NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2018 and 2017
Note
1 – Organization and Basis of Presentation
Organization
and Line of Business
American
Retail Group, Inc., formerly known as Resource Acquisition Group, Inc. (“ARG”), is a Nevada corporation organized January 27, 1934.
Simex,
Inc. (“Simex”) was incorporated under the laws of the state of Nevada on November 25, 2015. Simex operates
a
digital assets exchange (the “Platform”) for both accredited and non-accredited investors. Platform participants evaluate
investments based on weighted Electronic-Voting. Simex provides a primary selection and by E-voting best offers are chosen and
funded by investors and experts. The Platform also provides a secondary market giving liquidity to the initial investors.
On
September 15, 2016, the Simex acquired
Multipay,
LLC, (“Multipay”), a limited liability company, incorporated under the laws of the Russian Federation, for
10,000
Russian Ruble (“RUB”) or $150. At the time of acquisition, Multipay was a start-up with insignificant assets
and no revenue from operations.
On
May 9, 2018, Simex entered into a merger agreement with Genius Enterprises, Inc., a Nevada corporation (“Genius”),
whereby Simex issued 200 shares of common stock and 2,614,161 shares of preferred stock for all the issued and outstanding shares
of common and preferred stock of Genius. Genius had no operations prior to the merger. Simex was the surviving corporation resulting
from this merger agreement.
On
May 9, 2018, subsequent to the above mentioned merger agreement, Simex entered into a merger agreement with ARG, whereby ARG issued
19,046,699 shares of common stock for all the issued and outstanding shares of common and preferred stock of Simex. This merger
transaction was accounted for as a reverse acquisition under the purchase method of accounting since Simex obtained control of
ARG. Accordingly, the merger of Simex into ARG was recorded as a recapitalization of Simex, Simex being treated as the continuing
entity. The merger transaction was treated as a recapitalization and not as a business combination. ARG had 22,930,000 shares
outstanding prior to the merger. At the time of the merger, ARG’s principal shareholder surrendered 19,046,099 shares, which
were cancelled. After the merger the total number of ARG shares outstanding was 22,930,000.
The
historical financial statements presented are the financial statements of Simex. The merger agreement was treated as a recapitalization
and not as a business combination; therefore, no pro forma information is disclosed. At the date of this transaction, the net
liabilities of the legal acquirer, ARG, were $83,963.
The
combined entities is referred to hereafter as the “Company.”
The
unaudited financial statements are prepared by the Company, pursuant to the rules and regulations of the Securities Exchange Commission
(“SEC”). The information furnished herein reflects all adjustments, consisting only of normal recurring adjustments,
which in the opinion of management, are necessary to fairly state the Company’s financial position, the results of its operations,
and cash flows for the periods presented. Certain information and footnote disclosures normally present in annual financial statements
prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) were
omitted pursuant to such rules and regulations. The results of operations for the three and six months ended June 30, 2018 are
not necessarily indicative of the results expected for the year ending December 31, 2018.
Basis
of Presentation
The
accompanying consolidated financial statements (“CFS”) were prepared in conformity with U.S. GAAP. The Company’s
functional currency is the United States Dollars (“$” or “USD”) and the Company’s wholly-owned subsidiary,
Multipay’s functional currency is the RUB. The Company and Multipay were entities under common control and had been since
the earliest period presented in these CFS; therefore, the accompanying CFS are presented as if the acquisitions of Multipay had
occurred at the beginning of the period for which these CFS are presented (January 1, 2017). The basis for the assets and liabilities
of Multipay was historical cost.
AMERICAN RETAIL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2018 and 2017
Going
Concern
The
accompanying CFS were prepared in conformity with U.S. GAAP, which contemplates the continuation of the Company as a going concern.
The Company had a stockholders’ deficit of $592,141 at June
30, 2018 and has incurred recurring losses from operations.
These factors raise substantial doubt about the Company’s
ability to continue as a going concern. The continued operations of the Company are dependent upon its ability to raise additional
capital, obtain additional financing and/or acquire or develop a business that generates sufficient positive cash flows from operations.
The
accompanying CFS do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts
and classification of liabilities that might be necessary in the event the Company cannot continue as a going concern.
Foreign
Currency Translation
The
accounts of the Company are maintained in USD and the accounts of Multipay are maintained in RUB. The accounts of Multipay are
translated into USD in accordance with ASC Topic 830
Foreign Currency Transaction
, with the RUB as the functional currency.
According to Topic 830, all assets and liabilities are translated at the exchange rate on the balance sheet date, stockholders’
equity is translated at historical rates and statement of operations items are translated at the weighted average exchange rate
for the period. The resulting translation adjustments are reported under other comprehensive income (loss) in accordance with
ASC Topic 220,
Comprehensive Income
. Gains and losses resulting from the translations of foreign currency transactions
and balances are reflected in the statement of operations and comprehensive income (loss). The following table details the exchange
rates used for the respective periods:
|
|
June 30,
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
Period end: RUB to USD exchange rate
|
|
$
|
0.0159
|
|
|
$
|
0.0169
|
|
|
$
|
0.0173
|
|
Average for 6 month period: RUB to USD exchange rate
|
|
$
|
0.0169
|
|
|
$
|
0.0172
|
|
|
|
|
|
Note
2 – Summary of Significant Accounting Policies
Use
of Estimates
The
preparation of CFS in conformity with U.S. GAAP requires 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 CFS and the reported
amounts of revenues and expenses during the reporting period. The Company regularly evaluates estimates and assumptions. The Company
bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable
under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities
and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the
Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between
the estimates and the actual results, future results of operations will be affected.
Principles
of Consolidation
The
accompanying CFS include the accounts of ARG and its wholly-owned subsidiary, Simex and its wholly-owned subsidiary, Multipay.
All significant intercompany transactions and balances were eliminated in consolidation.
AMERICAN RETAIL GROUP,
INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2018 and 2017
Cash
Equivalents
For
the purpose of the statement of cash flows, cash equivalents include time deposits, certificate of deposits, and all highly liquid
debt instruments with original maturities of three months or less.
Accounts
Receivable
Accounts
receivable are recorded, net of allowance for doubtful accounts and sales returns. Management reviews the composition of accounts
receivable and analyzes historical bad debts, customer concentration, customer credit worthiness, current economic trends and
changes in customer payment patterns to determine if the allowance for doubtful accounts is adequate. An estimate for doubtful
accounts is made when collection of the full amount is no longer probable. Delinquent account balances are written-off after management
has determined that the likelihood of collection is not probable and known bad debts are written off against the allowance for
doubtful accounts when identified. As of June 30, 2018 and December 31, 2017 (audited), the allowance for uncollectible accounts
receivable was $6,909 and $0, respectively.
Equipment
Equipment
is stated at cost. Expenditures for maintenance and repairs are expensed as incurred; additions, renewals and betterments are
capitalized. When equipment is retired or otherwise disposed of, the related cost and accumulated depreciation are removed from
the respective accounts, and any gain or loss is included in operations. Depreciation of equipment is provided using the straight-line
method for substantially all assets with estimated lives as follows:
Computer
equipment
|
5
years
|
Long-Lived
Assets
The
Company applies the provisions of ASC Topic 360,
Property, Plant, and Equipment
, which governs financial accounting and
reporting for the impairment or disposal of long-lived assets. ASC 360 requires impairment losses to be recorded on long-lived
assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated
by those assets are less than the assets’ carrying amounts. In that event, a loss is recognized based on the amount by which
the carrying amount exceeds the fair value of the long-lived assets. Loss on long-lived assets to be disposed of is determined
in a similar manner, except that fair values are reduced for the cost of disposal. Based on its review at June 30, 2018 and December
31, 2017 (audited), the Company believes there were no impairment of its long-lived assets.
Internal
Use Software
The
Company incurs software development costs to develop software programs to be used solely to meet its internal needs and cloud
based applications used to deliver its services. In accordance with ASC 350-40, Internal-Use Software, the Company capitalizes
development costs related to these software applications once the preliminary project stage is complete and it is probable that
the project will be completed, the software will be used to perform the function intended, and the value will be recoverable.
Reengineering costs, minor modifications and enhancements that do not significantly improve the overall functionality of the software
are expensed as incurred. As of June 30, 2018 and December 31, 2017 (audited), the Company has not capitalized any costs.
Trust
Liability
Trust
liability is amounts received from investors that are to be invested at their discretion on Multipay’s platform. These amounts
are collected by the Company and then transferred to the projects on the platform as soon as the project reaches its funding goal.
If the funding goal is not reached, these amounts are returned to the investors, net of commission revenue collected by the Company.
The Company has a fiduciary responsibility over these amounts.
AMERICAN RETAIL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2018 and 2017
Advances
Advances
at June 30, 2018 and December 31, 2017 (audited) were received from a potential investor.
Fair
Value of Financial Instruments
For
certain of the Company’s financial instruments, including cash and equivalents, accounts receivable, accounts payable, trust
liability and advances, the carrying amounts approximate their fair values due to their short maturities.
The
Financial Accounting Standards Board (“FASB”) ASC Topic 820,
Fair Value Measurements and Disclosures
, requires
disclosure of the fair value of financial instruments held by the Company. FASB ASC Topic 825,
Financial Instruments
, defines
fair value, and establishes a three-level valuation hierarchy for disclosures of fair value measurement that enhances disclosure
requirements for fair value measures. The carrying amounts reported in the consolidated balance sheets for receivables and current
liabilities each qualify as financial instruments and are a reasonable estimate of their fair values because of the short period
of time between the origination of such instruments and their expected realization and their current market rate of interest.
The three levels of valuation hierarchy are defined as follows:
|
●
|
Level
1 inputs to the valuation methodology are quoted prices for identical assets or liabilities
in active markets.
|
|
●
|
Level
2 inputs to the valuation methodology include quoted prices for similar assets and liabilities
in active markets, quoted prices for identical or similar assets in inactive markets,
and inputs that are observable for the asset or liability, either directly or indirectly,
for substantially the full term of the financial instrument.
|
|
●
|
Level
3 inputs to the valuation methodology us one or more unobservable inputs which are significant
to the fair value measurement.
|
The
Company analyzes all financial instruments with features of both liabilities and equity under FASB ASC Topic 480,
Distinguishing
Liabilities from Equity
, and FASB ASC Topic 815,
Derivatives and Hedging
.
As
of June 30, 2018 and December 31, 2017 (audited), respectively, the Company did not have any assets and liabilities required to
be presented on the balance sheet at fair value.
Revenue
Recognition
ASU
No. 2014-09
,
Revenue from Contracts with Customers
(“Topic 606”), became effective for the
Company on January 1, 2018. The Company’s revenue recognition disclosure reflects its updated accounting policies that are
affected by this new standard. The Company applied the “modified retrospective” transition method for open contracts
for the implementation of
Topic 606.
As
sales are and have been primarily from platform fees and related
services, and the Company has no significant post-delivery obligations, this did not
result in a material recognition
of revenue on our accompanying CFS for the cumulative impact of applying this new standard. The Company made no adjustments to
its previously-reported total revenues, as those periods continue to be presented in accordance with its historical accounting
practices under
Topic 605, Revenue Recognition
.
AMERICAN RETAIL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2018 and 2017
Revenue
from platform fees and related services are recognized under
Topic 606
in a manner that reasonably reflects the
delivery of its services to customers in return for expected consideration and includes the following elements:
|
●
|
executed
contract(s) with our customers that we believe is legally enforceable;
|
|
●
|
identification
of performance obligation in the respective contract;
|
|
●
|
determination
of the transaction price for each performance obligation in the respective contract;
|
|
●
|
allocation
the transaction price to each performance obligation; and
|
|
●
|
recognization
of revenue only when the Company satisfies each performance obligation.
|
These
five elements, as applied to each of the Company’s revenue category, is summarized below:
|
●
|
Platform
fees and related services – the Company offers
a
digital assets exchange platform for both accredited and non-accredited investors and
recognizes revenue as transactions are executed and services are provided for its customers
|
Transactions
in Cryptocurrencies
The
Company accounts for cryptocurrencies as an indefinite-lived intangible asset. Transactions in cryptocurrencies are measured at
fair value with changes in fair value recognized in the consolidated statement of operations.
Income
Taxes
The
Company accounts for income taxes in accordance with ASC Topic 740,
Income Taxes
. ASC 740 requires a company to use the
asset and liability method of accounting for income taxes, whereby deferred tax assets are recognized for deductible temporary
differences, and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences
between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance
when, in the opinion of management, it is more likely than not that some portion, or all of, the deferred tax assets will not
be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of
enactment.
Under
ASC 740, a tax position is recognized as a benefit only if it is “more likely than not” that the tax position would
be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount
of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more
likely than not” test, no tax benefit is recorded. The Company has no material uncertain tax positions for any of the reporting
periods presented.
Basic
and Diluted Earnings (loss) Per Share
Earnings
per share is calculated in accordance with ASC Topic 260,
Earnings Per Share
. Basic earnings per share (“EPS”)
is based on the weighted average number of common shares outstanding. Diluted EPS is based on the assumption that all dilutive
securities are converted. Dilution is computed by applying the treasury stock method. Under this method, options and warrants
are assumed to be exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby
were used to purchase common stock at the average market price during the period. There were no potentially dilutive securities
outstanding during any of the periods presented in these financial statements.
Foreign
Currency Transactions and Comprehensive Income
U.S.
GAAP generally requires recognized revenue, expenses, gains and losses be included in net income. Certain statements, however,
require entities to report specific changes in assets and liabilities, such as gain or loss on foreign currency translation, as
a separate component of the equity section of the balance sheet. Such items, along with net income, are components of comprehensive
income. The functional currency of the Company’s subsidiary is the RUB. Translation gain (loss) of $2,374 and $(7,977) at
June 30, 2018 and December 31, 2017 (audited), respectively, are classified as an item of other comprehensive income in the stockholders’
deficit section of the balance sheet.
AMERICAN RETAIL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2018 and 2017
Statement
of Cash Flows
Cash
flows from the Company’s operations are calculated based upon the local currencies using the average translation rates.
As a result, amounts related to assets and liabilities reported on the statements of cash flows will not necessarily agree with
changes in the corresponding balances on the balance sheets.
Recent
Accounting Pronouncements
In
January 2017, the FASB issued an Accounting Standards Update (“ASU”) 2017-01,
Business Combinations (Topic 805)
Clarifying the Definition of a Business
. The amendments in this update clarify the definition of a business with the objective
of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions or disposals
of assets or businesses. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill,
and consolidation. The guidance is effective for interim and annual periods beginning after December 15, 2017 and should
be applied prospectively on or after the effective date. The adoption of this ASU did not have an impact on the Company’s
CFS.
In
November 2016, the FASB issued ASU 2016-18,
Statement of Cash Flows (Topic 230): Restricted Cash,
which requires restricted
cash to be presented with cash and cash equivalents on the statement of cash flows and disclosure of how the statement of cash
flows reconciles to the balance sheet if restricted cash is shown separately from cash and cash equivalents on the balance sheet.
ASU 2016-18 is effective for interim and annual periods beginning after December 15, 2017, with early adoption permitted. The
adoption of this ASU did not have an impact on the Company’s CFS.
In
October 2016, the FASB issued ASU 2016-16,
Income Taxes (Topic 740): Intra-Entity Transfer of Assets Other than Inventory
,
which requires the recognition of the income tax consequences of an intra-entity transfer of an asset, other than inventory, when
the transfer occurs. ASU 2016-16 is effective for interim and annual periods beginning after December 15, 2018, with early
adoption permitted. The Company is in the process of evaluating the impact of this ASU on the Company’s CFS.
In
August 2016, the FASB issued ASU 2016-15
, Statement of Cash Flows (Topic 230), Classification of Certain Cash
Receipts and Cash Payments
. ASU 2016-15 provides guidance for targeted changes with respect to how cash receipts and cash
payments are classified in the statements of cash flows, with the objective of reducing diversity in practice. ASU 2016-15 is
effective for interim and annual periods beginning after December 15, 2017, with early adoption permitted. The adoption of
this ASU did not have an impact on the Company’s CFS.
In
February 2016, the FASB issued ASU 2016-02,
Leases (Topic 842)
. ASU 2016-02 requires lessees to recognize lease assets
and lease liabilities on the balance sheet and requires expanded disclosures about leasing arrangements. ASU 2016-02 is effective
for fiscal years beginning after December 15, 2018 and interim periods in fiscal years beginning after December 15, 2018,
with early adoption permitted. The Company is in the process of evaluating the impact of this ASU on the Company’s CFS.
In
May 2014, FASB issued ASU No. 2014-09,
Revenue from Contracts with Customers
. ASU 2014-09 is a comprehensive revenue
recognition standard that will supersede nearly all existing revenue recognition guidance under current U.S. GAAP and replace
it with a principle-based approach for determining revenue recognition. ASU 2014-09 will require that companies recognize
revenue based on the value of transferred goods or services as they occur in the contract. The ASU also will require additional
disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including
significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract.
ASU 2014-09 is effective for interim and annual periods beginning after December 15, 2017. Early adoption is permitted
only in annual reporting periods beginning after December 15, 2016, including interim periods therein. Entities will be
able to transition to the standard either retrospectively or as a cumulative-effect adjustment as of the date of adoption.
The Company adopted this ASU on January 1, 2018 and used the modified retrospective method of adoption. The adoption of this ASU
did not have a material impact on the Company’s CFS.
AMERICAN RETAIL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2018 and 2017
Management
does not believe that any recently issued, but not yet effective, accounting standards could have a material effect on the accompanying
CFS. As new accounting pronouncements are issued, we will adopt those that are applicable under the circumstances.
Note
3 – Equipment
Property
and equipment at June 30, 2018 and December 31, 2017 (audited) consisted of the following:
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Computer equipment
|
|
$
|
1,733
|
|
|
$
|
1,886
|
|
|
|
|
1,733
|
|
|
|
1,886
|
|
Accumulated depreciation
|
|
|
(1,049
|
)
|
|
|
(952
|
)
|
Total
|
|
$
|
684
|
|
|
$
|
934
|
|
Depreciation
for the six months ended June 30, 2018 and 2017 was $186 and $189, respectively.
Note
4 – Stockholders’ Equity
During
the six months ended June 30, 2018 and 2017, an executive of the Company performed services valued at $120,490 and $177,000, respectively,
for no cash compensation. The value was determined based on the fair market value of the services provided. These amounts are
treated as capital contribution in the accompanying consolidated financial statements.
Note
5 – Related Party Transactions
During
the six months ended June 30, 2018, the Company earned commissions of $124,000. The payment of the commission was received in
Bitcoins. The Company does not maintain a coin-based account; therefore, the Bitcoins were deposited into a coin-based account
of a stockholder of the Company. The Bitcoins were sold for cash and remitted to the Company. The value of the commissions earned
was based on the market value of the Bitcoins on the date received.
Amounts
due to a related party are for expenses paid by a stockholder on behalf of the Company. The balance due of $113,658 and $0, respectively,
at June 30, 2018 and December 31, 2017 (audited) is presented as due to related party in the accompanying consolidated balance
sheet. The amount is non-interest bearing and payable upon demand.
Note
6 – Commitments and Contingencies
The
Company is party to certain legal proceedings from time to time incidental to the conduct of its business. These proceedings could
result in fines, penalties, compensatory or treble damages or non-monetary relief. The nature of legal proceedings is such that
the Company cannot assure the outcome of any particular matter, and an unfavorable ruling or development could have a materially
adverse effect on our consolidated financial position, results of operations and cash flows in the period in which a ruling or
settlement occurs. However, based on information available to the Company’s management to date, the Company’s management
does not expect the outcome of any matter pending against the Company is likely to have a material effect on the Company’s
CFS.
Note
7 – Subsequent Events
On
October 23, 2018, the SEC ordered that trading in the Company’s common stock be suspended for the period from 9:30
a.m. EDT on October 22, 2018, through 11:59 p.m. EDT on November 2, 2018. The SEC ordered the suspension due to concerns about
the accuracy of information in the marketplace about, among other things, the Company’s products and services and certain
regulatory approvals, including statements in Company press releases claiming that the Company had partnered with an “SEC
qualified institution” to facilitate cryptocurrency transactions and that it was conducting a token offering that was officially
registered in accordance to SEC requirements.
The
Company further announced that it now understood that although Prime Trust, the entity referenced in its August 16 and August
22, 2018, press releases, stated that it is a “Qualified Custodian,” that statement was not intended to imply that
Prime Trust was registered with or regulated by the SEC as was the Company incorrectly stated in its press releases. The Company
recognizes that the SEC does not endorse or qualify custodians for cryptocurrency or other forms of currency. The Company’s
relationship with Prime Trust has been terminated.
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read
in conjunction with our financial statements and notes thereto included herein. Because we desire to take advantage of, the “safe
harbor” provisions of the Private Securities Litigation Reform Act of 1995, we caution readers regarding certain forward
looking statements in the following discussion and elsewhere in this report and in any other statement made by, or on our behalf,
whether or not in future filings with the Securities and Exchange Commission. Forward-looking statements are statements not based
on historical information and which relate to future operations, strategies, financial results or other developments. Forward-looking
statements are necessarily based upon estimates and assumptions that are inherently subject to significant business, economic and
competitive uncertainties and contingencies, many of which are beyond our control and many of which, with respect to future business
decisions, are subject to change. These uncertainties and contingencies can affect actual results and could cause actual results
to differ materially from those expressed in any forward-looking statements made by, or on our behalf. We disclaim any obligation
to update forward-looking statements.
Overview
On May 14, 2018, we entered into and closed
a merger agreement (the “Merger Agreement”) with Simex, Inc., a Nevada corporation (“Simex”), whereby we
acquired 100% of the outstanding capital stock of Simex (the “Simex Acquisition”). Pursuant to the Merger Agreement
we issued to the holders of all of the outstanding shares of common stock and preferred stock of Simex 19,046,599 shares of our
common stock. In addition, as a condition to the closing of the merger, Vassili Oxenuk returned to us for cancellation as a capital
contribution 19,046,599 shares of our common stock. After giving effect to the Simex Acquisition, we had outstanding 22,930,009
shares of common and 1,648 shares of preferred stock.
As a result of the Simex Acquisition, Simex
became our wholly-owned subsidiary. Simex was incorporated in 2015 and is engaged in the development and initial commercialization
of a multi-functional online international digital asset investment and trading platform. To date, the platform has only been made
available to a limited number of individuals outside of the United States.
For accounting purposes, the acquisition
was accounted for as a reverse acquisition and was treated as a recapitalization of the registrant effected by a share exchange,
with Simex as the accounting acquirer. The historical financial statements of Simex are now the historical financial statements
of the registrant, American Retail Group, Inc.
Results of Operations
Comparison of the Three months ended
June 30, 2018 and 2017
Revenue
Revenue for the three months ended June
30, 2018 was $25,983, an increase of $25,876 from $107 for the three months ended June 30, 2017. The increase in our revenues reflects
the expansion of the business of Simex outside the US. The revenues principally reflect trading commissions earned during the three
months ended June 30, 2018, and fees received in such period for the listing of tokens. If our platform continues to attract new
users, we can expect that our revenues increase as a result of trading commissions, listing fees, and fees received from such other
services we may provide, anticipated to include the issuance of debit cards, currency trading and the exchange of one currency
for another.
Operating Expenses
Operating Expenses were comprised entirely
of general and administrative expenses and were $232,279 for the three months ended June 30, 2018, an increase of $134,452 from
$97,827 during the three months ended June 30, 2018. The increase in operating expenses is principally related to an increase in
legal and professional fees.
Loss from Operations
For the three months ended June 30, 2018
and 2017, we incurred operating losses of $206,296 and $97,720, respectively. The increase in our operating loss reflects the fact
that the increase in our revenue was less than the increase in our operating expenses.
Loss before Income Tax; Net Loss
Our loss before tax was $199,841 for the
three months ended June 30, 2018, compared to a loss before tax of $97,976 for the comparable period in 2017. The increase in our
loss before tax is consistent with the increase in our operating loss.
Comparison of the Six months ended
June 30, 2018 and 2017
Revenue
Revenue for the six months ended June 30,
2018 was $124,718, an increase of $124,477 from $241 for the six months ended June 30, 2017. The increase in our revenues reflects
the expansion of the business of Simex outside the US.
Operating Expenses
Operating Expenses were comprised entirely
of general and administrative expenses and were $524,595 for the six months ended June 30, 2018, an increase of $321,922 from operating
expenses of $202,673 during the comparable period in 2017. The increase in operating expenses is principally related to an increase
in legal and professional fees.
Loss from Operations
For the six months ended June 30, 2018
and 2017, we incurred operating losses of $399,877 and $202,432, respectively. The increase in our operating loss reflects the
fact that the increase in our revenue was less than the increase in our operating expenses.
Loss before Income Tax; Net Loss
Our loss before tax was $406,147 for the
six months ended June 30, 2018, compared to a loss before tax of $202,553 for the comparable period in 2017. The increase in our
loss before tax is consistent with the increase in our operating loss.
Liquidity and Capital Resources
During the six months ended June 30, 2018
and 2017, various executives of the Company performed services valued at $120,490 and $177,000, respectively, for no cash compensation.
We have primarily been funded from advances from prospective investors and the payment of our expenses by a stockholder. As of
June 30, 2018 we had a working capital deficit of $592,825.
The following is a summary of cash provided
by or used in each of the indicated types of activities during the six months ended June 30, 2018 and 2017, respectively.
|
|
June 30,
2018
|
|
|
June 30,
2017
|
|
Net cash used in operating activities
|
|
$
|
(530,027
|
)
|
|
$
|
(6,201
|
)
|
Net cash used in financing activities
|
|
$
|
(54,696
|
)
|
|
$
|
(-0-
|
)
|
Net cash used in operating activities
We used $530,027 of cash in operations
during the six months ended June 30, 2018 as opposed to $6,201 during the comparable 2017 period. The use of cash in 2018 reflects
our operating loss reduced on a net basis due to non-cash expenses of depreciation and services rendered, and net changes in assets
and liabilities, primarily an increase in accounts receivable and the cash held in trust for the benefit of our clients.
Net cash used in financing activities
Net cash used in financing activities was
$54,696 for the six months ended June 30, 2018. The net cash used in financing activities in 2018 was for repayment of advances
of $54,696.
Impact of Inflation
Our results of operations are not likely
to be affected by inflation.
Contractual Obligations
We have no long-term fixed contractual
obligations or commitments.
Off-Balance Sheet Arrangements
We have not entered into any financial
guarantees or other commitments to guarantee the obligations of any third parties. We have not entered into any derivative contracts
that are indexed to our shares and classified as shareholder’s equity or that are not reflected in our combined financial
statements. Furthermore, we do not have any retained or contingent interest in assets transferred to an uncombined entity that
serves as credit, liquidity or market risk support to such entity. We do not have any variable interest in any uncombined entity
that provides financing, liquidity, market risk or credit support to us or engages in leasing, hedging or research and development
services with us.
Significant
Accounting Policies
While our significant
accounting policies are more fully described in Note 2 to our financial statements, we believe the following accounting policies
are the most critical to aid you in fully understanding and evaluating this management discussion and analysis.
Basis of Presentation
The accompanying financial statements are
prepared in conformity with U.S. Generally Accepted Accounting Principles (“US GAAP”). The functional currency of Simex
is the Russian Ruble (RUB). The accompanying financial statements are translated from RUB and presented in U.S. dollars (“USD”).
Use of Estimates
In preparing financial statements in conformity
with US GAAP, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures
of contingent assets and liabilities at the dates of the financial statements, as well as the reported amounts of revenues and
expenses during the reporting period.
Significant estimates, required by management,
include the recoverability of long-lived assets, allowance for doubtful accounts, and the reserve for obsolete and slow-moving
inventories. Actual results could differ from those estimates.
Accounts Receivable
The Company’s policy is to maintain
an allowance for potential credit losses on accounts receivable. Management reviews the composition of accounts receivable and
analyzes historical bad debts, customer concentrations, customer credit worthiness, current economic trends and changes in customer
payment patterns to evaluate the adequacy of these reserves.
Revenue Recognition
ASU No. 2014-09
,
Revenue
from Contracts with Customers
(“Topic 606”), became effective for the Company on January 1, 2018. The Company’s
revenue recognition disclosure reflects its updated accounting policies that are affected by this new standard. The Company applied
the “modified retrospective” transition method for open contracts for the implementation of
Topic 606.
As
sales
are and have been primarily from platform fees and related services, and the Company has no significant post-delivery obligations,
this did not
result in a material recognition of revenue on our accompanying consolidated financial statements (“CFS”)
for the cumulative impact of applying this new standard. The Company made no adjustments to its previously-reported total revenues,
as those periods continue to be presented in accordance with its historical accounting practices under
Topic 605, Revenue
Recognition
.
Revenue from platform fees and related
services are recognized under
Topic 606
in a manner that reasonably reflects the delivery of its services to customers
in return for expected consideration and includes the following elements:
|
·
|
executed contract(s) with our customers
that we believe is legally enforceable;
|
|
·
|
identification of performance obligation
in the respective contract;
|
|
·
|
determination of the transaction price for each performance obligation
in the respective contract;
|
|
·
|
allocation the transaction price to each performance obligation; and
|
|
·
|
recognization of revenue only when the Company satisfies each performance
obligation.
|
These five elements, as applied to each of the Company’s
revenue category, is summarized below:
|
·
|
Platform fees and related services –
the Company offers
a digital assets exchange platform for both accredited and non-accredited
investors and recognizes revenue as transactions are executed and services are provided for its customers
|
Foreign Currency Translation and Comprehensive
Income (Loss)
The functional currency of Simex is RUB.
For financial reporting purposes, RUB is translated into USD as the reporting currency. Assets and liabilities are translated at
the exchange rate in effect at the balance sheet dates. Revenues and expenses are translated at the average rate of exchange prevailing
during the reporting period.
Translation adjustments arising from the
use of different exchange rates from period to period are included as a component of stockholders’ equity as “Accumulated
other comprehensive income”. Gains and losses resulting from foreign currency transactions are included in income. There
was no significant fluctuation in the exchange rate for the conversion of RMB to USD after the balance sheet date.
The Company uses FASB ASC Topic 220, “Comprehensive
Income”. Comprehensive income (loss) is comprised of net income (loss) and all changes to the statements of stockholders’
equity, except those due to investments by stockholders, changes in paid-in capital and distributions to stockholders. Comprehensive
loss for the six months ended June 30, 2018 and 2017 consisted of net loss and foreign currency translation adjustments.
Transactions in Cryptocurrencies
The Company accounts for cryptocurrencies
as an indefinite-lived intangible asset. Transactions in cryptocurrencies are measured at fair value with changes in fair value
recognized in the consolidated statement of operations.
New Accounting Pronouncements
In January 2017, the FASB issued an Accounting
Standards Update (“ASU”) 2017-01,
Business Combinations (Topic 805) Clarifying the Definition of a Business
.
The amendments in this update clarify the definition of a business with the objective of adding guidance to assist entities with
evaluating whether transactions should be accounted for as acquisitions or disposals of assets or businesses. The definition of
a business affects many areas of accounting including acquisitions, disposals, goodwill, and consolidation. The guidance is effective
for interim and annual periods beginning after December 15, 2017 and should be applied prospectively on or after the effective
date. The adoption of this ASU did not have an impact on our CFS.
In November 2016, the FASB issued ASU 2016-18,
Statement of Cash Flows (Topic 230): Restricted Cash,
which requires restricted cash to be presented with cash and cash
equivalents on the statement of cash flows and disclosure of how the statement of cash flows reconciles to the balance sheet if
restricted cash is shown separately from cash and cash equivalents on the balance sheet. ASU 2016-18 is effective for interim and
annual periods beginning after December 15, 2017, with early adoption permitted. The adoption of this ASU did not have an impact
on our CFS.
In October 2016, the FASB issued ASU 2016-16,
Income Taxes (Topic 740): Intra-Entity Transfer of Assets Other than Inventory
, which requires the recognition of the
income tax consequences of an intra-entity transfer of an asset, other than inventory, when the transfer occurs. ASU 2016-16 is
effective for interim and annual periods beginning after December 15, 2018, with early adoption permitted. The Company is
in the process of evaluating the impact of this ASU on our CFS.
In August 2016, the FASB issued ASU 2016-15
, Statement
of Cash Flows (Topic 230), Classification of Certain Cash Receipts and Cash Payments
. ASU 2016-15 provides guidance for
targeted changes with respect to how cash receipts and cash payments are classified in the statements of cash flows, with the objective
of reducing diversity in practice. ASU 2016-15 is effective for interim and annual periods beginning after December 15, 2017,
with early adoption permitted. The adoption of this ASU did not have an impact on our CFS.
In February 2016, the FASB issued ASU 2016-02,
Leases (Topic 842)
. ASU 2016-02 requires lessees to recognize lease assets and lease liabilities on the balance sheet
and requires expanded disclosures about leasing arrangements. ASU 2016-02 is effective for fiscal years beginning after December
15, 2018 and interim periods in fiscal years beginning after December 15, 2018, with early adoption permitted. The Company
is in the process of evaluating the impact of this ASU on our CFS.
In May 2014, FASB issued ASU No. 2014-09,
Revenue from Contracts with Customers
. ASU 2014-09 is a comprehensive revenue recognition standard that will supersede
nearly all existing revenue recognition guidance under current U.S. GAAP and replace it with a principle-based approach for determining
revenue recognition. ASU 2014-09 will require that companies recognize revenue based on the value of transferred goods or
services as they occur in the contract. The ASU also will require additional disclosure about the nature, amount, timing
and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments
and assets recognized from costs incurred to obtain or fulfill a contract. ASU 2014-09 is effective for interim and annual
periods beginning after December 15, 2017. Early adoption is permitted only in annual reporting periods beginning after
December 15, 2016, including interim periods therein. Entities will be able to transition to the standard either retrospectively
or as a cumulative-effect adjustment as of the date of adoption. The Company adopted this ASU beginning on January 1, 2018
and used the modified retrospective method of adoption. The adoption of this ASU did not have a material impact on the Company’s
CFS.
Management does not believe that any recently
issued, but not yet effective, accounting standards could have a material effect on the accompanying consolidated financial statements.
As new accounting pronouncements are issued, we will adopt those that are applicable under the circumstances.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK.
We are a smaller reporting company and
are not required to provide the information under this item pursuant to Regulation S-K.
ITEM 4. CONTROLS AND PROCEDURES.
Disclosure Controls and Procedures
–
Our management, with the participation of our Chief Executive Officer (“CEO”)
and Chief Financial Officer (“CFO”) , evaluated the effectiveness of our disclosure controls and procedures (as such
term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”))
as of the end of the period covered by this Report.
These controls are designed to ensure that
information required to be disclosed in the reports we file or submit pursuant to the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission,
and that such information is accumulated and communicated to our management, including our CEO and CFO to allow timely decisions
regarding required disclosure.
Based on this evaluation, our CEO and CFO
have concluded that our disclosure controls and procedures were not effective as of June 30, 2018, at the reasonable assurance
level. Our management concluded our disclosure controls and procedures were not effective due to the limited number of personnel
we have in our organization, which does not allow sufficient segregation of various accounting duties, and the lack of familiarity
of such personnel with US GAAP. We believe our financial statements presented in this quarterly report on Form 10-Q fairly present,
in all material respects, our financial position, results of operations, and cash flows for all periods presented herein.
Inherent Limitations
– Our management, including our CEO and CFO, do not expect that our disclosure controls and procedures will
prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable,
not absolute, assurance that the objectives of the control system are met. The design of any system of controls is based
in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed
in achieving its stated goals under all potential future conditions. Further, the design of a control system must reflect
the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because
of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues
and instances of fraud, if any, within our company have been detected. These inherent limitations include the realities
that judgments in decision-making can be faulty, and that breakdown can occur because of simple error or mistake. In particular,
many of our current processes rely upon manual reviews and processes to ensure that neither human error nor system weakness has
resulted in erroneous reporting of financial data.
Changes in Internal Control over
Financial Reporting
– There were no changes in our internal control over financial reporting during
our three month period ended June 30, 2018, which were identified in conjunction with management’s evaluation required by
paragraph (d) of Rules 13a-15 and 15d-15 under the Exchange Act, that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On October 19, 2018, the Securities and
Exchange Commission (“SEC”) issued an Order (the “Order”) pursuant to Section 12(k) of the Securities
Exchange Act of 1934 (the “Exchange Act”), temporarily suspending trading in our common stock during a period commencing
9:30 a.m. EDT on October 22, 2018 and terminating at 11:59 p.m. EDT on November 2, 2018.
The SEC took this action due to concerns
about the accuracy and adequacy of information in the marketplace about, among other things, our products and services and certain
regulatory approvals, as stated in press releases we issued on August 16, 2018 and August 22, 2018. In particular, the Order notes
that in press releases issued August 16 and August 18, 2018, we claimed that we had partnered with an “SEC qualified custodian”
for use with cryptocurrency transactions that would be “under SEC Regulations,” We now understand that although Prime
Trust, the entity referenced in the press releases, claims that it is a “Qualified Custodian,” that statement is not
intended to imply that Prime Trust was registered with or regulated by the SEC as we incorrectly stated in our press releases.
The Company recognizes that the SEC does not endorse or qualify custodians for cryptocurrency or other forms of currency. The
Company’s relationship with Prime Trust has been terminated.
Further, the Order notes that in the
August 22, 2018, release we stated that we were beginning a public offering of convertible preferred shares and that the offering
would be registered in accordance with the requirements of the SEC. We, in fact, have not registered with the SEC or any state
regulatory authority a public offering of any of our securities or a cryptocurrency.
In the Order the SEC noted that brokers
and dealers should be alert to the fact that, pursuant to Rule 15c2-11 under the Exchange Act, at the termination of the trading
suspension, no quotation for our common stock may be entered unless and until the broker or dealer has strictly complied with all
of the provisions of the rule. The Order continued stating that if any broker or dealer enters any quotation which is in violation
of the rule, the SEC will consider the need for prompt enforcement action.