NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 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, Simex acquired
Multipay, LLC,
(“Multipay”), a limited liability company, incorporated under the laws of the Russian Federation, for
10,000
Russian Rubles (“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 the merger, the net liabilities
of the legal acquirer, ARG, were $83,963.
The
combined entities is referred to hereafter as the “Company.”
The
unaudited financial statements are prepared by the Company, pursuant to the rules and regulations of the Securities Exchange Commission
(“SEC”). The information furnished herein reflects all adjustments, consisting only of normal recurring adjustments,
which in the opinion of management, are necessary to fairly state the Company’s financial position, the results of its operations,
and cash flows for the periods presented. Certain information and footnote disclosures normally present in annual financial statements
prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) were
omitted pursuant to such rules and regulations. The results of operations for the three and nine months ended September 30, 2018
are not necessarily indicative of the results expected for the year ending December 31, 2018.
Basis
of Presentation
The
accompanying consolidated financial statements (“CFS”) were prepared in conformity with U.S. GAAP. The Company’s
functional currency is the United States Dollars (“$” or “USD”) and the Company’s wholly-owned subsidiary,
Multipay’s functional currency is the RUB. Simex 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
September 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 $420,342 at September 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:
|
|
September 30,
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
Period end: RUB to USD exchange rate
|
|
$
|
0.0152
|
|
|
$
|
0.0174
|
|
|
$
|
0.0173
|
|
Average period for 9 month period: RUB to USD exchange rate
|
|
$
|
0.0163
|
|
|
$
|
0.0171
|
|
|
|
|
|
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
September 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 September 30, 2018 and December 31, 2017 (audited), the allowance for uncollectible accounts
receivable was $6,605 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 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 September 30, 2018 and December 31, 2017 (audited),
the Company believes there was 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 September 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
September 30, 2018 and 2017
Advances
Advances
at September 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 (“FV”) 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 FV 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 FVs 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 use one or more unobservable inputs which are significant
to the FV 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 September 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 FV.
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
September 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 services to customers in return for expected consideration and includes the following elements:
|
●
|
executed
contract(s) with our customer(s) 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
of the transaction price to each performance obligation; and
|
|
|
|
|
●
|
recognition
of revenue only when the Company satisfies each performance obligation.
|
These
five elements, as applied to the Company’s only revenue category, are 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
FV with changes in FV 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 $6,901 and $(7,977) at
September 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
September 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
September 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 September 30, 2018 and December 31, 2017 (audited) consisted of the following:
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Computer equipment
|
|
$
|
1,657
|
|
|
$
|
1,886
|
|
|
|
|
1,657
|
|
|
|
1,886
|
|
Accumulated depreciation
|
|
|
(1,087
|
)
|
|
|
(952
|
)
|
Total
|
|
$
|
570
|
|
|
$
|
934
|
|
Depreciation
for the nine months ended September 30, 2018 and 2017 was $269 and $282, respectively.
Note
4 – Stockholders’ Equity
During
the nine months ended September 30, 2018 and 2017, an executive of the Company performed services valued at $191,410 and $265,500,
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 CFS.
Also
during the nine months ended September 30, 2018, a stockholder of the Company made a capital contribution of $15,000.
Note
5- Related Party Transactions
During
the nine months ended September 30, 2018, the Company earned commissions of $385,000. The payment of the commission was received
in Bitcoins. The Company does not maintain a Coinbase account; therefore, the Bitcoins were deposited into a Coinbase account
of a stockholder of the Company. The Bitcoins were sold for cash and remitted to the Company. As of September 30, 2018, $347,005
had been remitted to the Company and the remaining balance of $37,995 is recorded as an account receivable, related party. 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 $74,794 and $0, respectively,
at September 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.
AMERICAN RETAIL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2018 and 2017
On
October 23, 2018, the SEC” ordered that trading in the Company’s common stock be suspended 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 has
terminated its relationship with Prime Trust.