that it is probable that an asset had been impaired or a liability had been
incurred at the date of the financial statements and (ii) the range of loss can
be reasonably estimated.
NOTE 3 - RECENTLY ISSUED AND ADOPTED ACCOUNTING PRONOUCEMENTS
In June 2009, the FASB issued SFAS 167 ("SFAS 167") (subsequently codified by
ASU 2009-17), Amendments to FASB Interpretation No. 46(R) , which amends
guidance regarding consolidation of variable interest entities to address the
elimination of the concept of a qualifying special purpose entity. SFAS 167 also
replaces the quantitative-based risks and rewards calculation for determining
which enterprise has a controlling financial interest in a variable interest
entity with an approach focused on identifying which enterprise has the power to
direct the activities of the variable interest entity, and the obligation to
absorb losses of the entity or the right to receive benefits from the entity.
Additionally, SFAS 167 requires any enterprise that holds a variable interest in
a variable interest entity to provide enhanced disclosures that will provide
users of financial statements with more transparent information about an
enterprise's involvement in a variable interest entity. SFAS 167 is effective
for interim and annual reporting periods beginning after November 30, 2009. The
adoption of ASU 2009-17 did not have a material impact on our consolidated
financial statements.
In October, 2009, the FASB issued guidance on revenue recognition that became
effective for the Company beginning July 1, 2010, with earlier adoption
permitted. Under the new guidance on arrangements that include software
elements, tangible products that have software components that are essential to
the functionality of the tangible product will no longer be within the scope of
the software revenue recognition guidance, and software-enabled products will
now be subject to other relevant revenue recognition guidance. Additionally, the
FASB issued guidance on revenue arrangements with multiple deliverables that are
outside the scope of the software revenue recognition guidance. Under the new
guidance, when vendor specific objective evidence or third party evidence for
deliverables in an arrangement cannot be determined, a best estimate of the
selling price is required to separate deliverables and allocate arrangement
consideration using the relative selling price method. The new guidance includes
new disclosure requirements on how the application of the relative selling price
18
CONSUMER CAPITAL GROUP, INC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - RECENTLY ISSUED AND ADOPTED ACCOUNTING PRONOUCEMENTS (CONTINUED)
method affects the timing and amount of revenue recognition. The adoption of
this new guidance did not have a material impact on our financial statements.
In January 2010, the FASB issued ASU No. 2010-06 Fair Value Measurements and
Disclosures Topic 820 "Improving Disclosures about Fair Value Measurements".
This ASU requires some new disclosures and clarifies some existing disclosure
requirements about fair value measurement as set forth in Codification Subtopic
820-10. The FASB's objective is to improve these disclosures and, thus, increase
the transparency in financial reporting. This pronouncement is effective for
interim and annual reporting periods beginning after December 15, 2009, except
for the disclosures about purchases, sales, issuances, and settlements in the
roll forward of activity in Level 3 fair value measurements. Those disclosures
are effective for fiscal years beginning after December 15, 2010, and for
interim periods within those fiscal years. The adoption of this ASU did not have
a material impact on the Company's consolidated financial statements.
NOTE 4 - INVENTORY
Inventory consisted of the following at March 31, 2011 and December 31, 2010:
2011 2010
-------- --------
Finished goods - packaged food $520,820 $334,972
Less: reserve for inventory -- --
-------- --------
Total inventory $520,820 $334,972
======== ========
NOTE 5 - PREPAID EXPENSES
Prepaid expenses consisted of the following at March 31, 2011 and December 31,
2010:
2011 2010
-------- --------
Prepaid professional fees $ 15,252 $218,265
Prepaid services 58,638 22,409
Deposits 41,448 18,598
-------- --------
Total prepaid expenses $115,338 $259,272
======== ========
19
CONSUMER CAPITAL GROUP, INC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - EQUIPMENT, NET
Property and equipment consisted of the following at March 31, 2011 and December
31, 2010:
2011 2010
-------- --------
Office equipment & computers $ 20,532 $ 14,775
Equipment 4,234 4,199
Vehicles 17,433 17,287
Office furniture & fixtures 24,903 24,724
-------- --------
67,102 60,985
Less: Accumulated depreciation (16,845) (13,341)
-------- --------
Total equipment, net $ 50,257 $ 47,644
======== ========
For the three months ending March 31, 2011 and 2010, depreciation expense was
$3,504 and $834, respectively.
NOTE 7 - OTHER ASSETS
Other assets consisted of the following at March 31, 2011 and December 31, 2010:
2011 2010
-------- --------
Common stock issued for services $106,258 $166,333
Deposit for office 90,095 89,340
Other -- 2,612
-------- --------
Total other assets $196,353 $258,285
======== ========
The prepaid consulting service contracts have a term of 24 months. Amortization
for the three months ending March 31, 2011 and 2010 was $24,973 and zero,
respectively. On March 31, 2011, the Company cancelled 227,609 shares due to
early termination of a portion of a service contract with a consultant. The
adjustment to prepaid assets and equity of $41,374 was recorded as of March 31,
2011 (see Note 10 - Share Based Compensation).
NOTE 8 - ACCRUED LIABILITIES
Accrued liabilities consisted of the following at March 31, 2011 and December
31, 2010:
2011 2010
-------- --------
Accrued customer incentives $ 79,982 $745,056
Advances -- --
Accrued payroll 20,140 8,998
Other 2,698 5,929
-------- --------
Total accrued liabilities $102,820 $759,983
======== ========
20
CONSUMER CAPITAL GROUP, INC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 - STOCKHOLDERS' EQUITY
The Company's stockholder base consists of approximately 9,100 stockholders as
of March 31, 2011.
COMMON STOCK ISSUED TO SERVICE PROVIDERS AND MEMBER CUSTOMERS
During 2010, Company management issued stock to customer members, which
represented sales inducement incentives to make purchases through the Company's
website. Certain service providers were also granted stock for the value of
their services provided to the Company. Common stock issued to service providers
and member customers throughout 2010 were measured at the date of grant, and
based on Level 2 fair value measurements which uses observable inputs reflecting
our own and market based assumptions, consistent with reasonably available
assumptions made by other market participants. These valuations require
significant judgment. The calculated fair values of the share-based sales
inducement offers are deducted from revenues when granted. Share-based awards to
service providers are expensed when services are incurred. The Company estimates
the fair value of these share issuances using Level 2 inputs and determined that
the value of each share is $0.01. For the three months ending March 31, 2011 and
2010, there were no incentives offered to member customers.
As of December 31, 2010, $200,000 was recognized in stockholders' equity for
common stock issued for services. As of March 31, 2011, 227,609 shares of common
stock and $35,102 was reduced from Additional Paid in Capital as a result of
early termination of one of service provider contracts. For the three months
ending March 31, 2011 and 2010, $24,973 and zero was amortized to general and
administrative expense for the pro-rata portion of the remaining service
contract realized (see Note 10 - Share Based Compensation).
COMMON STOCK
At March 13, 2011, the Company cancelled 227,609 retroactively restated to
reflect the recapitalization of common stock originally issued to a service
provider due to management deciding to early termination of their related
contract. Immediately after the cancellation, the Company reissued the 227,609
shares to management for no consideration and $23 was recognized as a discount
on common stock issued.
Immediately prior to the closing of the Merger on February 4, 2011, 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 USD $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 Company common stock.
In August, September and December 2010, the Company issued 2,628,419 shares
retroactively restated to reflect the recapitalization of common stock to
related parties of the Company's founders and officer of the Company for no par
value. As a result, the Company recorded a discount on common stock issued to
the officer and relatives of the Company's founders of $26,284 due to issuance
of the common stock below $0.01 par value.
In September 2010, the Company issued 910,644 retroactively restated to reflect
the recapitalization of common stock as consideration for consulting services
with a term of 24 months. The fair value of the services amounted to $199,400
(see Note 10 - Share Based Compensation).
In December 2010, the Company issued 45,532 retroactively restated to reflect
the recapitalization of common stock to the owners of Beitun as consideration
for the Company's 51% ownership interest of Beitun. The fair value of the shares
issued for the acquisition was $10,000.
21
CONSUMER CAPITAL GROUP, INC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 - SHARE BASED COMPENSATION
Stock-based compensation cost is measured at the date of grant, based on the
calculated fair value of the stock-based award, and is recognized as expense
over the service providers' requisite service period (generally the vesting
period of the award). The Company estimates the fair value of stock for service
granted using the Black-Scholes Option Pricing Model. Key assumptions used to
estimate the fair value of stock options include the exercise price of the
award, the fair value of the Company's common stock on the date of grant, the
expected option term, the risk free interest rate at the date of grant, the
expected volatility and the expected annual dividend yield on the Company's
common stock.
The following weighted average assumptions were used in estimating the fair
value of the share-based payment arrangements to service providers:
March 31, 2011
--------------
Annual dividends 0
Expected volatility 40% - 75%
Risk-free interest rate 0.75%
Expected life 2 years
Since there is insufficient stock price history that is at least equal to the
expected or contractual terms of the Company's share-based payments, the Company
has calculated volatility using the historical volatility of similar public
entities in the Company's industry. In making this determination and identifying
a similar public company, the Company considered the industry, stage, life
cycle, size and financial leverage of such other entities. This resulted in an
expected volatility of 40% to 75%. The expected option term in years is
calculated using an average of the vesting period and the option term, in
accordance with the "simplified method" for "plain vanilla" stock options
allowed under GAAP. The risk free interest rate is the rate on the U.S. Treasury
securities 2-year constant maturity with a remaining term equal to the expected
option term. The expected volatility is derived from an industry-based index, in
accordance with the calculated value method.
The Company is required to estimate the number of forfeitures expected to occur
and record expense based upon the number of awards expected to vest. The Company
expects all remaining awards issued will be fully vested over the expected life
of the awards. There were no forfeitures during the quarter ended March 31,
2011.
A summary of share-based compensation activity for the three months ended March
31, 2011 is as follows:
22
CONSUMER CAPITAL GROUP, INC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 - SHARE BASED COMPENSATION (CONTINUED)
Weighted
Average
Number of Fair
Shares Value Amount
------ ----- ------
Share-based compensation outstanding
at January 1, 2011 910,644 $ 0.01 $ 9,106
Granted -- -- --
Cancelled (227,609) 0.01 (2,276)
Forfeited -- -- --
-------- ------ --------
Share-based compensation outstanding
at March 31, 2011 683,035 $ 0.01 $ 6,830
======== ====== ========
For the three months ended March 31, 2011 and 2010, $18,700 and zero,
respectively were amortized to general and administrative expense to recognize
the incurred cost of the service providers. The future expense amortization as
of March 31, 2011 is as follows:
2011 $ 56,254
2012 50,004
--------
Total $106,258
========
NOTE 11 - RELATED PARTIES
a) Related parties:
Name of
related parties Relationship with the Company
--------------- -----------------------------
Mr. Jack Gao Stockholder, Chief Executive Officer, Chief Financial
Officer and Chairman of the Board of the Company
Ms. Ling Zhang Stockholder and Corporate Secretary
Mr. Fei Gao Stockholder and Chief Operating Officer
Ms. Wei Guo Stockholder and Managing Director of Beitun
b) The Company had the following related party balances at March 31, 2011 and
December 31, 2010:
23
CONSUMER CAPITAL GROUP, INC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 - RELATED PARTIES (CONTINUED)
2011 2010
-------- --------
Loan from Mr. Jack Gao $ 51,859 $ 51,425
Loan from Ms. Wei Guo 556,220 204,774
-------- --------
Total related party payables 608,079 256,199
Loan to Mr. Jack Gao -- 125,528
-------- --------
Toal related party, net $608,079 $130,671
======== ========
The related party payable and receivable are non-interest bearing and have no
specified maturity date. Jack Gao is the husband of Ling Zhang, Ling Zhang is
the wife of Jack Gao, Jack Gao is the father of Fei Gao, and Fei Gao is the son
of Jack Gao.
NOTE 12 - COMMITMENTS AND CONTINGENCIES
LEASE COMMITMENTS
Our Company has entered into a sub-lease agreement for its Pasadena office
facility beginning August 1, 2010 and ending November 30, 2012. Our full service
gross monthly rental rate is $2,567. Rent expense (including related common area
maintenance charges) totaled $7,701 for three months ended March 31, 2011. In
China, we have entered into a lease agreement in the Beijing Chaoyang District
for our Arki (Beijing) E-commerce Technology Co., Ltd. wholly owned subsidiary
beginning February 15, 2010 and ending February 14, 2012. Our full service gross
monthly rental rate is $385. Rent expense (including related common area
maintenance charges) totaled $1,155 for three months ended March 31, 2011. On
October 21, 2010, we entered into a new lease agreement for office facility
expansion in the Beijing Chaoyang District, Hua Mao Center. The straight-line
monthly gross rental rate is $30,831 with a 36 month term. Rent expense
(including related common area maintenance charges) totaled $92,493 for three
months ended March 31, 2011.
Total future minimum rental lease commitments as of March 31, 2011 are as
follows:
2011 $ 304,047
2012 398,787
2013 298,136
----------
Total $1,000,970
==========
SUPPLIER COMMITMENTS
At March 31, 2011 and 2010, we have outstanding amounts owed to our suppliers of
$19,456 and zero, respectively which represents amounts collected from customers
of our Arki Beijing and Arki Fuxin subsidiaries.
24
CONSUMER CAPITAL GROUP, INC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 - BUSINESS SEGMENT REPORTING
Our operating businesses are organized based on the nature of markets and
customers. Segment accounting policies are the same as described in Note 2 -
Summary of Significant Accounting Policies.
Effects of transactions between related companies are eliminated and consist
primarily of inter-company transactions and transfers of cash or cash
equivalents from corporate to support each business segment's payroll, inventory
sourcing and overall operations when each segment has working capital
requirements.
A description of our operating segments as of March 31, 2011 and December 31,
2010, can be found below.
E-COMMERCE PLATFORM (ARKI BEIJING, AMERICA PINE BEIJING, ARKI FUXIN, ARKI
NETWORK SERVICE)
The website provides an online marketing and retail platform for a wide variety
of manufacturers and distributors to promote and sell their products and
services directly to consumers in the PRC. The website also provides access to
certain Western products that are generally unavailable in the PRC such as
handbags and eyewear made by U.S. companies and food and beverage products from
Spain, Germany, and France.
FOOD PRODUCT DISTRIBUTION (BEITUN)
Beitun is principally engaged in the wholesale distribution and import/export of
various food and meat products to businesses located throughout the PRC. All
products are sold in the PRC and are considered finished goods.
For the three months ended March 31, 2011
-------------------------------------------------
E-Commerce Food Distribution Consolidated
---------- ----------------- ------------
Net revenues $ 606,791 $ 1,340,413 $ 1,947,204
Cost of sales -- 1,326,158 1,326,158
----------- ----------- -----------
Gross profit 606,791 14,255 621,046
Operating expenses:
Selling expenses 492,056 11,344 503,400
General and administrative 871,038 1,434 872,472
----------- ----------- -----------
Total operating expenses 1,363,094 12,778 1,375,872
Operating income (756,303) 1,477 (754,826)
Other income 80,958 -- 80,958
Other expense (335,000) -- (335,000)
----------- ----------- -----------
Total other income (expense) (254,042) -- (254,042)
Income before taxes (1,010,345) 1,477 (1,008,868)
Provision for income taxes 56,175 369 56,544
----------- ----------- -----------
Net income (loss) (1,066,520) 1,108 (1,065,412)
Net income attributable to non controlling interest 543 -- 543
----------- ----------- -----------
Net income (loss) attributable to Consumer Capital Group, Inc. (1,065,977) 1,108 (1,064,869)
Net income (loss) (1,066,520) 1,108 (1,065,412)
Foreign currency translation adjustment 697 5 702
----------- ----------- -----------
Net comprehensive income (loss) $(1,065,823) $ 1,113 $(1,064,710)
=========== =========== ===========
For the three months ending March 31, 2010, the Company did not invest in
the joint venture with Beitun.
25
CONSUMER CAPITAL GROUP, INC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14 - INCOME TAX EXPENSE
Prior to January 1, 2008, PRC enterprise income tax (EIT), was generally
assessed at the rate of 33% of taxable income. In March 2007, a new enterprise
income tax law (the "New EIT Law") in the PRC was enacted which was effective on
January 1, 2008. The New EIT Law generally applies a uniform 25% EIT rate to
both foreign invested enterprises and domestic enterprises.
Dividends paid by PRC subsidiaries of the Company out of the profits earned
after December 31, 2007 to non-PRC tax resident investors would be subject to
PRC withholding tax. The withholding tax is 10%, unless a foreign investor's tax
jurisdiction has a tax treaty with China that provides for a lower withholding
tax rate.
Income (loss) before income taxes consists of:
March 31,
-------------------------
2011 2010
-------- --------
Non-PRC $ -- $ --
PRC 56,544 --
-------- --------
$ 56,544 $ --
======== ========
There was no current or deferred income tax expense for the three months ended
March 31, 2011 and year ended December 31, 2010. The PRC income tax returns for
fiscal year 2006 through fiscal year 2011 remain open for examination.
The components of deferred taxes are as follows:
For the three months ended
---------------------------
March 31, March 31,
2011 2010
---------- ----------
Deferred tax assets, current portion
Fair value of stock issued for sales
incentive $ -- $ --
Amortization of fair value of stock
for services 24,951 --
Deferred revenue 32,838 --
---------- ----------
Total deferred tax assets, current portion 57,789 --
Valuation allowance (57,789) --
---------- ----------
Deferred tax assets, current portion, net $ -- $ --
========== ==========
Deferred tax assets, non-current portion
Fixed assets $ 701 $ 167
Net operating losses (754,826) (100,443)
---------- ----------
Total deferred tax assets, non-current portion (754,125) (100,276)
Valuation allowance 754,125 100,276
---------- ----------
Deferred tax assets, non-current portion, net $ -- $ --
========== ==========
26
CONSUMER CAPITAL GROUP, INC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14 - INCOME TAX EXPENSE (CONTINUED)
As of March 31, 2011, the Company had net operating losses of $1,154,022 which
can be carried forward to offset future net profit for income tax purposes. The
net operating loss carry forwards as of March 31, 2011 will expire in years 2011
to 2015 if not utilized.
There is no need for the Company to accrue interest or penalty associated with
the uncertain tax positions, and, accordingly, no such accruals have been made
in the Company's account.
The PRC tax law provides a (3-5 years) statute of limitation and the Company's
income tax returns are subject to examination by tax authorities during that
period. All penalties and interest are expensed as incurred. For three months
ended March 31, 2011 and December 31, 2010, there were no penalties and
interest.
NOTE 15 - EARNINGS PER SHARE
Basic and diluted earnings (loss) per share for each of the years presented are
calculated as follows:
For the three months ended
-----------------------------
March 31, March 31,
2011 2010
------------ ------------
Numerator:
Net loss $ (1,065,412) $ (100,443)
------------ ------------
Net loss attributable to common stockholders
for computing basic and diluted loss per
common share (1,065,412) (100,443)
------------ ------------
Denominator:
Weighted average number of common shares
outstanding for computing basic and diluted
loss per common share 18,456,790 14,371,122
------------ ------------
Basic and diluted loss per share $ (0.06) $ (0.01)
============ ============
For the three months ended March 31, 2011 and 2010, there were no common stock
equivalents for computing diluted earnings per share.
NOTE 16 - SUBSEQUENT EVENTS
In preparing these financial statements, the Company has evaluated events and
transactions for potential recognition or disclosure through May 23, 2011, the
date the financial statements were available to be issued.
27
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD LOOKING STATEMENT NOTICE
Certain statements made in this Quarterly Report on Form 10-Q are
"forward-looking statements" (within the meaning of the Private Securities
Litigation Reform Act of 1995) regarding the plans and objectives of management
for future operations. Such statements involve known and unknown risks,
uncertainties and other factors that may cause actual results, performance or
achievements of Consumer Capital Group Inc. ("we", "us", "our" or the "Company")
to be materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. The forward-looking
statements included herein are based on current expectations that involve
numerous risks and uncertainties. The Company's plans and objectives are based,
in part, on assumptions involving the continued expansion of business.
Assumptions relating to the foregoing involve judgments with respect to, among
other things, future economic, competitive and market conditions and future
business decisions, all of which are difficult or impossible to predict
accurately and many of which are beyond the control of the Company. Although the
Company believes its assumptions underlying the forward-looking statements are
reasonable, any of the assumptions could prove inaccurate and, therefore, there
can be no assurance the forward-looking statements included in this Quarterly
Report will prove to be accurate. In light of the significant uncertainties
inherent in the forward-looking statements included herein, the inclusion of
such information should not be regarded as a representation by the Company or
any other person that the objectives and plans of the Company will be achieved.
DESCRIPTION OF BUSINESS
The Company was originally incorporated as "Mondas Minerals Corp." ("Mondas") in
Delaware on April 25, 2008, and was engaged in the acquisition, and exploration,
and development of natural resource properties. As of December 31, 2010 and
immediately prior to the merger transaction described below, we were an
exploration stage company with nominal assets and no revenues or operating
history.
On February 4, 2011, the Company acquired Consumer Capital Group, Inc. ("CCG"),
a consumer e-commerce business with operations in the People's Republic of China
("PRC") in a merger transaction ("Merger") pursuant to an Agreement and Plan of
Merger ("Merger Agreement") by and among the Company, the Company's wholly owned
subsidiary, CCG Acquisition Corp., a Delaware corporation ("CCG Delaware"),
Consumer Capital Group Inc., a California corporation ("CCG), and Scott D.
Bengfort.
In connection with the Merger, the mining rights held by the Company were
assigned to Mr. Bengfort, and in turn Mr. Bengfort also personally assumed all
liabilities of the Company existing immediately prior to the closing, under the
terms of an Assignment and Assumption Agreement between the Company and Mr.
Bengfort effective on the closing date of the merger (the "Assignment and
Assumption Agreement"). Mr. Bengfort also agreed to discharge and forego his
rights to be repaid approximately $16,000, which the Company owed to him
immediately prior to the closing of the Merger, along with all other claims
against the Company, by executing a release agreement ("Release") effective on
the closing date of the Merger. Mr. Bengfort also agreed to be a party to the
Merger Agreement including various representations and warranties, and execute
an indemnification agreement ("Indemnification Agreement") in favor of CCG and
the CCG shareholders to indemnify them for any breach of the Merger Agreement or
unpaid or unresolved liabilities of the Company that may materialize within a
one year period after the closing. The closing of the Merger occurred on
February 4, 2011.
In connection with the closing, Mr. Bengfort resigned as the Company's sole
officer and director, and designees of CCG were appointed as new directors.
These new directors took office and appointed new officers of the Company
promptly following the closing of the Merger.
28
As a result of the Merger, CCG became our wholly owned subsidiary and CCG's
subsidiaries, America Pine (Beijing) Bio-Tech, Inc., a People's Republic of
China ("PRC") corporation, Arki (Beijing) E-Commerce Technology Corp., a PRC
corporation, Beijing Beitun Trading Co., Ltd., a PRC corporation, and America
Arki (Fuxin) Network Management Co. Ltd., a PRC corporation (together, the "PRC
Subsidiaries"), became our indirect subsidiaries. Arki (Beijing) E-Commerce
Technology Corp. has a contractual relationship with an entity under common
control that is 100% owned by two of CCG's major shareholders and officers,
America Arki Network Service Beijing Co., Ltd. ("Arki Network Service"), which
is a PRC limited liability company. CCG, the PRC Subsidiaries, and Arki Network
Service are collectively referred to as the "CCG Group."
Upon completion of the Merger, our name has been changed to "Consumer Capital
Group Inc." pursuant to Certificate of Ownership filed with the Secretary of
State of Delaware with an effective date of February 17, 2011. Our current
principal offices are located at 35 North Lake Avenue, Suite 280, Pasadena, CA
91101. Our trading symbol on the Over-the-Counter Bulletin Board (the "OTCBB")
is now CCGN.
From and after the closing of the Merger, our primary operations now consist of
the business and operations of the CCG Group, which are conducted in the PRC.
The Company is primarily engaged in the development and operation of its
nationwide online retailing platform "Chinese Consumer Market Network" at
www.ccmus.com. The website provides an online marketing and retail platform for
a wide variety of manufacturers and distributors to promote and sell products
and services directly to consumers in the PRC at a substantial discount through
our rewards and incentive programs. This platform eliminates the extended
network of intermediaries in the manufacturing-distribution-retail chain by
providing direct access to our members. Our website also provides access to
certain Western products that are generally unavailable in the PRC such as
handbags and eyewear made by U.S. companies and food and beverage products from
Spain, Germany, and France.
We also operate a meat distribution business in the PRC through a 51% stake in
an operating subsidiary, Beijing Beitun Trading Co., Ltd. ("Beitun Trading"),
which is a PRC trade and distribution company engaged in the wholesale
distribution and import/export of various food and meat products, industrial
machinery, and electrical equipment.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our management's discussion and analysis of our financial condition and results
of operations are based on our financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States.
The preparation of these financial statements requires us to make 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 as well as the reported net sales and expenses during the reporting
periods. On an ongoing basis, we evaluate our estimates and assumptions. We base
our estimates on historical experience and on various other factors that we
believe are reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying value of assets and liabilities
that are not readily apparent from other sources. Actual results may differ from
these estimates under different assumptions or conditions.
While our significant accounting policies are more fully described in Note 2 to
our financial statements under the section above titled "Financial Statements",
we believe that the following accounting policies are the most critical to aid
you in fully understanding and evaluating this discussion and analysis:
REVENUE RECOGNITION
We recognize revenue from product sales or services rendered when the following
four revenue recognition criteria are met: persuasive evidence of an arrangement
exists, delivery has occurred or services have been rendered, the selling price
is fixed or determinable, and collectability is reasonably assured.
29
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.
Our sales are net of promotional discounts and rebates and are recorded when the
products are shipped and title passes to customers. Revenues are recorded net of
sales and consumption taxes. We periodically provide incentive offers to our
customers to encourage purchases. Such offers include current discount offers,
such as percentage discounts off current purchases, inducement offers, such as
daily sweepstakes reward opportunities which is based on volume of purchases,
and other similar offers. Current discount offers and inducement offers are
presented as a net amount in "Net revenues." 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 7 day
grace period offered to customers for potential product disputes, if any.
Deferred revenues totaled $32,838 and $125,455 as of March 31, 2011 and December
31, 2010, respectively.
We offered a temporary limited time promotion for a fixed period during the year
ended December 31, 2010 where customers were incentivized to purchase from our
E-commerce platform and in exchange, were awarded points which were then
converted to common shares of the Company. These shares were valued using Level
2 inputs for determining fair value and deducted from revenues. For the year
ended December 31, 2010, $301,462 was recognized as contra revenue on a "net"
basis. During the Quarter ended March 31, 2011, there were no promotional
expenses incurred due to cancellation of the program.
DISTRIBUTION REVENUE RECOGNITION
Product sales and shipping revenues, net of return allowances, are recorded when
the products are shipped and title passes to customers. Return allowances, which
reduce product revenue, are estimated using historical experience. Revenue from
product sales and services rendered is recorded net of sales and consumption
taxes.
REWARD PROGRAMS
Customers may earn reward points from the purchase of merchandise and services
from the Company. Points are earned based on the amount and types of merchandise
and services purchased. Customers may redeem the reward points for drawings into
the Company's lottery sweepstakes for chances to win cash prizes. In addition,
customers may attain a tiered membership status based on the value of
merchandise and services purchased over the past twelve months. Membership
status entitles the holder to certain discounts on future purchases of selected
items on the Company's website. The Company accrues for the estimated cost of
redeeming the benefits at the time the benefits are earned by the customer. The
estimated lottery expense for the three months ending March 31, 2011 and March
31, 2010 was $351,970 and zero, respectively.
COST OF SALES
Cost of sales consists of the purchase price of consumer products and content
sold by us, inbound and outbound shipping charges, and packaging supplies.
Shipping charges to receive products from our suppliers are included in
inventory cost, and recognized as "Cost of sales" upon sale of products to our
customers. Payment processing and related transaction costs, including those
associated with seller transactions, are classified in "Selling Expenses" on our
consolidated statements of operations.
30
SHIPPING ACTIVITIES
Outbound shipping charges to customers are included in "Net sales." Outbound
shipping-related costs are included in "Cost of sales."
ACCOUNTS RECEIVABLE
Accounts receivable are carried at realizable value. The Company considers many
factors in assessing the collectability of its receivables, such as, the age of
the amounts due, the customer's payment history and creditworthiness. An
allowance for doubtful accounts is recorded in the period in which a loss is
determined to be probable. Accounts receivable balances are written off after
all collection efforts have been exhausted. Bad debt expense for the three
months ending March 31, 2011 and 2010 was zero and there was no allowance for
doubtful accounts at March 31, 2011 and December 31, 2010.
INVENTORIES
Inventories, consisting of food products available for sale, are accounted for
using the first-in first-out method, and are valued at the lower of cost or
market. This valuation requires the Company to make judgments, based on
currently available information, about the likely method of disposition, such as
through sales to individual customers, returns to product vendors, or
liquidations, and expected recoverable values of each disposition category.
SHARE-BASED COMPENSATION
The Company applies ASC 718, Compensation-Stock Compensation to account for its
service providers' share-based payments. Common stock of the Company was given
to service providers to retain their assistance in becoming a U.S. public
company, assistance with public company regulations, investors' communications
and public relations with broker-dealers, market makers and other investment
professionals.
In accordance with ASC 718, the Company determines whether a share payment
should be classified and accounted for as a liability award or equity award. All
grants of share-based payments to service providers classified as equity awards
are recognized in the financial statements based on their grant date fair values
which are calculated using an option pricing model. The Company has elected to
recognize compensation expense using the straight-line method for all equity
awards granted with graded vesting based on service conditions provided that the
amount of compensation cost recognized at any date is at least equal to the
portion of the grant-date value of the options that are vested at that date. To
the extent the required vesting conditions are not met resulting in the
forfeiture of the share-based awards, previously recognized compensation expense
relating to those awards are reversed. ASC 718 requires forfeitures to be
estimated at the time of grant and revised, if necessary, in subsequent period
if actual forfeitures differ from initial estimates. Share-based compensation
expense was recorded net of estimated forfeitures such that expense was recorded
only for those share-based awards that are expected to vest.
RESULTS OF OPERATIONS
COMPARISON OF THREE MONTHS ENDED MARCH 31, 2011 AND MARCH 31, 2010
(A) REVENUES
Net revenues derived from our e-commerce business were $606,791 and zero for the
three months ended March 31, 2011 and 2010, respectively. The Company began its
principal operations during 2010 with the launch of the e-commerce website. The
increase is the result of our efforts in marketing our business to attract and
grow our membership base and growth of our vendor arrangements and
relationships, which provides the products and services for our e-commerce
retail platform.
31
Net revenues derived from our distribution business were $1,340,413 and zero for
the three months ended March 31, 2011 and 2010, respectively. The increase is
the result of our acquisition of Beitun Trading, a meat distribution business on
November 29, 2010. The Company did not have a distribution business for the
three months ending March 31, 2010.
Cost of sales associated with distribution were $1,326,158 and zero for the
three months ended March 31, 2011 and 2010, respectively. Cost of sales consists
of the purchase price of consumer products and content sold by us, inbound and
outbound shipping charges, and packing supplies. The increase is the result of
our acquisition of Beitun Trading on November 29, 2010.
(B) TOTAL OPERATING EXPENSES
Total operating expenses consist of selling expenses, general and administrative
expenses, and financial expenses. Total operating expenses were $1,375,872 and
$100,443 for the three months ended March 31, 2011 and 2010, respectively, an
increase of $1,275,429.
Selling expenses were $503,400 and zero for the three months ended March 31,
2011 and 2010, respectively. The increase was primarily due to the Company
commencing principal operations and incurring selling costs related to the
generation of net revenues.
General and administrative expenses were $872,472 and $100,443 for the three
months ended March 31, 2011 and 2010, respectively. The increase in general and
administrative expenses was primarily due to expenses incurred during the
quarter related to the share exchange transaction.
Other expense was $254,042 and zero for the three months ended March 31, 2011
and 2010, respectively. The increase was due to the payment of $335,000 for the
share exchange transaction. The expense was offset by $80,958 of other income
received from the local Fuxin provincial government representing a subsidy for
doing business in that province.
LIQUIDITY
Cash flow information is as follows:
Three months ended March 31,
----------------------------------
2011 2010
------------ ------------
Operating activities $ (2,364,215) $ 251,302
Investing activities $ (6,117) $ (2,998)
Financing activities $ 443,370 $ (60,150)
Cash used in operating activities was $2,364,215 and $251,302 for the quarter
ended March 31, 2011 and 2010, respectively. The cash used of $2,364,215 for the
period ended March 31, 2011 was primarily the result of the net loss of
$1,065,412, increase in inventory of $185,848 and decrease in accounts payable,
accrued liabilities and taxes payable of $1,277,091. The $251,302 cash provided
for the period ended March 31, 2010 was primarily the result of increases in
accounts payable, accrued liabilities and other payables of $617,026 offset by
the net loss of $100,443 and increase in other receivables of $261,817.
Cash used in investing activities was $6,117 and $2,998 for the quarter ended
March 31, 2011 and 2010, respectively, and was a result of our investment in
office equipment.
32
Cash provided by financing activities was $443,370 for the quarter ended March
31, 2011 and cash used by financing activities was $60,150 for the quarter ended
March 31, 2010. Cash provided by financing activities during the quarter ended
March 31, 2011 was primarily the result of proceeds from related party of
$351,880 and also the receipt for outstanding receivables from related parties
of $125,528. Cash used in financing activities during the quarter ended March
31, 2010 was primarily the result of repayment of related party payable and
short term debt of $373,584, offset by cash received from common stock issuances
of $313,434.
CAPITAL RESOURCES
As of March 31, 2011, cash and cash equivalents totaled $1,088,959. Although
cash flow from operations during the quarter was negative, we were able to
finance our operations with cash balances carried over from December 31, 2010.
We believe that our current cash and cash equivalents and cash flow from
operations will be sufficient to meet our anticipated cash needs, including our
cash needs for working capital and capital expenditures for the next 12 months.
We may, however, require additional cash due to changes in business conditions
or other future developments, including any investments we may decide to pursue.
To the extent it becomes necessary to raise additional cash in the future, we
may seek to raise it through the sale of debt or equity securities, funding from
joint-venture or strategic partners, debt financing or loans, issuance of common
stock, or a combination of the foregoing. We cannot provide any assurances that
we will be able to secure the additional cash or working capital we may require
to continue our operations.
(A) LEASE COMMITMENTS
Our Company has entered into a sub-lease agreement for its Pasadena office
facility beginning August 1, 2010 and ending November 30, 2012. Our full service
gross monthly rental rate is $2,567. Rent expense (including related common area
maintenance charges) totaled $7,701 for three months ended March 31, 2011. In
China, we have entered into a lease agreement in the Beijing Chaoyang District
for our Arki (Beijing) E-commerce Technology Co., Ltd. wholly owned subsidiary
beginning February 15, 2010 and ending February 14, 2012. Our full service gross
monthly rental rate is $385. Rent expense (including related common area
maintenance charges) totaled $1,155 for three months ended March 31, 2011. On
October 21, 2010, we entered into a new lease agreement for office facility
expansion in the Beijing Chaoyang District, Hua Mao Center. The straight-line
monthly gross rental rate is $30,831 with a 36 month term. Rent expense
(including related common area maintenance charges) totaled $92,493 for three
months ended March 31, 2011.
Total future minimum rental lease commitments as of March 31, 2011 are as
follows:
2011 $ 304,047
2012 398,787
2013 298,136
----------
Total $1,000,970
==========
(B) SUPPLIER COMMITMENTS
At March 31, 2011 and 2010, we have outstanding amounts owed to our suppliers of
$19,456 and zero, respectively which represents amounts collected from customers
of our Arki Beijing and Arki Fuxin subsidiaries.
33
CONTRACTUAL OBLIGATIONS AND OFF-BALANCE SHEET ARRANGEMENTS
CONTRACTUAL OBLIGATIONS
As a "smaller reporting company" as defined by Item 10 of Regulation S-K, the
Company is not required to provide information required by this Item.
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 interest 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 interest 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
As a "smaller reporting company" as defined by Item 10 of Regulation S-K, the
Company is not required to provide information required by this Item.
ITEM 4. CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
We maintain disclosure controls and procedures that are designed to ensure that
information required to be disclosed in our reports filed pursuant to the
Exchange Act is recorded, processed, summarized and reported within the time
periods specified in the SEC's rules, regulations and related forms, and that
such information is accumulated and communicated to our principal executive
officer and principal financial officer, as appropriate, to allow timely
decisions regarding required disclosure.
As of March 31, 2011, we carried out an evaluation, under the supervision and
with the participation of our principal executive officer and our principal
financial officer of the effectiveness of the design and operation of our
disclosure controls and procedures. Based upon that evaluation, our Chief
Executive Officer and Chief Financial Officer concluded that our disclosure
controls and procedures were not effective to ensure that information required
to be disclosed by us in the reports that we file or submit under the Securities
Exchange Act of 1934 is recorded, processed, summarized, and reported within the
time periods specified in the SEC's rules and forms because of the lack of
finance and accounting personnel with an appropriate level of knowledge,
experience, and training in the application of U.S. GAAP.
We are in the process of implementing the following measures to remediate these
material weaknesses: (a) hire additional financial reporting and accounting
personnel with relevant account experience, skills, and knowledge in the
preparation of financial statements under the requirements of U.S. GAAP and
financial reporting disclosure pursuant to SEC rules; and (b) continue to work
with internal and external consultants to improve the process for collecting and
reviewing information required for the preparation of financial statements. We
plan on continuing to identify and implement remedial measures.
CHANGES IN INTERNAL CONTROLS
There have been no changes in our internal controls over financial reporting
during the quarter ended March 31, 2011 that have materially affected or are
reasonably likely to materially affect our internal controls.
34
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There are presently no material pending legal proceedings to which the Company,
any of its subsidiaries, any executive officer, any owner of record or
beneficially of more than five percent of any class of voting securities is a
party or as to which any of its property is subject, and no such proceedings are
known to the Registrant to be threatened or contemplated against it.
ITEM 1A. RISK FACTORS
As a "smaller reporting company" as defined by Item 10 of Regulation S-K, the
Company is not required to provide the information required by this Item.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On February 4, 2011, in connection with the Merger, we issued an aggregate of
17,777,778 shares of our common stock to the shareholders of CCG immediately
prior to the Merger ("CCG Shareholders") as merger consideration, based on an
exchange rate of one (1) share of our common stock for each 21.96 shares of CCG
common stock held by them. The issuance of these shares to certain of the CCG
Shareholders was exempt from registration under the Securities Act pursuant to
Section 4(2) and Rule 506 of Regulation D thereof. We made this determination
based on the representations of these CCG Shareholders, which included, in
pertinent part, that such holders were "accredited investors" within the meaning
of Rule 501 of Regulation D promulgated under the Securities Act, and that such
holders were acquiring our common stock for investment purposes for their own
respective accounts and not as nominees or agents and not with a view to the
resale or distribution thereof and understood that the shares of our common
stock may not be sold or otherwise disposed of without registration under the
Securities Act or an applicable exemption therefrom. The issuance of some of the
shares to certain of the CCG Shareholders was exempt from registration pursuant
to Regulation S under the Securities Act. We made this determination based on
the representations of these CCG Shareholders, which included, in pertinent
part, that such holders were not a "U.S. person" as that term is defined in Rule
902(k) of Regulation S, and that such holders were acquiring our common stock
for investment purposes for their own respective accounts and not as nominees or
agents or for the account or benefit of any U.S. person, and not with a view to
the resale or distribution thereof, and understood that the shares of our common
stock may not be sold or otherwise disposed of without registration under the
Securities Act or an applicable exemption therefrom.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. REMOVED AND RESERVED
ITEM 5. OTHER INFORMATION
None.
35
ITEM 6. EXHIBITS
(a) Exhibits required by Item 601 of Regulation S-K.
Exhibit
Number Description
------ -----------
2.1 Agreement and Plan of Merger by and among the Company, CCG Acquisition
Corp., a Delaware corporation, and Consumer Capital Group Inc., a
California corporation, dated February 4, 2011 (2)
3.1 Certificate of Incorporation (1)
3.2 Bylaws (1)
3.3 Certificate of Ownership filed with the Secretary of State of Delaware
with an effective date of February 17, 2011 (3)
10.1 Assignment and Assumption Agreement between Mondas Minerals, Inc. and
Scott Bengfort, dated February 4, 2011 (2)
10.2 Release Agreement by Scott D. Bengfort, dated February 4, 2011 (2)
10.3 Indemnification Agreement between Scott Benfort, Mondas Minerals Corp.,
and CCG Acquisition Corp., dated February 4, 2011 (2)
10.4 Exclusive Business Cooperation Agreement between America Arki (Fuxin)
Network Management Co., Ltd. and America Arki Networkservice Beijing
Co., Ltd., dated February 3, 2011 (English translation) (2)
21.1 List of Subsidiaries (2)
31.1 Certification of the Company's Principal Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002, with respect to the
registrant's Quarterly Report on Form 10-Q for the quarter ended March
31, 2011
31.2 Certification of the Company's Principal Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002, with respect to the
registrant's Quarterly Report on Form 10-Q for the quarter ended March
31, 2011
32.1 Certification of the Company's 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 the Company's Principal Financial Officer pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
----------
(1) Filed on July 15, 2008 as an exhibit to the Company's Registration
Statement on Form S-1, and incorporated herein by reference.
(2) File on February 10, 2011 as an exhibit to the Company's Current Report on
Form 8-K, and incorporated herein by reference.
(3) File on February 25, 2011 as an exhibit to the Company's Current Report on
Form 8-K, and incorporated herein by reference.
36
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: May 23, 2011 By: /s/ Jianmin Gao
------------------------------------
Jianmin Gao
Principal Executive Officer
Principal Financial Officer
3
