UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

For the quarterly period ended March 31, 2013

or

For the transition period from              to           

Commission File No. 333-152330

Consumer Capital Group, Inc.

(Exact Name of Registrant as Specified in Its Charter)

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.

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 May 3, 2013.

CONSUMER CAPITAL GROUP INC.

QUARTERLY REPORT ON FORM 10-Q

MARCH 31, 2013

TABLE OF CONTENTS

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

ITEM 1. FINANCIAL STATEMENTS

 CONSUMER CAPITAL GROUP, INC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 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. On February 5, 2010, in connection with the execution of a Stock Right Transfer Agreement, America Pine Group Inc. transferred both 100% of the stock rights of its wholly owned subsidiary Arki (Beijing) E-commerce Technology Co., Ltd. and 100% of its stock rights of America Pine (Beijing) Bio-Tech to Consumer Capital Group, Inc., a California corporation and wholly owned subsidiary of the Company (“CCG California”).

On February 4, 2011, pursuant to a Plan and Agreement of Merger by and among Mondas Minerals Corp., its wholly owned subsidiary, CCG Acquisition Corp., a Delaware corporation (“CCG Delaware”), CCG California, and Scott D. Bengfort, Mondas Minerals Corp. merged its wholly-owned subsidiary CCG Delaware into CCG California, with CCG California surviving and CCG Delaware ceasing to exist. On February 7, 2011, the Company formed a new wholly-owned subsidiary by the name of “Consumer Capital Group Inc.” (“CCG Name Sub”) in Delaware solely for purposes of changing its corporate name to “Consumer Capital Group Inc.” in conjunction with the closing of the Merger. On February 17, 2011, the Company changed its name to Consumer Capital Group Inc. pursuant to a Certificate of Ownership filed with the Secretary of State of Delaware by merging CCG Name Sub into the Company with the Company surviving and CCG Name Sub ceasing to exist. Unless the context specifies otherwise, references to the “Company” refers to CCG California prior to the Merger and the Company, its subsidiaries and Affiliated PRC Entity combined after the Merger. The Company is principally engaged in the development and operation of its nationwide online retailing platform “Chinese Consumer Market Network” at www.ccmus.com, which provides a variety of manufacturers and distributors a platform to promote and sell products and services directly to consumers. The Company’s principal operations and geographic markets are in the People’s Republic of China (“PRC”).

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

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

Details of the Company’s wholly owned subsidiaries and its Affiliated PRC Entity as of March 31, 2013 are as follows:

(1) Wholly foreign owned entities (WFOE)

(2) Joint venture

(3) VIE

In order to comply with the PRC law and regulations which prohibit foreign control of companies involved in internet content, the Company operates its website using the licenses and permits held by Arki Network Service, a 100% PRC owned entity. The equity interests of Arki Network Service are legally held directly by Mr. Jian Min Gao and Mr. FeiGao, 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.

The following is a summary of the Contractual Agreements:

LOAN AGREEMENT

The shareholders of Arki Network Service, namely Mr. Jian Min Gao and Mr. FeiGao, entered into a loan agreement with Arki Fuxin on February 3, 2011. Under this loan agreement, Arki Fuxin granted an interest-free loan of RMB 1.0 million to Mr. Jian Min Gao and Mr. FeiGao, collectively, for their capital contributions to Arki Network Service, as required by the PRC. The term of the loan is for ten years from the date of execution until the date when Arki Fuxin requests repayment. Arki Fuxin may request repayment of the loan with 30 days advance notice. The loan is not repayable at the discretion of the shareholders and is eliminated upon consolidation.

EXCLUSIVE CALL OPTION AGREEMENT

The shareholders of Arki Network Service entered into an option agreement with Arki Fuxin on February 3, 2011, under which the shareholders of Arki Network Service jointly and severally granted to Arki Fuxin an option to purchase their equity interests in Arki Network Service. The purchase price will be set off against the loan repayment under the loan agreement. Arki Fuxin may exercise such option at any time until it has acquired all equity interests of Arki Network Service or freely transferred the option to any third party and such third party assumes the rights and obligations of the option agreement.

EXCLUSIVE BUSINESS COOPERATION AGREEMENT

Arki Fuxin and Arki Network Service entered into an exclusive business cooperation agreement deemed effective on November 26, 2010, under which Arki Network Service engages Arki Fuxin as its exclusive provider of technical support, consulting services, maintenance and other commercial services. Arki Network Service shall pay to Arki Fuxin service fees determined based on the net income of Arki Network Service and are eliminated upon consolidation. Arki Fuxin shall exclusively own any intellectual property arising from the performance of this agreement. This agreement has a term of ten years from the effective date and can only be terminated mutually by the parties in a written agreement. During the term of the agreement, Arki Network Service may not enter into any agreement with third parties for the provision of identical or similar service without the prior consent of Arki Fuxin.

SHARE PLEDGE AGREEMENT

The shareholders of Arki Network Service entered into a share pledge agreement with Arki Fuxin on February 3, 2011 under which the shareholders pledged all of their equity interests in Arki Network Service to Arki Fuxin as collateral for all of the payments due to Arki Fuxin and to secure their obligations under the above agreements. The shareholders of Arki Network Service may not transfer or assign the shares or the rights and obligations in the share pledge agreement or create or permit any pledges which may have an adverse effect on the rights or benefits of Arki Fuxin without Arki Fuxin’s preapproval. Arki Fuxin is entitled to transfer or assign in full or in part the shares pledged. In the event of default, Arki Fuxin as the pledge, will be entitled to request immediate repayment of the loan or to dispose of the pledged equity interests through transfer or assignment.

POWER OF ATTORNEY

The shareholders of Arki Network Service entered into a power of attorney agreement with Arki Fuxin effective on November 26, 2010 under which the shareholders irrevocably appointed Arki Beijing and Arki Fuxin to vote on their behalf on all matters they are entitled to vote on, including matters relating to the transfer of any or all of their respective equity interests in the entity and the appointment of the chief executive officer and other senior management members.

DEBIT CARD PROGRAM

The Company cooperates with a Chinese bank named Fuxin bank to issue cobranded debit cards.  Retail store vendors throughout China are signed up to the Company’s debit card program. The Company charges each participating vendor a percentage of transactions with that vendor. Each vendor will receive a percentage of future transactions of the cards issued by the vendor. Cardholders will receive certain amounts of cash refund from participating vendors and earn points to be spent on www.ccmus.com. For the three months ended March 31, 2013, no revenue from this business model has been realized or booked as other income. In order to promote distribution of these cards, the Company has signed a dealer agreement with China Unionpay, which is a card management company similar to Visa and Master Card. China Unionpay has POS machines all over China. The Company believes that with the cooperation of China Unionpay and other potential dealers, the Company will be able to grow the debit card program.

BEITUN

We own a 51% majority interest in an operating subsidiary, Beijing Beitun Trading Co., Ltd. (“Beitun Trading”). BeitunTrading, a PRC trade and distribution company, engages in the wholesale distribution of various food and meat products. It was established on April 24, 2000 and operates in the PRC. Its customers consist of retail restaurants and food producers located through the PRC.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

GOING CONCERN

The Company incurred a comprehensive loss of $124,273 for the three months ended March 31, 2013 and had an accumulated deficit of approximately $3.5 million as of March 31, 2013. The Company has a cash balance of $71,762 as of March 31, 2013. In both 2013 and 2012, the Company financed its operations through borrowings from directors and officers and from a shareholder. Payables to related parties amounted to $1,143,421 as of March 31, 2013. Payables to shareholder - Caesar Capital Management Ltd. amounted to $104,646 as of March 31, 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.

REVERSE MERGER ACCOUNTING

Since former CCG California security holders owned, after the Merger, approximately 94% of Consumer Capital Group Inc. shares of common stock, and as a result of certain other factors, including that all members of the Company’s executive management are from CCG California, CCG California is deemed to be the acquiring company for accounting purposes and the Merger was accounted for as a reverse merger and a recapitalization in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”). These consolidated financial statements reflect the historical results of CCG California prior to the merger and that of the combined Company following the merger, and do not include the historical financial results of Consumer Capital Group Inc. prior to the completion of the merger. Common stock and the corresponding capital amounts of the Company pre-merger have been retroactively restated as capital stock shares reflecting the exchange ratio in the merger.

PRINCIPLES OF CONSOLIDATION

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 in accordance with SEC Regulation SX-3A-02 and Accounting Standards Codification (“ASC”) 810, Consolidation. All intercompany balances and transactions have been eliminated in consolidation.

USE OF ESTIMATES

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“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 March 31, 2013 and December 31, 2012, the cumulative translation adjustment of $74,137 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 three months ended March 31, 2013 and 2012, the foreign currency translation adjustment to accumulated other comprehensive income (loss) were $795 and $(7,707), respectively.

REVENUE RECOGNITION

We recognize revenue from product sales or services rendered when the following four revenue recognition criteria are met: persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the selling price is fixed or determinable, and collectability is reasonably assured.

E-commerce Revenue Recognition

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

Our sales are net of promotional discounts and rebates and are recorded when the products are shipped and title passes to customers. Revenues are recorded net of sales and consumption taxes. We periodically provide incentive offers to our customers to encourage purchases. Such offers include current discount offers, such as percentage discounts off current purchases, inducement offers, such as daily sweepstakes reward opportunities that is based on volume of purchases, and other similar offers. Current discount offers and inducement offers are presented as a net amount in “Net revenues.”

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. Deferred revenues totaled $0 and $741 as of March 31, 2013 and December 31, 2012, respectively.

Distribution Revenue Recognition

We record product sales and shipping revenues, net of return allowances, when the products are shipped and title passes to customers. Return allowances, which reduce product revenue, are estimated using historical experience. Revenue from product sales and services rendered is recorded net of sales and consumption taxes.

REWARD PROGRAMS

Reward Programs are limited to customers residing in China. Customers may earn reward points from the purchase of merchandise and services from the Company. Points are earned based on the amount and types of merchandise and services purchased. Customers residing in China may redeem the reward points for drawings into our daily “Lucky Drawing” sweepstakes for chances to win cash prizes. In addition, customers may attain a tiered membership status based on the value of merchandise and services purchased over the past twelve months. Membership status entitles the holder to certain discounts on future purchases of selected items on our website. We accrue for the estimated cost of redeeming the benefits at the time the benefits are earned by the customer. These benefit expenses for the three months ended March 31, 2013 and 2012 were $453 and $571,864, respectively and recorded as selling expense.

COST OF SALES

Cost of sales consists of the purchase price of consumer products and content sold by us, inbound and outbound shipping charges, and packaging supplies. Shipping charges to receive products from our suppliers are included in inventory cost, and recognized as “Cost of sales” upon sale of products to our customers. Payment processing and related transaction costs, including those associated with seller transactions, are classified in “Selling Expenses” on our consolidated statements of operations.

SHIPPING ACTIVITIES

Outbound shipping charges to customers are included in “Net sales.” Outbound shipping-related costs are included in “Cost of sales.”

NONCONTROLLING INTEREST

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

COMPREHENSIVE LOSS

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

On January 1, 2012, we adopted Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) 2011-05, an amendment to Accounting Standards Codification (ASC) 220, Comprehensive Income. ASU 2011-05 introduces a new statement, the Consolidated Statement of Comprehensive Income, which begins with net loss and adds or deducts other recognized changes in assets and liabilities that are not included in net earnings, but are reported directly to equity, under U.S. GAAP. For example, unrealized changes in currency translation adjustments are included in the measure of comprehensive loss but are excluded from net loss. The amendments became effective since the first quarter 2012 financial statements. The amendments affect only the display of those components of equity categorized as other comprehensive loss and do not change existing recognition and measurement requirements that determine net loss.

INCOME TAXES

Provisions for federal, state, and non-U.S. income taxes are calculated on reported earnings before income taxes based on current tax law and also include, in the current period, the cumulative effect of any changes in tax rates from those used previously in determining deferred tax assets and liabilities. Such provisions differ from the amounts currently receivable or payable because certain items of income and expense are recognized in different time periods for financial reporting purposes than for income tax purposes. Significant judgment is required in determining income tax provisions and evaluating tax positions.

The accounting for uncertainty in income taxes requires a more-likely-than-not threshold for financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. We record a liability for the difference between the benefit recognized and measured for financial statement purposes and the tax position taken or expected to be taken on our tax return. To the extent that our assessment of such tax positions changes, the change in estimate is recorded in the period in which the determination is made. Tax-related interest and penalties are classified as a component of income tax expense.

We have implemented certain provisions of ASC 740, Income Taxes (“ASC 740”), which clarifies the accounting and disclosure for uncertain in tax positions, as defined. ASC 740 seeks to reduce the diversity in practice associated with certain aspects of the recognition and measurement related to accounting for income taxes. We adopted the provisions of ASC 740 as of January 1, 2007, and have analyzed filing positions in each of the People’s Republic of China (“PRC”) jurisdictions where we are required to file income tax returns, as well as all open tax years in these jurisdictions. We have identified the PRC as our “major” tax jurisdiction. Generally, we remain subject to PRC examination of our income tax returns annually. We believe that our income tax filing positions and deductions will be sustained on audit and do not anticipate any adjustments that will result in a material change to our financial position. Therefore, no reserves for uncertain income tax positions have been recorded pursuant to ASC 740. In addition, we did not record a cumulative effect adjustment related to the adoption of ASC 740. Our policy for recording interest and penalties associated with income-based tax audits is to record such items as a component of income taxes. Our tax provision for interim periods is determined using an estimate of our annual effective tax rate based on rates established within the PRC and, adjusted for discrete items, if any, that are taken into account in the relevant period. Each quarter we update our estimate of the annual effective tax rate, and if our estimated tax rate changes, we make a cumulative adjustment. The 2012 and 2011 annual effective tax rates are estimated to be the 25% PRC statutory rate primarily based on the expected taxable net income of our operating subsidiaries, Arki Beijing and Arki Fuxin. Taxes payable as of March 31, 2013 and December 31, 2012 were $14,174 and $17,220, respectively.

NET LOSS PER SHARE

We calculate basic loss per share by dividing our net loss by the weighted average number of common shares outstanding for the period, without considering common stock equivalents. Diluted EPS is computed by dividing net loss by the weighted average number of common shares outstanding for the period and the weighted average number of dilutive common stock equivalents, such as options and warrants. Options and warrants are only included in the calculation of diluted EPS when their effect is not anti-dilutive. The Company had no dilutive securities as of March 31, 2013 and December 31, 2012. For the three months ended March 31, 2013 and 2012, basic and diluted loss per share were the same due to the Company’s loss position.

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. At March 31, 2013 and December 31, 2012, the Company had no cash equivalents.

ACCOUNTS RECEIVABLE

Accounts receivable are carried at realizable value. The Company considers many factors in assessing the collectability of its receivables, such as, the age of the amounts due, the customer’s payment history and creditworthiness. An allowance for doubtful accounts is recorded in the period in which a loss is determined to be probable. Accounts receivable balances are written off after all collection efforts have been exhausted. Bad debt expense for accounts receivable for the three months ended March 31, 2013 and 2012 was zero and there was no allowance for doubtful accounts as of March 31, 2013 and December 31, 2012.

INVENTORIES

Inventories, consisting of food products available for sale, are accounted for using the weighted average method, and are valued at the lower of cost or market. The Company reviews its inventory periodically for possible obsolescence or to determine if any reserves are necessary. As of March 31, 2013 and December 31, 2012, the Company determined that no reserves were necessary.  

PROPERTY AND EQUIPMENT, NET

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

IMPAIRMENT OF LONG-LIVED ASSETS

We evaluate long-lived assets for impairment whenever events or changes in circumstances (such as a significant adverse change to market conditions that will impact the future use of the assets) indicate their net book value may not be recoverable. When these events occur, we compare the projected undiscounted future cash flows associated with the related asset or group of assets over their estimated useful lives against their respective carrying amount. Impairment, if any, is based on the excess of the carrying amount over the fair value, based on market value when available, or discounted expected cash flows, of those assets and is recorded in the period in which the determination is made. The Company’s management currently believes there is no impairment of its long-lived assets. There can be no assurance, however, that market conditions will not change or demand for the Company’s products will continue. Either of these could result in the future impairment of long-lived assets.

SEGMENT REPORTING

The Company follows ASC 280, SEGMENT REPORTING. The Company’s chief operating decision maker, who has been identified as the executive chairman of the board of directors and the chief executive officer, reviews the individual results of the e-commerce and distribution businesses when making decisions about allocating resources and assessing the performance of the Company as a whole and hence, the Company has two reportable segments. The Company’s operating businesses are organized and based on the nature of markets and customers. As the Company’s long-lived assets are substantially all located in the PRC and substantially all the Company’s revenues are derived from within the PRC, no geographical segments are presented.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company’s financial instruments include cash and cash equivalents, accounts receivable, other assets, and other payables. These financial instruments are measured at their respective fair values. For fair value measurement, U.S. GAAP establishes a three-tier hierarchy which prioritizes the inputs used in the valuation methodologies in measuring fair value:

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.

Common stock was issued in exchange for consulting services to be provided to the Company over the next two years for the purpose of advising management on public company matters. As a result, the Company recorded an asset to be amortized over the term of the consulting contract that was measured at its fair value on the date of grant based on Level 2 inputs reflecting market based and our own assumptions consistent with reasonably available assumptions made by other market participants. These valuations require significant judgment. The calculated fair value of the stock-based payment is amortized to expense over the term of the contract.

The carrying value of cash and cash equivalents, accounts receivable, account payable and accrued liabilities approximates their fair value due to their short-term maturities.

Management believes it is not practical to estimate the fair value of related party payables 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.

SHARE-BASED COMPENSATION

We apply ASC 505-50, Equity-Based Payments to Non-Employees to account for our service providers’ share-based payments. We gave Common stock of to service providers to retain their assistance in becoming a U.S. public company, assistance with public company regulations, investors’ communications and public relations with broker-dealers, market makers and other investment professionals. The contract period with these service providers is two years and the cost of the equity based payments are recognized ratably over the service period. We have elected to recognize compensation expense using the straight-line method for all equity awards granted with graded vesting based on service conditions. Share-based compensation expenses amounted to $0 and $144,951 for the three months ended March 31, 2013 and 2012, respectively.

CONCENTRATION OF CREDIT RISK

Assets that potentially subject the Company to significant concentration of credit risk primarily consist of cash, restricted cash, and accounts receivable. The maximum exposure of such assets to credit risk is their carrying amounts as of the balance sheet dates. As of March 31, 2013 and December 31, 2012, substantially all of the Company’s cash were deposited in financial institutions located in the PRC, which management believes are of high credit quality. Management believes the credit risk on bank deposits is limited because the counterparties are banks with high credit-ratings assigned by international credit- rating agencies, or state-owned banks in China. Cash includes cash on hand and demand deposits in accounts maintained with state-owned banks within the PRC and the United States of America. Balances at financial institutions or state owned banks within the PRC are not covered by insurance. Non-performance by these institutions could expose the Company to losses for amounts in excess of insured balances. As of March 31, 2013 and December 31, 2012, our bank balances with the banks in U.S. exceeded the insured amount by $0. As of March 31, 2013 and December 31, 2012, our bank balances with the Banks in the PRC amounted $67,831 and $173,986, respectively, which are uninsured and subject to credit risk. We have not experienced nonperformance by these institutions.

CONCENTRATION OF CUSTOMERS AND SUPPLIERS

E-commerce Segment

There were no revenues from customers or purchases from suppliers that individually represent greater than 10% of the total revenues or purchases for the e-commerce business for the three months ended March 31, 2013 and 2012, respectively. There were no customers that account for over 10% of accounts receivable as of March 31, 2013 and December 31, 2012, respectively. Beijing Yuebinqiao Trade Ltd., Qinhuangdao Dealer, and Beijing Dealer comprised 13.9% or $14,748, 46.6% or $49,343, and 24.2% or $25,586, respectively, of accounts payable as of March 31, 2013, respectively. Beijing Yuebinqiao Trade Ltd., Qinhuangdao Dealer, and Beijing Dealer comprised 13.7% or $14,435, 46.7% or $49,190, and 24.2% or $25,506, respectively, of accounts payable as of December 31, 2012.

Distribution Segment

Shanghai Hormel Ltd. and Shanghai Fuxi Company comprised 27.9% or $441,318 and 68.2% or $1,079,966, respectively, of total revenues for Beitun for the three months ended March 31, 2013. Shanghai Hormel Ltd., Shanghai Fuxi Company and Fucheng Inc. comprised 64.4% or $351,540, 24.1% or 131,555 and 11.5% or $62,990, respectively, of accounts receivable as of March 31, 2013.

Shanghai Hormel Ltd. comprised of 99.8% or $561,449 of total revenues for Beitun for the three months ended March 31, 2012. Shanghai Hormel Ltd. and Shanghai Fuxi Company comprised 63.5% or $503,660 and 32.3% or $256,444, respectively, of accounts receivable as of December 31, 2012.

Xileng Inc. comprised 92.7% or $1,121,107, of total purchases for the distribution business for the three months ended March 31, 2013. Changxinchang Food Inc. comprised 72.3% or $377,229 of accounts payable as of March 31, 2013.

Shuanghui Group comprised of 100.0% or $318,731 of total purchases for the distribution business for the three months ended March 31, 2012. Changxinchang Food Inc. comprised 75.8% or $376,057 of accounts payable as of December 31, 2012.

CURRENCY CONVERTIBILITY RISK

We transact all of our business in RMB, which is not freely convertible into foreign currencies. On January 1, 1994, the PRC government abolished the dual rate system and introduced a single rate of exchange as quoted daily by the People’s Bank of China (the “PBOC”). However, the unification of the exchange rates does not imply that the RMB may be readily convertible into U.S. dollars or other foreign currencies. All foreign exchange transactions continue to take place either through the PBOC or other banks authorized to buy and sell foreign currencies at the exchange rates quoted by the PBOC.

Approval of foreign currency payments by the PBOC or other institutions requires submitting a payment application form together with suppliers’ invoices, shipping documents and signed contracts.

Additionally, the value of the RMB is subject to changes in central government policies and international economic and political developments affecting supply and demand in the PRC foreign exchange trading system market.

FOREIGN CURRENCY EXCHANGE RATE RISK

From July 21, 2005, the RMB is permitted to fluctuate within a narrow and managed band against a basket of certain foreign currencies. The depreciation of the U.S. dollar against RMB was approximately 0.31 % and 0.06% for the three months ended March 31, 2013 and 2012, respectively. While the international reaction to the RMB appreciation has generally been positive, there remains significant international pressure on the PRC government to adopt an even more flexible currency policy, which could result in a further and more significant appreciation of the RMB against the U.S. dollar.

BUSINESS RISK

Foreign ownership of Internet-based businesses is subject to significant restrictions under current PRC laws and regulations. Foreign investors are not allowed to own more than a 50% equity interest in any entity with an Internet content distribution business. Currently, the Company conducts its operations in China through a series of contractual arrangements entered into among Arki (Beijing) E-Commerce Technology Corp., America Arki (Fuxin) Network Management Co. Ltd. and America Arki Network Service Beijing Co., Ltd. The relevant regulatory authorities may find the current ownership structure, contractual arrangements and businesses to be in violation of any existing or future PRC laws or regulations. If so, the relevant regulatory authorities would have broad discretion in dealing with such violations.

LITIGATION

From time to time, we may become involved in disputes, litigation and other legal actions. We estimate the range of liability related to any pending litigation where the amount and range of loss can be estimated. We record our best estimate of a loss when the loss is considered probable. Where a liability is probable and there is a range of estimated loss with no best estimate in the range, we record a charge equal to at least the minimum estimated liability for a loss contingency when both of the following conditions are met: (i) information available prior to issuance of the financial statements indicates that it is probable that an asset had been impaired or a liability had been incurred at the date of the financial statements and (ii) the range of loss can be reasonably estimated.

NOTE 3 - RECENTLY ISSUED AND ADOPTED ACCOUNTING PRONOUCEMENTS

FASB Accounting Standards Update No. 2012-08

In September 2012, the FASB issued ASU 2012-08, Testing Goodwill for Impairment, which provides an entity the option to first assess qualitative factors to determine whether it is necessary to perform the current two-step test for goodwill impairment. If an entity believes, as a result of its qualitative assessment, that it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount, the quantitative impairment test is required. Otherwise, no further testing is required. The revised standard is effective for the Company for its annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2012. The adoption of ASU 2012-08 is not expected to significantly impact the Company’s consolidated financial statements.

FASB Accounting Standards Update No. 2012-11

In December 2012, the FASB issued the FASB Accounting Standards Update No. 2012-11  “Balance Sheet: Disclosures about Offsetting Assets and Liabilities” (“ASU 2012-11”). This Update requires an entity to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position. The objective of this disclosure is to facilitate comparison between those entities that prepare their financial statements on the basis of U.S. GAAP and those entities that prepare their financial statements on the basis of IFRS.

The amended guidance is effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. The adoption of ASU 2012-11 is not expected to significantly impact the Company’s consolidated financial statements.

FASB Accounting Standards Update No. 2013-02

On July 27, 2013, the FASB issued ASU 2013-02, Intangibles-Goodwill and Other (Topic 350) - Testing Indefinite-Lived Intangible Assets for Impairment. The ASU provides entities with an option to first assess qualitative factors to determine whether events or circumstances indicate that it is more likely than not that the indefinite-lived intangible asset is impaired. If an entity concludes that it is more than 50% likely that an indefinite-lived intangible asset is not impaired, no further analysis is required. However, if an entity concludes otherwise, it would be required to determine the fair value of the indefinite-lived intangible asset to measure the amount of actual impairment, if any, as currently required under US GAAP. The ASU is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2013. Early adoption is permitted. The adoption of this pronouncement is not expected to have a material impact on the Company’s financial statements. 

NOTE 4 — ACCOUNTS RECEIVABLE

Accounts receivable consisted of the following as of March 31, 2013 and December 31, 2012:

NOTE 5 - INVENTORIES

Inventories consisted of the following at March 31, 2013 and December 31, 2012:

NOTE 6 – ADVANCES TO SUPPLIERS  

As of March 31, 2013 and December 31, 2012, advances to suppliers consisted of the following:

Advances to suppliers represent interest-free cash paid in advance to suppliers for purchases of inventories. No allowance was provided for the prepayments balance at March 31, 2013.

NOTE 7 - PREPAID EXPENSES

Prepaid expenses consisted of the following at March 31, 2013 and December 31, 2012:

NOTE 8 – PROPERTY AND EQUIPMENT, NET

Property and equipment consisted of the following at March 31, 2013 and December 31, 2012:

For the three months ended March 31, 2013 and 2012, depreciation expense was $6,872 and $16,309, respectively.

NOTE 9 – PREPAID STOCK COMPENSATION

Common stock issued for prepaid consulting services amounted to $0 as of March 31, 2013 and December 31, 2012. Amortization for the three months ended March 31, 2013 and 2012 was $0 and $144,951, respectively.

NOTE 10 - OTHER ASSETS

Other assets consisted of the following at March 31, 2013 and December 31, 2012:

NOTE 11 - ACCRUED LIABILITIES

Accrued liabilities consisted of the following at March 31, 2013 and December 31, 2012:

NOTE 12 – OTHER PAYABLES

Other payables amounted $144,352 and $140,543 at March 31, 2013 and December 31, 2012, respectively. Other payables also include other payables to unrelated parties and are interest free.

NOTE 13 — PAYABLE TO CAESAR CAPITAL MANAGEMENT LTD.

Caesar Capital Management Ltd. a 6.2% shareholder of the Company, advanced $104,646 and $121,536 to the Company as of March 31, 2013 and December 31, 2012, respectively. The payable to Caesar Capital Management Ltd. includes loan payables of $109,191 and money owned by Caesar of $4,546. 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 rates of 6%. Interest expenses of $1,018 and $0 have been accrued for the three months ended March 31, 2013 and 2012, respectively. As of December 31, 2012, payable to Caesar Captial Management Ltd. also includes loan payables of $76,857 and money collected for its business transactions on the Company’s website of $43,085.

NOTE 14 - STOCKHOLDERS’ DEFICIT

Our stockholder base consisted of approximately 6,600 stockholders as of March 31, 2013.

Immediately prior to the closing of the Merger on February 4, 2011, there were 2,500,000 issued and outstanding shares of the Company’s common stock, 60% of which were held by the then-principal stockholder, CEO, and sole director of the Company, Mr. Bengfort. As a part of the Merger, CCG paid USD $335,000 in cash to Mr. Bengfort in exchange for his agreement to enter into various transaction agreements relating to the Merger, as well as the cancellation of 1,388,889 shares of the Company’s common stock directly held by him, constituting 92.6% of his pre-Merger holdings of Company common stock.

In August, September and December 2010, the Company issued 2,628,419 shares retroactively restated to reflect the recapitalization of common stock to related parties of the Company’s founders and officer of the Company for no par value. As a result, the Company recorded a discount on common stock issued to the officer and relatives of the Company’s founders of $26,284 due to issuance of the common stock below $0.01 par value.

In September 2010, the Company issued 910,644 shares retroactively restated to reflect the recapitalization of common stock as consideration for consulting services with a term of 24 months.

In December 2010, the Company issued 45,532 shares retroactively restated to reflect the recapitalization of common stock to the owners of Beitun as consideration for the Company’s 51% ownership interest of Beitun. The fair value of the shares issued for the acquisition was $10,000.

NOTE 15 - SHARE BASED COMPENSATION

Stock-based compensation cost is measured at the date of grant, based on the calculated fair value of the stock-based award, and is recognized as expense over the service providers’ requisite service period (generally the vesting period of the award). The Company estimates the fair value of stock for service granted using the Black-Scholes Option Pricing Model since the requisite service period and expected term of the contractual obligations with third parties is two years. Key assumptions used to estimate the fair value of stock options include the exercise price of the award, the fair value of the Company’s common stock on the date of grant, the expected option term, the risk free interest rate at the date of grant, the expected volatility and the expected annual dividend yield on the Company’s common stock.

The following weighted average assumptions were used in estimating the fair value of the share-based payment arrangements to the above mentioned service providers:

Since there is insufficient stock price history that is at least equal to the expected or contractual terms of the Company’s share-based payments, the Company has calculated volatility using the historical volatility of similar public entities in the Company’s industry. In making this determination and identifying a similar public company, the Company considered the industry, stage, life cycle, size and financial leverage of such other entities. This resulted in an expected volatility of 40% to 75%. The expected life of two years is based on the contractual requisite service period. The risk free interest rate is the rate on the U.S. Treasury securities 2-year constant maturity with a remaining term equal to the expected option term. The expected volatility is derived from an industry-based index, in accordance with the calculated value method.

The Company is required to estimate the number of forfeitures expected to occur and record expense based upon the number of awards expected to vest. The Company expects all remaining awards issued will be fully vested over the expected life of the awards. There were no forfeitures during the three months ended March 31, 2013 and 2012.

We apply ASC 718, Compensation-Stock Compensation, to account for our service providers’ share-based payments. We issued Common stock to various service providers in connection with the Reverse Merger, and in connection with ongoing services associated with being a public company, including investors’ communications and public relations.

In accordance with ASC 718, we determine whether a share payment should be classified and accounted for as a liability award or equity award. All grants of share-based payments to the service providers classified as equity awards are recognized in the financial statements based on their grant date fair value that is calculated using an option pricing model. We have elected to recognize compensation expense using the straight-line method for all equity awards granted with graded vesting based on service conditions provided that the amount of compensation cost recognized at any date is at least equal to the portion of the grant-date value of the options that are vested at that date. To the extent the required vesting conditions are not met resulting in the forfeiture of the share-based awards, previously recognized compensation expense relating to those awards are reversed. ASC 718 requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent period if actual forfeitures differ from initial estimates. Share-based compensation expense was recorded net of estimated forfeitures such that expense was recorded only for those share-based awards that are expected to vest. Share-based compensation expenses amounted to $0 and $144,951 for the three months ended March 31, 2013 and 2012, respectively.

A summary of share-based compensation activity for the three months ended March 31, 2013 and the year ended December 31, 2012 is as follows: 

On December 28, 2011, the Company issued 180,000 shares of common stock to one service provider. The service period is from April 11, 2011 to October 10, 2012. The shares were recorded at their market value of $720,000 and are being amortized over the service period. For the three months ended March 31, 2013 and 2012, $0 and $120,000 were amortized to general and administrative expense, respectively.

NOTE 16 - RELATED PARTIES

a) Related parties:

b) The Company had the following related party balances at March 31, 2013 and December 31, 2012:

The related party payables are non-interest bearing and have no specified maturity date. Mr. JianminGao 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 three months ended March 31, 2013 and 2012, the Company borrowed $3,390 and $0 from Mr. JianminGao and made payments of $0 and $10,040 back to him, respectively. For the three months ended March 31, 2013 and 2012, the Company borrowed $334,707 and $365,500 from Ms. Wei Guo and made repayments of $1,078,380 and $33,285 back to her, respectively. For the three months ended March 31, 2013, the Company borrowed $46,693 from Mr. FeiGao and made payments of $0 back to him.

For the three months ended March 31, 2013, the Company borrowed approximately $0 from Ms. Shasha Liu and made repayments of $0.

c) Starting from July 1, 2011, the Company entered into an agreement with Ms. Lingling Zhang’s company Capitalco Cooperation (“Capitalco”). Pursuant to the agreement, the Company has agreed that the Company will pay a certain percentage commission to Capitalco for each client referred. Ms. Zhang signed an agreement to sell her company to an unrelated party. Ms. Lingling Zhang, a related party, owned Capitalco Cooperation and sold all her shares in Capitalco in August, 2011. Though the agreement between Capitalco and the Company remains effective after Ms. Lingling Zhang sold Capitalco. For the three months ended March 31, 2013 and 2012, the Company paid Capitalco commissions in the aggregate amount of $0 and $7,100, respectively.

NOTE 17 - COMMITMENTS AND CONTINGENCIES

LEASE COMMITMENTS

On August 1, 2010 our Company entered into a sub-lease agreement with a third party for its Pasadena office facility. This sub-lease expired on November 30, 2012 and we did not renew the contract. Our full service gross monthly rental rate is $2,567. Rent expenses for this facility totaled $0 and $7,701 for the three months ended March 31, 2013 and 2012, respectively.

On October 21, 2010, Arki (Beijing) E-commerce Technology Corp., our wholly-owned subsidiary, entered into a new 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. Rent expenses totaled $75,414 and $92,493 for the three months ended March 31, 2013 and 2012, respectively. This lease expires on October 20, 2013. On July 1, 2012, the Company entered an amendment agreement with the lessor and reduced the monthly gross rental rate to approximately $25,138.

On March 1, 2011, we entered into a new lease agreement for another office facility expansion in the Beijing Chaoyang District, Hua Mao Center. The straight-line monthly gross rental rate is $6,259 with a 33-month term. Rent expenses totaled $19,596 and $18,777 for the three months ended March 31, 2013 and 2012, respectively. This lease expires on October 20, 2013. On July 1, 2012, the Company entered an amendment agreement with the lessor and increased the monthly gross rental rate to approximately $6,532.

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 this facility totaled $5,769 and $0 for the three months ended March 31, 2013 and 2012, respectively.

Total future minimum rental lease commitments as of March 31, 2013 are as follows:

On May 23, 2012 three unrelated parties filed cases against Arki Network with the BeiingChaoyang District Personnel Dispute Arbitration Commissions (“the Commission”). The unrelated parties claimed that Arki Network did not sign employment agreements with them and owes them unpaid salaries. On November 12, 2012, the Commission ruled that Arki Network should pay the three individuals $65,765 for unpaid salaries and fines within five days. On November 21, 2012, Arki Network filed a case with The People’s Court of Beijing Chao Yang Division. The Company claims that there were no employment relationships between Arki Network and the three individuals. Management has accrued $65,765 for the potential loss of the case in accounts payable.

NOTE 18 - BUSINESS SEGMENT REPORTING

Our operating businesses are organized based on the nature of markets and customers. Segment accounting policies are the same as described in Note 2 - Summary of Significant Accounting Policies.

Effects of transactions between related companies are eliminated and consist primarily of inter-company transactions and transfers of cash or cash equivalents from corporate to support each business segment’s payroll, inventory sourcing and overall operations when each segment has working capital requirements.

A description of our operating segments as of March 31, 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.

NOTE 19 - INCOME TAX EXPENSE

Prior to January 1, 2008, PRC enterprise income tax (EIT), was generally assessed at the rate of 33% of taxable income. In March 2007, a new enterprise income tax law (the “New EIT Law”) in the PRC was enacted which was effective on January 1, 2008. The New EIT Law generally applies a uniform 25% EIT rate to both foreign invested enterprises and domestic enterprises.

Dividends paid by PRC subsidiaries of the Company out of the profits earned after December 31, 2007 to non-PRC tax resident investors would be subject to PRC withholding tax. The withholding tax is 10%, unless a foreign investor’s tax jurisdiction has a tax treaty with China that provides for a lower withholding tax rate.

Loss before income taxes consists of:

There was no deferred tax expense for the three months ended March 31, 2013 and 2012. The income tax expenses amounted $336 and $131 for the three months ended March 31, 2013 and 2012, respectively. The PRC income tax returns for fiscal year 2008 through fiscal year 2012 remain open for examination.

The components of deferred taxes are as follows at March 31, 2013 and December 31, 2012:

As of March 31, 2013, the Company had an accumulated deficit of $3,492,948 that can be carried forward to offset future net profit for income tax purposes. The net operating loss carry forwards as of March 31, 2013 will expire in years 2013 to 2033 if not utilized.

CCG and CCG California are both subject to United States of America tax law. As of March 31, 2013, the operations in the United States of America incurred $1,850,990 of cumulative net operating losses which can be carried forward to offset future taxable income. 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 three months ended March 31, 2013 and 2012, there were no penalties and interest.

NOTE 20 – OTHER INCOME

For the three months ended March 31, 2013 and 2012, other income, which consisted mainly of government grants, was $220,159 and $36,298, respectively.

NOTE 21 - LOSS PER SHARE

Basic and diluted loss per share for each of the three months presented are calculated as follows:

For the three months ended March 31, 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 three different businesses: e-commerce services, meat distribution, and debit card business. We operate an online retail platform at www.ccmus.com in China through Arki (Beijing) E-Commerce Technology Corp., our wholly owned PRC subsidiary. We also have an online retail platform at www.ccgusa.com in the United States. Our meat distribution business is operated through Beijing Beitun Trading Co., Ltd. (“Beijing Beitun”), in which we own a 51% equity interest. The debit card business is operated through America Arki Fuxin Network Management Co. Ltd., our wholly owned PRC subsidiary.

Our online retail platforms allow third-party merchants to sell their general merchandise products directly to consumers in the PRC and the U.S. We charge third-party merchants service fees of approximately 5% of the total purchase price for selling their general merchandise through our website. We also receive advertising fees from third-party merchants if they advertise products through our website. We differentiate ourselves from other e-commerce service providers by providing a variety of incentives to our existing customers in the PRC. Our member customers obtain bonus points for each purchase, which can be used to redeem cash value in their next purchase. When our customers’ accumulated purchases exceed pre-set thresholds, they will be upgraded to a higher membership level and will be entitled to additional incentives such as special discounts and higher bonus points on subsequent purchases. Our member customers may also receive awards from our daily sweepstakes program.

Through Beijing Beitun, we purchase meats from suppliers and distribute them to restaurants and food producers in the PRC.

We collaborate with Bank of Fuxin to issue cobranded debit cards. We charge participating merchants transaction fees of 1% to 5% for each purchase using our cobranded debit cards. Our cardholders obtain cash refe used to redeem cash value in their purchases on our online retail platform. As of March 31, 2013, we had not realized any revenue from this business.

Our net revenues for the three months ended March 31, 2013 decreased to $1,404,689 from $1,570,161 for the three months ended March 31, 2012, a decrease of $165,472 or 10.5%. Our net revenues from e-commerce business for the three months ended March 31, 2013 decreased to $1,325 from $1,007,756 for the three months ended March 31, 2012, a decrease of $1,006,431 or 99.9%.The decrease was primarily due to a lack of successful marketing activities and quality vendors with popular products to attract customers amid intensified competition. The Company has shifted away part of its focus and efforts from e-commerce business to the debit card business. Our net revenues from our meat distribution business for the three months ended March 31, 2013 increased to $1,403,364 in the three months ended March 31, 2013 from $562,405 for the three months ended March 31, 2012, an increase of $840,959 or 149.5%. The increase of our sales from Beitun was primarily contributed by the relatively increased number of sales force compared to the temporary shortage of sales staff during part of January and February of 2012. Beitun Trading had limited operations for most of January and February of 2012 because the main sales person was absent due to a family emergency and many other sales staffs were on vacation for Chinese New Year in 2012. 

Our debit card business did not generate any revenue in 2012 and 2013. The debit card business was not operating as of March 31, 2013. We have been working to form a joint effort with a Chinese bank Fuxin Bank to issue co-branded debit cards to consumers. Fuxin Bank is currently testing their system required for debit card issuance. We expect to start our debit card operation in the second half of 2013.

Results of Operations

Comparison of three months ended March 31, 2013 and March 31, 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 March 31, 2013 decreased to $1,404,689 from $1,570,161 for the three months ended March 31, 2012, a decrease of $165,472 or 10.5%. The following table sets forth a breakdown of our revenues for the periods indicated:

E-commerce Business

Our net revenues from e-commerce business for the three months ended March 31, 2013 decreased to $1,325 from $1,007,756 for the three months ended March 31, 2012, a decrease of $1,006,431 or 99.9%. The decrease was primarily due to a significant decrease in sales resulting from the less successful marketing activities.

Meat Distribution Business

Our net revenues from meat distribution business for the three months ended March 31, 2013 increased to $1,403,364 in the three months ended March 31, 2013 from $562,405 for the three months ended March 31, 2012, an increase of $840,959 or 149.5%.The increase of our sales from Beitun is because of our temporary shortage of sales staff during part of January and February 2012. Beitun Trading had limited operations for most of January and February of 2012 because the main sales person was absent due to a family emergency and many sales staff were on vacation for Spring festival. 

Debit Card Business

Our debit card business did not generate any revenue in 2012 and 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 March 31, 2013 increased to $1,388,142 from $545,558 for the three months ended March 31, 2012, an increase of $842,584 or 154.4%. The increase was in line with the increase in revenues from the meat distribution business.

Gross Profit

Our gross profit for the three months ended March 31, 2013 decreased to $16,547 from $1,024,603 for the three months ended March 31, 2012, a decrease of $1,008,056 or 98.4%. The decrease was primarily due to a decrease in sales from e-commerce business. Our gross profit margin for the three months ended March 31, 2013 decreased to 1.2% from 65.3% for the three months ended March 31, 2012. The decrease of our gross profit margin was primarily due to revenues from the meat distribution business accounting for a much higher percentage of our revenues, which has a lower profit margin than the e-commerce business.

Operating Expenses

Our operating expenses consist of selling expenses, and general and administrative expenses. Our total operating expenses for the three months ended March 31, 2013 decreased to $361,438 from $1,354,176 for the three months ended March 31, 2012, a decrease of $992,738 or 73.3%. The following table sets forth a breakdown of our operating expenses for the periods indicated:

Selling expenses for the three months ended March 31, 2013 decreased to $24,767 from $856,823 for the three months ended March 31, 2012, a decrease of $832,056 or 97.1%. Selling expenses for the e-commerce business for the three months ended March 31, 2013 decreased to $15,146 from $841,543 for the three months ended March 31, 2012, a decrease of $826,397, or 98.2%. 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 March 31, 2013 and 2012 were $9,621 and $15,280, respectively.

General and administrative expenses for the three months ended March 31, 2013 decreased to $336,672 from $497,353 for the three months ended March 31, 2012, a decrease of $160,681, or 32.3%. The decrease was primarily due to a decreases in our professional expenses, management fee, share based compensation and welfare expenses.

Liquidity and Capital Resources

Cash flows

Operating Activities

The net cash generated from operating activities was $593,373 for the three months ended March 31, 2013, which was primarily due to our net loss of $125,563, decreases of inventories of $83,027, decrease of advance to suppliers of $332,808, decrease of accounts receivable of $249,414, partially offset by decreases in payable to Caesar Capital Management Ltd. of $16,898, and decreases in accounts payable of $25,387.

The net cash used in operating activities was $54,533 for the three months ended March 31, 2012, which was primarily due to our net loss of $293,599, decreases in accounts payable of $142,737, decreases of accounts receivable of $385,674 and decreases in deferred revenue of $62,223, partially offset by decreases in inventories of $263,495, decreases in prepaid expenses of $130,780, increases in other payables of $342,275, and expenses from the issuance of common stocks to service providers of $144,951.

Investing Activities

The net cash generated from or used in investing activities was nil for the three months ended March 31, 2013 and 2012.

Financing Activities

The net cash used in financing activities was $697,306 for the three months ended March 31, 2013, which was due to proceeds from related parties of $441,022, offset by payments to related parties of $1,138,328.

The net cash generated from financing activities was $322,176 for the three months ended March 31, 2012, which was due to proceeds from related parties of $363,020 and restricted cash of $827,000, offset by payments to related parties of $40,844 and payment to Caesar Capital Management Ltd. of $827,000.

Capital Resources

As of March 31, 2013, we had cash of $71,762 on hand. We had positive cash flows from our operations for the three months ended March 31, 2013. As of March 31, 2013, we had outstanding loans of $336,494 and $751,156 due to Mr. JianminGao and Ms. Wei Guo, respectively. As of March 31, 2013, we had payable of $104,646 to Caesar Capital Management Ltd., a 6.2% shareholder as of March 31, 2013.

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.

Lease commitments

On August 1, 2010 our Company entered into a sub-lease agreement with a third party for its Pasadena office facility. This sub-lease expired on November 30, 2012. Our full service gross monthly rental rate is $2,567. Rent expense for this facility totaled $0 and $7,701 for the three months ended March 31, 2013 and 2012, respectively.

On October 21, 2010, Arki Beijing, our wholly-owned subsidiary entered into a new 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. On July 1, 2012, the Company entered an amendment agreement with the lessor and reduced the monthly gross rental rate to approximately $25,138. Rent expenses totaled $75,414 and $92,493 for the three months ended March 31, 2013 and 2012, respectively. This lease expires on October 20, 2013.

On March 1, 2011, we entered into a new lease agreement for another office facility expansion in the Beijing Chaoyang District, Hua Mao Center. The straight-line monthly gross rental rate is $6,259 with a 33-month term. On July 1, 2012, the Company entered an amendment agreement with the lessor and increased the monthly gross rental rate to approximately $6,532. Rent expenses totaled $19,596 and $18,777 for the three months ended March 31, 2013 and 2012, respectively. This lease expires on October 20, 2013.

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 this facility totaled $5,769 and $0 for the three months ended March 31, 2013 and 2012, respectively.

Total future minimum rental lease commitments as of March 31, 2013 are as follows:

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.

While our significant accounting policies are more fully described in Note 2 to our financial statements under the Financial Statements section “Note 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES”, we believe that the following accounting policies are the most critical to aid you in fully understanding and evaluating this discussion and analysis:

Revenue Recognition

We recognize revenue from product sales or services rendered when the following four revenue recognition criteria are met: persuasive evidence of an arrangement exists; delivery has occurred or services have been rendered; the selling price is fixed or determinable; and collectability is reasonably assured.

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 risks as the agreements with our suppliers specify that they have the responsibility to provide the products or services to the customers. Also, the amounts we earn from our merchants/suppliers are based on a fixed percentage and bound contractually. Further, the Company does not have any obligations to resolve disputes between the merchants and customers who purchase products on our website. Specifically, any disputes involving damaged, non-functional, or defective products, product returns, and product warranty issues are resolved between the customer and vendor, and the Company has no obligation on right of return or product warranty for any of the sales completed on its website. Since we are not primarily obligated and amounts earned are determined by using a fixed percentage, a fixed-payment schedule, or a combination of the two, we record our revenues as commissions earned on a net basis.

Our sales are net of promotional discounts and rebates, and are recorded when the products are shipped by our merchants and titles are passed to the customers. Revenues are recorded net of sales and consumption taxes. We periodically provide incentive offers to our customers to encourage purchases. For example, we have current discount offers, including percentage discounts off current purchases, inducement offers, such as daily sweepstakes reward opportunities which are based on the volume of purchases, and other similar offers. Current discount offers and inducement offers are presented as net amounts in “Net revenues.” The Company records deferred revenue when cash is received in advance of the performance of services or delivery of goods.

Deferred revenue is also recorded to account for the seven-day grace period offered to customers for potential product disputes, if any. Deferred revenues totaled $0 and $741 as of March 31, 2013 and December 31, 2012, respectively. In addition, in 2011 we recognized $0 as contra revenue on a “net” basis in connection with promotional activities. The promotional activities were terminated and no promotional expenses were incurred in 2012.

Distribution Revenue Recognition

Product sales, shipping revenues, and net of return allowances are recorded when the products are shipped and titles are passed to the customers. Return allowances, which reduce product revenue, are estimated by using historical experience. Revenues from product sales and services rendered are recorded net of sales and consumption taxes.

Reward Programs

The Reward Programs are limited to customers residing in China. Customers may earn reward points by purchasing products and services from the Company. Points are earned based on the amounts and types of merchandise and services purchased. Customers residing in China may redeem the reward points for drawings in the Company’s daily “Lucky Drawing” for chances to win cash prizes. In addition, customers who reside in China may attain a tiered membership status based on the value of merchandise and services purchased over the past twelve months. The membership status entitles the holder to certain discounts on future purchases of selected items on the Company’s website. The Company accrues for the estimated cost of redeeming the benefits at the time the benefits are earned by the customer. The Company accrues for the estimated cost of redeeming the benefits at the time the benefits are earned by the customer. These benefit expenses for the three months ended March 31, 2013 and 2012 were $453 and $571,864, respectively and recorded as selling expense.

Cost Of Sales

Cost of sales consists of the purchase price of consumer products and content sold by us, inbound and outbound shipping charges, and packaging supplies. Shipping charges to receive products from our suppliers are included in inventory cost, and recognized as “Cost of sales” upon the sale of products to our customers. Payment processing and related transaction costs, including those associated with seller transactions, are classified in “Selling Expenses” on our consolidated statements of operations.

Shipping Activities

Outbound shipping charges to customers are included in “Net sales.” Outbound shipping-related costs are included in “Cost of sales.”

Accounts Receivable

Accounts receivable are carried at realizable value. The Company considers many factors in assessing the collectability of its receivables, such as the age of the amounts due and the customer’s payment history and creditworthiness. An allowance for doubtful accounts is recorded in the period in which a loss is determined to be probable. Accounts receivable balances are written off after all collection efforts have been exhausted. Bad debt expense for accounts receivable for the three months ended March 31, 2013 and 2012 was zero, and there was no allowance for doubtful accounts for accounts receivable at March 31, 2013 and December 31, 2012.

Inventories

Inventories, consisting of food products available for sale, are accounted for using the weighted average method, and are valued at the lower of cost or market. This valuation requires the Company to make judgments, based on currently available information, about the likely method of disposition, such as through sales to individual customers, returns to product merchants or liquidations, and expected recoverable values of each disposition category.

Share-Based Compensation

The Company applies ASC 718, Compensation-Stock Compensation, to account for its service providers’ share-based payments. Common stock of the Company was issued to various service providers in connection with the Reverse Merger, and in connection with ongoing services associated with being a public company, including investors’ communications and public relations.

In accordance with ASC 718, the Company determines whether a share payment should be classified and accounted for as a liability award or equity award. All grants of share-based payments to the service providers classified as equity awards are recognized in the financial statements based on their grant date fair value which is calculated using an option pricing model. The Company has elected to recognize compensation expense using the straight-line method for all equity awards granted with graded vesting based on service conditions provided that the amount of compensation cost recognized at any date is at least equal to the portion of the grant-date value of the options that are vested at that date. To the extent the required vesting conditions are not met resulting in the forfeiture of the share-based awards, previously recognized compensation expense relating to those awards are reversed. ASC 718 requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent period if actual forfeitures differ from initial estimates. Share-based compensation expense was recorded net of estimated forfeitures such that expense was recorded only for those share-based awards that are expected to vest. Share-based compensation expenses amounted to $0 and $144,951 for the three months ended March 31, 2013 and 2012, respectively.

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

Smaller reporting companies are not required to provide the information required by this item. 

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of disclosure controls and procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in 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 March 31, 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 March 31, 2013:

Based on their evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures at March 31, 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. In addition, management continues to assess its internal controls and procedures in light of the material weaknesses and determine appropriate remedial actions. Management intends to remediate these material weaknesses as soon as practicable after the Company’s financial position permits.

Changes in internal controls

There were no changes in our internal control over financial reporting during the quarter ended March 31, 2013 that have materially affected or are reasonably likely to materially affect our internal controls over financial reporting.

PART II — OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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 Beiing Chaoyang 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 “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. The Court has yet to decide this case. We have accrued $65,765 in accounts payable.

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.

ITEM 1A. RISK FACTORS

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.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

SIGNATURES

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: May 15, 2013