Consumer Capital Gro

CCGN
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CONSUMER CAPITAL : Management's Discussion and Analysis of Financial Conditions and Results of Operations. (form 10-Q)

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08/14/2019 | 09:46 pm


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



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



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






Overview




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



Business Lending



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



35





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




Investment Opportunity Marketing



Arki Network through its 51%-owned subsidiary, Arki Capital, engages in the
business of marketing investment opportunities. In practice, this business has
provided a source of funds used to make loans for our lending business. Arki
Capital
operates its business on its financial advisory platform "Bangnitou",
which translates to "Help You Invest" in English and attracts capital from
investors to invest in fixed income opportunities such as inter-bank loans,
currency exchange products and other debt and equity investment opportunities to
help investors obtain a return on their investment. Among the potential
investment opportunities for this business are the car dealerships loans that
are made through Arki Network. This business does not operate in the United
States
. Still in its development stage, Bangnitou intends to commercialize a
number of financial products that aim to generate annual returns ranging from
8-12%. Once each product reaches its maximum subscription or the end of its
offering period, the investments are held for a period of time before being
redeemable by the investors, along with the return. For the six months ended
June 30, 2019, Arki Capital received funds of RMB 14,130,000 (approximately
$2,054,000), which were presented as cash as an asset and loan payable as a
liability on our consolidated balance sheet. The funds carry terms between 6
months and 2 years, without interest charged during the period. Upon the
redemption date, the investors may demand back the funding with interest or stay
on as a limited partner. Since the beginning of 2018, we have been focusing on
providing loans to car dealerships and Arki Capital is generating revenues from
the borrowers' interest payments.



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



Recent Development




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



36






Key Factors that Affect Operating Results



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



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




Significant Accounting Policies






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



estimates.



Use of Estimates




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



differ from those estimates.



Foreign Currency Translation



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



comprehensive income.



37





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



June 30, December 31,
2019
2018



Balance sheet items, except for the equity accounts 6.8657



6.8783



Items in the statements of income and comprehensive
loss and statement of cash flow


6.7851 6.6031




Revenue Recognition



ASC 606, Revenue from Contracts with Customers ("ASC 606"), establishes
principles for reporting information about the nature, amount, timing and
uncertainty of revenue and cash flows arising from the entity's contracts to
provide goods or services to customers. The core principle requires an entity to
recognize revenue to depict the transfer of goods or services to customers in an
amount that reflects the consideration that it expects to be entitled to receive
in exchange for those goods or services recognized as performance obligations
are satisfied. Effective January 1, 2018, the Company adopted ASU
2014-09 Revenue from Contracts with Customers - Topic 606 and all subsequent
ASCs that modified ASC 606. The Company has elected to apply the standard
utilizing the modified retrospective approach with a cumulative effect of
adoption for the impact from uncompleted contracts as the date of adoption.



The



implementation of the new standard had no material impact to the measurement or
recognition of revenue of prior periods.






38






The Company's revenue is comprised of:



1) Interest and fee income - Management determined that the primary sources of



revenue emanating from interest and fee income on loans receivable are not



within the scope of ASC 606. As a result, no changes were made during the



period related to these sources of revenue.





2) Noninterest income - The primary sources of noninterest income are within the



scope of ASC 606, which are presented in the income statements as commission
income.




Interest and Fee Income



Interest income on loans




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






Servicing fee income



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



Noninterest Income




E-commerce Revenue Recognition






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



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




Commission income for art & antique trading platform



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



may
make changes thereto.



39






Cash and Cash Equivalents






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




Fair Value of Financial Instruments






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




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



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



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



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






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



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



fair
value amounts.



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



40






Recent Accounting Pronouncements






A discussion of recently issued accounting pronouncements is described in Note 3
in the Notes to Consolidated Financial Statements filed with this Annual Report,
and we incorporate such discussion by reference.




Results of Operations - Comparison of the Six Months Ended June 30, 2019 and
2018






The following table sets forth the results of our operations for the periods
indicated in U.S. dollars.



For the three months ended For the six months ended
June 30, June 30,
2019 2018 2019 2018



REVENUE



Interest income on loans-third parties $ - $ 27,438 $ - $ 27,438
Interest income on loans-related parties - 131,446 - 133,962
Service fee income on loans-third
parties - 13,719 - 13,719
Service fee income on loans-related
parties - 66,981 - 66,981
Commission income - third parties - - - -
Commission income - related parties 23,190 -



188,814 -
23,190 239,584 188,814 242,100

COST OF REVENUE - (53,800 ) - (53,800 )

GROSS PROFIT 23,190 185,784 188,814 188,300



General and administrative expenses (370,941 ) (211,610



) (619,627 ) (617,521 )

LOSS FROM OPERATIONS (347,751 ) (25,826 ) (430,813 ) (429,221 )

Interest income 1,271 893 1,804 25,541



Interest expense to third parties (244,514 ) (55,247 ) (441,496 ) (246,759 )
Interest expense to related parties (361,514 ) (165,582



) (690,510 ) (471,452 )
Other income - 37 - -
Other expense (80 ) (69 ) (184 ) (229 )



Reversal of provision for loan losses (17 ) - 3,390 -
Total other income (expenses) (604,854 ) (216,968



) (1,126,996 ) (692,899 )



Loss before income taxes (952,605 ) (242,794



) (1,557,809 ) (1,122,120 )

Income tax expense 28 - (5,241 ) -

Net Loss (952,577 ) (242,794 ) (1,563,050 ) (1,122,120 )
Less: Net loss attributable to the
non-controlling interest (355,733 ) (28,762 ) (624,733 ) (284,636 )
Net loss attributable to the Company $ (596,844 ) $ (214,032 ) $ (938,317 ) $ (837,484 )




For the three months ended For the six months ended
June 30, June 30,
2019 2018 2019 2018
Comprehensive income
Net income/(loss) $ (952,577 ) $ (242,794 ) $ (1,563,050 ) $ (1,122,120 )
Foreign currency translation adjustment 524,258 (237,982 ) 130,050 (101,036 )
Comprehensive income (loss) (428,319 ) (480,776 ) (1,433,000 ) (1,223,156 )
Less: Comprehensive income/(loss)
attributable to the non-controlling
interest (355,733 ) (28,762



) (624,733 ) (284,636 )




Comprehensive income(loss) attributable
to the Company $ (72,586 ) $ (452,014



) $ (808,267 ) $ (938,520 )




Weighted average number of common shares
outstanding basic and diluted 27,208,849 32,187,091



27,208,849 30,026,529




(Loss) earnings per share - Basic and
Diluted
CONTINUING OPERATIONS
-Basic $ (0.02 ) $ (0.01 ) $ (0.03 ) $ (0.03 )
-Diluted $ (0.02 ) $ (0.01 ) $ (0.03 ) $ (0.03 )

NET LOSS PER SHARE ATTRIBUTABLE TO THE
COMPANY
-Basic $ (0.02 ) $ (0.01 ) $ (0.03 ) $ (0.03 )
-Diluted $ (0.02 ) $ (0.01 ) $ (0.03 ) $ (0.03 )




41






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






Revenue



For the three months ended June 30, 2019, we generated revenues of $23,190, a
$216,394 decrease compared with the revenue of $239,584 for the three months
ended June 30, 2018. The revenues generated for the three months ended June 30,
2019
was commission income earned by Arki Tianjin E-Commerce for the financial
products sold on our online platform. Arki Tianjin E-Commerce received a 30%
service fee for the product sold on its platform. The revenues for the three
months ended June 30, 2018 was interest income from loans earned by Arki Capital
and the service fee income Arki Network earned to facilitate the loans.




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






Cost of Sales



Cost of sales for the three months ended June 30, 2019 and 2018 were $0 and
$53,800. There were no costs related to the commission income of $23,190 for the
three months ended June 30, 2019, and our costs of sales for the 2018 quarter
were incurred related to the interest and service fee income for the three



months ended June 30, 2018.



Gross Profit



Gross profit was $23,190 for the three months ended June 30, 2019, a decrease of
$162,594 compared to gross profit of $185,784 for the three months ended June
30, 2018
. The reason for the decrease was due to the absence of loans income
generated from the Company's lending business during the three months ended



June
30, 2019
.



Operating expenses.



June 30, June 30,
Operating expenses for the three months ended 2019 2018
Selling Expenses $ - $ -
General and Administrative 370,941 211,610
Total $ 370,941 $ 211,610




Operating expenses totaled $370,941 for the three months ended June 30, 2019,
compared to $211,610 for the three months ended June 30, 2018, an increase of
$159,331 or 75%. The increase is attributed partly to a new office we opened in
Guangzhou and therefore more business activities at the beginning of the
operation, and partly to the professional fees and other related expenses we
paid for public company expenses including legal and accounting, consulting fees
and other maintenance fees for the three months ended June 30, 2019 compared to
the payment we made for the three months ended June 30, 2018. Operating expenses
consist of salaries, office expenses, utilities, business travel, depreciation
expenses, public company expenses (including legal, accounting expenses and
investor relations expenses, etc.). The following table details general and
administrative expenses we incurred for the three months ended June 30, 2019 and
2018.



42





June 30, June 30,



General and Administrative expenses for the three months ended 2019



2018



Consultings and investor relations $ 100,388 $ 52,285
Legal, audit fees and professional services 79,354



50,730
Salaries 35,610 32,346
Rent 31,467 16,119
Office expenses 32,396 21,626
Travel 43,088 7,337
Depreciation 2,898 7,791
Advertising & promotion 24,011 7,852
Meal and entertainment 5,987 2,905
Insurance 4,709 2,898
Bank charges 1,661 863
Miscellaneous 9,372 8,858

Total $ 370,941 211,610




Losses from operations.




As a result of the factors described above, operating loss was $347,751 for the
three months ended June 30, 2019, an increase of $321,925 compared to $25,826
for the quarter ended June 30, 2018.



43





Other income (expenses).



Other income (expenses) was $604,854 for the three months ended June 30, 2019,
an increase of $387,886 or 179%, compared to $216,968 for the three months ended
June 30, 2018. The increase in other expenses is caused mainly by an increase in
interest expense of $388,199, from $217,829 for the three months ended June 30,
2018
to $606,028 for the three months ended June 30, 2019.



Provision for loan losses




Provision for loan losses is $17 for the three months ended June 30, 2019,
compared to $0 for the three months ended June 30, 2018. We accrual 1% of total
loan receivable as provision for loan losses.






Provision for income tax




The provision for income tax is $28 for the three months ended June 30, 2019,
compared to $0 for the three months ended June 30, 2018. The income tax
provision for the three months ended June 30, 2019 was from Arki Tianjin
E-Commerce due to the gain from its operations for the 2019 quarter.






Net loss




Net loss for the three months ended June 30, 2019 was $952,577, an increase of
$709,783 compared to a net loss of $242,794 for the three months ended June 30,
2018
. The increase in net loss is mainly due to the reduction of revenues,
increase of operating expenses and increase of interest expenses.



Foreign currency translation




Our consolidated financial statements are expressed in U.S. dollars but the
functional currency of our operating subsidiary is RMB. Results of operations
and cash flows are translated at average exchange rates during the period,
assets and liabilities are translated at the unified exchange rate at the end of
the period and equity is translated at historical exchange rates. Translation
adjustments resulting from the process of translating the financial statements
denominated in RMB into U.S. dollars are included in determining comprehensive
income. Foreign currency translation gain for the three months ended June 30,
2019
was $524,258, compared to translation loss of $237,982 for the three months
ended June 30, 2018, a net increase of foreign currency translation gain of
$762,240. The increase in foreign currency translation gain is caused by the
fluctuation of RMB versus US $ for the two comparison periods.




Result of Operations - Comparison of the Six Months Ended June 30, 2019 and 2018






Revenue




For the six months ended June 30, 2019, we generated revenue of $188,814,
compared to revenue of $242,100 for the six months ended June 30, 2018, a
decrease of $53,286 or 22%. The decrease in revenue was mainly attributable to
absence of loan interest income and loan initiation fees generated from our
business lending business and the initiation of the online platform.






June 30, June 30,
Revenue for the six months ended 2019 2018
Arki Tianjin E-commerce:
Commission Income $ 188,814 $ -
Arki Network:
Interest Income - 161,400
Service Fee Income - 80,700
Total $ 188,814 $ 242,100




44





Cost of Revenue.



Cost of revenue was $0 and $53,800 for the six months ended June 30, 2019 and
2018, respectively. There were no costs for the commission income we earned on
the online platform for the six months ended June 30, 2019, while the cost of
revenue incurred for the 2018 period was the service fee we paid for the loans
generated from our business lending business for the six months ended June



30,
2018.



Gross Profit



As a result of our revenue and cost of revenue described above, we had gross
profit of $188,814 for the six months ended June 30, 2019, a slight increase of
$514 comparing to the gross profit of $188,300 for the six months ended June 30,
2018
. The increase was mainly caused by the absence of loans generated from our
business lending business and the commencement of the online platform for the
six months ended June 30, 2019.




Selling, general and administrative expenses.






June 30, June 30,
Operating expenses for the six months ended 2019 2018
Selling Expenses $ - $ -
General and Administrative 619,627 617,521
Total $ 619,627 $ 617,521





General and administrative expenses were $619,627 for the six months ended June
30, 2019
, a decrease of $2,106 compared to $617,521 for the six months ended
June 30, 2018. General and administrative expenses consist of salaries,
professional fees, office expenses, rent, utilities, business travel,
depreciation and amortization expenses, listing company expenses (including
legal expenses, accounting expenses and investor relations expenses, etc.).



June 30, June 30,
General and Administrative expenses for the six months ended 2019



2018



Consultings and investor relations $ 195,727 $ 252,927
Legal, audit fees and professional services 153,080



158,505
Salaries 31,821 43,063
Rent 98,644 77,454
Office expenses 29,268 5,790
Travel 21,796 14,908
Depreciation 12,061 11,013
Advertising & promotion 49,702 37,852
Meal and entertainment 1,873 3,911
Insurance 4,709 2,898
Bank charges 4,021 1,418
Miscellaneous 16,925 7,782

Total $ 619,627 617,521




Loss from operations.




As a result of the factors described above, operating loss was $430,813 for the
six months ended June 30, 2019, which was comparable to the operating loss of
$429,221 for the six months ended June 30, 2018, for a decrease of $1,592 or 1%.



45





Other income (expenses)



Other expenses (net) were $1,126,996 for the six months ended June 30, 2019, an
increase of $434,097 over other expenses of $692,899 (net) for the six month
period ended June 30, 2018. We incurred $184 and $199 in other expense for the
six months ended June 30, 2019 and 2018, respectively and interest income was
$1,804 and $25,541 for the six months ended June 30, 2019 and 2018,
respectively. An amount of $25,541 was paid by ICBC for the RMB 3,000,000
financial product we redeemed during the six months ended June 30, 2018.
Interest expense was $1,132,006 and $718,211 for the six months ended June 30,
2019
and 2018 for the Bangnitou business. The increase of interest expense of
$413,795 or 58% was caused by the increased investment we received in Arki



Capital.



Income tax.



We had income tax expense of $5,241 and $0 for the six months ended June 30,
2019
and 2018, respectively, due to the net income we had in Arki Tianjin
E-Commerce for the period ended six months ended June 30, 2019 and operating
loss for the period ended June 30, 2018.



Net loss




As a result of the factors described above, our net loss was $1,563,050 and
$1,122,120, respectively from continuing operations for the six months ended
June 30, 2019 and 2018, an increase in loss of $440,930 or 39%.



Net loss attributable to the company.






Net loss attributable to the Company was $938,317, or $0.03 per share (basic and
diluted), for the six months ended June 30, 2019, compared to a net loss of
$837,484, or $0.03 per share (basic and diluted), for the six months ended



June
30, 2018
.



Foreign currency translation.



Our consolidated financial statements are expressed in U.S. dollars while the
functional currency of our operating subsidiary is RMB. Results of operations
and cash flows are translated at average exchange rates during the period,
assets and liabilities are translated at the unified exchange rate at the end of
the periods and equity is translated at historical exchange rates. Translation
adjustments resulting from the process of translating the financial statements
denominated in RMB into U.S. dollars are included in determining comprehensive
income. Foreign currency translation gain for the six months ended June 30, 2019
was $130,050, compared to a translation loss of $101,036 for the six months
ended June 30, 2018. The foreign currency translation gain and loss is due to
the fluctuation of the exchange rate between USD and RMB.




Liquidity and Capital Resources






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



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



operations.



46





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



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




For the six months ended June 30, 2019 and 2018, there were no share issued or
retired.



As of June 30, 2019 and December 31, 2018, cash and cash equivalents were
$449,261 and $501,350, respectively.



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






Cash Flows Data:



For six months ended
June 30,
2019
2018



Net cash flows (used in) provided by operating activities $ (1,451,931 ) $ 251,858
Net cash flows provided by (used in) investing activities


338,978 (9,629,331 )
Net cash flows provided by financing activities 1,195,620



10,186,026




Net cash flow used in operating activities was $1,451,931 for the six months
ended June 30, 2019, compared to $251,858 provided by operating activities for
the six months ended June 30, 2018, a net decrease in cash provided of
$1,703,789. The net decrease in cash flow provided in operating activities was
mainly due to the cash flow used in other receivables, right-of-use assets, and
amounts repaid to related parties.



Net cash flow provided by investing activities was $338,978 for the six months
ended June 30, 2019, compared to $9,629,331 cash used in investing activities
for the six months ended June 30, 2018, a net increase of cash provided of
$9,968,309. The cash flow was provided by the loans from customers of $338,978.



Net cash flow provided by financing activities was $1,195,620 for the six months
ended June 30, 2019, compared to the cash provided of $10,186,026 for the six
months ended June 30, 2018, a decrease of cash provided of $8,990,406. The
change is due to the decrease of loan proceeds for the six months ended June 30,
2019
compared to the same period for 2018.



47





Going Concern



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



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



Concentration of Credit Risk




Assets that potentially subject our Company to significant concentration of
credit risk primarily consist of cash and cash equivalents, and accounts
receivable. The maximum exposure of such assets to credit risk is our carrying
amounts as of the balance sheet dates. As of June 30, 2019 and December 31,
2018
, substantially all of our cash and cash equivalents were deposited in
financial institutions located in the PRC, which management believes are of high
credit quality. We believe the credit risk on bank deposits is limited because
the counterparties are banks with high credit ratings assigned by international
credit rating agencies, or state-owned banks in China. Cash includes cash on
hand and demand deposits in accounts maintained with state-owned banks within
the PRC and the United States of America. Balances at financial institutions or
state-owned banks within the PRC are not covered by insurance. Nonperformance by
these institutions could expose our Company to losses for amounts in excess of
insured balances. As of June 30, 2019 and December 31, 2018, no bank balances
with the banks in U.S. exceeded the insured amount. As of June 30, 2019 and
December 31, 2018, bank balances with the Banks in the PRC amounted to $434,182
and $489,358, 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 cash and cash equivalents, loan receivable
from borrowers and the related accrued interest receivable. The aforementioned
borrowers paid service fee and interest regularly according to the contract
during the reporting period, and the Company believed that the default risk from
this borrower is low in the foreseeable future.



48





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



Lease commitments



Our corporate headquarters are located at 1125 Route 9W S., Nyack, NY 10960. We
signed a lease agreement with a related party individual to rent this property
as our headquarter in New York starting from January 1, 2019 to December 31,
2012
for a monthly rent of $5000. It includes all utilities and other fees.
Pursuant to the lease agreement, we pay for leasehold improvements and have the
right to renew the lease agreement at the end of the lease term.



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



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



Other Receivables




Other receivables were $256,942 as of June 30, 2019, comparing to $35,544 as of
December 31, 2018. Other receivables consist of:



a) $13,876 and $13,483 as of June 30, 2019 and December 31, 2018, respectively,



were incurred by Arki Network. These amounts represent sums paid by Arki



Network for other parties. Arki Network received all amount subsequently after



the end of the periods.





b) $84,398 and $2,823 as of June 30, 2019 and December 31, 2018, respectively,



were paid by Arki Capital for other parties.





c) $15,915 and $15,886 as of June 30, 2019 and December 31, 2018, respectively,



were paid by American Pine for other parties.





d) $0 and $2,400 as of June 30, 2019 and December 31, 2018, respectively,



represent refundable deposits for the rent of Consumer Capital Group, Inc. at



its former premises in the U.S. This was treated as the last rent payment



when we vacated such premises at the end of 2018.





e) $67,824 and $193 as of June 30, 2019 and December 31, 2018, respectively, were



paid by Arki E-commerce for other parties.





f) $74,929 and $759 as of June 30, 2019 and December 31, 2018, respectively,



belong to Arki Tianjin E-commerce.




Prepaid Expenses



Prepaid expenses were $525,156 and $508,499 as of June 30, 2019 and December 31,
2018
, respectively. The prepaid expenses as of June 30, 2019 consist of three
parts: (1) $413,667 representing Arki Capital's security deposit, (2) $82,359
represents prepaid expense incurred by Arki Network for prepaid rent at the
beginning of the year, and (3) $29,130 was incurred in Arki E-Commerce. The
prepaid expenses as of December 31, 2018 consisted of $54,064 of prepaid expense
by Arki Network; a security deposit of $453,235, and $1,200 prepaid rent of



Consumer Capital Group, Inc.



49






Off-Balance Sheet Arrangements






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

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