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EX-32.2 - CERTIFICATION - Consumer Capital Group, Inc.f10q0917ex32-2_consumer.htm
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EX-31.2 - CERTIFICATION - Consumer Capital Group, Inc.f10q0917ex31-2_consumer.htm
EX-31.1 - CERTIFICATION - Consumer Capital Group, Inc.f10q0917ex31-1_consumer.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark One)

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

 

For the quarterly period ended September 30, 2017

 

or

 

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

 

For the transition period from ___________ to ___________

 

Commission File Number: 000-54998

 

CONSUMER CAPITAL GROUP INC.

(Exact name of registrant as specified in its charter)

 

Delaware   26-2517432
State or other jurisdiction of
incorporation or organization
  (I.R.S. Employer
Identification No.)
     

136-82 39th Ave, 4th Floor, Unit B

Flushing, New York

  11354
(Address of principal executive offices)   (Zip Code)

 

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

 

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

 

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

 

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

 

Large accelerated filer Accelerated filer
Non-accelerated filer Smaller reporting company
(Do not check if smaller reporting company) Emerging growth company 

 

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

 

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

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: As of November 20, 2017, there were 32,178,849 shares of common stock issued and outstanding.

 

 

 

 

 

 

CONSUMER CAPITAL GROUP, INC.

QUARTERLY REPORT ON FORM 10-Q

September 30, 2017

 

TABLE OF CONTENTS

 

        PAGE
         
PART I   FINANCIAL INFORMATION   1
         
Item 1.   Financial Statements (Unaudited)   1
         
Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations   25
         
Item 3.   Quantitative and Qualitative Disclosures About Market Risk   32
         
Item 4.   Controls and Procedures   32
         
PART II   OTHER INFORMATION   33
         
Item 1.   Legal Proceedings   33
         
Item 1A.   Risk Factors   33
         
Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds   33
         
Item 3.   Defaults Upon Senior Securities   33
         
Item 4.   Mine Safety Disclosures   33
         
Item 5.   Other Information   33
         
Item 6.   Exhibits   34
         
SIGNATURES   35
     
Financial Statements:    

 

 

 

 

USE OF CERTAIN DEFINED TERMS

 

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

 

 

 

 

PART I—FINANCIAL INFORMATION

 

Item 1. Financial Statements.

  

CONSUMER CAPITAL GROUP INC.

 

  Page
   
Condensed Consolidated Balance Sheets at September 30, 2017 (unaudited) and December 31, 2016 (audited) 2
   
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the Three and Nine Months Ended September 30, 2017 and 2016 (unaudited) 4
   
Statement Of Consolidated Statements of Changes In Stockholders’ Equity for the Nine Months Ended September 30, 2017 and 2016 (unaudited) 5
   
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2017 and 2016 (unaudited) 6
   
Notes to Unaudited Condensed Consolidated Financial Statements 7

  

 1 

 

 

CONSUMER CAPITAL GROUP, INC AND SUBSIDIARIES

 

CONSOLIDATED BALANCE SHEETS (IN U.S. $)

 

   September 30,   December 31, 
ASSETS  2017   2016 
   (Unaudited)     
         
Current assets:        
Cash and cash equivalents  $1,520,549   $1,444,347 
Prepaid expenses   62,558    1,200 
Other receivables   1,223,695    555,560 
Loans receivable, net and interest receivable   1,969,403    702,846 
Deferred registration cost   381,439    - 
Due from related parties   -    213,377 
Current assets from discontinued operations   -    3,081,886 
           
Total current assets   5,157,644    5,999,216 
           
Non-current assets:          
Property and equipment, net   45,848    47,166 
Deferred tax asset   -    57,498 
Non-current assets from discontinued operations   -    1,508,985 
           
Total non-current assets   45,848    1,613,649 
           
Total Assets  $5,203,492   $7,612,865 

 

See accompanying notes to the consolidated financial statements.

 

 2 

 

 

CONSUMER CAPITAL GROUP, INC AND SUBSIDIARIES

 

CONSOLIDATED BALANCE SHEETS (CONTINUED) (IN U.S. $)

 

   September 30,   December 31, 
LIABILITIES AND STOCKHOLDERS’ EQUITY  2017   2016 
   (Unaudited)     
         
Current liabilities:        
Loans payable  $6,064,695   $2,332,330 
Accrued interest payable   92,162    129,574 
Accrued liabilities   6,542    17,570 
Taxes payables   4,699    - 
Deferred revenue   25,821    - 
Other payables   1,233,714    - 
Payable to shareholder   101,347    102,035 
Due to related parties   46,282    1,108,137 
Deferred tax liabilities   144,998    135,717 
Current liabilities from discontinued operations   -    508,633 
           
Total current liabilities   7,720,260    4,333,996 
           
Stockholders’ equity:          
Common stock - $0.0001 par value, 100,000,000 shares authorized, 32,178,849 shares issued and outstanding as of September 30, 2017, and December 31, 2016   3,218    3,218 
Additional paid-in capital   7,990,637    7,990,637 
Accumulated other comprehensive income   44,158    143,943 
Deficit   (9,837,507)   (4,675,858)
           
Stockholders’ equity before noncontrolling interests   (1,799,494)   3,461,940 
           
Noncontrolling interests   (717,274)   (183,071)
           
Total stockholders’ equity   (2,516,768)   3,278,869 
           
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY  $5,203,492   $7,612,865 

 

See accompanying notes to the consolidated financial statement.

 

 3 

 

 

CONSUMER CAPITAL GROUP, INC AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2017 AND 2016 (Unaudited) (IN U.S. $)

 

   Three Months Ended September 30,   Nine Months Ended September 30, 
   2017   2016   2017   2016 
                 
Revenue  $167,408   $149,016   $290,820   $149,016 
                     
Operating expenses:                    
Selling and marketing   616    -    1,012    - 
General and administrative   67,328    78,436    692,323    657,756 
Interest expense   81,087    35,242    1,109,332    107,318 
Other expense (income)   -    6,650    -    (4,520)
Provision for loan losses   23,358    -    39,640    - 
                     
Total operating expenses   172,389    120,328    1,842,307    760,554 
                     
(Loss) income before provision for income taxes   (4,981)   28,688    (1,551,487)   (611,538)
Provision for income taxes   50,641    -    62,127    - 
                 
Loss income before noncontrolling interests   (55,622)   28,688    (1,613,614)   (611,538)
Noncontrolling interests   (35,352)   (30,308)   (534,203)   (83,781)
                     

Loss income attributable to common Stockholders before discontinued operations

   (20,270)   58,996    (1,079,411)   (527,757)
                     
Discontinued operations:                    
Net income (loss) from discontinued operations, net of tax   308,734    (613,267)   1,044,936    618,251 
(Loss) from dissolution of discontinued operations, net of tax   (5,127,174)   -    (5,127,174)   - 
Less: (loss) income attributable to the Noncontrolling interests   -    (301,605)   -    304,056 
                     

Income (loss) attributable to common stockholders-discontinued operations

   (4,818,440)   (311,662)   (4,082,238)   314,195 
                     
Net (loss) income   (4,874,062)   (282,974)   (5,695,852)   (297,343)
                     
Net (loss) attributable to common stockholders  $(4,838,710)  $(252,666)  $(5,161,649)  $(213,562)
                 
Earnings/(Loss) per share                
Basic and diluted                
Continuing operations  $(0.00)   0.00   $(0.03)   (0.20)
Discontinued operations   0.15    (0.01)   (0.13)   0.01 
Total  $(0.15)   (0.01)  $(0.16)   (0.19)
                     
Weighted average shares outstanding                    
Basic and diluted   32,178,849    31,402,379    32,178,849    31,870,511 
                     
Comprehensive income                    
Net (loss) income before noncontrolling interests  $(4,874,062)  $(282,974)  $(5,695,852)  $(297,343)
Foreign currency translation adjustment   (67,802)   (9,262)   (99,785)   (31,406)
                     
Total comprehensive (loss) income   (4,941,864)   (292,236)   (5,795,637)   (328,749)
Comprehensive (loss) income attributable to noncontrolling interests   (68,575)   (346,588)   (583,099)   127,865 
                     

Net comprehensive (loss) income attributable to common stockholders

  $(4,873,289)  $54,352   $(5,212,538)  $(456,614)

 

See accompanying notes to the consolidated financial statements.

 

 4 

 

 

CONSUMER CAPITAL GROUP, INC AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2017 (Unaudited) (IN U.S. $)

 

   Common Stock   Discount on common stock   Additional Paid-in Capital   (Deficit)   Accumulated other comprehensive income   Non-controlling interest   Total 
Balance, December 31, 2016  $3,218   $(130,741)  $8,121,378   $(4,675,858)  $143,943   $(183,071)  $3,278,869 
Net income   -    -    -    (5,161,649)   -    (534,203)   (5,695,852)
Foreign currency translation adjustment   -    -    -    -    (99,785)   -    (99,785)
                                    
Balance, September 30, 2017 (Unaudited)  $3,218   $(130,741)  $8,121,378   $(9,837,507)  $44,158   $(717,274)  $(2,516,768)

 

See accompanying notes to the consolidated financial statements.

 

 5 

 

 

CONSUMER CAPITAL GROUP, INC AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2017 AND 2016 (unaudited) (IN U.S. $)

 

   Nine Months Ended
September 30,
 
   2017   2016 
         
Cash flows from operating activities:        
Net (loss) income  $(5,695,852)  $(297,343)
Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities:          
Depreciation   1,318    16,861 
Allowance for loan losses   39,640    227,215 
Deferred income taxes   66,779    (56,804)
Changes in operating assets and liabilities:          
Decrease in due from related parties   213,377    - 
Decrease in advance to suppliers   -    37,804 
(Increase) in deferred cost-related party   -    (884,475)
(Increase) in prepaid expenses   (61,358)   (54,181)
(Increase) in other receivables   (668,135)   (650,893)
(Decrease) in accrued liabilities   (11,028)   (229)
Increase (decrease) in deferred revenue   25,821    (3,671,737)
Increase in payable to shareholder   -    32,275 
(Decrease) increase  in accrued interest payables   (37,412)   780,993 
Increase in taxes payable   4,699    231,941 
Increase in other payables   1,233,714    - 
           
Net cash (used in) operating activities from continuing operations   (4,888,437)   (288,573)
           
Net cash provided by operating activities from discontinuing operations   4,082,238    - 
           
Cash flows from investing activities:          
Equipment purchased   -    (110,733)
Repayment of loans from customers   -    2,095,112 
Loans receivable   (1,306,197)   (5,277,972)
           
Net cash (used in) investing activities   (1,306,197)   (3,293,593)
         
Cash flows from financing activities:        
Proceeds from issuance of shares   -    200,968 
Cash paid for stock issuance costs   (381,439)   - 
Repayments of related party debt   (1,061,855)   (254,425)
Loans from individuals   3,732,365    7,387,548 
           
Net cash provided by financing activities   2,289,071    7,334,091 
           
Effect of exchange rate changes on cash,   (100,473)   (939,816)
           
Net change in cash   (4,006,036)   (1,187,891)
Cash and cash equivalents from discontinued operations   4,082,238    - 
Cash, beginning balance   1,444,347    2,739,145 
           
Cash, ending balance  $1,520,549   $1,551,254 
           
Supplemental disclosure of cash flow information          
Cash paid for interest  $1,109,332   $1,362,963 
           
Cash paid for income taxes  $565,928   $7,637 

 

See accompanying notes to the consolidated financial statements.

 

 6 

 

 

CONSUMER CAPITAL GROUP, INC AND SUBSIDIARIES

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2017 AND 2016 (unaudited) (IN U.S. $)

 

1.ORGANIZATION

 

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

 

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

 

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

 

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

 

SHANGHAI ZHONGHUI FINANCIAL INFORMATION SERVICES CORP.

 

Established on May 26, 2014, under PRC laws, Shanghai Zhonghui Financial Information Services Corp. (“Shanghai Zhonghui”) offers financing and investment opportunities for small to medium sized business and investors, including outsource of financial information technologies, investment management, investment consulting, as well as other related asset management services in China.

 

On December 23, 2014, the Company and Shanghai Zhonghui entered into a Share Exchange Agreement (the “Agreement”), pursuant to which the Company agreed to acquire 51% of the capital stock of Shanghai Zhonghui (the “Acquisition”). Pursuant to the terms of the Agreement, the Company agreed to issue 5,000,000 shares of the Company’s common stock, to certain individuals affiliated with Shanghai Zhonghui (the “Affiliates”), valued at $1.00 per share for a total of $5,000,000 or approximately 31,000,000 RMB, to exchange 51% of the capital stock of Shanghai Zhonghui.

 

On December 28, 2016, the Company and Yanbian Yaotian Gas Group Co., Ltd, (the “Purchaser”) a company incorporated under the laws of the People’s Republic of China, entered into a definitive agreement to sell all of its interests in Shanghai Zhonghui for nil consideration. As of December 31, 2016, the results of operations of Shanghai Zhonghui business are reflected in the Company’s consolidated financial statements as discontinued operations.

 

YIN HANG FINANCIAL INFORMATION SERVICE (SHANGHAI) CO., LIMITED

 

Yin Hang Financial Information Service (Shanghai) Co., Limited ("Yin Hang") was incorporated on November 22, 2013 under the laws of the People’s Republic of China (“PRC” or “China”). The Company collects service fees calculated based on the complexity, required time, contents and commercial value of the credit risk assessment services provided to lenders and borrowers on a third party peer to peer (“P2P”) online lending platform. On December 1, 2016, the Company through its variable interest entity, America Arki Network Service Beijing Co., Ltd entered into a Share Exchange Agreement with Yin Hang, pursuant to the Agreement, the Company agreed to acquire 100% of the capital stock of Yin Hang in exchange for the issuance of 4,680,000 shares of Company’s common stock. The shares are locked up for one year upon issuance and Yin Hang’s investor may sell up to 2% of the shares after such lock-up period. Further to a supplementary agreement dated March 28, 2017, as a payment for assisting in the acquisition, the Company also agreed to issue 320,000 shares of Common Stock to a third party.

 

On August 31, 2017, Arki and Yin Hang entered into a Supplementary Agreement and mutually agreed to terminate the Share Exchange Agreement, effective immediately, because companies in the financial information industry are not permitted to be controlled by foreign companies outside of China. As a result of the termination, Yin Hang is no longer be consolidated in the Company’s financial statements as of September 1, 2017 and its operations are reflected in discontinued operations.

 

 7 

 

 

CONSUMER CAPITAL GROUP, INC AND SUBSIDIARIES

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2017 AND 2016 (unaudited) (IN U.S. $)

 

1.ORGANIZATION (continued)

 

Details of the Company’s wholly owned subsidiaries and its Affiliated PRC Entity as of September 30, 2017 are as follows:

 

Company  Date of Establishment  Place of Establishment  Percentage of Ownership by the Company   Principal Activities
Consumer Capital Group Inc. (“CCG California”)  October 14, 2009  California USA   100%  U.S. holding company and headquarters of the consolidated entities. Commencing in July 2011, CCG performs the U.S. e-commerce operations.
               
Arki Beijing Ecommerce Technology Corp. (“Arki Beijing”)  March 6, 2008  PRC   100%  Maintains the various computer systems, software and data. Owns the intellectual property rights of the “consumer market network”.
               
America Pine Beijing BioTech, Inc. (“America Pine Beijing”)  March 21, 2007  PRC   100%(1)  Assists in payment collection for e-commerce business.
               
America Arki Fuxin Network Management Co. Ltd. (“Arki Fuxin”)  November 26, 2010  PRC   100%(1)  Performs the principal daily e-commerce operations, transactions and management of the “consumer market network”.
               
America Arki Network Service Beijing Co. Ltd. (“Arki Network Service” and Affiliated PRC Entity”)  November 26, 2010  PRC   0%(2)  Entity under common control through relationships between Fei Gao and the Company. Holds the business license and permits necessary to conduct e-commerce operations in the PRC
               
Yin Hang Financial Information  Service (Shanghai) Co., Ltd (“Yin Hang”)  November 22, 2013  PRC   0%(5)  Collects service fees calculated based on the complexity, required time, contents and commercial value of the credit risks assessment services provided to the lenders and borrowers on a third party peer to peer (“P2P”) online lending platform as of September 1, 2017, no longer owned by the Company. The results of operations of Yin Hang are reflected in the consolidated financial statements as “discontinued operations”.
              
Arki Tianjin Asset Management LLP. (“Arki Tianjin”)  October 22, 2015  PRC   51%(3)  Offer asset management, management consulting, internet information services as well as advertising design, production, agent, publishing.
               
Shanghai Zhonghui Financial Information Services LTD. (“Shanghai Zhonghui”)  May 26, 2014  PRC   0%(4)  Offer financing and investment opportunities for small to medium sized business and investors, including outsource of financial information technologies, investment management, investment consulting, as well as other related asset management services in China. As of December 31, 2016, the results of operations of Shanghai Zhonghui are reflected in the Company’s consolidated financial statements as “discontinued operations.”

 

(1) Wholly foreign owned entities (WFOE)
(2) VIE
(3) Arki Network Service owned entities
(4) Discontinued operation sold on December 28, 2016
(5) Discontinued operation on August 31, 2017
 8 

 

 

CONSUMER CAPITAL GROUP, INC AND SUBSIDIARIES

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2017 AND 2016 (unaudited) (IN U.S. $)

 

1.ORGANIZATION (continued)

 

In order to comply with PRC laws and regulations which prohibit foreign control of companies involved in internet content, the Company operates its website using the licenses and permits held by Arki Network Service, a 100% PRC owned entity. The equity interests of Arki Network Service are legally held directly by Mr. Jianmin 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, and are entitled to substantially all of its economic benefits and are obligated to absorb all of its losses. Therefore, the Company consolidates Arki Network Service as a variable interest entity (“VIE”) in accordance with SEC Regulation SX-3A-02 and the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 810, “Consolidation in accounting for a variable interest entity (“VIE”).”

 

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

 

The shareholders of Arki Network Service, namely Mr. Jianmin 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. Jianmin 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.

 

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.

 

Arki Fuxin and Arki Network Service entered into an exclusive business cooperation agreement deemed effective on November 26, 2010, under which Arki Network Service engaged 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 and which are eliminated in consolidation. 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.

 

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, will be entitled to request immediate repayment of the loan or to dispose of the pledged equity interests through transfer or assignment.

 

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.

 

 9 

 

 

CONSUMER CAPITAL GROUP, INC AND SUBSIDIARIES

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2017 AND 2016 (unaudited) (IN U.S. $)

 

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of accounting and presentation

 

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

 

The unaudited interim consolidated financial statements of the Company as of September 30, 2017, and for the three and nine months ended September 30, 2017 and 2016 have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and the rules and regulations of the Securities and Exchange Commission (the “SEC”) which apply to interim financial statements. Accordingly, they do not include all of the information and footnotes normally required by accounting principles generally accepted in the United States of America for annual financial statements. The interim consolidated financial information should be read in conjunction with the consolidated financial statements and the notes thereto, included in the Company’s Form 10-K filed with the SEC. In the opinion of management, such information contains all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the results for the periods presented. The results of operations for the three and nine months ended September 30, 2017 are not necessarily indicative of the results to be expected for future quarters or for the year ending December 31, 2017.

 

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

 

Variable interest entity

 

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

 

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

 

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

 

 10 

 

 

CONSUMER CAPITAL GROUP, INC AND SUBSIDIARIES

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2017 AND 2016 (unaudited) (IN U.S. $)

 

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

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

 

     September 30,
2017
   December 31,
2016
 
     (Unaudited)     
           
  TOTAL ASSETS  $1,062,408   $1,092,474 
             
  TOTAL LIABILITIES  $2,677,000   $2,445,343 

 

    

Three Months ended

September 30,

  

Nine Months ended

September 30,

 
     2017   2016   2017   2016 
     (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited) 
                       
  Net loss  $(50,856)  $(46,519)  $(198,637)  $(340,318)

 

Use of estimates

 

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

 

Foreign currency translations

 

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

 

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

 

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

 

     September 30,
2017
   December 31,
2016
 
     (Unaudited)     
             
  Balance sheet items, except for stockholders’ equity, as of periods end   0.1503    0.1440 

 

     Three Months Ended 
     September 30,
2017
   September 30,
2016
 
     (Unaudited)   (Unaudited) 
             
  Amounts included in the statements of operations and comprehensive income (loss) and cash flows for the  periods presented   0.1502    0.1500 

 

 11 

 

 

CONSUMER CAPITAL GROUP, INC AND SUBSIDIARIES

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2017 AND 2016 (unaudited) (IN U.S. $)

 

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Foreign currency translations (continued)

 

     Nine Months Ended 
     September 30,
2017
   September 30,
2016
 
     (Unaudited)   (Unaudited) 
             
  Amounts included in the statements of operations and comprehensive income (loss) and cash flows for the periods presented   0.1473    0.1520 

 

Foreign currency translation adjustments of $(67,802) and $(9,262) for the three months ended September 30, 2017 and 2016, respectively, and $(99,786) and $(31,406) for the nine months ended September 30, 2017 and 2016, respectively, have been reported as other comprehensive income (loss). Other comprehensive income (loss) of the Company consists entirely of foreign currency translation adjustments.

 

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

 

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

 

Revenue recognition

 

We recognize revenue from 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

 

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

 

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

 

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

 

Servicing fee income

 

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

 

Yin Hang provided credit risks assessment services to the borrowers and lenders on a third party P2P online lending platform. The service fees are calculated based on complexity, required time, contents and commercial value of the coordination services between borrowers and lenders and are collected when the loan agreements are signed by all parties but before releasing the money to the borrowers.

 

Interest income on loans

 

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

 

 12 

 

 

CONSUMER CAPITAL GROUP, INC AND SUBSIDIARIES

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2017 AND 2016 (unaudited) (IN U.S. $)

 

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Discontinued Operations

 

“Presentation of Financial Statements (Topic 205) and Property, Plant and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity” is utilized by the Company to present the operations of Shanghai Zhonghui and Yin Hang which have been disposed of. The amendments contained in this update change the criteria for reporting discontinued operations and enhance the reporting requirements for discontinued operations. Under the revised standard, a discontinued operation must represent a strategic shift that has or will have a major effect on an entity’s operations and financial results. Examples could include a disposal of a major line of business, a major geographical area, a major equity method investment, or other major parts of an entity. The revised standard also allows an entity to have certain continuing cash flows or involvement with the component after the disposal. Additionally, the standard requires expanded disclosures about discontinued operations that will provide financial statement users with more information about the assets, liabilities, income, and expenses of discontinued operations. The Company accounted for the sales of Shanghai Zhonghui and Yin Hang as discontinued operations pursuant to this standard. Refer to Note 9 for additional details. The Company accounted for the disposal of Shanghai Yin Hang during 2017 as a discontinued operation pursuant to this standard. Refer to Note 9 for additional details.

 

Non-controlling interest

 

Noncontrolling interests in our 51% owned subsidiary is recorded as a component of our equity, separate from the Company’s equity. Purchase or sales of equity interests that do not result in a change of control are accounted for as equity transactions. Results of operations attributable to the non-controlling interest are included in our consolidated results of operations and, upon loss of control, the interest sold, as well as interest retained, if any, will be reported at fair value with any gain or loss recognized in earnings.

 

Comprehensive income (loss)

 

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

 

Earnings per share

 

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

 

Diluted EPS is computed by dividing net income by the weighted average number of common shares outstanding for the period and the weighted average number of 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 or the Company has a loss.

 

Cash and cash equivalents

 

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

 

Loans receivable

 

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

 

 13 

 

 

CONSUMER CAPITAL GROUP, INC AND SUBSIDIARIES

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2017 AND 2016 (unaudited) (IN U.S. $)

 

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Allowance for loan losses

 

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

 

The Company calculates the provision amount as below:

 

  1. General Reserve - is based on the total loan receivable balance and to be used to cover unidentified probable loan loss. The General Reserve is required to be no less than 1% of total loans receivable.
     
  2. Specific Reserve - is an allowance set aside covering losses due to risks related to a particular country, region, industry, borrower or type of loan. The reserve rate can also be decided based on management’s estimate of loan collectability.

 

Interest receivable

 

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

 

Loans from individuals

 

Loans from individuals primarily represent the principle of lending funds received from the individuals through the Company’s internet platform. The interest rates of such loans are 8% - 18% per annum with a term lasting from 6 months to one year.

 

Property and equipment, net

 

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

 

Impairment of long-lived assets

 

The Company evaluates long-lived assets for impairment whenever events or changes in circumstances (such as a significant adverse change in market conditions that will impact the future use of the assets) indicate its net book value may not be recoverable. When these events occur, the Company compares the projected undiscounted future cash flows associated with the related asset or group of assets over its estimated useful lives against their respective carrying amount. Impairment, if any, is based on the excess of the carrying amount over the fair value, based on market value when available, or discounted expected cash flows, of those assets and is recorded in the period in which the determination is made. The Company’s management currently believes there is no impairment of its long-lived assets. There can be no assurance, however, that market conditions will not change or demand for the Company’s services will continue. Either of these could result in the future impairment of long-lived assets. As of September 30, 2017 and December 31, 2016, the Company has not experienced impairment losses on its long-lived assets for both the continuing and discontinued operations. However, there can be no assurances that demand for the Company’s products or services will continue, which could result in an impairment of long-lived assets in the future.

 

 14 

 

 

CONSUMER CAPITAL GROUP, INC AND SUBSIDIARIES

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2017 AND 2016 (unaudited) (IN U.S. $)

 

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Fair value of financial instruments

 

FASB ASC 820, “Fair Value Measurement” specifies a hierarchy of valuation techniques based upon whether the inputs to those valuation techniques reflect assumptions other market participants would use based upon market data obtained from independent sources (observable inputs). In accordance with ASC 820, the following summarizes the fair value hierarchy:

 

Level 1 Inputs – Unadjusted quoted market prices for identical assets and liabilities in an active market that the Company has the ability to access.

 

Level 2 Inputs – Inputs other than the quoted prices in active markets that are observable either directly or indirectly.

 

Level 3 Inputs – Inputs based on valuation techniques that are both unobservable and significant to the overall fair value measurements.

 

ASC 820 requires the use of observable market data, when available, in making fair value measurements. When inputs used to measure fair value fall within different levels of the hierarchy, the level within which the fair value measurement is categorized is based on the lowest level input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs.

 

The Company did not identify any assets or liabilities that are required to be presented at fair value on a recurring basis. Carrying values of non-derivative financial instruments, including cash, accounts receivable, prepaid expenses, other receivables, accounts payable, taxes payable, accrued liabilities and other payables, approximated their fair values due to the short nature of these financial instruments. There were no changes in methods or assumptions during the periods presented.

 

Income taxes

 

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

 

ASC 740 addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under ASC 740, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position would be measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. ASC 740 also provides guidance on de-recognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, and accounting for interest and penalties associated with tax positions. As of September 30, 2017 and December 31, 2016, the Company does not have a liability for any unrecognized tax benefits. The Company’s tax filings are subject to examination by the tax authorities. The tax years of 2013 and 2014 and 2015 remain open to examination by tax authorities in the PRC.

 

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

 

Reclassifications

 

Certain amounts in the prior period presented have been reclassified to conform to the current period consolidated financial statements presentation.

 

 15 

 

 

CONSUMER CAPITAL GROUP, INC AND SUBSIDIARIES

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2017 AND 2016 (unaudited) (IN U.S. $)

 

3.RECENTLY ISSUED ACCOUNTING STANDARDS

 

In November 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update ("ASU") No. 2016-18, "Statement of Cash Flows: Restricted Cash". The amendments address diversity in practice that exists in the classification and presentation of changes in restricted cash on the statement of cash flows. The amendment is effective for public companies for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company does not anticipate that this adoption will have a significant impact on its financial position, results of operations, or cash flows.

 

In June 2016 the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”, which eliminates the probable initial recognition threshold for credit losses in current U.S. GAAP, and instead requires an organization to record a current estimate of all expected credit losses over the contractual term for financial assets carried at amortized cost. This is commonly referred to as the current expected credit losses (“CECL”) methodology. Expected credit losses for financial assets held at the reporting date will be measured based on historical experience, current conditions, and reasonable and supportable forecasts. Another change from existing U.S. GAAP involves the treatment of purchased credit deteriorated assets, which are more broadly defined than purchased credit impaired assets in current accounting standards. When such assets are purchased, institutions will estimate and record an allowance for credit losses that is added to the purchase price rather than being reported as a credit loss expense. Furthermore, ASU 2016-13 updates the measurement of credit losses on available-for-sale debt securities, by mandating that institutions record credit losses on available-for-sale debt securities through an allowance for credit losses rather than the current practice of writing down securities for other-than-temporary impairment. ASU 2016-13 will also require the enhancement of financial statement disclosures regarding estimates used in calculating credit losses. ASU 2016-13 does not change the existing write-off principle in U.S. GAAP or current nonaccrual practices, nor does it change accounting requirements for loans held for sale or certain other financial assets which are measured at the lower of amortized cost or fair value. As a public business entity that is an SEC filer, ASU 2016-13 becomes effective for the Company on January 1, 2020, although early application is permitted for 2019. The Company is currently evaluating the potential effects on the Company’s financial statements, if any.

 

In August 2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flows (Topic 230)”: Classification of Certain Cash Receipts and Cash Payments, to provide guidance on the presentation and classification of certain cash receipts and cash payments on the statement of cash flows. The guidance specifically addresses cash flow issues with the objective of reducing the diversity in practice. The guidance will be effective for the Company in fiscal year 2018, but early adoption is permitted. The Company does not anticipate that this adoption will have a significant impact on its financial position, results of operations, or cash flows.

 

In May 2016, the FASB issued ASU No. 2016-11 “Revenue Recognition (Topic 605) and Derivatives and Hedging (Topic 815)”; Rescission of SEC Guidance Because of Accounting Standards Updates 2014-09 and 2014-16 Pursuant to Staff Announcements at the March 3, 2016 EITF Meeting, which is rescinding certain SEC Staff Observer comments that are codified in Topic 605, Revenue Recognition. The Company does not anticipate that this adoption will have a significant impact on its financial position, results of operations, or cash flows.

 

In May 2016, FASB issued ASU No. 2016-12 “Revenue from Contracts with Customers (Topic 606)”; Narrow-Scope Improvements and Practical Expedients, which is intended to not change the core principle of the guidance in Topic 606, but rather affect only the narrow aspects of Topic 606 by reducing the potential for diversity in practice at initial application and by reducing the cost and complexity of applying Topic 606 both at transition and on an ongoing basis. The Company does not anticipate that this adoption will have a significant impact on its financial position, results of operations, or cash flows.

 

In April 2016, FASB issued Accounting Standards Update No. 2016-10, “Revenue from Contracts with Customers (Topic 606)”: Identifying Performance Obligations and Licensing. The amendments clarify the following two aspects of Topic 606: (a) identifying performance obligations; and (b) the licensing implementation guidance. The amendments do not change the core principle of the guidance in Topic 606. The effective date and transition requirements for the amendments are the same as the effective date and transition requirements in Topic 606. Public entities should apply the amendments for annual reporting periods beginning after December 15, 2017, including interim reporting periods therein (i.e., January 1, 2018, for a calendar year entity). Early application for public entities is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. The Company does not anticipate that this adoption will have a significant impact on its financial position, results of operations, or cash flows.

 

In February 2016, the FASB issued ASU 2016-02 “Leases. The new standard establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. We are currently evaluating the impact of its pending adoption of the new standard on its financial statements.

 

In March 2015, the FASB issued ASU 2015-03 “Interest – Imputation of Interest (Subtopic 835-30). This ASU addressed the simplification and presentation of debt issuance costs by presenting them in the balance sheet as a direct deduction from the carrying amount of the related debt liability, consistent with debt discounts or premiums. This accounting standard update is not expected to have a material impact on the Company’s consolidated financial statements.

 

 16 

 

 

CONSUMER CAPITAL GROUP, INC AND SUBSIDIARIES

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2017 AND 2016 (unaudited) (IN U.S. $)

 

4.PREPAID EXPENSES

 

Prepaid expenses consisted of prepaid rent as of September 30, 2017 and December 31, 2016.

 

5.LOANS RECEIVABLE, NET

 

The monthly interest rates on loan issued range from 8% to 30% for the nine months ended September 30, 2017.

 

As of September 30, 2017 and December 31, 2016, the total loan receivables balance was $1,942,355 and $683,496.

 

Loan receivables consisted of the following as of September 30, 2017 and December 31, 2016:

 

     September 30,
2017
   December 31,
2016
 
     (Unaudited)     
           
  Loans receivable  $1,981,995   $683,496 
  Allowance for loan losses   (39,640)   - 
             
  Loans receivable, net  $1,942,355   $683,496 

 

The loans primarily consist of factoring loans. According to the outstanding contracts during the reporting period, the maturity terms ranged from 3 to 6 months. The allowance for loan losses is maintained at a level considered adequate to provide for losses that can be reasonably anticipated. Management performs a quarterly evaluation of the adequacy of the allowance. The allowance is based on the Company’s past loan loss history, known and inherent risks in the portfolio, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying collateral, composition of the loan portfolio, current economic conditions and other relevant factors. This evaluation is inherently subjective as it requires material estimates that may be susceptible to significant revision as more information becomes available.

 

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

 

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

 

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

 

For the nine months ended September 30, 2017 and the year ended December 31, 2016, the Company believes that all loans can be collected and allowance for loan losses were $39,640 and nil.

 

Loans with modified terms are classified as troubled debt restructurings if the Company grants such borrowers concessions and it is deemed that those borrowers are experiencing financial difficulty. Concessions granted under a troubled debt restructuring generally involve a temporary below market rate reduction in interest rate or an extension of a loan’s stated maturity date. Non-accrual troubled debt restructurings are restored to accrual status if principal and interest payments, under the modified terms, are current for six consecutive months after modification. Loans classified as troubled debt restructurings are designated as impaired. There were no loans considered impaired at September 30, 2017 and December 31, 2016.

 

 17 

 

 

CONSUMER CAPITAL GROUP, INC AND SUBSIDIARIES

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2017 AND 2016 (unaudited) (IN U.S. $)

 

6.OTHER RECEIVABLES

 

Other receivables consist of the following As of September 30, 2017 and December 31, 2016:

 

     September 30,
2017
   December 31,
2016
 
     (Unaudited)     
           
  Advances to unrelated third-parties  $1,183,614   $517,158 
  Other deposits   40,081    38,402 
             
  Total  $1,223,695   $555,560 

 

7.LOANS FROM INDIVIDUALS

 

Individuals can invest in loans that are offered through the Company’s marketplace and network. All the loans have maturities from nine months to one year with interest rates varying from 8% to 18%.

 

For the three and nine months ended September 30, 2017, the Company recorded $81,087 and $1,109,332 respectively on the interest. For the three and nine months ended September 30, 2016, the Company recorded $35,242 and $107,318 respectively on the interest.

 

8.PAYABLE TO SHAREHOLDER

 

Caesar Capital Management Ltd. (“Caesar”) a shareholder of the Company, advanced $101,347 and $ 102,035 to the Company as of September 30, 2017 and December 31, 2016, respectively. The payable to Caesar included amounts due to Caesar of $117,767 and amounts due from Caesar of $16,420 as of September 30, 2017, and amounts due to Caesar of $117,767 and amounts due from Caesar of $15,732 as of December 31, 2016. The loans were borrowed by the Company for operating purposes, without collateral, and were due between July 2013 to November 2013, and with an annual interest rate of 6%. On July 1, 2013, the Company entered into an agreement with Caesar Capital Management Ltd. which amended the maturity date for all the existing loans between the Company and Caesar Capital Management Ltd. The loans became due on demand and are non-interest bearing.

 

9.DISCONTINUED OPERATIONS

 

In accordance with ASU No. 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity, a disposal of a component of an entity or a group of components of an entity is required to be reported as discontinued operations if the disposal represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results when the components of an entity meets the criteria in paragraph 205-20-45-1E to be classified as held for sale. When all of the criteria to be classified as held for sale are met, including management, having the authority to approve the action, commits to a plan to sell the entity, the major current assets, other assets, current liabilities, and noncurrent liabilities shall be reported as components of total assets and liabilities separate from those balances of the continuing operations. At the same time, the results of all discontinued operations, less applicable income taxes (benefit), shall be reported as a component of net income (loss) separate from the net income (loss) of continued operations in accordance with ASC 205-20-45.

 

On December 28, 2016, the Company and Yanbian Yaotian Gas Group Co., Ltd, (the “Purchaser”) a company incorporated under the laws of the People’s Republic of China, entered into a definitive agreement to sell all of its interests in Shanghai Zhonghui for no consideration. As of December 31, 2016, the results of operations of Shanghai Zhonghui are reflected in the Company’s consolidated financial statements as “discontinued operations.”

 

The disposal represents a strategic shift and has a major effect on the Company’s results of operations. The disposed entities are accounted as discontinued operations in the consolidated financial statements for the nine months ended September 30, 2016. A gain of $1,355,432 was recognized on the disposal, which is determined based on the excess of liabilities over assets in the same amount.

 

 18 

 

 

CONSUMER CAPITAL GROUP, INC AND SUBSIDIARIES

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2017 AND 2016 (unaudited) (IN U.S. $)

 

9.DISCONTINUED OPERATIONS (continued)

 

On December 1, 2016, the Company through its variable interest entity, America Arki Network Service Beijing Co., Ltd entered into certain Share Exchange Agreement with Yin Hang Financial Information Service (Shanghai) Co., Ltd, a company established under the laws of People’s Republic of China. Pursuant to the Agreement, the Company agreed to acquire 100% of the capital stock of Yin Hang in exchange for the issuance of 4,680,000 shares of Company’s common stock. Pursuant to the terms of the Agreement, all Acquisition Shares shall be locked up for one year upon issuance and Yin Hang’s investor may sell up to 2% of the Acquisition Shares after such lock-up period. Further to the supplementary agreement dated March 28, 2017, as a payment for the assisting with the acquisition, the Company also issued 320,000 additional shares of the Common Stock to a third party, Yu Yang.

 

On August 31, 2017, Arki and Yin Hang entered into a Supplementary Agreement and mutually agreed to terminate the Share Exchange Agreement, effective immediately, because companies in the financial information industry are not permitted to be controlled by foreign companies outside of China. As a result of the termination, Yin Hang shall no longer be consolidated in the Company’s financial statements as of September 1, 2017. As of September 30, 2017, the results of operations of Shanghai Yin Hang are reflected in the Company’s consolidated financial statements as “discontinued operations.”

 

The disposal represents a strategic shift and has a major effect on the Company’s results of operations. The disposed entities are accounted as discontinued operations in the consolidated financial statements for the nine months ended September 30, 2017. A loss of $5,127,174 was recognized on the disposal, which is determined based on the excess of assets over liabilities in the same amount.

 

The significant items included discontinued operations are as follow:

 

     For the nine months ended
September 30,
 
     2017   2016 
     (Unaudited)   (Unaudited) 
           
  Revenue  $2,246,767   $10,935,615 
  Cost of revenue   -    (8,148,407)
  Business taxes and surcharge   (8,066)   (63,558)
  Operating expenses   (845,420)   (2,105,399)
  Operating income from discontinued operations   -    567,442 
  Other expense   (32)   - 
  Provision for loan losses   -    - 
             
  Income from discontinued operations before income taxes   1,393,249    1,185,693 
  Provision for income taxes   (348,313)   50,809 
             
  Income from discontinued operations  $1,044,936   $1,236,502 

 

Related party transactions from discontinued operations

 

a)Related parties:

 

  Name of related party   Relationship with the Company
       
  Shanghai Huirong Asset Management Ltd. (“Huirong”)   Common Director, Hanzhen Li, between Shanghai Zhonghui Financial Service Information Co., Ltd. and Shanghai Huirong Asset Management Ltd.
       
  Arki Tianjin Asset Management LLP. (“Arki Tianjin”)   Subsidiary of the Company, Arki Network Service owned entities

 

 19 

 

 

CONSUMER CAPITAL GROUP, INC AND SUBSIDIARIES

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2017 AND 2016 (unaudited) (IN U.S. $)

 

9.DISCONTINUED OPERATIONS (continued)

 

b)The Company had the following related party balances at of September 30, 2017 and December 31, 2016:

 

    

September 30,
2017

   December 31,
2016
 
     (Unaudited)     
           
  Due to related party:          
  Huirong  $-   $235,947 
  Arki Tianjin   -    287,942 
                             
     $-   $523,889 

 

10.INCOME TAXES

 

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

 

United States

 

Consumer Capital Group Inc. was incorporated in United States, and is subject to corporate income tax rate of 34%.

 

The People's Republic of China (PRC)

 

Arki Beijing E-commerce Technology Corp., America Pine Beijing Bio-Tech, Inc., America Arki (Fuxin) Network Management Co. Ltd., America Arki Network Service Beijing Co. Ltd. and America Arki (Tianjin) Capital Management Partnership were incorporated in the People’s Republic of China and subject to PRC income tax at 25%. The Company did not generate taxable income in the People’s Republic of China for the three and nine months ended September 30, 2017 and 2016 respectively.

 

Yin Hang Financial Information Service (Shanghai) Co., Limited was incorporated in the People’s Republic of China and subject to PRC income tax at 25%. The Company generated taxable income in the People’s Republic of China for the nine months ended September 30, 2017 and did not generate taxable income in the period from December 1, 2016 (date of acquisition) to December 31, 2016.

 

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

 

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

 

    

Three Months ended

September 30,

  

Nine Months ended

September 30,

 
     2017   2016   2017   2016 
     (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited) 
                   
  Tax expense at statutory rate US   34%   34%   34%   34%
  Foreign income not recognized in the U.S.   (34%)   (34%)   (34%)   (34%)
                       
  PRC enterprise income tax rate   25%   25%   25%   25%
  Changes in valuation allowance and others   (25%)   (25%)   (25%)   (25%)
                       
  Effective income tax rates   -    -    -    - 

 

Income (Loss) before income taxes from continuing operations consists of:

 

    

Three Months ended

September 30,

  

Nine Months ended

September 30,

 
     2017   2016   2017   2016 
     (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited) 
                   
  Non-PRC  $(2,904,157)  $(27,974)  $(3,182,364)  $(49,366)
  PRC   (2,227,999)   56,662    (3,496,298)   (562,172)
                       
  Total  $(5,132,156)  $28,688   $(6,678,662)  $(611,538)

 

 20 

 

 

CONSUMER CAPITAL GROUP, INC AND SUBSIDIARIES

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2017 AND 2016 (unaudited) (IN U.S. $)

 

10.INCOME TAXES (continued)

 

The components of the income tax provision from continuing operations are as follows: 

 

    

Three Months ended
September 30,

  

Nine Months ended
September 30,

 
     2017   2016   2017   2016 
     (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited) 
                   
  Current taxes  $-   $-   $-   $- 
  Deferred taxes   50,641                        62,127                     
                       
  Income tax expense  $50,641   $-   $62,127   $- 

 

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

 

    

September 30,

2017

   December 31,
2016
 
     (Unaudited)     
           
  Deferred tax assets:        
  Accrued interest payable  $-   $23,089 
  Accruals   -    34,409 
                            
  Total  $-   $57,498 

 

    

September 30,

2017

   December 31,
2016
 
     (Unaudited)     
           
  Deferred tax liabilities:        
  Accrued interest receivable  $59,518   $57,026 
  Accrued interest payable   85,480    78,691 
             
  Total  $144,998   $135,717 

 

As of September 30, 2017 and December 31, 2016, the Company has a deferred tax asset of $0 and $57,498, and a deferred tax liability of $144,998 and $135,717 resulting from certain net operating losses in the PRC, respectively. The ultimate realization of deferred tax assets depends on the generation of future taxable income during the periods in which those net operating losses are available. The Company considers projected future taxable income and tax planning strategies in making its assessment. As of September 30, 2017, the Company does not have sufficient operations to generate taxable income in Arki Beijing, America Pine Beijing, Arki Fuxin, Arki Network Service and Arki Tianjin to conclude that it is more-likely-than-not that the Company will be able to realize all of its tax benefits in the near future and therefore a valuation allowance has been provided for the full value of the deferred tax asset. A valuation allowance will be maintained until sufficient positive evidence exists to support the reversal of any portion or all of the valuation allowance. Should Arki Beijing, America Pine Beijing, Arki Fuxin, Arki Network Service, Arki Tianjin and Yin Hang have sufficient operation to generate taxable income in future periods with a supportable trend; the valuation allowance will be reduced accordingly. As of September 30, 2017 and December 31, 2016, the valuation allowance was nil and $(15,374), respectively. Nil and nil of increase in the valuation allowance for each of the nine months ended September 30, 2017 and year December 31, 2016, respectively.

 

The components of deferred taxes are as follows from continuing operations at September 30, 2017 and December 31, 2016:

 

    

September 30,
2017

   December 31,
2016
 
     (Unaudited)     
           
  Deferred tax asset from net operating loss carry-forwards  $2,343,617   $72,872 
  Valuation allowance   (2,343,617)   (15,374)
             
  Deferred tax assets, net  $-   $57,498 

 

 21 

 

 

CONSUMER CAPITAL GROUP, INC AND SUBSIDIARIES

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2017 AND 2016 (unaudited) (IN U.S. $)

 

11.RELATED PARTY TRANSACTIONS

 

a)Related parties:

 

  Name of related parties   Relationship with the Company
  Mr. Jianmin Gao   Stockholder, Chief Executive Officer, Chief Financial Officer and Chairman of the Board of the Company
  Mr. Fei Gao   Stockholder, Director and Chief Operating Officer
  Mr. Dong Yao   Stockholder, Director and Chief Technology Officer
  Ms. Lihua Xiao   Stockholder, Management of the Company
  Ms. Li Juan   Stockholder, procurement manager
  Ms. Zheng Zhong   Stockholder, procurement manager
  Mr. Hao Siheng   Stockholder, Son of Lihua Xiao

 

b)The Company had the following related party balances at September 30, 2017 and December 31, 2016

 

     September 30,
2017
   December 31,
2016
 
     (Unaudited)     
           
  Due from related parties:          
  Mr. Dong Yao  $-   $49,814 
  Ms. Lihua Xiao   -    64,339 
  Mr. Siheng Hao   -    62,771 
  Ms. Juan Li   -    36,453 
                            
     $-   $213,377 

 

     September 30,
2017
   December 31,
2016
 
     (Unaudited)     
           
  Due to related parties:        
  Mr. Jianmin Gao  $36,435   $625,242 
  Mr. Fei Gao   9,847    482,895 
             
     $46,282   $1,108,137 

 

As of December 31, 2016, the Company was owed from Mr. Dong Yao $49,814 without interest and due on demand, respectively.

 

As of December 31, 2016, the Company was owed from Ms. Lihua Xiao $64,339 without interest and due on demand, respectively.

 

As of December 31, 2016, the Company was owed from Mr. Siheng Hao $62,771 for procurement activities without interest and due on demand, respectively.

 

As of December 31, 2016, the Company was owed from Ms. Juan Li of $36,453 for procurement activities without interest and due on demand, respectively.

 

 22 

 

 

CONSUMER CAPITAL GROUP, INC AND SUBSIDIARIES

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2017 AND 2016 (unaudited) (IN U.S. $)

 

11.RELATED PARTY TRANSACTIONS (continued)

 

As of September 30, 2017 and December 31, 2016, the amounts owed to Mr. Jianmin Gao are without interest and due on demand.

 

As of September 30, 2017 and December 31, 2016, the amounts owed to Mr. Fei Gao are without interest and due on demand.

 

12.COMMITMENTS AND CONTINGENCIES

 

Operating Leases

 

The Company has entered into lease agreements with various third parties. The terms of such non-cancellable operating leases are one to five years. As of September 30, 2017, the Company was obligated under non-cancellable operating leases minimum rentals as follows:

 

Year Ended September 30, 2017,

 

  2017  $- 
  2018   52,593 
  2019   52,593 
  2020   52,593 
  2021   52,593 
  Thereafter   52,593 
        
  Total  $262,965 

 

The rent expense for the three months ended September 30, 2017 and 2016 was $13,143 and $37,780, respectively. The rent expense for the nine months ended September 30, 2017 and 2016 was $38,677 and $113,340, respectively.

 

Legal Proceedings

 

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

 

13.CONCENTRATION OF CREDIT AND BUSINESS RISKS

 

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

 

As of September 30, 2017 and December 31, 2016, substantially all of the Company’s cash and cash equivalents were deposited in financial institutions located in the PRC, which management believes are of high credit quality. Management believes the credit risk on bank deposits is limited because the counterparties are banks with high credit-ratings assigned by international credit rating agencies, or state-owned banks in China.

 

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

 

Non-performance by these institutions could expose the Company to losses for amounts in excess of insured balances. As of September 30, 2017 and December 31, 2016, we had no uninsured balances with the banks in U.S. As of September 30, 2017 and December 31, 2016, our bank balances in the PRC were $1,435,384 and $1,460,640, respectively, which are uninsured and subject to credit risk. We have not experienced nonperformance by these institutions.

 

Financial instruments that potentially subject us to significant concentrations of credit risk consist principally of loans receivable from borrowers and the related accrued interest receivable. As of September 30, 2017 and December 31, 2016, the Company has four significant borrowers, which accounted for 32% of total loans receivable balance, and three borrowers which accounted for 63% of total loans receivable, respectively. The aforementioned borrowers paid service fees and interest regularly according to the contract during the reporting period, and the Company believes that the default risk from these borrowers is low in the foreseeable future.

 

 23 

 

 

CONSUMER CAPITAL GROUP, INC AND SUBSIDIARIES

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2017 AND 2016 (unaudited) (IN U.S. $)

 

13.CONCENTRATION OF CREDIT AND BUSINESS RISKS (continued)

 

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

 

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

 

14.GOING CONCERN

 

The accompanying condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate continuation of the Company as a going concern. The Company has generated losses from operations of $6,740,788 and $611,538 for the nine months ended September 30, 2017 and 2016, respectively. These continued losses have created an accumulated deficit of approximately $9,837,507 as of September 30, 2017. The Company also has a working capital deficit of approximately $2,562,616 at September 30, 2017. The Company has been having difficulty in raising adequate additional funding.

 

These factors raise substantial doubt about the Company's ability to continue as a going concern. The Company will require additional financing in order to execute its operating plan and continue as a going concern. The Company cannot predict whether this additional financing will be in the form of equity, debt or another form. The Company may not be able to obtain the necessary additional capital on a timely basis, on acceptable terms, or at all. Should financing sources fail to materialize, management would seek alternate funding sources such as the sale of common and/or preferred stock, the issuance of debt or other means. The Company plans to attempt to address its working capital deficiency by increasing its sales, maintaining strict expense controls and seeking strategic alliances.

 

In the event that these financing sources do not materialize, or the Company is unsuccessful in increasing its revenues and achieving adequate profitable operations, the Company will be forced to further reduce its costs, may be unable to repay its debt obligations as they become due or respond to competitive pressures, any of which circumstances would have a material adverse effect on its business, prospects, financial condition and results of operations.

 

The financial statements do not include any adjustments relating to the recoverability and reclassification of recorded asset amounts or amounts and reclassification of liabilities that might be necessary, should the Company be unable to continue as a going concern.

 

15.SUBSEQUENT EVENTS

 

On November 17, 2017, the Company’s subsidiary, Arki Network Service entered into share exchange agreement with the shareholders of Beijing Shenzhou Rongtong Investment Management Co., Ltd. (“Shenzhou Rongtong”) to obtain 100% of Shenzhou Rongtong’s shares in exchange for a total of 4,175,417 common shares of the Company. The transactions is expecting to be completed within 45 working days with the completion of corresponding registration procedure of equity change.

 

 24 

 

 

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

 

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

 

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

 

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

 

Overview

 

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

 

USE OF ESTIMATES

 

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

 

FOREIGN CURRENCY TRANSLATION

 

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

 

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

 

 25 

 

 

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

 

   September 30,   December 31, 
   2017   2016 
   (Unaudited)     
           
Balance sheet items, except for stockholders’ equity, as of periods end   0.1503    0.1440 

 

   Three Months Ended 
   September 30,   September 30, 
   2017   2016 
   (Unaudited)   (Unaudited) 
           
Amounts included in the statements of operations and comprehensive income and cash flows for the periods presented   0.1502    0.1500 

 

   Nine Months Ended 
   September 30,   September 30, 
   2017   2016 
   (Unaudited)   (Unaudited) 
           
Amounts included in the statements of operations and comprehensive income and cash flows for the periods presented   0.1473    0.1520 

 

Foreign currency translation adjustments of $(67,802) and $(9,262) for the three months ended September 30, 2017 and 2016, respectively, and $(99,785) and $(31,406) for the nine months ended September 30, 2017 and 2016, respectively, have been reported as other comprehensive income (loss). Other comprehensive income (loss) of our company consists entirely of foreign currency translation adjustments.

 

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

 

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

 

REVENUE RECOGNITION

 

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.

 

FAIR VALUE OF FINANCIAL INSTRUMENTS

 

FASB ASC 820, “Fair Value Measurement” specifies a hierarchy of valuation techniques based upon whether the inputs to those valuation techniques reflect assumptions other market participants would use based upon market data obtained from independent sources (observable inputs). In accordance with ASC 820, the following summarizes the fair value hierarchy:

 

Level 1 Inputs– Unadjusted quoted market prices for identical assets and liabilities in an active market that the Company has the ability to access.

 

Level 2 Inputs– Inputs other than the quoted prices in active markets that are observable either directly or indirectly.

 

Level 3 Inputs– Inputs based on valuation techniques that are both unobservable and significant to the overall fair value measurements.

 

ASC 820 requires the use of observable market data, when available, in making fair value measurements. When inputs used to measure fair value fall within different levels of the hierarchy, the level within which the fair value measurement is categorized is based on the lowest level input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs.

 

We did not identify any assets or liabilities that are required to be presented at fair value on a recurring basis. Carrying values of non-derivative financial instruments, including cash, accounts receivable, prepaid expenses, other receivables, accounts payable, taxes payable, accrued liabilities and other payables, approximated their fair values due to the short nature of these financial instruments. There were no changes in methods or assumptions during the periods presented.

 

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RECENT ACCOUNTING PRONOUNCEMENTS 

 

In November 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update ("ASU") No. 2016-18, "Statement of Cash Flows: Restricted Cash". The amendments address diversity in practice that exists in the classification and presentation of changes in restricted cash on the statement of cash flows. The amendment is effective for public companies for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company does not anticipate that this adoption will have a significant impact on its financial position, results of operations, or cash flows.

 

In June 2016 the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”, which eliminates the probable initial recognition threshold for credit losses in current U.S. GAAP, and instead requires an organization to record a current estimate of all expected credit losses over the contractual term for financial assets carried at amortized cost. This is commonly referred to as the current expected credit losses (“CECL”) methodology. Expected credit losses for financial assets held at the reporting date will be measured based on historical experience, current conditions, and reasonable and supportable forecasts. Another change from existing U.S. GAAP involves the treatment of purchased credit deteriorated assets, which are more broadly defined than purchased credit impaired assets in current accounting standards. When such assets are purchased, institutions will estimate and record an allowance for credit losses that is added to the purchase price rather than being reported as a credit loss expense. Furthermore, ASU 2016-13 updates the measurement of credit losses on available-for-sale debt securities, by mandating that institutions record credit losses on available-for-sale debt securities through an allowance for credit losses rather than the current practice of writing down securities for other-than-temporary impairment. ASU 2016-13 will also require the enhancement of financial statement disclosures regarding estimates used in calculating credit losses. ASU 2016-13 does not change the existing write-off principle in U.S. GAAP or current nonaccrual practices, nor does it change accounting requirements for loans held for sale or certain other financial assets which are measured at the lower of amortized cost or fair value. As a public business entity that is an SEC filer, ASU 2016-13 becomes effective for the Company on January 1, 2020, although early application is permitted for 2019. The Company is currently evaluating the potential effects on the Company’s financial, if any.

 

In August 2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flows (Topic 230)”: Classification of Certain Cash Receipts and Cash Payments, to provide guidance on the presentation and classification of certain cash receipts and cash payments on the statement of cash flows. The guidance specifically addresses cash flow issues with the objective of reducing the diversity in practice. The guidance will be effective for the Company in fiscal year 2018, but early adoption is permitted. The Company does not anticipate that this adoption will have a significant impact on its financial position, results of operations, or cash flows.

 

In May 2016, the FASB issued ASU No. 2016-11 “Revenue Recognition (Topic 605) and Derivatives and Hedging (Topic 815)”; Rescission of SEC Guidance Because of Accounting Standards Updates 2014-09 and 2014-16 Pursuant to Staff Announcements at the March 3, 2016 EITF Meeting, which is rescinding certain SEC Staff Observer comments that are codified in Topic 605, Revenue Recognition, and Topic 932, Extractive Activities—Oil and Gas, effective upon adoption of Topic 606. The Company does not anticipate that this adoption will have a significant impact on its financial position, results of operations, or cash flows.

 

In May 2016, FASB issued ASU No. 2016-12 “Revenue from Contracts with Customers (Topic 606)”; Narrow-Scope Improvements and Practical Expedients, which is intended to not change the core principle of the guidance in Topic 606, but rather affect only the narrow aspects of Topic 606 by reducing the potential for diversity in practice at initial application and by reducing the cost and complexity of applying Topic 606 both at transition and on an ongoing basis. The Company does not anticipate that this adoption will have a significant impact on its financial position, results of operations, or cash flows.

 

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In April 2016, FASB issued Accounting Standards Update No. 2016-10, “Revenue from Contracts with Customers (Topic 606)”: Identifying Performance Obligations and Licensing. The amendments clarify the following two aspects of Topic 606: (a) identifying performance obligations; and (b) the licensing implementation guidance. The amendments do not change the core principle of the guidance in Topic 606. The effective date and transition requirements for the amendments are the same as the effective date and transition requirements in Topic 606. Public entities should apply the amendments for annual reporting periods beginning after December 15, 2017, including interim reporting periods therein (i.e., January 1, 2018, for a calendar year entity). Early application for public entities is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. The Company does not anticipate that this adoption will have a significant impact on its financial position, results of operations, or cash flows.

 

In February 2016, the FASB issued ASU 2016-02 “Leases”. The new standard establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. We are currently evaluating the impact of its pending adoption of the new standard on its financial statements.

 

In March 2015, the FASB issued ASU 2015-03 “Interest – Imputation of Interest (Subtopic 835-30)”. This ASU addressed the simplification and presentation of debt issuance costs by presenting them in the balance sheet as a direct deduction from the carrying amount of the related debt liability, consistent with debt discounts or premiums. This accounting standard update is not expected to have a material impact on the Company’s consolidated financial statements.

 

Results of Operations

 

Comparison of the Three Months Ended September 30, 2017 and 2016

 

Revenue

 

During the three months ended September 30, 2017, we generated revenue of $167,408, compared to revenue of $149,016 for the three months ended September 30, 2016, an increase of $18,393 or 12.34%. The increase in revenue was mainly attributable to increase of demand for microfinancing and financial advisory services.

 

Operating expenses.

 

Operating expenses totaled $172,389 for the three months ended September 30, 2016, compared to $120,328 for the three months ended September 30, 2016, an increase of $52,061 or 43.27%. The increase is mainly attributed to an increase of interest expenses and the provision of loan loss of $23,358.

 

Selling, general and administrative expenses.

 

Selling and marketing expenses increased by $616 from $0 for the three months ended September 30, 2016. The increase is attributed to the increase in expenses relating to the marketing and advertisement of our services and products.

 

Our general and administrative expenses consist of salaries, office expenses, utilities, business travel, amortization expenses, public company expenses (including legal, accounting expenses and investor relations expenses). General and administrative expenses were $67,328 for the three months ended September 30, 2017, compared to $78,436 for the three months ended September 30, 2016, a decrease of $11,108 or 14.16%. The decrease is mainly attributed to slight decrease in professional fees.

 

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Interest expenses.

 

Interest expense was $81,087 for the three months ended September 30, 2017, compared to $35,242 for the three months ended September 30, 2016, an increase of $45,845 or 13.01%. The increase of interest expenses was due to increase in Arki Capital’s wealth management business.

 

Provision for loan losses

 

We incurred loan loss of $23,358 for the three months ended September 30, 2017, compared with $0 for the three months ended September 30, 2016.

 

Gain/Loss from operations.

 

As a result of the factors described above, operating loss was $4,981 for the three months ended September 30, 2017, compared to the operating income of $28,688 for the three months ended September 30, 2016, a decrease of approximately $33,669.

 

Other income and expenses.

 

We incurred other expenses of $0 for the three months ended June 30, 2017, compared to $6,650 for the three months ended September 30, 2016. The decrease is mainly attributable to the increased loans from individuals for the three months ended June 30, 2017, as compared with the same period in 2016.

 

Discontinued Operations

 

On December 28, 2016, we entered into a sale agreement for the disposition of Shanghai Zhonghui Financial Information Services Corp. Shanghai Zhonghui’s business is reflected as discontinued operations. We generated $308,734 in net income from discontinued operations for the three months ended September 30, 2017, comparing to a loss of $613,267 for the three months ended September 30, 2016.

 

Loss from dissolution of discontinued operations

 

We incurred a loss from dissolution of discontinued operation of $5,127,174 for the three months ended September 30, 2017, compared to $0 for the three months ended September 30, 2016. It represents the excess of assets over liabilities for the discontinued operation at the time of dissolution.

 

Net income/loss

 

Our net loss for the three months ended September 30, 2017 was $20,270, compared to the net income of $58,996 for the three months ended September 30, 2016, a decrease of $79,266. The decrease of net income is mainly due to the disposition of the discontinued operations.

 

Foreign currency translation

 

Our consolidated financial statements are expressed in U.S. dollars but the functional currency of our operating subsidiary is RMB. Results of operations and cash flows are translated at average exchange rates during the period, assets and liabilities are translated at the unified exchange rate at the end of the period and equity is translated at historical exchange rates. Translation adjustments resulting from the process of translating the financial statements denominated in RMB into U.S. dollars are included in determining comprehensive income. Our foreign currency translation loss for the three months ended September 30, 2017 was $67,802, compared to translation loss of $9,262 for the three months ended September 30, 2016, an increase of loss of $58,540.

 

Comparison of the Nine Months Ended September 30, 2017 and 2016

 

Revenue

 

During the nine months ended September 30, 2017, we generated revenue of $290,820, compared to revenue of $149,016 for the nine months ended September 30, 2016. The increase in revenue was mainly attributable to increase of demand for the microfinancing and financial advisory services. 

 

Operating expenses.

 

Operating expenses totaled $1,842,307 for the nine months ended September 30, 2017, compared to $760,554 for the nine months ended September 30, 2016, an increase of $1,081.753 or 142.23% The increase is mainly attributed to the increase in interest expenses in Arki Capital’s normal course of business.

 

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Selling, general and administrative expenses.

 

Selling and marketing expenses increased from $0 for the nine months ended September 30, 2016 to $1,012 for the nine months ended September 30, 2017, an increase of $1,012. This is due to the increase in expenses relating to the marketing and advertisement of our services and products.

 

General and administrative expenses consist of salaries, office expenses, utilities, business travel, amortization expenses, public company expenses (including legal expenses, accounting expenses and investor relations expenses). General and administrative expenses were $692,323 for the nine months ended September 30, 2017, compared to $657,756 for the nine months ended September 30, 2016, an increase of $34,567, or 5.26%. The slight increase is mainly caused by the increase in professional fees.

 

Interest expenses.

 

Interest expense was $1,109,332 for the nine months ended September 30, 2017, compared with $107,318 for the nine months ended September 30, 2016, an increase of $1,002,014 or 933.69%. The increase of interest expenses was due to the crowd funding business of Arki Capital.

 

Provision for loan losses

 

We incurred loan loss of $39,640 for the nine months ended September 30, 2017, compared with $0 for the nine months ended September 30, 2016.

 

Gain/Loss from operations.

 

As a result of the factors described above, loss before income taxes was $1,551,487 for the nine months ended September 30, 2017, compared to the loss of $611,538 for the nine months ended September 30, 2016, an increase of $939,949 or 153.70%.

 

Discontinued Operations

 

On December 28, 2016, we entered into a sale agreement for the disposition of Shanghai Zhonghui Financial Information Services Corp. Shanghai Zhonghui’s business is reflected as discontinued operations. On August 31, 2017, we terminated the Share Exchange Agreement with Yin Hang. As a result, as of September 30, 2017, the result of operations of Shanghai Yin Hang are reflected as discontinued operations. We generated $1,044,936 in net income from discontinued operations for the nine months ended September 30, 2017, compared to $618,251 for the nine months ended September 30, 2016, an increase of $426,685 or 69.01%.

 

Loss from dissolution of discontinued operations

 

We incurred a loss from dissolution of discontinued operation of $5,127,174 for the nine months ended September 30, 2017, compared to $0 for the nine months ended September 30, 2016. It represents the excess of assets over liabilities for the discontinued operation at the time of dissolution.

 

Net income/loss

 

Our net loss for the nine months ended September 30, 2017 was $5,695,852, compared to net income of $6,713 for the nine months ended September 30, 2016, a decrease of net income of $5,702,565. The decrease of net income is mainly due to the disposition of the discontinued operations.

 

Foreign currency translation

 

Our consolidated financial statements are expressed in U.S. dollars but the functional currency of our operating subsidiary is RMB. Results of operations and cash flows are translated at average exchange rates during the period, assets and liabilities are translated at the unified exchange rate at the end of the period and equity is translated at historical exchange rates when the capital transactions occurred. Translation adjustments resulting from the process of translating the financial statements denominated in RMB into U.S. dollars are included in determining comprehensive income. Our foreign currency translation loss for the nine months ended September 30, 2017 was $99,785, compared to translation loss of $31,406 for the nine months ended September 30, 2016, an increase in loss of $68,379 or 2177.26%.

 

Liquidity and Capital Resources

 

For the nine months ended September 30, 2017

 

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

 

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PRC regulations relating to statutory reserves and currency conversion would impact our ability to transfer cash within our corporate structure. The Company Law of the PRC applicable to Chinese companies provides that net after tax income should be allocated by the following rules:

 

10% of after tax income to be allocated to a statutory surplus reserve until the reserve amounts to 50% of the company’s registered capital.

 

If the accumulate balance of statutory surplus reserve is not enough to make up the Company’s cumulative prior years’ losses, the current year’s after tax income should be first used to make up the losses before the statutory surplus reverse is drawn.

 

Allocation can be made to the discretionary surplus reserve, if such a reserve is approved at the meeting of the equity owners.

 

Therefore, the Company is required to maintain a statutory reserve in China that limits any equity distributions to its shareholders. The required amounts of the statutory reserves of our PRC entities has not been reached. The Company has never distributed earnings to shareholders and has consistently stated in the Company’s filings it has no intentions to do so.

 

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

 

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

 

As of September 30, 2017, cash and cash equivalents were $1,520,549.

 

The following table sets forth information about our net cash flow for the periods indicated:

 

Cash Flows Data:

 

   For Nine Months ended
September 30,
 
   2017   2016 
Net cash flows provided by (used in) operating activities  $(4,888,437)  $(4,288,573)
Net cash flow provided by operating activities from discontinuing operations  $4,082,238    - 
Net cash flows provided by (used in) investing activities  $(1,306,197)  $(3,293,593)
Net cash flows provided by (used in) financing activities  $2,289,071   $7,334,091 

 

Net cash flow used by operating activities was $4,888,437 for the nine months ended September 30, 2017, compared to $4,288,573 used in operating activities for the nine months ended September 30, 2016, an increase of cash used of $599,864.

 

Net cash flow provided by operating activities from discontinuing operations was $4,082,238 for the nine months ended September 30, 2017, compared to $0 provided for the nine months ended September 30, 2016.

 

Net cash flow used in investing activities was $1,306,197 for the nine months ended September 30, 2017, compared to $3,293,593 for the nine months ended September 30, 2016, a decrease of $1,987,396 or 60.34%. The significant decrease is mainly due to the decrease of loan receivables for the nine months ended September 30, 2017, as compared with the same period in 2016.

 

Net cash flow provided by financing activities was $2,289,071 for the nine months ended September 30, 2017, compared to $7,334,091 provided by financing activities for the nine months ended September 30, 2016, a decrease of $5,045,020 or 68.79%.

 

Concentration of Business and Credit Risk

 

Assets that potentially subject the Company to significant concentration of credit risk primarily consist of cash and cash equivalents, and accounts receivable. The maximum exposure of such assets to credit risk is their carrying amounts as of the balance sheet dates. As of September 30, 2017 and December 31, 2016, substantially all of the Company’s cash and cash equivalents were deposited in financial institutions located in the PRC, which management believes are of high credit quality. Management believes the credit risk on bank deposits is limited because the counterparties are banks with high credit-ratings assigned by international credit rating agencies, or state- owned banks in China. Cash includes cash on hand and demand deposits in accounts maintained with state-owned banks within the PRC and the United States of America. Balances at financial institutions or state owned banks within the PRC are not covered by insurance. Non-performance by these institutions could expose the Company to losses for amounts in excess of insured balances. As of September 30, 2017 and December 31, 2016, our bank balances with the banks in U.S. amounted to $536 and $119,569 which are under the U.S. Federal depository insurance coverage of $250,000, respectively. As of September 30, 2017 and December 31, 2016, our bank balances with the banks in the PRC amounted to $1,520,013 and $1,460,640, respectively, which are uninsured and subject to credit risk. We have not experienced nonperformance by these institutions.

 

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

 

Contractual Obligations

 

Lease commitments

 

On December 21, 2016, the Company renewed a one-year sublease agreement (the “Lease”) with Days Service Group, LLC, a New York limited liability company (“Days Service”) for its new principal executive office located at 136-82 39th Ave, 4th Floor, Unit B, Flushing, NY 11354. Days Service has a 15-year lease agreement with Ming Seng & Associates, LLC. Pursuant to the terms of the sublease, the Company agreed to pay a monthly rent of $1,200. The Lease started on January 1, 2017 and will expire on December 31, 2017.

 

On January 3, 2017, the Company entered into a lease agreement with certain individual for new office facilities of its wholly-owned subsidiaries, America Arki Network Service Beijing Co. Ltd. The Company agreed to pay a yearly rent of approximately $50,909. The lease period is from January 16, 2017 to January 15, 2022.

 

Off-Balance Sheet Arrangements

 

We do not have any off balance sheet arrangements.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

 

Not required because we are a smaller reporting company. 

 

Item 4. Controls and Procedures.

 

Evaluation of Disclosure Controls and Procedures

 

Pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934 (“Exchange Act”), the Company carried out an evaluation, with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Company’s disclosure controls and procedures (as defined under Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that despite our hiring of a financial consultant who is familiar with U.S. GAAP and additional trainings offered to our staff in the accounting department and improvements in internal control over financial reporting, our disclosure controls and procedures were not effective as of June 30, 2017 for the material weakness describe below.

  

  Lack of US GAAP expertise - Despite our efforts to improve the Company’s controls and procedures, our accounting personnel do not have sufficient knowledge, experience and training in maintaining our books and records and preparing financial statements in accordance with US GAAP standards and SEC rules and regulations. As such, our personnel do not have adequate accounting skills and understanding necessary to fulfill the requirements of US GAAP-based reporting, including the skills of US GAAP-based period end closing, consolidation of financial statements, and US GAAP conversion, and they are inadequately supervised by persons with requisite qualifications.

 

Our management has identified the following steps to address the above material weakness:

 

(1) We have been engaging with a financial accountant to assist us in preparing our financial statements in accordance with US GAAP standards and SEC rules and regulations.

 

(2) We intend to hire, as needed, key accounting personnel with technical accounting expertise and reorganize the finance department to ensure that accounting personnel with adequate experience, skills and knowledge relating to complex, non-routine transactions are directly involved in the review and accounting evaluation of our complex, non-routine transactions.

 

Changes in Internal Controls over Financial Reporting

 

There has been no change in our internal control over financial reporting that occurred during the fiscal quarter covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. We will continue to monitor the deficiencies identified in internal controls and make changes that our management deems necessary.

 

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PART II—OTHER INFORMATION

 

Item 1. Legal Proceedings.

 

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

 

Item 1A. Risk Factors.

 

Except for risk factor set forth below, we believe there are no changes that constitute material changes from the risk factors previously disclosed in our Annual Report on Form 10-K on April 17, 2017.

 

From time to time, we may seek to acquire or consolidate with another business to expand our business offerings. However, because finance industry is an industry that is heavily regulated within the People’s Republic China, we may need to terminate such consolidation due to policy reasons. In such event, our results of operation may be adversely impacted.

 

On August 31, 2017, Arki Network and Yin Hang entered into an agreement to mutually terminate the share exchange agreement executed on December 1, 2016. The termination was due to China’s policy reason that Yin Hang cannot be controlled by foreign companies outside of China. As a result of the termination, Yin Hang could no longer be consolidated in the Company’s financial statements as of September 1, 2017. We plan to continue identifying companies that would help us further develop our current lines of business. We plan to take appropriate measures to ensure the feasibility of such consolidation. However, in the event that such consolidation is prohibited under the laws of the PRC, we may need to terminate such consolidation and our results of operation may be adversely impacted.

 

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

 

There were no unregistered sales of the Company’s equity securities during the three months ended September 30, 2017, that were not otherwise disclosed in a Current Report on Form 8-K.

 

Item 3. Defaults Upon Senior Securities.

 

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

 

Item 4. Mine Safety Disclosures.

 

Not applicable.

 

Item 5. Other Information.

 

On November 17, 2017, Consumer Capital Group, Inc. (the “Company”), through its variable interest entity, America Arki Network Service Beijing Co., Ltd (the “Company”) entered into certain Share Exchange Agreement with Beijing Shenzhou Rongtong Investment Management Co., Ltd, a company established under the laws of People’s Republic of China (“Shenzhou”). Pursuant to the Agreement, the Company agreed to acquire 100% of the capital stock of Shenzhou in exchange for the issuance of 4,175,417 shares of Company’s common stock, par value $0.0001 per share, to Shenzhou’s shareholders.

 

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Item 6. Exhibits.

 

Exhibit

Number

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

 

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

  

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SIGNATURES

 

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

 

  CONSUMER CAPITAL GROUP, INC.
   
Dated: November 20, 2017 By: /s/ Jianmin Gao
    Jianmin Gao
    Chief Executive Officer

 

Dated: November 20, 2017 By: /s/ Crystal Lijie Chen
    Crystal Lijie Chen
    Chief Financial Officer

 

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