UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
| [x] | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2013
or
| [ ] | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE EXCHANGE ACT |
For the transition period from ___________to __________
Commission File No. 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.) |
100 Park Avenue, 16th Floor, New York 10017 (Address of principal executive offices)(Zip code) | ||
(212) 880-6400 | ||
| (Registrant’s telephone number, including area code) | ||
Not applicable |
| (Former name, former address and former fiscal year, if changed since last report) |
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [x] No [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate 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 [x] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | [ ] | Accelerated filer | [ ] |
| Non-accelerated filer | [ ] | Smaller reporting company | [x] |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [x]
The registrant had 19,068,889 shares of common stock, par value $0.0001 per share, outstanding as of November 4, 2013.
CONSUMER CAPITAL GROUP INC.
QUARTERLY REPORT ON FORM 10-Q
September 30, 2013
CAUTIONARY STATEMENT ON FORWARD-LOOKING INFORMATION
This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements discuss matters that are not historical facts. Because they discuss future events or conditions, forward-looking statements may include words such as “anticipate,” “believe,” “estimate,” “intend,” “could,” “should,” “would,” “may,” “seek,” “plan,” “might,” “will,” “expect,” “anticipate,” “predict,” “project,” “forecast,” “potential,” “continue” negatives thereof or similar expressions. Forward-looking statements speak only as of the date they are made, are based on various underlying assumptions and current expectations about the future and are not guarantees. Such statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, level of activity, performance or achievement to be materially different from the results of operations or plans expressed or implied by such forward-looking statements.
We cannot predict all of the risks and uncertainties. Accordingly, such information should not be regarded as representations that the results or conditions described in such statements or that our objectives and plans will be achieved and we do not assume any responsibility for the accuracy or completeness of any of these forward-looking statements. These forward-looking statements are found at various places throughout this Quarterly Report on Form 10-Q and include information concerning possible or assumed future results of our operations, including statements about potential acquisition or merger targets; business strategies; future cash flows; financing plans; plans and objectives of management; any other statements regarding future acquisitions, future cash needs, future operations, business plans and future financial results, and any other statements that are not historical facts.
These forward-looking statements represent our intentions, plans, expectations, assumptions and beliefs about future events and are subject to risks, uncertainties and other factors. Many of those factors are outside of our control and could cause actual results to differ materially from the results expressed or implied by those forward-looking statements. In light of these risks, uncertainties and assumptions, the events described in the forward-looking statements might not occur or might occur to a different extent or at a different time than we have described. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of the Quarterly Report on Form 10-Q. All subsequent written and oral forward-looking statements concerning other matters addressed in this Quarterly Report on Form 10-Q and attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this Quarterly Report on Form 10-Q.
Except to the extent required by law, we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, a change in events, conditions, circumstances or assumptions underlying such statements, or otherwise.
PART I — FINANCIAL INFORMATION
CONSUMER CAPITAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2013
(Unaudited)
NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION
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.
Details of the Company’s wholly owned subsidiaries and its Affiliated PRC Entity as of September 30, 2013 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 E-commerce Technology Corp. (“Arki Beijing”) | March 6, 2008 | PRC | 100%(1) | Maintains the various computer systems, software and data. Owns the intellectual property rights of the “consumer market network”. Performed principal e-commerce operations prior to December 2010 |
| America Pine Beijing Bio-Tech, Inc. (“America Pine Beijing”) | March 21, 2007 | PRC | 100%(1) | Import and sales of healthcare products from the PRC. This operation ceased February 5, 2010. It currently assists in payment collection for our e-commerce business |
| America Arki Fuxin Network Management Co. Ltd. (“Arki Fuxin”) | November 26, 2010 | PRC | 100%(1) | Commencing in December 2010, performs the principal daily e-commerce operations, transactions and management of the “consumer market network” |
| Beijing Beitun Trading Co. Ltd. (“Beitun”) | November 29,2010 | PRC | 51%(2) | Wholesale distribution and import/export of domestic food and meat products. Separate business segment of the Company |
| America Arki Network Service Beijing Co. Ltd. (“Arki Network Contractual Service” and Affiliated PRC Entity”) | November 26, 2010 | PRC | 0%(3) | Entity under common control through relationships between FeiGao and the Company. Holds the business license and permits necessary to conduct e-commerce operations in the PRC and maintains compliance with applicable PRC laws |
(1) Wholly foreign owned entities (WFOE)
(2) Joint venture
(3) VIE
CONSUMER CAPITAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2013
(Unaudited)
In order to comply with the PRC law and regulations which prohibit foreign control of companies involved in internet content, the Company operates its website using the licenses and permits held by Arki Network Service, a 100% PRC owned entity. The equity interests of Arki Network Service are legally held directly by Mr. Jian Min Gao and Mr. Fei Gao, shareholders and directors of the Company. The effective control of Arki Network Service is held by Arki Beijing and Arki Fuxin through a series of contractual arrangements (the “Contractual Agreements”). As a result of the Contractual Agreements, Arki Beijing and Arki Fuxin maintain the ability to control Arki Network Service, and are entitled to substantially all of the economic benefits from Arki Network Service and are obligated to absorb all of Arki Network Services’ expected losses. Therefore, the Company consolidates Arki Network Service in accordance with SEC Regulation SX-3A-02 and Accounting Standards Codification (“ASC”) 810, Consolidation.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION AND CONSOLIDATION
The accompanying unaudited consolidated financial statements of the Company and its subsidiaries have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (the “SEC”) including the instructions to Form 10-Q and Regulation S-X. Certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been or omitted from these statements pursuant to such rules and regulations and, accordingly, they do not include all the information and notes necessary for comprehensive consolidated financial statements and should be read in conjunction with the Company’s consolidated financial statements and accompanying notes thereto for the year ended December 31, 2012 filed with the SEC in the Company’s Form 10-K on April 1, 2013.
In the opinion of the management of the Company, all adjustments, which are of a normal recurring nature, necessary for a fair statement of the results for the three-month period have been made. Results for the interim periods presented are not necessarily indicative of the results that might be expected for the entire fiscal year.
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries based in the PRC, which include America Pine (Beijing), Bio-Tech, Inc., Arki (Beijing), E-Commerce Technology Corp., and America Arki (Fuxin) Network Management Co. Ltd, and 51% majority ownership in Beijing Beitun Trading Co., Ltd. As a result of contractual arrangements with Arki Network Service, the Company consolidates Arki Network Service. All intercompany balances and transactions have been eliminated in consolidation.
GOING CONCERN
The Company incurred net loss of $523,483 for the nine months ended September 30, 2013 and had an accumulated deficit of approximately $3.9 million as of September 30, 2013. The Company has a cash balance of $287,626 as of September 30, 2013. In both 2013 and 2012, the Company mainly financed its operations through borrowings from directors and officers and from a shareholder. Payables to related parties amounted to $2,226,303 as of September 30, 2013. Payables to shareholder - Caesar Capital Management Ltd. amounted to $80,087 as of September 30, 2013. There are no formal agreements between the Company and the directors and officers. If the Company cannot generate enough cash flow from its operating activities, it will need to consider other financing methods such as borrowings from banking institutions or raising additional capital through new equity issuances. There are no assurances that additional funds will be available when needed from any source or, if available, will be available on terms that are acceptable to us. The Company plans to continue to control its administrative expenses in the coming years as well as further develop its sales from its main business.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the current period presentation. These reclassifications had no impact on net earnings and financial position.
CONSUMER CAPITAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2013
(Unaudited)
USE OF ESTIMATES
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires our management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
FOREIGN CURRENCY TRANSLATION
The Company’s reporting currency is the U.S. dollar. The Company’s functional currency is the local currency in the PRC, the Chinese Yuan (RMB). The financial statements of the Company are translated into United States dollars in accordance with ASC 830, FOREIGN CURRENCY MATTERS, using year-end rates of exchange for assets and liabilities, and average rates of exchange for the period for revenues, costs, and expenses and historical rates for equity. Translation adjustments resulting from the process of translating the local currency financial statements into U.S. dollars are included in determining comprehensive income. As of September 30, 2013 and December 31, 2012, the cumulative translation adjustment of $68,834 and $73,342, respectively, was classified as an item accumulated of other comprehensive income in the stockholders’ equity (deficit) section of the consolidated balance sheets. For the nine months ended September 30, 2013 and 2012, the foreign currency translation adjustment was $(4,010) and $(11,772), respectively. For the three months ended September 30, 2013 and 2012, the foreign currency translation adjustment was $(2,905) and $(2,464), respectively.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Accounting Standards Codification (“ASC”) Topic 820 requires the disclosure of the estimated fair value of financial instruments including those financial instruments for which fair value option was not elected. As of September 30, 2013 and December 31, 2012, the carrying amounts of the Company’s financial assets and liabilities approximated their fair values due to short maturities or the applicable interest rates approximated the current market rates.
NOTE 3 - RECENTLY ISSUED AND ADOPTED ACCOUNTING PRONOUCEMENTS
In March 2013, the FASB issued ASU 2013-05“Parent’s Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity.”ASU 2013-05 addresses the accounting for the cumulative translation adjustment when a parent either sells part or all of its investment in a foreign entity or no longer holds a controlling financial interest in a subsidiary or group of assets that is a nonprofit activity or a business within a foreign entity. For public entities, the ASU is effective prospectively for fiscal years, and interim periods, within those years, beginning after December 15, 2013. Early adoption is permitted. The adoption of ASU 2013-05 is not expected to have a material impact on the Company’s consolidated financial statements.
In July 2013, the FASB issued ASU 2013-11, “Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists”. These amendments provide that an unrecognized tax benefit, or a portion thereof, should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, except to the extent that a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date to settle any additional income taxes that would result from disallowance of a tax position, or the tax law does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purpose, then the unrecognized tax benefit should be presented as a liability. For public entities, the amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. The adoption of ASU 2013-11 is not expected to have a material impact on the Company’s consolidated financial statements.
CONSUMER CAPITAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2013
(Unaudited)
NOTE 4 — ACCOUNTS RECEIVABLE
Accounts receivable consisted of the following as of September 30, 2013 and December 31, 2012:
| September 30, 2013 | December 31, 2012 | |||||||
| Accounts receivable | $ | 755,384 | $ | 793,490 | ||||
| Less: allowance for doubtful accounts | — | — | ||||||
| Total accounts receivable | $ | 755,384 | $ | 793,490 | ||||
NOTE 5 - INVENTORIES
Inventories consisted of the following at September 30, 2013 and December 31, 2012:
| September 30, 2013 | December 31, 2012 | |||||||
| Finished goods - packaged food | $ | 838,292 | $ | 679,403 | ||||
| Less: reserve for inventory | — | — | ||||||
| Total inventories | $ | 838,292 | $ | 679,403 | ||||
NOTE 6 – PREPAID STOCK COMPENSATION
Common stock issued for prepaid consulting services amounted to $0 as of September 30, 2013 and December 31, 2012. Amortization for the nine months ended September 30, 2013 and 2012 was $0 and $426,533, respectively. Amortization for the three months ended September 30, 2013 and 2012 was $0 and $136,633, respectively.
NOTE 7 — CONVERTIBLE NOTES.
On June 14, 2013, the Company entered into a Securities Purchase Agreement with Asher Enterprises, Inc. (“Asher Enterprises”) pursuant to which the Company sold and issued to Asher Enterprises a promissory note with a principal amount of $78,500 (the “Note”). The cash proceeds of the promissory note were received on July 9, 2013.
The Note matures on March 17, 2014 and compounds annually and accrues at 8% per annum from the issue date through the maturity date or upon acceleration or prepayment. The holder is entitled to convert any portion of the outstanding and unpaid amount at any time on or after 180 days following the issuance date into the Company’s common stock, par value, $0.0001 per share, at an initial conversation price equal to 61% of the average of the three (3) lowest closing bid price for the Company’s common stock, during the ten (10) trading days ending on the latest trading day prior to the date a conversion notice delivered to the Company by the holder. The Note is not convertible by the holder if upon the conversion the holder and its affiliates would own in excess of 9.99% of our outstanding common stock.
The Company analyzed the conversion option for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the instrument should be classified as liabilities once the conversion option becomes effective after 180 days due to there being no explicit limit to the number of shares to be delivered upon settlement of the above conversion options.
NOTE 8 - PAYABLE TO CAESAR CAPITAL MANAGEMENT LTD.
Caesar Capital Management Ltd., a shareholder of the Company, advanced $80,087 and $121,536 to the Company as of September 30, 2013 and December 31, 2012, respectively. The payable to Caesar Capital Management Ltd. includes loan payables of $111,410 and money owed by Caesar of $31,323. The loan payables are borrowed by the Company for operating purposes, without collateral, and are 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 extends or amends the maturity date for all the existing loans between the Company and Caesar Capital Management Ltd.. The loans become due on demand and the Company was not charged any late payment penalty. None of the loans are considered in default as of September 30, 2013. Interest expenses of $3,193 and $563 have been accrued for the nine months ended.
CONSUMER CAPITAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2013
(Unaudited)
September 30, 2013 and 2012, respectively. Interest expenses of $1,146 and $563 have been accrued for the three months ended September 30, 2013 and 2012, respectively.
NOTE 9 - SHARE BASED COMPENSATION
Share-based compensation expenses amounted to $0 and $426,533 for the nine months ended September 30, 2013 and 2012, respectively. Share-based compensation expenses amounted to $0 and $136,633 for the three months ended September 30, 2013 and 2012, respectively.
A summary of share-based compensation activity for the nine months ended September 30, 2013 and the year ended December 31, 2012 is as follows:
| Number of Common Shares | Weighted Average Fair Value | Prepaid Amount | ||||||||||||
| Balance at January 1, 2012 | 1,090,644 | $ | 0.84 | $ | 486,533 | |||||||||
| Granted | — | — | — | |||||||||||
| Cancelled | — | — | — | |||||||||||
| Forfeited/Amortized | — | — | $ | (486,533 | ) | |||||||||
| Balance at January 1, 2013 | 1,090,644 | $ | 0.84 | — | ||||||||||
| Granted | �� | — | — | |||||||||||
| Cancelled | — | — | — | |||||||||||
| Forfeited/Amortized | — | — | — | |||||||||||
| Balance at September 30, 2013 | 1,090,644 | $ | 0.84 | $ | — | |||||||||
NOTE 10 - RELATED PARTIES
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 |
| Ms. Lingling Zhang | Stockholder, director and Corporate Secretary |
| Mr. Fei Gao | Stockholder, director and Chief Operating Officer |
| Ms. Wei Guo | Stockholder and Managing Director of Beitun |
| Ms. Shasha Liu | Daughter of Lingling Zhang |
b) The Company had the following related party balances at September 30, 2013 and December 31, 2012:
| September 30, 2013 | December 31, 2012 | |||||||
| Loan from Mr. Jianmin Gao | $ | 353,896 | $ | 333,104 | ||||
| Loan from Ms. Shasha Liu | $ | 8,404 | $ | 8,404 | ||||
| Loan from Mr. Fei Gao | $ | 347,826 | $ | 674 | ||||
| Loan from Ms. Wei Guo | $ | 1,513,177 | $ | 1,494,829 | ||||
| Loan from Ms. Lingling Zhang | $ | 3,000 | $ | — | ||||
| Total related party payables | $ | 2,226,303 | $ | 1,837,011 | ||||
The related party payables are non-interest bearing and have no specified maturity date. Mr. Jianmin Gao is the CEO of the Company. Ms. Wei Guo is the CEO of Beitun. The Company obtained these loans to fund operations when the Company or one of the subsidiaries was in need of cash. For the nine months ended September 30, 2013 and 2012, the Company borrowed $20,792 and $39,775 from Mr. Jianmin Gao and made payments of $0 and $10,599 back to him, respectively. For the nine months ended September 30, 2013 and 2012, the Company borrowed
CONSUMER CAPITAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2013
(Unaudited)
$3,339,128 and $1,496,810 from Ms. Wei Guo and made repayments of $ 3,320,780 and $1,462,129 back to her, respectively. For the nine months ended September 30, 2013 and 2012, the Company borrowed $351,727 and $1,114 from Mr. Fei Gao and made payments of $4,575 and $1,127 back to him, respectively. For the nine months ended September 30, 2013 and 2012, the Company borrowed approximately $0 and $2,255 from Ms. Shasha Liu and made repayments of $0 and $700, respectively. For the nine months ended September 30, 2013, the Company borrowed approximately $3,000 from Ms. Lingling Zhang and made repayments of $0.
NOTE 11 - COMMITMENTS AND CONTINGENCIES
LEASE COMMITMENTS
On November 1, 2012, the Company entered into a lease agreement with a third party for the New York office. This lease will expire on October 31, 2013. Our monthly rental is $1,923. Rent expense for the facility totaled $17,307 and $0 for the nine months ended September 30, 2013 and 2012, respectively. Rent expense for this facility totaled $5,769 and $0 for the three months ended September 30, 2013 and 2012, respectively. In August 2013, the Company renewed the lease. The new lease started on November 1, 2013 and will expire on October 31, 2014. The new monthly rent is $2,845.
On October 21, 2010, Arki (Beijing) E-commerce Technology Corp. (Arki Beijing), our wholly-owned subsidiary, entered into a lease agreement for an office facility expansion in the Beijing Chaoyang District, Hua Mao Center. The straight-line monthly gross rental rate is $30,831 with a 36-month term. This lease expires on October 20, 2013. On February 2, 2011, the Company entered into an amendment agreement that changed the lessee to be America Arki Network Service Beijing Co. Ltd., our wholly-owned subsidiary. In addition, Arki (Beijing) E-commerce Technology Corp sublet a portion of the office facility expansion where Arki (Beijing) E-commerce Technology Corp shared $6,259 of the monthly rent with a 33-month term. The sublease agreement expires on October 20, 2013. In the meantime, America Arki Network Service Beijing Co. Ltd. was obligated to pay for the remaining monthly rent of $24,572. On July 1, 2012, the two entities entered into an amendment agreement with the lessor, which increased the total monthly gross rental rate to approximately $31,670. In October 2013, the lease was renewed. The new lease started on October 21, 2013 and will expire on October 20, 2016. The new monthly rent is approximately $45,257 (“RMB 276,971”).
NOTE 12 - BUSINESS SEGMENT REPORTING
Our operating businesses are organized based on the nature of markets and customers. Effects of transactions between related companies are eliminated and consist primarily of inter-company transactions and transfers of cash or cash equivalents from corporate to support each business segment’s payroll, inventory sourcing and overall operations when each segment has working capital requirements.
A description of our operating segments as of September 30, 2013 and December 31, 2012, can be found below.
E-COMMERCE PLATFORM (ARKI BEIJING, AMERICA PINE BEIJING, ARKI FUXIN, ARKI NETWORK SERVICE)
The website provides an online marketing and retail platform for a wide variety of manufacturers and distributors to promote and sell their products and services directly to consumers in the PRC. The website also provides access to certain Western products that are generally unavailable in the PRC such as handbags and eyewear made by U.S. companies and food and beverage products from Spain, Germany, and France.
FOOD PRODUCT DISTRIBUTION (BEITUN)
Beitun is principally engaged in the wholesale distribution and import/export of various food and meat products to businesses located throughout the PRC. All products are sold in the PRC and are considered finished goods.
CONSUMER CAPITAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2013
(Unaudited)
| For the nine months ended September 30, 2013 | ||||||||||||
| E-Commerce | Food Distribution | Consolidated | ||||||||||
| Net revenues | $ | 11,488 | $ | 4,558,040 | $ | 4,569,528 | ||||||
| Cost of sales | $ | — | $ | 4,506,053 | $ | 4,506,053 | ||||||
| Gross profit | $ | 11,488 | $ | 51,987 | $ | 63,475 | ||||||
| Operating expenses: | ||||||||||||
| Selling expenses | $ | 58,133 | $ | 34,362 | $ | 92,495 | ||||||
| General and administrative | $ | 755,058 | $ | 14,069 | $ | 769,127 | ||||||
| Total operating expenses | $ | 813,191 | $ | 48,431 | $ | 861,622 | ||||||
| Income (loss) from operations | $ | (801,703 | ) | $ | 3,556 | $ | (798,147 | ) | ||||
| Other income | $ | 277,259 | $ | — | $ | 277,259 | ||||||
| Other expense | $ | (1,621 | ) | $ | — | $ | (1,621 | ) | ||||
| Income (loss) before taxes | $ | (526,065 | ) | $ | 3,556 | $ | (522,509 | ) | ||||
| Provision for income taxes | $ | — | $ | 974 | $ | 974 | ||||||
| Net income (loss) | $ | (526,065 | ) | $ | 2,582 | $ | (523,483 | ) | ||||
| Net income attributable to non controlling interest | $ | — | $ | 1,264 | $ | 1,264 | ||||||
| Net income (loss) attributable to Consumer Capital Group, Inc. | $ | (526,065 | ) | $ | 1,318 | $ | (524,747 | ) | ||||
| Net income (loss) | $ | (526,065 | ) | $ | 2,582 | $ | (523,483 | ) | ||||
| Other comprehensive income (loss), net of tax | ||||||||||||
| Foreign currency translation adjustment | $ | (5,027 | ) | $ | 1,017 | $ | (4,010 | ) | ||||
| Comprehensive income (loss), net of tax | $ | (531,092 | ) | $ | 3,599 | $ | (527,493 | ) | ||||
| Less: Comprehensive income attributable to non-controlling interest | $ | — | $ | 1,762 | $ | 1,762 | ||||||
| Comprehensive income (loss) attributable to Consumer Capital Group, Inc. | $ | (531,092 | ) | $ | 1,837 | $ | (529,255 | ) | ||||
CONSUMER CAPITAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2013
(Unaudited)
| For the nine months ended September 30, 2012 | ||||||||||||
| E-Commerce | Food Distribution | Consolidated | ||||||||||
| Net revenues | $ | 1,157,017 | $ | 3,894,207 | $ | 5,051,224 | ||||||
| Cost of sales | $ | — | $ | 3,842,041 | $ | 3,842,041 | ||||||
| Gross profit | $ | 1,157,017 | $ | 52,166 | $ | 1,209,183 | ||||||
| Operating expenses: | ||||||||||||
| Selling expenses | $ | 915,066 | $ | 38,565 | $ | 953,631 | ||||||
| General and administrative | $ | 1,212,741 | $ | 22,678 | $ | 1,235,419 | ||||||
| Total operating expenses | $ | 2,127,807 | $ | 61,243 | $ | 2,189,050 | ||||||
| Loss from operations | $ | (970,790 | ) | $ | (9,077 | ) | $ | (979,867 | ) | |||
| Other income | $ | 50,740 | $ | — | $ | 50,740 | ||||||
| Loss before taxes | $ | (920,050 | ) | $ | (9,077 | ) | $ | (929,127 | ) | |||
| Provision for income taxes | $ | — | $ | 524 | $ | 524 | ||||||
| Net loss | $ | (920,050 | ) | $ | (9,601 | ) | $ | (929,651 | ) | |||
| Net loss attributable to non controlling interest | $ | — | $ | (4,704 | ) | $ | (4,704 | ) | ||||
| Net loss attributable to Consumer Capital Group, Inc. | $ | (920,050 | ) | $ | (4,897 | ) | $ | (924,947 | ) | |||
| Net loss | $ | (920,050 | ) | $ | (9,601 | ) | $ | (929,651 | ) | |||
| Other comprehensive loss, net of tax | ||||||||||||
| Foreign currency translation adjustment | $ | (11,768 | ) | $ | (4 | ) | $ | (11,772 | ) | |||
| Comprehensive loss, net of tax | $ | (931,818 | ) | $ | (9,605 | ) | $ | (941,423 | ) | |||
| Less: Comprehensive loss attributable to non-controlling interest | $ | — | $ | (4,706 | ) | $ | (4,706 | ) | ||||
| Comprehensive loss attributable to Consumer Capital Group, Inc. | $ | (931,818 | ) | $ | (4,899 | ) | $ | (936,717 | ) | |||
CONSUMER CAPITAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2013
(Unaudited)
| For the three months ended September 30, 2013 | ||||||||||||
| E-Commerce | Food Distribution | Consolidated | ||||||||||
| Net revenues | $ | 9,260 | $ | 1,418,835 | $ | 1,428,095 | ||||||
| Cost of sales | $ | — | $ | 1,401,248 | $ | 1,401,248 | ||||||
| Gross profit | $ | 9,260 | $ | 17,587 | $ | 26,847 | ||||||
| Operating expenses: | ||||||||||||
| Selling expenses | $ | 17,487 | $ | 12,986 | $ | 30,473 | ||||||
| General and administrative | $ | 218,568 | $ | 4,067 | $ | 222,635 | ||||||
| Total operating expenses | $ | 236,055 | $ | 17,053 | $ | 253,108 | ||||||
| Income (loss) from operations | $ | (226,795 | ) | $ | 534 | $ | (226,261 | ) | ||||
| Other income | $ | 55,867 | $ | — | $ | 55,867 | ||||||
| Other expense | $ | (5 | ) | $ | — | $ | (5 | ) | ||||
| Income (loss) before taxes | $ | (170,933 | ) | $ | 534 | $ | (170,399 | ) | ||||
| Provision for income taxes | $ | — | $ | 133 | $ | 133 | ||||||
| Net income (loss) | $ | (170,933 | ) | $ | 401 | $ | (170,532 | ) | ||||
| Net income attributable to non controlling interest | $ | — | $ | 195 | $ | 195 | ||||||
| Net income (loss) attributable to Consumer Capital Group, Inc. | $ | (170,933 | ) | $ | 206 | $ | (170,727 | ) | ||||
| Net income (loss) | $ | (170,933 | ) | $ | 401 | $ | (170,532 | ) | ||||
| Other comprehensive income (loss), net of tax | ||||||||||||
| Foreign currency translation adjustment | $ | (3,079 | ) | $ | 174 | $ | (2,905 | ) | ||||
| Comprehensive income (loss), net of tax | $ | (174,012 | ) | $ | 575 | $ | (173,437 | ) | ||||
| Less: Comprehensive income attributable to non-controlling interest | $ | — | $ | 280 | $ | 280 | ||||||
| Comprehensive income (loss) attributable to Consumer Capital Group, Inc. | $ | (174,012 | ) | $ | 295 | $ | (173,717 | ) | ||||
CONSUMER CAPITAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2013
(Unaudited)
| For the three months ended September 30, 2012 | ||||||||||||
| E-Commerce | Food Distribution | Consolidated | ||||||||||
| Net revenues | $ | 13,671 | $ | 2,188,939 | $ | 2,202,610 | ||||||
| Cost of sales | $ | — | $ | 2,166,039 | $ | 2,166,039 | ||||||
| Gross profit | $ | 13,671 | $ | 22,900 | $ | 36,571 | ||||||
| Operating expenses: | ||||||||||||
| Selling expenses | $ | 47,833 | $ | 11,751 | $ | 59,584 | ||||||
| General and administrative | $ | 367,063 | $ | 20,577 | $ | 387,640 | ||||||
| Total operating expenses | $ | 414,896 | $ | 32,328 | $ | 447,224 | ||||||
| Loss from operations | $ | (401,225 | ) | $ | (9,428 | ) | $ | (410,653 | ) | |||
| Other expense | $ | (64 | ) | $ | — | $ | (64 | ) | ||||
| Loss before taxes | $ | (401,289 | ) | $ | (9,428 | ) | $ | (410,717 | ) | |||
| Provision for income taxes | $ | — | $ | 365 | $ | 365 | ||||||
| Net loss | $ | (401,289 | ) | $ | (9,793 | ) | $ | (411,082 | ) | |||
| Net loss attributable to non controlling interest | $ | — | $ | (4,798 | ) | $ | (4,798 | ) | ||||
| Net loss attributable to Consumer Capital Group, Inc. | $ | (401,289 | ) | $ | (4,995 | ) | $ | (406,284 | ) | |||
| Net loss | $ | (401,289 | ) | $ | (9,793 | ) | $ | (411,082 | ) | |||
| Other comprehensive loss, net of tax | ||||||||||||
| Foreign currency translation adjustment | $ | (2,929 | ) | $ | 465 | $ | (2,464 | ) | ||||
| Comprehensive loss, net of tax | $ | (404,218 | ) | $ | (9,328 | ) | $ | (413,546 | ) | |||
| Less: Comprehensive loss attributable to non-controlling interest | $ | — | $ | (4,570 | ) | $ | (4,570 | ) | ||||
| Comprehensive loss attributable to Consumer Capital Group, Inc. | $ | (404,218 | ) | $ | (4,758 | ) | $ | (408,976 | ) | |||
| As of September 30, 2013 | ||||||||||||
| E-Commerce | Food Distribution | Consolidated | ||||||||||
| Cash | $ | 127,958 | $ | 159,668 | $ | 287,626 | ||||||
| Accounts receivable | — | 755,384 | 755,384 | |||||||||
| Inventories | — | 838,292 | 838,292 | |||||||||
| Advance to suppliers | — | 273,779 | 273,779 | |||||||||
| Prepaid expenses | 66,788 | 30,759 | 97,547 | |||||||||
| Other receivables | 5,786 | 8,170 | 13,956 | |||||||||
| Total current assets | 200,532 | 2,066,052 | 2,266,584 | |||||||||
| Property and equipment, net | 31,670 | 3,185 | 34,855 | |||||||||
| Other assets | 98,296 | 33,558 | 131,854 | |||||||||
| Total noncurrent assets | 129,966 | 36,743 | 166,709 | |||||||||
| Total assets | $ | 330,498 | $ | 2,102,795 | $ | 2,433,293 | ||||||
CONSUMER CAPITAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2013
(Unaudited)
| As of December 31, 2012 | ||||||||||||
| E-Commerce | Food Distribution | Consolidated | ||||||||||
| Cash | $ | 53,964 | $ | 120,283 | $ | 174,247 | ||||||
| Accounts receivable | — | 793,490 | 793,490 | |||||||||
| Inventories | — | 679,403 | 679,403 | |||||||||
| Advance to suppliers | — | 445,798 | 445,798 | |||||||||
| Prepaid expenses | 132,238 | 10,019 | 142,257 | |||||||||
| Other receivables | — | 11,235 | 11,235 | |||||||||
| Total current assets | 186,202 | 2,060,228 | 2,246,430 | |||||||||
| Property and equipment, net | 48,562 | 4,872 | 53,434 | |||||||||
| Other assets | 96,071 | 34,006 | 130,077 | |||||||||
| Total noncurrent assets | 144,633 | 38,878 | 183,511 | |||||||||
| Total assets | $ | 330,835 | $ | 2,099,106 | $ | 2,429,941 | ||||||
NOTE 13 - INCOME TAX EXPENSE
The New PRC enterprise income tax (“EIT”) Law generally applies a uniform 25% EIT rate to both foreign invested enterprises and domestic enterprises.
Dividends paid by PRC subsidiaries of the Company out of the profits earned after December 31, 2007 to non-PRC tax resident investors would be subject to PRC withholding tax. The withholding tax is 10%, unless a foreign investor’s tax jurisdiction has a tax treaty with China that provides for a lower withholding tax rate.
Loss before income taxes consists of:
| For the nine months ended September 30, | ||||||||||
| 2013 | 2012 | |||||||||
| Non-PRC | $ | (162,556 | ) | $ | (683,118 | ) | ||||
| PRC | $ | (359,953 | ) | $ | (246,009 | ) | ||||
| $ | (522,509 | ) | $ | (929,127 | ) | |||||
The income tax expenses amounted $974 and $524 for the nine months ended September 30, 2013 and 2012, respectively. The income tax expenses amounted $133 and $365 for the three months ended September 30, 2013 and 2012, respectively. The PRC income tax returns for fiscal year 2008 through fiscal year 2012 remain open for examination.
The Company has provided full valuation allowance for the deferred tax assets on the expected future tax benefits from the net operating loss carry forwards as the management believes it is more likely than not that these assets will not be realized in the future.
There is no need for the Company to accrue interest or penalty associated with the uncertain tax positions, and, accordingly, no such accruals have been made in the Company’s account.
The PRC tax law provides a (3-5 years) statute of limitation and the Company’s income tax returns are subject to examination by tax authorities during that period. All penalties and interest are expensed as incurred. For the nine months ended September 30, 2013 and 2012, there were no penalties and interest.
CONSUMER CAPITAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2013
(Unaudited)
NOTE 14 - LOSS PER SHARE
Basic and diluted loss per share for each of the three and nine months presented are calculated as follows:
| For the three months ended September 30, | For the nine months ended September 30, | |||||||||||||||
| 2013 | 2012 | 2013 | 2012 | |||||||||||||
| Numerator: | ||||||||||||||||
| Net loss | $ | (170,532 | ) | $ | (411,082 | ) | $ | (523,483 | ) | $ | (929,651 | ) | ||||
| Net loss attributable to common stockholders for computing basic and diluted loss per common share | (170,727 | ) | (406,284 | ) | (524,747 | ) | (924,947 | ) | ||||||||
| Denominator: | ||||||||||||||||
| Weighted average number of common shares outstanding for computing basic and diluted loss per common share | 19,068,889 | 19,068,889 | 19,068,889 | 19,068,889 | ||||||||||||
| Basic and diluted loss per share | $ | (0.01 | ) | $ | (0.02 | ) | $ | (0.03 | ) | $ | (0.05 | ) | ||||
For the nine months ended September 30, 2013 and 2012, there were no common stock equivalents for computing diluted earnings per share.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion provides information which management believes is relevant to an assessment and understanding of our results of operations and financial condition. The discussion should be read along with our financial statements and notes thereto contained elsewhere in this Quarterly Report on Form 10-Q. The following discussion and analysis contains forward-looking statements, which involve risks and uncertainties. Our actual results may differ significantly from the results, expectations and plans discussed in these forward-looking statements.
Overview
We are primarily engaged in two different businesses: e-commerce services and meat distribution. We operate an online retail platform in China at www.ccmus.com through Arki (Beijing) E-Commerce Technology Corp., our wholly owned subsidiary, and an online retail platform at www.ccgusa.com in the United States. We operate our meat distribution business through Beijing Beitun Trading Co., Ltd., our 51% owned subsidiary. In addition to e-commerce services and meat distribution, we have been working to develop a debit card business, through America Arki Fuxin Network Management Co. Ltd., our wholly owned subsidiary.
Our online retail platforms allow third-party merchants to sell their general merchandise products directly to consumers in China and the United States. We charge third-party merchants a service fee of approximately 5% of the total purchase price with respect to their general merchandise sold through our website. We also receive advertising fees from third-party merchants if they advertise products through our website. To incentivize our customers, we give our member customers bonus points for each purchase, to be used for cash value in their next purchase. As our customers accumulate bonus points, they receive membership upgrade, special discounts and additional bonus points. Our member customers may also receive awards from our daily sweepstakes program.
Through Beijing Beitun Trading Co., Ltd., we purchase meats from suppliers and distribute them to restaurants and food producers in China.
We collaborate with Bank of Fuxin to issue cobranded debit cards. We plan to charge participating merchants a transaction fee of 1% to 5% for each purchase using our cobranded debit cards. We intend to give our cardholders cash rewards with their purchases through our online retail platform. As of September 30, 2013, our collaborating bank is still in the process of testing thesystem required for debit card issuance, and we have not realized any revenue from this segment of business.We expect to start our debit card operation in 2014.
Results of Operations
Comparison of three months ended September 30, 2013 and September 30, 2012
Revenues
We derive our revenues from our e-commerce business and meat distribution business. We have not generated any revenue from our debit card business. Our net revenues for the three months ended September 30, 2013 decreased to $1,428,095 from $2,202,610 for the three months ended September 30, 2012, a decrease of $774,515 or 35.2%. The following table sets forth a breakdown of our revenues for the periods indicated:
Three Months Ended September 30, | Increase (decrease) in | Increase (decrease) in | ||||||||||||||
| 2013 | 2012 | dollar amount | percentage | |||||||||||||
| Net revenue – e-commerce business | $ | 9,260 | $ | 13,671 | $ | (4,411 | ) | (32.3 | )% | |||||||
| Net revenue – meat distribution business | $ | 1,418,835 | $ | 2,188,939 | $ | (770,104 | ) | (35.2 | )% | |||||||
| Net revenue – debit card business | $ | — | $ | — | $ | — | — | |||||||||
| Total Revenue | $ | 1,428,095 | $ | 2,202,610 | $ | (774,515 | ) | (35.2 | )% | |||||||
E-commerce Business
Our net revenues from e-commerce business for the three months ended September 30, 2013 decreased to $9,260 from $13,671 for the three months ended September 30, 2012, a decrease of $4,411 or 32.3%. The decrease was primarily due to the diversion of attention of management from the existing operation of this segment as the Company is making changes to its current e-commercebusiness model. The Company is working to re-focus its e-commerce business on selling collections.
Meat Distribution Business
Our net revenues from meat distribution business for the three months ended September 30, 2013 decreased to $1,418,835 in the three months ended September 30, 2013 from $2,188,939 for the three months ended September 30, 2012, a decrease of $770,104 or 35.2%. The decrease was led bydecreased demand of our products from our existing customers during the three months ended September 30, 2013 compared to the same period last year.
Debit Card Business
Our debit card business has not generated any revenue as of September 30, 2013.
Cost of Sales
Cost of sales includes costs of our products, shipping charges from the suppliers and to our customers, and costs of packaging material associated with our meat distribution business. Cost and expenses associated with our e-commerce business, such as processing costs and transaction costs, are recognized as our selling expenses in our consolidated statements of comprehensive loss. Our cost of sales for the three months ended September 30, 2013 decreased to $1,401,248 from $2,166,039 for the three months ended September 30, 2012, a decrease of $764,791 or 35.3%. The decrease was in line with the decrease in revenues from the meat distribution business.
Gross Profit
Our gross profit for the three months ended September 30, 2013 decreased to $26,847 from $36,571 for the three months ended September 30, 2012, a decrease of $9,724 or 26.6%. The decrease was primarily due to a decrease in sales from e-commerce business and from meat distribution business. Our gross profit margin for the three months ended September 30, 2013 increased to 1.9% from 1.7% for the three months ended September 30, 2012. The increase of our gross profit margin was primarily due tothe increased gross profit margin from meat distribution business.
Operating Expenses
Our operating expenses consist of selling expenses, and general and administrative expenses. Our total operating expenses for the three months ended September 30, 2013 decreased to $253,108 from $447,224 for the three months ended September 30, 2012, a decrease of $194,116 or 43.4%. The following table sets forth a breakdown of our operating expenses for the periods indicated:
| Three months ended September 30, | Increase (decrease) in | Increase (decrease) in | ||||||||||||||
| 2013 | 2012 | dollar amount | percentage | |||||||||||||
| Selling expenses for e-commerce business | $ | 17,487 | $ | 47,833 | $ | (30,346 | ) | (63.4 | )% | |||||||
| Selling expenses for meat distribution business | $ | 12,986 | $ | 11,751 | $ | 1,235 | 10.5 | % | ||||||||
| Sub-total | $ | 30,473 | $ | 59,584 | $ | (29,111 | ) | (48.9 | )% | |||||||
| General & administrative expenses for e-commerce business | $ | 218,568 | $ | 367,063 | $ | (148,495 | ) | (40.5 | )% | |||||||
| General & administrative expenses for meat distribution business | $ | 4,067 | $ | 20,577 | $ | (16,510 | ) | (80.2 | )% | |||||||
| Sub-total | $ | 222,635 | $ | 387,640 | $ | (165,005 | ) | (42.6 | )% | |||||||
| Total | $ | 253,108 | $ | 447,224 | $ | (194,116 | ) | (43.4 | )% | |||||||
Selling expenses for the three months ended September 30, 2013 decreased to $30,473 from $59,584 for the three months ended September 30, 2012, a decrease of $29,111 or 48.9%. Selling expenses for the e-commerce business for the three months ended September 30, 2013 decreased to $17,487 from $47,833 for the three months ended September 30, 2012, a decrease of $30,346, or 63.4%. The decrease was in line with the decrease in sales in our e-commerce business. Selling expenses for the meat distribution business for the three months ended September 30, 2013 and 2012 were $12,986 and$11,751, respectively. The selling expenses for the meat distribution business did not show a noticeable decrease along with the decrease in revenue because the selling expenses mainly consist of non-commission based salaries for sales staff and shipping and handling expenses that only incur if a customer requests shipping instead of self picking-up.
General and administrative expenses for the three monthsended September 30, 2013 decreased to $222,635 from $387,640 for the three months ended September 30, 2012, a decrease of $165,005, or 42.6%. The decrease was primarily due to a decrease of $120,000 in share-based compensation expenses.
Comparison of nine months ended September 30, 2013 and September 30, 2012
Revenues
We derive our revenues from our e-commerce business and meat distribution business. We have not generated any revenue from our debit card business. Our net revenues for the nine months ended September 30, 2013 decreased to $4,569,528 from $5,051,224 for the nine months ended September 30, 2012, a decrease of $481,696 or 9.5%. The following table sets forth a breakdown of our revenues for the periods indicated:
Nine months Ended September 30, | Increase (decrease) in | Increase (decrease) in | ||||||||||||||
| 2013 | 2012 | dollar amount | percentage | |||||||||||||
| Net revenue – e-commerce business | $ | 11,488 | $ | 1,157,017 | $ | (1,145,529 | ) | (99.0 | )% | |||||||
| Net revenue – meat distribution business | $ | 4,558,040 | $ | 3,894,207 | $ | 663,833 | 17.0 | % | ||||||||
| Net revenue – debit card business | $ | — | $ | — | $ | — | — | |||||||||
| Total Revenue | $ | 4,569,528 | $ | 5,051,224 | $ | (481,696 | ) | (9.5 | )% | |||||||
E-commerce Business
Our net revenues from e-commerce business for the nine months ended September 30, 2013 decreased to $11,488 from $1,157,017 for the nine months ended September 30, 2012, a decrease of $1,145,529 or 99.0%. The decrease was primarily due to the diversion of attention of management from the existing operation of this segment as the Company is making changes to its current e-commerce business model. The Company is working to re-focus its e-commerce business on selling collections.
Meat Distribution Business
Our net revenues from meat distribution business for the nine months ended September 30, 2013 increased to $4,558,040 in the nine months ended September 30, 2013 from $3,894,207 for the nine months ended September 30, 2012, an increase of $663,833 or 17.0%. The increase was attributed to increased demand in the nine months ended September 30, 2013 and a recovered sales force compared to the temporary shortage of sales staff associated with the Chinese New Year during part of January and February 2012.
Debit Card Business
Our debit card business has not generated any revenue as of September 30, 2013.
Cost of Sales
Cost of sales includes costs of our products, shipping charges from the suppliers and to our customers, and costs of packaging material associated with our meat distribution business. Cost and expenses associated with our e-commerce business, such as processing costs and transaction costs, are recognized as our selling expenses in our consolidated statements of comprehensive loss. Our cost of sales for the nine months ended September 30, 2013 increased to $4,506,053 from $3,842,041 for the nine months ended September 30, 2012, an increase of $664,012 or 17.3%. The increase was in line with the increase in revenues from the meat distribution business.
Gross Profit
Our gross profit for the nine months ended September 30, 2013 decreased to $63,475 from $1,209,183 for the nine months ended September 30, 2012, a decrease of $1,145,708 or 94.8%. The decrease was primarily due to a decrease in sales from e-commerce business. Our gross profit margin for the nine months ended September 30, 2013 decreased to 1.4% from 23.9% forthe nine months ended September 30, 2012. The decrease of our gross profit margin was primarily due to an increase in percentage of revenues from the relatively low-profit margin meat distribution business.
Operating Expenses
Our operating expenses consist of selling expenses, and general and administrative expenses. Our total operating expenses for the nine months ended September 30, 2013 decreased to $861,622 from $2,189,050 for the nine months ended September 30, 2012, a decrease of $1,327,428 or 60.6%. The following table sets forth a breakdown of our operating expenses for the periods indicated:
Nine months ended September 30, | Increase (decrease) in | Increase (decrease) in | ||||||||||||||
| 2013 | 2012 | dollar amount | percentage | |||||||||||||
| Selling expenses for e-commerce business | $ | 58,133 | $ | 915,066 | $ | (856,933 | ) | (93.6 | )% | |||||||
| Selling expenses for meat distribution business | $ | 34,362 | $ | 38,565 | $ | (4,203 | ) | (10.9 | )% | |||||||
| Sub-total | $ | 92,495 | $ | 953,631 | $ | (861,136 | ) | (90.3 | )% | |||||||
| General & administrative expenses for e-commerce business | $ | 755,058 | $ | 1,212,741 | $ | (457,683 | ) | (37.7 | )% | |||||||
| General & administrative expenses for meat distribution business | $ | 14,069 | $ | 22,678 | $ | (8,609 | ) | (38.0 | )% | |||||||
| Sub-total | $ | 769,127 | $ | 1,235,419 | $ | (466,292 | ) | (37.7 | )% | |||||||
| Total | $ | 861,622 | $ | 2,189,050 | $ | (1,327,428 | ) | (60.6 | )% | |||||||
Selling expenses for the nine months ended September 30, 2013 decreased to $92,495 from $953,631 for the nine months ended September 30, 2012, a decrease of $861,136 or 90.3%. Selling expenses for the e-commerce business for the nine months ended September 30, 2013 decreased to $58,133 from $915,066 for the nine months ended September 30, 2012, a decrease of $856,933, or 93.6%. The decrease was in line with the decrease in sales in our e-commerce business. Selling expenses for the meat distribution business for the nine months ended September 30, 2013 and 2012 were $34,362 and $38,565, respectively. The selling expenses for the meat distribution business did not see a noticeable increase along with the increase in revenue, because the selling expenses mainly consist of non-commission based salaries for sales staff and shipping and handling expenses that only incur if a customer requests shipping instead of self picking-up.
General and administrative expenses for the nine months ended September 30, 2013 decreased to $769,127 from $1,235,419 for the nine months ended September 30, 2012, a decrease of $466,292, or 37.7%. The decrease was primarily due to a decrease of $360,000 in share-based compensation expenses.
Liquidity and Capital Resources
Cash flows
| Nine months ended September 30, | ||||||||
| Net cash generated from /(used in) | 2013 | 2012 | ||||||
| Operating activities | $ | (367,106 | ) | $ | (396,322 | ) | ||
| Investing activities | $ | — | $ | — | ||||
| Financing activities | $ | 477,361 | $ | 64,570 | ||||
| Net increase (decrease) in cash | $ | 113,379 | $ | (343,511 | ) | |||
Operating Activities
The net cash used in operating activities was $367,106 for the nine months ended September 30, 2013, which was primarily due to our net loss of $523,483, increase of inventories of $145,483, decrease in accounts payable of $68,433, and decreases in payable to Caesar Capital Management Ltd. of $41,343, partially offset by decrease of advance to suppliers of $178,685, decreased prepaid expenses of $80,836, and decrease of accounts receivable of $52,038.
The net cash used in operating activities was $396,322 for the nine months ended September 30, 2012, which was primarily due to a net loss of $929,651 and the decrease of deferred revenue of $112,074, partially offset by increases in accounts payable of $162,401 and expenses from the issuance of common stocks to service providers of $426,533.
Investing Activities
The net cash generated from or used in investing activities was nil for the nine months ended September 30, 2013 and 2012.
Financing Activities
The net cash generated from financing activities was $477,361 for the nine months ended September 30, 2013, which was due to proceeds from related parties of $3,614,004 and proceeds from third party debt of $163,070, offset by payments to related parties of $3,299,713.
The net cash generated from financing activities was $64,570 for the nine months ended September 30, 2012, which was due to proceeds from related parties of $1,539,125, offset by payments to related parties of $1,474,555.
Capital Resources
As of September 30, 2013, we had cash of $287,626 on hand. We had negative cash flows from our operations for the nine months ended September 30, 2013. As of September 30, 2013, we had outstanding loans of $353,896 and $1,513,177 due to Mr. Jianmin Gao, our director and executive officer, and Ms. Wei Guo, shareholder and officer of our subsidiary, respectively.
We have historically financed our operations through loans from our directors and officers and a major shareholder of the Company. We believe that our cash on hand will not provide sufficient working capital to fund our operations for the next twelve months. We intend to finance our operation and internal growth with cash on hand, cash provided from operations, loan from related parties, borrowings, or some combination thereof.
To the extent it becomes necessary to raise additional capital, we may seek to raise the fund by way of equity or debt offerings, or a combination thereof. We cannot assure you that we will be able to raise the capital as needed in the future on terms acceptable to us, if at all. If adequate funds are are not available, our business would be jeopardized and we may not be able to continue. If we ceased operations, it is likely that all of our investors would lose their investments.
Lease commitments
On November 1, 2012, the Company entered into a lease agreement with a third party for the New York office. This lease will expire on October 31, 2013. Our monthly rental is $1,923. Rent expense for the facility totaled $17,307 and $0 for the nine months ended September 30, 2013 and 2012, respectively. Rent expense for this facility totaled $5,769 and $0 for the three months ended September 30, 2013 and 2012, respectively. In August 2013, the Company renewed the lease. The new lease started on November 1, 2013 and will expire on October 31, 2014. The new monthly rent is $2,845.
On October 21, 2010, Arki (Beijing) E-commerce Technology Corp. (Arki Beijing), our wholly-owned subsidiary, entered into a lease agreement for an office facility expansion in the Beijing Chaoyang District, Hua Mao Center. The straight-line monthly gross rental rate is $30,831 with a 36-month term. This lease expires on October 20, 2013. On February 2, 2011, the Company entered into an amendment agreement that changed the lessee to be America Arki Network Service Beijing Co. Ltd., our wholly-owned subsidiary. In addition, Arki (Beijing) E-commerce Technology Corp sublet a portion of the office facility expansion where Arki (Beijing) E-commerce Technology Corp shared $6,259 of the monthly rent with a 33-month term. The sublease agreement expires on October 20, 2013. In the meantime, America Arki Network Service Beijing Co. Ltd. was obligated to pay for the remaining monthly rent of $24,572. On July 1, 2012, the two entities entered into an amendment agreement with the lessor, which increased the total monthly gross rental rate to approximately $31,670. In October 2013, the lease was renewed. The new lease started on October 21, 2013 and will expire on October 20, 2016. The new monthly rent is approximately $45,257 (“RMB 276,971”).
Critical Accounting Policies and Estimates
Our management’s discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported net sales and expenses during the reporting periods. On an ongoing basis, we evaluate our estimates and assumptions. We base our estimates on historical experience and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
There have been no material changes to the critical accounting policies previously disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2012.
Off-Balance Sheet Arrangements
We have not entered into any other financial guarantees or other commitments to guarantee the payment obligations of any third parties. We have not entered into any derivative contracts that are indexed to our shares and classified as stockholders’ equity or that are not reflected in our financial statements. Furthermore, we do not have any retained or contingent interests in assets transferred to an unconsolidated entity that serves as credit, liquidity, or market risk support to such entity. We do not have any variable interests in any unconsolidated entity that provides financing, liquidity, market risk, or credit support to us or engages in leasing, hedging, or research and development services with us.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
None.
Item 4. Controls and Procedures.
Evaluation of disclosure controls and procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules, regulations and forms, and that such information is accumulated and communicated to our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.
During management’s evaluation of our disclosure controls and procedures as of September 30, 2013, our principal executive officer and principal financial officer concluded that we continued to have the following material weaknesses in our internal control over financial reporting as of September 30, 2013:
| • | The Company does not have sufficient number of personnel to provide segregation within the functions consistent with the objectives of internal control. | |
| • | The Company’s accounting personnel does not possess appropriate knowledge, experience and training in U.S. GAAP, and therefore face significant difficulties in maintaining books and records and preparing financial statements in accordance with U.S. GAAP, including but not limited to accounting for equity transactions. |
Based on their evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures at September 30, 2013 were not effective.
Our management team and other key personnel perform monitoring and other key control activities in an attempt to ensure the accuracy of the Company’s filings. Management intends to remediate these material weaknesses as soon as practicable after the Company’s financial position permits.
In addition, the Company continues to assess its internal controls and procedures in light of these recent events and determine additional appropriate actions to take to remediate these material weaknesses.
Changes in internal controls
There were no changes in our internal control over financial reporting during the quarter ended September 30, 2013 that have materially affected or are reasonably likely to materially affect our internal controls over financial reporting.
Except as set forth below, there are presently no material pending legal proceedings to which the Company, any of our subsidiaries, any executive officer, any owner of record or beneficially of more than five percent of any class of voting securities is a party or as to which any of its property is subject, and no such proceedings are known to the Registrant to be threatened or contemplated against it.
On May 23, 2012 three individuals filed claims for unpaid salaries against Arki Network Service Beijing Co., Ltd., our variable interest entity in China (“Arki Network”) with the BeiingChaoyang District Personnel Dispute Arbitration Commissions (“the Arbitration Commission”). On November 12, 2012, the Arbitration Commission found that Arki Network shall pay such three individuals a total $65,765 for unpaid salaries and a fine for hiring employees without an employment agreement. On November 21, 2012, Arki Network filed a claim with The People’s Court of Beijing Chao Yang Division (the “Chao Yang Division Court”) challenging the findings of the Arbitration Commission on the ground that there were no employment relationships between Arki Network and any of the discussed individuals. On August 20, 2013, the Chao Yang Division Court decided that the findings of the Arbitration Commission have no legal effect because there were no employment relationships between Arki Network and any of the discussed individuals. The three individuals have appealed the Chao Yang Division Court’s rulings to the Third Intermediate People’s Court of Beijing (the “Intermediate Court”). On August 20, 2013,the Intermediate Court has yet to decide the cases. We have accrued $65,765 in accounts payable related to this case.
On June 12, 2012, an individual filed a claim against Arki Network with the Court for unpaid salaries. On December 12, 2012, the Court dismissed all the claims brought by such individual against Arki Network. Such individual did not appeal to a higher court within required time period. The decision by the Court on December 12, 2012 became effective and final on December 27, 2012.
Smaller reporting companies are not required to provide the information required by this item.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
None.
| EXHIBIT INDEX | ||||
| Exhibit No. | Description | |||
| 10.1 | Securities Purchase Agreement with Asher Enterprises, Inc. dated June 14, 2013. | |||
| 10.2 | Promissory Note held by Asher Enterprises, Inc. dated June 14, 2013. | |||
| 31.1 | Certification of Chief Executive Officer and Chief Financial Officer of Periodic Report pursuant to Rule 13a-14a and Rule 14d-14(a) | |||
| 32.1 | + | Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350. | ||
| 101. | INS | XBRL Instance Document | ||
| 101. | SCH | XBRL Taxonomy Extension Schema Document | ||
| 101. | CAL | XBRL Taxonomy Extension Calculation Linkbase Document. | ||
| 101. | LAB | XBRL Taxonomy Extension Label Linkbase Document. | ||
| 101. | PRE | XBRL Taxonomy Extension Presentation Linkbase Document. | ||
| 101. | DEF | XBRL Taxonomy Extension Definition Linkbase Document. | ||
| +In accordance with the SEC Release 33-8238, deemed being furnished and not filed. | ||||
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| Date: November 14, 2013 | Consumer Capital Group, Inc. | ||
| By: | /s/ Jianmin Gao | ||
| Jianmin Gao | |||
| President and Chief Executive Officer | |||
| (Principal Executive Officer and Principal Financial Officer) | |||
